Pennsylvania Bear Tragedy

My friend Mikey informed me of this terrible and heartbreaking tragedy. 

This is a very sad story about a bear.  Unfortunately bears all over Pennsylvania and the rest of the nation are suffering from similar fates.  Please inform anyone you know who cares about nature and wild life because if this is not stopped, it could be the end of wild bears as we know it.  Everyone should heed the warning to avoid feeding wildlife, because they become very dependent and can no longer forage for themselves. It is such a tragedy to see what this has done to our country's wildlife!

The photo below is an example of a disturbing trend that has captured the attention of the Pennsylvania Game Commission.

 

Animals that were formerly self-sufficient are now showing signs of belonging to the Democratic Party.  They have apparently learned to just sit on their ass and wait for the government to step in and provide for their care and sustenance.

This photo is of a black bear Democrat in Pennsylvania nicknamed Bearack Obearma.  Please help stop this injustice and support you local GOP candidate for Congress.  All you Pennsylvanians who would like to help protect our natural habitat, please vote for Pat Toomey!

the truth is big business loves obama

"I'm generally supportive [of the financial reform bill]. To be sure, there are details of it that I think I'm less sure of, but I think, on the whole, financial reform is, absolutely is essential and I will say that last week, in New York, I listened to a speech by Barack Obama at Wall Street, and one of the points he made resonated with me because I’d said it myself. He said that the biggest beneficiaries of reform will be Wall Street itself.” 

- Lloyd Blankfein, CEO Goldman Sachs (Homeland Security & Government Affairs, Permanent Subcommittee On Investigations, U.S. Senate, Hearing, 4/27/10)

"We continue to believe that comprehensive health care reform will benefit patients and the future of America. That’s why we have been involved in this important public policy debate for more than a year and why we support action by the House to approve the Senate-passed bill along with the amendments found in the reconciliation legislation."

- Official Statement of the Pharmaceutical Researchers and Manufacturers of America (PhRMA), is the largest single-industry lobbying group in America on 3/21/10 regarding Obamacare.

"Climate legislation is one of the critical issues that will be considered this year on Capitol Hill.  The House passed the Waxman-Markey legislation, a comprehensive, economy-wide bill [that] represents a moderate approach that was supported by a wide range of major American companies who make up the US Climate Action Partnership – including companies with a strong Indiana presence such as AES, Duke Energy, Alcoa, Dow, DuPont, GM, Ford, and Chrysler . . . Exelon has been preparing for a low-carbon future for the last decade. [We have] [s]old or closed most of our inefficient fossil fuel plants, [i]nvested billions in our fleet of 17 zero-emission nuclear reactors. In summer 2008 [we] released Exelon 2020, our plan to reduce, offset, or displace 15 million metric tons of greenhouse gas emissions per year, equal to our 2001 carbon footprint, by 2020. We are one-third of the way to our goal, and have a plan to accomplish the rest."

- John Rowe, CEO Exelon Energy (Indiana Council on World AffairsMarten House Hotel, Indianapolis 1/20/2010)

So if you listen to any cable news network or read most any paper all you here is how Obama is "anti-business" and that it is for this reason that the economy is slowly recovering.  Well that is only a half truth in my opinion.  I don't think Mr. Obama is anti-business per se, although I do believe that he is anti-market, which is actually profoundly worse than being anti-business.  The three quotes listed above are all attributable to big business heavyweights: Blankfein is for financial reform, the PhARMA lobby was all for Obamacare and Exelon, one of the largest power producers in the midwest and mid-atlantic (the coal region), wants nothing more than a full cap and trade system.  Does any of this make sense?  Why would a financial giant like Goldman Sachs want more financial regulation?  Why would a power company that produces a majority of its power on fossil fuels want to have the price of those fuels increased dramatically?  The answer is easy of course: they see a future with less competition.

Take financial reform for instance.  Now I understand and agree that any sound financial system must have rules of the road.  However, I firmly believe that the rules should be clear and must be debated before they are enacted.  This is the opposite of what occurred in the Dodd-Frank Bill. There are no new clear cut leverage requirements, there are no new clear prohibitions on proprietary trading.  There are just directives.  These directives either require or authorize incompetent agencies like the SEC to issue rules it thinks are appropriate.  In total the U.S. Chamber of Commerce estimates that Dodd-Frank authorizes a total of 533 rules to be written over the next few years.  Are some of these rules probably necessary?  Of course, but instead of being written by the Congress in the full purview of the electorate they are going to be written in closed door meetings were you need to pay to play.  I bet Mr. Blankfein knows this and is happy about it.  Few firms have the regulatory, compliance and lobbying staff to compete with Goldman Sachs when the task becomes influencing the inept government agents writing these rules.  They will invariably benefit the biggest and most connected of the banks at the expense of their smaller competitors, hence their support for financial reform.  

The same can be said about Exelon's desire for cap and trade.  As Mr. Rowe mentions in his speech, Exelon has been moving away from carbon based energy for years now.  Exelon is a Illinois based power producer and was a major contributor to Barack Obama.  Now they want their reward.  Instead of having to compete on a level playing field where consumer demand requires energy companies to be as efficient and cost-effective as possible, Exelon wants the Obama administration to price its competition out of the market.  It's whole business model over the past few years is that it is trying to get into a position of strength by lowering its carbon footprint ahead of the U.S. legislation so that it could put its boot on its competitors once their costs were artificially higher because of diktats from Washington.  Now that cap and trade seems dead that are literally shitting their pants and demanding even more intervention from Washington on their behalf.  Notice how the other companies named in Mr. Rowe's comment are all major corporations with huge lobbying arms.  Their support is predicated on the belief that they will be able to influence who gets "free credits" and what parts of industry will be "exempt."  That sure is one way to compete effectively.

What these examples show is that government intervention in the economy always produces winners and losers.  For the most part the interventions most favored by Mr. Obama undoubtedly favor the largest and most connected businesses in the industries affected.  Be it the hundreds of new rules in Dodd-Frank that have yet to be written or the onerous requirement that all business entities must now file a 1099 for every supplier with whom they purchase over $600 per year in goods (courtesy one of the many unread provisions in Obamacare), red tape and government regulation most favors the largest firms with large legal departments and the funds to spend on lobbying.  Small businesses, the real economic and job growth engines in our society, have neither of those advantages.  They are forced to play by the rules negotiated by their larger competitors.  Usually this is to their disadvantage.  These same small businesses are not hiring for this exact reason.  

There are three costs that almost all small businesses face regardless of their type of business: the must pay for energy, they must pay for credit, and they pay for health care for many of their workers.  Under Mr. Obama's polices the price for all three is going up.  Throw in the fact that tens, if not hundreds, of thousands of these small business owners, who are often organized into partnerships, limited liability companies or Subchapter S Corporations, are about to see their taxes increased at the end of the year, it is completely logical that they are not hiring or expanding.  The best thing Mr. Obama could do to help the businesses is to be "anti-business" and instead be "pro-market."  Let them compete effectively with their larger competitors and stop disadvantaging them by enacting "reforms" that put these competitors in a position to write the rules of the game.  These businesses don't want handouts and special privileges, just the opportunity to compete fairly and let the market decide who has the best product.

doublethink is alive and well

Prior to his election in 2008, the most common compliment bestowed on Barack Obama by the mainstream media was that he was an extremely skilled orator capable or persuading almost anyone of his point of view.  Swept up in the media storm that was Obama, he was constantly praised as the best speaker, even better than Reagan, of the last half century.  Obviously Chris Mathews is a full fledged Obama supporter, but just look at what he said a year and a half ago.



A simple youtube search will show numerous other examples of similar comments.  However, since becoming President Obama has not made nearly as many public speeches, and now that he is in a policy making position he has been a little more hesitant to expouse specific views on a variety issues.  Even the left has criticized him for failing to take the lead on issues ranging from healthcare to energy. However, I have notice an interesting trend when Obama does speak, and it is eerily familiar to a type of propaganda described by George Orwell over half a century ago.  Doublethink, the term penned by Orwell in his masterpiece Nineteen Eighty-four, was described by him as follows:

To know and not to know, to be conscious of complete truthfulness while telling carefully constructed lies, to hold simultaneously two opinions which cancelled out, knowing them to be contradictory and believing in both of them, to use logic against logic, to repudiate morality while laying claim to it, to believe that democracy was impossible and that the Party was the guardian of democracy, to forget, whatever it was necessary to forget, then to draw it back into memory again at the moment when it was needed, and then promptly to forget it again, and above all, to apply the same process to the process itself -- that was the ultimate subtlety; consciously to induce unconsciousness, and then, once again, to become unconscious of the act of hypnosis you had just performed. Even to understand the word 'doublethink' involved the use of doublethink..

