Miscellany: 4/30/10

Politics of Envy--Again

Obama's Quincy, IL speech on Wednesday had the following quote:

Now, what we’re doing -- I want to be clear, we’re not trying to push financial reform because we begrudge success that's fairly earned.  I mean, I do think at a certain point you’ve made enough money. 

I want to make it clear that whatever I earn this year will likely fall within Obama's fabled 95% of taxpayers receiving a tax cut/credit. This will spin Obama's head; he won't understand why I would fight for the fat cats, etc. He wants you to believe that Wall Street has been acting like a "casino" and his prescription of "financial reform". He'll talk about "systemic risk". But will this "financial reform" work? Of course not. He wants you to think that Big Government is the salvation of all. But where was Big Government when Bernie Madoff operated his Ponzi scheme? You would think if anyone understood Ponzi schemes, it would be progressive Democrats--look at states and counties across the United States whom have established pension systems that guarantee retirement income at taxpayer expense for decades exceeding the average household income in the US, look at the key entitlements (social security and Medicare) with over $40T in unfunded liabilities. What private companies could possibly survive with those kinds of liabilities? You have a situation where, after federal revenues fall off by 40%, federal spending increases by trillions... How many public companies can afford to run this kind of scam? Talk about "too big to fail": what happens when Standard and Poor's cuts US Treasury debt ratings? What strategy do we have to confront to avoid the same type of  budget crises in Spain, Portugal, Italy, and Greece?

Obama's economic philosophy, the politics of envy, is internally inconsistent. Take, for instance, the position where a rich CEO is at a 35% tax bracket. In the meanwhile, nearly half of American voters pay no income tax. Now presumably "spreading the wealth around" shifts income from the rich CEO to employees currently paying no income taxes. So, effectively, the lucky employees are still paying no tax, but in shifting from the rich employee, we're losing 35% on the dollar in federal revenue. Hence, from a progressive perspective, it should be maximizing the scope and depth of highest-earning individuals, because that will presumably result in the greatest income funding progressive proposals.

Look at the two richest Americans--Warren Buffett and Bill Gates. They did not reap rich rewards by playing in an unregulated casino. And they have joined together to create one of the largest philanthropies in American history, funded (eventually) with tens of billions of dollars.

It's not up to Obama to decide what income is "fair enough". But stop this insane scapegoating of the banking industry. The banking industry is one of the most highly regulated sectors in the economy. There's the state of New York, there's the SEC, there's the Federal Reserve, there are accountants, there are credit raters, etc. When we are dealing with hundreds of billions lost by the GSE's and AIG, how is that Wall Street's fault?

The fundamental problem is not the "greed" of Wall Street. Only a few companies failed in the industry. Why did some fail than others? Adding to the regulatory burden doesn't necessarily mean better control. It simply means more expensive control.

The "Racism" of Arizona Immigration Reform

I am astonished by overrated, uninformed pop singers, mediocre West Coast mayors and others organizing boycotts against Arizona businesses--or even businesses with 'Arizona' in the name but made elsewhere--all in response to what is assumed to be institutionalized racial profiling?

I have opposed the Arizona Immigration reform law for various reasons, but let's be very clear: We have non-Americans entering this country without any security checks. We are not simply talking about somebody's nanny or gardener, or migrant farm worker. We also see criminals entering the country risking the lives and property of American citizens.

We are talking about an Obama Administration which seems to think the only thing it needs to do, in response to significant violence within a few miles of the border, including Ciudad Juarez (where I once ate lunch with fellow UTEP professors), spilling over into the US,  is give Mexico a little spending money.

We are also talking about the professionalism of Arizona law enforcement, which by any account has not systematically engaged in ethnic profiling,

What we need to do is attack so-called "sanctuary cities" which serve to protect unauthorized visitors (including criminals) against immigration enforcement. What we need is a new, improved, expanded version of the "Bracero program". What we need to do is (versus the Obama Administration) to complete border protection infrastructure, add to the Border Patrol.

What we don't need is an ineffectual, irresponsible administration which wants to use a state government trying to deal with criminal activity against its citizens as a whipping boy to get out the Latino vote this fall.

Political Cartoon

Gary Varvel points out the spread of inefficient regulation is far more pernicious than the spreading oil spill from an offshore BP rig failure in the Gulf of Mexico.

Quote of the Day

No pleasure philosophy, no sensuality, no place nor power, no material success can for a moment give such inner satisfaction as the sense of living for good purposes, for maintenance of integrity, for the preservation of self-approval.
Minot Simons

Musical Interlude: "Stand" Songs

Peter Frampton, "I Can't Stand It No More"



Stevie Nicks, "Stand Back" (live)



The Pretenders, "I'll Stand By You"



Burton Cummings, "Stand Tall"

Miscellany: 4/29/10

Crist Goes Rogue


I've been listening to the Fox News Channel's predictable hostile reaction to Governor Crist (R-FL) deciding to file for the Senate race this fall as an independent. How many times are they going to rerun the same clips of Crist on Fox News Sunday insisting he would run as a Republican and intended to support the GOP candidate in the fall? Of course, he had to say this since he was, at the time, running for the Republican nomination in the race; if he would have been ambivalent, it would killed his chances for the GOP nod. I saw one poll where he closed the gap down to about 12 points; however, more recent polls have continued to show 20 points or more. He had to make a decision; I expected him to make this decision--he couldn't afford to be routed in the August primary, which would have likely killed his political future.  I have heard Sean Hannity's very predictable talking points on Crist and completely disagreed with former Bush Administration Press Secretary Dana Perino on Greta's program.

You don't have to go that far back to demonstrate the utter hypocrisy of Fox News Channel  and media conservatives, whom heavily promoted the charisma-challenged Conservative Party nominee Doug Hoffman over GOP candidate Didi Scozzafava in the NY-23 special election last year. I know the media conservatives want to point out the manner in which Scozzafava was selected, but the relevant point was that Hoffman had competed for the GOP nod and had agreed to back the eventual GOP nominee.

Let me note that I have some concerns about Crist's political judgment, including his embrace of the Obama stimulus bill, his recent veto of the teaching reform bill (after earlier support), insurance price caps, and his knee-jerk reversal of support of offshore oil and gas exploration after the ongoing oil spill catastrophe. Indeed, I have more in common with Crist's predecessor Jeb Bush, a small-government conservative. I would have much preferred Crist running for reelection and Jeb Bush running for the Senate. In fact, Rubio is widely seen as a Jeb Bush protege.

There is no doubt that the Tea Party is responsible for Rubio's political juggernaut, which has seen nearly a 50-point reversal in the GOP polls. Whereas the anti-incumbency mood and anger about the stimulus bill are consistent with the movement, Crist's fiscal record and his political moderation/independence should also appeal to the movement.

