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Saturday, February 28, 2009

Video of the Day

The Long Strange Trip of Anthony Demasi

A couple days ago, John Kass wrote about the trials and travails of Anthony Demasi. Demasi is a name that most likely won't know even in the city of Chicago, where he's located. Yet, he may one day play a role in unraveling a lot of the corruption here. Demasi was a playboy, club owner, and financier until winding up in jail a couple months back. His company, Tsunami Capital, held millions for many of the power brokers in Chicago. Then, in the last couple years, Tsunami Capital went under and with it many of the millions the power base in Chicago invested in it. So, began the quick decline of Anthony Demasi.

Besides money management, Demasi also had a knack for club ownership. He is the money behind nightlife mainstays like Reserve and Crescendo. He was often spotted in the glitzy Chicago area known as the Viagara Triangle (where often older men with money scout for younger attractive females) Of course, in Chicago, if you are a club owner, it also means that you are in tight with much of the power base. That's because in order to own a club you need such things as a liquor license and building and occupancy permits. In a clean city, such a process involves filling out the right forms, meeting the right standards, and waiting your turn. In a corrupt city like Chicago, it means scratching all the right backs and pay all the right dues. In the shadow government of Chicago all the real power is in the hands of those on the board of such organizations as the liquor licensing board. Put more bluntly, here's how Kass described it.

That's because Demasi knows whose itch he scratched for the city liquor licenses and building and occupancy permits, which determine how crowded a club can be. And he knows what he says he paid to promote legislation in Springfield permitting VIP bottle service, which allows club owners to milk the suckers.

Demasi was on the inside of the seedy and corrupt world of liquor licensing and permits. He knows where all the bodies are buried. Then, a month or so ago, he was arrested on a domestic battery charge. It seems that he bit his girlfriend on the cheek. For this he received a million Dollar bail, which means he would have needed to come up with all the money. The whole thing was suspicious to Kass and he was openly questioning Demasi's safety in jail.

Since he was locked up Feb. 5, news began circulating among his old crowd. Some are worried. And I don't want Demasi getting accidentally hit by a bolt of lightning or choking himself to death with plastic bags in the jail shower. That might ruin Chicago's reputation.

Then, two days ago, the story began to unfold even more, and Kass was there with an update.

Like I said, it was strange. But it's all becoming clear to me now.

Because a few minutes ago, the U.S. Attorney's office indicted Demasi on charges that he defrauded investors at his Tsunami Capital investment company out of millions of

Now, Demasi is facing serious charges and serious jail time. It's likely that he will be in a very talkative mood, especially if it means that less jail time. Demasi is not the fish any Fed prosecutor wants. The big fishes are the one's who's backs he scratched, and you can bet the Feds will be very interested in what Demasi says about them.

Here's the full story of Tony Demasi.

What Do the Tea Parties Want to Accomplish

In response to a Hot Air story, a reader asked this cynical question.

In reality, though. These tea parties are pointless. They have no direction. What do they want to accomplish with them?”

That is a cynical question but it is a fair one. The Tea Party movement in many ways is no different than any budding grassroots movement. It's goals are to mobilize, to demand change, and then with mobilizing power to demand politicians that live up to the ideal of these ideas.

The ideas of the movement are simple concepts that have gone out of political style. They are the ideals of fiscal conservatism, smaller government, lower taxes, and less government intervention.

It's a movement that was fueled by the now famous Rick Santelli rant. In my opinion, its apex is not the stimulus bill or even the election of President Obama. Instead, its apex is the mortgage bailout. There was a visceral reaction to the idea that responsible people should be on the hook to bailout those that are irresponsible. So, this movement has one of the most important elements of any successful grassroots movements: raw emotion.

In the beginning, the key to the movement is to grow. On Friday, the tea parties numbered several hundred in each city. Here is how Eric Odom, who was instrumental in organizing the one here, put it.

While some in the media are trying to belittle the Tea Party events that happened today, they seemed to have missed the part where we only spent a week in planning, and only 3 days ago many of us were wondering if anyone would even show up!

In other words, it's a start, but it's only a start. The movement got a fair amount of coverage on local news broadcasts where the parties were held. It received some national media and Rush just mentioned in the parties in his speech to CPAC. From here, it must grow exponentially.

That's where the wonders of media and modern technology come in. The movement is already on Twitter, Facebook, and other social media sites. In fact, the movement itself is starting its own site. So, to answer the cynics, the key to the movement in the short term is to grow. The key in the short term is to organize many more tea parties and see thousands at them rather than hundreds. The next round of nationwide coordinated rallies is set for April 15th. (for obvious reasons) If we see thousands at the next set of rallies, the nation will know it is serious.

Once the movement is mobilized it will have power and reach to demand action. The movement will back and support only those politicians that have a philosophy congruent with it: fiscal conservatism, small government, low taxes, and less intervention. Here in Illinois its natural political leader is Tony Peraica. He was the only politician to speak at the rally in Chicago. Here is how Peraica described the absence of other pols.

I mean, there were 400 grassroots activisits … TV news cameras … what could’ve kept the politicians away?

Could it have been the message of lower taxes and limited government? But wouldn’t that message have been a no-brainer for at least a Republican elected official?

Here in the Chicagoland area there is not only an apathy toward bloated and corrupt government, but also, there is an assumption that things won't change. This movement has an opportunity to change all that. As the movement grows locally, it will demand more politicians like Peraica. Of course, Peraica will be the main beneficiary of its movement locally.

In fact, don't be surprised if many of the local organizing leaders run for some sort of office themselves. As it evolves, it will take on a life of its own. It will, however, be built on mobilization, unity of principle, and will use those two in order to change the political process.

President Obama: Ending Special Interests Through Massive Government Expansion

Either President Obama doesn't understand the connection between the rise in special interests or he thinks the public doesn't. That's the only way to explain this statement.

The system we have now might work for the powerful and well-connected interests that have run Washington for far too long," Obama said in his weekly radio and video address. "But I don't. I work for the American people."

He said his ambitious budget plan, unveiled Thursday, will help millions of Americans, but only if Congress overcomes resistance from deep-pocket lobbies.

"I know these steps won't sit well with the special interests and lobbyists who are invested in the old way of doing business, and I know they're gearing up for a fight," Obama said, using tough-guy language reminiscent of his predecessor, George W. Bush. "My message to them is this: So am I."

It seems that President Obama can't get his grasp around a simple and basic concept. The rise in special interests in wound around the increase in government. The bigger the reach of government, the more there will be special interests trying to steer government to areas they represent.

President Obama's massive increase in government isn't going to end special interests, lobbying, and the influence of those connected. All it will do is drive government into the hands of those special interests that are more ideologically alligned with himself. Does President Obama really think that doubling the budged of the Departments of Education, Energy, and HHS, will drive out the special interests? Is he really that naive? I think not. Instead, he is cynically posturing. He is trying to paint himself as the populist.

Of course, as soon as the money begins to be spent, you can bet on one thing for sure. That's that the influence peddlers, power brokers, and special interests will be out in full force chasing it all.

Friday, February 27, 2009

The Unintended Consequences of Bank Stress Tests

CNBC has an interesting story about the unintended consequences of bank stress tests.

The reason: most banks want to avoid taking more government money because of the onerous restrictions the government places on the funds. As a result, they are likely to become even more conservative with their money and pull back on lending—defeating a major goal of the bank bailout in the first place.

"The stress test may well create some unintended consequences, and among those unintended consequences would be the chance that banks would hoard capital leading up to the government examinations," says Greg McBride, senior financial
analyst at

Here is the summary. Banks want to do everything to avoid failing their upcoming "stress tests". If a bank is found to be in stress, that will make it very difficult to get any private funds. As such, banks will hoard any cash because capitalization is key to passing the "stress test". That means that banks will try and lend less because they need to hold onto that money to pass the test. As such, the "stress tests" contribute to the environment of a lack of lending.

