The G20: The Conspiratorial Edition

The G20 starts this week and two issues will dominate the economic and domestic policy plate. The first, the potential for a world wide stimulus, appears to have a chance of slim to none and slim is leaving the room. The second, a coordinated worldwide regulatory framework (especially in the financial sector), appears to have a serious chance of moving forward. Already, Fox News is reporting that French President Nicholas Sarkozy is demanding a hearing of his plan and is threatening to walk out of the meeting if it isn't given a fair hearing.

Now, the plan for global regulation will make all those conspiratorial nuts see their worst nightmares. I never wrote much about conspiracies about One World Government. Certainly, much of this is a lot of conspiracies, however the posssibilities of this conspiracy are in fact the nightmare of everyone that has been sounding the alarm of One World Government.

Imagine our financial system answerable not to our Treasury, Fed, and Congress, but to the International Monetary Fund. Imagine for a moment our banks and financial services companies being regulated not by our own internal regulators but regulators from the United Nations and the International Monetary Fund. This is the sort of vision that is perpetuated by those in favor of uniform worldwide regulations.

Of course from their point of view, a world wide, and coordinated, set of regulations make all the sense in the world. Without a world wide standard for regulations, companies will simply seek havens where things aren't regulated. It's pointless for the United States to impose heavy regulations if other nations don't have the same regulations. We would simply lose many companies seeking haven overseas. As such, a set of world wide regulations would be born.

Conspiracy theory or not, we have an administration that is at least open to such a world vision. Our Treasury Secretary has already entertained the idea of a world currency. President Obama once announced himself a citizen of the world. He is in favor of the Kyoto Treaty which would to environmental policy what this vision would do to financial regulation. In fact, President Obama seeks something very similar on world wide regulations of climate control.

This of us in favor of such "archaic" concepts as sovereignty would be deeply troubled by any movement that creates a world regulator that tells Americans and our companies how they should behave. It's something that I don't believe will happen, but it is to watch for in this G20 meeting.

Chris Dodd's Unique, Brazen, and Dangerous Corruption

Chris Dodd is likely not the most corrupt politician to ever grace our landscape, though he will give a lot of folks a good run for their corrupt practices money. What is truly stunning about Dodd's corruption is the combination of its brazen nature, his proximity to power and influence in the one industry most in need, and that no one seems to much care besides the voters of Connecticut hopefully in November of 2010.

I was first introduced to Dodd's corruption when it was revealed that he got multiple sweetheart loans from Countrywide. He repaid Countrywide with a bill known as Dodd/Frank. This bill would have allowed for hundreds of billions worth of "toxic loans" to be removed from the books of the newly formed Bank of America (which bought Countrywide at reduced prices because of these loans) and move them onto the books of the tax payer through FHA. Fortunately, this bill was very poorly written and so only a few hundred loans were done under the bill.

Yet, Dodd's revelations of corruption were only just beginning. We later found out that over the last twenty years it was Chris Dodd that is the single biggest beneficiary of campaign funds from both Fannie/Freddie. More than one eyebrow was raised when last July Dodd pronounced both to be "viable". It certainly appears to me as though that confidence was bought and paid for with twenty years of campaign contributions.

In the 1990's, Chris Dodd was tied to a questionable land deal in Europe with convicted insider trader Edward Downe of Bear Stearns. The latest revelation involves a massive amount of money coming from AIG into the campaign coffers of Dodd. Furthermore, yesterday it was revealed that upper management practiced pseudo extortion in "encouraging" lower level folks to contribute to Dodd's campaign.

What's truly amazing is how brazenly Dodd has moved from one corrupt deal to another. Even more amazing is that he continues to be head of the Senate Banking Committee. As such, Dodd is in a position to influence each and every player that he has been linked to corruption with.

As we endure a massive economic contraction centered in banking, we have the head of the Senate's Banking Committee linked to an endless stream of corruption involving the very banks he will be overseeing. Does anyone trust that his decisions won't be influenced by all of the corruption he is tied to?

Are we really to believe that a person this corrupt, in a position of this much power, will do what's right? Are we really to believe that such an explosive combination won't have explosive consequences? Dodd is now in a position to influence everything from future regulations, bailouts, TARP dollars, and the toxic asset buy out. Yet, it is undeniable that his decisions have been compromised. Yet, he not only continues to sit as head of the Banking Committee but there isn't one person in a position of power demanding that he be removed. Every entity from Bear Stearns to AIG has been tied to his corruption and they will all be deeply in bed with the government for the indefinite future. Yet, no one seems to think that Dodd's place as head of the Banking Committee will cause any problems whatsoever. I am here to tell everyone that a deeply corrupt person in a position of power is the worst combination and that's exactly the situation with Senator Chris Dodd.

Republican's 2010 Playbook: Thinking Fourth Dimensionally III

One of the problems with attacks which combine real policy with hypothetical scenarios is that your attack relies almost entirely on hypotheticals. For instance, when the Democrats found out that the Bush administration was spying on international phone calls with no warrants, they created a plethora of hypothetical situations in which little old ladies had NSA bureaucrats listening in on their phone calls. All these attacks had limited effectiveness because all the doomsday scenarios were in fact hypothetical. For all the Democrats talk about the usurption of personal liberty, they could never actually find anyone that had their liberty taken away. People deal much better in reality than in hypotheticals.

The Obama administration is still more than a month away from finishing its first hundred days, and yet, their usurption of centralized power is enormous, unprecedented and it should send chills down the spines of all those that believe in personal liberty. This weekend's demand that the CEO of GM step down is just the latest in the administration's drive for an unprecedented consolidation of power. Treasury Secretary Geithner not only wants to create a systemic risk manager but he wants to give himself the power to step in and take over any company that he deems too big to fail. Already, the government is making decisions no one ever thought someone outside the private sector would make. Their power grab is having real effects not merely hypothetical ones.

Between the stimulus, cap and trade, the bailouts, and regulatory reform, the government is ready to make an unprecedented amount of decisions for both businesses and the consumers at large. The car companies will need to make many more cars that are energy efficient. If you use energy that the government deems isn't healthy for the environment, expect to pay significantly more to do it. Everyone will soon have to have health insurance, like it or not. Fannie/Freddie are now forced to modify loans that the government deems worthy of better deals. The central government will take a much more active role in education as well. Just today, there is a bill that is going through Congress to allow lawmakers to set all pay for every employee, retroactively if necessary, for any company that takes bailout money. In every facet of society, it's nearly endless. The government is making decisions that the private sector should make in any society that values freedom and liberty. All in the name of problem solving, we are seeing the consolidation of power in much greater quantities into the hands of the Obama administration.

Now, one way to attack this power grab is through some cliches and timely quotations of the likes of Thomas Jefferson. After all, we all know that

power tends to corrupt and absolute power corrupts absolutely

and we also know that

a government big enough to give you everything is big enough to take it
away

All of these are great concepts for a high brow debate, however, if the Republicans are to take advantage politically of this enormous power grab they must set this power grab in more practical terms, MONEY.

The sum total of this power grab is that it costs a lot and we just don't have a limitless amount of money. The down payment on universal health care is nearly $600 billion. The stimulus was $787 billion. This year's budget is nearly $4 trillion. The plan to remove toxic assets will cost up to $1 trillion. The president allowed for nearly 9000 earmarks at a total of $7 billion in order to make deals for his future agenda. Cap and trade will likely cost north of $1 trillion. The consolidation of central power in education will cost in the neighborhood of an extra $100 billion yearly. The bank bailouts cost $750 billion. The automakers were given $50 billion, AIG $175 billion, and Citigroup $40 billion. We are just getting started. The reality is that we can't afford the massive power grab the Obama administration wants and that's the angle of attack the Republicans need to take. Most voters don't understand how concepts like "freedom" and "liberty" apply to their daily lives. They do understand when the government recklessly borrows and spends money no one has.

