After endorsing Obama during the campaign, The Economist is the latest in in a string of people that have become disenchanted with Obama.
Ed Morrissey at HotAir has the details and analysis.
Sunday, March 29, 2009
Friday, March 27, 2009
AP: The White House Fudges Stimulus Estimates
The AP actually wrote some good analysis explaining how Obama's "Bold Claims of Stimulus Jobs Can't Be Measured"
Some of my favorite assumptions behind the White House's estimate of 3.5 millions jobs being saved or created:
What planet are these people living on?!
Some of my favorite assumptions behind the White House's estimate of 3.5 millions jobs being saved or created:
For every two jobs directly created by the stimulus spending, a third job will be indirectly created. The 2-to-1 ratio is rough and varies considerably by sector. A tax cut has only one-quarter of the value of a spending increase of the same size, in terms of expanding the economy. Every dollar spent on unemployment benefits is worth $1.63 of quick economic expansion. Food stamps boost the economy even more.
What planet are these people living on?!
AIG Losing Executives
If you want a completely new perspective on the AIG bonuses, try reading Jake DeSantis' Resignation Letter.
(or click on the first result from this Google Search if you are not a resgistered member of NYTimes.com)
Follow that up with news of more AIG employees jumping ship.
This is exactly what I predicted would happen back on March 21st:
(or click on the first result from this Google Search if you are not a resgistered member of NYTimes.com)
Follow that up with news of more AIG employees jumping ship.
This is exactly what I predicted would happen back on March 21st:
Second, AIG needs to be able to retain its valuable employees. It is simply not fair to blame the entire Financial division at AIG for the decisions a few executives likely made. My understanding is that most all of the executives that were most responsible for misjudging risk and overselling their financial products have been let go. You simply cannot lose all the employees in a division of a company and expect the company to be able to continue to function well, and we REALLY need AIG to be able to continue to function, at least for now. How well would the company you work at function if 80% of the employees left all at once? When AIG started to realize how bad of shape all the investment banks were in, and that they themselves were headed for insolvency as a result, they were afraid many of their employees would leave the company. How many employees would stay at the company and have their reputations sullied by their continued association with AIG if they were not promised additional compensation in return? In early 2008, AIG offered retention bonuses to anyone who would stay until March 2009, and more bonuses for those who would stay until 2010. We just hit the round of bonuses that were due on March 15, 2009, and the bonuses were paid as promised. It is important to realize that the bonuses were NOT performance bonuses, they were retention bonuses. These valued employees that may have had little if any responsibility for the financial crisis were promised bonuses if they would stay on at AIG. They fulfilled their part of the contract, and their contracts should be honored. It is VERY DANGEROUS to go down the road of breaking contracts. Government is supposed to help enforce voluntary contracts, not force companies to break them.
Discussion: Government Taking Over?
Here's a good discussion that got going on one of my friend's Facebook page:
Kyle Miller's Notes
"The Way I See It" - #35
Tue 3/24/09 8:12am
U.S. seeks expanded power to seize firms (http://www.msnbc.msn.com/id/29847658)
Is anyone paying attention out there????? Does this latest "political move" scare anyone else? Where will it end??
This article tries to portray the government as "protecting" the interests of the American people by "managing" financial institutions to keep them solvent. Don't let the wool be pulled over your eyes! This is nothing more than a move to control our financial system from Washington and set up a Nationalized Banking system so the GOVERNMENT controls our banking infrastructure.
The sub-title of this article even states this gross understatement claiming, "Goal is to limit risk to broader economy". What a crock!!
Is that along the same lines as "Gun control goal is to limit firearms in the hands of criminals"??? Yeah, like that's worked really well.
This is typical of a liberal regime. The American people are too stupid to handle their own business so we, the smart, intellectual, educated, responsible government lackies will step in and remove the knife from the stupid kid in the room. COME ON PEOPLE!!!!!
If the government starts controlling our banks - our economy will most certainly take a nose dive. Anyone else care to notice what happened to the DOW today when this news came out? Yeah...like whenever Obama speaks...it took a dive. When just yesterday, all the liberal drive by media types were trying to give Obama the credit for a 7% increase in the DOW! When did Bush ever get recognition for the DOW going up??? No, the only news we ever heard when the DOW went up was how the rich fat cat oil companies were supposedly lining their already silk pockets. But when the DOW goes up under the almighty Obama regime, it's because it's a victory for Obama and his policies.
Wave bye-bye to competitive rates for loans! Wave bye-bye to banks investing in their local communities. Bye-bye capitalism! It was great to have you here, but you threaten a tyrannical leaders control over a nation, so you must go. You will be missed, but we won't be allowed to mourn your absence, because we'll be told that socialism is now "Modern" European Socialism and that it's for our best interest.
WAKE UP PEOPLE!!!!!!!!!!!
Kyle Miller at 8:20am March 24
And again...there's apparently no time for discussion or review of this policy. Just like the $800 Billion bailout plan it HAS to be done NOW or else...I fear this is becoming an all too common theme with the Obama regime to force feed liberal agenda's down the throat of the American people. They're supposedly voting on this measure THIS WEEK! So EVERYONE needs to call their representatives and tell them to VOTE NO on this unprecedented government control.
Tobias Wilson at 12:49pm March 24
Hello Socialism.... i hope that at least one reporter at the primetime news conference will ask the president "isn't your plan too much like socialism!"
Kyle Miller at 1:22pm March 24
They might try...but if you remember back to the election process, we're not allowed to ask that question because the WORLD is socialist now, and we should be more like "Modern Europe". I don't want to be more like Europe, and the questions from the right will continue to be ignored because this President feels he has won political equity because the majority (all be it a majority by a small margin) of the American people voted him President.
Toby Bierly at 2:17am March 25
Treasury Secretary Geithner is still trying to work out details for the proposal -- as far as I know, it hasn't been presented to Congress at all yet. An initial proposal could be sent to Congress later this week. I think this is prompted more than anything by the failure of Lehman Brothers last year, and underscored with the recent furor over AIG bonuses. I think most people who have studied the issue carefully would agree that letting Lehman Brothers fail the way it did greatly destabilized the financial markets. That said, I do not really trust the Treasury department to know the right action to take. Any such proposal MUST be very carefullly thought out and fully deliberated, and there should be clear checks on the Treasury's power and clear guidelines on exactly what would trigger the need for Treasury to take action with someone like a Lehman Brothers. It should be very limited in scope and only ever used as a measure of last resort. I don't trust Congress to get it right.
Kyle Miller at 10:36am March 25
Well here's my concern...government intervention, at any level, no matter how "noble" always opens the doors to more and more regulation. DEregulation is a term that isn't in their vocabulary. So if it starts here, where does it end?
My opinion, is that if companies like AIG, Lehman Bros, etc fail, then they fail. Will it hurt the economy? Yes. Will it hurt the global economy? Yes. But growing pains are never easy. Why do we have the success we do today? Because of the stock market crash. Am I saying we need to have another crash of that magnitude? No. But what I do believe is that having a natural "reset" of financial companies failing that got greedy and "got it wrong" should fail so that better run companies can rise up.
I read an article the other day talking about why we can't allow AIG to fail, and the ONLY reason they could come up with is because of the shear volume of cash they circulate around the world. So if they fail they fail. Will it hurt? Yes. Like anything that grows strong it must have a pruning period. If I ran a vineyard and just let the dead vines stay connected to the live vines, the live vines are gonna eventually die and my whole crop will be lost. The dead vines must be cut away so that the healthy vines can flourish.
Government intervention at any level only means one thing, control. And once they have a little, they'll lobby and push and pull till they get even more. It's a never ending cycle.
