Monday, October 27, 2008
Conservatives in Crisis
Barack Obama's recent endorsements from Christopher Buckley and Colin Powell, and strong criticisms of the Republican Party made by fellow travelers such as Kathleen Parker, Peggy Noonan, and David Brooks, suggest that the G.O.P. is headed for a major shake-up after next week's election, according to Independent Institute Senior Fellow Alvaro Vargas Llosa, director of the Independent Institute's Center on Global Prosperity.
Vargas Llosa points to three factors within the Republican Party that have contributed to recent defections and falling popularity with voters: its blurring of a populism that mistrusts political pull and a populism that favors rural culture over urban culture; the clash between the rhetoric of limited government and the reality of growing federal expenditures under the Bush administration and its congressional supporters; and the spread of a neo-Puritanism. Until Republican leaders straighten out the mixed messages they are sending the rank and file, their party's electoral victories are likely to become increasingly elusive.
Vargas Llosa writes: "After the elections, conservatives will have to do some serious soul-searching and ask themselves a few simple questions: How was it that they let their movement and their party be hijacked by people who were hellbent on disfiguring the face of American conservatism? How was it that the self-styled party of individual liberty became, in the eyes of many, the party of big government, intolerance and jingoism?"
"The Conservative Rebellion," by Alvaro Vargas Llosa (10/21/08)
Lessons from the Poor: Triumph of the Entrepreneurial Spirit, edited by Alvaro Vargas Llosa.
Liberty for Latin America: How to Undo Five Hundred Years of State Oppression, by Alvaro Vargas Llosa.
Screening and reception in Embarcadero 1 Theater, San Francisco
Reception at 6, screening at 7, followed by discussion w/Nick Tucker, Director.
[Parking avail in Embarcadero 1, w/validation prov. by Cinema]
Reserve 415-955-6110 or email@example.com
"Americans can tolerate anything but a hypocrite!"
About the Film:
ABOUT THE FILM
With the 2008 election cycle in full swing, it’s hard to turn on the television or open a newspaper without finding liberal politicians, professors, pop stars, and pundits blaming the world's problems on America's free enterprise system, its democratic tradition, and its core values of individualism and self-reliance. But how sincere are they about their beliefs? How do they live?
'Do As I Say (Not As I Do)' spent eight weeks on the New York Times bestseller list when it was published in 2005. Now, the book that The Economist named the ninth biggest selling political work on the planet is returning as a film. Nicholas Tucker and Lucas Abel are bringing Schweizer’s character portraits to life—because only a movie can really show us what hypocrisy in action looks like.
I'LL BE THERE!
I'll be attending a trade tasting of Argentine wines all afternoon, so I may arrive at the screening in JUST the right mood for watching 90 minutes of two-faced idiots issuing orders! Hah!
Another clear explanation of "Mark to Market" rules and how they created the current financial chaos...
Maybe it was because they didn't read about it in the papers, because none of the financial reporters appeared to notice or ask about it. Then or since.
I am disgusted with all of them and everything about this.
One is "the dangers of single-party rule in Washington, DC... There is a real possibility that they may attain a 60-seat filibuster-proof majority in the Senate... This would allow them to push through a wish-list of Democratic proposals on everything from "fair trade" to spending." This is a real worry. Not that the Republicans have managed to avoid signing expensive Democratic proposals into law...
"More significantly, though, is that Mr Obama has always been particularly close to two groups that are the bane of most businesspeople's lives--lawyers and trade unionists. Both Mr and Mrs Obama are lawyers....
"America's trade unions clearly regard an Obama administration as a golden opportunity to reverse their long-term decline: hence their willingness to spend more than $200m getting him elected. They want to get rid of secret ballots in decisions about unionisation. They also hope to get rid of right-to-work laws (22 states currently have such laws, which prohibit the 'closed shop' practice of requiring workers at a particular business to belong to a union.)."
".... Third, Mr McCain should point out that his opponent has never once in his career said boo to a Democratic goose. In Chicago he got on well with everybody, fro the local teachers' unions to the Daley political machine. In the Senate he has voted with his party 97% of the time. He toes the most liberal line on late-term and partial-birth abortion. Even a highly experienced Democratic president with a record of bucking his party would find it hard to tame a large Democratic majority in Congress. A neophyte with a record of going along to get along could find it impossible...."
