poetics.info

Big Lizards on Fannie, Freddie and Frank

Allison Taylor — Tue, 14 Oct 2008 02:57:52 +0000

I think it was Woody Allen who once observed (and I’m not sure in what film) that everybody in the world is insane except you and me — and I’m starting to have my doubts about you. Well, it’s official.

And in honor of these strange days, I am adding Big Lizards to my blog roll today. Their observations, from what I’ve read so far, are spot-on and highly amusing.

This essay on Fannie and Freddie by Dave Ross is particularly interesting. I had no idea that Barney Frank’s domestic partner actually worked for Fannie and Freddie from 1991 to 1997. Now it all sort of makes sense, in a bizarro kind of way, why Frank defended the GSE’s bad behavior and crusaded for sub-prime lending. The plot thickens.

And I’m disappointed that McCain is not more profound or angrier. Just thought I’d put that out there.

FDIC Alternative to Bailout?

Allison Taylor — Fri, 03 Oct 2008 16:22:34 +0000

William M. Isaac, chairman of the FDIC from 1981 to 1985, also thinks the current bailout is unnecessary. He thinks the current crisis can be calmed instead by “regulatory actions” that would not require a “raid” on taxpayer’s money. In his article, A Call To Arms, he writes:

In my view, if the FDIC were to declare an emergency and vow to protect all general creditors of failed banks (except in cases of fraud) and institute a net worth certificate program, the financial markets will calm down immediately. Banks will once again feel comfortable lending to other banks and to customers of banks. They will stop hoarding their liquidity.

Mr. Isaac also noted that the Securities and Exchange Commission acted this week (in response to request from bill opponents) to stop its practice of “forcing the mark down of mortgage-backed securities to an index price that bears no relationship to reality.” He stated that the “SEC’s mark-to-market policies have destroyed an estimated $5 trillion of lending capacity.”

Isaac continued in the same article:

The Senate bill is an irresponsible raid on taxpayer money to benefit a handful of institutions and wealthy individuals we can’t even identify (but many of which will likely be outside the U.S. the way the bill is written).

Those who say the taxpayers won’t lose money on the program are not being truthful. There is nothing in that bill we can’t live without. It will do next to nothing to solve the problems in our financial system and economy (although it might make the markets feel good in the short run).

More on Killing the Bailout

Allison Taylor — Thu, 02 Oct 2008 19:06:49 +0000

Robert Tracinski has a great article on the current bailout bill at RealClearPolitics.com.

And, here’s another good article, here, on the roots of the crisis, by Michael Flynn at Reason.com.

I heard a sound byte of Paulson the other day addressing Congress about how the problems of our system were created by everyone, how we all played a role in messing things up so now it’s too late to do the right thing—now we just need a quick, pragmatic and, yes, flawed fix.

Paulson is right that the system is indeed flawed. But there is a point where you have to say enough is enough. You can’t keep supporting socialist laws and expansion of government powers over enterprise for pragmatic reasons. You can’t keep up the dangerous game of deficit spending with impunity. Reality will catch up to you.

If we keep down this road toward a welfare state, we will end up with hyperinflation and diminished economic freedom, i.e. we will end up working entirely for the State in return for handouts. We will lose innovation and ingenuity and economic growth; we will create a class of welfare recipients who see government as a provider of goods rather than a protector of rights.

I am already hearing (and seeing) very able-bodied adults “give up,” that is, quit their jobs to get in line for government handouts because they can’t afford to pay the skyrocketing costs of medical care. It is now easier to be totally broke and take Medicaid or other government aid than to work to pay off exorbitant medical bills. (As a cancer survivor, I know this firsthand.)

Yes, the system is a mess, and we are experiencing inflation. But it’s not a coincidence that the most regulated and government-controlled industries (healthcare and insurance) are the most costly. There is a causal factor, which is government intervention.

Medical treatment is costly because the system is already socialized. If you are unemployed, uninsured and sick, you can get free healthcare. This leads to other people having to pay higher costs to make up for the losses experienced by medical providers.

Once you start rewarding people who do not work, you put more pressure on the people who do work to pay more, until they eventually give up. The costs of the socialized goods and services (medical care) begin to get distorted, forcing people into either going broke or joining the welfare community. The more and more people who join the welfare community will, of course, want to vote for more and more handouts. Why work when your money is taken from you to give to people who do not work?

But take the system to its logical conclusion. If everyone is working for the State and free-enterprise vanishes, eventually the State goes broke (as it’s dying now). Historically, socialist countries are countries at war. They must continually take resources by force to keep their irrational system going. (This is why Russia is expanding its control in Europe to have access to the natural gas pipelines. This is why Russia went into Afghanistan.)

