Tuesday, September 30, 2008

Jeffrey A. Miron: Bankruptcy, not bailout, is the right answer


Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

The costs of the bailout, moreover, are almost certainly being understated. The administration's claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.

If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.

The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients.

Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets.

So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.

The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.

Steyn on the Bailout Failure


But isn't it the case that we're in this mess because US politicians previously subordinated "the general reason of the whole" to "local interests" and "local prejudices"? That's to say, with their usual casual destructiveness dressed up in the baby talk of "diversity", they chose to turn the mortgage industry into just another branch of the affirmative-action racket. The United States government in effect decreed credit a human right rather than a privilege judiciously granted by one independent contractor to another. 

As a general proposition, when told by unanimous elites that a particular course of action is urgent and necessary to avoid disaster, there's a lot to be said for going fishing. 

Monday, September 29, 2008

My Vote: NO by Dick Armey on National Review Online


As a free-market economist I unequivocally oppose this legislation because it violates the basic working tenets of free-market capitalism and individual responsibility.

Granting the Treasury broad authority to buy troubled assets from private entities poses a significant threat to taxpayers and fundamentally alters the relationship between the private economy and the federal government. Despite the sweeping breadth of the proposed bailout, there is virtually nothing in the bill that addresses the underlying problems that created the housing bubble and the oversized and over-leveraged financial services sector that grew with it. 

As a Public Choice professor, I used to begin class each semester with Armey's Axiom number one: "The market is rational and the government is dumb." Those quick to call for more regulation forget the power of markets, and refuse to acknowledge government culpability in the current mess. Time and again, governments the world over have attempted to outsmart the market and the current legislation is no exception. And time after time, markets respond, toppling the best-laid government plans as they move to correctly price the underlying assets in exchange.

The Bailout Follies: Taxpayers Will Be Forced to Buy the Bad Debt of LOCAL GOVERNMENTS [Andy McCarthy]


Nancy Pelosi yesterday released a summary of the bailout.  Under the heading of "Protection for Taxpayers ..." Madame Speaker includes this whopper (my italics): The scheme "[a]llows the government to purchase troubled assets from pension plans, local governments, and small banks that serve low- and middle-income families."

So in addition to rewarding irresponsible lenders and borrowers, we taxpayers are now to be "protected" by buying the toxic debt of states, cities and municipalities.  It's one thing to throw a life-line to the credit industry; local governments, by contrast, have the ability to cut spending drastically or raise taxes if their inhabitants want government services.  Elected politicians are then accountable for runaway spending and mismanagement.  If Detroit or Chicago is sinking because of big-government policies, that's what the citizens of those cities asked for by voting for Democrats year in and year out.  Why should the rest of us be on the hook for that? 

Hanson: This Was All Predictable


As I recall Raines was the one who, following the Enron scandals, gave public lectures about corporate responsiblity and CEO honesty. And as one begins to read about Raines, James Johnson, Jamie Gorelick, and Leland Brendsel at Freddie Mac, one begins to understand their modus operandi. Freddie and Fannie were landing pads for former Democratic insiders, who milked the agencies for millions in bonuses as they covered their tracks by donations to Congressional candiates and pseudo-racial-populism of helping minorities buy homes with little down. Their careers are every bit as nauseating as anything at Enron — and yet the press strangely does not go after them in the manner we learned of Ken Lay's deceit. God help us all.

Democrats in their own words Covering up the Fannie Mae and Freddie Mac


Democrats in their own words Covering up the Fannie Mae, Freddie Mac Scam that caused our Economic Crisis.

At a 2004 hearing see Democrat after Democrat covering up and attacking the regulations to protect Fannie Mae and Freddie Mac (their Cash Cows) that are now destroying our economy because the Democrats let them cheat.

Friday, September 26, 2008

Note to Paulson: The Key to Passing the $700 Billion Bailout Is Insurance - Michael Barone (usnews.com)


What do House Republicans want? A senior House Republican gave me and some other reporters a look yesterday at what a working group headed by Assistant Minority Whip Eric Cantor is demanding. The senior House Republican (hereinafter SHR) has what sounded to me like an ingenious approach. He cited Ginnie Mae loans to low-income borrowers, which the government can insure. He proposed that the government (presumably through the entity envisioned by the Paulson plan) offer to sell insurance to financial institutions that hold mortgage-backed securities (hereinafter MBS). Premiums would be determined by the rates of foreclosure on each class of securities so far. Under this plan, the government would be taking in money, not paying it out. Of course, if the premiums are not enough to cover losses, the government might eventually take losses, as it did when the savings and loan industry collapsed. But losses don't seem inevitable and in any case will mostly occur in out-years, not now.

Frank blames House GOP for breakdown of deal - Yahoo! News


What caught some by surprise, either at the White House meeting or shortly before it, was the sudden momentum behind a dramatically different plan drafted by House conservatives with Minority Leader John Boehner's blessing.

Instead of the government buying the distressed securities, the new plan would have banks, financial firms and other investors that hold such loans pay the Treasury to insure them. Rep. Paul Ryan, R-Wis., a chief sponsor, said it was clear that Bush's plan "was not going to pass the House."