Makes me crazy. I think I will just vote for my Libertarian candidate and stop trying to overthink it, or trying to be on the historic bandwagon....
Tuesday, October 21, 2008
By Jeffrey A. Miron October 21, 2008 [on Reason.com]
In a recent piece that appeared at Newsweek and his own web publication, Slate Editor in Chief Jacob Weisberg announces "the end of libertarianism."
Responding to commentators who believe that misguided government policies caused or contributed to the current financial mess, Weisberg asserts that the real culprit is the libertarian financial policy (which banned "any infringement of the right to buy and sell") that the U.S. has allegedly pursued in recent years. We're in the midst of "a global economic meltdown made possible by libertarian ideas," writes Weisberg, who adds that intellectually vapid libertarians simply cannot "accept that markets can be irrational, misunderstand risk, and misallocate resources or that financial systems without vigorous government oversight and the capacity for pragmatic intervention constitute a recipe for disaster." Libertarian policies have failed so miserably, he concludes, that it is time to toss libertarianism, like Soviet communism, on the trash bin of history.
Excuse me? Are you serious, Jacob?
Whatever one's views of libertarian policies, the incontrovertible fact is that the U.S. has not pursued such policies. Not in the past 10 years. Not in the past century. Indeed, except for a brief moment before Alexander Hamilton engineered the first U.S. bailout of financial markets, not ever. If the U.S. had truly been the "Libertarian Land" that Weisberg alleges, a huge range of policies that have helped fuel the current situation would have been radically different....
READ MORE on Reason.com.
Daily Article from Mises.org, the site of the Austrian school of economics
by Thomas J. DiLorenzo Posted on 10/21/2008 . [Emphases below added by Mac]
As soon as the federal government announced its trillion-dollar bailout (for starters) of Wall Street plutocrats, defenders of the bailout pulled out what they apparently believed was their secret weapon: the myth of Alexander Hamilton as the alleged inventor of American capitalism. Hamilton, they said, would approve of the bailout. Case closed. How could anyone dispute "the architect of the American economy"?
Forbes.com immediately published an article entitled "Alexander Hamilton versus Ron Paul" to make the point that libertarian critiques of the bailout should be dismissed, since Hamilton was such a great statesman compared to Congressman Paul and his supporters. The Wall Street Journal Online published a piece by business historian John Steele Gordon in which he argued that our real problem is that central banking is not centralized enough; called for a financial-market dictator/regulator; supported the bailout; and, most importantly, blamed the current economic crisis on … Thomas Jefferson! Jefferson opposed America's first central bank, Hamilton's bank of the United States, and was a hard-money advocate. It is this kind of libertarian, free-market thinking, said Gordon, that is the cause of the current crisis.
What all this frantic Hamilton idolatry demonstrates is how the myth of Alexander Hamilton is the ideological cornerstone of the American system of crony capitalism financed by a huge public debt and legalized counterfeiting through central banking. It is this system that is the real cause of the current economic crisis — contrary to the false proclamations issued by Forbes.com and the Wall Street Journal.
We live in "Hamilton's republic," as the writer Michael Lind has proudly stated. Americans may like to quote Jefferson, George Will once wrote, but we live in Hamilton's country. This is true, but it is not the blessing that people like Lind, Will, and others proclaim. Just the opposite is true, as I argue in my new book, Hamilton's Curse: How Jefferson's Archenemy Betrayed the American Revolution — And What It Means for America Today.
The Real Hamilton
Hamilton was the intellectual leader of the group of men at the time of the founding who wanted to import the system of British mercantilism and imperialistic government to America. As long as they were on the paying side of British mercantilism and imperialism, they opposed it and even fought a revolution against it. But being on the collecting side was altogether different. It's good to be the king, as Mel Brooks might say.
It was Hamilton who coined the phrase "The American System" to describe his economic policy of corporate welfare, protectionist tariffs, central banking, and a large public debt, even though his political descendants, the Whig Party of Henry Clay, popularized the slogan. He was not well schooled in the economics of his day, as is argued by such writers as John Steele Gordon. Unlike Jefferson, who had read, understood, and supported the free-market economic ideas of Adam Smith, David Ricardo, John Baptiste Say (whom Jefferson invited to join the faculty of the University of Virginia), Richard Cantillon, and Turgot (a bust of whom still sits in the entrance to Monticello), Hamilton either ignored or was completely unaware of these ideas. Instead, he repeated the mercantilist myths and superstitions that had been concocted by apologists for the British mercantilist state, such as Sir James Steuart.
