Lawson for Congress

The House, Senate, and President have all duly signed off on the much-anticipated Foreclosure Prevention Act of 2008 (HR 3221). The online copy of this bill weighs in at 260 pages, and is fantastic recipe for how to bail out banks and sophisticated investors while providing the cosmetic appearance of helping homeowners. Most importantly, it takes the critical step of putting our government, taxpayers, and national credit at stake for the benefit of Freddie Mac and Fannie Mae bondholders.

Our recent press release spoke out against this “loss socialization” after decades of subsidizing private profits, and Nouriel Roubini wrote an excellent article describing the dynamics involved, and a more appropriate solution:

So, all the above economic arguments and the need to control the moral hazard from the activities of the GSEs suggest that the creditors/bondholders of Fannie and Freddie should not be made whole, i.e. bailed out, once the insolvency hole of these institutions emerges. The optimal policy response would be to have such creditor take a haircut that is financially affordable and substantially desirable from a social point of view. The cost of borrowing for the GSEs after such haircut will be certainly higher but that is an outcome that is economically desirable: it will induce less unproductive and subsidized accumulation of wasteful housing capital.

Will this optimal policy solution - an haircut for bondholders - be undertaken? Most likely not as the political economy of housing, mortgages and of “privatizing profits and socializing” losses may dominate the policy outcome. Financial institutions love a system where they gamble recklessly, pocket the profits in good times and let the fisc (taxpayer) pay the bill when their reckless behavior triggers a financial crisis; this is socialism for the rich. That is why you already hear the whole Wall Street Greek chorus moaning for a bailout of the GSEs. But the financial costs of this financial crisis – the worst since the Great Depression – are mounting so fast that any bailout will become fiscally extremely expensive.

Indeed, my initial estimates of $1 to $2 trillion dollars of losses from this financial crisis did not include the bailout of Bear Stearns’ creditors, the bailout of the GSEs bondholders, the fiscal costs of the Frank-Dodd bill, the fiscal costs a severe U.S. recession that is mushrooming an already large fiscal deficit, the fiscal cost of bailing out – a’ la Bear Stearns - the last four remaining major independent broker dealers (as the time for such independent broker dealers is now gone as – given their wholesale overnite funding - they are subject to bank-like runs much more severe than for banks), the cost of bailing out the Federal Home Loan Bank system (another GSE system that pretends to be private and that has been happily propping up or bailing out – to the tune of hundreds of billions of liquidity support – illiquid and insolvent mortgage lenders). Switching the informal guarantee of GSEs debt to a formal government guarantee would by itself increase the US gross public debt by $5 trillion and effectively double it.

Thus, soon enough, if we fiscalize all of these losses the U.S. may fast lose its AAA sovereign debt rating and eventually end up like an insolvent banana republic. It is thus time to put a stop to the coming “mother of all bailouts” starting with a firm stop to the fiscal rescue of Fannie and Freddie, institutions that have behaved for the last few years like the “mother of all leveraged hedge funds” with their reckless leverage and reckless financial activities.

This is an election year, however. There are special interests to be fed, and we need to act like we’re helping homeowners. As usual, we’re getting the government we deserve.

Adding insult to injury, this bill’s best non-sequitur is Sec. 6050W which requires payment processing companies to start reporting their transactions to the IRS. What does this requirement have to do with housing? Absolutely nothing. But hey, this bill’s going to pass, right? Better load it up.

What does this new reporting requirement mean to you? Read this blog post — it makes some interesting observations.

So how are we going to help Americans facing foreclosure? Sure, this legislation shuffles the regulatory deck and requires that all mortgage brokers undergo background checks and submit fingerprints to the FBI. That’s not going to help. There are some incentives for lenders to modify loans, but it’s unclear if they will work in practice.

For some facing foreclosure, there may be a better way.

A friend forwarded me this intriguing post from Ellen Brown’s Web of Debt blog. I mentioned in February how some homeowners were successfully contesting and renegotiating foreclosures by forcing borrowers to show the actual note documenting the indebtedness. This strategy is proving useful to many homeowners caught in the crossfire of the housing debacle, and should certainly be pursued if for no other reason than to ensure people are not foreclosed by multiple lenders:

WHO OWNS THE NOTE?

