Voices -- Jack Kemp, 1935 - 2009
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.
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.