Prior to its passage, I criticized GINA’s ban on employment discrimination in the National Law Journal for lacking a “direct threat” exception for public safety.  The Economist’s blog suggested its ban on insurance discrimination could fundamentally undermine insurance markets and the availability of private health insurance in the long run. 

Last month, Congress created a long-run threat to the insurance industry by passing the Genetic Information Non-Discrimination Act (GINA).  GINA also regulates employers in ways that I criticized in 2005 in the National Law Journal.

But there could be an even greater cost from the bill to millions of middle-class investors saving for their retirement or the education of their children. The bill has the Federal Housing Administration guarantee the refinancing of a mortgage in return from a “haircut” from the owners of the loan. The bill requires loans to be guranteed at no more than 90 percent of the value, meaning a 10 percent loss for investors. But this haircut will “shave” billions of dollars off from funds saved for retirement or education.

This bill not only “robs Peter to Pay Paul,” through taxpayers bailout of bad loans by banks and borrowers. It can also be said to “abrogate Paul’s contract to Peter.” This is because many of the mortgages often aren’t owned by the banks that service them, but frequently by millions of middle class investors through their interests in entitities that have mortgage-backed securities (MBS).

Many middle-class folks who have 401(k) accounts, mutual funds, money market funds or defined-benefit pensions are indirect holders of MBS. In fact, according to investment bank Credit Suisse, 14 percent of MBS are owned by pensions and mutual funds that serve middle-class savers.

So, let’s do some math. The bill authorizes the FHA to guarantee up to $300 billion in mortgages. With the 10 percent haircut, the loans were originally worth $333 billion. So $33 billion represents the potential lost savings by the private sector. Now assume a random 14 percent of the loans in this program represent those owned by pensions and mutual funds. 14 percent of $33 billion is $4.6 billion.

The bottom line is that middle-class savers and investors could be left with almost $5 billion less for retirement and education of their children. Another compelling reason this bailout is not worth the cost.

A news story today in the Post describes how ethanol production is devouring our food supply, even though a study shows that “greenhouse-gas emissions from corn and even cellulosic ethanol ‘exceed or match those from fossil fuels and therefore produce no greenhouse benefits.’ By encouraging an expansion of acreage, the study added, the use of U.S. cropland for ethanol could make climate conditions dramatically worse. And the runoff from increased use of fertilizers on expanded acreage would compound damage to waterways all the way to the Gulf of Mexico.” 

In the American Spectator, Iain Murray notes that ethanol production has caused “food shortages and massive increases in food prices around the world. There have been food riots in Indonesia, Mexico, Egypt, and most recently, Haiti — where the poor have been reduced to eating cakes made with bleach and are on the verge of bringing the government down. Even in America, some grocery stores have begun to institute a form of rationing.  Meanwhile, massive tracts of rainforest are being cleared in Indonesia to produce biodiesel, threatening the orangutan and other magnificent animals with extinction. In Brazil, the growth of sugar cultivation for ethanol is forcing food producers into the Amazon.”

By contrast, one of the Audubon Society’s chief bird sanctuaries (the Paul J. Rainey Wildlife Refuge in Louisiana), has 37 oil wells on site, and has produced natural gas for 50 years without harming the environment.  Drilling for oil hasn’t harmed the birds a bit.  But ethanol production causes environmental destruction, mass hunger, starvation, and rioting worldwide.

Disclosure: like many Americans, I have a retirement plan (both a 401(K) and an IRA).  Like most retirement plans, it contains mutual funds.  And most of those mutual funds own some stock in oil companies.  So when politicians demand that the government impose a “windfall profits tax” on oil companies, what they are really trying to do is take money from my retirement plan — and your retirement plan, too, if you have one.  That’s not going to encourage exploration for new sources of oil, or reduce our dependence on foreign oil.

CPS workers have an incentive to seize children, since the federal government gives states incentives for seizing and adopting out children, and CPS workers are more likely to be fired for failing to prevent child abuse than for wrongly seizing children, even if the seizure itself causes the child devastating psychological harm.

I wrote earlier about how temporary seizures of infants based on erroneous accusations later found to be false can become permanent, when courts rule that the infant has become attached to her foster family and thus should not be returned even if the alleged abuse that led to the seizure did not actually occur.   I also discussed the violation of due process involved in the mass seizures of children in the strange FLDS religious sect, hundreds of whom were seized based on a single, anonymous, allegation of abuse by a caller pretending to be a teenager in the sect, and who continue to be held without any hearing on whether they individually are endangered (although the removal of some of the children might well be warranted if it occurred after a full judicial hearing).

