Irrationality at the Fed

The Fed is going to buy short term debts in an attempt to "unclog" credit. How is this supposed to work? If credit is "tight" right now, is that not due to the rationality of lenders passing judgement on the ability of borrowers to repay under current conditions, as well as projected future conditions based on their knowledge of current conditions? What's going to make those lenders listen to the Fed? Simply because the debts the Fed buys will then be "guaranteed" by the federal government? What rational lender is going to see that as a guarantee, considering the amount of debt the federal government is already carrying?

Oh wait, the government can always print more money, right?

Yeah, right.

The Republican Party

This NY Times article suggests to me that social conservatives - the Religious Right - still have an iron grip on the Republican Party: Tom Davis Gives Up.

Fannie Mae

The NY Times has a behind the scenes look at Fannie Mae's role in the horror story now unfolding: Pressured to Take More Risk, Fannie Hit a Tipping Point

The pattern

As if more confirmation was needed, here is an example from Europe which is almost "fiction-like" in the way it illustrates the fundamental facts of this situation: an attempt by German banks and the German government to bail-out another German bank - Hypo Real Estate - has failed. According to this report:

HRE was hobbled by debts incurred by a German-Irish subsidiary, Depfa, which it bought in October 2007, after the international financial crisis emerged with the collapse of the US market for high-risk, or subprime, mortgages.

Depfa specialises in the financing of public works projects. (emphasis mine)

It's the morality, stupid!

In Atlas Shrugged, the country's leaders sought to treat worsening conditions as a purely economic matter that could be kept completely separated from morality. Their motive was to protect their morality, or at least to protect themselves from having to admit the truth about their morality.

The current economic crisis parallels this. Washington's leaders are doing everything they can to evade the moral roots of their failed economic policies, desperately striving to evade the fact that once they have destroyed the economy in order to protect the status of the poor as an object of sacrifice - so that they can purchase homes they can't afford - there will be no more homes to purchase and we will ALL be poor.

As culpable as the Left is, the role played by the Right in creating this situation is worse: it is the Right which posed as the defenders of freedom - including property rights - while pursuing a policy of "compassionate conservatism" based on religious dogmatism. While the Left openly pursued socialism, it is the Right which sought to have its cake and eat it, too.

The time has come to strip away the "economic" facade and expose the truth that this crisis is a failure of altruism, and as such, there will certainly be more to come until this country's leaders learn to reject sacrifice and accept more rational policies based on a morality of self-interest.

Response from Fallin

Since the House is supposed to be voting on the Senate's version of the bail-out by Friday, I thought I'd send my Congressperson, Mary Fallin, a reminder that my preference is for her to vote "no".

As I was perusing this week's Objectivist Round Up at The Crucible and Column this morning, I noticed Kendall J's post on the bail-out, "Why Paulson's Money is No Good", which struck me as laying out the essentials of the situation in a fairly clear and straightforward manner, and thought I'd send it along to Ms. Fallin.

I included the following note:

Congresswoman Fallin,

I am writing to you once again to ask that you vote no on the bail-out.

I am including the following to help you understand my reasons. Please note especially point 5:

In the seizure of WaMu, Treasury seized the company and by fiat destroyed all contractual priorities set forth in the capital structure. This act alone has exacerbated the liquidity problem because now any potential lender to a distressed bank risks losing his entire investment regardless of pre-negotiated terms, to arbitrary exercise of force. Henry Paulson's money comes paired with the potential for wholesale rights violations.

The use of government to attempt this function necessitates rights violations, spends money indiscriminately, and preserves the structures which created the panic at taxpayers expense. The proposed bail-out illustrates perfectly the concept of chasing bad money with good. Voluntary action by the free market instead "cleans house". It cannot be otherwise, no matter how well-intentioned the government.

Consider also that Japan once tried something similar and suffered 15 years of stagnation as a result.

Rob Abiera
Oklahoma City

I don't know whether she was responding to the email I sent her on Tuesday, or to this one, but less than an hour later (!!!!!!!!) I received the following:

October 2, 2008

Mr. Rob Abiera
OK

Dear Mr. Abiera:

Thank you for contacting me about ongoing efforts to confront the crisis in our financial system. I share your deep concerns over this crisis. First, rest assured that Congress and the administration are continuing to work to develop legislation that will be both effective and prudent - and I am working with my colleagues in the House to that end. Our goal is to craft a bill that addresses both the immediate crisis and assures stability and responsibility in the out years. It is also absolutely vital that this legislation protects the taxpayers.

