Archive for the 'Government' Category

Steve Forbes on the Crisis

December 23, 2009

In his December 10, 2009 Fact and Comment column, In-Credit-Able, in Forbes Magazine, Steve Forbes clearly communicated several points worth capturing.  Here’s on on the mortgage crisis:

Government-sponsored enterprises Fannie Mae ( FNM news people ) and Freddie Mac ( FRE news people), with their implicit government guarantees, were able to totally dominate the mortgage market. They could borrow cheaply and leverage up on a scale no private company could. When they went bingeing on subprime mortgages, they ended up twisting and then destroying the housing market. The private sector was quite capable of generating players that could have performed Fannie’s and Freddie’s roles. And because they wouldn’t have had Uncle Sam’s moral-hazard safety net, they would have been infinitely more cautious, even with the Fed creating floods of liquidity and the credit rating agencies forgetting their raison d’être. Yet Congress is determined to keep these beasts alive and under government sway. Washington is also taking over the student loan market.

This is not a well understood point.  Having the implicit guarantee of the government short-circuited the prudence that would take place in a free market.  All the bright bulbs that condemn free markets for causing the crisis, don’t seem very bright to me because they not only miss the true cause of the crisis, but they blame the very thing that could have prevented it.  Removing prudence from a free market through a government action will always end badly.

Here’s some clear thinking from Steve on health care:

The prospective government de facto takeover of health care will extend Washington’s reach into the credit markets. Health insurers will be reduced to federal vassals by being forced to offer policies at prices and terms dictated by Washington. As a reward they will have first call on the credit markets, with the same sort of implicit guarantees that once so benefited Fannie and Freddie.

It’s easy to forget, businesses like insurance companies are in business to make a profit for their shareholders.  If they don’t make a profit, there’s nothing forcing them to stay in business.


Amazing Hoodwinking

December 23, 2009

It’s amazing to me that we continue to let Congress go down this path of rushed legislation.  “We must do this now!”  “We have to sign it before Christmas!”  They’ve used the same pattern for every piece of rushed legislation this year since the initial TARP programs last year.   TARPS I and II.  Stimulus.  Overextended budget.   Cap and trade (though not signed yet).  Health care.  “We can’t afford to stop and think about this.  We must act now!”

It’s the same argument global warming believers use with the planet.  “It will only happen gradually for the 50 – 100 years, but if we wait 5 more minutes it will be too late.”

In a former job we had a lot of “fire drills.”  The bosses would come with these important pieces of work that had to be done now!  They would get us all frothed up so that we were cranking out absolute crud until 2:00 am.  I coined a term for those projects:  JALJA (Jumping Around Like Jackasses).  “Here comes another JALJA,” became common lingo in my group.  Most of us eventually wised up and realized the JALJA’s weren’t important and moved onto to work for bosses who could use their resources effectively.  The JALJA leaders couldn’t figure out what was important and what wasn’t, so everything was, even when it wasn’t.  They didn’t know what they were doing, so they did a lot of it to keep people guessing.

The Congressional pace over the past year reminds me a lot of those good ole JALJA’s.  People seem to be wising up, based on Obama’s declining poll numbers.  I hope it will translate into results at the 2010 Congressional elections to restore a balance of power in Congress.

At the very minimum, maybe we will get back to the days where Congressman and Senators would at least read, if not come to fully understand the stuff they’re voting on.  It seems like such a basic expectation.

Excellent Video Series on Keynes and Hayek

December 20, 2009

This makes the second link I’ve made to PBS Newshour in the past week.  The link will take you to a series of five video segments with economists Lord Skidelsky and Russ Roberts hosted by the Lehrer.  They discuss Keynes, markets, the financial crisis and a host of other topics and, as my previous link to an interview with George Shultz, is hosted by Paul Solman.

In one of the videos, Solman describes himself as a “dispassionate reporter.”  From what I’ve seen of his work so far, I agree.  Journalism needs more like him.  After watching over an hour of his interviews now, I can’t tell if his personal beliefs lean one way or the other.  What’s more, he seems to understand the subject and is interested in getting the real story out, rather than a stylized version of the story meant to fit a predetermined narrative.  Nor does he practice “gotcha” journalism.

One quote from Russ Roberts that I will take with me is, “Capitalism is a profit and loss system.  The profits encourage risk taking.  The losses encourage prudence.”

