In a rare mainstream press article of critical analysis of Barack Obama, Calvin Woodward of AP points out that Obama uses imaginary budget cuts to fund his massive proposed spending programs.
Obama's assertion that "I've offered spending cuts above and beyond" the expense of his promises is accepted only by his partisans. His vow to save money by "eliminating programs that don't work" masks his failure throughout the campaign to specify what those programs are — beyond the withdrawal of troops from Iraq.
Aside from the military almost all government programs are loved by the Democratic Party. Though perhaps they'll cut back on prison spending.
Obama lies about cost cutting.
THE SPIN: "I've offered spending cuts above and beyond their cost." THE FACTS: Independent analysts say both Obama and Republican John McCain would deepen the deficit. The nonpartisan Committee for a Responsible Federal Budget estimates Obama's policy proposals would add a net $428 billion to the deficit over four years — and that analysis accepts the savings he claims from spending cuts. The nonpartisan Tax Policy Center, whose other findings have been quoted approvingly by the Obama campaign, says: "Both John McCain and Barack Obama have proposed tax plans that would substantially increase the national debt over the next 10 years." The analysis goes on to say: "Neither candidate's plan would significantly increase economic growth unless offset by spending cuts or tax increases that the campaigns have not specified."
The extremely bad news: Existing entitlements programs will already hugely increase government spending in the next ten 10 years as the Baby Boomers stop paying much taxes and start using Medicare and Social Security. The fiscal outlook is even worse due to a dumber younger generation and the coming of Peak Oil.
Woodward comments that we could be facing a $1 trillion deficit next year. He'll try to increase spending even further in the face of that deficit. We live in Warren Buffett's Squanderville. We need to move to Thriftville.
Joe Biden says you only have to make over $150k to escape the middle class. This is great news for people who aspire to become upper class.
But in an interview Monday with a Scranton television station, WNEP, Biden was explaining how the Obama tax policy would no longer give tax breaks to the “very very wealthy” and appeared to set the bar lower.
“What we’re saying is that $87 billion tax break doesn’t need to go to people making an average of $1.4 million. It should go like it used to. It should go to middle class people — people making under $150,000 a year,” he said.
Those comments fit into the Republican narrative aimed at voters who, are promised a tax break under the Obama plan. They argue that in order to pay for his spending initiatives, he’ll wind up taxing a lot more people than he says, a charge the Obama campaign disputes.
You might have thought you needed to make a half million or even a million a year to be upper class. After decades of inflation I would think even a million just isn't that much. But Joe Biden, supporter of the working class, wants to give us a more achievable goal to shoot for. $150k for entry into the upper class becomes a possible goal for a large fraction of the population. Work 2 jobs. Get your spouse to work 2 jobs. You too can enter the upper class.
America. What a great country.
Under Obama's plan, the marginal federal income tax rate for those with the highest incomes would go back to 39.6 percent from 35 percent, perhaps earlier than already scheduled under the Bush tax-cut legislation for the end of 2010. Also, Obama would impose a smaller payroll tax, perhaps 2 to 4 percent but not yet specified by the Obama campaign, on income above $200,000 and $250,000. So the marginal federal tax rate – the rate on the last dollar earned – could climb as high as perhaps 43 percent.
Mind you, if you live in a state with a high state income tax then your marginal income tax rate could surpass 50%. That is just plain wrong. You are also going to pay sales taxes and assorted fee taxes on your utilities as well as property taxes and still other taxes.
Barack Obama wants major wealth redistribution in American society. He doesn't see the Warren Court as radical because it didn't redistribute wealth. Here he is in a radio interview in 2001.
He takes the need for wealth redistribution as a given. The question in his mind is how to do it.
Barack Obama will get sworn into office in late January 2009.
Update: Steve Sailer analyzes Obama's 2001 interview and gets to the heart of the matter: Obama knows he needs to redistribute to more than just blacks in order to create coalitions big enough to do the redistribution. But that means the amount of money that gets redistributed gets way way larger. Hide your wallet.
In summary, a close reading of “Dreams from My Father” shows that achieving political power to bring about redistribution of wealth from whites to blacks was the main goal of Obama’s life up at least through the book’s writing in 1995.
This interview extends that up through 2001, the year after his soul-crushing defeat in the 2000 Democrat primary for House, where he was rejected by black voters for not being black enough.
Keep in mind that Obama has never been all that big on just cutting checks for poor people. He much prefers to spend money through his political base, social service workers, letting them keep much of the increased spending.
This explains, by the way, why Obama never bothered to publish any legal scholarship, even though he had the same post at the U. of Chicago Law School, “Senior Lecturer,” as Richard Posner. He didn’t see the point: litigation just wasn’t going to be as effective at getting “redistributive change” as would be “coalitions of power.”
As a practical matter, however, he understands that to take money from whites and give it to blacks, which is what he cares about, his dreams from his father, he’ll need to assemble broad “coalitions of power.” He can’t just hand out money on a blacks-only basis. He’s got to cut all sorts of people in on the deal.
We are going to see some serious class warfare. What form might that class warfare take? How about an attack on 401k retirement plans? James Pethokoukis, money and politics blogger for U.S. News & World Report, reports on Congressional Democrats who would like to end 401k plans and replace them with government savings accounts.
I hate to use the "S" word, but the American government would never do something as, well, socialist as seize private pension funds, right? This is exactly what cash-strapped Argentina just did in the name of protecting workers' retirement accounts (Efharisto, Fausta's Blog). Now, even Uncle Sam isn't that stupid, but some Democrats might try something almost as loopy: kill 401(k) plans.
House Democrats recently invited Teresa Ghilarducci, a professor at the New School of Social Research, to testify before a subcommittee on her idea to eliminate the preferential tax treatment of the popular retirement plans. In place of 401(k) plans, she would have workers transfer their dough into government-created "guaranteed retirement accounts" for every worker. The government would deposit $600 (inflation indexed) every year into the GRAs. Each worker would also have to save 5 percent of pay into the accounts, to which the government would pay a measly 3 percent return. Rep. Jim McDermott, a Democrat from Washington and chairman of the House Ways and Means Committee's Subcommittee on Income Security and Family Support, said that since "the savings rate isn't going up for the investment of $80 billion [in 401(k) tax breaks], we have to start to think about whether or not we want to continue to invest that $80 billion for a policy that's not generating what we now say it should."
Pethokoukis points out that forcing people out of their 401(k) plans at the bottom of the market would be pretty stupid. The bottom is when to buy, not when to sell. But that's not the worst of it. Forcing people to deposit their money with the government will just make it easier for the government to run big deficits.
I am shocked that Alan "irrational exuberance" Greenspan is shocked by this credit crisis. He ought to know better. Surely he knew that housing became overpriced compared to various historical ratios of housing prices versus income and rents. Surely he knew that personal indebtedness was reaching dangerous levels. Yet look at former Federal Reserve Chairman Alan Greenspan's recent Congressional testimony about his shock at the financial crisis.
"As I wrote last March, those of us who have looked to the self-interest of lending institutions to protect shareholders' equity (myself especially) are in a state of shocked disbelief... Such counter-party surveillance is a central pillar of our financial markets' state of balance. If it fails, as occurred this year, market stability is undermined."
He demonstrates a hubris in the power of elites reacting to markets to make correct decisions. Greenspan ignores the agency problems with CEOs and other top executives. They get bigger incentives for success than rewards for avoiding failure. Their bonuses aren't based on multi-year achievements. They find too many ways to boost earnings in the short run at the expense of the long run. They have captive boards that can't control them. Corporate governance has serious flaws.
Mr. Greenspan's thinking contains some serious contradictions. First off, his long-running claim to economic understanding does not come as a result of an impressive history of competing in the private sector. His power and influence came chiefly as a result of an appointment in government. Government is what he professes to trust less than the private sector. But he's Mr. Government himself. So why should he trust his own judgments?
Second, most of the economic growth that happened while he was chairman of the Fed came as a result of large numbers of decisions in the private sector. He doesn't deserve veneration for being Fed Chairman for this period of economic growth - at least if he takes seriously his own view of the relative importance of the private sector and government.
Third, he is now shown to have been incredibly wrong. In a speech in 2005 what Greenspan hailed as innovations by the private sector were in fact a disaster waiting to happen.
A brief look back at the evolution of the consumer finance market reveals that the financial services industry has long been competitive, innovative, and resilient. Especially in the past decade, technological advances have resulted in increased efficiency and scale within the financial services industry. Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. ...
... For example, information processing technology has enabled creditors to achieve significant efficiencies in collecting and assimilating the data necessary to evaluate risk and make corresponding decisions about credit pricing.
"It was the failure to properly price such risky assets that precipitated the crisis," Greenspan said, by encouraging investors worldwide to look at U.S. subprime loans as a "steal" rather than an uncertain bet that relied on escalating home values. "The whole intellectual edifice . . . collapsed in the summer of last year."
Fannie Mae and Freddie Mac are creatures created by the US government and are continually pressured by the US government. They intervened in the subprime market and distorted that market. At the same time federal regulators, politicians, newspapers, and political activists pressured banks and other financial institutions to issue risky debt to help non-Asian minorities (NAMs) buy houses and other things they couldn't afford to buy. These were big distortions in the market that a supposed free marketeer like Greenspan ought to have recognized and factored into his thinking. But he obviously didn't.
