Friday, October 31, 2008

Open Letter To B Hussein

This Letter was sent as an open invitation to B Hussein to meet with a small business owner and understand the impact his policies may have on society. While it is long, it is very good and worth the read.

Here are some excerpts:

Your ascension to power from obscurity has come by three means: (1) refined oratory skills, (2) pandering to the middle class with arguments based totally on emotion, and (3) demonizing a very important element of society -- successful working class business owners, the rich and those aspiring “to be” rich, who do not openly defend themselves because they have been falsely taught to feel guilty about their noble values and conservatism. They should not now or ever bear any guilt.

I believe the extreme leftist wing of the Democrat Party which you lead will destroy some very important elements of our economy - notably the working class business owners like me and the millions of small closely-held businesses which are the nation’s lifeblood.

The policy agenda you share with Speaker of the House Nancy Pelosi and Senate Majority Leader Harry Reid contain elements that are the outright enemies of democratically-free economies.

The enemies of democratically-free economies have now, under the cover of populist sentiment slipped in during the night. These enemies callously demonize and threaten the very engine of our economic prosperity for their own political ambitions. They do this hoping that we, the powerless business underclass, will not speak up to defend ourselves because of some guilt we are made to carry. Well, we are not guilty, we are speaking, and we are enraged.

You may think the high income earners are ripping off the nation. This is just not true. They have become the high income earners because they are the nation’s most productive segment and have borne economic and social risks to build successful businesses.

Your promise to 95% of Americans that they will receive a tax break is an outright deception and appalling. How can the 40% who pay no taxes receive a tax break? Under the guise of innovative tax policy, you are masterfully creating a new welfare entitlement system.

The letter continues with many great points. Please share with anyone that could possibly think of voting B Hussein into office.

Letter to Congress

Dear Senator:

I am very concerned about the current actions being undertaken by Congress. Nearly $1 Trillion is being spent without any coherent plan. We now have all sort of companies from Autos, Alternative Energy, Hedge Funds, Banks and even States looking for a piece of the government bonanza of spending.

Congress has created the largest moral hazard in the history of man by socializing the huge losses by companies that took on too much risk in investments they did not understand. This is just providing more evidence that government involvement in business is costly to the prosperity of society. Your actions in Congress will saddle our children’s children with more debt than they can realistically sustain.

I ask that Congress actually take the appropriate action which is nothing. Let firms go bankrupt that made bad decisions. Let stronger companies buy whatever is left of those firms and move on. The natural workings of the free market will repair the damage that has been caused by bad government policies from the last 40 years. It will take time to unwind what was been done, but more government involvement will only make matters worse over the long run.

There is undoubtedly pressure for Congress to do something. However, resist that pressure and temptation and let events take their course. This will prove to be the right action over time.

Respectfully yours,

XXX
Wichita, KS

I wish we had a "do nothing" Congress.

From Russ Roberts today in the WSJ:

People ask me if the current mess feels like 1929. But the right comparison is 1932, when Herbert Hoover was desperately trying anything, anything at all, to get the economy going. The stock market had crashed. The economy was starting to follow it down. So what did Hoover and his fellow policy makers do?

In 1930, Congress passed a massive tariff increase, in hopes of protecting American jobs. Hoover signed it. But it simply accelerated the economy's slide. The Federal Reserve contracted the money supply, taking a recession and making it into a depression. By 1932, real GDP was 25% lower than three years earlier.

Hoover increased federal spending steadily, including an increase in real terms of about 40% in 1932. At the same time, fearful that deficits were harmful, Hoover raised income taxes.

Nothing worked. So Franklin Roosevelt came into office pledging stronger medicine. Enter even bigger increases in government spending. Government nationalization. Bigger deficits. Destruction of crops and livestock in the name of raising prices. Government-organized cartels. A greater empowerment of unions. It was a whirlwind of activity without any real plan.

It worked for a while, but then, in 1938, the economy turned sour again. Unemployment, which had been falling, spiked again, reaching 19%. Consumption didn't recover to its prewar levels until 1945.

Today, President George W. Bush plays the role of Hoover, the so-called free market ideologue who is trying anything to avert disaster. He signs a $700 billion bill putting Treasury in charge of buying troubled assets. A week later, the money is used to partially nationalize the banks. Some companies, like Bear Stearns, are bailed out. Others, like Lehman Brothers, are not. Some companies are sold. Some are allowed to fail. There is no plan, no rules, nothing to count on.

It's just like the New Deal: a massive accumulation of power in Washington justified by the need to do something. There is every reason to think this trend will accelerate regardless of whether Barack Obama or John McCain wins the election.

