On Bailouts

I wrote a post over at the Institute for Balanced Government entitled On Balance and Bailouts that I wanted to share here; while this used to be the main place for such topics, I'm going to post on balanced government mostly in that space.

I've been posting at Red County on local government issues (we have this Governor... where to begin?) and started posting on a personal site to communicate with local voters on my run for Township Trustee. An exciting time, for sure, but if anyone has seen something I've lost called "free time" I would appreciate you a) tackling it and pinning it to the ground and b) calling me as soon as possible to let me know you've found it.

When Journalists Attack

The people of this country (present company excluded, of course, Dear Reader) find innumerable issues that cry out for federal legislation, and yet we're still subjected to journalists and their half-baked ideas? I for one would propose legislation that requires journalists - the "professional" ones, you know - to take a simple quiz to qualify for certain subject matter.

Comes now the formidable economic giant, Bob Herbert. Never heard of him? He's a writer for the NYT. Began his career as a reporter. Got a degree in journalism. Worked his whole life in the reporting business. No word on his bio about his econ coursework. I'd link to his bio... except the enterprising among you can find it, and I'm not inclined to grant that paper an inbound link. Anyway, here's his, um, analysis of the causes of the financial mess we're in:

These were the reckless clowns who led us into the foolish multitrillion-dollar debacle in Iraq and who crafted tax policies that enormously benefited millionaires and billionaires while at the same time ran up staggering amounts of government debt. This is the crowd that contributed mightily to the greatest disparities in wealth in the U.S. since the gilded age.

This was the crowd that cut the cords of corporate and financial regulations and in myriad other ways gleefully hacked away at the best interests of the United States.

And I suppose that this is the standard operating procedure of the Left: repeat something often enough that people will think it is true. But it's not.

As has been detailed elsewhere, one of the causes of this so-called crisis goes back to 1977 with the passing of the Community Reinvestment Act. While I am certain that the CRA had good intentions and may have even done actual good, the road to hell is paved with good intentions. Banks and lenders had to make loans that otherwise didn't meet their credit standards; I spent time in the financial sector and can attest to this firsthand. When you make loans to unqualified people because of a non-credit incentive (or: stick), you're going to make bad loans. One ought not be surprised that defaults happen.

One also ought to wonder about journalists writing on topics with which they are unfamiliar; or worse, that they are incapable of understanding. Indeed, if John McCain is a "conservative, small government, anti-regulation, free-market zealot" does that make someone who shares the ideas of Mr. Bob Herbert a liberal, big-government, pro-regulation, socialist zealot?

New National Motto

"Lead us not into temptation, and deliver us from ourselves."

I've written a little here on the topic of economics. Pity that it comes up as often as it does in this context: in 2008 in the United States of America, we've reached a point where people can't be responsible for their own irresponsibility, and it is the duty of "the government" to protect them from themselves and businesses alike. Today's hobgoblin isn't the mortgage "crisis", but the pay-day lenders.

Here's a typical story:

Janet Hudson, 40, ran into pay day loans when she and her fiance broke up, leaving her with a young son and a $1,000 monthly mortgage payment. Short on cash, she took out three small pay day loans online totaling $900 but fell behind with her payments. Soon her monthly interest and fees totaled $800.

"It almost equaled my mortgage and I wasn't even touching the principal of the loans," said Hudson, who works as an administrative assistant.

After falling behind on her mortgage, Hudson asked Rochester, New York-based nonprofit Empire Justice Center for help. A lawyer at Empire, Rebecca Case-Grammatico, advised her to stop paying off the pay day loans because the loans were unsecured debt.

"For months after that the pay day lenders left me voice mails threatening to have me thrown in jail, take everything I owned and destroy my credit rating," Hudson said. After several months, the pay day lenders offered to reach a settlement.

But Hudson was already so far behind on her mortgage that she had to sell her home April 2007 to avoid foreclosure.

"Thanks to the (New York state) ban on pay day loans we've been spared large scale problems, but Internet loans have still cost people their homes," Case-Grammatico said.

