Dukes of Moral Hazzard

http://online.wsj.com/article/SB123500760093118475.html

I love the title. One of the things that was very clear from both Buffet's and Greenspan's books was the extreme danger in the "loss of moral hazard" -- in other words, what happens if people and businesses no longer suffer the losses of poor luck, decisions, lack of work, etc and conversely if they are unable to realize the gains of good luck, good decisions, solid work, etc. They both discussed it, and realized that previous government actions (which they both generally supported) were "pushing the envelope" on the topic.

Any doubts that we are well over the edge now? I find this paragraph captures it well:

Let's focus on the plan's effect on the individual borrower. Anyone with mortgages owned or guaranteed by Fannie Mae and Freddie Mac will be able to refinance to lower rates if his mortgage is between 80% and 105% of the value of the home. This is a sweet deal that is not available, for example, to many renters looking to buy homes now. Sadly for those who deferred the gratification of homeownership, the 20% down payment has now become industry standard. But at least their taxes will allow other people to stay in homes they can't afford.

Prior to Reagan, there really was some sense that folks that went to college trying to "get ahead" were kind of "chumps". I remember more than one high school or other person explaining it to me. It went something like this:

"By wasting 4 years of your life in school PAYING good money, while I went out and got a good union job, I got a great head-start on you college boys. All the "stuff" just keeps going up in value (houses, cars, toys, etc), and our union makes sure that our salaries do as well. When you get out of school, you will start at a lot lower pay level and everything you buy will be way more expensive. Going to college is for losers!"

At the time I started my career, my salary was $15,500 in 1978 with 2 weeks vacation, which was a good salary, and a GM Union Autoworker in Janesville was starting out at $25K with a month off and a lot better benefits. A 25+ year veteran, still on the line was making over $50K with 6 weeks+ off and retirement at 30 years at something like 75% of base pay. Had the Democrats remained in power, they would have likely been right on the foolishness of college.

It looks like "we have returned". Education, savings, prudence, etc now appear to be for chumps, and the rewards are for those that "live for today" -- the chumps are going to be required to bail out the folks that ought to be going through bankruptcy.

In a "rational world", the guy that forgoes pleasure today, saves, and in the future buys a home, has the advantage of being able to pick up the foreclosed McMansion for 50 cents or less on the dollar, while the guy that purchased too much home ends up in a flea bitten appt.

In the BO world, the spendthrift stays in the McMansion and the saver sits in the flea bitten appartment and subsidises the spendthrifts habits -- or so BO hopes. As Ayn Rand pointed out long ago, that isn't a very motivational structure, and the worker bees tend to stop working.

Shocking.

Welcome to Ruin

RealClearPolitics - Articles - Slow Drip of Financial Ruin

Couldn't have said it better myself -- put a bunch of Democrats in charge and the MSM cheering them on, and you have a recipe for ruin, and that is what we have!

Senator after Democratic senator stood to disgorge this dishonest rhetoric during floor debate, repeatedly proclaiming the lie that Republican opponents had nothing of their own to offer. But you didn't have to search far to find examples of GOP solutions, such as the one on House Minority Leader John Boehner's Web site. You don't have to agree with his more moderate and targeted package of immediate tax relief for working families, more help for the small business sector (the nation's biggest job producer), no tax increases to pay for spending, jobless assistance and home price stabilization.

However, simple honesty should compel the Reids and Pelosis to refrain from saying the opposition has no plan. Democrats, of course, were able to get away with this slander because few in the media challenged it or bothered to report it. The media also have failed to challenge the economic methodologies that are the basis for claims that the stimulus will produce millions of jobs.

Reason is the facility of the mind used to intelligently form judgments, make decisions and solve problems. Emotions are feelings, desires, fears, hates and passionate drives—all of which are the tools that Obama deployed to sell the stimulus package to a gullible public. Endeavor to go through all 1,100 pages of this stuffed piggy and you'll find little rational connection between the nation's problems and its solutions—other than if we throw enough money out there, some of it will stick to the wall.

Obeynomics

Obeynomics

Nice little article ... the leadoff:

The results are clear. The market hates Obama’s stimulus package and just about everything related to Obamanomics. Or shall we call it Obeynomics? (I'll explain in a minute.) Stocks are down 27% since the Nov. 4th election. Stocks have plummeted more than 40% since Obama sewed up the Democratic nomination in June.