 Now obviously Obama's rhetoric has not quite reached that of "the Party," but he is slowly inching his way in that direction.  The more common terms, doubletalk and doublespeak, both derived their meaning based on Orwell's concept of doublethink, and they may be more apt terms for Obama's current rhetoric.  Defined as any language that deliberately disguises, distorts, or reverses the meaning of a statement, resulting in a communication bypass, doublespeak has been employed by governments throughout history in order to enact unpopular policies or to hide those policies true costs.  Let's take a look at a couple of things Obama has said of the past year.

On healthcare: "We agree on reforms that will finally reduce the costs of health care," Obama said. "Families will save on their premiums; businesses that will see their costs rise if we do nothing will save money now and in the future. This plan will strengthen Medicare and extend the life of that program. And because it gets rid of the waste and inefficiencies in our health care system, this will be the largest deficit reduction plan in over a decade."  This was one of the main ways Obama was able to sell reform: he claimed premiums would go down for current insurance holders, that he would strengthen Medicare and total government spending would decrease.  All this while giving over 33 million more Americans coverage.  This is the essence of doublethink. Claiming that we can dramatically increase the total number of services while paying less for it!  However, in May the CBO released a new estimate saying that the cost of the bill would be $130 billion more than originally estimated over the first decade, effectively eliminating any "savings."  And this estimate uses ten years of revenue to pay for only 6 years of benefits.  Just look at Medicare as an example.  The program now costs almost ten times what the original estimate said it would be when it was passed.  First year economics tell you when you drastically increase demand for a service (by adding 30 million new people seeking care) while instituting a number of new mandates (accept everyone with preexisting conditions, covering dependents until age 26, etc.) that the price will rise - in this case premiums.  A great example of what happens when government tries to take over the healthcare system is in Massachusetts, and the current debacle up there has been documented thoroughly in today's Wall Street Journal.

On Energy: "Each of us has a part to play in a new future that will benefit all of us. As we recover from this recession, the transition to clean energy has the potential to grow our economy and create millions of jobs – but only if we accelerate that transition. Only if we seize the moment. And only if we rally together and act as one nation – workers and entrepreneurs; scientists and citizens; the public and private sectors." - Barack Obama, June 15, 2010, from whitehouse.gov
Obviously this quote refers to the notorious cap and trade bill.  In his oval office speech on the oil spill, President Obama tried to make the case the economics alone justify getting away from fossil fuels. In the speech he did not mention the phrase "climate change" even once, instead claiming that job growth and prevention of oil spills were the main impetus behind a cap and trade bill.  Once again the contradictions in such a statement are apparent.  Raising the cost of carbon will make energy more expensive.  This will put businesses in a precarious position: either devote more of their limited resources to paying for energy, or buy less of it and produce less as a result.  This will leave all types of industries with less money to spend on new investments or hire workers.  Will there be more workers in subsidized industries like wind and solar?  Yes, probably.  But these will be far outweighed by the losses in traditional industries.  You simply cannot pay more for energy as a whole, decreasing the capital available for investment, and expect the total amount of prosperity to increase.  Regardless of how pressing an issue climate change may or may not be, trying to sell cap and trade as a jobs bill is contradictory.

paul krugman for budget director!

So Peter Orszag recently resigned as director of the Office of Management and Budget.  I figure that he wants to get out before the fiscal train wreck comes to a head, and I'm sure the director of the budget's job isn't any easier when Congress refuses to even pass a budget (as they have done this year).  There has been some speculation regarding who Obama will nominate to replace Orszag, but I recently found this article by Simon Johnson, the former chief economist at the International Monetary Fund.  It had the laughable premise of suggesting Paul Krugman as Orszag's replacement.  Right now Krugman is getting a lot of heat for his recent op-ed which suggested, if not promised, that the U.S. was doomed to slip into another great depression if the U.S. did not spend billions and billions of deficit dollars to stimulate the economy (article here).  Really?  A depression is inevitable without massive increases in government spending?  Now although I don't agree with the premise that government spending alone will turn the economy around, I don't think that anyone other than Krugman believes that it is the only way to avoid a depression.

Unfortunately this is a tough hypothesis to test; however, we do know that for the past two years almost everything that has been suggested by Mr. Krugman has been implemented as policy by Mr. Obama.  As has been outlined by The Wall Street Journal and others, Obama has followed Krugman's advice to spend, spend, spend in order to counteract the negative aspects of a lack of demand; Mr Krugman has stated numerous times that he believes that depressed demand is the main culprit for our current economic troubles.  In order to stimulate demand, the government needs to spend because private industry will not.  That is the Krugman economic fix.

President Obama has heeded his warning.  First there was Mr. Obama's first budget, in which overall federal spending rose 18%, or $536 billion.  And this doesn't even reflect the true increase in spending.  Thanks to low interest rates the feds were able to save about $65 billion on debt servicing, so the true increase in federal outlays was closer to 22%.  And that was only in ONE YEAR.  Throw in the $800 billion dollar stimulus (which was not included in the budget) and total spending increased by roughly $1.4 trillion.  This increased spending meant that total federal expenditures reached over 24% of GDP, a post-war record.  How much more spending does Mr. Krugman want?  Under Obama we already now have one in every four dollars earned by American redistributed by 535 people sitting in Washington, D.C.  And lest we forget, that spending will increase even more when the the trillion dollar plus health care entitlement begins running huge deficits. 

Despite all this spending and the promise of economic recovery that came with it, the results have not materialized.  And this isn't the only reason to question Mr. Krugman's credentials to run the Budget Office.  Check out this Krugman Article from 2003 when he blasted the Bush administration for increasing deficit spending.  According to Krugman, he refinanced to fixed rate mortgage because he was sure that interest rates were sure to rise.  The Bush administration's reckless spending and tax cuts — which increased the deficit to about 3% of GDP — would have to cause interest rates to sky rocket.  Here he is in his own words:

But what's really scary — what makes a fixed-rate mortgage seem like such a good idea — is the looming threat to the federal government's solvency.

That may sound alarmist: right now the deficit, while huge in absolute terms, is only 2 — make that 3, O.K., maybe 4 — percent of G.D.P. But that misses the point. "Think of the federal government as a gigantic insurance company (with a sideline business in national defense and homeland security), which does its accounting on a cash basis, only counting premiums and payouts as they go in and out the door. An insurance company with cash accounting . . . is an accident waiting to happen." So says the Treasury under secretary Peter Fisher; his point is that because of the future liabilities of Social Security and Medicare, the true budget picture is much worse than the conventional deficit numbers suggest.

Oh wait I'm sorry.  I guess Mr. Krugman does understand that budget deficits can be a problem, although it is only when the party in power is one he does not agree with. He was worried when deficits were 3% of GDP, but now that it is almost 10% he insists on more spending.  Demand-siders (my new name for those insisting on government spending as the best way for economic recovery) will counter by saying the spending is needed now to avoid a recession, but regardless whether it is needed or not will not change the effects of those deficits.  Even if the spending is desperately needed, higher deficit levels coupled with the looming social security/medicare insolvency (which Mr. Krugman did rightly point out) can lead to tremendously bad consequences.  Most likely these will be soaring interest rates and the inflation that accompanies the monetizing of the debt.  Mr. Krugman can't have it both ways, and unfortunately I think his 2003 analysis was closer to correct.

All of this is just further evidence that Krugman isn't much of an economist anymore and is more just a liberal columnist.  He simply uses his economic background to attempt to justify typical liberal policies: increase spending and redistribution of wealth.  He loves to bash business and blames excessive risk as the major cause of the recession.  He has called long term unemployment a "slow-motion human and social disaster" that must be counteracted at almost any cost; however, he also called the Waxman-Markey Cap-and-trade bill "well short of what the planet really needs."  You don't have to be a economics professor at Princeton to recognize that increasing the cost of energy and more environmental regulation will slow economic growth, making it even harder for the unemployed to find work. When he attacked Senator Jim Bunning's block of the extension of unemployment benefits for people that have been out of work for up to two years, he claimed that it was "bizarre" that anyone would think that providing employment benefits in continuum would disincentivize people to work.  However, a textbook authored by Paul Krugman called "Macroeconomics" contains the following passage:

Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . .  In other countries, particularly in Europe, benefits are more generous and last longer.  The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job .  Generous unemployment benefits in some European countries are widely believed to be one of the main causes of “Eurosclerosis,” the persistent high unemployment that affects a number of European Countries.

