Saturday, December 27, 2008
I completely agree with every thing Peter says, at least on overall economic theory and long term effects on the economy as a whole.
What I'd like to hear more discussion about is whether there are ways to minimize individual short-term pain without disproportionately sacrificing long term national economic growth. For those that have lost jobs or had to close their businesses, they don't want to hear that the economy will be better in a year or two if they just sit tight. I realize the economic reality for the country as a whole, but what are some conservative policy options that can best limit the pain for individuals hardest hit by the recession while having the least negative impact on national economic recovery and growth?
A secondary question that has been rolling around in my conservative mind is this: with the productivity lost by people being unemployed, is there a level of unemployment where it can be economically justified to increase government spending in the short term on something like infrastructure projects in order to better utilize the labor resources of the country? There are infrastructure projects that need to be done sooner or later; does it make sense to accelerate the schedule and do more now? I recognize their are costs to this approach, namely the government having to tax, borrow, or print money (which sucks money from taxpayers or investors, or increases inflation), individuals being delayed from finding another private sector job (or increasing skills to find a higher-paying one), the tendency for short-term government programs to become long-term ones, and the opportunity for pork and wasteful spending (if new projects are thought up just as a way to spend more money as a "stimulus").
A third idea that I've been trying to consider is the right monetary policy the Fed should employ. If you are a Milton Friedman fan, then you know that he blamed the Great Depression most of all on Monetary Policy. The Fed back then shrunk the money supply and primarily caused the huge number of bank failures (something like 50% of banks failed) and greatly deepened the recession. Friedman said that the Fed should have flooded the market with liquidity. That seems to me to be what the Fed is doing right now. I understand that will risk inflation once the economy starts to recover, but isn't that the point at which you could pull back on the money supply? You can't magically make the economy better in the long run by increasing the money supply, but can't you counteract the effects of the credit crunch and asset bubble bursts, and then counteract them again when the credit crunch eases and asset values start to recover?
I have seen several good articles and videos convincingly arguing against a stimulus program that simply calls for tax "rebate" checks or increased government spending, but I am having trouble finding any in-depth debate exploring other policy options in more detail.
He's more in love with Sweden. There's about 15 countries that he sounds like he'd rather have been born in, mostly in Europe. According to him, saying that America is the greatest country on earth is stupid talk.
Of course there's no recognition of America's lead role as the defender of freedom around the world for at least the last 70 years; of the countless lives America has sacrificed for the sake of freedom in Europe, the Pacific, Korea, Vietnam, Panama, Kuwait, Iraq, Afghanistan. There is no expression of thankfulness that we got to the atomic bomb before Germany or Russia did (think of how differently those 2 countries would likely have used that power). No gratitude that it was the U.S., not the Soviet Union that won the cold war.
Tuesday, December 23, 2008
Sunday, December 21, 2008
Monday, December 8, 2008
Sunday, December 7, 2008
Friday, November 21, 2008
Here's my first post and comments. I apologize for the other commenter's language.
Thursday, November 20, 2008
In 1929, the Soviet Union established gun control. From 1929 to 1953, about 20 million dissidents, unable to defend themselves, were rounded up and exterminated.
In 1911, Turkey established gun control. From 1915 to 1917, 1.5 million Armenians, unable to defend themselves, were rounded up and exterminated.
Germany established gun control in 1938 and from 1939 to 1945, a total of 13 million Jews and others who were unable to defend themselves were rounded up and exterminated.
China established gun control in 1935. From 1948 to 1952, 20 million political dissidents, unable to defend themselves, were rounded up and exterminated.
Guatemala established gun control in 1964. From 1964 to 1981, 100,000 Mayan Indians, unable to defend themselves, were rounded up and exterminated.
Uganda established gun control in 1970. From 1971 to 1979, 300,000 Christians, unable to defend themselves, were rounded up and exterminated.
Cambodia established gun control in 1956. From 1975 to 1977, one million 'educated' people, unable to defend themselves, were rounded up and exterminated.
Defenseless people rounded up and exterminated in the 20th Century because of gun control: 56 million.
You won't see this data on the US evening news, or hear politicians disseminating this information.
Guns in the hands of honest citizens save lives and property and, yes, gun-control laws adversely affect only the law-abiding citizens.
Take note my fellow Americans, before it's too late!
The next time someone talks in favor of gun control, please remind him of this history lesson.
With Guns...........We Are 'Citizens'.
Without Them........We Are 'Subjects'.
During W.W.II the Japanese decided not to invade America because they knew most Americans were ARMED!
Note: Admiral Yamamoto who crafted the attack on Pearl Harbor had attended Harvard U 1919-1921 & was Naval Attaché to the U. S. 1925-28. Most of our Navy was destroyed at Pearl Harbor & our Army had been deprived of funding & was ill prepared to defend the country.
