WWJD: Would Jesus walk away from His mortgage?

In the middle of the financial crisis, Donald Trump coldly walked away from his contractual obligations on a real estate deal:

Guess who is complaining that condominiums in Donald Trump’s latest big project are ridiculously overpriced.

Donald Trump is.

But he isn’t cutting the prices. He says the banks won’t let him.

The project is the Trump International Hotel and Tower in Chicago, which is to be the second-tallest building in that city (after the Sears Tower). By Mr. Trump’s account, sales were going great until “the real estate market in Chicago suffered a severe downturn” and the bankers made it worse by “creating the current financial crisis.”

Those assertions are made in a fascinating lawsuit filed by Mr. Trump, the real estate developer, television personality and best-selling author, in an effort to avoid paying $40 million that he personally guaranteed on a construction loan that Deutsche Bank says is due and payable.

Rather than have to pay the $40 million, Mr. Trump thinks the bank should pay him $3 billion for undermining the project and damaging his reputation.

He points to a “force majeure” clause in the lending agreement that allows the borrower to delay completion of the building if construction is hampered by such things as riots, floods or strikes. That clause has a catch-all section covering “any other event or circumstance not within the reasonable control of the borrower,” and Mr. Trump figures that lets him out, even though construction is continuing.

“Would you consider the biggest depression we have had in this country since 1929 to be such an event? I would,” he said in an interview. “A depression is not within the control of the borrower.”

He wants a state judge in the Queens borough of New York to order the bank to delay efforts to collect the loan until “a reasonable time” after the financial crisis ends.

Deutsche Bank thinks the idea that an economic downturn should free people from the obligation to pay their debts is laughable.

Mr. Trump, it may be noted, does not think remorseful condominium buyers are in a similar position. When I asked him if he would let them walk away from contracts to buy apartments at predepression prices, he said he would not. “They don’t have a force majeure clause,” he said.

The suit, and a parallel one by Deutsche Bank seeking the money, provide a glimpse into both how Mr. Trump does business and into the way the real estate loan market was operating in 2005, when the loan was made.

Christians teach that people should generally act with fidelity and honesty in their contracts. But what if you're in a contract with a sociopath?

Corporations are legally required to be responsible only to their shareholders. They are immortal and any legal penalties they suffer in response to misdeeds are typically small in comparison to their business. In other words, they exhibit many characteristics of sociopaths. See this ICD-10 description of the antisocial personality disorder:

(a) callous unconcern for the feelings of others;

(b) gross and persistent attitude of irresponsibility and disregard for social norms, rules and obligations;

(c) incapacity to maintain enduring relationships, though having no difficulty in establishing them;

(d) very low tolerance to frustration and a low threshold for discharge of aggression, including violence;

(e) incapacity to experience guilt and to profit from experience, particularly punishment;

(f) marked proneness to blame others, or to offer plausible rationalizations, for the behaviour that has brought the patient into conflict with society.

Donald Trump is a particularly slimy example of a business leader, but his behavior is not qualitatively different from corporations. For example, Morgan Stanley bought five office buildings in San Francisco at the peak of the housing bubble. When their value plunged in the housing crisis, Morgan Stanley turned the properties over to Blackstone, the private equity firm that lent them the money. Morgan Stanley admitted it could afford to make the payments. Charitably, they could be said to have successfully negotiated a deed in lieu of foreclosure. Less charitably, they strategically defaulted - they could have afforded to pay but they walked away. Homeowners have been known to unilaterally mail in their keys to their lenders, a practice known as jingle mail, when they are upside down on their mortgages and can't pay, or they don't want to pay.

We are very judgmental about people who violate their loan contracts. Liz Pulliam Weston, one of my favorite personal finance columnists on MSN Money, describes a law professor who advised people to walk away if their financial situation dictated as "wrong, wrong, wrong". Walking away from our properties en masse would hurt our communities by driving down property values and increasing crime. It would also be an assault, she says, on our personal integrity - which is priceless.

And then, I read the article by the law professor in question, Brent White. The article, Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis, is available free from the Social Science Research Network, but you have to register. In a stunningly well-argued combination of law, economics and sociology, Professor White essentially argues that people who are severely underwater on their mortgages and choose not to default are fools. From the abstract:

This article suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations - and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision.