Other important market distortions emanated from East Asian governments buying up debt in the US. The Chinese government maintains a currency peg against the US dollar. The Chinese government enforces rules on Chinese banks and Chinese businesses so that US dollars flowing into China to buy goods get converted into local currency in a way that builds up foreign reserves. The resulting (unsustainable and damaging) trade deficit distorts US capital markets. The Chinese purchase of US bonds distorts the US money supply and US credit markets. That too distorted the market and caused a big mispricing of debt and risk. Why didn't Greenspan recognize the importance of huge market distortions caused by governments? Because he's become too much the government insider.
A fractional reserve banking system requires government regulation by its nature. Objectivists therefore oppose fractional reserve banking. The Objectivists do not see Greenspan as a free marketeer.
Yaron Brook, executive director of the Ayn Rand Center for Individual Rights, today issued the following commentary:
Opponents of the free market are giddy at Alan Greenspan's declaration that the financial crisis has exposed a "flaw" in his "free market ideology." Greenspan says he is "in a state of shocked disbelief" because he "looked to the self-interest of lending institutions to protect shareholder's equity"--and it didn't.
But according to Dr. Yaron Brook, executive director of the Ayn Rand Center for Individual Rights, "any belief Greenspan ever had in truly free markets was abandoned long ago. While Greenspan long ago wrote in favor of a truly free market in banking, including the gold standard that such markets always adopt, he then proceeded to work for two decades as leader and chief advocate of the Federal Reserve, which continually inflates the money supply and manipulates interest rates. Advocates of free banking understand that when the government inflates the currency, it artificially increases prices and causes booms in certain sectors of the economy, followed by inevitable busts. But not only did Greenspan lead the inflation behind the .com bubble and the real estate boom, he blamed the market for their treacherous collapses. Greenspan should have recognized that what he wrote in 1966 of the boom preceding the 1929 crash applied here: 'The excess credit which the Fed pumped into the economy spilled over into the stock market--triggering a fantastic speculative boom.' Instead, he superficially blamed 'infectious greed.'
"Should it be any shock that Greenspan now blames the free market for today's meltdown--rather than the Fed's policies, which fueled an inflationary housing boom, which rewarded reckless lenders and borrowers from Wall Street to Main Street? Greenspan didn't mention the word 'inflation' once in his testimony.
"Whatever Greenspan's economic philosophy is, it is not anything resembling a free market."
Whether a gold-based banking system is practical I have my doubts. But I think the Objectivists are right to see serious flaws in Greenspan's idea of a free market. Though, I must add, I see serious flaws in Objectivism.
Update: I would like to know when the leaders of either political party will come right out in public and say that our 5% of GDP trade deficit is another unsustainable problem that needs to be dealt with. When are they going to admit we are living beyond our means and that foreign governments are helping to cause the trade deficit?
We are well into the post mortem phase of the 2008 US Presidential election. McCain is clearly the loser. Steve Sailer suggests what McCain might have done to win.
As you may have noticed, John McCain hasn't had any kind of theme to his campaign. He can't go after Obama on what Obama is vulnerable on because that's all tied into race, so Obama gets a free pass on that.
What John McCain should have done in this race is embrace his Grumpy Old Manness and run as the we've-got-to-live-within-our-means candidate. Run against the whole Debt Debauch, the no-money-down culture, the get rich quick attitude. Run against Bush's campaign against down payments.
Don't run in favor of "regulation," run in favor of "thrift" and "prudence," on old fashioned non-ideologue conservatism.
I am not convinced we would have been better off with McCain as President. Both McCain and Obama have such big downsides that it is hard to tell which would be worse. But I like Steve's idea because this is a message that the American people really need to hear. The political support for "no money down" from both sides of the political aisle deserves to be called out and highlighted to the American people. They need to be made extremely aware that this was done and that this flies in the face of common sense.
The problem is that while McCain likes to think of himself as a maverick he's not deep enough to recognize what is wrong and make fundamental criticisms of his peers in our elites. That's a shame because a lot of easy pickings are on display.
More than one in five workers at companies that offer 401(k)’s do not even sign up. A study by the Congressional Research Service found that the median amount that workers age 55 to 64 have in their 401(k)’s is just $61,000; another study by the Employee Benefit Research Institute found that 43 percent of workers age 55 and over have less than $50,000 in their 401(k)’s and other savings and investments. Moreover, the institute found that 27 percent of workers in that age group invest more than 90 percent of their 401(k)’s in stocks, a comparatively volatile investment.
Stocks are a good investment right now for the long term (unless Peak Oil trashes the economy in the 2010s).
You are going to have to work longer.
Professor Munnell of Boston College said that staying in the labor force longer is the key to retirement security.
“The reason is you will not get reduced benefits under Social Security,” she said. “Two, you allow your 401(k) assets a chance to bounce back, and you can contribute more. Three, it reduces the period during which you have to support yourself.”
Retirees receive reduced Social Security benefits if they retire at 62, but benefits rise by 8 percent a year for every year a worker delays retirement until age 70. To maintain living standards after they retire, workers need post-retirement income of 70 to 80 percent of their income before retiring, many experts say.
The rise in life expectancies will accelerate once stem cell therapies and gene therapies become commonplace. This will necessitate people working into their 70s and eventually into their 80s and beyond.
A growing percentage of the population continues to work after age 65.
Mr. VanDerhei, of the Employee Benefit Research Institute, said, “For the vast majority of people, if they think they have enough to get out of the work force at age 65, they’re fooling themselves.” More and more workers apparently agree, because the percentage of workers age 65 and over in the labor force has climbed to 17.3 percent in 2008, from 12 percent in 1999.
I expect this trend to continue because the ratio of workers to retirees can't drop too low without crushing taxes.
Rare are the people who recognize that some are winners in the financial crisis. People who still have lots of stock buying ahead of them can now buy stocks for much cheaper.
Kevin Dorwin is a principal financial advisor with Bingham Osborn & Scarborough. He has been on the phone all weekend with clients. He's answering questions and telling them age should determine how they approach their 401K retirement accounts.
He said investors in their 20s are the biggest winners in recent stock market losses.
"They are buying stock at much lower prices than a year ago and right where they were 10 years ago. So, they should be happy," said Dorwin.
The continuing decline in housing prices similarly produces many winners: all those people who haven't bought yet or who intend to buy something much bigger. Low prices are good, not bad.
Many causes contributed to the debt crisis. One of those causes: the credit ratings agencies became lax when rating securities.
Employees at Moody's Investors Service told executives that issuing dubious creditworthy ratings to mortgage-backed securities made it appear they were incompetent or ``sold our soul to the devil for revenue,'' according to e-mails obtained by U.S. House investigators.
The e-mail was one of several documents made public today at a hearing of the House Oversight and Government Reform Committee in Washington, which is reviewing the role played by Moody's, Standard & Poor's and Fitch Ratings in the global credit freeze.
Fitch, Moody's and Standard & Poors competed and the originators chose the ratings agency most likely to score their securities the highest. The result was a decline in standards by the ratings agencies.
Jerome Fons, a former managing director of credit policy at New York-based Moody's, told lawmakers that originators of structured securities ``typically chose the agency with the lowest standards, engendering a race to the bottom in terms of rating quality.''
These agencies deserve to fail at this point. But will they?
Moody's Chief Executive Raymond McDaniel told directors in October 2007 that Moody's was facing a dilemma in trying to maintain both market share and quality in the ratings paid for by issuers of the securities.
"The real problem is not that the market... underweights ratings quality but rather that in some sectors, it actually penalizes quality," he said, according to the documents. "It turns out that ratings quality has surprisingly few friends: issuers want high ratings, investors don't want ratings downgrades, short sighted bankers labor shortsightedly to game the ratings agencies."
McDaniel said analysts and managing directors are continually pitched by bankers, issuers and investors and sometimes "we drink the Kool-Aid."
``Let's hope we are all wealthy and retired by the time this house of cards falters,'' one e-mail from an S&P employee said.
Are we just so far removed in time from the Great Depression that our whole society has forgotten old lessons learned and become reckless with debt?
Economist Darren Lubotsky says immigrants close the earning gap with American-born workers about half as fast as previously thought.
CHAMPAIGN, Ill. — Immigrants whittle into a broad earnings gap with American-born workers only about half as fast as long-accepted estimates suggest, according to new research by a University of Illinois economist.
Darren Lubotsky says immigrants’ typically low starting wages grow just 10 to 15 percent faster than native-born workers over their first 20 years in the U.S., well short of the 26 percent catch-up rate in widely used, census-based projections.
Lubotsky says census estimates are flawed because they only compare wages of immigrants and native workers polled in the once-a-decade surveys, and fail to factor in the roughly third of immigrants – most low paid -- who come to the U.S. then leave.
“The reason it appears immigrants catch up quicker based on census data is because, in that data, we’re mostly seeing the successful ones, those who decided to remain here,” said Lubotsky, a member of the U. of I. Institute of Government and Public Affairs.