It was reported that when asked why Japan did not follow up the Pearl Harbor attack with an invasion of the U. S. Mainland, his reply was that he had lived in the U. S. & knew that almost all households had guns.
If you value your freedom, Please spread this anti-gun control message to all your friends...!
FYI, the exact quote from numerous sources for Admiral Yamamoto was: "You cannot invade the mainland United States. There would be a rifle behind every blade of grass."
And here's another money quote:
"Laws that forbid the carrying of arms . . . disarm only those who are neither inclined nor determined to commit crimes . . . Such laws make things worse for the assaulted and better for the assailants; they serve rather to encourage than to prevent homicides, for an unarmed man may be attacked with greater confidence than an armed man." --Thomas Jefferson
Foreign-owned car companies are still American companies. They have American plants that employ American workers that build cars for the American market. When foreign companies have physical money-making assets in America, it makes them much more reliant upon us than it makes us reliant upon them. The assets are physically in OUR country. Foreign goverments are much less likely to take actions against our interests if they have investments in our country. Would you pick a fight with someone who had some of your valuable possessions?
It's not like consumer demand for autos will go away completely. Sure, demand is down right but it will bounce back, and demand for car repair services will remain too. If one or more of the "Big 3" lose market share, that is because people are freely choosing to buy other companies cars. If one companies went out of business completely, the rest of the companies would be strengthened.
There will still be a need to build cars. The question is really who builds them where. Michigan, with their anti-business policies and over-protection of the harmful auto unions (harmful to running a profitable business) will lose jobs, but numerous other states where Toyota, Honda, and Nissan produce cars will gain jobs. A bailout will simply subsidize Michigan's bad choices and transfer the costs of their economic decisions to the rest of the US taxpayers.
Sure, the credit crunch hurt the auto industry as a whole, and the weakest companies may not, and should not survive, at least not without restructuring. We've got to get away from subsidizing bad businesses and thereby removing the incentive for change.
A bankruptcy would help the Big 3 break free of some of the crippling constraints put on them by the unions. The Big 3 total labor cost per employee is $73/hr., while Toyota, Honda, and Nissan average $44/hr, and the average American worker recieves $29/hr. Chrysler employees get 35 days of paid vacation/holidays per year. Employees are paid even while laid off, and there are even more retirees receiving generous pensions than there are employees receiving generous pay for 35-40 hrs/week of work.
The Big 3 also suffer from a productivity gap with the Toyota, Honda, and Nissan. The Big 3 have been getting better but still lag behind. That is, they take 20% more worker hours to produce a vehicle.
Given all of this, I am opposed to my money going to pay union salaries and benefits in Michigan.
Here are a few more thoughts beyond what I wrote to Jim Bohannon:
I am not without sympathy for those in Michigan and elsewhere around the country whose jobs would be affected by this, but the effect is not the "3 million" jobs being bandied about. That figure includes any job that is related to the Big 3 automakers, including repair centers and dealerships around the country. The fact is that if Big 3 cars will still need to be repaired, and if Big 3 dealerships close, then Toyota, Honda, Nissan, etc., will open more dealerships as their market share increases. And consumers will end up with cheaper, more reliable cars.
Further, if any of the Big 3 go bankrupt, it would not mean that every auto worker would lose their jobs. Obviously some would, but most won't. And whoever is satisfying consumer demand for autos and increasing market share will be hiring employees too.
The trouble some auto companies are having is simply not the same systemic threat that the financial sector crisis posed.
UPDATE: Romney concurs
Wednesday, November 19, 2008
Also watch for how well they knew certain details about Palin vs. how little they knew details about Obama/Biden, plus how often they figure McCain or Palin must have done it if it was something bad that Obama or Biden did.
The point of the exercise is how pitiful the media is in this country in actual educating voters with facts. Don't waste another minute. Click the link now.
Tuesday, November 18, 2008
In this case the story is about Putin's Russia and how Russians believe their economy is flourishing even as it is crashing.
And sure enough, at a time when their country is locked in its worst financial crisis in a decade, they are more optimistic about the economy than they have ever been. According to opinion polls, 57 per cent reckon it is flourishing, up from 53 per cent in July.
The survey's findings are a triumph for the state, proving that the Kremlin has not lost its touch when it comes to manipulating fact. Obeying orders from the top, Russian television has banned the use of words such as "crisis", "decline" and "devaluation". Coverage of the mayhem in the country's stock market, where shares have fallen by 75 per cent since August, is scant.
When you look at a situation like this, you can begin to understand how a dictatorship can stay in power by manipulating public opinion. You realize that America's actions could have far less to do with how we are viewed by the world than what the media in individual countries around the world reports. That is, America may be viewed negatively by many countries around the world not for what we have said or done, but what governments around the world tell their people that we have said or done. And what is reported can be completely divorced from reality.
