Obamany Refinance plan: Change you can believe in.

James Pethokoukis is one of the few people holding Romney’s feet to the fire. He has a great article today on Romney’s housing plan.

First, this exchange from CNBC’s Kudlow Report last night:

Romney: Again, let’s look at the numbers. Let’s see what kind of tax there is. If you’re talking about refinancing trillions of dollars of debt and the government is now going to be taking over responsibility for those mortgages, that would be a real problem. But let’s look at the details. Clearly, if there is a way of providing a break to homeowners to get lower interest rates, that is something which has always been part of the refinance story. If it can be done in a way that doesn’t add additional government obligation, that’s one thing. If instead it adds trillions of dollars in new debt to the federal balance sheet, that’s a very different thing. What about the investors who own the mortgage-backed securities who have to be repriced lower? They’re going to take a bath, pension funds are going the take a bath. In the speech, he put in one or two sentences about it. Let’s see what it shows. You have apparently more information about it than I do. I want to see what the plan shows, but clearly, you can’t go in and say we’re going to wipe out all the people who invested in mortgages and mortgage-backed securities. A lot of those are banks. Banks in some cases are in trouble already. You don’t want them to have to find themselves in even more distress.

Now, Romney could have said something like, “The way to boost housing is to boost the economy and speed up the foreclosure process so the market can clear.” But he didn’t say that. He said this: “Clearly, if there is a way of providing a break to homeowners to get lower interest rates, that is something which has always been part of the refinance story. If it can be done in a way that doesn’t add additional government obligation, that’s one thing.”

As James notes, Romney doesn’t criticisze the idea of a housing refinance plan at all, just the way Obama does it. Here’s Romney’s plan.

a) Every homeowner with a GSE mortgage can refinance his or her mortgage with a new mortgage at a current fixed rate of 4% or less, with the rate subject to change up or down with the price of Agency pass-through Mortgage-Backed Securities (MBS). For borrowers with an FHA or VA mortgage, rates would be higher, but these borrowers should be included in any large-scale refinancing program.

b) The homeowner must be current on his or her mortgage or become so for at least three months.

c) NO other qualification or application is required, other than intention to accept the new rate (that is, no appraisal, no income verification, no tax returns, etc.).

As Pethokoukis notes: “Hey, that sounds a lot like the Obama plan, except with the GSE limitation.” Obama will give “every responsible homeowner” a refi. Romney only wants to give it to people backed by Fannie and Freddie. Makes all those attack ads about Newt and Freddie seem hypocritical doesn’t it?

Another way of saying it would be so say Romney’s plan is Obama lite. They both think that Government should refinance people’s houses that they bought because of bad government policy. It’s government intervention because the last government intervention didn’t work out so well.

The main problem is that refinancing a house only helps marginally and if anything postpones the inevitable to a later date. It’s basic premise is to prop up house prices. The banks are not going to write down current asset prices for the house as long as it is being refinanced. The principle remains, it’s just the interest rate that changes. This keeps banks balance sheet artificially high, which keeps stock prices high. Politicians seem to think that if stocks are high, the economy is doing good. As if the last 3 years haven’t been proof of that error.

As noted in a NYT article from 2010, refinance plans only kick the can down the road.

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

“The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”

Mr. Katari contends that banks have been using temporary loan modifications under the Obama plan as justification to avoid an honest accounting of the mortgage losses still on their books. Only after banks are forced to acknowledge losses and the real estate market absorbs a now pent-up surge of foreclosed properties will housing prices drop to levels at which enough Americans can afford to buy, he argues.

We’ve seen Obama’s refi plan fail. Now Romney is saying “Hey I can do it too! Look at me I’m electable.” Give me a break. Don’t expect to see any mention of Obamany Refi in the conservative media. That would hurt Romney too much. Of course, never expect to see anything that hurts Obama in the MSM.

