Daniel Hannan, a writer and "backbench" MEP for South East England has the most popular YouTube video today with over 300,000 hits. Hannan lays out PM Gordon Brown for endangering the Britsh economy through unsound monetary and economic policies.
Parlaimentary governments allow the members of the body to directly dress down the leadership. Too bad that we cannot force Obama to listen to a similar speech.
Marginal Revolution publishes this taxpayer alert:
Gaming the Geithner plan?
Yes it can be done and here is how:
Let's say that I am a bank ("financial institution") with $100 billion in "toxic assets". I have them on my balance sheet at 80 cents on the dollar. The market has them marked at 30 cents. We do not know what the held-to-maturity performance will be, since that requires knowing the future, although for the moment let's assume that they are cash-flowing at the present time.
What I (the bank) do know, however, is that if I sell them at 30 cents I take a monstrous loss - perhaps enough to force me under Tier Capital limits and thus render me subject to an FDIC enforcement action. I therefore will not sell for 30 cents so long as I have any belief whatsoever that the cash flow - or any government subsidy - will exceed that value.
If I, as a "financial institution" can participate as a bidder in these auctions I can foist off my loss onto the taxpayer. Here is how I can rig the game so as to avoid an otherwise-inevitable loss:
- I become a "bidder" and "bid" on my own assets at 75 cents.
- I am providing 5 or 10% of the money. The rest is covered by Treasury, The Fed and the FDIC via guaranteed bond issuance.
- The loan, ex my contribution, is non-recourse. That is, I can lose 5 or 10% of the total portfolio purchased, but nothing more.
Now the "assets" (a passel of CDOs?) turn out to be worthless. I lose 5% of $75 billion, or $3.75 billion that I put up, plus the other nickel on the original mark, but that's all.
The taxpayer gets hosed for the remaining $71.25 billion dollars.
This can and will be done if the "sellers" of these assets are allowed to bid either directly or indirectly as it provides a means for banks to intentionally dump bad assets at a certain loss that is much smaller than their expected realized loss over time, shifting the rest of the loss to the taxpayer.
This program has the potential to shift literally $500 billion or more in losses onto the taxpayer, not through the operation of "bad luck" but rather through what amounts to a bid rigging operation.
This Washington Examiner opinion piece by Noemie Emery brilliantly exposes the blindness of "first-string" opinion columnists who spent the last 60 days of the election campaign belittling Sarah Palin while ignoring the emptiness of the opposition.
Now that the Obama presidency is nearing the 60-day mark, it’s time to thank those fastidious scribes on the left and the right who worked so hard to warn us against Gov. Sarah Palin of Alaska, and the dire things that would surely occur if she ever got close to executive power.
How right they were to insist that she was unfit for high office. Let’s just imagine what she might have done:
As president, she might have caused the stock market to plunge over 2,000 points in the six weeks after she assumed office, left important posts in the Treasury unfilled for two months, been described by insiders as ‘overwhelmed’ by the office, and then gone on to diss the British Prime Minister on his first state visit, giving him, as one head of state to another, a set of DVDs plucked from the aisles of Wal Mart, a tasteful gift, even if they can’t be played on a TV in Britain. (Note, the Prime Minister, who is losing his eyesight, may even be blind in one eye).
As vice president, she might have told Katie Couric that when the stock market crashed in 1929, President Franklin D. Roosevelt went on TV to reassure a terrified nation. Or on her first trip abroad as Secretary of State, she might have, as the AP reported, “raised eyebrows on her first visit to Europe...when she mispronounced her “EU counterparts names and claimed U.S. democracy was older than Europe’s,” then gave the Russian minister a gag “reset” button, on which the word “reset” was translated incorrectly.
What a good thing that Palin, whom Christopher Buckley called “an embarrassment, and a dangerous one,” wasn’t in office to cause such debacles, and that we have Barack Obama, Joe Biden, and Hillary Clinton instead.
“This is not a leader, this is a follower,” wrote ex-Reagan muse Peggy Noonan. “She follows what she imagines is the base, which is in fact a vast and broken-hearted thing whose pain she cannot, actually, imagine...she doesn’t seem to understand the implications of her own thoughts.”
Huh? While indulging in prose such as this, the Palinphobes didn’t seem to understand the implications of Palin’s record as governor, which they appear to never have looked at, while obsessing over her life in Alaska (too rural), her children (too many), and her exploits as a huntress (too much).