In America, the diversity of the media provides a good explanation for why we are so divided as a country. It is my conclusion that people's political views greatly rely on, or are reinforced by, which media outlets they get their news from. Of the people that pay attention, you have about 40% that primarily listen to talk radio, read conservative blogs/newspapers, and/or watch Fox News. There are another 40% that primarily watch ABC, CBS, NBC, CNN, or MSNBC, or read liberal blogs/newspapers. The remaining 20% watch/read/listen to a mix.
The reason for the country's division is that the two groups of 40% are not only fed a totally different set of opinions, but even a completely different (and conflicting) version of the facts. I don't have time to cite examples right now.
I would like to see a move toward more reasoned debate. Instead of news consumers remaining in their 40% bubbles, some outlets need provide a worthwhile discussion between both sides that goes beyond a 5 minute yelling match between hyper-partisans.
Thursday, November 13, 2008
The government keeps a stockpile of petroleum in case of a gas shortage. When there is a shortage of liquidity, it is an rare emergency situation where the government needs to pump more money in (either by borrowing or printing money). The real debate then becomes how best to inject liquidity into the markets, or in other words, who do you give the money to? And that is the question very few people really have a good answer for.
I bet if you could ask Milton Friedman, he would have backed some form of capital injection into the markets. He blamed the Great Depression on the Federal Reserve printing less money after the 1929 financial crisis, where the Fed was trying to fight inflation. But a shrinking money supply will single-handedly cause a recession.
My view is that the frozen credit markets will lead to a large ineffiency in the economy, and even though I would oppose bailouts to specific companies 99% of the time because of the perverse incentives and distortion of markets they create, I think that is less a danger than the frozen credit markets were/are.
I don’t trust the government to handle the $700 billion, but what other choice do we have? Remember that Larry Kudlow, Steve Forbes, Tom Coburn, Paul Ryan, and even Newt Gingrich (after he pushed for a better bill) supported the $700 billion emergency rescue plan.
I think the cleanest way to inject liquidity would be to take whatever dollar amount you wanted to inject, and spread it as evenly as possible over the entire financial sector, including successful companies. Then, for the most part, let institutions fail if they still can’t make it. No more bailouts. No money for any other industry. No trough for the pigs to line up at. No rewarding failure.
Of course I can think of many problems with this proposal as well. What if successfuly companies use the money to buy up failing companies? Still better than a government bailout. What about creating a moral hazard for the financial industry as a whole? Still better than letting the entire economy suffer for the financial industry’s failure. What if the companies that still fail cause too much disruption in the economy? I don’t have a good answer.
As an obvious example, no one would say that a construction crane operator’s time would be better spent doing community service while an entire construction project waits.
Obama’s plan requiring college students to do 100 hours of community service in exchange for a $4000 tax credit, would in effect be paying college students $40/hr. for their community service. At the same time, it would reduce college students’ involvment in the private sector, where they perform “college jobs” which benefit society more at less cost. It could also slow down their progress toward a degree if they take fewer credits.
The plan to expand Peace Corps could similarly be a less effective use of labor resources. Can someone explain to me what the Peace Corps does that is so valuable? From what I have heard anecdotally, a ton of money is wasted because many young adults enter the Corps as a way to travel the world and put off entering their careers.
As far as the middle school service in exchange for federal money idea, it is arguable that middle schoolers’ time could be better spent perfoming community service than playing video games. My guess is that Obama thinks this would be a great way to have a minor leagues for community organizers. I’m not sure, though, how diverting school resources and energy to a program like this would help raise test scores.
Sunday, November 9, 2008
The AP reports that John Podesta, former chief of staff to Bill Clinton and currently head of Obama's transition team (the more things change, the more they stay the same), says that Obama plans on aggressively moving immediately after taking office to enact his refundable tax credits to lower and middle income earners (including those who pay no federal income taxes), increase government spending in some form as an "economic stimulus", provide government-funded health care insurance to those currently lacking health insurance, increase subsidies to economically-ineffecient alternative energy sources, and throw more money at public education.
Notice a strain running through all of these? Increased government spending, government control, and government interference in the free market.
(Obama refused to answer whether he would raise tax rates on upper income earners right away in his press conference this week.)
The Washington Post reports that Obama's team has identified over 200 Executive Orders they would like to immediately reverse. We'll have to watch closely to see what all this entails, but it looks like it includes shutting down oil exploration in Utah, providing federal funding for abortions in other countries, and increasing federal funding for unneccesary and unpromising embryonic stem-cell research.
Barack Obama in not change to something new; it is change back to the failed policies of the past.
