Tuesday, September 30, 2008

Quote of the Day

There is no need for an emergency bailout plan. The problem, created by government trying to make a big decision for everyone, cannot be solved by government making another bad big decision for everyone -- particularly since it's the same bad decision. Let capitalism work, and smart people will make the smartest decisions they can, with their own money on the line.

From the Financial Post:(w/t MM)

But it would be unwise to read too much into the Dow plunge, or to link it exclusively to the political circus in Washington. Stocks appeared to be heading lower no matter how Congress voted. Indeed, from the moment congressional leaders announced Sunday they had a deal, filled with anti-market schemes and regulation, stock prices began falling in Asia and Europe. Early yesterday, when it was expected the bailout would be approved, the Dow was down 500 points.

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Monday, September 29, 2008

Bailout Plan: More Bad Policy

So they've decided to buy out the bad paper from Wall Street. So not only is the government meddling with the economy -- lest its foot be dashed against a stone -- but it is telling Wall Street that in the future there is no chance of any serious failure.

Let the Bubbles continue.

Because fear of a bubble bursting is the only thing that keeps the market's puppy-like exuberance at bay.

Additionally, they've loaded this thing up with crap, continuing the same pressure to loan money to people who can't afford it in the name of political correctness.

And none of the politicians will accept the responsibility, not even for Washington generally. They're happy to point at each other, but no one stands up and admits to the unintended consequences of his acts of good intentions.

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Friday, September 26, 2008

When The IRS Is Your Landlord

Imagine a world in the not-too-distant future when the U.S. Government has bought up all of this "bad paper", the Mortgage Backed Securities that no one in the private sector is currently willing to buy.

How long will it take before people start defaulting on the loans which are the value of those securities? They already are, to some degree, which is the straw breaking the camel's back. And what will the government response be?

First, we will have a class of people enter the public eye, the "ARM deadbeats". These are people who took out adjustable rate mortgages on overpriced property, and then couldn't afford the payment when to no one's surprise, rates adjusted upwards (as they always do with Adjustable Rate Mortgage, which you only choose because the rate is lower than a fixed rate mortgage would have).

So one of three things will happen. This group of people will either be ignored, subsidized, or demonized by the demagogues in Washington and the media.

Probably there will be a push by liberals for the government to convert their ARMs to fixed rate mortgages, the kind sane people get. But of course the liberals will want to subsidize the rate.

Some will try to demonize the ARM deadbeats as being fatcats who ought to bear the brunt of the mortgage crisis fallout.

As the defaults continue the government will quickly pass rules saying that no one in default, or perhaps just late, on their government-held mortgage can get a tax refund. Next will come the wage garnishments and criminal penalties for failing to do one's patriotic duty to pay the debt owed to the Fatherland. Okay, so maybe that's a bit over the top.

Perhaps worse, these ARMed fools may not be noticed at all, with all of the focus on executive pay on Wall Street. The vast majority of people will not receive the lesson they should: if you can't afford the fixed rate, you can't afford the ARM, either. Buy less house, or rent. People don't lose their life savings paying rent for a while.

We already have bankruptcy laws, which are supposed to provide an orderly transition for a company in a liquidity crisis. Among other steps, we give bankruptcy judges the power to shield the core of the company from the collections efforts of its creditors while a plan is mapped out either to a return to normal operations or to dissolution.

Why won't that work with the MBS crisis? Sure, you may have a whole industry in bankruptcy, but that's what happens when a whole industry makes a stupid move.

There are two other effects of the MBS bailout, whether it's a straight bailout or some loan-making scheme, which someone needs to look at.

First, we can be sure that by bailing out the financial industry, the bad loans will continue. The $700B bailout plan in particular would have as its major outcome the continuance of bad lending practices. Like supplying the addict to keep away the symptoms of withdrawal, subsidizing failure is bad policy.

Second, any governmental purchase of private paper will suck up business from the private sector. It will have the effect of slowing down the economy.

Well, as I said the other day, maybe our dysfunctional two-party system will cause us to back into doing the right thing, which is nothing.

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Thursday, September 25, 2008

Dog Whistle Racism: Silent But Deadly

In response to my post Dog Whistle Racism, I got a comment from a group wanting to stop something called "symbolic racism". Apparently, this is anything which can be interpreted as racist if the interpreter tries hard enough.

www.StopDogWhistleRacism.com is a non-partisan research project of the Center for Social Inclusion that examines the way that race figures implicitly in many political discussions. We're spreading the word about the site, what it includes, and how it can be used. StopDog will include a toolkit to help people use the site, spot the attacks, and do something about them.

The aim of this site is to document the full scope of symbolic racism in our political discourse by bringing collecting and preserving news and commentary on Dog Whistle Racism, elections, and policy.

Having looked at the site, I conclude that they're dedicated to finding any hint of racism so as to get Barack Obama elected. Non-partisan my eye.

The dog whistle, as a metaphor for detecting things others can't, ought to come with an irony detector. StopDogWhistleRacism apparently broke their irony detector somewhow. Symbolic racism? We've got enough overt racism in the presidential campaign this year, all of it coming from Barack Obama and his fellow Democrats, that we don't need to look at such subtleties.

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What About the Exit Strategy?

If Congress and the President put together some new government unit to buy up some number of Mortgage Backed Securities, when will that unit get out of the MBS business? Or will they continue buying up bad paper, in perpetuity, becoming the modern equivalent of the Tennessee Valley Authority?

I don't like this bailout plan at all. I think a bonfire is exactly what is needed to clean the dead wood out of the financial market forest. I won't shed a tear for people who go down in flames.

