Friday, May 22, 2009

Credit Card Reform

Congress quickly passed a credit card reform bill. Good for them. They could have gone a lot further and limited interest rates but they at least did something.

Normally my Libertarian instincts say that the government shouldn't interfere with private business but I make the exception that the government needs to keep business honest. Current practices by the credit card companies are less than honest. They lure people in with promises then change the rules. The idea is that once you are hooked they can gouge you with unexpected fees and penalties.

A major problem in our society is that credit is too easy. Every time I go to Sears Hardware I'm offered a credit card to be issued on the spot. Other stores do the same thing. It's twofold deal for them - they sell you more of their merchandise and they make a killing on the credit cards.

Far too many people find themselves with an unmanageable debt on their credit cards. One way that they have been handling this is to roll it into their mortgage based on inflated housing prices. That's what fed the housing crisis.

Congress should go further. The Republicans passed a terrible bankruptcy reform bill a few years ago. It gave the credit card companies more claim on the assets of bankrupt individuals. The Democrats should repeal it.

A few decades ago the credit card companies didn't give you more credit than you could handle. They didn't want to get stuck. We need to go back to those days. Part of this is increasing the risk to the credit card companies so that they will be more careful with their money. If they are more careful then consumers are less likely to get in trouble.

Thursday, May 21, 2009

Truth and the Speaker

A significant portion of the left wants some sort of show trials for the Bush administration. The first step was going to be the establishment of a "Truth Commission" to investigate the use of torture against terrorists. It sounds simple but things get sticky quickly.

If the left was serious about discovering the truth then they would pursue it at all costs. That has not been the case. There was concern from the CIA that current agents would be held accountable for actions that were thought to have been legal when performed even though they are now considered improper. President Obama assured the CIA that they were exempt. Instead the movement talked about going after the lawyers who wrote the legal opinions justifying the interrogation techniques used.

This is the first proof that the whole thing is nothing more than a partisan charade meant to embarrass the Republicans. Much of the argument against waterboarding is that any reasonable person would regard it as torture therefor, the people who actually got their hands dirty should be at least as culpable as a lawyer who wrote an opinion. The problem is that the lawyers are Republicans and the CIA agents are not.

Then the Republicans found out that Nancy Pelosi knew about the waterboarding as early as 2002, 2003 at the latest. They started an uproar. Why limit the inquest to Republicans? Someone who insists that waterboarding is torture knew all about it but was silent on the matter for years. Doesn't that make her an accomplice?

Pelosi gave various answers. She insisted that she was told that waterboarding might be used but not that it had been. By last week she was insisting that the CIA never told her about the waterboarding and that they are lying when they say that they did. She accused them of regularly misleading Congress.

That's a serious charge. The Speaker of the House is saying that the government cannot trust its own intellegence agency, even when headed by a Democrat. The Republicans proposed creating a joint committee to investigate this charge. The Democrats (plus two Republicans) voted it down.

Think about this. If Pelosi is correct then our government is in serious trouble. How much of our foriegn policy is based on misinformation? You would think that this would be a high priority for Congress. Since the Democrats rejected the investigation the only conclusion is that they already know what they would find - the CIA told the truth and Pelosi lied.

So much for the truth. Pelosi dug herself into a hole. The Democrats tried to dig her out but she is in too deep.

This is the final proof that the whole waterboarding investigation is partisan. If the Democrats were interested in the truth then they would not hesitate to implicate any CIA agents and Democrats involved. By trying to limit their investigation to Republicans, the Democrats are making themselves look bad. This may end Pelosi's term as speaker.

She could have shot down the whole truth squad movement when it started. She knew that her own hands were dirty, that she had given her implied concent when informed of the procedures years ago.

Monday, May 18, 2009

The Government Option

It's hard to believe but we came very close to universal health care around 20 years ago during the administration of George H. W. Bush. The program proposed was called "Pay or Play". An employer "played" by providing insurance. Those who did not play would pay - they would be charged a fee which would go to a government-run health program. This would not provide coverage but it would mean that everyone who had a job had insurance coverage. The plan had wide support in Congress and the backing of the White House. It was supposed to be the best of both worlds. It would preserve private health care and insurance and it would eliminate the competitive advantage of not covering health care.

