Sonntag, August 30, 2009

Quote of the day...

From a discussion on rationing of health care here:

The Obama health plan, the details of which are still being worked out, will also ration health care. The alternative to that is an accelerated escalation of aggregate healthcare costs. But the single-payer system to which Obama's plan will lead will have no competitor and no pressing financial incentive to please its customers. No competitor for the single payer means no alternative for the patient. We can reasonably expect that a single-payer system of rationing will be largely implicit rather than explicit, and governed as much by cost and political considerations as by medical evidence. Such a system would likely combine the fiscal responsibility of the Postal Service, the customer friendliness of the Bureau of Motor Vehicles, and the smooth efficiency of the Immigration and Naturalization Service.

The key phrase here is escalation of aggregate healthcare costs: everything will get more expensive.

I can only reiterate that any discussion of health care reform that does not include a major reform of tort law is fundamentally flawed. Without the latter, costs of the former cannot be held under control due to due diligence necessity of testing to enable any health care professional to point out in a liability suit that they performed due diligence. Tort law reform is a necessary prior condition to health care reform.


HT: Megan.

Freitag, August 28, 2009

Kill The Messenger...

The EPA is apparently deciding to close the National Center for Environmental Economics, or NCEE.


Because of an analyst who refused to get on the bandwagon. Read here for more.

What does the NCEE do?
  • Conducts and supervises research and development on economic analytic methods
  • Leads production of EPA economic reports
  • Provides guidance for performing economic analysis
  • Promotes consistency in the preparation and presentation of economic information in the Agency
(from their web site here)

Dr. Carlin, the "Senior Analyst" in question, has been with the EPA since 1983. His sin? Reporting that there was, in his opinion, no link between anthropogenic CO2 and temperature trends, given the most recent published science.

Talk about shooting the messenger: this isn't shooting him, it's killing off the entire department. Economics has no role to play in the fever-driven eco-paradise of the Democrats and their green friends.

Mittwoch, August 26, 2009

Why You Should Listen To Economists...

Well, my guild is not called the Dismal Science for nothing.

Here are two links: read 'em and weep.

Here's a freebie: both people and companies react to both incentives and market behavior. Duh, right?

Well, consider this:

Misdirected federal subsidies since 1965 have bid up the inflation-adjusted price of medical care for everyone.

Since the 1980s, ever-increasing government grants and subsidies for selected college students have induced commensurate increases in the tuition charged by schools. The result has been to leave subsidized students little better off than before and, in the case of everyone else, to make postsecondary education almost unaffordable.

In the name of promoting home ownership, Washington helped cause a mortgage crisis that has put many families on the street. In the name of the environment, the government won't let us drill for oil — and forces us, instead, to make ethanol out of our food and the Earth's limited supply of water.

Washington bans most immigrants who have education and skills that would create new wealth in America and make us all better off — but since 1975, it has willfully admitted millions of unskilled immigrants who take from America far more than they add.

This is the law of unintended consequences, but at least a few of the unintended consequences are foreseeable (even without hindsight...). Subsidies are not the answer to inequalities: they distort markets and lead to the problems listed here.

Have the fools in Washington learned anything? Short answer: no.

With climate-change hype taking legislative form in HR 2454 and the Waxman-Markey cap-and-trade bill, and with fossil fuels on the endangered species list, not many in Washington seem concerned that Waxman-Markey, among its other costs to jobs and growth, will further endanger our gasoline supply.

In 1981, the U.S. had 324 refineries with a total capacity of processing 18.6 million barrels of crude a day. A study by global consulting firm EnSys Energy shows that Waxman-Markey would reduce that figure to 12.2 million barrels a day from its current production rate of 14.5 million from just 141 active refineries.

Without Waxman-Markey, U.S. production rates would grow to 16.4 million barrels a day. With it, not only will refinery production rates drop but utilization rates as well, from about 83% today to about 63.4% in 2030.

The drop would have to be made up by foreign imports, the study finds, meaning the U.S. could end up relying on other countries for some 19% of its refined fuel, nearly twice the amount it imports today.

In other words, in the misguided belief that you can legislate climate change (the idea itself is patently absurd, but we are talking about Democrats in Washington, after all.), the legislation, in its current form, does nothing to actually change things, but rather simply ensures that when those mean, evil and nasty refineries just have to operate, then the important thing is that they don't do that in the United States.


A Shining Example...

Hassan Nemazee, the Finance Chairman of Hillary Clinton's campaign, was indicted on 25 Aug 2009 for fraud, supplying references that were controlled by him and falsifying documents in order to obtain a $74 mn loan from Citigroup. Not much available on deeper detail, though. What is here is from this.

He's paid back the money, apparently. He was arrested while trying to leave the country (purportedly for a vacation to Italy).

Good friend of the Clintons, the Kerries, and a big spender for the Democrats.

A shining example of who the Democrats really are: more than willing to lie and commit fraud to get ahead.