I would tread very carefully on this matter if I'm a Republican senator or party official (do you hear me, Michael Steele?) This in part is an artifact of a closed primary. Second, whereas like all governors, Crist's popularity has dropped during a difficult economy, he's had popularity ratings exceeding Jeb Bush's, and he is a proven political force. If Lowell Weicker and Jesse Ventura can win third-party bid, how viable is one of the most popular political figures in recent Florida history with universal name appeal? He can run a populist campaign--and if the GOP starts attacking Crist and he wins, he could refuse to caucus with them. The fact is that much of the money and commitment of support came after the last 2 elections, when the GOP was reduced to 40 votes and the incumbent Republican senator had resigned, putting the seat up for grabs in a state that just voted for Obama. Crist was the GOP's best hope of retaining the seat. These political endorsements and contributions were part of the reasons Crist agreed to run for the seat. I understand that the party doesn't want to set a precedent here, but in fact the Tea Party mobilizing on behalf of Rubio is at least as troubling. The Republican Party needs to seriously address whether closed primaries in blue or purple states are in its own best interests. By pandering to the right, Rubio is going to have a hard time attracting and keeping independent and moderate voters.

I would not underestimate Crist's chances. The fact is that he has kept the support of over 30% of the Republican votes in the most recent polls--and those are voters whom are unlikely to support Rubio, just like Lieberman carried over most of his support during his independent campaign in 2006. Perino's talking points include the logistics grassroots support of the conventional political parties, money will dry up, he won't get endorsements, etc. I argue that these factors aren't as relevant  when you're the incumbent governor with a majority approval rating. I suspect even if the Republicans organize a get-out-the-vote for the ticket, many will split their ticket.

I will continue to support Crist as long as he decides to stay in this race. Why do that when I think he's wrong on a few things? Because I think he is the most viable fiscal conservative in this race and he has broader experience and most likely to bridge the partisan gap in Washington; I see him as a problem solver like myself.

I mentioned recently that he should consider dropping out of the Senate race and announcing a reelection bid as governor. This would put him in good contention to run for Bill Nelson's seat in 2012.  The problem here is that Florida forced Crist's hand by having him file months before the primary. There could be a world of change between now and November. If the current query on GOP campaign funds turns ugly, Crist's independence of the scandal could backfire on the GOP.

Mojave Desert Cross Decision: Thumbs Up

The Supreme Court ruled 5-4 in favor of a "policy of accommodation" towards religious symbols; Justice Kennedy, writing for the majority, notes that "the Constitution does not require the eradication of all religious symbols in the public realm", in particular, an 8-foot cross erected by veterans on public land in 1934 in tribute to WWI casualties. You have the predictable, absurd reaction by civil libertarian or overly sensitive non-Christian religious groups, suggesting this constitutes an implicit state sponsorship of Christianity.

I've read several opinions on that point of view ridiculing Justice Kennedy's observation that the use of the cross has alternative, more generic meaning than Christianity. This should be apparently from the very fact of the memorial and what group sponsored it. Were there Jews, Muslims, Buddhists, Hindus, or atheists whom served and died during World War I? No question. Did the cross specifically exclude them from being honored? Of course not. What the civil libertarians point out, e.g., Stars of David on specific Jewish veteran tombstones, is besides the point. It is not unusual in a country that was founded by Christians in various denominations and where Presidents to date have been Christian would use a DEFAULT Christian symbol for purposes of a memorial. In many cases (see, for example, the Commonwealth War Graves Commission), a generic cross is used for the war dead, unless the person was known to be of an alternative faith or an atheist, in which an alternative or no symbol is used on the tombstone. So there is a general versus specific context. This was fairly obvious; the cross was not erected by Christian clerics or churches, but veterans. The cross serves as a general symbol of death; non-Christian critics also forget that Romans executed people other than Jesus on crosses.

Political Cartoon

Gary Markstein is referencing the deteriorating economy in Greece, whose debt has now been downgraded to junk status, with widespread unrest over unpopular federal spending cuts. Spain, Portugal, and Italy also have been it with bond warnings or concerns as nation debt approaches or exceeds GDP. The US is rapidly approaching a similar situation, even before we see the inevitable anti-business growth effects of progressive Democratic punitive tax policies, which will suppress versus accelerate federal revenues,  and accelerating spending in health care (made worse as promised Medicare cuts as politicians veer away from unpopular benefit cuts).

Quote of the Day

Pick battles big enough to matter, small enough to win.
Jonathan Kozol

Musical Interlude: The Four Tops

"Indestructible" (extended version) (all-time favorite)



"Reach Out I'll Be There"



"Baby, I Need Your Loving"



"Walk Away, Renée" (1968 remake of The Left Banke classic hit)

Miscellany: 4/28/10

What a Sh*tty Congress!

You have nearly 10% official unemployment and roughly $3T added to the national debt over the next 2 years, you have AIG, Fannie Mae, Freddie Mac, GM/GMAC, and Chrysler taking the lion size of TARP and other funds, you have failures of credit raters, accountants, the SEC, the Fed, and what do the progressive Democrats get hot and bothered about? An email from one Goldman Sachs employee whom used the term "sh*tty" to talk about a deal presented by Goldman--not to the little old lady from Pasadena, but sophisticated  buyers? In investing, timing means everything. Greenspan in the mid-1990's talked about "irrational exuberance" to the stock market. If you shorted the market at that point of time through the Nasdaq meltdown starting in the spring of 2000, you would have gotten killed. In a down market, risky mortgage, commercial paper or notes are discounted. So when you are making deals on notes with significant risk to them, one party (the seller) thinks there's additional downside, and the other believes that the bad news is behind them. When Goldman decided to sell this debt, they've taken a position that selling is better than buy-and-hold. They weren't hiding bad news from their clients; as others have noted, if the clients thought what Goldman was doing was wrong, they would have sued. I've lost money on stocks; clearly, the other party was right, and I was wrong in making the transaction. The people selling the stock may have thought I was taking a sh*tty deal. So what? Unless they were relying on some insider information, it's just their opinion. At the time, I thought they were making a mistake by selling.

