Archive for April, 2009
Obama Promotes Leftist “Cynical Farce”
Andrew McCarthy’s article in today’s National Review Online characterizes the Democrats witch-hunt as a cynical farce. He strips the professed moral high ground from their argument and demonstrates how disingenuous they are. Obama, Kennedy, Leahey, et al are out for political revenge and willing to promote policies inimical to the best interest of the country.
The story begins in 2006, before Democrats took control of congress and while the memory of 911 was fading from public attention.
Sen. Ted Kennedy proposed an amendment to the Military Commissions Act MCA then under consideration. His measure would, finally, have brought clarity to the legal status of waterboarding. It would have expressly defined the procedure as a violation of Common Article 3 CA3 of the Geneva Conventions, putting it on a par with “torture” — which is specified in CA3 — and making it punishable as a war crime.
The amendment lost, 46-53. All Democrats except one Sen. Ben Nelson of Nebraska voted in favor. One Republican still in the Senate, Arlen Specter of Pennsylvania, voted with the Democrats. As a result, while the MCA substantially overhauled the war-crimes statute Section 2441 of the federal penal code, it did not criminalize waterboarding to say nothing of less harsh tactics. Nor did Congress touch the torture statutes Sections 2340 and 2340A, which define and punish torture, much less enact a clarification that waterboarding is torture. The legal status of waterboarding remained exactly what it had been: ambiguous, at best.
This history is significant because Republicans no longer run Congress, like they did back then. Since January 2007, Democrats have been in charge of both houses. At any time they wished, they could have revived the Kennedy Amendment, and passed it. Since January 2009, moreover, Democrats have run not only Congress but the White House. At any time they wished, they could have ended what they call the “false choice between our security and our values” translation: their considered choice of no security and their values. At any time they wished, they could have settled the debate and passed a law: No more waterboarding.
They haven’t done that. For all the high dudgeon, they won’t do it. And the reason for their reticence is shameful: To clarify the law would be to admit that the law has been unclear. Clarifying law is not the objective, settling political scores is.
To enact laws against coercive interrogation today would demonstrate that Democratic witch-hunts based on the coercive interrogation of yesterday — against the intelligence officers who carried it out and the legal experts who arrived at the inconvenient truth that our law did not prohibit it — are grotesque. These investigations violate the constitutional bar against ex post facto prosecutions. They run afoul of the constitutionally derived “rule of lenity,” which bars prosecutions based on vague statutes that fail to provide adequate notice of what the law forbids. And they flout the doctrine of qualified immunity, which protects government officials from liability unless their conduct transgresses, as the Supreme Court has put it, “clearly established statutory or constitutional rights.”
What is going on beneath President Obama’s theatrics about “our values” again, meaning his values is a cynical farce. If our values were really at stake, if there were a consensus among us i.e., Americans that harsh interrogation tactics could never be justified, the Democrat-controlled Congress would outlaw them today and bask in the resulting adulation. But there is no such legislation, because the goal here has nothing to do with improving American policy.
The goal is vengeance, pure and simple.
via A Dishonest Debate by Andrew C. McCarthy on National Review Online.
The article goes on to demonstrate the effect of the witch-hunt on public policy and the lives of those involved. What a vile web Obama starts to weave!
Obama’s Bully Pulpit–Dangerously More Than Mere Pulpit
National Review Online’s editorial today chides Obama’s lecture to the credit card companies as “theater.” It is indeed that but with his populist campaign infinitum as the root. This is dangerous. Here we have a government that owns and regulates and preaches all with taxpayer money and in most cases against taxpayer interests. If it’s not the banks it’s the auto companies he thinks he owns and indeed controls beyond the scope of legal regulation. He blurs the bases of federalism ignoring state usury laws; he oversteps congressionally enacted regulation. The article is quoted in part as follows:
President Obama, flitting from crisis to crisis without ever quite managing to solve one, has alighted upon credit cards. He summoned a dozen credit-card executives to Washington and dressed them down. Finding credit-card statements difficult to read, Obama proposes to put the wordsmiths of the federal government in charge of reforming them. He also proposes to manage interest rates and fees, the size of the type on bills, the content of card issuers’ websites, and the ease of comparison-shopping among competing cards. As the commercial says, there’s a card that’s right for you — and the president believes he knows which it is: “Every credit-card issuer has to issue a plain-vanilla, easy-to-understand, simplest-possible credit card that would be the default credit card that the average user can feel comfortable with.” Default may be a poor word choice in the context of credit, but the message is clear: You yahoos are going to eat your plain vanilla, and you’re going to like it.