The endless, uncontrolled, and runaway spending is the reality of this power grab. If the Republicans want, they can add some ominous hypotheticals to this reality. For instance, how long before a labor friendly administration decides WalMart is too big to fail and takes it over, installs new management, and forces unionization. Think it can't happen. Well, like I alluded earlier, the government is now taking up legislation to determine all payouts to all employees at any company that takes, or has taken, government money. Money, power, and control all go together. The Democrats have decided to increase all three exponentially, and they have given the Republicans quite a scary story to tell come November 2010.

The Government Plays Venture Capitalists II

To say that yesterday's announcement that GM CEO, Rick Wagoner, was forced out by the president himself was chilling is the understatement of all understatements. On some levels, this is a fairly natural act. Very few people would say that Wagoner deserved his job. After all, that he needed to take tax payer's money just to keep the company running speaks for itself. Furthermore, if the company is going to take tax payer money, then this cannot be with no strings attached. In this case, the president speaks for the tax payers. If GM is to get anymore money, then step one is the removal of the CEO.

Yet, it is chilling to the bone that we have come to a place where the president of the United States tells a private company exactly who their CEO can't be. Today, the president pronounced that he doesn't want to run GM. Yet, that's exactly what he is doing. He has just made a significant staffing decision. Furthermore, he has pronounced that their restructuring plan is not good enough. Furthermore, he has formed an auto task force to figure out a way forward.

This is exactly the sort of things that venture capitalists do. They often find companies that are struggling. They infuse them with cash and then they begin to make managerial, staffing, and management decisions. In essence, these venture capitalists run companies, at least until they are turned around.

For the president to now say he doesn't want to run GM is the height of duplicity. You can't on the one hand demand the CEO fired and proclaim a restructuring plan unacceptable, and then say you don't want to run a company. You are running the company.

Worse than that is this. If GM is to take government money, then, in fact, this is the prudent thing to do. After all, isn't this behavior significantly more prudent, then simply authorizing a series of endless checks and credit lines to the tune of more than a hundred billion dollars? In fact, on one level, the president is acting very responsibly. The problem is that this behavior exposes just how irresponsible the idea of bailouts is altogether.

These companies all came to Congress exactly because traditional venture capitalists wouldn't fund them. The private market wouldn't allow these companies to continue. That should have been all the Congress needed to know. Yet, instead, they deemed these companies too vital to fail and gave them a lifeline. The Congress, along with the president (both current and prior), also gave them a warning that they wanted a plan. Once the politicians did this, they immediately took on the role of venture capitalists.

This was in fact a major step toward a more centrally planned economy. The minute that the federal government, in any way shape or form, decides business plans, hiring decisions, and firing decisions, we have crossed a very slipppery slope toward a centrally planned economy. In fact, bailouts go hand in hand with centrally planned economies. Once governments decide which companies succeed and which companies fail we have a centrally planned economy. We have taken a very dangerous step toward a centrally planned economy with this move.

Chicago in Flourescent

Climate Change Dogma Comes to HUD

In an interview with Parade Magazine, HUD Secretary Shaun Donovan said the most remarkable thing about climate change.

As head of HUD, is climate change really your problem?

We need to stop thinking in the traditional silos, the way the federal government usually thinks. We've got to stop thinking about programs and start thinking about places and how they work. The way we plan our cities, towns, and rural areas needs to change.

Now, having spent seven years in mortgages, I have a general understanding of what mortgages should be. They should measure risk: risk of the borrower, risk of the property, etc. Apparently, Secretary Donovan is extending this measure of risk to the risk each and every property have to the environment at large.

Now, we have all learned the painful lesson that it is difficult enough to measure risk in traditional means. Now, Secretary Donovan is suggesting that we add yet another variable into the overall mix.

I can only assume, and hope, that this is an off handed comment that will likely go nowhere. Yet, this is now the third cabinet secretary (along with Secretary Clinton and Chu) to make the statement that climate change is a part of their job description. This doesn't even account for the czar created specifically for climate change the president himself.

Unfortunately, we all know where such well meaning but totally misguided beliefs lead and that's to much bigger government. We've seen this with the Endangered Species Act which has created some of the most powerful bureaucracies in the government. The ESA can ground business to a halt if it deems said business dangerous to an animal that the ESA deems "endangered". In much the same way, HUD can under much the same philosophy make a home very difficult or even impossible to finance if it deems that home a danger to the environment.

The Obama administration has stated that they don't believe the traditional form of governing is effective any longer. That's why there are so many "czars". That's the tone of Donovan's statement. In fact though, it appears that for the most part revolutionizing the way in which government operates often leads to consolidating more power in the hands of Obama and his top deputies. That's the end result of Donovan's vision, and frankly, it's the end result of much of Obama's policies.

Denocratic Legislators Vs. President Obama on Iran

(H/T to Weekly Standard) Yesterday, several prominent Democratic Legislators, including Steny Hoyer. sent President Obama this letter. The letter sounds as thought it was written by former UN ambassador John Bolton rather than members of the President's own party. Here are some of the highlights.

Engagement must be serious and credible, but it cannot be open-ended. Our goal should be to bring about Iran's near-term suspension of uranium enrichment, and we should offer Iran meaningful incentives in order to achieve this goal. But we cannot allow Iran to use diplomatic discussions as a cover for continuing to work on its nuclear program....

We urge that the talks begin as soon as possible, so that we will have the earliest possible indication of whether they will succeed in halting Iran's nuclear program. American action on this matter cannot be deferred...until after the Iranian presidential elections...

The legislators go on to propose a series of stiff economic sanctions on just about any business that does business in or with Iran. Now, while I agree with the sentiment, I am skeptical of the motives. In Illinois, the so called balanced budget amendment is routinely perverted through a series of accounting tricks. At other times, this is done outside the Constitution of the State. The state's comptroller, now Dan Hynes, will note the impropriety in footnotes when signing off on the budget. This allows the Comptroller a way to say that he warned everyone about the deficit being created in Illinois all while never really doing anything of substance about it.

If all these lawmakers only send this letter, that is the foreign policy equivalent of sounding the alarm in the footnote of the budget the way the Comptroller often does here in Illinois. If the situation is really as dire as they make it in the letter, they should be on every media that will have them sounding the same alarm. If they are really as concerned as they claim in the letter, this won't be the last we will hear from them.

While the economy has grabbed our attention, a nuclear Iran is the most dangerous geopolitical dynamic the president will have to deal with. While their nuclear program has taken a backseat the economic crisis, make no mistake, a nuclear Iran would change things in the Middle East and the world. The Democratic legislators have sounded the alarms that the President's policies only allow Iran more time to continue towards their ultimate goal of a full operational nuclear bomb. Now if they are serious about their concern, this letter will only be the beginning. They will continue to sound the alarm until the president takes this issue with the seriousness it deserves.

For my view on bringing Iran down peacefully take a look at this post.

Some Context on Secretary Clinton, Mexican Druglords, and America's Insatiable Appetite for Drugs and Guns

This past week Secretary Clinton had this to say about the Mexican war against druglords and America's role in it.

We know very well that the drug traffickers are motivated by the demand for illegal drugs in the United States, that they are armed by the transport of weapons from the United States to Mexico...our insatiable demand for illegal drugs fuels the drug trade...clearly, what we have been doing has not worked and it is unfair for our incapacity . . . to be creating a situation where people are holding the Mexican government and people responsible

Now, on one level Secretary Clinton is absolutely correct. The Mexican drug lords would have little business if there was ABSOLUTELY no demand for these drugs in America. That said, there are two problems with this statement. First, it's never a good idea for any government official to go on foreign soil and then criticize American policies.

