Housing bill to bail out the banks

Last week, the House democrats pushed to pass the "housing bill", aimed at providing financial "help" for the "distressed homeowners". The bill also provides guarantee for Fannie and Freddie's $5 trillion mortgage debt.

As I have mentioned before, there are two major problems that the nation is confronted with: subprime mortgage crisis, and runaway inflation fueled by rising prices of commodities. You might be amazed by the fixation of the politicians on the former one, and scant attention that they pay to the latter. You should not be surprised, because the first problem is the problem of the banks, and the second one is the problem of ordinary folks. Do you really expect politicians to care much about the problem of ordinary people?

While all the media circus is focusing on mortgage crisis, the mortgage delinquency rate (defined as 30 days payment overdue) for the first quarter of the year (latest data available) was only a little bit above 6%. The actual foreclosure rate is less than 1%. Vast majority of the homeowners are paying their bills on time. What the housing bill will do is to reward a tiny minority of those who engaged in irresponsible speculation on the housing market or bought homes they cannot afford, while punishing the vast majority of us who are financially responsible. The true objective of the housing bill is to bail out those banks that have engaged in reckless, fraudulent, or even predatory lending, and the investors who were gambling on the subprime housing market.

If the politicians truly want to help people and the nation's economy, they should do something about the inflation. The bloody fact about inflation is that, it is created by the government's excessive printing of money. As Milton Friedman has pointed out, inflation problem everywhere and every time is a monetary problem. When inflation occurs in Zimbabwe, Sudan, and many African countries, we all know that was caused by the government excessive printing of paper money. But when inflation occurs in US, why all of sudden we are at a loss about what has caused it?

The housing bill essentially will put the $50 trillion mortgage debt Fannie and Freddie owes, on the books of the Treasury department, virtually tripled the amount of debt US government owes. That will put further pressure on the value of US dollar, leading to even higher rate of inflation. If you think the gas price is high now, wait until the housing bill becomes law.

Politicians, democrats or republicans, are crooks. They are fed by big business interests, and do whatever it takes to advance those interests. Sad thing is that the public is so ignorant and gullible. I tell you, I really doubt the so-called 'democratic system". What good doe it to do to ordinary people? You might as well go back to the "benevolent authoritarian" system that China has.

I admit that I am confused.

America's twin financial woes and how to solve them

The current financial crisis in the USA boils down to two problems: subprime mortgage, and inflation. I have argued in my previous post that the more devastating one of the two is inflation. Subprime problem affects largely the Wall Street financial institutions, while inflation affects every single consumer, particularly those in the lower economic ladders.

To solve the financial crisis, we have to address these two problems. My argument is that: if we address the inflation problem first and head-on, other problems will be resolved easily as a result.

So how to solve the inflation problem? First we have to look at the root cause of inflation.

1) Inflation is caused by excessive printing of the dollar
As the great economist Milton Friedman stated: "inflations are always the result of increases in the supply of credit money: it is easy to print paper, and governments that have begun issuing paper money have always eventually fallen to the temptation of just printing and spending new money."

The root cause of inflation is the excessive money creation by the Federal Reserve. As the world's reserve currency, US dollar affects inflation not only in the US, but around the world.

2) Printing money was necessitated by increased government spending

Why did the Fed print so much money to begin with? To finance the run-away US government spending. After Bush took over the White House, he immediately reduced personal and corporate taxes across the board, fulfilling his campaign promise. Then the US entered two wars, against Afghanistan and Iraq. Government entitlement was also expanded during this period (Medicare prescription drug benefits for the seniors, or the Part D Program), plus all those pork barrel spending the congress likes to lavish on their own home states.

Now the common sense dictates that if you increase spending, you have to have the income to pay for it. Not in this case, because the government tax income was greatly reduced by tax cuts. Now what do you do? You print money, that is the only way out.

That is why US dollar has been steadily declining in value since 2001, which led to accelerating pace of inflation.