The credit-card companies are not America’s most sympathetic businesses, it is true, and President Obama is, in his cynical fashion, exploiting that fact. Some issuers charge usurious interest and fees, some engage in sneaky billing practices and marketing shenanigans. And some don’t. We already have interest-rate controls and laws against fraud. If the president has reason to believe these laws are being broken, then the proper remedy is prosecution of the offenders. Making a political campaign out of it will only muddy the waters.
As silly as we find the spectacle of the president’s criticizing the typography on our Mastercard bills, there is a serious side to this. The government does not have an especially inspiring record when it comes to intervening in consumer credit markets. Its efforts toward expanding and cheapening credit in the real-estate market set the course for our arrival in these present economic straits. Will government management of credit cards be any more resistant to narrow political demands? A clumsy intervention in the credit-card markets could quite easily produce another wave of bank failures. The credit-card executives Obama lectured in Washington last week represented companies that are household names for bailout-watchers: Citi, JPMorgan Chase & Co., Bank of America.
It is unsurprising that a Chicago pol specializing in socioeconomic resentment would be attracted to this subject. Affluent people with good credit get really good credit cards that sometimes buy them airline tickets, and people without much income or credit get relatively bad ones that charge them lots of fees. But for the less well-off, credit cards, used judiciously, can be an important source of short-term lending, as well as a great convenience when traveling or renting a car. If Obama clamps down on credit-card companies in a way that threatens their profitability, it is the customers at the lower end of the spectrum who will pay the price. And even among people of modest means who have high-fee, high-interest credit cards, a bank-issued Visa is still likely to be a much, much better deal than their next likely sources of credit: payday loans.
Credit is a product, and product prices are best set by the market, not by Barack Obama. We sense that the president is here more engaged in populist theater than in serious consideration of lending practices.
Tea Party Pics
Posted by Tom in Politics, Stimulus/Bailout on April 23, 2009
The April 15th tea parties were an interesting phenomenon, organized in a grass roots sense, but also unorganized. These “aginners” were against government spending, against the deficit, against stimulus, against bailouts, etc. The only common theme appeared to be a sense that something was wrong. Yet polls today indicate Obama has high popularity numbers and the country is headed in the right direction. His populism appeals to the common man and will continue to appeal until the Carter era inevitably returns and returns on steroids! Mark Bailey sent a few tea party pics.
Tom Motherway, tom@renohayek.com
Bravo, Gene Humphrey: “Renewable” Is Distinct From “Alternative”
Posted by Tom in Uncategorized on April 23, 2009
Tuesday evening’s discussion on renewable energy lead by Gene Humphrey was excellent. He distinguished “alternative energy” (Coal was an alternative to wood following the deforestation of the British Isles!) from “renewable energy” (Sustainable energy that meets the needs of the present generation without compromising resources for future generations.) It is good to note at the start that traditional transitional sources, oil, coal, gas and nuclear account for about 90% of our current energy. So all the remaining sources must have dramatic growth to replace or reduce dependence on those sources. Gene treated the naturally replenished resources, sunlight, wind, rain, tides and geothermal energy and then compared some of the traditional sources and their alternatives.
The amount of solar energy reaching the earth’s surface in one year is more that all the earth’s non-recoverable energy resources combined. It is both active (photovoltaic) and passive (thermal water heating) yet provides only 4/100ths of 1% of current world usage. Land use is the issue since a 550MW PV plant occupies 9.5 square miles, and a more efficient 354 MW Thermal plant takes 2.5 square miles. To replace current US electrical production from coal would take 1,600 to 4,000 square miles. So which states in the southwest will offer 4,000 square miles of land to supply the US appetite and what productive land uses will be impacted.
Distributed solar generation, the rooftop panels have dropped in price from $10.50 to $7.60 per installed watt. (As a reference and as you would expect on grid base load power from new nuclear is $1.70-$1.90 per watt and from new coal $1.50-$2.50 per watt.) Yet government subsidy principally the investment tax credit has increased for commercial PV but is capped for residential PV. Likewise, powers to grid sales are limited for residential PV. Notwithstanding the perverse limitations individual rooftop solar PV investments in the southwest can generate a seven-year payback in some cases. The cost of the subsidy is not accounted for nor is the missed opportunity cost of the power to grid sales limitation.
