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The Lighthouse®

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Volume 11, Issue 47: November 23, 2009

  1. FHA Encourages More Bad Mortgage Loans
  2. Will 9/11 Trial Restore the Rule of Law?
  3. Honduran Elections Could Return Country to Normalcy
  4. The Pillars of Thanksgiving
  5. This Week in The Beacon

1) FHA Encourages More Bad Mortgage Loans

An astounding 20 percent of the Federal Housing Administration’s $725 billion portfolio of mortgage loans will go into default as the result of the agency’s recent campaign to subsidize first-time homebuyers with little cash and weak credit. That prediction comes from an industry insider who has seen it all happen before: former chief credit officer of Fannie Mae, Edward Pinto, who recently testified before a House committee on the gathering storm of FHA mortgage defaults. It’s déjà vu all over again. But why did federal policymakers allow history to repeat itself?

“To listen to our glorious leaders discuss such matters is to realize that they have no real understanding of what they are dealing with,” writes Independent Institute Senior Fellow Robert Higgs in a new post on The Beacon. “They see the collapse of an artificially stimulated house-construction industry, and they conclude: the government must subsidize more house construction. They see the collapse of real estate prices, and they conclude: the government must stimulate demand for real estate in order to raise its price.”

Had policymakers grasped the causes of the housing boom and subsequent bust, they would have stopped subsidizing unqualified borrowers, stopped trying to raise the prices of houses, and let the economic process work itself out through market processes. Continues Higgs: “Simply piling on more and more of the same distortive policies that generated the crisis in the first place can, at best, only delay the day of reckoning while magnifying the adjustments that ultimately will have to occur.”

“Government Responds to Economic Woes by Making More Bad Mortgages Loans,” by Robert Higgs (The Beacon, 11/22/09)

Housing America: Building Out of a Crisis, edited by Randall G. Holcombe and Benjamin Powell

“Anatomy of a Train Wreck: Causes of the Mortgage Meltdown,” by Stan Liebowitz (10/3/08)


2) Will 9/11 Trial Restore the Rule of Law?

The Obama administration’s decision to try Khalid Sheik Mohammed and four others in a civilian court for the 9/11 terrorist attacks partially returns the United States to the rule of law, but it does not fully restore the constitutional integrity of the U.S. justice system, according to Independent Institute Senior Fellow Ivan Eland.

Numerous detainees at Guantanamo Bay—including suspects in the 2000 attack on the USS Cole—will likely face a military commission, even though the Constitution allows such tribunals for U.S. military personnel during wartime, but not for unlawful enemy combatants, Eland argues in his latest op-ed.

“Although Obama has improved safeguards in such tribunals,” writes Eland, “the reality that some terrorists get better justice than others—evidently the more people you kill, the more justice you get—smacks of prosecution forum-shopping in order to get convictions.” Worse, the Obama administration continues to hold at Guantanamo detainees it has acknowledged are innocent until a foreign country accepts them, notes Eland.

“Civilian Trials for 9/11 Suspects Aren’t Enough,” by Ivan Eland (11/18/09) Spanish Translation

Partitioning for Peace: An Exit Strategy for Iraq, by Ivan Eland

Recarving Rushmore: Ranking the Presidents on Peace, Prosperity, and Liberty, by Ivan Eland

The Empire Has No Clothes: U.S. Foreign Policy Exposed, by Ivan Eland


3) Honduran Elections Could Return Country to Normalcy

This Sunday voters in Honduras will elect their next president. The election should solve the crisis that culminated last June in the forced exile of former president Manuel Zelaya, according to Independent Institute Senior Fellow Alvaro Vargas Llosa, who met with interim President Roberto Micheletti, judicial and legislative leaders, members of the opposition, and other key players during a recent trip to that country.

A few holdouts have resisted giving the election their blessing—including Venezuela, Bolivia, Brazil, Spain, and the Organization of American States, which refuses to send monitors to the election. Fortunately, everyone Vargas Llosa talked to expressed strong support for the rule of law. Zelaya and Micheletti even agreed to leave the National Assembly to decide whether to reinstate Zelaya until power is handed over to the winner of the upcoming election. (Zelaya himself was never eligible to run in the long-scheduled election, and his party has a candidate on the ballot.)

“Nobody in the current government is interested in a fraudulent election, nor is one likely given safeguards that include a widely respected national electoral tribunal and Supreme Court,” writes Vargas Llosa. Hondurans have gone through too much to endure another crisis. “Let us hope that the Hondurans do not succumb to the temptation [to undermine the election], after what they perceive as a David versus Goliath kind of victory, to continue to go it alone in the future. Honduras desperately needs to engage the rest of the world diplomatically and economically in order to address its most important mission—putting itself on the path to prosperity.”

“Time to Support Honduras’ Elections,” by Alvaro Vargas Llosa (11/18/09) Spanish Translation

Liberty for Latin America: How to Undo Five Hundred Years of State Oppression, by Alvaro Vargas Llosa

The Che Guevara Myth and the Future of Liberty, by Alvaro Vargas Llosa

Lessons from the Poor: The Triumph of the Entrepreneurial Spirit, edited by Alvaro Vargas Llosa


4) The Pillars of Thanksgiving

An inhospitable environment wasn’t the only obstacle to the Pilgrims’ success at Plymouth Plantation. Until 1623, the Pilgrims were victims of their own bad policies. As Governor William Bradford explained in his memoir of 1647, the community suffered food shortages because its system of communal property rights had sundered reward and effort.

Once families were allowed to keep the fruits of their labor, the food shortages vanished. In short, the Pilgrims learned that prosperity requires individual effort, and individual effort requires individual reward. And we are the beneficiaries of that lesson.

“It is customary in many families to ‘give thanks to the hands that prepared this feast’ during the Thanksgiving dinner blessing,” writes Independent Institute Research Fellow Benjamin Powell. “Perhaps we should also be thankful for the millions of other hands that helped get the dinner to the table: the grocer who sold us the turkey, the truck driver who delivered it to the store, and the farmer who raised it all contributed to our Thanksgiving dinner because our economic system rewards them. That's the real lesson of Thanksgiving. The economic incentives provided by private competitive markets where people are left free to make their own choices make bountiful feasts possible.”

“The Pilgrims’ Real Thanksgiving Lesson,” by Benjamin Powell (11/25/08)


5) This Week in The Beacon

Visit the Independent Institute’s Spanish-language blog, El Independent. Below are the past week’s offerings from our English-language blog, The Beacon.


  • Catalyst
  • Beyond Homeless