Was Eisenhower the last President to understand Opportunity Cost

From a Quote taken from post by  Bob Higgs:

The worst to be feared and the best to be expected can be simply stated.

The worst is atomic war.

The best would be this: a life of perpetual fear and tension; a burden of arms draining the wealth and the labor of all peoples; a wasting of strength that defies the American system or the Soviet system or any system to achieve true abundance and happiness for the peoples of this earth.

Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.

This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals.

It is some 50 miles of concrete highway. We pay for a single fighter with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people.

This, I repeat, is the best way of life to be found on the road the world has been taking.

This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron.

This is true of all Government spending whether it is under the guise of defense or “Social Justice.” The money has to come from somewhere, and that somewhere probably had a drastically different use for it.

Moral Hazard, another reason why the Bank Bailouts were a very very bad idea.

Russ Roberts over at Cafe Hayek has a very good post on why the Bank Bailouts were a bad idea.

Over the past half century the financial industry has not treated the law as a bedrock institution that constrains the nature of its activities, but rather as a set of rules that can be forced to adapt to the industry’s needs and desires.  Thus, the industry knowingly and deliberately creates standardized contracts that are either designed to circumvent the law or in some cases flatly illegal under current interpretations of the law, and then when a case involving the contract arises (which in many instances happens only long after the standardized contract has become an institution), the financial industry tells the court that the dubious or illegal contract is so widespread that the court would create systemic risk by enforcing the law.  (This idea was established by Kenneth Kettering in “Securitization and its Discontents” and the next two paragraphs draw very heavily from Kettering’s article and perhaps form little more than an opinionated summary of several of his sections.) 

The post goes on to discuss how various financial “innovations” were illegal when put in place but were eventually condoned by the courts or the politicians in the name of avoiding systemic risk.

These are further examples of a process I discussed in my paper on the financial crisis. The bankers don’t sit around  (necessarily) figuring out how to rip us off but all the incentives are against prudence and favor their risk-taking. We, the taxpayers, end up paying for their mistakes.

Read Russ’ paper Gambling Other Peoples Money, if you already haven’t.

Unintended Consiquences – The Texting Ban

Government policy always leave unintended consequences. That’s as much a fact of life as anything. So it should come to no surprise, except to those that believe laws written by politicians can fundamentally change human behavior, that the cell phone texting ban craze that has been swiffering (Dane Cook reference) the nation hasn’t had the effect the politicians so desperately wanted. According to a recent study published by the Highway Loss Data Institute (HLDI), texting bans have the opposite effect of what was intended. DOH!

It’s illegal to text while driving in most US states. Yet a new study by researchers at the Highway Loss Data Institute (HLDI) finds no reductions in crashes after laws take effect that ban texting by all drivers. In fact, such bans are associated with a slight increase in the frequency of insurance claims filed under collision coverage for damage to vehicles in crashes. This finding is based on comparisons of claims in 4 states before and after texting bans, compared with patterns of claims in nearby states.

Policies like these are paternalistic and the object of love and adoration for progressives. Yes, I said Progressives, because paternalism has its followers in the Democratic, GOP parties and with so-called “Independent” politicians. Yes, that’s a shot at Michael Bloomburg. Remember kids, Progressives gave us Prohibition. How did that turn out?

So it’s no surprise that this study is meet with anger by the politicians that want to tell you what to do.

“Last Thursday, I blogged about misleading claims from the Insurance Institute for Highway Safety (IIHS) disparaging the effectiveness of good laws and good enforcement in our campaign to end distracted driving,” LaHood wrote in his blog “The FastLane,” this morning. “Unfortunately, they’re at it again today with another misleading ‘study,’ ” LaHood continued. “There are numerous flaws with this ‘study,’ but the most obvious is that they have created a cause and effect that simply doesn’t exist.”

Fortunately, the Department of Transportation can help on that front, and we can prove that good laws coupled with tough enforcement can reduce deadly distracted driving behavior. In April, we launched pilot enforcement campaigns, called “Phone in One Hand, Ticket in the Other” in Hartford, CT and Syracuse, NY.