But Democrats said the same was true of the conservatives' plan. It calls for tax cuts and insurance provisions the majority party will not accept, they said.

Thursday, September 25, 2008

Greed, Or Incentives? - Forbes.com


One bad regulatory turn leads to another, and lo, the bailouts come thick and fast. At the nth hour, wise heads often rightly conclude that some desperate measure has to be taken to prevent the financial disintegration brought on by, well, prior government regulation. Those bailouts, of course, come from the hides of taxpayers who borrowed prudently. The entire system subsidizes destructive behavior, which means that we will get more destructive behavior in the future. We might as well sell flood insurance at bargain prices in Galveston, Texas, and New Orleans.

Wednesday, September 24, 2008

An Alternative to the Wall Street Bailout

However, the market could be clogged because the prospects for a bailout are destroying the motivation to sell mortgage securities. If you sell this week and take a big loss, you will look pretty stupid if there is a bailout next week where comparable securities fetch much higher prices.

It could be that a Congressional rejection of the bailout proposal, rather than clogging the markets, will unclog them. If Congress goes home having sent financial institutions a clear signal that there will be no bailout of any kind, then sellers will bring their securities to market, and we will find out what the market thinks they are worth.

In the worst case scenario, the market will assign low values to the securities. Firms that are sufficiently capitalized to hold mortgage securities will earn profits at the expense of weaker companies that have to sell securities or go bankrupt. In the end, it may turn out that the winners really took advantage of the losers. That is capitalism at work in financial markets.

Ben Bernanke and Henry Paulson are asking Congress for a $700 billion stake to enter this business at a time of unprecedented difficulty in predicting home prices. If they were taking their plan to a venture capital firm to seek funding, they would be laughed out of the office. Their proposal is sketchy, with no financial projections included. Their qualifications for running the business are unimpressive-neither Bernanke nor Paulson has a background in mortgage default modeling. The business is sure to be encumbered with all sorts of political mandates and requirements from Congress, imposed by the same Congressional leaders who encouraged Freddie Mac and Fannie Mae to plunge into subprime mortgages.

Tuesday, September 23, 2008

George F. Will - McCain Loses His Head


In any case, McCain's smear -- that Cox "betrayed the public's trust" -- is a harbinger of a McCain presidency. For McCain, politics is always operatic, pitting people who agree with him against those who are "corrupt" or "betray the public's trust," two categories that seem to be exhaustive -- there are no other people. McCain's Manichaean worldview drove him to his signature legislative achievement, the McCain-Feingold law's restrictions on campaigning. Today, his campaign is creatively finding interstices in laws intended to restrict campaign giving and spending.

Conservatives who insist that electing McCain is crucial usually start, and increasingly end, by saying he would make excellent judicial selections. But the more one sees of his impulsive, intensely personal reactions to people and events, the less confidence one has that he would select judges by calm reflection and clear principles, having neither patience nor aptitude for either.

It is arguable that, because of his inexperience, Obama is not ready for the presidency. It is arguable that McCain, because of his boiling moralism and bottomless reservoir of certitudes, is not suited to the presidency. Unreadiness can be corrected, although perhaps at great cost, by experience. Can a dismaying temperament be fixed?

How close was the financial system to melting down?


If the FDIC hadn't stepped in to backstop the runs on the money market funds, it's not crazy to think that we might have seen a massive liquidation of huge portions of the banking system at fire sale prices.  That magnitude--one person I talked to before the bailout gave a wild-sounding estimate of $1 trillion worth of money market fund redemptions in the immediate offing.  With the money market essentially destroyed, the resulting bank liquidations would have been even worse, beyond even the ability of the US Government's borrowing power to pull back.  That would have touched the bank accounts, the investments, and the firms of even the hawkiest of credit hawks--unless you've actually got it buried in your back yard in tin cans, you'd lose something, and even then, who would buy whatever it is you sell to make a living?

Consider that the Great Depression came upon a society much less dependent on unsecured credit than we are.  Then count your lucky stars that our financial officials are moderately competent.

How likely was this doomsday scenario?  No way to know.  But it was possible.  That's quite scary enough.

Monday, September 22, 2008

How the Democrats Created the Financial Crisis: Kevin Hassett


Back in 2005, Fannie and Freddie were, after years of dominating Washington, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by myAmerican Enterprise Institute colleague Peter Wallison, the Securities and Exchange Comiission's chief accountant told disgraced Fannie Mae chiefFranklin Raines that Fannie's position on the relevant accounting issue was not even ``on the page'' of allowable interpretations.

Then legislative momentum emerged for an attempt to create a ``world-class regulator'' that would oversee the pair more like banks, imposing strict requirements on their ability to take excessive risks. Politicians who previously had associated themselves proudly with the two accounting miscreants were less eager to be associated with them. The time was ripe.

Greenspan's Warning

The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn't be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie ``continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,'' he said. ``We are placing the total financial system of the future at a substantial risk.''

What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

Different World

If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.