Back in March, Henry Paulson, Ben Bernanke and the experts assured us that Bear Stearns had to be propped up. If not, the whole system could come crashing down. It is crashing down anyway. Just as in the 1930s, there is no evidence that the policy makers have any understanding of what they are doing. They need to make way for the natural forces of repair.

They need to let housing prices fall. They need to let firms go bankrupt. They need to let firms that are healthy thrive. They need to let healthy firms buy the sick firms. It is time to let the imprudent fail and the prudent pick up the bargains.

A recession is coming (or has already arrived) no matter what happens in Washington. The question is whether the attempt to forestall it is going to make it worse and turn it into another Great Depression.

By acting without rhyme or reason, politicians have destroyed the rules of the game. There is no reason to invest, no reason to take risk, no reason to be prudent, no reason to look for buyers if your firm is failing. Everything is up in the air and as a result, the only prudent policy is to wait and see what the government will do next. The frenetic efforts of FDR had the same impact: Net investment was negative through much of the 1930s.

The next administration is unlikely to do any better. Mr. Bernanke is perhaps the greatest living authority on the Great Depression, yet he has failed to stem the damage. Messrs. Paulson and Bernanke are confronted with a sick patient. They have antibiotics. They have a scalpel. But is there any evidence from the last seven months that they understand the underlying cause of the illness, or how to cure it?

Worst of all are the political incentives that are unleashed when Washington promises to spend a trillion dollars (and counting). No one can spend such money wisely even if they want to. The information about who needs to be bailed out and who needs to fail is too complicated. Inevitably, such decisions will begin to be more about politics than economics.

The banks were first. Then the insurance companies. The car makers are getting a cut. Who's next? The governors, probably. Homeowners are waiting. Then there will be the hedge funds. Once the line forms, companies will stop trying to save themselves and focus on being saved by Washington. The resulting spiral will be devastating.

Unfortunately, there is no consensus about a preferable alternative. The economists are almost as clueless as the politicians. At such a time, inaction may be the wisest course of action.

Mr. Roberts is a professor of economics at George Mason University and a research fellow at Stanford University's Hoover Institution. His latest book is "The Price of Everything: A Parable of Possibility and Prosperity" (Princeton University Press, 2008).

Wednesday, October 29, 2008

Cartoon of the Day

Why Markets Are Weak

Great article today in the WSJ:

To state the obvious: The valuation of an individual stock reflects the collective expectation of investors about a company's future profits, dividends and appreciation, and the same is true of the market as a whole. These profits, in turn, are greatly influenced by government policy on taxes, spending, subsidies, environmental and other regulations, labor laws, and the corporate legal climate. Investors have heard enough from both candidates in the last month or two to conclude that prospects for a flourishing, competitive, growing and reasonably free economy in a McCain administration are bad, and in an Obama administration far worse. (In fact, the market's bearish behavior over the last couple of months pretty closely tracks Barack Obama's gains.)

If you don't believe me, please answer a few questions:

- Have you thought of what a gradual doubling (and indexation) of the minimum wage, sailing through a veto-proof and filibuster-proof Congress, would do to inflation, unemployment and corporate profits? The market now has.

- Have you thought of how easily a Labor Department headed by a militant union boss would push through a "Transparency in Labor Relations" law that does away with secret ballots in strike votes, and what this would do to industrial peace? The market now has.

- Have you thought of how a Treasury Secretary George Soros would engineer the double taxation of the multinationals' world-wide profits, and what this would mean for investors (to say nothing of full-scale industrial flight from the U.S.)? The market now has.

- Have you thought of how an Attorney General Charles J. Ogletree would champion a trillion-dollar reparations-for-slavery project (whittled down, to be fair, to a mere $800-billion, over-10-years compromise), and what this would do to the economy? The market now has.

- Have you thought of what the virtual outlawing of arbitration -- exposing all industries to the fate of asbestos producers -- would do to corporate liability and legal bills? The market now has.

- Have you thought of how a Health and Human Services Secretary Hillary Clinton would fix drug prices (generously allowing 10% over the cost of raw materials), and what this would do to the financial health of the pharmaceutical industry (not to mention the nondiscovery of lifesaving drugs)? The market now has.

- Have you thought of a Secretary of the newly established Department of Equal Opportunity for Women mandating "comparable worth" pay practices for every company doing any business with government at any level -- where any residual gap between the average pay of men and women is an eo ipso violation? Have you thought about what this would do to administrative and legal costs, hiring practices, productivity and wage bills? The market now has.

- Have you thought of what confiscatory "windfall profits" taxes on oil companies would do to exploration, supply and prices? The market now has.