Then it fell apart. The reason why is instructive today.

At some point during the negotiation between Congress and the White House, someone pointed out to President Bush that it would be easier for companies to "pay" than for them to "play". As time passed, most employers would switch coverage to the government run plan and eventually the would be the norm. That was more than Bush had bargained for. He had no intention of dismantling the insurance industry and nationalizing health care but that was the inevitable result of Pay or Play. The White House backed away from the proposal. Members of Congress who always favored Canada's single-payer plan disowned Pay or Play and the endeavor collapsed.

I'm mentioning this because one of the big issues in the new health care debate is the existence of a government-run alternative. Some on the Left such as Paul Krugman, insist that no plan should be passed that does not include a government-run portion.

In all likelihood, any insurance plan offered by the government would have some sort of subsidies in it that would make it more attractive than the for-profit alternatives. That puts us right back to the government slowly nationalizing health care.

There some very solid reasons why you don't want the government in charge of your health. The biggest one is that insurance companies don't have the authority the the government has. Right now the government has no financial stake in your health and it is still intrusive. Once your health care depends on the public coffers then the government has the right to micro-manage your life.

This is happening in England and Scotland where councilors are knocking at doors to give obesity advice.

Part of being free is being able to choose your lifestyle. If you want to be a couch potato you can be. Put the government in charge of your health and we will see mandatory daily calisthenics like in 1984 or Communist China.

Friday, May 15, 2009

Olbermann Over the Top

Keith Olbermann recently premiered a new segment entitled "WTF". The fact that these initials, when spelled out, would earn a movie an R rating shows how much class this new segment has. For his opener, Olbermann focused on Miss California, Carrie Prejean. He showed some clips and pictures of her, some in tasteful topless poses. Then he mocked her. He mocked her beliefs. He mocked her religion. He mocked her freedom of speech.

Your grandfather did not fight to protect your right to answer a question during a network television soft-porn special without consequence or fallout.

There are several disturbing things about Olbermann's rant. The first is that Prejean should never have been asked that question. It is unfair to ask politically charged questions in a beauty contest. It came up because the organizers invited a celebrity judge with an agenda - "Perez Hilton". Since gay marriage ballot initiatives have been consistently voted down, the odds were in his favor that any contestant he asked about gay marriage would say that she was against it giving him an oppertunity to spout off after the contest.

The next thing is that Prejean's answer is almost identical to what Barack Obama said at least three times on the campaign trail. That includes the reference to god. A beauty contestent is not in a position to change the law. The President is. He also had plenty of time to consider his answer while Prejean was caught unprepared. Why unload on Prejean and not on Obama?

But none of this is as troubling as the way that Olbermann unloads on Prejean. He absolutely hates her and goes to lengths to belittle her. Why? She is not an important figure. She is a beauty contest contestant and model whose shares beliefs with a president that Olbermann supports. She is even open to civil partnerships. There just isn't anything there to inspire such invective. WTF?

BTW, for the record - my daughter is in a civil partnership and I support her. I'm defending Prejean because Olbermann's attack was unjustified, not because I agree with her.

Tuesday, May 12, 2009

Bankrupt Obama

The nation's financial future looks bleak. The Obama budget included huge deficits but even those were based on some unlikely projections. The first one is that the economy would turn around during the Summer and take off by Fall. That has not started yet, no matter how many "green sprouts" are visible. Instead, the government ran a deficit in April for the first time in 26 years. At best, we will see a recovery late in the year or early next year.

There are several factors slowing the recovery. We may not have bottomed out yet. After months of news stories about the return of the Great Depression, it is unlikely that people will rush out to borrow and spend like they had been. In fact, Obama has said that we should not return to those ways (except in the short run when the economy needs it). All of this adds up to a recovery that is more likely to be a swoosh than a "V".

Obama is likely to have trouble with his new taxes, also. The biggest one, the carbon trading scheme known as Cap and Trade is is serious trouble and is unlikely to pass as Obama desired. Cap and Trade served a double purpose. It is supposed to reduce CO2 emissions and to raise revenue.