If anything, if they truly want to set up an "oversight" committee, a third party private organization should be brought in to oversee and review their finances. I mean, if I buy a ton of stuff with a credit card, and then decide to tell the credit card company, "I'm sorry, I don't have the money to pay you." Do you think they're just gonna say, "Ok, no problem." and be done with it? No!
They're gonna hit my credit score from every which way they can and make it impossible for me to obtain another line of credit with any other lender.
Why shouldn't the same principal be applied to these companies?? We like to think these companies are run by the smartest people who have the "little man's" best interest at heart. And the truth is, they could care less about the little man, and are run by regular people just like you and me that get greedy, get powerful, and think they're indestructable. They should have to pay the same price ANY OTHER COMPANY OR PERSON WOULD HAVE TO PAY. And if that means the company goes down the toilet, and their stocks are worth $0 then so be it.
Toby Bierly at 9:49pm March 25
Here's a good description of the type of risk that the feds would have been taking if they let AIG fail: http://www.portfolio.com/views/blogs/market-movers/2009/03/17/why-aig-wasnt-allowed-to-fail?tid=true
We are talking about a possible meltdown of the entire global financial system. Think of the frozen credit market last fall and expand that throughout the entire financial system. Major economies could contract by 25-50% like happened to the U.S. at the start of the Great Depression.
Believe me, I'm a free market guy, and in 99% of cases I say if a company cannot manage itself properly, it should be allowed to fail. This to me is an exception to the rule.
And it's REALLY SCARY, because creates a situation where there is enough agreement that the government needs to take action that the government will take action, and it's about a 30% chance they actually make the right moves
Toby Bierly at 10:02pm March 25
By the way, I think you make a lot of good points, but blaming greed is anti-capitalist. Every company tries to make money. That is the entire point, isn't it? Every company tries to maximize profit and grow. And it is usually healthy, because in order to grow in a free market, you have to offer services that others are willing to pay for. The beauty of a free market system is that it typically channels everyone's self-interest in service of their fellow man.
The more relevant point is that they "got it wrong". Even those with the best of intentions can get it wrong. And if they got it wrong, they deserve to fail. But my argument is not based on what AIG deserves, but what is best for the economy as a whole, and I do not think a completely dysfunctional financial system helps anyone. That is the risk that a failed AIG poses. We are not talking about pruning the vineyard, we are talking about taking a machete to the completely wipe out a huge part of the vineyard!
Toby Bierly at 10:11pm March 25
One area I bet we are in TOTAL agreement on is the necessity to stop Obama from passing his proposed budget through Congress. Radically shifting people toward government provided health insurance (the only way they can "cut costs" is by denying care, either directly for certain procedures or indirectly through price controls which result in supply shortages), wasting hundreds of billions on ineffiicient and more expensive alternative energies, mindlessly throwing more federal money at schools when we already spend by far the most per student in the world, and increasing taxes on all fossil fuels and on "the rich" in the middle of a recession are ALL the EXACT OPPOSITE of what we should be doing.
Kyle Miller at 11:02am March 26
And I guess the idea of total economic meltdown is where we would have to disagree then, because I'm of the opinion that no matter how much it hurts, it needs to be done or else the core issue will never be truly dealt with and the cancer will be allowed to continue.
If the government steps in, does it REALLY stop the potential for an economic meltdown or only slow it? I mean, if a balloon has a hole in it, tape will stop the outflow of air for awhile, the fact still remains that there's a hole in the balloon and air is going to eventually expose the weakness and pop.
When I say greed, I'm not referring to a companies right to make a profit or expand or grow. I'm all for that. What I'm referring to is when certain CEO's start making selfish decisions because it will benefit THEIR OWN personal bottom line, no matter the cost. Enron is a perfect example, and I'm sure we'll find out that AIG had a lot of the same characteristics.
Kyle Miller at 11:05am March 26
You are right that we agree that more money is not the answer. Neither is increased taxes. If they want to really stimulate the economy, put more money on a regular basis in the pockets of the American people, and that's accomplished by letting them keep more of their monthly paycheck.
All these "stimulus checks" do is increase the spending for that quarter. It's not ongoing, sustained spending, it's a little blip in the overall financial system for that year.
Regardless, I think we have to realize that this President is going to spend us into the largest fiscal deficit in the history of our country. And then the next four presidents are going to have to work to try to fix it.
Toby Bierly at 9:51pm March 26
When the credit markets froze last year, it wasn't because there weren't plenty of credit-worthy institutions; it was because everyone got spooked after Bear Sterns and AIG had to be bailed out with loans and guarantees, and then Lehman failed. With such big names dropping like flies, and with so many smaller institutions being affected, no one knew who it was safe to lend to, and whether or not the government would step in. It was a crisis of confidence.
If the government had not injected some of the TARP I funds, the credit market would have stayed frozen, and it would have resulted in a cascade of banks all across the country failing. That in turn would have caused a swell of business failures and lack of new business startups, and unemployment would have skyrocketed as GDP fell.
This phenomenom of cascading bank failures is what started the Great Depression, when more than half the banks in the U.S. failed and the economy shrunk in half.
Toby Bierly at 9:59pm March 26
On CEO incentives, it is true that a lot of board of directors who make most of the decisions are focused on whatever short-term incentive plans that will help them meet short-term growth goals, and in doing so can sacrifice, purposefully or not, long-term growth and/or stability of the company. Those incentives need to be changed. The biggest question is how to do so. I don't really want the government stepping in and mandating what a good bonus program is. That gives them too much power, and they will likely mess it up and politicize it. We somehow have to get the power back in the hands of shareholders with enough education and intiative to police the companies they own. This is barely being talked about though.
Stimulus checks give an artificial boost to GDP for a quarter or two, and hurts long term growth because of deficit spending. Sooner or later the goverment has to increase tax revenues or print the money which stifles the economy or results in inflation.
Toby Bierly at 10:09pm March 26
But the recent "stimulus" bill was not even much stimulus; it was the next 5-8 years of Democratic spending jammed into one huge pork-laden bill that no one bothered to read, merely labeled as stimulus. Most of the spending is not even scheduled to happen in the next year, thus most of the quote "stimulus" will likely occur after the economy has already started recovering (assuming Obama doesn't screw things up so bad that we have not started recovering by then).
What will happen is that Obama will raise taxes, but tax revenues will not increase significantly because of weak economic growth. And then we will be forced to print money which will sharply increase inflation (back to the 70's!) and devalue the dollar. If that happens enough, we could risk a run on the dollar. Then our money will be worth much less and you will see prices go up and standards of living decline.
Kyle Miller at 7:51am March 27
Agreed. :-)
Toby Bierly at 9:10am March 27
Thanks for "listening". I don't know hardly anyone who wants to talk about politics. Almost everyone is ignorant of or apathetic about public policy, usually uninformed because they are too busy, have "more important" things to do, don't see how it affects them, assume it will all sort itself out without their help, find it excessively boring, desperately want to avoid any disagreement or arguments, find it too confusing, or just plain don't care.
Kyle Miller at 9:21am March 27
LOL - you're right...I run into that issue as well...although I have tagged quite a few people in this note that usually do have strong opinions, none of them have responded. Maybe cause they don't share the same view, or are just tired of the debate. :-) I'm never too tired of the debate, especially when it's about a President I so vehemently disagree with. :-) Feel free to tag me in any notes you post regarding political issues, I'm more than willing to chime in! :-)
Toby Bierly at 8:53pm March 27
What I would really like to focus on is sharing ideas with those who aren't necessarily political. I'd like to expand the discussion to include as many people as possible. It seems like the only people you can find to talk politics with are those already informed or involved. But who we need to reach are the great mass of people that don't pay much attention by somehow creating a place where those who do have some interest are comfortable speaking up and entering the conversation.