Emphasis most definitely mine. Here's the thing: don't take out the loan if you can't pay it back. She "ran into" the loans? Sounds like an accident, doesn't it? I know people are struggling; I'm not without a heart and it's unfortunate. But when we stop expecting adults to act like adults, we're doing people an enormous, and painfully unnecessary disservice.

Side note: you think that the lawyer working for the agency in question, she with the dual/hyphenated last name, might be a leftist?

What's my solution to these crises? It's called self-government, about the only government that should be involved in the regulation of mortgage lending and pay-day loans.

Bush: Keep Abstinence in AIDS Program

That was the headline of this AP article today. Which made me think of my own headline: "Federalists: Keep Feds Out of Domestic Matters."

Of course, that's not entirely the whole story. See, President Bush is on a trip to Africa and he was speaking about his global AIDS program. The global AIDS program that has spent $18 billion so far and that the President is pushing for renewal to the tune of $30 billion over five years.

The quote that says it all?

"We don't want people guessing on the continent of Africa whether the generosity of the American people will continue," Bush said in Tanzania, the second stop of his African trip.

If only it were the generosity of "the American people" we were talking about, Mr. President. The generosity of the American people is unequalled in the world, and it never fails that when the people of America get the call that someone needs help, the American people step up, no strings attached.

Unfortunately, it's the generosity of the American Congress, such as it is, that we're discussing now. Remarkable that this point is utterly lost on the American Left (including their public relations firm, the mainstream media). No, the point of focus in this news item was that...

Some Democrats want to eliminate a provision in the bill that requires one-third of all prevention spending go to abstinence-until-marriage programs. Critics say that while they don't oppose abstinence programs, the inflexible requirement hampers the effort.

The real problem, you see, in the minds of Leftists, is not that we're nearly bankrupt from entitlement spending and that on top of that we're somehow giving away $6 billion a year in medical aid. It's that we have some pesky moral condition attached to it.

I should be so fortunate as to have the fruits of my labor taken from me and used for programs that are morally consistent with my worldview. No mention if first it can be afforded (after all, it feels good, don't question it) or second, if it is consistent with the role of the general government.

When... it hits the fan, and hit the fan it will, the result is going to be ugly. We're a debtor in denial right now; we'll have to face the music sometime and the longer we wait the worse it is going to be.

Head of GAO Resigns

Not probably the most newsworthy item out there, but I remember this guy, David Walker, our Comptroller General. I blogged on him a while back on my personal page about his "60 Minutes" interview. Now comes the news that he's leaving his position early, to pursue what sounds like his passion: informing Americans in a way he couldn't as a government employee about the looming fiscal disaster.

Here's a video with more on the topic, a Glenn Beck interview with David Walker.



The most amazing figures? Each and every household in America would owe the government $400,000 to pay for our looming entitlement disaster. Socialist Security and Medicare obligations are left out of our stated deficit figures; if these were included (following normal corporate accounting standards) our deficit would be a whopping 69% higher than reported.

When a Tax Cut Isn't a Tax Cut

Answer: when it's a one-time rebate.

President Bush wants a quick $150 billion in "tax relief" to Americans to get the economy jump started. We could adopt a strict economic mantra which would probably yield the right decisions when faced with challenging economic questions. Perhaps: WWFBD (What Would Fredric Bastiat Do)?

Yet, I think like in most things governmental (and let's all pause for a moment and thank the Left for putting the mental in governmental to begin with, shall we?), we'd be causing the patient such a shock that it might be too much too fast, because Bastiat would probably disband the IRS and privatize the Defense Department.

For starters, though, if the President and Congress are serious about doing something, let's make it a genuine, bona fide tax cut, and not a one-time affair. Bush has done this before, of course, and as a rebate, early in his first term. The hope - and isn't it simply audacious of us to hope? - is that people would go out and spend those rebates of a few hundred dollars.

Forgive me if I'm not doing cartwheels for it was my money to begin with. And yours.

My colleague Matt made an excellent point today: we've for too long been an economy that rides the strength of consumer spending. We'd be wise to adopt policies that focus on strengthening the business base of the economy (think durable goods and manufacturing) to complement and diversify what makes our economic engine hum.