Your goal is to make certain the institution suing you is, in fact, the owner of the note (see steps to follow below). There is only one original note for your mortgage that has your signature on it. This is the document that proves you owe the debt.

During the lending boom, most mortgages were flipped and sold to another lender or servicer or sliced up and sold to investors as securitized packages on Wall Street. In the rush to turn these over as fast as possible to make the most money, many of the new lenders did not get the proper paperwork to show they own the note and mortgage. This is the key to the produce the note strategy. Now, many lenders are moving to foreclose on homeowners, resulting in part from problems they created, and don’t have the proper paperwork to prove they have a right to foreclose.

THE HARM

If you don’t challenge your lender, the court will simply allow the foreclosure to proceed. It’s important to hold lenders accountable for their carelessness. This is the biggest asset in your life. It’s just a piece of paper to them, and one they likely either lost or destroyed.

When you get a copy of the foreclosure suit, many lenders now automatically include a count to re-establish the note. It often reads like this: “…the Mortgage note has either been lost or destroyed and the Plaintiff is unable to state the manner in which this occurred.” In other words, they are admitting they don’t have the note that proves they have a right to foreclose.

If the lender is allowed to proceed without that proof, there is a possibility another institution, which may have bought your note along the way, will also try to collect the same debt from you again.

A Tennessee borrower recently had precisely that happen to her. Her lender, Ameriquest, foreclosed on her in July of 2007. About three months later, another bank sent her a default notice for the mortgage on the house she just lost. She called to find out what was going on. After being transferred from place to place and left on hold for lengthy periods of time, no one could explain what happened. They said they would get back to her, but never did. Now, she faces the risk of having her credit continually damaged for a debt she no longer owes.

Ellen’s blog post offers a step-by-step guide to this process. She also comments how this technique is to be used appropriately:

FIGHT FOR FAIRNESS

This process is not intended to help you get your house for free. The primary goal is to delay the foreclosure and put pressure on the lender to negotiate. Despite all the hype about lenders wanting to help homeowners avoid foreclosure, most borrowers know that’s not the reality.

Too many homeowners have experienced lender resistance to their efforts to work out a payment structure to keep them in their homes. Many lenders bear responsibility for these defaults, because they put borrowers into unfair loans using deceptive, hard-sell practices and then made the problem worse with predatory servicing.

Most homeowners just want these lenders to give them reasonable terms on their mortgages, many of which were predatory to begin with. With the help of judges who see through these predatory practices, lenders will feel the pressure to work with borrowers to keep them in their homes. Don’t forget lenders made incredible amounts of money by using irresponsible practices to issue and service these loans. That greed led to the foreclosure crisis we’re in today. Allowing lenders to continue foreclosing on home after home, destroying our neighborhoods and our economy hurts us all. So, make it hard for your lender to take your home. Make ‘em produce the note!

This strategy has been noted by CNN, as well:

Considering that banks created the money to lend for these houses out of nothing in the first place, without creating the money to pay the interest on the loans, consumers are already on an uneven playing field. It may be worth thinking outside the box — or at least starting to learn more about the box we’re in.

I had an English teacher one time who told me whenever I was writing a speech or a paper a good introductory technique might be to hit the reader with a witty or powerful quote — something that would really grab them and make them think. Over the years, with considerable experience attempting to make boring subjects not-so boring, I have come to regard that technique as vastly overused. After all, John F. Kennedy, Abraham Lincoln and Winston Churchill only said so many things. Therefore, on the issue of gun control and the history of gun crimes in the United States I will attempt to avoid the urge to quote everyone and everything, and indeed make only a minor reference to the 18^th century French playwright who once stated that “facts….are stubborn things.”

And it is facts that we shall be dealing with today — they shall be the (I hesitate to use the word) “ammunition” with which my arguments are made. Specifically, these facts concern the effects of “concealed carry” laws on gun crimes in the United States, and on a larger scale the very nature of gun crimes in themselves.