Toby Bierly at 9:53pm March 27
Geithner to Seek Power Over Hedge Funds, Derivatives
http://news.yahoo.com/s/bloomberg/20090326/pl_bloomberg/a0v_8uopk2a0
Here's the broad outline of what Geithner is proposing. Not sure quite what to think on this yet. I think it is appropriate for the government to set some sensible rules for large financial institutions, the equivalent of saying to an individual, "No you cannot use $10,000 equity in your home to borrow $300,000 to start a business."
Although government doesn't need to do that for an individual because it is so obvious a risk that no one would lend him the money. I think the same principle would work with investment banks and other large financial firms if there was enough transparency that people could accurately assess the risk.
One of the major untold stories of the financial collapse was that the government approved credit rating agencies like S&P and Moody's were WAY off giving Mortgage Backed Securities AAA ratings (the best).
Toby Bierly at 10:03pm March 27
Maybe the best answer is to require financial institutions to release more information to give proper transparency in the market. Buyers should always be presented with sufficient information about what they are buying.
Kyle Miller's Notes
"The Way I See It" - #35
Tue 3/24/09 8:12am
U.S. seeks expanded power to seize firms (http://www.msnbc.msn.com/id/29847658)
Is anyone paying attention out there????? Does this latest "political move" scare anyone else? Where will it end??
This article tries to portray the government as "protecting" the interests of the American people by "managing" financial institutions to keep them solvent. Don't let the wool be pulled over your eyes! This is nothing more than a move to control our financial system from Washington and set up a Nationalized Banking system so the GOVERNMENT controls our banking infrastructure.
The sub-title of this article even states this gross understatement claiming, "Goal is to limit risk to broader economy". What a crock!!
Is that along the same lines as "Gun control goal is to limit firearms in the hands of criminals"??? Yeah, like that's worked really well.
This is typical of a liberal regime. The American people are too stupid to handle their own business so we, the smart, intellectual, educated, responsible government lackies will step in and remove the knife from the stupid kid in the room. COME ON PEOPLE!!!!!
If the government starts controlling our banks - our economy will most certainly take a nose dive. Anyone else care to notice what happened to the DOW today when this news came out? Yeah...like whenever Obama speaks...it took a dive. When just yesterday, all the liberal drive by media types were trying to give Obama the credit for a 7% increase in the DOW! When did Bush ever get recognition for the DOW going up??? No, the only news we ever heard when the DOW went up was how the rich fat cat oil companies were supposedly lining their already silk pockets. But when the DOW goes up under the almighty Obama regime, it's because it's a victory for Obama and his policies.
Wave bye-bye to competitive rates for loans! Wave bye-bye to banks investing in their local communities. Bye-bye capitalism! It was great to have you here, but you threaten a tyrannical leaders control over a nation, so you must go. You will be missed, but we won't be allowed to mourn your absence, because we'll be told that socialism is now "Modern" European Socialism and that it's for our best interest.
WAKE UP PEOPLE!!!!!!!!!!!
Kyle Miller at 8:20am March 24
And again...there's apparently no time for discussion or review of this policy. Just like the $800 Billion bailout plan it HAS to be done NOW or else...I fear this is becoming an all too common theme with the Obama regime to force feed liberal agenda's down the throat of the American people. They're supposedly voting on this measure THIS WEEK! So EVERYONE needs to call their representatives and tell them to VOTE NO on this unprecedented government control.
Tobias Wilson at 12:49pm March 24
Hello Socialism.... i hope that at least one reporter at the primetime news conference will ask the president "isn't your plan too much like socialism!"
Kyle Miller at 1:22pm March 24
They might try...but if you remember back to the election process, we're not allowed to ask that question because the WORLD is socialist now, and we should be more like "Modern Europe". I don't want to be more like Europe, and the questions from the right will continue to be ignored because this President feels he has won political equity because the majority (all be it a majority by a small margin) of the American people voted him President.
Toby Bierly at 2:17am March 25
Treasury Secretary Geithner is still trying to work out details for the proposal -- as far as I know, it hasn't been presented to Congress at all yet. An initial proposal could be sent to Congress later this week. I think this is prompted more than anything by the failure of Lehman Brothers last year, and underscored with the recent furor over AIG bonuses. I think most people who have studied the issue carefully would agree that letting Lehman Brothers fail the way it did greatly destabilized the financial markets. That said, I do not really trust the Treasury department to know the right action to take. Any such proposal MUST be very carefullly thought out and fully deliberated, and there should be clear checks on the Treasury's power and clear guidelines on exactly what would trigger the need for Treasury to take action with someone like a Lehman Brothers. It should be very limited in scope and only ever used as a measure of last resort. I don't trust Congress to get it right.
Kyle Miller at 10:36am March 25
Well here's my concern...government intervention, at any level, no matter how "noble" always opens the doors to more and more regulation. DEregulation is a term that isn't in their vocabulary. So if it starts here, where does it end?
My opinion, is that if companies like AIG, Lehman Bros, etc fail, then they fail. Will it hurt the economy? Yes. Will it hurt the global economy? Yes. But growing pains are never easy. Why do we have the success we do today? Because of the stock market crash. Am I saying we need to have another crash of that magnitude? No. But what I do believe is that having a natural "reset" of financial companies failing that got greedy and "got it wrong" should fail so that better run companies can rise up.
I read an article the other day talking about why we can't allow AIG to fail, and the ONLY reason they could come up with is because of the shear volume of cash they circulate around the world. So if they fail they fail. Will it hurt? Yes. Like anything that grows strong it must have a pruning period. If I ran a vineyard and just let the dead vines stay connected to the live vines, the live vines are gonna eventually die and my whole crop will be lost. The dead vines must be cut away so that the healthy vines can flourish.
Government intervention at any level only means one thing, control. And once they have a little, they'll lobby and push and pull till they get even more. It's a never ending cycle.
If anything, if they truly want to set up an "oversight" committee, a third party private organization should be brought in to oversee and review their finances. I mean, if I buy a ton of stuff with a credit card, and then decide to tell the credit card company, "I'm sorry, I don't have the money to pay you." Do you think they're just gonna say, "Ok, no problem." and be done with it? No!
They're gonna hit my credit score from every which way they can and make it impossible for me to obtain another line of credit with any other lender.
Why shouldn't the same principal be applied to these companies?? We like to think these companies are run by the smartest people who have the "little man's" best interest at heart. And the truth is, they could care less about the little man, and are run by regular people just like you and me that get greedy, get powerful, and think they're indestructable. They should have to pay the same price ANY OTHER COMPANY OR PERSON WOULD HAVE TO PAY. And if that means the company goes down the toilet, and their stocks are worth $0 then so be it.
Toby Bierly at 9:49pm March 25
Here's a good description of the type of risk that the feds would have been taking if they let AIG fail: http://www.portfolio.com/views/blogs/market-movers/2009/03/17/why-aig-wasnt-allowed-to-fail?tid=true
We are talking about a possible meltdown of the entire global financial system. Think of the frozen credit market last fall and expand that throughout the entire financial system. Major economies could contract by 25-50% like happened to the U.S. at the start of the Great Depression.
Believe me, I'm a free market guy, and in 99% of cases I say if a company cannot manage itself properly, it should be allowed to fail. This to me is an exception to the rule.
And it's REALLY SCARY, because creates a situation where there is enough agreement that the government needs to take action that the government will take action, and it's about a 30% chance they actually make the right moves
Toby Bierly at 10:02pm March 25
By the way, I think you make a lot of good points, but blaming greed is anti-capitalist. Every company tries to make money. That is the entire point, isn't it? Every company tries to maximize profit and grow. And it is usually healthy, because in order to grow in a free market, you have to offer services that others are willing to pay for. The beauty of a free market system is that it typically channels everyone's self-interest in service of their fellow man.
