on January 26, 2010
To Accompany the January 14, 2009 edition of Tidbits
Bob Jensen at Trinity University
John Carney and Kamelia Angelova, ClusterStock, January 5, 2010
How Can We Help Haiti --- http://www.insidehighered.com/views/2010/01/15/fitzsimmons
President Hugo Chavez has accused the United States of causing the devastating
7.0 magnitude earthquake in Haiti, which killed possibly 200,000 people. Chavez
believes the U.S. was testing a tectonic weapon to produce eco-type
Andrew Moran, "Hugo Chavez Accuses U.S. Of Using Weapon To Cause Haiti Quake," Digital Journal, January 22, 2010 ---
If it were true, why pick on hapless Haiti? A better target might be offshore Venezuela. But rumors have it that Charlie Sheen will take these accusations to the world.
When we see what
we did at the climate summit in Copenhagen, this is the response, this is what
happens, you know what I’m sayin’?
Super Scientist Danny Glover explaining what really caused the 7.0 earthquake near Haiti
U.S. Debt/Deficit Clock --- http://www.usdebtclock.org/
The Obama Debt Tracker
He added $1.7 trillion of debt in his first year
Video: Watch this video in a new windowThe
White House Bunker: Election Night 2009 ---
Video: Larry Summers: Innovation and
Economic Growth ---
From The New Yorker: Interviews
With the Chicago Economists
"Interview with James Heckman," by John Cassidy, The New Yorker, January 14, 2010 ---
"4 Economic Scenarios You'd Better Hope Won't
Materialize," by Rick Newman, Seeking Alpha, January 14, 2010 ---
Video of Detroit in Ruins --- http://www.youtube.com/watch?v=1hhJ_49leBw
Remember when Ronald Reagan was president.
We also had Bob Hope and Johnny Cash...
Now we have Obama and no Hope and no Cash
John Carney and Kamelia Angelova, ClusterStock, January 5, 2010
"The Great D.C. Migration: Americans move to where your money is,"
The Wall Street Journal, January 20, 2010 ---
Every day thousands of Americans vote with their feet on the best places to live and work, and these migration patterns can tell a lot about state economies—and economic policies. United Van Lines has released its annual report for 2009, based on those the moving company has relocated across one state line to another, and the winner is . . .
But first the biggest loser, which was Michigan for the fourth year in a row. More than two families left the state for every family that moved in. The fall of GM and Chrysler has obviously hurt. But two-term Governor Jennifer Granholm has also made her state the test case for the policy mix of raising taxes on higher incomes, increasing regulation, and steering taxpayer money at favored programs like job retraining and renewable energy. It hasn't worked for Michigan, even with the auto bailouts.
Ms. Granholm continues to be a regular economic policy adviser to the White House. Yikes.
The next two biggest net losers were Illinois and New Jersey, while California and New York also continued to have far more departures than arrivals.
Ten states gained net arrivals: Oregon, Arkansas, Nevada, Wyoming, Idaho, Colorado, Georgia, New Mexico, Texas and North Carolina. Of those, only Oregon sways decidedly to the political left and it has benefited from the economic refugees fleeing California.
Six of the eight states with no income tax were magnets for families, while eight of the 10 highest income tax states had more people packing. Democrats in state capitals and Washington have convinced themselves that "soak the rich" tax policies can help balance budgets, but the main effect seems to be to stimulate bon voyage parties.
As for the biggest winner, well, our readers won't be surprised to learn that it was Washington, D.C. by a large margin. United Van Lines moved nearly seven families to the federal city last year for every three it moved out. As always when the feds gear up the income redistribution machine, the imperial city and its denizens get a big cut of the action.
As in ancient Rome, the provinces are being required to send tribute to subsidize those living in the capital, which produces few services save transfer payments. No wonder the provincials are starting to rebel—even in Massachusetts.
Bob Jensen's threads on the entitlements disasters are at
"The U.S. Isn't as Free as It Used to Be: Canada now boasts North
America's freest economy," by Terry Miller, The Wall Street Journal,
January 19, 2010 ---
The United States is losing ground to its major competitors in the global marketplace, according to the 2010 Index of Economic Freedom released today by the Heritage Foundation and The Wall Street Journal. This year, of the world's 20 largest economies, the U.S. suffered the largest drop in overall economic freedom. Its score declined to 78 from 80.7 on the 0 to 100 Index scale.
The U.S. lost ground on many fronts. Scores declined in seven of the 10 categories of economic freedom. Losses were particularly significant in the areas of financial and monetary freedom and property rights. Driving it all were the federal government's interventionist responses to the financial and economic crises of the last two years, which have included politically influenced regulatory changes, protectionist trade restrictions, massive stimulus spending and bailouts of financial and automotive firms deemed "too big to fail." These policies have resulted in job losses, discouraged entrepreneurship, and saddled America with unprecedented government deficits.
In the world-wide rankings of economic freedom, the U.S. fell to eighth from sixth place. Canada now ranks higher and boasts North America's freest economy. More worrisome, for the first time in the Index's 16-year history, the U.S. has fallen out of the elite group of countries identified as "economically free" by the objective measures of the Index. Four Asia-Pacific economies now sit atop the global rankings. Hong Kong stands in first place for the 16th consecutive year, followed by Singapore, Australia and New Zealand. Every region of the world maintains at least one country among those deemed "free" or "mostly free" by the Index.
Some countries, notably Britain and China, have followed America's poor example and curtailed economic freedom. But many others—such as Poland, South Korea, Mexico, Japan, Germany and even France—have maintained or expanded economic freedom despite the global crisis. Ignoring the pressures of recession, these enlightened nations have continued to liberalize their economies, granting their entrepreneurs and consumers greater freedom. As a result, the average Index score dropped only 0.1 point in 2010. Eighty-one countries out of the 179 ranked recorded higher scores than in 2009.
These trends are important because study after study shows a strong correlation between economic freedom and prosperity. Citizens of economically freer countries enjoy much higher per-capita incomes on average than those who live in less free economies. Economic freedom also has positive impacts on overall quality of life, political and social conditions, and even on protection of the environment. Perhaps of most significance in these hard times, Index data indicate that freer economies do a much better job of reducing poverty than more highly
The public sector can't match the vitality of the private sector in promoting growth. Governments, even those that promise change, are primarily agents of the status quo. They tend to reflect the views and needs of those already holding political or economic power. Even democratic nations have their vested interests. Real change, however, can happen when those outside the mainstream have the freedom to try new things: new production processes, new technologies and new methods of organizing workers and capital.
It is common these days to dismiss as simpletons or ideologues those who speak in favor of the free market or capitalism. An honest assessment shows otherwise. Economic freedom, as represented in the Index of Economic Freedom, is a philosophy that rejects economic dogma, championing instead the diversity that follows when entrepreneurs are free to choose their own paths to prosperity.
The abiding lesson of the last few years is that the battle for liberty requires perpetual vigilance. President Obama professes desire to foster prosperity, environmental protection, poverty reduction and better health care. How ironic, then, that his economic proposals so consistently ignore or even undermine the one system—free enterprise capitalism—that has proven best able to achieve those goals.
Now America's once high-flying economy is barely crawling forward. Americans deserve better, and they can do better—as soon as they reverse course and start regaining the economic freedom that made America the most prosperous country in the world.
Mr. Miller is director of the Center for International Trade and Economics at the Heritage Foundation. He is co-editor, with Kim R. Holmes, of the "2010 Index of Economic Freedom" (471 pages, $24.95), available at heritage.org/index.
John Stossel: Stossel’s Take on Global Warming
Fraud Updates have been posted up to December 31, 2009 ---
Also see http://www.trinity.edu/rjensen/Fraud.htm
Also see http://www.trinity.edu/rjensen/fraud001.htm
"I read that 3,000 soldiers are arriving, Marines armed as if they were going to war. There is not a shortage of guns there, my God. Doctors, medicine, fuel, field hospitals, that's what the United States should send," Chavez said on his weekly television show. "They are occupying Haiti undercover."
Reuters, "Chavez says U.S. occupying Haiti in name of aid," January 17, 2010 ---
At last the U.S. has an opportunity to take over Haiti and make it the 51st state, Why not send the Venezuelan army in to keep the peace?
Lord's Prayer for the Nation --- http://www.greatdanepro.com/Pray For America/index.htm
Yemen Releases Six Former Gitmo Despite Promises to Obama
Its not a surprise the six detainees transferred from Gitmo to Yemen were released within a week of their return to Yemen, and its no surprise that the Saleh government in Yemen lied to the US with its pledge of continued detention. What's shocking is that anyone on the US side actually believed them to start with. The Heritage Foundation has some advice on Terrorist Transfers from Gitmo to Yemen: Strictly monitor for at least a year the six Guantanamo Yemenis just transferred to Yemen. According to news reports, the Yemeni government has agreed to detain them indefinitely.
The Jawa Report, January 6, 2010 --- http://mypetjawa.mu.nu/archives/200302.php
The Pentagon says
more of the terror suspects released from the Guantanamo Bay prison are
returning to the fight. Defense Department press secretary Geoff Morrell says a
new report shows the recidivism rate among former suspects released from the
prison in Cuba continues its upward trend. He did not release the figures, but
said officials are working to declassify the latest report so the rate can be
Associated Press --- http://www.breitbart.com/article.php?id=D9D2EE100&show_article=1
"What Our Spies Can Learn From Toyota:
We have 16 separate intelligence agencies. No wonder people aren't connecting
the dots, by Luis Garicano and Richard A. Posner, The Wall Street Journal,
January 12, 2010 ---
Until recently, the United States had become complacent about terrorism. The general view was that al Qaeda was on the run and Islamic terrorism was a receding threat. We now know better.
A string of attacks by Islamic terrorists—an officer murdering his fellow soldiers at a U.S. army base, a passenger's attempted bombing on a Detroit-bound airplane, and a double agent's suicide bombing a CIA base in Afghanistan—reveals the continuing and growing danger of Islamic terrorism. Hostility to the U.S. appears to be increasing among Muslim populations, and, with it, the number of potential terrorists. It is alarming that none of the three attackers—an American, a Nigerian and a Jordanian—was from one of the traditional hotbeds of terrorism.
In the case of the first two attacks, information that should have alerted the security services to the danger of an attack was in their hands but was not acted on. And this despite the restructuring of the national intelligence system after the 9/11 attacks. These failures are only the latest evidence that the post-9/11 reforms have not been a success.
Real reform of complex institutions is always hard, but it is possible. Consider a storied, historic, indeed iconic American institution that had developed an internal structure so convoluted that information did not flow through it—fiefdoms abounded, and duplication and delays were the rule. After many failed efforts at reform, only the threat and actuality of bankruptcy forced this institution to slim down, streamline and focus.
We are referring, of course, to the U.S. auto industry. The domestic automakers' organizational structures were notoriously complex and top-heavy. While Toyota had been selling the same car worldwide, Ford had insisted that American consumers would not buy the cars successfully produced by Ford for sale in Europe. As a result, every stage of production from R&D to actual manufacturing was duplicated in the two markets.
When General Motors dealers in Florida tried to stop GM from promoting its SUVs in the state's 70-degree Christmas season with ads bragging about the vehicles' performance in snow, they found no way to get their message across. GM had 325,000 employees, yet was run as a matrix with overlapping functional and geographic management structures. As Rick Wagoner, its ousted CEO, had confessed: "People really have trouble because they want to know who's in charge," he said, "and the answer is going to be, increasingly: It depends."
The national intelligence apparatus of the U.S. has fewer employees than GM had in its prime, yet it consists officially of 16 separate agencies, and unofficially of more than 20. Each of these agencies is protected by strong political and bureaucratic constituencies, so that after each intelligence failure everything continues pretty much the same and usually with the same people in charge.
Five and a half years after the report of the 9/11 Commission identified the cascade of intelligence failures that allowed the 9/11 attackers to achieve total surprise, the problems it highlighted persist: We learn of multiple, separate and unshared terrorist lists; of multiple agencies (State Department, CIA and the National Counterterrorism Center) unable to combine the tips they receive; of arbitrary rules, such as requiring proof of "reasonable suspicion," rather than mere suspicion, to deny a visa to a foreigner; and of terrorists released from American custody to become leaders of al Qaeda abroad. There is the sense that nobody is in charge.
The government's response to the attempted airline bombing—the most recent failure—has been to blame every agency that had some information that if pooled would have alerted the airport authorities to the menace of Abdulmutallab. To blame all is to blame none.
