Breathtaking dishonesty on financial crisis

It’s tough to know where to start here, so let’s just dive right in.

Take a look at Senate Majority Leader Harry Reid’s (D-NV) statement made a week ago:

We are now seeing eight years of reckless Bush economic policies come crashing down with unimaginable speed and severity.
 
“This crisis puts our economy and the well-being of the American people in serious jeopardy.  President Bush said on Friday that we should assign blame later – which is, of course, exactly what you would expect the culprit of the crisis to say.  [This line reveals Reid's mindset.  There is no reason in the Democrat worldview for trying to solve a problem until after fingers have been pointed.]
 
“But the American people have a right to know what brought us to this grave economic danger.  The answer is a president and Republican Congress determined to repeal all reasonable oversight and accountability, ignore what they couldn’t repeal and allow corporate greed and recklessness to saturate our economy.

Got that?  Okay, now read this New York Times article from five years ago:

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

Here’s Senator Chris Dodd (D-Ct), the odious Chairman of the Senate Banking Committee:

It is regrettable that 40 days before an election, it has taken the worst economic crisis in our nation since the Great Depression to finally get the attention of the President.  Until this point, the cries for help from millions of Americans being forced from their homes and struggling to make ends meet fell on the President’s deaf ears.  Now, we face challenges that were entirely preventable and avoidable.

Well, they might have been preventable, if the chairman of the banking committee hadn’t been in Countrywide Financial’s pocket.  As for the “President’s deaf ears,” go read that New York Times article again.

Here’s Dodd again:

The landscape of our nation’s economy has been radically re-shaped by the United States government over the course of just a few days and in a totally ad hoc manner.  Companies that form the foundation of our financial markets are shrinking and disappearing practically overnight.  Their insatiable appetite for risk has permeated all sectors of the financial services industry, and has spread beyond our shores.  It has felled giants like Bear Stearns and Lehman Brothers; brought others to their knees like Merrill Lynch, A.I.G., Fannie Mae, and Freddie Mac; prompted the largest thrift failure in our history – IndyMac Bank; and eliminated the final two independent investment banks – Morgan Stanley and Goldman Sachs.

Huh.  That’s quite a litany.  But he forgot to mention Countrywide Financial.  Must have slipped his mind.

If you clicked on that New York Times link, you might have spotted this little nugget at the bottom:

These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis.  The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.

Who said that?  Congressman Barney Frank (D-MA), Chairman of the Financial Services Committee.

And see what his priorities were (and are)?  Affordable housing.  “Affordable housing” can mean many things, but when you’re the Chairman of the Financial Services Committee it means “subprime mortgages.” 

AFFORDABLE HOUSING–>SUBPRIME MORTGAGES–>RECORD FORECLOSURES–>FINANCIAL CRISIS–>TAXPAYER BAILOUT.

Given this inevitable chain of circumstances, why not just confiscate our money to directly purchase a home for every poor credit risk?  It might be cheaper.  Ah, but then you wouldn’t be able to decry the high salaries of CEO’s, would you?

And what does the Democrats’ plan include?  Money for ACORN, of course.  ACORN does what, again?  Well, for one thing, ACORN registers Democrats to vote.  Fraudulently.  But that’s another topic.  More to the point, ACORN lobbies for affordable housing.   And the beat goes on.

See, on this issue, Democrats can’t lose.  If mortgage companies lend based upon ability to repay, they are threatened with regulations regarding “discriminatory lending practices.”  If they lend without considering ability to repay, they are threatened with regulations regarding “predatory lending practices.”

If our public schools taught economics with half the zeal they reserve for condom use, the voters might not be able to be fooled like this.  Which, of course, is why Democrats think the public school system is just peachy.

You know who was most prescient on the housing bubble?  Ron Paul.  If the man hadn’t associated with crazy racists and 9/11 “truthers,” I might have voted for him in the primaries.  He gets economics.  Again, this is from five years ago:

The connection between the GSEs [Fannie Mae and Freddie Mac] and the government helps isolate the GSE management from market discipline. This isolation from market discipline is the root cause of the recent reports of mismanagement occurring at Fannie and Freddie. After all, if Fannie and Freddie were not underwritten by the federal government, investors would demand Fannie and Freddie provide assurance that they follow accepted management and accounting practices.

Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

Despite the long-term damage to the economy inflicted by the government’s interference in the housing market, the government’s policy of diverting capital to other uses creates a short-term boom in housing.  Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.

Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary, but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts.

Republicans say no one’s to blame.  Democrats say Republicans are to blame.  They’re all engaged in breathtaking dishonesty, but at least the Republicans are displaying charity.

Quick hits

Fed Plans New Rules to Protect Future Homebuyers

[The mortgage rules] would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower’s ability to repay a home loan from sources other than the home’s value.

This is a rule that shouldn’t need to exist.  But if lenders stop lending money to black and hispanic prospective homebuyers based on their ability to repay, expect Congressional hearings.

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Frozen Embryos Better Than Fresh, Study Shows

Infants born from embryos which were frozen and then thawed before being implanted into a woman had a higher birth weight and were less likely to suffer abnormalities.

Perhaps all embryos should be frozen?  Oh, wait…

“We think the reason for the differences is probably positive selection of the embryos for frozen embryo replacement, [said Dr. Anja Pinborg.] 

 ”Only the very top quality embryos survive the freezing and thawing process.”

That which does not kill you makes you stronger.  Of course, the embryos that had been frozen still had malformation rates of 7.1 percent.  They’re obviously not killing enough of them.

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Higher CO2 Levels May Be Good for Plants: German Scientists

How many German scientists does it take to prove the obvious?

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Stealing Recyclables Is Good Business

With prices for aluminum, cardboard and newsprint going up and an economic slowdown putting added pressure on people’s pocketbooks, curbside refuse has become a hot commodity.

A truck piled high with mixed recyclables can fetch upward of $1,000; newspapers alone can grab about $600.

Why is my city–Stamford, Connecticut–spending $1.5 million next year on recycling when ”thieves” will do it for free?

The idiocy of a command economy

Zimbabwe bans bulk buying amid frenzy

The latest (but not last, I’m sure) in a long line of fiascoes caused by ignoring basic economics:

Zimbabwe authorities ordered businesses on Thursday to stop selling basic goods in bulk to avert shortages after an official price freeze triggered a frenzied buying spree that has emptied most shop shelves.

Over the past week shoppers have been buying sugar, cooking oil, flour, salt and maize-meal in bulk, leaving shelves empty while manufacturers have stopped producing. They say the price freeze is not viable given the price of other goods and raw materials continue to skyrocket.

So to counteract runaway inflation, Mugabe institutes price controls.  As a direct result, food becomes impossible to find, because people understandably want to buy food in bulk at below-market prices.  To counteract that Mugabe bans buying in bulk.

Now, imagine that Zimbabwe is run by a responsible government.  Minimal corruption, the rule of law, the whole shebang.  Now–for whatever reason–prices skyrocket for basic staples.  What happens?  High prices for goods draw more goods to Zimbabwe.  Prices then fall because of increased supply.  No one needs to order anyone to do anything, because it’s in everyone’s self-interest to get food where it’s needed.

It’s the invisible hand at work.  And guess who else is ignoring the invisible hand of market economies?  The US federal government.

Senate passes energy bill, boosting mileage standards

…and outlawing “price-gouging:”

[The bill would make it] unlawful to charge an “unconscionably excessive” price for oil products including gasoline and give the federal government new authority to investigate oil industry market manipulation.

Who decides what is “unconscionably excessive?”  Central authority.  Not the consumer, who could decide to conserve more energy and pay less that way.  The government wants to decide how much you’re going to pay for a gallon of gas.  And the lower the price is, the more likely the next step will be long lines and rationing.

And don’t try the objection that high gas prices mean that the rich can afford more gas than the rest of us.  That’s life.  The rich can afford more of everything than the rest of us.  They can afford to hire someone to wait in line to gas up the car, too.

And by the way, while our representatives in Congress fume about oil industry profits, check out this chart from the Department of Energy website:

I couldn’t find more recent figures on the site, but these are from one year ago.  They show that the oil companies’ profits plus refinery costs equal the taxes our state and federal governments exact.  Who’s doing the gouging here?