The more relevant point is that they "got it wrong". Even those with the best of intentions can get it wrong. And if they got it wrong, they deserve to fail. But my argument is not based on what AIG deserves, but what is best for the economy as a whole, and I do not think a completely dysfunctional financial system helps anyone. That is the risk that a failed AIG poses. We are not talking about pruning the vineyard, we are talking about taking a machete to the completely wipe out a huge part of the vineyard!
Toby Bierly at 10:11pm March 25
One area I bet we are in TOTAL agreement on is the necessity to stop Obama from passing his proposed budget through Congress. Radically shifting people toward government provided health insurance (the only way they can "cut costs" is by denying care, either directly for certain procedures or indirectly through price controls which result in supply shortages), wasting hundreds of billions on ineffiicient and more expensive alternative energies, mindlessly throwing more federal money at schools when we already spend by far the most per student in the world, and increasing taxes on all fossil fuels and on "the rich" in the middle of a recession are ALL the EXACT OPPOSITE of what we should be doing.
Kyle Miller at 11:02am March 26
And I guess the idea of total economic meltdown is where we would have to disagree then, because I'm of the opinion that no matter how much it hurts, it needs to be done or else the core issue will never be truly dealt with and the cancer will be allowed to continue.
If the government steps in, does it REALLY stop the potential for an economic meltdown or only slow it? I mean, if a balloon has a hole in it, tape will stop the outflow of air for awhile, the fact still remains that there's a hole in the balloon and air is going to eventually expose the weakness and pop.
When I say greed, I'm not referring to a companies right to make a profit or expand or grow. I'm all for that. What I'm referring to is when certain CEO's start making selfish decisions because it will benefit THEIR OWN personal bottom line, no matter the cost. Enron is a perfect example, and I'm sure we'll find out that AIG had a lot of the same characteristics.
Kyle Miller at 11:05am March 26
You are right that we agree that more money is not the answer. Neither is increased taxes. If they want to really stimulate the economy, put more money on a regular basis in the pockets of the American people, and that's accomplished by letting them keep more of their monthly paycheck.
All these "stimulus checks" do is increase the spending for that quarter. It's not ongoing, sustained spending, it's a little blip in the overall financial system for that year.
Regardless, I think we have to realize that this President is going to spend us into the largest fiscal deficit in the history of our country. And then the next four presidents are going to have to work to try to fix it.
Toby Bierly at 9:51pm March 26
When the credit markets froze last year, it wasn't because there weren't plenty of credit-worthy institutions; it was because everyone got spooked after Bear Sterns and AIG had to be bailed out with loans and guarantees, and then Lehman failed. With such big names dropping like flies, and with so many smaller institutions being affected, no one knew who it was safe to lend to, and whether or not the government would step in. It was a crisis of confidence.
If the government had not injected some of the TARP I funds, the credit market would have stayed frozen, and it would have resulted in a cascade of banks all across the country failing. That in turn would have caused a swell of business failures and lack of new business startups, and unemployment would have skyrocketed as GDP fell.
This phenomenom of cascading bank failures is what started the Great Depression, when more than half the banks in the U.S. failed and the economy shrunk in half.
Toby Bierly at 9:59pm March 26
On CEO incentives, it is true that a lot of board of directors who make most of the decisions are focused on whatever short-term incentive plans that will help them meet short-term growth goals, and in doing so can sacrifice, purposefully or not, long-term growth and/or stability of the company. Those incentives need to be changed. The biggest question is how to do so. I don't really want the government stepping in and mandating what a good bonus program is. That gives them too much power, and they will likely mess it up and politicize it. We somehow have to get the power back in the hands of shareholders with enough education and intiative to police the companies they own. This is barely being talked about though.
Stimulus checks give an artificial boost to GDP for a quarter or two, and hurts long term growth because of deficit spending. Sooner or later the goverment has to increase tax revenues or print the money which stifles the economy or results in inflation.
Toby Bierly at 10:09pm March 26
But the recent "stimulus" bill was not even much stimulus; it was the next 5-8 years of Democratic spending jammed into one huge pork-laden bill that no one bothered to read, merely labeled as stimulus. Most of the spending is not even scheduled to happen in the next year, thus most of the quote "stimulus" will likely occur after the economy has already started recovering (assuming Obama doesn't screw things up so bad that we have not started recovering by then).
What will happen is that Obama will raise taxes, but tax revenues will not increase significantly because of weak economic growth. And then we will be forced to print money which will sharply increase inflation (back to the 70's!) and devalue the dollar. If that happens enough, we could risk a run on the dollar. Then our money will be worth much less and you will see prices go up and standards of living decline.
Kyle Miller at 7:51am March 27
Agreed. :-)
Toby Bierly at 9:10am March 27
Thanks for "listening". I don't know hardly anyone who wants to talk about politics. Almost everyone is ignorant of or apathetic about public policy, usually uninformed because they are too busy, have "more important" things to do, don't see how it affects them, assume it will all sort itself out without their help, find it excessively boring, desperately want to avoid any disagreement or arguments, find it too confusing, or just plain don't care.
Kyle Miller at 9:21am March 27
LOL - you're right...I run into that issue as well...although I have tagged quite a few people in this note that usually do have strong opinions, none of them have responded. Maybe cause they don't share the same view, or are just tired of the debate. :-) I'm never too tired of the debate, especially when it's about a President I so vehemently disagree with. :-) Feel free to tag me in any notes you post regarding political issues, I'm more than willing to chime in! :-)
Toby Bierly at 8:53pm March 27
What I would really like to focus on is sharing ideas with those who aren't necessarily political. I'd like to expand the discussion to include as many people as possible. It seems like the only people you can find to talk politics with are those already informed or involved. But who we need to reach are the great mass of people that don't pay much attention by somehow creating a place where those who do have some interest are comfortable speaking up and entering the conversation.
Toby Bierly at 9:53pm March 27
Geithner to Seek Power Over Hedge Funds, Derivatives
http://news.yahoo.com/s/bloomberg/20090326/pl_bloomberg/a0v_8uopk2a0
Here's the broad outline of what Geithner is proposing. Not sure quite what to think on this yet. I think it is appropriate for the government to set some sensible rules for large financial institutions, the equivalent of saying to an individual, "No you cannot use $10,000 equity in your home to borrow $300,000 to start a business."
Although government doesn't need to do that for an individual because it is so obvious a risk that no one would lend him the money. I think the same principle would work with investment banks and other large financial firms if there was enough transparency that people could accurately assess the risk.
One of the major untold stories of the financial collapse was that the government approved credit rating agencies like S&P and Moody's were WAY off giving Mortgage Backed Securities AAA ratings (the best).
Toby Bierly at 10:03pm March 27
Maybe the best answer is to require financial institutions to release more information to give proper transparency in the market. Buyers should always be presented with sufficient information about what they are buying.
Wednesday, March 25, 2009
Obama puts troublemaker in charge
This is unbelievable. One of the guys most responsible for our financial crisis is being promoted by the Obama Administration
See my previous posts on the mortgage collapse/correction:
Oct 4, 2008 Where is the defense of free markets?!
Nov 21, 2008 Deregulation vs. Fannie & Freddie
Feb 21, 2009 Housing Price Decline Not Done Yet
Feb 21, 2009 Sowell: Housing Crisis Caused By Government
“We created Home Possible Mortgages so more lenders can say ‘Yes’ to more borrowers,” said David Stevens, senior vice president of single family sourcing at Freddie Mac. “Home Possible is what our lenders tell us they need to compete in today’s market: a flexible, easy-to-use mortgage uniting Loan Prospector’s ease and efficiency with exceptionally low-downpayments and flexible credit. Perhaps no other mortgage product launched in recent memory will enable our lenders to reach and help as many additional borrowers as Home Possible.”
