Bad History, Worse Policy: How a False Narrative about the Financial Crisis Led to the Dodd-Frank Act (February 2013) by Peter J. Wallison (American Enterprise Institute, 2013) In this 580-page compilation of previously-published essays, Wallison shows that each important provision of the Dodd-Frank Act can be traced to a false narrative that attributed the financial crisis entirely to the private sector, and not at all to governmental policies. The author methodically shows why the narrative was false and why the Dodd-Frank is fatally flawed. See review.
Who Really Drove the Economy into the Ditch? (October 2012) Joe Fried’s new book is out, and it is already creating a stir. The book, which is called Who Really Drove the Economy into the Ditch?, was just published by Algora Publishing, and is available from the publisher or from Amazon or Barnes and Noble.
In a conversational tone, the book provides an overview of the financial crisis of 2007/08, and the factors leading up to it. It covers many important topics that have been almost completely ignored in other analyses. These factors include Fannie Mae’s and Freddie Mac’s automated underwriting and valuation systems, and the detrimental impact of those systems on lending standards. It analyzes the degrading of loan standards caused by state and local downpayment “gifting” and “silent second” programs. It also reveals new cheating by Fannie and Freddie with respect to their delinquency stats.
There are several books written about the financial crisis, and most of them focus on the transgressions of Wall Street starting around 2004. But, the crisis started about 10 years earlier when HUD produced its “Strategy” – a detailed, written plan to turn 8 million tenants into home owners. To implement the plan, HUD and its wards, Fannie Mae and Freddie Mac, deliberately decimated loan underwriting standards. Traditional underwriting was replaced with easy “automated underwriting,” and traditional house inspections (real ones, with people looking at the houses) were replaced with Zillow-like computer appraisals, performed by people who would never see the properties being appraised. Strategy “partners” included hundreds of irresponsible housing advocate organizations (such as ACORN and NACA) and state and local governments (primarily California and dozens of its localities). These partners pushed “silent second” loans that were intended to be invisible to the banks issuing the primary loans. There were also hundreds of “gifting” programs, designed to undermine the down payment requirements.
This comprehensive book also examines the rating agencies, securitization, bank capital reserve standards, Federal Reserve monetary policy, new cheating by Fannie and Freddie, mark-to-market accounting, credit default swaps, naked short selling, and the class warfare politics that has emerged since the crisis began.
The Housing Boom and Bust by Thomas Sowell (Basic Books, 2009) Sowell does a good job of pointing out that “government agencies not only approved the more lax standards for mortgage loan applicants, government officials were in fact the driving force behind the loosening of mortgage loan requirements.” (pg. 30). He notes that the private sector shares much blame for the crisis, but adds that their contributions were “downstream” from the destruction of lending standards initiated by the government.
Edited by Melissa Favreault, Frank Sammartino, C. Eugene Steuerle (Urban Institute Press, 2002) “This excellent book fills a major gap in the Social Security reform debate. It addresses issues – working women, child-rearing, new family patterns – that are fundamental to setting the system right. It underscores that achieving financial balance is only a part of the problem. Its incisive analysis and balanced recommendations as to how to achieve greater fairness and improve the efficiency of the system need to be urgently considered. A must read for everyone who wants to better understand Social Security policy.” –Stanford G. Ross, Chairman, Social Security Advisory Board, formerly, Commissioner of Social Security
[Joseph N. Fried is the Director of the Public Program Testing Organization and the author of Democrats and Republicans – Rhetoric and Reality (Algora Publishing, 2008).]
A strange Social Security scandal is taking place in Texas, and it has already cost the trust fund one-half billion dollars. The scam involves Texas teachers who become janitors for just one day – the last day of their careers. By so doing, they bilk the Social Security trust fund out of about $100,000 – each. Thousands of teachers have recently used this loophole, and they are continuing to do so. And, the Social Security Administration says it is perfectly legal.
Recently published, the book has already won acclaim.
“Buy the book,” states David Hogberg in the American Spectator. It’s “chock full of examples that both anger and entertain.”
Distinguished economist Dr. Walter E. Williams states:
“Joseph Fried has put together an excellent examination of our government Social Security program and why it must be changed…Plus, the book is a fun read.”
Praise also comes from Jameson Campaigne, Jr., Secretary of the American Conservative Union:
“Mr. Fried has done three things here: written a cracking good story, revealed everything important about the retirement system for most Americans, and offered solutions to the looming disaster that are worth your consideration.”
Each area of waste is defined and quantified, and expressed as dollars that will be wasted in each of the next 75 years. Methodology is presented.
The Social Security Fraud by Abraham Ellis (Foundation for Economic Education, 1996, 1971) First written in 1971, this is a book that has stood the test of time. After giving a brief historical overview of the program, Mr. Ellis thoroughly outlines the semantics that have been used to deceive the public with regard to Social Security. Words such as “trust fund” and “insurance” have been repeatedly used to give the program an aura of fairness and financial soundness. However, the author asks, “Can you imagine the XYZ Insurance Company being allowed to ‘invest’ its reserves by spending them all for executive salaries and entertainment expenses, and then substituting its own IOU as a ‘reserve’ out of which it will hope to pay annuities or benefits to its policy-holders?”
Other subjects explored include inter- and intra-generational wealth transfers in Social Security, the politics of Social Security, and the its pending insolvency. In the Afterword, written in 1996, the author advocates privatization reforms, patterned after Chile’s social security system.
by Sylvester J. Schieber and John B. Shoven (Yale University Press, 1999) In addition to an extensive review of the history of Social Security in America, this book includes the authors’ proposal of a plan to bring the system into long term financial solvency. The proposal calls for a 2.5% tax increase, and benefits paid in two tiers. Tier one would pay a $500 per month benefit to anyone who has worked for at least 35 years. For shorter careers there would be a pro-rated benefit. Earnings level would be immaterial for tier one benefits. Tier two would be a defined contribution plan, financed with 5% of the total payroll taxes. Half would come from the employee and half from the employer. The employee would have some discretion regarding how the funds would be invested, within limits. Upon retirement, all of the tier one benefits, and half of the tier two benefits would have to be annuitized in a manner similar to the current Social Security program. However, the retiree would have discretion concerning the form of payout for the other half of the tier two benefits.
We see some desirable and undesirable elements in this proposal. On the good side of the equation, there would be better benefits for young workers, long-term solvency, the inclusion of 5 million state and local workers into the system (to correct the present inequitable exclusion of these workers), and the elimination of the earnings test for people who collect Social Security benefits while working.
On the negative side, there would be a 2.5% payroll tax increase, a gradual increase in the retirement age beyond age 67, and a raising of the minimum retirement age from age 62 to age 65. In addition, the tier one benefits proposal would be subject to manipulation because people would make sure they acquired the 35 years of work credits – one way or another. Also, we question the wisdom of increasing the survivors benefit. (The authors propose an increase from 2/3 to 3/4 of the deceased retiree’s benefit.) Presently, most survivors benefit goes to high-earner retirees. We would advise that any increase in this benefit be accompanied by “means testing.”