And while I'm dispensing advice, let's get the federal government out of the domestic/entitlement business. The states would be far superior in delivering services of that type to their citizens based on familiarity (a local understanding of what their people need) and proximity (being able to deliver services closer to the users).

The Stock Market Analogy

I got to thinking about term limits and recall provisions yesterday. The local city council was discussing an initiative to make provisions for recalling sitting city councilmen.

The analogy I came up with is the stock market; now this is a little stretch, so I'll ask you to bear with me. When you or I buy a stock, we're "voting" with our wallets, essentially. We think that giving our dollars to Exxon, or Altria, or whomever, is a better use of our dollars than what we could do with it. Investors expect an appreciation on their investment, and this can take the form of increased share value, a cash dividend, or both.

When you buy a stock - recall the voting interpretation - you keep it as long as it continues to do what you want it to: return value and justify your decision. If the stock loses value (or you lose faith in the company's management), you're free to dump it at any time, assuming of course that we're talking about widely-traded public companies for which there's almost always a market, even if a stock is declining. Only when the corporation is near-collapse does the market dry up, and if you're stuck, you're stuck.

Well, I got to thinking about recall provisions. This is your ability to "sell" your position. If your elected official isn't returning value - justifying your decision - you should be able to exit that position, so to speak. In this way, market accountability would reward good governors and punish bad ones. Naturally, to provide protection from simple partisan sniping, there would have to be a threshold for beginning a recall and making it valid. Nevertheless, I think the idea is a good one.

And here's where I may ruffle some feathers. I think term limits are a bad idea. We've discussed this at length in the past, but fundamentally, the right of the people to choose their governors is being infringed by instituting limits. Recall the stock market analogy. Suppose I have had my position in Exxon for about 5 years (this is roughly the case). Now imagine that I am compelled by statute to sell my position. The stock is doing great and I love it. Why should I be compelled to sell?

I think term limits are well-intentioned, but in the final analysis, inappropriate for liberty loving people in the long-term.

Subprime Solution

I should say "less than ideal" to be perfectly clear.

The Federal Reserve announced a "sweeping response" to the mortgage meltdown today; read the whole story here.

So, in summary, the Fed is acting to protect consumers from lenders who want to make them mortgages. Here's the key "reforms":

The proposal would restrict lenders from penalizing risky borrowers who pay loans off early, require lenders to make sure these borrowers set aside money to pay for taxes and insurance and bar lenders from making loans without proof of a borrower's income. It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the home's value.

While we're at it, shouldn’t government, at some level, protect people from credit card offers? How about protection from signing up for the wrong insurance coverage? Or, a true scourge of our times, icy roads? Clearly, walking or driving this time of year is dangerous; are we to bear that risk all by ourselves?

I’ve bemoaned this problem before. But until we start to be self-governing once again, this is only going to get worse.

Those Hidden Costs

I had lunch with a gentleman I consider a friend last Friday. He's a libertarian, and a really sharp guy, and I always enjoy our discussions. Never heated, always challenging, he's fun to talk with about a wide range of topics. He routinely comes back to a topic that is near and dear to his heart: the hidden (and high) costs of regulation. Truly, there are numerous examples that would illustrate just how absurd this can be (witness that the government regulates how much water is in every flush of your toilet - assuming you're not living in an old house as I am).

Yet, I saw this article today, and read it mostly out of a desire to read something that would reinforce my thoughts on the disparity between our culture and that of China. And wouldn't you know it? I found something in common.

"The Qingping market is dirty," said a Guangzhou-born taxi driver, surnamed Mo. "It's dirty because it's old, and the government is unwilling to put up enough money to fix it."

Ah, yes, the ever-loving "government." Of course, as anyone who reads here knows, I am referring to the external variety. Like it or not, until we find a means of reintroducing the self-government gene to people, and since men aren't angels, we're going to require some external government.