The bigger problem is that the statement is wholly without context. America is a country of nearly a half a billion people. It would be nice to envision a country without drugs but that's a utopia. In a country of our size, there will inevitably be plenty of demand for just about everything, illicit drugs included.

There's more here. It has become fashionable among pundits and politicians alike to demonize and condemn the war on drugs. In fact, that's exactly what Secretary Clinton did later in the same speech. Blaming the Mexican drug war on our own failed war on drugs. In fact, there is something our country can do immediately to cut the flow of drugs from Mexico into this country be about 80%. If we put about 50,000 national guard troops to back up the border control, about 80% of all drugs from Mexico would be cut off. If a solid double wide fence that spanned the entire Southern border were built as well, that would cut off even more drugs coming into our country. This is something that neither Secretary Clinton nor her boss have ever had an appetite to do. It's easy to demonize. It's also easy to blame boogeymen like the "war on drugs". What isn't easy is coming up with solutions. That appears to be in short supply in this growing problem.

Council Winners

Winning Council Submissions
First place with 2 1/3 points! - The Provocateur - My Grandfather, the 14th Amendment, and the AIG Bonuses
Second place with 1 2/3 points - (T*) - Bookworm Room - Out of the Mouths of Babes
Second place with 1 2/3 points - (T*) - Right Truth - Grim Assessment for America’s Safety
Third place with 1 points - Soccer Dad - Major newspaper seems fated to cast israel in the worst possible lightfrom Soccer Dad
Fourth place with 2/3 points - The Glittering Eye - Geithner Announces Banker Bailout Program
Fifth place with 1/3 point - (T*) - Rhymes With Right - Republican Rejection Of Hyperbole Called Racist In Georgia
Fifth place with 1/3 point - (T*) - The Razor - Congressman Lives in MD - Represents California
Fifth place with 1/3 point - (T*) - Mere Rhetoric - Great News: Obama’s Hand-Picked NSC Consolidating Power Great
Winning Non-Council Submissions
First place with 2 1/3 points! - Big Lizards - The Great Dictator
Second place with 1 2/3 points - (T*) - Robert Averech/Big Hollywood - The Burning Of Los Angeles: The Gauntlet
Second place with 1 2/3 points - (T*) - Self-Evident - The ‘Geithner Put’, Part 1
Third place with 1 1/3 points - (T*) - Big Hollywood - Love, War — and Gay Marriage
Third place with 1 1/3 points - (T*) - Chesler Chronicles at Pajamas Media - A Universal Doctrine of Women’s Rights.
Fourth place with 2/3 points - Olivier Guitta - Which Way Will the Wind Blow From Damascus?

Obama's Afghanistan Double Down: the Bold Irony

What if I told you that neo Con Robert Kagan was wholeheartedly supporting a foreign policy decision by President Obama at the same time the liberal, the Nation magazine, was condemning the same decision. Let no one say that President Obama is a straight down the line ideologue who's every move is easily predictable. Most his moves I would say are predictable, but there are moments when he surprises the political world.

His decision to double down in Afghanistan and outright own the war going forward is just one of those moments. Here's how neocon Kagan views the decision.

Hats off to President Obama for making a gutsy and correct decision on Afghanistan. With many of his supporters, and some of his own advisers, calling either for a rapid exit or a “minimal” counter terrorist strategy in Afghanistan, the president announced today that he will instead expand and deepen the American commitment. He clearly believes that an effective counter terrorism approach requires an effective counterinsurgency strategy, aimed not only at killing bad guys but at strengthening Afghan civil society and governing structures, providing the necessary security to the population so that it can resist pressures from the Taliban, and significantly increasing the much-derided “nation-building” element of the strategy. The United States, he argues, has to help the Afghan people fulfill “the promise of a better future,” by rooting out government corruption, helping the elected government provide basic services, fighting the narcotics trade, and, in general, advancing “security, opportunity, and justice.” This is the opposite of a “minimal” approach.

It is also evidence that the president is pragmatic in the best sense of the word. He and his key advisers, such as Richard Holbrooke, understand that better and more effective government in Afghanistan is a key to the successful defense of American security. Self-proclaimed “realists” argue, as always, that the pragmatic course is to pull back in Afghanistan. But President Obama recognizes in Afghanistan what the previous administration only belatedly recognized in Iraq: that the only way out is forward.

Here is how the Nation viewed the same decision.

The Obama plan instead will accelerate any plans Al Qaeda commanders have for attacking targets in the United States or Europe. The alternative for Al Qaeda is to risk complete destruction, an American objective that has not been achieved for eight years. A terrorist attack need not be planned or set in motion from a cave in Waziristan. The cadre could already be underground in Washington or London. The real alternative for President Obama should be to maintain a deterrent posture while immediately accelerating diplomacy to meet legitimate Muslim goals, from a Palestinian state to genuine progress on Kashmir.

...

Escalation of American troop levels is a slippery slope. John F. Kennedy sent 16,300 Americans to save South Vietnam from the Vietcong.

President Obama obviously has no intention of sending hundreds of thousands of American troops into Afghanistan or Pakistan. But escalation, once it begins, is increasingly difficult to stop. Already Obama's generals want more troops than the president is sending. The neoconservatives and Republicans are demanding a "must-win war" and denouncing any talk of an exit strategy. A gradual American escalation may play into the jihadist game plan, drawing more Western troops into jeopardy or permitting a retreat into mountainous wastelands if necessary. Any "redeployment" (another word for retreat in the minds of the neocons), other than returning with Bin Ladin's head on a platter, provokes a right-wing reaction at home. The easy solution to these pressures is another escalation followed by another, like one drink at a time.

...

In summary, be prepared for a war that spans the length of the Obama presidency, an Obama War. Expect the Congress to be inert and distracted. Expect little help from the media. But hey, we've been here before.

It's time for a new movement against reckless escalation, especially one that threatens to divert our attention from the crisis at home, while only leaving poverty, malnutrition and anti-American hatreds rising abroad.

Today, President Obama announced that additional troops were on their way with a "comprehensive" new strategy.

President Obama, declaring that coalition forces must "disrupt, dismantle
and defeat" Al Qaeda, called on Friday for thousands of additional U.S. troops
and billions of dollars in aid to fight terrorists in Afghanistan and
Pakistan.

The president, announcing what he called a "comprehensive new strategy" for the region following a two-month review, outlined an approach to the war that places far more emphasis than before on Pakistan.

Obama said he was ordering 4,000 additional U.S. troops to help train Afghan security forces and was calling on Congress to approve $1.5 billion a year in aid for Pakistan over the next five years.

The increases are aimed at making the security forces, governments and infrastructure of both countries more self-sufficient and stable, as well as capable of taking on Al Qaeda and the Taliban.

With that President Obama has embraced the war in Afghanistan even if it is still a cautious embrace. On domestic policy, President Obama can be referred to as solid liberal, far left, or radical depending on whether or not you want to identify his position as a pejorative. On foreign policy, his overall philosophy is difficult to place. His rush to close down GITMO and to attempt to give suspected terrorists rights similar to criminals make him rather dovish. On the other hand, he has largely kept Bush's policy in Iraq in place and now he has reluctantly embraced victory in Afghanistan. Meanwhile, he is simultaneously embracing diplomacy over military action when dealing with Iran. So, on foreign policy at least, President Obama gives everyone plenty to cheer and to criticize.

Video, Quote, and Word of the Day

This MP has become a hero to fiscal conservatives everywhere. Here are two
pieces he's written about his new found fame.

propinquity
nearness

Be not afraid of greatness. Some men are born great. Some achieve greatness, and others have greatness thrust upon them

William Shakespeare

Some Thoughts on the Beginning of the New Regulatory Framework

Treasury Secretary Geithner laid out some broad principles today for a significant increase in new regulations of the financial sector.