“Immigrants who have been in the U.S. for decades tend to have relatively high earnings, but the data don’t include many low-earning immigrants who left and therefore weren’t surveyed,” he said. “The earnings of those who stay do grow, but only about half as fast as previous estimates indicated.”
Census estimates are further skewed, he says, because seasonal workers and other low-earning immigrants who routinely go back and forth between the U.S. and their home countries are sometimes misclassified as new arrivals, inflating the pay averages for long-term immigrants.
The longer term prospects for wage increases across generations are poor as well. After the second generation Mexican immigrants show no academic performance improvement. The libertarian Benthamite arguments for open borders are wrong. Immigration is causing a general dumbing down which will lower the quality of life in America.
Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.
The saintliness of Franklin Delano Roosevelt makes me flash on a Prior saying "Hallowed are the Ori". In spite of the reverence that we are supposed to feel for FDR the guy caused huge amounts of human suffering. Heck, by lengthening the Depression he helped cause World War II. How did he do this? Interference with market pricing mechanisms.
After scrutinizing Roosevelt's record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.
We are suffering from a financial crisis because US government policies to encourage home ownership caused lending standards to get lowered so far that a real estate bubble and massive defaults became inevitable. But partisan promoters of the wrong policies that created this mess (e.g. Barney Frank, Chuck Schumer, Chris Dodd) still try to shift the blame. If they succeed in shifting the blame then the Obama Administration and a supermajority of Democrats in the US Congress will enact policies that will make the financial crisis even worse.
Roosevelt's policies artificially inflated wages and prices and this choked off demand and deflated the economy.
In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933.
"President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services," said Cole, also a UCLA professor of economics. "So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies."
Start with a wrong-headed Federal Reserve policy that reduces demand by reducing monetary supply. Add in policies aimed at keeping up prices in the face of this lowered demand. Result? Prices can't fall to clearing levels that would make the economy once more grow even with a smaller money supply.
Using data collected in 1929 by the Conference Board and the Bureau of Labor Statistics, Cole and Ohanian were able to establish average wages and prices across a range of industries just prior to the Depression. By adjusting for annual increases in productivity, they were able to use the 1929 benchmark to figure out what prices and wages would have been during every year of the Depression had Roosevelt's policies not gone into effect. They then compared those figures with actual prices and wages as reflected in the Conference Board data.
In the three years following the implementation of Roosevelt's policies, wages in 11 key industries averaged 25 percent higher than they otherwise would have done, the economists calculate. But unemployment was also 25 percent higher than it should have been, given gains in productivity.
Meanwhile, prices across 19 industries averaged 23 percent above where they should have been, given the state of the economy. With goods and services that much harder for consumers to afford, demand stalled and the gross national product floundered at 27 percent below where it otherwise might have been.
In the name of compassion and social justice many in Congress want to keep up housing prices and keep people in houses they can't afford. If Congress succeeds in preventing the housing correction from working its way out then the US recovery will be delayed. Unfortunately, a left-leaning press does not want to handle the truth.
Update: Let me clarify one point: I think the financial crisis had a few causes. Regulatory pressures on financial institutions to lend to poor non-Asian minorities (NAMs) was just one of the causes. The SEC's rules change that allowed investment banks to become more leveraged was another cause. Chinese and other Asian buying of US debt kept consumer prices down while driving up asset prices. I'm one of a handful of people who even mention this cause. But I suspect it might be the most important of all. The asset bubble seems linked in my mind to the huge US trade deficit.
First American politics became feminized and emotionalized. Now Peggy Noonan says this election is infantilizing American politics. Goo goo, gah, gah.
There is now something infantilizing about this election. Mr. Obama continued to claim he will remove wasteful spending by sitting down with the federal budget and going through it "line by line." This is absurd, and he must know it. Mr. McCain continued to vow he will "balance the budget" in the next four years. Who believes that? Does even he?
More than ever on the campaign trail, the candidates are dropping their G's. Hardworkin' families are strainin' and tryin'a get ahead. It's not only Sarah Palin but Mr. McCain, too, occasionally Mr. Obama, and, of course, George W. Bush when he darts out like the bird in a cuckoo clock to tell us we are in crisis. All of the candidates say "mom and dad": "our moms and dads who are struggling." This is Mr. Bush's former communications adviser Karen Hughes's contribution to our democratic life, that you cannot speak like an adult in politics now, that's too austere and detached, snobby. No one can say mothers and fathers, it's all now the faux down-home, patronizing—and infantilizing—moms and dads. Do politicians ever remember that in a nation obsessed with politics, our children—sorry, our kids—look to political figures for a model as to how adults sound?
They are trying to be "authentic". Aw shucks Andy. Aw shucks Gomer. Aw shucks Barney (except our Barney Frank helped create a huge financial crisis by pushing for lowered lending standards).
Peggy also takes a dim view of Sarah Palin.
But it's unclear whether she is Bushian or Reaganite. She doesn't think aloud. She just . . . says things. Her supporters accuse her critics of snobbery: Maybe she's not a big "egghead" but she has brilliant instincts and inner toughness. But what instincts? "I'm Joe Six-Pack"? She does not speak seriously but attempts to excite sensation—"palling around with terrorists." If the Ayers case is a serious issue, treat it seriously. She is not as thoughtful or persuasive as Joe the Plumber, who in an extended cable interview Thursday made a better case for the Republican ticket than the Republican ticket has made. In the past two weeks she has spent her time throwing out tinny lines to crowds she doesn't, really, understand. This is not a leader, this is a follower, and she follows what she imagines is the base, which is in fact a vast and broken-hearted thing whose pain she cannot, actually, imagine. She could reinspire and reinspirit; she chooses merely to excite. She doesn't seem to understand the implications of her own thoughts.
We will not see a Vice President Sarah Palin. This election is already over. As I said back in February 2008: Recession Assures Republican Presidential Defeat In 2008. The financial crisis of the last few months assures McCain's defeat. So while Noonan's comments about Sarah Palin are interesting they ultimately matter more for the lessons we might learn for future elections. Choose your VP wisely.
What matters? The future policies of President Obama. My fear is that Obama understands the implications of his own thoughts and wants to grow the size of government and place more government controls on the economy. The coming liberal supermajority isn't going to find any brakes in the way of their ambitions. How far will they go? Price controls on gasoline that bring back the lines? FDR-style policies that extend and deepen the recession? High taxes that cause economic stagnation?
I am especially worried about an attempt by House Speaker Nancy Pelosi and others on the Left to resurrect the "Fairness Doctrine" (which is anything but) to restrict speech by rightward leaning people.
The existence of the Fairness Doctrine, which was in place officially from the late 1940s through the mid-eighties, when Ronald Reagan’s FCC phased it out, made political talk radio in today’s boisterous, opinionated sense impossible—no Mark Levins, that’s for sure. And that’s what would happen if, as Democrats from Nancy Pelosi to John Kerry to Al Gore hope, the doctrine gets re-imposed. This is a missile aimed at conservative talk radio. A station that ran Levin, or Bill Bennett or Hugh Hewitt, would have to broadcast a liberal alternative—but liberals have tanked on the radio, for various reasons, including the fact that they’re so well represented elsewhere in the media. The station would most likely just say, you know what, we’re going to change formats and do sports talk or entertainment reporting—anything but politics!
But even if Democrats failed to bring back the Fairness Doctrine—and Obama claims not to support the idea, though virtually every leading Democrat, including Nancy Pelosi does—other reforms are likely: tightened media ownership regulations and an expansion of public interest duties of broadcasters, including imposing greater local accountability on them. This means forcing stations to carry more local programming, even if the public isn’t asking for it—which it isn’t. This is aimed at national syndicators who make conservative shows available across the country.
They show themselves quite willing to restrict speech, all their posturing as about supporting basic rights to the contrary. They are going to be in supermajority control of both houses of Congress. How many will they muzzle? How many US citizens will be too gah gah over Obama to care?
Iceland is worst hit of any nation by the financial crisis. Unless Iceland can line up some big loans from other governments it might go bankrupt.
Central bank guidelines give priority to essential imports like food, medicines and oil, in effect leaving importers of other goods starved of foreign currency.
Based on central bank figures, it can supply enough foreign currency to local firms to cover imports for just less than nine months.
Icelanders are buying store shelves empty. Since the threat of imports cut-off is very real I hesitate to label this panic-buying. These buyers are being rational, not panicky.
Iceland's rugged, treeless terrain, a barren stretch of volcanic rock, geysers and moss, means the country imports most food, other than meat, fish and dairy products.
Magnusson said last week that one of Iceland's largest supermarket chains was unable to get any foreign currency to make purchases abroad and another retailer's electronic payment didn't go through. Iceland will begin to see shortages of ``regular goods'' by the end of the week if nothing changes, he said.
Imagine yourself living in a country where the stores can no longer buy abroad and most goods come from abroad. The fishermen will still eat. They'll also be able to buy up distressed assets. But winter will be cold and hungry for so many people who are losing their jobs.
Iceland is now the ex-richest country per capita in the world. Easy come, easy go.