See my previous posts on the mortgage collapse/correction:
Monday, March 23, 2009
AIG News
It was common knowledge back in 2008 that these AIG bonuses were planned, and many of the executives would have left the company by now if they had not been promised the bonuses. Many of them were working for $1 a year and their only compensation for the last year or so were these bonuses. The Democrats are hypocritically demagoging the issue when they act like they just found out about them.
Sunday, March 22, 2009
Republican capitalize on CBO numbers
The following is my comment that I submitted to this blog post on MSNBC's First Read Blog listing a few quotes from John McCain, John Thune, and John Boehner about the CBO estimates for Obama's montrous budget. You have to read through some of the comments (almost all liberal) to get an idea of what I was responding to.
Honestly, it really irks me when people say something like, "Well, we didn't hold down spending with Republicans in charge. Lets give the Democrats a chance." The problem was not the Republican party as a whole, but a lack of Bush using the veto pen, and the moderate Republicans who would never go along with cutting spending. As soon as you single out something to cut spending on, you are instantly targeted by those who benefit from that spending. Name one area in any government budget that doesn't seem like a good idea at some level.
Have you ever thought about how hard it is politically to try to cut housing subsidies, welfare payments, unemployment benefits, social security benefits, food stamps, health insurance like medicaid or medicare, funding for national parks, or even something like the National Endowment for the Arts? I'm not saying Republicans couldn't have done a better job, but come on, does anyone seriously think that Democrats do a better job of holding the line on spending than Republicans.
For those most upset about increased federal spending over Bush's tenure, the obvious answer was to vote for more conservative Republicans and for John McCain.
At the end of the day, during Bush's tenure, there were only 2 years where Republicans had a big enough Senate majority (55-45) in order to be able to pass stuff through without Democratic support, and even then there were enough moderate Republicans that we couldn't even get to 50 on no-brainers like ANWR & making tax cuts permanent, much less hold the line on spending.
Again, the obvious answer for those concerned about spending was to vote a few more conservative Republicans into the Senate, and then press Bush hard to cut spending, or if that failed, wait and elect John McCain.
Obama and the Democrats are proving that while there are enough moderate Republicans that even under a Republican president and Congress, spending can go up if there is not the political will to fight off Democrats' attacks and find places to cut spending, Democrats are 10 times worse when it comes to big spending. Trusting Democrats to limit spending is truly putting the fox in charge of the hen house.
The Iraq and Afghanistan wars have cost approx $100 billion per year, which is chump change compared to the TRILLIONS that Obama is planning to spend, and much less than the other increases in spending over the past 8 years. Through 2007, annual spending had gone up by about 1 Trillion dollars while federal revenues increased by $700 Billion. The deficit was actually down around something like $150 until the housing market collapse.
The Bush tax cuts spurred the economic growth that led to the significant increase in government revenue. You can't call raising more government revenue through lower tax rates generational theft. Indeed, higher taxes that stunt economic growth "steal" a ton of money from future generations. Most of the comments here act like tax rates have no effect on economic growth.
Honestly, it really irks me when people say something like, "Well, we didn't hold down spending with Republicans in charge. Lets give the Democrats a chance." The problem was not the Republican party as a whole, but a lack of Bush using the veto pen, and the moderate Republicans who would never go along with cutting spending. As soon as you single out something to cut spending on, you are instantly targeted by those who benefit from that spending. Name one area in any government budget that doesn't seem like a good idea at some level.
Have you ever thought about how hard it is politically to try to cut housing subsidies, welfare payments, unemployment benefits, social security benefits, food stamps, health insurance like medicaid or medicare, funding for national parks, or even something like the National Endowment for the Arts? I'm not saying Republicans couldn't have done a better job, but come on, does anyone seriously think that Democrats do a better job of holding the line on spending than Republicans.
For those most upset about increased federal spending over Bush's tenure, the obvious answer was to vote for more conservative Republicans and for John McCain.
At the end of the day, during Bush's tenure, there were only 2 years where Republicans had a big enough Senate majority (55-45) in order to be able to pass stuff through without Democratic support, and even then there were enough moderate Republicans that we couldn't even get to 50 on no-brainers like ANWR & making tax cuts permanent, much less hold the line on spending.
Again, the obvious answer for those concerned about spending was to vote a few more conservative Republicans into the Senate, and then press Bush hard to cut spending, or if that failed, wait and elect John McCain.
Saturday, March 21, 2009
MUST READ: Krauthammer on AIG
Charles Krauthammer sums up the Obama administration's performance so far, and places the triviality of the AIG bonuses in some much needed perspective.
Obama Ducks Responsibility for AIG
Did anyone catch this from the other day? Someone sent me a link to a new Republican ad about the AIG bonuses. Near the end, Obama actually says, quote:
Do I really need to comment about this blatant double-speak? It double-speaks for itself.
Contrast this to President Bush. Whenever Bush said he took responsibility for something, he never tried to dodge responsibility at the same time. Frankly, Bush was way too quick to always say he took responsibility, which many people would take as an admission of guilt. Bush's biggest political problem was always that he was too much of a stand-up guy. Full pardon for Scooter Libby? No, he had to respect the DC jury's verdict. Put public pressure on Gov. Blanco in Louisiana to allow federal assistance faster during Katrina? Nope, he respected the Constitution, kept the dispute private, and then fell on his sword to "take responsibility" for something that truly was not his fault. He would not insert politics into a disaster like Katrina, but his political opponents had no qualms about doing so, and his entire second term and Republican control of Congress was sacrificed as a result (sure, there were other major factors like Iraq, but Katrina was the pivotal moment that Bush lost another 10-15% in support).
By the way, Chris Dodd is quite the white liar in this clip too. Notice that he repeatedly says that the restrictions on bonuses were in the original bill, when he knows full well that he stripped them from the bill during conference at the request of the Treasury department, who correctly noted that it would be illegal to break the retention bonus contracts.
It is also a bad idea. While I don't like the idea of part of my taxes going to pay for bonuses at a failing company at the heart of the financial crisis, please hear me out on why I think they should be allowed to stand.
First, AIG is far from the most culpable entity in the financial crisis. They were basically the insurance company that is taking the hits when the disaster struck. Think of the case of a hurricane, where insurance companies can end up paying out a lot of money as a result. Some insurance companies promise more coverage than they can deliver given a large enough disaster and large enough insurance claims. That is what happened to AIG here. One could make a credible argument that AIG's insurance offerings to the huge investment banks is one significant factor that encouraged the investment banks to over-leverage themselves as far as they did. To the extent that is true, go ahead and cast blame at AIG, but basically I see them the same way as I see insurance companies that misjudge risk and oversell insurance policies to beachfront homeowners in Florida.
Second, AIG needs to be able to retain its valuable employees. It is simply not fair to blame the entire Financial division at AIG for the decisions a few executives likely made. My understanding is that most all of the executives that were most responsible for misjudging risk and overselling their financial products have been let go. You simply cannot lose all the employees in a division of a company and expect the company to be able to continue to function well, and we REALLY need AIG to be able to continue to function, at least for now. How well would the company you work at function if 80% of the employees left all at once? When AIG started to realize how bad of shape all the investment banks were in, and that they themselves were headed for insolvency as a result, they were afraid many of their employees would leave the company. How many employees would stay at the company and have their reputations sullied by their continued association with AIG if they were not promised additional compensation in return? In early 2008, AIG offered retention bonuses to anyone who would stay until March 2009, and more bonuses for those who would stay until 2010. We just hit the round of bonuses that were due on March 15, 2009, and the bonuses were paid as promised. It is important to realize that the bonuses were NOT performance bonuses, they were retention bonuses. These valued employees that may have had little if any responsibility for the financial crisis were promised bonuses if they would stay on at AIG. They fulfilled their part of the contract, and their contracts should be honored. It is VERY DANGEROUS to go down the road of breaking contracts. Government is supposed to help enforce voluntary contracts, not force companies to break them.