About 32% of mortgages are underwater across the country. In the 3 hardest hit metropolitan areas of Merded, El Centro and Modesto (all in California), 84-85% of mortgages are underwater. Nationally, 16% of homeowners were underwater by at least 20% of their home's value - in California and Nevada, these figures rise to 25% and 47% respectively. White gives a specific example of a hypothetical couple:

Consider, for example, Sam and Chris, a young professional couple with two small children, who stretched to buy their first home - an average 3 bedroom, 1380 square foot house in Salinas, California – for $585,000 in January of 2006.31 Sam and Chris had excellent credit and a solid income, and were thus able to qualify for a 30-year fixed interest loan with nothing down. At an interest rate of 6.5%, their total monthly payment is $4300,32 which is just under 31% of their gross monthly income, and within the payment-to-income ratio considered “affordable” by most lenders. However, after paying for taxes, health insurance, student loans, childcare, automobiles, food, and other necessities, Sam and Chris do well to break even each month. At the time they bought their home, they were not overly concerned about this - as they saw their mortgage payment itself as an investment in their own and their children’s futures.

Unfortunately for Sam and Chris, the housing market began to collapse in 2007. Though they still owe about $560,000 on their home,33 it is now only worth $187,000.34 A similar house around the corner from Sam and Chris recently listed for $179,000, which, with a modest 5% down, would translate to a total monthly payment of less than $1200 per month – as compared to the $4300 that they currently pay. They could rent a similar house in the neighborhood for about $1000.

Assuming they intend to stay in their home ten years, Sam and Chris would save approximately $340,000 by walking away, including a monthly savings of at least $1700 on rent verses mortgage payments, even after factoring in the mortgage interest tax reduction. The financial gain for Sam and Chris from walking away would be even more substantial if they took their monthly savings and put it into an investment account. If they stay in their home on the other hand, it will take Sam and Chris over 60 years just to recover their equity – assuming, of course, that they live that long, the market in Salinas has indeed hit bottom, and their home appreciates at the historical appreciation rate of 3.5%.

And yet, only 3% of all mortgage owners strategically default. These folks represent about one quarter of the total number of people who default - most people really can't pay because they've lost their job, divorced or otherwise run into financial difficulty. While strategic default hurts our communities in the ways that Pulliam Weston said, foolhardy staying (my term) can hurt our families by making us unprepared to meet other financial emergencies - like being hospitalized.

White says that because mortgage lenders have superior understanding of mortgage instruments and valuation of real estate compared to consumers, they should bear a greater share of the blame than consumers. They had the means to protect themselves, by using sound underwriting standards - but they threw these out the window. If consumers are to be held to societal norms regarding staying in their mortgages, then mortgage lenders need to uphold societal norms as well. They need to work with consumers who are in financial difficulty to lower the principal amounts on their mortgages. If they merely reduce the monthly payments or allow a consumer to suspend payments for a limited time, the consumers don't amortize their principal as fast (or at all), and they owe more in the long run. In reality, lenders have generally refused to negotiate lower principal amounts. Instead, they have stalled consumers and "lost" their paperwork.

More than that, there has been immense social pressure on people not to default - sociologists call this sort of thing social control:

The worst criticism has been reserved, however, for those who would walk away from mortgages that they can afford. Typical of such criticism is that of Secretary of the Treasury Henry Paulson, who declared in a televised speech: “And let me emphasize, any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator – and one who is not honoring his obligations.”

Paulson’s comment is mild, however, compared to the media invective toward those who strategically walk from their mortgages. Such individuals are portrayed as obscene, offensive, and unethical, and likened to deadbeat dads who walk out on their children, or those who would have “given up” and just handed over Europe to the Nazis.

There is similarly no shortage of moralizing about the responsibilities of mortgagors. Typical media messages include: "we need a culture of responsible consumers and homeowners;" “one should always honor financial obligations;125 “when you enter into a contract that should mean something;” “there was a time when people felt really bad about not paying back debt,” and, “money is more than a matter of numbers. There are ethics involved. Most people feel, or should feel, an obligation to pay their debts.” Even sympathy for those who default because of predatory lending is frequently lacking: “We’ve read too many sob stories in the press about ‘predatory lending’ — a rare, misunderstood, and vastly exaggerated phenomenon. It’s time for the poster children for irresponsibility to get some face time.”