Separately on Sunday, industry minister Oessur Skarphedinsson said that Iceland, until days ago the richest country per capita in the world, must request aid from the International Monetary Fund.
The banking losses are so much bigger than the real economy of Iceland that the Icelandic government can't replace the losses in a bailout. The nationalized banks put limits on how much people can withdraw from their deposits.
The ramifications of Iceland's misery are probably more serious than people realize. The country's bank assets are more than 10 times greater than its gross domestic product, so the government clearly cannot afford a bailout. This is going to be a large default, affecting many parties. In the United Kingdom alone, 300,000 account holders face sudden loss of access to their funds, and the process for claiming deposit insurance is not entirely clear.
How did things get so bad so fast? Blame the Icelandic banking system's heavy reliance on external financing. With the privatization of the banking sector, completed in 2000, Iceland's banks used substantial wholesale funding to finance their entry into the local mortgage market and acquire foreign financial firms, mainly in Britain and Scandinavia. The banks, in large part, were simply following the international ambitions of a new generation of Icelandic entrepreneurs who forged global empires in industries from retailing to food production to pharmaceuticals. By the end of 2006, the total assets of the three main banks were $150 billion, eight times the country's GDP.
Fishing sustained the rugged and remote island of Iceland for centuries. But just a half-dozen years ago, Icelanders discovered that vast fortunes could be made in high finance. They took to the new business with all the zeal and fearlessness of their seagoing past, lending abroad with speculative fervor. The banks quickly swelled to a size that dwarfed the economy of some 300,000 Icelanders back home.
Within a few years, Iceland's three big banks -- Kaupthing Bank hf, Landsbanki Islands hf and Glitnir became highly leveraged, like other now-troubled banks. The banks' assets reached €100 billion, about 10 times the country's gross domestic product last year, and their foreign depositors have come to far outnumber the island's population.
Governments should place limits on the size of liabilities that banks can build up as compared to the size of deposits.
One of Barack Obama's most potent campaign claims is that he'll cut taxes for no less than 95% of "working families." He's even promising to cut taxes enough that the government's tax share of GDP will be no more than 18.2% -- which is lower than it is today.
I'd rather get lower tax rates as my preferred way to pay less taxes. It is simple to understand and you don't have to fit into special categories to pay less. But Barack isn't aiming for my vote. The 44% of tax filers who do not even have to pay income taxes will be eligible for credits that Obama bills as tax cuts. Only the clean car credit below is restricted to people who actually pay income taxes.
- A $500 tax credit ($1,000 a couple) to "make work pay" that phases out at income of $75,000 for individuals and $150,000 per couple.
- A $4,000 tax credit for college tuition.
- A 10% mortgage interest tax credit (on top of the existing mortgage interest deduction and other housing subsidies).
- A "savings" tax credit of 50% up to $1,000.
- An expansion of the earned-income tax credit that would allow single workers to receive as much as $555 a year, up from $175 now, and give these workers up to $1,110 if they are paying child support.
- A child care credit of 50% up to $6,000 of expenses a year.
- A "clean car" tax credit of up to $7,000 on the purchase of certain vehicles.
Here's the political catch. All but the clean car credit would be "refundable," which is Washington-speak for the fact that you can receive these checks even if you have no income-tax liability. In other words, they are an income transfer -- a federal check -- from taxpayers to nontaxpayers. Once upon a time we called this "welfare," or in George McGovern's 1972 campaign a "Demogrant." Mr. Obama's genius is to call it a tax cut.
So Barack is aiming for the votes of people who aren't net taxpayers. These people already get more than they pay for.
A mortgage tax credit? That's the worst one on the list. We are paying enough already for irresponsible home buyers. We need to subsidize their recklessness even more? This is unfair to renters and to savers.
We are talking big money. Taxpayers have to pay so that credits can be handed out to others.
The total annual expenditures on refundable "tax credits" would rise over the next 10 years by $647 billion to $1.054 trillion, according to the Tax Policy Center.
I am expecting that Barack will shaft me so he can play leftist social engineer.
John McCain and Barack Obama have largely avoided discussing immigration during the presidential campaign. But when it comes to the legal side of the issue, they both seem to support the status quo: an official policy centered around low-skilled, predominately Hispanic immigrants. A forthcoming book shows just how misguided that policy is, especially in light of the nation’s current economic woes. The Latino Education Crisis: The Consequences of Failed Social Policies, by Patricia Gandara and Frances Contreras, offers an unflinching portrait of Hispanics’ educational problems and reaches a scary conclusion about those problems’ costs. The book’s analysis is all the more surprising given that its authors are liberals committed to bilingual education, affirmative action, and the usual slate of left-wing social programs. Yet Gandara and Contreras, education professors at UCLA and the University of Washington, respectively, are more honest than many conservative open-borders advocates in acknowledging the bad news about Hispanic assimilation.
Hispanics are underachieving academically at an alarming rate, the authors report. Though second- and third-generation Hispanics make some progress over their first-generation parents, that progress starts from an extremely low base and stalls out at high school completion. High school drop-out rates—around 50 percent—remain steady across generations. Latinos’ grades and test scores are at the bottom of the bell curve. The very low share of college degrees earned by Latinos has not changed for more than two decades. Currently only one in ten Latinos has a college degree.
I bet the difference in college degree rates in engineering and the hard sciences is much larger.
The state of California will experience almost a 1% decline in per capita income per year from now to 2020.
California provides a glimpse of what such changes might mean for America’s economic future. The Center for Public Policy and Higher Education predicts that unless the rate of college matriculation among “underrepresented” minorities (that is, Hispanics) immediately rises, the state will face an 11 percent drop in per capita income by 2020.
California already has high sales and income taxes. Yet we will see a big push for higher tax rates to make up for tax revenue losses as average incomes decline. Take this as a message to higher wage earning Californians that an exit strategy is worth considering.
The US is on its way to creating a permanent underclass? No, we already have one. But it is going to get much larger.
The Latino Education Crisis pulls no punches in its conclusions: “With no evidence of an imminent turnaround in the rate at which Latino students are either graduating from high school or obtaining college degrees, it appears that both a regional and national catastrophe are at hand.” The United States is well on its way to creating a “permanent underclass,” the authors write. They even have the nerve to discuss the calamity of Latinos’ rapidly rising illegitimacy rate—which now stands at 50 percent. Gandara and Contreras had better get used to being called racists from open-borders supporters, as anyone who dares to point out Hispanic family breakdown can attest.
SYDNEY has grossly under-estimated the population explosion that will squeeze its resources over the next 20 years, but the cash-strapped Premier admits it is "pointless" to promise the billions of dollars in extra spending the city will need.
Nathan Rees yesterday signalled deep cuts in the capital spending program and a radical departure from the $140 billion infrastructure strategy of the former premier, Morris Iemma.
On the same day that it emerged Sydney will need almost 900,000 extra homes by 2031 - a third more than estimated three years ago - Mr Rees told a news conference: "Governments can boast about capital works programs extending out five, 10, 15 years. But essentially what you're boasting about is the level of debt you have."
Mr Rees said income or revenue was needed to service the debt.
"If we can't, it's pointless boasting about a capital works program," he said.
One of the problems: medical costs are going up 8% a year and threaten to eat all the state's budget.
When Peak Oil hits infrastructure will become even less affordable. Tax revenues will decline while the costs of construction rise. Better to have a constant population level at that point. So stop the immigration.
The past year has been especially unnerving, with one bleak event after another, and it is more than acidic politics that have soured the national mood. Economic growth slowed; prices shot up. Xenophobic riots broke out in several cities, with mobs killing dozens of impoverished foreigners and chasing thousands more from their tumbledown homes.
The country’s power company unfathomably ran out of electricity and rationed supply. Gone was the conceit that South Africa was the one place on the continent immune to such incompetence. The rich purchased generators; the poor muddled through with kerosene and paraffin.
Other grievances were ruefully familiar. South Africa has one of the worst crime rates. But more alarming than the quantity of lawbreaking is the cruelty. Robberies are often accompanied by appalling violence, and people here one-up each other with tales of scalding and shooting and slicing and garroting.
The poor apply padlocks in defense. The rich surround their homes with concrete and barbed wire — and there are suggestions that more are simply fleeing the country.
“On our street alone, just that one small street, three of the husbands in families were killed in carjackings or robberies,” said Antony McKechnie, an electrical engineer who a month ago moved to New Zealand. “If we had stayed and something had happened to any of our three children, we would never be able to forgive ourselves.”
The skilled whites are more able to leave than the unskilled whites. So fleeing people like Mr. McKechnie take skills with them disproportionately for their numbers.
Recent South African political leaders have opted not to compete with Nelson Mandela for saintliness awards.
Mr. Mbeki was president for nine years, and his image slowly warped from someone aloof but well intentioned to someone secretive and conniving. During the past year, he went to extraordinary lengths to protect his police commissioner, accused of shopping with mobsters in an expensive haberdashery and permitting them to pick up the tab.