- Have you thought of how the nationalization of health insurance, the mandated coverage of ever more -- and more exotic -- risks, the forced reimbursement for excluded events, and the diminished freedom to match premium to risk would affect the insurance industry? The market now has.

- Have you thought of Energy Czar Al Gore's five million new green jobs -- high-paying, unionized and subsidized -- to replace, at five times the cost, what we are now producing without those five million workers, and what this will do to our productivity, deficit and competitiveness? The market now has.

The market is forward looking. If it is unhappy with a president, it does not wait almost eight years before the numbers reflect it. If it really anticipated good times under Mr. Obama, the market would have gained 40% in anticipation of the transition. By losing that much, it seems to be saying the opposite.

The silver lining in all this is that the market has already "discounted" an Obama win, so if that happens you won't wake up on Nov. 5 to find your remaining savings down the drain. If the unexpected happens, you may be in for a pleasant surprise.

I agree that a surprise McCain win would be a boost for the markets. The B Hussein discount would be removed and we could see 15-25% recovery almost immediately. However, the misinformed, or il-informed, voting public hears all these great socialist ideas, that have been tried and failed, and B Hussein seems to be an easy victor. Romney would have beat B Hussein...

Sunday, October 26, 2008

To the Undecided Voter

From Neil Boortz:

There’s a quote that’s been floating around since I began my talk radio career. This quote is most often attributed to someone named Alexander Tyler writing in 1787 about the fall of the Athenian Republic. Others have said the guy’s name was Tyler. Let’s not argue spelling right now … let’s just get to the quote, because the quote goes to the heart of this presidential election:

“A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.”

Think about this, my friends. Isn’t this exactly what we’re seeing right now? In fact, hasn’t this pretty much been the theme of Democrat Party election politics for nearly as long as you can remember? Here we have Barack Obama promising that he’s only going to raise taxes on the evil rich who make over $250,000 a year while 95% of Americans will get tax cuts. Think of this in terms of votes; higher taxes for 5% of the voters, lower taxes for the other 95%. It really doesn’t take all that much brainpower to figure out how this is going to work at in an election does it? You take money away from the people whose votes you don’t need, and give it to the people whose votes you do need. So very simple. The result is that people have, in fact, discovered that they can vote themselves generous gifts from the public treasury. Who is promising those wonderful goodies? That would be Barack Obama. Just what percentage of voters out there do you think are going to vote for Obama simply because he is promising them someone else’s money? My guess is that the number would be high enough to constitute the margin of victory for The Great Redistributionist.

The entire column is very good and should be read by everyone.

Monday, October 20, 2008

Politicially Incorrect Guide to Politics

A must watch, 5-part series from 20/20's John Stossel.

ABC 20/20

Also catch the Voting for Dummies segment. It will scare as our Democracy is in the hands of idiots. Each of these people has the same vote as me?

Boudreaux on Politicians

From Cafe Hayek this weekend...

It's a Difficult Job Saving Society

Don Boudreaux

Here's a letter that I sent yesterday to The State (of Columbia, SC):

Asked why he failed to disclose his receiving, free-of-charge, $250,000 worth of renovation work on his private residence, Sen. Ted Stevens explained, as you summarize it, "that some details may have gotten lost amid the busy life of a senator: the committee meetings, the long hours and the challenges that come with representing a state four time zones away" ("Stevens combative in questioning during trial," October 17).

I see the problem. And it suggests that Sen. Stevens (and his overworked, travel-weary colleagues in Congress) must also be unaware of the details that permeate those massive bailout bills, omnibus spending statutes, and other such pieces of legislation. No busy mortal can possibly keep track of these details. So it would be only right for Sen. Stevens and those Senators who've testified in his defense as character witnesses to renounce the vast bulk of legislation that they've passed as being filled with provisions too numerous and detailed for such busy pooh-bahs to have carefully pondered - or even to have noticed.

Sincerely,
Donald J. Boudreaux

I can no more imagine myself behaving as a successful politician behaves -- kissing babies in public; telling strangers that I feel their pain; assuring strangers that I'm to be trusted to spend their money more wisely than then will spend it -- than I can imagine myself being a mosquito or a venus fly trap. It is simply inconceivable that any decent human being would behave in ways that the typical politician behaves.

And yet, so many people -- so many decent people -- believe in (or at least crave, child-like) secular salvation through secular saviors. It's no surprise, then, that persons unashamed to act deceitfully and disingenuously crawl out from under their rocks to pose as saviors.

Justification....Politician Style

From Senator Stevens's testimony today:

Stevens has said he never sought gifts and wouldn't even accept a free lunch, much less expensive remodeling services. But prosecutors say he had a history of accepting gifts — including an expensive massage chair from a friend — and omitting them from the financial disclosure forms.

