Life imitates Bloom County

September 3rd, 2009

Obamacare activist bites off the finger of a political opponent.  I guess that’s one way to create demand for socialized medicine.  Which reminds me of my all-time favorite comic strip:

More on the Disguised Subsidy

April 5th, 2009

Becker and Posner elaborate on what’s increasingly looking like the real purpose of the Geithner public-private investment plan — disguised subsidy.

Meanwhile, Tyler Cowen explains why creditors (specifically AIG’s creditors) should be feeling more pain.

It would be bad precedent, and mind-bogglingly expensive, to promise to pick up all future obligations to major creditors. At the same time, any remarks that threaten to leave creditors hanging could panic the markets. So silence reigns, the Fed and Mr. Geithner receive bad publicity over the bailouts, and we are all laying the groundwork for a future financial crisis.

Moral hazard caused this mess; the administration’s answer is . . . more moral hazard! Those who originated bad loans knew that they wouldn’t bear any losses. Instead, those were supposed to fall further up the chain. Fannie, Freddie and financial intermediaries such as AIG, would (supposedly) absorb the risk. In the case of Fannie and Freddie, the government indemnification was widely relied upon, if officially denied. Now we’re in the process of creating the same sort of moral hazard for the entire financial sector (and, for that matter, the automobile industry). Bet big! Gambling losses won’t be collected.

It’s fashionable to portray those who are in favor of free markets as solicitous of “greed.” But defending the right of those who take risks to profit has an essential corollary — insisting that those who lose their wagers make good on their losses. Part of one’s risk is in the choice of one’s counterparties. Right now, it’s the Obama administration that’s playing the role of the worst sort of apologist for Wall Street and big business.

The Geithner Put

March 26th, 2009

How to make billions by getting the Obama administration to cover your losses:

Sachs calls it right:

But under the Geithner-Summers plan the loan is precisely designed to be a one-way bet, for the purpose of overpricing the toxic asset in order to bail out the bank’s shareholders at hidden cost to the taxpayers.

It’s one thing to spend hundreds of billions bailing out bank management, stockholders and bondholders. It’s another thing entirely to give away even more to politically-connected investment firms just to disguise the fact that you’re holding the banks harmless for their foolishness.

Bull, Bear or Dead Cat?

March 24th, 2009

Over at Volokh, Stuart Benjamin implies it was purely partisan to attribute the market fall to Obama. It is indeed more complicated than anyone can reliably figure, but if that’s where our analysis must stop, the Democrats shouldn’t have tried to tie Bush (and by extension, McCain) to turmoil in the markts.

Policies have costs and benefits. Markets are all about pricing in expectations. As the first commenter points out, the real question is when to start to hold Obama (and, just as importantly, the enlarged Democratic congressional majority) accountable. Inauguration day gave us little if any new information. In fact, the interesting correlation is between the real inflection point in the indices in mid-September of 2008 and Obama’s emerging electoral inevitability. In that case, though, the causality is mixed, but probably skewed toward the markets-causing-Obama, not the other way around. (On one hand, the Palin choice doesn’t work out as planned, helping Obama and potentially moving the markets. On the other, the credit crisis makes landfall — probably independent of political events — and the markets influence politics.) But the declines since election day are at least plausibly due to expectations about Obama. (Remember when markets rallied on Geithner’s naming?)

The run-up over the last couple weeks has been largely due to (1) the Fed’s quantitative easing (which even Paul Krugman is acknowledging blurs into essentially a huge deficit spending proposal) to keep the cost of capital to financial institutions unusually low and (2) the private-public partnership to buy up toxic assets, whereby the USA takes most of the downside on the assets while hedge funds get most of the upside for a very small share of the risk. Obama is telling the markets that the US will bear the cost of all the bad decisions by “too big to fail” financial institutions. Both of these developments amount to a demonstration that the Obama administration will basically through several trillion dollars of taxpayer money (most of it in the future) at the toxic assets in order to relieve the financial system of those liabilities without either (i) removing management of the institutions that create the mess (ii) wiping out the equity of the same or (iii) forcing a major haircut on the debtholders. Of course those Wall Street is cheering; the dominant financial institutions have been spared a (deserved) death sentence. The costs have been shifted to the taxpayer, albeit covertly and in a manner that will only become apparent in the future. It’ll take a while until all the costs to the economy of this gambit will become apparent and be priced into the markets.

The other thing that’s feeding the market a bit is that EFCA is looking like it won’t survive in its full-blown horror.

I hope I’m wrong, but I don’t see the markets regaining Sept 2008 levels (adjusting for inflation) for any extended period until after Obama is gone. He’s struggling to keep them afloat by any means through the next election; sometime after that inflation and increased government cost of borrowing will become his albatross.

The antitheses to Michael Jackson.

December 31st, 2008

Fighters, not dancers.

This is just great. Moreover, it has to mean something — though I’m not going to try to figure out just what that is.

Via Belmont Club, where you’ll find much more, including contributions from other coalition forces. The British forces improve on an earlier performance.