 Like I stated Krugman seems less and less like a economist and more and more like a typical political columnist.  This in and of itself is not a bad thing, however, when people try to defend Obama's economic policies they often point to Mr. Krugman for justification.  I refuse to defer to his diminishing authority.

free lunches and the rule of law

"Nothing is free in this world."  That is one of the quotes I heard growing up on almost a daily basis.  Usually it was from my father, once again reminding me of something that I needed to do.  However, there may be no more of an apt quote to describe wealth creation in our society.  Contracts and business relationships are based on a symbiotic relationship between two parties: each offers something the other desires, and the parties offer to provide something the counter-party desires in return.  At the end of the day, each side is better off as they receive a benefit that they could not provide to themselves, and in order for the transaction to occur that benefit must at least be equal to the value of the payment in the mind of each party.  Hence, these transactions are often wealth generating, as each party is in a position they think that they are better off, and therefore more wealthy, than they were prior to the transaction.

In my opinion the Obama Administration does not recognize the market as a wealth creation mechanism or at the very least underestimates its importance.  Private transactions are the engines of economic growth, and if Obama were truly interested in turning around the job market and reinvigorating the economy he would put into place polices that further increase the incentives to do business such as lowering marginal tax rates, reorganizing and simplifying federal agencies in order to decrease complexity in industry and lower the barriers to entry, and begin addressing long term budgetary issues no so that markets will be reaffirmed in their belief of the long term solvency of the federal government (keeping low the cost of credit).

However, all of these policies have tradeoffs, be it decreased federal revenue, loss of some services or decreased payouts to those receiving entitlement payments (although it is worth to note that most of these savings would be at the expense of future benefits, not those currently on social security and medicare).  Many countries are already taking such measures, and they aren't your traditional list of unfettered capitalists: the United Kingdom, Germany and even partially France.  However, back in the good old U.S. Obama has made federal government spending in the form of jobless benefits, stimulus, and other spending programs the key to his economic development strategy.  According to Obama and the neo-Kenyesians who push this strategy, the U.S. economy's main problem is lack of demand, and that by pouring money into the system in the form of government contacts and welfare, demand will be boosted and the economy will grow.  This is partly the policy justification for the stimulus back in 2009, the continued extensions of jobless benefits and the current push to provide bailouts to that state governments so that they are not forced to make tough political decisions such as whether to fire teachers or raise taxes.  Obama continually dismisses the negative effect this spending has on the budget (which is completely financed through borrowing as the deficit is in the trillions of dollars) claiming that the extra debt is hardly a drop in the bucket compared to our total liabilities.  Therefore Obama is basically selling the position that the spending is all gain and no pain: we will experience growth now and the cost will be little more than interest payments down the road.

This brings me back to the adage, "Nothing in this world is free." Obama's policies seem to run afoul of this rule, and luckily more and more people are beginning to notice it.  Despite the administrations claim that the stimulus has created around 2.5 million jobs, which it has no way of supporting or justifying, there is little sign that it has had an overall positive effect on he economy.  The administration prefers these types of policy choices, whereby they can tout benefits immediately and push any potential liability down the road.  Well by this logic, why do we ever stop stimulating the economy? If wealth can be created simply by government spending, we should have government spend as much money as possible.  It's the elusive free lunch! The truth is that this type of spending dose little to encourage long term investment - the engine of wealth creation - and its adverse effects are simply kicked down the road.  This is endemic in many of Obama's policy choices: the healthcare bill, extension of jobless benefits, and all the other debt financed spending.  You know the day of reckoning for this debt is coming when even Western Europe is getting serious about fiscal restraint. Mr. Obama, there is a reason your European colleagues have rejected you calls for a new round of stimulus: even they no longer buy the hype that you can spend your way to growth.

On a slightly unrelated note, I also wanted to briefly discuss an issue that has become more and more troubling.  Since coming into office President Obama has done more to circumvent the rule of law there perhaps any president since FDR.  First, there was the Chrysler and GM bailouts, where Mr. Obama first "put his boot on the heel"of secured creditors in order to appease his union constituency (I documented it at the time here, here, here, here and here).  The bankruptcy system in this country is the envy of the world, and although it may sound counter-intuitive that is a very good thing.  Banks freely lend to businesses and homeowners because they have a mechanism to have that loan repaid even if the borrower defaults.  Usually this insurance takes the form of a security interest in property, whereby the bank will legally be allowed to take title upon default.  However, the system will only work if security priority rules are objective, straightforward and made prospectively.  Without this type of certainty, the lenders will not have faith in the system, and lending will dry up.  Just ask any entrepreneurs in Africa or Eastern Europe about their access to credit in countries that don't have such rules.  The economic growth of these countries suffers enormously as a result.

The GM and Chrysler bailouts were one example were the rule of law in credit allocation was eroded, and the BP shakedown for a cool $20 billion is another.  First, and let me make clear, it is completely BP's liability to compensate those who were adversely affected by this oil spill.  No one challenges this point.  In order for capitalism to properly function, an negligent or intentionally injured third party must be compensated when another party's actions have caused it economic damage.  This forces companies engaged in risky enterprises to take risk into consideration and price it into any business plan.  Just making BP pay these damages will incentivize other oil companies to either beef up their safety and security measures, purchase more insurance or a combination of both.  This is a good thing and example of the market's ability to absorb new information and price assets accordingly.  However, I absolutely do not agree with the President's choice to force BP to set aside $20 billion for claims to be distributed by a third party.  Although this may have been a smart business decision by BP (showing the public it s serious about its obligations, providing a low overhead way of distributing damages and otherwise forgoing at least part of what will be millions in legal fees by settling with some people quickly), BP's original announcement came after a meeting between its Chairman, Mr. Obama and Attorney General Holder.  I'm sure the threat of criminal investigations didn't come up in that meeting.  No I bet there was no quid pro quo at all.  Why would the Justice Department want to investigate the BP Chairman of the Board at all? How could a swedish director have any type of criminal liability for an explosion that happen in the Middle of the Gulf of Mexico?  The reality is there is no possible way to impose criminal liability on a director for this type of accident, although the threat of such an investigation is one hell of a bargaining tool...


What's more is the fact that Mr. Obama is once again rewriting the rules for creditors in an attempt to put politics ahead of the rule of law.  BP could not possibly come up with $20 billion cash without severely affecting its liquidity and cash flow.  Therefore it is making payment in roughly $1.5 billion quarterly installments.  However, until the total is paid, BP was forced to allow the federal government to put a lien on approximately $20 billion of BP's assets.  This may sound fair, but in reality this is giving the Feds first crack at BP's assets should a bankruptcy occur.  This secured interest is now on par with other secured creditors and I have no doubt that in the event of a bankruptcy the feds would be fully repaid at the expense of older creditors.  Although it may sound innocuous and just for the claims of those who have been damaged by the spill to be given a higher priority than creditors, this is simply not how our system works.  Congress designed the secured credit system as a way to ensure the adequate allocation of credit and it has worked exquisitely over time.  Capital from all over the world flows to the U.S. because of the protections it is provided and the impartiality of the courts that uphold the rules.  By turning the law on its head and giving the damages of tort victims higher priority than creditors, some faith and belief in the system is lost, and the rule of law eroded away.  Although innocuous in the short term, over time this trend will have devastating effects on our financial system.  Creditors will begin to price this uncertainty into the price of credit, making it more expensive.  Politically risky activities will begin to find it harder and harder to find credit at all.  This culture of ignoring the dictates of the rule of law, coupled with our increasing debt will, if let unchecked, eventually destroy credit allocation as we know it in this country.  Don't think the U.S. will be a financial powerhouse for ever, as money is the most fungible of all assets, and the flow in to the U.S. is surely vulnerable if the risk of loss is too high.  To protect against this, we must maintain the rule of law and not succumb to the political allocation of capital and economic rights that is more akin to Iran or Venezuela.

why the current financial reform proposals are fundamentally flawed

Last night GOP senators blocked an attempt by the Democratic majority to bring Chris Dodd's (D-CT) financial reform bill the the floor of the Senate so that it could be debated and voted upon.   Majority Leader Harry Reid has already said that he would bring the bill back to the floor for another cloture vote this afternoon.  Democrats are attempting to characterize this GOP opposition as purely political: according to their storyline the Republicare in the bed with the likes of Goldman Sachs and are only attempting to block reform so that they can increase their campaign contributions.  This blatant partisan attack does little more that distract from the substance of the bill, and I have no doubt that the Democratic attacks are designed to do just that.  Anyone who has followed the housing and financial markets over the past decade understands that one of the major causes of the financial crisis were some of the policies enacted by Dodd's Banking Committee and his counterpart in the House, Barney Frank (D-MA).  Obviously neither man admits any of this, and their financial reform bill does nothing to stop many of the practices that led to the housing bubble.  So, in the interest of having a informed debate, rather than one of rhetoric, I will lay out may objections to the current financial reform proposal and explain how I would address the problem instead.