Hamilton championed the cause of a large public debt — which he called "a public blessing" — not to establish the credit of the US government or to finance any particular public works projects but for the Machiavellian idea of tying the interests of the more affluent to the state: being government bondholders, they would, he believed, then support all of his grandiose plans for heavy taxation and a government much larger than what was called for in the Constitution.
He was right. They, along with Wall Street investment bankers who have marketed the government's bonds, have always provided effective political support for bigger government and higher taxes. That is why Wall Street investment bankers were first in line for a bailout, administered by one of their fellow investment bankers, Treasury Secretary Paulson.
Hamilton argued for a large standing army not because he feared an invasion by France or England, but because he understood that the European monarchs had used such armies to intimidate their own citizens when it came to tax collection. Evidence of this is the fact that Hamilton personally led some 15,000 conscripts into Western Pennsylvania (with George Washington) to attempt to quell the famous Whiskey Rebellion. He was eventually put in charge of the entire expedition, and rounded up two dozen tax protesters, every one of whom he wanted to hang. They were all pardoned by George Washington, however, to Hamilton's everlasting regret.
In a publication entitled "A History of Central Banking in America" the Fed proudly labels Hamilton as its founding father, boasting that he even spoke just like a contemporary Fed chairman. The First Bank of the United States, which was opposed by Jefferson and Madison, created 72 percent inflation in its first five years of operation, as Murray Rothbard wrote in A History of Money and Banking in the United States. It was not rechartered in 1811, but was resurrected by Congress in 1817, after which it created America's first boom-and-bust cycle, which led to the Panic of 1819, the title of another of Rothbard's great works on American economic history.
After years of generating political corruption and economic instability [c.v. Fannie Mae/Freddie Mac--mac], Hamilton's bank finally came to an end by the early 1840s, thanks to President Andrew Jackson. This led to the twenty-year "free banking" era. Hamiltonian central banking was resurrected once again in the 1860s with the National Currency Acts. This is an important reason why some historians have labeled the postwar decades as a period of "Hamiltonian hegemony."
When Anna Schwartz, Michael Bordo, and Peter Rappaport evaluated this precursor to the Fed in an academic publication, they concluded that it was characterized by "monetary and cyclical instability, four banking panics, frequent stock market crashes, and other financial disturbances" (see their paper in Claudia Goldin, ed., Strategic Factors in Nineteenth-Century Economic Growth). Naturally, the government's response to all of this economic panic and instability caused by centralized banking was to create an even more centralized banking system with the Federal Reserve Act.
Hamilton is perhaps best known among economists for his Report on Manufactures. In his 1905 biography of Hamilton, William Graham Sumner wrote that Hamilton's report advocated "the old system of mercantilism of the English school, turned around and adjusted to the situation of the United States." Thomas Jefferson also wrote that Hamilton's "schemes" for protectionism, corporate welfare, and central banking were "the means by which the corrupt British system of government could be introduced into the United States." He was right.
Hamilton's reputation as having had great expertise in economics and finance has been greatly exaggerated, wrote Sumner, who also wrote that Hamilton's economic thinking was marred by "confusion and contradiction" and that Hamilton was "befogged in the mists of mercantilism." Unfortunately for us, all of Hamilton's bad ideas "proved a welcome arsenal to the politicians" who succeeded him, noted Sumner.
At the constitutional convention Hamilton proposed a permanent president who would appoint all the governors of the states and would have veto power over all state legislation. His opponents correctly interpreted this as advocating a monarchy and, worse yet, a monarchy based on mercantilism. The reason for consolidating all political power first in the central government, and then in the hands of one man, the permanent president, was so that an American mercantilist empire could be centrally planned and controlled without any dissenters, such as tax protestors or free traders who resided in the various states. Hamilton (and his political heirs) understood that forced national uniformity is the only way in which such a central-planning scheme could work. The socialists of the 20th century understood this as well.