As a result, homeowners have been forced by businesses, which are backed up by social control, to bear the brunt of the damage from falling home values. If they were Morgan Stanley, they could have forced their lenders into some sort of agreement. But homeowners don't have the bargaining power of Morgan Stanley.

In theology, a covenant is similar to a contract in the business sense that two parties exchange promises. However, if one party violates their promise, the other party is still bound to their side of the agreement. For example, Christians believe that God's love for humankind is unconditional, regardless of how badly we mess up. Pulliam Weston and society are asking people to treat our loans as covenants, but the fact is that the business world treats loans as simple contracts. White calls this "norm asymmetry". I call it an invitation to be exploited - you cannot make a covenant with an amoral entity. Indeed, in theology, covenants are only made between deities and people, and sometimes people and other people (e.g. marriage).

And so, we come to the question of what Jesus would say to underwater homeowners. It's not possible to say for sure - they didn't do mortgages or have corporations in ancient Israel, so Jesus never addressed this subject directly. However, I feel confident in saying that your mortgage lender is treating your mortgage as a simple business arrangement, and people should do the same, especially if they are in financial distress. In a business arrangement, you both agree to do something and there are specified penalties for noncompliance by either side. You simply have to be prepared to face the penalties. For people who walk away, the damage to your credit scores will be significant but not insurmountable. In some states (like California), the lender is legally prevented from suing you to collect the owed amount, so your cost of nonperformance is lower. Even if you are in most of the states that allow recourse, it is often not worth the lender's while to come after you.

If more people strategically default, this might force lenders to voluntarily modify more loans - which is what they should be doing in the first place. It might also enable the government to step in and give bankruptcy judges the ability to reduce principal on primary residences - the banks lobbied against this in the past. It is possible to get amoral entities to behave in a socially responsible fashion, but you have to make a significant threat to their profitability and/or existence to do so. If businesses want consumers to treat their loans as covenants, then businesses have a reciprocal obligation to do the same. But if businesses are treating loans as mere contracts, then consumers may do the same. They should consider their own finances, and they should take into consideration the effects on their neighborhoods. But they have the right - indeed, the responsibility - not to be taken advantage of, and they have the right to press government to exert more pressure on lenders to modify loans.

Slate: Terrorism Derangement Syndrome

Dahlia Lithwick of Slate asks why we are so afraid of putting terrorists on open trial in New York City. It's a mystery to me, too.


America has slid back again into its own special brand of terrorism-derangement syndrome. Each time this condition recurs, it presents with more acute and puzzling symptoms. It's almost impossible to identify the cause, and it's doubtful there's a cure. The entire forensic team from House would need a full season to unravel the mystery of what it is about the American brain that renders us more terrified of terrorists today than we were five years ago and less trusting of government policies to protect us.

The real problem is that too many people tend to follow GOP cues about how hopelessly unsafe America is, and they've yet again convinced themselves that we are mere seconds away from an attack. Moreover, each time Republicans go to their terrorism crazy-place, they go just a little bit farther than they did the last time, so that things that made us feel safe last year make us feel vulnerable today.

Policies and practices that were perfectly acceptable just after 9/11, or when deployed by the Bush administration, are now decried as dangerous and reckless. The same prominent Republicans who once celebrated open civilian trials for Zacarias Moussaoui and Richard Reid, the so-called "shoe bomber," now claim that open civilian trials endanger Americans (some Republicans have now even gone so far as to try to defund such trials). Republicans who once supported closing Guantanamo are now fighting to keep it open. And one GOP senator, who like all members of Congress must take an oath to uphold the Constitution, has voiced his concern that the Christmas bomber really needed to be "properly interrogated" instead of being allowed to ask for a lawyer.

In short, what was once tough on terror is now soft on terror. And each time the Republicans move their own crazy-place goal posts, the Obama administration moves right along with them.

It's hard to explain why this keeps happening. There hasn't been a successful terror attack on U.S. soil since 9/11. The terrorists who were tried in criminal proceedings since 9/11 are rotting in jail. The Christmas Day terror attack was both amateurish and unsuccessful. The Christmas bomber is evidently cooperating with intelligence officials without the need to resort to thumbscrews. In a rational universe, one might conclude that all this is actually good news. But in the Republican crazy-place, there is no good news. There's only good luck. Tick tock. And the longer they are lucky, the more terrified Americans have become.

