Bringing bankruptcy home

January 18, 2008


By Jack Kemp, Jack Kemp, a former secretary of Housing and Urban
Development, is founder and chairman of a strategic consulting firm in
Washington.

When I was Housing and Urban Development
secretary in the administration of President George H.W. Bush, we
fought against economic pessimism every day in the effort to spread the
American dream of homeownership, particularly for moderate- and
low-income families. Over the last 15 years, homeownership, especially
among people of color, has risen to historic levels. In just the last
five years, 2.8 million families bought their first homes. Now, the
sub-prime mortgage crisis is threatening to roll back this progress.

It
is clear that sub-prime loan foreclosures are only going to get worse.
How can the government help homeowners without putting taxpayer dollars
at risk or sending the wrong signals to the housing market?

There
is no single answer. Some ideas being floated are intended to bail out
Wall Street fund managers who made bad decisions on mortgage-backed
securities. Other proposals have the unintended effect of propping up
investors who bought property for speculative gain. Some notions, such
as programs to educate and counsel homeowners, are a positive but small
step. But the reality is that markets do work, and although credit
markets are in distress, progress is being made.

I applaud the
White House efforts to encourage mortgage servicers to modify existing
adjustable-rate loans for a limited number of borrowers who cannot
afford interest rate resets. However, depending solely on the goodwill
of an industry that bears no small measure of responsibility in this
crisis is unlikely to be the full answer.

What is missing is a
rational and urgent push to help the estimated 2.2 million families in
danger of losing their homes to foreclosure in the near future.
Congress is considering a small fix that would have more impact on
these families than any other option under consideration: temporarily
allowing bankruptcy courts to give the same relief to homeowners on
principal-residence mortgages that businesspeople get on real estate
investment loans, that farmers get on farm loans and that individuals
receive on loans for vacation homes, cars, trucks and boats.

Bankruptcy
law is wildly off-kilter in how it treats homeownership. Under current
law, courts can lower unreasonably high interest rates on secured
loans, reschedule secured loan payments to make them more affordable
and adjust the secured portion of loans down to the fair market value
of the underlying property — all secured loans, that is, except those
secured by the debtor's home. This gaping loophole threatens the most
vulnerable with the loss of their most valuable assets — their homes
— and leaves untouched their largest liabilities — their mortgages.

In
the absence of modification, many of today's loans will result in
foreclosure. When servicers are unwilling or unable to voluntarily
modify exploding, unsustainable home mortgage loans, Congress has a
duty to consider involuntary modification in bankruptcy court, where
the same relief is granted on all other secured loans. The proposed
Emergency Home Ownership and Mortgage Equity Protection Act being
considered by Congress would do just that. It is targeted at only
sub-prime and nontraditional mortgages and will be available for only
seven years after it is enacted in order to mitigate against the next
wave of exploding interest rate resets.

The key is to avoid an
overreaction that would have negative long-term effects on the housing
market. Allowing certain distressed homeowners limited bankruptcy
protection provides the greatest potential benefit with the least
market disruption, and it will not cost the Treasury a dime. Moreover,
a tweak to the bankruptcy code is a narrowly targeted solution. It is
estimated that more than 600,000 homeowners could use bankruptcy
protection to modify their loans and stay in their homes.

Some
argue that expanding bankruptcy relief for homeowners would encourage
frivolous bankruptcy filings, but recent reforms have made filing a
very onerous process. People who bought homes with the intent of
flipping them two years down the road are not going to go through the
aggravation, embarrassment and cost of bankruptcy.

Why do we
need to keep people in their homes? As HUD secretary, I saw firsthand
that homeownership makes neighborhoods safer, encourages investment and
raises our overall standard of living. People care more deeply about
their neighborhoods if they have an ownership stake.

Homeownership
is not about left or right, conservative or liberal, Democrat or
Republican. The House Judiciary Committee has passed a bipartisan
compromise version of the bill, and the full House is expected to take
it up next month. Both the House and Senate need to pass it — and
soon.