Sebastian Mallaby - A Bad Bank Rescue - washingtonpost.com


In practice this means the government would make subjective choices about which bad loans to buy, and it would pay more than fair value. Billions in taxpayer money would be transferred to the shareholders and creditors of banks, and the banks from which the government bought most loans would be subsidized more than their rivals. If the government bought the most from the sickest institutions, it would be slowing the healthy process in which strong players buy up the weak, delaying an eventual recovery. The haggling over which banks got to unload the most would drag on for months. So the hope that this "systematic" plan can be a near-term substitute for ad hoc AIG-style bailouts is illusory.

Within hours of the Treasury announcement Friday, economists had proposed preferable alternatives. Their core insight is that it is better to boost the banking system by increasing its capital than by reducing its loans. Given a fatter capital cushion, banks would have time to dispose of the bad loans in an orderly fashion. Taxpayers would be spared the experience of wandering into a bad-loan bazaar and being ripped off by every merchant.

Before D.C. Gets Our Money, It Owes Us Some Answers [Newt Gingrich in the Corner]


Four reform steps will have capital flowing with no government bureaucracy and no taxpayer burden. 

First, suspend the mark-to-market rule which is insanely driving companies to unnecessary bankruptcy. If short selling can be suspended on 799 stocks (an arbitrary number and a warning of the rule by bureaucrats which is coming under the Paulson plan), the mark-to-market rule can be suspended for six months and then replaced with a more accurate three year rolling average mark-to-market. 

Second, repeal Sarbanes-Oxley. It failed with Freddy Mac. It failed with Fannie Mae. It failed with Bear Stearns. It failed with Lehman Brothers. It failed with AIG. It is crippling our entrepreneurial economy. I spent three days this week in Silicon Valley. Everyone agreed Sarbanes-Oxley was crippling the economy. One firm told me they would bring more than 20 companies public in the next year if the law was repealed. Its Sarbanes-Oxley's $3 million per startup annual accounting fee that is keeping these companies private. 

Third, match our competitors in China and Singapore by going to a zero capital gains tax. Private capital will flood into Wall Street with zero capital gains and it will come at no cost to the taxpayer. Even if you believe in a static analytical model in which lower capital gains taxes mean lower revenues for the Treasury, a zero capital gains tax costs much less than the Paulson plan. And if you believe in a historic model (as I do), a zero capital gains tax would lead to a dramatic increase in federal revenue through a larger, more competitive and more prosperous economy. 

Fourth, immediately pass an "all of the above" energy plan designed to bring home $500 billion of the $700 billion a year we are sending overseas. With that much energy income the American economy would boom and government revenues would grow.

Shared Sacrfice [Jonah Goldberg in The Corner]

Me quoting Jonah Goldberg quoting Glenn Reynolds quoting the Tax Foundation...  The giants of the blogosphere in one post!


Glenn Reynolds, in a worthwhile post:

On a related note, I think we should rethink this business of having lots of Americans who don't pay income tax. As the Tax Foundation comments: "It is time for a serious public discussion of whether it is desirable to have so many Americans disconnected from the cost of government and what the consequences are of using the tax system as a vehicle for social policy."

Personally, I'd like to see everyone pay at least some income tax, and I'd like to see the amount of tax paid, by everyone, go up or down every year in tandem with federal spending. That would encourage fiscal discipline directly. It would also make it harder for politicians to promise everybody a free lunch, but hey — why shouldn't they sacrifice something, too?

Amen. Taxes should be paid by check, by taxpayers. Indeed, if I could have my way, election day and tax day would be the same day and the back of your check would be your ballot. 

Another approach is to adopt the Fair Tax as advocated by Neal Boortz.  Rush Limbaugh seems to favor a flat tax, but Rush has said that the Fair Tax book is worth reading.  Sean Hannity also appears sympathetic to the Fair Tax.  I hope that's enough name dropping for one post.  :-)

The US election nightmare scenario

The closer the election gets - and right now the polls have it very tight indeed - the greater the chance that a tie of 269 to 269 will occur.
There are dozens of ways for the College to tie, given the 51 moving parts: the 50 states (each state assigned a number of electoral votes equal to the total of its House and Senate delegation) and the District of Columbia, assigned three electoral votes by constitutional amendment.

Under the constitution, the election for president is thrown into the US House of Representatives, while the Senate picks the next vice-president (the Senate's presiding officer).

But while the Senate simply requires a majority of its 100 members to select the vice-president, the House must vote by states, with each state delegation having a single vote, and a majority of the states (at least 26 of 50) required to agree on the winner.
But the real punchline to the story is: What happens if the new House and Senate can't decide on the President and Vice-President?  That's the true nightmare scenario...

Next-in-line will be the Speaker of the House, Democrat Nancy Pelosi.

I, for one, am hoping for a tie in the electoral college. Actually, it would be wonderful if the House selected Obama and the Senate went with Palin just to be fair to both parties.  Somehow, I don't see Nancy getting a chance to be acting President but it is a scary thought.