From what I can tell, Dodd's bill has three major sections: 1) The creation of a Consumer Financial Protection Agency that will regulate the so called "predatory lending practices" that dooped so many people into buying homes they couldn't afford and spending to much money on their credit cards; 2) Ends the over-the-counter treatment of most derivative investment contracts (CDOs, MBSs, etc.) by forcing them to be traded on an exchange; and 3) Creating a "Resolution Authority" within The FDIC that would be capable of dissolving banks, bank holding companies and other financial institutions deemed to be a systematic risk if they fail.  Man that is some exciting stuff.  Now you can see why it is so easy for the Democrats to claim that this is major reform because 98% of Americans have no idea what any of these things mean.

Starting with number one, my basic beef with the Consumer Financial Protection Agency is that it even if one was in place prior to the recession, it probably would have done very little to help stop the financial crisis.  We all now agree that many people were taking on more loans that in retrospect they could not afford.  This was based on the faulty presumption that the housing market would continue to climb in value, and that even if borrowers were paying very high interest rates after the teaser rate of a sub-prime or Alt-A loan expired, this imbalance would more than be made up for by the increase in equity owned by the homeowner based on the home's increased value.  Presumably he could use this increased equity to refinance if payments could not be met.  Well guess what?  The market fell out, and now many homeowners owe more than the total equity value of their house.  This makes defaulting a rational decision in many cases. 

So according to the Democratic pundits the Consumer Protection Agency would have stopped these bad loans from happening and all would be well.  BULLSHIT.  If there is one thing that is true about all governmental regulators it is that they are backward looking.  All regulators were created because of some event in the past that caused a large amount of financial hardship.  The regulators attempt to stop that specific type of situation from happening again.  The sub-prime crisis was a novel problem in the financial markets.  The very large majority of people, including many sophisticated investors who are much smarter and more savvy than any potential regulators, did not see it coming and lost A LOT of money.  When people lose that much money, then it is a sign that the downturn was very hard to foresee.  It is easy in hindsight to try and stop things that have happened in the past, but in reality it is impossible to predict the problems that will arise in the future.  The next "crisis" will probably have nothing to do with the mortgage market, and even if it did the CFPA would probably fail to stop it anyway.  This really is about a government power grab, so that the government can set all the applicable rates and provisions of almost any financial deal.  They will outlaw certain kinds of loans, favor others, and basically attempt to micromanage decisions that should be made of individual, case-by-case basis.  As is always the case, lobbyists will have a field day because their clients will want to get tight with the regulators so that their offerings will get preferred treatment over that of a competitor.  This will inevitably lead to crony capitalism at its worst.

Secondly, I really think that derivative contracts have gotten a bad name from all of this.  Yes, I ONE HUNDRED PERCENT AGREE that the proliferation of mortgage backed securities and credit default swaps (which were instruments that were intended to spread risk) led to a situation were counter parties were dependent on each others' solvency.  However, why, fundamentally, is this a bad thing?  Because it leads to "too big to fail" says Paulson/Bernacke/Geithner/Summers.  No it does not.  Period.  No one, and I mean no one, is too big to fail.  Let's look at what happened to Lehman Brothers.  They failed.  They went bankrupt.  Did it have an extremely negative impact of financial markets?  Of course.  Credit was extremely hard to find, people started calling debts and most firms had short term liquidity issues.  Did it lead to the end of the world?  No.  That is because we have a bankruptcy system in this country for a reason.  Just because Lehman was forced to take huge losses and dissolve does NOT mean that the good assets of the company went away.  Lehman provided many profitable services and products even up to and after its bankruptcy.  These sectors were sold off during their bankruptcy to help pay off creditors and finance losses in other business areas.  To this day I am not convinced that AIG/Goldman Sachs/CitiBank bankruptcies would have led to the end of the world.  Are you?  Would things have been bad for a while?  Yes, but they are also very bad right now.  But what happens when you allow of a market correction rather than a bailout is that you get the bad assets out of the system immediately.  Instead, we prolonged the problem and helped pass it on to our kids through ridiculous amounts of debt.  In a non-bailout world, the smart firms who could afford to buy up Goldman's bad assets in  bankruptcy would be the ones with market share today, and the moral hazard of bailouts would be eliminated.  Nothing sends a better signal to market actors to rethink their positions than the knowledge that they bare both the risk of failure and are entitled to the benefits of success.  Instead, we rewarded failed firms that that in retrospect misused many derivatives to the detriment of firms that did not.  No amount of regulation of derivatives would do more to temper there use than allowing firms that use them in ultimately unprofitable ways to fail, just like any other multiparty contracts. 

Additionally, derivatives serve many important roles in the financial system such as providing a hedge to risk.  A lot has been made about Goldman's supposed "fraud."  That type of "fraud" (selling a security to two sides: one side with a long position, one side with a short position) helps drive markets to their true value by increasing total information built into the product prices.  Even if people were using derivatives to bet against the housing market, that is a good thing.  It shows that people believe prices are overvalued, helping to deflate the bubble earlier than it would have been absent the derivative trades.  Rather than forcing all derivatives to be traded on exchanges, counter-party solvency and fear of default would provide enough incentive for firms to contract accordingly.  That is only true, however, if firm failure is an option.

Lastly, and in my mind most importantly, is the resolution authority granted to the FDIC.  First, you just read my take on too big to fail, but that doesn't mean that we currently have a perfect mechanism for dissolving failing financial firms.  We don't.  But the best place to do that is in a bankruptcy court, which can provide at least a little bit of insulation from political interests interfering with the process.  But anyway if all the bill did was to create this resolution authority for the purposes of liquidating of a firm entering resolution, that wouldn't be too bad.  However, the Dodd bill gives the FDIC clear authority to engage in loan guarantees during a crisis for any company deemed to be systemically important to the financial system.  This is a bailout authority for creditors in addition to the resolution authority!!!!!  The FDIC can accept any collateral it chooses to borrow up to 90% of the assets value to provide guarantees for for these companies creditors.  And nowhere in the bill does it say that these guaruntees must be made equally and fairly for all creditors.  WE ARE JUST ASKING FOR THE SAME KIND OF FAVORITISM SHOWN TO CREDITORS IN THE CHRYSLER/GM BAILOUTS.  This is simply unacceptable.  Obviously it makes legislators' jobs very easy to simply leave it to the FDIC to determine how and when to exercise this authority, but this puts the the U.S. taxpayer on the hook for the mistakes of political favorites.  For example, take CitiBank.  If the FDIC had used this authority to bailout Citi's creditors it could have borrowed up to $1 trillion. 

Finally, it is absolutely ridiculous that the role of Fannie Mae and Freddie Mac played in the financial crisis is completely ignored in the bill.  Together the two firms have already borrowed $125 billion from the feds and the Congressional Budget Office predicts they ultimately will drain $380 billion.  This is far more than any of the TARP expenses for all the financial firms and auto makers combined.  And we probably have no chance of ever being repaid.  Almost of these losses were realized because of a misplaced government mandate that Fannie and Freddie provide loan guarantees to spur home ownership among low income individuals.  These companies were a moral hazard in the housing market.  They were implicitly backed by the government and were more than willing to back some of the riskiest loans in the housing market.  But alas, they are ignored in the legislation..  Hopefully, the CFPA will crack down on Fannie and Freddie's predatory lending practices.

government run healthcare at any cost

The Democrats are in a tough spot. Their healthcare bill is unpopular. They don't have any idea how to create private sector jobs. The House and Senate are so far apart when it comes to financial reform that it makes their differences on healthcare look like the differences between Kristina and Karissa Shannon (see Exhibit A). Basically, the Dems are now coming upon the realization that they have no path to anything other than complete and utter decimation in November. At this point it does not matter if they scuttle Obamacare or not.

Exhibit A

With this backdrop, Pelosi, Reid and Obama have decided to simply go all-in. They have accepted these losses and now want to force through the most liberal, far-reaching and redistributive healthcare bill possible. They have decided that since they are not going to have the power to do anything after November, they might as well do as much dirty work as possible now, making it almost impossible to roll back these unpopular and tremendously expensive initiatives until at least 2012 (when Obama leaves office), which is effectively too late to stop it. Just look at all the talk about bringing back the public option.