The real issue is not the "stress tests" per se. Banks have no money. It's impossible to lend if you have no money. They have no money because they are holding onto billions of mortgage backed securities that lose value each and every minute. That is a problem that is not so easily resolved. It isn't resolved with nationalization, stress tests, or just about any other government intervention. Government intervention only throws good money after bad and creates all sorts of unintended consequences.

Here is the reality. We can't unring the bell. The banks have screwed up and now our banking system is in a state of chaos. There is little if anything that the government can do now. Yet, the government does not have to throw good tax payer money after bad bank money. Stress tests, nationalization and all other government intervention strategies do just that. They don't help. This will be painful. We can all brace ourselves for some pain. On the other hand, we can allow the government to prolong the pain by throwing more money at this problem without being able to resolve the underlying problem. That's what this stress test does. That's what much of the government intervention will do. The law of unintended consequences is here.

Council Winners

Winning Council Submissions
First place with 1 2/3 points! - Rhymes With Right - About The Chimp Cartoon
Second place with 1 1/3 points - (T*) - Bookworm Room - Giving the people what they want
Second place with 1 1/3 points - (T*) - The Razor - Octomom: A Symbol of Obama’s America
Second place with 1 1/3 points - (T*) - The Colossus of Rhodey - Reaction Eric Holder’s “cowards” comment
Third place with 1 points - Cheat-Seeking Missiles - NY Times Finally Covers Hassan Beheading
Fourth place with 2/3 points - The Glittering Eye - How Not to Draw a Conclusion
Fifth place with 1/3 point - (T*) - Right Truth - Our Supreme Leader, Barack Obama
Fifth place with 1/3 point - (T*) - The Provocateur - The Coming Mortgage Class War III
Fifth place with 1/3 point - (T*) - Soccer Dad - Try a little tenderness - in foreign policy
Winning Non-Council Submissions
First place with 2 points! - The Nose On Your face - Islamic Rage Boy Addresses Muslim TV Exec’s Recent Wife-Beheading
Second place with 1 2/3 points - The Long War Journal - Analysis: Pakistan peace agreement cedes ground to the Taliban
Third place with 1 1/3 points - Chesler Chronicles at Pajamas Media - A Dutch Hero Comes to Warn Us, Seek Our Support. The Incomparable Geert Wilders, MP, in New York City.
Fourth place with 1 points - (T*) - Michelle Malkin - The Chinagate/Buddhist temple cash skeletons in Gary Locke’s closet
Fourth place with 1 points - (T*) - JudeoPundit - Iran adopts Starfleet insignia
Fifth place with 2/3 point - (T*) - The Anchoress - Yep, I Miss Bush
Fifth place with 2/3 point - (T*) - The Weekly Standard - No Speech, Please
Sixth place with 1/3 point - (T*) - Threats Watch - Mexican President: Gov’t Does Not Control Areas on US Border
Sixth place with 1/3 point - (T*) - Ottawa Citizen - Back to Carter

Reporting From Chicago's Chicago Tea Party Rally

As I walked up to Richard J. Daley Plaza, I was initially underwhelmed by the size of the crowd. I arrived only a couple minutes prior to 11 AM. The crowd looked initially no more than 75. I found a few folks that I knew and after speaking with them for a few minutes, I suddenly realized that the crowd had grown. By just after 11, the crowd was now roughly a few hundred. The media was well represented with cameras from everyone from NPR to the local Fox affiliate on site. The best sight was this young and budding protester.

The unexpected star of the rally emerged when it appeared that a veteran of the original tea party came to join us.

After about twenty minutes, the protest moved. The protestors began marching through downtown up Wacker Drive until our final destination in front of the Tribune Building on Michigan Avenue. The symbolism of it all was stark. The protest grew and as we made our way up the Chicago River the protesters were taking up more than a city block. The group had grown to something near a thousand. We chanted things like "No more Bailouts!!" and "Socialism Sucks". Car horns honked and we cheered back. We were all moving through the center of capitalism in Chicago. We started only blocks from the Sears Tower, the MERC, the Board of Trade, and the Chicago Stock Exchange. Our route took us through all of the major areas where big business congregates. This protest, at its heart, is an affirmation of capitalism, free markets, low taxes, and personal responsibility. It is a repudiation of big government, government intervention, and new regulations. As such, on that level, the route was perfectly appropriate.

As we arrived at the Tribune Building, there was more spontaneous symbolism. The pitchfork

from this new statue made after that famous painting, American Gothic, seemed a perfect backdrop to several hundred protesters. We were all standing with our figurative pitch forks demanding to take the government back.

The first speaker was local political power broker, Dan Proft. Proft's message was emblematic of the march, fiscal responsibility, low taxes, and smaller government. Proft made a mistake. He said that one in nine mortgages are in foreclosure. In fact, it is more like one in eleven. Proft asked with all the bailouts who will stand up for the other eight (actually ten). Then, the neo revolutionary decided to milk his fifteen minutes. He grabbed the bull horn and in a rather crude British accent began chanting, "No Taxation Without Deliberation".

Then, the real star of the march took to the bullhorn, Tony Peraica. (for full disclosure Tony Peraica is my favorite politician on any level, and my hope for the next Governor of Illinois)

Peraica is a remarkable politician. He is a real small government conservative. Everytime he speaks its about waste, corruption, high taxes, and how to make government smaller. If Peraica had made his home is say Mississippi, he would likely be Governor now. Yet, he has made his political home in Cook County. So, while his small government conservative message often falls on deaf ears in the bastion of liberalism in Cook County, on this day, at this rally, he was among those that wanted to hear it.

Peraica knows what every politician knows and that is that all politics is local. Peraica drew the thread between the never ending bailouts, stimuli, and bloated budgets in D.C. and what we hear in Chicago, Cook County, and Illinois already know. Peraica immediately said "yesterday in D.C. we saw what we already know here in Cook County...that's that politicians know how really well how to spend other people's money".

Peraica drew the thread from the massive budget announced by President Obama. He drew the link between President Obama, Todd Stroger, and Mayor Daley himself. He said what everyone in the crowd already believed that massive spending and deficits eventually lead to higher taxes on everyone. On the local, county and state level that's already true because budgets have to be balanced. On the national level slick politicians like President Obama can claim to not raise taxes while running up massive deficits because they need not balance budgets. Of course, this crowd wasn't buying it. The crowd was never as fired up as when Mr. Peraica was leading it.

The President should be afraid the tea party movement because it has all the elements. First, it is now relatively small, but it's growing. Each of the sponsors had their email sign up sheets out and they all likely just bulked up their membership by several hundred. It also has really emotion behind. There is a visceral rejection of bailouts and bloated government spending. More than that, it is a movement that can't be demonized. It is at the grass roots, full of ordinary citizens, and they all reject the entire philosophy of the Obama administration. Finally, it uses all of the modern resources: blogs, talk radio, Facebook, Twitter, etc. to grow.

Today, there were several hundred but this will continue to grow. The next protest, I predict will have several thousand and then tens of thousands, and then it will be too late for the Obama administration.

If President Obama's march toward big government is to be stopped, it will be stopped by this movement. It will start as a movement of protest but it must grow to a movement of action.
President Obama had better watch over his shoulder because this small but very passionate movement is coming for him.

Now, here are some more random photos.

Thursday, February 26, 2009

Video of the Day

Putting Some Perspective On the Pernicious Danger of Environmental Alarmism

In today's edition of the liberal magazine the Nation, we have a perfect illustration of just how dangerous environmental alarmism is.