Capital is on strike. And why wouldn’t it be? Private capital has no idea what the future holds in terms of taxes, regulation, trade, deficits and the value of the dollar. None whatsoever.

Capital has figured out one thing, however. The politicians in Washington most hostile to private investment are running the show. Example: David Obey, chairman of the House Appropriations Committee. From Wikipedia: “Obey is one of the most liberal members of the House; he considers himself a progressive in the tradition of Robert La Follette.”

So the people that have a choice of "invest or not" seem to think that a political regime that is anti-business, anti-investment, and has an unknown economic plan makes for the wrong environment in which to sink a lot of capitol into things you expect to make money on?

Ya suppose?

Headless Body, Gutless Press

The caption on this picture was "happier times" -- meaning before good old Muzzammil beheaded his wife. In the "truth is stranger than fiction" camp, he founded "Bridges TV" 5 years ago to combat "the negative image of Muslims". Go figure.

The reason that our media provides very little coverage of this story -- say as opposed to some nowhere Southern ministers wife that kills her hubby with a shotgun, or some preacher that has an affair of some sort, is because they are "unbiased and like to avoid sensational stories".

Hmm, MIGHT there be another reason?

Havard Killed Wall Street

http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_hassett&sid=a_ac69DqFutQ

There is an interesting hypothesis here that bears some thought -- especially with a proud Havard Grad as President. I love books, I love book knowledge -- but I also grew up on a farm, fish, hunt, shoot and have engaged in real business and investing. Bottom line; reality isn't in a book or a computer model.

A lot of what has been loosed on our nation is the idea that we are in a "post common sense world". Reaganomics was pretty much just "common sense" -- set people free to create and take risks, allow them to keep (and lose) the results of that freedom, and "on balance", things will be better.

No longer. Those simple ideas are now "incompetent" we have PHD Nobel Prize winners like Paul Krugman making pronouncements of what MUST be done and what WILL happen after it is done. Maybe. I've seen a lot of very smart and well educated people be wrong, and a lot of not so well educated but much more humble folks be right.

It's The People Stupid!

RealClearPolitics - Articles - Deconstructing Krugman

When Slick Willie was running against Bush Sr, the mantra was "it's the economy, stupid!" -- the media loved it, calling Republicans stupid is always good sport. Perhaps we have a turn about here -- BO and his economic advisors are "doing it by the numbers", but people don't always behave "by the numbers".

But why is the economy performing below capacity in the first place?
Many reasons, too many to list here. And why won't it simply recover on
its own, as it has many times in the past? Here things get a bit more
interesting. Like many economists, Krugman points to Keynes's "paradox
of thrift": in uncertain times, ordinary people defer consumption and
businesses postpone investments. The economy shrinks below capacity,
because of people's desire to save money.

It's hard to escape the sense that the best economists and the
President of the United States are blaming ordinary people for the
economic crisis. If only we'd spend our money instead of save it, we
wouldn't be in such a big mess.

This is where devotion to mathematics gets the better of those who
would do better to try to understand people. Krugman is very concerned
that the liquidity trap we're arguably in will degenerate into a sticky
and persistent deflationary spiral, with far lower output for years to
come (an American "lost decade").

People feel uncertain about the future -- and the government spending Trillions of dollars of their future money at a time that every bone in their body tells them to save makes them even MORE uncertain! So they spend even less.

The economic wizards are so intent on following their models and
ignoring the people, that they will waste tremendous resources trying
to postpone a reckoning that is fated to come. What we really should be
talking about is mortgage finance. We have to figure out how to reduce
the burden of mortgage debt on millions of people (including people
that can perfectly well afford their payments, but are unaware of the
creeping effects of deflation on their purchasing power).

Illusion Agreement

Op-Ed Columnist - Paul Krugman - Decade at Bernie’s - NYTimes.com

It isn't often I find something to agree about with Krugman, but I think he is right about the "illusion of wealth", he is just really wrong about the time period.

First of all, in this world, wealth is ALWAYS an illusion -- that has been known since the Bible came out. Is it a special illusion "the last 10 years"? Maybe, but he has the trend right -- wealth has been even ore illusionary than normal since FDR signed FICA into law. That is when we as a people started signing up for belief in a false Ponzi scheme that makes Madoff look as honest as Abe Lincoln. We has a nation have been on the path of taking money now and transferring debt to future generations since we bought into that scheme.

