An interesting graphic can be found here. It shows deficits by year, 1980 through 2010, in both dollars and as a percent of GDP. Most interesting.
From the ideological side of the fence, I notice that Clinton's surplus did not happen until after the Republicans took over in 1994. I also note that after W's 'monster deficit' in 2004 - which is no where close to where we are now(!) - was followed by a steady decline until 2008. IMHO, the 2008 deficit was predominately caused by the economic collapse, although the budget was most certainly bloated (and first pure Democrat budget in a decade or so). This trend continued into 2009 and 2010, when spending *really* took off. I also think the projected reductions in the deficit in the coming years are woefully optimistic.
All of this ideological analysis means nothing.
Whether Democrats or Republicans get proportionate blame is meaningless. Congress writes the checks, Presidents cash them. Everyone's finger is in the pie with the ONLY goal of "getting re-elected".
We both agree that we have a spending problem. Right now, it appears BOTH SIDES are trying to find a way to push things into the next Congressional cycle so THEY won't have to deal with the very hard decisions which are looming. Rest assured that I'm just as ticked off by the Country Club Republicans as I am by the Wacky Left. Everyone is on a spending spree, and the head-in-the-sand pronouncements that things are not as bad as they could be, hides the problem (and the solution).
Fundamentally, I think either you believe in economic liberty – which is to say that government IS NOT the optimum means of allocating investment – or you don’t. I am hopeful that an increasing number of people realize how we REALLY got in this mess (and who was at the controls, e.g., all of the self-serving 'power brokers'). Unfortunately, this is counter-balanced by an increasing number of the "dumb-masses" who are accepting the argument that government ought to take any money lying around to spend as government wants, and this is OK (e.g., ‘fair’) just so long as it soaks ‘the rich’.
I don’t want to fix blame, and I don't want to shift the burden from Peter to Paul, and I don't want to waste time trying to manipulate who gets the credit... I want true economic freedom to make a Real Comeback.
If I may paraphrase Jerry Pournelle again, "Freedom is not free. Free men are not equal. Equal men are not free. And the universe is not fair."
- Steve
Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts
Thursday, July 21, 2011
Tuesday, April 19, 2011
Behavior Modification
This is a quickie, but it obviously deserves more comment...
There is a clear understanding, among many policy makers, that if you want to manipulate societal behavior - regardless of direction - one very common method is to adjust the TAXATION of a particular activity. If you want to encourage an activity, you reduce the associated taxes; if you want to discourage, increase the taxes. Simple.
Case in point: there have been numerous attempts to 'encourage' people to suspend or quit smoking. One primary motivation technique is to RAISE taxes on tobacco products. (Caveat: there are many different approaches currently in play on this issue, but let's focus on taxes.) The idea is that people will 'grow tired' of paying the additional taxes to the point they will subsequently modify their behavior to avoid the taxes by avoiding the product; which is the stated purpose of the policy in the first place. All agreed?
Ok, Let's also consider a group of folks out there I call "wealth generators". These are the folks producing wealth, by providing products and services. The desirability of a specific product/service doesn't matter: there is a financial flow from the consumer to the creator, creating wealth. The economy *depends* on these folks to continuing to create wealth, if for no other purpose than to generate the capital which can be consumed by paying taxes.
Logically, if follows that if one targets these 'wealth generators' with an ever-increasing tax burden, they WILL eventually modify their behavior to avoid the taxes. It seems the most likely behavior modification will be to REDUCE the creation of the wealth they will not be allowed to retain. After all, why work so hard to create something that will be taking away from you?
Thus - I pose the question: If we need these generators to keep doing what they do - and we REALLY do - then why do we seek to 'punish' them for their success? And worse, why do those same manipulators FAIL to consider the ramifications of taxation in predicting future revenues? I am reminded of the 60's humorist 'Brother' Dave Gardener, who suggested we should "tax the poor folks and give them an incentive to become something", which makes as much sense as anything else...
There has been a large amount of posturing recently (all sides) which are predominately concerned with "how much we will 'save' over the next X years". Hogwash. Those calculations assume the wealth creators will blindly continue to do what they've been doing, without changing their behavior at all, and without consideration of the increase in taxation. This is wishful thinking at best.
I submit that Human Nature will take over and the currently popular "Tax The Rich" class-warfare strategy will backfire in a big way. The economy will NOT recover as expected/predicted. At the very least, the recovery (if any) will be substantially blunted. This will result in the all-too-familiar cry, "we tried, but THOSE EVIL RICH have conspired against us: they're not paying 'their fair share'.
Perhaps we need a dose of honesty - something in very limited supply in D.C. - to clearly define precisely What Level of Taxation is Considered "FAIR". But then, IMHO, if they *were* honest about exactly how much the bureaucracy wants to collect and from who, the subsequent Behavior Modification which followed would *really* wreck the economy.
Bread and Circuses.
- Steve
There is a clear understanding, among many policy makers, that if you want to manipulate societal behavior - regardless of direction - one very common method is to adjust the TAXATION of a particular activity. If you want to encourage an activity, you reduce the associated taxes; if you want to discourage, increase the taxes. Simple.
Case in point: there have been numerous attempts to 'encourage' people to suspend or quit smoking. One primary motivation technique is to RAISE taxes on tobacco products. (Caveat: there are many different approaches currently in play on this issue, but let's focus on taxes.) The idea is that people will 'grow tired' of paying the additional taxes to the point they will subsequently modify their behavior to avoid the taxes by avoiding the product; which is the stated purpose of the policy in the first place. All agreed?
Ok, Let's also consider a group of folks out there I call "wealth generators". These are the folks producing wealth, by providing products and services. The desirability of a specific product/service doesn't matter: there is a financial flow from the consumer to the creator, creating wealth. The economy *depends* on these folks to continuing to create wealth, if for no other purpose than to generate the capital which can be consumed by paying taxes.
Logically, if follows that if one targets these 'wealth generators' with an ever-increasing tax burden, they WILL eventually modify their behavior to avoid the taxes. It seems the most likely behavior modification will be to REDUCE the creation of the wealth they will not be allowed to retain. After all, why work so hard to create something that will be taking away from you?
Thus - I pose the question: If we need these generators to keep doing what they do - and we REALLY do - then why do we seek to 'punish' them for their success? And worse, why do those same manipulators FAIL to consider the ramifications of taxation in predicting future revenues? I am reminded of the 60's humorist 'Brother' Dave Gardener, who suggested we should "tax the poor folks and give them an incentive to become something", which makes as much sense as anything else...
There has been a large amount of posturing recently (all sides) which are predominately concerned with "how much we will 'save' over the next X years". Hogwash. Those calculations assume the wealth creators will blindly continue to do what they've been doing, without changing their behavior at all, and without consideration of the increase in taxation. This is wishful thinking at best.
I submit that Human Nature will take over and the currently popular "Tax The Rich" class-warfare strategy will backfire in a big way. The economy will NOT recover as expected/predicted. At the very least, the recovery (if any) will be substantially blunted. This will result in the all-too-familiar cry, "we tried, but THOSE EVIL RICH have conspired against us: they're not paying 'their fair share'.
Perhaps we need a dose of honesty - something in very limited supply in D.C. - to clearly define precisely What Level of Taxation is Considered "FAIR". But then, IMHO, if they *were* honest about exactly how much the bureaucracy wants to collect and from who, the subsequent Behavior Modification which followed would *really* wreck the economy.
Bread and Circuses.
- Steve
Tuesday, April 12, 2011
Eat the Rich
Thursday, July 15, 2010
Inflation and the Fall of the Roman Empire
An *incredibly* good article on economics - with a focus on the impact (short-term and long-term) of government decree - can be found here.
It opens with an interesting observation:
"...the wonder was not that the Roman Empire had fallen, but rather that it had lasted so long...."
For the purposes of this blog, application of the article to modern times is left as an exercise for the student. No doubt, different people will see different lessons to be learned, but I think the key point is in the last paragraph:
"...In other words, the Roman state was the enemy; the barbarians were the liberators..."
A most fascinating read. Enjoy.
- Steve
It opens with an interesting observation:
"...the wonder was not that the Roman Empire had fallen, but rather that it had lasted so long...."
For the purposes of this blog, application of the article to modern times is left as an exercise for the student. No doubt, different people will see different lessons to be learned, but I think the key point is in the last paragraph:
"...In other words, the Roman state was the enemy; the barbarians were the liberators..."
A most fascinating read. Enjoy.
- Steve
Friday, May 21, 2010
Smith vs. Keynes (again)
It can be argued - and I won't disagree (too much) - that capitalism without some reasonable legal restraints, would eventually devolve to a point where the most common activity would be the buying and selling of (sometimes willing) slaves. And while I am a capitalist at heart, I recognize that moderation is all things is better than a society surrounded by unbridled chaos. I just prefer a system which allows individuals to enjoy the freedom to achieve and succeed to the extent of their drive and ability with minimal intrusion by government. We lost that a long time ago. It is sorely missed.
The truly self-sufficient doesn't need 'protection' from the mistakes he *might* make. Just keep the playing field level and make sure the appropriate information if disclosed accurately and in a timely manner. BTW - Those whose day-to-day existence is provided from the efforts of others should not be in charge of holding the reins.
All that said... I am concerned (again) that our well-meaning bureaucrats are marching down the wrong road (again) with these so-called 'financial reforms' trying to sneak in the backdoor. There seems to be a complete lack of understanding that the chase for immediate (and unsustainable) profits in the derivatives market was a key component to the meltdown (maybe THE key). The *extreme* all-blinders-on pursuit to capture the high returns promised by the derivatives drove the financial community into a feeding frenzy. This frenzy continued unabated until common sense and all rational thought had been cast aside. Too much focus is being made on the results of that process instead of the Real Causes. And, yes, both the private and public sector must jointly share the blame for their excesses. To lay the blame (and new regulations) at the feet of the private sector alone is a mistake. The explosion of the derivative market was driven - and arguably caused - by government intervention in the marketplace, predominately for social engineering (which is *not* a legitimate purpose of government, IMHO).
My point: Any 'reform' legislation that does NOT apply a critical examination and *increased* accountability on the bureaucracy (e.g. Freddie and Fannie) is doomed to failure in the long run. At this point, I see our benevolent pseudo-masters in Washington gleefully assuming a stance not unlike the man selling lots in Hell: eventually, he'll be so successful, it won't be long before everyone will be going there.
* sigh*
- Steve
The truly self-sufficient doesn't need 'protection' from the mistakes he *might* make. Just keep the playing field level and make sure the appropriate information if disclosed accurately and in a timely manner. BTW - Those whose day-to-day existence is provided from the efforts of others should not be in charge of holding the reins.
All that said... I am concerned (again) that our well-meaning bureaucrats are marching down the wrong road (again) with these so-called 'financial reforms' trying to sneak in the backdoor. There seems to be a complete lack of understanding that the chase for immediate (and unsustainable) profits in the derivatives market was a key component to the meltdown (maybe THE key). The *extreme* all-blinders-on pursuit to capture the high returns promised by the derivatives drove the financial community into a feeding frenzy. This frenzy continued unabated until common sense and all rational thought had been cast aside. Too much focus is being made on the results of that process instead of the Real Causes. And, yes, both the private and public sector must jointly share the blame for their excesses. To lay the blame (and new regulations) at the feet of the private sector alone is a mistake. The explosion of the derivative market was driven - and arguably caused - by government intervention in the marketplace, predominately for social engineering (which is *not* a legitimate purpose of government, IMHO).
My point: Any 'reform' legislation that does NOT apply a critical examination and *increased* accountability on the bureaucracy (e.g. Freddie and Fannie) is doomed to failure in the long run. At this point, I see our benevolent pseudo-masters in Washington gleefully assuming a stance not unlike the man selling lots in Hell: eventually, he'll be so successful, it won't be long before everyone will be going there.
* sigh*
- Steve
Wednesday, April 28, 2010
CRA and the Meltdown Timeline
Ok... Let's start with a historical timeline before commenting, so we can make sure we're starting from (mostly) the same set of data (from several sources, including Wikipedia, which is hardly 'non-partisan'). Please correct me where I'm wrong or missed something hugely significant. Yeah, I highlighted a couple of entries - emphasis is mine (only the issues really that pushed my puttons). And, yes, there's a LOT more, I left many details out: Mea Culpa. And quite a few notes benefit from 20-20 hindsight (which means nothing, ultimately).
Note there are individuals and groups of all political stripes referenced.
* * *
- 1977 - The Commuity Reinvestment Act (CRA) was enacted (Thank you Jimmy Carter!) The intent was to address historical discrimination in lending, driven (in part) by the practice of “Redlining”. The Act encourages commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods.
- 1980 - The Depository Institutions and Deregulation and Monetary Control Act (DIDMCA) grants thrifts, including savings and loan associations, the power to make consumer and commercial loans and to issue transaction accounts and exempted federally chartered savings banks, installment plan sellers and chartered loan companies from state unlimited interest rates limits.