He said he considered that chair a loan.

"And the chair is still at your house?" prosecutor Brenda Morris asked.

"Yes," Stevens said.

"How is that not a gift?"

"He bought that chair as a gift, but I refused it as a gift," Stevens said. "He put it there and said it was my chair. I told him I would not accept it as a gift. We have lots of things in our house that don't belong to us."

Playing to the jury, Morris appeared confused.

"So, if you say it's not a gift, it's not a gift?" she said.

"I refused it as a gift," Stevens replied. "I let him put it in our basement at his request."

Friday, October 17, 2008

Wishing We Had 4 Different Choices

It is clear we have no one running for office that knows anything about economics. I bet McCain wishes he chose Mitt....

From Ideoblog:

Calling for Mitt

During this financial crisis, it's been weird to watch the presidential candidates be almost a sideshow to the dominant crisis of the day on election eve, as all eyes turn to Bernanke and Paulson. And so I wonder (and I'm not alone), what if McCain had picked as his running mate somebody who actually knew something about business – i.e., Mitt Romney? In any event, hopefully this election teaches a lesson about the importance of real business expertise these days.

Capitalism

Seems like there is a lot of bad press around capitalism these days. Here are a couple must reads that counter the growing tide of anti-capitalist sentiment.

Don't Blame Capitalism

Just as prices in a free market are set by supply and demand, financial and real estate markets are governed by the opposing tension between greed and fear. Everyone wants to make money, but everyone is also afraid of losing what he has. Although few would ascribe their desire for prosperity to greed, it is simply a rose by another name. Greed is the elemental motivation for the economic risk-taking and hard work that are essential to a vibrant economy.

But over the past generation, government has removed the necessary counterbalance of fear from the equation. Policies enacted by the Federal Reserve, the Federal Housing Administration, Fannie Mae and Freddie Mac (which were always government entities in disguise), and others created advantages for home-buying and selling and removed disincentives for lending and borrowing. The result was a credit and real estate bubble that could only grow -- until it could grow no more.

Similarly, the FHA, Fannie and Freddie were created to encourage lending by allowing primary lenders to turn their long-term risk over to the government. Absent this implicit guarantee, lenders would probably have been much more conservative in approving borrowers and setting interest terms, and in requiring documentation of incomes and higher down payments. Market forces would have kept out unqualified buyers and prevented home-price appreciation from exceeding the growth in household income.

Real credit can be supplied only by savings, so artificial steps to stimulate lending will only produce inflation. By refusing to allow market forces to rein in excess spending, liquidate bad investments, replenish depleted savings, fund capital investment and help workers transition from the service sector to the manufacturing sector, government is resisting the cure while exacerbating the disease.

Gods That Fail

Where to begin? Certainly we haven’t had any unregulated capitalism lately. As I put it the other day, the kind of capitalism that has encountered the current crisis is “the kind in which a central monetary authority manipulates money and credit, the central government taxes and redistributes $3 trillion a year, huge government-sponsored enterprises create a taxpayer-backed duopoly in the mortgage business, tax laws encourage excessive use of debt financing, and government pressures banks to make bad loans.”

Sunday, October 12, 2008

THE Health Care Solution

Why Stealing From Taxpayers Should Be Treason

This story in the NYT about made my blood boil.  A typical government bureaucrat in the Defense Department bilked millions from taxpayers.  How did this happen?  He was in cahoots with lobbyists, corrupt politicians (Lott, Shelby, Stevens, etc.), and contractors that took advantage of lax oversight.

It just makes me wonder how much waste and corruption is there in the Federal budget?  There is just too much incentive to cheat the system and not enough penalty to avoid it.  I am thinking death by hanging should be in store for any of those involved here, including CONgressmen.

The truly said fact is many, if not all, of these politicians will be re-elected.

How Times Change

Just a few short months ago, CONgress hauled executives from the big oil companies into Washington to testify about the high cost of crude oil.   The testimony quickly turned to inquisition as the hearings became a way for CONgressmen to sound tough (AKA popular) back home.

The blame was placed on greedy speculators, oil companies that were not making investments in new fields or alternative energy, buying back their own stock, and a whole host of other things.  That was when oil price spiked to $143/bbl.  Now oil prices have dropped to under $80 and seem to be falling even farther.  Oil company stocks have dropped over 50% from their highs this summer as well.

So where is the talk about speculators now?  Mutual funds, pension funds, and many individual investors have lost billions with oil's fall.  Who is responsible?  The market.