And while my libertarian friend might cringe, this got me to thinking about the high costs of no regulations. Remember the SARS epidemic in 2002? The same article notes that 8,000 people worldwide were infected, and 800 died. Maybe SARS wasn't that deadly (sounds like the winner of the "worst slogan in the world" contest). But how about the next virus that springs up because of the filthy conditions in some of these markets?

All of which leads me back to familiar ground. Until someone can show me otherwise, balanced government remains the only means I have been able to discover that has the ability to revive self-government and ensure a rebirth of this Republic.

That Which Is Not Seen

Bush announced the other day a plan to "fix" (I use that word in the most unflattering of ways, such as: "there was no beating the house in Vegas because the games were fixed") the mortgage crisis in the United States.

A key part of the plan involves freezing interest rates on mortgages that were "teaser" rates to induce people to borrow (also called by their proper name, "adjustable rate mortgages").

(deep breath)

There's a lot being written about this. A rather favorable analysis can be read here, and a rather unfavorable one can be read here.

I can't help but wonder if there's a bigger issue, however. No surprise to anyone who reads this blog, but I immediately focused on the destructive way this plan affects self-government. If people aren't responsible for taking on enormous debt loads, what's to stop them from making other bad choices? If investment banks aren't responsible for trading in securities without accounting for the inherent risks in those securities, what's to stop them from making other bad investment decisions? And more importantly, is there any crisis that the government shouldn't bail people out of?

I have always remarked that one of the great things about the US economy is that we take our punishment. Unlike the Europeans or even the Japanese - who were mired in a decade-long recession - when we over-reach, we get beaten up and knocked down quickly. And hard. But we get back up. And we're stronger for it. But maybe not anymore. Maybe we're going the way of the Japanese or the Europeans. Time will tell, but I think this bail-out is a disaster on many levels, particularly those which are not readily seen.

Free Trade? Fair Trade?

We've gone around on this before, most notably here.

I've struggled to articulate what, exactly, I've been meaning in most of these discussions. But, I read something today and I realized where I've been lacking: real-world examples. Short of finding someone who'll share doing-business-in-China horror stories with us, let me share the following.

An investment bank I know of publishes a quarterly journal highlighting research and analysis by their practice groups. One group focused its contribution on China, from which I quote:

"Among the most significant risks in implementing a successful market entry strategy are:

- A partially privatized business environment which allows unfair trade practices. For example, in many large industries such as steel and mining, banks (which are quasi-governmental agencies) provide below-market rate loans to State Owned Enterprises ('SOEs')." (emphasis mine)

And later…

"- A legal system, despite its current transition to full World Trade Organization compliance, which fails to adequately protect intellectual property and contractual arrangements. The inadequate protection results from both/either insufficient codification of rules and business principals (sic) and/or lack of enforcement. Many companies which have developed sources in China have been surprised by the quickness with which knock-offs are developed (e.g. gear and apparel by The North Face)."

When one hears politicians tossing around terms like "fair trade" or "free trade" it is wise to sit up and take note. Large is the answer to the question: what is the opportunity for mischief? Yet, there remains a fundamental challenge in trade relations when one party respects property rights and the rule of law, and the other party doesn't.

The hard truth is this: as a country, we want cheap stuff more than we want liberty for other people. Democratic societies won't be able to provide us that dirt-cheap labor needed to manufacture our stuff as cheaply as possible, so until 1) we change or 2) our trading partners become free societies, we're going to be facing this dilemma.

Which I would guess would be a long time.

I'll try and see if I can get some stories of how the social/political risk of doing business in China has hurt some companies, and will try to remember that my points would be so much more effective if they had facts to support 'em!

Economic Initiative

Subtitle: Socialists Might Be The Stupidest People Alive

"[Freedom] is a right which is important not only for the individual but also for the common good. Experience shows us that the denial of this right, or its limitation in the name of an alleged 'equality' of everyone in society, diminishes, or in practice absolutely destroys, the spirit of initiative, that is to say the creative subjectivity of the citizen." (emphasis mine)

Check out the current issue of Imprimis for a thought-provoking speech by Rev. Robert Sirico of the Acton Institute. The above quote is not Rev. Sirico, nor a famous economist, but the late, great Pope John Paul II.