The problem with not trusting the invisible hand is that it’s got to be replaced with a visible one.  The hand of government, backed up by the threat of fines or jail for those who don’t obey.

Now, imagine the United States is run by a responsible government…

Good analysis of “Sicko” from an unlikely source

Normally, I give you the link to the site I’m quoting right up front, so I don’t forget to do it.  This time I’m going to show you where I found this article at the end, because I suspect it will be a surprise.

Michael Moore’s “Sicko” has been out for a couple of weeks now, and it’s made $7 million.  Not exactly a blockbuster.  The critics love it, however, and it received a 91% rating on Rotten Tomatoes.  Of course, reading the blurbs you get the sense that these critics didn’t so much love the film as agree with it.  So, if you already agree with Michael Moore, you’ll love the film.  Ipso fatso, as it were.

I did stumble across an in-depth look at the actual substance of Moore’s film, and I’d like to share some excerpts with you:

One giant health-maintenance organization, Kaiser Permanente, is so persuasively lambasted in the movie that, on the basis of what we’re told, we want to burst into the company’s executive suites and make a mass citizen’s arrest. This is the sort of thing good muckrakers are supposed to do.

Unfortunately, Moore is also a con man of a very brazen sort, and never more so than in this film. His cherry-picked facts, manipulative interviews (with lingering close-ups of distraught people breaking down in tears) and blithe assertions (how does he know 18,000 people will die this year because they have no health insurance?) are so stacked that you can feel his whole argument sliding sideways as the picture unspools.

As a proud socialist, the director appears to feel that there are few problems in life that can’t be solved by government regulation (that would be the same government that’s already given us the U.S. Postal Service and the Department of Motor Vehicles).

What’s the problem with government health systems? Moore’s movie doesn’t ask that question, although it does unintentionally provide an answer. When governments attempt to regulate the balance between a limited supply of health care and an unlimited demand for it they’re inevitably forced to ration treatment.

Moore’s most ardent enthusiasm is reserved for the French health care system, which he portrays as the crowning glory of a Gallic lifestyle far superior to our own. The French! They work only 35 hours a week, by law. They get at least five weeks’ vacation every year. Their health care is free, and they can take an unlimited number of sick days. It is here that Moore shoots himself in the foot. He introduces us to a young man who’s reached the end of three months of paid sick leave and is asked by his doctor if he’s finally ready to return to work. No, not yet, he says. So the doctor gives him another three months of paid leave — and the young man immediately decamps for the South of France, where we see him lounging on the sunny Riviera, chatting up babes and generally enjoying what would be for most people a very expensive vacation. Moore apparently expects us to witness this dumbfounding spectacle and ask why we can’t have such a great health care system, too. I think a more common response would be, how can any country afford such economic insanity?

Fidel Castro’s island dictatorship, now in its 40th year of being listed as a human-rights violator by Amnesty International, is here depicted as a balmy paradise not unlike the Iraq of Saddam Hussein that Moore showed us in his earlier film, “Fahrenheit 9/11.” He and his charges make their way — their pre-arranged way, if it need be said — to a state-of-the-art hospital where they receive a picturesquely warm welcome. In a voiceover, Moore, shown beaming at his little band of visitors, says he told the Cuban doctors to “give them the same care they’d give Cuban citizens.” Then he adds, dramatically: “And they did.”

If Moore really believes this, he may be a greater fool than even his most feverish detractors claim him to be.

Now, here’s the weird thing.  This rational, intelligent, fact-based, economically correct essay wasn’t published in the Wall Street Journal, the Washington Times or even the New York Post.

It’s on MTV’s site.  And that just made my day.

Paying taxes is a pleasurable duty?

Paying taxes is a pleasurable duty – being-human – 14 June 2007 – New Scientist

Paying taxes feels good, say researchers.

The surprising discovery, based on brain scans, can also predict which people are most likely to donate cash to charity.

Bill Harbaugh at the University of Oregon in Eugene, US, and colleagues gave 19 female university students $100, and told them some of this money would have to go towards taxes.