We have an unwieldy multiplicity of agencies that operate largely independently. Dysfunctional bureaucratic incentives decree that an attack involving a repetition of a known terrorist procedure is the most damaging politically, so shoes are scanned because a shoe was used in an attempted airplane bombing. Now underwear will be scanned as well. The government seems always to be playing catch-up to the terrorists.
We can fix this. As with the auto industry, the moment of crisis is the right moment to tackle in-depth reform of the intelligence services. One possibility that deserves serious consideration would be a consolidation of most existing agencies into four primary agencies: a foreign intelligence agency, a military intelligence agency, a domestic intelligence agency, and a technical data collection agency (satellite mapping, electronic interception, etc.).
This structure would mimic the United Kingdom's MI6 (the Secret Intelligence Service), Defence Intelligence Agency, MI5 (the Security Service), and GCHQ (General Communications Headquarters). In a streamlined system, the Director of National Intelligence would be a coordinator, rather than combining the role of a coordinator with that of the president's senior substantive intelligence officer. (As if the CEO of Boeing also designed the companies planes).
The members of our intelligence community will protest that simplifying the structure of the intelligence community is impossible—echoing the protests of auto workers, until bankruptcy forced their hand. The national intelligence system is similarly bankrupt: More than eight years after the 9/11 attacks, there is no excuse for such egregious failures. The time to act is now.
Mr. Garicano is a professor of management and economics at the London School of Economics. Mr. Posner, a federal circuit judge and a senior lecturer at the University of Chicago Law School, is the author of "A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression" (Harvard, 2009).
How Can We Help Haiti --- http://www.insidehighered.com/views/2010/01/15/fitzsimmons
When we see what
we did at the climate summit in Copenhagen, this is the response, this is what
happens, you know what I’m sayin’?
Super Scientist Danny Glover explaining what really caused the 7.0 earthquake near Haiti
"Pat Robertson Is No Joke," by John
L. Jackson , Jr., Chronicle of Higher Education, January 14, 2010 ---
I got the surreal news (via text message) about the Haitian disaster on an Amtrak train from Washington, D.C. to Philadelphia Tuesday evening (after attending the AAA symposium on race that I blogged about on Monday). And it just so happens that I was reading, in an almost eerie kind of irony, a small new book by Susan Buck-Morss during that train ride, Hegel, Haiti, and Universal History.
The book is an extrapolation on her Critical Inquiry article (from 2000) where she tried to argue that Hegel got his master-slave metaphor from the Haitian revolution, and that such a seemingly clear and self-evident historical fact has been sorely under-appreciated (in fact, missed just about entirely) by the best and brightest philosophers and historians who have worked on Hegel. She chalks these omissions up to a series of factors, including the narrowcast biases of disciplinization and academic specialization. Buck-Morss maintains that the early Hegel was clearly influenced and inspired by the Haitian revolt (championing the psychic need for slaves to forcibly reclaim their full humanity by asserting it in the face of brutal reprisals), even if the later Hegel (of The Philosophy of History) ends up dismissing all of Africa as radically ahistorical, uncivilized, and unprepared for full sovereignty.
In many ways, Robertson's pseudo-religious reading of the Haitian tragedy is a sensationalized version of the very logics that Buck-Morss critiques.
I call it "pseudo-religious" because I think of Robertson's comments as self-serving political claims hiding behind the cloak of religiosity. Of course, religion is inescapably political, but Robertson's own religious texts don't provide evidence for such wildly specific and offensive claims of Satanic collusion. On what evidence, from what sacred book, does Robertson base his theory of Haitian history (or any of his past pronouncements, including the "argument" that 9/11 was divine retribution for America's legalization of abortion)? Is he merely performing a xenophobic reading of Voodoo's spiritual difference from his particular version of Christianity?
Instead of seeing 18th- and 19th-century Haitian freedom fighters as subjects of history, agents capable of throwing off the shackles of foreign oppression (in a manner similar to America's 18th-century revolutionists, a group that I've never heard him call lapdogs of Satan), Robertson removes them from the political and geopolitical playing field altogether, dismissing their post-revolutionary plight as comeuppance for a bad deal with the devil. About that theory, two last things:
First, I would recommend that Robertson read Randall Robinson's An Unbroken Agony: Haiti, from Revolution to the Kidnapping of a President, which shows, quite compellingly, that Haiti's current politico-economic predicament is a direct result of how Europe and the United States responded to the country's 1804 assertion of autonomy: by very purposefully isolating and exploiting Haiti (politically and economically) for the next two hundred years. Therein lies much of the answer, Robinson demonstrates, to Haiti's current woes. (The details he provides, mostly uncontested and unhidden facts of history, will be shocking to many readers).
Second, if the Satan theory is accurate, I would ask that Robertson finally let them out of their contract with him. As a function of the kinds of horrible and inhumane ideas he spews, Robertson must be the other contractual party of which he would explain how he knows so much about such a secret compact/
Continued in article
The Promise and Peril of Big Data --- http://www.aspeninstitute.org/sites/default/files/content/docs/pubs/InfoTech09.pdf
"What Massachusetts Got Right," by Robert Scheer, The Nation,
January 20, 2010 ---
Of course, the public is right. In the midst of the worst economic crisis in seventy years, why waste enormous political capital battling to pass a healthcare plan that is modeled on a proven failure in Massachusetts, as voters there clearly registered? Meanwhile, the president has dropped the ball in the effort to make bankers act responsibly by forcing them to forego outrageous bonuses and help homeowners stay in their homes. Again quoting the message of that Wall Street Journal/NBC poll: "The president's focus on health care amid heightened job concerns could be hurting his ratings. At the one-year mark of his presidency, 35 percent of Americans said they were 'quite or extremely' confident he had the right priorities to improve the economy, down from 46 percent at midyear." The Journal noted that a majority disapproved of the government's response to the financial crisis, adding, "The related problem for Mr. Obama is the public's lingering anger about the bailouts of 2008 and 2009, which helped boost bank profits even as unemployment grew--a toxic political problem."
Just the Facts Keith, Just the Facts
In Scott Brown we have an irresponsible, homophobic, racist, reactionary, ex-nude model, teabagging supporter of violence against woman and against politicians with whom he disagrees.
MSNBC's Keith Olbermann ---
Read more: http://newsbusters.org/blogs/noel-sheppard/2010/01/18/olbermann-scott-browns-irresponsible-homophobic-racist-teabagging-sup#ixzz0dHEricqs
Hopefully Keith will be fine now that doctors doubled his meds and put him back into intensive therapy.
Video: Jon Stewart Mocks Olbermann (hilarious) ---
Olbermann reduced to name calling.
"You Never Forget Your First Time … Watching MSNBC," by Christian
Toto, Pajamas Media, January 21, 2010 ---
But I never watched MSNBC for an extended period until Tuesday night, during the coverage of the Massachusetts Senate special election. I was genuinely curious how they would cover a breaking news story with the potential to run afoul of their most popular hosts’ belief systems.
I wish my curiosity hadn’t gotten the better of me.
The channel assembled Chris Matthews and Rachel Maddow, two unabashed liberals and Barack Obama supporters, to comment on the breaking news. And who was anchoring this portion of the programming? Keith Olbermann, someone whose tone appears far more intense than his peers. (I’m trying to be gentle.)
Three hardcore liberals assigned to report on a major senatorial race, each looking as if someone was torturing their dog off camera. Norah O’Donnell looked equally pained, and she was stationed at Brown’s camp. Typically, when a newscaster is situated in the winner’s circle, the jubilation can be infectious. She was immune.
Fair and balanced? Doom and gloom is more like it. Where was the jovial Matthews, the feisty political observer, during one of the biggest nights in recent electoral memory? This is meaty stuff, an historic night with plenty to chew on, but Matthews looked as if he had eaten something that disagreed with him. It’s safe to assume he didn’t get a tingle all night
. . .
To cap off the night, Olbermann doubled down on his insulting, ill-informed rant from the night before about Scott Brown. I won’t repeat what he said here, but it’s on the web for all to see.
Before MSNBC took a hard turn left, media critics routinely bashed Fox News for its lack of objectivity. And they have a point. The show’s signature talkers lean right, even though O’Reilly’s program doesn’t veer right nearly as often as many think. O’Reilly strains at times to give Obama the benefit of the doubt. And though O’Reilly occasionally loses it on screen, barking at a guest or out-shouting someone in rough fashion, he’s never unleashed a torrent of abuse like Olbermann did for Brown.
Since MSNBC tacked left, Fox News bashing doesn’t appear as often. If it does, critics tend to lump the networks together and bemoan “opinion” journalism, wailing that CNN can’t compete with either MSNBC or Fox News. No mention is ever made of how CNN tacks left as well, often referring to roughly half of its potential viewers as “teabaggers.”
I’m not a hard news reporter — I cover entertainment and features for a variety of outlets — but I felt embarrassed for the folks at MSNBC all the same. Though it’s unlikely shame is an emotion they spend much time wrestling with.
The mortgage modification problem may be more with the second mortgage than
the first mortgage
"The Difficulty of Modifying Second Mortgages,:" The Atlantic, January 8, 2010 ---
"The Great Recession Continues:
Americans haven't been fooled by the Dow's rise.
What they see ahead are more taxes,"
by Mortimer Zuckerman, The Wall Street Journal, January 21, 2010 ---
The December jobs report has doused the hope that we were at the beginning of a sustained economic recovery.
The unemployment rate managed to hold at 10% in December only because of an extraordinary shrinkage in the labor force: Some 661,000 gave up looking for a job.
Bureau of Labor Statistics' (BLS) nonfarm payroll data indicate that December job losses totaled 85,000. But the bureau's household survey, a better and more comprehensive measure of both the unemployed and underemployed, indicated a loss of 589,000 jobs. Since the Great Recession began in 2007, some 8.6 million jobs have been lost, according to the bureau; and small businesses, the normal source for new jobs, are still shedding workers. Fewer than 10% added employees, while more than 20% cut back—and the cuts averaged nearly twice as many per firm as the hires at the expanding companies.
Unemployment, in short, has graduated from being a difficulty, a worry. It is now a catastrophe, with some 15.3 million Americans out of work, according to the BLS.
What about the future? The problem in the job market going forward is not so much layoffs in the private sector, which are abating, but a lack of hiring. The federal stimulus program is offset by a 2010 budget shortfall for state, city, county and school districts, which the Center on Budget and Policy Priorities recently estimated will be in the range of an astonishing $200 billion nationally. Since virtually all states and cities have to run balanced budgets, the result will be reduced services, layoffs and tax hikes.
The consequence is that the U.S. economy—for decades the greatest job creation machine in the world—is taking longer and longer to replace the jobs already lost. In the 1970s and 1980s, Jane Sasseen noted in a recent report in BusinessWeek, it took as little as one year from the end of a recession to add back the lost jobs. After the eight-month downturn ending in March of 1991, for example, jobs came back in 23 months. After the downturn from the dot-com bust in 2001, it took 31 months. This time it could take as many as five years or even more to recover all of the eight-plus million jobs lost since March 2007. That's because we would have to create an additional 1.7 million jobs annually beyond those for the 1.3 million new people who enter the work force every year.
Economists may see the recession as being over, but the man on the street does not. Roughly 60% of the public believes the recession still has a way to go, a NBC/Wall Street Journal poll reported last October. Even those who have not suffered know someone—a friend, a neighbor, a family member—who is being hurt. Two in three say the rally in the stock market has not changed their views.
There are sound reasons for this gloom. Consumers have learned a bitter lesson. They understand that increased consumption—private and public—will have to come from income and not borrowing, and income will have to come from employment.
Today, mainstream Americans are going on a financial diet amid deteriorating family finances. They know now that they cannot spend what they don't have, as the painful consequences of spending levels that were artificially pumped up by too much debt have hit home. The top 20% of the nation's households account for 40% of all spending, according to government data reported by Ylan Q. Mui in the Washington Post last September. But these households no longer trust their home equity or rising stock portfolios (up by almost $5 trillion this past year) as a basis for spending in lieu of saving. All they see ahead are taxes, taxes, taxes. So the dollars have not yet started to flow. This is the new normal.
What this means is that larger-than-typical head winds face two of the three normal engines of recovery: consumption and residential investment. Rather than pumping more cash into a fragile economy to make up this difference, the government will have to focus on its next big task: drawing up credible plans for bringing bloated budget deficits under control without triggering another downturn.
The prospect, therefore, is sluggish GDP growth; employment gains that are too slow to prevent further increases in the unemployment rate; and firms still very reluctant to hire vigorously.