I have been sorely tested about keeping the civility project pledge during almost two years of writing this blog. But when demagogues like Senator Levin (D-MI) and McCaskill (D-MO) deliberately used the word nearly a dozen times to mock Goldman executives during the Wall Street Inquisition hearing earlier this week, let us count the sh*tty deals made by this progressive Democratic Congress and President:

• what about the sh*tty broken promise made by Obama not to sign earmarks into law?
• what about the sh*tty Cornhusker Kickback deal (Reid/Nelson-NE)?
• what about the sh*tty Gator-Aid deal (Reid/Nelson-FL)?
• what about the sh*tty Louisiana Purchase deal (Reid/Landrieu)?
• what about the sh*tty Obama Administration auto bankruptcy deals ripping off bondholders?
• what about the sh*tty deal American voters got in terms of the $787B stimulus deal, sold on misleading promises of keeping unemployment capped at 8%?
• what about Obama's sh*tty empty promise of making Washington "post-partisan"?
• what about Obama's sh*tty scapegoating of every problem these last 15 months on George W. Bush?
• what about Obama's sh*tty international apology tours?
• what about Obama's sh*tty rationalization that the corrupt Democratic Party Healthcare Bill would reduce the deficit?
• what about the Democrats' sh*tty setting of priorities, putting climate change and health care reform above pro-business growth, entitlement solvency, and spending reform issues?
• what about the Democrats' sh*tty response to losing a high-profile election to underdog Scott Brown being to jam down the throats of the American people the very same bill Brown ran against, opposed by a majority of the American people and involving 17% of the American economy?

Obviously I'm barely touching the surface of Democratic progressive political malpractice over the past few years. I wonder how the progressive Democrats have the audacity to compare the performance of Goldman Sachs, which makes money, to the Democrats' dumping a $3T deficit on the national debt these last 2 years on the backs of future generations with little to show for it.

Some Comments About the Immigration Kerfuffle

Before discussing this issue further, I want to correct any misconception (which I'm sure that any progressive reader would advance) in my shorthand characterization of myself as a pro-business conservative. More precisely, I'm more of a neoclassical economic libertarian committed to fair competition and transactions and efficient, usable, fair taxation and regulation. It doesn't necessarily mean pro-management or anti-union. I certainly don't support what was done at Enron, Tyco, Fannie Mae or Freddie Mac or abusive practices against employees, competitors, vendors or customers.

When I look at the issue of immigration, I'm looking at labor as a resource. In some cases, work is seasonal (e.g., crop harvesting), and farmers lack local resources; in other cases, there may be labor shortages which are persistent in nature. Let me cite relevant examples: there are pipeline issues in terms of professional occupations like physicians, nurses, engineers, and software developers

Unions generally oppose immigration and temporary worker status; it's fairly easy to understand why. Given a limited supply of local talent, this tends to bid up the prices of labor. The problem is that labor costs are material to prices of goods and services, which can be constrained by the competition (including foreign-produced goods and services). Moreover, many of the labor supply problems are sticky: for instance, there may not be any physicians available locally at any price, assuming you could pay any price. For example, a physician who has lived his whole life in Massachusetts near friends and family and makes more than enough to make ends meet may not be willing to move to Alaska, even if Alaska offers to pay him 50% more. I was recently asked about whether I was interested in a contractor DBA opportunity in Iraq. We never got to the point of talking salary or benefits.

Latinos in the Democratic Party find themselves at odds with the traditional labor base in the sense that the Kennedy Administration agreed to gutting of existing temporary worker programs from south of the border. The Democrats in 2007 kept reducing the size of temporary workers to an insignificant proportion of undocumented workers in the US. The partisan Democrats (notably Senator Obama in particular) wanted to make existing workers legal for purposes of establishing a higher wage base (remember what I said in terms of wages constrained by competitive factors). If you allow, say, adding millions of workers to minimum wage status, you are simply glutting the market of minimum wage-eligible workers. (This underscores the dysfunctional nature of misguided progressive concepts like the minimum wage or a "living wage". If I own a restaurant with a $500 budget for labor and the minimum wage is raised, I now can only afford a lower number of hours, translating to fewer workers; I may reassign or limit workers to peak time periods. But in no case can the government force me to operate at a loss; I will simply close the restaurant, and all the labor unions and their progressive political allies have managed to do is force me to fire labor I can no longer afford.)

So what does this have to do with the current immigration kerfuffle? I am frankly concerned about the blatant political exploitation of the issue by progressives; all Latino voters need to know is that Obama, Reid and others have fought temporary worker programs which would essentially make the illegal immigration problem go away by bringing the illegal/black market into the open. I don't speak for other conservatives necessarily, but I would be willing to grandfather existing foreign-born undocumented workers in good standing (no criminal record) a legal status but legal status would expire within a specified travel time period after documented last labor date, and government-sponsored subsidies and labor policies would not be applicable to these temporary workers (for obvious reasons). New temporary workers would be processed through some labor exchange mechanism with relevant quotas, subject to business requirements. All legal temporary workers would be required to carry tamper-proof, immediately-verifiable identification (e.g., biometric markers, like fingerprints, retina scans, DNA, etc.)

I do not believe in rewarding people whom entered the country through unofficial procedures with preferential treatment for immigration; this is moral hazard. If undocumented workers want to immigrate to the US, they should apply from their host country--at the back of the line, treated no better or worse than their fellow citizens.

I've made it clear that I do not support the Arizona immigration bill. I believe, like Senator Graham (R-SC), that it is unconstitutional, and I think a number of conservatives are being inconsistent. In terms of the corrupt Democratic Party Healthcare Bill, other conservatives talk about violations of certain traditional state responsibilities. Why isn't it true in the other direction, i.e., states preempting traditional federal responsibilities? I think it's bad law; in essence, Arizona is subsidizing the rest of the country for immigration enforcement, but in effect it has become a vigilante state, deciding if it doesn't like the way the federal government is doing its business, it can arbitrarily substitute its own efforts, not necessarily in compliance with federal operating procedures. I mean, where does it stop? If California doesn't like the way the US Coast Guard is performing, it'll create its own competing coast guard? If South Dakota doesn't like the number of Army bases it has, it can create its own army bases?

Let's be clear: most undocumented workers entering Arizona from Mexico are Latino. A significant number of Latinos in Arizona are undocumented. There are distinctive characteristics related to undocumented visitors (e.g., travel patterns, vehicle utilization, destinations, etc.) Putting aside constitutionality issues, what the Arizona law, which I have not reviewed in detail, should have done is reference existing federal operating procedures, which excludes ethnic profiling activities or arbitrary, subjective activities. I personally do not believe that the Arizona law was created to justify a different standard than federal standards; I think it was in response to a perceived negligence by an incompetent, unresponsive Obama Administration to fulfill its constitutional mandate of border protection. I personally think it would be prudent to work with federal personnel when feasible.

