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.

"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?

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.