After all, we're not talking small fries here. $74mn isn't exactly chicken feed. Nemazee Capital, his company, is in real estate, but the predecessor, Nemazee Holdings, got its start by entering into a rather unusual partnership with ... AIG.

Classic case of how the Democrats operate and thrive: guy gives them money, he gets tossed deals and work in exchange. He gives them more money and helps them with finances, more deals are tossed his way. Virtuous circle...until the indictment comes.He's been known to set up Democratic operatives - like Terry McAuliffe - in lucrative jobs between political jobs.

Oh, and apparently Al Gore's involved as well...

Hey, if it works in Chicago...

But I Thouight They Were Being Nuanced...

This by cartoonist Steve Breen made me laugh.

But not for the reasons he thought: I don't think he wanted me to laugh at all.

It's a triptych, with a solid line fading to a broad gray; the first is the line between right and wrong, the last is the CIA's line between right and wrong under the Bush Administration.

Sorry. I had to laugh because wasn't it the usual litany of the liberal press that President Bush wasn't nuanced, that he just saw everything in ... black and white?

Can't have it both ways, you know. Nuanced and able to see all sides of the problem leads to moral ambiguities and difficulty in drawing the lines. Black and white means that you are not morally ambiguous and that have a clear (and probably partisan) view of the world.

Yet another example of the inconsistency and above all hypocrisy of the liberal media...and that's why I had to laugh.

So He's Dead...

Edward "Ted" Kennedy has died.

Before the eulogies start rolling in, let's not forget the one thing that never let him go: Chappaquiddick. Even the Firefox spellchecker knows how to spell that word because of the history involved.

Ted Kennedy was responsible for the death of Mary Jo Kopechne.

She was one of the "boiler room girls", who analyzed how Democratic delegates were planning to vote. She was deeply into politics and had worked for Robert Kennedy before he was assassinated.

I won't speculate on drinking, sex or anything else: just the fact that Edward "Ted" Kennedy failed to report the accident until after the car and the body of Mary Jo Kopechne were found the next day. This irresponsibility - to make things worse, while he did tell her parents before the news was released, he didn't tell them that he was the driver - reflected on his character (poorly) and ensured that he would never be able to run for President. It wasn't an oversight on his part: he was, at the end of the day, completely and totally responsible and failed in his responsibility.

Is this appropriate to point out when someone dies?

I'm not going to eulogize the man. He was a political opportunist and died before he could once again bend a few laws for the benefit of his party. He was a consummate Democrat and a leader of his party.

Which does not reflect well upon the Democrats.

May his soul find rest and succor in God's grace.

Dienstag, August 25, 2009

Obama Legacy Prediction II

Second in a continuing series...

The Left in the United States has long had a problem with the CIA. The Democratic Party virtually destroyed the ability of the US to run covert operations and humint resources overseas during the Carter years with the Church Commission and other absurdities.

Bluntly: any country needs intelligence services. Covert operations, programs to subvert enemies, etc., are also part and parcel of the Real World, the one that the Left denies even exists.

But the Obama Administration is opening the door to a reversion to type: the self-loathing liberal who cannot stand the sight of his own face in the mirror because he knows that more serious, more rational and above all more moral people have killed and subverted in order to protect the United States. Self-loathing because he knows that he is too cowardly to have signed off on these things himself.

It always amazes me how naive the Left are: they truly believe that Cuba is a worker's paradise, that Chavez is saving Venezuela from the ruling oligarchy, that the Soviets just reacted to us, that Mao was misunderstood and that Pol Pot had basically the right idea.

Give the empirical evidence, I cannot respect anyone who remains a Leftist, let alone a Marxist or a member of some other revolutionary nonsense.

But your classic Washington Beltway Leftist, whilst denying loudly and fervently that they even have a bias (because they cannot see it), knows how terrible US intelligence became after the Church Commission thrashed the CIA to within an inch of its life.

Hence the next legacy of the Obama Administration: gutting of US intelligence and counter-intelligence assets, leaving the country open to subversion and organized attempts to manipulate the US political system by foreign powers.

Why do I include counter-intelligence assets here as well? Because the two are fundamentally inseparable. Destroy your intelligence community and the counter-intelligence community will fall apart.

What is really happening here is politically-motivated revenge, going after those who were told that the methods in question were okay, but failing to go after those who okayed the methods. The former is applying the law retroactively in order to punish anyone daring to behave like intelligence professionals behave; the second is obvious political revenge, prosecuting those with differing opinions.

What will be - no, not will be, what are the effects?

Can anyone explain to me, when this goes through, why anyone would ever want to work for the CIA again? Do what your boss tells you to do, and then face financial ruin because a new administration changes policy and decides that what you were told to do makes you a criminal? The only alternative is to have all of your actions vetted by a lawyer before you actually do anything: that means the end of virtually all and any actions whatsoever. Or you go to jail. If need be, ignore the law and change it, making it retroactive.