Political Cartoon

Glenn McCoy points out the moral hazard behind today's excessively progressive

Quote of the Day

Do not go where the path may lead; go instead where there is no path and leave a trail.
Ralph Waldo Emerson

Musical Interlude: "Believe" Songs

The Lettermen, "I Believe"



Cher, "Believe"



Elton John, "Believe"



Mariah Carey and Whitney Houston, "When You Believe"

Miscellany: 4/27/10

The European Budget Crisis Contagion Spreads

Standard & Poor's downgraded Greece debt to junk bond status and also downgraded Portugal, roiling the financial markets, including over 200 points on the Dow Jones Industrial; we have a mini-tsunami of fear, uncertainty and doubt as the market frets who owns what debt. What we are seeing is a natural consequence of bureaucratic-intensive social welfare states facing deficit crises under a weak economy, being forced to take politically unpopular actions, including higher retirement ages, public service pay and budget  freezes/cuts, and fuel tax increases. (Italy is another country where the national debt exceeds GDP, but its budget deficit is roughly half the size of Greece's rate.)  The concern about countries like Greece, Spain and Portugal is that the left-wing governments there are less likely to push through the fiscally responsible steps necessary; what Greece has done to date has been vigorously opposed by unions.

To compare, the US national debt for 2010 is estimated to run just under 95% of the GDP; to contrast, we've run above 100% for the 3-year period starting with 1945. One interesting statistic in terms of the frequent Dem talking point about the "fiscally responsibility" Clinton record is that the federal debt ratio rated above 64% five times during the Clinton Presidential years and only one time (the economic tsunami year 2008) under G.W. Bush.

Today Obama paid lip service with his "all options are on the table" deficit reduction commission charged to find some way to trim the deficit to about $550B a year by 2015. This is similar to saying if you are overeating   1430 calories a day, by 2015 you should cut your excess calories to 550 calories. The point is, you are still going to put on weight eating 550 excess calories. We need more than a gimmick. We need leadership. What evidence is there that Obama is willing to take any kind of the measures Greece is now doing--like raising retirement age for social security, cutting federal spending and wages by 10%, etc.?

GOP Foils Second Financial Overhaul Cloture Vote; Alternative GOP Plan Outline

There has been a contrasting GOP plan for financial overhaul reform introduced last July 23 which has gotten little publicity. I will not discuss it in detail in this post, but in essence the GOP looks at a more flexible approach to identifying private companies with systemic risk ("too big to fail") for purposes of extended regulation, but rules out bailouts and provides a more expedited form of bankruptcy with stakeholders (creditors and shareholders) bearing the costs (hopefully a transparent form of bankruptcy, not the Obama Administration version of crony-bankruptcy (i.e., favoring lower-standard union interests over higher-priority bondholders)); it is more flexible in terms of derivatives (e.g., more discretion for innovative derivative products, including customized derivative trading), reform of the GSE's (Fannie Mae and Freddie Mac); it wants to reform the Federal Reserve back to the basics of monetary policy (versus Federal Reserve empire building, including for "too-big-to-fail"/Tier-1.

The Democrats today once again forced a cloture vote, resulting in the same result as yesterday's cloture failure. The progressives, as usual, are blind to the concept of moral hazard and the law of unintended consequences. For example, taxing Tier-1 companies or even the industry increases costs to consumers socializes expenses of specific firms, which should be assumed by stakeholders. If you codify Tier-1 criteria, you introduce perverse incentives. For example, depending on codification, firms could consolidate to qualify for Tier-1 status and potential resolution, or if they didn't want Tier-1 (e.g., to avoid increased regulation or taxes), they might make decisions resulting in exemption. There is also serious question of whether, say, undue reliance on credit raters or reserve requirements in essence attenuates proactive corporate responsibility and self-reliance in risk management.

Political Cartoon

Eric Allie is making reference to a recent HHS economics report suggesting that Medicare cuts may be unrealistic (say it ain't so, Joe!), and the new law will increase premiums and drive up to 15% of hospitals into debt.

Quote of the Day

A government that robs Peter to pay Paul can always depend on the support of Paul.
George Bernard Shaw

Musical Interlude: "Me and You" Songs

Alice Cooper, "You and Me"



Glenn Frey, "Part of Me, Part of You"



Helen Reddy, "You and Me Against the World"



The Kinks, "You Really Got Me"



Josh Groban, "You Bring Me Up"

Miscellany: 4/26/10

Democrats Try to Score Cheap Political Point on Premature Financial Overhaul BillVote

The Democrats are knowingly throwing up closure votes on financial overhaul reform, forcing the Republicans between allowing a partisan bill to move forward or being portrayed effectively as defending the status quo of scandalous Wall Street fat cat bankers. The Democrats lost the initial cloture vote by 3 votes, 57-41.

This is a suboptimal bill that, among other things, dramatically increases costs and lowers liquidity in derivative transactions, a common hedging mechanism. It does seem, though, that some GOP senators (e.g., Grassley, Brown, Snowe, or Collins) are willing to vote for a reform bill including the more heavy-handed Lincoln derivatives approach. I've seen one poll that suggests the public is evenly split over derivatives--hardly a mandate for the Lincoln approach. But the GOP seems to be unsure of how to handle the public relations aspects of reform; Obama seems to have greater support than the GOP, based primarily on Obama's populist rhetoric. What the American people need to know about this bill can be summarized in a few points: (1) it does not address the largest users for TARP funding during the economic tsunami, i.e., Fannie Mae, Freddie Mac, the automakers (except for AIG); (2) AIG's failure did NOT involve systemic risk, and in fact the government made AIG customers whole which  would not have happened under bankruptcy; (3) derivatives have been around for years; they are not intrinsically risky if used responsibly; (4) the way to deal with the problem of "too-big-to-fail" is to allow big companies to fail. Policy makers and regulators acted in an inconsistent manner during the financial tsunami.

We needed more proactive action from regulators, credit raters, accountants, and other parties. I'm not suggesting this as a solution during the economic tsunami, but given the fact that salient liquidity issues dealt with banks unwilling to lend among themselves given uncertainties of reserve valuation, the Fed could have moved to purchase and/or guarantee a necessary percentage the troubled assets in question. The point I'm trying to make is that what we need in dealing with crises like the economic tsunami is to have the right decisionmakers in place, not add more points of failure to the regulatory system.

Warren Buffett Hearts Obama--Until It Comes to Policy

The world's most notoriously successful investor and one of Obama's most prominent supporters, Berkshire Hathaway CEO Warren Buffett, made a late comment during deliberations over the corrupt Senate Democratic Party Healthcare Bill, suggesting hitting the reset button towards a more bipartisan measure. Now we see another interesting inconsistency involving derivatives.

Warren Buffett has probably the most widely publicized sound bite in the history of derivatives, calling them "financial weapons of mass destruction". It turns out (surprise!) we can find $63B of WMD's "hidden" in its books. In fact, Buffett has boasted about the limited collateralization for said derivatives. Buffett wants a grandfathering exception for existing "good faith" derivatives contracts, being pushed by Ben "Cornhusker Kickback" Nelson (D-NE); he's worried about the billions for transactions on the books. Now I understand Buffett's point in the sense that the nature and extent of derivatives contracts his company would have transacted would have been affected on collateralization costs, and those costs would be imposed ex post facto. But I'm more interested in the broader issue of why he is risking $63B without "intrinsically worthy" collateralization required under  progressive Democratic measures under discussion. Why are those transactions okay for Berkshire Hathaway but not any other customer?