Mr. Mbeki’s political nemesis is Mr. Zuma, whom he once fired as deputy president and who has image problems of his own. In 2006, he was tried on rape charges and acquitted, testifying that his accuser had encouraged him by wearing a short skirt and sitting provocatively. As a Zulu man, he said, he was duty-bound to oblige her. He then showered, as he described it, to “minimize the risk” of contracting the virus that causes AIDS.
The ratio of blacks to whites has risen from 6.625 to 8.55 since 1996.
Since 1996, the black population has risen to a projected 38.5 million from 31.8 million, according to government statistics. The white population has dropped to a projected 4.5 million from 4.8 million.
John Loos, an economist at First National Bank of South Africa, who tracks the reasons given by people who sell homes in white suburban markets, said 9 percent cited emigration in the last quarter of 2007. In the first quarter of 2008, the number rose to 12 percent; in the second quarter it reached 18 percent.
These numbers suggest that the white flight is accelerating dramatically. Maybe we can't trust the official figures on the size of white flight. Even a guy who wants to look on the bright side admits almost everyone who took an accounting course with him have since fled.
Since May, one of the nation’s best-selling books has been a pep talk titled “Don’t Panic!” by a businessman, Alan Knott-Craig. Aimed primarily at downhearted white people, the book laments the “tsunami of negativity” and discourages those packing for Perth.
Mr. Knott-Craig, 31, said in an interview that 67 of his 72 classmates in an accounting course had emigrated.
The South African Institute of Race Relations, a think-tank, guesses that 800,000 or more whites have emigrated since 1995, out of the 4m-plus who were there when apartheid formally ended the year before. Robert Crawford, a research fellow at King’s College in London, reckons that around 550,000 South Africans live in Britain alone. Not all of South Africa’s émigrés are white: skilled blacks from South Africa can be found in jobs and places as various as banking in New York and nursing in the Persian Gulf. But most are white—and thanks to the legacy of apartheid the remaining whites, though only about 9% of the population, are still South Africa’s richest and best-trained people.
Talk about “white flight” does not go down well. Officials are quick to claim that there is nothing white about it. A recent survey by FutureFact, a polling organisation, found that the desire to emigrate is pretty even across races: last year, 42% of Coloured (mixed-race) South Africans, 38% of blacks and 30% of those of Indian descent were thinking of leaving, compared with 41% of whites. This is a big leap from 2000, when the numbers were 12%, 18%, 26% and 22% respectively. But it is the whites, by and large, who have the money, skills, contacts and sometimes passports they need to start a life outside—and who leave the bigger skills and tax gap behind.
The murder rate in South Africa is almost an order of magnitude higher than that in the US.
Violent crime is undoubtedly the biggest single driver of emigration, the one factor cited by all races and across all professions when people are asked why they want to go. Police figures put the murder rate in 2007-08 at more than 38 per 100,000 and rape at more than 75 per 100,000. This marks a big fall over the past several years, but is still astronomical by international standards (the murder rate was 5.6 per 100,000 in the United States last year). It has reached the point where most people say they have either been victims of violent crime themselves or know friends or relatives who have been victims. Typically, it is a break-in, carjacking, robbery or murder close to home that clinches a family’s long mulled-over decision to leave.
The skills shortage is worsening.
On Mr Abedian’s reckoning, about half a million posts are vacant in government service alone because too few South Africans have the skills these jobs demand. Not a single department, he says, has its full complement of professionals. Local municipalities and public hospitals are also desperately short of trained people. Dentists are “as scarce as chicken’s teeth” and young doctors demoralised by the low standards of hospital administration. Last May Azar Jammine, an independent economist, told a Johannesburg conference on the growing skills shortage that more than 25,000 teachers were leaving the profession every year and only 7,000 entering.
“Among my age group the chorus is absolutely insistent,” said Geoff Landsman, 25, a civil engineer. “You must go abroad. If at all possible equip yourself with a foreign passport. I have a Dutch one. I’ll leave by Christmas. I’m not saying I’ll never come back but I want to see if I can cut it abroad.”
Anna Davids, 62, an ophthalmologist, lamented: “There’s a whole generation missing. Look around. Where are the young white couples aged 25-45? At least two-thirds of them are gone.”
She said that affirmative action plans discouraged young whites from staying. “Everything’s loaded against young whites, no matter how well qualified they are.”
The skills shortage will become much more acute when the older skilled workers who are still there retire. The departure of the younger skilled workers will leave an economy unable to maintain all the most complex pieces.
Writing in the New York Times David Leonhardt says while the US budget deficit is ballooning that's nothing compared to the medical costs of retiring Baby Boomers.
Even before the crisis, the Bush administration was set to bequeath a $550 billion deficit to its successor. Now, a better estimate appears to be $750 billion — or 5 percent of gross domestic product. The only years since the 1960s that the deficit has been nearly so large were the early 1990s (almost 4.5 percent of G.D.P.) and the mid-1980s (with a peak of 6 percent in 1983).
Obviously, next year’s deficit is a problem. And if you assume the credit crisis isn’t about to lift — which seems smart at this point — the ultimate cost of the bailouts could conceivably go higher. Whatever the final figure, it should still be put in some context.
Despite everything, the biggest fiscal problem remains, far and away, health care. Based on the rate that medical spending has been rising, the Congressional Budget Office forecasts that Medicare and Medicaid will take up 10 percent of G.D.P. within two decades, up from about 4 percent now. In today’s terms, that would be the equivalent of adding at least $900 billion to the deficit every single year, in perpetuity. It makes the cost of the bailouts look like a rounding error.
Figures like $700 to buy securities in this financial crisis do not represent long term costs. The numbers being bandied about are for costs of buying securities which, in some cases, will have higher resale value in a few years. Whether the bailout becomes a net cost to taxpayers still remains to be seen. What is costing the taxpayers is the recession that the bursting bubble has caused.
The recession and financial crisis make me wonder about our ability to handle Peak Oil. Once world oil production starts declining 5% per year the costs of that will far exceed the effects of the housing bubble which caused the current financial crisis. That oil production decline will come on top of the huge surge in medical costs for retired Baby Boomers.
It gets worse. The younger generation includes a much larger fraction of low performing Hispanics. A group with poor academic performance, lower wage performance, and higher crime and illegitimacy isn't going to pay the taxes which the retiring white middle class paid.
Even worse, the US is running a trade deficit of about 5%. So we are living beyond our means and need to cut our living standards at least 5% just to start living within our means.
Combine an aging and less able population, Peak Oil, and the lingering effects of the current financial crisis and the 2010s do not look pretty.
Did regulatory pressure and other forms of government intervention into the mortgage market (e.g. government sponsored entities Fannie Mae and Freddie Mac) cause the real estate bubble? Steve Sailer argues that government policies aimed at increasing non-Asian minority (NAM) home ownership caused a lowering of mortgage standards, the housing price bubble, and the resulting financial crisis. Steve presents additional evidence for this view.(full article here)
The conventional wisdom that emerged from the crisis of the Great Depression dominated American ideology until almost 1980. Similarly, the reigning ideas that congeal in the next few weeks about the causes of this crash may determine the course of politics for decades to come.
The truth is, we were never as rich as we thought we were. The last decade’s growth was largely driven by huge flows of lending dollars to dubious borrowers. At the bottom of an unknown but frightening number of convoluted new-fangled debt instruments were homebuyers who had no chance in hell of paying the mortgages back when the music stopped and the price of houses in California (and a few similar states) stopped heading toward infinity.
Federal Home Mortgage Disclosure Act data dug up by reader Tino suggests that the recent American Housing Bubble was, more than anything else, a Hispanic Housing bubble, as total mortgage dollars handed out to to Hispanics more than septupled from 1999 to 2006! (Is "septupled" even a word?)
Moreover, in 2006, according to Tino, 51% of subprime and other "higher priced" mortgages (for purchasing homes and for refinancing older mortgages) went to minorities. The higher priced mortgages are, of course, where most of the unexpected defaults have shown up.
UPDATE: Tino has added up all the subprime mortgage dollars for the entire disastrous 2004-2007 period. Among borrowers whose ethnicity is unambiguous, he comes up with $900 billion subprime dollars going to non-Hispanic whites, $887 billion to minorities.
Someday, we'll get a count of defaulted dollars by race.
Lowered lending standards brought a large group of people into the home buyer market in a relatively short period of time. They didn't have the buying power and job stability needed to keep up with their mortgages. The lowered standards also brought in con artists and novice investors.
I couldn't find usable numbers in the database on subprime dollars alone, although a more assiduous researcher may well be able to tease out the facts. But if minorities in 2006 accounted for 35% of all mortgages (see above), they would have accounted for a higher share of subprime dollars mortgages. Defaults so far have been concentrated in subprime adjustable rate mortgages. They accounted for 6% of mortgages and 39% of defaults.
Therefore, it's likely that it will turn out that the majority of unexpected default dollars, above normal trend lines, in 2007 were from defaults by minorities.
The conventional wisdom that emerged from the crisis of the Great Depression dominated American ideology until almost 1980. Similarly, the reigning ideas that congeal in the next few weeks about the causes of this crash will determine the course of politics for decades to come. Right now, the elite consensus (as in the 1930s) is that the free market failed. The truth, to which we blinded ourselves in an orgy of political correctness, is that the America of 2008 doesn't have the human capital to justify the valuations of wealth it thought it had.