Welcome to History [Jim Manzi on the Corner]


If investors lose confidence in the safety of money market funds, mutual funds, demand deposit accounts and the other storehouses of value in the modern economy, we would have a problem that would make somewhat higher taxes and moral hazard seem like child's play. Trust me — you do not want to experience a full-scale bank run in contemporary America. I'm not sure how many people realize how close we were to the wheels coming off at about noon yesterday, as major commercial-paper processing banks like State Street lost 30% – 60% of their value in about 2 hours. Want evidence: When was the last time you heard of the U.S. government identifying a problem, developing a multi-hundred-billion-dollar program and announcing it within about 48 hours?

It seems to me that these are prudent actions as temporary, emergency measures. What will be essential is that:

1. These are temporary, and these positions be unwound as rapidly as possible. This includes not just the actions of the past two days, but also getting the federal government out of the insurance business (AIG) and the home lending business (Freddie and Fannie) as rapidly as is consistent with orderly unwinding of these positions.

2. The ultimate resolution assures that prior investors in these financial institutions and their executives bear very large financial penalties. Irresponsible homeowners should as well. Expect big political battles over the definition of "irresponsible."

If done in this way, we can (in the hopeful case) work through the problem with limited actual costs to the taxpayers as assets are sold off, while limiting moral hazard and long-run government control of financial assets. But there are many very bad downside cases.

Gang of 10 plan dead


Senate's "Gang of New Pork" Disbands   [Stephen Spruiell]

This is old news in the blogosphere, but I'd be remiss if I didn't mention on the Corner that the Gang of 10 16 20 won't offer its energy bill after all. The gang's bill would have opened up only a smidgen of the Outer Continental Shelf for drilling, leaving close to 80 percent off-limits. It was loaded with pork — mostly tax credits for hybrid cars and subsidies for biofuels — and it would have raised taxes on domestic energy production. It was a bad deal, and taxpayers should be glad to see it go.

Instead of passing a sham energy bill, it looks like Congress will let the ban on offshore drilling expire October 1. Just months ago this looked like an impossible goal, and a lot of people deserve credit for the turnaround. House GOP leaders and Sens. Jim DeMint and Tom Coburn are at the top of that list. Leading Democrats swear that this is merely a temporary defeat, and they have promised to renew the ban as soon as the election is over. They could not have handed McCain a better talking point. He needs to be out there telling voters that he would veto any attempt to restore the ban.

Friday, September 19, 2008

Obama Is Stoking Racial Antagonism - WSJ.com


Mr. Obama's campaign is now trafficking in prejudice of its own making. And in doing so, it is playing with political dynamite. What kind of potential president would let his campaign knowingly extract two incomplete, out-of-context lines from two radio parodies and build a framework of hate around them in order to exploit racial tensions?

Wall Street Fat Cats Aren't at Fault This Time by Jonah Goldberg on National Review Online


The current financial crisis stems in large part from the fact that people who shouldn't have been buying a home, or who bought more home than they could afford, now can't pay their bills. Their bad mortgages are mixed up with the good mortgages. And thanks in part to new accounting rules set up after Enron, the bad mortgages have contaminated the whole pile, reducing the value of even stable mortgages.

Of course, there are other important factors at work here, having to do with changing technology among other things. And even if the bad mortgages weren't in the system, we'd still have the hangover from the end of the housing boom. But the financial system could have handled that with the usual corrections. The biggest dose of poison entered the financial bloodstream through Washington. And some people warned us. In 2005, Fannie Mae revealed it overstated earnings by $10.6 billion and that it didn't really know what was going on. The Bush administration pushed for reforms, but those efforts were rebuffed by Congress, with Democrats Barney Frank and Christopher Dodd taking point, because Fannie and Freddie have spent millions in campaign contributions. 

Thursday, September 18, 2008

Bad Accounting Rules Helped Sink AIG - WSJ.com


Call it the revenge of Enron. The collapse of Enron in 2002 triggered a wave of regulations, most notably Sarbanes-Oxley. Less noticed but ultimately more consequential for today were accounting rules that forced financial service companies to change the way they report the value of their assets (or liabilities). Enron valued future contracts in such a way as to vastly inflate its reported profits. In response, accounting standards were shifted by the Financial Accounting Standards Board and validated by the SEC. The new standards force companies to value or "mark" their assets according to a different set of standards and levels.

The rules are complicated and arcane; the result isn't. Beginning last year, financial companies exposed to the mortgage market began to mark down their assets, quickly and steeply. That created a chain reaction, as losses that were reported on balance sheets led to declining stock prices and lower credit ratings, forcing these companies to put aside ever larger reserves (also dictated by banking regulations) to cover those losses.

In the case of AIG, the issues are even more arcane. In February, as its balance sheet continued to sharply decline, the company issued a statement saying that it "believes that its mark-to-market unrealized losses on the super senior credit default swap portfolio ... are not indicative of the losses it may realize over time." Unless one is steeped in these issues, that statement is completely incomprehensible. Yet the inside baseball of accounting rules, regulation and markets adds up to the very comprehensible $85 billion of taxpayer money.