Hamiltonian mercantilism is essentially the economic and political system that Americans have lived under for several generations now: a king-like president who rules through "executive orders" and disregards any and all constitutional constraints on his powers; state governments that are mere puppets of the central government; corporate welfare run amok, especially in light of the most recent outrage, the Wall Street Plutocrat Bailout Bill; a $10 trillion national debt ($70 trillion if one counts the government's unfunded liabilities); a perpetual boom-and-bust cycle caused by the Wizard of Oz–like central planners at the Fed; constant military aggression around the world that only seems to benefit defense contractors and other beneficiaries of the warfare state; and more than half of the population bribed with subsidies of every kind imaginable to support the never-ending growth of the state.
This is Hamilton's curse on America — a curse that must be exorcized if there is to be any hope of resurrecting American freedom and prosperity.
Thomas DiLorenzo is professor of economics at Loyola College in Maryland and a member of the senior faculty of the Mises Institute. He is the author of The Real Lincoln, Lincoln Unmasked, How Capitalism Saved America, and, more recently, Hamilton's Curse. You can receive the Mises Daily Article in your inbox. Go here to subscribe or unsubscribe.
In a recent op-ed, Slate Editor in Chief Jacob Weisberg blamed the financial crisis on free market ideas. But as Harvard economist Jeffrey Miron writes, the incontrovertible fact is that the U.S. has not pursued policies that even remotely resemble libertarianism.
"Heat" on PBS Tonight-- A review of the new Frontline documentary on big business and climate change
Will it take a push from the government to get big business to take action on climate change? That's the argument made during tonight's episode of the PBS show Frontline. But as Science Correspondent Ronald Bailey writes in his preview of the show, previous government pushes haven't exactly been huge successes.
The Rise of Disaster Socialism-- I've seen the past...and it works
As America heads toward a recession, the "disaster socialists," writes Michael Moynihan, are once again presaging the death of capitalism. And once again, they're wrong.
Midnight Bias-- Can the nation survive without fair and balanced Sarah Palin jokes?
Sarah Palin didn't actually do much during her celebrated appearance on Saturday Night Live this weekend. But as Greg Beato writes, it was a shocking tableau nonetheless. After mocking Palin relentlessly for the last month, SNL actually made her complicit in their crimes against democracy.
From Hit and Run, Reason's staff blog:
Strangely, Developing World Still Not Drained of Brains
In 1987 Fijians of Indian descent began to emigrate in large numbers. Spurred by a political coup they felt damaged relative prospects at home, they left for places like Canada, Australia, and New Zealand, all of which privilege skilled, educated immigrants. As smart Indian Fijians left for Sydney, observers lamented the "ominous," "crippling," even "horrific" loss of human capital. One population researcher charmingly compared the migration to a massive increase in the death rate.Economist Michael Clemens decided to find out what, exactly, was going on. By using the (static) ethnic Fijian population as a control group, he and Satish Chand decided to test the effect of labor movement on human capital stocks.Read the rest here.
Waiting for Uncle Sugar
An auction for 56 foreclosed properties in Utah fell through when the owners rejected the bids. Auctioneer Eric Nelson says the banks and private lenders who owned the properties decided to wait and see if they might get a better offer from the federal government.
Sunday, October 19, 2008
And exactly and precisely true. (The top 10% of earners pay something like 60% of all personal income tax.)
U.S. Tax System Explained in Beer
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. 'Since you are all such good customers,' he said, 'I'm going to reduce the cost of your daily beer by $20. 'Drinks for the ten now cost just $80. The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers?
How could they divide the $20 windfall so that everyone would get his 'fair share?' They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so the fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 ( 22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
'I only got a dollar out of the $20,' declared the sixth man. He pointed to the tenth man, 'but he got $10!'
'Yeah, that's right,' exclaimed the fifth man. 'I only saved a dollar, too.. It's unfair that he got ten times more than I!'
'That's true!!' shouted the seventh man.
'Why should he get $10 back when I got only two? The wealthy get all the breaks!'
'Wait a minute,' yelled the first four men in unison. 'We didn't get anything at all. The system exploits the poor!'
The nine men surrounded the tenth and beat him up.
The next night the tenth man ( the richest) didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!
And that, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
What CAN be resolved is answering this question: Why is the government involved in this?
Remember, what both sides are fighting over is control of the levers of state power to allow or to forbid same-sex marriage. If the state weren't the entity that declares what legal marriage is, then they'd have to fight over something else, and the noise level would go down a lot.