TEOTWAWKI

December 30th, 2008

Probably nothing out of the ordinary for a highly seismically active area, but if recent earthquakes under the Yellowstone caldera are a harbinger of the once-every-600,000 year supervolcano eruption that’s about due, it would make the most apocalyptic visions of Global Warming look downright pleasant. See also here and here.

I’m not heading out to stock up on 50 lb bags of rice at Costco — yet — but this can serve as a reminder that there are a number of potentially civilization-ending events of which we ought to be aware of and for which we must — to a certain extent — be prepared. Preparedness must be prioritized based on non-politicized judgments of risk and sometimes the best preparedness is a robust economy that creates the resources and technology that can be marshalled to combat that extremely high-cost, extremely low-frequency event that suddenly surfaces. That eruption, or that asteroid, or whatever, will come eventually, but think how much better civilization is likely to fare if we have another few hundred years of growth and technology under our collective belts. A few short generations ago, we probably would not even have had any warning at all of such an event.

Auto Club

December 16th, 2008

Here are some worthwhile sources to consider on the GM/Chrysler bailout:

Joseph Stiglitz endorses Chapter 11 over an auto industry bailout (via Mankiw).

Todd Zywicki takes the same position, arguing the industry is merely “financially failed”.

Richard Posner comes out for at least a temporary reprieve, acknowledging that

The realistic goal of an auto-industry bailout is not to reform, revitalize, or restructure the domestic industry; it is merely to postpone its bankruptcy for a year or two, until the end of the depression is at least in sight and consumer confidence is restored to the point at which the bankruptcy of the domestic manufacturers can be taken in stride.

Gary Becker responds that a recession is a relatively good time to make the required adjustments to supply that will enable the industry to again become competitive.

Mickey Kaus has several posts, with the key one arguing that the problem is the very nature of Wagner Act unionism (i.e. work rules), even more than wages and benefits, that hobble the industry and doom a bailout.

Michael Barone adds some historical perspective to Kaus’ position, describing how the work rules were a response to early 20th century industrial efficiency theories and a GM that, just before the industry was transformed in the 70′s (by gas prices, environmental regulation and foreign competition), feared most of all a federal antitrust action to break it up.

Which brings to mind one of the Ronald Reagan’s classic jokes. The government’s view of the economy can be summed up in a few short phrases:

  • If it moves, tax it.
  • If it keeps moving, regulate it.
  • And if it stops moving, subsidize it.

Fight the Good Fight

December 11th, 2008

At Belmont Club, Richard Fernandez comments on the realities that are ready to mug the liberal meme that Iraq is a quagmire that only distracts from a relatively painless fight against al Qaeda in Afghanistan. One of the great, if ignored, reasons for taking out Saddam was that Iraq was precisely that Iraq was uniquely winnable – probably the only place where we could realistically achieve a decisive blow against a state sponsor of terror.

Afghanistan’s terrain and the safe havens for our enemies in a barely stable, nuclear-armed neighbor always meant that could be a far harder fight.

Iran’s theocracy is terribly unpopular and limited military action by us would only tend to prop them up while an invasion would make Operation Iraqi Freedom look like a picnic. If the West (meaning the Europeans who got to try their vaunted diplomacy) could only have kept them from going nuclear, regime change would have come eventually (though high oil prices also gave them a reprieve).

We cannot seriously contemplate regime change in North Korea because the place is such a horrible Augean stable that nobody is willing or able to clean up once the madman is gone.

Iraq turned temporarily difficult because al Qaeda (and Iran) decided to engage us there, despite less favorable conditions, sensing that they could break our will and score a huge, morale-boosting victory. They almost succeeded. But remarkably, we did not cut and run and, like a giant (if perhaps unintentional) rope-a-dope, our perceived weakness drew the enemy in where we could inflict serious damage with the Surge. Though few realize it, we’ve already essentially won in Iraq, with the terrorists withdrawing to reallocate remaining resources to the front where the fight is going better for them – Afghanistan.

Now, having successfully planted the idea that Iraq was an obvious quagmire and that Afghanistan might be easily won if only we were not distracted by a Bush’s bad war, Obama has set himself up to fail.  Even as we surge into Afghanistan, can Obama resist his risk-adverse nature, learn the lessons of Iraq and get troops out of fortified bases? What about his promise to “take the fight” to Pakistan? People increasingly will realize that Iraq has been won and will wonder why Obama is struggling in the supposedly easier fight. The truth is that the Iraq and Afghanistan are merely fronts in one larger war, but how can he possibly argue that now? Expect that Bush will be blamed, somehow.

Kaus: PATCO in reverse

December 10th, 2008

Mickey Kaus nails it.

Requiring painful, bankruptcy-style reopening [of UAW contracts] would set a cautionary precedent. Just as Rick Wagoner’s removal will warn timid management, it would warn unions that their function isn’t to squeeze the absolute maximum possible from their companies every moment. They need to leave enough of a margin of error so that in a downturn their industry doesn’t have to come running to the taxpayers. 

But of course that’s not what Pelosi and Reid are trying to achieve, is it?

Welcome.

December 10th, 2008

Hello.  This is just another place for someone to say something to anyone who cares to read it.  Stay tuned for links to some must-read news/posts, and eventually some original commentary.