When I was driving home this evening, I heard some scary news on the radio (HT Mark Levin.)  Could the Democrats on the House Committee on Education and Labor and the House Ways and Means Committees be seriously considering changing our 401(k) plans to a government-run plan?  Just what we need, Congress interfering again with the financial markets and our retirement!

This is what James Pethokoukis of the blog U.S. News - Capitol Commerce says:

“I hate to use the “S” word, but the American government would never do something as, well, socialist as seize private pension funds, right? This is exactly what cash-strapped Argentina just did in the name of protecting workers’ retirement accounts (Efharisto, Fausta’s Blog). Now, even Uncle Sam isn’t that stupid, but some Democrats might try something almost as loopy: kill 401(k) plans.”

You can read the entire Pethokoukis blog here.

Here is some background.  On Oct 7, the House Committee on Education and Labor held a hearing entitled, “The Impact of the Financial Crisis on Workers’ Retirement Security.”  One of the people testifying was Teresa Ghilarducci, Professor of Economic Policy Analysis at the New School for Social Research Department of Economics in New York City.  She proposes that Congress let workers trade their 401(k) plans for a Guaranteed Retirement Account composed of U.S. government bonds that would earn a 3% return, adjusted for inflation.  You can read her testimony here.

Hmmm, a government-run retirement plan that promises us something in retirement.  A program we are forced to put money in.  Gee, where have we heard THAT before?  Social Security?  The very program Congress has stolen money from for years and is going broke?

It seems Ms. Ghilarducci stated in an interview with Workforce Week:

“I want to stop the federal subsidy of 401(k)s.  They can continue to exist, but they won’t have the benefit of the subsidy of the tax break…I want to spend our nation’s dollar for retirement security better.  Everybody would be covered if the plan were adopted.”

Excuse me…our nation’s dollar?  What do you mean OURS?  Do you mean mine?  My neighbor’s? My colleagues’?

According to the Workforce Week:

“House Education and Labor Committee Chairman George Miller, D-California, and Rep. Jim McDermott, D-Washington, chairman of the House Ways and Means Committee’s Subcommittee on Income Security and Family Support, are looking at redirecting those tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute.”

In addition, McDermott believes the Ghilarducci plan is intriguing and Miller is against continuing tax breaks for 401(k) plans as they currently exist.

Yikes.  Could it get worse?

As if the economic news out of main street and Wall Street weren’t enough, the Congressional Budget Office just announced that the federal budget deficit for 2008 is $455 billion.  Ok, I’ll wait a few seconds for that number to sink in before I continue.

 According to the New York Times:

The 2008 deficit was the largest as a share of the economy since 2004, when it was 3.6 percent of the gross domestic product, the government’s principal measure of the country’s output of goods and services.

By comparison, under President Ronald Reagan and the first President Bush, the deficit was more than 4 percent of the gross domestic product.

Many words come to mind (many of which are the four letter mind), but the most apt is “unacceptable.”  This number does not take into account the latest financial bailout, which will surely add billions more to next year’s deficit.

Congress and the President have failed the American taxpayer by not keeping spending in check.  The deficit is the hangover of the spending spree of the last 14 years.  The only cure for this hangover is strict fiscal discipline and pro growth policies.

Day 3 was down to the nitty gritty - workshops designed to share successes and give advice to blossoming think tanks in Europe. 

Matthew Elliott of the British TaxPayers’ Alliance gave an insightful speech on messaging and that most of UKers overwhelmingly trust television as their source.  He also suggested that the “right” needs to adopt some of the same strategies as the “left,” such as stunts.  Matthew made a special mention to CAGW’s own pig mascot and how the pig has increased the awareness of pork-barrel spending over the years.

General secretary for the Taxpayers Association of Europe (TAE), Michael Jäger, talked about lobbying Brussels.  What was interesting is how eerily similar it sounded like lobbying Washington.

So, this year’s meeting is a wrap.  Besides the opportunity to see old friends and make new ones, I am struck by the similarity of issues in Europe and in America.  People, regardless of geography or national origin, want more money in their pockets and less with the government.  Also, honesty and transparency are universal concepts and should be viewed from a global perspective.

The editors at the Wall Street Journal write today about ACORN, the group that is among the most controversial activist groups in the country right now.  And for good reason.  It appears that the group has engaged in blatant, widespread voter registration fraud, which really shouldn’t be news to anyone since it was notorious for doing the same thing during the last two presidential election cycles.  

