Big Old Roundup

Items of note from the last couple weeks:

• 5 Myths About an Election of Mythic Proportions: 1. The Republican Party suffered a death blow; 2. A wave of black voters and young people was the key to Obama's victory; 3. Now that they control the White House and Congress, Democrats will usher in a new progressive era; 4. A Republican candidate could have won the presidency this year; 5. McCain made a huge mistake in picking Sarah Palin


• Ex-Lobbyists Have Key Obama Roles. The political hypocrisy continues. Is this the change people were hoping for?


• So far the Big Three bailout has been a no-go, which is a good thing. Some thoughts from Cato. And good arguments against bailing out the Big Three automakers: Here, and here (in the later, David Brooks (temporarily!) remembers he's a conservative).


• Kathleen Parker still hasn't remembered that she's a conservative.
 

• Russel Roberts, brilliant as always, argues the "credit crunch" is due to a lack of certainty, not a lack of liquidity. (Related - last Sunday on 60 minutes, Obama indicated he wanted to take an FDR-like "try things until it works" approach to the economy; that doesn't seem like it's going to help with the uncertainty - and it probably won't help generally.)


• The Washington Post discusses liberal bias. Howard Kurtz appropriately asks aren't media people supposed to resist this kind of hyperventilating?. Deborah Howell, WaPo Ombudsman, admits that "some of the conservatives' complaints about a liberal tilt are valid" and lists a slew of examples. I still don't think she fully gets it though - her article is titled "Remedying the Bias Perception," it should be titled "Remedying the Bias Problem." We're percieving it because it's real, Ms. Howell.


• The best use yet for TARP's 700 billion.


• Clintonite Rahm Emanuel. Clintonite (and lobbyist) Greg Craig. Clintonite John Podesta. Actual-Clinton Hillary Clinton. This "politics of the future" looks a lot like the politics of the past - say 1992 or so. As of 11/14, Politico points out "Thirty-one of the 47 people so far named to transition or staff posts have ties to the Clinton administration." (Smarmily: "Thanks!")


• With the Clinton pick - Some hope I can believe in for actually finishing the job in Iraq. Jonah Goldberg notes: "Obama's signature issue in the primaries was his "good judgment" to oppose the Iraq war. ... [Clinton] may have experience, he'd charge, but she lacked the wisdom to oppose the war. ... So now Barack Obama is going to appoint Hillary Clinton to be the chief architect of his foreign policy. Moreover, he picked Joe Biden to be his running mate and 'partner' in the White House explicitly because of his foreign policy experience and judgment. But wait: Joe Biden, too, supported the war".


• The Left remains extremely hard to parody. Their outrage de jour yesterday was once again Sarah Palin, this time because she had the audacity to do an interview at turkey farm, where turkey-farm-activities actually occur. I guess they never knew where animal-based food comes from? More from John Hinderaker at Powerline.


• The H. in Barack H. Obama continues, for me, to stand for hypocrite:
  "We need to focus on fixing and improving our public schools; not throwing our hands up and walking away from them.”


• For all the talk of The Right being broken, it might also be worth looking at what's happening on The Left.


• Obama the Question Mark Man

David Crimmen for Congress!

The congressional district I live in now is pretty much a text-book case of what gerrymandering looks like:



My House rep. is Louise Slaughter, and she's won handily in the last two elections about 75% to 25%.

This cycle, David Crimmen, apparently, is challenging her. What's unfortunate is it took me about 10 minutes using Google to figure out if Slaughter actually had an opponent, and if so, who he was.

Crimmen is someone I can get behind though. He's entire campaign site seems to be a Blogger-hosted blog with a handful of entries. I wish he had a more traditional campaign site (that I could actually use to send his campaign a few bucks). But, his post on the bailout is excellent:

This $700 Billion Dollar bailout is a slap in the face to both fair markets and the taxpayer. What is this number actually based on? “It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com. “We just wanted to choose a really large number.” This might be funny if it weren't so revolting. Then when Congress couldn't get the bill passed the first time they just loaded it up with billions in so-called "sweeteners". According to Bloomberg.com: "Senators attached a provision repealing a 39-cent excise tax on wooden arrows designed for children to an historic $700 billion financial-markets rescue that passed tonight by a vote of 74-25."