Once we are all in a "group scheme", the little schemes just pile on. Sub-prime loans and Fannie and Freddie are another example -- if the Government is PUSHING and taking part in serious mortgauge irregularities and "wink, wink, nod, nod" insuring them, well, then why not have some other folks making even MORE money off "the deal"??

At one level this should come as no surprise. For most of the last
decade America was a nation of borrowers and spenders, not savers. The
personal savings rate dropped from 9 percent in the 1980s to 5 percent
in the 1990s, to just 0.6 percent from 2005 to 2007, and household debt
grew much faster than personal income. Why should we have expected our
net worth to go up?

Golly, who was President in the '80s? I bet it wasn't someone that Krugman liked, but at least savings (and most everything else) was better than. What Krugman doesn't quote is that the home credit binge took off from '90 - 2007 ... $2.5 Tillion in '90 to $10.5 Trillion in credit backed by homes by 2007.

So Krugman finally decides that unless we have another WWII level of spending, it will be a "long painful slump". Lovely -- Krugman hates the idea that conservatives are optimistic when Republicans are in power, but I guess the fact is that the left is ALWAYS pessimistic, even when all their folks are pulling the levers!

Since nothing like that is on the table, or seems likely to get on the
table any time soon, it will take years for families and firms to work
off the debt they ran up so blithely. The odds are that the legacy of
our time of illusion — our decade at Bernie’s — will be a long, painful
slump.

Whither Growth?

RealClearPolitics - Articles - A Lost Decade Ahead?

The article compares the current US situation with the Japanese situation circa '90, and I think does a reasonable job. The answer is pretty much in the last couple paragraphs, and I think is also correct. We can argue all we want about "stimulus / no stiumulus / socialism / etc", but the real question is "what is the engine of growth"? I'd quibble with Samuelson that the Internet, high tech and finance itself were strong engines for US growth as well as consumerism, but there is no doubt that consumption based on rising asset values was a major part of our growth strategy. Where do we grow now??

Still, the operative word is "temporarily." Hannity is correct in
that serial stimulus plans become self-defeating. The required debt is
unsustainable. At some point, the economy must generate strong growth
on its own. Japan's hasn't. Will ours?

Since the early 1980s, American economic growth has depended on a
steady rise in consumer spending supported by more debt and increasing
asset prices (stocks, homes). Just as the mid-1980s signaled the end of
Japan's export-led growth, the present U.S. slump signals the end of
upbeat consumption-led growth. But its legacy is an overbuilt and
overemployed consumption sector, from car dealers to malls. The
question is whether our system is adaptive enough to create new sources
of growth to fill the void left by retreating shoppers.

Courage Still Lives!

CNN Political Ticker: All politics, all the time Blog Archive - IL Republican: Obama only arm-twisted in public « - Blogs from CNN.com

WOW, a few more people like this, and someday we may yet see "Hope for Change" to something like having people take responsibility for their lives and expect to gain a better future for them and their children by trusting in something more than Government and in their own ability and hard work!

There is hope! Slim mind you, but slim is much better than none!

“I like the President. He’s a very good guy . . . I want him to be successful. I want to vote for a stimulus bill. I appreciated his hospitality in bringing me along on the trip. . . . But at the end of the day my responsibility is to the people who gave me this job – my constituents,” the 27-year-old said.

President Obama “could not have been more cordial” onboard Air Force One, Schock said. “He waited for the hard sell, if you will, in front of the national media. That’s when I really got both of my arms twisted there in front of hundreds of my constituents and the national media when he had me stand up and basically ask my constituents to put the pressure on me.”

Like some of his Republican colleagues in the Senate, Schock also took issue with the legislative process that resulted in the massive stimulus bill.

“Bipartisanship is not one party writes the bill and we all vote for it. Bipartisanship means you truly meld together both sides ideas and come up with a compromise bill,” Schock told King. “That didn’t happen in this case and ultimately, that’s why I voted against it.”

See, "Bipartisanship" is another one of those things that the MSM thinks differently about depending who is in power. If Republicans are in power, one is "bipartisan" when the DEMOCRATS get full involvement and are happy with all outcomes. When Democrats are in power "Bipartisan" is when they completely get their way and some Republicans "get it" and vote along with them. Simple!