To begin, I will invoke an intensive study published in the University of Chicago’s Journal of Legal Studies in 1997 by Dr. John R. Lott Jr. and David B. Mustard. These two investigators sought to determine whether or not allowing American citizens to be issued “concealed carry” permits for handguns would deter violent crime or actually encourage it. A detailed discussion of their methodology is beyond the scope of this post, as well as many readers’ patience, but their research used county-level data across all states with laws for obtaining concealed carry permits from 1977 through 1992. Those so motivated can read the entire report here.

The conclusion reached at the end of their research was that once concealed carry laws went into effect, violent crimes decreased in individual counties by an average of 7.65 percent for murders and between 5 and 7 percent for rapes and aggravated assaults. The study estimated that had the rest of the states adopted concealed carry laws similar to the ones then active in 31 states, a yearly average of approximately 1400 murders, 4000 rapes, 11,000 robberies and 60,000 aggravated assaults would have been prevented.

Furthermore, a related survey of inmates in 10 correctional systems came to the same obvious conclusion told to them by the criminals themselves; not surprisingly, people are less willing to barge into a home with a potentially armed resident.

In fact, the only negative effect of such laws seemed to be a noticeable increase in property crimes, which might be expected as criminals attempted to turn to less invasive crimes where they might be less likely to be shot. While it would be absurd to argue that one type of crime might be more tolerable than another it is still worthwhile to mention that the overall cost of this change in crime was actually less because it did not as frequently involve medical bills, long term mental anguish or most importantly, the value of a human life.

A recent example of this study is the small town of Kennesaw, Georgia. In 1982, in response to a town in Illinois banning handguns, Kennesaw residents passed an ordinance requiring every resident to own a firearm and keep ammunition for it on hand. While the ordinance was not enforced (or enforceable — it was simply meant as a statement in favor of property protection), since that time and despite a significant population increase there has not been a single murder in the town, and their crime rate stands proportionally lower than the national average:

Conversely, the Illinois town with the handgun ban has suffered a minor population decrease but close to a 16 percent increase in crime. Again, the logic seems simple — allow an overwhelming majority of US citizens who are law-abiding to own firearms, and those who choose to break the law tend to think twice before committing violent crimes.

Going down a slightly different path, there is also the question of whether or not guns obtained legally through such programs as concealed-carry permits still make up a significant percentage of weapons used in violent crimes. The Lott and Mustard study briefly touched on this question with statistics from Florida:

221,443 licenses were issued between October 1, 1987, and April 30, 1994, but only 18 crimes involving firearms were committed by those with licenses. While a statewide breakdown on the nature of those crimes is not available, Dade County records indicate that four crimes involving a permitted handgun took place there between September 1987 and August 1992, and none of those cases resulted in injury.

While gun crime in America is certainly nothing to marginalize or push aside, the facts support allowing trained and law-abiding citizens to carry concealed firearms and serve as a useful deterrent to violent crime. If criminals are worried about attacking someone who may be armed, and such criminals have most likely obtained their weapons illegally anyway, it is tough to argue that not allowing our citizens to be armed legally would help solve the problem.

After all, this might actually put the very people in danger strict gun-control advocates are fighting to protect. Or as my grandfather used to say, it’d be like letting the fox protect the hen house.

Americans consider our country one of the freest on earth, yet national incarceration rates beg to differ. More than half of all federal prisoners are not murderers, rapists or even thieves; they are people who have forcibly hurt no one except themselves. More than half of all federal prisoners are non-violent drug offenders.

America now has the highest prison population in the world in terms of both percentage of the population and overall prisoners with one in every one hundred Americans imprisoned. Furthermore Hispanics and Blacks are unequally affected, as the New York Times reports:

One in 36 Hispanic adults is behind bars, based on Justice Department figures for 2006. One in 15 black adults is, too, as is one in nine black men between the ages of 20 and 34.

In a time of economic stagnation and resource-driven inflation why are we spending so much on imprisoning these non-violent offenders? The New York Times elaborates on this point, writing:

It cost an average of $23,876 dollars to imprison someone in 2005, the most recent year for which data were available. But state spending varies widely, from $45,000 a year in Rhode Island to $13,000 in Louisiana.

The cost of medical care is growing by 10 percent annually, the report said, and will accelerate as the prison population ages.