Wind power supplies about 3/10 of 1% of our energy and is growing at the rate of 30% per year with a lot of the growth is due to tax incentives and efficient investment vehicles. There is dramatic growth potential estimated to be 5 times the current production. Power costs are 2-4 cents per KWH for large-scale units. As with solar, land use and the NIMBY factor come into play, as a 3 MW generator requires a quarter acre of land. In high wind areas, farmers and ranchers are forming associations to efficiently lease or license land to production companies expediting wind power growth. We briefly discussed the vertical generators as being more aesthetically acceptable for smaller applications.
Hydro generates about 3% of global energy. It is long lived and low maintenance generating power at 2-4 cents per KWH day in day out. As we have recently seen in the Pacific Northwest, drought periods can affect the amount of electricity generated. Closely related is an insignificant amount of base power from wave and tidal action was briefly discussed. Geothermal, which accounts for 2/10 of 1% of our energy is primarily available at the edge of tectonic plates where high temperature resources are available. This has low power factors because of the relatively low temperatures.
Traditional sources were also compared: Nuclear, 6% of energy, growing rapidly is a major underused resource in the US but also subject to the “peak” limitations that Don discussed last month. There are thirty plants or expansions currently being planned. Government and public opposition make dramatic growth unlikely. Reprocessing is something that can be undertaken in the US on a greater scale. Yucca Mountain is something we in Nevada should exploit, not shun!
Tar sands and biofuels were also covered. Alberta’s tar sands are proven at 1.75 trillion bbls, 173 of which are economic today at $28/bbl cost. Biofuels, 2/10 of 1% of energy, have only a 25% energy yield. Their subsidy and trade barriers by government fiat are so uneconomic as to be unconscionable. We raise food prices for ourselves and for poor Mexicans and protect the likes of ADM and Cargill through the agency of the political shills in Congress and the Administration.
One intriguing aspect of our discussion was Gene suggestion of renewable combinations, i.e. using solar, wind or tidal to generate daytime power that pumps water to a reservoir, affecting “storage” for subsequent release and generation of hydroelectric power when needed. Or how about photochemical, using photovoltaic solar to drive electrolysis producing hydrogen! Or, in an area where Gene had patents, coal to gas, underground combustion in the right places!
Gene notes summarize with a current-future cost projection estimate of the various resources for comparison:
|
Technology |
2001 |
Future |
|
|
Cents/KWH |
Cents/KWH |
|
Wind |
1-8 |
3-10 |
|
Geothermal |
2-10 |
1-8 |
|
Hydro |
2-10 |
2-10 |
|
Biomass |
3-12 |
3-12 |
|
Coal |
4 |
4 |
|
Solar Thermal |
12-34 |
4-20 |
|
Solar PV |
25-160 |
5-25 |
Gene thanks for a great discussion, everyone got involved.
The King Has No Clothes … Brains (GM Is Becoming a Royal Debacle)
Posted by Tom in Centrally Managed Economy on April 22, 2009
Holman Jenkins April 22nd WSJ article points up the problems of a managed economy. Adam Smith’s “invisible hand(s)” are tied, the liberal manager’s right hand is working against his left hand. But Obama knows what’s best for all of us including the widows and retirees who have invested in the GM bonds. He has popular support buttressed by a populace educated by the teachers union and informed by the liberal press. He is omniscient in his micromanagement of what’s left of the economy. So much for hope and change!
It’s good to be the king — until you start tripping over your own robe.
So King Barack the Mild is finding as he tries to dictate the terms of what amounts to an out-of-court bankruptcy for Chrysler and GM. He wants Chrysler’s secured lenders to give up their right to nearly full recovery in a bankruptcy in return for 15 cents on the dollar. They’d be crazy to do so, of course, except that these banks also happen to be beholden to the administration for TARP money.
Wasn’t TARP supposed to be about restoring a healthy banking system? Isn’t that a tad inconsistent with banks just voluntarily relinquishing valuable claims on borrowers? Don’t ask.
Kingly prerogative also conflicts with kingly prerogative in the case of GM’s unsecured creditors, who are the sticking point in agreeing to a turnaround plan by the drop-dead date of June 1. His retainer, Steven Rattner, has delivered word that the king’s pleasure is that these unsecured creditors give up 100% of their claims in return for GM stock.