Political Cartoon

Glen McCoy points out that the one regulation that progressive Democrats will never pass is voter "lemon law" protections. Who could have ever guessed that a progressive Congress and President would create a new world record fiscal deficit, tripling the last one (passed also by a Democratic-controlled Congress)? Who could have ever guessed that without checks and balances that the only substantive policies passed would be progressive ones, even though we live in a center-right nation? We owe it all to moderates and independents whom seem to understand the nature of slick-talking used car salesman, but not a media-gimmick Congress and President. Voters' remorse? Independents and moderates can force Obama to compromise in this fall's elections.

Quote of the Day

I paint self-portraits because I am so often alone, because I am the person I know best.
Frida Kahlo

Musical Interlude: "Happy" Songs

Edwin Hawkins Singers, "Oh, Happy Day"



Chicago, "Happy Man"



The Rolling Stones, "Happy"



Sheryl Crow, "If It Makes You Happy"

Miscellany: 4/25/10

Quote of the Day 
Never miss a chance to keep your mouth shut.
Robert Newton Peck  


AIG and Things That Make You Go 'Hmmm'

As Dodd, Lincoln and other Senate Democrats try this week to push us to a dubious financial overhaul "reform" bill, in particular, the regulation of derivatives, The position of this blog has been that there should be increased transparency of derivative transactions through clearinghouses, but I oppose picking market winners and losers (e.g., commercial trading desks versus banks), restrictions on transaction participation which adversely affect liquidity, and costly changes to the nature and extent of collateralization (beyond some current financial baseline).

The Wall Street Journal last fall commented on a telling revelation that did not get widespread discussion. The conventional thesis behind the AIG bailout was that AIG's failure constituted a systemic risk, i.e., its failure in the derivatives business (its credit default swaps, a form of mortgage-related insurance) would have resulted in cascading bank failures. [Note here that I am not attempting to justify AIG's failure to collateralize and/or hedge against its risk exposure to the swaps; as one of the largest insurance companies in the world and subject in other lines of business to high regulation, reserve requirements, etc., and reasonably predictable (e.g., 18 year) cycles in the real estate market, it had to be aware of a downside risk. In essence, if it had to collateralize against the CDS being written and properly priced its swaps, that would have limited the number of swaps sold.]

It turns out the New York Fed (which at the time was being headed by current Treasury Secretary Geithner) was not concerned about the solvency of counterparties of AIG swaps. In fact, CDS settlements in the aftermath of the Lehman failure failed to validate the similar Chicken Little claims. In fact, Geithner seemed to be more concerned about AIG's other insurance businesses. But, as the WSJ notes, those insurance businesses were segregated into regulated subsidiaries, and hence the CDS counterparties did not have claims against those assets.

Instead, Goldman Sachs and other counterparties were made whole after the AIG failure by the government. What about the moral hazard by the federal government interceding? What about Goldman Sach's responsibility to ensure that AIG had reserves to back up the CDS it was writing? Why didn't it hedge against the volume of business it was doing with AIG? The only reasonable response seems to be that Goldman Sachs thought AIG was "too big to fail".

WSJ seems to suggest that the real story of these claims of systemic risk of AIG is to underscore the financial overhaul reform legislation. The fact that progressives have been exaggerating the risks of derivatives and its role during the economic tsunami is disingenuous smoke-and-mirrors politics as usual.

The Goldman Sachs Kerfuffle Weekend Update

Over the weekend, the Senate permanent subcommittee on investigations released selected Goldman Sachs internal emails, including a late 2007 note from the Goldman CEO suggesting they probably made more money than they lost in the mortgage securities business because of their short positions. (A short is a bet that a security will lose value in the future from current prices.) Goldman responded by releasing internal documents showing that it did take hedge against its MBS risk by taking short positions but argued that it did not short for speculative purposes, i.e., as a significant, consistent, standalone investment objective.

This blog is hardly a shill for Goldman Sachs; for instance, I opposed full-value settlement of the AIG swaps, and I've been critical of its heavy political contributions to Dodd and Obama. However, I lean towards Goldman's side on this question, and I am very concerned about the relative timing of recent SEC charges against Goldman and these documents over the weekend as questionably close to coming Senate votes on financial overhaul reform.

There was also an interesting post in Newsweek suggesting the Goldman/Paulson relationship behind recent SEC securities fraud allegations is not necessarily unique--that similar relationships occurred elsewhere in the industry. [In fact, Goldman claims it lost $100M on the Abacus securities Paulson shorted (although it did hedge against its loss and its stake had more to do with an expected buyer falling through).]  I am somewhat skeptical of the government's case; all of the buyers knew about risks/rewards associated with subprime mortgage notes, were investment professionals, and were given financial information relevant to the securities. The fact that Goldman had difficulty selling off the remainder of its Abacus position, presumably without the potential deal partners knowing of the Paulson short position, seems to put into question the saliency of the Paulson position. If the housing market had bounced back, Paulson would have been left scrambling to cover its position. When the partners took the position, they ultimately believed that the securities would, at minimum, not lose money from their original purchase price, or they would have argued for a better price from the get-go.

Political Cartoon

Glenn Foden points out in a globally competitive financial market, the current financial overhead reform legislation is an overly expensive, counterproductive, heavy-handed effort which unnecessarily pushes many strings, addresses the symptoms instead of the fundamental causes of financial risk mismanagement,  and raises the cost of doing financial transactions in the US. We need true leadership, not some sort of public relations stunt by a progressive Congress and President to provide cover that it addressed the problems underlying the 2008 economic tsunami.

Musical Interlude: "Chance" Songs

Abba, "Take a Chance on Me"



Steve Winwood, "While You See a Chance"



38 Special, "Second Chance"



John Lennon, "Give Peace a Chance"

Miscellany: 4/24/10

Quote of the Day 

Principle -- particularly moral principle -- can never be a weathervane, 
spinning around this way and that with the shifting winds of expediency. 
Moral principle is a compass forever fixed and forever true.
Edward R. Lyman



Political Potpourri

One of the more interesting races is for Barack Obama's old Senate seat between GOP moderate Congressman Mark Kirk and state treasurer Alexi Giannoulias. Giannoulias is currently under a cloud over the FDIC taking control of his family-owned Broadway Bank. The Obama Administration has notably distanced itself from Giannoulias, especially given the President's populist rhetoric against banks. Polls have been close, although I haven't seen any since the bank closure. I figure that this may be the year of a GOP comeback in Illinois given the ongoing Blagojevich circus, just as the George Ryan scandal resulted in GOP statewide wipeouts for the remainder of the 2000's.