History lesson: Back before the USA was founded, it was taken for granted in Europe (and most of the Colonies) that it was the duty and obligation of the government to declare an official religion, and support that religion against other religions and against irreligion. It was thought to be the government's duty, since the souls of the people/subjects were at risk. The stability of society was at risk: You couldn't just have people believing in whatever they wanted, or in nothing!
Several of the colonies refused to establish and support through taxes any religion, which was a shocking development in the 1700s. People noticed an amazing thing: When the state wasn't picking religious winners, the battle among religions for control of the government evaporated. Religious battles declined in ferocity. People still argued, but since they weren't arguing over who got to control the tax authority and the police to pursue their beliefs, the arguments lacked that degree of fierceness they had for hundreds of years in Europe.
So the USA established a government that stayed out of the religious wars, a radical notion. And we haven't had religious wars here since. So here is another radical idea: How about if the government gets out of the religious wars over marriage?
The state has only one interest in the question of marriage: It's a matter of contract law. We already have well-established history of dealing with contract issues. There are default contracts, there are assumptions and presumptions in contracts, and the state doesn't have to approve the contract or approve the people entering into a contract. They just establish the defaults for all contracts.
We should do this with marriage too. The state already has a contract-law setup when it comes to common-law marriage: If you live as a couple long enough, you have obligations with regard to children and community property similar to those of a formally married couple. No problem.
So let the states establish the contractual defaults for people who declare themselves married (or who enter common-law arrangements). If you sign a marriage contract, then you are subject to the contract laws; your contract can specifically override any given provision of marriage contract law; anything not specified otherwise is handled by the default marriage-contract laws.
This would be called something other than Marriage, to stay out of the religious wars over "defining marriage as...." The contract law here would apply to anyone declaring a marriage, with the State not approving the people contracting, or the contract, or anything else.
Then if you want to get "married" formally, you go to your favorite church or religious institution. They "marry" you. And the various factions can argue over whether they should do that or not. Some churches or religions may refuse to marry two specific types of people; that would be their right. If you don't like it, argue with that church -- leave the state out of it, the state has no power over this topic, it's between you and that religion. If a church does marry people you don't think should have their marriage "sanctified" by that church -- again, go argue with the church, leave the state, and its idiot politicians, out of it.
You can establish your own church to marry people you want that other churches turn away. You can establish some *other* institution that is not a religious church to do the santifying, if you want to dream up something like that. Argue among yourselves. Leave the state out of it -- it's none of their business.
The idea that we should *vote* on who can "marry" whom, the idea that *politicians* get to weigh in on an issue like this -- it's ludicrous! Isn't it about time we applied the wisdom of our 18th-century forebearers to this 21st-century problem? We learned our lesson 300 years ago -- let's remember the lesson!
Otherwise we'll just be arguing about this forever. I aim this lecture especially at the anti-Prop 8 activists, because the other guys will be back, and back, and back, and all they have to do is win once. Better we change the rules of the game.
And I also aim it at those who believe same-sex marriage an abomination: The gay activists will be back, and back, and back, until they win, and then you'll be fighting all over again -- forever. They ain't going away. Better you should change the rules of the game. Win where you can; stop trying to *force* society -- virtue is not imposed by law!
I'm a Libertarian, so my default mode is to vote for our candidate, Barr. That's what I'll do if nothing else comes up. But the temptation to vote for Barack Obama, as a historical moment in American history, is hard to resist.
I like his personality too. But he's a conventional Democrat in many ways -- he's promising to end tax cuts, launch big new costly programs, "fix" medical care by, to all intents and purposes, nationalizing it; and, in effect, as some have noted, changing us into a European socialist system. I don't want that; the slow growth and even greater government intrusiveness characteristic of European economies has no attraction to me. And I know that, once we're well into that mode, the special interests will lock us into it for a long time; no European country has succeeded in escaping it.
Some argue that Obama is much more reasonable than that -- more of a Clinton type, who will govern from the middle, fend off the most extreme Democrat proposals, and produce the prosperity we need. But Clinton managed to do that in part because for most of his time in office, the legislature was majority of substantially Republican. That gridlock was good for the country, and helped make the Clinton presidency look better than it otherwise would have.
The Obama presidency won't suffer from gridlock, unfortunately. The Democrats will dominate Congress. Obama will be able to do anything he wants -- and his personal sense of proportion notwithstanding, he will be under a lot of pressure from Democrats to produce all those government programs, all those tax shifts and increases, all those government agencies the Dems so badly want. He will not be in much of a position to veto some grand piece of Democrat leftist/socialist legislation.