What AIG was saying then, and what others from Lehman to Bear Stearns to the world at large have been saying since, is that the losses showing up aren't "real." Yes, the layer upon layer of derivatives built on the foundation of mortgages is mind-boggling. One reason that AIG had floated beneath the radar screen of the business media (relative to Wall Street investment firms) is that its business model is so complex and opaque that it is impossible to describe simply. It was briefly in the news in 2005, after it was accused of improper accounting by the SEC and the New York attorney general. Then it faded from view, until now.

Wednesday, September 17, 2008

Constitution Day

Bob Barr reminds us:

Today is Constitution Day. On September 17th 1787 members of the Constitutional Convention signed a magnificent and lasting document; one for the ages.

While we have added a number of amendments in the years since, the core principles of the Constitution remain embedded in our heritage:

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

Pelosi's "Compromise" on drilling


However, although Pelosi appears to be bowing to political and economic reality, her proposed "compromise" is a cynical ploy that no self-respecting supply-sider will touch with a 2,000-foot oil rig.

Our friends at the Institute for Energy Research (IER) posted a devastating exposé of the Pelosi plan. As announced last week, the plan would:

  • Permanently ban access to about 97 percent of the undersea oil lying within 50 miles of the California coast.
  • Continue the ban on energy production in the Eastern Gulf of Mexico.
  • Impose a brand-new ban on oil and gas leases in Alaska's coastal waters out to 50 miles.
  • Not allow states that approve new leases beyond 50 miles to share royalties with the federal government, thus stripping any financial incentive for states to stand up to environmental pressure groups, who will continue to agitate against any new oil and gas operations offshore.
The plan also includes poison pill provisions that President Bush is on record as opposing, such as new taxes on oil companies and a first-ever nationwide renewable-energy production quota for the electric power sector.

Steyn on AIG bailout


The old line on imprudent debt went something like: If you owe the bank a thousand dollars, you have a problem; if you owe the bank a million dollars, the bank has a problem. We seem to have casually accepted the extension of the paradigm: If the bank loans you a million dollars, the bank has a problem. If the bank loans you a billion dollars, the US government has a problem. But why? Short-term "turmoil" (ie, change and opportunity) in the markets would seem preferable to Washington buying a junk portfolio for every federal taxpayer.

Tuesday, September 16, 2008

George Will: Pencils and Politics | Newsweek Voices - George F. Will | Newsweek.com


The spontaneous emergence of social cooperation—the emergence of a system vastly more complex, responsive and efficient than any government could organize—is not universally acknowledged or appreciated. It discomforts a certain political sensibility, the one that exaggerates the importance of government and the competence of the political class.

Government is important in establishing the legal framework for markets to function. The most competent political class allows markets to work wonders that government cannot replicate. Hayek, a 1974 Nobel laureate in economics, said, "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." People, and especially political people, are rarely grateful to be taught their limits. That is why economics is called the dismal science.

Lehman bankruptcy: In capitalism, failure is not a dirty word


My reaction to Lehman Brothers' declaring of Chapter 11 bankruptcy and the refusal of Treasury Secretary Hank Paulson and others to take extraordinary Bear Stearns-like measures for the government to prop the firm up can be summed up in three words: It's about time!

Business failure is not only a permissible outcome of capitalism, it's a necessary one. As the great economist Joseph Schumpeter has written, the process of "creative destruction" is essential for the market to function. For innovation to flourish and the standard of living of the populace to improve, the market must be free to reward success and punish failure.

Fred Thompson: The Dangers of Government Guarantees


Fannie and Fred were "government sponsored enterprises" which means heads they win, tails you lose. If they make money stockholders, creditors and Fannie and Freddie employees – some making millions annually – get the benefit. But now that mortgages have hit the skids, with mounting losses, the taxpayers potentially face trillions in exposure. This is because there is an "implicit" (read "actual") government guarantee of Fannie and Freddie's obligations and both are now too big to be allowed to fail. This is called the "bailout phase," which will probably lead to a bigger bubble in the future.

Lost in this immense, complex mess is the root problem most people are missing: the government is gradually becoming the guarantor of seemingly every important aspect of American secular life, creating incentives and bureaucracies that cause failure and invite fraud. [...]

You'd think we'd have learned by now: when the backstop of the federal treasury makes it easier for politicians, lenders, borrowers, welfare recipients, government contractors, or anyone else, to serve their own self interest at the expense of the taxpayer, many will do just that.

That is why we continue to see self-dealing, moral lapses, outright fraud and lack of management and oversight in a wide array of programs and government-sponsored entities, from housing to Medicare, education and the Small Business Administration, all costing taxpayers billions, even trillions of dollars.

ABC News Edited Out Key Parts of Sarah Palin Interview | NewsBusters.org


transcript of the unedited interview of Sarah Palin by Charles Gibson clearly shows that ABC News edited out crucial portions of the interview that showed Palin as knowledgeable or presented her answers out of context. This unedited transcript of the first of the Gibson interviews with Palin is available on radio host Mark Levin's website.

Shots Across The Bow: Gas Prices: The Real Story


By raising prices, they discourage people with brains from buying more gas than they need. They discourage people from driving more than they need to. In effect, they are encouraging conservation by using market forces rather than governmental coercion. [...]