COMMENTARY

Be Not Afraid, Use Genetics to Feed the World's Hungry

* Agriculture: If we don't use science to farm more intelligently, we put people and ecosystems at risk.

December 3, 1999

By
JACK KEMP, Jack Kemp, the 1996 Republican nominee for vice president,
is a distinguished fellow with the Competitive Enterprise Institute in
Washington.

The fast-waning 20th century has brought tremendous improvement
in the human condition. People live longer, healthier lives than they
did 100 years ago, largely because of stunning advances in medicine and
agriculture.

These advances include products of genetic
engineering. Former President Carter, whose Carter Center is doing
outstanding work on agricultural production in the developing world,
says that by increasing crop yields, genetic engineering reduces "the
constant need to clear more land for growing food. Seeds designed to
resist drought and pests are especially useful in tropical countries,
where crop losses are often severe." Carter makes clear that the
poorest, hungriest people of the world have the most to lose in the
public relations assault on new bioengineered foods.

Science
deserves most of the credit for advances in food production and
nutrition, but so do education, the economics of wealth-creation,
philanthropy and enlightened political leadership. Together these have
put to rest the old Malthusian fear that population would outstrip our
capacity to feed the world and that there was nothing we could do about
it. There was something, and we did it: Today we feed 6 billion people
much better than we fed 4 billion 20 years ago.

Yet this is no
time to rest on our laurels. The 1996 U.N. World Food Summit reported
that 800 million people are chronically undernourished, and the
International Food Policy Research Institute projects that we will have
to increase grain production 40% by 2020 just to keep up with
population growth. We can do that; but to bring better nutrition and
more food to the neediest people of the world, we have to use every
resource at our disposal.

Superstition and sheer
misunderstanding, however, are being used to browbeat the
public–particularly in Europe, but increasingly in the U.S.–into
opposing agricultural biotechnology, which the world needs to feed its
growing population, improve nutrition and head off famine.

Despite
numerous studies, there are no known hazards associated with
bioengineered foods, which sound science shows to be as safe as–or
safer than–the foods that have been on supermarket shelves for a
generation. Norman Borlaug, who won the Nobel Peace Prize in 1970 for
his work to attack world hunger with better food crops and who now
heads the Carter Center's effort to improve crop yields in Africa,
points out that what some in Europe are calling genetically modified
foods are just advances in conventional plant breeding, which has been
used for years to increase yields, nutritional value and pest and
disease resistance.

Some critical studies of genetically
engineered crops merit further investigation, while others can't meet
the basic standards of scientific peer review. Surely we can agree on
sound science standards for bioengineered crops, as we should for all
scientific breakthroughs with commercial applications.

The
extremist opposition may be satisfied with nothing less than halting
the agricultural advances altogether. Already, Archer-Daniels-Midland
Co. has asked farmers planting its genetically engineered soybeans to
segregate those crops, and Monsanto is apologizing for bringing more
disease-resistant crops to market."Solid scientific evidence" has been
all too lacking in this debate–a war of words and slogans, not ideas
and initiatives. Let us suggest some facts that must not be forgotten:
Without dramatic improvements in crop yields, people will starve; they
will suffer disease and death from malnutrition. The world's wildlife,
habitats, endangered species and entire ecosystems will be put at risk
as we are forced to draw more agricultural land into production.
Pest-resistance, which we now know can be bred precisely into plants,
will be supplanted by wider use of chemical pesticides. The promise of
improving the nutritional value of indigenous crops in the developing
world may be lost for a generation.

Is this what the radicals
want? Surely not. Those of us in affluent societies have the luxury of
pondering such questions. In doing so, we have an obligation to give
the benefit of the doubt to innovations in science and technology that
will most aid those who are less fortunate than ourselves.

Britain's
Prince Charles, in his multi-pronged attack on the entire bioengineered
foods industry, asserts that "where people are starving, lack of food
is rarely the underlying cause." Let the prince eat cake. The people of
the Sahel region, south of the Sahara, have no such luxury. It is our
moral duty to help them with the most promising means available to us,
and that must include applying advanced biotechnology to agricultural
production.