To stem the inflation, I have the following remedies. But I doubt any politician would have the courage to adopt them:
1) Pull out of Iraq
We went in for the wrong reason, we have to get out, before the war bankrupts USA. I am not suggesting pull-out immediately, but a measured and definitive time table of military draw-down seems to be the only way to get us out of there.
2) Increase taxes on the wealthy
The widening wealth gap in the US is alarming. In this time of war, some personal sacrifices are needed. The poor have sent their sons and daughters to Iraq. It is only fair that the rich need to pay their duties. We have to roll back the Bush tax give-aways to the wealthiest of the wealthy.
3) Adopt a long-term strategic energy policy to reduce reliance on fossil fuel
If it was not because of the oil, we would not have gone to the war with Iraq. That is undeniable truth. Let's not fake it. Imagine how much the US has to spend each year on military to protect the oil trade. The amount is staggering. We have to produce reliable source of renewable energy domestically (such as wind, solar, and bio-fuel). And we also have to conserve energy consumption. Currently the US is consuming 25% of the world's oil production, while the US population is only 4% of the world total.
4) The Federal Reserve has the reverse the excessive money printing process.
How can it do that? By raising the interest rate. I bet if the Fed starts to raise interest rate, US dollar will rise in value and commodities prices will start to fall. That will be a huge shot in the arm for consumer confidence and business confidence. Once confidence is restored, I think subprime problem will be eased as well. Part of the subprime issue is the lack of confidence of investors in the value of those mortgages. Restoring confidence will help the market to clear out all the liquidity excesses and mislocations.

Struggles of Asian Americans

The other day, my son was mimicking the accent of a Chinese lady working in his school cafeteria: " du yu wan a peessa? give me a dolla!" (do you want a piece of pizza? give me a dollar if you do).

I was very upset that he did that. I asked him why he would do that. He said his classmate taught him this and he felt it was funny. And my son is only 11.

This is not a funny matter. Asian Americans (and many other immigrants in America) who have an accent speaking English often feel that they are treated unfairly. Speaking with an accent gives people an impression that the person is poorly educated. Sometime ago, a close friend of mine told me that he could not get promotion or work at a position he felt well qualified, purely because of his accent. Our mouths may speak with an accent, but our brains do not think with an accent, I heard someone once declared.

The trouble is that not every type of accents are treated equally. European accents (particularly of west and north Europe) are treated favorably. On the other hand, Asian accents and Spanish accents do not receive the same favor.

When I was in Cornell many years ago, I read about an undergraduate Chinese American student expressing his feelings about his heritage in a Chinese email forum. He said he was often shamed of being with his parents, because of their accents.

The struggle of our first generation Asian immigrants is enormous. We are a very family-focused culture. We work hard and sacrifice personally, hoping to bring a better life for our next generation. We save a lot, and rarely care about our own outward appearance. We would be very willing to buy a $100 shirt for our children, but for ourselves, we buy the least expensive ones. We speak in accents. We have a lot of feelings, but find it difficult to express them because of the language hindrance.

We thought if we work hard to bring good lives for our children, they would appreciate us, and be grateful to us because of our love and sacrifices. But the sad thing is, we are losing our children. Our children don't feel proud of their parents, and their heritage and cultures. And we the parents, after so much personal sacrifice, are gradually losing the hearts and minds of our children.

You cannot blame our children for that. Our children can rarely find a role model, or a hero, that has Asian background, to look up to. What they can only see in the media make them so conscious about themselves, because the media are black and white dominated (used to be only white dominated).

I have an advice for all our struggling Asian parents: every summer break, bring your children to Asia. Let them witness first hand the vibrant culture there. Bring them to places and teach them the history about those places. Let them have a chance to see the culture programs of our native lands. I am hopeful our children will soon discover the beauty in our own cultures, find heroes in our history and people, and feel proud of being themselves.

Working hard is not enough. Saving lots of money for your family is not adequate. You need to care about the spiritual needs of your children.