About one in nine state government employees works in corrections, and some states are finding it hard to fill those jobs. California spent more than $500 million on overtime alone in 2006.

$23,876 is quite a large sum. Money that could go to a doctor’s salary to treat drug users rather than a guard’s salary to watch them.

Americans have long adopted an approach that is tough on crime. This toughness is laudable in some cases — with increased sentencing, violent crime has fallen by about 25 percent. Drugs have not followed this trend, however.  In many ways being tough on crime works, but shouldn’t we be more than tough?  Should we not also be smart? Since Nixon declared the federal “War on Drugs”, drug availability has remained essentially unchanged. Few would object to tough sentencing laws that keep violent criminals off the street and prevent violent crime. Should we not save incarceration for when it is a solution, however, rather than just a burden?

Whatever your opinion on the use of drugs, we should question the appropriateness of enforcing laws that are in contradiction to our nation’s highest law, the Constitution. At least with alcohol prohibition in the early 1900s, we had the intellectual honesty to recognize that federal alcohol prohibition required a Constitutional amendment. Today, however, we tolerate unconstitutional expansion of government power.

In one such excess, Gonzales v. Raich (2005), Federal authorities were affirmed in their efforts to criminalize the local, intrastate cultivation and distribution of medical marijuana.  Not only does this imprison people who sought to relieve the suffering of the sick, but as Clarence Thomas writes:

If the majority is to be taken seriously, the Federal Government may now regulate quilting bees, clothes drives, and potluck suppers throughout the 50 States. This makes a mockery of Madison’s assurance to the people of New York that the “powers delegated” to the Federal Government are “few and defined,” while those of the States are “numerous and indefinite.” The Federalist No. 45, at 313 (J. Madison).

The federal drug war must be rethought, and we must adopt a rational drug policy that not only pays attention to social mores but also respects empirical evidence and, most importantly, obeys our Constitution.

William Griffin is a rising Junior studying Political Science and Economics at the University of North Carolina at Chapel Hill. He is a policy intern with Lawson for Congress.

FOR IMMEDIATE RELEASE
JULY 17, 2008

CONTACT
Linda Williams
919-481-1177

RALEIGH – Today, North Carolina Congressional candidate William “BJ” Lawson condemned House Concurrent Resolution 362 as “lunacy masquerading as policy.”  H. Con. Res. 362 is a bipartisan proposal which demands that George W. Bush impose a blockade of Iranian land borders, ports, and airways, which would effectively shut down the entire country of Iran.  The enforcement of this proposal is illegal and would be a declaration of war under international laws.

Lawson said, “In October 2002, actions similar to H. Con. Res. 362 led to the war in Iraq, and Congress, both Democrat and Republican, seem determined to make the same mistake again.  In 2002, the argument could be made that the evidence as presented inferred that Saddam Hussein may have weapons of mass destruction, even though this turned out to be incorrect.”

“This time, however, all evidence is to the contrary.  In December 2007, even our own intelligence agencies stated with high confidence that Iran’s program intending to transform raw materials into a nuclear weapon has been shut down since 2003.”

Lawson went on to say: “It is no surprise that confidence in Congress is at an all time low of 9%.  Our elected officials seem more interested in pushing through legislation like this at the behest of special interest groups, lobbyists, and foreign sovereign nations such as Saudi Arabia and Israel rather than what is in the best interest of our own citizens.  The proposed blockade of Iran is not in the best interests of the United States or the Middle East.”

Lawson continued, “Even if there was a valid reason to attack Iran, we currently have an ongoing war in Afghanistan and in Iraq, and our military are already vastly overstretched.  The possibility of preemptively opening a third front, for no reason, is at best irresponsible, and at worst criminal.”

“A blockade of Iran would also lead to an unprecedented rise in the cost of oil.  The removal of Iran’s four million barrels of oil per day from the market would inevitably lead to a scramble by China to secure much needed fuel for its economy.  The only people to benefit for this action would be oil companies and the people heavily invested in them.  If Congress is really so blind to push through this legislation, then maybe it’s time for them to lead from the front and give our soldiers a well-earned rest.”

Dr. William “BJ” Lawson is running for Congress in North Carolina’s 4th Congressional District.