The Obama administration is proposing an extensive overhaul of financial regulations in an effort to prevent a repeat of the banking crisis last fall that toppled once-mighty institutions and wiped out trillions of dollars in investor wealth.


Congress would have to pass new rules to regulate the market for credit default swaps and other types of derivatives and require hedge funds to register with the Securities and Exchange Commission.



...



Let me be clear," Geithner added. "The days when a major insurance company could bet the house on credit default swaps with no one watching and no credible backing to protect the company or taxpayers must end."


The program the administration was presenting to Congress includes a recommendation for creation of a systemic risk regulator, possibly at the Federal Reserve, to monitor risks to the entire system.

There is a lot here I agree with. It's long past time that Hedge Funds and Private Equity Firms become more transparent and this will go a long way toward doing that. That said, such regulations often have unintended consequences. McCain/Feingold lead directly to the proliferation of 501 (C)3's. In much the same way, such regulations of Private Equity and Hedge Funds can, and in my opinion will, lead to the proliferation of other financial services firms that aren't regulated. Furthermore, it also means that hedge funds and private equity firms will likely move off shore to places where the regulations aren't as stiff.

I also agree that credit default swaps are desperate need of regulation (I have called for this as well), however, in my opinion, the market is a much better regulator of such markets. Once markets like credit default swaps collapse, the market is usually much more ruthless than any regulation. I suspect that most of the regulations that the government will propose have already been created by the market. In fact, I suspect that credit default swaps are rarely used at this point entirely.

I can support a systemic risk regulator. I am also in favor of figuring out a way to stop too big to fail. I am, however, troubled that the Obama administration wants to allow the government to step in and take controlling interest in any company deemed too big to fail. In fact, I was concerned myself about making such regulations a power grab.

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.

So far, this regulation is rather vague and vague regulations lead directly to the government consolidating far too much power. There needs to be something done to prevent further companies from becoming too big to fail, but it must be much more specific than it is now.

Finally, most disappointing is that while there is a plethora of new regulations in the financial industry there is no new regulations for Fannie/Freddie. Given that the company owns and runs both now, they might see them is not needing regulations, but in fact they are both in desperate need of it. I have proposed breaking them up and privatizing them however that is the antithesis of what is going on now. Their reform is not necessary for a vibrant financial system but it is vital for a vibrant real estate market. Hopefully, their reform is coming soon.

The Republican's Budget Gambit

President Obama may live very much to regret putting down the budget guantlet to the Republicans at his presser on Tuesday. That night he mocked his opponents as criticizers with no plan of their own. Not two days later, the Republicans have rolled out a plan of their own. The reality is that very few people are likely to read in detail either plan. Even fewer will understand the details of either. (to be fair the Republican's plan is signficantly less detailed, however that is likely not to matter) In fact, unfortunately, politically speaking, the details are not altogether important. What is important is that 1) both sides now have a plan to call their own, and 2) the general direction of both plans.

Doing this is of course, first and foremost, all part of being a policy maker. Politically, it is a brilliant move. Almost none, if none at all, of this plan will be adopted. Yet, it is now out there in the hypothetical. Hypothetical plans are the best kind of plans politically. That's because you can make of them what you want. The Republicans can proclaim over and over that their plan would have created just as many jobs at much less cost. How can anyone argue? After all, the plan never went into effect and so all their assumptions are hypothetical.

The public has been taken aback by the enormous amount of spending by the president so far. This plan is the antithesis of that. This plan relies on freezing and slowing down government spending as well as tax cuts. The Republicans have capitalized on the country's reluctance to watch the deficit balloon and presented an alternative that shrinks the deficit rather than growing it.

There will be plenty of folks that will scream hypocrisy because the Republicans presided over massive expansion of both debt and government from 2001-2007. Those arguments have become ones of diminishing returns and as times goes by, they will become arguments of even less returns. By presenting this budget proposal, the Republicans have positioned themselves beautifully for 2010. They are now in a position to first blunt the argument that they have no ideas. Second, they can continue to refer to this budget as they slam the out of control deficits the one that Obama will sign will cause. The mood in the country is away from massive deficits, and the Republicans have positioned themselves to take advantage of that mood.

Coming Soon to the United States: Class War Nation

Witnessing the spectacle surrounding the bonuses at AIG, I have come to a rather frightening realization. This country is on the brink of conducting several very bloody class wars all at once. The AIG flap is one battle in a larger class war that pits Wall Street vs. Main Street. In a similar vein, you can look at this class war as management vs. worker or even upper class vs. middle class. Of course, that is not the only class war going on at all. The Treasury Department's loan modification plan went a long way toward creating mortgage class war between those that feel they have been responsible and those the same folks feel haven't been as responsible. Finally, the president has done an excellent job of stoking the traditional class war between the bourgeoisie and the proletariat by constantly demonizing the wealthy and also by tax policy that punishes them while giving away many things to those below them. There is even a class war being stoked by politicians for all ends between small and big businesses. As the recession deepens, expect the next manifestation of the class wars to be citizens versus foreigners. (especially as jobs go away and someone uses that to lament foreigners getting our jobs)

Class wars are among the most corrosive societal phenomenon ever created. They have lead to revolution. Karl Marx used them to push socialism. They were even a favorite of Adolph Hitler. There's no telling just how corrosive the current crop of class wars will be on the United States, but there is no doubt they will be bad. There is already an obscene amount of resentment and rage directed by one side of the class war to the other.

The AIG flap is just one manifestation. In fact, the tea parties are themselves a manifestation of the class war in which citizens are enraged as their tax dollars are going to fund those that they believe don't deserve it. With each bailout and give away, a certain segment believes that they are always the ones left out when cash is doled out.

What this will continue to lead to is further demonization of every opponent in each of these multiple class wars. Big fat cat Wall Street types will continue to be demonized. Those that took on more than they could afford to pay will also be demonized. The wealthy in general will continue to be demonized.

In his book, Slobbering Love Affair, Bernie Goldberg recounts a conversation he had with Pat Caddell. Caddell told him that the media has lost so much credibility that a loon could run on a radical agenda down the road by simply demonizing the media. In fact, we are now in the midst of several policy debates in which one or both sides is pushing their policy by demonizing one group or another. Such an environment will only lead to policy extremism. Furthermore, economic weakness is a perfect environment for extremists to exploit class warfare. When people are struggling, they are looking for someone to blame. That's exactly what has been happening as groups from all over have taken their place on the chopping block to be demonized for most of our problems.

This will lead to a series of successive policies in which demonized groups get theirs so to speak. The legislation penalizing AIG bonuses was the most obvious example. The massive increases of taxes on the "rich" is yet another example. Of course, the administration is planning on a series of new and massive regulations on most financial firms. Much of the legislation will have cheerleaders from those that believes its targets will be deserving of it. What we will do is lose all sense of perspective of good policy. Policy will no longer be formulated based on effectiveness. Rather, it will be viewed from the prism of how it can get behind those most sympathetic.

Our country likely doesn't appreciate just how terrible class warfare can be. That's because up until now it has never been so effective as to do serious damage. That will all end now. The next few years will be years in which finger pointing and demonizing will be the order of the day. Policy will be formulated based on all of this finger pointing, and our country will be much worse for it.

The President's Missing Narrative

Any agenda must have a story, a narrative if you will. The people must understand where the administration is going and why they are going there. Most modern day presidents have things they want to accomplish, their agenda. To get the American people on board presidents must explain what they are trying accomplish and how they plan to get there. That's what I mean by a narrative.

This president has plenty that he wants to accomplish: health care for all, energy independence, better education, fixing the economy, and cutting the budget deficit. What is missing is a narrative to tie it all together. No one is really sure how he is going to do any of it and much of it seems to conflict with each other. No one can really explain how it all ties together.