I would hope it would be obvious to CONgress that Big Oil was no more involved in the rise in crude as it was in its recent fall.  However, I am sure this will be used for political advantage at home to gain more votes.  It will probably go something like this:

"See Joe Voter those hearings did pay off.  Big Oil was scared and dropped their prices because they knew I, your trusted, elected official, backed them into a corner on behalf of my constituents."

Lee Raymond, former CEO of Exxon, stated it very clearly to CONgress a few months ago that oil is a commodity and its price is cyclical.  Nothing but market forces drive its price.  Sometimes it rises, and it always falls back to historical levels.  Crude oil is not immune to the commodity cycle any more than iron ore or bananas.  I wonder if CONgress will send an apology to all the speculators and oil company executives?


Government and Profitability

I saw this column come up on my yahoo reader this week and it caught my eye for obvious reasons: DOE Doles OUt Bucks for Biofuel.  Not only does this article outline who is getting what from our government at a time when money seems to be no scarce object, but it also talks about the return our government is "getting."  

Novozymes said Wednesday it scored $12.3 million from the U.S. Department of Energy to develop enzymes that would help cut the cost of producing cellulosic ethanol.

Then

The government expects something in return for its investment. The deal calls for the Danish company to increase the efficiency of the enzymes by two folds.

Wow, the government is getting an increase in efficiency?  That does not sound like money for the taxpayer to me.  That sounds like a better return for the producer?

Then the article goes on to say...

This is the second time the company has received funding from the DOE. In 2001, Novozymes bagged $18 million from the federal government, again to improve enzymes used in producing biofuels.

So the government has now invested over $30M in this company, that is Dutch no less, and how much cellulosic-based ethanol is commercially available?  None.

Then the article finishes with this....

Ethanol producer Poet said Tuesday it is getting the total funding the DOE promised last year. In February 2007, the DOE said it would give Poet up to $80 million to build a commercial ethanol plant that makes fuel from corn as well as corn fiber and cobs. The first part of the deal with the government gave the Sioux Falls, S.D.-based company $3.7 million to help with the preliminary design of the plant and feedstock collection. Now, the company is getting the remaining $76.3 million for construction and plant operation. Upon completion, the plant will make 125 million gallons ethanol per year, 25 million of which will be from corn fiber and cobs. Construction on the plant will begin in 2009, and cellulosic fuel production could come as early as 2011, the company said.

The government is paying for the entire plant?  Where is the tax payer return on this one?  Oh yeah, there is not one.  This is exactly why government needs to stay out of business.  The US Taxpayers just flushed $80M down the drain.  Why is that, well ethanol producers all over the country are going bankrupt (see here and here) since the US is producing more ethanol than is demanded.  So government just throws more ethanol supply into the mix at a lower cost to produce.  The funny thing is most of these ethanol producers think government is their friend.

Our government should not be in the investment banking business.  As a matter of fact, it should not be in any business.

Saturday, October 11, 2008

Wednesday, October 8, 2008

NRA Video

Links To Reading

From RealClearMarkets.com this morning:

The Bailout and the Vanishing Taxpayer

and Walter Williams:

Lessons From The Bailout

Five years ago, Congressman Barney Frank (D-Mass.) vouched for the "soundness" of Fannie Mae and Freddie Mac, and said, "I do not see any possibility of serious financial losses to the treasury." In 2004 congressional hearings, where the Bush administration sought greater oversight over Freddie Mac and Fannie Mae, congresswoman Maxine Waters (D-Calif.) said, "We do not have a crisis at Freddie Mac and particularly at Fannie Mae," adding that "the GSEs have exceeded their housing goals." Congressman Gregory Meeks (D-N.Y.) said, "There's nothing wrong with Fannie Mae and Freddie Mac." In these hearings Barney Frank said that he doesn't see "anything in the reports that raises safety and soundness problems." Earlier this year, Sen. Christopher Dodd (D-Conn.) praised Fannie Mae and Freddie Mac for "riding to the rescue" to help people get home mortgage loans, adding that they "need to do more" to help high-risk borrowers get better loans.

Have you heard Congress calling for hearings? They haven't called for hearings because many of them, both Democrats and Republicans, receiving hundreds of thousands of dollars, were in cahoots with Fannie Mae and Freddie Mac. If Americans are going to be on the hook to bail out these government-sponsored enterprises, at the minimum congressional hearings ought to be held to find out who did what and when.

Questions Of The Day

Now that the government is in the mortgage business, how do you think they will tend to the investment? If homeowners stop making payments (even the new lower ones), will Barney Frank and the rest of Congress kick out the delinquent owners?

Sounds politically dangerous to repossess the home of a voter......?