In the last six months alone, hand held cell phone use has dropped 56% in Hartford and 38% in Syracuse; and texting while driving has declined 68% in Hartford and 42% in Syracuse.

Of course Sec LaHood doesn’t tell you that his statistics are flawed as well. They are based on police reports. Now put the HLDI study and the decline in tickets together and what do you have?

People will put their cell phones down when they see a cop, or just lower their phone so that it’s hidden. People will continue to do, what they always do. Banning texting while driving will not stop people from doing it. Just like banning alcohol didn’t stop people from drinking in the 20s. Just like banning Cocaine didn’t stop out POTUS from skiing in college.

The only real way to stop people from distracted driving is to change the incentives. Kind of like what Ford is doing with their Sync system. I talked about it in this post, I also mentioned how I would like to see a study done of accident rates of people white texting with Sync systems in their cars and those without. We now know that the bans aren’t working, I still have my money on the market led solutions, like Sync.

Evidence for Regime Uncertainty

This weeks Econtalk was with John Taylor of Sanford University.The subject, the State of the Economy. Considering the economy is in the tank, Russ Roberts and Taylor talk of things that are effecting the market. Naturally, Regime Uncertainty was brought up as why the economy is lagging.

That cycle is really explained by the investment, natural dynamics of the economy. You superimpose onto that the various action to stimulus packages, Cash for Clunkers, and you see the little blips and ripples, but it’s the main trajectory of the economy recovering, and now the recovery is slowing. Similar pattern in the Great Depression: enormous decrease in private investment, and then it stagnated in the face of what some call regime uncertainty–all the chaos of the rule changes and policy changes. Do we see any evidence of an uncertainty about the future on the part of private investment or has it pretty much recovered steadily? Private investment pause has occurred as you’ve gone from 5.6% to 2.7% for the first quarter. You see investment rising and then slowing down–part of my story, investment driven. Reasons for that not completely clear. I emphasize the same things you mention during the Great Depression, uncertainty about policy, debt increasing in ways we haven’t seen before. Projected by the CBO to be 947% of GDP if we don’t make a correction. Inconsistency, that can’t stand. That’s not a forecast–it’s a warning flag. Either current policy has to change or some other kind of disaster that resolves the inconsistency.

So naturally, liberals in the comment section can’t let those assault of the polices of Obama and the Liberal GOD, FDR stand. They ask for evidence of uncertainty. As Taylor asked (bolded above) has private investment declined or has it remained steady? Simple enough question to ask and answer. As shown by the graph below, private investment has fallen during the current recession, by over 200%!!!

Fixed Private Investment, % change

That’s a pretty big decline. considering the costs of Obamacare, Dodd-Frank reform bill, EPA actions, the reaction in the wake of the BP spill and looming tax increases…it’s not hard to understand why companies are not investing.

Now this isn’t proof positive. Anyone that knows me and my writing, knows that I’m not one to think anything conclusively proves anything. And in an effort of intellectual honesty, I’m a critic of Fed data. I believe the Fed, and any government data are biased low. In this case, it makes the data even more dreary, if the Commerce dept is low balling FPI like they do Unemployment, the situation is even worse than ever.

Racism in the NAACP? Say it ain’t so!

The larger context to this speech is that this occurred many years ago. That’s fine with me, lots of bad things happened years ago. The larger question is why did she decide to talk about it at a NAACP function? Why wasn’t she “repudiated” by her peers during the function? If you listen all you hear are murmurs of approval. Glass houses anyone?

I’m one of those people who believe the people by their nature discriminate. It’s part of our hard wiring, the fight or flight type of survival mechanism. People automatically discriminate against anyone (it’s not just about race) that is different from them. Race and color are just the two most striking characteristics to go by, but you can see the same thing when an urban yuppie meets a country boy. They usually start off distrusting of each other.