Now, let's compare that to narrative of his opponents. The president's opponents see a president that sees a crisis as an opportunity. This is an opportunity to create an orgy of liberal causes that the ideology has been craving for decades. This crisis is nothing more than an excuse for an unprecedented expansion of government and power grab. Furthermore, this expansion is meant to make our country look more like a socialist Democracy in the model of Europe. Finally, this expansion will create debts and deficits that are unsustainable and ultimately will either bankrupt us or create hyperinflation.

Now, I am not here to argue the validity of either side. Anyone who has been reading this space knows where I stand. There can be no doubt though that at the moment it is the president's opponents with the clearer and more effective narrative. Until and unless he changes that his popularity will continue to erode.

Dick Morris Goes Conspiratorial

It's no secret that Dick Morris is no fan of Barack Obama's domestic policies. In fact, Morris has coined the term, depressflation, to describe what he thinks will happen to our economy as a result. He believes we will have significant unemployment, on the level of a depression, at the same time we will have hyperinflation. (as such depressflation) Yet, now, Morris is just downright conspiratorial.

Morris believes that Geithner's plan to rid banks of toxic assets is doomed to fail. After all, the Obama administration has spent the better part of the last couple months demonizing entities like Hedge Funds. Yet, Geithner's plan relies on exactly those entities, like Hedge Funds, that the Obama administration has been demonizing all along. Morris wonders aloud just how the Obama administration expects to get these folks to now join the government in a partnership, the one proposed by Geithner.

In fact, Morris believes that this has all been orchestrated by Obama in order to make sure that Geithner's plan fails. Why? That's because this will leave Obama with no choice so to speak but to nationalize banks. In Morris' view, bank nationalization is Obama's plan all along.

Furthermore, bank nationalization is all part of an even bigger master plan to socialize the country.

Now, I won't speak on Obama's motivation. It's impossible to know what someone's intentions are unless you truly can read minds and I can't. I do know one other thing. President Obama won't get anymore chances if Geithner's plan fails. If President Obama thinks that he will try and do an end run toward nationalization, then he doesn't know as much about politics as he thinks he does. If Geithner's plan fails, then Obama's entire agenda is in jeopardy. If Geithner's plan fails, the credibility of the entire domestic agenda will be questioned.

At that point, the Republicans will be attacking Obama on just about everything. The mood of the public will be for change in philosophical direction. Rather than an appetite for more government control and power, the public will demand less of each. So, while I won't speak to Morris' thesis, I can say for sure that there's no way it will ever happen.

The AIG Game Changer

In today's New York Times, an employee of AIG has written a commentary that is in effect his so called two weeks notice. The employee, Jake Desantis, may have spun this scandal on its heels and turned it again into a direction no one expected.

DeSantis explains that most of the current staff of its troubled Financial Products unit were not there when the unit practiced terribly irresponsible policy in marketing and writing the credit default swaps that have caused so much trouble. In fact, most of the units' current employees were brought into the division in order to try and clean up the mess as best they could. This largely makes sense. It's very unlikely that AIG would have kept around the very folks that caused its collapse. Most of the people now in the division are likely brought in from elsewhere. DeSantis, like Liddy, has spent nearly the last year working at AIG for one dollar. In fact, he largely took on the role because AIG promised him the very bonus that is now the subject of so much scrutiny and controversy.

DeSantis has spent about twelve years at AIG and most of those were spent in their profitable equity trading division. He explains that he took on his role at the FP division even though there was steadier work elsewhere. He says he feels betrayed and let down by management which didn't stand up for he and his colleagues as they were demonized for the deeds of others. DeSantis says he will donate his bonus to charity.

What this means is that Congress has spent the better part of two weeks demonizing folks even though they ultimately had absolutely nothing to do with the financial meltdown. It means that folks like, Andrew Cuomo and Richard Blumenthal, AG's for New York and Connecticut, both held as heros trying to get bonuses back, are in fact, thugs that have been harrassing and intimidating private citizens threatening them into returning money they rightfully deserved. It means that everyone that demonized these bonuses and everyone that received them did so without having most of the critical facts. It means that Congress has lead everyone on a wild game of finger pointing when in fact, all that was needed was a calm understanding of all the facts. It appears that most of the folks currently in the FP division are fine folks that were given the duty of trying to clean up a mess and for this they were promised bonuses. Now, it seems contrived populism has put those bonuses at jeopardy.

Council Submissions

Council Submissions
Rhymes With Right - Republican Rejection Of Hyperbole Called Racist In Georgia
Joshuapundit - AIG - Obama And the Democrats Unconstitutional Shadow Show
The Razor - Congressman Lives in MD - Represents California
The Glittering Eye - Geithner Announces Banker Bailout Program
Bookworm Room - Out of the Mouths of Babes
Mere Rhetoric - Great News: Obama’s Hand-Picked NSC Consolidating Power Great
Right Truth - Grim Assessment for America’s Safety
Soccer Dad - Major newspaper seems fated to cast israel in the worst possible lightfrom Soccer Dad
The Colossus of Rhodey - Messiah-worshiping News Journal also has faux outrage
The Provocateur - My Grandfather, the 14th Amendment, and the AIG Bonuses

Non-Council Submissions
Submitted By: Rhymes With Right - Big Lizards - The Great Dictator
Submitted By: Joshuapundit - Robert Averech/Big Hollywood - The Burning Of Los Angeles: The Gauntlet
Submitted By: The Razor - The Pirate King - The Environuts Are Winning
Submitted By: The Glittering Eye - Self-Evident - The ‘Geithner Put’, Part 1
Submitted By: Bookworm Room - Big Hollywood - Love, War — and Gay Marriage
Submitted By: Mere Rhetoric - Olivier Guitta - Which Way Will the Wind Blow From Damascus?
Submitted By: Right Truth - Chesler Chronicles at Pajamas Media - A Universal Doctrine of Women’s Rights.
Submitted By: Soccer Dad - Contentions - Linda Chavez - Re: Get Real
Submitted By: The Colossus of Rhodey - Oliver Kamm - Galloway’s heroes
Submitted By: The Provocateur - The Chicago Tribune - The Chicago Way in D.C.

Video, Quote, and Word of the Day

thaumaturgy
the performing of miracles or magic.

Do something every day that you don't want to do; this is the golden rule for acquiring the habit of doing your duty without pain.

Mark Twain

The Press Conference Review: Let's Just Say It Wasn't the President's Best Night

Watching the entire press conference became something near painful by the end. The president's answers were so long that I often forgot what the question was. The answers NEVER actually answered the questions and they were full of cliches. That's the good part. The rest is even worse. The president was often totally clueless, and at other times, he was duplicitous and misleading.

At one point, he said that his plan to modify loans for troubled lead directly to lower interest rates. That is nonsense of the highest order. There is absolutely no correlation between the two and frankly rates didn't even go down very much the day the plan was announced. Furthermore, he said credit has been open to more people under his administration. That's nonsense. Credit has continued to tighten since he took office. I just tried to do a loan for a borrower with near 800 credit score to 85% of the value of the property. I tried to split the loan into two (80% and 5%) and in the middle of the process all banks eliminated any second mortgage for anyone no matter how perfect a borrower they are. On top of this, Mortgage Insurance is more difficult to get and it costs more.

Even worse, at one point, the president said that we got into this mess because people maxed out their credit cards and overspent. Yet, he has proposed massive spending that we will pay for by borrowing. The absurdity is unspeakable. At one point, we need an economy built on growth in tangible products like green energy. On the other hand, in his view, the economy was built on growth in financial instruments. Of course, that's nonsense. The economy was built on growth in real estate. The houses, condos, two flats, and other buildings that were built were real and tangible.