The big budget-breaker is going to be Obama's universal health care. The President met with health care leaders yesterday and announced that they would control costs. This has been met with universal skepticism. Event the New York Times thinks that results are unlikely.

If history is a guide, their commitments may not produce the promised savings. Their proposals are vague — promising, for example, to reduce both "overuse and underuse of health care." None of the proposals are enforceable, and none of the savings are guaranteed. Without such a guarantee, budget rules would normally prevent Congress from using the savings to pay for new initiatives to cover the uninsured. At this point, cost control is little more than a shared aspiration.

The Senate is considering new tax hikes to pay for health care. This will probably slow economic growth even more.

Currently the deficit is unsustainable. For every $1.00 spent in 2009, the government will borrow $0.45. A big chunk of this is stimulus spending which is supposedly a one-time deal. Even so, a budgetary time bomb is about to go off in the form of Social Security and Medicare.

Since its founding, Social Security has run a surplus. In theory, this surplus has been invested. The reality is that the investment was in government bonds. This was a means of laundering the money. The government would write itself an IOU then spend the surplus. By using a "unified budget," this disguised how large the deficit really is. Every administration has done this going back generations.

This worked as long as the pool of workers was greater than the pool of retired. That time is nearing its end. Within seven years the Social Security administration is going to start cashing in those bonds it holds. This means that general fund money will be diverted to redeeming the bonds which means higher deficits. Medicare is in worse shape. It will start needing money this year and will be insolvent in 2017.

People, mainly Republicans, have warned for years that this day was coming but politicians were reluctant to do anything. The day of reckoning is nearly here and the Obama administration's response is to create a new entitlement on top of the ones we cannot afford (following the Bush administration which added an expensive Medicare drug benefit).

At this rate, the country will be bankrupt before the end of Obama's first term.

Thursday, May 07, 2009

Prosperity and the President

What is it about 3rd world nations that keeps them so poor? What is it about the wealthier countries that makes them wealth? Groups like the CATO institute have bee studying this question and found that prosperous countries have two attributes: rule of law and strong property rights. It turns out that people are only willing to invest their life's savings if they know that the results will not be seized arbitrarily or by corrupt officials.

This is important to the current economy. President Obama and the democratic Congress are a weak defenders of these two principles. Obama has talked about taxing the richest 5% of the population. Congress came close so seizing bonus money after it had been paid. With Chrysler, Obama dictated terms. The hedge funds, which by law could demand that 100% of their investment be paid back before the union pension funds got anything, agreed to lose 40% of their investment but balked at losing 60% when the pension funds got a better rate. For this, Obama denounced them as speculators who were only interested in profit. Banks that have accepted TARP funds have found themselves saddled with ever-changing restrictions on bonuses, salary, and even where they can hold conventions. Obama plans to have the government take over all student programs, pushing out the private institutions that currently provide half the loans.

All of this is having an effect. According to Forbes, investors are not investing.

Investors, other than the banks who desperately needed TARP funds for survival, are leery of any program that uses them. Anyone who took TARP funds has been subject to government interference in managerial decisions. The restrictions on bonuses and executive pay have been widely discussed in the media. Less well known are restrictions on the banks' ability to hire foreigners, and the constant harassment by Congress over internal management decisions on everything from the use of private aircraft to the locations of conferences. Some of these concerns are well justified, of course, but it wasn't clear ex-ante what all of the rules were and it isn't clear ex-post either.


Why would private capital get involved when the rules of the game are so capricious? No one would take that gamble when it is clear that, in dealing with the government, private capital will always take a back seat to politically powerful entities.

And that is the larger worry that current policy has neglected. Firms and markets can function quite well within a framework of rules. Indeed, rules are good for the orderly conduct of business. But when rules get imposed or dispensed with willy-nilly in the interests of politics, it is very dangerous. We have should have learned this lesson long ago.

The Obama administration's record on the rule of law isn't that good either. A law professor appointed to the top legal spot in the State Department thinks that international law (i.e. European law) takes precedence over the Constitution. The Supreme Court has used foreign precedent in determining domestic cases.