Third, the government is using AIG as the linchpin for the world financial system. If AIG collapsed completely, or if it was unable to continue to function, the entire world financial system could collapse. This has wide ranging political and economic ramifications that greatly affect the U.S. Our government is basically backstopping AIG so AIG can make good on its insurance claims made by banks all over the world. Unless you want the government to inject capital directly into foreign banks by some yet-to-be-determined formula or risk worldwide financial system failure by letting foreign financial institutions collapse, you have to let AIG continue to fulfill its role with government backing, no matter how distasteful this may be. And for AIG to continue to fulfill its roll, you need the employees with the technical know how to stay with the company. Thus the point of the retention bonuses.
Fourth, when we are talking about avoiding chaos with $185 Billion (with a B), $165 Million (with a M) is a relatively minor concern. Why should I be outraged about $165 Million when we are talking about government bailouts in the TRILLIONS, new government spending in the TRILLIONS, and an increased federal budget that will lead to TRILLIONS in deficits over the next several years. And those are three DIFFERENT instances of TRILLIONS, not 3 different ways to describe the same Trillion. $165 Million is a bargain if it means the $185 Billion was managed 0.1% better than it otherwise would be.
At the end of the day, both Congress and the White House knew about the bonuses well in advance, and thought it would be illegal to require AIG to break those contracts, and knew that would cause unneccessary employee turnover at the embattled company at exactly the wrong time. AIG is being run by a former CEO who came out of retirement and is working for a penny a year. He felt that he was contractually obligated to pay the bonuses, and though he said in Congressional testimony that he would have structured the bonuses differently, he expressed concern that he could lose people that he needs to help run the company.
Obama, for his part, instead of taking true responsibility for knowingly allowing the bonuses to go forward, or showing true leadership by bucking popular opinion when popular opinion is uninformed and misguided and explaining why the bonus payments were allowed to procede, is just following the political winds and trying to duck responsibility. This is both dishonest and cowardly.
If you're ready to grab your pitchfork, consider first for yourself whether you've heard any analysis like this at all, or whether you are just following the stampede to crucify AIG.
Listen, I'll take responsibility. I'm the president. It's my job to make sure that we fix these messes even if I don't make them.
Do I really need to comment about this blatant double-speak? It double-speaks for itself.
Contrast this to President Bush. Whenever Bush said he took responsibility for something, he never tried to dodge responsibility at the same time. Frankly, Bush was way too quick to always say he took responsibility, which many people would take as an admission of guilt. Bush's biggest political problem was always that he was too much of a stand-up guy. Full pardon for Scooter Libby? No, he had to respect the DC jury's verdict. Put public pressure on Gov. Blanco in Louisiana to allow federal assistance faster during Katrina? Nope, he respected the Constitution, kept the dispute private, and then fell on his sword to "take responsibility" for something that truly was not his fault. He would not insert politics into a disaster like Katrina, but his political opponents had no qualms about doing so, and his entire second term and Republican control of Congress was sacrificed as a result (sure, there were other major factors like Iraq, but Katrina was the pivotal moment that Bush lost another 10-15% in support).
By the way, Chris Dodd is quite the white liar in this clip too. Notice that he repeatedly says that the restrictions on bonuses were in the original bill, when he knows full well that he stripped them from the bill during conference at the request of the Treasury department, who correctly noted that it would be illegal to break the retention bonus contracts.
It is also a bad idea. While I don't like the idea of part of my taxes going to pay for bonuses at a failing company at the heart of the financial crisis, please hear me out on why I think they should be allowed to stand.
First, AIG is far from the most culpable entity in the financial crisis. They were basically the insurance company that is taking the hits when the disaster struck. Think of the case of a hurricane, where insurance companies can end up paying out a lot of money as a result. Some insurance companies promise more coverage than they can deliver given a large enough disaster and large enough insurance claims. That is what happened to AIG here. One could make a credible argument that AIG's insurance offerings to the huge investment banks is one significant factor that encouraged the investment banks to over-leverage themselves as far as they did. To the extent that is true, go ahead and cast blame at AIG, but basically I see them the same way as I see insurance companies that misjudge risk and oversell insurance policies to beachfront homeowners in Florida.
Second, AIG needs to be able to retain its valuable employees. It is simply not fair to blame the entire Financial division at AIG for the decisions a few executives likely made. My understanding is that most all of the executives that were most responsible for misjudging risk and overselling their financial products have been let go. You simply cannot lose all the employees in a division of a company and expect the company to be able to continue to function well, and we REALLY need AIG to be able to continue to function, at least for now. How well would the company you work at function if 80% of the employees left all at once? When AIG started to realize how bad of shape all the investment banks were in, and that they themselves were headed for insolvency as a result, they were afraid many of their employees would leave the company. How many employees would stay at the company and have their reputations sullied by their continued association with AIG if they were not promised additional compensation in return? In early 2008, AIG offered retention bonuses to anyone who would stay until March 2009, and more bonuses for those who would stay until 2010. We just hit the round of bonuses that were due on March 15, 2009, and the bonuses were paid as promised. It is important to realize that the bonuses were NOT performance bonuses, they were retention bonuses. These valued employees that may have had little if any responsibility for the financial crisis were promised bonuses if they would stay on at AIG. They fulfilled their part of the contract, and their contracts should be honored. It is VERY DANGEROUS to go down the road of breaking contracts. Government is supposed to help enforce voluntary contracts, not force companies to break them.
Third, the government is using AIG as the linchpin for the world financial system. If AIG collapsed completely, or if it was unable to continue to function, the entire world financial system could collapse. This has wide ranging political and economic ramifications that greatly affect the U.S. Our government is basically backstopping AIG so AIG can make good on its insurance claims made by banks all over the world. Unless you want the government to inject capital directly into foreign banks by some yet-to-be-determined formula or risk worldwide financial system failure by letting foreign financial institutions collapse, you have to let AIG continue to fulfill its role with government backing, no matter how distasteful this may be. And for AIG to continue to fulfill its roll, you need the employees with the technical know how to stay with the company. Thus the point of the retention bonuses.
Fourth, when we are talking about avoiding chaos with $185 Billion (with a B), $165 Million (with a M) is a relatively minor concern. Why should I be outraged about $165 Million when we are talking about government bailouts in the TRILLIONS, new government spending in the TRILLIONS, and an increased federal budget that will lead to TRILLIONS in deficits over the next several years. And those are three DIFFERENT instances of TRILLIONS, not 3 different ways to describe the same Trillion. $165 Million is a bargain if it means the $185 Billion was managed 0.1% better than it otherwise would be.
At the end of the day, both Congress and the White House knew about the bonuses well in advance, and thought it would be illegal to require AIG to break those contracts, and knew that would cause unneccessary employee turnover at the embattled company at exactly the wrong time. AIG is being run by a former CEO who came out of retirement and is working for a penny a year. He felt that he was contractually obligated to pay the bonuses, and though he said in Congressional testimony that he would have structured the bonuses differently, he expressed concern that he could lose people that he needs to help run the company.
Obama, for his part, instead of taking true responsibility for knowingly allowing the bonuses to go forward, or showing true leadership by bucking popular opinion when popular opinion is uninformed and misguided and explaining why the bonus payments were allowed to procede, is just following the political winds and trying to duck responsibility. This is both dishonest and cowardly.