I watched several hours worth of coverage of last week's healthcare summit at the Blair House. Basically, I came away with the fundamental understanding that the two parties fundamentally see two different healthcare problems. In the democratic paradigm the world works like this:

Health insurance is so important that every single american should get it regardless of their ability to pay for it.  It should be an affirmative, government provided right.  The 60 million Americans who don't have health insurance need and want it, they simply can't afford it.  This is the biggest problem with regards to health care in America.  Health insurance companies face no competition and can gouge consumers, pricing people out of the market.  The federal government should mandate both the minimum protections private insurers can offer, the minimum coverage that a citizen must buy, and will provide subsidies for people up to four times the federal poverty level to purchase this insurance.  This manipulation of the health insurance market will not have many unforseen consequences, and people will be able to keep their current coverage if they like it.  The subsidies can be paid for by taxing just the rich.  

On the other hand, the GOP sees the problem this way:

Healthcare costs are rising too fast.  Perversions in the market destroy the price incentives that normally provide information regarding the relative supply and demand for a given product or service by allowing the customer (you and I) to receive full services without having to realize the full costs of those services (through use of  co-pays, premiums and low deductibles).  By disturbing these incentives, the price system is not allowed to function correctly, allowing for an efficient allocation of resources.  This situation inevitably will lead to excess demand, driving up costs.  Excess demand is also created when doctors practice defensive medicine in fear of malpractice lawsuits down the road.  Capping non-economic pain and suffering damages can reduce this defensive medicine.  The solution is to add market discipline to the health insurance market, by opening competition (like allowing people to buy insurance across state lines) and re-instituting price discipline (like by promoting health savings accounts and eliminating the differential tax status between employer and individual purchased health insurance).  High risk pools can be created to help insure those with preexisting conditions. 

Both sides are open to criticism.  Democrats say the republicans plan does little to help the uninsured get insurance.  That is mostly true, although there plans would drive down healthcare costs in the private market, making insurance more affordable for everyone.  This would allow some people currently priced out of the market to purchase insurance.  Republicans counter with the argument that the Democratic plan would be vastly expensive, would drive up the costs of insurance in the private market (through the coverage mandates) and amounts to little more than a vast wealth redistribution system.  In addition, by adding millions to the insurance market on the public dime, Obamacare will eventually lead to healthcare rationing when the program becomes underfunded (like all other public entitlements).  The true costs of providing healthcare to these individuals will be shifted to private payers whose premium costs are not mandated by the federal government, which could either lead to increases in private insurance premiums/decreases in quality of care or to the destruction of the private market all together when people begin dropping costly private insurance that is subsidizing the entitlement.

In my opinion, both sides are missing the larger point.  What was the original point of health insurance?  To hedge against the risk large healthcare costs if you are in a accident or are diagnosed with an unforeseeable disease.  The reason health insurance today provides the much different service today of covering not only unforeseen injuries and illnesses but everyday check-up and dental visits is because of the tax structure that was in place over the past 25 years that allowed employers to purchase health insurance for their employees using tax free money.  This made it cheaper for employers to offer an increase in health insurance value to their employees (which they paid for before being taxed) to a corresponding increase in pay (which would be paid for post taxes).  This scenario inevitably lead to hugely expensive insurance plans that covered all types things instead of simply increasing an employees pay.  Until the U.S. moves away from the tax system that heavily favors employer purchased plans, it will be difficult to have any price discipline in this market.

The most effective way to reform the health insurance market would be to simply give move away from the employer provided system and towards and individual market system.  In this scenario, consumers would be better able to gauge their true health care costs, and make rational decisions using a cost-benefit analysis.  Despite all the talking points about "waste" in the health care system, the only way to truly keep costs at an appropriate level is to allow effective market signals (using the price mechanism) establish the equilibrium level for these services.  History has shown that when a market is able to provide such incentives, resources will be distributed in the most efficient way possible.  This is perhaps the most important reform that could be considered in any health care overhaul, unfortunately neither side seems to grasp this important point.

obama is failing, but can the gop succeed?

By now everyone has heard about the revolution (as my Dad likes to call it) that occurred in Massachusetts last week.  Scott Brown was elected Senator, taking away the Democrats filibuster proof majority in the Senate (which, by the way, they never should have had because Al Franken manufactured votes last year in the Minnesota recounts).  Everyone is proclaiming that Obamacare is dead and that the Democrats are going to get murdered in the midterm elections in November.

Well I do agree with the first point; Obamacare is probably dead in the water, at least anything close to its current form.  I am not sold, however, on the fact that Democrats will be wiped out in November.  I understand that it will be a tough year for Democrats, but unless the Republicans stop simply being the party of "no" (which I am completely fine with if they are the minority party) and put out ideas of their own, their gains will not be substantial enough to effect real change (i.e. for them to take control of one or both houses of Congress).

Well guess what GOP?  I am here to help.  I have identified FIVE issues that can lead the Republicans to the promised land.  These are issues that in my opinion can not only bring victory to the party, but would also put America back on the path of unbridled economic vitality and sustainability.  Although I think each of these issues is important, they are listed in reverse order of importance (at least in my opinion).  The first two deal with foreign policy, while the last three are domestic issues.  Here we go!


5.  Legal Status of Terrorists
Scott Brown showed that even in Massachusetts more of the public support the more conservative view of the rights of enemy combatants and other terrorists.  The attempted Christmas Day Bomber, however you say his stupid name, was taken into custody by the FBI immediately after he landed in Detroit, was read his Miranda rights, and then he immediately lawyered up.  He still isn't talking.  It's pretty hard to fight a "War on Terror[ists]" when you cannot legally get the best possible information on your enemy.  Look, I am about as libertarian as you can get, and even I don't think these murders are entitled to all the rights afforded by the Constitution.  These guys are (for the most part) not U.S. citizens and they entered this country solely to attack civilians.  That is an act of war, not crimes in an ordered society.  The protections of the Constitution are rights that U.S. citizens hold and that the government cannot encroach.  In my opinion, these foreign terrorists should be treated like the shits they are, and that Constitutional rights are reserved for U.S. citizens.  Now I understand there are many, many situations were non-U.S. citizens should be afforded Constitutional rights, but this is not the case here.  They kill indiscriminately and are no different than any other barbarians that have emerged throughout history.  They should be dealt with accordingly.


4.  Make Freedom, Liberty and Security, Rather than Climate Change, the Focus of Foreign Policy
Since Obama took office the overriding theme of his foreign policy has been that global warming is the most serious international threat of our time.  Guess what?  That simply is not true.  At least in my opinion.  And I think the majority of Americans would agree with me.  Nuclear proliferation is a much, much larger problem both now and into the future.  Rogue regimes like North Korea and Iran are pushing hard to develop weapons that could be used against the U.S. and its allies.  This should be the focus of foreign policy.  We should make it known that we support anyone in the world who shares our belief in freedom and liberty.  This includes dissenters in China and the Green movement in Iran.  Democracy and individual liberty are the greatest pacifiers our civilization has ever seen, and as those beliefs proliferate, the world will become a much safer place.


3.  Swear off Earmarks, and Cut Domestic Discretionary Spending
So apparently Obama is going express support for a cap on discretionary spending in his state of the union on Wednesday night.  Well it seems like a great idea, but in all reality it is nothing more than a political farce.  In his first two budgets Obama raised total federal spending from about 21% to 26% of GDP.  So after this huge hike, he is now trying to claim fiscal discipline.  Please.  What's more is that discretionary spending is only approximately one-sixth of the federal budget, so capping its growth will do little to stop the deficits.  It is however, a good start if it is done right.  The Republicans should go a step farther than announce their attention to not only halt, but to cut domestic discretionary spending.  Republicans need to stand up and say they will not support another pork-riddle farm bill or unproductive funding for the departments of energy, education or labor.  If that means we lose Iowa, then we lose Iowa.  Fuck em.  Pork is pork whether it is in farm subsidies, bridges to nowhere or other wealth distribution programs.


2.  Make the 2001 Bush Tax Cuts Permanent
Everyone is hoping that 2010 will be better than 2009.  And that 2011 will be better than 2010.  Guess what?  That probably won't happen if we allow the Democrats allow the Bush Tax cuts to expire.  All of the marginal income tax rates will rise, the capital gains tax will rise and the tax on dividends will close to double.  Is this smart policy during an economic recovery?  The bad consequences of such a policy have been chronicled in numerous sources, but check out this WSJ editorial by Peter Du Pont for some grim predictions.   I find Arthur Laffer's analysis in his January Economic Outlook very compelling as well (the analysis is also mentioned in Du Pont's editorial).  Obviously I think this issue is a self starter for the Republicans.  I'm not one for litmus tests, but any Republican who does not support this policy should not be running for federal office.