Then, he said that we need to control health care spending for sustained long term growth. Yet, he just announced that he would increase spending in health care by 600 billion Dollars in the next ten years. How exactly does that work?

Then, he appeared to insult the Prime Minister Designate of Israel, Benjamin Netanyahu. In answering a question, the president indicate that peace was now more difficult with his election. He never made the same sort of observation about anyone in the Palestinian leadership. Furthermore, it appears that peace in the Middle East will take "persistence", whatever that means.

What was missing was some sort of simple guide for how we get from here to there. I don't think anyone knows exactly how this economy is going to recover in the short term. We all know that the key to long term success is energy independence, affordable health care, and good education, but we don't know how those things will get us short term prosperity. How will the banks start to lend again? How will more jobs be created? The president has done a good job of hammering the talking points of better health care, energy independence, and education, but he hasn't made the connection between those three things and the current crisis. The reason for that is of course a banking crisis has nothing to do with any of those.

Window Dressing at the Border by President Obama

Today, President Obama announced he would beef up security at the border in response to the all out war between the Mexican government and the drug cartels.

We are investing $700 million this year in enhancing Mexican law enforcement and judicial capacity and working closely to coordinate our efforts against the cartels.

· Congress has appropriated (FY08 Supp, FY09 Omnibus) $700 million to support Mexico’s security and institution building efforts under the Merida Initiative. These funds will help to improve law enforcement, crime prevention and strengthen institution building and rule of law. That money will provide

:o Increased capacity for Mexican border security efforts to help stem illegal flows in both directions across the border;o Non-intrusive inspection technology to enhance Mexican interdiction efforts;o Training for rule of law and judicial reform efforts

;o Information technology to enable Mexican prosecutors, law enforcement, and immigration officials to communicate securely

; o 5 helicopters to increase air mobility for the Mexican Army and Air Force, and a surveillance aircraft for the Mexican Navy.

o Support and training for implementation of Mexico’s new legal system and to strengthen observance of human rights by judicial authorities and police; ando Help for Mexican prosecutors’ offices to develop an effective witness and victim protection programs.

Now, to put this into perspective, President Obama sent $900 million in aid to help the Palestinians following their war with Israel. While this will help, it is really nothing more than window dressing.

The only serious response to this war would mean sending somewhere in the neighborhood of fifty thousand national guard troops to back up the border patrol. So far, President Obama is still considering doing this. I hope that this will soon become policy, if he took the war south of our border seriously, that wouldn't just be a consideration but reality.

Putting the national guard to back up the border patrol would cut the smuggling, trafficking, and all other illegalities that go on the border by about 80%. It would also mean that all of his other policies would be that much more effective. With the border patrol cutting all the traffickers and illegals done dramatically, the intelligence can focus on coordinating intelligence on the big fish. Instead, all this does is continue to make the focus on stepping every low level drug shipment, gang banger, and other criminal that constantly flows back and forth between the two countries.

This is the equivalent of a band aid for a heart attack. If President Obama is serious about making sure that the Mexican drug war doesn't spill onto our borders, then the most effective method is about 50 thousand national guard troops. So far, he has asked to do everything but that.

Next Stop: Obama Fatigue

If you have or will watch television for more than five minutes over the last week, you likely saw President Obama on it for an extended period of time. He has done everything from appear on the Tonight Show, to fill out his NCAA brackets, to sitting down with 60 Minutes and tonight he will have a press conference. This list doesn't even include less publicized appearances like his call in to liberal talker Ed Schultz.

So far, his whirlwind tour has been mediocre at best and an utter failure at worst. His appearances on both 60 minutes and the Tonight Show will both be remembered for untimely gaffes. On the Tonight Show, he referred to his bowling game as "special olympics". This brought blowback from the community and eventually an apology. On 60 Minutes, the president laughed so often and so inappropriately that Steve Kroft referred to him as "punch drunk". Coach K wondered aloud if the president should spend more time focusing on the economy rather than NCAA brackets.

At some point, even a popular and charismatic president becomes overexposed and that time is very near. Already, devoted fans of American Idol are furious that their favorite show is being pre empted. Unlike the campaign, when it was easy to continue to drive home "hope and change", carrying the current message is turning out to be much more difficult. All of the different appearances in all of the different venues is making things worse not better.

The president's job is this. He needs to take very complicated concepts like "toxic assets", mark to market, credit default swaps, too big to fail, etc., and make these concepts easy to understand for the common investor. Then, he needs to explain how and why his plans to deal with all of these things willl work and again, explain it in a way that is easy to understand. So far, in all of his television appearances he has done everything but that.

Yet, we continue to see his face on the television screen. In sports, there is a phenomenon known as a team "tuning out their coach". In such a situation, the coach's motivation techniques no longer work often because the players tire of the coach. President Obama is in danger of having a similar phenomenon with the American people. He seems to be everywhere with the same charming demeanor, but still, no one seems to know exactly what the plan is. Lingering questions about how much it will all cost and who will pay for it continue. Yet, the president continues to be everywhere without ever fully explaining the situation. If he continues down this path this way much longer, the public will soon tune him out.

Some More Thoughts on Geithner's Toxic Asset Plan

I have had a chance to read several pieces analyzing Geithner's plan to deal with the toxic assets. Before I go on, as I have said, there is no magic bullet and so while I will find plenty to criticize, there is likely plenty there for any plan. The plan is an attempt to thread several sharp needles and thus it is loaded with potential dangers.

As I have said before, the real problem with all of these toxic assets is that in order to sell them at approximately what people will pay they would sell at 30 cents on the Dollar, however in order to keeps banks solvent they would need to be bought at 60 cents on the Dollar. As such, it's important to understand that the problem isn't merely that banks have "toxic assets". If merely removing them from their books was the problem, they would just give them away for free. The problem is that they can't sell them at a price that will keep them solvent.

In order to close this gap, the plan attempts to provide so many incentives that it will drive more buyers into the market. It's simple economics really. The more buyers show up, the higher the ultimate price. It's of course impossible to know if the incentives are big enough, however the incentives are massive. That presents its own problems. These private firms would be required to only come up with one twelfth of the money it takes to buy these assets. Five sixth will be loaned out by the FDIC and the other sixth will be paid by the treasury. As such, the tax payers are on the hook for the other eleven twelfth. Yet, these private firms decide entirely which assets to buy and how much to buy them for. Furthermore, it is also up to their discretion when to sell and for how much. Finally, if these private firms take a loss, they are not responsible for paying back the loan to the FDIC.

As you can see, in an attempt to create a vibrant market, this plan also puts all sorts of tax payer money at risk with almost no control. Furthermore, by limiting the down side risk to the investor, this plan also encourages the investor to dump the investment in a manner they wouldn't if they were on the hook for more.

As such, this plan could very well work in removing these toxic assets at a price that will allow the banks to stay solvent, but that plan will then likely cost the tax payers somewhere near another trillion Dollars. Remember, while the incentive to buy these assets initially is made more enticing through these nice government terms, whoever these investors then sell them to won't get the same terms. As such, this plan will likely drive up the price well beyond what they are worth. By doing so, these investors will find it rather difficult to make money on said loans. As such, the tax payers will then ultimately be on the hook for most of the losses.

So, what we have is two issues and neither of which have anything near a guarantee of success. The first issue is that the plan needs to inflate the current market well beyond where it is now. The second issue is that these incentives might be so favorable that the taxpayer will then be on the hook for buying up most of these toxic assets. It's impossible now to tell if either will be resolved. This plan can succeed however a lot of things will have to go right in order for that to happen.

Here is my plan to deal with these toxic assets.