But did you know that ACORN is using your tax dollars to do it!!!  Read the whole WSJ Online thing here and below is an excerpt:

According to a 2006 report from the Employment Policies Institute (EPI), Acorn has been on the federal take since 1977. For instance, Acorn’s American Institute for Social Justice claimed $240,000 in tax money between fiscal years 2002 and 2003. Its American Environmental Justice Project received 100% of its revenue from government grants in the same years. EPI estimates the Acorn Housing Corporation alone received some $16 million in federal dollars from 1997-2007. Only recently, Democrats tried and failed to stuff an “affordable housing” provision into the $700 billion bank rescue package that would have let politicians give even more to Acorn…

The Michigan Secretary of State told the press in September that Acorn had submitted “a sizeable number of duplicate and fraudulent applications.” Earlier this month, Nevada’s Democratic Secretary of State Ross Miller requested a raid on Acorn’s offices, following complaints of false names and fictional addresses (including the starting lineup of the Dallas Cowboys). Nevada’s Clark County Registrar of Voters Larry Lomax said he saw rampant fraud in 2,000 to 3,000 applications Acorn submitted weekly.

As many of you know, I am in Tbilisi, Georgia for the 5th Annual European Resource Bank Meeting.  Day 2 was a day of philosophy and friendship.  The panels today were a nice refresher course in the philosophy behind lower tax rates and less government intervention in the marketplace.     

Mart Laar (MP and former Prime Minister of Estonia) made an interesting comment:  he said that when he took office in the mid 1990’s he was 30 years old.  He also mentioned that his Secretaries were in their mid to upper 20’s.  He said that this young thinking helped him pass the much needed economic reforms such as a Flat Tax.  It started me to think.  That is exactly the problem we have in the U.S.,  politicians are afraid to try new things such as privatizing social security or a Flat Tax.  The likes of Sen. Reid, House Speaker Nancy Pelosi, et al have been in office way too long.  Time for some fresh thinking.

Day 3 is about getting the message out.  It is not only enough to have good ideas, people must know about them.  For example, the Bridge to Nowhere would have never been eliminated if it wasn’t for taxpayer groups and grassroots activism.  Today’s panels are interactive workshops designed to share experiences about how to publicize the messages.  Rats, I forgot the pig costume, that would have surely gotten some attention over here.

Since 2004, Citizens Against Government Waste has been attending the European Resource Bank Meeting.  This is the annual meeting of free market think tanks and taxpayer groups in, yes, you guessed it, Europe.  This year’s meeting is being held in Tbilisi, Georgia.  Originally planned to be here because of the free market reforms pushed by the prime minister, events of late (the Russian invasion) have changed the focus to showing solidarity.

Since the first meeting in 2004, I have always been struck by the sameness of the problems in different countries.  As I travelled here, the US had just passed a $700 billion financial bailout plan.  As I arrived, I turned on the television to see that the United Kingdom and Germany have also proposed bailing out their troubled financial institutions.  The price tag for the UK bailout could exceed 70 billion pounds, potentially eclipsing 500 billion pounds.

This similiarity reminded me of other bad government ideas initiated by the US federal government, such as the antitrust lawsuit against Microsoft.  It has also reminded me that there are more potential bad policies coming down the road such as Net Neutrality and the lack of respect/protection for intellectual property rights.

Day 1of the meeting is usually less policy driven and more of a reunion of like-minded friends.  Now comes the nitty gritty of the trying to figure out who to stop governments from raising taxes and wasting tax dollars.

With the current financial crisis, taxpayers are asking, “How did we get to this place?”  Just a few months ago, the government took over Fannie Mae and Freddie Mac, government sponsored enterprises (GSE) that went belly-up because of their huge losses on subprime loans, amounting to about $1 trillion.  Meanwhile, many Members of Congress are running for cover.  They don’t want taxpayers to know who provided continued Congressional support of the GSEs that created this mess. 

Peter Wallison and Charles Calomiris, of the American Enterprise Institute (AEI) have written a great piece on Fannie and Freddie and the disastrous results due to the fact the GSEs served two masters, the government and private shareholders.  They describe how Fannie and Freddie had an inherent conflict of interest – their government mission to keep mortgage rates low and push for “affordable” housing and their private-sector mission of keeping the price of capital low and fighting regulation in order to take greater risks so they could make bigger profits for shareholders.  This paragraph from the AEI report states it all:

“…GSEs sold out the taxpayers by taking huge risks on substandard mortgages, primarily to retain congressional support for the weak regulation and special benefits that fueled their high profits and profligate executive compensation.  As if that were not enough, in the process, the GSEs’ operations promoted a risky subprime mortgage binge in the United States that has caused a worldwide financial crisis.”

