Archive for December, 2010
CFACT Collegians Expose the Environmentalists in Cancun
Posted by Tom in Environment, Government Regulation, Humor on December 31, 2010
Members of the Committee For A Constructive Tomorrow effectively solicited signatures at the UN Climate Change Conference in Cancun on one petition to “decrease US GDP by 6%” and on another to “ban di-hydrogen monoxide” (that’s water)!
This is the only good thing to come out of the UN conference.
Residential Bubble Pop Still Has A Bit To Go!
Posted by Tom in Economics, Government Regulation on December 30, 2010
Peter Schiff has a sobering op-ed in today’s WSJ, Home Prices Are Still Too High. In essence, he argues that ” They would have to decline another 20% just to get back to the historical trend line.” Here’s the picture worth a thousand words:
But the bad part is that the market has not yet reached equilibrium. “How has the market found the strength to stop its descent? No one is making the case that fundamentals have improved. Instead, there is widespread agreement that government intervention stopped the free fall. The home buyer’s tax credit, record low interest rates, government mortgage-assistance programs, and the increased presence of Fannie Mae, Freddie Mac and the Federal Housing Administration in the mortgage-buying business have, for now, put something of a floor under house prices. Without these artificial props, prices would have likely continued to fall.”
Schiff argues that the market once set free will tend to overcorrect at about a 10% dent in the 100 year trend line which would put the index 28% below where we are now.
“From my perspective, homes are still overvalued not just because of these long-term price trends, but from a sober analysis of the current economy. The country is overly indebted, savings-depleted and underemployed. Without government guarantees no private lenders would be active in the mortgage market, and without ridiculously low interest rates from the Federal Reserve any available credit would cost home buyers much more. These are not conditions that inspire confidence for a recovery in prices.
“In trying to maintain artificial prices, government policies are keeping new buyers from entering the market, exposing taxpayers to untold trillions in liabilities and delaying a real recovery. We should recognize this reality and not pin our hopes on a return to price normalcy that never was that normal to begin with.”
So, I think it is safe to say that long term trends are a plus or minus support level for the market. That the market is a leading indicator for other segments of the economy. And, that when the government interferes in the market either to stimulate low level ownership or forestall foreclosures, the market is disrupted and uncertainty reigns.
But the real issue to ponder is how quickly to kill Fannie and Freddie. My uneducated gut is that a slow death over say ten years would be preferable to an abrupt killing. Government support should be reduced in stages over that time as the private market comes back to life. Baby boomer demographics will aid this process.
Shades of George Orwell
Posted by Tom in Centrally Managed Economy, Constitution, Federalism, Government Regulation, Individual Freedom, Law, Morality & Religion in the Public Square, National Character, Statism on December 28, 2010
Hopefully only a bad dream from which we shall awake!
Gaping Hole in Financial Regulation
Posted by Tom in Centrally Managed Economy, Constitution, Financial Policy, Housing, Welfare on December 27, 2010
Tom Cargill has an excellent article in today’s RGJ, Reforming Freddie and Fannie is No. 1 Priority. In it he sets the record straight as to the causes of our current financial mess, “Incredibly easy monetary policy, lax regulatory oversight and flawed government incentives to expand homeownership to moderate- and low-income households based on “junk” mortgages are the source” of the Great Recession.
He correctly points out that the Democrats would rather point fingers elsewhere, Wall Street greed and deregulation. But these same politicians are responsible for the Community Reinvestment Act and the Fannie/Freddie subprime engorgement. Barney Frank famously wanted to roll the dice with F&F, he later admitted his error, after the international financial damage was done!
Tom rightly points out that the recently passes financial regulation failed to touch F&F, the prime cause of the Great Recession and that failure of courage must be remedied. Why? because they will continue down the same blind path if left to their own devices.
Housing has been a major economic driver as the baby boomers aged. It has been a first step toward everything in those new houses from beds to babies! The industry is in the tank now and hasn’t reached botton, again because of federal efforts to keep deadbeats in homes and prevent foreclosures. The overhang of underwater home mortgages is a major drag on home values. And until the secondary market reaches market clearing pricing, no upturn can happen.