So I fear that; I fear Euro-socialism taking over the country.
On the other hand, I fear McCain, mainly because I fear his enthusiasm for meddling in the world. I don't want us to go shooting at Iran. Or anybody else.
Then we get to the contradictions. Obama may lead to expanded government and higher taxes, and a weakened economy. But Clinton's administration led to tempered government growth, no increase in taxes, a balanced budget, and a booming economy. The joke at the time was that Clinton is the best president the Republicans ever had.
Bush, by contrast, has led the biggest and longest expansion in government power and spending in our history. The champion of smaller government is the best president the expanding-government Democrats could have wished for. The Republican president has given us a double-whammy -- the foreign wars beloved of conservatives, and the nationalization (of the financial sector) beloved of socialists. We've lost coming and going!
So I can vote for a guy who promises to expand government, increase taxes (or at the very least, eliminate tax cuts), meddle in more of the economy -- and, based on recent history, won't do any of those things. Or I can vote for the guy who promises smaller government and better tax policies but, based on recent history, will certainly preside over ballooning government, ballooning debt, and greater intrusiveness -- and go to war anyway on top of that.
Looks like I have no choice but to vote for the only candidate who wants to reduce the size and intrusiveness of government -- really, not just in rhetoric, who wants to stop promising favors to every interest group -- really, not just in rhetoric; who wants to keep our noses out of other countries, really; and who supports a free market and a free people--really. The Libertarian candidate. He won't win, of course -- you don't win office by promising *not* to meddle, spend, intrude. But at least I can vote without feeling like I have to wash my hands afterwards...
Wednesday, October 8, 2008
Senior Editor Radley Balko explains why the privatization of Social Security still makes sense and still matters after the bailout.
"Building a Better Bailout: How Washington COULD have helped the market at no cost to taxpayers. And what it SHOULD spend $700 Billion on.
Click here to watch.
"The Winner of Last Night's Debate? Washington: Both candidates embrace central planning as prudent economic policy"
There once was something approaching consensus in the industrialized world that central economic planning was for losers, writes Editor in Chief Matt Welch. But as last night's debate demonstrated, we are truly entering the re-regulation era—at least if Washington politicians have anything to do with it.
Tuesday, October 7, 2008
"This report concludes that, in an attempt to increase home ownership, particularly by minorities and the less affluent, virtually every branch of the government undertook an attack on underwriting standards starting in the early 1990s. Regulators, academic specialists, GSEs, and housing activists universally praised the decline in mortgage-underwriting standards as an “innovation” in mortgage lending. This weakening of underwriting standards succeeded in increasing home ownership and also the price of housing, helping to lead to a housing price bubble. The price bubble, along with relaxed lending standards, allowed speculators to purchase homes without putting their own money at risk.
"The recent rise in foreclosures is not related empirically to the distinction between subprime and prime loans since both sustained the same percentage increase of foreclosures and at the same time. Nor is it consistent with the “nasty subprime lender” hypothesis currently considered to be the cause of the mortgage meltdown. Instead, the important factor is the distinction between adjustable-rate and fixed-rate mortgages. This evidence is consistent with speculators turning and running when housing prices stopped rising."
In a column for the Los Angeles Business Journal, Reason's Adam Summers writes:
Californians are being asked to consider a $10 billion bond measure to build a high-speed rail system, but the proposal is critically flawed and should give voters serious pause, especially in the current economic climate.
Proposition 1A would authorize $9.95 billion in general obligation bonds to start building an 800-mile high-speed rail system linking Southern California with the Bay Area and Sacramento, including the backbone Los Angeles-San Francisco segment. There are crucial questions about the financing of the project, however. For starters, where will the rest of the money come from?
The $10 billion bond would cover less than one-quarter of the projected $45 billion project cost. Proponents hope that they will be able to coax one-third of the cost ($15 billion) from the federal government, which has budget problems of its own and is currently struggling with a planned $700 billion bank bailout and a possible $25 billion bailout of the auto industry. The remainder (about $20 billion) is supposed to come from the private sector, and there is similarly no guarantee that this money will ever materialize. Furthermore, a business plan that the California High-Speed Rail Authority (CHSRA) was required by law to submit by September 1 still has not been completed, and, conveniently enough, apparently won't be available until after the election.