The way to get past racial tensions is to not be so different from each other. It’s a cultural thing. If we as a society want to be truly post-racial, then we need to stop self-segregating. It’s a choice we all have to make. No one can force it on us. So why do we self-segregate in the first place?

Rep. Steve Cohen (D-Tenn.) arrived on Capitol Hill three years ago ready to join the Congressional Black Caucus. His logic was simple: More than 60 percent of the people in his Memphis-based congressional district are black.

So was the caucus’s logic in its reply: The organization is reserved for black members of Congress, and Cohen is white.

In the end, like most things, we will never be over racial tensions until the previous generation dies out. The baby boomers were both at the forefront of racial equality and the barriers to it. While Mrs Sherrod, might have the best intentions (she at least realized what she said and tried to back track at the end) she still does and will always harbor racial biases and hatreds. We will never be done with racism until the previous generation that profits off of it are gone, along with their institutions. Yes I’m talking about Jackson and Sharpton as well as organizations like the NAACP. I think the only reason the NAACP even passed their resolution, is because they wanted some publicity. Think about the last time you heard people talking about it?

Why is the NAACP become increasingly irrelevant? I think it’s because the previous generation is dying out and along with it the institutions that, although necessary at the time, are not needed anymore. In short, it was one last chance at fame for the NAACP. People just don’t need them like they used to. As the younger generation, the internet generation, who thanks to they wondrous anonymity of the internet, might not even know what country the person they are talking to or gaming with are from. They probably could care less. They aren’t hampered by the racial tensions of the past, except for when people use it for publicity.Thank god they are so far ahead of their parents, that they don’t carry onto the old baggage. Imagine the Hatfields and McCoys if they lived now. They younger kids would probably be on facebook together, chatting or gaming together. Their parents will still tell them how horrible the other one’s kin are. But it won’t matter, because the kids can see for themselves that their parents don’t know what they hell they are talking about and as most kids do, just blow off their parents as dumb old people.

Most of the people I talk to, on political blogs, gaming forums, music forums or even social networks don’t know what race I am. It doesn’t matter to them. It shouldn’t. I could care less. I disagree with white liberals just as much as black and hispanic ones. And I get along with black libertarians just as well as white, hispanic or asian ones. All the matters is the content of ones character and the logic of their ideas. Period!

Update:

Well at least the NAACP isn’t using a double standard in their renouncement of Sherrod’s remarks.

We concur with US Agriculture Secretary Vilsack in accepting the resignation of Shirley Sherrod for her remarks at a local NAACP Freedom Fund banquet.

Racism is about the abuse of power. Sherrod had it in her position at USDA. According to her remarks, she mistreated a white farmer in need of assistance because of his race.

We are appalled by her actions, just as we are with abuses of power against farmers of color and female farmers.

Her actions were shameful. While she went on to explain in the story that she ultimately realized her mistake, as well as the common predicament of working people of all races, she gave no indication she had attempted to right the wrong she had done to this man.

The reaction from many in the audience is disturbing. We will be looking into the behavior of NAACP representatives at this local event and take any appropriate action.

SEC vs Goldman: A look back at my Bootlegger and Baptist prediction

Now that “Historic Financial Regulations” are about to be signed into law, wouldn’t you know it, the SEC and Goldman have settled on that pesky investigation in to Abacus. Some people might think it just mere coincidence, not me. I see it as all part the plan. First take a look at what I said back in April.

Bootleggers: Goldman Sachs

• What do they care about image anyway right?
• Unlimited Bailouts at the discretion of the POTUS, whom they already bought.
• More than likely, the SEC charges will not amount to any fine, or if there is a fine, it will be minuscule compared to what they made over the last year, thanks to Fed money.