It may also be the king’s pleasure, he advised, to convert at some point the government’s own $13 billion in bailout loans into GM stock.
There’s just one problem: Why on earth would GM’s creditors — who include not just bondholders but the UAW’s health-care trust — want any part of this deal?
They’ve already seen that the rights and privileges of shareholders are not worth diddly when the king is throwing his prerogatives around. He dispensed with the services of GM chief Rick Wagoner, though the king owned not a single share of GM stock at the time. His minions communicated the king’s pleasure that GM consider discontinuing its GMC brand, maker of pickups and SUVs that offendeth the royal eye — though these vehicles earn GM’s fattest profit margins.
His minions haven’t asked GM to give up the Chevy Volt, even after determining it will be a profitless black hole, because of the king’s fondness for green.
No wonder the king’s mediation of 40 years of stalemated labor and business issues in the auto sector isn’t going so well. There’s a reason royal discretion has long been outmoded as a way to run an economy: Things just work better if a realm’s subjects are left to resolve their own disputes and interests through the impersonal mechanism of the markets and the law.
His current bailout strategy amounts to asking thousands of bondholders and GM retirees to buy stock in a GM that the king’s own policies mean they’d be loony to buy. Add the fact that passenger cars and trucks in the U.S. are a trivial source of greenhouse gases in any case — they could all become carbonless and it would be irrelevant in the face of China’s and India’s coal use. King Barack has only been on his throne for three months. His policies already have devolved into savage incoherence.
The Jenkins article is worth the read. His analogy agonizingly recalls the days when St. Jimmy the Simple facing a collapse of the railroad industry signed the Staggers deregulation law letting the market work. He notes that even the king’s advisor Sir Warren, the Sage of Omaha is investing in railroads!
Liberals–the 21st Century Master Race
Posted by Tom in Law, Morality & Religion in the Public Square on April 17, 2009
Margaret Sanger, founder of Planned Parenthood introduced her book, The Pivot of Civilization, with the following words: “We want fewer and better children…and we cannot make the social life and the world-peace we are determined to make, with ill-bred, ill-trained swarms of inferior citizens that you inflict on us.” (Emphasis added.) Obama’s Secretary of State Hillary Clinton in receiving a recent award from Planned Parenthood said she was “really in awe” of Sanger calling the reproductive-rights movement “one of the most transformational in the entire history of the human race.”
Eugenics, the self-direction of human evolution, was praised and incorporated into Mein Kampf by Adolph Hitler, its most infamous practitioner. The policy involved the identification of groups including the poor, mentally ill, blind, homosexuals and certain racial groups as degenerate or unfit. Once identified, forced segregation, institutionalization, sterilization, and/or extermination was practiced upon them. The Holocaust resulted in the killing of 6,000,000 human beings.
Sanger in her day and Clinton today profess the same embrace of “transformational” movements. This is short for eliminating those “ill-bred, ill-trained swarms of inferior citizens.” In the case of “reproductive-rights,” code for abortion, it means playing God as to those determined “unfit.” Obama for his part has supported this course in voting to deny life-saving support for those babies born of failed late term abortions. Of course, our president defended his vote by saying it is above his pay grade to determine when life begins. One would suppose he thinks that the baby dying on the table is something other than an innocent, helpless human being.
So we have a government run by the liberal ruling class who know what is best for the unwashed governed. They know it’s best to bail out GM and the UAW, to bail out people who have defaulted on Fannie or Freddie mortgages that they could not afford, to bail out AIG, to inflate deficits to historical heights, and to support Planned Parenthood. Planned Parenthood gives awards to the Secretary of State and is supported by taxpayer largess. This organization increased US abortions from 289,000 in 2007 to 305,000 in 2008; this coincided with government funding increases from $337,000,000 to $350,000,000. Our taxes are used for the “common good” of eliminating the “unfit” and coincidentally providing a profit to Planned Parenthood. Kathryn Lopez in National Review Online pens a telling indictment of this unholy alliance, much paraphrased here.
There is an irony and frightening follow-on to this liberal hubris: Ironically, the liberals profess to be the protectors of the poor and downtrodden whom they addict with their welfare for votes compact. Apparently they have resolved not to let the “swarms” of “unfit” get too large. Hopefully the omniscient rulers will be smart enough not to abort or abandon to death after failed abortion a future Stephen Hawking, George Washington Carver, Jonas Salk, or Martin Luther King. The responsibility of playing God is awesome indeed!