...

Not surprisingly New York Congresswoman Louise Slaughter (D) whom Crimmen is challenging voted for the bill both times. Louise Slaughter may think that bigger government simply throwing money at the problem is the solution, but then again it's leadership like that that got us here. It's up to us to remember that come election day.

David: consider this post me throwing the tiny amount of pull my blog has behind your campaign. I'd love to see you take Slaughter's seat. The history of our district and your lack of much of a campaign don't leave me too optimistic though.

What Caused This Crisis?

If I can find the time I'll try to write up some in-depth comments on what I've been able to digest about the causes for the current economic situation that's prompted "the bailout".

At this point, I largely blame about equally both government and private firms for both engaging in taking on too many subprime mortgages to get low income individuals into houses. The government both adopted policies that encouraged/forced this behavior, but private firms were engaging it in for their own benefit regardless of that. The subprime mortgage arrangements worked as long as house prices continued to grow, but house prices had grown too high and needed a correction which made the whole subprime setup fail. And hard.


For now I'll defer any future discussion of the topic to the following:

Arnold Kling discusses the housing market developments in an excellent and timely episode of EconTalk: Kling on Freddie and Fannie and the Recent History of the U.S. Housing Market. I highly urge people interested in understanding this state of affairs to listen to it.

Some background on Kling:

Arnold Kling is an independent scholar who writes about a wide variety of economic issues. He was an economist on the staff of the Board of Governors of the Federal Reserve System from 1980-1986, and served as a senior economist at Freddie Mac from 1986-1994.

The Bailout

I'll concede we are in economic trouble. But, I'm against "the bailout" that failed in the House Monday, and which apparently will be tried again in the Senate Wednesday, purely on ideological grounds that most people probably don't agree with: I believe that: a.) the bill causes the government to intrude into financial markets; b.) government intrusion into financial markets necessarily infringes upon personal liberty; and c.) as a rule, the government should not take actions which infringe upon personal liberty.

I have a number of exceptions to (c), including exchanging minimal/reasonable amounts of personal liberty for security and order (military, police), addressing externalities, and some other areas, but the scope of this bailout pretty much automatically eliminates it from this list of exclusions.

And every time I hear a journalist, pundit, or politician explain that "the government has to do something", I go a little crazy inside. Not only does the government not need to do something, to fully respect our liberty, they ideally should do nothing.

But, I've come to realize over the last week that the above position makes me notably "out of the mainstream" so I'll try to put aside that ideology and share some thoughts on the bailout that have appeal to a broader ideological spectrum.


First - just how much is $750 billion dollars?

Well, it would be about $2,500 per American. Or put another way, a stack of 232 dollar bills fits inside one inch. A stack of $750,000,000,000 would be about 50,900 miles tall. From the center of the earth, it would stack more than 1/5th of the way to the center of the moon. That's. a. lot. of. money.

Now, as a number of conservative (but certainly not uber-libertarian) folks who are favoring the bill are pointing out, the longer term cost of this bill is not that $750 billion number. I think most of the people calling their congressmen to urge them to vote against this bill misunderstand this, so it's fairly important. Unlike most government spending, the government gets an asset in return for what it "spends" on this program.

If you go and buy $100 of stock, you don't count yourself $100 "poorer." You've just transfered $100 of value from cash to stock. The stock could appreciate (or decline) in value, but down the line you will likely be able to sell the stock to get money again. It's a very similar thing going on with the mortgage backed securities Paulson wants to buy up.

Where those making the above distinction seem to veer off the path though is in the assertion they usually further make that the government would be making a "good deal" in buying these securities. These arguers seem to be utterly certain that these securities are currently under-valued by the market. If they believe this, I'd encourage them to go put their money where their mouth is, instead of the government's (and by "government's,", I mean "taxpayer's," and by "taxpayer's," I mean "mine"). The market can and does, at times, under-value things. But there is NO guarantee it is undervaluing these now.