Baptists: Obama and the Democrats

• They get to appear tough on Wall Street.
• They want to pass the Dodd bill, which wouldn’t have stopped the crash from happening if it would have been passed 5 years ago.
• They get to appeal to the emotions of their base, Democrats would think Obama sold them out, maybe stop some of the hemorrhaging of support.
• They will try to campaign on the Dodd bill instead of Healthcare, because of Obamacares horrible approval numbers.

They get to use this to write lots of new regulations to help their buddies. This isn’t capitalism, it’s Mercantilism.

Bailouts

First things first, what about bailouts? Well the new bill gives the FDIC new powers to break up big financial institutions if they are deemed a systemic risk. Does it actually do that? Not really.

The FDIC will take over big troubled financial firms. It will then do whatever it must to both stabilize the financial system and maximize the value of failed firms’ assets, so to minimize the costs of the resolution process. In order to achieve financial stability, the FDIC will have to cover many of the big firm’s obligations. After all, that’s kind of the whole point. Consequently, these counterparties, customers, creditors, etc. will prefer to do business with companies that fall under the resolution authority’s umbrella. That should provide these big regulated firms a competitive advantage over smaller ones.

So what really happens is that the resolution process instead of bankrupcy is going to be a politically run operation. I don’t think anyone will argue that regulators are already politicized. Liberals complained about it during the Bush years, and conservatives complain about it now. So being already politicized, which creditor do you think will get priority during the resolution process? Remember how the GM and Chrysler bankruptcies went? That’s right the more politically connected groups will get first cut at any money coming from the FDIC.

This is nothing more than a lobbyist wet dream come true. That just gravy though, does it really end to Big to Fail? Again not really. By giving these big firms even more competitive advantage over smaller firms, by giving them monopoly power, thanks to the Federal Government barring entry of smaller firms, they only get bigger. As they get bigger and make more and more money, they give more and more money to various politicians that govern the financial regulatory boards. If the FDIC regulators start to think that a certain firm, (*cough Goldman Sacs*) is getting too big, a call from powerful Senator will curb their fears, not doubt about it. We’ve seen this play out with Fannie and Freddie already. How long before we have Rep. Bawwny Frank up berating people for questioning Goldman’s balance sheet, like in 2003?

“These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

So when it comes to ending Too Big to Fail, this bill falls short, especially considering it doesn’t even attempt to do anything about Fannie and Freddie!

My April prediction: 1

Goldman: 1

Taxpayers: 0

SEC Fine

That’s got to be the biggest joke of them all. $550 million? Are you kidding me? Goldman earned $13.39 billion in profits in 2009. So taking the $550 million and dividing it by the $13,390 million it made last year alone and you get a laughable 4.1% Oh it gets even better, from the same Post story, Goldman gave out $16.7 billion in compensation, most of that was bonuses. So now the fine amounts to 3.3% of its bonus packages. HA HA HA nice try.

My April prediction: 2

Goldman: 2

Taxpayers: 0

Baptists: Democrats

They pretty got almost everything I had predicted. They passed their bill, thanks to demagoging the same firms that this bill protects. And just like the Health Care Bill, we don’t know how it’s going to work!

The bill, completed early Friday and expected to come up for a final vote this week, is basically a 2,000-page missive to federal agencies, instructing regulators to address subjects ranging from derivatives trading to document retention. But it is notably short on specifics, giving regulators significant power to determine its impact — and giving partisans on both sides a second chance to influence the outcome.

As I said before, this is a lobbyist wet dream. Thank you Dodd, Frank and Obama!

Now the only question is will this pay off. Will the Democrats be able to use this for November? They are claiming victory over the Goldman settlement, using it to push this financial regulatory bill. Will it pay off? Kim Strassel says, maybe not.

That’s because, like stimulus and health care, Democrats turned the financial regulation bill into a monstrosity. What started as a promise to streamline and modernize the financial system turned into 2,300 pages of new agencies and new powers for the very authorities that fomented the financial crisis. The bill is laden with uncertainty and brimming with costly regulations on small businesses. Sen. Chris Dodd and Rep. Barney Frank made it easy for Republicans to pronounce their bill more Obama Big Government—a “Main Street takeover”—and to justify their votes against it.