How can we accelerate a substantial recovery in job growth that will generate additional labor income? There is no snap answer. But this is no argument for inertia.
We must have programs that create some degree of confidence that America can be rebuilt, and jobs can be created, especially since consumer spending will likely decline as a part of GDP for many years. The unemployed have to be supported. But it would be better if the financial support employed labor in rational, long-term, major infrastructure projects, processed by a newly created National Infrastructure Bank.
These wouldn't be entitlement programs, but regeneration programs. Government spending on infrastructure projects—broadband Internet access across the nation, restoring decaying bridges and canals, building high-speed railways, modern airports, sewage plants, ports—has a high multiplier effect for adding jobs to the economy. And we will be fulfilling a desperate national need.
A second avenue for increasing employment would be to enhance technology, the area of our greatest strength. We are depriving ourselves of productive talent by a fearful attitude toward immigration. We make it hard for bright people to come and we make it hard for them to stay, so once they have graduated from our universities they go home to work for our competitors. This is not the way to run a railroad.
Foreign students are a significant proportion of those with graduate degrees in the hard sciences in American universities. We should restore the quotas for H-1B visas to 195,000 annually (where it was in the early 2000s) from 65,000, where it is now.
This increase has been blocked by shortsighted special-interest groups that fear jobs will be taken from Americans. On the contrary. The kind of people we should be striving to keep are those whose work in technology and engineering provides more than their share of new jobs.
Technology and innovation have long given us our greatest job growth. Just think: In 1800, about three-quarters of the U.S. labor force was devoted to agriculture. Today, it is less than 3%. Manufacturing employed one-third of the work force at the end of World War II. Today, it is down to about one-tenth. Americans are accustomed to economic transformation.
We must follow rational economic policies in the interest of the nation and not in the interest of narrow parochial groups who lobby legislators. Otherwise, as illustrated by the sorry journey of health-care legislation, we will see more of the politics of corruption.
Mr. Zuckerman is chairman and editor in chief of U.S. News & World Report.
A surprising editorial from the Editors of The Wall Street Journal
"Obama v. Wall Street The President gets serious about moral hazard," The Wall Street Journal, January 22, 2010 ---
President Obama and Democrats have settled on demonizing Wall Street as a campaign theme for November's elections. If history is any guide, Mr. Obama and New York Senator Chuck Schumer will now persuade Wall Street to underwrite this campaign. Ah, the politics of hope and change. How refreshing.
Phony populism aside, yesterday Mr. Obama introduced his first serious idea into the debate on reforming the financial system. In calling for an end to proprietary trading at firms with a federal safety net, the President showed that he now understands an important principle: Risk-taking in the capital markets is incompatible with a taxpayer guarantee.
Under the President's still-sketchy plan, firms that hold government-insured deposits or are eligible to receive cheap loans in an emergency from the Federal Reserve would not be able to trade for their own accounts. The firms could facilitate customer orders as brokers have always done and continue to underwrite new issues of stocks and bonds, but they could not make bets with their own capital or own or invest in hedge funds.
Yesterday's announcement is a critical departure from the reform plan Mr. Obama introduced last year—largely incorporated in the House and Senate bills written by Barney Frank and Chris Dodd. Those plans all sought to expand the universe of too-big-to-fail companies eligible for taxpayer rescue. Mr. Obama has at last joined the most important policy discussion: How to eliminate the moral hazard now embedded in the U.S. financial system. Political assaults on banker compensation have done nothing to address this core problem that enables gargantuan bonuses.
The days ahead will demonstrate whether Mr. Obama is serious, or if this is merely a political tactic to encourage Republicans to defend big banks. If he's serious, he will add to his plan a taxpayer exit strategy from the most expensive bailouts—at Fannie Mae and Freddie Mac.
He'll also soon realize that while his plan raises the right questions, its details will be crucial. Since there's a counterparty on the other end of every trade made by Goldman Sachs, it won't always be easy to discern trades made for customers versus those made for Goldman.
More fundamentally, even if the logistics can be mastered, the President's plan would not have prevented the credit chaos of 2008. Bear Stearns was not a bank, could not borrow from the Fed's discount window and wasn't even all that big, yet the government still wouldn't let it fail. Under Mr. Obama's new rules, Goldman might simply decide to sell its bank—yet investors and its own traders would still assume it is too big to fail. That problem still needs to be addressed.
Mr. Obama also keeps peddling the illusion that the entire crisis was caused by the bankers. But the root cause was a credit mania, courtesy of the Federal Reserve. The mania was concentrated in the housing market, courtesy of Congress and several Presidential Administrations.
If we are going to have a Fed and a political class as reckless as we have, then we need a more comprehensive answer to financial risk. Bankruptcy for risk-takers who bet wrong is the best option. Barring that, strict limits on margin and leverage, especially for holders of insured deposits, can be helpful. Mr. Obama's suggestion yesterday of limits on the size of financial firms—with the limits still to be determined—deserves a hearing but would seem more problematic.
Still, we're encouraged by yesterday's announcement. The Democrats appear to finally realize that too-big-to-fail is a problem to be solved, not the foundation of a modern banking system.
"A Non-Delirious New York Recovery
should not mean a return to the excess that betrayed so many," by Mark
Halprin, The Wall Street Journal, January 21, 2010 ---
Midway between the first intoxications of borrowed money that does not exist, and the red-hot bearings of presses that roll to correct such inconsistencies, lies a wonderland in which human nature can become a subsidiary of the making and spending of money. Not steadily and honorably in furtherance of well being, charity, and art, but at the speed of summer lightning and for its own sake.
When pay-out exceeds pay-in, balance is maintained only by the weight of illusion—as in real-estate bubbles, or welfare states in which benefits vastly exceed contributions. Within such failing systems one finds nevertheless highly visible concentrations of wealth, like lumps in tapioca, that persist in setting a tone that has long gone flat.
Take Manhattan, but first take the Hamptons, where symptoms are readily apprehended, just as the pulse at the wrist is a telltale of the heart. Mere multimillionaires cannot afford anymore to go where within living memory actual people made a living from the farms, clam beds, and sword-fishing grounds. Now the potato fields are covered with houses that look like the headquarters of Martian expeditionary forces, ice-cream factories, vacuum cleaners on stilts, the Seagram building on its side, or shingled New England cottages monstrously swollen into something you might see after eating a magic mushroom. In simple and quiet towns that once deferred to the majesty of the ocean, the streets are now clogged with a kabuki theater of Range Rovers and $35,000 handbags.
In Manhattan the knock-the-wind-out-of-you rich used to be a relatively silent freak of nature who could easily be ignored, but of late they are so electrically omnipresent, jumping out of every flat screen and magazine, that they indelibly color the life of the city. Having multiplied like Gucci-clad yeast, they have become objects of impossible envy.
You cannot ignore them as you sit in your $2,000 a month 7 x 10 "efficiency," eating your $5 street pretzel. Or when private schools—where scholarships are reserved for peasants who subsist on $300,000 or less, and where if you haven't been admitted by the time you're an embryo you're toast—have become like the class redoubts of Czarist Russia.
Or when Mayor Michael Bloomberg spends a hundred million of his own money, $175 per vote, to crown himself like Napoleon, perhaps forgoing the purchase of the presidency because at that rate he would have to fork over $22 billion. What if he had spent comparably to his predecessors—Fiorello La Guardia, or even Jimmy Walker, whose corruption when compared to Mr. Bloomberg's well-established honesty seems nonetheless like the innocence of a fawn? (It is possible that he would not have won on his own merits.)
Ostentation has always been a hallmark of mankind, and part of the price of freedom and power in ascendant nations. But the day the baubles shine most brilliantly is the day when the civilization, distracted from what made it, begins to go down the drain. This is not an argument for restricting economic liberties, but rather a lamentation of circumstance and a condemnation of taste. The right may envy by competition and the left by expropriation, but the objects of such envy are not worthy of its ruinous influences, and the city is at its best when the fury of acquisitiveness is least.
Now that New York may be exiting yet another of many eras of irrational exuberance, it presents an opportunity in the midst of defeat, for when it is quiet it is far more lovely and profound than when it is delirious. For a long, clear moment, September 11 blew the dross away and the real city appeared. When such things arrive, as they always have and always will—whether in the form of conquest, riots, depression, epidemics, or war—they and their aftermath should be the cause of reflection.
Whenever New York has endured a blow, its real strengths have emerged. If it is now on the verge of a long-term diminution of wealth, or at least a roughly attained sobriety, all the suffering should not be for nothing. Recovery should mean not just a return to the fascination with excess that betrayed so many. For one, excess is too limited a thing to be genuinely satisfying. Grab the first billionaire you see (it should be easy) and he will tell you that stuff simply doesn't do the trick.
This is why New York has for too long been a city in which even the rich are poor. To the contrary, it should be a place in which even the poor are rich. How to accomplish this is a riddle to which public policy often proves inadequate and is anyway just a distant follower of forces of history that assert themselves as far beyond its control as the weather. As the waves of history sweep through the present what they leave will depend in large part upon how they are perceived and how each individual acts upon his perceptions, which law and regulation follow more than they shape.
How things will turn out is anyone's guess, but it would be nice if, as in the quiet during and after a snow storm, Manhattan would reappear to be appreciated in tranquility; if cops, firemen, nurses, and teachers did not have to live in New Jersey; if students, waitress-actresses, waiter-painters, and dish-washer-writers did not have to board nine to a room or like beagles in their parents' condominia; if the traffic on Park Avenue (as I can personally attest it was in the late 1940s) were sufficiently sparse that you could hear insects in the flower beds; if to balance the frenetic getting and spending, the qualities of reserve and equanimity would retake their once honored places; if celebrity were to be ignored, media switched off, and the stories of ordinary men and women assume their deserved precedence; and if for everyone, like health returning after a long illness, a life of one's own would emerge from an era tragically addicted to quantity and speed.
Mr. Helprin, a senior fellow at the Claremont Institute, is the author of, among other works, "Winter's Tale" (Harcourt), "A Soldier of the Great War" (Harcourt) and, most recently, "Digital Barbarism" (HarperCollins).
Why the Bailout Will Never Work --- http://www.trinity.edu/rjensen/2008Bailout.htm#BailoutStupidity
Now let's hope our President sends out the same moral hazard message about Fannie and Freddie! ---
The Top 10 Quotes From Barack Obama in
"OPINION: DECLARATIONS JANUARY 14, 2010,
7:02 P.M. ET Slug the Obama Story 'Disconnect'." by Peggy Noonan, The Wall
Street Journal, January 14, 2010 ---
Until now Peggy Noonan, as a correspondent for the WSJ, has pretty much sounded like a speech writer for MSNBC's Keith Olbermann and Chris Matthews on the subject of President Obama. Now she's raising some doubts.
Yet—and this is the key part—the president does not seem to see or hear. He does not respond. He is not supple, able to hear reservations and see opposition and change tack. He has a grim determination to bull this thing through. He negotiates each day with Congress, not with the people. But the people hate Congress! Has he not noticed?
The people have come alive on the issue of spending—it's too high, it threatens us! He spends more. Everywhere I go, I hear talk of "hidden taxes" and a certainty that state and federal levies will go up, putting a squeeze on a middle and upper middle classes that have been squeezed like oranges and are beginning to see themselves as tired old rinds. Mr. Obama seems at best disconnected from this anxiety.
The disconnect harms him politically, but more important it suggests a deepening gulf between the people and their government, which only adds to growling, chafing national discontent. It also put the president in the position, only one year in, only 12 months into a brand-new glistening presidency, of seeming like the same old same old. There's something tired in all this disconnect, something old-fashioned, something sclerotic and 1970's about it.
And of course the public is reacting. All politicians are canaries in coal mines, they're always the first to feel the political atmosphere. It was significant when the Democrats lost the governorships of Virginia and New Jersey two months ago. It is significant that a handful of House and Senate Democrats have decided not to run this year. And it is deeply significant that a Republican state senator in Massachusetts, Scott Brown, may topple the Democratic nominee to fill Ted Kennedy's former seat, Martha Coakley. In a way, the Republicans have already won—it's a real race, it's close, and in "Don't blame me, I'm from Massachusetts"!
Continued in article
"Barack Obama admits failure to unite
the US: President Barack Obama has admitted he failed to unite Americans
and change the way Washington works during his first year in office," by
Alex Spillious, London Telegraph, January 14, 2010 ---
With his approval ratings falling below 50 per cent, Mr Obama confessed his disappointment at not delivering key pledges of his campaign.