Tuesday, October 7, 2008

B Hussein Creates Jobs

He keeps saying that his energy plan will create jobs. However, he fails to say how he will create 5 million new jobs. Here is how I see it:

1. The government taxes the people
2. Higher taxes mean businesses have less capital at their disposal
3. Less capital means fewer jobs created or layoffs
4. B Hussein gives favors to "green" (AKA politically connected) industries to subsidize jobs.
5. Those jobs create no real value for society (unlike #3) since private industry did not think enough of the technology to invest in it before it was subsidized (think ethanol and syn fuel)
6. We now have 5 million people that could be working in productive industries that are instead consuming precious capital that the government took from #1.
7. Technology is not cost effective so government provides more short-term (AKA long-term) subsidies.
8. Repeat #1

While there might be 5 Million new jobs, there were certainly more than 5 Million before. Government redistribution is not free as the tax machine might take in $10 but only spit out $9. That would assume government is 90% efficient, wouldn't that be nice? Government never creates jobs, only work (AKA the hole diggers and hole fillers), and consumes capital the private sector would otherwise use to produce useful products.

Hate Mail

I got my first hate mail last week regarding my letter to the editor that was published by the Wichita Eagle (see Wind Energy a few weeks ago). At first I was shocked, then honored that someone actually cared to write a letter. I did write the gentlmen a nice, 2-page, typed letter in return.

Here is his letter....

To XXXX XXXXX,

There will, all the time, be people like you who will refuse to do anything to help society. The is not just about you, and your self-centered ignorance. This is for future generations. You lack integrity.

Sincerely,

Thomas J Zach
316-265-5625

(he provided the number)

By the way, the Eagle left out a couple key points that does make me sound a little rough around the edges. However, I did not mislead anyone so his integrity comment is uncalled for. Everyone that knows me has a good idea that I am only modestly self-centered, so maybe he is right. He did fail to tell me how wind power helps society by causing electric rates to be 3-4 times as high as coal power. Maybe he can explain that to people that give up food for heat this winter?

If you want my return letter, post a comment. I might throw it in there for fun.

Good Reading

Sowell has written two excellent columns lately that are must reads.

The Real Obama

Do Facts Matter?

Add some good Walter Williams too...

Destroying Liberty

Scaring Us To Death

And for a good summary of the Housing mess..

Kling Testimony

McCain Loses

McCain needed to win the debate tonight and instead he bowed down to populist ideals and failed his party and the American people. Unfortunately, B Hussein was much better on his feet and gave a message that most likely relates to the majority of irrational voters.

McCain certainly removed any doubt that he is an economic idiot. His solution to the housing crisis is to work on home prices. For a micro second I thought he was on to something. But instead of saying that home prices need to fall to real market levels on their own, he begins to explain an alternate solution. This solution is one where the government buys the existing mortgage and then gives the homeowner a new mortgage based on the new value of the home. Two problems. One, the government (AKA tax payer) takes a huge bath, not the irresponsible homeowner (moral hazard). Two, how does the government know what the true market price really is? Who is to say they won't pick a price that is too high and home prices continue to fall. Will the government give the homeowner another mortgage? Government does have have the knowledge or the ability to make such a call locally, let alone nationally.

Now the really good part. How about all those people that have homes that are paid for or nearly paid for? When the government steps in to help the 5% of homeowners who are in default and seeing their mortgage drop by 25-50%, everyone that has a long-term mortgage will want a piece of that action. Again, this punishes homeowners that have no mortgage and actual equity in their home. Overnight, the government will wipe out millions in equity when they reprice the nations homes. Some of it is certainly required, but I am confident the government will get it wrong.

The market is an overwhelming force. It cannot be stopped. It toppled communism. It topples other governments that try to contain it. It has to be allowed to function. Interference of this magnitude will almost certainly create unintended consequences. My guess is the cure will be much worse than the disease.

Wouldn't it be nice if the politicians actually took responsibility for this mess? Instead they blame every other body but themselves. Now we will have a Democrat Congress and White House. It will be a very sad day for America on election day.

Ron Paul for write in......

Friday, October 3, 2008

Questions That Remain Unanswered In the Bailout

1. What/who is too big to fail now?
2. What happens when $700B is not enough to solve the problem?
3. What happens when taxpayers lose money on the bailout?
4. How will the Feds value securities that the best and brightest on Wall Street cannot seem to value?
5. How could the House reject the bill earlier this week, yet pass virtually the same bill a few days later with billions in additional pork?

If there is not massive turnover in the Senate and House over this issue, then the American public truly is irrational.

Picture Friday

Thursday, October 2, 2008

How did your Senator vote on S. Amdt. 5685 to H.R. 1424?