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In a followup to this press release, it appears that we have some encouraging news regarding our posture towards Iran:

PARIS — The Bush administration is considering establishing an American diplomatic presence in Iran for the first time since relations were severed during the 444-day occupation of the American Embassy in Tehran nearly three decades ago, European and American officials said on Thursday.

The idea would be to establish a so-called interests section, rather than a fully staffed embassy, with American diplomats who could issue visas to Iranians seeking to visit the United States. But the officials, who spoke on the condition of anonymity under diplomatic rules, cautioned that the idea had not been approved by the White House and could be delayed or blocked by opposition within the administration.

Talking with other nations and encouraging greater person-to-person contact is good policy, and in our national interests. Personal relationships are a first step towards greater mutual understanding.

Our campaign is flourishing across a broad base of people, all of whom share the desire for good government. Advancing a federal government that lives within its means and respects its Constitutional limitations is not a partisan message, nor a message that discriminates.

It’s been reported that our campaign has attracted the attention of some bloggers associated with fringe hate groups. Let me make this perfectly clear: there is no room in our campaign, or our message, for hatred or bigotry.

The essence of our Constitutional republic is government that protects the rights and liberties of the ultimate minority, the individual. Furthermore, our country’s challenges transcend gender, race, ethnicity, and sexual orientation. We’re all on the same boat. To live up to our nation’s promise for our children, it’s imperative that we work together.

There has been much discussion about the use of the rebate package passed by Congress and signed by the President to stimulate the economy. B.J. recently covered the topic in his post, “Shiller vs. IMF,” laying out the arguments of those who favor using it and those who oppose it. As with most government initiatives, success is best measured by its unintended consequences:

President Bush Boosts Porn Industry With Economic Stimulus Plan, According to AIMRCo

NEW YORK, July 2 /PRNewswire-USNewswire/ — An unforeseen and surprising beneficiary of the Economic Stimulus Plan, a plan that George Bush contends will “boost our economy and encourage job creation,” has surfaced this week. An independent market-research firm, AIMRCo (Adult Internet Market Research Company), has discovered that many websites focused on adult or erotic material have experienced an upswing in sales in the recent weeks since checks have appeared in millions of Americans’ mailboxes across the country.

According to Kirk Mishkin, Head Research Consultant for AIMRCo, “Many of the sites we surveyed have reported 20-30% growth in membership rates since mid-May when the checks were first sent out, and typically the summer is a slow period for this market.

Jillian Fox, spokeswoman for LSGmodels.com, one of the sites reporting figures to AIMRCo, added, “In a June 15, 2008 survey to our members, thirty two percent of respondents referenced the recent stimulus package as part of their decision to either become a new member, or renew an existing membership.”

The economic stimulus plan, which includes a check for up to $600 for individuals and $1200 for married couples (among other benefits), is the product of an agreement between House leaders and the Bush Administration, focused on reviving a struggling economy in the wake of flagging economy.

Fox also added, “Getting more people to buy porn was probably the last thing Bush had on his mind when he came up with his ’stimulus package,’ but we’ll take it.”

One might reasonably question if the money we borrowed to pay for these “rebates” are going to spur capital investment and wealth creation. Or do these data suggest that we’re simply seeing “Congressmen Gone Wild”?

It appears our incumbent Representative and others in Congress who supported this legislation have succeeded in seeking a short-run economic boost to satisfy their constituents and facilitate their re-election while ignoring — and in fact exacerbating — very serious fundamental and long-run challenges.

Long-run economic growth results from a number of fundamental factors, which include the accumulation of physical capital (which is a function of personal saving in a healthy economy), human capital (which is a function of education), technological advancement, protection of property rights, and a strong legal system. The accumulation of high debt by government necessitates that resources in the future must be redistributed from investment in these productive forces to paying the bills we’re stacking up now, which crushes long-run economic growth.