If human civilization is to have a realistic chance of surviving global climate change, President Barack Obama and mobilized citizens will have to lead a virtual revolution in America's approach to the issue. Because the hour is so late and America's role so central, Obama must lead, and be pressed to lead, on three fronts at once. First, the United States must commit itself to serious reductions in its greenhouse gas emissions and begin achieving them without delay. This will restore US credibility on the issue, paving the way for step two: encouraging the rest of the world, especially China, to cut its emissions dramatically. The United States and China together account for 40 percent of global emissions, making them climate superpowers: if they do not cut emissions, it won't matter how much other nations reduce. Finally, Obama must urge the United States and all nations to begin preparing for the sea-level rise, water shortages and other impacts of climate change that are inevitable, with special
emphasis on assisting the poor, who stand to suffer first and worst despite having done nothing to cause the problem. Share this article

America must step up and lead an international campaign to curb emissions. Done properly, it will green the planet and our wallets. They respect science. But will Obama's team show the necessary spine to cut greenhouse gases and resist "clean coal" and nuclear power propaganda? : The story of the plumber who helped deliver Indiana to Obama. It's a tall order, but America can achieve these triple imperatives if the Obama administration launches a Global Green Deal: a crash program to jump-start the transition to a global economy that is climate-friendly and climate-resilient--that is, an economy that emits relatively few greenhouse gases and is shielded against the impacts of climate change. Done properly, a deal of this sort will green not only our societies but our wallets. A massive program of green investment will reduce greenhouse gas emissions even as it stimulates jobs, profits and innovation worldwide and lifts millions of people out of poverty and economic distress.

The stimulus package is a good start. It contains $71 billion in direct green spending and $20 billion in green tax incentives, according to an analysis by the Center
for American Progress
. The World Resources Institute has calculated that every $1 billion in green spending generates approximately 30,000 jobs, so the green portions of the stimulus package should create about 2 million jobs, many in the construction sector, which has been hit especially hard. Retrofitting buildings, installing solar panels and constructing wind farms require skilled and semiskilled labor and create decent-paying jobs that cannot be outsourced. Investing in climate-friendly development in poor countries, where money buys more, should yield even more jobs and economic uplift--no small consideration, given the recent warning from the US director of national intelligence, retired Adm. Dennis Blair, that the economic downturn could become the gravest threat to international stability if it triggers a return to the "violent extremism" of the 1930s.

In dealing with climate change and other environmental issues, there are two schools of thought. There is the Newt Gingrich school of thought. This believes that the free market is the best place to solve all these problems. The free market needs a push and so the solution is to encourage private investment and innovation by rewarding it all with significant tax cuts. There is another school of thought, one shared by the author of the piece linked, that says that we can't wait for the free market, and so, by hook or crook, we must significantly reduce our carbon footprint and other anti environmental activities. There is no government mandate or regulation too punitive or draconian. We simply can't wait for the free market and so government will have to spend, mandate, and regulate our way to a cleaner environment.

This alarmist mentality also means that all market principles will be ignored to achieve serious reductions in greenhouse gases and other environmentally friendly activities. It's the sort alarmism that brought us cap and trade.

a limit or cap on the amount of a pollutant that can be emitted. Companies or other groups are issued emission permits and are required to hold an equivalent number of allowances (or credits) which represent the right to emit a specific amount. The total amount of allowances and credits cannot exceed the cap, limiting total emissions to that level.

What this sort of alarmism will force is forced energy use even though it isn't cost effective or available on anything near a mass scale. For instance, solar power costs 40 cents per kilowatt hour currently while fossil fuel costs only 6 cents per kilowatt hour. Yet, the alarmists will ignore such market and economic reality and force solar and other energy sources onto the market even though the market is not ready for them to be cost effective or available on any mass scale.

Yet, regardless of the cost the alarmists are willing to move forward anyway because as they so aptly put it to not do so would mean we "wouldn't have a realistic chance to survive global climate change". Here is how the New York Times described the economic effect of such a scheme.

The budget will show the government beginning by 2012 to collect billions of dollars in revenues from selling permits to businesses that emit the polluting gases, assuming the president’s energy initiative becomes law as soon as this year, officials said.

Because utilities and other businesses would presumably pass on their costs to customers, Mr. Obama will propose to use most of the government’s revenues from the permits to finance an extension of the new “Making Work Pay” tax credit beyond the two years covered in the $787 billion economic recovery plan that was just enacted.

That tax relief, the administration will argue, will offset households’ higher costs for utilities and other products and services from businesses’ passing on their permit expenses.

So, the President readily admits that his draconian economic policies will increase energy costs, and he knows those costs will be passed onto the consumers. Yet, during a recession, he still has no problem doing it and that's the danger of environmental alarmism.

Republican's 2010 Playbook: Thinking Fourth Dimensionally II

It's rather remarkable that President Obama has shown himself to be every bit the radical that he appeared to be in the campaign. In fact, President Obama's entire domestic policy can be summed up by this Karl Marx quote.

From those with means to those in need

In fact, his policies are so blatantly full of income redistribution that even the sympathetic media can't pretend it is not happening.

The combined effect of the two revenue-raising proposals, on top of Mr. Obama’s existing plan to roll back the Bush-era income tax reductions on households with income exceeding $250,000 a year, would be a pronounced move to redistribute wealth by reimposing a larger share of the tax burden on corporations and the most affluent taxpayers.

The problem the Republicans CURRENTLY face is that the mood in the country favors income redistribution and the amount of spending the Obama administration is proposing is so massive that it actually becomes difficult to put into perspective. Take this Rassmussen poll for instance that shows a healthy majority favoring Obama's proposal to raise taxes. Furthermore, this Politico story illustrates just how difficult it is for Republicans to gain traction against all this spending.

A billion here, a billion there, pretty soon you’re talking about — well, pretty soon no one has a clue what you’re talking about. And as President Barack Obama prepares to unveil his 2010 budget, that’s becoming a daily headache for Republicans.

After $787 billion for a stimulus plan, $700 billion for a financial markets bailout, and $410 billion for a proposed end-of-2009 spending plan, getting folks fired up about whether the 2010 budget is $3.6 trillion rather than, say, $6.3 trillion is not just a political challenge; it’s a cognitive one.

Human beings have a hard time differentiating between millions and billions and trillions, let alone the numerical subsets thereof. To most of us, it just registers as “a whole lot.”

As the mathematician Ronald L. Graham once said, “Our brains have evolved to get us out of the rain, find where the berries are and keep us from getting killed. Our brains did not evolve to help us grasp really large numbers or to look at things in a hundred thousand dimensions.”

The Republicans need to keep their cool and think fourth dimensionally right now. (the dimension of time or toward the future) As President Obama continues his crusade for a massive expansion of government and even more massive redistribution of wealth, the Republicans must once again become the party of fiscal discipline and tax cuts.

The reason that big government spending and income redistribution are so popular right now is two fold 1)President Obama is popular now and 2) they haven't yet taken effect. So far, all we have is promises: millions of new jobs, health care for all, energy independence, etc. At some point, we will be faced with reality.

If income redistribution and big government worked, Venezuela, Cuba and Europe would all be thriving. That they aren't is proof positive that such schemes are bound for failure. President Obama now owns all of the spending and soon enough he will own the economy. Come 2010, the astronomical spending can easily be put into perspective.

Let's say our unemployment rate will be above 8%. That would mean that the President would have spent an additional $4 trillion and added an addition $2 trillion to our deficit to grow our unemployment rate by half a percent. That's quite a lot to spend in order to grow our unemployment rate.

President Obama will be judged by the performance of the economy and it is very hard to see just. It looks like we will lose in excess of half a million jobs in February and for the indefinete future. The President's plans aren't merely bold but they are very expensive. Spending this much money demands superior performance. If the unemployment rate come 2010 is more than it was when he took office, that is simply unacceptable given how much money he has spent.

That's what the Republicans will need to pounce on. The folks are currently dizzy from all the spending because it is happening all at once. At some point, people will take a step back and add it all up. It will be nearly $800 billion in stimulus. It will be $300 billion in mortgage bailouts. It will likely be an added $750 billion at least in another round of bank bailouts. There will be another $634 billion for universal health care. There's still unclear sums for auto bailouts, energy independence, and education. That's all on top of normal spending which is increasing as well. The public should demand nothing less than economic bliss for such an obscene amount of government spending.