I highly recommend watching the video series if you are the least bit interested in economics or gaining a better understanding of the the true causes of the financial crisis.

Thomas Jefferson

December 15, 2009

Leno and Conan O’Brien took cheap shots at McCain’s age.  Very clever.   I believe it was Leno who said that they recently found some letters from Thomas Jefferson thanking McCain for his support.

Those jokes reminded me of this quote from Thomas Jefferson.  Timeless and yet it seems to be very timely at the moment:

The issue today is the same as it has been throughout all history, whether man shall be allowed to govern himself or be ruled by a small elite.

Tick, tick, tick

December 14, 2009

In an interview on 60 Minutes this evening, Obama blamed Wall Street bankers for the nation’s financial troubles.  If I remember correctly, the question was asked if banks are repaying TARP funds so they could pay their CEOs big bonuses.  To that, Obama said that he thinks that’s a motivation and that Wall Street still doesn’t get it that everyone is mad at them for causing the financial mess (paraphrased from memory).

What’s sad is that many American accept this explanation and we never hold government accountable for their role in the mess.

A true leader would own up to it.  Wall Street certainly played a role in the financial crisis, but they by no means acted alone.  This is where journalism needs to DO IT’S JOB!

Here are some great questions I would have loved to ask President Obama at that point:

1.  Do you think the government or government agencies had any role in the financial crisis or did Wall Street act alone?

2. Do you believe the Federal Reserve should have acted quicker to remove excess money supply after it seemed that the economy got back on track after 9/11?

3. You don’t believe that government put pressure on banks to make credit easier (i.e. lend to people they would normally consider high credit risks) in order to push this idea of expanding home ownership?

4. Didn’t the government provide implicit guarantees to subprime lending, again to expand home ownership, through Fannie Mae and Freddie Mac?

5. Wasn’t Fannie and Freddie one of the largest, if not largest, provider of these bad loans?  And weren’t they acting under direction from Congress?

6.  Weren’t regulations proposed in 2004 that would have reduced the risk of the housing crisis by making it tougher to get loans, but those regulations were rejected by Congress because they would have interfered with the goal of expanding home ownership?

6.  In order for us to better trust your leadership, shouldn’t we expect you to be honest about government’s role in the financial mess?  Rather, you seem to pretend that government has not blame and we should continue to blindly trust the government as you want to expand regulatory power even further.

7. Please tell me, how are the new financial regulatory powers that your administration is proposing different from those in 2004?  Why didn’t the current regulations not work to prevent the crisis?  Did anyone in government not even recognize that a crisis was about to happen?  If not, how can we trust those in government to recognize the next crisis?

8. What do you think about the people who borrowed well beyond their means?  Shouldn’t they have acted more prudently?  Shouldn’t we expect our citizens, who are provided thirteen years of education with a total valued at $150,000, to make responsible financial choices?  Shouldn’t we expect them to be able to read and understand a loan document and do their homework about the realities and responsibilities that come with home ownership?

9. What personal finance advice would you give Americans?

10.  Some say that people were motivated to borrow beyond their means because they felt that home prices were appreciating so rapidly that they could always sell the house and make a nice profit.  In other words, they were borrowing on future hopes rather than their realistic income.  Don’t you think that the government’s finances are reflecting that same behavior?  We are borrowing beyond our means with the hope that the economy will grow strong and pay for it.  Haven’t we learned our lesson here?  Don’t we know how this story is likely to end?

Winning the Audit Lottery

December 14, 2009

Here’s an interesting story from Forbes magazine.  The authors discuss the merits of the IRS boning up on tax audits because the overall impact will be a substantial return on dollars invested in audits.

I thought there might be simpler way:  simplify the tax code.

Free Lunch?

December 9, 2009

Thomas Sowell’s column produced this thought.

Many believe politicians can provide them with a free lunch, not realizing politicians are no miracle workers.  They’re more like tricksters.   Their greatest trick of all: conning you to believe that you didn’t pay for you lunch, when indeed you will pay a little from your next 30 lunches not only to cover the cost of your lunch today, but the politicians’ lunch as well.  By the time you’ve finishing paying for you lunch today, they’ve signed you up for another free lunch and you’re happy about it and you vote for them again.

Disproportionate Power

December 6, 2009

I found the excellent response from Lee Jamison in the comments section of this post on Cafe Hayek.   Thanks Lee Jamison.  Very well said.