Furthermore, the building of a large government debt has a number of negative by-products in an international economy. Absorbing private domestic saving necessitates reliance on foreign saving for domestic growth, as well as possibly on foreign purchasing of government bonds to finance deficit spending. When foreign investment decreases and/or leaves the country, which may occur for a number of reasons (market insecurity, a decline of the value of the dollar due to inflationary monetary policy or payment of foreign debt… either of these sound familiar?), then with it goes the source of growth. At this point, interest rates increase with high government borrowing, and the central bank is in a tough spot. It can either inflate to lower interest rates, which will hurt consumers, increase costs for businesses, and decrease returns of investors; or it can do nothing and allow high interest rates to lead to a recession.  In any of these situations, economic growth is either stagnant or significanlty negative in the end. Thus, “stimulus” spending ultimately gives no real economic boost at all.

By creating more debt to “stimulate” the economy, Congress is attempting to rebalance a house of cards and delay its eventual collapse, even at the cost of potentially worsening it. We are delaying action on making hard choices that must be made today to shore up the country’s financial future and are making the these choices much harder for ourselves down the road. A $9.4 trillion national debt — with more hundred-billion deficits and skyrocketing interest payments expected down the road — and $53 trillion in present value of unfunded liabilities are absolutely nothing to ignore. These are phenomena that will wreck the economy much more powerfully than any near-term recession that may come, and they will not go away on their own nor by creating a significant amount of new debt.

Finally, we should note that the “stimulus packages” being in the form of rebates implies somehow a lessened burden of taxation for now to achieve a change in some economic variable. Real tax cuts are cuts in the burden of government on the taxpayers, and as such, they are long-term commitments that allow us and our communities to keep more of their resources.

Cutting taxes in the short-term and continuing deficit spending in no way represent a tax cut, as the government has one of two options to finance remaining spending. It can borrow and accumulate debt, which necessitates either a future tax increase to pay off the debt or a stalling of long-term growth and decline in opportunities available to the future. Or, the government can print money to finance deficits, which causes price inflation that squeezes consumers. As Milton Friedman would say (paraphrasing), “A tax cut is not a tax cut at all without a spending cut.”

Paige Michael-Shetley is the Volunteer Coordinator and Youth Coodinator for Lawson for Congress. He is a Senior at the University of North Carolina at Chapel Hill and is majoring in Economics and Math.

Headline of the day:

Cops to IndyMac customers: Remain calm or face arrest

Police ordered angry customers lined up outside an IndyMac Bank branch to remain calm or face arrest Tuesday as they tried to pull their money on the second day of the failed institution’s federal takeover.

At least three police squad cars showed up early Tuesday as tensions rose outside the San Fernando Valley branch of Pasadena-based IndyMac.

Federal regulators seized Pasadena-based IndyMac on Friday and reopened the bank Monday under the control of the Federal Deposit Insurance Corporation. Deposits to $100,000 are fully insured by the FDIC.

Let’s try infusing this story with a healthy dose of reality:

Cops to IndyMac customers: Blame the bank, not us

Police ordered angry customers lined up outside an IndyMac Bank branch to study the history of fractional reserve banking lest they repeat the unpleasant experience of losing their retirement savings.

Customers were informed that the bank had caused those deposits to vanish into thin air by lending in excess of their deposits. Customers were further informed that while the bank regrets their loss, the money destroyed was simply debt-based money that the banking system created out of thin air in the first place to be loaned with interest. In other words, “Easy come, easy go.”

Finally, it was noted that bank insolvency is not a theoretical risk, but simply standard operating procedure as all banks operate in a state of regulated insolvency.

Federal regulators seized Pasadena-based IndyMac on Friday and reopened the bank Monday under the control of the Federal Deposit Insurance Corporation. Deposits to $100,000 are fully insured by the FDIC based upon the government’s ability to print more money if the FDIC’s paltry reserves become exhausted.

Slowly, our government is catching on to the fact that the Federal Reserve is the cause of our slow-motion train wreck. Senator Jim Bunning from Kentucky appropriately questioned increasing the Federal Reserve’s power in today’s hearing:

Now the Fed wants to be the systemic risk regulator. But the Fed is the systemic risk. Giving the Fed more power is like giving the neighborhood kid who broke your window playing baseball in the street a bigger bat and thinking that will fix the problem. I am not going to go along with that and will use all my powers as a Senator to stop any new powers going to the Fed. Instead, we should give them less to do so they can do it right, either by taking away their monetary policy responsibility or by requiring them to focus only on inflation.