 
COLUMN RIGHT / JACK KEMP

Forget Europe as a Model for Creating Jobs

Clinton's health plan has the same blind spot–broader benefits require higher taxes.

March 20, 1994

By JACK KEMP, Jack Kemp, a Republican former congressman
from New York, is co-director of Empower America, a conservative
advocacy organization based in Washington.

One of the most
consistent facts about American economic life over the past several
years has been the almost weekly announcement of massive job cutbacks
or layoffs by Fortune 500 firms.

What should America do?
President Clinton thinks he has the answer. "We simply must figure out
how to create more jobs," he said back in January. "We have a lot to
learn form the Europeans," he added, citing European job-training
programs and the ability to move people "from school to work into
good-paying jobs."

There is only one problem with this job-
growth tutorial. Europe has nothing to teach. Every country on that
continent, except Switzerland, is experiencing unemployment well above
America's 6.5% rate. Several European countries have unemployment rates
well into double digits, including Belgium, 14%; Denmark, 12.4%;
France, 12%, and Spain, 23.1%. Britain is the only European nation with
an unemployment rate lower today than a year ago.

Europe's high
unemployment rates have a single root cause: the failure to create
enough new jobs. Between 1982 and 1992, the six largest European
countries combined created just 6.9 million jobs, while the European
labor force increased by 7.5 million. Over the same period, the United
States created 18 million new jobs, while the labor force grew by 16.8
million.

There are many reasons why we created so many more jobs
in the 1980s, but one of the most important is that European employers
pay significantly higher taxes on labor. In Belgium, for example,
government-mandated charges on labor as a percentage of GDP have risen
from 19.6% in 1970 to 29.5% in 1991; in Italy, from 12.7% to 23.6%.
Only Great Britain's rate has remained steady. By contrast, the U.S.
rate was 15.9% in 1970, 19.4% in 1991.

So, this much we can
learn from Europe: A welfare state with national health insurance and
expensive fringe benefits has an insatiable appetite. And the main
burden of financing this largess always falls on working men and women.

With
his national health-care plan, President Clinton would set America on
Europe's descending path. Although he tells us that few workers will
pay more than they do now, history is clear: All national
health-insurance schemes inevitably cost far more than anyone projected
when the programs were adopted.

Government has a dismal track
record in predicting the burden its programs will impose on future
taxpayers. Look at Medicare. When that program was enacted in 1965, the
Johnson Administration estimated that it would cost $8 billion per year
by 1990. The actual cost? $98 billion.

Even if we take the
Clinton projections at face value, his health plan will still lead to a
27% increase in federal taxes by the year 2004, according to a study
from the Alexis de Tocqueville Institution.

Clinton defends this
vast expansion of federal taxation on the grounds that higher taxes
will be offset by lower health-insurance costs. This is just a semantic
game. Would people really be better off if the government increased
their taxes by the amount of their annual food costs while providing
free food at the same time? Of course not, because the government
cannot provide anything as efficiently as the market and because the
costs would quickly rise far beyond expectations, leading to tax
increases or reduced benefits. Also, in the process, people would lose
the freedom to choose.

Health care will not escape this fate.
Quality will decline because patients and doctors will be forced into
more rigid government constraints. As in Canada, a model for the
Clinton Administration, people will wait months or even years for
simple operations, and many will be denied access to treatment because
the plan managers judge them too old to benefit, never mind their
physicians' opinions.

To these costs we must add a price paid in
jobs. As the European example shows, higher benefits lead to higher
taxes, which, in the end, lead to higher unemployment. A recent
DRI/McGraw Hill study predicts that by the year 2000, the Clinton
health plan would cause 1 million jobs to disappear–a conservative
estimate.

Instead of invoking a European model of job creation
that creates no jobs, President Clinton should study the lesson of
America's job explosion in the 1980s. He would find that the key to job
creation lies in unleashing the creative power of America's
entrepreneurs and small business owners through lower taxes on both
labor and capital. Viewing entrepreneurs as a endless funding source
for an insatiable federal government is a prescription for employment
stagnation–or worse.