"What I haven't been able to do in the midst of this crisis is bring the country together in a way that we had done in the inauguration," he told People magazine. "That's what's been lost this year ... that whole sense of changing how Washington works."
Mr Obama, who will mark a year in office next Wednesday, came to power amid a surge of optimism that he could unify Democrats and Republicans at a time of national distress, and reverse the bitter polarity of the George W Bush era.
Instead, there has been little collaboration between the parties in Congress while floating voters who turned out en masse for Mr Obama have deserted him in opinion polls. His approval ratings have tumbled down from the mid-to-high 60s when he took over.
In a Quinnipiac University poll, there was even a narrow margin among respondents of 35 to 37 per cent on whether the United States would have been better off had Obama's Republican opponent John McCain won the 2008 election.
Mr Obama's first year has seen him battle the worst economic crisis in 70 years, juggle two wars and contend with a revived al-Qaeda threat.
High unemployment, slow progress of health care reform and vast bailouts to Wall Street have done most to damage his approval rating.
The president recognised that Americans' disappointment at progress made so far was inevitable.
"They have every right to feel deflated because the economy was far worse than any of us expected,'" he said. "The day I was sworn in, we now know that we were in the process of losing 650,000 jobs in December and 700,000 jobs in January, another 650,000 in March. So people rightly have been anxious this year."
He does however remain popular as a person and as a leader, with 64 per cent of those asked by CNN saying Mr Obama had the "personality and leadership" qualities required of a president.
Polls also showed better news for the White House on national security, despite withering Republican attacks on his handling of al-Qaeda's attempt to bring down a US-bound jet carrying 290 people on Christmas Day.
CNN found that 57 per cent approved of the way the president had managed the attack, compared to 29 per cent who disapproved.
Despite his disappointment, he said that the passage of health care reform, which is expected over the next month, would be his proudest moment so far.
"Having a health-care bill through the House and the Senate is a potentially historic accomplishment. I'll be that much prouder when I actually sign it," he said.
"OMB's Fuzzy Math," by Jillian Bandes, Townhall, January 13,
The Office of Management and Budget has calculated jobs that are “saved or created” by the Recovery Act through non-existent congressional districts, phantom ZIP codes, and questionable accounting practices. To remedy these problems (and in a perfectly-timed response to bad press) the OMB has decided to re-calculate “saved or created” jobs to include those that exist independent of any Recovery Act money in the first place.
In other words, the OMB has made their accounting on a $787 billion expenditure of taxpayer money completely meaningless.
OMB director Peter Orzag says the new approach provides a way for recipients to skip over making any kind of “subjective judgment” on how many jobs were saved or created by their receipt of Recovery Act money. In lieu of actual judgment, the OMB will automatically assume a job has been saved or created after a business gets its hands on Recovery Act money.
“Recipients will no longer be required to sum various data on hours worked across multiple quarters of data when calculating job estimates… recipients will more easily and objectively report on jobs funded with Recovery Act dollars,” said Orzag.
In other words, if a business receives $40,000 in Recovery Act dollars, a job is automatically tallied in the OMB ticker, regardless of whether that $40,000 went towards the actual salary of an employee or fancy office furniture. Businesses won’t even have to fudge the books to use the federal money towards things like catered lunches – non-salary expenses now qualify as a legitimate use of Recovery Act dollars.
Let’s say Joe has employed Bob for ten years, and has no plans on firing him anytime soon. When Joe suddenly receives $40,000 in Recovery Act money, Bob’s job is now the product of the Recovery Act, even though the job existed independently of that money. The new title for this accounting practice is saying that Bob’s job has been “funded” instead of “saved or created” – a phrase that, conveniently, has received the worst press.
If an employee receives a raise, that counts as a job, too. And the OMB wants the new calculations done fast, in time for the “rapidly approaching January reporting period,” just in time for President Obama’s State of the Union address. OMB announced the new changes on December 19th – that’s the Saturday before Christmas – and it wasn’t even noticed until a small nonprofit watchdog, ProPublica, noticed the memo a month later.
"The stimulus has been such a grand failure that the administration has stooped to unabashedly cooking the books," said Republican Study Committee Chairman Tom Price (R-GA). "Moving the goal posts and tinkering with math formulas won't put the country back to work. The ridiculous 'saved or created' label needed to go, but the administration's new stimulus metric is even more misleading.”
Phil Kerpen, the director of Americans for Prosperity, said that the bigger issue isn’t the accounting practices – instead, it’s the fact that government thinks it can create jobs in the first place.
“The bottom line is that every dollar government spends first has to be taxed, borrowed, or printed. How can government spending make us richer when all three of those options make us poorer?”
Let me conclude with a political note. The main reason for reform is to serve the nation. If we don’t get major financial reform now, we’re laying the foundations for the next crisis. But there are also political reasons to act. For there’s a populist rage building in this country, and President Obama’s kid-gloves treatment of the bankers has put Democrats on the wrong side of this rage. If Congressional Democrats don’t take a tough line with the banks in the months ahead, they will pay a big price in November.
Paul Krugman, Bubbles and the Banks," The New York Times, January 7, 2010 ---
"Democratic Payoffs, Er, Stimulus,"
by Mona Charen, Townhall, January 5, 2010 ---
When a non-American scholar I admired let slip a casual reference to "American corruption" a few years ago, my chauvinistic pride was wounded. This isn't Mexico, after all, or even Italy, where bribes are the normal social lubricant. Still, an unsentimental examination of government dollars at work seems to confirm my friend's observation.
A small example: The U.S. government has announced plans to spend $340 million on an advertising campaign to promote the Census, including $2.5 million for ads during the Super Bowl. Though the nation has been collecting this data for 220 years, it seems we now need commercial jingles to complete the forms. Or could there be another agenda? The government, reports The Hill newspaper, will target $80 million of those dollars to racial and ethnic minorities and non-English speakers -- groups that vote disproportionately Democratic. Nor will Democrats permit efforts to limit the count to those here legally. An effort by Sen. David Vitter, R-La., to exclude illegal aliens from the count went nowhere.
Illegal aliens don't (usually) vote, of course. But when they are counted in the Census, they do affect representation in the Congress. So some of the money you pay in taxes will go toward increasing the legislative clout of one party.
That same party has seen to its own perpetuation in other ways, too. Consider the $787 billion stimulus bill. Veronique de Rugy and Jerry Brito of George Mason University report that "a total of 56,399 contracts and grants totaling $157,028,362,536 were awarded in this first quarter for which Recovery.gov reports are available. The number of jobs claimed as created or saved is 638,826.54 -- an average of $245,807.51 per job."
But it gets more interesting. "There are 177 districts represented by Republicans and 259 represented by Democrats," they write. "On average, Democratic districts received 1.6 times more awards than Republican ones. The average number of awards per Republican district is 94, while the average number of awards per Democratic district is 152." Democratic districts also received nearly twice the dollar value of funds as Republican ones.
Continued in article
Bob Jensen's threads on the stimulus mess
"The cost of illegal immigration has exhausted the Arizona State Treasury. In order to pay for the federal government's responsibility of securing our national borders and incarcerating individuals who enter the United States illegally and commit crimes, the state has incurred hundreds of millions of dollars of debt to pay these bills," said Treasurer Dean Martin.
"Martin: Arizona taxpayers owed $1 billion from illegal immigration," KVOA, January 6, 2010 ---
Professor Blinder, a professor of economics and public affairs at Princeton University and vice chairman of the Promontory Interfinancial Network, is a former vice chairman of the Federal Reserve Board --- http://en.wikipedia.org/wiki/Alan_S._Blinder
"When Greed Is Not Good: Wall Street has quickly rediscovered the
virtues of mammoth paychecks. Why hasn't there been more financial reform?"
by Alan S. Blinder, The Wall Street Journal, January 11, 2010 ---
I hear Gordon Gekko is making a comeback. So is greed.
They say markets are alternately ruled by greed and fear. Well, our panic-stricken financial markets have been ruled by fear for so long that a little greed might serve as an elixir. But everybody knows you can overdose on an elixir.
When economists first heard Gekko's now-famous dictum, "Greed is good," they thought it a crude expression of Adam Smith's "Invisible Hand"—which is one of history's great ideas. But in Smith's vision, greed is socially beneficial only when properly harnessed and channeled. The necessary conditions include, among other things: appropriate incentives (for risk taking, etc.), effective competition, safeguards against exploitation of what economists call "asymmetric information" (as when a deceitful seller unloads junk on an unsuspecting buyer), regulators to enforce the rules and keep participants honest, and—when relevant—protection of taxpayers against pilferage or malfeasance by others. When these conditions fail to hold, greed is not good.
Plainly, they all failed in the financial crisis. Compensation and other types of incentives for risk taking were badly skewed. Corporate boards were asleep at the switch. Opacity reduced effective competition. Financial regulation was shamefully lax. Predators roamed the financial landscape, looting both legally and illegally. And when the Treasury and Federal Reserve rushed in to contain the damage, taxpayers were forced to pay dearly for the mistakes and avarice of others. If you want to know why the public is enraged, that, in a nutshell, is why.
American democracy is alleged to respond to public opinion, and incumbents are quaking in their boots. Yet we stand here in January 2010 with virtually the same legal and regulatory system we had when the crisis struck in the summer of 2007, with only minor changes in Wall Street business practices, and with greed returning big time. That's both amazing and scary. Without major financial reform, "it" can happen again.
It is true that regulators are much more watchful now, that Bernie Madoff is in jail (where he should have more company), and that much of "fancy finance" died a violent death in the marketplace. All good. But history shows that financial markets have a remarkable ability to forget the past and revert to their bad old ways. And we've made essentially no progress on lasting financial reform.
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Chad Crowe Perhaps reformers just need more patience. The Treasury made a fine set of proposals that the president's far-flung agenda left him little time to pursue—so far. The House of Representatives passed a pretty good financial reform bill late last year. And while there's been no action in the Senate as yet, at least they are talking about it. As Yogi Berra famously said, "it ain't over 'til it's over."
But I'm worried. The financial services industry, once so frightened that it scurried under the government's protective skirts, is now rediscovering the virtues of laissez faire and the joys of mammoth pay checks. Wall Street has mounted ferocious lobbying campaigns against virtually every meaningful aspect of reform, and their efforts seem to be paying off. Yes, the House passed a good bill. Yet it would have been even better but for several changes Financial Services Committee Chairman Barney Frank (D., Mass.) had to make to get it through the House. Though the populist political pot was boiling, lobbyists earned their keep.
I expect they'll earn more. Even before Senate Banking Committee Chairman Christopher Dodd (D., Conn.) announced his retirement, it appeared likely that any bill that could survive the Senate would be weaker than the House bill. Then came Mr. Dodd's announcement, which reshuffled the deck.
There are two diametrically opposed hypotheses about how his retirement will affect the legislation. Conventional wisdom holds that it is good news for reformers: Freed from crass political concerns, Mr. Dodd can now steer his committee more firmly toward a better bill. Let's hope so. But an opposing view reminds us that lame ducks lose power rapidly in power-mad Washington. To lead, someone must be willing to follow.
My fear is that a once-in-a-lifetime opportunity to build a sturdier and safer financial system is slipping away. Let's remember what happened to health-care reform (a success story!) as it meandered toward 60 votes in the Senate. The world's greatest deliberative body turned into a bizarre bazaar in which senators took turns holding the bill hostage to their pet cause (or favorite state). With zero Republican support, every one of the 60 members of the Democratic caucus held an effective veto—and several used it.
If financial reform receives the same treatment, we are in deep trouble, both politically and substantively.
To begin with the politics, recent patterns make it all too easy to imagine a Senate bill being bent toward the will of Republicans—who want weaker regulation—but then garnering no Republican votes in the end. We've seen that movie before. If the sequel plays in Washington, passing a bill will again require the votes of every single Democrat plus the two independents. With veto power thus handed to each of 60 senators, the bidding war will not be pretty.
On substance, while both health-care and financial reform are complex, health care at least benefited from broad agreement within the Democratic caucus on the core elements: expanded but not universal coverage, subsidies for low-income families, enough new revenue to pay the bills, insurance exchanges, insurance reform (e.g., no denial of coverage for pre-existing conditions), and experiments in cost containment to "bend the curve." The fiercest political fights were over peripheral issues like the public option, abortion rights (how did that ever get in there?), and whether Nebraskans should pay like other Americans (don't try to explain that one to foreigners).