This is the flip side of their refusal to be disturbed by the fact that Obama had no record to speak of, as long as he looked like a Gap or Vogue model, and could write and could talk up a storm. A Gap or Vogue model would never disgrace you, and besides, he was there.
“You’re camping, and you wake up one morning and there is a mountain,” as David Brooks put it. “The next morning, there is a mountain...Obama is just the mountain. He is just there.” Braced by rationales such as this, the literati flocked to Obama, while denouncing Palin as appealing to the party’s least logical members and wing.
Call the Palinphobes lacking in logic and they will have tantrums, but this time the sandal might fit. This is the Audacity of Type, a faith-based illusion if ever there was one, the belief that qualities shared by and appealing to pundits and writers - glibness, a worldly patina, and a superficial verbal facility - are those needed to run a great nation in a troubled and dangerous era.
But which is more rational, to place limited trust in a proven reformer, who can learn certain facts she does not know already, or to breathe fictional traits into an unknown quantity, who has never run anything, or ever done much besides talk?
“Having a first class temperament and first class intellect, President Obama will...surely understand that traditional left-politics aren’t going to get us out of this pit.” Buckley wrote last October. Surely he will.
Obama may be there, but your 401k isn’t. Buckley and Brooks are now feeling queasy, while Noonan and friends are taking to Xanax. “The sale of antidepressants and antianxiety drugs is widespread,” she reported last Friday. “People feel ‘unled, overwhelmed.”’
But at least, we now have sophisticates running the country, not a moose-hunting ditz from Alaska. God knows what might happen then.
The US House of Representatives has just passed a Bill of Attainder against recipients of the AIG bonuses. This action directly violates the Constitution. The drive-by media is clueless but bloggers are driving the protest. Two posts that I read are straight to the point.
Bob Krum sounds the alarm::
Among the most important of reasons for which we have a Constitution is to protect the unpopular from the torrent of popular opinion. It, after all, is the heinous derelict who is most in need of a fair trial to protect him from the posse, or the unpopular opinion that most requires the freedom of speech.John Hinderaker at Power Line points out the slippery slope of mob rule:
If this dubious writ stands then so too will stand the horrific precedent that the unpopular may have summarily stripped from them whatever the majority deems, and that it may be done so without benefit of trial, witness, counsel, cross-examination, or due process. It is nothing less than the usurpation of the awesome punitive reach of complete judicial power by a mob unconstrained by any rule except that which it writes for itself.
This bill is what tyranny looks like. It is time to convey the alarm.
I'm stupefied to find that some people are defending the constitutionality of Nancy Pelosi's discriminatory, confiscatory and retroactive tax on people who receive bonus income from companies that got TARP money. I would have considered it a bright line rule that the government can't identify a class of unpopular people and impose a special tax on them. What's next? A 100% income tax on registered Republicans, retroactive to last year? If Pelosi's bill passes muster, why not?
UPDATE: Peter Robinson at Forbes gives Comandante Obama's three steps to creating a Banana Republic.
Barry's teleprompter, TOTUS, is seeking recognition through the internet with its own blog where Rush Limbaugh is getting attention. More blatantly, it is employing Iowahawk to produce critical YouTube videos:
TOTUS took matters into its own display on St Patrick's Day when it mixed up the speeches-to-be-read by the president and by Irish Prime Minister Brian Cowen.
Irish Prime Minister Brian Cowen was just a few paragraphs into an address in Washington when he realized it all sounded a bit too familiar.
It was. He was repeating the speech President Barack Obama had just read from the same teleprompter.
Mr Cowen stopped, turned to the president and said: "That's your speech."
A laughing Mr Obama returned to the podium to take over but it seems the script had finally been switched and the US president ended up thanking himself for inviting everyone to the party.
Mr Obama is an accomplished orator but is becoming known in America as the "teleprompt president" over his reliance on the machine when he gives a speech.
It was reported that Obama was genuine and heartfelt in his gratitude for himself.
From the WAPO via The Club for Growth:
Union Engages in Labor Dispute With Its Own Employees
As it helps push for legislation that would make it easier for workers to organize, the country's fastest-growing union is engaged in its own labor dispute with employees it is seeking to lay off.
The Service Employees International Union, considered the most influential union in the nation, has notified the union that represents about 220 of its national field staff and organizers that 75 of them are being laid off. In return, the workers' union, which goes by the somewhat postmodern name of the Union of Union Representatives, has filed unfair labor practices charges against SEIU with the National Labor Relations Board. The staff union's leaders say that SEIU is engaging in the same kind of practices that some businesses use -- laying off workers without proper notice, contracting out work to temp firms, banning union activities and reclassifying workers to reduce union numbers.