What’s frightening is the length to which the federal government will go to enforce its philosophy. An April 7th report from the Department of Homeland Security warns of a potential surge in rightwing extremists dedicating a special mention of “disgruntled military veterans.” Also getting special mention are those who are against abortion and immigration. Apparently those sworn to defend the constitution that risk their life and limb for country are suspect, as are those who disagree with Obama’s philosophy on eugenics and immigration.
We have elected a messianic figure as president who truly plays God and plays him rough. Concepts of “life, liberty, and the pursuit of happiness” for helpless innocents are forcefully denied with taxpayer money and freedom of speech and assembly are threatened as rightwing extremes. Big Brother is here; the thought police are soon to follow.
Tom Motherway, tom@renohayek.com
ALTERNATIVE ENERGY HAD BETTER BE MIRACULOUS (Henry Waxman’s Climate Bill Imposes Environmental Regulations on the Entire Economy)
Posted by Tom in Energy Facts & Policies on April 14, 2009
Another left-coast leftist apostle of Al Gore is having his day of fame. Henry Waxman and ilk will command physics and economics to accomplish impossible goals. Americans will pay the price while China et al laugh all the way to the bank.
Cap-and-trade theologians love to invoke markets: Merely put a price on carbon, they say, and the invisible hand will shoo us toward an eco-friendly future. Of course Congress has its own ideas.
Take the climate bill just offered by House powers Henry Waxman of California and Ed Markey of Massachusetts. The 648-page “discussion draft” ducks the most important policy questions about what Democrat Ben Cardin calls “the most significant revenue-generating proposal of our time” — namely, how the tax will be levied and the proceeds spent. But it does find space to impose thousands of new environmental regulations on the entire economy, all separate from cap and trade.
Right off, the bill mandates that 25% of U.S. electricity come from wind, solar, geothermal or biomass by 2025. Sorry, nuclear doesn’t count. This kind of renewable portfolio standard directly contradicts the putative flexibility of cap and trade, which is supposed to allow businesses to reduce CO2 how and where it is least expensive. But Democrats aren’t about to let the details of their own policies stand in the way of magical thinking.
Despite political favoritism and billions in subsidies, wind still only accounts for about 1% of U.S. net electric generation, and solar all of one-hundredth of 1%. So now the liberal solution is simply to force people to buy them, a la the ethanol mandate. Yet it will be difficult for renewables to ever reach 25%, given their inherent limitations (intermittency) and, ironically, green opposition (no new power lines). That won’t stop Congress from punishing utilities that fail to meet an impossible goal.
via Henry Waxman’s Climate Bill Imposes Environmental Regulations on the Entire Economy – WSJ.com.
Our upcoming discussions of the science of alternative energy will necessarily encompass economics.
Tom Motherway, tom@renohayek.com
Samuelson on the Obama Economic Mirage
Posted by Tom in Obama Budget & State of the Nation on April 13, 2009
Robert Samuelson’s April 13 article in Real Clear Politics calls leftist wishful thinking an economic mirage and puts a cost to it. Few Americans will like the price they will pay for “hope and change!”
What Obama proposes is a “post-material economy.” He would de-emphasize the production of ever-more private goods and services, harnessing the economy to achieve broad social goals. In the process, he sets aside the standard logic of economic progress.
Since the dawn of the Industrial Age, this has been simple: produce more with less. (“Productivity,” in economic jargon.) Mass markets developed for clothes, cars, computers and much more because declining costs expanded production. Living standards rose. By contrast, the logic of the “post-material economy” is just the opposite: spend more and get less.
Consider global warming. The centerpiece of Obama’s agenda is a “cap-and-trade” program. This would be, in effect, a tax on fossil fuels (oil, coal, natural gas). The idea is to raise their prices so that households and businesses use less or switch to costlier “alternative” energy sources such as solar. In general, we would spend more on energy and get less of it.
The story for health care is similar, though the cause is different. We spend more and more for it (now 21 percent of personal consumption, says Brookings economist Gary Burtless) and get, it seems, less and less gain in improved health. This is largely the result of costly new technologies and the unintended consequence of open-ended insurance reimbursement that encourages unneeded tests, procedures and visits to doctors. Expanding health insurance might aggravate the problem. Many of today’s uninsured get health care free or don’t need much because they’re young (40 percent are between 18 and 34).