Do not buy the argument that these MBS will be a good investment for the government. The bad paper in question is a collection of collections of loans made on property that was never worth what people thought it was worth, to people who only had equity if the value of the overly inflated property got even more inflated that it already was. Both the people who made the loans and the people who got them now recognize their mistake. Now the government is going to make the same mistake they made, with full benefit of hindsight.

Both lenders and borrowers have been trying to get out of these loans. This deal gets the loan makers out of their end of the bargain. What about the loan takers?

They'll still be stuck in houses they can't afford. Pardon me if I don't cry for them, either.

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Wednesday, September 24, 2008

No Bailouts. None!

We've been presented with a choice: either we allow the Federal Government to borrow $700,000,000,000.00 to buy some bad investments from people who should have known better, or our economy will fail.

I say: it fails either way.

Either it fails in the obvious way, with businesses closing and lots of pain, or our system is shown to be a failed design, unable to carry on without socialist action.

But it was socialism which got us into the mess we're in, not capitalism.

Eric at Classical Values quotes Ace and delivers his own analysis:

The problem is the relentless push for socialism (a word few will use), which has done enormous damage to the economy by the simple misuse of a two word phrase:

"Disparate impact."

This is the legal doctrine behind much of the abandonment of standards in the name of "fair lending," but it is not limited to banking. It has come to permeate almost every aspect of business culture ....
It's gone too far already. This fear we have of racism and being called racist is driving our economy into the ground, and may even cause us to elect a man purely on the color of his skin, when the content of his character is, to the extent we can see it, odious beyond measure.

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Tuesday, September 23, 2008

Voting For Economic Self-Interest

Benjamin Franklin said"When the people find they can vote themselves money,
that will herald the end of the republic."

Commentators are astonished that middle-class conservatives seem to vote against their economic self-interest by voting for Republicans. Let's break it down.

First, we believe that, as the cliche goes, a rising tide lifts all boats. The economy is not, as Marxists believe, a zero-sum game, in which some get rich only when others get poor. More often, either everyone prospers or no one does.

Suppose two people acquire wealth at different rates, one becoming only a little better off while another becomes filthy rich. The social justice crowd would have us believe that the people who are only a little better off are actually worse off, because their envy blinds them to reality. The gap has widened, which they take as conclusive evidence of injustice.

If you have no car, and someone sells you his clunker at a bargain price, you are happy. Then, when the former owner of your clunker drives up in a Certified Pre-owned Lexus, you're envious: you have a clunker, and he has a Certified Pre-owned Lexus. When is your car going to break down? Yet before you had to walk to work in the snow and rain, and now you can drive. You're not driving a Certified Pre-Owned Lexus, but you're not driving Certified Pre-Owned Nikes, either. You're better off, not worse off, and the circumstances of that other fellow are irrelevant except to your own envy.

And thus is it in general.

But back to voting: a person's vote indicates his mindset: is he voting for what's best for him, or is she voting for what's best for her country? To the extent that a single vote matters, a person ought to cast it in favor of something larger than his own petty interests, if that is defined as what the government is going to give him.

We have public schools. They should be teaching that Franklin quote, and from it the principle it conveys, which is as old as democracy. Perhaps then the people would know that their vote is an important choice between the health of the Republic the satisfaction of their own envy.

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Monday, September 22, 2008

Islamabad Marriott Owner: "I am not scared."

When terrorists bombed the Marriott Hotel in Islamabad, Pakistan, they probably thought they were striking a blow for Islam or some such crap. What they actually did was to alienate their customer base.

The idiot terrorists are going to turn the rest of Pakistan against their cause. What little sympathy they had will evaporate.

Pakistan is angry.

I am not scared. I have seen death very closely, this doesn't bother me. If I had been here I would have run after the bombers and caught them.
-- Sadruddin Hashwani, owner of bombed Marriott in Islamabad, Pakistan

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Sunday, September 21, 2008

A Dark Fortnight for Moneychangers

To save the financial system, the government took it over.

Ironically, the financial crisis was caused by the government. Banks were forced (by liberal banking regulations) to sell mortgages to people who could not pay their bills. Oddly enough, many of those loans resulted in foreclosure.

The argument for forcing the banks to provide the loans is simple: get more people in houses, since homeowners are more stable economically. And it's politically popular to encourage home ownership, a symbol of success in America.

The first trouble with that is the usual liberal sloppy logic: just because owners of homes are more responsible and successful economically doesn't mean that making someone a homeowner will make them more responsible or successful. The part that makes a person responsible is having skin in the game: if you work hard to get something, you're more likely to work hard to keep it. Working hard means, among other things, living within your means. People who save for a down payment have shown they have what it takes to continue that lifestyle.

The second, and equally big trouble with forcing banks to make unsafe loans is that it artificially increases housing values, both for houses and for apartments. It's simple economics: more buyers means higher prices. In seeking to make loans easily available to marginal buyers, Congressional liberals ensured that everyone would be paying more for housing.

Loan availability should be based on the ability to repay, not simply on possession of a heartbeat.

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Thursday, September 11, 2008

It Can't Happen Here

The seven years with no successful terrorist attacks on U.S. soil are giving us that old feeling that we're safe from attack.

We're not.

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Monday, September 08, 2008

McCain Lead Mystifies HuffPo Blogger

Writing at the Huffington Post, Adam McCay is perplexed at why the addition of Sarah Palin has given John McCain such a huge polling bump.

I was going to go through all of the points he makes and deal with them individually, but I decided to do a shorter me: if your logic is valid and leads to a false conclusion, then at least one of your premises is incorrect.

The details are left as an exercise for the reader.

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