Another downer is the maturity of the babyboomers. As that demographic lump passes from house to home to grave, the demand for housing will be less, absent some dramatic increase in immigration or fertility rates. So, the future does not look good.
But for the health of what will be left of the industry, the health of the economy, and the sanity of the financial markets, Fannie and Freddie must be dealt a death blow. The mortgage market must be allowed to operate in the private sector.
I have a basic prejudice toward government interference in free markets. Thus, I wonder what today would be like without the Community Reinvestment Act and without Fannie and Freddie? They forced or incentivised a large build up in the housing industry, misallocating investments and creating the bubble that burst. My gut is that we, all of us, would be much better off if they had not been around. And, where in the Constitution is there an enumerated power to promote home ownership to low income families or high income families for that matter? Truly beyond the scope of those powers. Something to think about!
Will’s Non-remedy Remedy
Posted by Tom in Bankruptcy, Federalism, Fiscal Policy, State Finances on December 26, 2010
It’s not often that I disagree with George Will, but his Sunday WaPo post, A remedy for beggar states, touts Devin Nunes’ “Public Employee Pension Transparency Act” as a solution for the gross state/municipal pension over-promise/under-fund mess. That bill would require public disclosure of pension investment return assumptions and funding deficits; it would stipulate that the states or local government are “entirely responsible” for their obligations and that the federal government will provide no bailouts. Non-compliance would result in ineligibility for tax free municipal bond issuance. Unfortunately, this is not a remedy at all, but a mere disclosure requirement with a penalty for non-compliance that would merely exacerbate state fiscal problems; and a statutory bailout prohibition implies that it can be statutorily reversed by a later congress, even-though such is not one of the constitutionally enumerated powers.
Granted the problem is severe threatening the solvency of several spendthrift states like CA, IL and NY. The political classes in those states have no political will to deal with the public employee unions at the heart of the problem. The voters given a chance to cure the problem have voted not to do so; San Francisco is the most recent example.
There is a solution, a fairly simple solution: 1. statutorily provide for states to declare voluntary bankruptcy, 2. statutorily preclude Federal Reserve bailout of states, and finally 3. constitutionally prohibit any federal bailout of states by direct loan or guarantee.
Two recent posts on this site treated the issue: Open Letter to Senators, Congressmen and Governors, and A Stitch In Time! Particularly With Financial Catastrophe! These are politically palatable and popular decisions with a majority of the states and their residents.
And, time for a remedy is now. The situation is critical.
Subsidiarity
Posted by Tom in Centrally Managed Economy, Government Regulation, Individual Freedom, Law, Morality & Religion in the Public Square on December 26, 2010
Club for Growth published a simple video which makes a profound point–government action necessarily implies force, force which we wound not wield as individuals, simply because we prefer our own freedom of action or inaction if that force were threatened against us. The corollary is that smaller units of society can accomplish the needs of society more effectively. The family, church, social group, or local government are always closer to the need. Moral obligations to help are stronger than legal obligations that force help. States over federal governments, local governments over state governments, social groups and churches over local governments, all work more effectively and more intelligently. Here’s the video:
Think of the myriad of ways the federal government spends your money to address so-called problems that could better be handled locally!
Merry Christmas…but for how long?
Posted by Tom in Bankruptcy, Centrally Managed Economy, Congress, Deficit, Fiscal Policy, National Debt, Statism on December 25, 2010
Check out OweNo.com, a project of the Peter J. Peterson foundation. Here’s a sample:
Foreign Debt from Hugh Jidette on Vimeo.
Obama’s Leftist NLRB Run Amuck
Posted by Tom in Centrally Managed Economy, Congress, Statism, Unions on December 23, 2010
As we all know the unions own a big piece of Obama and he acknowledged this with his sponsorship of the Employee Free Choice Act permitting “card-check” unionization which eliminated those messy secret ballot elections. This passed in Pelosi’s House but failed to pass the Senate arguable because of the high unemployment rate of almost 10%. If this indeed was a reason for the failure, it’s a rare and happy sense of economics out of this august body. Unionization causes unemployment just as the minimum wage causes unemployment.