I would like to see change back to the successful policies of the past: less government interference in our lives, lower taxes, restrained government spending, encouraging a strong family unit, and peace through strength. I would like to continue current successful policies of being on offense in the war on terror, increased accountability and choice in education, and beefing up security along the border.
- Hopefully this puts to rest any idea of prevalent racism still existing in America
- I won't have to try to defend McCain for the next 4 years
- Democrats are now in complete control and fully liable for anything they screw up
- I am optimistic that the policy changes over the next 2 years will remind enough fractured conservatives why they need to coalesce for 2010
- Democrats will continue to make any opposition to Obama into some kind of racial issue
- Democrats are now in complete control (100 seat margin in the House, 57 seats in the Senate, plus the Presidency) and will not hesitate to screw things up
- Unless we can hold a filibuster together in the Senate, we'll see the elimination of secret ballots in union elections, rule changes in arbitration to favor unions, and growth of union contributions to Democrats
- The Free Choice Act will pass knocking down all state laws limiting public money for abortions, parental notification laws, waiting periods, informed consent laws
- The top 5% of income earners (not the top 5% of wealthiest people) will be soaked and their money will be handed out to low income earners as welfare in the form of refundable tax credits, providing less incentive for increasing productivity for both high and low income earners
- The capital gains rate will be raised in the interest of fairness, driving more capital overseas just when we need the capital the most
- The corporate tax rate will remain tied with Japan at 35% as the highest rate in the world, encouraging corporations to move or expand overseas, costing us in jobs and more expensive goods and services
- 2-3 liberal Supreme Court justices will likely retire so they can be replaced by like-minded activist judges -- we will lose the chance to reshape the Supreme Court for another generation
- The entire federal court system, which was just getting back to about even, will tilt back liberal again -- my prediction is we won't be able to hold a filibuster in the Senate to stop this because of folks like John McCain, Lindsey Graham, Olympia Snowe, Susan Collins, Mike DeWine, Orrin Hatch, etc.
- We will get more decisions legalizing gay marriage, expanding the definition of hate crimes, banning guns, coddling terrorists, eroding private property rights, etc.
- The "Unfairness Doctrine" (as I call it) will be reinstituted to try to dilute conservative talk radio
- Government spending will grow even faster than it has for the past 8 years
- We may or may not continue to leave Iraq responsibly and may or may not keep our commitments in Afghanistan
- We will start moving in the direction of government healthcare for all -- it will likely be gradual, people will move over to it as government offers free or cheap healthcare -- health care expenses will continue to skyrocket as market forces continue to be ignored
- Trial lawyers will get all kinds of goodies, allowing them to sue for this and that
- Who knows how the rest of the world will test Obama and how he will react
- Democrats will try to cut defense spending
- For at least the first year of Obama's presidency, Democrats will continue to blame Bush for anything that goes wrong
Now if this is not enough motivation to start organizing for 2010, I don't know what is!
The original plan Paulson put forward was an asset purchase program where the government would buy up mortgage-backed securities and hold them until the market returned, and then sell them, potentially at a profit. The government would have likely recovered most of the cost or even made money on the program.
It was an emergency measure meant to thaw the credit markets which had completely seized up. Financial institutions had stopped loaning even to each other. If the credit markets had stayed frozen, it would have pushed us into a significantly deeper recession. They are now gradually thawing.
Whether people supported or opposed the plan depended greatly upon what they thought the plan was. Those that saw the plan as a "bailout to Wall Street" did not like it. Same for many conservatives who instinctively oppose goverment intervention in markets (for good reasons). Those who supported it were those that either tend to favor government intervention or realized that this was a financial crisis that required emergency measures to deal with it.
For the record, about 2/3rds of Democrats in Congress voted for the plan, while only about 1/3rd of Republicans did. In defense of conservatives that voted for it: when Tom Coburn, Paul Ryan, Larry Kudlow, and Steve Forbes support it, it can't be all bad. Those are 4 leading free market advocates.
Says Obama: "No one I know is better at getting things done than Rahm Emanuel."
Republican House Minority Leader John Boehner put out a statment: “This is an ironic choice for a President-elect who has promised to change Washington, make politics more civil, and govern from the center."
Seems reasonable. This is not an issue the Republican's should dwell on, but taking the opportunity to point out the irony and hypocrisy of Obama is exactly what the Republican's should be doing. Yet, instead of hearing this same sentiment from all corners of the party, I have yet to hear another Republican elected official say a peep about it. Except, of course, Republican Senator Lindsey Graham, who like John McCain never seems to miss an opportunity to sabotage effective party message in order to promote what he considers to be bipartisanship. His statement: "Rahm knows Capitol Hill and has great political skills . . . He can be a tough partisan but also understands the need to work together."