Those votes were made easier by the knowledge that, like stimulus and health care, this is legislation that has overpromised. The bill does nothing to address the root causes of the crisis. Yet Mr. Obama recently assured the nation that it not only fixes the system’s problems, but was “good for businesses, it’s good for the entire economy.”

So tell me what you think, how did I do back in April? I think my predictions were spot on. Although I should have added in the Bootlegger part, that the end result, the Financial Regulation Bill, gives Goldman an even bigger slice of the pie by making the new regulations so hard and so costly that only the Too Big to Fail firms are the ones that are able to comply. So score another on to Goldman.

That $550 million will go down as the cheapest multi-billion dollar investment ever.

Democrats: 3 for 4, not bad.

Update: From Charles Rowley on the Federal Reserves role.

The Federal Reserve will become the primary regulator for large complex financial firms of all kinds, as it adds the responsibility for maintaining financial stability to its existing responsibilities for promoting price stability and maximum sustainable employment. To make sure that the Federal Reserve is completely politicized, the new legislation will  require it to obtain the prior agreement of the Department of the Treasury before using its extraordinary authority to lend to almost anyone and to force any large company, bank or non-bank, to boost its capital and its liquidity in accordance with transient Fed impulses.

As further evidence of its receding independence from the Executive Branch, the Fed will be assigned an additional vice-chairman,  responsible for supervision, and to be chosen by the White House, no doubt as the enforcer of its comprehensive financial and industrial policies.

Almost without a whimper from Wall Street, and with an embarrassing silence from the media, the United States economy is being propelled irreversibly away from laissez-faire capitalism, to the crony capitalism of  national socialism.

Judge tells Obama to shove his moratorium

I’m glad to hear that a Federal judge has blocked Obama’s asinine oil drilling moratorium.

Obama issued the moratorium based on a report from the MMS.

In the Executive Summary to the Report, the Secretary recommends “a six-month moratorium on permits for new wells being drilled using floating rigs.” He also recommends “an immediate halt to drilling operations on the 33 permitted wells, not including relief wells currently being drilled by BP, that are currently being drilled using floating rigs in the Gulf of Mexico.”

They also say that the report was reviewed by “experts.” The problem is that was a lie. Imagine that, Obama lying in order to forward his agenda?

As the plaintiffs, and the experts themselves, pointedly observe, this statement was misleading. The experts charge it was a “misrepresentation.” It was factually incorrect. Although the experts agreed with the safety recommendations contained in the body of the main Report, five of the National Academy experts and three of the other experts have publicly stated that they “do not agree with the six month blanket moratorium” on floating drilling. They envisioned a more limited kind of moratorium, but a blanket moratorium was added after their final review, they complain, and was never agreed to by them. A factor that might cause some apprehension about the probity of the process that led to the Report.

The Report makes no effort to explicitly justify the moratorium: it does not discuss any irreparable harm that would warrant a suspension of operations, it does not explain how long it would take to implement the recommended safety measures. The Report does generalize that “[w]hile technological progress has enabled the pursuit of deeper oil and gas deposits in deeper water, the risks associated with operating in water depths in excess of 1,000 feet are significantly more complex than in shallow water.”

The Times reported earlier on the economic impact of the moratorium on Lousianna.

Each rig job supports roughly four additional jobs for cooks, supply-ship operators and others servicing the industry. Together, they represent total monthly wages of at least $165 million, according to estimates by a Louisiana oil industry group…

The securities firm Raymond James & Associates predicts that the moratorium could last well into 2011, directly jeopardizing 50,000 jobs and potentially gutting blue-collar communities that rely heavily on the economic activity that comes with deepwater work. “Just as the demise of auto plants and steel mills in the Upper Midwest devastated entire towns, an extended drilling ban could eventually have a similar effect in the Gulf Coast,” the company said in a report Monday.