It took decades (and lots of research by Milton Friedman, Anna Schwartz, and others) for a more accurate interpretation of the causes of the Great Depression to gain widespread acceptance. Even today many ideologues in the Democratic Party still tout the Great Depression as a great failure of capitalism and a justification for larger government.
Karl Rove, George W. Bush, and other Republicans along with a large contingent of Democrats pressed for higher minority (non-Asian minority or NAM) housing ownership. They blinded themselves to the reasons why this was a bad idea. Elite unwillingness to confront The Bell Curve and its implications for housing policy does not help.
In addressing these many uncertainties, Immelt has hammered home the message of GE's commitment to its sacred triple-A rating. He took several steps to conserve capital, such as deciding not to increase the dividend next year and suspending the stock buybacks; Moody's (in which Buffett's Berkshire Hathaway is the largest shareholder) and Standard & Poor's immediately reaffirmed their ratings on the company.
But Immelt may be fighting a battle that investors no longer care so much about. The credibility of bond ratings in general tumbled when it was revealed that securitized subprime mortgages had been rated double- or triple-A. GE's rating clearly meant nothing to investors who bid credit default swaps on company bonds up to a price of 700 basis points (the price subsided recently to about 500). Remember, triple-A means creditworthiness on a par with that of the U.S. Treasury, and credit default swaps on Treasury bonds have never traded above 35 basis points. The message of the markets: The rating agencies can say what they like; we'll decide for ourselves.
The US Securities and Exchange Commission released a report critical of the ratings agencies in July 2008. But what the SEC does is less important than what the market has decided: the ratings agencies can not be trusted. Unfortunately, a AAA rating still affects a financial institution's legal ability to hold a security. So while the market has lost trust in the ratings agencies the unrealistic ratings still have real impact.
Oct. 9, 2008 - About one in six people living in the U.S. under the age of 65 had no health insurance in 2005, but closer to 1 in 3 Hispanics were uninsured, newly released data from the U.S. Census Bureau confirms.
Roughly one in four people living in Florida, Texas, and New Mexico lacked health insurance, while only one in 10 of those living in Minnesota and Hawaii were without coverage.
The demographics of Texas represent the future of America. Those demographics tell a bad story about health insurance coverage.
In Texas, 40.5% of Hispanics under age 65 had no health insurance, compared with 24.3% of blacks and 15.8% of whites.
Bring in tens of millions of a group that performs poorly on average in school and in the workplace and the outcome is lower medical insurance coverage for that group in any state they find themselves.
Almost 40% of Hispanics living in Arkansas, Florida, Louisiana, Mississippi, Montana, Oklahoma, Oregon, and South Carolina also had no health insurance.
Many libertarians favor open borders and free migration across national borders. But such a policy expands the welfare state and weighs heavily upon the higher skilled and higher productivity workers.
For more on immigration and its effects on medical costs see Illegal Immigration Drives Up Number Of Medically Uninsured and Immigration And Heavy Burden Of Medically Uninsured.
The US Federal Reserve, in a very unusual move, will by the short term debt of the highest ranking companies. These companies are finding it very hard to sell their commercial paper to finance daily operations.
The Fed said it was creating a new entity to buy two types of short-term debt, known as three-month unsecured and asset-backed commercial paper, directly from eligible companies. It hopes to have the program up and running soon, Fed officials said.
Fed officials said they would buy as much of the debt as necessary to get the market functioning again but refused to say how much that might be. They noted that around $1.3 trillion worth of commercial paper would qualify.
That this move should even be seen as necessary illustrates just how serious the credit crisis has become. When highly rated corporations can't borrow money the fear in credit markets is very high.
Available credit for corporations is contracting rapidly. A continuation of this trend would cause a depression.
In the past month, the amount of money outstanding in commercial paper loans has fallen 11% to a seasonally adjusted $1.6 trillion on Oct. 1 from $1.82 trillion on Sept. 10.
The decline in available funding indicates only part of the market's problems, however. Investors have also become unwilling to buy longer-term paper - beyond a week or two - from even companies and financial institutions with top-flight credit ratings.
A virtual funding freeze has affected even top-rated companies such as General Electric, the conglomerate, and AT&T, the telecoms group. Mirrored in Europe, where traders said an unusually high proportion of deals were for overnight borrowing, the freeze has intensified fears about the impact of the credit crunch.
Financing costs are soaring as banks hoard cash after the credit crunch triggered by the U.S. subprime mortgage crisis a year ago. The three-month London interbank offered rate in dollars rose to 4.32 percent from 2.64 percent in March, while the equivalent rate for euros increased to a record 5.38 percent, from 4.74 percent six months ago.
The Fed's drastic move had a nearly immediate impact: Yields on top-rated overnight U.S. commercial paper dropped 0.74 percentage points, to 2.94%, according to Bloomberg Financial Markets. And rates on three-month Treasury bills—the ultimate safe asset to which big investors, like money-market funds, have been flocking—rose above 1.0% on Tuesday for the first time in weeks.
Prices are already falling in parts of the world economy. Home values dropped more than 10 percent in the U.K. and in the U.S. in the past year. Oil, copper and corn drove commodities toward their biggest weekly decline since at least 1956 on Oct. 3, with the Reuters/Jefferies CRB Index of 19 raw materials tumbling 10.4 percent. The Baltic Dry Index, a measure of commodity shipping costs, has dropped 75 percent since May.
``We are certainly more worried about deflation than inflation,'' says David Owen, chief European economist at Dresdner Kleinwort Group Ltd. in London. Central bankers need to ``get rates down and keep them there for quite some time,'' he says.
So many signs of rapid declines in demand point toward a deep systemic problem. I question the ability of governments to reflate.
Consumer credit is contracting. The contraction is mostly coming from non-credit card credit.
Consumer credit fell by $7.9 billion, the most since statistics began in 1943, to $2.58 trillion, the Fed said today in Washington. In July, credit rose by $5.2 billion, previously reported as a $4.6 billion gain. The Fed's report doesn't cover borrowing secured by real estate.
MasterCard reports a big decline in consumer spending. Some are trying to save in the face of fearful news. Others are spending less due to job losses.
MasterCard SpendingPulse, which measures national retail sales, said a steep drop-off in consumer spending sent its specialty retail sales index plunging 7.7 percent in September compared with last year. In August, the decline was only 4.1 percent compared with the period a year ago.
American motorists pumped an average of 8.625 million barrels per day in the week ended October 3, down 5 percent from the previous week, MasterCard said in its weekly SpendingPulse report.
Year-on-year, gasoline demand plunged 9.5 percent.
The debate about whether we can avoid a recession is over. Now the question shifts to how deep and how long a recession. The public is rightfully scared. It only makes sense that people and businesses will pull back and try to build up their cash stores.
It reminds me so much of seeing little kids in church being taught to sing about Jesus. But these kids are being taught to see salvation as delivered by a this-world politician. Is this child abuse? Says Roissy:
Check out the glowing “O”-face of the SWPL whiter person at 1:19. Really, you can’t make this shit up.
In other news, scientists discover evangelicals aren’t the only species of fundamentalist wackos.
But those American Whiter People kids lack the enthusiasm of North Korean kids singing for their Dear Leader General Kim Jong Il.
But if President Barack Obama ever decides to visit North Korea he could get a reception like Marshal Tito of Yugoslavia received in North Korea in 1978.
How will their enthusiasm hold up in coming years?
The New York Times, liberal bastion, documents the liberal political pressure to make Fannie Mae into a drunken lending fool. (and what does Roger Mudd think of his son's involvement in this debacle?)
“Almost no one expected what was coming. It’s not fair to blame us for not predicting the unthinkable.“— Daniel H. Mudd, former chief executive, Fannie Mae
When the mortgage giant Fannie Mae recruited Daniel H. Mudd, he told a friend he wanted to work for an altruistic business.
An altruistic business! No wonder it was a disaster. He claims almost no one saw it coming. Just who is included in that almost exception? His own staff warned him.
But by the time Mr. Mudd became Fannie’s chief executive in 2004, his company was under siege. Competitors were snatching lucrative parts of its business. Congress was demanding that Mr. Mudd help steer more loans to low-income borrowers. Lenders were threatening to sell directly to Wall Street unless Fannie bought a bigger chunk of their riskiest loans.
So Mr. Mudd made a fateful choice. Disregarding warnings from his managers that lenders were making too many loans that would never be repaid, he steered Fannie into more treacherous corners of the mortgage market, according to executives.
I think Mudd's comment reflects the stars he looked to for navigation on the political and financial seas. Almost no Democrat politicians warned Mudd that problems were brewing. In fact, Barney Frank only saw trouble emanating from those who opposed low lending standards.
Why did Fannie Mae and Freddie Mac behave so recklessly? Because they came under intense political pressure to do so--often from the chairman of the House Committee on Financial Services, Barney Frank. In the name of "affordable housing"--a term, we now know, that refers to putting people into homes they cannot afford--Frank leaned on Fannie Mae and Freddie Mac repeatedly. Ignoring credit risks, he declared, was their "mission." When analysts questioned Fannie Mae and Freddie Mac's solvency, Frank exclaimed, in effect, "How dare they?"