Now think for a moment how the Democrats would be howling about partisanship if John McCain had won and named Tom "The Hammer" Delay as his chief of staff. The media would have picked up on it and it would have been a top story for a week. Keith Olbmerman would have considered it cause for McCain to resign in disgrace.
I know everyone says they want less partisanship and bitterness in politics, but do you think anyone would have complained if Lindsey Graham could have just kept his mouth shut and allowed a unified message to go out. Come on Lindsey, I'm not asking for you to go against any of your principles, I'm just asking that for once you don't go out of your way to undermine your own party (re: offshore drilling, enemy interrogation, calling law & order conservatives names because of their stance on illegal immigration, etc.).
Tuesday, November 4, 2008
For example, here is the Income Tax breakdown for 2006.
Among the highlights, the Top 1% now pay 40% of income taxes, despite only earning 22% of income. The Top 50% now pays over 97% of income taxes. If you earn over $32,000, you are in the Top 50%. If you earn over $65,000, you are in the Top 25%.
Obama wants to raise the top two income tax brackets from 33% to 36% and 35% to 39.6%. In 2008, the break point to jump into the 33% bracket for married filing jointly was $200,000. Unclear to me if Obama would move the break point up to $250,000.
In addition, he wants to remove the Payroll tax cap for those earning over $250,000. At first everyone assumed that would mean an additional 15.3% tax hike. Now Obama campaign is being purposely vague on how much they would raise payroll taxes for over $250K.
If Payroll cap was removed at full 15.3%, top marginal rate would raise to about 55%! On top of that, Obama wants to phase out some credits and deductions that effectively raise it even higher. We would suddenly have close to the highest top income tax rate in the world.
Just remember this. In 2006:
- Top 1% earned 22% of income, paid 40% of income taxes
- Top 10% earned 47% of income, paid 71% of income taxes
- Top 50% earned 87% of income, paid 97% of income taxes
- Bottom 50% earned 13% of income, paid 3% of income taxes
- Bottom 40% pay no income taxes
This is already a highly progressive income tax system. Obama would significantly increase the progressivity.
Obama wants to give $1000 refundable tax credit to everyone, including the bottom 40% who do not pay any income taxes. Obama calls it a tax cut off of workers’ payroll taxes. This would fundamentally change social security to a welfare program.
The worst part about Obama’s tax plan is that it raises effective marginal tax rates, and thus discourages productivity, at both ends, because he has many deductions and credits that phase out as income levels increase. That is, for lower income earners who do make enough to pay federal income taxes, as they start to make more money, they lose some of their deductions and credits. Combined with payroll taxes, effective marginal tax rates on a family of four making as low as $30,000 would be over 40%.
Well how big do they have to be, Senator? I wrote the following tongue-in-cheek comment at HotAir:
I believe Mr. Biden, I do. I happened to run into him at Home Depot and he was explaining how when the stock market crashed in 1929, President FDR didn’t just raise taxes and tarrifs to drive us from a recession into a depression. No, no no! He got on TV and explained the situation to the American public! Now that’s the leadership we need today.
I was interested in hearing more, so I followed him down to Katie’s restaurant and he told me all about how Article I of the Constitution defines the role of the VP, and Sarah Palin should know better than to think the VP is president of the Senate.
While there, we spotted a wheelchair-bound state senator, and Joe told him to "Stand Up, Chuck! Give a hug to your old Uncle Joe! Oh my God, what am I saying?”
After Chuck rolled off with a frown on his face, Mr. Biden confided in me (and the nearby undercover press) that he was pretty sure that at least one rogue world leader would test Obama in his 1st 6 months.
Then he paused and said, “I think Hillary would have been a better VP pick than me, but Barack picked me because I have a higher IQ.”
- The Home Depot reference is from the VP debate, where Biden tried to say he was down with middle class folk because he hung out at Home Depot a lot.
- A few weeks before that, he said in a Katie Couric interview that FDR had gotten on the TV and communicated directly to the American people what was going on with the stock market crash. Of course the stock market crash was in 1929 and FDR was not president until 1932. And TV's were not available for mass consumption for another decade after the crash.
- I had a previous post on Katie's restaurant. That was another reference Biden made to show he was just a regular Joe. Problem is Katie's Restaurant that he referred to was closed 15-20 years ago, highlighting how long he's been out of touch with the middle class, and what a bald-faced liar he is.
- In the VP debate, Biden said that Palin should know that the duties of the VP are layed out in Article I, the Executive. Of course, Article I of the constitution defines the role of the Legislative branch, and designates the VP as president of the Senate (role undefined other than votes to break a tie in the Senate). Article II defines the role of the Executive. Shocking ignorance from Biden, who is on the Senate Judiciary Committee.