Of course, that is the intent. To criminalize having a different opinion. Nothing more, nothing less. Please explain to me how this is different,

Because it isn't.

The legacy of the Obama administration will be a CIA and other intelligence agencies that will fundamentally fail to provide anything but the blandest and weakest intelligence, worse than could be found in the pages of a newspaper, analyzed not by intelligence professional but by lawyers. They will fail to inform, they will fail to protect, they will fail to find out what is really going on and name names.

Enjoy that legacy.

Montag, August 24, 2009

Obama Legacy Prediction I

First in a continuing series of predictions of what the legacy of the Obama presidency will look like.

Loss of US "AAA" rating

Given the $9tr deficit expected, coupled with a worse-than-expected decline in tax income, doubts at the rating agencies are now showing up that the US will be able to maintain its current AAA rating.

When this happens it means that the debt of the US will be refinanced by its creditors to reflect this: since interest rates cannot be adjusted externally, it means that bond prices will fall significantly, especially for new issues. Hence costs will go up significantly, as a bond price that can only be issued at, say, 95% of face value can only take in that much money, but has to be repaid in full. The worse the rating, the greater the discounting, since this gives bond holders an immediate return for their risk.

The effects will be extremely unpleasant, but not catastrophic. It means that unless taxes rise, US external debt will have to increase massively in order to counter the risk downgrades.

Now, you can't blame this on Obama alone: the 111th Congress deserves most of the blame, largely because of its abject failure to exercise its constitutional responsibilities. But it will be part of the Obama legacy.

To be continued...


I know I won't be buying any more scotch whiskeys until someone comes up with either a profound apology to the Lockerbie victims or some people lose their jobs. Put bluntly, Pàrtaidh Nàiseanta na h-Alba, as the Scottish Nationalist Party is called in Scottish Gaelic, is nothing less than a bunch of groveling sycophantic fools who earnestly - and foolishly - believe that by groveling to the likes of Gadaffi, they can further the cause. I wonder which Swiss bank accounts changed hands in order to get a convicted terrorist released.

Humanitarian action my ass.

Here are my recommended alternatives to Scotch Whiskey. I already have a bottle of the Woodford Reserve (and a more pedestrian Jim Beam), and just got a bottle of Rittenhouse Rye to try it (heard good things about it...).

Bourbon: Woodford Reserve, Maker's Mark. You can find a longer list here.

American Rye Whiskey: Rittenhouse Rye Whiskey, Old Potrero, longer list here.

There's Canadian, Japanese and Irish whiskeys as well. Heck, there are even Austrian and Indian whiskeys. If you want a good peated whiskey alternative, try Connemara peated Irish whiskey. There are alternatives out there, folks, and this is one place where we can make a difference. The French felt it when they tried to stop the US in the UN and the sale of French wines plummeted.

But for now: no more scottish whiskeys. Zilch. None. The ones I have I will enjoy, but until the idiots in Scotland come to their senses...

Oh, and I don't think too many will be upset by boycotting haggis...

Misleading or Deliberate Confusion?

President Obama and his administration have spent a lot of time talking about needed competition in the health care industry.

But they are either being deliberately misleading or are being deliberately confusing.

Read this.

What struck me here is that there is the deliberate use of the word competition between private offerings and the public sector in terms of health care offerings. They make it sound like there is none right now.

Wrong. This already exists: Medicaid does exactly that. Medicaid, after all, is the means-tested program of the US government to supply health care to around 40% of the US population whose income and other resources are deemed inadequate to finance a set level of health care

The problem is that Medicaid is unattractive and, because it is means-tested, has a large number of insured who are in there, to a certain degree, because they have serious illnesses that other insurance providers, as a result, don't have to carry.

What the Obama administration really means when it speaks of competition is that government-run health insurance competes with privately-run health insurance head-on for the customers of the privately-run health insurance.

Let's take a look at what President Obama says:

The source of a lot of these fears about government-run health care is confusion over what's called the public option. This is one idea among many to provide more competition and choice, especially in the many places around the country where just one insurer thoroughly dominates the marketplace.

What does this mean? It means that what the Obama administration euphemistically calls "public option" (aka: government-based insurance) is supposed to be that which provides "more competition and choice" within the universe of insurance options. And especially in those states where there are limited options.

But why are these options limited?

Because insurance can't be sold across state lines. Hence you have small states which literally can't sustain competition because their population base is too small ending up with expensive insurance because it comes from a single supplier (aka monopoly).

Why can't insurance be sold across state lines?

Well, it all has to do with a failed understanding of why does insurance cost the way it does.

When you buy insurance, you buy coverage against illness. The insurance company basically places the bet that on average, people will be paying in more than they cost in terms of insurance outlays. That is the entire insurance industry in a nutshell. It's their business plan. Hence: the more people paying in, the easier it gets to calculate this difference, since each individual case where the sum of the outlays are vastly more than the sum of the insurance premiums, aka outliers, becomes, on the margin, less and less important. Small markets mean that the outliers are more important, since these can easily eat up the profits that the insurance company earns on a dozen others whose outlays are smaller.