"The more people exaggerate a threat of safety and soundness," he said. "Then the less I think we see in terms of affordable housing."
The invisible hand of Adam Smith didn't create this mess. That honor belongs to ham-fisted politicians such as Barney Frank.
Liberal Barney Frank and liberal diversity advocate George W. Bush were on the same side in this debacle: promoting it vigorously.
Republicans joined with Democrats in promoting home ownership for low income people with low credit ratings. Fannie and Freddie showed the way. Keep in mind that private lenders were able too issue so many dodgy mortgages in large part because Fannie and Freddie were willing to buy the mortgages. Fannie and Freddie could do that using their ability as government-sponsored enterprises (GSEs) to borrow money at low rates.
Under political pressure to make home loans easier to obtain, Fannie and Freddie let down the standards of the loans they made and bought subprime loans from private lenders, said Mike Rosser, a 43-year veteran of the mortgage-banking and insurance industries and co-chairman of the Colorado Foreclosure Prevention Task Force.
Private lenders followed Fannie's and Freddie's lead, he said."Word gets around. If Fannie Mae is doing it, it must be all right," he said. "They pushed very strongly on these affordable-housing goals."
Read this collection of quotes of prominent House Democrats in 2003 and later trying to prevent restraint on Fannie and Freddie lending practices. Maxine Waters, Barney Frank, and others of their ilk defended lending to people who are too poor and irresponsible to pay a mortgage. Said Barney:
These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis, the more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing . . . I think it is clear that Fannie Mae and Freddie Mac are sufficiently secure so they are in no great danger. . . I don't think we face a crisis; I don't think that we have an impending disaster. . . . Fannie Mae and Freddie Mac do very good work, and they are not endangering the fiscal health of this country.
We are coming near the end of the Lost Decade. Steve Sailer says the financial disaster demonstrates ideas have consequences.
In retrospect, the basic political-economic idea of the decade was that the financial elites would wind up with all the financial assets while the masses would be kept pacified with lots of nice consumer gadgets and big houses paid for by borrowing from the financial elites. A foolproof plan!
The key issue is that there was nothing going on in America in this decade that would suggest that below, say, the 75% percentile that human capital -- and thus the ability to earn income and to repay debt -- was increasing. Or was ever likely to increase.
In fact, the signs pointed toward a declining per capita ability to pay as the U.S. became increasingly Hispanic. But, no, you couldn't talk about that in polite society. Instead, we had an increasingly diverse, vibrant society so we must have an increasingly diverse, vibrant economy.
Ideas have consequences.
This disaster shows the utter irrelevance of the US Presidential campaign. The real causes of the financial crisis don't even get discussed by the candidates. The conventional wisdom of America in the year 2008 is very unwise.
Now, over the last couple of weeks there has been a lot of fingerpainting over who is to blame. And that's a good thing. But the efforts to pin the positive blame on one party or another seem fairly hopeless, since they were all in on it. Sure, the Bush Administration raised qualms about Democrat-infested Fannie Mae in 2003, but Bush was simultaneously pushing zero down payment mortgages to promote minority homeownership, so the Bushies were not interested in dealing with the real problem, just in fighting Democrats over the spoils.
More realistically, there's a lot of negative blame to hand out because nobody in a position of power or influence -- Bush, Clinton, Greenspan, Frank, Dodd, etc. -- was willing to be seen as to stand athwart history, yelling Stop. What if the federal government had imposed a minimum 5% down payment on mortgages right after the 2004 election? That doesn't seem like too much to ask, but it was, because the "promoting minority homeownership" narrative was crucial in dissuading anybody from yelling Stop because that would be, in effect, yelling that minorities were lousier credit risks on average. And that's racism (because it's true, which is what make it so intolerable to mention in public), so that's unthinkable, so nobody thought about it.
So, here we are.
Max Abrahms, a predoctoral fellow at Stanford University's Center for International Security and Cooperation, has studied dozens of terrorist groups from all over the world. He argues that the model is wrong. In a paper (.pdf) published this year in International Security that -- sadly -- doesn't have the title "Seven Habits of Highly Ineffective Terrorists," he discusses, well, seven habits of highly ineffective terrorists. These seven tendencies are seen in terrorist organizations all over the world, and they directly contradict the theory that terrorists are political maximizers:
Terrorists, he writes, (1) attack civilians, a policy that has a lousy track record of convincing those civilians to give the terrorists what they want; (2) treat terrorism as a first resort, not a last resort, failing to embrace nonviolent alternatives like elections; (3) don't compromise with their target country, even when those compromises are in their best interest politically; (4) have protean political platforms, which regularly, and sometimes radically, change; (5) often engage in anonymous attacks, which precludes the target countries making political concessions to them; (6) regularly attack other terrorist groups with the same political platform; and (7) resist disbanding, even when they consistently fail to achieve their political objectives or when their stated political objectives have been achieved.
Abrahms has an alternative model to explain all this: People turn to terrorism for social solidarity. He theorizes that people join terrorist organizations worldwide in order to be part of a community, much like the reason inner-city youths join gangs in the United States.
So terrorists are motivated by the need for status? Mohammad Atta was a low status person in Germany. His drafting work put him lower on the totem pole than other people he worked with. Osama Bin Laden had higher status as a leader of fighters and terrorists in Afghanistan than he did as a member of a very large wealthy Saudi family. The Saudi family was wealthy. But he wasn't a huge political figure or major captain of industry. Whereas in Afghanistan he became a global figure.
Status seeking behavior sometimes yields constructive results and other times destructive results.
The credit crunch is showing up in many ways. Even if mortgage money is available fewer are applying for it.
In yet another sign of the economic crisis, the Mortgage Bankers Association said Wednesday that mortgage applications plunged 23% last week.
Things are tanking across the board. Some people are skeptical about the severity of the crisis. I think they aren't paying close enough attention.
Not only are banks afraid to extend credit. People are increasingly fearful about taking on debt.
As long as the constant drumbeat of bad economic reports continues, consumers and businesses may not be so eager to borrow money anyway even if banks start extending more credit. Friday's dismal jobs report, showing that 159,000 people lost their livelihoods, did little to inspire people to spend.
"You tell me I can have the credit, but I don't want it," said Amiyatosh Purnanandam, assistant professor of finance at the University of Michigan. "If people are not going to buy cars whether they can get credit or not, it's not going to help the economy."
“If history is any indicator, there should be an equivalent surge in credit-card charge-offs very soon,” he said. “We forecast first quarter credit-card charge-offs will be $18.6-billion (U.S.) and that the total 2009 charge-off bill will add up to $96-billion.”
Laura Nishikawa, Innovest's consumer finance analyst, said the credit card issuers that will be hurt least in the coming crunch will be those who had the “foresight” to improve their risk management performance during the bull market, even if they sacrificed some growth in the process.
The survey revealed that 37% of banks have increased rates, compared to 24% in April and 10% in January. They may be raising rates to compensate for losses. Advanta saw an 83% decrease in earnings in its second quarter, due in large to provisions for credit charge-offs. Capital One's profits dropped 40% and American Express saw a 38% decrease. And while Bank of America's 41% dip in earnings beat estimates, the company incurred $2.75 billion in credit card losses 31% more than last year.
Think you are immune? Maybe. Even Silicon Valley is not immune to the credit crunch.
Yet nonstop economic gloom in other parts of the economy seems to have frayed the nerves of even the Valley’s most sublimely confident. Discussions of the economic crisis dominate conversations. Technology blogs offer prescriptions for riding out the crisis and intense debates over what percentage of start-ups are destined to fail.
According to a quarterly survey by Mark V. Cannice, director of the University of San Francisco Entrepreneurship Program, the confidence of venture capitalists has plummeted to the lowest level since the survey began in 2004.
“Everyone is worried about their budgets and everyone is worried about the economy,” said Jayant Kadambi, founder of Yume, a three-year-old online video advertising firm. “These are the conversations we have these days.”
"It is daunting that California, the eighth-largest economy in the world, cannot obtain financing in the normal course of its business to bridge our annual lag between expenditures and revenues," Gov. Arnold Schwarzenegger wrote in a letter to the state's congressional delegation in Washington.
California is swiftly running out of time to float $7 billion worth of short-term debt needed to pay workers and bills as early as next month, state Treasurer Bill Lockyer warned in his own letter.
Car dealers are having a hard time getting credit for borrowers. They are also having a harder time getting credit to buy cars to put on their lots.
Autos. Many analysts hoped that car sales would pick up from summer lows, now that gas prices have drifted back below the $4 threshold that spooked buyers. But sales in September were the weakest in 15 years—and the credit crunch is now the main culprit. "The scarcity of credit has forced sales into freefall," Credit Suisse analyst Chris Ceraso explained to investors. "Volatility and uncertainty on Wall Street [has] spread to Main Street, leaving consumers paralyzed."