For two days we have heard sobbing from Obama, Dodd, Frank and Schumer about $165 million in bonuses being paid by bailout recipient AIG. Larry Kudlow suscinctly describes why this is a government problem:
This whole AIG fiasco — where the entire political class is suddenly screaming over bonuses paid to derivative traders in AIG’s financial-products division — is just a complete farce. What it really shows is how the government has completely bungled the AIG takeover. Blame the Bush administration and the Obama administration. It also shows, once again, why the government shouldn’t run anything, because it cannot run anything.
AIG should have been placed in bankruptcy last fall under some sort of government sponsorship. While in bankruptcy, all the salary contracts (and every other AIG contract) would have been nullified and voided. At the same time, there would have been an orderly liquidation and sale of AIG’s assets and separate divisions.
So Obama keeps stirring up the base in order to divert attention from his difficulties in governing, while the markets and the economy take a turn for the better (but don't tell the president). The Chicago Daily Observer reports:
Last week was a very good week for those who believe in the US economy. The stock market bounced off a new low, and while they have yet to capitulate, short-sellers are definitely on the run. Two developments put the pessimists on the defensive. Number one – velocity has apparently returned. Number two – overly strict mark-to-market accounting has finally come under attack by Congress.
The early signs of a revival in velocity were evident a couple months ago, before a dollar of new government spending got out the door. Commodity prices, such as oil and gold, the Baltic Freight Index (which measures ocean freight rates) and used car prices, all bottomed. But the coup-de-grace was last week when retail sales surprised the talking heads for the second month in a row.
After January’s 1.0% rise in retail sales, TV pundits said seasonal factors distorted the data. But, last week January sales were upwardly revised to 1.8% growth. After a strong month like that, retail sales often give some back. But in February, even though auto sales fell 4.3%, total sales only gave back a small 0.1%. Excluding autos, February sales shocked the pundits and rose 0.7%. In the past two months, retail sales (including autos) are up 10.7% at an annual rate, while retail sales (excluding autos) are up 14.8%. Chain store sales in February were the highest since last September. Slice it anyway you want, but the consumer is coming back. This is something to write home about.
Increased money velocity without government help is extremely encouraging, but how will changing an accounting rule help? Larry Kudlow explains:
This week’s decision by the Federal Accounting Standards Board (FASB) to allow cash-flow accounting rather than distressed last-trade mark-to-market accounting will go a long way toward solving the banking and toxic-asset problem.
Many experts believe mortgage-backed securities and other toxic assets are being serviced in a timely cash-flow manner for at least 70 cents on the dollar. This is so important. Under mark-to-market, many of these assets were written down to 20 cents on the dollar, destroying bank profits and capital. But now banks can value these assets in economic terms based on positive cash flows, rather than in distressed markets that have virtually no meaning.
Actually, when the FASB rules are adopted in the next few weeks, it will be interesting to see if a pro forma re-estimate of the last year reveals that banks have been far more profitable and have much more capital than this crazy mark-to-market accounting would have us believe.
Sharp-eyed banking analyst Dick Bove has argued that most bank losses have been non-cash — i.e., mark-to-market write-downs. Take those fictitious write-downs away and you are left with a much healthier banking picture. This is huge in terms of solving the credit crisis.
"One cannot help pondering what would have happened, however, if the accounting rules had not been changed and the Senators had not totally panicked lenders to banks," said Bove. "It is quite possible that the banks would have handled the bad loans, which are less than 2 percent of all loans, and there would not have been a banking crisis".
Barney Frank's House Financial Services Committee is finally getting around to reviewing the single biggest reason for the collapse of the U.S. financial markets last Fall.
Forbes presented a proposal last September to save the financial markets (without putting $700 billion into the banks) here. For us neophytes, Forbes defined the accounting concept thus:
Mark-to-market accounting--not the reality of the economy or the actual credits--has created much of the financial turmoil that has shaken the world. Imagine if you had a $200,000 mortgage on a $300,000 house that you planned on living in for 20 years. But a neighbor, because of very special circumstances, had to sell his house for $150,000. Then, imagine if your banker said you had to mark to this "new market" and give the bank $80,000 in cash immediately (so you would have 20% down) or lose your home. Would this reflect reality? Not at all. Would this create chaos? Absolutely.
One of the experts testifying before the Subcommittee on Capital Markets was Bob McTeer, who posted his testimony on his blog.