- 1981 - Each of the 12 Federal reserve banks establishes a Community Affairs Office to offer public and private guidance in accordance with the CRA.
- 1982 - the Alternative Mortgage Transaction Parity Act (AMTPA) preempts state laws and allows lenders to originate mortgages with features such as adjustable-rate mortgages, balloon payments, and negative amortization all of which contribue to "allowing lenders to make loans with terms that may obscure the total cost of a loan".
- 1986 - The Tax Reform Act (TRA) denied taxpayers to deduct interest on consumer loans, such as credit cards and auto loans, while allowing them to deduct interest paid on mortgage loans, providing an incentive for homeowners to take out home equity loans to pay off consumer debt.
- 1985-1989 - The effects of the TRA, and imprudent lending during the late 1970's along with other causes, led to massive insolvency (e.g., the Savings and Loan Crisis). This caused the failure and/or closure of half of all federally insured savings and loans. The Resolution Trust Corporation (RTC) was created to handle the problem and the U.S. government ultimately appropriated 105 billion dollars to resolve the crisis. After banks repaid loans through various procedures, there was a net loss to taxpayers of 40 billion dollars by the end of 1999.
- 1990 - The 1990 ACORN convention in Chicago featured a squatting demonstration at an RTC location. Later, ACORN members demanded cooperation from banks about providing loan data on low- and moderate-income communities and compliance with the CRA.
- 1991 - ACORN fought legal moves to weaken the CRA, staging a two-day takeover of the House Banking Committee hearing room. It also established ACORN Housing Corporation to service people moving into homes under the housing campaign, rehabilitated hundreds of houses addressed by CRA.
- 1992 - The Federal Housing Enterprises Financial Safety and Soundness Act required Fannie Mae and Freddie Mac to devote a percentage of their lending to support affordable housing increasing their pooling and selling of such loans as securities; the Office of Federal Housing Enterprise Oversight (OFHEO) created to oversee them. The ACORN convention in New York, called the “ACORN-Bank Summit”, was organized to make deals with giant banks. When Citibank, the nation’s largest bank, did not participate conventioneers protested at its downtown Manhattan headquarters, and won a meeting to negotiate for similar programs. BTW, I haven't confirmed the precise time period, but it might be relevant to note that President Barak Obama was a community organizer and part of the legal counsel team for ACORN in both Chicago and New York during the 1990's (but *perhaps* not on this specific issue).
-1995 - New Community Reinvestment Act regulations break down home-loan data by neighborhood, income, and race, enabling community groups to complain to banks and regulators about CRA compliance. Regulations also allows community groups that market loans to collect a broker's fee. Fannie Mae allowed to receive affordable housing credit for buying subprime securities. These changes were driven by a directive from President Clinton to revise the CRA regulations to make them more performance-based, and to make examinations more consistent, clarify performance standards, and reduce cost and compliance burden. This directive addressed criticisms that the regulations, and the agencies’ implementation of them through the examination process, were too process-oriented, burdensome, and not sufficiently focused on actual results. The agencies also changed the CRA examination process to incorporate these revisions. (All in the name of “Good Intentions”.) Also, Janet Reno and HUD used the force of law to pressure banks to make bad loans. President Clinton publicly touted the increase in the number of home loans to “the poor”.
- 1997 - Mortgage denial rate of 29 percent for conventional home purchase loans. Investors purchased more than $60 billion of sub-prime mortgage backed securities, six times more than 1991’s volume of $10 billion. (private label securities, not GSE backed) The Taxpayer Relief Act of 1997 expanded the capital-gains exclusion to $500,000 (per couple) from $125,000, encouraging people to invest in second homes and investment properties. In November, Freddie Mac helped First Union Capital Markets and Bear Stearns & Co launch the first publicly available securitization of CRA loans, issuing $384.6 million of such securities. All these securities carried a Freddie Mac guarantee as to timely interest and principal.
- 1998 - Housing bubble appears as inflation-adjusted home price appreciation exceeds 10% per year in most West Coast metropolitan areas. In May: Brooksley Born and the Commodity Futures Trading Commission release a report calling for regulation of Over the Counter Derivatives. Born says that non-transparent trading could severely harm the economy. Alan Greenspan, Robert Rubin, and Arthur Levitt of president Clinton's Working Group on Financial Markets, and Larry Summers, fight against her plan and convince congress and others to take no action. In July, it was revealed (Washington Post) that Rep. Barney Frank, D-Mass, who is openly gay, had a personal relationship with Herb Moses, a high-level executive for Fannie Mae. While the relationship had reportedly ended, Frank was serving on the House Banking Committee - charged with oversight of Fannie Mae and Freddie Mac - for the entire 10 years they were together. When questioned, Rep Frank assured everyone there was no conflict interest. In October: "Financial Services Modernization Act" was killed in the Senate, primarily because of no restrictions on CRA-related community groups. Federal Reserve Bank of New York rescues Long-Term Capital Management hedge fund in 1998, which a GAO critic said encouraged risky loans on assumption government will bail out "too big to fail" banks and companies.
- 1998-2008 - With increase in sales of mortgage-backed securities, companies buy more credit default swaps, unregulated insurance contracts used to protect debt holders; these increased 100-fold, with estimates of the debt covered by such contracts, as of November 2008, ranging from $33 to $47 trillion.
- 1999 - Fannie Mae eases the credit requirements to encourage banks to extend home mortgages to individuals whose credit is not good enough to qualify for conventional loans. In November, The Gramm-Leach-Bliley Act is signed by president Bill Clinton, repealing the Glass-Steagall Act of 1933. It deregulates banking, insurance, securities, and the financial services industry, allowing financial institutions to grow very large. It also limits Community Reinvestment Coverage of smaller banks and makes community groups report certain financial relationships with banks. Congressmen key to the effort include Phil Gramm, Jim Leach, Thomas J. Bliley, Jr., Chuck Schumer, and Chris Dodd.
- 2000 - Lenders originate $160 billion worth of sub-prime, up from $40 billion in 1994. Fannie Mae buys $600 million of sub-prime mortgages, primarily on a flow basis. Freddie Mac, in that same year, purchases $18.6 billion worth of sub-prime loans, mostly Alt A and A- mortgages. Freddie Mac guarantees another $7.7 billion worth of sub-prime mortgages in structured transactions. In October, Fannie Mae commits to purchase and securitize $2 billion of CRA eligible loans. In November, Fannie Mae announces HUD will soon require it to dedicate 50% of its business to low- and moderate-income families" and its goal is to finance over $500 billion in CRA related business by 2010. In December, the Commodity Futures Modernization Act of 2000 defines interest rates, currency prices, and stock indexes as "excluded commodities," allowing trade of credit-default swaps by hedge funds, investment banks or insurance companies with minimal oversight, and contributing to 2008 crisis in Bear Stearns & Co, Lehman Brothers, and AIG.
- 2000–2001 - US Federal Reserve lowers Federal funds rate 11 times, from 6.5% (May 2000) to 1.75% (December 2001),creating an easy-credit environment that fueled the growth of US sub-prime mortgages.
- 2002-2006: Fannie Mae and Freddie Mac combined purchases of incorrectly rated AAA sub-prime mortgage-backed securities rise from $38 billion to $90 billion per year. Lenders are aggressively “encouraged” by Fannie Mae and Freddie Mac to offer loans to higher-risk borrowers, including illegal immigrants. Sub-prime mortgages amounted to $600 billion (20%) by 2006. Speculation in residential real estate rose. During 2005, 28% of homes purchased were for investment purposes, with an additional 12% purchased as vacation homes. During 2006, these figures were 22% and 14%, respectively. As many as 85% of condominium properties purchased in Miami were for investment purposes which the owners resold ("flipped") without the seller ever having lived in them.
- 2002–2003 - Mortgage denial rate of 14 percent for conventional home purchase loans, half the rate of denials in 1997.
- 2002 - Annual home price appreciation of 10% or more in California, Florida, and most Northeastern states. In June, President G.W. Bush sets goal of increasing minority home owners by at least 5.5 million by 2010 through billions of dollars in tax credits, subsidies and a Fannie Mae commitment of $440 billion to establish NeighborWorks America with faith based organizations.
- 2003 - Federal Reserve Chair Alan Greenspan lowers federal reserve’s key interest rate to 1%, the lowest in 45 years. In August: Borio and White of Bank of International Settlements speak at the Jackson Hole Economic Symposium, referencing BIS's "Credit Risk Transfer" 2003 report which warned about problems with collateralized debt obligations and rating agencies. Their arguments are rejected or ignored by attendees, including Alan Greenspan. IN September: Bush administration recommends moving governmental supervision of Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury. The changes are blocked by Congress.
- 2003-2007 - U.S. sub-prime mortgages increased 292%, from $332 billion to $1.3 trillion, due primarily to the private sector entering the mortgage bond market, once an almost exclusive domain of government sponsored enterprises like Freddie Mac. The Federal Reserve fails to use its supervisory and regulatory authority over banks, mortgage underwriters and other lenders, who abandoned loan standards (employment history, income, down payments, credit rating, assets, property loan-to-value ratio and debt-servicing ability), emphasizing instead lender's ability to securitize and repackage sub-prime loans.
- 2004-2007 - Many financial institutions issued large amounts of debt and invested in mortgage-backed securities (MBS), believing that house prices would continue to rise and that households would keep up on mortgage payments.
- 2004 - U.S. homeownership rate peaks with an all time high of 69.2 percent. Following example of Countrywide Financial, the largest U.S. mortgage lender, many lenders adopt automated loan approvals that critics argued were not subjected to appropriate review and documentation according to good mortgage underwriting standards. In 2007, 40% of all subprime loans resulted from automated underwriting. Mortgage fraud by borrowers increases, in many cases as supported by CRA-related community groups. HUD ratchets up Fannie Mae and Freddie Mac affordable-housing goals for next four years, from 50 percent to 56 percent, stating they lagged behind the private market; they purchased $175 billion in 2004—44 percent of the market; from 2004 to 2006, they purchased $434 billion in securities backed by sub-prime loans. In October, SEC effectively suspends net capital rule for five firms—Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns and Morgan Stanley. Freed from government imposed limits on the debt they can assume, they leveraged up 20, 30 and even 40 to 1, buying massive amounts of mortgage-backed securities and other risky investments.
- 2005 - The SEC halts an investigation of Bear Stearns "pricing, valuation, and analysis" of mortgage-backed collateralized debt obligations. No action is taken against Bear. Robert Shiller gives talks warning about a housing bubble to the Office of the Comptroller of the Currency and the FDIC. He is ignored, and would later call it an incidence of Groupthink. That same year, his second edition of "Irrational Exhuberance" warns that the housing bubble might lead to a worldwide recession. In January, Federal Reserve Governor Edward Gramlich raises concerns over sub-prime lending practices, says mortgage brokers might not have incentives for careful underwriting and that that portion of the sub-prime industry was veering close to a breakdown, that it's possible that it is a bubble but that the housing market did not qualify for specific monetary policy treatment at this point. The Bank of International Settlements warns about the problems with structured financial products, and points out the conflict of interest of credit rating agencies - that they are being payed by the same companies they are supposed to be objectively evaluating. In February, the Office of Thrift Supervision implements new rules that allow savings and loans with over $1 billion in assets to meet their CRA obligations without investing in local communities, cutting availability of sub-prime loans. In June: The International Swaps and Derivatives Association enables credit default swaps (quasi-insurance contracts) to be taken out against asset-backed-security collateralized debt obligations (including ones backed by sub-prime mortgages). In August: Raghuram Rajan warns about credit default swaps, at the Jackson Hole Economic Symposium. His arguments are rejected by attendees, including Alan Greenspan, Donald Kohn, and Lawrence Summers. In September, the Mortgage Insurance Companies of America send a letter to the Federal Reserve, warning about 'risky lending practices' in US real estate. In the Fall 2005, the booming housing market halts abruptly; from the fourth quarter of 2005 to the first quarter of 2006, median prices nationwide drop 3.3 percent.
- 2006 - In May: The sub-prime lender Ameriquest announces it will cut 3,800 Jobs, close its 229 retail branches and rely instead on the Web. Merit Financial Inc, based in Kirkland, Washington, files for bankruptcy and closes its doors, firing all but 80 of its 410 employees; Merit’s marketplace decline about 40% and sales are not bringing in enough revenue to support overhead. In August: U.S. Home Construction Index is down over 40% as of mid-August 2006 compared to a year earlier. In September, Nouriel Roubini warns the IMF about a coming US housing bust, mortgage-backed securities failures, bank failures, and a recession. His work was based partly on his study of recent economic crises in Russia (1998), Argentina (2000), Mexico (1994), and Asia (1997).