Of course when a Liberal agenda is on the line, those workers don’t matter. How much money did the Administration funnel to the Unionized GM? Chrysler?

In suspending the moratorium the Judge said:

If some drilling equipment parts are flawed, is it rational to say all are? Are all airplanes a danger because one was? All oil tankers like Exxon Valdez? All trains? All mines? That sort of thinking seems heavyhanded, and rather overbearing.

The Court recognizes that the compliance of the thirty-three affected rigs with current government regulations may be irrelevant if the regulations are insufficient or if MMS, the government’s own agent, itself is suspected of being corrupt or incompetent.

Right on. No doubt Obama will be calling the Judge in for a talk. He can’t have Government officials disagreeing with him publicly right?

The White House made it clear Tuesday that Gen. Stanley McChrystal’s job is very much in doubt.  Press Secretary Robert Gibbs, looking grim, called McChrystal’s conduct an “enormous mistake” that angered the president.  Asked whether the general’s job was safe following his comments and those of his aides in Rolling Stone, Gibbs said “we’ll have more to say” after the President’s meeting with McChrystal Wednesday. “Everything is on the table,” Gibbs said earlier in his briefing, when asked if the President would fire McChrystal.

This Administration is acting like a spoiled little child. At least a few Obamatrons are starting to see him for what he really is.

Market Failure vs Government Failure

I’ve been going back and forth with Prof. Hutchinson at Dissenting Justice on the Progressive blogging thread I wrote about earlier. It’s nice to have a civil discussion on a liberal blog again.

It got on the subject of market failures and Prof. Hutchinson makes some good points. I think that he, being a liberal, plays down the anti-capitalistic views on the Left. Then talks about how Government intervention rests on “market principles.”

As far as the rest of your post, I am somehwere in the middle on these things like regulation. Many liberal economists are as well. I would not say that everyone on the Left (or even most persons on the Left) favor government over markets. That just is simply untrue — at least when you think of liberal economists (i.e., people who know something about economics).

I strongly believe in the concept of a market failure. Sometimes, correcting a market failure requires government intervention, but usually, this intervention rests on market principles. So, for example, the polluter does not internalize the costs to society of pollution. The market intervention should force the company to take these costs into consideration. This is a simplistic example, but it shows collaboration between market and private among the Left.

I think his view is indicitive of the Left. Yet, he makes no mention of Government failure, which is also indicitive of the Left. Why do liberals only talk about Government failure when the other team is in charge? (Bush and Katrina, Iraq, Global Warming, etc ad nauseum)

Here’s my response.

I see your point. I just think it’s indicative of more than just his double standard.

I agree markets do fail. But how they fail and to what extent is largely subjective. We probably will agree on the margin but not on average, on what constitutes a market failure. For example, you may or may not think the financial crisis was a market failure, while I see it as a government/regulation failure. I think a lot of the cause of it was due to past government actions, institutional moral hazard (ie Too Big to Fail, Russ Roberts has a good essay on it)

I think the big place we might differ is on solutions to market failures. I think the predominant though among the Left is that Government needs to step in. I disagree, due to Public Choice concerns. I see government action as being the worse of any possible solutions in a lot, but not all cases.

I think another place we differ is on your assertion that “intervention rests on market principles.” I take the Hayekian view that markets are a very dynamic and random phenomena. We can’t predict what 1000 people are going to do tomorrow, yet the market is explicitly dependent on what those 1000 people do. The incentives for each actor might be exactly the same, but each of those 1000 might do totally different things, that might be perceived by an outside observer to be totally random or worse, go against “market principles.” (I’m assuming that when you say market principles your talking about rational choice theory)
When your say that Government intervention rests on market principles, I see that as an oxymoron. The Market is decentralized, and by imposing top down centralized rules, your not going to get the results you want. I liken it to a mad scientists working in a lab, saying that evolution isn’t working fast enough, so he is going to help it along. How does he know which path evolution was going to take? Same with intervention resting on market principles. How does the central planner know what the market was going to do?