I would draw a distinction that, with stocks for companies, you can make a reasonable assumption that over the long run, these will, on the whole, improve in value because businesses can create value through things like increased productivity. A mortgage backed security can't do anything like that. It is my position that the default position one should take for these later types of assets needs to be that the market is pricing them accurately.

Furthermore, the market actually does not seem to be able to price these mortgage backed securities at all - because they aren't being bought and sold, so there is no data about prices. The whole rationale behind the plan seems to be partly just to come up with a price to get them moving.

I have no faith that the government will come up with a price that will allow the government to see these increase in value over time. If the government offers such a price, what's the incentive of a firm to sell them? Even at "market price" there is no incentive to sell to the government, because the bill would attach additional regulations to companies that participate. That means the government will have to buy these at higher than market value to make up for the cost of regulation to the seller.


Another objection I have to the bill is that at least earlier versions included provisions that if the government does make money off these securities, some sizable chunk (say 20%) of those profits are going to go to (far left) politically charged groups like ACORN [1].


So, this all basically works like this: The government takes $2,500 of your money. They invest it in mortgage backed securities. Companies they sell said securities to the government have to live with new special regulations. By the nature of how they'd have to price them so firms would sell the securities to the government, the government probably won't make a profit on these securities. But, if they do, you, the tax payer, from whom the government took $2,500 for this investment, won't see a full fifth of those profits, as they get redirected to special interests. Excellent, huh?

That's why this bail out need to continue to be killed. The market will take heavy losses. That's part of the free market system. It's how the market corrects for things that were priced too highly. The market will be able to figure out a real price for these mortgage backed securities though, and eventually things will head back to normal. Give the market time, don't pass hasty big-government legislation.

Gov't Takeover: Fannie and Freddie

A post of quotes:

From Russel Roberts:

Following its knee-jerk, free-market, Milton Friedman obsessed ideology, the Bush Administration has seized control of Fannie Mae and Freddie Mac.

Joke. A bad one, really. If anything, this is just the latest evidence that it doesn't matter who's President. Is there anything this administration has done lately that reflects a free market philosophy? Yet because the administration sometimes uses the rhetoric of economic freedom, it allows people to paint the administrations policies as market-oriented.

From the Washington Post:

There is no guarantee that the takeover will work, and it comes at a potentially massive cost to taxpayers. The government has pledged to inject money in the companies in any quarter in which they would otherwise be insolvent -- up to $100 billion in total for each company.

"This is a shareholder bailout financed by the U.S. taxpayers," said Armando Falcon Jr., formerly the chief regulator of Fannie Mae and Freddie Mac.

Paulson also announced a separate program in which the government will start buying securities backed by mortgages -- $5 billion worth, initially. That will, in effect, subsidize the purchase of homes by lowering the interest rate that buyers must pay for a mortgage.

From Jon Henke:

This is how government grows...

1. Socialize Risk: Government intervenes in an industry to "solve" some apparent and visible problem.  This is done "for the people."


2. Unintended Consequences: This intervention merely shifts the costs to new areas and sweeps problems under the carpet, where they accumulate.


3. Blame The Market: Government intervention is not blamed, because the people who support it assume their good intentions could not be responsible for bad things.


4. Socialize Profit: The Left demands Something Be Done by people with Good Intentions. Politicians comply.  This is done "for the people."

Unfortunately, our political structure comes at this from four different places.

• Democratic politicians, organizations and activists are happy to go along with Steps 1-4, because, hey, #4 was their goal in the first place.


• Republican politicians and organizations go along with Steps 1-3, only objecting at Step #4.  By which time it is too late.


• Business goes along with Step #1, and attempts to use Step #2 to get more of Step #1.


• Libertarians believe the problem occurs at Step #1.  Once Step #1 is conceded, we've already lost on steps 2-4.  But libertarians and limited government conservatives have relatively little power.