Frankly, the Republicans can and should hold the President accountable for nothing less. The dizzying numbers will come into focus. His radical economic agenda can then be judged. If and when our unemployment rate is still above 7%, the Republicans will need to ask forcefully how much his own tax cuts contributed to it. If and when the unemployment rate is still above 7%, the Republicans must ask how much his bold agenda contributed to it. If and when the unemployment rate is still above 7%, the Republicans must ask how much out of control government spending contributed to it.

Nothing contributes more to putting tax cuts and fiscal discipline back in favor more than a few years of out of control government spending and income redistribution. That's what we will have for the next two years. The Republicans philosophy may in fact be out of favor now, but give things time, soon the public will find those concepts back in favor.

The Loan Modification Corruption Begins

(H/T to Michelle Malkin) This one is happening right in front of our eyes.

After reading an article in Monday's Chronicle indicating that many people holding the pricy mortgages common to the Bay Area would not be able to take advantage of low-cost refinances, Rep. Jackie Speier, D-Hillsborough, amended a bill scheduled for a House vote.

"After reading your article, I thought, this isn't going to work for California," Speier said."I've drafted an amendment so that rather than being limited to whether the loan was conforming at time of origination, it will be based on (whether it's conforming at) the time of (modification), which will take the limit up to $729,750 in high-cost areas. This should make more people in the Bay Area eligible."

Speier's amendment addresses an aspect of the plan that encourages mortgage services to modify loans to make them more affordable for struggling borrowers. The modifications are supposed to reduce monthly payments to 31 percent of a borrower's income for five years; they also could include lowering the principal or refinancing the loan.

The amendment says that loan modifications must be available to loans that are "conforming," meaning those that can be securitized or guaranteed by Freddie Mac or Fannie Mae. The conforming loan limit was $417,000 until July 1, 2007. About 60 percent of homes purchased in the expensive Bay Area in 2005 and 2006 were bought with higher-cost "jumbo" loans above $417,000; about 30 percent of homes in California were jumbos in those years, according to MDA DataQuick. The limit is now $729,750 in high-cost regions, including most of the Bay Area.

I will put this in perspective. President Obama wants his mortgage bailout plan to stop at any loan amount no more than $417,000. That's because that is the limit on Fannie/Freddie loans. In many ritzy areas like San Francisco, New York, and Los Angeles, such loan amount limits would price out many folks that are in trouble. That sprung Rep. Jackie Speier, D-Hillsborough, into action. She has added an addendum to allow "high cost" areas to allow loan limits as high as $729,750.

The first problem is this. If this amendment passes, then the tab on this bailout is no longer $275 billion but something much higher. Second of all, if Fannie/Freddie is forced to take on hundreds of thousands of higher loan amounts, that increases the risk to both those entities. There is a reason why Fannie/Freddie set loan limits. The main reason is so their portfolios aren't overweighted with a few large loans. If hundreds of thousands of loans at $600,000 and more suddenly wind up in their portfolios, the adverse risk of default on those loans is greater than on loans of $100,000, $200,000, and $300,000.

The second problem is that it is even harder to justify that only those that "played by the rules" are helped when loan modifications are done on loans as high as $729,000. Are we really to believe that these folks were merely trying to live the American dream, or maybe, they were living up the American dream? If someone is having trouble affording their McMansion, is it really the government's responsibility to give them a loan they can afford?

There is another larger point that is relevant to the overall arc of this mortgage bailout. Rep. Speier is one rep in one community. She saw an opportunity and now is adding an addendum so that her constituents are covered by this bailout. How long before others get into the same act and try and add addendums that covers their contituency. A mortgage bailou is a boondoggle. As such, either Speier's constituency is paying or receiving. She wouldn't be a good rep if she didn't make sure her constituents aren't receiving. No legislator would be. As such, watch for many more such amendments as other legislators attempt to make sure that their constituency is covered under the mortgage bailout. As such, watch for the price tag to go up exponentially.

Wednesday, February 25, 2009

President Obama, the Drip Factor, and the Tea Party Party Movement

Lately, I have discussed the phenomenon in politics known as the drip factor. In the drip factor, a story is advanced negatively with each bit of negative news continuing to eat away at the popularity of those it affects. No one specific thing ultimately dooms the politician but rather the cumulative effect finally does them in. As I have said, the best example was how the constant and unrelenting daily violence in Iraq finally ate away at Bush's popularity and cost him at the ballot box in 2006.

President Obama may face that with several things but now he may create it with his unrelenting spending splurge. He's been President barely more than a month and already he has set an unprecendented pace on spending. He's passed a massive spending bill at nearly $800 billion. He's announced a mortgage bailout at $275 billion. There is an omnibus spending bill that just passed the House at $410 billion. Then, today, he announced a health care spending plan valued at $634 billion over 10 years. Still to come are bailouts for the automakers as well as another round of TARP. These may likely exceed $1 trillion as well. Beyond this, President Obama has big plans for both education and energy independence.

I believe that President Obama and the Democrats have far overestimated American's appetite for never ending spending. There is a sort of drip factor to all of this spending. With each spending plan, he loses more and more people. Folks continue to view the President with overwhelming popularity however they are already unsure and weary of this spending. The more spending he announces the more people he loses. As his spending spree continues, a grass roots populist movement will form and it will eventually severely erode his popularity.

That's where the so called Chicago Tea Party movement comes in. (Michelle Malkin has been detailing the movement) This is exactly the sort of grass roots movement that is perfect in time place, technology, and raw anger to take on this massive spending and ultimately take advantage of the drip factor of out of control spending. So far, the movement is still relatively small. Demonstrations only draw several hundred at any given demonstration. What makes this movement potentially devastating is that it is being created on the grass roots level. It's often being organized by ordinary citizens. It has harnessed the anger caused by the perception that many of these bailouts and stimuli reward bad behavior.

What this movement has going for it mostly is time. Demonstrations that start at a few hundred can easily grow to a few thousand and then tens of thousands and eventually millions if the movement is right. (and if the movement is given enough time) That's what we have here. This Friday, demonstrations are planned for dozens of cities all over the country. I don't expect more than a few hundred at each, but all of this is just the beginning. This movement will continue, but furthermore, it will gain strength with each new spending plan. As each spending plan is announced, the drip factor will grab more and they will join.

I personally believe the point that things will cross over at will be when the second round of TARP will be announced. It's very likely that the second round of TARP will be even larger than the first. By then, President Obama will have announced new spending in excess of $2 trillion. Another trillion Dollars for incompetent and corrupt banks will be the breaking point. At that point, the movement will also be gaining steam. It will be the perfect crossing point between populist anger, a coordinated movement, and one too many large ticket spending items.

There Used To Be a Phrase for Folks Like President Obama

We called them bleeding heart liberals. A bleeding heart liberal is an individual of immense compassion. They feel for everyone but they also believe it is the government's role to solve each and every problem. If someone can't afford their health care, the government must provide it for them. If we aren't energy independent, the government must fund our energy independence. If cancer research isn't going fast enough, the government must provide more funding. If someone can't pay their mortgage, the government will subsidize it.

Politically, a bleeding heart liberal can make a very strong case. That's because there is no problem that you aren't ready, willing and able to solve. Of course, almost always, it is in the execution of said policy that things go awry. Make no mistake, last night, President Obama was the definition of a bleeding heart liberal. There was nearly nothing that he didn't think it the duty of the government to resolve. People who couldn't afford their mortgages would be helped. The automakers would be restructured with the help of the government. The banks would be capitalized with the help of the government. The way in which we use energy will be transformed guided by the government. No longer will anyone in this country ever go without having health insurance. Even a broken school in South Carolina is, in President Obama's view, his duty to fix. Don't get me wrong. Education is the government's responsibility, but I don't know that it is so much the federal government's responsibility.