- 2007 - Home sales continue to fall. The plunge in existing-home sales is the steepest since 1989. In Q1/2007, S&P/Case-Shiller house price index records first year-over-year decline in nationwide house prices since 1991. The sub-prime mortgage industry collapses, and a surge of foreclosure activity with rising interest rates threaten to depress prices further as problems in the sub-prime markets spread to the near-prime and prime mortgage markets. In January, Ownit Mortgage Solutions Inc. files for Chapter 11. Records show that Ownit Mortgage Solutions owed Merrill Lynch around $93 million at the time of filing. In February, Mortgage Lenders Network USA Inc., the country's 15th largest sub-prime lender with $3.3 billion in loans funded in third quarter 2006, files for Chapter 11. Several sub-prime lenders declare bankruptcy, announcing significant losses, or putting themselves up for sale.These include Accredited Home Lenders Holding, New Century Financial, DR Horton and Countrywide Financial. In March, the value of USA sub-prime mortgages was estimated at $1.3 trillion as of March 2007. Ben Bernanke, quoting Alan Greenspan, warns that the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, were a source of "systemic risk" and suggest legislation to head off a possible crisis. In April, New Century Financial, largest U.S. sub-prime lender, files for chapter 11 bankruptcy. Business sources report lenders made $640 billion in sub-prime loans in 2006, nearly twice the level 3 years earlier; sub-prime loans amounted to about 20 percent of the nation's mortgage lending and about 17 percent of home purchases; financial firms and hedge funds likely own more than $1 trillion in securities backed by sub-prime mortgage; about 13 percent of sub-prime loans are now delinquent, more than five times the delinquency rate for home loans to borrowers with top credit; more than 2 percent of sub-prime loans had foreclosure proceedings start in the fourth quarter. Freddie Mac is fined $3.8 million by the Federal Election Commission as a result of illegal campaign contributions, much of it to members of the United States House Committee on Financial Services which oversees Freddie Mac. In June, FDIC Chair Shelia Bair cautioned against the more flexible risk management standards of the Basel II international accord and lowering bank capital requirements generally: "There are strong reasons for believing that banks left to their own devices would maintain less capital -- not more -- than would be prudent. The fact is, banks do benefit from implicit and explicit government safety nets...In short, regulators can't leave capital decisions totally to the banks.". In August, worldwide "credit crunch" as sub-prime mortgage backed securities are discovered in portfolios of banks and hedge funds around the world, from BNP Paribas to Bank of China. Many lenders stop offering home equity loans and "stated income" loans. Numerous quantitative long/short equity hedge funds suddenly begin experiencing unprecedented losses as a result of what is believed to be liquidations by some managers eager to access cash during the liquidity crisis. It highlights one of the first examples of the contagion effect of the sub-prime crisis spilling over into a radically different business area. Central banks coordinate efforts to increase liquidity for first time since the aftermath of the September 11, 2001 terrorist attacks. The United States Federal Reserve (Fed) injects a combined 43 billion USD, the European Central Bank (ECB) 156 billion euros (214.6 billion USD), and the Bank of Japan 1 trillion Yen (8.4 billion USD). Smaller amounts come from the central banks of Australia, and Canada. The stock of Countrywide Financial, which is the largest mortgage lender in the United States, falls around 13% on the NYSE after Countrywide says foreclosures and mortgage delinquencies have risen to their highest levels since early 2002. Countrywide narrowly avoids bankruptcy by taking out an emergency loan of $11 billion from a group of banks. In September, TV finance personality Jim Cramer warns Americans on The Today Show, "don't you dare buy a home—you'll lose money," causing a furor among Realtors (one of the few times he actually gave good advice, IMHO). In October, a consortium of U.S. banks backed by the U.S. government announces a "super fund" of $100 billion to purchase mortgage-backed securities whose mark-to-market value plummeted in the sub-prime collapse. Both Fed chairman Ben Bernanke and Treasury Secretary Hank Paulson express alarm about the dangers posed by the bursting housing bubble. In December, President Bush announces a plan to voluntarily and temporarily freeze the mortgages of a limited number of mortgage debtors holding adjustable rate mortgages. He also asked Members Of Congress to: 1. pass legislation to modernize the FHA. 2. temporarily reform the tax code to help homeowners refinance during this time of housing market stress. 3. pass funding to support mortgage counseling. 4. pass legislation to reform Government Sponsored Enterprises (GSEs) like Freddie Mac and Fannie Mae. A consortium of banks officially abandons the U.S. government-supported "super-SIV" mortgage crisis bail-out plan announced in mid-October, citing a lack of demand for the risky mortgage products on which the plan was based, and widespread criticism that the fund was a flawed idea that would have been difficult to execute.
- 2007-2008 - Starting in late 2007, and throughout 2008, the 'monoline' municipal bond insurance companies, such as AMBAC, MBIA, and ACA, have their credit ratings downgraded by the credit rating agencies because they had also gotten 'insurance' policies (via credit default swaps) on mortgage-based CDOs. Since the entire 'municipal bond insurance' business model depends on the insurer having a very high credit rating, these companies begin to collapse, and the value of many of the bonds they insured also falls. Financial crisis escalates with collapse of major lenders and investors.
- 2008 - In March, Bear Stearns is acquired for $2 a share by JPMorgan Chase in a fire sale avoiding bankruptcy. The deal is backed by the Federal Reserve, providing up to $30B to cover possible Bear Stearn losses. In June, the chairman of the Senate Banking Committee Connecticut's Christopher Dodd proposes a housing bailout to the Senate floor that would assist troubled sub-prime mortgage lenders such as Countrywide Bank, Dodd admitted that he received special treatment, perks, and campaign donations from Countrywide, who regarded Dodd as a "special" customer and a "Friend of Angelo." Dodd received a $75,000 reduction in mortgage payments from Countrywide. The Chairman of the Senate Finance Committee Kent Conrad and the head of head of Fannie Mae Jim Johnson also received mortgages on favorable terms due to their association with Countrywide CEO Angelo R. Mozilo. In July, major banks and financial institutions had borrowed and invested heavily in mortgage backed securities and reported losses of approximately $435 billion as of 17 July 2008. President Bush signs into law the Housing and Economic Recovery Act of 2008, which authorizes the Federal Housing Administration to guarantee up to $300 billion in new 30-year fixed rate mortgages for sub-prime borrowers if lenders write-down principal loan balances to 90 percent of current appraisal value. In September, there is a Federal takeover of Fannie Mae and Freddie Mac, which at that point owned or guaranteed about half of the U.S.'s $12 trillion mortgage market, effectively nationalizing them. This causes panic because almost every home mortgage lender and Wall Street bank relied on them to facilitate the mortgage market and investors worldwide owned $5.2 trillion of debt securities backed by them. The US Federal Reserve lends $85 billion to American International Group (AIG) to avoid bankruptcy. Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke meet with key legislators to propose a $700 billion emergency bailout through the purchase of toxic assets. Bernanke tells them: "If we don't do this, we may not have an economy on Monday." The FBI discloses that it had been investigating the possibility of fraud by mortgage financing companies Fannie Mae and Freddie Mac, Lehman Brothers, and insurer American International Group, bringing to 26 the number of corporate lenders under investigation. The Emergency Economic Stabilization Act is defeated 228-205 in the United States House of Representatives. US Treasury changes tax law to allow a bank acquiring another to write off all of the acquired bank's losses for tax purposes. In October, the U.S. Senate passes HR1424, their version of the $700 billion bailout bill. President Bush signs the Emergency Economic Stabilization Act, creating a $700 billion Troubled Assets Relief Program (TARP) to purchase failing bank assets. It contains easing of the accounting rules that forced companies to collapse because of the existence of toxic mortgage-related investments. Key to winning GOP support was a decision by the Securities and Exchange Commission to ease mark-to-market accounting rules that require financial institutions to show the deflated value of assets on their balance sheets." The US taps into the $700 billion available from TARP and announces the injection of $250 billion of public money into the US banking system. The form of the rescue will include the US government taking an equity position in banks that choose to participate in the program in exchange for certain restrictions such as executive compensation. Nine banks agreed to participate in the program and will receive half of the total funds: 1) Bank of America, 2) JPMorgan Chase, 3) Wells Fargo, 4) Citigroup, 5) Merrill Lynch, 6) Goldman Sachs, 7) Morgan Stanley, 8) Bank of New York Mellon and 9) State Street. In November, Treasury Secretary Paulson abandons plan to buy toxic assets under the $700 billion TARP, saying the remaining $410 billion in the fund would be better spent on recapitalizing financial companies. The US Federal Reserve pledges $800 billion more to help revive the financial system. $600 billion will be used to buy mortgage bonds issued or guaranteed by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.
- 2009 - In April, the SEC sues Goldman Sachs for fraud, for allegedly having failed to disclose vital information to investors in one of it's "Abacus" mortgage-backed CDOs in 2007. The CDO was allegedly 'designed to fail' by the hedge fund of John Paulson, so that Paulson could make large profits by betting against it. Allegedly this was not disclosed to investors by Goldman, and they lost roughly a billion dollars, while Paulson & Co profited.
* * *
Whew... that's enough: my blood pressure will take long enough to come down...
Can we at least agree this covers a bit more than just the basics, with a LOT of the details (not *all*, but a LOT) concerning who did what, to whom, and what the end results were at least up until the early part of 2009?
- Steve
P.S. I'm not pointing fingers (yet); and its clear there's plenty of blame to go around, if that is what we wish to focus on - I don't, at least not too far beyond understanding how all those Good Intentions got us into this mess. Complicating matters is both sides of the aisle are currently playing spin games and appear more concerned with scoring political points instead of trying to solve the problem. That said, finding a practical (and workable) solution to this mess will be much more difficult, especially since it appears the principals currently involved are predominately the same folks that got us to where we are. I have a vision in which they are nothing but ticks who demand we feed the dog more.
P.P.S. I must say this - I find it curious that *no one* is talking about the actions of the CREDIT RATING AGENCIES during this process. They were obviously a key player in this whole mess. Where was *their* oversight? Or were they just doing as instructed? Inquiring minds want to know...
- SG
Note there are individuals and groups of all political stripes referenced.
* * *
- 1977 - The Commuity Reinvestment Act (CRA) was enacted (Thank you Jimmy Carter!) The intent was to address historical discrimination in lending, driven (in part) by the practice of “Redlining”. The Act encourages commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods.
- 1980 - The Depository Institutions and Deregulation and Monetary Control Act (DIDMCA) grants thrifts, including savings and loan associations, the power to make consumer and commercial loans and to issue transaction accounts and exempted federally chartered savings banks, installment plan sellers and chartered loan companies from state unlimited interest rates limits.
- 1981 - Each of the 12 Federal reserve banks establishes a Community Affairs Office to offer public and private guidance in accordance with the CRA.
- 1982 - the Alternative Mortgage Transaction Parity Act (AMTPA) preempts state laws and allows lenders to originate mortgages with features such as adjustable-rate mortgages, balloon payments, and negative amortization all of which contribue to "allowing lenders to make loans with terms that may obscure the total cost of a loan".
- 1986 - The Tax Reform Act (TRA) denied taxpayers to deduct interest on consumer loans, such as credit cards and auto loans, while allowing them to deduct interest paid on mortgage loans, providing an incentive for homeowners to take out home equity loans to pay off consumer debt.
- 1985-1989 - The effects of the TRA, and imprudent lending during the late 1970's along with other causes, led to massive insolvency (e.g., the Savings and Loan Crisis). This caused the failure and/or closure of half of all federally insured savings and loans. The Resolution Trust Corporation (RTC) was created to handle the problem and the U.S. government ultimately appropriated 105 billion dollars to resolve the crisis. After banks repaid loans through various procedures, there was a net loss to taxpayers of 40 billion dollars by the end of 1999.
- 1990 - The 1990 ACORN convention in Chicago featured a squatting demonstration at an RTC location. Later, ACORN members demanded cooperation from banks about providing loan data on low- and moderate-income communities and compliance with the CRA.
- 1991 - ACORN fought legal moves to weaken the CRA, staging a two-day takeover of the House Banking Committee hearing room. It also established ACORN Housing Corporation to service people moving into homes under the housing campaign, rehabilitated hundreds of houses addressed by CRA.
- 1992 - The Federal Housing Enterprises Financial Safety and Soundness Act required Fannie Mae and Freddie Mac to devote a percentage of their lending to support affordable housing increasing their pooling and selling of such loans as securities; the Office of Federal Housing Enterprise Oversight (OFHEO) created to oversee them. The ACORN convention in New York, called the “ACORN-Bank Summit”, was organized to make deals with giant banks. When Citibank, the nation’s largest bank, did not participate conventioneers protested at its downtown Manhattan headquarters, and won a meeting to negotiate for similar programs. BTW, I haven't confirmed the precise time period, but it might be relevant to note that President Barak Obama was a community organizer and part of the legal counsel team for ACORN in both Chicago and New York during the 1990's (but *perhaps* not on this specific issue).