After much deliberation, I voted against the initial bill presented to the House on Monday, September 29. I felt - as did 227 other representatives from both parties - that the bill contained serious flaws and that it failed to shield taxpayers from being placed in a position of underwriting a massive bailout of organizations that had acted unwisely and irresponsibly. Our goal should not be a bailout; it needs to focus on a productive workout, plus reforms that will prevent such a crisis from happening again. As your representative, I cannot in good conscience sign a blank check without appropriate safeguards and assurances that those funds will return to the treasury once the crisis has passed.

In the end I agreed with the overwhelming majority of Fifth District residents who contacted me to express their views. They believe that government has a duty to act, but not at the expense of basic principles like common-sense financial discipline and individual responsibility. Our work is not yet done here in Washington, but I am confident we will be able to craft a bill that protects taxpayer interests and preserves the fiscal integrity and continued freedom of our financial markets.

Sincerely,
Mary Fallin
Member of Congress

Which strikes me as being code for "I know I voted 'no' before, but this time I'm going to vote 'yes'. Please re-elect me, anyway?"

Next president will reshape U.S. courts from top to bottom

That's the title of a report by Michael Doyle, published yesterday, on the potential impact of the next President on the US courts, including the Supreme Court.

Abortion, same-gender marriage, eminent domain and the separation of church and state are just some of the issues where the courts have been a major influence and the appointees of the next administration could make a huge impact.

Some excerpts:

The next president will tip the courts, one way or another.

Supreme Court openings are all but guaranteed, and that's just the start: 44 trial and appellate federal judicial vacancies already await filling. There will be more.

Consider this: President Bush has placed 316 judges on the bench during his two terms. One out of three federal judges now owes a lifetime-tenured job to the current president. Whoever replaces Bush will be likewise recasting courthouses, top to bottom.

. . .

On Monday, timed to the opening of the Supreme Court's new term, the conservative Judicial Confirmation Network will begin running on ads Fox News Channel attacking Democratic nominee Barack Obama.

. . .

Either candidate is bound to put his standards into practice. By next September, six of the nine Supreme Court justices will be at least 70 years old. Justice John Paul Stevens turns 89 in April.

"The Supreme Court is on the ballot this fall, and the stakes could not be higher for Americans," said People for the American Way President Kathryn Kolbert in a statement released Wednesday.

In some ways, the advocacy groups are out ahead of the public at large.

Something to think about when you're deciding whether or not to abstain from voting in the election.

Inhofe: I voted no.

Senator Inhofe deserves credit (no pun intended) not just for voting no, but for immediately sending an email to his constituents to let them know how he voted and explaining why and to top it off he invites us to send him our feedback!

Can you tell that he's running for re-election?

Inhofe does not deserve credit for voting no for the wrong reasons: he's not against a bail-out, but he wants to drag his feet about it. Basically I think he voted to pass the buck back to the House.

Well, he's asked for it: I hope a lot of people tell him exactly what they think of this.

The Senate just voted on the bailout, and I voted no.

After spending time in Oklahoma meeting with my constituents, local business leaders, and elected officials, I could not, in good conscience, vote to approve a massive taxpayer-funded rescue plan that was so hastily crafted.

Too little time was allowed for reading and comprehension of this bill. Insufficient time was allowed for proper discussion and debate on a bill with a $700 billion price tag. $700 billion dollars of your taxpayer money.

Certainly our nation faces a financial markets crisis that requires action. Unfortunately, it remains unclear if this bill is the right action. I believe it is much more important to get it right than to rush it through.

My vote tonight was against the Paulson plan, not against taking extraordinary action to provide necessary confidence to financial markets. The plan before us would have bureaucrats in Washington attempt to do what the experts on Wall Street can't do - value troubled assets.

From the very beginning, it was the Paulson plan or no plan. It is Congress's duty to examine its options, deliberate, come to a decision that has the support of America, and act. I regret we were not allowed to do that.

Sincerely,
Jim Inhofe

What is your opinion? Click here to read this message on the JimInhofe.com blog and leave a comment.

Disgusting

The Senate passed the bail-out today - among other things, it gives the FDIC a blank check:

The FDIC would be allowed to borrow unlimited money from the Treasury Department through the end of next year as a way to cover the increased insurance limit.

Senator DeMint, I salute you.

Not long later, Sen. Jim DeMint, R-S.C. said, "As the blood of our young men and women fall on foreign soil in the defense of freedom, our own government appears to be leading our country into the pit of socialism."

http://news.yahoo.com/s/ap/20081001/ap_on_go_co/meltdown_stakes_analysis

Regardless of how one feels about our military involvements in Iraq and Afghanistan I believe it is possible to agree with the sentiment.