But financial regulatory reform is not like that. Every major element is contentious: a new resolution authority for ailing institutions, a systemic risk regulator, a separate consumer protection agency, whether to clip the Fed's wings or broaden them, restrictions on executive compensation, regulation of derivatives, limits on proprietary trading, etc.
The elements are interrelated; you can't just pick one from column A and two from column B. What's worse, several components would benefit from international cooperation—for example, consistent regulation of derivatives across countries. This last point raises the degree of difficulty substantially. No one worried about international agreement while Congress was writing a health-care bill.
All and all, enacting sensible, comprehensive financial reform would be a tall order even if our politics were more civil and bipartisan than they are. To do so, at least a few senators—Republicans or Democrats—will have to temper their partisanship, moderate their parochial instincts, slam the door on the lobbyists, and do what is right for America. Figure the odds. Gordon Gekko already has.
Bob Jensen's threads on outrageous executive compensation are at
Italian companies—with Rome's backing—have equipped Iran's military and contributed to the regime's satellite and possibly nuclear programs. When it comes to appeasing the Islamic Republic, no other Western nation has stooped lower than Italy. Amid the international outrage over the Iranian regime's brutalization of its own people, Italian Foreign Minister Franco Frattini warned Europe "must not burn every bridge because Iran is a key figure" in the region. While rejecting any military action to stop Tehran's nuclear weapons program, Mr. Frattini urged the West to "avoid those [sanctions] that are connected with Iranian national pride.
Giulio Meotti, "The Rome-Tehran Axis: Italian companies—with Rome's backing—have equipped Iran's military and contributed to the regime's satellite and possibly nuclear programs," The Wall Street Journal, January 14, 2010 ---
"Let's Take the "Crony" Out of "Crony
Capitalism" by John Stossel, Townhall, January 13, 2010 ---
When Judge Richard Posner, the prolific conservative intellectual, released his book "A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression" last year, you might have thought the final verdict was in: Capitalism caused the economic downturn and high unemployment.
That this verdict was pronounced by someone like Posner, who is associated with the University of Chicago and the free-market law and economics movement, gave moral support to all the politicians who were intent on exploiting the recession (as they exploit all crises) to increase government control of the economy.
But what exactly is this "capitalism" that is blamed?
The word "capitalism" is used in two contradictory ways. Sometimes it's used to mean the free market, or laissez faire. Other times it's used to mean today's government-guided economy. Logically, "capitalism" can't be both things. Either markets are free or government controls them. We can't have it both ways.
The truth is that we don't have a free market -- government regulation and management are pervasive -- so it's misleading to say that "capitalism" caused today's problems. The free market is innocent.
But it's fair to say that crony capitalism created the economic mess.
Crony capitalism, by the way, will be the subject of my TV show this week on the Fox Business Network (Thursday at 8 p.m. Eastern; Friday at 10).
What is crony capitalism? It's the economic system in which the marketplace is substantially shaped by a cozy relationship among government, big business and big labor. Under crony capitalism, government bestows a variety of privileges that are simply unattainable in the free market, including import restrictions, bailouts, subsidies and loan guarantees.
Crony capitalism is as old as the republic itself. Congress' first act in 1789 -- on July 4, no less! -- was a tariff on foreign goods to protect influential domestic business interests.
We don't have to look far to see how crony-dominated American capitalism is today. The politically connected tire and steel industries get government relief from a "surge" of imports from China. (Who cares if American consumers want to pay less for Chinese steel and tires?) Crony capitalism, better know as government bailouts, saved General Motors and Chrysler from extinction, with Barack Obama cronies the United Auto Workers getting preferential treatment over other creditors and generous stock holdings (especially outrageous considering that the union helped bankrupt the companies in the first place with fat pensions and wasteful work rules). Banks and insurance companies (like AIG) are bailed out because they are deemed too big to fail. Favored farmers get crop subsidies.
If free-market capitalism is a private profit-and-loss system, crony capitalism is a private-profit and public-loss system. Companies keep their profits when they succeed but use government to stick the taxpayer with the losses when they fail. Nice work if you can get it.
The role that regulation plays in crony capitalism is unappreciated. Critics of business assume that regulation is how government tames corporations. But historically, regulation has been how one set of businesses (usually bigger, well-connected ones) gains advantages over others. Timothy Carney's book about this, "The Big Ripoff: How Big Business and Big Government Steal Your Money", explains why Phillip Morris joined the "war on tobacco," General Motors pushed for clean-air legislation and Archer Daniels Midland likes ethanol subsidies.
As economist Bruce Yandle writes, "(I)ndustry support of regulation is not rare at all; indeed, it is the norm."
If you wonder why, ask yourself: Which are more likely to be hampered by vigorous regulatory standards: entrenched corporations with their overstaffed legal and accounting departments or small startups trying to get off the ground? Regulation can kill competition -- and incumbents like it that way.
When will Michael Moore figure this out? His last movie attacked what he calls capitalism, but his own work shows that it's not the free market that causes the ills he abhors. Had he called the movie "Crony Capitalism: A Love Story," he would have been on firmer ground.
It's time we acknowledged the difference between the free market, which is based on freedom and competition, and crony capitalism, which is based on privilege. Adam Smith knew the difference -- and chose the free-market.
What's taking us so long?
"The Biggest Losers Behind the
Christmas Eve taxpayer massacre at Fannie and Freddie," The Wall Street
Journal, January 3, 2009 ---
Happy New Year, readers, but before we get on with the debates of 2010, there's still some ugly 2009 business to report: To wit, the Treasury's Christmas Eve taxpayer massacre lifting the $400 billion cap on potential losses for Fannie Mae and Freddie Mac as well as the limits on what the failed companies can borrow.
The Treasury is hoping no one notices, and no wonder. Taxpayers are continuing to buy senior preferred stock in the two firms to cover their growing losses—a combined $111 billion so far. When Treasury first bailed them out in September 2008, Congress put a $200 billion limit ($100 billion each) on federal assistance. Last year, the Treasury raised the potential commitment to $400 billion. Now the limit on taxpayer exposure is, well, who knows?
The firms have made clear that they may only be able to pay the preferred dividends they owe taxpayers by borrowing still more money . . . from taxpayers. Said Fannie Mae in its most recent quarterly report: "We expect that, for the foreseeable future, the earnings of the company, if any, will not be sufficient to pay the dividends on the senior preferred stock. As a result, future dividend payments will be effectively funded from equity drawn from the Treasury."
The loss cap is being lifted because the government has directed both companies to pursue money-losing strategies by modifying mortgages to prevent foreclosures. Most of their losses are still coming from subprime and Alt-A mortgage bets made during the boom, but Fannie reported last quarter that loan modifications resulted in $7.7 billion in losses, up from $2.2 billion the previous quarter.
The government wants taxpayers to think that these are profit-seeking companies being nursed back to health, like AIG. But at least AIG is trying to make money. Fan and Fred are now designed to lose money, transferring wealth from renters and homeowners to overextended borrowers.
Even better for the political class, much of this is being done off the government books. The White House budget office still doesn't fully account for Fannie and Freddie's spending as federal outlays, though Washington controls the companies. Nor does it include as part of the national debt the $5 trillion in mortgages—half the market—that the companies either own or guarantee. The companies have become Washington's ultimate off-balance-sheet vehicles, the political equivalent of Citigroup's SIVs, that are being used to subsidize and nationalize mortgage finance.
This subterfuge also explains the Christmas Eve timing. After December 31, Team Obama would have needed the consent of Congress to raise the taxpayer exposure beyond $400 billion. By law, negative net worth at the companies forces them into "receivership," which means they have to be wound down.
Unlimited bailouts will now allow the Treasury to keep them in conservatorship, which means they can help to conserve the Democratic majority in Congress by increasing their role in housing finance. With the Federal Reserve planning to step back as early as March from buying $1.25 trillion in mortgage-backed securities, Team Obama is counting on Fan and Fred to help reflate the housing bubble.
That's why on Christmas Eve Treasury also rolled back a key requirement of the 2008 bailout—that Fan and Fred begin shrinking the portfolios of mortgages they own on their own account, which total a combined $1.5 trillion. Risk-taking will now increase, so that the government can once again follow Barney Frank's infamous advice that the companies "roll the dice" on subsidies for affordable housing.
All of which would seem to make the CEOs of Fannie and Freddie the world's most overpaid bureaucrats. A release from the Federal Housing Finance Agency that also fell in the Christmas Eve forest reports that, after presiding over a combined $24 billion in losses last quarter, Fannie CEO Michael Williams and Freddie boss Ed Haldeman are getting substantial raises. Each is now eligible for up to $6 million annually.
Freddie also has one of the world's highest-paid human resources executives. Paul George's total compensation can run up to $2.7 million. It must require a rare set of skills to spot executives capable of losing billions of dollars.
Where is Treasury's pay czar when we actually need him? You guessed it, Fannie and Freddie are exempt from the rules applied to the TARP banks. The government gave away the game that these firms are no longer in the business of making profits when it announced that the CEOs will be paid entirely in cash, though it is discouraging that practice at other big banks. Who would want stock in the Department of Housing and Urban Development?
Meanwhile, these biggest of Beltway losers continue to be missing from the debate over financial reform. The Treasury still hasn't offered its long-promised proposals even as it presses reform on banks that played a far smaller role in the financial mania and panic. Senate Banking Chairman Chris Dodd (D., Conn.) and ranking Republican Richard Shelby recently issued a joint statement on their "progress" toward financial regulatory reform, but their list of goals also doesn't mention Fannie or Freddie.
Since Mr. Shelby has long argued for reform of these government-sponsored enterprises, their absence suggests that Mr. Dodd's longtime effort to protect Fan and Fred is once again succeeding. It would be worse than a shame if, having warned about the iceberg for years, Mr. Shelby now joins Mr. Dodd in pretending that these ships aren't sinking.
In today's Washington, we suppose, it only makes sense that the companies that did the most to cause the meltdown are being kept alive to lose even more money. The politicians have used the panic as an excuse to reform everything but themselves.
The Price for Fannie and Freddie Keeps Going Up: Barney Frank's
decision to 'roll the dice' on subsidized housing is becoming an epic disaster
for taxpayers," by Peter J. Wallison,
The Wall Street Journal,
December 29, 2009 ---
On Christmas Eve, when most Americans' minds were on other things, the Treasury Department announced that it was removing the $400 billion cap from what the administration believes will be necessary to keep Fannie Mae and Freddie Mac solvent. This action confirms that the decade-long congressional failure to more closely regulate these two government-sponsored enterprises (GSEs) will rank for U.S. taxpayers as one of the worst policy disasters in our history.
Fannie and Freddie's congressional sponsors—some of whom are now leading the administration's effort to "reform" the financial system—have a lot to answer for. Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee, sponsored legislation adopted in 2008 that established a new regulatory structure for the GSEs. But by then it was far too late. The GSEs had begun buying risky loans in 1993 to meet the "affordable housing" requirements established under congressional direction by the Department of Housing and Urban Development (HUD).
Most of the damage was done from 2005 through 2007, when Fannie and Freddie were binging on risky mortgages. Back then, Mr. Frank was the bartender, denying that there was any cause for concern, and claiming that he wanted to "roll the dice" on subsidized housing support.
In 2005, the Senate Banking Committee, then controlled by Republicans, adopted tough regulatory legislation that would have established more auditing and oversight of the two agencies. But it was passed out of committee on a partisan vote, and with no Democratic support it never came to a vote.
By the end of 2008, Fannie and Freddie held or guaranteed approximately 10 million subprime and Alt-A mortgages and mortgage-backed securities (MBS)—risky loans with a total principal balance of $1.6 trillion. These are now defaulting at unprecedented rates, accounting for both their 2008 insolvency and their growing losses today. Since 2008, under government control, the two agencies have continued to buy dicey mortgages in order to stabilize housing prices.
There is more to this ugly situation. New research by Edward Pinto, a former chief credit officer for Fannie Mae and a housing expert, has found that from the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime or Alt-A.
In general, a subprime mortgage refers to the credit of the borrower. A FICO score of less than 660 is the dividing line between prime and subprime, but Fannie and Freddie were reporting these mortgages as prime, according to Mr. Pinto. Fannie has admitted this in a third-quarter 10-Q report in 2008.
An Alt-A mortgage is one in which the quality of the mortgage or the underwriting was deficient; it might lack adequate documentation, have a low or no down payment, or in some other way be more likely than a prime mortgage to default. Fannie and Freddie were also reporting these mortgages as prime, according to Mr. Pinto.