Dealerships report that "subprime" borrowers with marginal credit ratings essentially can't get loans. Some "prime" borrowers are being shut out, too. At some dealers, loan approvals are down 50 percent. And most homeowners can forget about using a home equity loan to help finance a car—since home equity has been plunging, and those loans drying up, too.
In a typical growth year, America loses 75 to 150 dealerships, so some contraction is normal even in the best of times, said Paul Taylor. an economist with the National Automobile Dealers Association. But this year, there could be 500 to 700 fewer auto dealerships by the end of the year, he said .
On the webcast Roubini accepted that the Paulson plan was about to become law, but dismissed it as less than a sticking plaster. Roubini said the financial system would remain “literally at the point of systemic collapse”. He said that only by “doing something even more radical” than not only the Paulson plan, but all steps taken so far, could a global domino effect of failing banks be averted.
Roubini’s thesis is that there is now a “silent run” hitting the world’s banks. There may be no Northern Rock-like queues of retail depositors standing outside bank branches.
We now know that it was French finance minister Christine Lagarde who begged Mr Paulson to save the US insurer AIG last week. AIG had written $300 billion in credit protection for European banks, admitting that it was for "regulatory capital relief rather than risk mitigation". In other words, it was underpinning a disguised extension of credit leverage. Its collapse would have set off a lending crunch across Europe as banking capital sank below water level.
Over the past decade, consumers in Britain have accumulated debts, including their mortgages, worth on average 180 per cent of their disposable income, the highest proportion of any country in the G7 club of rich nations. It adds up to a mountainous £1.44 trillion of personal debt - and economic experts have been warning for several years that it would end in tears.
Ever since the credit crisis struck Britain's banks a year ago, they have been pushing up the cost of loans, especially for riskier borrowers, such as those who want to borrow a large multiple of their salary, or a have a poor credit record.
The rapid drainage of credit out of the economy has intensified as one bank after another has collapsed or been rescued. The Halifax - whose owner ,HBOS, was swallowed up by Lloyds TSB in a government-brokered rescue three weeks ago - announced this weekend that it is withdrawing many of its mortgage deals from the market and ratcheting up the interest rates on others. The cost of other loans, from credit cards to the car deals on showroom forecourts, is rising, too. The days of cheap credit are over. At the same time, falling property prices are making homeowners feel poorer.
Did a change in bank regulations by the SEC and FASB cause the financial crisis? The requirement to use mark-to-market valuations on all mortgage-backed securities (MBS) might have caused the bank solvency crisis.
In recent years, firms were required by the Securities and Exchange Commission and the Federal Accounting Standards Board to use for all the MBS on their books.
As more subprime borrowers started to default on their loans, that quickly eroded the value of many MBS pools. Major banks and financial firms around the globe have taken writedowns topping $500 billion in the last year, as a result.
For this reason, some have argued that fixing the rule would solve the credit crisis.
"The SEC has destroyed about $500 billion of capital by their continued insistence that mortgage-backed securities be valued at market value when there is no market," said William Isaac, a former chairman of the FDIC.
"And because banks essentially lend $10 for every dollar of capital they have, they've essentially destroyed $5 trillion in lending capacity," he added.
The argument here is that declining market values on MBS caused banks to sell them causing further price drops and basically a vicious cycle where the MBS became grossly undervalued and the banks insolvent. Could this really be the cause?
I suspect this crisis was caused by a Perfect Storm. Government pressures to lower lending standards certainly helped. So did innovations in new kinds of financial instruments which in 2003 Warren Buffett labeled "financial instruments of mass destruction" which were creating "mega-catastrophic risk" for the economy (if only US Presidents, US Congressmen, and federal regulators were as wise as Warren). But an assortment of regulatory changes set up dominoes for a fall. The account rule described above was just another domino in a row.
The researchers tested the power of negational identity in two experiments carried out late last year, just before the first party caucuses and primaries. They found it to have a powerful enough effect to overcome the tendency of two ethnic minorities, Asians and Latinos, to prefer Hillary Clinton to Barack Obama, a tendency that emerged in polling during the primary season.
In one session, 19 Asian undergraduates at Northwestern University were randomly selected to write how being Asian had affected their life in the United States, while an equal number were asked to write about how being not Caucasian had affected their life here. After completing this 10-minute exercise, participants were asked to respond to the ostensibly unrelated question of whom they preferred between Obama and Clinton.
Among students who were asked to write about being Asian (the "affirmational condition"), 26% expressed a preference for Obama, 68% preferred Clinton, and one was uncommitted; among subjects who were asked to write about being not Caucasian (the "negational condition") the results were totally reversed -- 63% for Obama, 26% for Clinton, and two uncommitted.
When a similar experiment was carried out among 38 Latino students at UCLA, it yielded similar results. Among students who were asked to write about being Latino, 26% preferred Obama, 58% preferred Clinton, and three were uncommitted; among those who wrote about not being Caucasian, 58% preferred Obama and 37% Clinton while one was uncommitted.
"Highlighting one's negational identity as non-White," the authors conclude, "increased Latino and Asian support for a Black Presidential candidate, even without any coordination of interests (given the minor differences between the two frontrunners' policies). Further, we found that activating a negational racial identity made Latinos' attitudes toward other minority groups more positive, and these attitudes partially drove their shift in voting preferences for Obama."
People like an enemy to contrast themselves with. America's balkanized future will have such enemies. Are you going to be one of the enemies?
Car sales are tanking as many potential buyers can't get auto loans. Even Toyota sales are down 32.3%, almost as bad as Chrysler.
Nearly every automaker posted double-digit declines. Sales were down 34.5 percent at the Ford Motor Company, 32.8 percent at Chrysler, 32.3 percent at Toyota and 24 percent at Honda.
Loan refusals are at their highest levels since 1984, when the data started to be tracked. CNW Marketing Research, Bandon, Ore., reported that just 63% of auto loans have been approved this year, vs. 83% last year.
Credit gets used to buy many things. This decrease in credit availability for cars is getting repeated in other industries for buying other types of goods and services.
Warren Buffett says he's never seen economic fear this bad. He's 78 years old btw.
Billionaire Warren Buffett, the world's preeminent stock picker, said the U.S. economy is ``flat on the floor'', in a television interview with Charlie Rose that was to air late yesterday on PBS.
``In my adult lifetime I don't think I've ever seen people as fearful, economically, as they are now,'' said Buffett, chairman of Omaha, Nebraska-based Berkshire Hathaway Inc.
AT&T Inc. Chairman and CEO Randall Stephenson said Tuesday that his company was unable to sell any commercial paper last week for terms longer than overnight. Commercial paper, which helps lubricate the flow of business operations, is a short-term IOU available to corporations that banks usually know are good for the money.
Total securities underwriting fell to $803 billion in the third quarter, down 55% from the second quarter and 43% below the third quarter of last year, according to Thomson Reuters, which tracks new securities issues. Imputed fees fell 41% from the third quarter of 2007, to $4.9 billion, a six-year low.
With commercial-paper markets and interbank lending both sputtering, and an entire week without a single investment-grade bond deal after Lehman Brothers Holdings Inc. filed for bankruptcy protection, some bankers said the credit markets were nearing the kind of "systemic failure" that has long been suggested could be a doomsday scenario for the markets.
The credit crisis has made it tough for ranchers and farmers to place their "feeder" cattle at feedlots to be fattened on corn and other feed before slaughter, with deposit requirements doubling in some cases to 40 percent of the cost.
“If history is any indicator, there should be an equivalent surge in credit-card charge-offs very soon,” he said. “We forecast first quarter credit-card charge-offs will be $18.6-billion (U.S.) and that the total 2009 charge-off bill will add up to $96-billion.”
Laura Nishikawa, Innovest's consumer finance analyst, said the credit card issuers that will be hurt least in the coming crunch will be those who had the “foresight” to improve their risk management performance during the bull market, even if they sacrificed some growth in the process.
We've been living beyond our means. That's going to stop.
In the last two days, governments from London to Berlin have seized or bailed out five faltering banks. In Ireland, where rumors of panicked withdrawals from banks spooked the stock market, the government has offered a two-year blanket guarantee on all deposits and bank debt.
Asia has been less buffeted by the turmoil, though a brief run on a bank in Hong Kong last week brought back dark memories of June 1997, when speculation against the Thai currency sparked a financial crisis that fanned rapidly across Asia, and later to Brazil and Russia.
As Fortis was being rescued, the British government took control of Bradford & Bingley, a medium-sized mortgage lender. The government is nationalizing the £42-billion ($76-billion U.S.) mortgage book, whose default rate was climbing as the British property market soured. Santander, the Spanish banking giant, agreed to buy Bradford & Bingley's £21-billion deposit book and 197 branches for about £600-million.
Two other European banks, Germany's Hypo Real Estate, a property-financing bank, and Iceland's Glitnir Bank, were also offered lifelines as the financial crisis spread like wildfire. Hypo was offered a credit line from a group of local financial institutions. It did not reveal the size of the loan, though media reports put it at about €35-billion. Still, investors abandoned Hypo shares, sending them down 74 per cent to €3.52.
In yet another sign of the economic crisis, the Mortgage Bankers Association said Wednesday that mortgage applications plunged 23% last week.
How much further to the bottom?