-1995 - New Community Reinvestment Act regulations break down home-loan data by neighborhood, income, and race, enabling community groups to complain to banks and regulators about CRA compliance. Regulations also allows community groups that market loans to collect a broker's fee. Fannie Mae allowed to receive affordable housing credit for buying subprime securities. These changes were driven by a directive from President Clinton to revise the CRA regulations to make them more performance-based, and to make examinations more consistent, clarify performance standards, and reduce cost and compliance burden. This directive addressed criticisms that the regulations, and the agencies’ implementation of them through the examination process, were too process-oriented, burdensome, and not sufficiently focused on actual results. The agencies also changed the CRA examination process to incorporate these revisions. (All in the name of “Good Intentions”.) Also, Janet Reno and HUD used the force of law to pressure banks to make bad loans. President Clinton publicly touted the increase in the number of home loans to “the poor”.
- 1997 - Mortgage denial rate of 29 percent for conventional home purchase loans. Investors purchased more than $60 billion of sub-prime mortgage backed securities, six times more than 1991’s volume of $10 billion. (private label securities, not GSE backed) The Taxpayer Relief Act of 1997 expanded the capital-gains exclusion to $500,000 (per couple) from $125,000, encouraging people to invest in second homes and investment properties. In November, Freddie Mac helped First Union Capital Markets and Bear Stearns & Co launch the first publicly available securitization of CRA loans, issuing $384.6 million of such securities. All these securities carried a Freddie Mac guarantee as to timely interest and principal.
- 1998 - Housing bubble appears as inflation-adjusted home price appreciation exceeds 10% per year in most West Coast metropolitan areas. In May: Brooksley Born and the Commodity Futures Trading Commission release a report calling for regulation of Over the Counter Derivatives. Born says that non-transparent trading could severely harm the economy. Alan Greenspan, Robert Rubin, and Arthur Levitt of president Clinton's Working Group on Financial Markets, and Larry Summers, fight against her plan and convince congress and others to take no action. In July, it was revealed (Washington Post) that Rep. Barney Frank, D-Mass, who is openly gay, had a personal relationship with Herb Moses, a high-level executive for Fannie Mae. While the relationship had reportedly ended, Frank was serving on the House Banking Committee - charged with oversight of Fannie Mae and Freddie Mac - for the entire 10 years they were together. When questioned, Rep Frank assured everyone there was no conflict interest. In October: "Financial Services Modernization Act" was killed in the Senate, primarily because of no restrictions on CRA-related community groups. Federal Reserve Bank of New York rescues Long-Term Capital Management hedge fund in 1998, which a GAO critic said encouraged risky loans on assumption government will bail out "too big to fail" banks and companies.
- 1998-2008 - With increase in sales of mortgage-backed securities, companies buy more credit default swaps, unregulated insurance contracts used to protect debt holders; these increased 100-fold, with estimates of the debt covered by such contracts, as of November 2008, ranging from $33 to $47 trillion.
- 1999 - Fannie Mae eases the credit requirements to encourage banks to extend home mortgages to individuals whose credit is not good enough to qualify for conventional loans. In November, The Gramm-Leach-Bliley Act is signed by president Bill Clinton, repealing the Glass-Steagall Act of 1933. It deregulates banking, insurance, securities, and the financial services industry, allowing financial institutions to grow very large. It also limits Community Reinvestment Coverage of smaller banks and makes community groups report certain financial relationships with banks. Congressmen key to the effort include Phil Gramm, Jim Leach, Thomas J. Bliley, Jr., Chuck Schumer, and Chris Dodd.
- 2000 - Lenders originate $160 billion worth of sub-prime, up from $40 billion in 1994. Fannie Mae buys $600 million of sub-prime mortgages, primarily on a flow basis. Freddie Mac, in that same year, purchases $18.6 billion worth of sub-prime loans, mostly Alt A and A- mortgages. Freddie Mac guarantees another $7.7 billion worth of sub-prime mortgages in structured transactions. In October, Fannie Mae commits to purchase and securitize $2 billion of CRA eligible loans. In November, Fannie Mae announces HUD will soon require it to dedicate 50% of its business to low- and moderate-income families" and its goal is to finance over $500 billion in CRA related business by 2010. In December, the Commodity Futures Modernization Act of 2000 defines interest rates, currency prices, and stock indexes as "excluded commodities," allowing trade of credit-default swaps by hedge funds, investment banks or insurance companies with minimal oversight, and contributing to 2008 crisis in Bear Stearns & Co, Lehman Brothers, and AIG.
- 2000–2001 - US Federal Reserve lowers Federal funds rate 11 times, from 6.5% (May 2000) to 1.75% (December 2001),creating an easy-credit environment that fueled the growth of US sub-prime mortgages.
- 2002-2006: Fannie Mae and Freddie Mac combined purchases of incorrectly rated AAA sub-prime mortgage-backed securities rise from $38 billion to $90 billion per year. Lenders are aggressively “encouraged” by Fannie Mae and Freddie Mac to offer loans to higher-risk borrowers, including illegal immigrants. Sub-prime mortgages amounted to $600 billion (20%) by 2006. Speculation in residential real estate rose. During 2005, 28% of homes purchased were for investment purposes, with an additional 12% purchased as vacation homes. During 2006, these figures were 22% and 14%, respectively. As many as 85% of condominium properties purchased in Miami were for investment purposes which the owners resold ("flipped") without the seller ever having lived in them.
- 2002–2003 - Mortgage denial rate of 14 percent for conventional home purchase loans, half the rate of denials in 1997.
- 2002 - Annual home price appreciation of 10% or more in California, Florida, and most Northeastern states. In June, President G.W. Bush sets goal of increasing minority home owners by at least 5.5 million by 2010 through billions of dollars in tax credits, subsidies and a Fannie Mae commitment of $440 billion to establish NeighborWorks America with faith based organizations.
- 2003 - Federal Reserve Chair Alan Greenspan lowers federal reserve’s key interest rate to 1%, the lowest in 45 years. In August: Borio and White of Bank of International Settlements speak at the Jackson Hole Economic Symposium, referencing BIS's "Credit Risk Transfer" 2003 report which warned about problems with collateralized debt obligations and rating agencies. Their arguments are rejected or ignored by attendees, including Alan Greenspan. IN September: Bush administration recommends moving governmental supervision of Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury. The changes are blocked by Congress.
- 2003-2007 - U.S. sub-prime mortgages increased 292%, from $332 billion to $1.3 trillion, due primarily to the private sector entering the mortgage bond market, once an almost exclusive domain of government sponsored enterprises like Freddie Mac. The Federal Reserve fails to use its supervisory and regulatory authority over banks, mortgage underwriters and other lenders, who abandoned loan standards (employment history, income, down payments, credit rating, assets, property loan-to-value ratio and debt-servicing ability), emphasizing instead lender's ability to securitize and repackage sub-prime loans.
- 2004-2007 - Many financial institutions issued large amounts of debt and invested in mortgage-backed securities (MBS), believing that house prices would continue to rise and that households would keep up on mortgage payments.
- 2004 - U.S. homeownership rate peaks with an all time high of 69.2 percent. Following example of Countrywide Financial, the largest U.S. mortgage lender, many lenders adopt automated loan approvals that critics argued were not subjected to appropriate review and documentation according to good mortgage underwriting standards. In 2007, 40% of all subprime loans resulted from automated underwriting. Mortgage fraud by borrowers increases, in many cases as supported by CRA-related community groups. HUD ratchets up Fannie Mae and Freddie Mac affordable-housing goals for next four years, from 50 percent to 56 percent, stating they lagged behind the private market; they purchased $175 billion in 2004—44 percent of the market; from 2004 to 2006, they purchased $434 billion in securities backed by sub-prime loans. In October, SEC effectively suspends net capital rule for five firms—Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns and Morgan Stanley. Freed from government imposed limits on the debt they can assume, they leveraged up 20, 30 and even 40 to 1, buying massive amounts of mortgage-backed securities and other risky investments.
- 2005 - The SEC halts an investigation of Bear Stearns "pricing, valuation, and analysis" of mortgage-backed collateralized debt obligations. No action is taken against Bear. Robert Shiller gives talks warning about a housing bubble to the Office of the Comptroller of the Currency and the FDIC. He is ignored, and would later call it an incidence of Groupthink. That same year, his second edition of "Irrational Exhuberance" warns that the housing bubble might lead to a worldwide recession. In January, Federal Reserve Governor Edward Gramlich raises concerns over sub-prime lending practices, says mortgage brokers might not have incentives for careful underwriting and that that portion of the sub-prime industry was veering close to a breakdown, that it's possible that it is a bubble but that the housing market did not qualify for specific monetary policy treatment at this point. The Bank of International Settlements warns about the problems with structured financial products, and points out the conflict of interest of credit rating agencies - that they are being payed by the same companies they are supposed to be objectively evaluating. In February, the Office of Thrift Supervision implements new rules that allow savings and loans with over $1 billion in assets to meet their CRA obligations without investing in local communities, cutting availability of sub-prime loans. In June: The International Swaps and Derivatives Association enables credit default swaps (quasi-insurance contracts) to be taken out against asset-backed-security collateralized debt obligations (including ones backed by sub-prime mortgages). In August: Raghuram Rajan warns about credit default swaps, at the Jackson Hole Economic Symposium. His arguments are rejected by attendees, including Alan Greenspan, Donald Kohn, and Lawrence Summers. In September, the Mortgage Insurance Companies of America send a letter to the Federal Reserve, warning about 'risky lending practices' in US real estate. In the Fall 2005, the booming housing market halts abruptly; from the fourth quarter of 2005 to the first quarter of 2006, median prices nationwide drop 3.3 percent.
- 2006 - In May: The sub-prime lender Ameriquest announces it will cut 3,800 Jobs, close its 229 retail branches and rely instead on the Web. Merit Financial Inc, based in Kirkland, Washington, files for bankruptcy and closes its doors, firing all but 80 of its 410 employees; Merit’s marketplace decline about 40% and sales are not bringing in enough revenue to support overhead. In August: U.S. Home Construction Index is down over 40% as of mid-August 2006 compared to a year earlier. In September, Nouriel Roubini warns the IMF about a coming US housing bust, mortgage-backed securities failures, bank failures, and a recession. His work was based partly on his study of recent economic crises in Russia (1998), Argentina (2000), Mexico (1994), and Asia (1997).
- 2007 - Home sales continue to fall. The plunge in existing-home sales is the steepest since 1989. In Q1/2007, S&P/Case-Shiller house price index records first year-over-year decline in nationwide house prices since 1991. The sub-prime mortgage industry collapses, and a surge of foreclosure activity with rising interest rates threaten to depress prices further as problems in the sub-prime markets spread to the near-prime and prime mortgage markets. In January, Ownit Mortgage Solutions Inc. files for Chapter 11. Records show that Ownit Mortgage Solutions owed Merrill Lynch around $93 million at the time of filing. In February, Mortgage Lenders Network USA Inc., the country's 15th largest sub-prime lender with $3.3 billion in loans funded in third quarter 2006, files for Chapter 11. Several sub-prime lenders declare bankruptcy, announcing significant losses, or putting themselves up for sale.These include Accredited Home Lenders Holding, New Century Financial, DR Horton and Countrywide Financial. In March, the value of USA sub-prime mortgages was estimated at $1.3 trillion as of March 2007. Ben Bernanke, quoting Alan Greenspan, warns that the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, were a source of "systemic risk" and suggest legislation to head off a possible crisis. In April, New Century Financial, largest U.S. sub-prime lender, files for chapter 11 bankruptcy. Business sources report lenders made $640 billion in sub-prime loans in 2006, nearly twice the level 3 years earlier; sub-prime loans amounted to about 20 percent of the nation's mortgage lending and about 17 percent of home purchases; financial firms and hedge funds likely own more than $1 trillion in securities backed by sub-prime mortgage; about 13 percent of sub-prime loans are now delinquent, more than five times the delinquency rate for home loans to borrowers with top credit; more than 2 percent of sub-prime loans had foreclosure proceedings start in the fourth quarter. Freddie Mac is fined $3.8 million by the Federal Election Commission as a result of illegal campaign contributions, much of it to members of the United States House Committee on Financial Services which oversees Freddie Mac. In June, FDIC Chair Shelia Bair cautioned against the more flexible risk management standards of the Basel II international accord and lowering bank capital requirements generally: "There are strong reasons for believing that banks left to their own devices would maintain less capital -- not more -- than would be prudent. The fact is, banks do benefit from implicit and explicit government safety nets...In short, regulators can't leave capital decisions totally to the banks.". In August, worldwide "credit crunch" as sub-prime mortgage backed securities are discovered in portfolios of banks and hedge funds around the world, from BNP Paribas to Bank of China. Many lenders stop offering home equity loans and "stated income" loans. Numerous quantitative long/short equity hedge funds suddenly begin experiencing unprecedented losses as a result of what is believed to be liquidations by some managers eager to access cash during the liquidity crisis. It highlights one of the first examples of the contagion effect of the sub-prime crisis spilling over into a radically different business area. Central banks coordinate efforts to increase liquidity for first time since the aftermath of the September 11, 2001 terrorist attacks. The United States Federal Reserve (Fed) injects a combined 43 billion USD, the European Central Bank (ECB) 156 billion euros (214.6 billion USD), and the Bank of Japan 1 trillion Yen (8.4 billion USD). Smaller amounts come from the central banks of Australia, and Canada. The stock of Countrywide Financial, which is the largest mortgage lender in the United States, falls around 13% on the NYSE after Countrywide says foreclosures and mortgage delinquencies have risen to their highest levels since early 2002. Countrywide narrowly avoids bankruptcy by taking out an emergency loan of $11 billion from a group of banks. In September, TV finance personality Jim Cramer warns Americans on The Today Show, "don't you dare buy a home—you'll lose money," causing a furor among Realtors (one of the few times he actually gave good advice, IMHO). In October, a consortium of U.S. banks backed by the U.S. government announces a "super fund" of $100 billion to purchase mortgage-backed securities whose mark-to-market value plummeted in the sub-prime collapse. Both Fed chairman Ben Bernanke and Treasury Secretary Hank Paulson express alarm about the dangers posed by the bursting housing bubble. In December, President Bush announces a plan to voluntarily and temporarily freeze the mortgages of a limited number of mortgage debtors holding adjustable rate mortgages. He also asked Members Of Congress to: 1. pass legislation to modernize the FHA. 2. temporarily reform the tax code to help homeowners refinance during this time of housing market stress. 3. pass funding to support mortgage counseling. 4. pass legislation to reform Government Sponsored Enterprises (GSEs) like Freddie Mac and Fannie Mae. A consortium of banks officially abandons the U.S. government-supported "super-SIV" mortgage crisis bail-out plan announced in mid-October, citing a lack of demand for the risky mortgage products on which the plan was based, and widespread criticism that the fund was a flawed idea that would have been difficult to execute.
