Constitution
Elizabeth Warren, forthright looter
Elizabeth Warren is an example of the new normal in Democratic Party politics: forthright and honest about wanting to loot the rich. This does not make her platform any more valid. Nor will voters be more likely to accept it. But, unlike her would-be colleagues in the Senate, she makes no bones about it.
Who is Elizabeth Warren?
Elizabeth Warren is a Leo Gottlieb professor of law at Harvard Law School. Her page at Harvard Law lists a sample of her work—eight papers saying, in effect, that ordinary citizens can’t make it in America because “the rich” won’t let them. She doesn’t always get her facts straight. This paper in Democracy Journal is a prize example:
It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street–and the mortgage won’t even carry a disclosure of that fact to the homeowner. Similarly, it’s impossible to change the price on a toaster once it has been purchased. But long after the papers have been signed, it is possible to triple the price of the credit used to finance the purchase of that appliance, even if the customer meets all the credit terms, in full and on time. Why are consumers safe when they purchase tangible consumer products with cash, but when they sign up for routine financial products like mortgages and credit cards they are left at the mercy of their creditors?
She goes on to blame lack of regulation in the home-mortgage market. She wrote the above in the summer of 2007. But she should have written to one of her State’s congressmen, Representative Barney Frank (D-MA), to complain. He, after all, co-sponsored the Community Reinvestment Act that made those distortions in the market possible. He also forbade anyone to look into the doings of “Fannie Mae” and “Freddie Mac,” the two government-sponsored mortgage buyers. Result: risky lending and easy money.
So extreme was she that even her friend John Kerry couldn’t muster enough votes, in a Democrat-controlled Senate, to confirm her as head of the Consumer Financial Protection Bureau. Undaunted, she now will try to enter the Senate itself. She will run for “The Kennedy Seat,” after Scott Brown wrested it away from the Democrats in January of 2010. (Senator Edward M. Kennedy, D-Mass., died in 2009.)
What does Elizabeth Warren say?
One week ago, Elizabeth Warren made a campaign stop. A friendly videographer shot the video that appears below. Here is a relevant excerpt, on the subject of class warfare:
I hear all this, you know, “Well, this is class warfare, this is whatever”—No! There is nobody in this country who got rich on his own. Nobody. You built a factory out there—good for you! But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea—God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.
A critical analysis
Sir Henry Bessemer’s original converter, last of its kind. Photo credit: Duncan Harris, CC BY 2.0 Generic License.
First, as Daniel Indiviglio at The Atlantic reminds her, that factory builder did pay more than his share toward the things she mentioned. That includes the road, the police officers and firefighters, and the school. Those, by the way, are State and local projects, and State and local taxes support them. None of this is or should be at all relevant to the job of United States Senator.
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Indiviglio also points out that everyone can still use the road, and send his kids to the school. (Though why he would want to send his kids to a government school is another question.) Everyone may rest secure in his person from those marauding bands that Elizabeth Warren mentioned.
Now to something that Indiviglio did not mention: Elizabeth Warren seems to imply that the workers in the factory could make its products without the factory. All that the factory builder provides is a paycheck. But Ayn Rand showed that any factory builder provides much more:
If you worked as a [medieval] blacksmith, [your] whole…earning capacity would consist of an iron bar produced by your hands in days and days of effort. How many tons of rail do you produce per day if you work [in a steel mill]? Would you dare claim that the size of your paycheck [depends] solely [on] your physical labor, and that those rails were the product of your muscles? The standard of living of that blacksmith is all that your muscles are worth; the rest is a gift from [the steel mill builder-owner].
And Sir Henry Bessemer, and James Watt, and Thomas Edison, and every other inventor who designed the parts of that factory. The nature of that gift is an idea—even a “great idea.” That is why those rich factory builders deserve to be rich—unless they are embezzling vast sums from the public treasury with business plans that they know will fail.
Elizabeth Warren admitted one thing that she probably did not mean to. Why mention “marauding bands”? Are they, then, her natural constituency? Does she seek to obtain by a vote what the pirates of the Spanish Main once obtained with their guns? Does she really want to say that anyone is safe from marauding bands, so long as he has nothing worth stealing?
Ironically, Elizabeth Warren has just allied herself with the very “anarchist libertarians” that Daniel Indiviglio finds fault with. He mentions those who do not want a universal tax to pay for police or fire protection. And indeed, some commentators have said that permanent police forces are dangerous to human liberty and even unconstitutional. They imply that a holder of property, having the most to protect from theft or pillage, ought to guard his own goods with his own security forces. They say further that no one else has any reason to support the permanent standing army that, they say, a police force is.
