Archive for September, 2008

Start the Presses

September 25, 2008

So much for Congress being the last bulwark to the Paulson plan. It sounds like the end result is going to be even worse than his blank check on the Treasury. As Mike Munger said, “Things aren’t so bad that a panicked bunch of politicians can’t make it much, much worse.”

Once we get some specifics, I’ll give it the ol’ WTF analysis.


Wait, What?!

September 25, 2008

“It’s not based on any particular data point. We just wanted to choose a really large number.” – Treasury spokeswoman, “Bad News For The Bailout”

A Perfect Move Gone Awry

September 25, 2008

I was going to write something about McCain’s “campaign suspension,” which I regard as a brilliant, shrewd, and disgusting ploy, but then I saw Dave Galanter’s entry and decided that he’s pretty much nailed it.

I thought it was going to play out perfectly—though asking for a postponement of the debate was an overreach—but then David Letterman skewered him for cancelling. I think he picked up on the seeming desperation and that’s going to resonate with voters, many of whom probably watch Letterman.

So what’s left for McCain to do at this point? Congress is thankfully looking deliberative about the bailout and he’s pledged to not campaign until a deal is brokered and the economy is “fixed.” Back down and resume the campaign? Not show up to the debate? Hide? Run Palin in his stead? Each of those seems like blinking.

[UPDATE: Obama took the bait! Democrats should underestimate McCain to their peril. You don’t spend nearly 30 years in Congress and rise above many scandals without being competent at politics.]

Reich’s Indecent Proposal

September 24, 2008

In the space of a couple of days, public opinion on the Paulson plan has shifted from grudging acceptance to incredulity. That is good: Congress should not accede to the Administration’s naked power grab and I’m glad that point is fairly obvious to the layman. Unfortunately, it has engendered a realization by many liberals that this is a good opening for a power grab of their own.

House Speaker Nancy Pelosi wants to tap into that $700 billion line of credit to bail out homeowners. Representative Marcy Kaptur stopping short of calling for Wall Street executives’ heads to be mounted on a pike in front of the Exchange, but not by much. The best (and most representative) grab for power by the left is by Clinton’s Secretary of Labor, Robert Reich:

1. The government (i.e. taxpayers) gets an equity stake in every Wall Street financial company proportional to the amount of bad debt that company shoves onto the public. So when and if Wall Street shares rise, taxpayers are rewarded for accepting so much risk.

2. Wall Street executives and directors of Wall Street firms relinquish their current stock options and this year’s other forms of compensation, and agree to future compensation linked to a rolling five-year average of firm profitability. Why should taxpayers feather their already amply-feathered nests?

3. All Wall Street executives immediately cease making campaign contributions to any candidate for public office in this election cycle or next, all Wall Street PACs be closed, and Wall Street lobbyists curtail their activities unless specifically asked for information by policymakers. Why should taxpayers finance Wall Street’s outsized political power – especially when that power is being exercised to get favorable terms from taxpayers?

4. Wall Street firms agree to comply with new regulations over disclosure, capital requirements, conflicts of interest, and market manipulation. The regulations will emerge in ninety days from a bi-partisan working group, to be convened immediately. After all, inadequate regulation and lack of oversight got us into this mess.

5. Wall Street agrees to give bankruptcy judges the authority to modify the terms of primary mortgages, so homeowners have a fighting chance to keep their homes. Why should distressed homeowners lose their homes when Wall Streeters receive taxpayer money that helps them keep their fancy ones?

The wealthy have always served as a useful bogeyman for the left. In their world, someone is rich only because someone else is poor. The notion of a fixed pie underlies so much of their rhetoric and worldview. Reich is using this “crisis” as a pretext for evening things up a bit.

What he proposes is, in some ways, worse than Paulson’s bailout plan. Paulson’s corporate welfare is unprecedented, but mostly contained within the next two years and unlikely to be extended beyond that. Reich’s plan, though, would be here to stay and would serve as a useful precedent for later interventions.

To wit, taking equity stakes in Wall Street firms that accept a bailout would make the federal government a significant shareholder and give it proxy power to do things that it can’t do with regulation—”can’t” because of general strictures and constraints of oversight. This model could be applied to automobile manufacturer and airline bailouts. Struggling companies might find it advantageous to petition the government for a salve in lieu of going bankrupt. Do we want the government owning businesses? Absolutely not.

Limiting or restricting employee’s pay because of poor performance is the province of a firm’s management or board of directors. The left has long had a hate-hate relationship with executive pay, but compensation is by contract and we should not allow the precedent of meddling with existing, lawful contracts because a politician doesn’t like the terms. Or a judge, for that matter. Contract re-negotiation belongs to the two parties involved in the contract in the first place—I am terrified of the ramifications of subverting this most basic job of government.

Finally, Reich’s suppression of executives’ Constitutional protection to petition Congress is abhorrent. At a time when Reich has placed their necks under the jackboot, he’s simultaneously muzzled their ability to complain. The average American is far removed from the Wall Street executive, but we must not lose sight of the fact that they’re both still humans and Americans. Just because they’re well paid doesn’t mean that they waive their rights and mob rule becomes warranted.

