Telling Stories

Having Your Cake and Eating it Too

That seems to be the message from a NYT/CBS News Poll:

Most Americans continue to want the federal government to focus on reducing the budget deficit rather than spending money to stimulate the national economy, a new New York Times/CBS News poll finds. Yet at the same time, most oppose some proposed solution for decreasing it.

Fifty-six percent of respondents said that they were not willing to pay more in taxes in order to reduce the deficit, and nearly as many said they were not willing for the government to provide fewer services in areas such as health care, education and defense spending.

Emphasis added.  This is why I could never be a politician.  I could not, for the life of me, go before my constituents if they tell me something like that and not say something like "You're all full of s**t!"  I can't believe people are this stupid.

See, reducing the deficit is like running your household when you have debt.  You either try to pay your debt down and go without some stuff (less services) or you go out and get another job so you have more money available to pay your debt (raising taxes).

It's one, the other, or maybe both, people!  There's no "none of the above" option here.

I know.  Maybe the federal government should reduce the amount of assistance it gives states.  That's it.  Let the states be the ones faced with having to raise taxes or cut spending!  Presto-whammo!  That should satisfy all those "limited government" types out there.

Do People Really Have THIS SHORT an Attention Span?

Via CNN.com:

The housing bust is not all bad news; some homebuyers have purchased their dream homes at prices they couldn't even hope for a year or two ago.

Take Sara and Jay Senich. They're the proud owners of a newly renovated colonial just outside Washington D.C. - one they had previously rejected as too expensive. . .

For two months they kept an eye on their Takoma Park home. When the price finally fell to $500,000, they pounced, putting in a bid for $475,000. A counter-offer was made and, after negotiations, the seller agreed to $480,000.

Helping make it affordable was the great deal they got on their mortgage. After analyzing their options, they made what many might think is a surprising choice: They financed 92% of the deal with an adjustable rate mortgage (ARM).

Emphasis added.  You know, good luck to them.  But this is the exact same reason we got in the mess we're in right now.

ARMs have taken a lot of flak for the mortgage meltdown crisis. With these loans, borrowers pay out at a low initial rate for a fixed period of time. After that, mortgages reset to (usually) higher rates. Critics say they lure borrowers into purchases they can't afford.

The Senichs, however, got an initial interest rate on their FHA-insured ARM of just 3.875% for the first five years. After that, it resets once a year and cannot go up by more than one percentage point annually. It has a five point lifetime cap, so the rate can never exceed 8.875%.

Which is all well and good as long as you're ready to pay up if the interest rate goes up to the max.  We're not even close to being out of the hole yet - and I'm not talking about the future deficits here.  So, lets not do this again.  Ever.  Please?

Bipartisanship, Republican Style

Via the NYTimes:

Republicans plan to test President Barack Obama’s commitment to bipartisanship as his $825 billion stimulus package heads to the floor of the House of Representatives this week, with the House Republican leader saying Sunday morning that many in his party will vote no unless there are significant changes to the plan.

It seems that the Republican's definition of bipartisanship is "you yield until I feel comfortable."  But it gets better:

While the plan can potentially pass the Democratic-dominated House without Republican support, it will continue to face opposition when it comes before the Senate, said Senator John McCain of Arizona, speaking on “Fox News Sunday.” At least two Republicans will need to approve the bill for a filibuster-proof majority vote of 60.

Senator McCain, who lost the presidential election to Mr. Obama in November, said that he planned to vote no unless the bill were changed.

“We need to make tax cuts permanent, and we need to make a commitment that there’ll be no new taxes,” Mr. McCain said. “We need to cut payroll taxes. We need to cut business taxes.”

John McCain?  Oh, you mean this John McCain:

As Wall Street's roller-coaster week unfolded, John McCain's views on the economy went through about as many gyrations as the Dow Jones industrial average. Brace your neck for a quick recap.

Monday: Speaking at a rally in Jacksonville, McCain declares that "the fundamentals of our economy are strong." Coming as the Dow plunges more than 500 points and Lehman Bros. goes belly up, this makes McCain sound somewhat out of touch.