What is the reason, then, why insurance can't be sold across state lines?

The rationale for this is that states with lower costs (where health care costs are lower) would then end up subsidizing the insurance costs of states with higher insurance costs. Can't have that, since it would mean that if I live in New York with very high insurance costs, I might buy insurance from, say, Vermont, where the insurance costs are much, much lower due to the lower cost of living. Or some other nonsense.

I call it nonsense because it is, and it is a nonsense of the insurance companies and the nonsense of state insurance regulators who swallow that story. It's apparently "not fair" to increase the costs for Vermonters when the company that supplies the insurance gets a bunch of New York customers. Hence: it's not allowed.

Utter stupidity. If that was the concern, then insurance regulators (as they already do) would simply tell those in New York who are looking for insurance in Vermont to suck it up and have to pay insurance where they live, rather than where the insurance company is located: in other words, the US market for health insurance is fragmented, which makes economies of scale impossible, driving up ... insurance costs. Since the insurance companies' business model is based on insurance cost and premium differentials, they're happy with this.

Still stupidity. The reason that high cost areas are high cost is not because of the cost of living, but because ... insurance regulators require higher levels of service in high-cost areas. Mandated services like acupuncture and hair pieces. The problem with insurance mandates is that it takes away choice and competition, since if you don't want to pay for them, you have no choice.

So, if the real interest were greater competition, then all we need to do is allow national insurance companies to compete nationally (which also reduces costs, since duplicate management and administration isn't needed) and give consumers more choice.

But that's what the Obama administration wants. More competition...

But that's not what the Obama administration wants. Instead, they are taking the most obtuse and absurd circuitous route possible, enabling nation-wide competition via their government-run insurance scheme.

But Medicaid already exists. Hence the new insurance scheme starts where Medicare stops, competing directly against the private insurance companies. As a business model, it's one that will be able to crush the competition, since it can spread risk amongst a very large pool, rather than the smaller pools of 50 individual states.

Of course, that also means that as the Obama administration's national insurance goes nation-wide, it can use its position to crush the competition one state after another, based on the principle of divide and conquer: fifty individual markets cannot compete against a single supplier who can use both government backing and its larger risk pool to destroy the competition one state after another. Won't happen in a day, won't happen in a year: but in 10 years, if the Obama administration has its way (and subsidizes the insurance to the tune of $1 tr during this time period), there will be no other insurance providers.

In other words, the Obama administration wants to set up a monopoly that, when it reaches absolute dominance, means less choice and above all: less control over costs. After all, if there is no competition, then there is no need to conserve costs: if anything, those more capable of paying will be dunned for those less capable.

Each according to their needs, each according to their ability.

Now where have we heard that one before?

But what is the real reason for this attempted takeover? Understand where the Obama administration is coming from, that lovely city of Chicago, home of institutionalized corruption.

That is the future of the US insurance industry. And don't believe that it won't happen if the Obama administration has its way. It is, as far as I can tell, the only reason to choose this plan over the vastly simpler (and vastly less expensive!) deregulation of insurance markets to allow nationwide competition with prices set on residency (and hence local costs, mandated or otherwise).

If someone offers you a complex and obscure solution to a problem, ignoring a vastly simpler one, you really have to ask yourself the question: is that person being deliberately dense, or is there a hidden agenda?

Controlling 15% of the US economy is a pretty good reason for the crypto-socialists of the satraps of the Obama administration to want to kill real competition and sacrifice it on the altar of the "moral imperative" of providing insurance for everyone. Medicare cares for those who lack the means.

The Obama administration is being both misleading and deliberately confusing when it comes to their goal. But then again, given where they come from, that's not surprising at all...

Why Isn't This Surprising?

There are different ways to hide corruption.

One is to actively hide it, making sure those in charge know where to hide illegal funds. The problem here is double entry bookkeeping, which means that you have to actively juggle the books - or maintain several sets of them - to hide the monies. This can also be used in assigning contracts, giving not necessarily to the lowest bidder or rather giving to the lowest bidder while secure in the knowledge that there would be massive cost overruns (the usual approach. This means, however, having increasing number of folks in on the story, with the possibility that one decides that his sworn duties to the taxpayers are more important than political graft (or, even worse, that they aren't getting enough graft and get real greedy, cutting corners and getting caught, bringing down the rest with them).

Another is to not fill the watchdog positions: that way, you don't have to hide as actively, since there is no one checking the books. Once a fiscal year is over and closed, there's got to be reason to open those books up again, and this can usually be ignored (unless there are massive problems).

Now I think this puts the above in context.

There is, for instance, no inspector general appointed to oversee the spending from the Department of Transportation, despite the fact that the DOT is spending more than ever before.