While I don’t understand specifically what he means by “taking away their monetary policy responsibility”, or even “requiring them to focus on on inflation”, another dissenting voice is a good start.

As Mike Shedlock noted, “In an unusual but encouraging development, someone besides Ron Paul is calling Bernanke on his hogwash.”

Encouragingly, bipartisan opposition to the Treasury’s ill-advised “confidence game” is apparently growing.

As mentioned in our press release, the most appropriate approach to the Freddie/Fannie problem is a decisive restructuring of the GSE’s debt at the expense of the bondholders, as outlined by Nouriel Roubini:

First, notice that the hit that bondholders will take will be limited in the absence of their bailout. With a debt/liabilities of about $5 trillion and expected insolvency – as of now and in the worst scenario of $200 to $300 billion – the necessary haircut is relatively modest: either a reduction in the face value of the claims of the order of 5% (if the mid-point hole is $250 billion) or – for unchanged face value – a very modest reduction in the interest rate on their debt after it has been forcibly restructured.

Second, a 5% haircut is much smaller than the 75% haircut that the holders of Argentine sovereign bonds suffered in 2001-2005, much smaller than the haircuts that holders or Russian and Ecuadorean debt suffered after those sovereign defaults, and much smaller than the 30% haircut that holders of corporate bonds suffer on average when a corporation goes into Chapter 11 and its debt is restructured. So why should Uncle Sam – i.e. eventually the U.S. taxpayer – pay that $250 billion bill when investors in the U.S. and around the world can afford it? The same investors are getting a fat subsidy of $50 billion a year (whose NPV is much bigger than $250 billion) for holding claims that now provide a 100bps spread above Treasuries and are under the implicit guarantee of a full bailout.

From the latest iPhone to sleek, lightweight laptop computers, we live in a world increasingly reliant on electronic devices. Everything from family photos to last year’s taxes and even trade secrets are only a click away. While we rely on passwords and fingertip scanners to protect this information, many people are still unaware of the federal government’s authority to search devices such as laptops, PDAs, and cell phones of American’s returning to the country.

Border agents and customs officials may search the contents of these devices without probable cause and pore through any private data you may have saved on these devices.

On April 21, 2008 American civil liberties were dealt another blow when the 9^th Circuit Court of Appeals decided the case United States v. Michael Timothy Arnold. This unanimous three-judge decision upheld the legality of laptop searches by border agents without probable cause. The court overruled a lower court’s ruling that digital devices were “an extension of our own memory” and were protected against searches without probable cause.

In the court’s opinion, written by Judge O’Scannlain, he remarked, “Arnold has failed to distinguish how the search of his laptop and its electronic contents is logically any different from the suspicionless border searches of travelers’ luggage that the Supreme Court and we have allowed.” O’Scannlain chided Arnold for his argument that his laptop was like a home and should receive the same protections, by stating that you cannot live in a laptop and that it travels with you, so there is less privacy expectation. However, I fail to see how Judge O’Scannlain can make this observation and then overlook the fact that you can’t even pack a shirt in a laptop — it’s hardly an ideal suitcase.

Clearly laptops and other personal electronic devices are protected against warrantless search and seizures by our Constitution’s Amendment IV.

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

This Amendment had been protecting citizens since the founding of this country and is one of the most important rights we have as Americans. These recent rulings are clearly a violation of our rights against search and seizures without probable cause.

Personal devices such as laptops, cameras, PDAs, and cell phones all logically fall under “papers and effects,” as stated in the Fourth. In a time in which our forefathers were writing with quills on parchment, these “papers” were deemed worthy of protection because of what people kept records of on paper. In a world that is dominated by wireless communication and transactions, should our personal information stored on these devices not also be considered “papers.” After all, they are serving the same purpose as those of our forefathers. The Federal Government should not be able to stomp on the 4^th Amendment Rights of its citizens solely because these “papers” are in a different medium. However, because two Appeals court have made similar rulings in two separate cases it is unlikely the Supreme Court will hear this issue.