This week Glenn Greenwald summarized how far the goal posts of normal have moved when he pointed out that "merely advocating what Ronald Reagan explicitly adopted as his policy—'to use democracy's most potent tool, the rule of law against' terrorists—is now the exclusive province of civil liberties extremists." Upon being elected to the U. S. Senate last month, Scott Brown declared: "Our Constitution and laws exist to protect this nation—they do not grant rights and privileges to enemies in wartime. In dealing with terrorists, our tax dollars should pay for weapons to stop them, not lawyers to defend them." As Adam Serwer observed, "This is the new normal for Republicans: You can be denied rights not through due process of law but merely based on the nature of the crime you are suspected of committing. Brown's rhetorical framing, that jettisoning the legal system we've had for 200-plus years represents 'tradition' while granting suspected criminals the right to legal counsel represents liberalism gone mad."

I have read several good explanations for why the GOP leadership has decided to make the case that processes that worked in the Bush administration (like civilian trials) won't work under Obama, and why policies that failed in the Bush administration (like torture or military tribunals) must be reinstated. Maybe it's simple obstructionism. Josh Gerstein points out that for Republicans seeking to capitalize on Obama's missteps, his feints and pivots on national security have proved fertile ground. And Greenwald concludes that "our establishment craves Bush/Cheney policies because it is as radical as they are."

But it's not just the establishment that opposes closing Guantanamo, trying Khalid Sheikh Mohammed, or reading Umar Farouk Abdulmutallab his Miranda rights. Polls show most Americans want Abdulmutallab tried by military commission, want Gitmo to remain open, and want KSM tried in a military commission, too. For those of us who are horrified by the latest Republican assault on basic legal principles, it's time to reckon with the fact that the American people are terrified enough to go along.
We're terrified when a terror attack happens, and we're also terrified when it's thwarted. We're terrified when we give terrorists trials, and we're terrified when we warehouse them at Guantanamo without trials. If a terrorist cooperates without being tortured we complain about how much more he would have cooperated if he hadn't been read his rights. No matter how tough we've been on terror, we will never feel safe enough to ask for fewer safeguards.

Now I grant that it's awfully hard to feel safe when the New York Times is publishing stories about a possible terrorist attack by July. So long as there are young men in the world willing to stick a bomb in their pants, we will never be perfectly safe. And what that means is that every time there's an attack, or a near-attack, or a new Bin Laden tape, or a new episode of 24, we'll always be willing to go one notch more beyond the rules than we were willing to go last time.

Some of the very worst excesses of the Bush years can be laid squarely at the doorstep of a fictional construct: The "ticking time bomb scenario." Within minutes, any debate about terrorists and the law arrives at the question of what we'd be willing to do to a terrorist if we thought he had knowledge of an imminent terror plot that would kill hundreds of innocent citizens. The ticking time bomb metaphor is the reason we get bluster like this from Sen. Susan Collins, R-Maine, complaining that "5-6 weeks of 'time-sensitive information' was lost" because Abdulmutallab wasn't interrogated against his will upon capture.
But here's the paradox: It's not a terrorist's time bomb that's ticking. It's us. Since 9/11, we have become ever more willing to suspend basic protections and more contemptuous of American traditions and institutions. The failed Christmas bombing and its political aftermath have revealed that the terrorists have changed very little in the eight-plus years since the World Trade Center fell. What's changing—what's slowly ticking its way down to zero—is our own certainty that we can never be safe enough and our own confidence in the rule of law.

Cutting the deficit: the military budget must also be on the line

Would Jesus be more likely to condemn someone who failed to support the troops, or somebody who failed to support the poor? Based on his recorded words and actions, it would almost certainly be the latter.

President Obama's new budget does remarkably well on key support programs such as TANF (Temporary Aid for Needy Families), Food Stamps and Medicaid. It also does well on education, which is a key investment in our society's future. But, it exempts the military budget from cuts.

Now, the U.S. is at war. A not-unreasonably case can be made that the war in Afghanistan has a just cause. But, for all the waste and inefficiency in the health sector, the military is as as bad or worse. The MV-22 Osprey. The second engine (!) for the Joint Strike Fighter. The F-22. The list of programs that have vastly exceeded budget is almost endless. Not subjecting the military budget to fiscal discipline is an open invitation to waste - the President might as well wright a blank check.