When legislation fails Obama shifts to the regulatory arena which he did at the NLRB by appointing Lafe Solomon, a career board lawyer, as “acting general counsel.” Now, the NLRB General Counsel is a position that requires Senate confirmation, but Obama has nominated no one as general counsel!
Why, you ask? Because Solomon is a radical leftist labor organizer. Without nomination or confirmation this wild man has started a rule making process which inter alia would require open shop employers to give the unions the names and addresses of the workers to promote unionization.
Is it fair to conclude that Obama favors economic barriers to full employment? This regulatory subterfuge would support that conclusion. Favor unions over the economy. The GM government takeover is another example of this.
Diana Furchtgott-Roth, an adjunct fellow at the Manhattan Institute, posted an excellent RCP article today, Where Unions Are, Americans Aren’t. In it she demonstrates how right-to-work states have gained congressional representation while forced unionization states have lost it. Winners like Texas and Florida are in the south and west, losers like New York and Illinois are in the northeast and midwest. In fact this has been the case for the last 25 years with right-to-work states growth more than double the growth of the forced unionization states. The recent Republican surge in the House, Senate and state governments confirms the voters attitude toward Obama’s more radical statist agenda.
Obama from the get-go has embarked on a statist, economy killing, job killing agenda. Whether it was Obamacare, cap and trade, or financial regulation, everything he and his minions along with Pelosi and Reid have created drag and uncertainties in the economy.
Despite his press conference Wednesday where he stated that “we now have to pivot and focus on jobs and growth,” he still tolerates radicals like Solomon in critical positions. Methinks that paleface speaks with forked tongue.
Everything government does beyond its legitimate scope, increases uncertainty and decreases growth and employment. Unionization and minimum wages are prime examples! That he ignores the law to pay back the unions he owes, is all the more damnable!
Another Usurpation Under, What Else? Obamacare!
Posted by Tom in Centrally Managed Economy, Democrats, Federalism, Government Regulation, Nationalized Health Care, Statism on December 22, 2010
It seem that under the new Obamacare law, Tsar Sebelius can do whatever the hell she wants, without statutory authority. As today’s WSJ article, Sebelius’s Price Controls, indicates, she has instructed the states to approve medical insurance rate increases only to the extent of 10% or less and block others. This, despite the fact that the new Obamacare law has increased required covered care which mandates will cost well beyond 10%!
We have reached Communist level control in this country under Obama and his leftists thugs. They dictate services increases and price controls without any economic justification.
Tom Sullivan in Connecticut, against Tzar Sebelius’s mandate, approved a 20% increase justified by required increased services. “I find myself in an unprecedented place and time, as do my counterparts throughout the country,” Mr. Sullivan wrote to Mr. Blumenthal, “in overseeing the implementation of one of the most far-reaching policy initiatives enacted by the federal government in recent history.” State regulators, he continued, are “in an unenviable position as we are required by Congress to approve richer benefit packages, while simultaneously being called upon by you to reduce rates.” He ultimately resigned and his predecessor reversed his decision.
“Congress, which by some miracle declined to give HHS the formal legal authority to explicitly block premium increases, despite a direct appeal from President Obama. Instead, Ms. Sebelius is creating by regulatory fiat larger de facto powers to achieve the same end.”
Yesterday, we saw the FCC grant itself authority to regulate the internet and expropriate private property in the name of net neutrality. No statutory authority. Here we see Comrade Sebelius grant herself authority to block justified premium increases. No statutory authority.
Is it any wonder that businesses won’t invest, won’t hire, while the economic recovery is stuck in “slow” and unemployment in “high?” This regulatory uncertainty is as bad as legislative uncertainty. Investors and businesses don’t know what will come next. These unelected bureaucrats can grant themselves power and exercise it at will!
Our nation will not recover until we rid ourselves of this leftist scum.
Hayek to Music!
Would that the younger generation really understood and believed!