Geithner's Reprieve

Put away any calls, like those from me, from the lynch mob asking for the head of Tim Geithner. His job is secure and it will be indefinitely. The comeback of Geithner is very remarkable if you think about it. Here he was being pummeled for just about everything. He had been written off by the markets, by the politicos, the pundits, and most of the public at large. With his credibility at its all time low, he delivered what can only be seen as a home run on the most crucial issue of the day, the toxic assets of the banks. I was about to write a piece last night with an investment tip that shorted the markets in anticipation of his speech. That's how little confidence I had in Geithner. I couldn't have been more wrong.

The markets had absolutely no reason to trust anything he said, and yet, his plan was met with overwhelming approval. Markets were generally up about 7% just today. No more can anyone claim that markets are down in response to policies from the administration. In fact, in one fell swoop that has all been erased and then some.

The details of this plan will be debated, and there is certainly plenty to quibble with if that is your want. (I have my problems)There are a few things that must be kept in mind though. First, there is no magic bullet so no plan will be perfect. Second, no one can know for sure if it will work, and so all criticism will have limited effectiveness politically. As such, unless someone with a great deal of respect by the market comes along and trashes the plan in a credible way sending markets straight down, Geithner's credibility is restored for the time being.

Furthermore, the effectiveness of the plan will take months if not longer to judge. As such, Geithner has not only restored his credibility but the restoration will be there for the indefinite future. Now comes the difficult part and that is putting his plan to work and actually making this toxic asset plan work.

Assessing Geithner's Toxic Asset Buy Up

The Treasury Department rolled out its plan to deal with the so called "toxic assets" today. First and foremost, this plan is extremely detailed and complicated. Off the bat, I give them kudos because far too many of the administration's plans have lacked details.

Essentially, this plan relies on private companies, Hedge Funds, Private Equity Firms, and anyone else with a lot of money, to create a market for these toxic assets. It relies on the government, through the Treasury, Fed and FDIC, to back up these companies to entice more private firms to step up. The Feds will back up some of these investments with guarantees, loans, and even with cash. It not only lessens the risk, but the exposure, and the capital necessary.

In fact, I am all for all of this, however the plan doesn't address what I see as the basic problem right now.

RMBS can be sold for about 30 cents on the dollar now. But banks are unwilling to sell for less than 60 cents -- either because they really think the loans will experience only a 40 percent loss rate, or because they fear that acknowledging market value will put them into insolvency. Which it might very well.

The problem as I see it is that if the banks were to sell these "toxic assets" at current market prices they would become insolvent. Now, by putting the government behind all of this, it will likely create a much more vibrant market to purchase these "toxic assets", but the numbers appear to be much to out of reach. The market would likely get somewhere around 30 cents on the Dollar and yet the banks need to get about 60 cents on the Dollar in order to stay solvent. While government backing would certainly create a more vibrant market, I don't think it would drive the market for these "toxic assets" to more than double what they are likely worth now.

So, to me, this plan doesn't address the most pressing issue and that is that the current market value of these "toxic assets" makes these banks insolvent. While I believe that we have an adequate plan for a smooth transfer of these assets, if I am right, the banks holding them will not like the price they are given for them now.

Here is my plan for what to do with the "toxic assets".

Elkhart's Sin

In investing there is a very simple and important concept, diversification. It of course means approximately that no one should put all of their money into one investment. That's essentially what Elkhart did with its employment opportunities. Elkhart, Indiana is the capitol of RV manufacturing. They are a manufacturing hub altogether. Since both RV's specifically and manufacturing in general are in decline so Elkhart is now the nation's leader in highest unemployment rate.



A similar situation happened to Youngstown, Ohio which saw an economic explosion when the steel industry was booming. With steel in decline, Youngstown has suffered in economic stagnancy ever since. This is of course a great balancing act for towns like Youngstown and Elkhart. They don't necessarily get much industry going through them. So every chance they get to see economic growth they must take advantage.



Yet, often towns like this are almost destined for failure. They have their boom when they are lucky enough to have the right industry finds its way through there. Then, when the market no longer is fruitful, towns like Elkhart and Youngstown are crushed.

In fact, to find long term growth these towns must be able to diversify their employment opportunities just as one industry is booming. Such is not an easy thing but the alternative is eventual economic malaise.

My Plan for What To Do with the So Called "Toxic Assets"

Here is the the problem as I see it.

RMBS can be sold for about 30 cents on the dollar now. But banks are unwilling to sell for less than 60 cents -- either because they really think the loans will experience only a 40 percent loss rate, or because they fear that acknowledging market value will put them into insolvency. Which it might very well.

In other words, If you sold these toxic mortgage bonds right now, the banks would be insolvent if they were sold at current market prices.(30 cents on the Dollar)In order to be solvent, these assets would need to be worth more like 60 cents on the Dollar. These banks are only in a position where they need to sell because they haveYet, banks actually now have plenty of cash. Of course they do, we just gave them $780 billion. In fact, the banks wouldn't even need to get rid of these RMBS if they could assign a value of 60 cents on the dollar.

In fact, the only reason that this is happening now is because of mark to market.

that investors think of the mark-to-market mess by using the following metaphor: A person buys a house for $250,000 and then takes out a $250,000 fixed-rate mortgage for 30 years. The person's income is adequate to make the monthly payments.


But under mark-to-market rules, the bank could call up and say that if your house is not sold immediately, it would fetch maybe $200,000 in such a distressed sale. The bank would then tell you that you owe $250,000 on a house worth $200 ,000 and to please fork over the $50,000 immediately or else lose the house

These banks are only a position where they need to sell because they have to give these illiquid asset a current market value. If you were to suspend that rule and implement the banks one where they are allowed to value these at 60 cents on the dollar however the banks can't move these assets for at least five years. Force the banks to hold onto these assets long term. You could even create an onerous penalty for early withdrawal.

This keeps them solvent. Meanwhile we force the toxic assets on those that deserve to hold onto them. This also keeps the banks solvent. It also requires absolutely no more cash outlays. It gives everyone a chance to take a deep breath because finally we could all assess the damage without the fear that things would only get worse and you'd have to write down even more. Furthermore, all of these bonds are backed by real estate. Because that real estate is currently falling, the current market value of the bonds has no bottom. No one is paying back the mortgage and the underlying value of the real estate is dropping. Giving these bonds five years allows the price of the real estate behind them to settle.

The banking system could thaw without the uncertainty that assets would tighten up again. It's really so simple that no one in the government would ever think of it.

Video, Quote, and Word of the Day

internecine Of or relating to conflict within a nation, an organization, or a group.

Children, you must remember something. A man without ambition is dead. A man with ambition but no love is dead. A man with ambition and love for his blessings here on earth is ever so alive.
Pearl Bailey

From Messiah To Hack in 100 Days?

A month and half ago, I predicted this would happen earlier. There are those folks out there that have always believed that President Obama was a hack and his entire persona was nothing more than a media creation. Now it appears, a series of events will speed up a process some of us thought would take years not months. Make no mistake, while President Obama would be the biggest loser, the American people would be great losers as well as he would become nearly impotent in domestic policy.

Right now, events are getting out of his control and unless the president gets ahead of them soon, he will get past the point of no return. His problems are so layered that its hard to pin their beginning. Most of them center around his Treasury secretary, Tim Geithner, however Geithner is part of his larger problem involving his nomination process in general. The process has lead to high profile disasters like the nomination of Tom Daschle and those the media ignored like the nomination of Chas Freeman to head the National Intelligence Council. While several of his nominations have wound up in disaster, the Treasury department has has only one appointee that has been confirmed. (that being Geithner himself)

Geithner has now become toxic himself. His entire term has become one in long series of positions in which President Obama is now stuck between the proverbial rock and hard place. Everything else being equal, I think that Obama would rid himself of Geithner. Of course, everything is not equal. Geithner is not merely some obscure Secretary. Instead, he is the face of the effort by the administration to turn around the economy. Furthermore, the president pronounced that Geithner's tax troubles must be overlooked because he was a one of a kind and uniquely qualified individual. Dropping him now is likely something that Obama can't afford. Instead, he will face a constantly growing chorus of pundits, politicians, and other media calling for him to fire Geithner.