But the answer is not more welfare and more deficit spending, i.e. higher inflation. The answer is less government intervention, less regulation, more accountability and self-responsibility. Socialism is ultimately, at root, the desire for the unearned. It is an unjust system that breeds more injustices.

I just don’t agree with the argument that if we all poisoned already, what’s a little more poison? At some point, you put the cigarette down and you quit. And you go through the withdrawal and you are better off for it.

The fight against this bailout legislation has revealed how corrupt our system is. The people spoke through their representatives against this bill and the House rightly voted it down. Then, the Senate ignored the people’s vote and passed it anyway. Now the Senate is resending virtually the same legislation back to the House on Friday to vote again.

This is not how the system is designed. It is designed to stop on the first “no” vote. Whether or not you care for this bill, this manipulation of the system by the Senate and the President is egregious. They are basically strong-arming the House to do their bidding. Instead, they should have rewritten a more free-market solution to the problem, a solution that does not reward the wrong-doers but requires them to pay their way out, just as you would any individual.

How many more bad laws are going to pass because lobbyists are vying for government handouts and paying off the law makers?

There are alternative solutions to this current crisis such as relaxing regulations over businesses, including Sarbanes-Oxley, reducing government deficit spending and beginning to live within our means, which would be easier if government got out of the way.

Senate Passes Bailout Bill: Et tu, McCain?

Allison Taylor — Thu, 02 Oct 2008 16:49:55 +0000

So much for being a maverick. McCain has wimped out and fallen in line with the good ol’ boys to vote for the Emergency Economic Stabilization Act. He could have used his influence to help produce a better bill based on more free-market solutions, such as government loans to businesses instead of outright bailout and government control over the banking and housing industries.

Michelle Malkin is doing a great job reporting on and opposing this corporate welfare bill. She has the roll call votes here (or you can see them on the U.S. Web site, here) and information on who to contact to fight it.

The same piece of socialist legislation that the House courageously rejected on Monday has been mangled even more and regurgitated through the Senate (passing 74-25). The bill is now over 400 pages (it was 110 when the House voted on it) and now it has the “Dodd Amendment” attached which adds welfare in the form of mental health legislation. Recall, Sen. Dodd is one of the leading corrupt figures who helped create this credit mess through housing reform legislation.

Our only hope for economic freedom in the future (since I pretty much feel like I live in a socialist state now) may be to seek out and support one of the brave House Republicans who spoke out against this legislation and to support his or her presidency for 2012. Ron Paul, incidentally, was one such representative, although I’m not a huge fan of Rep. Paul because I think his foreign policy of isolationism is too dangerous. (I seem to recall that Ralph Nader supporters are also trying to unite these two on a ticket, which seems like a contradiction to me since their economic policies are the exact antithesis of each other.)

But, there are other possibilities for a 2012 candidacy for president which I plan to research further. I will post them here as I find them. Perhaps a grass roots effort is in order. If we can muddle through the next 4 years, and then put in a more principled person in the executive branch, someone who is strong enough to fight for what’s right, we may still have a chance of avoiding the Second Dark Ages. Maybe we could even find someone who would leave religion out of the political discourse.

At this point, I don’t think I can vote for McCain because of his betrayal on this bill. So unless Palin convinces me otherwise tonight, I am seriously considering writing in a candidate for president. I have to research this further. I don’t want to throw away my vote, but I also think McCain is like Obama-lite anyway. We are in for a very rough ride these next 4 years, no matter who is in power.

I am so disgusted with our government right now. The corruption in the Senate is almost beyond comprehension. Et tu, McCain.

In Capitalism We Trust

Allison Taylor — Tue, 30 Sep 2008 01:32:10 +0000

Well, the bailout failed and the politicians are still playing the blame game. Both camps will regroup and try again after the Jewish New Year holiday. And, in the meantime, the Wall Street whiners are very, very nervous.

There were a lot of reasons that Congress could not pass the bill, and I was extremely pleased to see that some of the reasons given were due to an anti-socialist viewpoint.

The NYT reported that Jeb Hensarling, Republican of Texas, voted against the package which he said “would put the nation on ‘the slippery slope to socialism’.” (hat tip: Diana Hsieh)

Here’s a few interesting articles to read on why the failure of this bailout package may not be a bad thing:

“In Times of Crisis, Trust Capitalism,” by Joseph Calhoun.

“What We Can Learn From Chile’s Financial Crisis: Secured Loans Are a Better Way to Help Banks,” by Mary Anastasia O’Grady.