Kansas can actually be proud of our Senators for a change. Two "nay" votes is worthy.

Politico

The Rescue (AKA Bailout) Bill Contains What?

Think the Bailout Bill was all about Wall Street? Here is what was in the Senate Bill:

Energy Related Targeted Tax Credits and Changes

Sec. 101. Renewable energy credit.
Sec. 102. Production credit for electricity produced from marine renewables.
Sec. 103. Energy credit.
Sec. 104. Energy credit for small wind property.
Sec. 105. Energy credit for geothermal heat pump systems.
Sec. 106. Credit for residential energy efficient property.
Sec. 107. New clean renewable energy bonds.
Sec. 108. Credit for steel industry fuel.
Sec. 109. Special rule to implement FERC and State electric restructuring policy.
Sec. 111. Expansion and modification of advanced coal project investment credit.
Sec. 112. Expansion and modification of coal gasification investment credit.
Sec. 113. Temporary increase in coal excise tax; funding of Black Lung Disability Trust Fund.
Sec. 114. Special rules for refund of the coal excise tax to certain coal producers and exporters.
Sec. 115. Tax credit for carbon dioxide sequestration.
Sec. 116. Certain income and gains relating to industrial source carbon dioxide treated as qualifying income for publicly traded partnerships.
Sec. 117. Carbon audit of the tax code.
Sec. 201. Inclusion of cellulosic biofuel in bonus depreciation for biomass ethanol plant property.
Sec. 202. Credits for biodiesel and renewable diesel.
Sec. 203. Clarification that credits for fuel are designed to provide an incentive for United States production.
Sec. 204. Extension and modification of alternative fuel credit.
Sec. 205. Credit for new qualified plug-in electric drive motor vehicles.
Sec. 206. Exclusion from heavy truck tax for idling reduction units and advanced insulation.
Sec. 207. Alternative fuel vehicle refueling property credit.
Sec. 208. Certain income and gains relating to alcohol fuels and mixtures, biodiesel fuels and mixtures, and alternative fuels and mixtures treated as qualifying income for publicly traded partnerships.
Sec. 209. Extension and modification of election to expense certain refineries.
Sec. 210. Extension of suspension of taxable income limit on percentage depletion for oil and natural gas produced from marginal properties.
Sec. 211. Transportation fringe benefit to bicycle commuters.
Sec. 301. Qualified energy conservation bonds.
Sec. 302. Credit for nonbusiness energy property.
Sec. 303. Energy efficient commercial buildings deduction.
Sec. 304. New energy efficient home credit.
Sec. 305. Modifications of energy efficient appliance credit for appliances produced after 2007.