More than 500 positions remain unfilled: why the delay?

Incredibly enough, according to La Clinton, "The clearance and vetting process is a nightmare and it takes far longer than any of us want to see. It is frustrating beyond words."

But the best is this quote:

"Anyone who has gone through it or looked at this process will tell you that every administration it gets worse and it gets more cumbersome," Mrs. Clinton said last month. "And some very good people, you know, just didn't want to be vetted." She added: "You have to hire lawyers, you have to hire accountants. I mean, it is ridiculous."


I think the problem isn't so much that the vetting process is taking so long, but rather that those being vetted are turning up more problems than expected: after all, the Democrats haven't had the best of luck in vetting their people (Geithner and his .... creative approach to paying taxes...) because their people aren't as clean as the American public expects them to be. Of course they don't want to be vetted: however, it isn't ridiculous, just because La Clinton says it is so. It's not ridiculous because we keep on finding Democratic appointees that haven't bothered to pay taxes on their illegal employees, who can't be bothered documenting how that Irish cottage was paid for (Hi, Chris Dodd...), who are corrupt but believe in their hearts that they aren't.

Watch for legislation short-cutting the procedures "because it is needed". It's not needed to get their people vetted: it's needed because it's the only way to ensure that you can emplace either the corrupt or those who will enable corruption.

After all, it's the Chicago way. Staff the bureaucracy with corrupt folks and when everyone does it, no one dares call it ...

Samstag, August 22, 2009

Are The Chickens Coming Home To Roost?

This is, bluntly, frightening.

$9 trillion dollars debt.

Now, the apologists will say that it was necessary to save the system.


This is really the socialization of private and political mistakes.

The private mistakes are the result of the political mistakes.

The political mistakes - which are carried by both the Democrats and the Republicans in Congress - have been, pardon the vernacular, to fuck with markets.

Markets, as I have pointed out here time and time again, don't care about your motives or your intents. Markets just get buyers and sellers together and make everyone happy.

As long as they aren't being fucked with.

The fundamental, underlying cause of the sub-prime crisis and its melt-down effects on the US and world economy is the policy in the United States of subsidizing housing. This started off small and grew, to the point where the housing markets have been severely distorted, with demand driving supply.

You can't blame builders for building when demand is there. It's the right and proper market reaction.

You can't blame buyers from taking advantage of any and all opportunities to buy into the American dream. It's the right and proper market reaction.

You can't blame mortgage bankers for securitizing mortgages and reselling them. It's the right and proper market reaction.

Who can you blame?

Politicians, who are right now doing their damnedest to avoid ANY blame.


Because they distorted markets.

Distorting markets to achieve a politically motivated end should be considered one of the mortal sins in a free market economy. Nothing more, nothing less.

The chickens are coming home to roost. The $9 trillion debt is nothing more than that. The chickens have been far, far, far away from home, but they're back.

And they're not in a good mood.

So what does this mean?

It means that the edifice that had been created - of cheap housing - is gone. The government has decided that it's everyone's duty to pay for this. It means that our children and grandchildren are paying for the idea that a blue-collar worker should be able to buy a house instead of renting; it means that government finances are going to be crippled for at least two generations because Barney Frank and his henchmen either directly or indirectly allowed the Fannies to be plundered; it means that we're not going to the Moon or Mars again soon because Democratic lawmakers like Rahm Emmanuel and his cronies enriched themselves at the tit of government-backed companies; it means that we won't necessarily have the best military hardware because President Obama and 111th Congress frittered away billions in the search for the chimera of fighting climate change; and, most importantly, the American people have seen the beast for what it is: a parasite, vampiric at best and deadly at worst, becoming increasingly insatiable for power, more than willing to exercise thuggery and deceit to enhance its ability to makes sure that you, the average citizen, can't make your decisions.

While at the same time expressing its disgust with your petty bourgeois conceits and blissfully dismissing your rejection of the demanded subservience as proof of your utter and complete stupidity.

Every country deserves, at some point, the government it gets. What sins have we committed to deserve this one?

Freitag, August 21, 2009

The Lessons Unlearned...

Today's FT has an OpEd piece by Glenn Hubbard, Halt Scott and John Thornton, on the risks to the Fed's Independence, available here.

The critical point here is not so much that the Obama Administration would love to control the Fed - even I think that this isn't really what they're thinking - but much more the dangers of where we are headed here.

Over many decades and especially in this financial crisis, the Fed has used its balance sheet to be a classic lender of last resort. But its ability to do so depends upon its economic credibility and political independence, attributes the Fed has compromised in this crisis.

Important words: last resort. The Fed is like the Governor's office when someone is about to be executed, there's always the hope that the Governor will intervene before that switch is flipped or the timer runs out and the injections begin. The lender of last resort means that there is no one left to go to.