History in the Making: Bailout voted down

Allison Taylor — Mon, 29 Sep 2008 17:50:44 +0000

[UPDATE: The bailout has been voted down — it has a slight chance of being reversed, but right now the “nays” have it. This piece was written before this news.]

It’s like a scene straight out of Atlas Shrugged. The economy is flailing — quite possible beyond help at this point — dragged down by the easy lending mortgage loan practices made possible by the federally chartered Fannie Mae and Freddie Mac (who received low interest rates on loans in exchange for meeting HUD’s affordable housing goals) — and Congress is currently debating a bill that will give the U.S. Treasury rights to borrow $750 billion of taxpayer money to buy up bad mortgage loans held mostly by investment banking firms. This current crisis is the result of decades of cronyism between corrupt politicians and psuedo-capitalists on Wall Street who expected their gambling debts to be paid by the public coffers. And they were right.

This is a comedy of errors. The very same people (most notably House Speaker Barney Frank, Sen. Charles Schumer, Sen. Christopher Dodd) who literally ushered in the era of “federally backed” sub-prime mortgage loans (see the Government Sponsored Entity Act of 1992 and subsequent HUD measures) are the same people now orchestrating the bailout.

I have no confidence that this bailout will even work beyond the short-term (one to five years) — and I would have much more confidence in solutions rooted in free-market principles (lowering the capital gains tax, removing the regulations forcing banks to sell off assets, etc.)

Of course, we don’t have a free market now and arguably have never had a truly free-market system (though historically we were much closer up until the early 1900s). Since the early 1900s, we’ve had ever-increasing deficit spending (to the tune of over $9 trillion today), taxation and more and more regulatory controls on businesses. We’ve even seen the government take over and control certain industries, such as utility companies (and now banking!). We have so many acronyms for government regulatory agencies that it boggles the mind — IRS, FDA, EPA, HUD — well, you can just read the list, here, http://www.usa.gov/Agencies/Federal/All_Agencies/index.shtml.

Yet somehow this current crisis is being blamed on “lack of regulation” or “deregulation.” Right. Perhaps you could argue (as some did) that we needed more restrictions on government action with respect to Fannie and Freddie but not more regulatory controls over the market. And, the latest bill, of course, creates yet more agencies and more acronyms. (If you don’t think government regulates business in America, just try to start a small business.)

Whatever true prosperity we do have is in direct proportion to the degree we have free trade and free market conditions. Unfortunately, you cannot have lasting economic prosperity in a mixed economy. Capitalism cannot survive under the stranglehold of regulation, government controls and ownership, taxation and deficit spending (which the government deals with by printing more money and convincing people to buy more T-bills). Eventually, the system will fail, as it is doing now. And it will fail all over the world, particularly in the areas where we see the highest degree of globalization.

The U.S. could take the lead by eliminating its capital gains tax, freeing up businesses to do what they do best (make money) and by letting the banks who made the mistake of getting in bed with government and relied on the public coffers to back its debts. (What reality were they living in? Don’t they know the federal government doesn’t have any money?) Anyone who takes on risk for private profit should not expect public welfare when they lose, even if it was government mismanagement and regulation that led to the problem in the first place. Two wrongs do not make a right, and the ends do not justify the means now.

If this bailout didn’t pass today, would we experience economic conditions worse than the 1930s? I don’t think anyone knows for sure. And with the bill, we will never know what would have happened or how long it would have taken to get out of this bust sans government expansion.

Incremental growth of socialism (the government ownership of the means of production) is like a cancer on a healthy human being. It may start very small and may exist in seeming harmony with the healthy cells for a long time. But left unchecked, it will suddenly dislodge and move to vital organs where its necrosis begins, feeding on living tissue until the vital organs cease to function. You cannot let the cancer cells co-exist forever. You must cut them out completely, somehow, some way.

What we’re seeing now with this bailout is like giving someone vitamins or homeopathic remedies to try to cure lung cancer. The patient may feel good for a while. He can still get up and walk around. He may even live another few years. But in the end he will succumb to the malignancy within.

An alternative is to use more reality-based medicine — put the patient in the hospital and surgically remove the cancerous lung, then perhaps follow with a huge dose of radiation on the surrounding areas to counteract any metastasis. Only then would the patient have a real chance of getting healthy again and living with a higher quality of life.

But no one wants the pain of surgery, no one wants to suffer through its debilitating effects (even if only for the short-term) or experience the painful recovery that follows. It is much easier to swallow a few billion dollars worth of vitamins and put on a happy face. A is A, though, and buying time by throwing taxpayer money after what may be worthless assets (who knows what condition these houses are in?) is not going to solve the very real problems our economic system faces.