Other Tax Credits and Changes

Sec. 101. Extension of alternative minimum tax relief for nonrefundable personal credits.
Sec. 102. Extension of increased alternative minimum tax exemption amount.
Sec. 103. Increase of AMT refundable credit amount for individuals with longterm unused credits for prior year minimum tax liability, etc.
Sec. 201. Deduction for State and local sales taxes.
Sec. 202. Deduction of qualified tuition and related expenses.
Sec. 203. Deduction for certain expenses of elementary and secondary school teachers.
Sec. 204. Additional standard deduction for real property taxes for nonitemizers.
Sec. 205. Tax-free distributions from individual retirement plans for charitable purposes.
Sec. 206. Treatment of certain dividends of regulated investment companies.
Sec. 207. Stock in RIC for purposes of determining estates of nonresidents not citizens.
Sec. 208. Qualified investment entities.
Sec. 301. Extension and modification of research credit.
Sec. 302. New markets tax credit.
Sec. 303. Subpart F exception for active financing income.
Sec. 304. Extension of look-thru rule for related controlled foreign corporations.
Sec. 305. Extension of 15-year straight-line cost recovery for qualified leasehold improvements and qualified restaurant improvements; 15-year straight-line cost recovery for certain improvements to retail space.
Sec. 306. Modification of tax treatment of certain payments to controlling exempt organizations.
Sec. 307. Basis adjustment to stock of S corporations making charitable contributions of property.
Sec. 308. Increase in limit on cover over of rum excise tax to Puerto Rico and the Virgin Islands.
Sec. 309. Extension of economic development credit for American Samoa.
Sec. 310. Extension of mine rescue team training credit.
Sec. 311. Extension of election to expense advanced mine safety equipment.
Sec. 312. Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico.
Sec. 313. Qualified zone academy bonds.
Sec. 314. Indian employment credit.
Sec. 315. Accelerated depreciation for business property on Indian reservations.
Sec. 316. Railroad track maintenance.
Sec. 317. Seven-year cost recovery period for motorsports racing track facility.
Sec. 318. Expensing of environmental remediation costs.
Sec. 319. Extension of work opportunity tax credit for Hurricane Katrina employees.
Sec. 320. Extension of increased rehabilitation credit for structures in the Gulf Opportunity Zone.
Sec. 321. Enhanced deduction for qualified computer contributions.
Sec. 322. Tax incentives for investment in the District of Columbia.
Sec. 323. Enhanced charitable deductions for contributions of food inventory.
Sec. 324. Extension of enhanced charitable deduction for contributions of book inventory.
Sec. 325. Extension and modification of duty suspension on wool products; wool research fund; wool duty refunds.
Sec. 401. Permanent authority for undercover operations.
Sec. 402. Permanent authority for disclosure of information relating to terrorist activities.
Sec. 501. $8,500 income threshold used to calculate refundable portion of child tax credit.
Sec. 502. Provisions related to film and television productions.
Sec. 503. Exemption from excise tax for certain wooden arrows designed for use by children.
Sec. 504. Income averaging for amounts received in connection with the Exxon Valdez litigation.
Sec. 505. Certain farming business machinery and equipment treated as 5-year property.
Sec. 506. Modification of penalty on understatement of taxpayer's liability by tax return preparer.
Sec. 512. Mental health parity.
Sec. 601. Secure rural schools and community self-determination program.
Sec. 602. Transfer to abandoned mine reclamation fund.
Sec. 702. Temporary tax relief for areas damaged by 2008 Midwestern severe storms, tornados, and flooding.
Sec. 703. Reporting requirements relating to disaster relief contributions.
Sec. 704. Temporary tax-exempt bond financing and low-income housing tax relief for areas damaged by Hurricane Ike.
Sec. 706. Losses attributable to federally declared disasters.
Sec. 707. Expensing of Qualified Disaster Expenses.
Sec. 708. Net operating losses attributable to federally declared disasters.
Sec. 709. Waiver of certain mortgage revenue bond requirements following federally declared disasters.
Sec. 710. Special depreciation allowance for qualified disaster property.
Sec. 711. Increased expensing for qualified disaster assistance property.
Sec. 712. Coordination with Heartland disaster relief.
Sec. 801. Nonqualified deferred compensation from certain tax indifferent parties.

Wow! What a load of non-sense. How could a body possibly debate all of these sections to the point any Senator could vote confidently yes? More reasons to dispise congress.

DeMint (R-SC) Should Be On The National Ballot

The Bailout Has Been Tried...And Failed..Twice

The Japanese tried a similar real estate induced bailout in the 1990's. The result was a lost decade. A decade with no economic growth since there was an artificial support for overpriced real estate.

Earlier, FDR attempted to intervene and turned a recession into a depression.

From Dan Mitchel at NRO:

The bailout repeats the mistakes Japan made in the 1990s. There are several historical episodes that indicate the dangers of government intervention to prop up a bubble. Japan faced a similar situation at the end of the 1980s, with real estate prices rising to absurd levels. The bubble then burst, but rather than let market forces operate, Japanese politicians sought to prop up both insolvent institution and asset prices. This interfered with the orderly reallocation of labor and capital, created considerable uncertainty, and contributed to a "lost decade" of economic stagnation. Another worrisome parallel is what happened during the 1930s. Policy mistakes such as protectionism (Hoover), higher tax rates (Hoover and Roosevelt), increased government spending (Hoover and Roosevelt), and increased intervention (Hoover and Roosevelt), helped turn a stock-market correction into the Great Depression.

What Credit Crunch?

Good article from Cato today.

Table One
U.S. Bank Loans (Billions of Dollars)

Zimbabwe: The Hanke Hyperinflation Index

In August, bank loans to consumers were 9.5% higher than they were a year earlier--the fastest increase since 2004. The year-to-year increase in consumer and industrial loans was 15.5%, down only slightly from a recent record high of 21.6% in March. Real estate loans were up 4.1% for the 12-month period ending this August--flat lately, but not down.

Did bank lending suddenly turn south since August? The latest data is for the week ending Sept.17, when the U.S. expropriated 80% of AIG (nyse: AIG - news - people ) equity and thus tanked most financial stocks. U.S. bank credit hit a record of over $7 trillion in the latest week--up from $6.57 trillion a year earlier and $6.92 trillion at the end of July.

Political scare tactics are misleading tax payers. There is no credit crunch. People are buying fewer cars today because they are scared, not because they cannot get a loan. Mortgage rates are up to 6.1% on a 30-year loans, still at historical lows. If credit was tight, mortgage rates would be much higher.