The military budget is about 4.7% of GDP in FY 2010. This compares very aggressively to other OECD nations and in fact to the rest of the world.

Robert Gates, the Secretary of Defense, wrote the following in an article in Foreign Affairs magazine:

What all these potential adversaries—from terrorist cells to rogue nations to rising powers—have in common is that they have learned that it is unwise to confront the United States directly on conventional military terms. The United States cannot take its current dominance for granted and needs to invest in the programs, platforms, and personnel that will ensure that dominance's persistence. But it is also important to keep some perspective. As much as the U.S. Navy has shrunk since the end of the Cold War, for example, in terms of tonnage, its battle fleet is still larger than the next 13 navies combined—and 11 of those 13 navies are U.S. allies or partners.

It is well past time to subject the military budget to spending discipline. The Center for American Progress has an article on the subject here; the lead author, Lawrence Korb, was a former Assistant Secretary of Defense under President Reagan. Readers may also wish to consider signing this petition by Sojourners Magazine.

Michael Brush of MSN Money writes a critique of the financial reforms in the House. Here are the ones he says we really need:


The House reform bill

Simply put, a House financial-reform bill approved in December falls short on five of the basics the experts say we need. A sixth might be covered by a new consumer agency, but that proposal could be killed to win Senate approval.
So rather than spend too much time on a bill that will change anyway, let's look at the six key reforms the experts say we really need:

1. Scale back the big banks
Huge banks at some point become "too big to fail," which means they'll get bailed out by the government if they get into trouble. This frees them to take wild risks.
Also, as MIT professor Johnson says in a book due out next month called "13 Bankers: The Wall Street Takeover and the Next Financial Meltdown," large banks have so much clout in Washington that they can block any regulatory changes they don't like.
One fix could be to cap bank size relative to the size of the economy. Johnson also suggests separating "utility" banks that handle the basics such as savings and checking from the "casino" banks that work the market. To get there, we'd need to break up the likes of Goldman Sachs and Citigroup, Johnson says. Another fix would be to increase the amount of capital that banks have to hold to back riskier businesses.

2. Fix the pay packages
Top bankers stand to reap huge rewards from stock options and restricted stock, as well as cash. This sets up distorted incentives. They lose little if their banks go bust but reap big gains if risky moves pay off.
"This creates a real incentive for excessive risk taking," says Columbia Business School professor Joseph Stiglitz, a Nobel Prize winner and the author of "Freefall: America, Free Markets, and the Sinking of the World Economy."
Though federal banking regulators can consider distorted pay incentives when reviewing bank risks, no one in Washington seems ready to deal with this issue.

3. Fix the Securities and Exchange Commission
Much of the blame for the financial crisis lies with the SEC, says William Isaac, who was the head of the Federal Deposit Insurance Corp. in the early 1980s and is now a financial-sector consultant with LECG, a consulting group.
A few key mistakes: The SEC relaxed rules that limited how much banks could borrow and went soft on short-sellers who profit by spreading rumors. It even missed the Bernie Madoff fraud. But nothing in the House bill on financial reform would make any significant changes to toughen this market watchdog.
For the next fiscal year, Obama has proposed boosting the SEC's budget by 12% and adding more than 100 staffers to work on fraud and market-manipulation cases.

4. Streamline banking regulation
As things stand now, too many different regulators at the Treasury Department, at the Fed and elsewhere in Washington oversee our banks. Banks can go shopping for regulators and play them against each other in a game called regulatory arbitrage.
"A lot of the financial innovation wasn't about creating new instruments. It was about regulatory arbitrage," former Fed official Reinhart says. Behind the scenes, big banks have to create dozens of different entities and keep much of their business off their official balance sheets to make it work.
"They aren't too big to fail. They are too complex to fail," Reinhart says. "We need regulatory consolidation."