But, dire as it sounds, this country still has cancer. The good news is, we are close to a cancer cure — and there is always hope. Perhaps we can survive, muddling along during an Obama presidency, propped up with a devalued dollar, to realize we need to give the healthy parts of our society a fighting chance.

Ideas Matter: Bailout Would Be Socialist Win

Allison Taylor — Fri, 26 Sep 2008 16:04:45 +0000

More of the Austrian School’s take on the current crisis in this article by Llewellyn Rockwell, Jr., Bush the Socialist Destroyer. Rockwell writes:

And here is his [Bush’s] description of the grave calamity we face:

As uncertainty has grown, many banks have restricted lending, credit markets have frozen, and families and businesses have found it harder to borrow money.

Imagine that! We might have to live within our means for a bit. That would actually be a wonderful thing. Maybe a recession would last a year or 18 months, and then we would be back on solid footing again. He very nearly admits that too much credit is what created this mess. So he proposes more credit so that we can continue to live on too much credit. And then what happens next time? Ever more credit? This path ends in Weim[a]r-level inflation and total destruction.

While the free-market advocates’ prediction of hyperinflation seems like doomsayer talk, so does the socialists’ prediction of the greatest depression the world has ever known.

I don’t think anyone knows what would happen if the government stops bailing banks out, and I suspect it’s somewhere in between devastating deflation and the tropics of torpor with suffocating inflation.

But the question is what direction do we want the country to go toward — more government intervention and less economic freedom or laissez-faire solutions that may be painful but would lead to more prosperity after the dust settles?

This is a philosophical debate, a clash of ideologies between the capitalist advocates vs. the statists calling for more government control over the engines of our economy.

What is the moral action? I am for free markets, and I don’t think there is room for compromise. Yet we have been compromising for decades, which has brought us to this point. I don’t want massive deflation, but I don’t want hyperinflation and economic stagnation either. It seems to me that the academics are calling for what they think is the lesser of the two evils (inflation), but this is delaying the inevitable (deflation). Maybe there is a way to avoid both. Maybe this is a false alternative.

It just doesn’t seem logical to say that if government intervention brought us here (and I think that it did) that more government intervention will be able to get us out of the mess. Do the socialist academics simply win because we are afraid of what might happen if we free up the markets? Isn’t this what the free market advocates have wanted for decades now? If we don’t move toward freer markets now, when will we?

Government Invervention Caused U.S. Economic Mess

Allison Taylor — Wed, 24 Sep 2008 04:25:45 +0000

The U.S. is on the brink of perhaps the greatest depression the world has ever known, and I get the feeling that no one in charge has any real understanding of what’s happening or how we got here. It’s as if the politicians really believe money can just be printed and spent and promised away with IOUs made on the taxpayers’ backs indefinitely and with impunity.

But now the jig is up. From the Government Sponsored Entity Act of 1992 that pushed Fannie and Freddie into the business of subprime mortgages to the yo-yo’s on Wall Street who made money off other people’s money, they all gambled and lost.

And if it were just the crooked politicians and pseudo-capitalists that would suffer, we could all say we’re mad as hell and not going to take it anymore — (”it” being runaway government/deficit spending and a currency backed by nothing but nervous smiles).

But the run on the banks they’ve caused now means that the trillions of combined dollars (the ones in your bank account, plus my bank account, plus the accounts of everyone else who has ever worked and saved all their lives) is quite possibly about to disappear — literally — as if it never existed beyond the pixels you see on your online bank account.

One of my favorite economists, George Resiman (of Capitalism.net), writing in his essay Our Financial House of Cards (March 2008) observes:

The potential deflation of checking deposits, if nothing were done to stop it, is the difference between their present amount of $2.5 trillion and the $40 billion of reserves that stand behind them. The potential deflation of the money supply as a whole, if nothing were done to stop it, is the difference between $3.3 trillion and $840 billion, i.e., approximately 75 percent.

This present state we are in is both unconscionable and horrifying at the same time. Of course, Reisman is an objectivist and Austrian economist and as such is a staunch advocate (like Greenspan was in the 1960s) of a return to the gold standard (or, as he puts it: the use of gold as a “major asset” in our banking system).

People scoff at the idea, saying it could never be done (even though it pretty much was done until 1971). Most people think the gold standard advocates are daft. I think it could be done. It just won’t be done. It won’t be done for the reasons Greenspan detailed in his 1966 essay Gold and Economic Freedom: Having money backed by gold puts limits on government’s spending. The last thing a power-hungry politician in Washington wants is limits on spending.