President Obama committed several trillion Dollars last night to fix everything from a cure to cancer, to decrepit roads, to broadband in rural areas, to even fixing a school in South Carolina. Such a massive expansion of the reach of the federal government rivals only that of FDR and LBJ. President Obama has taken to being the antithesis of my favorite Reagan line

the nine most terrifying words in the English language are 'I'm from the government and I'm here to help

President Obama wasn't resigned to first navigate our economy out of this recession. In fact, in the view of President Obama, navigating our economy out of the recession hinged on making us energy independent, providing health insurance for all, and making sure everyone had top notch education. Furthermore, President Obama felt it was the federal government's duty and responsibility to solve all these problems all at once. Don't get me wrong. It isn't that Conservatives aren't problem solvers. It isn't that they don't see a role for the federal government either. It's just that conservatives don't believe it is the government, especially not the federal government, that should be solving every one's problems.

This isn't the era of big government. This is the era of a government who's size we can't imagine and likely, we'll never undo. We really have entered a new era. Politicians like President Obama are really a dime a dozen, and Conservatives could easily tag them with the label, tax and spend, (or in President Obama's case borrow and spend) but now President Obama promises everything to everyone, and promises to provide everyone everything himself, and gets overwhelming approval.

I suspect that eventually President Obama will go the way of all bleeding heart liberals. Big government eventually leads to bloated government. That eventually leads to waste, corruption, deficits and higher taxes. Still, it is impressive how well President Obama articulates that which should so easily be derided.

Council Winners

Council Submissions
Rhymes With Right - About The Chimp Cartoon
Joshuapundit - Holder: US A Nation Of Cowards On Race
The Glittering Eye - How Not to Draw a Conclusion
The Razor - Octomom: A Symbol of Obama’s America
Right Truth - Our Supreme Leader, Barack Obama
Cheat-Seeking Missiles - NY Times Finally Covers Hassan Beheading
Bookworm Room - Giving the people what they want
The Provocateur - The Coming Mortgage Class War III
Soccer Dad - Try a little tenderness - in foreign policy
The Colossus of Rhodey - Reaction Eric Holder’s “cowards” comment
Non-Council Submissions
Submitted By: Rhymes With Right - Right on the Left Coast - California Budget and Debt Is All Republicans’ Fault
Submitted By: Joshuapundit - The Nose On Your face - Islamic Rage Boy Addresses Muslim TV Exec’s Recent Wife-Beheading
Submitted By: The Glittering Eye - The Long War Journal - Analysis: Pakistan peace agreement cedes ground to the Taliban
Submitted By: The Razor - The Anchoress - Yep, I Miss Bush
Submitted By: Right Truth - Chesler Chronicles at Pajamas Media - A Dutch Hero Comes to Warn Us, Seek Our Support. The Incomparable Geert Wilders, MP, in New York City.
Submitted By: Cheat-Seeking Missiles - Michelle Malkin - The Chinagate/Buddhist temple cash skeletons in Gary Locke’s closet
Submitted By: Bookworm Room - Threats Watch - Mexican President: Gov’t Does Not Control Areas on US Border
Submitted By: The Provocateur - Ottawa Citizen - Back to Carter
Submitted By: Soccer Dad - JudeoPundit - Iran adopts Starfleet insignia
Submitted By: The Colossus of Rhodey - The Weekly Standard - No Speech, Please

Magic Bullet Still Missing in Energy Independence

The president made clear that energy independence will be one of his priorities. He laid out a world in which our country was free of our dependence on foreign oil.

It begins with energy.

We know the country that harnesses the power of clean, renewable energy will lead the 21st century. And yet, it is China that has launched the largest effort in history to make their economy energy efficient. We invented solar technology, but we've fallen behind countries like Germany and Japan in producing it. New plug-in hybrids roll off our assembly lines, but they will run on batteries made in Korea.

Well I do not accept a future where the jobs and industries of tomorrow take root beyond our borders - and I know you don't either. It is time for America to lead again.Thanks to our recovery plan, we will double this nation's supply of renewable energy in the next three years. We have also made the largest investment in basic research funding in American history - an investment that will spur not only new discoveries in energy, but breakthroughs in medicine, science, and technology.

We will soon lay down thousands of miles of power lines that can carry new energy to cities and towns across this country. And we will put Americans to work making our homes and buildings more efficient so that we can save billions of dollars on our energy bills.

But to truly transform our economy, protect our security, and save our planet from the ravages of climate change, we need to ultimately make clean, renewable energy the profitable kind of energy. So I ask this Congress to send me legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy in America. And to support that innovation, we will invest fifteen billion dollars a year to develop technologies like wind power and solar power; advanced biofuels, clean coal, and more fuel-efficient cars and trucks built right here in America.

The President believes that energy independence comes from the government spending tens of billions of Dollars on investment, infrastructure, and research. The President believes that all that is necessary for energy independence is a full commitment by the government. If only it were that simple.

The President, along with most that attempt to solve this problem, continue, in my opinion, to miss the big problem. The bulk of our dependence continues to be oil to fuel our automobiles. There are, and always have been, an abundance of alternatives to fuel derived from oil: hydrogen, biofuels, ethanol, battery, etc. The problem has never been research. It isn't even will. The problem is that there is a monopoly on the manner in which fuel is delivered.(the oil companies) Not only is there a monopoly but that monopoly has created a system in which competition has little chance for success.

In any given neighborhood, there is a gas station every four to eight blocks. Each of these gas stations delivers gas from oil. Every once in a while, there will be an alternative like ethanol but not often. As such, for any alternative fuel vehicle to have any hope of mass market success, fuel must be as readily available for that car as it is for a car fueled by oil. At this year's Chicago Auto Show, Saturn produced a concept car that was a hybrid, electric and bio fuels. This is a concept a long way from being real because there is absolutely no place to fill up on gas from bio fuels. As I have said before, the oil companies have no interest in bringing an alternative fuel to the market. The oil companies will continue to only have fuel made from oil readily available every four to eight blocks. Because of that convenience, it is nearly impossible for any alternative fuel to have any mass appeal. If it is nearly impossible to re fuel, that automobile will NOT have any mass appeal. The problem was in fact crystallized at a Pickens Plan townhall meeting.

This was illustrated by something that Rahm Emanuel said while introducing Mr. Pickens. He mentioned that in 2005, he and Senator Obama secured $1.8 million for the city of Chicago, and that money went to build four, YES FOUR, natural gas fuel stations. Furthermore, Congressman Emanuel seems to think that he actually did something worthwhile. In fact, Congressman Emanuel illustrated the problem as I see it in attempting to move this country from oil to alternative sources as it relates to automobiles. Those four natural gas fuel stations would compete with about ten thousand regular fuel stations that provide gas derived from oil.

How can alternative energy sources compete when oil is so readily available as a fueling option?

We can spend billions and even trillions on investment, infrastructure, and research however all of it will be useless, unless someone figures out a way to bring alternative fuels to the market in a way that is at least close to as convenient as gas from oil is now. Since the oil companies themselves refuse to engage in this, all the government money in the world will have little effect.

Ralph Peters Vs. President Obama

As far as military knowledge and analysis there are few people more astute, in my opinion, short of General Petraeus himself than Ralph Peters. I have generally found his analysis of all things related to war as rather spot on. As such, his latest piece is in many ways startling.

• Best. Instead of increasing the U.S. military "footprint," reduce our forces and those of NATO by two-thirds, maintaining a "mother ship" at Bagram Air Base and a few satellite bases from which special operations troops, aircraft and drones, and lean conventional forces would strike terrorists and support Afghan factions with whom we share common enemies. All resupply for our military could be done by air, if necessary.

Peters' assertion is that we are going along in a never ending cycle of escalation with no strategy, and worse yet, no hope of success. Peters believes that we call it a day and remove our troops from Afghanistan as quickly as logistics allow leaving a residual force for certain and very limited roles.

What is startling about Peters' assessment and recommendations are how both are eerily similar to those of folks like the President himself in the beginning of 2007 about Iraq. Peters lays out a hopeless quagmire in which historical alliances and rivalries provide an environment in which we have no hope of bringing about any stability.

Peters is no ideologue and he better than most understands all the diferences, subtle and otherwise, between Afghanistan and Iraq. In Peters view, Afghanistan holds little strategic value for the U.S.