Speaking of which, it's fascinating to see that Blago is trying to get Obama subpoenaed and insisting to anyone whom will speak to him that his wheeling-dealing is little more than business-as-usual political deal making. I don't buy it; there's no doubt there's a qualitative difference between what Blago was doing and what Florida, New York, Delaware, and Massachusetts had recently done in pushing Senate replacements. Generally speaking, there are a variety of strategies, mostly for political versus personal advantage--e.g., a strong candidate to keep the seat for the governor's party or a caretaker candidate. When Blago started shopping the nomination around for extraneous political concessions or contributions, it corrupted the process. Blago mentioned, for instance, he was willing to name Attorney General Lisa Madigan to the Senate in exchange for her father's cooperation on Blago-favored state legislation. Now I personally don't support Lisa Madigan on her current reelection bid in Illinois, but at the time she was a very credible Senate candidate running strongly against prospective candidates from either party--not to mention Blago's seat.

The Ledger has an interesting article about how the Republicans are raising serious candidates to run competitive races against at least a dozen long-term Congressmen, like Rep. Obey (D-WI).

Looking at some polls at Real Clear Politics, it looks like the GOP has a good shot at taking the 2 New Hampshire Congressional seats back and to hold  retiring Judd Gregg's Senate seat, Senator Murray's (D-WA) seat is clearly a toss-up, and Campbell and Whitman seem to have momentum heading towards the GOP Senate and gubernatorial primaries--and good shots at defeating two long-time Democratic politicians, Barbara Boxer and Jerry Brown respectively.

Rubio, Crist and Cheney

Add Eric Cantor (R-VA) endorsement to Marco Rubio's bizarre bandwagon effect. Granted, I don't often reference opinion columns by Obama supporters, but Democratic strategist Joy-Ann Reid has penned an interesting column entitled "Why Republicans Need Marco Rubio". She makes an interesting comparison, essentially calling him a Latino Clarence Thomas. There are, of course, a number of prominent GOP Latinos in Texas and Florida, but Marco Rubio has been willing to play up to the media conservative base. I still don't get it. Let me get this straight--the libertarian CATO Institute rated Crist the most fiscally conservative governor in America in 2008. (However, it should be noted that CATO was not happy with Crist in 2009 when he agreed to the increased cigarette tax and auto registration fees and expanded flood insurance subsidies.)

Reid points out that Rubio was hardly the media conservative dream Florida House Speaker; most of it seems to be the infamous Crist hug of Obama circulated along the conservative blogs.  In fact, I have not heard a single report on Fox News report on Rubio's earmark-like spending or a fact check on the consistency of his House record with his newfound conservative ideals. But then, I never heard Fox News report that Sarah Palin actually was for funding of the Bridge to Nowhere and had secured earmark money as mayor and governor.

I'm very concerned about Crist's possible run as an independent--in part because I think he is not guaranteed a victory (two different polls show Rubio and Crist winning respectively), he will lose a lot of his endorsements, and if he loses, it may kill his career. But in theory, I want to see him do it, and if I was voting in Florida this November, I would cast my vote for Crist as either a Republican or independent. I think that closed primaries pander to extremes, which is exactly what is happening now, and you have to be able to appeal to moderates and independents to win a purple state.

As for Dick Cheney's endorsement: Let me say, Mr. Cheney, you were part of an administration which came close to doubling the federal deficit, pursued two politically dubious and divisive wars, created the first major unfunded entitlement mandates in recent history, and presided over the most invasive government intervention in decades. Haven't you done enough, Mr. Vice President? Without a George W. Bush and a Dick Cheney, there never would have been a Barack Obama. So enough already over a vote for Crist being a vote for Obama....

Political Cartoons

Chuck Asay does a good job of exposing Obama's "bipartisanship" when it comes to the stimulus bill, budget omnibus bill, federal debt ceiling, health care reform, financial overhaul reform, cap-and-trade, immigration, and....

Musical Interlude: "Child" Songs

Oak Ridge Boys, "Thank God for Kids"



The Carpenters, "Bless the Beasts and the Children"



Guns 'N Roses, "Sweet Child O' Mine"



Johnny Mathis, "When a Child Is Born"

Miscellany: 4/23/10

Quote of the Day 

The heights by great men reached and kept, 
Were not attained by sudden flight, But they, 
while their companions slept, 
Were toiling upward in the night.
Henry Wadsworth Longfellow



The SEC Diddled While Wall Street Burned...

No telling what videos or pictures that a senior lawyer at the regulator's DC head office had watched or downloaded up to 8 hours some days on the government dime: "Swaps: Wives and Mistresses", "Wash Rules: What To Do with a Bride in the Shower", "Briefs on the 69 Position", or "Debbie Does Longs and Shorts". What we do know is that he downloaded enough to fill his work PC and several discs stored in his office. He wasn't alone; you have to admire the due diligence of a female accountant at the SEC whom was unfazed about being blocked 1800 times by the government firewall during a 2-week period: she did manage to store 600 explicit images on her laptop. What's remarkable is this happens despite the best efforts of government (and businesses) to filter objectionable websites and other measures to minimize the use of government computing infrastructure for unofficial purposes, and government employees and contractors are routinely advised about IT policies, including Internet use, and sexual harassment policies; people often have to go out of their way to work around technical obstacles to obtain their access to pornography.

Now the government will tell you that only about 3 dozen of some 1400 workers over 5 years engaged in these activities, and other agencies besides the SEC have similar problem. But this figuratively confirms what conservatives have long known: Big Government screws the American taxpayer...

Obama Panders for Latino Votes on Arizona Immigration

Congressman Luis Gutierrez, probably the most prominent Latino legislator, brought up the immigration issue, using his undeclared position on the Democratic Party Healthcare Bill to draw attention to the issue. Arizona governor Jan Brewer signed a tough Arizona immigration law, which seems to pick up the perceived slack of federal efforts on the Arizona border. (In yesterday's post, I expressed opposition to the act, which I think raises the risk that a law enforcement officer might use the law to engage in unlawful, arbitrary ethnic profiling and also duplicates a primary federal responsibility.)

To the White House, the controversy represents a rare opportunity for Democrats to make even further inroads among Latinos, most of which feel threatened by anti-immigrant sentiment; thus, Obama made it crystal clear that the Justice Department will be on the lookout for any evidence of violations of civil rights legislation. He used the incident to push "comprehensive immigration reform", but I detailed during the 2008 campaign where he voted to undermine concessions to Republicans regarding a temporary worker program, which unions oppose, and to weaken merit-based criterion (e.g., English fluency, professional credentials, etc.) and to maintain unacceptable chained immigration policies; in essence, immigration is biased towards low-skill labor.