Which also means that when problems kept on being pushed upstairs, they tend, increasingly, to land on the Fed's lap. In other words, the problems that the Fed is facing are the sum of all the problems that cannot be dealt with at lower levels: the Fed carries the burden of dealing with all of the residual problems (not residual in the sense of being left over, but rather residual in the sense that no one else can deal with them) that the economy generates.

Normally an economy is in equilibrium: everything sell-able gets sold, everyone's needs are met for that period of time, and there's not some horrible looming event on the horizon that no one is aware of.

These actions have had a big impact on the Fed's balance sheet. As of June 2009, its total assets had risen to over $2,000bn compared with $852bn in 2006, and only 29 per cent of these assets were Treasury securities, compared with 91 per cent in 2006. Traditional loans by a lender of last resort are sufficiently collateralised to prevent moral hazard for borrowers and reduce risk to the central bank. However, the adequacy of the collateral of these new Fed positions is unclear.

This last is the critical sentence: adequate collateral for the debt is unclear.

For many years now not a few economists have warned that the US was over-consuming, acquiring debt beyond its ability to repay, which if anything is the definition of inadequate collateral.

Now, what exactly is unclear?

Much of the emergency Fed lending was based on Section 13(3) of the Federal Reserve Act, which allows the Fed in "unusual and exigent circumstances" to lend to "any individual, partnership, or corporation," against "notes" that are "secured to the satisfaction of the Federal Reserve Bank".

The question that has been raised by not a few is whether the Fed is playing too loose with the their definition of what is or is not satisfactory.

While the writers of the OpEd piece do indeed understand the problem, I think you have to go back one step further:

Quite apart from the legal issue, the Fed's assumption of credit risk by lending against insufficient collateral could compromise its independence by: making it more dependent on the Treasury for support in the conduct of monetary policy, as illustrated by the supplemental finance facility; jeopardising the Fed's ability to finance its own operations and thus require it to seek budgetary support from the government; tarnishing its financial credibility in the event that it incurred big losses; and generally making it more subject to political pressures.

The real problem isn't that the Fed could somehow compromise its independence by lending against insufficient collateral, but rather that the Fed is making such loans at all: this is, after all, where the trouble started: loans that should never have been made.

I think that the Obama Administration has chosen this path: it has consistently pushed the fact that there are literally billions of dollars out there in non-performing loans - non-performing because they should never have been made in the first place - into the hands of the Fed, not because they think that the Fed can handle this, but rather because of what the Fed is: the lender of last resort.

In other words, this is where the buck stops.

But the Obama Administration sees it a tad differently, wanting to avoid an accounting:

...the Obama administration's reform proposal recommends amending Section 13(3) to require the written approval of the secretary of the Treasury for any emergency extension of credit. This would be a startling expansion of Treasury power over the Fed's use of liquidity facilities in classic lender of last resort situations – that is, where there was adequate collateral. Instead, the lines of authority should be clear. The Fed should have strengthened authority to loan against adequate collateral in an emergency. And the Fed should have no authority, even with the approval of the Treasury, to lend against insufficient collateral.

In other words, the Obama administration basically wants the Fed to "deal" with all of those bad loans by ... making more of them.

This isn't just a bad idea, this way lies madness.

What people in Washington and elsewhere really haven't come to grips with is the fact - and it is a fact, regardless of what spin and strange new hopes one can make - that nonperforming loans have to be written off as losses. The toxic assets are exactly that: toxic.

But letting the Fed make unsecured loans at its own volition, requiring merely the written approval of the Secretary of the Treasury to do so, is tantamount to more of the same.

There is no way out of this: the sub-prime crisis, fueled by market distortions willfully placed by more than one US Congress and President, is a crisis that was and is driven by bad business practices. Allowing the continuation of these business practices is sheer and simple madness, further worsening the solution.

The only real solution?

Liquidation of bad loans; foreclosures and losses on the real estate markets for years to come; extremely tight credit for at least 10 years to recover from these massive bad debts; impoverishment of hundreds of thousands of baby boomers who are relying on speculative profits from their houses to finance their retirements; hundreds of thousands of bankruptcies from those being foreclosed on; the list goes on.

Unfortunately, the politicians who caused these problems - who are those in power in Washington, DC - refuse to believe that they cannot finesse their way out of the situation. These are the Democrats who turned the the Fannies into the sumps of corruption and incompetence that they are. They have built the edifice and profited enormously from the largess when times were good.

It is now time for them to pay.

The lesson unlearned from the sub-prime crisis is that bad business practices, even when they are legislated, always end in tears. Until that lesson is learned by not only those responsible, but also learned by the common man on the street, history is doomed to repeat itself.

And we know that the second time is a farce. The clowns are already in Washington. All we need is for the Fed to complete the circle.

Yet Another Unintended Consequences...

Today's FAZ, on page 7, had an interesting small article that you can read here (only in German).

Fundamentally, the Brazilian system of public pensions is facing a significant crisis, one that is going to bankrupt it.