Martinbrock makes a comment down the way that clssical liberals oppose disproportionate power. It is a measure of the fog in which they live that their political solution to diproportionate power is… disproportionate power.
Professor Boudreaux makes a great point here. Political liberals are essentially gullible fools, convinced that there is an easily identifiably group of better, more intelligent people to whom we may grant vast political power for the healing of the world. No such group of people exists. In every group of people promising the salvation of the world and the economy through their auspices there are equal populations of avarice and criminality.

I am as much, if not more, of a classical liberal than the vast majority of political liberals but I recognize political liberalism as a sham, a means of getting disproportionate power without even having to prove the posession of any practical skill. I also recognize in mega-corporate capitalism the exact same grasping for a consolidation of disproportionate power. What politcal liberals fail most completely to recognize is that these two strains of power-mongers have far more in common with each other (else no company would be too big to fail, would it, Martin?) than they have with the common population.

The genius of the American political system as it was designed was not that it handed power to the right people. It was that it understood the powerful could be used to counter each other’s greed for even more power. Fools now take the fruits of that balance for granted, seeing only flaws, and seek to eliminate the balances that hobble those who flatter us and promise us paradise, if only we will let them lay a few chains on us.

I share Lee Jamison’s appreciation for the genius of the American political system or more specifically, the Constitution.  The Founders wanted to creat a government that protected against disproportionate power from others and itself.  They did this because they had experienced government with disproportionate power and felt it hurt its citizens .

However, the reality is that we’ve moved far beyond the Constitution.  We’ve given more power to the government than the Founders ever desired.  Part of the problem is with speical interests.  Much legislation has been bought by special interests.

The other problem is the igorance of the electorate of the purpose of government and the reasons the Founders attempted to design a limited government.  This ignorance also comes in the form of hubris that we know better than the Founders.

James Madison

December 6, 2009

Our country has come a long way in the past 200 years.  But, the nature of man is very much the same.  Many political skirmishes are driven by the fundamental disagreement in the purpose of government.  I think it’s wise to understand why the men who had in writing the Constitution put those words to paper.  Over the past 100 years or so, the purpose and power of our government has diverged widely from their intentions.

Here’s something to remember of anyone who finds themselves putting a great deal of trust in anyone they vote for:

The truth is that all men having power ought to be mistrusted.

Here’s the purpose of government, in 20 words:

The rights of persons, and the rights of property, are the objects, for the protection of which Government was instituted.

Thanks to this page of quotes at George Mason University.

On losing freedom:

I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations.

And this isn’t a good thing…

If Congress can do whatever in their discretion can be done by money, and will promote the General Welfare, the Government is no longer a limited one, possessing enumerated powers, but an indefinite one….

Remember, he’s considered the Father of the Constitution:

With respect to the two words “general welfare,” I have always regarded them as qualified by the detail of powers connected with them. To take them in a literal and unlimited sense would be a metamorphosis of the Constitution into a character which there is a host of proofs was not contemplated by its creators. If the words obtained so readily a place in the “Articles of Confederation,” and received so little notice in their admission into the present Constitution, and retained for so long a time a silent place in both, the fairest explanation is, that the words, in the alternative of meaning nothing or meaning everything, had the former meaning taken for granted.

If only:

[T]he powers of the federal government are enumerated; it can only operate in certain cases; it has legislative powers on defined and limited objects, beyond which it cannot extend its jurisdiction.

This is just a good one.

Philosophy is common sense with big words.

Jobs Summit

December 5, 2009

This is a good recording of a broadcast on a Minnesota National Public Radio program with economists Russ Roberts and Josh Bivens discussing the jobs summit.  The economists get going about 10 minutes into the recording.

Josh represents what I disdain.  He comes across as confident, smart and completely disconnected from the you and I.  He’s an intellectual elite.  I’ve personally seen his type wreck companies and then rationalize why it wasn’t their fault.  His types also created the financial crisis.  I believe his types evolved from what was once known as a snake oil salesman.  He’s playing a con.  I’m not sure if he really even cares if he’s right or wrong.  His main motivation is to be seen as the smartest guy in the room.

Folks like Russ, on the other hand, we should listen to more.  He says, “I want you to be skeptical, even of me.”  He connects with the callers on the phone and understands what’s going on in their lives.  He says we shouldn’t trust economists, especially those with a great deal of data and models supposedly backing them up.