Even if we achieved the impossible dream of creating a functioning, unified state in Afghanistan, it would have little effect on the layered crises in the Muslim world. Backward and isolated, Afghanistan is sui generis (only example of its kind). Political polarization in the U.S. precludes an honest assessment, but Iraq's the prize from which positive change might flow, while Afghanistan could never inspire neighbors who despise its backwardness.

Peters also sees a government that's totally dysfunctional and using our presence in a counter productive manner.

Even "our man in Kabul," President Hamid Karzai, put his self-interest above any greater cause. Reborn a populist, he backs every Taliban claim that the U.S. inflicts only civilian casualties in virtually every effort against terrorists. Karzai is convinced that we can't abandon him.

So, he sees an ever increasing quagmire with no hope of succeeding.

We should do just that. Instead of floundering in search of a strategy, we
should consider removing the bulk, if not all, of our forces. The alternative is
to hope blindly, waste more lives and resources, and, in the worst case, see our
vulnerable supply route through Pakistan cut, forcing upon our troops the most ignominious
since Korea in 1950 (a massive air evacuation this time around,
leaving a wealth of military gear).

Much like in Iraq, Peters also sees Afghanistan's neighbor, this time Pakistan, as the key for success in the region.

In any event, Pakistan, not Afghanistan, will determine the future of Islamist extremism in the region. And Pakistan is nearly lost to us — a fact we must accept. Our strategic future lies with India.

It is a rather remarkable stance that Peters takes. Peters was an early defender of the surge. He always believed that Iraq was winnable. Furthermore, Peters firmly believed that Iraq was of vital strategic importance.

On many of these fronts, there are clear differences between Iraq and Afghanistan. Yet, I can't help but feel there is some cynicism in Peters pessimism. Certainly, the President has provided no plan to go along with his increase in troops in Afghanistan. Yet, there is one common thread between Afghanistan and Iraq. That is that we are facing an insurgency in Afghanistan like we faced in Iraq. The details of the insurgencies are certainly totally different. The terrain is different. Yet, no two insurgencies are the same. Before taking over command in Iraq, General Petraeus wrote the Army's counter insurgency manual. In the manual, he drew on experiences from such obscure wars as one fought in Algeria in the 1950's. While insurgencies are never the same, the blue print comes down to three basic principles: clear, hold and build. Whether in Iraq or in Afghanistan, ultimately any successful counter insurgency perfects those three principles. You clear out the bad guys from all trouble spots. You hold the newly safe area. Then, you rebuild it so that they never come back.

The same person that wrote the manual, that so successfully turned around Iraq, is now head of Central Command. He is in charge of the whole region including Afghanistan. The same principles that brought such a remarkable turn around to Iraq can be applied to Afghanistan. Before we declare defeat, maybe we should let Petraeus apply these principles there.

Video of the Day

Tuesday, February 24, 2009

Post Speech Analysis: the Hope is Back...

...and hope will cost a lot.

Those of us that have criticized the President for talking down the economy were pleasantly surprised. He only used the word crisis once, that I counted, and struck a hopeful tone. He was very FDR and Reagan like in his confidence in the future health of the American economy. On this point, I give the President credit. On this point, he struck an excellent balance between a sober assessment of our current state of the economy and the belief that we can overcome this challenge. His very dark tone was, in my opinion, one of the reasons that the stock market has gotten hit so hard lately. His hopeful tone should also help lift the stock market as well.

The President laid out a very bold agenda. Yet, it is an agenda that will be extremely expensive. He has already spent nearly a trillion Dollars. He has hinted that the banks will require hundreds of billions of more Dollars. He also proclaimed that he wouldn't "turn his back on the auto industry". That's just the spending on his short term programs. In the long term, he wants health care for all, energy independence, and expansive education spending. All of this will cost hundreds of billions of more Dollars.

Then, after laying out trillions of Dollars in new spending programs yearly, he proclaimed that we can't lay trillion of Dollars worth of debt onto our grandchildren. Now, that is chutzpah. As President Obama laid out trillions of Dollars in new spending, he made vague allusions to ending agri business subsidies, which I support, as well as programs that don't work, though we still don't know what that spending is. I firmly believe that the President will pursue his bold agenda on spending, but I am skeptical to say the least that he will become a fiscal hawk in a few years.

Finally, buried in the speech, President Obama pronounced his goal of legislating cap and trade.

A central authority (usually a government or international body) sets a limit or cap on the amount of a pollutant that can be emitted. Companies or other groups are issued emission permits and are required to hold an equivalent number of allowances (or credits) which represent the right to emit a specific amount. The total amount of allowances and credits cannot exceed the cap, limiting total emissions to that level.

This is a misguided idea and in a time of economic upheavely, it is downright dangerous. Forcing companies to change their energy use by government capped mandate is a bad idea in a good economy. Doing it now would simply be devastating.

Is It Time To Update Sherman Anti Trust?

One of the terms that I want to never hear again after this crisis is over is "too big to fail". If there is one thing that I want the American economy to never again face is any company that is viewed as "too big to fail". Our country has created all sorts of entities that are now too big to fail. Both Fannie/Freddie were created by the government, and it was the government that allowed them to dominate mortgage securitization and thus became too big to fail. Banking deregulation allowed financial institutions to be able to sell a major variety of financial products. It also lead to a period of consolidation and mergers. As such, we created a series of financial institutions, and with it a whole financial system, that was too big to fail. Finally, the auto industry it self is to vital to fail and so, with only three American players, all its players are too big to fail.

In the future, the country must do everything that it can to prevent ever again being held hostage to any company that can demand a handout by proclaiming that they are too big to fail. Never again should the country be held hostage to the corruption and incompetence of AIG and Citigroup. From now on, our economy must rid itself forever of any company that is too big to fail. I am not only a capitalist at heart but a true believer in free markets. Nothing is less capitalistic or free market than a company that is too big to fail. Such companies enjoy advantages that other companies don't. Furthermore, they have an inherent moral hazard as each of these companies expect to be bailed out if they fail because they are too big to fail.

In my opinion, the Sherman Anti Trust Act is one of the most important laws in the history of our nation. It is one of the greatest protectors of the free market. That's because it keeps companies from getting so big that they stifle competition. Some companies that fell under the discretion of Sherman include Standard Oil and AT&T.

Yet, the Sherman Act also put a lot of power and discretion into the hands of the government. In its idealistic it protects competition, but in reality it is open to abuse by any out of control government. So, Sherman could be updated to include any company that is too big to fail, but that update would also be open to abuse.

Such a law would be in many ways the anti thesis of everything I believe in. To update Sherman to include companies that are too big to fail would consolidate an obscene amount of new power in the hands of the government. As such, a new law would have to be narrowly defined to determine just how it would be determined that a company is truly to big too fail.

In fact, Sherman wouldn't even necessarily need to even be updated. Regulators already have to give green lights to mergers, however, these regulators allowed companies like Citigroup to grow so big that they became to big too fail. I believe there is room here for constructive legislation that can also be crafted so that power doesn't spin out of control. I do know for sure that to big too fail must be a thing of the past. Whether that is through new legislation or through a more refined regulatory attitude, our government must be committed to ending such companies.

Countering the Mortgage Bailout: Ethically, Philosophically, and Economically

If you listen to most defenders of the President's $275 billion bailout of troubled mortgage borrowers it is a "yeah but" argument. Yes, we may be bailing out those that overbought, but we need to do it to stabilize housing. Yes, this maybe rewarding bad behavior, but everyone suffers from mass foreclosures. Yes, many of these borrowers likely lied to get a loan in the first place, but our banking system requires that these toxic loans be replaced. It's a sort of desperate times call for desperate action argument. For an example, here is how two leading Democrats put it.

Rep. Bruce Braley (D-Iowa), who founded the House Populist Caucus, says the president has actually gone “to great lengths” not to reward people who have been irresponsible, and that the plan is really an effort to stem another wave of foreclosures in order to stabilize the housing market, which would be to everyone’s benefit.