How does this differ from what Elizabeth Warren says? What she says is worse. At least that rational anarchist would let ordinary residents arm themselves, and come together to resist the marauders. (The Dalton Gang in the American West died when they rode into a town, and the townsfolk stood on their upper-floor balconies and laid an ambush as withering as any in a canyon or defile.) But Elizabeth Warren belongs to a party that would take the guns away from the people. And by saying that the factory builder owes his success to the police, she now threatens to withdraw that protection unless he pays up exactly as she demands.
Law-enforcement officers have a phrase for what Elizabeth Warren describes: protection racket. Again, quoting Rand:
The removal of a threat is not a payment. The negation of a negative is not a reward. The withdrawal of [marauding bands] is not an incentive. The offer not to murder [a man] is not a value.
Featured image: this statue of Atlas became the cover illustration for the 50th anniversary edition of Atlas Shrugged. Photo: Lee Gillen, CC BY-SA 2.0 Generic License.
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Terry A. Hurlbut has been a student of politics, philosophy, and science for more than 35 years. He is a graduate of Yale College and has served as a physician-level laboratory administrator in a 250-bed community hospital. He also is a serious student of the Bible, is conversant in its two primary original languages, and has followed the creation-science movement closely since 1993.
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You say ” She doesn’t always get her facts straight. This paper in Democracy Journal is a prize example.”
Then you quote this:
“It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street–and the mortgage won’t even carry a disclosure of that fact to the homeowner. Similarly, it’s impossible to change the price on a toaster once it has been purchased. But long after the papers have been signed, it is possible to triple the price of the credit used to finance the purchase of that appliance, even if the customer meets all the credit terms, in full and on time. Why are consumers safe when they purchase tangible consumer products with cash, but when they sign up for routine financial products like mortgages and credit cards they are left at the mercy of their creditors?”
Did she get her facts wrong? If so, please explain how what she said above, in 2007, was false.
I already did explain. She forgot one thing: the Community Reinvestment Act. Those bankers handed out easy money because Congress ordered them to.
You are completely wrong about the Community Reinvestment Act.
link to en.wikipedia.org
The loans originating from the Community Reinvestment Act were incredibly safe, stable, and even profitable principally because of the regulations set forth in the CRA legislation. The VAST majority of subprime loans that were unstable and lead to foreclosures were from banks, mortgage, lenders, and mortgage brokers NOT being regulated by the CRA.
Basically, those unregulated loans were coming from institutions who saw how profitable and stable the CRA loans were and wanted in on them but without any of the actual rules and details that made CRA loans such good investments.
The unregulated loans were also the loans most likely to be repackaged as credit default swaps by investment banks, including Goldman Sachs who knew how unstable and terrible these securities based upon non-CRA subprime loans were, but still gave them the hard sell to their clients and the rest of the market WHILE they were short selling these same securities for their own profit. Had the original regulations of Glass Steagel still been in place, this behavior would have simply not occurred because it would have been illegal.
Nice job cherry picking and basically lying about history and facts in order to support your confirmation bias, Terry.
And nice job to you, quoting a biased source.Jim “Jimbo” Wales, founder and Bureaucrat-in-chief of Wikipedia, has allowed unabashed liberals to take his site over and edit history in a way that would make George Orwell’s jaw drop.
The CRA should never have been. The assumptions behind it were flawed. Worse than that, when the government tells a bank how much money to lend and whom to lend it to, then it is getting into the banking business. That’s bad enough when just the bank’s money is at risk. It is criminally negligent when the rest of our money is at risk.
Add to it that Barney Frank refused repeatedly to investigate the situation when he received warning after warning that it was getting seriously out of hand.
Those talking points will not fly here. The only reason I’m leaving them up is to show the world just how silly they look.
That’s it? You don’t like wikipedia so Dan Holmes is wrong? So the vast majority of the worst loans WERE via the CRA, contrary to what Dan is saying? You’re standing by that, right? I know you demand facts, but I don’t want to go on a snipe hunt here – that’s the case you stand by.
That’s part of it. How anyone can sing paeans of praise to the Community Reinvestment Act, a classic case of government interference, is beyond my comprehension. That is, until I learn that he got his information from Wikipedia. On any politically sensitive subject, I regard Wikipedia with a jaundiced eye. And so, I might add, do many teachers of courses that require their students to submit research papers.
Terry: you didn’t answer the mail on the CRA. You don’t like wikipedia as a source – that’s nice. You disagree with the concept of the CRA – that’s also nice. But your logic depends on establishing the CRA as the reason that the mortgages in Warren’s example are volatile and unsafe products, and you haven’t done that. On inspection, the CRA was functioning quite effectively and safely for decades, and the advent of the mortgage crisis appears to correlate with the weakening of CRA, to the extent that there is any relation at all. Can you address, with specific facts and explicit logic, how you attribute the mortgage problems in the first Warren quote to the CRA? I’m not interested in your take on the rightness or wrongness of the CRA, I’m looking for a firm causal link between the CRA and the problems cited.