The current situation did not arise because of a lack of regulation. George W. Bush is not—and never has been—an advocate of free markets. The financial sector is among the most heavily regulated parts of the economy; these problems stem from the very nature of regulation. Regulation is inherently imperfect: unintended consequences and unforeseen incentives rule the day. Bureaucrats aren’t any more enlightened than those they oversee and they are insulated from the consequences of their actions, so they make decisions with imperfect knowledge for political reasons.

But all of that, while true, is secondary. The primary knock against regulation is individual rights. People have the right to life, liberty, and the pursuit of happiness and they don’t give any of that up when they enter the financial sector, manage a company, or earn money. Much of the left ignores that fact and we can’t let them blind us to it too.

[UPDATE (9/25/2008): Looks like Obama’s loving Reich’s folly. And McCain’s cool with several of his planks.]

What a Crock(ett)!

September 22, 2008

This is a fascinating, though likely apocryphal, story about Davy Crockett as Representative entitled “Not Yours to Give” that seems highly appropriate given recent events. It relates a dressing-down that Crockett received from a constituent who was disappointed at his vote for paying survivors of a Georgetown fire from the public purse. Other People’s Money is never so dear as one’s own and politicians have an even harder time managing it than do businessmen.

I’m also reminded of Joe Biden’s miserliness with his own money compared to his generosity with the taxpayer’s.

True in 1974, True in 2008

September 22, 2008

“It is at a time like this, in the face of an approaching economic collapse, that the intellectuals are preaching egalitarian notions. When the curtailment of government spending is imperative, they demand more welfare projects. When the need for men of productive ability is desperate, they demand more equality for the incompetents. When the country needs the accumulation of capital, they demand that we soak the rich. When the country needs more savings, they demand a ‘redistribution of income.’ They demand more jobs and less profits—more jobs and fewer factories—more jobs and no fuel, no oil, no coal, no ‘pollution’—but, above all, more goods for free to more consumers, no matter what happens to jobs, to factories, or to producers.” – Ayn Rand, “Egalitarianism and Inflation” (listen)

A Sensible Representative?

September 22, 2008

“To have the freedom to succeed, we must preserve the freedom to fail. Any solution to our present crisis must preserve our essential economic freedom. Congress should delay consideration of any legislation until the facts and competing solutions can be fully debated, consider alternatives to massive government spending and figure out how to pay for the solution through budget cuts and reform instead of more debt or taxes.” — Mike Pence (R-Indiana), “Pence Opposes Bush Administration Bailout Plan”

Watch. Enjoy. Repeat.

September 22, 2008

The A.V. Club had a feature asking a bunch of people I’ve never heard of the question “what’s your most-rewatched movie?” Their responses were interesting—and would be more so if I were familiar with the individuals—so I thought I’d share my answer.

I’ve thought about the subject a lot because my favorite movies aren’t necessarily the ones I watch regularly. It’s a crucial distinction because there are several movies that I don’t think are good or great by any stretch but I enjoy watching a lot. My favorite movies aren’t necessarily those that I can (or do) watch regularly but they really resonate with me whenever I do.

My all-time most re-watched movie has to be Happy Gilmore, which I think most people who know me would be surprised to find out. I watch this at least once a month and sometimes more, I can quote from it liberally and extensively. My favorite scenes are definitely the ones with Ben Stiller as a nursing home orderly. It makes me laugh every time.

Aside from that, I like The Italian Job, Dumb and Dumber, and Back to the Future. I must say that getting rid of satellite and the three-at-a-time plan from Netflix have cut into the time I have to re-watch movies: I could have made a much more extensive list two years ago, for example.

Just Keep Digging

September 21, 2008

The New York Times has obtained a copy of the proposal of the Treasury Department’s bailout plan. I am not a lawyer nor am I an economist, but this strikes me as both unprecedented and chock a-block of moral hazard.

Section 2(a), for example, allows the Treasury Secretary to purchase mortgage-related assets from any financial institution. In other words, Treasury will now have the power to act as Lehman Brothers, Countrywide, Fannie Mae, and many other fallen companies. It will buy mortgages that companies want off their books for risk and chargeoff reasons. This will enable banks to avoid the consequences of their actions as well as saddle the Treasury with the absolute worst assets possible. How could that come back to bite us?

Section 2(b)(2) sets aside section 3109 of Title 5. By my reading of that section, this means that Paulson can hire consultants at whatever rate for whatever purpose without any oversight by the normal federal channels. He was previously chairman and CEO of Goldman Sachs: I wonder if he’s got some cronies that need some easy money from an advising gig.

Section 2(b)(3) allows Paulson to designate financial institutions as “financial agents” of the federal government and perform whatever duties that might entail. It seemed vague until I started looking around for what a “financial agent” does. The covering part of the code suggests that it just means that they can accept public money or public bonds. The Code of Federal Regulations goes into more detail, naturally, and I think I can see why this seemingly unimportant section was added to the proposal. The regulation expands on what the code means by “national banking association” and lists credit unions, commercial banks, and other financial instutions that are backed by governmental deposit insurance.