1.  Entitlement Reform
In my opinion this is the most important, most contentious and most difficult problem that the U.S. will face in my lifetime.  Everyone knows the narrative: These programs (Social Security/Medicare/Medicaid) were initiated originally to help the the poor and indigent.  Over time they expanded to cover more and more Americans.  They are now approaching fiscal disaster as payouts are increasing far more than revenue.  This is the one and only issue (barring any major wars, knock on wood) that could simple bankrupt our country and our currency.  Without this problem all other problems seem very solvable.  If we could kick the habit we could end our reliance on foreign financing, increase economic productivity by stopping this huge drain on our resources, and focus on more pressing domestic and international issues.  The problem is in the pudding (I don't know what that means).  The problem actually is that at this point so many people have been promised benefits and have paid into the system their whole lives that it would be fundamentally unfair to deny them their benefits.  However, a large chunk of the population is aging fast, and there soon will not be enough productive workers to pay for their benefits.  Do I know a politically feasible answer to this problem?  No.  Personally I am for a combination of benefit cuts, allowing young people to opt out of the program instead rely on personal savings accounts, and cutting spending in other areas to fill the gap.  We need to tell young people today that social security in its current form will not be around when they retire.  Unfortunately, because of the largess of their parents and grandparents, they will be forced to pay for the program while not benefiting from it.  There is no feasible way that last statement is not true.  We might as well own up to that fact now, and end any reason for a sane American to rely on these programs for retirement in 50 years.  Obviously I don't have all the answers, but it is at least time for Republicans to start the debate.

second class citizens

In my opinion, 2010 is truly a pivotal year in our nation's history.  According to most commentators, beginning with  the Republican takeover in 1994 and ending with Barack Obama's victory in 2008, the U.S. had been in period dominated by conservative free market ideology.  Many of those same commentators will claim that the reckless reliance on "free markets" caused what they have dubbed the great recession.  Their solution is more regulation and more government.  In my opinion, however, just the opposite is in fact the case.  Yes I agree that Republicans have been in control of Congress for most of that period and held the presidency for eight years, but the Republicans who were making policy surely did not believe in free markets.  And obviously with a Democratic Congress and President, things are only getting worse.

Today what I want to focus on is the emergence of the public sector employee as the new bourgeoisie of our society.  All of us know people who work for the government: teachers, police officers, parking attendants.  But there are many, many more public employees who do jobs and work for agencies that the large majority of Americans have never heard of and will never benefit from.  All told, according to the Bureau of Labor Statistics, in 2008 (the last year data was on the website), there were approximately 23,000,000 public employees in the U.S.  That is a lot of employees, and it is a major change from how the U.S. labor market used to be structured.  We all know about the growth of the federal government has expanded tremendously over the past half century, but growth in state and local governments (often driven from federal mandates/revenue sharing deals like Medicare and Medicaid) has risen as well.  The United States had 2.3 state and local government employees per 100 citizens in 1946 and now has 6.5 state and local government employees per 100 citizens.  According to a study by Michael Hodges, in 1947, 78 percent of the national income went to the private sector, 16 percent to the federal sector, and 6 percent to the state and local government sector. Now 54 percent of the economy is private, 28 percent goes to the feds, and 18 percent goes to state and local governments.

Not only has the size grown, but public sector employees are being disproportionately compensated as well.   The average federal worker made $59,864 in 2005, compared with the average salary of $40,505 in the private sector.  And that is just compensation.  Public employees really make their money in benefits and pensions.  Unlike private employers who refuse to enter into unfundable pension agreements for fear of bankruptcy, the government does not have the same problem.  In June 2005, BusinessWeek reported that “more than 14 million public servants and 6 million retirees are owed $2.37 trillion by more than 2,000 different states, cities and agencies” in pension liabilities alone, numbers that have risen since then. State and local pension payouts, the magazine found, had increased 50 percent in just five years.  And that is just state pensions, not federal level pensions.

Last but definitely not least is the lack of accountability for public sector employees.  In the private sector, most jobs are an employment-at-will, and if you mess up you can be fired on the spot.  Not true for public employees.  Just look at teachers in America.  So much focus is on the fact of how the American education system is failing.  Well, there is one group most responsible for that: unionized teachers.  The unions make it impossible to fire bad teachers (and other public employees) even if they are grossly negligent.  This simply can't happen.  The reason why private employees are so much more productive than the public sector is because of competition: they are scared for their jobs.  They know that they must not only do a good job, but also constantly improve because that is what private employers expect.

The size of the government workforce is getting to a tipping point.  Public employees, and the unions that represent them, have grown so large that they now are extremely successful in influencing national policy.  Just look at the healthcare debate.  Thanks to union lobbyists, union workers will be exempt from paying the excise tax on high cost insurance plans that is designed to reign in out of control health costs.  Thats really fair right?  I'm sure the tax on the rest of us will be enough to "bend the cost curve."

But that isn't even union members biggest benefit from the health care proposal.  Their number one goal is to increase the size of government so that there are more government employees, increasing the numbers in the union, and increasing their power to influence policy, and that is exactly what is happening.  It is simply unsustainable.  Is now at the point were private sector employees are forced to work harder, longer and for more years just so we can afford to pay government employees their full pension (which can be as high as 100% of their final year salary).  And they can retire at age 50.  It's absolutely unbelievable.

So here is the question America: Barack Obama's entire agenda is focused on increasing the size of the government so that it can take care of us "from cradle to grave;" do you want to be a second class citizen to finance the government employees that will implement that agenda?  Some may laugh at such a question, but the prospect of just such an arrangement is becoming more an more real with each passing day.

*note* I used some of the data from an article my old man sent me by Steven Greenhut in the February 2010 Reason Magazine.   This link is here.

gm revisted and how does protectionism affect you?

Since December 2008, GMAC Financial Services, the financing arm of General Motors, has received approximately $12.5 billion in TARP money in an attempt to stabilize the company so that GM could fully recover.  At the time we were told that the money was necessary in order to save the automaker, and that they loans would be repaid once GM recovered.  Well looks like the "repayment" won't be coming anytime soon.  Yesterday the Treasury announced that it was giving GMAC an additional $3.5 billion in order to keep the company solvent.  After conducting a stress-test of the Company a few months ago, the Treasury required GMAC to raise more capital so that it would have enough capital on hand to cover any future losses, which are expected to continue into 2010.  However, GMAC was not able to find any private lenders to fill the void, so it was forced to turn to the federal government for yet another bailout.

Can anyone guess why GMAC could not find financing from the private sector?  Anyone?  It's not really that difficult a question.  Just look what happened to previous GMAC lenders.  They were the secured creditors who were left out in the cold when the Federal Government bailed out GM last year.  Rather than offering the creditors who secured their loans on GMAC's tangible assets a fair price based on the liquidation value of the company, the relative strength of their bargaining positions and contracts upon which the loans were based, Obama catered to the union special interests and made sure that lenders faced much stiffer losses (The union received approximately $10 billion in cash, $6.5 billion in dividend preferred stock and a 20% equity stake in the restructured company for about $20 billion in claims; compare this with $27 billion in claims by secured creditors who received 10-15% of restructured equity and no cash or preferred stock).

Why would anyone in their right mind lend money to GMAC after that?  If the company fails, which in my opinion is more likely than not, you will never get a fair deal for the return of your capital regardless of any contractual terms you negotiate.  This lack of private lending available to GMAC, as well as GM, is the inevitable consequence of the governmental interference in the contracts between lenders and GM.  If a lender cannot contractually guarantee a benefit for himself, then the contract has no value to him, as he now assumes all risk, and the contract will not be made.  Hence no private lending to companies that received federal bailouts.  I have no doubt that Geithner and Obama foresaw this outcome.  However, Obama has no problem nationalizing an industry and sees no problem with continued governmental control.  This was his ultimate goal.

None of this should be surprising.  Obama, although he espouses the virtues of private industry on camera to hide his socialist nature, has consistently funded government intervention and control over what should properly be a private venture.  Just look at Fannie Mae and Freddie Mac.  On Christmas Eve the government announced that it was removing the $400 billion cap on bailouts for the two GSEs.  That's right, they made this major policy announcement on Christmas Eve.  Why do yo think they would do this?  Of course they don't want people to know it.  And the vast majority of our retarded population will never have any idea.  News like this is is just words that get in the way of real news like the coverage of the Tiger Woods "scandal" and the death of Michael Jackson.  The announcement was made on a holiday and I guarantee that 99.9% of the population didn't know it happened.  But once again that's the way Obama roles.