Together, health care and energy constitute about a quarter of the U.S. economy. If their costs increase, they will crowd out other spending. The president’s policies might, as he says, create high-paying “green” or medical jobs. But if so, they will destroy old jobs elsewhere. Think about it. If you spend more for gasoline or electricity — or for health insurance premiums — then you spend less on other things, from meals out to home repair. Jobs in those sectors suffer.
The prospect is that energy and health costs may rise without creating much gain in material benefits. That’s not economic “progress.” To rebate households’ higher energy costs (as some suggest) with tax cuts does not solve the problem of squeezed incomes. Given today’s huge and unsustainable budget deficits, some other tax would have to be raised or some other program cut.
Obama’s Fawning Abdication of US Leadership
Posted by Tom in Foreign Policy on April 11, 2009
What an embarrassment the new president is as he uses his community organizing skills in world diplomacy. He lowers our stature among nations, abandons commitments to allies, and makes the world safe for totalitarian thugs. He remarkably resembles Neville Chamberlain with “peace in our time” appeasement.
Caroline Glick’s article in today’s issue of Real Clear Politics, “Surviving in Obama’s Post-US World” accurately states the situation and proffers a solution.
Somewhere between apologizing for American history – both distant and recent; genuflecting before the unelected, bigoted king of Saudi Arabia; announcing that he will slash the US’s nuclear arsenal, scrap much of America’s missile defense programs and emasculate the US Navy; leaving Japan to face North Korea and China alone; telling the Czechs, Poles and their fellow former Soviet colonies, “Don’t worry, be happy,” as he leaves them to Moscow’s tender mercies; humiliating Iraq’s leaders while kowtowing to Iran; preparing for an open confrontation with Israel; and thanking Islam for its great contribution to American history, President Obama made clear to the world’s aggressors that America will not be confronting them for the foreseeable future.
Whether they are aggressors like Russia, proliferators like North Korea, terror exporters like nuclear-armed Pakistan or would-be genocidal-terror-supporting nuclear states like Iran, today, under the new administration, none of them has any reason to fear Washington.
This news is music to the ears of the American Left and their friends in Europe. Obama’s supporters like billionaire George Soros couldn’t be more excited at the self-induced demise of the American superpower. CNN’s former (anti-)Israel bureau chief Walter Rodgers wrote ecstatically in the Christian Science Monitor on Wednesday, “America’s… superpower status, is being downgraded as rapidly as its economy.”
via RealClearPolitics – Articles – Surviving in Obama’s Post-US World.
I heartedly recommend the article linked above.
Tom Motherway, tom@renohayek.com
“Empty Creditors” Decouple Economic Interests From Legal Control
Posted by Tom in Government Regulation on April 11, 2009
Henry T.C. Hu coined the term “empty creditor” a few years ago. In short, it is the use of credit default swaps (CDS) to separate economic risk of investments from the legal rights inherent in those investments. CDS are those derivatives which act as insurance against debtor default or downgrade. A creditor or investor holding obligations of a debtor can reduce or eliminate the economic risk of that investment by buying a CDS. In doing that, however, the creditor does not relinquish his legal rights to enforce the debt obligation, to participate in and even control bankruptcy proceedings.
As Hu points out in the 4/10/2009 edition of the Wall Street Journal, there is nothing wrong with this risk hedging, this insurance; it is the exercise of freedom of contract. It does point up a change in the alignment of interests (economic and legal) which form the basis of our legal, financial and regulatory systems. Apparently, the suretyship doctrine of subrogation, where the guarantor “stands in the shoes of” and succeeds to the rights of the guarantee, does not apply to CDS. If subrogation did apply to CDS, the economic and legal interests would be properly aligned.
Hu suggests that the empty creditor phenomenon may explain Goldman’s claim that its $7 Billion of exposure to AIG was immaterial. Goldman had hedged its economic risk with CDS. His first-step, low-cost regulatory solution is a CDS clearinghouse. Progress on this idea had already started in the industry before the real estate bubble burst. While the clearinghouse concept is necessary it is best accomplished by industry associations not the government.
I suggest that the real solution is to make subrogation follow the CDS exercise. When the swap issuer pays on the contract he becomes entitled to all creditor rights to the full extent of his payment.
Hu highlights a problem that is a subtle one, to date overlooked it seems; but it is important nonetheless. His article in the WSJ is a good one, well worth the read.
Tom Motherway