- 2007-2008 - Starting in late 2007, and throughout 2008, the 'monoline' municipal bond insurance companies, such as AMBAC, MBIA, and ACA, have their credit ratings downgraded by the credit rating agencies because they had also gotten 'insurance' policies (via credit default swaps) on mortgage-based CDOs. Since the entire 'municipal bond insurance' business model depends on the insurer having a very high credit rating, these companies begin to collapse, and the value of many of the bonds they insured also falls. Financial crisis escalates with collapse of major lenders and investors.
- 2008 - In March, Bear Stearns is acquired for $2 a share by JPMorgan Chase in a fire sale avoiding bankruptcy. The deal is backed by the Federal Reserve, providing up to $30B to cover possible Bear Stearn losses. In June, the chairman of the Senate Banking Committee Connecticut's Christopher Dodd proposes a housing bailout to the Senate floor that would assist troubled sub-prime mortgage lenders such as Countrywide Bank, Dodd admitted that he received special treatment, perks, and campaign donations from Countrywide, who regarded Dodd as a "special" customer and a "Friend of Angelo." Dodd received a $75,000 reduction in mortgage payments from Countrywide. The Chairman of the Senate Finance Committee Kent Conrad and the head of head of Fannie Mae Jim Johnson also received mortgages on favorable terms due to their association with Countrywide CEO Angelo R. Mozilo. In July, major banks and financial institutions had borrowed and invested heavily in mortgage backed securities and reported losses of approximately $435 billion as of 17 July 2008. President Bush signs into law the Housing and Economic Recovery Act of 2008, which authorizes the Federal Housing Administration to guarantee up to $300 billion in new 30-year fixed rate mortgages for sub-prime borrowers if lenders write-down principal loan balances to 90 percent of current appraisal value. In September, there is a Federal takeover of Fannie Mae and Freddie Mac, which at that point owned or guaranteed about half of the U.S.'s $12 trillion mortgage market, effectively nationalizing them. This causes panic because almost every home mortgage lender and Wall Street bank relied on them to facilitate the mortgage market and investors worldwide owned $5.2 trillion of debt securities backed by them. The US Federal Reserve lends $85 billion to American International Group (AIG) to avoid bankruptcy. Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke meet with key legislators to propose a $700 billion emergency bailout through the purchase of toxic assets. Bernanke tells them: "If we don't do this, we may not have an economy on Monday." The FBI discloses that it had been investigating the possibility of fraud by mortgage financing companies Fannie Mae and Freddie Mac, Lehman Brothers, and insurer American International Group, bringing to 26 the number of corporate lenders under investigation. The Emergency Economic Stabilization Act is defeated 228-205 in the United States House of Representatives. US Treasury changes tax law to allow a bank acquiring another to write off all of the acquired bank's losses for tax purposes. In October, the U.S. Senate passes HR1424, their version of the $700 billion bailout bill. President Bush signs the Emergency Economic Stabilization Act, creating a $700 billion Troubled Assets Relief Program (TARP) to purchase failing bank assets. It contains easing of the accounting rules that forced companies to collapse because of the existence of toxic mortgage-related investments. Key to winning GOP support was a decision by the Securities and Exchange Commission to ease mark-to-market accounting rules that require financial institutions to show the deflated value of assets on their balance sheets." The US taps into the $700 billion available from TARP and announces the injection of $250 billion of public money into the US banking system. The form of the rescue will include the US government taking an equity position in banks that choose to participate in the program in exchange for certain restrictions such as executive compensation. Nine banks agreed to participate in the program and will receive half of the total funds: 1) Bank of America, 2) JPMorgan Chase, 3) Wells Fargo, 4) Citigroup, 5) Merrill Lynch, 6) Goldman Sachs, 7) Morgan Stanley, 8) Bank of New York Mellon and 9) State Street. In November, Treasury Secretary Paulson abandons plan to buy toxic assets under the $700 billion TARP, saying the remaining $410 billion in the fund would be better spent on recapitalizing financial companies. The US Federal Reserve pledges $800 billion more to help revive the financial system. $600 billion will be used to buy mortgage bonds issued or guaranteed by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.
- 2009 - In April, the SEC sues Goldman Sachs for fraud, for allegedly having failed to disclose vital information to investors in one of it's "Abacus" mortgage-backed CDOs in 2007. The CDO was allegedly 'designed to fail' by the hedge fund of John Paulson, so that Paulson could make large profits by betting against it. Allegedly this was not disclosed to investors by Goldman, and they lost roughly a billion dollars, while Paulson & Co profited.
* * *
Whew... that's enough: my blood pressure will take long enough to come down...
Can we at least agree this covers a bit more than just the basics, with a LOT of the details (not *all*, but a LOT) concerning who did what, to whom, and what the end results were at least up until the early part of 2009?
- Steve
P.S. I'm not pointing fingers (yet); and its clear there's plenty of blame to go around, if that is what we wish to focus on - I don't, at least not too far beyond understanding how all those Good Intentions got us into this mess. Complicating matters is both sides of the aisle are currently playing spin games and appear more concerned with scoring political points instead of trying to solve the problem. That said, finding a practical (and workable) solution to this mess will be much more difficult, especially since it appears the principals currently involved are predominately the same folks that got us to where we are. I have a vision in which they are nothing but ticks who demand we feed the dog more.
P.P.S. I must say this - I find it curious that *no one* is talking about the actions of the CREDIT RATING AGENCIES during this process. They were obviously a key player in this whole mess. Where was *their* oversight? Or were they just doing as instructed? Inquiring minds want to know...
- SG
Thursday, March 25, 2010
Killing the Golden Goose
I *know* you've been waiting for my pithy response to the situation, so here goes... A few quick notes based on your post...
* * * * *
"This is the death knell of the American Dream!"
- Arguable. Depends on which side of the fence you're on and whether you think America is great because of it's people (when left alone) or its government (when in control).
People are going to lose a lot of sleep over this.
- Correct. On both sides. From the Right: “I can't afford this - what do we do now?” And from the Left: “How do we keep the productive people funneling all their money and efforts into our new vote-buying Ponzi scheme?”
the real loser here is the Republican Party itself.
- Probably. But they have time (a little) to turn this into a dynamic process and return to power. We'll see. (I doubt they have the cojones to do what it will take.)
the gap between this plan and traditional Republican ideas is not very big. The Obama plan has a broad family resemblance to Mitt Romney’s Massachusetts plan. It builds on ideas developed at the Heritage Foundation in the early 1990s that formed the basis for Republican counter-proposals to Clintoncare in 1993-1994.
- That seems like a slight misrepresentation, based on my typically flawed memory. However, the process of “building on ideas” which change the focus of the idea itself (e.g., from a focus on self-reliance to government-reliance) is the creation of a HUGE gap.
Barack Obama badly wanted Republican votes for his plan. Could we have leveraged his desire to align the plan more closely with conservative views?
- Why? At what point do principles become “not for sale at any price?”
...voters have been persuaded to believe wants to murder their grandmother?"
- Hardly. They have, however, been persuaded (and correctly) about WHO intends to be making the ultimate decision on the care that grandma gets.
..Talk radio thrives on confrontation and recrimination...
- This whole diatribe assumes that talk radio hosts *only* have a desire to generate ratings for their own personal gain and do not have legitimate political principles behind their statements. Hogwash. Just because I disagree with you does not mean I don't have a valid political point, even if my career will, as a side point, be impacted positively. Is this any different from claiming (as PROOF) that Al Gore *doesn't* really care about (or believe in) global warming because his business holdings will expressly and directly benefit from the AGW proposals?
...it will come as no shock to you that I am happy we managed to pass this bill. I consider it to be a step in the right direction.
- Just as it will not be a shock to you that I disagree on the direction being taken. Atleast you and I are willing to TALK, even if all we do is agree-to-disagree.
...how much better I believe this bill could have been with Republican input.
Better? For WHO? For those who believe government has a better grasp of what is in *my* best interests than I do?
private enterprise is the engine which harnesses that energy
- And demonizing those who work to provide the fuel driving the economic engine is a morally correct approach?
standing up for their principles and working out compromises which included at least some of the important and necessary market based solutions which health care reform desperately requires.
- Agreed up to the point that there MUST be a line which cannot be crossed. However, in my opinion, there was no true desire or consideration of market-based solutions being offered or that would be accepted by the party in power.
...the real problem at the heart of the health care crisis in this country is supply and demand.
- Agreed. And the demand for a 'free' product or service is infinite. Apparently, that simple economic fact is beyond the authors of the bill.
This bill is going to address some important issues. It has the potential to give government the tools it needs to correct many of the excesses and inflated costs which government itself has been largely responsible for.
- And it has been prevented from making those corrections... how? This bill also has the potential to give government the power to make things MUCH WORSE. All the more reason to more in small, carefully targeted, incremental steps as opposed to the drastic restructing of 18% of the economy. Liberals seem to believe that (effectively) nationalizing health care - which has never functionally worked anywhere else in the world on this scale - will “work” THIS TIME simply because THEY are going to be the ones doing it this time.
Should we not at least expect our representatives to possess the power to read?
- Many on both sides, and IMHO most of the party in power, never read it. We also expect them to LISTEN, and they're not too good at that either.
I repeat: "What then?".
- It depends on which branch of the Republicans find themselves in power. If
it is the 'Country Club Big Government' bunch that has been running things for the last decade or so, then I agree that they will likely screw things up, too. On the other hand if a truly traditional conservative (e.g., self-reliance focus) power base, then we'll have to see, won't we?
They have not only dismissed the public option (understandable), but also trashed the idea of insurance exchanges (preposterous).
- As stated many times before: I have no objection to government agencies providing optional (*not* mandatory) services ON A LEVEL PLAYING FIELD. But when government programs don't have to make a profit and can dip into the public trough as needed without limit, the field ain't level.
if there isn't anything in the bill worth saving, how exactly do Republicans plan to go about fixing a broken system?
- You start over. Everything - including Social security and medicare and all other entitlements - *must* be on the table. No exceptions. When the hole is getting too deep, you have to stop digging first. That's the difficult (but correct) place to start.
they have gone along with the right wing entertainment media's demonization of Democrats.
- Just as the MSM tame dogs are demonizing Republicans. Both sides are wrong by shifting attention away from the ISSUES to one of personal attacks and personal destruction.
do you actually believe liberals running for office in this country all secretly want to euthanize old people?
- Please. No, not expressly. But I do believe there is a substantial number of liberals who believe THEY (and government as a rule) are better able and better qualified to make decisions directly affecting MY life than I am. And, IMHO, they're the same bunch that are more than willing to say “sacrifices must be made” when grandma's treatment is not considered 'cost effective' to the bottom line (assuming she's still alive after the paperwork winds its way through the system).