Another example of the government intervening to protect a democratic political ally (once again the unions.  SUPRISE!) was the U.S. International Trade Commissions ruling that chinese steel imports "unfairly damaged" U.S. steel makers by receiving subsidies from the Chinese government.  The first question we should always ask in any antitrust or anticompetitive ruling is what is the goal of such a policy.  I belive that a smartly designed policy would be to ensure the protection of competition, not protection of competitors.  Our goal should be to ensure that access to a free and open market is not compromised, not that all competitors are protected from their own failures arising from rejection of their products in the marketplace.

This is the exact opposite of what occurred here.  U.S. steel makers are the United Steelworkers Union brought the case to the ITC under the dubious claim that the chinese "unfairly subsidized" their own domestic producers at the expense of U.S. producers.  First, what is the competition related problem with a government subsidy, which are often handed out in this country by the way?  How does this affect the ability of the market to function correctly?  It doesn't.  What is wrong with allowing the Chinese government to subsidize U.S. consumers of steel?  The subsidies make it cheaper to produced anything requiring steel at the expense of the Chinese taxpayer.  Sounds like a good deal to me.  There is nothing inherently wrong with that type of price competition.  If however, the Chinese jack up prices after eliminating such competition, that is an blatant predatory pricing violation of both the Sherman and Clayton Acts, and the chinese manufacturers would be subject to the stiff penalties outlined by that antitrust legislation.

However, the real reason for the I.T.C. ruling was to protect the domestic steel workers union at the expense of U.S. steel consumers (read EVERYONE).  They want to continue the status quo of impracticable benefits, unsustainable wages and absolutely no competition among workers.  I for one am sick and tired or it.  Why are the large majority of Americans expected to be productive or lose their job while teachers, government workers and other union members receive huge guarantees in pay and pensions while very little chance of ever being fired even if they are grossly negligent.  This double standard must change, and employees all across the U.S. should succeed based on merit, not political favor.

One final recommendation: to learn more about why protectionism is bad policy and why governmental intervention will almost never result in a positive outcome for the majority of the population please Free to Choose by Milton Friedman.  This rational market view of economics is straightforward, easy to understand and dispels many of the scare tactics and arguments put forward by the socialist apologists.  I still think it is the best book I have ever read (non-fiction).

damn eagles and iran

The Eagles certainly just gave me a hell of a scare. They led 20-7 at halftime, and were up 27-10 at one point in the third quarter, but thanks in large part to a Macho Harris fumble and poor play by Donavan McNabb in the second half, Denver was able to fight back and tie the game at 27 in the fourth quarter. Luckily, after the defense stepped up and made several key stops, Jeremy Maclin made one the best catches I have seen all season to put the Eagles in field goal range with about a minute left in the game. David Akers did his thing and the Eagles pulled out a 30-27 win.

A couple of notes from todays game in no particular order:

- Brent Celek is deserving of a Pro-Bowl bid. Through 15 games he now has 69 catches for 875 yards and eight touchdowns. In my opinion the only player more worthy in the NFC is Vernon Davis. Tony Gonzales has a few more catches but less yards and touchdowns. Jason Witten has several more catches but is comperable in yardage and has only ONE touchdown. He sucks (I hate him even more because I wasted a high draft pick him in my fantasy league. And he had ONE touchdown. Gay.) Davis and Celek should go.

- Props to Champ Bailey and Andre Goodman. They played extremely well despite giving up passing TDs to Desean Jackson and Jason Avant. Neither of those Denver DBs was covering either of the Eagles WRs when they scored. For the most part they shut down the Eagles wide receivers, tackled well and never allowed the big play over the top. Champ also had a nice pick and a couple of nice pass break ups. Great game by both of them.

- McNabb needs to improve his accuracy somehow if this team is going to make a long playoff run. He played horribly in the second half and missed several open receivers. I am so tired of seeing him clap and laugh after throwing the ball at a receivers feet. Andy Reid could of helped McNabb out though by calling a little more balanced game in the second half. There was great balance in the first half, but after Asante Samuels' interception in third third quarter Reid called no pass plays on the next two possessions, and guess what? Two three and outs. On the following two possessions he called only two runs, both on first down, leading to two more three and outs. When your quarterback is struggling you've got to have more balance than that.

- Having said that, as Larry David would say, I like this team's chances next week against the Cowboys and beyond in the playoffs. They might have won ugly, but they won nonetheless. They have a chance to finish 12-4 and if either the Bears or Giants can manage to beat the Vikings, they have a great shot at a first round bye. If that happens, I think they make the conference championship at least regardless of who they play in the divisional round.

One non-Eagles note. I just want to quickly comment about what is happening in Iran. Once again the protests are heating up and pro-democracy/freedom reformists are trying to rally the nation around the ideals of freedom and liberty. These are the core values that all Americans believe in, and we should not hide our support for anyone that espouses these rights. Unfortunately, that is exactly what Obama is doing. He is more concerned with catering to needs of a illegitimate Dictator (Ahmadinejad) so that he can "engage" Iran on other issues like nuclear proliferation. Well look where "engagement" has gotten us. Iran continues to march towards a nuclear weapon and they don't give two shits that Obama wants to negotiate. Iran isn't even pretending to care what Obama and the U.N. says, they are just continuing down the path of enrichment and defiance of international law. At this point, Obama should express support for the protesters and declare that the U.S. no longer accepts Ahmadinejad as the legitimate president of Iran. In the age of global communications, this type of statement would immediately be broadcast all across Iran, especially to the protest leaders who are well-educated and most of whom live in Tehran.

Iran is the most dangerous threat to global stability in the post cold war world. If the reformers succeed in ousting this dangerous regime, world peace would be a much more achievable goal. We as Americans, and the American president, should do as much as we can to support freedom and ensure that happens.

healthcare, copenhagen and the epa

Well now that I am done with finals, I am hoping to update this thing a little more often. A lot has happened since my last post, and obviously my prediction that Penn State would play in the Fiesta Bowl did not pan out, but more about that later. Additionally, the Eagles are playing great right now, and I am going to devote an entire post to playoff scenarios later this week. For now, I want to focus on the two big political issues right now: healthcare "reform" and climate change.

At 1 AM ET last night, the Senate voted 60-40 to end debate on a healthcare bill, setting up a vote to pass the bill on Christmas Eve. The bill itself has become extremely unpopular with the public (a recent CNN poll released today showed 56% of people say they oppose it while only 42% support it), but that won't stop the Democrats from forcing it through in the middle of night. The whole process has been laughable and completely at odds with President Obama's promise of a "new era of transparency" that he promised during his campaign. The 2000+ page bill was written by 10 hand picked democrats behind closed doors, and the bill wasn't released to the public, or in that case the other Senators who had to vote on it, until just a few hours before the vote for cloture was invoked.

In short, this bill sucks, and I think that even the Democrats realize it. The major goal of the legislation was to provide every American with health insurance and do it without breaking the bank. Guess what? Neither goal will be accomplished under the Senate bill. First, although the legislation includes a new mandate that requires individuals to buy health insurance or face a stiff fine, even the Congressional Budget Office estimates that over 25 million Americans will fail to be covered even after the bill. Although Democrats were able to include several provisions that limited the insurance companies from denying coverage based on preexisting conditions and the such, they obviously have to be disappointed they had to abandon the public option, which many saw as a stepping stone to a single payer system.

But regardless of all that, there is one reason I find this bill reprehensible: Obama and the Democrats are STRAIGHT UP LYING about how much this bill will cost both in the short and long term. They are claiming that this bill is fiscally responsible based on the estimates made by the Congressional Budget Office. According to the CBO, the bill will only "cost" $781 billion over the next decade and will actually reduce the deficit by $132 billion over that time period. Really? Really? Does anyone actually believe that this bill is going to save money? Can you say that with a straight face? It simply does not make sense. They are claiming the quality will increase and costs will be lower. That's right! Democrats have finally figured out what most people couldn't: how to defy the laws of economics and make a system even better while making it cheaper in the process! Do you know why the CBO thinks this bill is going to save money? Because the tax increases to pay for the bill are going to start immediately, but over 98% of the costs do not start to accrue until 2014. So basically the CBO estimate uses 10 years of tax increases and only 5 years of entitlement benefits and then claims that it is a true estimate of the cost of the bill. This is the same type of accounting that has given us a Social Security/Medicare system that is set to bankrupt the country. Currently those programs have a total unfunded liability of over $50 trillion. That's trillion with a t. So what's the best way to address this coming financial crisis? Expand the program to include millions more. The whole entitlement state is nothing more than a Berni Madoff ponzi scheme on steroids, and if the accounting used by the CBO were used by a private company, the officers and accounts would be in jail for fraud (literally they would be).