If you're ready to grab your pitchfork, consider first for yourself whether you've heard any analysis like this at all, or whether you are just following the stampede to crucify AIG.
Saturday, March 14, 2009
MUST SEE: Media Malpractice DVD
This is a rare opportunity to get a comprehensive look at various news outlets' treatment of an event over a several month period. I just ordered my copy of the DVD.Click the image to see the trailer, get more info, and order the DVD.
Monday, March 9, 2009
Thoughts on embryonic stem cell research
1) Bush did not make embryonic stem cell research illegal, he merely ordered that federal funding would not be available for future embryonic stem cell lines, so that our tax money would not be promoting the harvesting of embryos. Privately funded research could still move forward.
2) My understanding is that embryonic stem cell research has been highly unsuccessful so far, resulting mosty in cancerous tissue, while adult stem cell research, which does not require embryos to be destroyed, has proved very promising. Although researchers have found a way to use adult stem cells to replace the need for embryonic stem cells, the flat-earth Democrats are still stuck in the past.
2) My understanding is that embryonic stem cell research has been highly unsuccessful so far, resulting mosty in cancerous tissue, while adult stem cell research, which does not require embryos to be destroyed, has proved very promising. Although researchers have found a way to use adult stem cells to replace the need for embryonic stem cells, the flat-earth Democrats are still stuck in the past.
Government Spending
Every dollar that is spent by the goverment must first be taxed, printed, or borrowed. All 3 public revenue sources suck vitality from the private economy through reduced incentives for economic activity (taxed), increased inflation (printed), or reduced private investment capital (borrowed).
Friday, March 6, 2009
Obama Makes Up Health Care Stat
Is a bankruptcy really caused every 30 seconds by the cost of health care?
That is one of the outrageously misleading claims President Obama made in his remarks at his Health Care Summit yesterday.
I haven't had a chance to check out the others, but this one is patently false.
First off, lets calculate what this would mean. A bankruptcy every 30 seconds would mean approximately 1 million bankruptcies in a year. In the latest statistics on bankruptcies, the number grew from about 700,000 in 2007 to just over 1 million in 2008.
So to believe Obama's claim that a bankruptcy is caused every 30 seconds by health care costs, you would have to believe that 100% of bankruptcies are caused by high health care costs.
This leads to the question of what percentage of bankruptcies were caused by a major illness. Supporters of increased government involvment in health care like tax-dodging Tom Daschle have repeatedly claimed that about half of bankruptcies are caused by high health care costs.
The claim seems to be based on a Harvard study published in 2005 of over 1700 bankruptcies from 2001. The authors of that study, titled "Illness and Injuries As Contributors to Bankruptcy", very clearly intended to maximize the number of bankruptcies that could be claimed to have a medical cause.
The report is convincingly refuted by Gail Heriot, a University of San Diego professor of law, in 2005 right after it was published.
Even though the authors claimed that 54.5% of bankruptcies had a medical cause, buried in the report itself is the fact that only 27% of the bankruptcies even had unreimbursed medical expenses greater than $1000 over the 2 years prior to the bankruptcy!
Only 28.3% of those studied claimed themselves that their bankruptcy was substantially caused by illness or injury. The report failed to examine how many of those 28.3% actually had crushing amounts of medical expenses that could be considered the primary cause for the bankruptcy.
Careful examination of the study thus leads to the conclusion that no more than a quarter, and probably much lower, of bankruptcies in 2001 were truly caused primarly by excessive health care costs. Obama's statistic is off by at least a factor of 4.
You might say, "Well, even if it is 200 thousand instead of 1 million bankruptcies that are caused by bankruptcies, that is still a lot." True it is still a lot, but a further question is how many of the people that filed for bankruptcy had health insurance, and how many were uninsured, because only the uninsured would really be helped by universal health insurance coverage.
The fact is that the great majority of all bankruptcies are caused by lost wages, and the greatest effect that illness or injury has is in limiting the ability to work. This factor will not be fixed by more generous health insurance.
If Obama is worried about the number of bankruptcies, he needs to ask himself how many more Americans he will push out of work and possibly drive into bankruptcy when his oppressively higher taxes, which he will try to enact in order to pay for his health care proposals, hobble the economy.
That is one of the outrageously misleading claims President Obama made in his remarks at his Health Care Summit yesterday.
I haven't had a chance to check out the others, but this one is patently false.
First off, lets calculate what this would mean. A bankruptcy every 30 seconds would mean approximately 1 million bankruptcies in a year. In the latest statistics on bankruptcies, the number grew from about 700,000 in 2007 to just over 1 million in 2008.
So to believe Obama's claim that a bankruptcy is caused every 30 seconds by health care costs, you would have to believe that 100% of bankruptcies are caused by high health care costs.
This leads to the question of what percentage of bankruptcies were caused by a major illness. Supporters of increased government involvment in health care like tax-dodging Tom Daschle have repeatedly claimed that about half of bankruptcies are caused by high health care costs.
The claim seems to be based on a Harvard study published in 2005 of over 1700 bankruptcies from 2001. The authors of that study, titled "Illness and Injuries As Contributors to Bankruptcy", very clearly intended to maximize the number of bankruptcies that could be claimed to have a medical cause.
The report is convincingly refuted by Gail Heriot, a University of San Diego professor of law, in 2005 right after it was published.
Even though the authors claimed that 54.5% of bankruptcies had a medical cause, buried in the report itself is the fact that only 27% of the bankruptcies even had unreimbursed medical expenses greater than $1000 over the 2 years prior to the bankruptcy!
Only 28.3% of those studied claimed themselves that their bankruptcy was substantially caused by illness or injury. The report failed to examine how many of those 28.3% actually had crushing amounts of medical expenses that could be considered the primary cause for the bankruptcy.
Careful examination of the study thus leads to the conclusion that no more than a quarter, and probably much lower, of bankruptcies in 2001 were truly caused primarly by excessive health care costs. Obama's statistic is off by at least a factor of 4.
You might say, "Well, even if it is 200 thousand instead of 1 million bankruptcies that are caused by bankruptcies, that is still a lot." True it is still a lot, but a further question is how many of the people that filed for bankruptcy had health insurance, and how many were uninsured, because only the uninsured would really be helped by universal health insurance coverage.
The fact is that the great majority of all bankruptcies are caused by lost wages, and the greatest effect that illness or injury has is in limiting the ability to work. This factor will not be fixed by more generous health insurance.
If Obama is worried about the number of bankruptcies, he needs to ask himself how many more Americans he will push out of work and possibly drive into bankruptcy when his oppressively higher taxes, which he will try to enact in order to pay for his health care proposals, hobble the economy.
Thursday, March 5, 2009
Forbes: Repeal Mark-to-Market for Assets
Steve Forbes has been calling for Mark-to-Market to be repealed since before the financial crisis last fall. He repeats himself very convinicingly in the Wall Street Journal today.
Back when the $700 billion TARP program was being debated during the heat of the presidential campaign, Newt Gingrich was calling for Mark-to-Market to be based on a 3-year rolling average.
In the wake of the accounting scandals of Enron, WorldCom, etc. earlier in the decade, the Bush administration, along with Congress, tried to tighten up accounting standards. As part of this whole push, the SEC re-instituted Mark-to-Market accounting. The rule says that if you are holding something that drops in value, you have to reflect that loss of value in your net worth. For banks, this loss of value increases their capital requirements, the amount of cash on hand they must keep to meet their obligations.