Consider the opposite case, where gas prices remain low, and everybody fills every container they can get their hands on with gas, and the stations run dry for the next three days.  [...]

There are two ways to ration a short supply of a commodity. You allow the market to price it accordingly, and those who really need it will buy it, or you let the government come in and set the price. As a small government supporter, I favor the former. We're still dealing with the fallout of Nixon's wage and price controls from 40 years ago.

Anyway, that's what happened. Bulk storage facilities were acting to minimize the price of fuel and got caught short when the supply was interrupted. Barring major damage from Ike, supplies should be flowing again in a couple of days, and prices will resume their freefall.

Pelosi Wants Rangel to Step Down


House Speaker Nancy Pelosi yesterday privately pushed Rep. Charlie Rangel to give up his chairmanship of the influential House tax-rules committee amid explosive revelations that his personal tax filings were riddled with errors and omissions, a wellplaced source said.

Rangel, the Democratic chairman of the Ways and Means Committee, has been resisting growing calls to step down from the high-profile leadership role since The Post reported the Harlem congressman failed to disclose rental income from his Dominican Republic beach home.

Rangel subsequently admitted owing at least $10,000 in back taxes and became a target of Republican political attacks.

One member of the New York congressional delegation who supported Pelosi's decision said, "You have to have one standard - you can't have one for [Republicans] and one for us."

Thursday, September 11, 2008

Noonan on Palin


What she did in terms of the campaign itself was important. No one has ever really laid a glove on Obama before, not in this campaign and maybe not in his life. But Palin really damaged him. She took him square on, fearlessly, by which I mean in part that she showed no awkwardness connected to race, or racial history. A small town mayor is kind of like a community organizer only you have actual responsibilities. He wrote two memoirs but never authored a major bill. They've hauled the Styrofoam pillars back to the Hollywood lot.

John McCain also made a speech. It was flat.

Ann Coulter: BUSH 7, TERRORISTS 0


There is no media coverage when another 9/11 doesn't happen. We can thank God that President George Bush didn't care about doing the safe thing for himself; he cared about keeping Americans safe. And he has, for seven years. 

If Bush's only concern were about his approval ratings, like a certain impeached president I could name, he would not have fought for the Patriot Act and the war in Iraq. He would not have resisted the howling ninnies demanding that we withdraw from Iraq, year after year. By liberals' own standard, Bush's war on terrorism has been a smashing, unimaginable success. 

Austin Bay :: Bin Laden's Slow Rot


Al-Qaeda's dark genius has been to connect the Muslim world's angry, humiliated and isolated young men with a utopian fantasy preaching the virtue of violence. That utopian fantasy seeks to explain and then redress roughly 800 years of Muslim decline. Bin Laden concluded that attacking the United States and the infidel West was the way to energize these young Muslims -- a physical demonstration of "violent virtue" and its history-shaping effects.

Attacking the United States and Europe would be so overwhelmingly popular the West would leave Muslim nations. Al-Qaida would then take control of Saudi Arabia and Egypt. Bin Laden provided a sketch but few details. He would rely on anger and fervor -- and his own iconic leadership.

Seven years later, it appears attacking the West was a huge strategic blunder by al-Qaida -- and that's not a solely "Western" opinion. Al-Qaida's criminal record has wrecked its reputation in Muslim nations. We've had indications. StrategyPage.com noted on Oct. 27, 2005, that "the Muslim media is less and less willing to be an apologist for al-Qaida, at least when it comes to killing Muslim civilians" and that the Iraqi media in particular "really has it in for al-Qaida."

On Oct. 1, 2006, StrategyPage.com argued that "dead Iraqis were killing al-Qaida. ... Westerners, unless they observe Arab media closely, and have contacts inside the Arab world, will not have noted this sharp drop in al-Qaida's fortunes."

Wednesday, September 10, 2008

Liquid Pork by The Editors on National Review Online


The government is simply no good at picking winners and losers in the energy market (or any market, for that matter). Renewable energy works when it comes from consumer-driven innovation, not from politics. The government has been subsidizing inefficient forms of renewable energy for decades, and it has gotten us nowhere. Ethanol subsidies are a case in point: The 2005 energy bill mandated the use of ethanol in gasoline. As farmers shifted corn production from food to fuel, corn prices (and, consequently, meat and dairy prices) skyrocketed. Corn ethanol, inefficient as a gasoline additive, had a negative impact on gas mileage as refiners used more of it. 

What did the government do in response to this failure? It increased the ethanol mandate five-fold in 2007. Now the Gang of 16 wants even more subsidies for biofuels, though the emphasis has shifted from corn-based ethanol to other, more experimental forms made from trees and grass. These biofuel subsidies explain why the gang has attracted Republicans like Saxby Chambliss, Johnny Isakson, John Thune, and Bob Corker, all of whom come from states that stand to reap tremendous financial benefits from biofuel handouts. We should call this what it is: A sop to a large and growing special-interest group. 

Tuesday, September 09, 2008

Jeremiah Wright Scandal


He almost wrecked Barack Obama's presidential dreams, and now firebrand pastor Jeremiah Wright has helped destroy a Dallas church worker's marriage - and her job, The Post has learned.