And you’re just throwing off on me. Where is your demonstration that the CRA was working?
Terry, you’re the one asserting that the CRA was responsible for the market distortions cited by Warren in 2007. As the CRA was implemented in 1977, and the distortions did not manifest until decades later, it’s incumbent on you to be explicit about how you think the CRA distorted the market and what evidence you have that it was, in fact, the CRA and not subsequent regulatory and legislative changes that bear primary responsibility for said distortions.
“Critical analysis” does not consist of making broad assertions and then defying the reader to prove you wrong. If you have a case to make, then please make it.
Res ipsa loquitur. The thing speaks for itself. The CRA forced banks to lend to the un-credit-worthy. Period. End of memo.
And, again, the correlation is so weak prima facie – a 30 year lag between cause and effect, with no discussion of or accounting for decades’ worth of significant and pertinent regulatory and legislative change – that no amount of ‘end of memo’ posturing will be adequate to substitute for an actual argument and presentation of supporting facts.
Try this: Republicans sought, during the Bush administration, to have Fannie Mae and Freddie Mac investigated. Those two agencies were CRA creations. Barney Frank refused to allow any such investigation. “Nothing here; move on.”
Now see what.
Fannie Mae was founded in 1938; Freddie Mac in 1970; and CRA was passed in 1977. It’s hard to see, absent a time machine or divine intervention, how either is a “CRA creation”
“Nothing here, move on” indeed.
Those institutions—which, by the way, should never be part of the government of a free society—only dug themselves deeper with CRA forcing banks to make inherently unsound loans. Fannie Mae and Freddie Mac were there to buy those unsound mortgages, again and again and again. The bubble was bound to burst eventually. And burst it did, after Barney Frank ignored the warnings. (He was too busy indulging in pillow talk with his roommate.)
Okay, I’m taking from your response that we both now understand that CRA postdates Fannie Mae by 4 decades and we can dispense with your assertion that Fannie Mae is a CRA creation.
Your argument seems to rest on two parts: that CRA-forced loans to low-income borrowers were primarily responsible for FM/FM’s debt load, and that this debt load was the primary cause of the subprime crisis.
Let’s examine the first part. First, it was Federal Housing Enterprises Financial Safety and Soundness Act of 1992, not the CRA of 1977, that established Federal goals for loans to low-income or ‘underserved’ housing areas. You should probably make an effort to demonstrate that the massive debt load eventually discovered in FM/FM were results of such forced loans.
It will also be difficult to paint the CRA as the primary, or even a major, distorting infuence on a market that was distorted by so many other larger factors. The single largest, which you don’t even mention, is the entry of investment banks and hedge funds into the mortgage market, permitted by the relaxation of Glass-Steagall restrictions by the Gramm-Leach-Bliley act. This had two huge distorting influences: first, it allowed largely unregulated players to enter the market, leaving the regulators to play catch-up; and it massively amplified the mortgage-based securities market. The secondary market exploded, and this provided a huge incentive for the lending institutions to push ever-increasing numbers of mortgages. This is the distortion of the market, not the CRA, that results in easy credit and overextended borrowers. (Interestingly, during this period, Americans in general – NOT “low-income” Americans – shift from a debt load of about 3/4 of their income to a debt load of about 5/4 of their income.) Your explanation thus far ignores the effects of deregulation, the introduction of new institutional players, the impact of the housing bubble, the impact of the secondary securities market on both the creation of mortgages and the new emphasis on their subsequent sale and bundling, etc etc.
So far, you haven’t shown that Warren’s comments were off the mark, and your own comment ignores many known contributing factors to the crisis while not establishing with any facts a major contributing role by the CRA, much less the primary role.
None of the above is especially relevant. What’s relevant is that Elizabeth Warren is an avowed enemy of human liberty.
Much of what you’ve shown is that the system of easy money placed everybody at moral hazard. But I’m not going to take your unsubstantiated, and insubstantial, word that regulation is good, and deregulation is bad.
The Constitution nowhere authorizes any of this, by the way. The closest thing that the Constitution authorizes Congress to do is to make a uniform bankruptcy rule.
There is no legitimate purpose for CRA or anything like it. The proper functions of government are three and only three: police, armed services, and law courts. Period.
It’s quite relevant. You attacked Warren by contending that she doesn’t always get her facts straight, and you proceeded to demonstrate this by citing the CRA – about which, it turns out, you don’t always get your facts straight.