Unfortunately, this health care bill isn't even the most destructive bill being considered by the Congress. The end of the world that is global warming must be stopped, and if we do not act... well, most people really aren't talking about what actually will happen if global warming continues. We are told horror stories about melting glaciers and rising sea levels, but I am not sold that any of these things will cause costs that are higher than those that would be imposed by cap and trade legislation. First, none of these supposed problems are going to occur in the near future or quickly. It will be a slow process and no one can predict exactly what is going to happen. By the time we start seeing any of these problems, we will be much more advanced as a society. Even under the most grave of predictions, it is impossible for anyone to say with accuracy what its effects on the human population will be. That is because humans are an unbelievably adaptable creature. We are the only mammal that can be found everywhere from North of the Arctic circle to the tropics around the equator. We will be ok.

Let's say the doomsdayers like Al Gore are correct. If we do nothing the Earth will warm two degrees over the next century. So what would be the actual effect on the human population? First, we will have advanced tremendously as a society by the time 2100 roles along. Technology has increased at an exponential rate since the advent of capitalism in the mid-sixteenth century. One hundred years ago, Howard Taft assumed the presidency, Einar Dessau made the first short-wave radio broadcast, and the first flight across the English Channel was completed. Today, instead of relying on radio we have the internet, so every individual has access to unlimited information, and we have planes that can fly without human pilots. Just imagine what life will be like one hundred years from now. I have full confidence that humans will adapt to a warmer climate, especially one that occurs slowly over decades. And do you know what the catalyst for change will be? Not a command and control economic push as desired by Obama and the other socialists, but the price mechanism. As global warming begins to impose actual costs in our society, the prices of the goods and services that are adversely affected by the climate will rise, encouraging innovation and alternative investments. Things like rising sea levels will be addressed by technological innovation. Consider this fact: 27% of the area and over 60% of the population of the Netherlands is below sea level. Using crude dikes and polders, the dutch have been able to keep the sea from destroying their homeland for hundreds of years. Imagine the innovation that would ensue if billions people faced a threat from a rising sea level, creating a large market in protecting against flooding.

And what about the positive effects of global warming? If the Earth does warm that will mean that more Northern regions will experience a longer growing season, allowing for the areas to grow crops that could traditionally only be grown in warmer climates. Critics say that the rise in global temperatures will lead to an increase in petulance and disease. Well why don't we address these problems directly rather than some indirect and causally suspect basis like global warming. If malaria will increase in tropical regions, we should invest in more mosquito nets, safe indoor DDT sprays and more education. No one can argue that stopping global warming would help protect poor populations from increased occurrence of disease more than this direct aid would. Additionally, the global warming alarmists insist that natural disasters will increase in both frequency and intensity. Even if this is true, which no once can actually prove, they are simply speculating, I think we will soon have the technology to address such concerns. Both researchers in the U.S. and especially in China are currently pursuing technology to control the weather. It sounds like science fiction, but so did a device that allowed you to not only to speak to anyone else on the globe from practically anywhere but also allows you look up any fact with the push of a button, to an observer 100 years or even 25 years ago (For those unsure, that last poorly worded sentence was my attempt to describe the iphone). For a few ideas about weather manipulation and where the technology is headed, check out this wikipedia article on weather control. Again, if the problem from increased storms is nearly as large a problem as the alarmists expect, one would expect research in this area to skyrocket.

Lastly, I just want to comment quickly on the EPA's recent "endangerment finding" that carbon dioxide is a "dangerous pollutant" and can be regulated accordingly under the clean air act. In order to make such a finding, they had to show that carbon dioxide threatens the public health and welfare. They based this finding on the "scientific consensus" that global warming will hurt "air quality," increase air born, climate-sensitive diseases, and increase the frequency and severity of natural disasters. Regardless of the fact that the clean air act was designed in 1970 to regulate pollutants like Sulfur dioxide that cause direct harms to human health through inhalation and the like, the fact that they found that emissions of greenhouse gases caused not only global warming but also the harms associated with it is disturbing. Traditionally, causation is a legal concept that has two parts: cause-in-fact and proximate causation. In order for a prior event to be considered a cause, both of these tests must be satisfied. For something to be a cause-in-fact, the second event would not have occurred but for the occurrence of the first. For something to be a proximate cause, an act from which an injury results as a natural, direct, uninterrupted consequence and without which the injury would not have occurred. Regardless, I see no way that someone can say that emitting carbon dioxide will cause the adverse effects of global warming. There are so many other contributing factors that contribute to these events other than U.S. emissions (the only emissions the EPA is allowed to consider in their endangerment finding) that it is impossible to say that they will not occur anyway even if the U.S. stopped emitting carbon dioxide immediately. Complex weather patterns, international emissions, and shirts in solar weather patterns are all potential intermediary actors that affect the potential harm. In order to be considered a cause in the legal sense, the event must have a direct and foreseeable impact on a harm that will not occur independently if the event is removed. Although they are strong arguments that warming is being caused by increased carbon levels, that link is too tenuous to be a legal cause under the clean air act, and any government intervention must derive its authority from new legislation, not some bullshit and speculative argument that misapplies a law that was designed to regulate pollutants that actually do directly hurt individuals because of things like toxicity.

the all star break and education in america

Well it's the halfway point of the baseball season, and the world champion Philadelphia Phillies are right where they belong: in first place. Thanks in large part to a 9-1 home stand to finish the first half, they have built a substantial, but in no way insurmountable four game lead over the second place Marlins in the NL East. This team has a legitimate shot at repeating. They have the best and most explosive offense in the National League. They are scrappy both individually and as a team.

The only big question mark is pitching, both the starters and bullpen. Although the relief pitchers have been hot and cold, especially Brad Lidge, I don't think there is much they can or will do to sure up the unit. I don't think this will be a problem though. They have shown that they can succeed both consistently and in key situations (see last season), and I think they are going to recover nicely in the second half. The bigger question mark is the starting rotation.

According to reports the phils are very close to signing Pedro Martinez. Although I am not against the move because it will probably cost us very little, I don't think it is a solution. If the Phils sign him I hope I'm wrong, but I think he's out of gas and all washed up. My biggest concern is that the Phils will sign him that the front office will think that they have done enough and won't make anymore moves. In other words, they won't trade for Roy Halladay.

I am all for signing Halladay, almost regardless of cost. In a perfect world I wouldn't want to give up Kyle Drabek, but the time to win is now. This Phils have only won two World Series titles in their 125+ years of playing the game. One of those titles was last year. This is their chance; they must win now. If that means mortgaging the future, then so be it. Let's go out and get arguably the best pitcher in the game for this season and next and try to make it a dynasty. The Phils would instantly become the favorites to go to the World Series in the NL, and we would probably have the best 1-2 pitching combo in the majors in Halladay/Hamels. Amaro needs to make this happen.

On a completely unrelated note, I just want to comment quickly on the ridiculousness of public education in America. First, Texas has proposed several changes to their curriculum that is outraging many liberals (See a shortened list of changes here). For example they want to de-emphasize the historical importance of liberl icons like Thurgood Marshall and Ceasar Chavez. The only change I really want to comment on is the proposal to focus more on original historical documents rather than on texts that interpret those documents. I think this is a fantastic idea. There is no better way to learn history than to read actual account of what occurred. This way no hindsight spin can be put on historical events. Anyone who writes an account has their own agenda and biases, and whether they mean to or not they will inevitably put some kind of spin on the facts. Focusing on primary accounts can help alleviate that problem and let students think critically and draw their own conclusions based on the facts.

However, focusing on historical facts will not make a difference when the teachers themselves are biased, and once again the teacher's unions are flexing their political muscle now that Obama and the democrats control the executive and legislative branches. Thanks in large part to the unions leaning on the democrats, Obama is letting the DC voucher program expire despite the fact the DC city counsel has voted overwhelmingly to ask for the program to be extended. The union hates the program because it weakens their monopoly hold on public education funds. In reality the union doesn't care that the program has been an unbridled success, they only care about their own power and clout. They know that if similar programs are enacted around the country, teachers everywhere would start facing, get this, COMPETITION. But no, competition doesn't make the quality of output better in education they claim. That is only true FOR EVERY OTHER INDUSTRY IN AMERICA. Until we stop bowing to the teachers unions on education choice and reform, we are never going to truly bring about the needed change, especially in the country's poorest neighborhoods like Washington, DC.