Then, there is the great distraction of the AIG bonuses. It is a great distraction for the Obama administration along with the politicos in D.C. in general. The whole city has been paralyzed unable to do or talk about anything else besides these bonuses. Obama's entire domestic policy has been put on hold until this is resolved. Resolving it is no easy task. So far, we are in the process of finger pointing. Getting the bonuses back is a much harder thing to do. Besides some hokey idea for a punitive and onerous tax, the Congress has limited power to take back something they themselves authorized. Of course, like I said, until this is resolved all other things are left to the back burner.

As such, President Obama's entire domestic agenda hangs in the balance of just under $200 million worth of bonuses. Meanwhile, the Congressional Budget Office has run its own numbers, and their conclusion is that President Obama's budget will lead to larger deficits than even President Obama's own projections called for. With both politicians and voters already uneasy about the rising deficits, these new projections have put his entire agenda in jeopardy. Now, even his Democratic colleagues like Kent Conrad, the Senate Budget Committee chairman, has now stated publicly that Obama's budget must be scaled back.

So now, with confidence in his administration and its architect, Tim Geithner, starting the wane, the administration still has big tasks ahead. It has still not proposed any plan for all of these "toxic assets". That plan will come out this week. The point man on this plan will be the aforementioned Tim Geithner. It will involve a private/public partnership. Now, imagine how motivated any private company will be to get into bed so to speak with the government, after witnessing the populist class war set against them this past week (after the AIG flap).

So, what President Obama has found himself in is a series of situations in which he is stuck in a no win situation. His entire agenda is held hostage to a series of distractions that may stoke outrage but are of little economic consequence. Yet, he is ultimately nearly paralyzed until they are resolved. He is stuck with a Treasury secretary that almost no one has any confidence in. Yet, getting rid of him brings with it just as many problems as keeping him in place.

On Monday, the O'Reilly Factor will run a segment asking whether or not President Obama is in over his head. Don't expect the rest of the MSM to follow too soon. Don't forget these questions to go away either. The president continues to personally be popular, but most presidents are at this point. No president has seen his popularity disintegrate the way his has outside of Jimmy Carter. Worse yet, his policies are very unpopular. Very few people have confidence that his policies will be successful, and nothing he has done so far has made that notion anything but correct.

Spring Time in Chicago

Is This Really It on Iran

If you follow the Obama administration closely, you sometimes forget that there are enemies overseas that hate us and would like nothing more than to destroy us. Foreign policy is often an after thought in the administration so far. It makes some sense because the economy is such a massive issue. Still, our enemies won't wait for the economy to recover. I was thinking about this when I heard about this message from the president to the people of Iran.




Every few weeks we hear about another outreach by the Obama administration to Iran. Each outreach is often put down by our counter parts in Iran. That's what happened this time as well.

Mr. Obama has talked of change, but has taken no practical measures to redress America's past mistakes in Iran," said Ahmadinejad's media advisor Ali-Akbar Javanfekr, quoted by semi-official news channel PressTV.

The spokesman went on to say that the U.S.' support of Israel must stop and a series of apologies must be paid. In fact, each and every public outreach are countered with similar statements.

Worse than that, the Obama administration falls silent for weeks and months following these public statements. In other words, they reach out, Iran slaps back, and the Obama administration does nothing else.

I assume and hope that they are doing plenty in back channels. Yet, they must know that when they go out publicly and reach out, are slapped back, and then do nothing, that such a stance makes them look weak. Yet, the administration comes out with these statements and then sits silent after they are rebuked.

I hope I am wrong but it appears as though there is an arrogant and terribly naive foreign policy view. Trying to reach out to enemies without turning such an outreach into a disaster is no easy task. It takes a very delicate balancing act. Simply putting out a public statement from time to time is not enough. Yes, much of such a plan is done behind the scenes and it is entirely possible that there is a lot being done behind the scenes right now. Yet, such an approach cannot allow for such a public rebuke with absolutely no response. That the Obama administration hasn't responded doesn't speak well of his overall policy.

Why Does Anyone Care About Meghan McCain

Despite the title, I have nothing against Meghan McCain. I am sure she is a very nice person, and I'm sure she will accomplish plenty before her life is complete. Frankly, I am sure that so far she has accomplished more than me. That said, at this point, her main resume point is a very accomplished dad. That's what I was thinking as I watched her exchange pot shots with several prominent conservative thinkers. Whatever her name, there is no reason why she has any more credibility speaking about the direction and future of the Republican party than any obscure blogger anywhere. As such, there was really no reason for any prominent conservative to respond to her.

The whole affair started with this column by McCain for the Daily Beast.

It is no secret that being a Republican isn’t the most hip political stance a person can take right now. President Obama has successfully established himself as the hippest politician around. You know you’re big when Katy Perry wears a dress with your face on it to host the MTV Europe Music Awards. To my fellow Republicans: I’m sorry, I wish I could be more positive about the current “hipness” of our party. But being a Republican is about as edgy as Donny Osmond. Granted, being “hip” is not a reason to join a political party, or a reason to agree with its ideals. But it is a way to get the
attention of a generation—or, more specifically, my generation.

...

To make matters worse, certain individuals continue to perpetuate negative stereotypes about Republicans. Especially Republican women. Who do I feel is the biggest culprit? Ann Coulter. I straight up don’t understand this woman or her popularity. I find her offensive, radical, insulting, and confusing all at the same time. But no matter how much you or I disagree with her, the cult that follows Coulter cannot be denied. She is a New York Times best-selling author and one of the most notable female members of the Republican Party. She was one of the headliners at the recent CPAC conference (but when your competition is a teenager who has a dream about the Republican Party and Stephen Baldwin, it’s not really saying that much).

Coulter could be the poster woman for the most extreme side of the Republican Party. And in some ways I could be the poster woman for the opposite. I consider myself a progressive Republican, but here is what I don’t get about Coulter: Is she for real or not? Are some of her statements just gimmicks to gain publicity for her
books or does she actually believe the things she says? Does she really believe all Jewish people should be “perfected” and become Christians? And what was she thinking when she said Hillary Clinton was more conservative than my father during the last election? If you truly have the GOP’s best interests at heart, how can you possibly justify telling an audience of millions that a Democrat would be a better leader than the Republican presidential candidate? (I asked Ann for comment on this column, including many of the above questions, but she did not answer my request.)

It seems that for once it is Coulter that acted appropriately. Coulter hasn't even acknowledged the dig and given her history that is no easy feat. Now Ms. McCain has every right to voice her opinion. If the Daily Beast employs her, she even has every right to be paid to speak her mind. That said, she has no right to have her opinion matter. In fact, her opinion only now matters that several prominent conservative thinkers have responded to her.

There was a media back and forth that culminated with Ingraham slamming Ms. McCain's weight. McCain wound up on the View and then Ingraham responded here.




The whole thing seems beneath Ingraham. Instead of mocking McCain, she should have just ignored her. McCain thinks the Republicans should be more moderate. So be it, and if I were to respond (if I had to), I would ask what credibility she has in making any judgement about the party. Instead, folks like Ingraham attacked McCain personally.

All of this does is raise the profile of McCain. McCain doesn't deserve to have her profile raised. She hasn't yet created any sort of body of work to warrant any response. What most of the conservative establishment should have done is ignore what McCain said because she has no credibility, yet, to have her opinions mean something. Instead, this long distance food fight has turned up her profile. As such, all this has done is make her profile higher simply because she said something provocative. It gives everyone license to try and be provocative in hopes of raising their own profiles.