(Apparently, it’s only women who have been shown to like paying taxes.  Let’s double their taxes and eliminate taxes on men.  That way, everybody’s happy.)

Each volunteer then read a series of 60 separate taxation scenarios involving $0 to $45 in taxes, knowing that one of the scenarios would be selected at random and the related amount be subtracted from their $100.

As the participants viewed the tax scenarios, their brains were scanned using functional magnetic resonance imaging (fMRI). Surprisingly, whenever the students read the taxation scenarios, scientists saw a spike in activity within two of the brain’s reward centres – the nucleus accumbens and caudate nucleus.

This is either sloppy reporting or a sloppy experiment.  The scenarios range from $0 to $45, and they all make women happy.  Are they happier with $0?  Or $45?  It doesn’t say.

Harbaugh says that people probably like paying taxes more than they admit. He believes the results of his new study help explain the widespread compliance with tax laws. “We like to complain about it, but based on what we do, we are not as opposed to it as we like to say,” Harbaugh says.

Okay, let’s test this sucker out.  Let’s eliminate withholding from paychecks.  Send us a bill every year for the taxes we owe, and let’s see how happy and compliant Americans can really be!

Chavez orders supporters to give up extra possessions

Chavez orders supporters to give up extra possessions – CNN.com

Venezuelan President Hugo Chavez told his supporters to give away possessions they do not need such as an extra refrigerator because he only wants true socialists to be members of a new single party he is forming.

“Whoever has a fridge they do not need, put it out in the village square. Whoever has a truck, a fan or a cooker they do not need, give something away. Let’s not be selfish. I demand you do it,” Chavez said at a milk producing cooperative, in remarks released on Monday.

So you won’t have to rack your brain trying to remember why this sounds so familiar, I’ll tell you:

We Are All In It Together, Clinton Says

That’s Hillary Clinton.  I talked about it here.

Harry Potter magic spells losses for booksellers

Harry Potter magic spells losses for booksellers | U.S. | Reuters

Harry Potter has no spell for bookstore profits.

Millions of people will descend on stores for a copy of “Harry Potter and the Deathly Hallows” in July, but deep discounts mean many will struggle to turn a profit from the jamboree.

“Everywhere you go there is huge, ridiculous discounting by the chains,” said Graham Marks, children’s editor at the British-based trade magazine Publishing News.

“They are literally not going to make one penny out of the book. It is stupid — just throwing money away … The world has gone mad.”

The world hasn’t gone mad, but when the release of a major title means trouble for booksellers, there’s clearly something wrong with the business model.

Brick-and-mortar bookstores cannot compete with Amazon on price.  They also can’t compete with Costco, Wal-mart, or your local supermarket on bestseller prices.  Customers feel cheated if they don’t get the same markdown on bestsellers at their local bookstore as they do in a supermarket.  So, the very books that should be paying the rent are being sold at a deep discount.  The supermarket pays the rent by selling milk–the few cents they make on every book is just gravy.

You’d think booksellers could make it up by providing good customer service–but Amazon beats them there, too.  No clerk can have read every book in the store, but just about every book Amazon carries has been reviewed by an Amazon customer.  And ask yourself this: has a bookstore employee ever done a great job finding you the perfect book, which you then proceeded to buy on Amazon to get a better price?

I see a day coming when there will be two types of bookstore: self-service megastores and small “boutique” stores in areas where customers are not price-conscious.  Or you can always go to Amazon.

What a waste of time.

I read a paper by Bryan Caplan called “The Myth of the Rational Voter.” (It’s a .pdf file)  (The introduction is here in html.)  Reading the paper wasn’t the waste of time, but it did lead to it.  Here’s how.

The paper begins:

In theory, democracy is a bulwark against socially harmful policies. In practice, however, democracies frequently adopt and maintain policies that are damaging. How can this paradox be explained?

The influence of special interests and voter ignorance are two leading explanations. I offer an alternative story of how and why democracy fails. The central idea is that voters are worse than ignorant; they are, in a word, irrational—and they vote accordingly. Despite their lack of knowledge, voters are not humble agnostics; instead, they confidently embrace a long list of misconceptions.