It is easy to see how this misrepresentation was a principal cause of the financial crisis.
Market observers, rating agencies and investors were unaware of the number of subprime and Alt-A mortgages infecting the financial system in late 2006 and early 2007. Of the 26 million subprime and Alt-A loans outstanding in 2008, 10 million were held or guaranteed by Fannie and Freddie, 5.2 million by other government agencies, and 1.4 million were on the books of the four largest U.S. banks.
In addition, about 7.7 million subprime and Alt-A housing loans were in mortgage pools supporting MBS issued by Wall Street banks—which had long before been driven out of the prime market by Fannie and Freddie's government-backed, low-cost funding. The vast majority of these MBS were rated AAA, because the rating agencies' models assumed that the losses that are incurred by subprime and Alt-A loans would be within the historical range for the number of high-risk loans known to be outstanding.
But because of Fannie and Freddie's mislabeling, there were millions more high-risk loans outstanding. That meant default rates as well as the actual losses after foreclosure were going to be outside all prior experience. When these rates began to show up early in 2007, it was apparent something was seriously wrong with assumptions on which AAA ratings had been based.
Losses, it was now certain, would invade the AAA tranches of the mortgage-backed securities outstanding. Investors, having lost confidence in the ratings, fled the MBS market and ultimately the market for all asset-backed securities. They have not yet returned.
By the end of 2007, the MBS market collapsed entirely. Assets once carried at par on financial institutions' balance sheets could not be sold except at distress prices. This raised questions about the stability and even the solvency of most of the world's largest financial institutions.
The first major victim was Bear Stearns, the smallest of the five major Wall Street investment banks but one invested heavily in risky MBS. The government rescue of Bear Stearns in March 2008 signaled that the U.S. government, and perhaps others, would stand behind other large financial institutions. The moral hazard this engendered was deadly when Lehman Brothers' solvency came under challenge. Spreads in the credit default swap market for Lehman, despite massive short-selling, showed very little alarm by investors until just before the fateful weekend of Sept. 13 and 14, when they blew out on fears that the firm might not be rescued.
By that time it was too late for Lehman's counterparties to take the protective action that might have cushioned the shock. As it turned out, however, none of Lehman's largest counterparties failed—so much for the idea that the financial market is "interconnected"—but all market participants now realized they had to know the true financial condition of their counterparties. The result was a freeze-up in interbank lending.
For most people, that freeze-up is the beginning of the financial crisis. But its roots go back to 1993, when Fannie and Freddie began stocking up on subprime and other risky loans while reporting them as prime.
Why Fannie and Freddie did this is still to be determined. But the leading candidate is certainly HUD's affordable housing regulations, which by 2007 required that 55% of all the loans the agencies acquired had to be made to borrowers at or below the median income, with almost half of these required to be low-income borrowers.
Another likely reason for Fannie and Freddie's mislabeling of mortgages was their desire to retain congressional support by "rolling the dice" while making believe they weren't betting. With the Federal Housing Administration, Wall Street investment banks, and Fannie and Freddie all competing for these loans, the bottom of the barrel had long before been scraped and the financial system set up for a crisis.
Bob Jensen's threads on Barney's Rubble
"The Tom DeLay Democrats So much for the President's pledge of C-Span transparency," The Wall Street Journal, January 6, 2010 ---
Rehabilitating Tom DeLay's reputation always seemed hopeless, or so we thought—but then again, President Obama ran on hope. Against the odds Democrats are making the former GOP Majority Leader look better by comparison as they bypass the ordinary institutions of deliberative democracy in the final sprint to pass ObamaCare.
Instead of appointing a formal conference committee to reconcile the House and Senate health bills, a handful of Democratic leaders will now negotiate in secret by themselves. Later this month, presumably white smoke will rise from the Capitol Dome, and then Nancy Pelosi, Harry Reid and the college of Democratic cardinals will unveil their miracle. The new bill will then be rushed through both chambers with little public scrutiny or even the chance for the Members to understand what they're passing.
Evading conference has become standard operating procedure in this Congress, though you might think they'd allow for the more open and thoughtful process on what Mr. Obama has called "the most important piece of social legislation since the Social Security Act passed in the 1930s and the most important reform of our health-care system since Medicare passed in the 1960s."
This black-ops mission ought to be a particular embarrassment for Mr. Obama, given that he campaigned on transparent government. At a January 2008 debate he said that a health-care overhaul would not be negotiated "behind closed doors, but bringing all parties together, and broadcasting those negotiations on C-Span so the American people can see what the choices are."
The C-Span pledge became a signature of his political pitch. During a riff at the San Francisco Chronicle about "accountability," he added that "I would not underestimate the degree to which shame is a healthy emotion and that you can shame Congress into doing the right thing if people know what's going on."
Apparently this Congress knows no shame. In a recent letter to Congressional leaders, C-Span president Brian Lamb committed his network to airing "all important negotiations," which if allowed would give "the public full access, through television, to legislation that will affect the lives of every single American." No word yet from the White House.
At a press conference in December, even Mrs. Pelosi said that "we would like to see a full conference." One reason she mentioned was that "there is a great deal of work involved in reviewing a bill and seeing what all the ramifications are of it," though her real motive at the time was that a conference seemed like a chance to drag the bill closer to the House version.
With public support collapsing, however, Democrats now think the right bill is any bill—and soon. Democrats know that a conference forces the majority party to cast votes on awkward motions and would give the Republicans who have been shut out for months a chance to participate. This sunlight, and the resulting public attention, might scare off wavering Democrats and defeat the bill. Ethics rules the Democrats passed in 2007 also make it harder to "airdrop" into conference reports the extra bribes they will no doubt add to grease the way for final passage.
Democrats howled at the strong-arm tactics Mr. DeLay used to pass Medicare drug coverage in 2003, and so did we. But they've managed to create an even more destructive bill, and their tactics are that much worse. We can't even begin to imagine the uproar if the Republicans had tried to privatize Social Security with such contempt for the democratic process and public opinion.
Bob Jensen's threads on health care reform
The reason is simple: the State Department insists
that “possible” and even “suspected” terrorists deserve visas. Denials and
revocations are reserved only for known terrorists. Whether or not “dots” had
been “connected,” Abdulmutallab never could have come as close as he did to
successful mass murder had the State Department immediately revoked his visa
when his father warned U.S. officials about his son’s terrorist ties. Without a
valid visa, the young Nigerian would not have been en route to the U.S. in the
Joel Mowbray, "State Department Sides With “Suspected” Terrorists Seeking Visas to U.S.," Townhall, January 11, 2010 ---
"Taxpayers to Pay for Fannie, Freddie Aid: Treasury Removed Caps on
Assistance," SmartPros, January 13, 2010 ---
A recent move by the Treasury Department to remove $200 billion caps on assistance to Fannie Mae and Freddie Mac eliminates any doubt that taxpayers will pay for all their losses for the next three years and appears to be a major step toward formally nationalizing the housing enterprises, analysts say.
The government took control of the companies, and effectively much of the U.S. mortgage market, in September 2008 and started purchasing all their mortgage-backed securities. But the Treasury previously used the $200 billion caps on aiding each company to try to limit taxpayer exposure to their mounting losses.
Republicans charge that Treasury has given the Depression-era companies a "blank check" to pay for burgeoning losses on defaulting loans.
The two housing enterprises last year guaranteed and secured nearly 70 percent of new mortgages, primarily made to "prime" borrowers with the best credit ratings, while the Federal Housing Administration insured most loans to subprime borrowers, leaving only a tiny share of the mortgage market in private hands.
In its Christmas Eve statement announcing the little-noticed changes, the Treasury insisted that it wants to preserve "an environment where the private market is able to provide a larger source of mortgage finance."
But analysts say Treasury's move may push off any return to a normal mortgage market for years -- possibly forever. Treasury removed the liability caps for three years and loosened restrictions on Fannie's and Freddie's purchases of their own mortgage securities -- enabling them to maintain their dominant share of the mortgage market.
"These actions would preserve and strengthen the governments involvement and control over the countrys housing finance system and make it harder to reintroduce substantial private-sector involvement later on," said Edward Pinto, a housing consultant and former chief credit officer at Fannie Mae.
When combined with a separate move by regulators not to provide common stock as part of executive compensation at Fannie and Freddie, the administration's recent actions suggest that it is moving to nationalize the companies, Mr. Pinto said.
Nationalization, or total government control and ownership of the companies, would wipe out the value of Fannie and Freddie stock, making it worthless as a way to pay executives. The value of the stock has plummeted to between $1 and $2 a share in the wake of the government's takeover.
Treasury spokesman Andrew Williams declined to elaborate on the Treasury's actions, but denied that nationalization was the goal.
The administration is preparing to present its proposals for governing Fannie and Freddie in the future -- a major question not addressed in financial reform legislation pending in Congress -- when it presents its budget in February. Options range from fully nationalizing the enterprises to reprivatizing them or turning them into public "utilities" like the closely regulated gas and electric companies.
Sen. Bob Corker, Tennessee Republican, questioned whether the administration was moving toward nationalization in a letter to Treasury Secretary Timothy F. Geithner this week, urging the Treasury to incorporate fully in its February budget the cost of any additional Fannie and Freddie liabilities the government is acquiring.
"Due to the level of support that this administration and the previous one have created for Fannie Mae and Freddie Mac, would you not consider your latest move an effective nationalization?" asked Mr. Corker, a member of the Senate Banking, Housing and Urban Affairs Committee. "If so, then the liabilities of these two firms should absolutely be reflected on the balance sheet of the U.S. Treasury."
Fully nationalizing the enterprises would permanently increase costs for taxpayers and would bloat the government's balance sheets. Fannie and Freddie currently guarantee about $5.5 trillion of outstanding mortgages and debts -- nearly as much as the Treasury's own public debt. If the companies were fully nationalized, the government's books would have to reflect both the revenues and losses from those obligations.
But even if the administration and Congress stop short of formally incorporating the enterprises into the federal government, the removal of the caps at least for now has eliminated any doubt that the government stands behind all Fannie and Freddie obligations and will cover their losses for the next three years.
Treasury reportedly told Mr. Corker that the move was needed to calm markets.
Apparently, it deemed the certainty of government backing to be critical at a time when the Federal Reserve has announced that it will end its program of purchasing $1.25 trillion in Fannie and Freddie mortgage bonds in March. The Fed's program -- another unprecedented federal intervention in the mortgage market -- provided most of the funding to finance prime mortgages in the past year.
Many housing analysts and economists worry that the Fed's withdrawal from the mortgage market will cause a sharp rise in 30-year mortgage rates of as much as one percentage point from 5 percent to 6 percent as private investors demand higher yields to compensate for the increased likelihood of defaults on mortgages.
Nearly one in eight mortgages is in default, with prime mortgages guaranteed by Fannie and Freddie having taken over subprime last year as the principal source of delinquencies.
Rapidly rising delinquencies have prompted some analysts to predict a collapse in the mortgage market once the Fed stops buying most of Fannie and Freddie's debt. The Treasury's move appears designed to reassure investors and prevent that from happening.
"When you have someone as big as the Fed was in 2009 walking away cold turkey, there have to be bumps along the road," said Ajay Rahadyaksha, managing director at Barclays Capital. But he expects investors to be enticed back into the mortgage market because they have "massive amounts of cash" to invest.
While full nationalization of the enterprises would be controversial, and likely provoke overwhelming Republican opposition, most parties agree that after the massive efforts to prop up the mortgage market in the past two years it would be difficult for the government to entirely extricate itself in the future.
Former Treasury Secretary Henry M. Paulson Jr. said he intended to keep the government's options open when he designed the plan to take 79.9 percent control of Fannie and Freddie and put them under government conservatorship.
But he said they should not be returned to their previous ambiguous structure, where they were owned by private stockholders even as they carried out a government mission. He said the best structure in the future might be to turn them into public utilities that funnel the government's guarantee on mortgage-backed securities for a fee.
The Mortgage Bankers Association and other private groups have endorsed a permanent federal role in guaranteeing pools of prime mortgages, perhaps through a revamped Fannie and Freddie.
One reason heavy government involvement is likely to continue is that Fannie and Freddie -- unlike many banks that received bailouts from the Treasury -- likely will never be able to fully repay the nearly $100 billion in assistance they have received so far from taxpayers, analysts say.
Their losses are growing by the day, and many of them now are incurred as a result of new mandates from the Treasury and Congress to spearhead the government's efforts to alleviate the home foreclosure crisis and make credit available as widely as possible.