We need honest, rational conservatives in government and we just aren't getting them.
- I agree 100%. We need some honest, rational liberals, too. In effect, we need fewer politicians and more statesmen. 'Nuff said!
* * * * *
It is no surprise to you, that I believe this bill is a Huge mistake (or 'wishful thinking' at best). Further, while I desperately HOPE the voting public will toss the Big Government politicians (in *both* parties) out on their ear in November, I fear that will not happen. If the appropriate corective steps (in my learned opinion) are not taken by the voters this fall - I and many others will stop arguing, stop protesting, step back, stop growing the economy, and seek to do as little as possible economically - with the explicit goal of providing for me and mine and nothing more. As succinctly described elsewhere, I will be “Going Galt”. If you prefer to call it 'giving up', so be it. In essence, all those folks clamoring to put THEIR hands into MY wallet for THEIR benefit at MY expense, can go pluck the gifts of freedom and liberty off the tree where they think it grows. And please take note that wishing will not make it so. Bread and Circuses.
Short form: I cannot actively support a government (or a society) that demands the human sacrifice of SOME of its (most able?) members to achieve some arbitrary, and unlimited benefit for OTHER (most demanding?) members. I will not willingly braid the rope that will be used to hang me.
- Steve
* * * * *
"This is the death knell of the American Dream!"
- Arguable. Depends on which side of the fence you're on and whether you think America is great because of it's people (when left alone) or its government (when in control).
People are going to lose a lot of sleep over this.
- Correct. On both sides. From the Right: “I can't afford this - what do we do now?” And from the Left: “How do we keep the productive people funneling all their money and efforts into our new vote-buying Ponzi scheme?”
the real loser here is the Republican Party itself.
- Probably. But they have time (a little) to turn this into a dynamic process and return to power. We'll see. (I doubt they have the cojones to do what it will take.)
the gap between this plan and traditional Republican ideas is not very big. The Obama plan has a broad family resemblance to Mitt Romney’s Massachusetts plan. It builds on ideas developed at the Heritage Foundation in the early 1990s that formed the basis for Republican counter-proposals to Clintoncare in 1993-1994.
- That seems like a slight misrepresentation, based on my typically flawed memory. However, the process of “building on ideas” which change the focus of the idea itself (e.g., from a focus on self-reliance to government-reliance) is the creation of a HUGE gap.
Barack Obama badly wanted Republican votes for his plan. Could we have leveraged his desire to align the plan more closely with conservative views?
- Why? At what point do principles become “not for sale at any price?”
...voters have been persuaded to believe wants to murder their grandmother?"
- Hardly. They have, however, been persuaded (and correctly) about WHO intends to be making the ultimate decision on the care that grandma gets.
..Talk radio thrives on confrontation and recrimination...
- This whole diatribe assumes that talk radio hosts *only* have a desire to generate ratings for their own personal gain and do not have legitimate political principles behind their statements. Hogwash. Just because I disagree with you does not mean I don't have a valid political point, even if my career will, as a side point, be impacted positively. Is this any different from claiming (as PROOF) that Al Gore *doesn't* really care about (or believe in) global warming because his business holdings will expressly and directly benefit from the AGW proposals?
...it will come as no shock to you that I am happy we managed to pass this bill. I consider it to be a step in the right direction.
- Just as it will not be a shock to you that I disagree on the direction being taken. Atleast you and I are willing to TALK, even if all we do is agree-to-disagree.
...how much better I believe this bill could have been with Republican input.
Better? For WHO? For those who believe government has a better grasp of what is in *my* best interests than I do?
private enterprise is the engine which harnesses that energy
- And demonizing those who work to provide the fuel driving the economic engine is a morally correct approach?
standing up for their principles and working out compromises which included at least some of the important and necessary market based solutions which health care reform desperately requires.
- Agreed up to the point that there MUST be a line which cannot be crossed. However, in my opinion, there was no true desire or consideration of market-based solutions being offered or that would be accepted by the party in power.
...the real problem at the heart of the health care crisis in this country is supply and demand.
- Agreed. And the demand for a 'free' product or service is infinite. Apparently, that simple economic fact is beyond the authors of the bill.
This bill is going to address some important issues. It has the potential to give government the tools it needs to correct many of the excesses and inflated costs which government itself has been largely responsible for.
- And it has been prevented from making those corrections... how? This bill also has the potential to give government the power to make things MUCH WORSE. All the more reason to more in small, carefully targeted, incremental steps as opposed to the drastic restructing of 18% of the economy. Liberals seem to believe that (effectively) nationalizing health care - which has never functionally worked anywhere else in the world on this scale - will “work” THIS TIME simply because THEY are going to be the ones doing it this time.
Should we not at least expect our representatives to possess the power to read?
- Many on both sides, and IMHO most of the party in power, never read it. We also expect them to LISTEN, and they're not too good at that either.
I repeat: "What then?".
- It depends on which branch of the Republicans find themselves in power. If
it is the 'Country Club Big Government' bunch that has been running things for the last decade or so, then I agree that they will likely screw things up, too. On the other hand if a truly traditional conservative (e.g., self-reliance focus) power base, then we'll have to see, won't we?
They have not only dismissed the public option (understandable), but also trashed the idea of insurance exchanges (preposterous).
- As stated many times before: I have no objection to government agencies providing optional (*not* mandatory) services ON A LEVEL PLAYING FIELD. But when government programs don't have to make a profit and can dip into the public trough as needed without limit, the field ain't level.
if there isn't anything in the bill worth saving, how exactly do Republicans plan to go about fixing a broken system?
- You start over. Everything - including Social security and medicare and all other entitlements - *must* be on the table. No exceptions. When the hole is getting too deep, you have to stop digging first. That's the difficult (but correct) place to start.
they have gone along with the right wing entertainment media's demonization of Democrats.
- Just as the MSM tame dogs are demonizing Republicans. Both sides are wrong by shifting attention away from the ISSUES to one of personal attacks and personal destruction.
do you actually believe liberals running for office in this country all secretly want to euthanize old people?
- Please. No, not expressly. But I do believe there is a substantial number of liberals who believe THEY (and government as a rule) are better able and better qualified to make decisions directly affecting MY life than I am. And, IMHO, they're the same bunch that are more than willing to say “sacrifices must be made” when grandma's treatment is not considered 'cost effective' to the bottom line (assuming she's still alive after the paperwork winds its way through the system).
We need honest, rational conservatives in government and we just aren't getting them.
- I agree 100%. We need some honest, rational liberals, too. In effect, we need fewer politicians and more statesmen. 'Nuff said!
* * * * *
It is no surprise to you, that I believe this bill is a Huge mistake (or 'wishful thinking' at best). Further, while I desperately HOPE the voting public will toss the Big Government politicians (in *both* parties) out on their ear in November, I fear that will not happen. If the appropriate corective steps (in my learned opinion) are not taken by the voters this fall - I and many others will stop arguing, stop protesting, step back, stop growing the economy, and seek to do as little as possible economically - with the explicit goal of providing for me and mine and nothing more. As succinctly described elsewhere, I will be “Going Galt”. If you prefer to call it 'giving up', so be it. In essence, all those folks clamoring to put THEIR hands into MY wallet for THEIR benefit at MY expense, can go pluck the gifts of freedom and liberty off the tree where they think it grows. And please take note that wishing will not make it so. Bread and Circuses.
Short form: I cannot actively support a government (or a society) that demands the human sacrifice of SOME of its (most able?) members to achieve some arbitrary, and unlimited benefit for OTHER (most demanding?) members. I will not willingly braid the rope that will be used to hang me.
- Steve
Tuesday, September 1, 2009
Health Care Rationing
As we approach that point where we begin working on WHAT services will be provided, HOW they will be consumed, and by WHO - there is an aspect of the Health Care we must face called RATIONING.
It has been well-documented that (primarily to control costs) Canada, Great Britain and other socialized systems routinely restrict access to 'expensive' treatments and services. The critical nature or 'need' for the service is cast aside and a decision is rendered on purely economic considerations. The best interests of the patient - as defined by the care provider and patient - fall to the bottom of the list.
We do *not* want that to happen here...
First, we must recognize that rationing does *NOT* occur in the free market... Hold on there! Do Not succumb to the temptation and head down the road which claims the free market is just "another way to ration", only it uses Price instead of Government Decree. Many contend that "government must intervene" to guarantee a (supposedly) "fair" distribution of goods and services. Hogwash. Why do you think rationing happens in those other systems?
You don't think government controls in this country - because we're smarter - will lead to rationing? ... Remember sugar in WWII? How about gas in the 1970's?...
Let's consider this definition for Rationing: to distribute in a particular manner, by the decision of an absolute authority, with the recipients having no choice whatsoever considering what they are to receive. While it can be argued "everyone has an equal claim to whatever is being rationed" - this *claim* is meaningless since distribution is under control of an appointed 'master' who may choose to ignore any 'claim' without fear of retribution.
I don't have to personally experience being forced by law to 'stay down on the plantation' and be grateful for the largess bestowed upon me by my masters to recognize Slavery when I see it. Electing or appointing my 'master' doesn't change what I will have become.
We must remember that Health Care does not grow on trees. Effort is required. The effort of rational and learned thought. The effort of applied skill, experience, and hard work. THESE EFFORTS ARE NOT FREE! (TANSTAAFL!)
In a free society, it is the Producers - not the government - which create the good or service. It is morally correct and appropriate that they define the price they are willing to accept from a willing consumer. In a Free Society, there is no "just" or "fair" distribution of product apart from the voluntary exchange between Producer and Consumer in a free market.
I will not sugar-coat the obvious: Government programs which attempt to guarantee "universal health care" are, at best, state-sanctioned THEFT, or in some cases, outright SLAVERY. The free market is the antithesis of rationing. It respects individual rights, where rationing unjustly violates individual rights and restricts freedom.
This is a critical moral distinction that we ignore at our peril.
Now - I will concede that the current (American) system is not a true free market, either. (It's a hodge-podge mixture.) However, there *are* aspects of today's marketplace - which, not coincidentally, are the least-regulated - which enjoy the benefits of following the typical free-market pattern of falling prices and rising quality. This is not limited to cell phones and personal computers... you can see it in the Health Care arena with the marketplace evolution of services and procedures such as LASIK eye surgery.
The Free Market *can* work... if it is allowed to. It's a Win-Win scenario - the seller benefits by getting a price he will accept, the buyer gets the product/service he desires. The alternative, absolute government control of the entire process, is where (eventually) no one wins.
Free-market concepts can and should be an integral part - and should be the norm - for any Health Care system which has the intention of being a long-term success in providing Health Care.
Look at it this way... one day, we're going to need an MRI for a proper and accurate diagnosis (I have personally had several). Without a healthy respect for freedom, individual rights and the inherent property rights... we'll be waiting six months on that MRI - just like all those other socialism-based experiments - instead of only waiting six days, or maybe even six hours.
- Steve
It has been well-documented that (primarily to control costs) Canada, Great Britain and other socialized systems routinely restrict access to 'expensive' treatments and services. The critical nature or 'need' for the service is cast aside and a decision is rendered on purely economic considerations. The best interests of the patient - as defined by the care provider and patient - fall to the bottom of the list.
We do *not* want that to happen here...
First, we must recognize that rationing does *NOT* occur in the free market... Hold on there! Do Not succumb to the temptation and head down the road which claims the free market is just "another way to ration", only it uses Price instead of Government Decree. Many contend that "government must intervene" to guarantee a (supposedly) "fair" distribution of goods and services. Hogwash. Why do you think rationing happens in those other systems?
You don't think government controls in this country - because we're smarter - will lead to rationing? ... Remember sugar in WWII? How about gas in the 1970's?...
Let's consider this definition for Rationing: to distribute in a particular manner, by the decision of an absolute authority, with the recipients having no choice whatsoever considering what they are to receive. While it can be argued "everyone has an equal claim to whatever is being rationed" - this *claim* is meaningless since distribution is under control of an appointed 'master' who may choose to ignore any 'claim' without fear of retribution.
I don't have to personally experience being forced by law to 'stay down on the plantation' and be grateful for the largess bestowed upon me by my masters to recognize Slavery when I see it. Electing or appointing my 'master' doesn't change what I will have become.
We must remember that Health Care does not grow on trees. Effort is required. The effort of rational and learned thought. The effort of applied skill, experience, and hard work. THESE EFFORTS ARE NOT FREE! (TANSTAAFL!)
In a free society, it is the Producers - not the government - which create the good or service. It is morally correct and appropriate that they define the price they are willing to accept from a willing consumer. In a Free Society, there is no "just" or "fair" distribution of product apart from the voluntary exchange between Producer and Consumer in a free market.
I will not sugar-coat the obvious: Government programs which attempt to guarantee "universal health care" are, at best, state-sanctioned THEFT, or in some cases, outright SLAVERY. The free market is the antithesis of rationing. It respects individual rights, where rationing unjustly violates individual rights and restricts freedom.