Tuesday: McCain explains that he meant to say American workers are fundamentally sound, and the economy itself is in "crisis." But, he adds, this crisis does not warrant bailing out insurance giant American International Group, which should be allowed to fail. McCain adviser Carly Fiorina, the former Hewlett-Packard CEO, unhelpfully opines that no one on either presidential ticket would be capable of running a company such as H-P.

Wednesday: After the government takes over AIG, McCain says the rescue was regrettable, but unavoidable.

Thursday: McCain, who over the years has described himself as a deregulator, recasts himself as a pro-regulation, anti-Wall Street populist. If he were president, he says, he'd fire Securities and Exchange Commission Chairman Christopher Cox, a former Republican congressman confirmed by unanimous consent of the Senate in 2005.

Granted, McCain, who has been running more on the strength of his foreign policy credentials than on his economic expertise, is entitled to change his mind as new facts emerge. And granted, Democrat Barack Obama also has scant experience dealing with financial crises. At this point, though, it looks as if cleaning up the economic mess will be the next president's top priority. The Republican candidate's erratic performance this week was far from reassuring.

Emphasis added.  I don't think Obama won the election on a promise to take advise from John McCain on economic matters.

Dishonesty and "The Path of Least Resistance"

Water always follows the path of least resistance.  It seeks the next lowest elevation point in front of it because it has no other choice.  With people, following the path of least resistance usually means finding the easiest solution to the problems or issues facing you because it's easy.  So, you don't strive for an "A," you settle for a "C" because that's enough to pass.  You do just enough to get by.

Dishonesty, well, doesn't need a long discussion because we know what it is and how it manifests itself.

Based on both concepts, I found extremely revealing Alan Greenspan's testimony before Congress.

Greenspan opposed increasing financial supervision as Fed chairman from August 1987 to January 2006. Policy makers are now struggling to contain a financial crisis marked by record foreclosures, falling asset prices and almost $660 billion in writedowns and losses tied to U.S. subprime mortgages.

Today, the former Fed chairman asked: "What went wrong with global economic policies that had worked so effectively for nearly four decades?"

Greenspan reiterated his "shocked disbelief'' that financial companies failed to execute sufficient "surveillance'' on their trading counterparties to prevent surging losses. The "breakdown'' was clearest in the market where securities firms packaged home mortgages into debt sold on to other investors, he said.

Emphasis added.  "Surveillance" is, perhaps, not the right term.  "Oversight" is more appropriate in this case.

So, what really went wrong?  Greenspan had consistently advocated in favor of a little regulation as possible.  If there are no overseers, then the institutions have to police themselves.  Which begs this question?

Why?

If it's not important to the powers that be that things are done correctly, there's very little incentive for the institutions to conduct vigorous oversight, particularly during times when everything seems to be going well.  It's a net loss to the institution to conduct self-oversight if everything is going well.

The problem with that assumption, as we should have learned from ENRON and WorldCom, is that the private sector is not immune from dishonesty.  Either knowingly or negligently, these financial institutions allowed persons to operate without any meaningful controls, beyond, of course, the bottom line.

What good oversight or regulation does is keep everyone from abusing their position.  It's not a hindrance if you're doing things right.

Luck - or Lack of it

At a different time and place, I might be tempted to feel bad for McCain.  After all, if he didn't have bad luck, he'd have no luck at all.

You see, he's been working so hard for so long to secure his conservative base.  He even got himself a life-sized version of "Talkie Sarah" to appeal to the base (ironically, Al-Qaeda translates to "the base" as well, so you draw your own conclusions).

"My name is Talkie Sarah and I eat moose burgers."

"My name is Talkie Sarah and I see Russia from my living room."

"My name is Talkie Sarah and I'm a maverick reformer!"

"My name is Talkie Sarah and I don't like taxes."

So here he is, very well received by the base - or maybe I should say "the Republican base" since I don't want to offend Al-Qaeda - and then he goes off to propose an additional massive bailout $300 billion more.  And this is what he gets for it:

John McCain is facing a fresh round of anger from members of his own party deeply opposed to the Arizona senator's proposal for the federal government to purchase troubled mortgage loans.

The pointed backlash from several economic conservatives -- many of whom already distrust McCain's commitment to free-market principles -- couldn't come at a worse time for the Republican presidential nominee less than four weeks before Election Day as he stares at a significant deficit in national and state polls.