Much of our recent wealth destruction has resulted from slavish adherence to an accounting dogma that never should have applied to banks and other regulated financial intermediaries in the first place.
Thousands of banks, thrifts, insurance companies and credit unions who had absolutely nothing to do with making or securitizing subprime loans are victims, not villains. They purchased mortgage-backed securities because they thought they were safe and liquid, as indicated by their AAA rating.
When sub-prime mortgages in the pools began defaulting at a higher rate, the market for the bonds dried up. Yet, the rigid application of mark-to-market rules enforced by regulators and gun-shy internal and external auditors, forced drastic write-downs even when their owners were both willing and able to hold them until the market improved or hold them to maturity if necessary. Even though the bonds weren’t trading, most of the underlying mortgages were still generating income, and most still are.
The tragedy comes not from the write-downs per se, but from the resulting decline—dollar for dollar— in regulatory capital. Hypothetical or potential losses in securities resulted in actual or real losses of capital if the securities were in an account labeled securities for sale rather than securities held to maturity. It would be a simple matter to change the labels, but the accounting rules don’t allow it. Fixing that would be an easy interim step.
A closely related question is whether the impairment in individual mortgages is classified as “temporary” or “other than temporary,” in which case they must be written off. Logic would suggest, at least, that any excess of capital written off that way could be added back to capital, or “accreted,” if the original judgment is proven too pessimistic.
It’s my understanding that most of the regulators concur with this, but are hesitant to allow it because of uncertainty over Congressional intent and reaction, and possibly the reaction of the SEC and FASB. Reassurance on that score from you would be helpful. They have the authority; they just need the nudge, or encouragement.
I’ve heard it said that mark-to-market was considered fine for banks until the market turned against them. This is not entirely true. Chairman Greenspan wrote a 4-page, single-spaced letter to the SEC urging them not to apply mark-to-market to commercial banks because their business model is not that of a trader, but involves holding assets on their balance sheet. His letter is dated November 1, 1990.
It is time for the politicians to end the practice that is sending us into a depression. It is indeed ironic that FDR ended the practice of applying mark-to-market rules to the banking industry in 1938 . . . only to have the practice reintroduced 70 years later.
The National Bureau of Economic Research summarizes its recent study of DST in Indiana thus:
The history of Daylight Saving Time (DST) has been long and controversial. Throughout its implementation during World Wars I and II, the oil embargo of the 1970s, consistent practice today, and recent extensions, the primary rationale for DST has always been to promote energy conservation. Nevertheless, there is surprisingly little evidence that DST actually saves energy. This paper takes advantage of a natural experiment in the state of Indiana to provide the first empirical estimates of DST effects on electricity consumption in the United States since the mid-1970s. Focusing on residential electricity demand, we conduct the first-ever study that uses micro-data on households to estimate an overall DST effect. The dataset consists of more than 7 million observations on monthly billing data for the vast majority of households in southern Indiana for three years. Our main finding is that—contrary to the policy’s intent—DST increases residential electricity demand. Estimates of the overall increase are approximately 1 percent, but we find that the effect is not constant throughout the DST period. DST causes the greatest increase in electricity consumption in the fall, when estimates range between 2 and 4 percent. These findings are consistent with simulation results that point to a tradeoff between reducing demand for lighting and increasing demand for heating and cooling. We estimate a cost of increased electricity bills to Indiana households of $9 million per year. We also estimate social costs of increased pollution emissions that range from $1.7 to $5.5 million per year. Finally, we argue that the effect is likely to be even stronger in other regions of the United States.
Looks like Governor Daniels screwed up!
H/T: Coyote Blog
Dr. Branka Lapajne at Canada Free Press provides us with some shocking insight:
In order to survive its present financial crisis, GM is asking for between $6 to $7 billion from Canadian federal and provincial governments. If the sum is to be $7 billion, this means that the Canadian governments will be paying at least $1 million, for each of GM’s remaining 7,000 Canadian employees.
In addition to the $6 to $7 billion bailout, GM is seeking assistance from Ottawa and Queens Park [Ontario Legislature] to pay for its existing pension obligations. No one has set a figure as to what this possible cost could entail.
According to CBC:
GM expects there will be no further plant closures in Canada, but it plans to slash executive salaries by 10 per cent, cut benefits to hourly employees and build new models at its Ontario plants.
Under the plan, GM's Canadian workforce — which numbered 20,000 in 2005 and currently stands at 12,500 — would be pared down to 7,000 by 2010.