- Somewhere on the campaign trail, there was a local state senator whose first name was Chuck, and Biden was thanking supporters like they always do at the start of campaign rally speeches. Biden introduced Chuck and then asked him to "Stand up" forgetting that he was wheelchair-bound. He quickly followed up by saying, "Oh my God, what am I say saying?"
- Just a few weeks before the election, Biden was speaking at a fundraiser and apparently forgot the press was there because he basically guaranteed that there would be a generated international crisis within 6 months. They would test Obama just like they did with young JFK, and the donors would need to keep backing them strongly, because it wouldn't be apparent that Obama was doing the right thing. I'm not kidding. He said it.
- Biden famously said several weeks after he was picked as VP that Hillary may have been a better pick than himself.
- Back when Biden was running for president in 1988, I think, he snapped back at a reporter who asked Biden about his college education that he had a higher IQ than the reporter, and went on to brag, making several flat-out untrue statements (saying he had full scholarship when he only had a small partial scholarship, saying he graduated at the top of his class when he graduated near the bottom, etc.)
Monday, October 6, 2008
Quote: "Look, all you have to do is go down Union Street with me in Wilmington or go to Katie’s Restaurant or walk into Home Depot with me where I spend a lot of time and you ask anybody in there whether or not the economic and foreign policy of this administration has made them better off in the last eight years."
The problem is that there is no Katie's Restaurant in Wilmington. There was one by that name that closed 15 years ago!
Also, some guy tried calling around to all the local Home Depot's around Wilmington and could not find anyone who said they had ever seen Biden there.
It appears that Biden is again just making stuff up as he goes along, but saying it with such conviction that most people think he must be right. This example is not about an important issue, but what it does is makes you start taking everything Biden says with a grain of salt (if you didn't already).
Sunday, October 5, 2008
In reality, they had a close working relationship over a long period of time, with Obama chairing the board for the Chicago Annenberg Challenge, a program founded by Ayers to create a bunch of radical charter schools, Obama sending a lot of money toward Ayers and allies, Obama publicly endorsed Ayers radical book on juvenile crime, and Obama launching hit state senate campaign at a fundraiser at Ayers house.
The guy doing the most research into this is Stanley Kurtz. See his take on the NY Times article and follow links from there for much more information.
If the problem is simply liquidity, meaning the banks have these assets but are unable in the short term to sell them quickly enough to keep enough cash on hand to meet their immediate obligations to creditors and investors, then why not just simply loan money to the banks to inject enough liquidity to keep otherwise stable institutions afloat?
The credit market, where the banks loan money to each other, has totally seized up. The reason is that banks have a total lack of confidence in the ability of other banks to repay the loans. One of the major reasons for this is the collapse of the market for MBS's, so the banks are uncertain how much value the assets at the other banks are worth.
Most of the assets have underlying value, even if the market has currently collapsed for them temporarily. Paulson wants to use the $700 billion to buy up a lot of these troubles assets. The more I think about it, I have realized that the reason he is going this route is because he is not just trying to inject liquidity. More importantly, he is trying to attack the causes of the confidence crisis. Once these troubled assets with uncertain value are taken off the balance sheets of banks, the banks will have much more confidence they know the real financial status of the other banks and will resume lending to each other.
The credit market did not sieze up because there wasn't enough money to be lent or not enough money needing to be borrowed. It siezed up because of uncertainty, and Paulson thinks he can remove enough uncertainty by unloading these troubled assets. It is the psychology of the market he it trying to fix. He has already tried injecting liquidity several times, and the dominos just kept falling.
The hardest part now is figuring how much to pay for these troubled assets. Pay too much and the taxpayers and therefore politicians of America will hate you forever when the government is unable to recoup their investment from the sale of these assets. Pay too little and the market price for these MBS's gets set too low and triggers a bunch more bank failures.
Politicians need to step back and let Paulson and other professionals use their best judgment in doing what they need to do to solve the financial crisis. The cost to everyone in the economy if the financial crisis worsens is much greater than the cost to the taxpayer if the government overpays some for these assets.
As an aside, I'll pass along another interesting feature of the current financial crisis. The only way the financial system is staying afloat at the moment is by money flowing through the governement. Banks that have money to lend are buying Treasury bills (which is why the interest rate on these bills is getting pushed down close to 0%). Treasury is then sending the money over the Federal Reserve, which acts as a lender of last resort to banks that need to borrow money. So at the moment, the government is borrowing and lending a higher volume of money than usual to act as a de facto intermediary for lending between banks.
Saturday, October 4, 2008
For instance, when Katie Couric asked her to name one Supreme Court decision other than Roe v. Wade that she disagreed with, Palin responded:
“Hmmm,” Ms. Palin, the Republican vice-presidential nominee, said after a brief silence. “Well, let’s see. There’s — of course in the great history of America there have been rulings that there’s never going to be absolute consensus by every American. And there are those issues, again, like Roe v. Wade, where I believe are best held on a state level and addressed there. So you know, going through the history of America, there would be others but — — .”