How about ol' JPII? He was sounding absolutely Founding-Fatherish, if you don't mind me saying so. All you'd have to do is change the "shows" to "shews" and it's right out of the 18th Century. Just goes to show that the truth never goes out of style.

Good Conversation

I'm starting a new post, because I want to take the discussion started under my Barack post in another direction. That, and 40 comments later the discussion has changed enough to merit another posting. ;)

I have a question, or maybe just a clarification...

"It is my position that the government has no business interfering with peaceful voluntary transactions, whether between me and my local Kroger, or between me and a Cuban cigar manufacturer."

Mr. Hargis, I don't disagree with your position, but I have been troubled as of late by the nature of our commercial and political relationship with China. I've started to notice talk radio - the Laura Ingraham Show in particular - beginning to pick up on this topic. I'm hoping you can discuss this with me.

Although Carter tried to turn his back on Taiwan, we're committed to the defense of that country. Recently, Chinese leaders declared that they have no interest in freedom, and that "democracy" is probably 100 years away from reality. I have long thought that our commercial relationship with China is supporting a regime that oppresses its people - witness the allegations of their treatment of followers of the religious movement Falun Gong. Tiananmen Square wasn't so long ago, although it seems that people conveniently forget this.

I think that at some level, government has a responsibility to check the interests of private enterprise. After all, if men were angels, we'd need no government - isn't that true about human nature? If you accept this, you'll acknowledge that some people (certainly not a majority) are of weak character and will take advantage of others for their benefit. And since corporations are merely collections of individuals working as one legal entity, isn't it reasonable to expect that government has a duty to regulate business activities at some level?

I object to the sentiment that manifests itself on the pages of the Wall Street Journal Editorial page - that the United States is essentially America Inc. and that should be the basis for national decisions. There is a strong sentiment in this country that what is good for business is good for America, and I can't say I agree with this.

Our trading partner China is openly hostile and dishonest. That we can get cheap goods from them seems like a shortsighted mortgaging of our sovereignty.

A Lesson From the World of Business

I'm a shareholder in General Motors, and have been for a few years (before you go feeling sorry for me, I'm also a shareholder of ExxonMobil - yep, Big Oil, baby). GM makes great products, and other than the point of this posting, I'm not going to delve into any aspects of GM except to say: GM's second biggest problem is one of perception, and although this will take time, they should eventually shed their image of less-than-Japanese quality.

GM's biggest problem, however, is cost. All of this is publicly available information (my source for the data that follows is the 2005 Annual Report), so I'd encourage people to check it out if I'm just passing over it and you want more details.

In 1962, GM employed 605,000 people worldwide, 464,000 in the US, where 4.2 million vehicles were sold. In 2005, GM employed 335,000 people worldwide, 141,000 in the US, where 4.5 million cars and trucks were sold. Get the dynamic there? More production, fewer people and way less particularly in the United States.

Here comes the interesting part. In 2005, for every active GM employee in the US, GM supported 3.2 retirees and surviving spouses. In 1962, it was reversed: GM had 11.5 active employees for every retiree or surviving spouse in the pension plan. GM's total health care bill in 2005, including every US employee, dependent, retiree and surviving spouse, totaled $5.3 billion. With a B. GM is the only company in the world with that kind of obligation, and competes against world-wide competitors whose governments cover most of these costs.

Sound like an entitlement program you know of? I'm left to wonder: what's going to happen to the US when that bill comes due for Social Security or Medicare? GM is a corporation and is making its turnaround, but last year they lost $10.567 billion.

There are lots of ideas out there for correcting the impending problems of those two entitlement programs. However, it is going to be up to you and me - We the People - to force the issue. Our elected officials lack the spine necessary to address the problem voluntarily. Only when we demand it - hey, maybe we should have a rally? - will they begin to listen.

Until then, I remain your obediant and faithful servant,
A. Hamilton, aka The Monarchist

P.S. Hoping to soon have a couple more contributors... there will be four horsemen (is that a bad sign?) eventually.