Citizens Against Government Waste wrote and warned about this coming crisis in its 2000 report, Corporate Welfare for the Politically Connected – The Story of Fannie Mae and Freddie Mac.  This scathing report on the GSEs concluded with this dire warning:

“Despite the political connections of the executives at Fannie Mae and Freddie Mac, and despite the high-powered lobbying team, Congress must take steps to tighten oversight and demand accountability of the GSEs and safeguard their long-term solvency.  If Congress does not do so, American taxpayers could ultimately bear the brunt of another crippling bailout.”

Were there any attempts by Congress to prevent this crisis prior to now?  The answer is yes.  While legislation did get passed out of the House, a bill was not passed out of the Senate. 

In 2003 and 2005, S. 1508 and S. 190, respectively, were introduced in the Senate by Sen. Chuck Hagel (R-Neb.)  Co-sponsors on the bill were Sens. Elizabeth Dole (R-N.C), John McCain (R-Ariz.), Trent Lott (R-Miss.) and John Sununu (R-N.H.)  While both bills were reported favorably out of the Senate Committee on Banking, Housing, and Urban Affairs, it was done so by a strictly party-line vote.  According to a staff person I spoke to, all the Republicans voted for the bill, all of the Democrats voted against it.  Unfortunately, due to Senate rules and the lack of strong bi-partisan support in order to provide the 60 votes to overcome any attempted filibuster, the bill did not move forward.  Who were sitting on these committees in 2003 and 2005?  Their names are below:

 In 2003:

In 2005:

In 2005, the House was able to pass legislation, H.R. 1461 but because there was no forward movement in the Senate, nothing was done.  (As you know, a bill has to pass both the House and Senate before it is sent to the president to be signed into law.)  It is worth to see who voted for and against the bill in the House, which can be found here. 

So now, we are in the “investigative” stage.  Unfortunately, the ones doing the investigations are the ones that opposed any reforms in the first place.  The proverbial “fox guarding the henhouse.”

Every day reveals more information about the undue influence of Fannie Mae and Freddie Mac and the failure of Congress, both collectively and individually to address the problem before it careened out of control.  The October 5 St. Louis Post Dispatch cited the role of Senator Kit Bond (R-Mo.) in attacking the regulator of the two government sponsored enterprises, the Office of Federal Housing Enterprise Oversight (OFHEO).  The article cited Bond’s role in trying to get OFHEO Director Armando Falcon fired, just as Falcon was investigating questionable accounting at Fannie Mae (a scandal that led to the resignation of its two top officials).  Upset by Falcon’s actions, Bond sent a letter to the Department of Housing and Urban Development (HUD), at the request of Fannie Mae’s top lobbyist (who also drafted the letter) asking the department to investigate OFHEO.  He also threatened to cut OFHEO’s budget.  The HUD inspector general issued a report clearing Falcon and OFHEO of any wrongdoing.

Senator Bond disputed the reporter’s characterization of his role in the matter.  He claimed he tried to help OFEHO, but the facts, backed up by the reporter’s research and comments from CAGW Media Director Leslie Paige, belie his proclaimed innocence.  Leslie told the newspaper that Bond had “amnesia” or was “being disingenuous.” 

Among many other examples of his lack of support for reform, Bond did not co-sponsor S. 190 (original co-sponsors were Senators Hagel, Dole, McCain and Sununu), the GSE reform legislation that twice passed the Senate Banking Committee without any Democratic support.  That lack of bi-partisanship doomed the bill from being considered by the full Senate. 

Bond’s role in the current financial crisis is typical of all of the members of Congress who were only too happy to take Fannie Mae’s and Freddie Mac’s campaign contributions while ignoring the needed reforms.  While the supporters of S. 190 won’t say “I told you so,” CAGW and the other organizations that pushed for reforms were correct about the consequences of failing to rein in the GSEs.

Leslie wrote a report on Fannie and Freddie in 2000, one of dozens of publications on the subject issued by CAGW in the past decade.  She has one of the more prophetic comments to headline a chapter in the report:  An S&L Crisis for the New Millennium?  Unfortunately for taxpayers, the answer, eight years later, is yes; although this debacle is likely to make the S&L bailout seem tame in comparison.