What makes the current situation even worse is ex-Arizona governor Napolitano, whom is in a state of denial about the ripple effects of the current battles immediately south of the US/Mexican border, between Mexican police and criminal/drug gangs (and among the criminal gangs). In fact, the Obama Administration has slashed budget dollars for the virtual fence project and reduced the number of Border Patrol agents.

Obama can try to demagogue this issue like just about any other issue by attacking Arizona citizens and politicians upset at spillover crime as "misguided" and issuing ugly threats at Arizona lawmen, but the fact is that he has shown little leadership on a deteriorating situation south of the border while at the same time pandering for de facto amnesty without even first stopping the flow of illegal immigration shows yet another instance of wanting to ram another partisan measure down the nation's throat.

Political Cartoon

Chip Bok indirectly references the palpable hypocrisy of morally self-superior, judgmental progressives whom engage in the most blatant, disrespectful stereotypes. We didn't hear Bill Clinton draw implicit references to the Oklahoma City bombing when the anti-Iraq protesters were agitating against Bush et al., others showed uncivil behavior, even speculating about his assassination. There is no doubt there is anger among some in the Tea Party movement (or, in the disparaging progressive lexicon, "tea baggers"); that has its basis in the progressive legislature and executive branch ramming through an unpopular, deceptively promoted government expansion in 17% of the American economy while adding trillions to the national debt, enacting an anti-growth/anti-jobs Big Government agenda, despite numerous polls.

Musical Interlude: "Hand" Songs

The Beatles, "I Want to Hold Your Hand" (all-time favorite)



Jewel, "Hands" (performance at the Vatican)   (all-time favorite)



U2, "The Hands That Built America"



The Pointer Sisters, "Slow Hand"

Miscellany: 4/22/10

Earth Day 2010       Courtesy of geekstir.com

Quote of the Day 

Write people's accomplishments in stone and their faults in sand.
Benjamin Franklin


Dems Love GOP Opposing 
Health Care "Reform" and Financial "Reform"?

I've been with the same insurer for 30 years; among other things, they offer banking services to members. Tonight for the first time I recall, the organization's CEO send out an email to members, communicating his concerns over a public policy issue: the financial reform package. He argues that even though they do not engage in risky investment practices, the effect of expected financial reform would be to restrict how the insurer handles its portfolio, limits its financial offerings, and decreases its margins (which, beyond reserves, are returned to members).

The basic framework of the debate is as follows: one of the basic abuses leading to the 1929 stock market crash was some use of bank deposits (unknown to the depositors)  to cover security transactions. The federal government, in an effort to control against bank runs, instituted government insurance over depositor funds in Glass-Steagall; there was a wall between commercial banking and other banks (i.e., brokerages and investment banks) to avoid the moral hazard of commercial banking taking advantage of guaranteed customer deposits to engage in more speculative transactions. As a consequence, various rules and regulations inhibited innovation and margins in the commercial sector, and American banks were too fragmented to compete effectively against more unitary European and other foreign banks. In 1999, Glass-Steagall was repealed to make American banks more competitive. Progressives are arguing that the more deregulated American banking industry, particularly with unregulated markets for innovative products like derivatives, constitutes a new Wild West with new banking supermarkets, all "too big to fail".

I've made it clear where I stand on this: business success does rest on some variation of risk-taking behavior; micromanagement of the banking industry is expensive and counterproductive in terms of innovation, global market share and lower consumer cost. It's certainly not clear to me that the economic tsunami was a consequence of unitary banking, in the US or elsewhere in the developed world; in fact, there were some shotgun integrated banking marriages in the ongoing economic tsunami. There were some artificial rules set up, e.g., the Volcker rule, which focuses on spinning off proprietary trading. As Greenspan and others have noted, it is often difficult to discern between making a market and proprietary trading. Regulators have not been vigilant during these crises, and you will almost certainly have issues of regulator competence and performance in dealing with ill-structured judgments.

What should be in a final financial reform package? I'm reminded of Justice Potter Stewart's famous description of hard-core pornography: "I know it when I see it." When I look at the various incarnations of the Obama financial reform package--the Volcker rule, the $50B moral hazard proposal for "too big to fail", it's clear to me that this isn't it. What the financial reform package will do is raise costs and add another unresponsive layer of government bureaucracy, lower innovation and our global competitiveness--and only postpone the next day of financial reckoning.

Moreover, the Democrats think that the GOP opposition to the Democratic Party Healthcare Bill and so-called financial reform will backfire against them in this fall's election. I don't think so; opposition against the healthcare bill and Obama's approval ratings are still stuck at very low levels, and the latest poll on financial reform shows an even split (39%-39%).


Arizona Immigration Bill: Thumbs Down

I disagree with the new Arizona immigration law, expected to be signed shortly by Arizona governor Jan Brewer. I consider border security to be a federal, not state issue. The proposed law compels the law officer to make an assessment of immigration status, even of witnesses to a crime, based on a standard of reasonable suspicion, and the law officer can be sued if he or she fails to exercise due diligence in following up reasonable suspicion. The problem is that this impedes the law officer's flexibility in fighting crime and securing the cooperation of witnesses among undocumented visitors. The police already work with ICE. More disturbingly, "reasonable suspicion" is ill-defined and could be abused as a blank check to engage in ethnic profiling of Latino citizens, which is morally unacceptable, and no doubt a defense attorney might try to use immigration status to undermine the people's case. It's one thing to document the identity of a suspect; it's another thing to treat a police officer as little more than an extension of ICE. We must fight local crime on its own merits, and if witnesses refuse to cooperate based on extraneous factors like legal status, it is counterproductive. The state and local government should not be forced to duplicate or subsidize the rightful responsibilities of the Border Patrol.


Political Cartoon

Bob Gorrell shows us what "liberty" we have under a progressive Big Government, whom keeps a tight grip over your wallet. Maybe he'll give you a bigger allowance from your paycheck if you plead, "Please, sir, may I have some more?"

Musical Interlude: "Lost" Songs

Bread, "Lost Without Your Love"



Air Supply, "Lost in Love"



The Righteous Brothers, "You've Lost That Loving Feeling"



Sting, "If I Ever Lose My Faith in You"



REM, "Losing My Religion"

Miscellany: 4/21/10

Quote of the Day 

As far as the laws of mathematics refer to reality, 

they are not certain, 

and as far as they are certain, 

they do not refer to reality.
Albert Einstein 

The New Contract From America

The full text version is available here. Here's the summary of the final top 10 items (my votes are starred):

1. Protect the Constitution

2. Reject Cap & Trade

3. Demand a Balanced Budget *

4. Enact Fundamental Tax Reform *

5. Restore Fiscal Responsibility & Constitutionally Limited Government in Washington *

6. End Runaway Government Spending *

7. Defund, Repeal, & Replace Government-run Health Care *

8. Pass an ‘All-of-the-Above” Energy Policy *

9. Stop the Pork

10. Stop the Tax Hikes *

Seven out of 10 isn't bad. My alternate choices were: sunset regulations and enact fundamental regulatory reform;  no more bailouts; stop career politicians & curb lobbyist power. I don't want to start a flame war with my Tea Party allies, but let me explain why I didn't select the three others specified above: I do believe in principle that we should not pass unconstitutional laws (the most obvious example being the recently passed Democratic Party Health Care Bill/Law; I have separately opined that I don't think it will be viewed as unconstitutional--this is based more on legal precedence that its conceptual merit); obviously I don't think that we should waste time writing laws that violate the Bill of Rights, but it's the function of the Judicial Branch of government to attest to a law's constitutionality. 