Obama has indicated that he wants his nominee for the Supreme Court to have "empathy". His qualifications are:

We need somebody who's got the heart, the empathy, to recognize what it's like to be a young teenage mom. The empathy to understand what it's like to be poor, or African-American, or gay, or disabled, or old. And that's the criteria by which I'm going to be selecting my judges
BTW, the nominee also has to be a woman.

The implication here is that Obama wants a justice who values bending the law to help specific groups of people over being fair and impartial. A strange requirement from a former constitutional law teacher but he has said the same thing more than once.

While none of this is going to turn us into a 3rd world country, it is going to slow investment and that is going to hurt everyone. The quickest way out of the recession is to expand the economy. That is why both the Obama and Bush administrations have gone to lengths to free up credit. But this will not accomplish anything if people are afraid to invest.

Ironically, the economic crisis went a long way to assuring Obama's election but his anti-business attitude makes him a poor person to be in the White House during an economic downturn. His administration gives constant mixed messages and his base in the Net-Roots accuses him of having sold out to Wall Street.

Until Obama realizes that he has to help investors instead of punishing them we will have a slow recovery. Since his promise to halve the deficit is based on a strong recovery, this will eventually come back to hurt him in several ways.

Wednesday, May 06, 2009

Obama and the Capitalists

It is becoming increasingly evident that the president doesn't like capitalists. Specifically, he doesn't like people who make investments and expect a profit, or at least a chance to minimize their losses.

The Chrysler bail-out made the news a few times over this. Last week it was announced that Chrysler would have to declare bankruptcy because an agreement could not be reached with some hedge funds. This earned them a public rebuke from Obama. More recently, these hedge fund managers have started speaking out about the way they were treated. Their complaint is that the government wanted to do to them what it did to the large banks holding Chrysler debt - dictate terms outside of normal bankruptcy protections. In both cases, they were told that the losses on their secured debt would be higher than on unsecured debt. They were also told that there would be no discussion about this. The head of a hedge fund had this to say:

Let's be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. If they give away their clients' money to share the 'sacrifice,' they are stealing.

Newsweek thinks that this is an isolated case and no cause for further alarm.

In ordinary times and circumstances, there's no justification for the government to intervene in a way that privileges unsecured lenders over secured lenders. But the times and circumstances surrounding Chrysler aren't ordinary.

While the circumstances may not be normal, the president is disturbing and part of a general pattern of anti-business behavior by the Obama administration.

In March the large banks that had accepted TARP funds were surprised to find out that the Obama administration felt that this gave the government control over these banks. Several have expressed a desire to return the funds. Currently the government will not allow this. Several possible restrictions on returning the TARP funds have been advanced but restrictions continue to change. Just this week the government suggested that banks that return TARP funds will also need to quit the FDIC. In the meantime, the government controls salaries and bonuses on Wall Street banks.

Obama recently announced that the government was going to take over student loans. Currently the student loan market is split between the government and private lenders. The reason for the government takeover seems to be to remove profit from the loans.

Obama proposed new tax laws on companies operating overseas. Currently, money earned overseas is only taxes at the local rate until it is brought to the US. If a company builds a call center in Ireland and re-invests its profits in expanding the call center then it would only pay Ireland's modest 15% corporate tax. Obama would tax all corporate profits at US rates. That would more than double the taxes in the Irish example. To Obama, this is nothing more than a tax break for moving American jobs overseas.

Obama also proposed requiring financial companies world-wide to provide detailed records to the US. Anyone in the US who placed money in an institution that did not comply would be assumed to be guilty of tax evasion by the IRS and have to prove their innocence.

The Obama administration has expressed a strong desire (negotiated down from a requirement) that any universal health care proposal include a government-run alternative to private insurance. Senator Byrd denounced the for-profit motive of insurance companies. Conservatives fear that the government program would be subsidized and slowly drive the private insurers out of the market ending up with a Canadian-style single-pay system.

All of these cases show that the Obama administration is not comfortable seeing people profit from investing. They want to see corporations putting other priorities ahead of making money. This sort of mushy Marxism sounds nice but capitalism requires that companies succeed or fail on their own. Companies that put other priorities ahead of success (profit) will eventually either fail or require further government bailouts.