Basically, it's this: widows are not expected to live, at an average, of 15 years after their husbands die, but rather 35 years.

But it's not that Brazilian widows, all of a sudden, have extremely long lives. It's much more that 70% of all men over the age of 65 now marry women that are, on an average, 30 years younger than they are. In other words, men 65+ years of age are marrying women in their mid-to-late 30s.

However, only 30% of the widows remarry. The reason? Most of the men in their age cohort have married younger women, given that women in their age cohort have been marrying older men. Hence: increasing numbers of relatively young women who are widowed but do not remarry, instead living off of the pension of their late husbands. For more than twice as long as was originally expected...

How did this come about?

Obviously, this is a new development (otherwise the empirical average of 15 years of widowhood wouldn't have formed the basis for the public pension calculations).

How did this then come about?

There's really a very simple explanation: Viagra.

Before Viagra, most older Brazilian men wouldn't even try to bed a younger woman, since impotence or other sexual ... failings would have been vastly too embarrassing to risk. With Viagra, no problem (Brazilian prostitutes apparently hate the stuff, since it means that the men are insatiable.

Hence the unintended consequence: the Brazilian public pension system is facing significant cost increases because of Viagra.

Mittwoch, August 19, 2009

The Crowning Glory Of The Left...

This over on IBD reminding me what the crowning glory of the left is today.


Nothing more, nothing less. Intimidation by unions thugs, intimidation by academic thugs, and most of all attempted intimidation by political thugs in the form of Democratic congressmen (and women).

Such a lovely, crowning achievement to a movement with such an illustrious history of human rights support by such folks as Stalin, Pol Pot and Mao.

If you can't win on the field of ideas, beat your opponents up behind the dugout.

If you can't count on the electorate voting the way you insist, then use Black Panthers to intimidate them (and later give them a get-out-of-jail card).

If you can't count on getting people fired for their political views, then go after them wherever they work.

The left is by all standards and benchmarks thoroughly ideologically discredited, ethically bankrupt, morally depraved and unable to exert even a modicum of intelligent debate into the questions and challenges facing us today.

What remains is Chicago politics, thuggery, outright politically motivated violence and intimidation.

Well, what do you expect of a party who thinks that sexual exploitation of subordinates is just fine and dandy, that freezers are the best place to put bribes, that extortion is just fine and that citizens shouldn't be trusted with their inalienable rights? That was the party blocking civil rights legislation in the name of maintaining "separate but equal" and whose most senior members were advocates of keeping blacks down?

Lovely legacy, that. The crowning glory of the left in the US is common thuggery and intimidation.

Welcome to Chicago...

Dienstag, August 11, 2009

History Repeats Once Again...

If you are aware of history, especially social history, you know that one of the more sinister developments of the 20th century was eugenics.

Simply put, this is the idea that you should breed people like pets, and winnow out the defectives. The Germans loved eugenics in their racial politics, but there was a significant eugenics movement in the US as well, which led, in part, to such horrible acts as forced sterilization of undesirables (at least 64 000 documented cases). The Swedes even maintained eugenics programs well into the 1970s. It was supported by Woodrow Wilson, amongst other prominent folks.

The most barbaric eugenics program, of course, was that of Germany. Here cost-benefit analysis was widely used and thousands of "deficients" were killed ("Aktion T4") because they cost too much to maintain, and between 1934 and 1937, 400 000 were forcibly sterilized as they were deemed unsuitable to have children. These eugenics programs led directly to the Holocaust, as the Germans saw this as the cleansing of Germany and Europe from the plague of the Jews and other "inferiors".

There were similar programs in China and Japan, as well as most industrialized countries.

After WW2, Eugenics was disgraced for what it is, racist "science", science based on the idea that the scientist is independent and capable of to determining, objectively, who was desirable and who wasn't. Put bluntly, no one is, especially not scientists.

So what happened to the eugenicists?

Basically, they went into hiding, as social biologists, situational ethicists and those advocating population control, including the environmentalists, and some of those promoting human bioengineering.

And now, of course, in the Obama health care reforms. History repeats itself.

Don't think so?

Look at this and tell me different. This is nothing less than the use of cost-benefit analysis to determine who gets medical care and who doesn't. Done by the main adviser to President Obama, the brother of his chief-of-staff.

Ezekiel. J. Emanuel. To quote from the Wikipedia page on him:

Ezekiel Emanuel wrote an article for The Hastings Center Report in 1996, in which he suggested that public deliberative forums should decide which health services should be socially guaranteed, and that those services "that ensure healthy future generations, ensure development of practical reasoning skills, and ensure full and active participation by citizens in public deliberations" might be considered by this deliberative body as "basic", while "services provided to individuals who are irreversibly prevented from being or becoming participating citizens are not basic and should not be guaranteed". He goes on to give examples illustrating these two concepts: "not guaranteeing health services to patients with dementia", while "guaranteeing neuropsychological services to ensure children with learning disabilities can read and learn to reason"

I've highlighted the two phrases which, for me, are thoroughly chilling. This opens the door to the determination, for instance, that a certain political thought is not "a practical reasoning skill", and that opposition to a program means that those who oppose such a plan are not participating citizens. We've seen enough examples of these kinds of thought processes in recent days, of political opponents being called un-American.