When she couldn't come up with a immediate answer, she should have just said something like, "I don't have one on the tip of my tongue, but in general, I would support appointing justices to the Supreme Court that do not legislate from the bench." What people like me want to know is if something happened to McCain and Palin became president, what kind of justice would she appoint to the Supreme Court if a vacancy arose. That is by far the most import decision relating to the Supreme Court a President makes. The incoherent rambling turns a weak answer into a substantial gaffe perfectly suited for ridicule.
In general, for a candidate like Palin who is a governor, lack of fluency in national issues is much less important to me than her ability to digest information and make good decisions.
On the other ticket, if one is worried about lack of fluency in issues, Joe Biden should raise more alarm. Here is a guy that has been in the Senate for 35 years, and a high-ranking member on the Judicial and Foreign Relations committees. And instead of making gaffes by incoherent rambling, Biden has a knack of making incredibly incorrect statements, but stating them with such conviction that he barely gets called on them.
For instance, this whopper in response to the financial crisis:
"When the stock market crashed, Franklin Roosevelt got on the television and didn't just talk about the princes of greed," Biden told Couric. "He said, 'Look, here's what happened.'"
Of course the stock market crashed in 1929 and FDR did not take office until 1933, and he wouldn't have gotten on TV because no one had a TV at the time. Further, FDR was very populist and did badmouth "greed", at one point even proposing a 100% tax on incomes over $25,000. (approx. $300,000 in today's dollars). So Biden was wrong on at least 3 points. Yet he made the statement with conviction like he knew what he was talking about.
In the VP debate this past Thursday, Biden made numerous remarkably inaccurate statements. Among them:
- He repeated 3 times that we spend more in 3 weeks in Iraq than we have spent in Afghanistan since 2001. In reality, we have spent about $9 billion in Iraq in the last 3 weeks and over $177 billion in Afghanistan since 2001.
- He said that along with France, we had kicked Hezbollah out of Lebanon, and that he had called for NATO troops. In reality, France and the US helped Lebanon pressure the Syrians out of Lebanon, Hezbollah had and maintains a strong presence in Lebanon, and there is absolutely no record of anyone calling for NATO troops. Further, there is about a 0.0% chance that NATO would have sent troops to Lebanon, something that a foreign policy expert shoud know.
- He said is was "simply untrue" that Obama had said he would sit down with Iranian President Ahmadinejad. In reality, during the Democratic Primary YouTube debate in July 2007, a YouTube user asked if Obama would meet the leaders of Iran, Syria, Venezuela, Cuba, and North Korea without “precondition” during his first year in office. Obama replied, "I would. And the reason is this, that the notion that somehow not talking to countries is punishment to them -- which has been the guiding diplomatic principle of this administration -- is ridiculous." (APPLAUSE) Further, Hillary Clinton said she would not commit to meetings, Hillary's and Obama's campaigns exchanged dueling memos with Obama's campaign highlighting Obama's "new thinking", and Biden said "Absolutely positively no" to the question in August 2007. Obama even used to say on his website: "Obama is the only major candidate who supports tough, direct presidential diplomacy with Iran without preconditions." So Biden is not only incorrect, but he knows it because both Biden and Clinton were disagreeing about it last year.
- Biden said, "Vice President Cheney has been the most dangerous vice president we’ve had probably in American history. The idea he doesn’t realize that Article I of the Constitution defines the role of the vice president of the United States, that’s the Executive Branch. He works in the Executive Branch. He should understand that. Everyone should understand that." In reality, Article I of the Constitution deals with the Legislative Branch and Article II deals with the Executive. The VP's role is defined in both Articles. In Article I, the VP is simply designated as the President of the Senate and votes to break a tie. The Constitution does not spell out what the President of the Senate's duties are, but the position definitely has both a legislative and executive role, even if recent VP's have done little on the legislative side other than to break a tie vote.
Remeber, Biden is supposed to be an expert on the Constitution and Foreign Policy, yet Palin was much more accurate during the debate.
Maybe Biden is the one we should worry about being a heartbeat away from the presidency.
Barack Obama runs around saying the financial crisis has rendered the "final verdict" on the economic philosophy of the Bush Administration, a philosophy that McCain shares, that says that regulation is always bad and the free market should always be left alone. Bush & McCain said they wanted the market to run free, but instead they let it run wild.
This is utter nonsense!
The biggest single factor in the current financial crisis is the mess at Fannie Mae and Freddie Mac. These two Government Sponsored Enterprises (GSE's) hold over half the mortgages in the US.