Second, on cap-and-trade: I definitely would vote against a job-killing, inflationary energy tax bill that would reduce American carbons, especially if developing nations all but overwhelm our cuts with increases of their own. I think we should be aggressively building nuclear power plant replacements to meet or replace future power generation needs using fossil fuels, focus on building out infrastructure (power lines to urban centers) for wind and solar energy farms, electric vehicle charging stations and alternative fuels, etc., bar the purchase and registration renewals of fuel-inefficient used vehicles and institute progressive tax credits or subsidized loans for purchasing fuel-efficient vehicles, and provide accelerated write-offs or tax credits for clean coal technology. So why didn't I put cap-and-trade on my list? I don't think that that the same cap-and-trade bill which barely based the House has a chance in the Senate, and I think there are higher priority items.

Third, stop the pork. In my post, I have been a harsh critic of earmarks and government waste; make no mistake of where I stand on the immoral and fiscally irresponsible spending being passed on to future American generations. The issue I have here is that the spending tracked by worthy groups like Citizens Against Government Waste is fairly modest; projects like the Bridge to Nowhere makes for interesting news clips or 101 things named after Robert Byrd. One of the things that I dreaded about McCain's mixed debate performance against Obama is that I KNEW how Obama's progressive handlers were going to treat the issue: first, Obama would co-opt the issue by pointing out he stopped his own earmarks (conveniently right around the time he decided to run for President versus reelection to the Senate); he would make an empty promise to not signing future earmarks; second, he would then counterattack by pointing out that a few billion in earmarks is trivial compared to trillions in the annual federal budget, i.e., much ado about nothing. That's why in many posts I've been focused on items like zero-based budgeting, fixed-bid versus cost-plus contracts, streamlining and consolidating operations, flattening management levels, privatization,  Six-Sigma, industry best practices, usability engineering, etc. I realize half my readers probably just fell asleep. Here's the point I'm trying to get across--government waste is like an iceberg; earmarks are like the tip of the iceberg, but the majority of waste is below the surface, and that's what excites policy wonks like Paul Ryan, Newt Gingrich, and myself.

Why did I think my 3 unlisted choices made more sense? First of all, regulation is an indirect tax. The government provides a mandate, say, Sarbanes-Oxley. I've done a lot of  technical work with ERP application systems, and Sarbanes-Oxley functionality has been a significant factor in relevant upgrades. There is a cost-benefit to regulation. What I would like to see the Tea Party movement focus on is the equivalent of ecological impact studies of new regulation in the business environment: what's the economic cost impact of new regulations? If there is an industry failure requiring regulation, what government solution has the least impact to our global competitiveness? I would like to see the rule of law ideals applied to regulatory frameworks: limit the points of contact, identify regulatory priorities in terms of "must-have" versus "nice-to-have", and adopt a lean, consolidated, simpler, more responsive regulatory authority with clear bureaucratic responsibility and accountability. What I don't want is a growing federal bureaucracy of paper-pushers.

No more bailouts is self-evident: no moral hazard in terms of government providing a counterproductive safety net for businesses and their customers. Businesses that operate with proper risk management should be able to reap the results of their operations: the customer base of bad competitive management. 

Dealing with tenure, whether we are talking about committee rotation (including leadership status) or number of terms of public office, is also a compelling change issue. I'm not optimistic that powerful legislators like Nancy Pelosi, Patrick Leahy, etc., would willingly cede the power and perks of seniority and decades of reelection from safe states or districts, but process reforms would certainly have an impact on how lobbyists would deal with ever-changing leadership. I think we need to go beyond restrictions on the Executive Branch; for instance, I don't see why we can't cap 12 years of service in each of the House or the Senate, or 12 year terms on the Supreme Court. To argue we need an 89-year-old Justice Stevens to serve indefinitely to accommodate an independence of his point of view at the expense of hundreds of well-qualified jurists is nothing short of an anachronism (as in most cases of academic freedom or teacher tenure). I suspect that we've already heard the best that a Robert Byrd and Joe Biden have to offer the people of their states, and the fact that a desperately ill Tim Johnson, Robert Byrd, and Ted Kennedy will stay on to the point of putting their political self-preservation over the rights of their states' people to be properly represented is unconscionable.

Senate Agriculture Committee Approves a Partisan Bill 

on Derivatives: Thumbs Down

I have previously discussed derivatives in other posts, most notably this past Monday's. The Senate Agriculture Committee today passed a party-line vote in favor of Lincoln's (D-AR) heavy-handed derivatives proposal 13-8. Oh, by the way, expect the Democrats to try to spin the vote as "bipartisan" because it attracted one Republican senator (Grassley-IA); anyone who terms attracting 1 out of 9 votes as evidence of bipartisanship is putting lipstick on a pig.

There are a variety of reasons for opposing this bill; among other things, it creates winners and losers (e.g., commercial trading desks versus Wall Street and a double standard in terms of collateralization of transactions (which no doubt will be arbitraged)), it goes beyond the need for transparency through a clearinghouse, it decreases market liquidity, it's like squeezing a balloon, simply shifting speculation around the edges of the framework, and it may simply transfer risk from banks to an exchange mechanism, creating a moral hazard (and the possibility of a Fannie Mae-style failure of the exchange). The bottom line is that a regulatory system is only as good as its regulators, government regulators have not been very effective at their existing mandates, and we need all parties to think proactively and not reactively; Lincoln is not really solving the problem; she's simply giving it a makeover.

Political Cartoon

What IBD cartoonist extraordinaire Michael Ramirez doesn't mention is America, like Iceland, has its own volcanoes. One of those is an unpublicized one on the top of Capitol Hill. Democrats feed the fire with tax dollars, the resulting smoke and mirrors cover the accounting for progressive legislation, and the lava progressively spews out, destroying all private property and leaving ashes of American dreams in its path, and the EPA has declared everything it touches a toxic moral hazard...

Musical Interlude: "Star" Songs

Louis Armstrong, "When You Wish Upon a Star"



Boy Meets Girl, "Waiting For a Star To Fall"



Earth, Wind and Fire, "Shining Star"



The Manhattans, "(You Are My) Shining Star"