5. Increase consumer protection
It's easy to blame the financial meltdown on people who took out subprime mortgages for getting in over their heads or signing contracts they should have understood. But that's too simple, says journalist Andrew Cockburn, who takes a close look at what caused the meltdown in a great film called "American Casino."
Plenty of real-estate agents committed fraud by changing the terms of mortgages without telling borrowers or by burying key material in incomprehensible fine print, Cockburn says. Crooked mortgage lenders were able to avoid investigators by regulator shopping -- changing their legal structures so they could be overseen by the most favorable, or laziest, regulators in Washington.
A proposed Consumer Financial Protection Agency, now before Congress, might fix all this by requiring more clarity in the contracts behind mortgages, credit cards and other financial products. But the agency may not survive the Senate. "The Republicans and the industry don't like it, and it is a tough fight," one consumer lobbyist says.

6. Put complex derivatives on an exchange
The meltdown, of course, wasn't just about mortgages. The system blew up because banks and AIG used those mortgages to create complex derivatives that were nearly impossible to value, putting too much risk on their balance sheets.
If derivatives were traded on a central exchange, as stocks are, someone could monitor positions and make sure banks that owned them had enough capital to sustain losses if they blew up. Attempts in the House bill to create a central exchange were watered down, Cockburn says.

Generations and entitlements

Conservatives in the U.S. have recently been pushing for entitlement reform. The two biggest entitlements in the U.S. are Social Security and Medicare. In addition, Sen. McCain called the stimulus bill a "generational theft". There seems to be a persistent line of thinking among conservatives that present generations, by running up debt that we cannot repay, are stealing from future generations.

In addition, David Brooks, the resident conservative columnist at the New York Times, tells a story about what he calls the Geezers' Crusade:

The research paints a comforting picture. And the nicest part is that virtue is rewarded. One of the keys to healthy aging is what George Vaillant of Harvard calls “generativity” — providing for future generations. Seniors who perform service for the young have more positive lives and better marriages than those who don’t. As Vaillant writes in his book “Aging Well,” “Biology flows downhill.” We are naturally inclined to serve those who come after and thrive when performing that role.

The odd thing is that when you turn to political life, we are living in an age of reverse-generativity. Far from serving the young, the old are now taking from them. First, they are taking money. According to Julia Isaacs of the Brookings Institution, the federal government now spends $7 on the elderly for each $1 it spends on children.

Second, they are taking freedom. In 2009, for the first time in American history, every single penny of federal tax revenue went to pay for mandatory spending programs, according to Eugene Steuerle of the Urban Institute. As more money goes to pay off promises made mostly to the old, the young have less control.

Third, they are taking opportunity. For decades, federal spending has hovered around 20 percent of G.D.P. By 2019, it is forecast to be at 25 percent and rising. The higher tax rates implied by that spending will mean less growth and fewer opportunities. Already, pension costs in many states are squeezing education spending.

In the private sphere, in other words, seniors provide wonderful gifts to their grandchildren, loving attention that will linger in young minds, providing support for decades to come. In the public sphere, they take it away.

George Will, writing for the Washington Post, made a similar argument.

I myself am under 30 and I cannot deny the importance of investing in our young. And yet, it strikes me that this generational war rhetoric is off-base.

Most of the long-run U.S. deficit is attributable to the fact that health care has historically grown about 2% faster than Gross Domestic Product, and organizations like the Congressional Budget Office assume it will grow at about GDP + 1% in the future. None of that growth is because Medicare's benefit structure is excessively generous. For example, the Congressional Research Service and Watson Wyatt Worldwide estimate that Medicare only covers about 76% of its' beneficiaries' medical expenses, compared to a typical health plan sponsored by a large employer that covers an average of 80-84% of claims. (Employer-sponsored plans with HMOs cover an estimated 93% of claims because HMOs, which have greater restrictions on the providers you can use, can also negotiate better discounts.)

The U.S. deficit isn't due to excessively generous entitlements. It's due to medical costs that are growing much faster than GDP. Advancements in technology are by far the biggest driver of medical spending growth, although growth in obesity rates are probably a close second.

People far wiser than I have said, health reform that brings spending growth down is entitlement reform. Social Security is not out of line with what other countries provide. Conservatives nervous about Social Security's effect on the budget would be better off arguing that the trust fund should be invested in a diversified portfolio of stocks and bonds like a pension fund, instead of having the U.S. government guarantee the trust fund's returns - indeed, one of the sample options that the National Academy of Social Insurance suggested to balance the trust fund was to gradually invest 40% of the trust fund in an S&P index fund.