[As a bit of digression, I haven’t offered my word, substantiated or otherwise, that regulation is either good or bad. I’m not so simpleminded. I think that a cold look at history suggests that when corporations are unregulated, the results tend to be Enron, not Galt’s Gulch. On the other hand, there’s no denying that overzealous regulation, or attempts at command economies, also have led more to disasters than Utopias. This suggests that the peddlers of socialist, communist, libertarian, and Objectivist Utopias are all selling snake oil, and the best we can manage is to try to find some middle ground that both encourages productivity and discourages corporate rapaciousness. There’s nothing particularly earth-shaking about this as insight, but it seems to be something you could stand to think on for a bit. (I got to spend some time in that libertarian paradise, Mogadishu, in the early ’90s, and gained some respect for Hobbes, Locke, and the social contract, which is sorely missed when absent.)]
But back to the topic: your critique of Warren included the contention that she botched her facts, and, well, you haven’t shown that. You attributed the harms she cited to the CRA, but couldn’t back it up, and botched most of what few facts you offered in support (e.g., you asserted a relationship between Fannie Mae and the CRA that was chronologically impossible; you attributed to the 1977 CRA a legislative requirement of a separate 1992 law; etc). If you have nothing else to offer but a libertarian mantra on the legitimate purposes of government, then I’ll agree with one of your earlier points: “nothing here.”
I reject out-of-hand any defense of the Community Reinvestment Act, or those government-sponsored enterprises that kept buying those mortgages and trying to get investors to buy into them.
I further suggest that we have to make up our minds on the philosophy of government, and avoid sliding down the slippery slope of saying that “freedom has been given a chance and has failed.” The public could have curtailed Enron’s profits at any time, by looking more carefully into what it was doing and realizing that it was peddling worse than snake oil. You hardly needed more regulation in the case of a company that was already in violation of any concept of law or honor.
“Atlantis” works when everyone in it realizes that reality is an absolute not to be faked, and the neither lie nor violent act will work. Now one of the realities of our modern world has to be: Caveat emptor. I would add: Caveat investor, and caveat creditor.
There’s your middle ground. Let everyone who might be dealing with an Enron, learn to recognize the signs, and get out fast. They’re not so hard to recognize as all that.
I further reject your notion that the only alternative to an overzealous government is the kind of savagery that you found in Mogadishu. Libertarian paradise? Hardly.
Concerning the CRA: the worst damage came with a Clinton-era law, or amendment. But that was always a train wreck waiting to happen. Self-reliance, self-responsibility, taking care of oneself, and watching out for oneself–those are the keys to a free and functional society.
It doesn’t really matter what you reject out-of-hand, but we should be clear on the logic of the argument. This isn’t a ‘defense of CRA.’ You attacked Warren’s comment by offering the CRA as the root cause of the market distortions she was commenting on, and you have yet to establish the CRA as any such thing. Railing against the CRA on principle does not improve your argument.
[Without regulation, the public could not ‘look more carefully into what [Enron] was doing,’ as there would be no requirement for Enron to keep or publish records. There would be no uniform standards of accounting, no requirement to disclose ownership, no requirement to make transactions public – regulations ARE the means by which the public ‘looks more carefully into what it is doing,’ and government is the agent of the public. I suggest that in evaluating the utility and purposes of regulation, consulting the historical record is more useful than consulting a work of romantic fiction.]
But let’s not get distracted. You asserted that Warren had her facts wrong by attributing the subprime crisis to the CRA, and thus far, you’ve done a lot of paraphrasing of Rand, made some impassioned statements about liberty and the like, but you have yet to establish the CRA – or anything like it – as even a significant, much less prime, cause of the crisis.
I’m not sure which ‘Clinton-era’ law/amendment you refer to; Gramm-Leach-Bliley is the most likely candidate, and it was passed – as were most ‘Clinton-era’ laws – by a Congress firmly in the hands of the Republicans. At any rate, you mention ‘the worst damage’ – what was that, exactly?
Those of us who love human liberty today, need not hold ourselves responsible for the mistakes that members of a certain party made twelve years ago.
You need not hold yourself responsible for “the mistakes that members of a certain party made twelve years ago,” but it would be good to see you hold yourself responsible for words that you yourself penned five days ago.
I take it that your singularly non-responsive response indicates that you are not prepared to support your original contentions concerning Warren and her facts with a logical framework and supporting facts demonstrating that CRA was the primary cause of the market distortions to which she alluded.
Love of liberty is a good thing, but it should accompany, not replace, a commitment to research, analytical thinking, and a willingness to examine and revise one’s own positions. Your response to Warren’s comments was dogmatic, not analytical, which involves a certain amount of irony for one invoking Rand as his muse.
I love you Jorj McKie.