This got my back up, and I started marshalling the resources to refute the author before I’d read the entire thing.  That was the waste of time.  I flipped through the wonderful book The Wisdom of Crowds, to re-familiarize myself with its argument.  The book’s author, James Surowiecki,  does an excellent job explaining how a heterogeneous group of people of sufficient size can make smarter decisions than the world’s foremost experts.

But then I read Caplan’s article, and I understood what he was saying.

So, am I nuts?

Really, though, am I trying too hard to make sense of President Bush’s immigration fixation?  He could simply feel that it’s the correct moral choice.  (Many, if not most, Catholic bishops would agree with him.)  If that’s the case, then Bush wouldn’t care if it’s the smart thing to do.  It’s not like he hasn’t been accused of a “consequences be damned” attitude before.  (As a matter of fact, that’s something I admire about him.  As a person, if not always as a president.)

Of course, if it is a moral calculation, why is it only Latinos who should benefit?  Shouldn’t we just throw open our borders to every person in the world?

On the other hand, if this is an effort to prop up Social Security, would it work–at least in the short term?  I’ve skimmed the Rector study (a cost/benefit analysis of illegal immigration on taxpayers) over at the Heritage Foundation, and this is the only analysis I found of the impact of immigrants on Social Security:

Do Low-Skill Immigrants Contribute to the Solvency of Social Security?

It is often argued that low-skill immigrants have a positive impact on U.S. taxpayers because they pay taxes into the Social Security trust fund. It is true that low-skill immigrant households pay, on average, around $2,900 per year in Social Security (FICA) taxes; however, the average Social Security and Medicare benefits they receive actually exceed the FICA taxes paid. [ME: That's true of most people, not just immigrants.  That's the problem with Social Security.]  Of course, low-skill immigrant households receive many other government benefits as well, receiving ten dollars in total government benefits for each dollar they pay in Social Security taxes.  [ME: That's not really fair--if you're going to talk about total government benefits, contrast them to total taxes paid, not just FICA.  That's what he does in the rest of the paper, of course, but here he's specifically talking about Social Security.]

Even if low-skill immigrants were net contributors to the Social Security trust fund, it would be a serious mistake to look at Social Security in isolation from other government taxes and expenditures. A household that pays a small amount in Social Security taxes but consumes many times that amount in benefits funded by other tax sources does not contribute to the fiscal health of government. In the final analysis, taxpayers, including many Social Security recipients, will face higher taxes in order to subsidize low-skill immigrant households.  [ME: other government benefits are more easily cut than Social Security, though.  Welfare reform WAS accomplished, and many other entitlement programs could be altered in the same way, if our politicians could summon the will.]

Earlier in the paper, Rector said: “The present analysis adjusts the estimated income and FICA taxes paid by low-skill immigrant households downward slightly to adjust for the “off the books” labor of low-skill illegal immigrants.”  Under the Bush plan the immigrants wouldn’t be working off the books anymore.  At least in theory.  Would this make enough difference to Social Security’s solvency?

Even if it would, I still worry about the cultural consequences.  The same thing’s been tried in Europe, and we’ve seen the results…

Hide your wallets…

…stash your savings in an offshore account, and bury your gold.  Hillary Clinton Hillary Rodham Clinton Hillary!(tm) wants your money!

We Are All in It Together, Clinton Says: Financial News – Yahoo! Finance

Presidential hopeful Hillary Rodham Clinton outlined a broad economic vision Tuesday, saying it’s time to replace an “on your own” society with one based on shared responsibility and prosperity.

That means pairing growth with fairness, she said, to ensure that the middle-class succeeds in the global economy, not just corporate CEOs.

“Fairness doesn’t just happen. It requires the right government policies.”

It’s almost as if she heard about the Pope’s recent remarks in South America, but forgot to check Falling Awake for the substance behind the sound bite.

I’ll lay it out for her again.  Fairness can never be enforced by the government.  Fairness requires that each of us deal with people as individuals, whereas the federal government’s policies are tailored towards groups.

The only “fairness” that government is good at is of the lawn-mower variety, where everyone is chopped down to the same height.

Thank you, no.  But I appreciate the offer!