This is a critical moral distinction that we ignore at our peril.
Now - I will concede that the current (American) system is not a true free market, either. (It's a hodge-podge mixture.) However, there *are* aspects of today's marketplace - which, not coincidentally, are the least-regulated - which enjoy the benefits of following the typical free-market pattern of falling prices and rising quality. This is not limited to cell phones and personal computers... you can see it in the Health Care arena with the marketplace evolution of services and procedures such as LASIK eye surgery.
The Free Market *can* work... if it is allowed to. It's a Win-Win scenario - the seller benefits by getting a price he will accept, the buyer gets the product/service he desires. The alternative, absolute government control of the entire process, is where (eventually) no one wins.
Free-market concepts can and should be an integral part - and should be the norm - for any Health Care system which has the intention of being a long-term success in providing Health Care.
Look at it this way... one day, we're going to need an MRI for a proper and accurate diagnosis (I have personally had several). Without a healthy respect for freedom, individual rights and the inherent property rights... we'll be waiting six months on that MRI - just like all those other socialism-based experiments - instead of only waiting six days, or maybe even six hours.
- Steve
Tuesday, August 25, 2009
Prescription Drugs Reply
Chris,
Not to rain on your parade, but *our* program - clearly still in development - does not HAVE a "Medicare Prescription Drug, Improvement and Modernization Act". (It doesn't have Medicare, Medicaid, and any other politically 'sacred cows', for that matter.)
Thus, applying our valuable time arguing about which party did what-when-where, how much it cost, and who voted for or against such-and-such is a Waste Of Time (other than for making sure we don't repeat the same implementation mistakes in our New Approach). Yes, you and I could point out this or that ideological point ad infinitum - but that doesn't get us anywhere, does it? And isn't that EXACTLY what both of us accuse the current self-appointed ruler of Both Parties of doing? They pontificate about endless and frequently meaningless details and attempts to satisfy their respective power-bases and they are *not* devoting very much statesmen-like effort to ADDRESSING THE PROBLEM! And even when they *do* try, they fail to consider the Unintended Consequences adequately.
As much as I would enjoy the diatribes that would result from each of us chasing those oh-so-tempting ideological rabbits, I am struggling to set such things aside. Instead, I'd like to focus on reaching a genuine, truly-non-partisan compromise - one that has less to do with ideology and more to do with providing the actual products & services for people that are truly in need.
That said, I appreciate your acknowledgment of the HUGE costs associated with the R&D efforts to bring these new wonder drugs to market. Many pundits and 'reform advocates' fail to recognize how things work in the Real World at all. The free-enterprise system has been directly responsible in ways too many to count for making that happen. Those companies and individuals took the risk and I - for one, apparently - have no problem with them charging all the market will bear. For every successful drug there are dozens of failures and those R&D costs must be recovered somehow or there is no reason for businesses to work on finding new ones.
That's not to say that I - yes, your humble resident conservative - do not have issues with the drug companies. I do. For example: I don't like private companies getting government funding and other subsidies to do R&D when the government doesn't get an ROI on it's investment (tax breaks are a different beast). Conversely, I don't like government putting unnecessary, bureaucratic road-blocks to R&D and then ignoring the increased cost those regulations cause. I think drug patent protections are too long in some cases, not long enough in others (the problem here is one-size-fits-none: a new headache remedy is not on the same level as a new cancer drug). I don't like government *not* doing honest negotiations with the end-user in mind (e.g., patient *and* taxpayer) for products and services. I don't like the lack of protection on legitimate patents in the international arena. And so on, and so on...
But these are problems in how it's been done in the past. Are they real issues? Yes, of course. Do we have all the answers? No, we don't (at least; not yet). Yes, the devil is in the details, and we'll get to them.
To avoid future confusion on my comment, re-consider the phrasing of your original point:
9. Provide universal access to low cost, generic medicines.
My Point: I am concerned with that "universal access" phrase. Historically, it almost always gets translated to "confiscate". THAT is the issue I'm raising. There must be adequate protections for developers of goods and services as well as the consumer. Drugs do not start as a "generic", nor should they. But once the patent period has expired - which should be tied to some reasonable recovery of all R&D expenses - THEN a drug can become a 'generic' and the future cost savings are from being tied to the actual production cost of the drug itself.
Commercial Freedom demands that there *must* be a reasonable prospect for profit - which is NOT a 'dirty word' - in the research and creation phases for new drugs and treatments (in all phases, actually). It is the prospect of personal profit based on one's efforts that is the powerful mechanism which drives commerce and many forms of human behavior. This is a good thing, since I, for one, am not interested in being stuck with what we have now (or retreating back to the point of using leeches).
I called "universal access" a sound bite because it's main purpose is to 'sound good' to the Great Unwashed (thus generating popular support), while having no clearly defined meaning for how it gets accomplished, and which all too easily gets translated into, "I want it and *my* government will *force* you to GIVE it to me." Sorry, that philosophy is Wrong.
Let's re-establish Unavoidable Rule #1 - Everything has a cost: TANSTAAFL.
So, let us agree to set aside the ideological arguments you raised about MMA - I agree with many of your points - because such a beast doesn't exist in our plan and we know better than to try it again. As such, my original comments and concerns on #9 and #10 are reasonably valid - simply pointing out topics we must consider when we get to the implementation phase. Among the things we must address at that time will include defining the appropriate mechanisms to encourage and reward Positive Behaviors such as Responsible Planning, Assuming Personal Responsibility even-when-consequences-are-life-threatening, etc., while simultaneously discouraging the negative actions and minimizing Unintended Consequences. (The key word in that sentence is appropriate.) Now, THAT is where the Real Challenge comes into play.
BTW - If there is a True Need to "reform Health care" in this country, then by all means, let's *really* start over from Ground Zero... That means we haven't *saved* anything yet, because we're still trying to define the budget for what we WILL spend. Once that is done, *THEN* we get to prioritize HOW we will spend those funds and on WHAT products and services will be provided... This task cannot be easy, or they would not need people of our caliber to do it...
*sigh* - We have a LONG way to go.
- Steve
Not to rain on your parade, but *our* program - clearly still in development - does not HAVE a "Medicare Prescription Drug, Improvement and Modernization Act". (It doesn't have Medicare, Medicaid, and any other politically 'sacred cows', for that matter.)
Thus, applying our valuable time arguing about which party did what-when-where, how much it cost, and who voted for or against such-and-such is a Waste Of Time (other than for making sure we don't repeat the same implementation mistakes in our New Approach). Yes, you and I could point out this or that ideological point ad infinitum - but that doesn't get us anywhere, does it? And isn't that EXACTLY what both of us accuse the current self-appointed ruler of Both Parties of doing? They pontificate about endless and frequently meaningless details and attempts to satisfy their respective power-bases and they are *not* devoting very much statesmen-like effort to ADDRESSING THE PROBLEM! And even when they *do* try, they fail to consider the Unintended Consequences adequately.
As much as I would enjoy the diatribes that would result from each of us chasing those oh-so-tempting ideological rabbits, I am struggling to set such things aside. Instead, I'd like to focus on reaching a genuine, truly-non-partisan compromise - one that has less to do with ideology and more to do with providing the actual products & services for people that are truly in need.
That said, I appreciate your acknowledgment of the HUGE costs associated with the R&D efforts to bring these new wonder drugs to market. Many pundits and 'reform advocates' fail to recognize how things work in the Real World at all. The free-enterprise system has been directly responsible in ways too many to count for making that happen. Those companies and individuals took the risk and I - for one, apparently - have no problem with them charging all the market will bear. For every successful drug there are dozens of failures and those R&D costs must be recovered somehow or there is no reason for businesses to work on finding new ones.
That's not to say that I - yes, your humble resident conservative - do not have issues with the drug companies. I do. For example: I don't like private companies getting government funding and other subsidies to do R&D when the government doesn't get an ROI on it's investment (tax breaks are a different beast). Conversely, I don't like government putting unnecessary, bureaucratic road-blocks to R&D and then ignoring the increased cost those regulations cause. I think drug patent protections are too long in some cases, not long enough in others (the problem here is one-size-fits-none: a new headache remedy is not on the same level as a new cancer drug). I don't like government *not* doing honest negotiations with the end-user in mind (e.g., patient *and* taxpayer) for products and services. I don't like the lack of protection on legitimate patents in the international arena. And so on, and so on...
But these are problems in how it's been done in the past. Are they real issues? Yes, of course. Do we have all the answers? No, we don't (at least; not yet). Yes, the devil is in the details, and we'll get to them.
To avoid future confusion on my comment, re-consider the phrasing of your original point:
9. Provide universal access to low cost, generic medicines.
My Point: I am concerned with that "universal access" phrase. Historically, it almost always gets translated to "confiscate". THAT is the issue I'm raising. There must be adequate protections for developers of goods and services as well as the consumer. Drugs do not start as a "generic", nor should they. But once the patent period has expired - which should be tied to some reasonable recovery of all R&D expenses - THEN a drug can become a 'generic' and the future cost savings are from being tied to the actual production cost of the drug itself.
Commercial Freedom demands that there *must* be a reasonable prospect for profit - which is NOT a 'dirty word' - in the research and creation phases for new drugs and treatments (in all phases, actually). It is the prospect of personal profit based on one's efforts that is the powerful mechanism which drives commerce and many forms of human behavior. This is a good thing, since I, for one, am not interested in being stuck with what we have now (or retreating back to the point of using leeches).
I called "universal access" a sound bite because it's main purpose is to 'sound good' to the Great Unwashed (thus generating popular support), while having no clearly defined meaning for how it gets accomplished, and which all too easily gets translated into, "I want it and *my* government will *force* you to GIVE it to me." Sorry, that philosophy is Wrong.
Let's re-establish Unavoidable Rule #1 - Everything has a cost: TANSTAAFL.
So, let us agree to set aside the ideological arguments you raised about MMA - I agree with many of your points - because such a beast doesn't exist in our plan and we know better than to try it again. As such, my original comments and concerns on #9 and #10 are reasonably valid - simply pointing out topics we must consider when we get to the implementation phase. Among the things we must address at that time will include defining the appropriate mechanisms to encourage and reward Positive Behaviors such as Responsible Planning, Assuming Personal Responsibility even-when-consequences-are-life-threatening, etc., while simultaneously discouraging the negative actions and minimizing Unintended Consequences. (The key word in that sentence is appropriate.) Now, THAT is where the Real Challenge comes into play.
BTW - If there is a True Need to "reform Health care" in this country, then by all means, let's *really* start over from Ground Zero... That means we haven't *saved* anything yet, because we're still trying to define the budget for what we WILL spend. Once that is done, *THEN* we get to prioritize HOW we will spend those funds and on WHAT products and services will be provided... This task cannot be easy, or they would not need people of our caliber to do it...
*sigh* - We have a LONG way to go.
- Steve
Tuesday, May 19, 2009
Still running from my imagination
Still running from my imagination...
1. My only purpose in limiting the scope of our budget discussion, is that the monster has grown so huge, we can spend the rest of our lives picking it apart piece-by-piece. I'm willing to concede that there are issues with the Military budget. Specifically, it has too many things we don't need or over-pay for the value received or are not relevant to defense or don't simply belong. My only concern is that we don't hack-and-slash the military side of the budget blindly, without considering the ramifications of expenditures which are legitimately needed for national defense. Again, I point out that national defense is by definition a function of federal government, and is constitutional mandated. Many (most?) aspects of domestic (e.g. entitlement) spending are NOT. I'd like you to concede the domestic budget has similar problems - i.e., things we don't need (not consititutionally required) or over-pay for the value received (whee!) or are not relevant to proper government ("pork") or don't belong in the federal budget (too many to list). If so - we can jointly agree - THE BUDGET IS BROKEN and move on. (And leave this for another discussion later).
2. I think you may have misinterpreted my post on TYRANNY. Number one - I wasn't talking about LAWS. I was talking about the forced implementation of social policy objectives - which you implied was a proper function of government with "enforced generosity"). If I implied that LAW was subject to equal treatment (civil disobedience?), I erred in my presentation. I *do* think we have moved FAR away from where government should be with respect to personal conduct. Government should apply the LAW as a means of protection of Individual Rights, not as a means of imposing social policy goals. Kaczynski BROKE THE LAW - and, interfered with the rights of other individuals: his motivations for doing so are irrelevant. In a similar way, using the force of government to "enforce" specific social policy ideals upon others - who may legitimately disagree with the policy (which are not, nor be considered to be, The LAW) - is WRONG.
3. I remind you of a quote attributed to our friend Bernardo de la Paz... "I am free, no matter what rules surround me. If I find them tolerable, I tolerate them; if I find them too obnoxious, I break them. I am free, because I know that I alone am morally responsible for everything that I do."
