More Government Intervention

According to this Wall Street Journal article, the administration is considering means of controlling compensation by banks to executives. The lead-in says this:

The Obama administration has begun serious talks about how it can change compensation practices across the financial-services industry, including at companies that did not receive federal bailout money, according to people familiar with the matter.

These "evil executives" have been the target of populist ire for some time. And, to be sure, there are real issues with compensation. For example:

The initiative, which is in its early stages, is part of an ambitious and likely controversial effort to broadly address the way financial companies pay employees and executives, including an attempt to more closely align pay with long-term performance. [Emphasis added]

There is little doubt from years of economic/finance research that when compensation is based on short-term performance, you get short-term behavior. Therefore, compensating more on the basis of long-term performance should lead to more long-term behavior. But, what is the "long-term"? How you compensate a CEO who may have a useful life of 5-6 years on the basis of this "long-term performance"? Is this really the job of the government to determine compensation schemes in the first place?

But the story takes a turn for the worse:

At the same time, House Financial Services Committee Chairman Barney Frank (D., Mass.) is working on legislation that could strengthen the government's ability both to monitor compensation and to curb incentives that threaten a company's viability or pose a systemic risk to the economy.

Yes, this model of forward-thinking, ethical, and public-interest centered behavior is working on legislation that places more power in his hands. This should cause everyone to shutter just a tad.

Economic Decision-Maker-in-Chief

President Obama, it seems, has decided that he gets to direct how people choose to make their living. According to a Fox News story, Mr. Obama has decided that Wall Street will "play a less dominant role in our economy." More specifically:

Wall Street is not going to play as dominant a role in the economy as regulations reduce "some of the massive leveraging and the massive risk-taking that had become so common," President Barack Obama says.

and:

"That means that more talent, more resources will be going to other sectors of the economy," he said. "I actually think that's healthy. We don't want every single college grad with mathematical aptitude to become a derivatives trader. We want some of them to go into engineering, and we want some of them to be going into computer design."

Well, I tend to agree that corporate profits were at least in part a result of under-regulation in terms of the rules of the game, these quotes show the arrogance of Mr. Obama that he somehow knows what you ought to major in while in school. Through the looking glass....

Setting Us Up

Mr. Geithner now blames the United States for the current financial crisis, unwittingly (or, maybe not) putting us on the hook as the responsible party to pay the costs. Well, it may be true that Americans excessively borrowed, but that means the world excessively lent. But, this is the typical "guilt talk" that solely blames lenders for "predatory lending practices" and absolves borrowers from the act of taking out a loan they knew they were at high risk of being unable to repay. To be sure, the current economic situation is a bitter pill we will have to swallow, but setting the precedent that we are primarily responsible only gives the world justification to absolve themselves of their own responsiblity. Typical for this administration...

Stirring the desPot

Yes, this is the President of the United States shaking hands and smiling with Hugo Chavez.

Chavez is a man that has declared the United States an enemy of the world...a terrorist state, etc., etc., etc. It is one thing to politely ignore him, but something altogether different to shake his hand and smile. Imagine how this is being played in the state run media in Venezuela...

Absolutely Insane

This Wall Street Journal editorial points to the insanity of Barney Frank. It is bad enough that he was a key player in the current financial disaster. But, more importantly, he is plotting the next economic disaster. Mr. Frank is a danger to the Republic.

Rhetorical Inconsistency

Even Paul Krugman notices that the Obama administration has been completely inconsistent with its economic story...that says a lot.

Say What??

A testament to the stupidity of some people. Here is the warning label on the back of a fishing lure:

Or what about this one from a hair dryer:
Amazing. This means that not only has someone done these stupid things. They have done them, sued, and won!! So, who is more culpable? The idiot, or the idiot jury that allowed them to win the case?

Economic Gestapo

Well, one had to wonder how long it would take before the Obama administration would meander off the path to inject its fingers where they did not belong. As with all things in this administration, they moved quickly. This Wall Street Journal editorial points to some serious issues related to regulatory overreach. The opening line says it all:

The Obama administration wants to regulate venture capital firms to prevent systemic risks. Silicon Valley residents are scratching their heads and asking: What risks? The rest of us should ask why Washington is targeting a jewel of the American economy that had nothing to do with the housing bubble.

What's next? Are your credit card purchases going to threaten financial stability and therefore be subject to regulation?

A Little Fun with Larry Summers

Soros on the Economy

In two related stories, billionaire George Soros makes some economic prognostications. First, Soros states that the "Dollar's strength a Measure of the Systems 'Sickness'." In the second, Soros claims "The Danger of Collapse has Passed, but the Stock Rally is Unsustainable." I'm going to go out on a limb here an predict Soros is short both the dollar and stocks...

Estate Taxes

This editorial pokes a little fun at the estate tax. The title "Spend It in Vegas or Die Paying Taxes: A 0% Tax on Carousing, but 55% on Thrift" is quite descriptive and drives home the point. The money quote is:

To counter the fact that economists such as I obsess about the deleterious effects of the estate tax, advocates of the estate tax note with some pride that 98% of Americans will never pay this tax. Let's make it 100%, and I'll get off my soapbox.

Something non-bailout to ponder.

Bailout Humor

Tobacco Tax

I suppose that if you make $250,000 or less, you are exempt from this new tax on tobacco...I guess not.  So much for the no new taxes for 95% of the population.

Should UAW President Go Too?

A Fox News story asks "With GM's Wagoner Ousted, Should Union Head Have Met the Same Fate?"

--Yes. He is as much responsible for the excesses and idiotic decisions by the UAW as Wagoner was for the company (GM). They are both culpable, although not completely responsible.

Housing Price Differentials

The folks at CalculatedRisk blog provide a useful graphic for understanding some of the dynamics of housing prices, bubbles, and the subsequent collapse. Below is the Case-Shiller house price index for three different house price "tiers."

Note that the lowest priced houses witnessed the fastest appreciation, and the fastest subsequent fall. One of the theories underlying this housing market is that the government "forced" banks to make bad loans to people with insufficient income to support the purchase. That should be reflected in demand for lower-priced housing. To the extent that the above reflects excess demand for housing in the lower tier, these data would tend to support that hypothesis. Of course, this is just San Francisco, but it does provide some interesting food for thought.

More GM and Bailouts

A Wall Street Journal editorial addresses President Obama's plan for auto. Although more skeptical than I at this point (I want to wait and see whether Obama has the guts to pull the trigger on GM), they make some valid points. It is worth a read.

GM and Bailouts

As reported here, GM's new CEO Fritz Henderson is putting bankruptcy back on the table. Keith Hennessey, President Bush's National Economic Council director, outlines on his blog that they recommended GM get the loans because they were not "ready" for Chapter 11. That makes some sense. President Obama ousted GMs CEO Wagoner today mainly because Wagoner refused to keep bankruptcy as one of GMs future options. Now that GM and Chrysler have had an opportunity to get their act together, President Obama believes they must make tough choices, which could include bankruptcy. Score one for Mr. Obama today. By keeping it on the table, it forces the unions to make tough concessions...concessions, by the way, that have already been made at Ford. Interesting stuff.

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.

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 herrings...like 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.