Elizabeth Payne, 37, said she had a steamy sexual affair with the controversial, racially divisive man of the cloth while she was an executive assistant at a church headed by a popular Wright protégé.

When word of the unholy alliance got out, Payne's husband dumped her, and she was canned from the plum job at Friendship-West Baptist Church, she told The Post.

Monday, September 08, 2008

Power Line: So, Where's the Bridge?


I don't know how it could be any clearer: as the McCain ad says, Palin killed the bridge. Indeed, the Alaska Democratsthemselves say, on a web site attacking Senator Ted Stevens:

Gov. Palin recently cancelled the Gravina Island Bridge near Ketchikan that would have connected the Alaska mainland with Gravina Island (population: 50).

It is frankly ridiculous to deny that Palin killed the bridge, as the ad says. If the Democrats want to attack some other aspect of her record, fine. If they want to say that she (like all state officials) was generally happy to accept federal money when it was offered, fine. But to say that the simple statement that she killed the bridge is a "lie" is false and disingenuous.

Weekend at Henry's - WSJ.com


We only wish Mr. Paulson had gone further and erased all private equity holders the way the feds do in a typical bank failure. Fan and Fred holders had profited handsomely for decades by exploiting an implicit taxpayer guarantee that their management claimed didn't exist. Now that the taxpayers are in fact stepping in, the current common and preferred holders deserve to lose everything. Mr. Paulson apparently wanted to dodge that political fight. If Fan and Fred share prices rally this week, we'll know Mr. Paulson didn't demand enough.

The Treasury chief also gave a free pass to the holders of some $18 billion in Fan and Fred subordinated debt. He did so even though these securities were understood not to have the same status as mortgage-backed securities or other Fannie debt, and even though this will set a bad precedent for other bailouts. Watch for Citigroup's subordinated debt to jump in price as investors conclude that the feds would do the same thing if Citi needs a rescue.

By far the biggest risk here, however, is that the companies could still emerge with their business model intact. That model is the perverse mix of private profit and public risk, which gave them an incentive to make irresponsible mortgage bets with a taxpayer guarantee.

Sunday, September 07, 2008

Washington Times - O'SULLIVAN: Lessons of a post-modern war


The global legalists were very quiet about Russia's breaking of the rules. The EU mission to Moscow led by French President Nicolas Sarkozy operated on the premise it was necessary to avoid condemning Russia in order to be a successful mediator. Yet Mr. Sarkozy and his EU team were bamboozled by the Russians into accepting and promoting a cease-fire agreement that contained loopholes through which the Russians drove entire tank battalions. And that diplomatic failure was made easier precisely because the Russians were not put in the dock.

In the end, the EU argument that pooling sovereignty leads to greater real power proved to be a sham - and worse. It led in practice to collective impotence and self-deception. There is a reason why that will always happen.

Global legalism rests upon the delusion that powers with the ability to assert their interest in some vital matter can be prevented from doing so solely by rules in which every state has a modest long-term theoretical investment. But as soon as a real crisis erupts - and Georgia is certainly such a crisis - the global legalists realize their legal restraints are incapable of restraining the rule-breaker. In order to maintain their legalist fiction, therefore, they have to deny or obfuscate the fact that the rules have been broken or that any particular state is responsible for the conflict.

Friday, September 05, 2008

Sarah Palin: it's go west, towards the future of conservatism | Gerard Baker - Times Online


The best line I heard about Sarah Palin during the frenzied orgy of chauvinist condescension and gutter-crawling journalistic intrusion that greeted her nomination for vice-president a week ago came from a correspondent who knows a thing or two about Alaska.

"What's the difference between Sarah Palin and Barack Obama?"

"One is a well turned-out, good-looking, and let's be honest, pretty sexy piece of eye-candy.

"The other kills her own food."

The price of voting for Palin - Crunchy Con


In truth, as much as I like Palin, especially for the enemies she's made, I don't know that I can affirm the reward justifies the risk of a McCain presidency.

First Things » Why They Hate Her


Second, there is the left's long-standing concern about overpopulation, which has become a staple of modern environmentalism, beginning with Paul Ehrlich's 1968 best-seller The Population Bomb. Ehrlich preached a Malthusian near-future in which hundreds of millions would perish by famine as the world's unchecked population growth spiraled to infinity. As it happens, Ehrlich's predictions were entirely incorrect: Not only has increased food production reduced famine to a weapon of political conflict, but the world's population growth has slowed to a crawl. Fertility rates around the globe are falling and world population will peak around nine billion by 2050. From there, we will experience population contraction.
But Ehrlich's prognostications never fell far out of favor, particularly with environmentalists who take it as an article of faith that the planet is already overcrowded. To them, the prodigious Palin family is surely seen as taking more than its fair share.