Michigan Gov. Jennifer M. Granholm, also a Democrat, agrees: “This is not directed at those who didn’t play by the rules,” she says. “It’s directed at trying to fix a system so everyone can stay in their homes and so that everyone’s community is not negatively affected by the foreclosures that are popping up all over that neighborhood.”

All of this rhetoric may sound reasonable but in fact, this mortgage bailout fails not only ethically, but philosophically and mostly importantly economically.

Ethically, the President has assured everyone that this plan will only help those that "played by the rules". Not only is this something that all politicians say, but the numbers simply don't add up. President Obama promises to save up to 9 million homeowners. We aren't in this mess because people played by the rules and fell on hard times. We are in this mess because people lied on their applications and simply overbought. To help 9 million borrowers is to help many that overbought. To only help those that fell on hard times is to only help a few hundred thousand. Furthermore, that help would do little to stabilize housing. Now, we can have a philosophical debate on whether or not someone that lost their job or got sick should get a better mortgage, but in fact that debate is moot. This plan will mostly help those that simply overbought. The numbers tell the story.

Philosophically, this bailout creates a moral hazard. It rewards bad behavior. That's just the long and short of it. In order to qualify for a loan modification, the process is nearly the reverse of a regular qualification. You want to show an inability to pay your current mortgage in order to get a better one. If someone gets a mortgage they can't afford and then is rewarded with a better one, that only encourages more people to get mortgages they can't afford.

The most important argument is the economic one. That's because supporters want all of us to forget the ethical and philosophical one because they tell us that we need to swallow them for the greater good. The problem is that there is no greater good. First, there are those that say this is the only way to stabilize housing and thus that is good for everyone. This is very misleading. First, if you are a renter, you want to see housing dropping as it is. Second, stable housing is only good for those looking to sell immediately. If you plan on being in your property for five ten or even twenty years, a housing crash is of little consequence. Rather, what you really want is to reach a bottom as quickly as possible. The only way to do that is to see all of these troubled borrowers dealt with as soon as possible.

Foreclosures do bring down property values but they only bring them down for six to twelve months. So, it is really only those looking to sell right now that are hurt. Plus, for every foreclosure there is a buyer. If the government steps in to save a borrower, there is a real estate investor that is unable to get a property at a cheap value. So, this idea that stemming foreclosures helps everyone is dubious at best and disingenuous at worst.

Finally, there is the argument that banks need this in order to remove all of these toxic assets. All you need to do is look at recent loan modification history to understand how frivolous that argument is.

Many borrowers who received help with mortgage modifications earlier this year tended to re-default on their payments, a top U.S. banking regulator said on Monday, citing recent data.

"The results, I confess, were somewhat surprising, and not in a good way," John Dugan, head of the U.S. Office of the Comptroller of the Currency, said in prepared remarks for a U.S. housing forum.

"Put simply, it shows that over half of mortgage modifications seemed not to be working after six months."

The latest figures on loans that have been modified in the last twelve months show that more than half go into default within six months. To understand how much of a problem this is for the system, one needs to have a perspective on how good a deals these loan modifications are. Borrowers average rates at about 5%. Often, they have their balances reduced. Rates can be as low as one percent. To offer deals that good on a mass scale, banks would need to have re default rates of less than one percent. Fannie/Freddie loans aren't that good and if their default rates pass one percent that becomes a problem. Yet, default rates approach 50 percent on loan modifications. That is an untennable figure. If the default rates came anywhere near that in the President's program, we truly would turn a crisis into a catastrophe. Banks simply can't sustain a mass of loans at 2%, 3%, 4%, and 5% and have half of them default. They aren't making nearly enough on each loan to sustain those default rates.

Furthermore, with default rates anywhere near there, the housing market wouldn't stabilize anyway. We would still have 30%, 40%, or 50% of these nine million homeowners get defaulted. We would just do it with banks carrying the other half at below market rates. That's truly a recipe for economic disaster.

24 the Review: the Internal Conflicts of Jack Bauer

Introduction: Warning, there will be a spoiler or two from prior seasons as I go along. So, if you are watching 24 out of order, I may ruin it for you. Though, if you are watching 24 out of order, the show will ruin it for you anyway...

Long term fans of 24 know that not only Jack's life changed when his wife died at the end of season one, but frankly, the way he viewed the world and his job changed. Jack has become significantly more self destructive and he rarely views his own life with any real worth. He is in many ways trying desperately to join his wife and end the terrible pain that her death has caused him. It's for this reason that he always seems to take the path of most resistance. That's because it is a path for which he sees little to lose. He has become beholden mostly to the mission at hand and little else. Furthermore, he treats those that get in the way of his mission with as little care as he often treats his own life when executing a mission.

The only time that Jack strays from this very cold and yet very calculating philosophy is when it involves his own family. He showed an uncharacteristic humanity in working against CTU when they attempted to use his nephew as a pawn in the sixth season. Furthermore, he has always tried to do everything to protect his daughter. Yet, that's the only time when his humanity comes out. When faced with a choice between saving the life of love interest's former husband Paul Raines and a witness, he put a gun to doctor's heads to force them to save the witness.

In many ways, Jack actually shows a deeper humanity. He sees past the human being in front of him and to all the faceless and nameless human beings that would suffer if his mission is not accomplished. In this way, he is the ultimate spy. He has a laser light focus on the mission at hand. Yet, it is the internal conflict that has become the central theme of this season. All of his draconian and heavy handed tactics have become second nature to him. When he needed to get information from a corrupt Secret Service agent, he "naturally" suggested that the agent's family be kidnapped and used as leverage. Now, he turned Ebaku's unwitting girlfriend into an asset and a double agent.

While all of this comes naturally to Jack, it is anything but natural to the FBI agent Renee Walker. The only thing more horrifying to her than having to try and kidnap a wife and child is that the whole process is oh so natural to Jack. She wants Jack to show the same kind of humanity because his lack of humanity is what's most frightening to her. Everyone that questions Jack's methods constantly alludes to the death of his wife, but none of them seem to get it. It was her death that took all of that away. He got it back only fleetingly when he fell in love with Audrey Raines, but in the end, Jack's own humanity died with his wife. He has resigned to a life of pain. He has resigned to being driven solely by patriotic duty, myopic duty to mission, and his own life and humanity are things he sacrificed long ago when he held his dead wife at the end of the first season.

Monday, February 23, 2009

Video of the Day

Chutzpah, Hypocrisy and Nonsense at the Fiscal Responsibility Summit

Today, the President held a fiscal responsibility summit in which he met with a bi partisan group of lawmakers, economists and power brokers to talk about ways to reduce our budget short fall in the long term. There are those, like me, that think that it takes an awful lot of chutzpah to push through a bill that's nearly $800 billion and then hold a summit on fiscal responsibility. There are others that say what's important is that the government recognize that fiscal responsibility is very important in the long term. I actually agree with both sides (of course I agree with myself), and I agree that if the President is serious about long term fiscal responsibility that cynical or not that's a good thing. Of course, as a late friend of mine often said

if if was a fifth we'd all be drunk

From all reports today, this conference had little to do with finding solutions for long term fiscal responsibility and much more to do with politics and posturing. The President started the conference by taking pot shots at the previous administration.

President Barack Obama took aim at the “casual dishonesty” of Bush administration budgets Monday, saying he’ll abandon accounting “tricks” used to hide the ballooning deficit and pledging to cut a $1.3 trillion federal shortfall in half during his first term. “I want to be very clear,” Obama said to open a “fiscal responsibility summit” at the White House.

“We cannot and will not sustain deficits like these without end. Contrary to the prevailing wisdom in Washington these past few years, we cannot simply spend as we please and defer the consequences to the next budget, the next administration and the next generation.”

While President Obama has found time to spend nearly $800 billion, he's found little time to find anything concrete to one day bring our budget in order. All we have heard was that he would end the war in Iraq and raise taxes. He can end this war with little negative consequence because the surge he opposed worked, and raising taxes is certainly not my favorite for of fiscal responsibility.