So when the housing market started falling, any banks with Mortgage-backed securities had to start marking down their asset values. Because of the lack of transparency as to which MBS's were solid and which were in trouble, no one was willing to buy any of them and the MBS market collapsed. Regulators forced banks to mark their MBS's down by as much as 80%, even when the underlying mortgages had only dropped less than 10%. Banks were hit with the double-whammy of being unsure who it was safe to lend to as well as having their capital requirements dramatically raised. As a result, the credit market froze, and the wider economy soon began to be affected by the lack of credit. Businesses startups could not find funding, and existing businesses had trouble finding short term payroll loans, or loans for projects to expand their business.
Mark-to-Market does not make sense for troubled Assets whose underlying value has not dropped nearly as much as the short-term distressed value. It is pro-cyclical. That is, it increases banks' ability to lend when the market is going up, further inflating asset bubbles, and hurts banks' ability or willingness to lend when the market is going down, greatly exacerbating financial distress.
Mark-to-Market was finally discontinued in 1938 near the end of the Great Despression, after helping cause the financial crisis at the start of the Depression. It was just reinstituted in 2007, just in time to help kick-start this recession.
Steve Forbes also casts blame for removing the uptick rule on short selling, a practice where someone borrows a stock and then sells it, assuming the price will drop so they can buy the stock at a lower price to repay the original lender, pocketing the difference between what they sold it for and what they paid to buy the stock back. The uptick rule said that you could only do this after the stock price had risen, stopping investors from being able to artificially drive down the price of a stock by repeated short-selling. You can see that without the uptick rule, there is a perverse incentive for short-sellers to pick a stock and drive it down as much as possible.
Forbes also blames the SEC for not properly enforcing the rule against naked short selling, where a trader doesn't even bother to borrow a stock before short selling it. I have no idea how much this happened, but to the extent it did, it would drive stocks down.
From a political perspective, on these specific accounting and enforcement rules, you can fairly blame the Bush administration, but an equal amount of blame must go to Democrats and the Obama administration. I am not aware of a single Democrat that has called for a change to these rules. Only free-market conservatives have been talking about this. Democrats are too busy blaming "greed on Wall Street" to realize that bad goverment regulations and rules are 10 times worse.
This is much more complicated than who is for regulation and who is against regulation. Conservatives believe that a proper role of government is to ensure orderly markets and aggressively prosecute those who break the law and try to profit by illegal means. To the extent that smart & effective regulations are necessary to accomplish this, conservatives fully support regulation. But when regulations are unnecessary, don't make sense, reduce economic stability, or are economicly harmful, conservatives oppose them.
These are important rules at the heart of the financial crisis, and they are barely being talked about. If this isn't evidence of the need for a better medium to include all Americans in a more serious and constructive dialogue about the best way forward, I don't know what is. Instead, we get lost in all this nonsense of which politician said what, how long will Obama's popularity last, is the Republican party down for the count, etc. The coverage of the presidential election was 3/4 about the horse race (who was campaigning where, what the latest polls were) and only 1/4 about which policies were best.
Back when the $700 billion TARP program was being debated during the heat of the presidential campaign, Newt Gingrich was calling for Mark-to-Market to be based on a 3-year rolling average.
In the wake of the accounting scandals of Enron, WorldCom, etc. earlier in the decade, the Bush administration, along with Congress, tried to tighten up accounting standards. As part of this whole push, the SEC re-instituted Mark-to-Market accounting. The rule says that if you are holding something that drops in value, you have to reflect that loss of value in your net worth. For banks, this loss of value increases their capital requirements, the amount of cash on hand they must keep to meet their obligations.
So when the housing market started falling, any banks with Mortgage-backed securities had to start marking down their asset values. Because of the lack of transparency as to which MBS's were solid and which were in trouble, no one was willing to buy any of them and the MBS market collapsed. Regulators forced banks to mark their MBS's down by as much as 80%, even when the underlying mortgages had only dropped less than 10%. Banks were hit with the double-whammy of being unsure who it was safe to lend to as well as having their capital requirements dramatically raised. As a result, the credit market froze, and the wider economy soon began to be affected by the lack of credit. Businesses startups could not find funding, and existing businesses had trouble finding short term payroll loans, or loans for projects to expand their business.
Mark-to-Market does not make sense for troubled Assets whose underlying value has not dropped nearly as much as the short-term distressed value. It is pro-cyclical. That is, it increases banks' ability to lend when the market is going up, further inflating asset bubbles, and hurts banks' ability or willingness to lend when the market is going down, greatly exacerbating financial distress.
Mark-to-Market was finally discontinued in 1938 near the end of the Great Despression, after helping cause the financial crisis at the start of the Depression. It was just reinstituted in 2007, just in time to help kick-start this recession.
Steve Forbes also casts blame for removing the uptick rule on short selling, a practice where someone borrows a stock and then sells it, assuming the price will drop so they can buy the stock at a lower price to repay the original lender, pocketing the difference between what they sold it for and what they paid to buy the stock back. The uptick rule said that you could only do this after the stock price had risen, stopping investors from being able to artificially drive down the price of a stock by repeated short-selling. You can see that without the uptick rule, there is a perverse incentive for short-sellers to pick a stock and drive it down as much as possible.
Forbes also blames the SEC for not properly enforcing the rule against naked short selling, where a trader doesn't even bother to borrow a stock before short selling it. I have no idea how much this happened, but to the extent it did, it would drive stocks down.
From a political perspective, on these specific accounting and enforcement rules, you can fairly blame the Bush administration, but an equal amount of blame must go to Democrats and the Obama administration. I am not aware of a single Democrat that has called for a change to these rules. Only free-market conservatives have been talking about this. Democrats are too busy blaming "greed on Wall Street" to realize that bad goverment regulations and rules are 10 times worse.
This is much more complicated than who is for regulation and who is against regulation. Conservatives believe that a proper role of government is to ensure orderly markets and aggressively prosecute those who break the law and try to profit by illegal means. To the extent that smart & effective regulations are necessary to accomplish this, conservatives fully support regulation. But when regulations are unnecessary, don't make sense, reduce economic stability, or are economicly harmful, conservatives oppose them.
These are important rules at the heart of the financial crisis, and they are barely being talked about. If this isn't evidence of the need for a better medium to include all Americans in a more serious and constructive dialogue about the best way forward, I don't know what is. Instead, we get lost in all this nonsense of which politician said what, how long will Obama's popularity last, is the Republican party down for the count, etc. The coverage of the presidential election was 3/4 about the horse race (who was campaigning where, what the latest polls were) and only 1/4 about which policies were best.
Wednesday, March 4, 2009
WSJ: The Obama Economy
"The market has notably plunged since Mr. Obama introduced his budget last week, and that should be no surprise. The document was a declaration of hostility toward capitalists across the economy." see the full article
Monday, March 2, 2009
Bastiat: What Is Seen And What Is Not Seen
I cannot think of a better essay that should be read by all right now than Frederic Bastiat's What Is Seen and What Is Not Seen. His simple yet thorough examples are clear and understandable to the average person, and many are uncannily applicable to the current debates our coutry is having right now.
Bastiat was a French economist and statesman from the mid 19th century who led the fight against socialism at that time. He has the same unique ability that Milton Friedman had of taking complex economic issues and breaking them down into understandable terms.
I found amusing his exasperation at the end of the 3rd section in his essay which dealt with Taxes:
Trust me, read it and I think you will gain a much better understanding of economics. Don't delay. Go read it now!
Bastiat was a French economist and statesman from the mid 19th century who led the fight against socialism at that time. He has the same unique ability that Milton Friedman had of taking complex economic issues and breaking them down into understandable terms.
I found amusing his exasperation at the end of the 3rd section in his essay which dealt with Taxes:
Good Lord! What a lot of trouble to prove in political economy that two and two make four; and if you succeed in doing so, people cry, "It is so clear that it is boring." Then they vote as if you had never proved anything at all.
Trust me, read it and I think you will gain a much better understanding of economics. Don't delay. Go read it now!
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