November, 2014, Part 6, Political Class Insanity: Revisiting The Great Recession, State Funded Booze In Virginia, And Gunless In D.C.

It is the start of another month which means it is time again to review the latest political class insanity that has been dumped on us by the worst set of politicians to ever hold office in the history of this country. From wasteful spending to bad priorities to general ineffectiveness, the insanity rolling out of Washington and other political centers and governments around the country seems to be accelerating as the idiocy of our political times increases.

Last month we set a record by needing almost two full weeks of posts to get all of the insanity documented and discussed. Given what I see today, we will be hard pressed not to get close to or exceed that record of insanity this month. It keeps getting worse and worse and the effectiveness of the political class gets less and less.

This is our sixth post in this month’s series so the insanity continues to flow out of the political class and into our lives, our wallets, and our freedoms. New insanity continues today:

1) Probably the most frequently quoted person in this blog is Albert Einstein and the most frequent Einstein quote is: The definition of insanity is doing the same thing over and over and expecting different results. And that is how we start off today’s insanity.

According to a recent Washington Times article by Stephen Moore, the Federal government has decided to get back into the subprime mortgage lending arena, supporting the housing market by backing mortgages taken out by those consumers that might not be able to afford them. That’s right, it worked so well the first time, resulting in the Great Recession, millions of home foreclosures, hundreds of billions of dollars of taxpayer funded bailouts, and other chaos, that the Feds want to do the same idiocy again.

Details from the article include the following:

• The Obama administration announced it wants to provide more support to a weak housing market by bending the home lending rules to make it easier for banks to make loans and marginal buyers to take on a mortgage.
• Ÿ For example, the Federal Housing Finance Agency will lower down payment requirements from an already too low 5% to a insanely low 3% on many loans that are eligible for Federal mortgage insurance assistance and backing, one of the main contributors to the housing meltdown that led to the Great Recession.
• How stupid is this new policy? Consider a study done by researchers at the University of Texas in Dallas which looked at some 30 million mortgages issued before the housing bubble burst in 208. They found that “[t]he evidence strongly suggests that the single most important factor is whether the homeowner has negative equity in a house” — i.e., whether they paid a high or low down payment. This study found the down payment was a much stronger prediction of whether a loan would end up in default than the credit score of  the borrower.
• Since many homeowners had no equity tied up in their homes because of the low, low down payment requirements, they simply walked away from the homes since they had nothing to lose and let the homes fall into foreclosure, saddling taxpayers with the default bills via Fannie Mae and Freddie Mac.
• Before the recession, many people could get a home mortgage, backed by the American taxpayer, with little or nothing for a down payment, the exact behavior the Federal Housing Finance Agency is now pursuing.
• The Federal Housing Finance Agency is even considering suspending some of the rules that had required higher fees on riskier loans. 

Did the Washington political class learn nothing from the causes of the Great Recession? Oh, I forgot. Remember a couple of days ago we went through a Politico list of the biggest political campaign donors over the past three months? Remember who was the second heaviest contributor to political campaigns? It was none other than the National Association of Realtors, the group of people who are most likely to enrich themselves with looser mortgage rules. 

Thus, maybe politicians did learn the lessons from the Great Recession, they just don’t care since the political money from realtors across the country is too good to pass up. Anyway, why should they care, it is the taxpayer that will pay to clean up the newest mess that these new looser mortgage rules eventually cause. The definition of insanity….

2) A recent article from The Week magazine pointed out that alcohol abuse kills about 88,000 Americans every year. Thus, one would not think it would be a good idea for government at any level to subsidize alcohol addiction, given the damage it does to health, families, and health care costs.

One could think that but one would be wrong, at least in the state of Virginia. According to a recent Heritage Foundation article:

• The city government of Richmond is probably going to put up $31 million of taxpayer money, combined with $4 million from the state government, to build a brewery on the James River.
• The plan is for the city to build the brewery, i.e. take on all of the up front risks and then lease it back to the Stone Brewing Company who will operate it.
•  Stone Brewing is promising to hire 288 local workers to work at the brewery once it is built. 
• But simple math shows that the city and state will be paying out $36 million to generate 288 jobs, assuming they all materialize, at a cost of a whopping $125,000 a job. How long will it take for the city and state to break even when they forked out so much money upfront, to a company that is not even based in the state. Stone is based in California.

Lets try and estimate that payback rate:

• The weighted average state income tax rate in Virginia is probably about 5%.
•  Let’s assume on average each of those 288 workers makes $50,000 a year.
• Thus, each year each brewery worker will pay about $2,500 in state income taxes.
• If we divide this estimated annual state income tax ($2,500) into the cost per employee at the brewery ($125,000) we see that the payback period is 50 years to break even.

The payback period is probably longer since some of those 288 workers were probably already paying income taxes from another job, not all 288 brewery workers are likely coming from Virginia’s unemployment ranks and that $50,000 salary estimate might be too high, also resulting in a longer payback period.

Insanity to spend $35 million of taxpayer money on a brewery of all things that likely has a payback period of over 50 years to break even when so many Americans die every year from alcohol abuse.

3) The insanity is crazy not only at the Federal level and the state level but also at the local political level. Consider this harebrained scheme from politicians in Washington D.C.:

• District of Columbia Councilman David Grosso recently told an audience that, “I think we ought to get rid of guns in the city and that police shouldn’t have guns.”
• Fellow Councilman Jimmy Wells spoke up to defend such the notion, noting there are entire countries where police don’t carry deadly weapons.
• Grosso went on to defend his position with the following rationale: “I think we have to reimagine the way that we relate to one another, across the board, and that includes [the D.C. police department],” as quoted in the Washington Post. “When you have a gun it changes the dynamic completely. If we had a police force that could be trained to de-escalate situations without a gun like in other countries, I think we’d be in a better place. … Call me a radical, but I’m trying to change things in our city.”

I would not call him a radical, I would call him so out of touch with reality that he cannot even recognize reality if it hit him over the head. Does he really think that local thugs, drug dealers, etc. are going to give up their evil ways, and weapons, because a police officer has been trained to verbally defuse situations? In Chicago the police kept their guns, it was only the law abiding civilians who lost their guns, and Chicago became one of the most violent cities in the country. 

How much more violent would Chicago have become , and D.C. would become, if even the police were disarmed? Crazy talk from an out of touch political class. 

That will close out the insanity for today. Local politicians who believe that criminals can be verbally talked out of their criminal ways, state politicians that find it okay to build a money losing brewery for a company that is about 3,000 miles away, and Federal politicians who want to recreate the conditions for a Great Recession II. And we are still not done with the latest insanity from all politicians at all levels of government.

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