For example, Fannie recently said it may liberalize its rules for mortgages used to buy condominiums in Florida -- an area that has been plagued with high rates of default and foreclosure, while it is giving preference to homeowners over investors when it sells foreclosed properties, even if investors offer a better deal.
Many analysts expect the administration to soon increase the subsidies the enterprises are providing to homeowners and banks that renegotiate mortgages to try to avoid foreclosure, and some suspect it already is using Fannie and Freddie to make loans available to riskier borrowers.
Mr. Corker said the proliferation of government mandates for the enterprises has essentially turned them into "a direct extension of the Treasury Department."
How Fannie Mae creatively managed earnings and cooked the books to give then CEO Franklin Raines millions and then had to fire Franklin and issued restated financial statements --- http://www.trinity.edu/rjensen/theory01.htm#Manipulation
"A Low, Dishonest Decade: The press and
politicians were asleep at the switch.," The Wall Street Journal,
December 22, 2009 ---
Stock-market indices are not much good as yardsticks of social progress, but as another low, dishonest decade expires let us note that, on 2000s first day of trading, the Dow Jones Industrial Average closed at 11357 while the Nasdaq Composite Index stood at 4131, both substantially higher than where they are today. The Nasdaq went on to hit 5000 before collapsing with the dot-com bubble, the first great Wall Street disaster of this unhappy decade. The Dow got north of 14000 before the real-estate bubble imploded.
And it was supposed to have been such an awesome time, too! Back in the late '90s, in the crescendo of the Internet boom, pundit and publicist alike assured us that the future was to be a democratized, prosperous place. Hierarchies would collapse, they told us; the individual was to be empowered; freed-up markets were to be the common man's best buddy.
Such clever hopes they were. As a reasonable anticipation of what was to come they meant nothing. But they served to unify the decade's disasters, many of which came to us festooned with the flags of this bogus idealism.
Before "Enron" became synonymous with shattered 401(k)s and man-made electrical shortages, the public knew it as a champion of electricity deregulation—a freedom fighter! It was supposed to be that most exalted of corporate creatures, a "market maker"; its "capacity for revolution" was hymned by management theorists; and its TV commercials depicted its operations as an extension of humanity's quest for emancipation.
Similarly, both Bank of America and Citibank, before being recognized as "too big to fail," had populist histories of which their admirers made much. Citibank's long struggle against the Glass-Steagall Act was even supposed to be evidence of its hostility to banking's aristocratic culture, an amusing image to recollect when reading about the $100 million pay reportedly pocketed by one Citi trader in 2008.
The Jack Abramoff lobbying scandal showed us the same dynamics at work in Washington. Here was an apparent believer in markets, working to keep garment factories in Saipan humming without federal interference and saluted for it in an op-ed in the Saipan Tribune as "Our freedom fighter in D.C."
But the preposterous populism is only one part of the equation; just as important was our failure to see through the ruse, to understand how our country was being disfigured.
Ensuring that the public failed to get it was the common theme of at least three of the decade's signature foul-ups: the hyping of various Internet stock issues by Wall Street analysts, the accounting scandals of 2002, and the triple-A ratings given to mortgage-backed securities.
The grand, overarching theme of the Bush administration—the big idea that informed so many of its sordid episodes—was the same anti-supervisory impulse applied to the public sector: regulators sabotaged and their agencies turned over to the regulated.
The public was left to read the headlines and ponder the unthinkable: Could our leaders really have pushed us into an unnecessary war? Is the republic really dividing itself into an immensely wealthy class of Wall Street bonus-winners and everybody else? And surely nobody outside of the movies really has the political clout to write themselves a $700 billion bailout.
What made the oughts so awful, above all, was the failure of our critical faculties. The problem was not so much that newspapers were dying, to mention one of the lesser catastrophes of these awful times, but that newspapers failed to do their job in the first place, to scrutinize the myths of the day in a way that might have prevented catastrophes like the financial crisis or the Iraq war.
The folly went beyond the media, though. Recently I came across a 2005 pamphlet written by historian Rick Perlstein berating the big thinkers of the Democratic Party for their poll-driven failure to stick to their party's historic theme of economic populism. I was struck by the evidence Mr. Perlstein adduced in the course of his argument. As he tells the story, leading Democratic pollsters found plenty of evidence that the American public distrusts corporate power; and yet they regularly advised Democrats to steer in the opposite direction, to distance themselves from what one pollster called "outdated appeals to class grievances and attacks upon corporate perfidy."
This was not a party that was well-prepared for the job of iconoclasm that has befallen it. And as the new bunch muddle onward—bailing out the large banks but (still) not subjecting them to new regulatory oversight, passing a health-care reform that seems (among other, better things) to guarantee private insurers eternal profits—one fears they are merely presenting their own ample backsides to an embittered electorate for kicking.
The sad state of governmental accounting and accountability ---
"How to Guard Against Stimulus Fraud: Based on past experience,
thieves may rip off the taxpayers for $100 billion," by Daniel J. Castleman,
The Wall Street Journal, January 13, 2010 ---
The Obama administration—and state and local governments—should brace themselves for fraud on an Olympic scale as hundreds of billions of taxpayer dollars continue to pour into job creation efforts.
Where there are government handouts, fraud, waste and abuse are rarely far behind. The sheer scale of the first and expected second stimulus packages combined with the multitiered distribution channel—from Washington to the states to community agencies to contractors and finally to workers—are simply irresistible catnip to con men and thieves.
There are already warning signs. The Department of Energy's inspector general said in a report in December that staffing shortages and other internal weaknesses all but guarantee that at least some of the agency's $37 billion economic-stimulus funds will be misused. A tenfold increase in funding for an obscure federal program that installs insulation in homes has state attorneys general quietly admitting there is little hope of keeping track of the money.
While I was in charge of investigations at the Manhattan District Attorney's office, we brought case after case where kickbacks, bid-rigging, false invoicing schemes and outright theft routinely amounted to a tenth of the contract value. This was true in industries as diverse as the maintenance of luxury co-ops and condos, interior construction and renovation of office buildings, court construction projects, dormitory construction projects, even the distribution of copy paper. In one insurance fraud case, the schemers actually referred to themselves as the "Ten Percenters."
Based on past experience, the cost of fraud involving federal government stimulus outlays of more than $850 billion and climbing could easily reach $100 billion. Who will prevent this? Probably no one, particularly at the state and local level.
New York, for instance, has an aggressive inspector general's office, with experienced and dedicated professionals. But, it is already woefully understaffed—with a head count of only 62 people—to police the state's already existing agencies and programs. There is simply no way that office can effectively scrutinize the influx of $31 billion in state stimulus money.
There is a solution however, which is to set aside a small percentage of the money distributed to fund fraud prevention and detection programs. This will ensure that states and municipalities can protect projects from fraud without tapping already thinly stretched resources.
Meaningful fraud prevention, detection and investigation can be funded by setting aside no more than 2% of the stimulus money received. For example, if a county is to receive $50 million for an infrastructure project, $1 million should be set aside to fund antifraud efforts; if it costs less, the remainder can be returned to the project's budget.
While the most obvious option might be to simply pump the fraud prevention funds into pre-existing law enforcement agencies, that would be a mistake. Government agencies take too long to staff up and rarely staff down.
A better idea is to tap the former government prosecutors, regulators and detectives with experience in fraud investigations now working in the private sector. If these resources can be harnessed, effective watchdog programs can be put in place in a timely manner. Competition between private-sector bidders will also lower the cost.
Some might object to providing a "windfall" to private companies. Any such concern is misplaced. One should not look at the 2% spent, but rather the 8% potentially saved. Moreover, consider the alternative: law enforcement agencies swamped trying to stem the tide of corruption on a shoestring and a prayer.
There will always be individuals who will rip off money meant for public projects. In the aftermath of the 9/11 attacks, and Hurricane Katrina hundreds of people were prosecuted for trying to steal relief funds. But the stimulus funding represents the kind of payday even the most ambitious fraudster could never have imagined
To avoid a stimulus fraud Olympics that will be impossible to clean up, it is better to spend a little now to save a lot later. The savings could put honest people to work and fraudsters out of business.
Mr. Castleman, a former chief assistant Manhattan district attorney, is a managing director at FTI Consulting.
Bob Jensen's Fraud Updates
Jensen's threads on The Sad State of Governmental Accounting and Accountability
Criminal Class is Writing the Laws ---
"Who Is Wesley Mouch?" by John
Stossel, Townhall, January 6, 2010 ---
Tomorrow, my Fox Business Network show about Ayn Rand's novel "Atlas Shrugged" will finally air. That should stop the emails like this one from Karen Cooper:
"Oh for the love of god! 'Atlas Shrugged' explains about 99 percent of what's wrong in all of the arenas of topics: health care, education, climate change, unions, the economy, etc. PLEASE PLEASE PLEASE cover 'Atlas.'"
Cooper makes a good point. Even though Rand published "Atlas" in 1957, her descriptions of intrusive and bloated government read like today's news. The "Preservation of Livelihood Law" and "Equalization of Opportunity Law" could be Nancy Pelosi's or Harry Reid's work.
The novel's chief villain is Wesley Mouch, a bureaucrat who cripples the economy with endless regulations. This sounds familiar. Reason magazine reports that "as he looks around Washington these days," Rep. Paul Ryan "can't help but think he's seeing a lot of Wesley Mouch".
Me, too. I also saw a lot of him under George W. Bush.
So I'm conducting this unscientific poll: Who is our Wesley Mouch? Hank Paulson? Tim Geithner? Barney Frank? You can vote here.
Personally, I think Chris Dodd's ridiculous financial proposals ought to win him the honor. But he isn't among the choices on Fox's list. As I write this, Geithner, President Obama and Barney Frank lead the voting.
My first guest on the show (FBN, 8 p.m. Eastern Thursday, repeating at 10 p.m. Friday) is BB&T Chairman and "Atlas" fan John Allison. Allison's bank, the ninth largest in America, is doing very well, but he's angry the government forced him to take TARP money (http://tinyurl.com/lguje9).
Allison once told The New York Times, "To say man is bad because he is selfish is to say it's bad because he's alive."
I'll pack the audience with some "Atlas" haters. That shouldn't be hard. My daughter's boyfriend offers up his Yale classmates. Many "liberals" agree with the "South Park" episode in which one character said that "because of this piece of s--t, I am never reading again." Rand brings out ferocious hatred in some people.
Also, I'll get a fish pedicure. Really.
This is a dubious Turkish idea that's become popular in Asia and is now trying for a foothold (pun intended) here. Instead of scraping dead skin off their feet, people have little garra rufa fish gently chew on them.
Fourteen states have banned fish pedicures, claiming they are unsafe, and other local governments have proposed bans. OK, compared to the assault on entrepreneurship described in "Atlas Shrugged," this is sort of a dumb example, but look -- I work in television -- dumb examples can make good points.
The bureaucrats say the fish can't be sterilized without killing them. They say customers will get infections. People could die! It's not safe! And it's cruel to the fish!
Has anyone died? Can you refer me to someone who got an infection? Anyone? The bureaucrats' answer is always no. But it's better to be cautious, they say.
In fact, the free market sorts such things out far more efficiently than bureaucrats. It's just not good business to hurt your customers. My 30 years of consumer reporting taught me that businesses rarely do this, and -- here's the market's self-regulation -- those that do don't stay in business long. That's not a perfect system, but it's much better than central planning. Had today's bureaucrats been in charge decades ago, they would have banned things like aspirin, cars and airplanes.
Sadly, they are in charge now. That makes the "Atlas" message important today.
Although Rand idolizes businessman in the abstract, "Atlas Shrugged" makes clear that she (like Adam Smith) understood that they are not natural friends of free markets. They are often first in line for privileges bestowed by the state. That's called "crony capitalism," and that's what Orren Boyle practices in "Atlas." After my "Atlas Shrugged" show, I plan a show on that subject. Suggestions invited.
I don't want to be controlled by business any more than I want to be regulated by Nancy Pelosi or Wesley Mouch.
I want the freedom to make my own choices.
Although John Stossel is one of my heroes, I find it a bit inconsistent that in the above piece he rants against regulation when over the years as a strong consumer advocate the "Give Us a Break" Stossel supported regulations that help protect consumers against the exploitations of big business.
Boinging Sarah Palin and Fox News
"Video: John Cleese Is Finally Funny Again!" Ace of Spades, January 22, 2010 ---
The trouble with
socialism is that eventually you run out of other people's money.