No, the gold standard is only good for people who like to know that their hard-earned money won’t just go *poof* in the night, that it will actually be in the bank when you want to take it out and when you do take it out, it will have real value.

For what it’s worth, I salute Dr. Reisman for his courage in saying what needs to be said, even if no one is listening. In the article, which I highly recommend, he explains how he thinks we could return to a gold standard and get out of this crisis.

Another good article worth reading is How the Democrats Created the Financial Crisis, although I think this mess is pretty bi-partisan. (You could arguably blame FDR, Nixon, Bush Sr. and Sens. Dodd and Schumer for their parts in getting us to where we are today. ) But the blame does lie with government intervention into the economy.

(Hat tip: Powerlineblog.com)

Sarah Palin Delivers VP Acceptance Speech With Aplomb

Allison Taylor — Thu, 04 Sep 2008 05:56:58 +0000

Gov. Sarah Palin delivered a historic speech tonight addressing the GOP as Sen. John McCain’s VP nominee. Anyone who watched her tonight wondering if she was qualified for the job had to give her kudos for her poised delivery, her dead-on attacks on Obama, her tenacity, and her political savvy. She pitched a shut out. She did exactly what she had to do — define herself, show support for McCain, and above all attack Obama, like a good VP would.

Her speech has been transcribed at the Chicago Sun Times, but here’s one of her best throws to Obama:

I guess a small-town mayor is sort of like a ‘community organizer,’ except that you have actual responsibilities.

Or, this one:

But when the cloud of rhetoric has passed … when the roar of the crowd fades away … when the stadium lights go out, and those Styrofoam Greek columns are hauled back to some studio lot—what exactly is our opponent’s plan? What does he actually seek to accomplish, after he’s done turning back the waters and healing the planet? The answer is to make government bigger … take more of your money … give you more orders from Washington … and to reduce the strength of America in a dangerous world.

Hat tip Powerlineblog trio for blogging live during the speech. They have not been particularly supportive of Palin, but I think they were pleasantly surprised tonight. I know I was. This presidential race just got interesting.

McCain/Palin Ticket: What if everything goes right?

Allison Taylor — Tue, 02 Sep 2008 03:42:30 +0000

By picking Alaska’s governor, Sarah Palin, as his running mate, McCain has regained maverick status and proved he is serious about being a fiscal conservative. He has chosen, as the Wall Street Journal editors call it, the “Reform Ticket.” Yes, the pick was certainly in part a political ploy to draw attention to a lackluster campaign and, yes, it is risky; but I think Palin, a maverick in her own right, was also picked for her achievements as a reformer, her libertarian leanings, and her irresistible American spirit.

Running on a reform ticket in 2006 is what got her elected as governor in Alaska. In a three-way race, Palin tromped the incumbent and won 51% of the vote. From what I can tell on the Alaskan political blogs, she does what she says she will do — a rare quality in any politician and one that could win over a lot of Independents to the McCain/Palin ticket.

This is a woman who when asked what she would do with the Governor’s jet if elected said: “I will figure out the best way to get rid of it.” Then, after she was elected, she sold the jet for $2.1 million on eBay. She is refreshingly straightforward and seems determined to govern for the people. One person from her hometown described her as “the real deal.” She is serious about reducing government waste, cutting spending and fighting corruption. She is religious but appears to respect the wall separating church and state.

Even more than McCain, and certainly more than Obama or Biden, Palin is a rugged individualist (a moose hunter no less) who believes we need less government intervention into the lives of citizens. Palin seems to offer a common sense philosophy of the kind that helped Reagan sweep the election in 1980.

At least one political scientist, William Ruger, was rooting for her before McCain made his announcement. Her constituents believe in her, too. She holds the record of the highest approval rating of any governor in any state — 95 percent at one point.

No, she isn’t an Ivy Leaguer and she doesn’t (gasp!) have a law degree. She also has limited to no foreign policy experience, (although I did read she welcomed a visit from the Chinese Minister of Health, Qiang Gao, who came to observe and learn about rural health care models in Alaska). Needless to say, she has to be a quick study if she hasn’t studied history.

But American foreign policy has become so convoluted and unprincipled that perhaps an outsider with common sense and integrity is a good thing. Maybe we need someone who will approach foreign policy with principles, someone who will not get bogged down with the disparate details that leave most politicians in a state of cowardly paralysis — think NATO. Maybe we need someone willing to stand up to corruption wherever the trail leads. And maybe, just maybe, you don’t need a Harvard law degree to do the right thing.

If things go right for McCain and Palin, we may see the most free-market, pro-development, individualist administration we’ve seen in decades.