I would have felt better about this conference if it wasn't merely a platform to take frivilous potshots at the previous administration. What's more, the potshots reek of hypocrisy. The stimulus that he backed included increases of about $66 billion to the Department of Education, $25 billion to the Department of Energy, $77 billion to Medicaid, and $50 billion transportation. Either President Obama doesn't understand D.C., or he thinks the rest of us don't. Once a department receives more money it is next to impossible to dial back its funds. This is what is referred to as a new baseline. While President Obama calls these funds only temporary stimuli, the rest of us firmly believe the added infusions will create a new baseline. While he was attacking the previous administration for misleading the public, he never once proclaimed, unequivocally, that these temporary infusions of cash would in fact be temporary.

It takes an awful lot of chutzpah to spend almost a trillion Dollars and then proclaim

Failure to act quickly and decisively, Obama said, “we risk sinking into another crisis down the road, as . . .our bills come due, confidence in our economy erodes and our children and grandchildren [suffer].”

Yet, it takes even more chutzpah to bemoan the "dishonesty" of your predecessor all the while not acknowledging that your temporary spending increases will lead to permanent spending increases which perverts the idea of fiscal responsibility.

President Obama Vs. the Stock Market III...Or Dow 5000

I have written two analyzing the effects of President Obama's policies on the stock market. The first I wrote in the summer time in which I predicted how his policies would have an adverse effect on the stock market. The second I wrote just the other day analyzing why the stock market has been hit so hard since he took over. I have written two because things have changed so much since the summer that it needed an update. Well, it appears that there is another update necessary.

It appears that soon my worst fears from the summer and my worst current fears will be combined and as such, I am predicting Dow 5000.

In the summer, I worried about three things more than anything regarding then candidate Obama's policies as the affected the stock market. The three policies were raising the top marginal tax rate, raising the capital gains tax, and creating a new "regulatory framework". Raising the top marginal tax rate, on those making $250,000 and more, would have a very serious and adverse effect on the stock market. That's because folks almost always use some or all of their discretionary money to invest. That means that they use all or some of the money left after necessary expenses to invest. Of course, raising taxes on the hyper wealthy means that much of the money levied in extra taxes would be removed directly from the stock market. Capital gains taxes punish long term investment in such things as the stock market. Finally, hyper regulations create an environment that is very unfriendly to business.

More recently, I pointed out that President Obama's talking down of the economy, Secretary Geithner's terrible performance, as well as the President's government intervention policies have all lead to the downturn in the stock market. These dynamics appear to be in place. We can only hope that Secretary Geithner performs better going forward, however, the President seems determined to talk down the economy. Also, he is determined to create a quasi socialist state.

So, here is the score. Without implementing any of the things that I feared this summer, President Obama has already lead the market down nearly 10% since inauguration. Now, we have this bit of news.

To get there, Obama proposes to cut spending and raise taxes. The savings would come primarily from "winding down the war" in Iraq, a senior administration official said. The budget assumes continued spending on "overseas military contingency operations" throughout Obama's presidency, the official said, but that number is lower than the nearly $190 billion budgeted for Iraq and Afghanistan last year.

Obama also seeks to increase tax collections, mainly by making good on his promise to eliminate some of the temporary tax cuts enacted in 2001 and 2003. While the budget would keep the breaks that benefit middle-income families, it would eliminate them for wealthy taxpayers, defined as families earning more than $250,000 a year. Those tax breaks would be permitted to expire on schedule in 2011. That means the top tax rate would rise from 35 percent to 39.6 percent, the tax on capital gains would jump to 20 percent from 15 percent for wealthy filers and the tax on estates worth more than $3.5 million would be maintained at the current rate of 45 percent.

As such, President Obama plans on raising taxes on the top income earners and he plans on raising capital gains taxes. As if his current policies haven't crushed the stock market enough, he is about to implement another set of policies that will be sure to crush the market even more. Make no mistake, hyper regulation is coming soon as well, at least in financial services and in energy.

It's absolutely stunning that the President has decided on this course. The current environment is corrosive on its own for the stock market. It will have a rough ride even under the most market friendly policies. Yet, the President has insisted on the most market unfriendly policies to combine with a very bad economic environment. Given what the President has proposed and will propose, I predict Dow 5000 prior to November 2010.

Joe Biden Stimulus Czar: God Help Us All

Joe Biden was just appointed the Stimulus Czar by President Obama.

President Obama has turned to his own vice president to oversee
implementation of the $787 billion economic stimulus package, part of which will be available this week for state Medicaid programs.

Obama announced his decision before the National Governors Association in Washington on Monday, saying Vice President Joe Biden will help ensure the distribution of the money is not just swift, "but also efficient and effective."

"The fact that I'm asking my vice president to personally lead this effort shows how important it is for our country and future to get this right," he said.

Let me put this in perspective. Citizens Against Government Waste, the group that specializes in being a watch dog against wasteful government spending, routinely put Biden in a select group the worst wasteful spenders while he was in Congress. In other words, we will have someone that has a long history of supporting endless amounts of wasteful spending be in charge of making sure that $787 Billion be spent efficiently, without corruption, and without waste. If that isn't the definition of the fox guarding the henhouse, I don't know what is.

There's another way to look at it. The biggest organization that Joe Biden has ever been responsible for before this was the Senate Foreign Relation's Committee. Between staff and other legislators this would be a group of several hundred. Now, with no other experience of leading anything else, he will be responsible for implementing a plan that will involve millions of people and nearly a trillion Dollars worth of spending. I know I feel good about how this will be managed.

President Obama confuses a lifetime in Congress with being a prerequisite for spending other people's money well as opposed to merely being able to spend other people's money. Joe Biden has absolutely no significant qualification to oversee the spending of nearly a trillion Dollars, though to be fair, almost no one does. (which is part of the problem)

Pseudo Quasi Bank Nationalization Lite

That's the way, Stuart Varney, of the Fox Business Network, described the announcement this morning that the Feds would take an even greater stake in Citigroup.

Citigroup is in talks with U.S. officials about the federal government taking a larger stake in the troubled institution, according to people familiar with the situation. Colin Robertson

The aid would involve a new capital injection that would increase the government's stake in the troubled bank, but would not constitute nationalization, which has been a major concern for investors

In the movie, Wall Street, there is a great line in which Lou Mannheim tells Bud Fox that "you can't get a little pregnant." By this Mannheim means that you can't be a little corrupt or cut a few corners. Once someone goes over they are over. In much the same way, you can't get a little nationalized.

The Obama administration is playing an all too cute game and it won't work. The so called "street" was terrified that the Obama administration would nationalize all the banks. Calls were going out from such an eclectic group as Chris Dodd, Alan Greenspan and Lindsey Graham to do just that. Late last week, the Obama administration put out the word that they weren't planning to nationalize the banks. Instead, they have "merely" taken an increased stake in Citigroup.

Such a move is much the same as President Obama's plan for universal health care in which private companies will compete with government sponsored plans. Such schemes are nothing more than an illusion. Citigroup now has a built in advantage over any other bank. The Federal Government has an unlimited amount of money to work with. Citigroup is now assured viability no matter what. It will have unlimited resources available to it. As such, we have a banking system that is now rigged. Of course, it is only a matter of time before all banks want the same kind of advantage.

It would be no different in this sort of quasi government quasi public health care system. There's no way for the the private companies to compete with the government system. The government has access to unlimited amounts of money. So, soon, our banking system will just end the appearance of being private and be fully nationalized.

Of course, this government money won't come with no strings, especially with Obama at the helm. By taking government money, the banks have made deals with the devil. Banks will be run in the vision of the President and his team. Loans will be modified in order to save borrowers from foreclosure in a way that is determined by the President himself. Loans will be lent out in a way as the government dictates. The entire direction of the bank will now be determined by the Obama administration. Today it is Citigroup and tomorrow it will be the banking system at large.