But at a time when McCain can't afford to worry about a lack of support from his party's base, several conservatives are openly criticizing the plan as a flagrant reward for reckless behavior among lenders.

In a sharply worded editorial on its Web site Thursday, the editors of The National Review -- an influential bastion of conservative thought -- derided the plan as "creating a level of moral hazard that is unacceptable" and called it a "gift to lenders who abandoned any sense of prudence during the boom year. . . ."

But McCain is hoping the plan will resonate with moderate and undecided voters, many of whom viewed the bailout as a giveaway to Wall Street CEOs. This plan, the McCain campaign argues, better steers the money to Main Street, where struggling homeowners need immediate relief.

Emphasis added.  He can't win without the Republican base and he can't win without moderates and undecided.  And he can't figure out a was to net both before November 4.

Like I said, if he didn't have bad  luck, he'd have no luck at all.

"You're Doing a Heckuva Job, Bailout Package"

NEW YORK  (CNNMoney.com) -- Stocks tumbled Monday, with the Dow Jones industrial average falling below 10,000 for the first time in nearly four years, as European governments' rush to prop up failing financial firms underscored the global reach of the credit crunch.

Credit markets remained tight, with two key measures of bank jitters hitting an all-time high. Treasurys rallied, lowering the corresponding yields as investors sought safety in government debt. Gold rallied for the same reason. Oil dipped. The dollar was mixed versus other major currencies.

Now, wasn't this not supposed to happen once the bill was passed?  Apparently not.

Stocks slumped Friday, as the Wall Street's worst week in seven years ended with President Bush signing the historic $700 billion bailout bill after weeks of contentious debate. The bill involves the Treasury buying bad debt directly from banks in order to get them to start lending to each other again.

But the bill won't help loosen up credit markets in the near term, and with cash still scarce, investors remained on edge.

The Federal Reserve attempted to address this Monday by making an additional $300 billion available to banks in return for a broad range of damaged assets. That raises the amount available to banks to $600 billion as of Monday and the Fed could expand that to $900 billion by the end of the year.

Now, if the bill wasn't going to help in the near term, why couldn't have we taken, say, a week or two to see what alternatives we had that didn't involve giving ridiculous amounts of money to the same people who got us in this mess in the first place?

Consider me still sick over this.

What Does $700 Billion Get You?

Not much of anything, it seems

NEW YORK  (CNNMoney.com) -- Stocks slumped Friday, as a brutal week ended with President Bush signing the historic $700 billion bailout plan after weeks of contentious debate.

Credit markets remained frozen, despite the vote, with two measures of bank jitters rising to record highs. Investors also looked to Wells Fargo's planned purchase of Wachovia and a dismal job market report.

Emphasis added.  Oh great!  Just great.

Wall Street rallied ahead of the early afternoon vote - with the Dow up as much as 313 points - as investors bet the House would pass the modified version of the bill after defeating a similar measure Monday.

But once the House voted 263-171 to pass the bill, which would buy illiquid securities in order to unfreeze credit markets - stocks gave up gains. News that President Bush signed it into law failed to stop the downtrend.

Wall Street was probably taking a classic "buy the rumor, sell the news" approach, analysts said. Additionally, markets may have implied that even with the new law, the economy remains under duress.

That's money for nothing, without the chick for free.

IT'S ALIVE!!!!

Look! It's moving. It's alive. It's alive... It's alive, it's moving, it's alive, it's alive, it's alive, it's alive, IT'S ALIVE!

Dr. Henry Frankenstein in "Frankenstein"

So, since the bill was "mostly dead," it was brought back, and reanimated.  It passed the Senate on Wednesday and today the House shut its collective mouth and passed it.

Only that now it's no longer a $700 billion bailout bill.  It's an $850.5 billion bill, mostly for the bailout and with the leftover "crumbs" for necessary things such as subsidies for Puerto Rican and Virgin Islands' rum.

Leave it to Congress and this Administration to vote down a bad bill and approve a worse version of it.

I'm telling you, I think it was Jim Hightower who said that America doesn't need a third party.  It needs a second party.

This vote is just plain sick.

Which brings me to another quote from the 1931 Frankenstein movie: The neck's broken. The brain is useless. We must find another brain.

It's (Mostly) Dead, Jim

"He's dead, Jim."