Mysterious Ways of the Lord

Got this in an e-mail, it is pretty cute.

I never thought I would enjoy watching the news about an "airplane crash." But the Lord works in mysterious ways, and with a sense of humor!

First: No one died!

Second: The passengers standing on the wing appeared to be walking on water!

Third: It removed Obama from the headlines for 24 hours!

Fourth: No one in the government could take credit for the miracle!

and Fifth: It wasn't George Bush's fault!

WOW!

(well, I bet after the MSM looks into it deeply, there was SOME proposal for SOME sort of bird warning, bird scaring, or something that would have been hugely expensive and rarely effective, but was turned down by the Bush FAA -- so it may STILL be his fault!)

BO Reads

Here is a site with BO reading from his own book. One thing about BO, he really SOUNDS Presidential!!

I normally avoid profanity, but we are talking the greatest president in US history here, so it must be the right thing to do! I wonder if he can single handily bring back the "N word"? I mean if we have a President saying it, then it has gotta be OK doesn't it?

Some more very presidential reading here. 

Real Trumps Imaginary

RealClearPolitics - Articles - Apocalypse Now? Highly Unlikely

I well remember the global cooling crisis of the mid 70's -- it was much more academic then political as global warming has been, but anyone with any brains KNEW that we were on the verge of an ice age. "Shortage" was also the major watchword -- we were "out" of oil, metal, food -- you name it. "The end was near" -- unless of course we turned to the brilliant leadership of more Democrats. I remember the Carter drumbeat on campus -- one which I listened to and proudly went out and cast my first ever Presidential vote for that great reformer from Plains!

This is especially true:

Montaigne's axiom: "Nothing is so firmly believed as what we least know."

The areas that I know the very most about are areas where I have very little to no "belief" -- I know both what I know, and what I don't know. The set of what I don't know is always painfully larger than the set of what I do, but that is the price of knowing -- it much increases dealing in probability and reduces dealing in certainty. Such is the shape of the real world.

Because of today's economy, another law -- call it the Law of Clarifying Calamities -- is being (redundantly) confirmed. On graphs tracking public opinion, two lines are moving in tandem and inversely: The sharply rising line charts public concern about the economy, the plunging line follows concern about the environment. A recent Pew Research Center poll asked which of 20 issues should be the government's top priorities. Climate change ranked 20th.

Real calamities take our minds off hypothetical ones. Besides, according to the U.N.'s World Meteorological Organization, there has been no recorded global warming for more than a decade, or one-third of the span since the global cooling scare.

Indeed.

The Feeling of What Happens

I like to read about the human brain, and especially the subject of consciousness, so this book by Antonio Damasio was interesting TO ME -- but probably not to "normal humans".

It provides essentially a lot of detail on the theory that there are two types of consciousness -- "core consciousness" and "extended consciousness". He considers core to be an artifact of the body reflecting "current state" into some key low level brain stem regions that he calls the "proto self", or the mental image of the living body. There is a lot of discussion of how one "becomes awake" -- at least which regions of the brain have to be operating and maybe what is happening in them.

"Extended consciousness" takes our whole brain -- long term memory, our "life's story". While our "core" pretty much operates in "1 min short term memory bursts", the "extended" keeps track of all we have been and our hopes of all we will be -- even the core is clearly "human" in that it is more than animal, but it is the extended consciousness that is what we see as the "highest form or life on the planet".

There are lots of detailed long names for parts of the brain that nobody but a practicioner is likely to completely remember and keep straight, and there are a lot of very interesting stories about what happens when certain parts of the brain are damaged by some sort of disease or injuury. These are often interesting as well as scary.

I liked the book, but unless one has a true interest in quite a bit of depth on the neurological underpinnings of consciousness, it will be a slog.

A Moderate Gets Worried

Op-Ed Columnist - The Worst-Case Scenario - NYTimes.com

David Brooks is the NYT "token conservative" -- he is essentially "just to the left of Olympia Snow and Susan Collins". I don't know if he ever actually came out for BO, but he was close.