The proposal generalizes these specific references to just “financial institution” and I think this means that investment banks will be able to act in this regard. I am not an expert on this but I am fairly well-versed on how the Federal Reserve System operates—this might enable investment banks to participate in that System such that federal bonds created out of thin air could be routed through them. In other words, the Federal Reserve could “extend credit” (read: print money) to investment banks at the federal funds rate.

Section 4 says that Paulson will let Congress know what he’s done in three months and then every six months after that. Section 8 further limits the oversight by making Paulson’s actions “committed to agency discretion.” Knowing that every word in this proposal has specific legal meanings, I discovered that “committed to agency discretion” basically takes the Supreme Court out of the equation. If Congress passes this proposal as law, it will have written off our precious system of checks and balances—all in the name of “doing something.” Again, I can’t see how this could possibly backfire.

Section 5(b) gives Paulson the right to manage the mortgage-related assets, which seems like a given, but expands it to include the revenues from those assets. (There could be something insidious about managing portfolio risks, but I’m not familiar enough with that side of the equation to speculate.) So Treasury gets to control the proceeds of these mortgages: if they can be rehabilitated, they could provide quite a funding source that’s outside the province of the House of Representatives. That’s a little conspiracy theorist, to be sure, but the words are there and they mean something.

Section 5(c) authorizes Paulson to sell the assets at whatever price and terms he decides. He can also do some other financial transactions with which I am unfamiliar. I can envision a day when things settle down and Paulson just repatriates the assets. Or makes a killing and secures a nest egg for the Executive to use at its discretion.

Section 5(d) indicates that though this authority will only last for two years—two years!!—on new assets, it will continue on existing assets for as long as they’re held. Actually, it doesn’t even have to be an existing asset so long as Paulson commits to buying the assets prior to the authority’s expiration. This is about as “in for the long haul” as government gets.

Section 6 puts taxpayers on the hook for up to $700 billion. But it’s not just a total of $700 billion, but $700 billion at any one time. So the amount actually spent could greatly exceed that depending on portfolio churn and decreasing valuation of those assets. Aside from the incredible size of the outlay, this amounts to a blank check on the taxpayers.

Section 10 raises the debt ceiling of the federal government to $11.315 trillion from $8.184 trillion—an increase of $3.131 trillion. Looking at 31 USC 3101, it’s hard to believe that the debt ceiling was $2.8 trillion back in 1989 or $5.95 trillion as late as 2002. The amount of this increase is unprecedented and one wonders if $700 billion represents just the direct outlay. This $3.131 trillion expansion might represent the true costs of the bailout, hidden from general revenue through bond issuance.

Finally, section 11 asserts that this proposal conforms to the Federal Credit Reform Act of 1990, which enables Paulson et al. to not have to adhere to its strictures and prove that it conforms. I wasn’t at all familiar with the FCRA, but its purpose is to “provide a more realistic picture of the cost of U.S. government direct loans and loan guarantees.” From what I can gather, the FCRA eliminated the cash accounting reporting of loans and loan guarantees in favor of a more accurate, long-term view of the funding. By asserting compliance, they may be able to circumvent this requirement and present a rosier picture of their activities.

In short, this proposal grants the Treasury Secretary far-reaching and unaccountable powers. It sets up extensive moral hazards for both public servants and private financial institutions and opens up an unlimited line of credit on the American economy. Most importantly, it is an overreach of the proper function of our constitutionally-limited government. The government has no business being so entwined with business: it is time for “a separation of state and economics, in the same way and for the same reasons as the separation of state and church.”

[UPDATE: There is now a lot more analysis of the proposal that suggests I’m reading things correctly.]

The Gradual Made Visible

September 19, 2008

I’m a sucker for time-lapse sequences. Maybe it’s my inner historian, but I love seeing the effects of time without taking a lot of it. I can still remember the day when I first encountered Noah Kalina’s pioneering 6-year daily photo montage: I contemplated starting down that road myself but I quickly realized that I didn’t particularly care to put forth the effort. I forgot about the genre until about an hour ago.

It was then that I caught Andy Baio link to Dan Hanna’s Photo Aging Project wherein he took two photos a day for 17 years:

HOLY CRAP! That’s some forethought and work. I was impressed. And so I started looking for similar, though less-formidable, videos. Boy did I find them!

[Programming note: I’m really torn between just providing links to the videos and actually embedding them inline. If I put them inline, then this is going to be one slow loading and long-ass entry. But if I just link to the video, then you’re going to be a-clicking all day. I wonder which one I’ll choose.]

I left off the countless parodies, which were often funny. I think they’re strangely compelling because the subjects are real people—not a seedling, for example—and they have the nostalgic appeal of a yearbook with the intervening, gradual tweening that’s normally missing.