Dr. McCoy from "Star Trek"

Whoo-hoo-hoo, look who knows so much. It just so happens that your friend here is only MOSTLY dead. There's a big difference between mostly dead and all dead. Mostly dead is slightly alive.

Miracle Max from "The Princess Bride"

And that, my friends, is how we should consider the failure of the House to pass a bailout bill.  An odd left/right coalition defeated the efforts and arm-twisting of Nancy Pelosi and company, Henry Paulson, and the incredibly shrinking President Bush.

I must say I'm surprised.  I didn't expect this to fail.  I didn't expect it to pass by much, but not to fail.  A couple of good quotes on this:

Rep. John Culberson, R-Texas, said the measure would leave a huge burden on taxpayers. "This legislation is giving us a choice between bankrupting our children and bankrupting a few of these big financial institutions on Wall Street that made bad decisions."

"Like the Iraq war and patriot act, this bill is fueled by fear and haste," said Lloyd Doggett, D-Texas.

And the failure to pass the bill is already producing dividends.

Oil prices dropped sharply on Monday as the House voted down a $700 billion bailout plan for the financial markets, raising the specter of slower economic growth and depressed demand for petroleum products. The House leadership, however, plans a second attempt to pass the bill.

Crude oil futures fell $10.68 to close at $96.21 a barrel on the New York Mercantile Exchange. They have lost nearly $25 since last Monday, and dropped sharply as the House voting began.

You know, the more I read about the bailout, the less I liked it.  Yes, a lot of people are going to lose their homes.  But these are, by and large, people who didn't have any business getting the size of mortgages that they got.

Like I said before, it's one thing if you suffer a life-altering event - a death, job loss, medical bills or incapacity - that prevents you from fulfilling your obligations.  It's quite another when people decide to take an adjustable mortgage with a low "teaser" rate to buy a house they can't afford.  It's not that difficult to figure out how much of a mortgage you can afford: add up your debts and expenses, and subtract your rent.  Whatever amount of money left over is what you can afford to pay.  If you didn't think ahead to figure out how you were going to make your payments once the loan readjusted, it's your fault.  You were careless.

And the banks and financial institutions, well, they should know better too.  If they give out a large number of loans to people who really cannot afford it, then I'm not sorry if they get burned.  And I'm not sorry for anyone who was stupid enough to buy derivatives from them.

Besides, "free market" can't be truly "free" if it's going to be insulated from its misjudgments every time they screw up.

There are plenty of lessons to be learned here, and we'll learn them over the next few days.

You Know McCain is in Trouble . . .

. . .  when not even the Wall Street Journal can throw him a bone for "postponing his campaign:"

Last we checked, the President of the United States was still George W. Bush, the Secretary of the Treasury was still Henry Paulson, the Chairman of the Federal Reserve was still Ben Bernanke, and Congress still had 533 members not running for President who are at least nominally competent to debate and pass legislation.

So count us as mystified by Senator John McCain's decision yesterday to suspend his campaign and call for a postponement in Friday's first Presidential debate so that he and Barack Obama can work out a consensus bill to stabilize the financial system. This is supposed to be evidence of leadership?

Emphasis added.  What can you add to that except, maybe, "ouch!"?  Oh, this

[T]his is not what the country expects from its Presidential candidates. The Administration and the Congress have a responsibility to negotiate legislation, and we can only hope it isn't carbuncled to a point that makes it impossible for Treasury to hold a decent mortgage-backed securities auction, or allow markets to clear. As Senators, Messrs. Obama and McCain also have a responsibility to give us their up-or-down verdict on the bill as it emerges. If they have specific differences or suggestions, they certainly have a large megaphone to broadcast them.

As candidates, however, they are not serving the public by hiding behind a fog of faux bipartisanship that obscures their core economic principles and their approach to governance in times of crisis. Far from being an issue that is above electoral politics, the financial panic is too serious not to have a serious discussion about. President Bush gave both candidates a hand last night by inviting them to a White House meeting on the legislation today, but this looks more like political theater than it does actual governing. Both candidates are angling to get some credit for being in on the deal, whatever it might be.

Emphasis added.  The thing is, however, that McCain is the only one doing the hiding in this case.

Which, of course, is now a non-issue, since, for better or worse, we have a bailout package.

I guess McCain is stuck with having to debate, after all.