GM wants the Canadian Auto Workers agreement to achieve long-term cost reductions, including pensions.
"Pensions are important for General Motors Canada, because we've been here for 100 years and we have more than three retirees for every active worker. That ratio is actually increasing and will actually move up to five to one, " said David Paterson, GM Canada's vice-president of corporate and environmental affairs.
"We really need to get at those disproportionate legacy costs that our competitors do not share and find ways to stop the growth in those costs."
Dr. Lapajne displays a bit of nationalism when she asks:
Would it not be better to simply let GM go bankrupt and save the funds to clean up the resulting mess? Following a bankruptcy, the governments could purchase GM’s assets for much less than the present $6 to $7 billion bailout request and possibly use them for the start of a truly Canadian auto industry.
Canadian government officials are falling for the same BS as Obama and his sheep dogs. What the heck, it's only money!
Market guru Jim Cramer has gotten on the wrong side of the Obama regime by criticizing the economic policies that are pushing us into a "second Great Depression." Writing in Commentary, Jennifer Rubin describes the new White House press briefing ritual:
The Obama administration has adopted an odd tactic of going after individual media figures. I honestly can’t recall the Bush or Clinton administrations ever engaging in such a practice. The increasingly peevish Robert Gibbs’s list of offenders is getting long — Rush Limbaugh, Rick Santelli, and Jim Cramer. You might think it unseemly for the White House to engage in name calling from the briefing room, but it is also counterproductive when the White House goes after highly informed business analysts who understand, apparently far better than Gibbs, market dynamics and the impact of the administration’s policies on our prospects for recovery.
Jim Cramer tells us the reasons for his opposition to the Obama initiatives:
I believe his agenda is crushing nest eggs around the nation in loud ways, like the decline in the averages, and in soft but dangerous ways, like in the annuities that can’t be paid and the insurance benefits that will be challenging to deliver on.
So I will fight the fight against that agenda. I will stand up for what I believe and for what I have always believed: Every person has a right to be rich in this country and I want to help them get there. And when they get there, if times are good, we can have them give back or pay higher taxes. Until they get there, I don’t want them shackled or scared or paralyzed. That’s what I see now.
If that makes me an enemy of the White House, then call me a general of an army that Obama may not even know exists — tens of millions of people who live in fear of having no money saved when they need it and who get poorer by the day.
As Cramer points out, he has the support of the "new leader" of the Republican party:
Now some, including Rush Limbaugh, would say I am on another enemies list: that of the White House. Limbaugh says there are only a handful of us on it, and if I am on it for defending all of the shareholders out there, then I am in good company. Limbaugh -- whom I do not know personally, but having been in radio myself, known professionally as a genius of the medium -- says, "They're going to shut Cramer up pretty soon, too, but he'll go down with a fight."
However, the man who claims to have advised everyone to bail out of stock market when the Dow hit 10,000, has admitted to some serious judgment errors that will turn off most conservatives.
I also made it clear in a New York magazine article that I favored Obama over McCain because I thought Obama to be a middle-of-the-road Democrat, exactly the kind I have supported all my adult life, although I will admit to being far more left-wing during my teenage years and early 20s.
To be totally out of the closet, I actually embrace every part of Obama's agenda, right down to the increase on personal taxes and the mortgage deduction. I am a fierce environmentalist who has donated multiple acres to the state of New Jersey to keep forever wild. I believe in cap and trade. I favor playing hardball with drug companies that hold up the U.S. government with me-too products.
Hmmm . . . with that kind of thinking, Obama's policies will soon seem "fair" again.
Reason's Hit & Run brings us the latest on the NAFTA Super Highway:
Remember the whole NAFTA superhighway conspiracy theory? The giant highway that was going to rip apart North America, a "ten-lane colossus the width of several football fields, with freight and rail lines, fiber-optic cable lines, and oil and natural gas pipelines running alongside"? Die hard believers still fear it, but they can take cold comfort in this: When it does come, there won't be any Mexicans driving on it:
Buried in the $410 billion catch-all appropriations bill now before the U.S. Senate is a provision that would end a program that has allowed Mexican truck drivers to deliver goods to destinations inside the United States.
A provision in the original North American Free Trade Agreement of 1994 was supposed to allow U.S. and Mexican trucking companies to deliver goods in each other’s country. But opposition from the Teamsters union and old-fashioned prejudice against Mexicans has derailed implementation of the provision.
"Driving while Mexican" will thus become illegal despite evidence that Mexican truckers have a better safety record than their Teamster compadres.