[Reason Foundation is a nonpartisan think tank for freedom; it publishes Reason Magazine, whose slogan is, "Free Minds/Free Markets."
In a column for the San Francisco Chronicle, Reason Vice President Adrian Moore writes:
California Gov. Arnold Schwarzenegger says he may go begging to the federal government for a $7 billion bailout so the state can pay its bills in the coming weeks. And yet the state still wants to borrow $16.8 billion through the various bond initiatives on the ballot, including Proposition 3.
Prop. 3 asks for $980 million to expand children's hospitals - undoubtedly a great cause. It's such a wonderful cause that California taxpayers borrowed three-quarters of a billion dollars for it just four years ago.
In 2004, voters passed Proposition 61, authorizing $750 million in bonds to help children's hospitals. As of June 1, 2008, just over $400 million of Proposition 61's funds had actually been awarded to eligible hospitals. That leaves nearly $350 million unspent. Why?
Including interest payments, Prop. 3 will cost taxpayers $2 billion. The state budget deficit is $15 billion. Schwarzenegger may borrow another $7 billion from the feds.
And thanks to bond initiatives like this, California has been on a wild borrowing spree for years.
The state's authorized general obligation bond debt has nearly tripled over the last six years, from $42 billion in 2001-02 to a massive $120 billion in 2007-08.
Borrowing is way up because state lawmakers don't want to make difficult budget decisions.
When times are tough, families cut costs. We stop eating out, carpool, or cancel cable TV service to save money. Politicians just ask for higher credit limits.
Legislators could free up some funds for escalating hospital construction costs and the need for advanced medical technologies, or just make children's hospitals a higher priority in the annual budget.
Instead they want to put this on the credit card.
Eight private and five University of California children's hospitals stand to reap the rewards of Prop. 3. The Chronicle reports the private hospitals are spending about $900,000 each, $7.2 million total, to pass Prop. 3. Why not spend that $7.2 million caring for kids?
Because they think it's an investment. Each of the eight private hospitals would get about $98 million if Prop. 3 passes. In this economy, with $750 million in bonds recently approved for children's hospitals (and more than $300 million still unspent), taxpayers should say no.
It is time to cut up the credit cards and pay as we go.
Friday, October 3, 2008
But I have another explanation as to why they choose that amount: because they wanted to charge into battle with overwhelming force.
If you're going to stop the greatest financial panic we've seen in our lifetimes, you don't do it by being coy. It's critical that you show up with an amount of cash that not only IS large enough to do the job, but SEEMS large enough to do the job--and then some.
So you pick the largest plausible number you can think of -- you want the reaction from the market, "Wow, $700 billion! That's a HECK of a lot of money! That will SURELY be enough to do the job!"
You don't want them thinking you're nickle-and-diming at a critical time like this. You want to come in with an amount so stupendous that it shuts everybody up. And, you hope, makes the panic back off. That's why they chose that number--not based on a close analysis of how much they'd actually need and not a nickel more.
Whether it IS enough, you can only guesstimate; the outstanding mortgage market is something like $1.5 trillion, the current guessed-at value is something like $1.2 trillion, most of which is not at risk; so $700 billion certainly SOUNDS to economists like MORE than enough to do the job of buying up all at-risk mortgages.
It's such a large number that, I'm guessing the officials are hoping, THEY WON'T ACTUALLY SPEND that much in the long run, so they can proudly announce, in a year or so, that they "only" spent $400 billion, or $300 billion, or whatever. They'll look like heroes -- they galloped up with an overwhelming amount of money to save the day, and then came in under budget. Heroes!
Whether it will actually work that way, of course, nobody knows, mainly because when you throw that amount into a highly politicized shark tank, all kinds of things can go wrong, by which I mean every politically connected business (read: every one with a lobbyist in DC) will try to get a chunk of that money, preferably by selling the Feds assets, whether troubled or not, at a premium price. The Feds, I think, just hope that if they can just get the panic to stop, the financial system can reboot, and after that, everything else is merely a matter of waste and corruption -- which we can deal with better with an economy that's back at work.
And who knows, they might be right. I've heard lots of alternatives that would likely have worked and not cost so much and not enriched so many jerks (and I'll try to post some), but who listens to us libertarians?