Likewise, Medicare actually provides a smaller benefit than commercial insurance plans (albeit seniors are far more costly than working adults). Some seniors buy Medigap insurance, which is a private wrap-around product that covers some of Medicare's cost sharing. Cutting Medicare's statutory benefits is not the answer. Privatizing Medicare isn't the answer per se - the private companies would have to manage care far more efficiently than is presently done to overcome the hurdles that their higher administrative costs and marketing costs would impose. It would probably be impossible except for the best HMOs.

There are undeniable problems with the American education system. It is certainly true that at the state level, increasing Medicaid expenses are squeezing budgets. The second biggest item on state budgets (according to my memory) is education. Again, the solution is not to cut a critical safety net for the poor. The appropriate solution is health reform that drives down costs. The second appropriate solution may be for the Federal government to take on long-term care for the poor and/or to expand the use of long-term care insurance (possibly by starting a public long-term care plan like the CLASS Act).

To reiterate, the services that the U.S. provides for the elderly are not out of line with what other OECD countries provide. The services provided for the poor are probably worse. Those who think our entitlements are excessively generous are off-base. While some cuts may need to be made to the benefits (e.g. raising the retirement age slightly for Social Security), the Republicans' refusal to consider tax hikes along with benefit cuts necessarily means that benefits will have to be cut substantially. That would undermine the social compact that the government has made with its citizens and it should be off the table.

Rep. Paul Ryan (R-WI) would balance the budget by cutting Medicare and Medicaid

Representative Paul Ryan, the Republican representative from Wisconsin just released his anti-budget for the U.S. today, which Ezra Klein from the Washington Post deconstructs. Ezra is well worth reading. However, the upshot is that Ryan would balance the budget by cutting Medicare. Not only that, but he would cut Medicaid.

He would actually privatize those two programs, plus privatize Social Security. However, that is actually besides the point. Ryan's proposal would issue Medicare and Medicaid beneficiaries a health insurance voucher. However, that voucher's value would grow by the average of the Consumer Price Index and the medical component of the CPI. The CPI is the U.S.' primary measure of inflation. The CPI-medical measures medical and health insurance costs; in general, healthcare costs have been growing about 2% faster than GDP, which has itself been growing a bit faster than inflation. Thus, in the long run, Ryan would balance the budget by cutting Medicare. And Medicaid.

In the absence of other measures in the health reform bills, the private insurance companies would most likely respond by increasing co-pays and deductibles. If Medicare and Medicaid were to remain government programs, this is also the most likely thing they would do. In contrast, the Democratic health reform proposals would have set up the infrastructure for these programs to ration services by their comparative effectiveness and would not have cut the benefits promised to beneficiaries in the statutes. Ryan condemned comparative effectiveness research, and in fact I believe his anti-budget would not implement such research. Thus, the foremost avenue to contain costs will be to increase cost-sharing - which will put many effective treatments out of the reach of low- and moderate-income people.

In response to a commenter on sexual-orientation change efforts

In a previous post, I examined a Minneapolis Star Tribune article that showed that the Catholic Archdiocese of Minneapolis and Saint Paul was promoting programs that attempted to change the sexual orientation of clients, as opposed to helping them control their sexual desires. One commenter said that my criticism was inaccurate, as the APA had allowed such therapy. I disallowed the comment. The APA's stance, once again, is that psychologists should not advise clients that they can change their underlying sexual orientation.

Evidence from case studies does show that some very religious clients who are lesbian, gay or bisexual can successfully control their sexual behavior if they wish - their religious motivations may overcome their sexual orientations. I still hold that this is not advisable, but the APA does recognize that it can happen. It's a legitimate position for the APA to take. However, the commenter clearly does not understand the distinction between sexual orientation and sexual behavior, which is one of the problems that many religious programs have. Again, religious programs that advise LGB people that they can become fully heterosexual are intrinsically flawed and fly in the face of scientific evidence. Mental health professionals who advise their clients that they can become heterosexual should have their licenses revoked, or else see license outside of the APA so that we can easily tell they're a bunch of quacks. That's why I disallowed the comment.

At this point, religious programs that attempt help LGBT people stay celibate are merely ill-advised - they're theologically bad, but they aren't in fundamental and irrevocable conflict with our existing evidence base.