4. "...you are an individualist and I am a collectivist? Is this a comment on what each of us think government should do, or what government should be? The distinction is important. Without doubt, I have a more liberal view than you of what government should do. So far I have proceeded on the assumption that this is the entire basis upon which we differ. But - do we have a more fundamental difference?"
I think the "fundamental differences" in our viewpoints drive how we view government for what it is and for what it should be. So the answer is YES. Thus, we justify the continued existence of this blog. :)
5. "...As for myself, except for (an admittedly arbitrary) requirement of age, I think every citizen should be allowed to vote and that our system of government is just fine as it is." Not surprisingly, I think the age limit is unnecessary. In simple terms, I would prefer that the "right to vote" be limited to people who pay the bill (e.g., taxes). I see no reason why someone on the dole should have a voice in deciding WHO will run things (i.e., write the check), while - for example - an employed teenager, generating tax revenue to support government, should not. The "Golden Rule", if you will: "he who has the Gold, makes the Rules." Of course there are obvious implications to this approach, and it certainly needs to be fleshed out beyond this simple statement - but you get the idea. (another thread?)
That said, I believe our Founding Fathers did a spectacularly Good Job. I think our system of government is fine - at least, as originally defined and designed; but not necessarily what it has become. Clearly, the government we have today has severe and significant problems with the feedback mechanisms. But it *can* be fixed. We just need the will and courage to make some tough choices by defining the proper scope of government (what is can, cannot, should and should not *DO*), get it established with proper and functional checks-and-balances in place, and - most importantly - leave everything else alone.
1. My only purpose in limiting the scope of our budget discussion, is that the monster has grown so huge, we can spend the rest of our lives picking it apart piece-by-piece. I'm willing to concede that there are issues with the Military budget. Specifically, it has too many things we don't need or over-pay for the value received or are not relevant to defense or don't simply belong. My only concern is that we don't hack-and-slash the military side of the budget blindly, without considering the ramifications of expenditures which are legitimately needed for national defense. Again, I point out that national defense is by definition a function of federal government, and is constitutional mandated. Many (most?) aspects of domestic (e.g. entitlement) spending are NOT. I'd like you to concede the domestic budget has similar problems - i.e., things we don't need (not consititutionally required) or over-pay for the value received (whee!) or are not relevant to proper government ("pork") or don't belong in the federal budget (too many to list). If so - we can jointly agree - THE BUDGET IS BROKEN and move on. (And leave this for another discussion later).
2. I think you may have misinterpreted my post on TYRANNY. Number one - I wasn't talking about LAWS. I was talking about the forced implementation of social policy objectives - which you implied was a proper function of government with "enforced generosity"). If I implied that LAW was subject to equal treatment (civil disobedience?), I erred in my presentation. I *do* think we have moved FAR away from where government should be with respect to personal conduct. Government should apply the LAW as a means of protection of Individual Rights, not as a means of imposing social policy goals. Kaczynski BROKE THE LAW - and, interfered with the rights of other individuals: his motivations for doing so are irrelevant. In a similar way, using the force of government to "enforce" specific social policy ideals upon others - who may legitimately disagree with the policy (which are not, nor be considered to be, The LAW) - is WRONG.
3. I remind you of a quote attributed to our friend Bernardo de la Paz... "I am free, no matter what rules surround me. If I find them tolerable, I tolerate them; if I find them too obnoxious, I break them. I am free, because I know that I alone am morally responsible for everything that I do."
4. "...you are an individualist and I am a collectivist? Is this a comment on what each of us think government should do, or what government should be? The distinction is important. Without doubt, I have a more liberal view than you of what government should do. So far I have proceeded on the assumption that this is the entire basis upon which we differ. But - do we have a more fundamental difference?"
I think the "fundamental differences" in our viewpoints drive how we view government for what it is and for what it should be. So the answer is YES. Thus, we justify the continued existence of this blog. :)
5. "...As for myself, except for (an admittedly arbitrary) requirement of age, I think every citizen should be allowed to vote and that our system of government is just fine as it is." Not surprisingly, I think the age limit is unnecessary. In simple terms, I would prefer that the "right to vote" be limited to people who pay the bill (e.g., taxes). I see no reason why someone on the dole should have a voice in deciding WHO will run things (i.e., write the check), while - for example - an employed teenager, generating tax revenue to support government, should not. The "Golden Rule", if you will: "he who has the Gold, makes the Rules." Of course there are obvious implications to this approach, and it certainly needs to be fleshed out beyond this simple statement - but you get the idea. (another thread?)
That said, I believe our Founding Fathers did a spectacularly Good Job. I think our system of government is fine - at least, as originally defined and designed; but not necessarily what it has become. Clearly, the government we have today has severe and significant problems with the feedback mechanisms. But it *can* be fixed. We just need the will and courage to make some tough choices by defining the proper scope of government (what is can, cannot, should and should not *DO*), get it established with proper and functional checks-and-balances in place, and - most importantly - leave everything else alone.
Wednesday, May 6, 2009
Capitalism by Lemmings
Allow me to depart, for a short while, from attempting to stay above the ideological fray… (I need a break anyway; I can only do this for so long…)
Fair Warning - This is going to be a L-O-N-G post…
To begin, I must apologize… The President *has* called for cuts in spending – and (surprise!) it was Defense Spending! Back in January, 2009, he asked for an 11% cut in Pentagon spending. Given the challenges we are facing in the world from a military point-of-view, that action seems potentially dangerous. But, for the moment – let’s go with those making those cuts (which would total about 55 Billion, I think) As a matter of fact, about 75% of the budget "cuts" he has requested come from the Defense Budget. So, while we’re busy using that scalpel you suggested (instead of my butter knife) – here’s a few non-military cuts to consider - many are taken directly from the American Recovery & Reinvestment Plan :
- $1 billion for Amtrak, which hasn’t turned a profit in 40 years
- $2 billion for child-care subsidies
- $50 million for that engine of job creation, the National Endowment for the Arts
- $400 million for MORE global-warming research (sorry, Al, but isn’t there already a “consensus”? isn’t it true “the discussion is over”?)
- $2.4 billion for “carbon-capture demonstration projects”
- $650 million (on top of billions already doled out) to pay for digital TV conversion coupons (at about 120 million homes, it would have been cheaper to just by one from Wal-Mart send it to every household in the country)
- $600 million for the federal government to buy new cars
- $7 billion for modernizing federal buildings and facilities
- $150 million for the Smithsonian
- $81 billion for Medicaid
- $36 billion for expanded unemployment benefits
- $20 billion for food stamps
- $83 billion for the earned income credit for people who don’t pay income tax
- $66 billion on education (because it is obviously working so much more effectively than our military)
- $6 billion to weatherize “modest income homes”
- $6 billion to provide internet in “underserved” areas
- $6 billion for “higher education modernization.”
- $20 billion in health information technology to “prevent medial mistakes.”
- $600 million for satellite development and acquisitions, including climate sensors and climate modeling.
- $250 million “to address long-term economic distress in urban industrial cores and rural areas distributed based on need and ability to create jobs and attract private investment.” (thanks for being so specific)
- $300 million for the National Wildlife Refuges and National Fish Hatcheries
- $400 million for “ready-to-go habitat restoration projects”
- $120 million to provide subsidized community service jobs to an additional 24,000 low-income older Americans
- $1.5 billion to help local communities build and rehabilitate low-income housing using green technologies.
- $500 million to rehabilitate and improve energy efficiency at some of the over 42,000 housing units maintained by Native American housing programs
- $10 million for “rural, high-need areas to undertake projects using sustainable and energy-efficient building and rehabilitation practices”
…etc., etc., etc…
WHOA! Steady there! Calm down!... I will admit *some* of the entries on that list are arguably “needed”. But is there no room for eliminating THINGS THAT DON’T WORK? (which, BTW, are his exact words to justify cutting the Defense budget) In the midst of a recession, does ALL of this really qualify as CRITICAL “investing”? NOTHING on that list can wait – not even for One Year? Do these spending proposals really expand and encourage PRIVATE SECTOR jobs (or just create temporary public sector jobs)? Short form: Do we *really* need to increase spending across the board? I DOUBT IT. (I could go on and on, and so could you).
A quote attributed to good ol’ Senator Everett Dirkson states it nicely– "A billion here, a billion there, pretty soon, you're talking real money".
Yes, there *are* legitimate ways and reasons to enact carefully considered cuts in the Pentagon budget. But taking a shotgun approach to the Left’s whipping boy – while ignoring the very serious foolishness in other parts of the budgeting process - is insane at best and could place the country as a whole in significant danger. A 50% cut – without corresponding cuts in domestic spending - is a recipe for disaster. (You can’t wait for the “need” to surface before you start the R&D.) And, like it or not, there ARE people and countries out there who DO NOT LIKE US. They don’t care how much we “want to talk” or “feel a need to understand their issues”. There is no guarantee any kind of dialogue will remove the gun he has pointed at our head. (But pointing a better gun at HIS head will at least get his attention. If he is willing to kill himself to make his point, we lose nothing by being prepared - and still have the option of taking him out first.)
Cuts to the Defense budget is a move than should be taken cautiously and with careful consideration. You don’t do it just because “times are tough” and because “we all have to make sacrifices”. (Really? Unions, too? Government employees? Companies deemed “too big to fail?”)
OK… maybe I was being too obtuse about making specific cuts. So, let’s make it real simple and jump back out of the funnel and look at the Big Picture…
Immediately FREEZE *all* federal spending at the 2009 budget level. Do it for one year, no… make that TWO YEARS. That means 2010 and 2011 will have *NO* increases, whether previously planned or not. No COLA adjustments in benefit payments to individuals. No raises for staffers. No new jobs ‘created’ at the public teat. No pay raises for ANYONE; not even the military… THAT is “controlling runaway spending” in a very real way we can all understand.
If you want to get technical, how about formally locking federal spending to a defined percentage of collected tax revenues in the previous year (and that percentage can’t be more than 100%). And then mandate that any – repeat *any* - department that exceeds it’s budget will have its NEXT annual budget reduced by the amount of the overage… THAT will drive people to seek “efficiency” in government like nothing else.
As a knuckle-dragging, greedy, fiscal conservative - am I being too tough? Or too aggressively tight-fisted? Tough times require tough measures, don’t they? And let’s not forget… It’s not THEIR money – that’s MY MONEY they are spending! (and YOURS, too).
The easiest and most effective way for government to “benefit private industry” is to Get The Hell Out Of The Way. And that specifically means - Stop trying to invent new and creative ways to TAX anything that currently moves, moved at one time, or is no longer capable of moving. The transfer of Real Wealth from Private Entities to the Government DOESN’T WORK.
“I think you will find that the foreign competitors who have been cleaning our clock for so many years are the ones who have managed to make government an effective partner rather than a nagging wife (or husband - sorry ladies)…” Really? The governments of the most “successful” foreign competitors we have are run by despots and tyrants (whether by individuals or committees). The ‘successful economic’ example of exactly which country are you suggesting we follow?
“I'm not going to dive into the specifics of where and how Obama's budget proposals aim at backing up and augmenting private enterprise rather than leading it around by the nose.” Please try and find the time – I see a lot of nose leading and demands being made. The only ‘backing up’ I see is jerking back on the reins. The only visible “augmenting” is the addition of onerous regulation and back-seat-driving.
Let’s be serious – there are a new set of rules being set up by the current administration. The game is changing. I admit it’s not a Soviet Union /
In
Companies are not supposed to look out for their shareholders or their employees or even their customers. Their single focus is to watch
Am I exaggerating? Look at how the mortgage ‘rescue’ plan is operating under government control and private (barely) ownership. Look at the cap-and-trade proposal and the emphasis on government mandated controls in accordance with “green” lending practices and “green” job creation, and “green” this and “green” that. (“One Fish, Two Fish, Green Fish, Green Fish”). Look at the brutal strong-arm actions leading up to the Chrysler deal…
And have you noticed how foreign nationals, especially terrorists, will have no fear of reprisal or any reason to suspect a violation of their constitutional rights – but that CEOs of US companies do *not* have the same ‘rights’? And these actions and tactics by the administration are supposed to ENCOURAGE business and private industry? Please.
Their Goal is very simple:
And before you go dancing down this road, I’d like to point out: “No, It Doesn’t.”
Look at how wonderfully effective the Japanese economy has been for the past 20 years. They provide modern validation to the fact that government usually gets it wrong. Sometimes it fails to anticipate the market (
You probably dislike this comment, but I think it has at least a grain of Truth that is often ignored - "Every government interference in the economy consists of giving an unearned benefit, extorted by force, to some men at the expense of others." – Ayn Rand.
As long as I am standing on my “extremist soapbox”, and before I get down from these lofty heights – what we are experiencing, what we are facing, what we are being asked to swallow and be grateful to have received - is called TYRANNY.
If you want to “cut” something - start there.
- Steve
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