Here is a bottom line that I think he essentially gets right:

The crisis was labeled an economic crisis, but it was really a
psychological crisis. It was caused by a mood of fear and uncertainty,
which led consumers to not spend, bankers to not lend and entrepreneurs
to not risk. No amount of federal spending could change this psychology
because uncertainty about the future remained acute.

Essentially, Americans had migrated from one society to another — from
a society of high trust to a society of low trust, from a society of
optimism to a society of foreboding, from a society in which certain
financial habits applied to a society in which they did not. In the new
world, investors had no basis from which to calculate risk. Families
slowly deleveraged. Bankers had no way to measure the future value of
assets.

People indeed have a lot of brain cells, but at the bottom, our emotional repertoire is likely not much different from the family pet, with fear being by far the easiest lever to pull even unwittingly. Our cognitive / rational fore-brain only gets to play when our emotional low to mid-brain is satisfied that "the crisis is over".

The lefties were constantly in accusation mode that the Bush team "played on people's fears" relative to terrorism -- as if the worst foreign attack on US soil since the revolution wasn't something that was going to engender a legitimate fear response that was best dealt with by taking action to remove as much of the potential for future attack as possible.

When the new President gets up and tells us that if we don't throw $800 Billion + of pork fat to the beauracrats in DC, "the recession will turn into something we can't recover from", and then his Treasury Secretary gets up and says he is going to throw $1.2 Trillion around with no plan and all, while the President's appointees are dropping or backing out like Mormons at a Gay Bar, the scent of fear overcomes even the scent of BO.

The Rubicon has been crossed, the die has been cast -- at some deep level, even BO seems to now realize that he doesn't know what he and his troops are doing and that we may in fact head to some place that is "not recoverable". I'd argue that as long as he doesn't start down the path of the "Fairness Doctrine", and radical gun control, America WILL recover -- but it could be a very long time with an awful lot of pain.

Deja Vu

RealClearPolitics - Articles - Runaway Stimulus

As Will points out, we have been here before -- many times. How far will we fall and how fast? Nobody knows that. Will we recover? Nobody really knows that either. Unless our descent is total and "complete" -- say terrorist attack with Smallpox that takes out 70% of the population or so, there will likely be some sort of "tomorrow" that some living today will be around to recognize, but from this vantage, it is looking to me like the likely aftermath of this "change" may exceed any pain in the history of the US.

Lincoln is good for magnitude -- but maybe consider Jefferson Davis, or what would have ensued if Lincoln had LOST the Civil War? Think of the Post BO US as maybe Atlanta after Sherman.

Forget FDR, think Hitler. The  blind cheering crowds for "Change", "Hope", "Yes We Can" and the speed of the drive to the politicization of all while claiming "all is beyond politics" is so reminiscent of the Third Reich that one has to be willfully ignorant of history to fail to see the parallel. Think Berlin after WWII.

Will points out one that I would not have come up with:

Not yet a third of the way through the president's "first 100 days," he
and we should remember that it was not FDR's initial burst of activity
in 1933 that put the phrase "100 days" into the Western lexicon. It was
Napoleon's frenetic trajectory in 1815 that began with his escape from
Elba and ended near the Belgian village of Waterloo.

This last quote makes the same point I've made a number of times -- the parallel to the period of '65 to '82. My current prayer is that we can sneak by somehow with ONLY that level of despair and destruction -- my reason tells me that we may likely end up wishing for something as "mild" as the '30s or even the Civil War. BO as Lincoln indeed.

In December 1965, John Maynard Keynes, although 19 years dead, was,
as today, enjoying one of his recurring resurrections as vindicator of
government management of the economy by manipulating "aggregate
demand." Keynes' visage was on Time magazine's cover and the
accompanying story said that happy days were here again and here to
stay.

President Lyndon Johnson was embarked on building the Great
Society, assisted by policymakers who, wrote Time, "have used Keynesian
principles" to smooth the moderate business cycles and achieve price
stability: "Washington's economic managers scaled these heights by
their adherence to Keynes' central theme" that a modern economy can
operate at "top efficiency" only with government "intervention and
influence." So, "economists have descended in force from their ivory
towers and now sit confidently at the elbow of almost every important
leader in government and business, where they are increasingly called
upon to forecast, plan and decide." Ten years later, the "misery index"
-- the unemployment rate plus the inflation rate -- was 19.9, heading
for 22 percent in 1980.