Taking an infant away from its mother can be very damaging to the infant.  (For example, my daughter, a very finicky eater, will not let anybody other than my wife or me feed her, and she usually only lets me feed her if it’s early in the morning.  We have to work diligently to get her to eat enough).  That’s especially true for nursing infants.

Being placed in foster care can be cause devastating psychological harm to a young child, as Judge Kleinfeld noted in Doe v. Lebbos.

Moreover, erroneous child abuse charges can have legally permanent, irrevocable consequences that devastate a family.  In Arlington County, Virginia, parents proved themselves innocent of a false, anonymous charge that they were starving their child (who was actually at her proper weight when CPS workers snatched her), but the judge later refused to return the child to them, permanently cutting off their parental rights based heavily on his conclusion that the child — seized as a newborn — had developed a bond with her foster parents as a result of being snatched.  (That ruling is on appeal).

Federal law provides financial incentives for CPS agencies to seize and adopt out children, which may lead to overzealous child-snatching.

But his bill is an insult to thrifty people everywhere.   Frank’s bill proposes to bail out people who borrowed so much (and made such small down payments) that their mortgages are actually bigger than the current value of their homes. He would reward those borrowers by writing down their mortgages to their homes’ “current market value” (a write-off that by definition would not apply to thriftier, more responsible borrowers who made larger downpayments), even though he admits that for some of them, their plight is the result of “their own irresponsibility.”  Such a bailout will foster future housing bubbles, as subprime borrowers realize that they can gamble at taxpayer expense on housing prices continuing to rise, and expect a bailout if they end up not being able to afford their mortgage.

In his interview, Frank admits that his bill would guarantee $300 billion worth of risky mortgages.  But he claims that it would cost taxpayers only 1 percent or so of that.  The Wall Street Journal takes a different view.  It warns taxpayers to “hold onto your wallet.”  It says that Frank’s bill would actually encourage borrowers to default on their loans to be eligible for a bailout.  Under it, bailout beneficiaries would get something (a new, smaller, lower-rate mortgage) for nothing.   And the Journal predicts, based on economic studies, that a lot of irresponsible borrowers would default on their new, smaller loan, too, sticking taxpayers with the tab for even more money.

There is absolutely no reason for Congress to bail out subprime borrowers who took out bigger mortgages than they could afford (especially since some of them exaggerated their incomes to get those mortgages, or borrowed to live beyond their means so that they could buy big houses and fancy cars).

Back in March, Congressman Frank gave an even more dubious rationale for his bailout proposal: to prop up property tax collections by local governments in the United States.  He complained about “a drop in the tax revenue” in “communities where foreclosures cluster.”

That is a very weak rationale for bailing out irresponsible people. During the real estate bubble, local government revenue exploded as property values — and thus property taxes — skyrocketed.  As a result, public employee compensation grew to absurd levels.  In New Jersey, many public employees can retire at age 55 for close to their full salary.  In Washington, D.C. suburbs, even teachers — who are far from being the best paid public employees — now often have generous compensation packages that average over $100,000 annually, including salaries of over $70,000, and pension and other benefits worth around $30,000 annually, far more than most private-sector employees receive.

With a little belt-tightening, local governments could easily make do. But instead, they’re doing just the opposite.  For example, a typical Washington, D.C. suburb (Arlington County, Virginia) has adopted a so-called “austerity” budget that increases spending by over 5 percent!  There’s nothing austere about increasing spending faster than inflation.

The real estate bubble needs to pop.  Until it does, the U.S. economy will not experience strong and sustained growth.  The government should stop trying to artificially prop up home prices, which just delays the inevitable.  Doing so encourages sellers to keep their homes on the market for months on end at artificially-inflated prices no buyer will pay, in the vain hope that the government will come along and somehow pump home prices back up to that inflated price.  As George Mason University Law Professor David E. Bernstein notes, some would-be sellers simply refuse to sell their homes at their true current market value, stubbornly insisting instead on receiving the value at which their home was assessed at the height of the real estate bubble.

In the meantime, American politicians’ support for bailouts that shower money on irresponsible borrowers, their apparent unwillingness to let borrowers suffer the consequences of their financial irresponsibility, and America’s lax monetary policy, are leading to a loss of confidence in our economy by international investors.  That’s triggering a fall in the dollar, reduced investment in the U.S., and renewed inflationary pressures.