Bryon York on the Community-Organizer-in-Chief


My sense is that Republicans weren't mocking community organizing itself as much as Obama's constant claims that it is one of his qualifications to run the executive branch.  There are, after all, lots of good things you can do that do not qualify you to be commander-in-chief.  And in any event, Obama's vision of "the Lord's work" was always fundamentally political.  From his memoir, Dreams From My Father:
When classmates in college asked me just what it was that a community organizer did, I couldn't answer them directly. Instead, I'd pronounce on the need for change. Change in the White House, where Reagan and his minions were carrying on their dirty deeds. Change in the Congress, compliant and corrupt. Change in the mood of the country, manic and self-absorbed. Change won't come from the top, I would say. Change will come from a mobilized grass roots.

Thursday, September 04, 2008

Sarah Palin on being mayor


Before I became governor of the great state of Alaska, I was mayor of my hometown. And since our opponents in this presidential election seem to look down on that experience, let me explain to them what the job involves. I guess a small-town mayor is sort of like a 'community organizer,' except that you have actual responsibilities.

Wednesday, September 03, 2008

Why Obama Can't Close the Sale - WSJ.com


Mr. Obama claims to offer a tax cut to moderate-income families, but a significant portion of Mr. Obama's tax plan is a welfare giveaway costing more than $648 billion over 10 years, according to the Tax Policy Center.

How so? He would authorize a hodgepodge of refundable tax credits covering everything from education, mortgage payments, child care and other items for people who do not pay income taxes now.

About 38% of U.S. households pay no income tax today. Under a President Obama (whose policies would shave 15.3 million households off the tax rolls) that share would grow to nearly half of all American households.

We have been repeatedly told that everyone should pay their fair share. So this sounds grossly unfair and like a return of tax-and-spend liberal economics. No wonder there is a lot of doubt about the wisdom of the junior senator from Illinois.

Mr. Obama's health-care proposal is not quite HillaryCare, but it comes close. A national health insurance, heavily subsidized by taxpayers, would be offered to the currently uninsured. Mr. Obama's instincts on health care are always to move more people onto rolls of government-paid and government-mandated insurance, while depriving the marketplace the oxygen it needs for greater innovation, life-saving cures, and efficiency.

Americans have heard the refrain for government-provided health care before and know an expensive government giveaway when they see it.

Mr. Obama's energy policy is to drill less, consume less, tax more, and spend more. With barely a nod to nuclear energy -- the only meaningfully large, carbon-free source of domestic energy -- he is promising a massive increase in domestic, noncarbon-based energy from sources that produce only a fraction of our energy now.

He has also proposed massive tax increases on U.S. oil and gas companies while continuing to cut off vast swaths of U.S. territory to drilling.

Thomas Sowell on Foreign Policy "Experience"


It is hard to know how many people could possibly have had foreign policy experience before reaching the White House.

Thomas Jefferson had been Secretary of State, but that was a while ago, and there has not been any other Secretary of State to become President of the United States.

Nor has any Secretary of Defense. The first President Bush had been head of the C.I.A., which certainly gave him a lot of knowledge of what was happening around the world, though still not experience in making the country's foreign policy.

Senator Joe Biden's years of service on the Senate Foreign Relations Committee is even further removed from foreign policy experience. He has had a front-row seat as an observer of foreign policy. But Senator Biden has never had any real experience of making foreign policy and taking the consequences of the results.

Instapundit on Palin Pregnancy



Johnny's Got a New Girl - Pat Buchanan

By passing over his friends Joe Lieberman and Tom Ridge, and picking Palin, McCain has given himself a fighting chance of winning the White House that, before Friday morning, seemed to be slipping away. Indeed, the bristling reaction on the left testifies to Democratic fears that the choice of Palin could indeed be a game-changer in 2008.

Liberals howl that Palin has no experience, no qualifications to be president of the United States. But the lady has more executive experience than McCain, Joe Biden and Obama put together.

None of them has ever started or run a business as Palin did. None of them has run a giant state like Alaska, which is larger than California and Texas put together. And though Alaska is not populous, Gov. Palin has as many constituents as Nancy Pelosi or Biden.

She has no foreign policy experience, we are told. And though Alaska's neighbors are Canada and Russia, the point is valid. But from the day she takes office, Palin will get daily briefings and sit on the National Security Council with the president and secretaries of state, treasury and defense.
She will be up to speed in her first year.

And her experience as governor of Alaska, dealing with the oil industry and pipeline agreements with Canada, certainly compares favorably with that of Barack Obama, a community organizer who dealt in the mommy issues of food stamps and rent subsidies. Where Obama has poodled along with the Daley Machine, Palin routed the Republican establishment, challenging and ousting a sitting GOP governor before defeating a former Democratic governor to become the first female and youngest governor in state history.

Monday, September 01, 2008

DailyTech - Sun Makes History: First Spotless Month in a Century

The sun has reached a milestone not seen for nearly 100 years: an entire month has passed without a single visible sunspot being noted.

The event is significant as many climatologists now believe solar magnetic activity – which determines the number of sunspots -- is an influencing factor for climate on earth.  [...]  In the past 1000 years, three previous such events -- the Dalton, Maunder, and Spörer Minimums, have all led to rapid cooling. On was large enough to be called a "mini ice age". For a society dependent on agriculture, cold is more damaging than heat. The growing season shortens, yields drop, and the occurrence of crop-destroying frosts increases.