Star Parker, Back on Uncle Sam's Plantation --- http://en.wikipedia.org/wiki/Star_Parker
"Back on Uncle Sam's Plantation," by Star
Parker, Open News Now, February 9, 2009 ---
Six years ago I wrote a book called Uncle Sam's Plantation. I wrote the book to tell my own story of what I saw living inside the welfare state and my own transformation out of it.
I said in that book that indeed there are two Americas -- a poor America on socialism and a wealthy America on capitalism.
I talked about government programs like Temporary Assistance for Needy Families (TANF), Job Opportunities and Basic Skills Training (JOBS), Emergency Assistance to Needy Families with Children (EANF), Section 8 Housing, and Food Stamps.
A vast sea of perhaps well-intentioned government programs, all initially set into motion in the 1960s, that were going to lift the nation's poor out of poverty.
A benevolent Uncle Sam welcomed mostly poor black Americans onto the government plantation. Those who accepted the invitation switched mindsets from "How do I take care of myself?" to "What do I have to do to stay on the plantation?"
Instead of solving economic problems, government welfare socialism created monstrous moral and spiritual problems -- the kind of problems that are inevitable when individuals turn responsibility for their lives over to others.
The legacy of American socialism is our blighted inner cities, dysfunctional inner city schools, and broken black families.
Through God's grace, I found my way out. It was then that I understood what freedom meant and how great this country is.
I had the privilege of working on welfare reform in 1996, passed by a Republican Congress and signed 50 percent.
I thought we were on the road to moving socialism out of our poor black communities and replacing it with wealth-producing American capitalism.
But, incredibly, we are going in the opposite direction.
Instead of poor America on socialism becoming more like rich American on capitalism, rich America on capitalism is becoming like poor America on socialism.
Uncle Sam has welcomed our banks onto the plantation and they have said, "Thank you, Suh."
Now, instead of thinking about what creative things need to be done to serve customers, they are thinking about what they have to tell Massah in order to get their cash.
There is some kind of irony that this is all happening under our first black president on the 200th anniversary of the birthday of Abraham Lincoln.
Worse, socialism seems to be the element of our new young president. And maybe even more troubling, our corporate executives seem happy to move onto the plantation.
In an op-ed on the opinion page of the Washington Post, Mr. Obama is clear that the goal of his trillion dollar spending plan is much more than short term economic stimulus.
"This plan is more than a prescription for short-term spending -- it's a strategy for America's long-term growth and opportunity in areas such as renewable energy, healthcare, and education."
Perhaps more incredibly, Obama seems to think that government taking over an economy is a new idea. Or that massive growth in government can take place "with unprecedented transparency and accountability."
Yes, sir, we heard it from Jimmy Carter when he created the Department of Energy, the Synfuels Corporation, and the Department of Education.
Or how about the Economic Opportunity Act of 1964 -- The War on Poverty -- which President Johnson said "...does not merely expand old programs or improve what is already being done. It charts a new course. It strikes at the causes, not just the consequences of poverty."
Trillions of dollars later, black poverty is the same. But black families are not, with triple the incidence of single-parent homes and out-of-wedlock births.
It's not complicated. Americans can accept Barack Obama's invitation to move onto the plantation. Or they can choose personal responsibility and freedom.
Does anyone really need to think about what the choice should be?
"New View of Faculty Liberalism: Why are professors liberal?" by
Scott Jaschik, Inside Higher Ed, January 18, 2010 ---
That question has led to many heated debates, particularly in recent years, over charges from some on the right that faculty members somehow discriminate against those who don't share a common political agenda with the left. A new paper attempts to shift the debate in a new direction. This study argues that certain characteristics of professors -- related to education and religion, among other factors -- explain a significant portion of the liberalism of faculty members relative to the American public at large.
Further, the paper argues that academe, because of the impact of these factors, may now be "politically typed" in a way that attracts more faculty members from the left than the right.
The research was done by Neil Gross, an associate professor of sociology at the University of British Columbia, and Ethan Fosse, a doctoral candidate in sociology at Harvard University. Gross has been the author of numerous studies of professorial politics, including a 2007 analysis that found faculty members, while liberal, may be more moderate than many believe. The new study may be found on his Web site.
In this analysis, Fosse and Gross do not dispute that faculty members are more liberal than the public at large. Rather, they make two main arguments. First they look at a range of characteristics that apply disproportionately to professors but are not unique to professors, and examine the political leanings associated with these characteristics -- finding that several of them explain a significant portion of the political gap between faculty members and others. Then, they offer what they call a new theory to explain why academe may attract more liberals, regardless of whether they have those characteristics.
The paper finds that 43 percent of the political gap can be explained because professors are more likely than others:
- To have high levels of educational attainment.
- To experience a disparity between their levels of educational attainment and income.
- To be either Jewish, non-religious, or a member of a faith that is not theologically conservative Protestant.
- To have a high tolerance for controversial ideas.
The analysis is based on data from the General Social Survey from 1974-2008. Beyond the items above, a smaller but significant impact also was found because professors are more likely than others to have lived in an urban area growing up and to have fewer children.
On the question of the education/income gap, Gross and Fosse say that their findings are consistent with the work of Pierre Bourdieu. "For Bourdieu, intellectuals are defined structurally by their possession of high levels of cultural capital and moderate levels of economic capital," they write. "This structural position, Bourdieu asserts, shapes their politics.... Deprived of economic success relative to those in the world of commerce, intellectuals are less likely to be invested in preserving the socioeconomic order, may turn toward redistributionist policies in hopes of reducing perceived status inconsistency, and may embrace unconventional social or political views in order to distinguish themselves culturally from the business classes."
After outlining their statistical case, the authors go on to suggest what they call a new theory to explain professorial politics that builds on the differences they identify in the first part of their paper. They note that the factors they focus on in the first part of their study explain a portion but only a portion of the political gap, suggesting that relying on class analysis alone would be inadequate.
"The theory we advance ... holds that the liberalism of professors is a function not primarily of class relations, but rather of the systematic sorting of young adults who are already liberally or conservatively inclined into and out of the academic professions," they write.
Gross and Fosse cite research by others about how some professions become "sex typed" such that they are associated with gender. Even if some men and women defy these patterns and there is nothing inherently gender-related to these patterns, these types have an impact on the aspirations of young men and women.
"We argue that the professoriate, along with a number of other knowledge work fields, has been 'politically typed' as appropriate and welcoming of people with broadly liberal sensibilities, and as inappropriate for conservatives," they write. "This reputation leads many more liberal than conservative students to aspire for the advanced educational credentials that make entry into knowledge work fields possible, and to put in the work necessary to translate those aspirations into reality."
The authors are careful to define limits to their theory. They state that they do not believe that young people place themselves into numerous socioeconomic and philosophical views to determine a choice of career. And they note that they doubt that most young people even understand their full range of options. Rather, they argue that for those with political sensibilities, "identity and the social psychology of identity" come into play.
"[W]e argue that for young people whose political identities are salient, liberalism and conservatism constrain horizons of educational and occupational possibility," they write. "Because these identities involve cognitive schemas and habitual patterns of thinking that filter experience ... most young adults who are committed liberals would never end up entertaining the idea that they might become police or correctional officers, just as it would never cross the minds of most who are committed conservatives that they might become professors, precisely because of the political reputations of these fields."
The theory might also, the authors write, explain political differences visible among different academic disciplines.
"[W]e theorize that, within the general constraint that more liberals than conservatives will aspire for advanced educational credentials and academic careers of any kind, liberal students will be far more inclined than conservatives to enter fields that have come to define themselves around left-valenced images of intellectual personhood," the paper says. "Over the course of its 20th century history, for example, sociology has increasingly defined itself as the study of race, class, and gender inequality -- a set of concerns especially important to liberals -- and this means that sociology will consistently recruit from a more liberal applicant pool than fields like mechanical engineering, and prove a more chilly home for those conservatives who manage to push through into graduate school or the academic ranks."
"The Liberal Skew in Higher Education," by Richard Posner, The Becker-Posner Blog, December 30, 2007 --- http://www.becker-posner-blog.com/
It is no secret that professors at American colleges and universities are much more liberal on average than the American people as a whole. A recent paper by two sociology professors contains a useful history of scholarship on the issue and, more important, reports the results of the most careful survey yet conducted of the ideology of American academics. See Neal Gross and Solon Simmons, “The Social and Political Views of American Professors,” Sept. 24, 2007, available at http://www.wjh.harvard.edu/~ngross/lounsbery_9-25.pdf (visited Dec. 29. 2007); and for a useful summary, with comments, including some by Larry Summers, see “The Liberal (and Moderating) Professoriate,” Inside Higher Ed, Oct. 8, 2007, available at www.insidehighered.com/news/2007/10/08/politics (visited Dec. 29. 2007).) More than 1,400 full-time professors at a wide variety of institutions of higher education, including community colleges, responded to the survey, representing a 51 percent response rate; and analysis of non-responders indicates that the responders were not a biased sample of the professors surveyed.
In the sample as a whole, 44 percent of professors are liberal, 46 percent moderate or centrist, and only 9 percent conservative. (These are self-descriptions.) The corresponding figures for the American population as a whole, according to public opinion polls, are 18 percent, 49 percent, and 33 percent, suggesting that professors are on average more than twice as liberal, and only half as conservative, as the average American. There are interesting differences within the professoriat, however. The most liberal disciplines are the humanities and the social sciences; only 6 percent of the social-science professors and 15 percent of the humanities professors in the survey voted for Bush in 2004. In contrast, business, medicine and other health sciences, and engineering are much less liberal, and the natural sciences somewhat less so, but they are still more liberal than the nation as a whole; only 32 percent of the business professors voted for Bush--though 52 percent of the health-sciences professors did. In the entire sample, 78 percent voted for Kerry and only 20 percent for Bush.
. . .
My last point is what might be called the institutionalization of liberal skew by virtue of affirmative action in college admissions. Affirmative action brings in its train political correctness, sensitivity training, multiculturalism, and other attitudes or practices that make a college an uncongenial environment for many conservatives.
"The Liberal Skew in Higher Education," by Nobel Laureate Gary Becker, The Becker-Posner Blog, December 30, 2007 --- http://www.becker-posner-blog.com/
The study by Gross and Simmons discussed by Posner in part confirms what has been found in earlier studies about the greater liberalism of American professors than of the American population as a whole. Their study goes further than previous ones by having an apparently representative sample of professors in all types of colleges and universities, and by giving nuanced and detailed information about attitudes and voting of professors by field of expertise, age, gender, type of college or university, and other useful characteristics. I will try to add to Posner's valuable discussion by concentrating on the effects on academic political attitudes of events in the world, and of their fields of specialization. I also consider whether college teachers have long-lasting influences on the views of their students.
. . .
Given the indisputable evidence that professors are liberal, how much influence does that have on the long run attitudes of college students? This is especially relevant since some of the most liberal academic disciplines, like the social sciences and English, have close contact with younger undergraduates. The evidence strongly indicates that whatever the short-term effects of college teachers on the opinions of their students, the long run influence appears to be modest. For example, college graduates, like the rest of the voting population, split their voting evenly between Bush and Kerry. The influence of high incomes (college graduates earn on average much more than others), the more conservative family backgrounds of the typical college student (but less conservative for students at elite colleges), and other life experiences far dominate the mainly forgotten influence of their college teachers.
This evidence does not mean that the liberal bias of professors is of no concern, but rather that professors are much less important in influencing opinions than they like to believe, or then is apparently believed by the many critics on the right of the liberality of professors.
Bob Jensen's threads the liberal bias of the media and academe ---
Affirmative action in hiring and promotion ---
Bob Jensen's universal health care messaging --- http://www.trinity.edu/rjensen/Health.htm
the Tidbits Archives ---
Shielding Against Validity Challenges in Plato's Cave ---
What went wrong in accounting/accountics research?
The Sad State of Accountancy Doctoral
Programs That Do Not Appeal to Most Accountants ---
AN ANALYSIS OF THE EVOLUTION OF RESEARCH
CONTRIBUTIONS BY THE ACCOUNTING REVIEW: 1926-2005 ---
Bob Jensen's threads on accounting theory
Tom Lehrer on Mathematical Models and
Systemic problems of accountancy (especially the
vegetable nutrition paradox) that probably will never be solved ---
Bob Jensen's economic crisis messaging http://www.trinity.edu/rjensen/2008Bailout.htm
Bob Jensen's threads --- http://www.trinity.edu/rjensen/threads.htm
Bob Jensen's Home Page --- http://www.trinity.edu/rjensen/