Friday, March 27, 2009

South Park on Economic Policy

Be Afraid...Very Afraid

While the proposals for broad sweeping powers being granted to the United Nations to "combat global climate change" outlined in this report are likely to never make it out of the gates, they should give everyone pause as to the underlying currents in both U.S. and global political circles that this document could even be floated without being laughed off immediately as dangerous.

Thursday, March 26, 2009

More on Geithner and New Rules

A bit more on Geithner's testimony from CNN. The money-quote:
"Our system failed in basic fundamental ways," Geithner said in written testimony released Thursday morning by the panel, which is chaired by Rep. Barney Frank, D-Mass. "The system proved too unstable and fragile, subject to significant crises every few years, periodic booms in real estate markets and in credit, followed by busts and contraction."
Hogwash! Regulators failed to regulate. Laws (in particular, laws supported by Barney Frank) created perverse incentives. This phraseology is just like President Obama speaking about charitable contributions in the past tense in his speech. In his tone, Mr. Geithner believes he is signing the death certificate on capitalism. More:
Geithner also called for "substantially more conservative capital requirements" for big firms and consistent standards for executive pay.
Perhaps more conservative capital requirements are a good thing. But, the Administration chooses to entangle these with red executive pay. So, the government is now going to dictate executive pay to privately held (non-government) firms?? Where does the decision of a Board of Directors about how much to pay a CEO translate into a matter of national security...or even a public good? No, this is populist backlash at its best. But we better be careful. We may get exactly what the mob wants. Guillotines for the "obvious crooks" quickly turns into guillotines for the masses.

"Rules of the Game"

Secretary Geithner has proposed new rules of the game for finance. Rules matter. Enforcement probably matters even more. I am not necessarily opposed to the idea. But imagine if the Federal Reserve Board was the arbiter of risk monitoring as CalculatedRisk pointed out this morning.
According to Greenspan in 2005 "we don't perceive that there is a national bubble", just "a little froth", and even in March 2007 Bernanke said "the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained".
If the new risk czar is not capable of detecting the systemic risk, what good are they?

Wednesday, March 25, 2009

Budget Follies and a Socialist Agenda

President Obama defended his budget plan on national TV and his comments are summarized in a Wall Street Journal article here. This would almost be comical if it were not for the dire impacts of his erroneous logic. Consider the following passage in reference to critiques of the proposal to eliminate tax deductions for charitable contributions.
"I'm assuming that [the deduction] shouldn't be the determining factor as to whether you're giving that hundred dollars to the homeless shelter down the street," he said.
You know what they say about assuming, Mr. President. First, the deduction is not the sole reason for the contribution, to be sure. Those who give generously to charities do so for a myriad of reasons. But, we, as a society, decided long ago that we would provide some incentive for everyone to provide for the less fortunate by giving that generosity some reward of lowering tax liability. Note contributions are not a tax credit, but a deduction, so they are only beneficial at the rate at which the contributor pays taxes.

Perhaps a more disturbing (and admittedly cynical) interpretation of this proposal is that he knows it will reduce charitable contributions leading to a greater need for government intervention in the lives of low-income people. After all, if those nasty, greedy rich people are not going to be naturally generous with their money without tax loopholes, we'll just have to tax it out of them and give it to the needy via a government program.

The evidence is mounting that President Obama is either extremely naive about incentives in which case he was a very poor choice for President. Or, he is outright nefarious with his plans in which case he was a very poor choice for President. I am finding it more and more difficult to find a middle ground.

Update: Martin Feldstein of Harvard had an editorial yesterday in the Washington Post that has a good numerical example of what I am talking about. It is worth a read.

Say What??

Here are two stories that do not seem to go together. First, the Obama administration continues to push for extended powers to take over troubled non-bank financial institutions. Second, Bank of America has announced that it will begin repaying TARP funds in April. What gives?? I am not quite sure that BofA's announcement means we are out of the woods, but it certainly gives a signal that maybe there is light at the end of the tunnel. Yet, Mr. Geithner wishes to expand his powers. It appears that events are overtaking the administration's movements to further centralize the economy. We can only hope this happens before too much damage has been done.

There were a couple interesting points in the AP article on Geithner that are worth mentioning. First:
In response to a question, Geithner said he had not seen a recent article by the head of China's central bank, Zhou Xiaochuan, in which he called for a new currency to eventually replace the dollar as the world's major reserve currency. But Geithner praised Zhou and said he looked forward to reading the article. Those comments immediately sent the dollar plunging on world currency markets.
Okay, c'mon. I know Mr. Geithner is new to this game, but you would think that a former President of the New York Fed would know that a Treasury Secretary's words act like policy, whether he intends them to or not. But, perhaps more disturbing is the following:
"A strong dollar is in America's interests," he said, returning to the stock phrase that the past five Treasury secretaries have used to signal to markets that the U.S. is not contemplating any changes in its dollar policies.
I am trying to figure out why Mr. Geithner thinks that a "strong dollar policy" and moneterizing the debt is at all consistent...

A True Understanding of AIG

In this resignation letter printed in the New York Times, one gets a better picture of what has happened at AIG. This also echos my point that the American public and Congress should be ashamed for its mob mentality that has surrounded this unfortunate event.

Tuesday, March 24, 2009

Kudos to Mr. Specter

A Wall Street Journal report suggests that Senator Arlen Specter will not back a plan favored by labor unions to circumvent secret ballot elections to unionize. If a majority of a shop's workers want to organize, so be it. But, at least individuals who do not want to unionize should be able to express their opinion through their vote without fear of retribution.

Slippery Slope

Treasury Secretary Geithner has proposed a need to have more power for the Treasury Department to take over "failing" non-bank institutions. A key phrase is:

Geithner said Congress should grant the government new authority to make loans to a troubled institution, buy its obligations, take over its liabilities or possibly take an ownership stake in it while it regains its footing.
But hasn't the fact that we HAVE taken ownership of AIG the rationale used to suggest that the government has the right to regulate executive pay? Or:

In that capacity, it would gain sweeping powers like the right to sell or transfer assets of non-bank financial institutions that get in trouble. The government would also get the authority to renegotiate contracts, including pacts with employees, and to halt the termination of contracts if necessary.
This sounds suspiciously like the federal government grabbing power. And, yes, this is brought to you by the very people that called the Patriot Act a "massive power grab" as reported in the International Herald Tribune.

Monday, March 23, 2009

"Fuzzy" Math

Talk about "Fuzzy"math and "Vodoo Economics," apparently the White House and the Congressional Budget Office cannot even get in the same ballpark on the increase in the budget deficits under Obama.