Now that we know border agents and customs officials can search laptops and other personal electronic devices upon reentering the United States we must ask what these officials do with information. After reading through a release by the U.S. Customs and Border Protection (CBP), a department of Homeland Security, I was unable to find any information about what information they are able to look at and what happens to the personal information after these searches.

Congressional investigators speculate that these officials make digital copies, or “mirror images,” which would allow them to go back and look at the information. For a practice that the CBP contends is completely legal they are awfully quiet about the details of this practice. In fact, the CBP will not release figures on the number of devices confiscated and searched and how commonplace this practice is. As with any act that tip-toes dangerously close to invading civil liberties, and in my mind clearly does, it is important that the Government release facts and figures that allow for adequate study and review of these policies.

Matt Barber is a junior at the University of North Carolina at Chapel Hill, and policy intern with Lawson for Congress. He is working towards a double-major in Political Science and Business Administration.

By now if you are a citizen concerned about the protection of your civil liberties or indeed pay cursory attention to the major news outlets, you have probably heard about the District of Columbia vs. Heller Supreme Court case involving the debate over the right to individually own firearms.  I must admit that although I am a supporter of the 2^nd amendment I let this case slip under my radar until it had already been decided.

The Supreme Court ruled last week in a 5-4 majority that the 2^nd amendment does indeed protect an American’s right to possess an operational firearm in their home for the purposes of self-defense, defeating a minority of judges who felt the amendment only guaranteed the right of Americans to do so under the auspices of state militia service.  However, despite the fact the ruling ended up confirming a right we as Americans have had since the very genesis of the countries founding, we only came one vote away from losing it.  That’s too close.

Therefore, as a concerned citizen (and also faced with the prospect of an otherwise uneventful 4 hour flight yesterday morning) I printed off the 157 page decision and prepared myself to figure out what exactly had gone on here.  Now granted most people don’t read Supreme Court cases just for kicks, but believe it or not the reading actually went by efficiently and by the time I’d finished there were several serious thoughts floating in my head (one of which being that this is probably why lots of girls don’t return my calls).

On a more serious note though, I thought it interesting that Justice Scalia in his majority opinion seemed almost stunned that the rather explicit wording of the 2^nd amendment had been so badly distorted by the minority judges.  Citing a plethora of historical precedents as well as applying a common sense test to the Constitution which was written as he says referencing another case “to be understood by the voters…distinguished from technical meaning” he made the point that the right to keep arms has never been only associated with the militia service and at one point refers to the minority’s reasoning on the matter as “bizarre.”

On this occasion, Scalia noted that Stevens had tried to argue that because the framers had used the wording “to keep and bear arms” as opposed to “to keep and to bear arms” they simply meant that militiamen were allowed to wield the arms which they had been granted and that this did not apply to the people as a whole.  Now I’m no Supreme Court justice nor am I an expert on advanced logical debate; but to this humble writer typing from a beat up laptop with a left clicker that only works with persuasion it is shall we say mildly upsetting to think (whether dealing with a controversial subject such as firearms or not) that an explicit and Constitutionally protected right can be nearly overturned in part by such word games. Our Bill of Rights was designed to use clear and precise language to lay down the rights of its citizens and protect them from being harassed in their persons and property by a prying and heavy-handed government (which I might add the framers knew a little something about).

In final summation, the majority concluded the right to bear arms was and still is one of these rights, allowing Americans to protect themselves as long as the right is exercised responsibly and free from laws such as the D.C. ordinances.  The law in question, the Firearms Control Regulations Act of 1975 had made it impossible to not only register and possess guns in the city, but also said that even if a special one-year license was granted to keep a gun it had it be disassembled or disabled via a trigger lock while inside the home.  There was no comment on what use a disassembled firearm would be in a self-defense situation, but one must imagine it might present a considerable obstacle should such an occasion arise.  Thankfully though, despite the narrow and concerning margin of the vote the D.C. vs. Heller case was interpreted correctly and has in fact turned out to be an important victory for those who espouse the authority of the Constitution, the protection of civil liberties for all Americans and conservative small-government.

Let us hope such a victory is the first of many….

Seth is a senior at UNC, double majoring in Political Science and American History.  He is a policy intern with Lawson for Congress.