While you say the government will force the company to internalize externalizes, I say buy doing that your distorting what the market was going to do. How do we know the market wasn’t going to bankrupt that company from the get go?

Think about the BP spill. If it wasn’t for Government rules and regs that restrict entry into the drilling business, who’s to say Transocean, Halliburton, or BP wouldn’t go bankrupt over their actions? Or what about Goldman Sachs. Government intervention, bailouts, kept Goldman in business. The market would have bankrupted all those Wall Street firms that had a part in crisis, but it was government interaction that keeps them in business now, against market principles.

I could go on, but I’ll stop. I think it’s enough to say we will probably never agree, but I don’t see that as a bad thing.

Oh one last thing. Re: “I would not say that everyone on the Left (or even most persons on the Left) favor government over markets.”

That’s your opinion and I respect that, but we don’t have any hard data on that. At least I couldn’t find a poll that explicitly asks “Do you favor Government over Markets?” The best we can do for data is use a proxy. The Public option is a good proxy, I think. We can probably bicker on the percentages of Liberals that want a public option, depending on the pollster, but I think we can both agree that it the majority. Right?
Also there is this old Rasmussen poll (Which liberals usually don’t like, I don’t know your take on Rasmussen) that says 30% of Democrats prefer socialism to capitalism (39%). Either way Capitalism aka markets are in the minority.

http://www.rasmussenreports.com/public_content/politics/general_politics/april_2009/just_53_say_capitalism_better_than_socialism

We’ll see what the response will be. It’s nice to be able to have a good conversation and not be called any ad hominems. Kudos to Prof. Hutchinson, I wish liberals were more like him.

What’s keeping stocks up?

I’m a pessimist when it comes to stocks. For the life of me I can’t figure out why the Dow is still going up.

I know the conventional wisdom says it’s because of green shots, fundamentals or that housing sales are going up. Yet, it’s imperative to remember this is the same conventional wisdom that said housing prices could never fall. That the bubble (before it popped) was sustainable and based on market fundamentals. Needless to say, I think they are wrong. I don’t think that the economy is anyway near being any better than it was before 2008.

The housing market is still over inflated, thanks to numerous government interventions that distort the real economic picture. The only reason that the housing number, for April, were any good is because of the rush to buy and still get the tax credit. Expect May, June and July’s numbers to be “unexpectedly” low. Of course there is nothing unexpected about it, the MSM had pretty much resigned itself to a propaganda machine for the administration.

So what is keeping the Market up?

I think a reasonable expectation, given Higg’s Regime Uncertainty theory, is that the Market is waiting for November.

If you think about it, it does make some sense. The Obama administration has, to a high correlation, played this recession the same way FDR did in the 30s. Obama has taken over some private firms, instituted numerous regulations and passed very business unfriendly laws. Business doesn’t know what’s next.

You have the FCC trying to take over the internet (Yes yes I’m being overly dramatic here, only because this hasn’t gotten nearly as much press as it needs, probably because the News media will hit the jackpot when this goes through.) You have new regulations, that pretty much no one has read, on the financial sector. Even though finance has taken a drubbing from the public, they still provide the cash that’s necessary for business to get off the ground. You have new health care laws that severely negatively impact hiring new workers. And who knows what’s next, which is the essence of regime uncertainty.

The only way to really tell is to wait till November. If the market has a huge rally, when Republicans win big, then we may know a little bit. Yet, it important to know that even then we won’t know the answer. Many people might wait to see if the Republicans do what they say they are going to do; cut spending, bring in the deficits and decrease government control of the economy. If they don’t do any of those things, I think a lot of people will continue to stand on the sidelines until we actually get someone in office that will cut down the government.