Further, there is something called "Complete Lives" which purports to use a prognosis - aka forecast - to determine how cost-effective care would be, not for the here and now, but rather for a possible future: those of the ages 15-40 will get the most care, those younger and older will not. It is rationing health care based on societal worth, nothing more, nothing less.

This is what we are getting, if the Obama Health Care reforms are rammed through Congress.

Lovely. History repeats itself once again. The bright shining light of reason, taken once again to the brink of madness, rationalized and well-argued the entire way, totally devoid of ethics (situational ethics aren't ethics: they're an intellectual excuse to do anything you damn well please to "because of the circumstances"), a return to the 1920s and 1930s complete with visions of racial purity and the ruthless repression of those who dare to think differently.

This time instead of killing the undesirable directly, the government will simply deny them medical care. Nicely deniable, that one: no one was killed by government decisions, instead they simply died. Of course, we do have the most nuanced President around...

Hat tip to both James Taranto and via him to William Jacobson of Legal Insurrection.

And as an aside: do those insisting that health care is a moral mandate realize, based on the above, that they will be cutting off health care to some of the homeless, namely those few individuals whose behavior - as drunks, as drug addicts, as psychologically challenged (aka "wackos") - cause a fair amount of non-paid expenses for hospitals and the like? It was found in Denver that a handful of people were the major drivers of hospital costs: homeless folks whose life styles brought them to the brink of death time and time again, whose hospital stays with hypothermia, collapsed lungs, serious pneumonia and the like cost, literally, tens of thousands of dollars with no hope of recompensation? That repeated every month or two, costing local hospitals literally millions? Or do emergency rooms no longer automatically treat anyone who comes in regardless of ability to pay, just on the need for emergency health care?

Freitag, August 07, 2009

Another Example of What Happens When Governments Interfere...and the Swine Cycle

Today's Handelsblatt has an article, on page 10, about the situation in the German river transport industry.

This industry transports goods on the rivers in Germany, usually unpackaged bulk goods like coal or grains, but also junk metals and the like. They are transported on specially designed and constructed ships, relatively small, operated usually by a family that lives on these river freighters. More often than not you can see a compact car parked on the back of the ship and laundry hanging up to dry, sometimes you see a few kids playing.

The article points to a market distortion, created by state guarantees by Dutch Banks to the outfits that build these ships, such that there are far too many ships out there on the market, which, coupled with the recession, has led prices to drop drastically, making it actually cheaper to not operate ships, rather than accept ruinously low-priced jobs.

The reason for the subsidies? The Dutch government guarantees loans made to purchasers of new river freighters in order to ensure that the shipyards that make these ships don't go belly up. Given that these loans are guaranteed and hence risk-free, there are now significant overcapacity in the market, as too many ships chase fewer and fewer jobs.

Market laws don't care why there are too many ships: all these laws do is describe how the markets react. Which, in this case, is leading increasingly to the virtual destruction of the German river shipping business, as long-term operators are forced into bankruptcy as new operators, who are themselves operating at a loss (but no one cares since the loans are guaranteed and equity hasn't been eaten up entirely), leading to the introduction of swine cycle market inconsistencies.

Swine cycle?

This is something we industrial economists see all the time.

Basically, the swine cycle operates thus:

Farmers have a number of swine. They are raised for slaughter, there being a rather small and limited market for swine milk. With markets in equilibrium, the farmers bring enough swine to market to meet demand. When one farmer adds a few swine, he makes more money, which the other farmers note with envy, leading them to add a few to their next batch. When all start doing this, there is an oversupply of swine and the prices fall: farmers cut back on raising swine, since it isn't profitable. Of course, when everyone has cut back on production, there aren't enough swine brought to market and prices start to rise, leading to ... one of the farmers adding a few swine.

This cycle repeats forever. The Swine Cycle is a classic lesson in supply and demand, temporal effects and human behavior.

The Dutch government's decision to support its river freighter shipyard builders has led to an oversupply, leading to a collapse in prices (driven as well by the recession), with new owner-operators driving out the older owner-operators while running their businesses at a loss. The result will be a significant capacity limitation on the market, leading to higher prices for those few that survive, but at the same time making it very difficult for transportation of such goods when demand picks up.

The solution? Well, the damage has been done. If the Dutch government had subsidized its shipyards directly by, for instance, providing a subsidy for employment during a downswing, the excess capacity could have been avoided. Demand and supply in the river freighter business would have been left alone: instead, by distorting the market and increasing capacity, demand and supply have adjusted, but to a point where no one in the river shipping industry can make a profit.