The Bush Administration, John McCain, and other Republicans have tried to reign them in over the last 6 years and have been stopped at every turn mostly by Democrats.
The roots of the current crisis go back to the Community Reinvestment Act (CRA) in 1977. Back then, liberals were complaining about low rates of home ownership in minority neighborhoods. Because low-income neighborhoods can have a very distinct geographic area, you could sometimes draw a "red line" around entire neighborhoods where no one owned the home they lived in. Instead of assuming that this was because the people that lived in these neighborhoods did not have a sufficient income to put a required 10-20% down payment on a house, the Democrats blamed local mortgage lenders of "redlining."
The CRA required lenders to make sure they met "the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods." Despite the law's good intentions, the law's effect was to force lenders to make riskier loans, probably raising interest rates some in the process. But the main point here is that the CRA was the start of the move to lower lending standards in the name of "affordable housing."
In the late 80's and early 90's a series of minor changes gradually made CRA ratings more public and housing advocacy groups more power in demanding strict enforcment of the CRA. In 1995, the Clinton administration revamped the regulations regarding the CRA to give it, and housing advocacy groups, more teeth.
Fannie Mae and Freddie Mac were both created by Congress to help provide a secondary market for the mortgage industry. Local mortgage brokers and companies originate mortgage loans, and then sell a good portion of them to Fannie and Freddie. Fan and Fred then re-sell the loans to investors. In 1992, Congress passed a law that required Fannie Mae and Freddie Mac to "devote a portion of their lending to support affordable housing." Because these loans were more risky, Fan and Fred started bundling some solid loans with some risky ones into securities.
As early as 2002, even while President Bush was moving forward on an affordable housing initiative to increase minority home ownership through help with down payments and buyer education, the Bush administration began attempting to increase regulations on Fan and Fred. The two GSE's were getting so large and so leveraged that a failure of either one of them could cause major damage to the economy. Treasury Secretary John Snow was calling in 2003 for a "world-class regulator" for Fan and Fred. They were blocked by leading Democrats on the Banking committees in the House and Senate: Barney Frank, Chris Dodd, and Chuck Schumer.
Both Fan and Fred are shareholder owned and thus had incentive to grow like any publicly-owned company. But they were also chartered by Congress and therefore seen as having implicit government backing. With this special status they were able to obtain cheaper credit and use this advantage to dominate the secondary mortgage market.
Fannie Mae and Freddie Mac moved further and further into the sub-prime mortage market in the late 90's and early 2000's. In a series of House hearings in 2004 after an accounting scandal at Freddie Mac larger than Enron, Democrats continually defended Fannnie and Freddie, applauded their efforts toward affordable housing, and even threatened the regulator that they should be investigating him.
In 2005, the Senate Banking committee passed a bill on a party line vote -- all Republicans for and all Democrats against -- that would have set up a strong regulator for the GSE's. Later John McCain co-sponsored a bill to do the same, though it never got to a Senate floor vote over oppostion from almost all Democrats and a few Republicans. McCain said at the time:
"For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac–known as Government-sponsored entities or GSEs–and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay.Barack Obama didn't make a peep at the time.
"I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole."
By 2005 and 2006, a significant portion of the loans that the GSE's were buying were subprime loans. With the GSE's willing to take subprime loans off of any lenders hands, mortgage brokers had every incentive to make as much commission off of as many loans as possible. Fannie and Freddie were fueling the housing bubble.
When the bubble started to burst in 2007, forclosure rates started going up. Even with only 2% of the homes in the US in forclosure, Fannie and Freddie were both over-leveraged enough that they could not stay solvent. The government had to bail them out with $300 billion.
Worse yet, the entire financial system was poisoned with the GSE's mortgage-backed securites and MBS derivatives that started losing value and no one really knows how much they are all worth. The market dived on these MBS's and many financial firms, who in hindsight were also over-leveraged could not take the losses on these and went under.
Pretty soon the banks weren't sure what was on other banks' balance sheets and how much value they had, or who was going to go under next. Banks stopped overnight lending to each other, and voila, we have a crisis.
Now explain to me how the free market had anything to do with this crisis. The main players were the GSE's and goverment meddling with the market by demanding more affordable housing. Without the government screwing up the market, it is hard to see how a truly free market could have possibly led to the severity of a crisis we have right now.
I just wish McCain or Palin would stand up and say, "The current crisis is not a failure of free market principles or caused by deregulation. It was caused by the government's overzealous push for affordable housing through the Government Sponsered Enterprises of Fannie Mae and Freddie Mac. Democrats like Barney Frank and Chris Dodd have been at the heart of the problem. I am on record over 2 years ago in favor of tighter regulations on the GSE's. Barack Obama, as usual, just 'voted present.'"
How hard would that be to say?