Posts Tagged ‘bail outs’

The Next Bailout

September 5, 2009

The Wall Street Journal reports on yet another government bailout at taxpayer expense. It seems that the Federal Deposit Insurance Corporation (FDIC) is burning through its reserves. In the last year the FDIC has paid out in excess of $34.8 billion. Additionally, the FDIC’s list of troubled banks has increased from 305 to 416, even as it has closed 84 since the beginning of this year. The true scope of the problem is unfathomable. Now the FDIC is letting Congress and the nation’s bankers know that they may need more cash from either increased insurance premiums, special assessments or perhaps even the Treasury itself.

Deposit insurance premiums are (supposed to be) risk based. The CAMEL ratings (for risk factors Capital adequacy, Asset quality, Management competence, Earnings and Liquidity) are between one (best) and five (worst) and averaged for a composite value. But don’t ask your local banker his CAMEL rating because he can’t tell you — it’s a secret. That is one component of the moral hazard that accompanies deposit insurance. With a bank’s level of safety and soundness concealed, depositors must base their decisions only upon expected rate of return.

In a supposed attempt to keep the insurance fund solvent, FDIC hit the nation’s banks with a special assessment in the fourth quarter of 2008, causing a further depletion of capital from the banking system as a whole and forcing even more marginal banks into the red. Banking trade associations have been advising their members to expect a similar special assessment in 4Q2009. These increased expenses reduce the net income of individual banks, thus further straining their ability to retain earnings to improve their capital adequacy. To control cost and preserve earnings, bankers are giving deposit rates hard scrutiny. Couple this with FDIC’s quiet request to Congress for the authority to borrow up to $500 billion from the U.S. Treasury (five times its regular borrowing limit,) and one can see taxpayers squeezed, on the one hand, by lower interest rates on savings and, on the other hand, higher taxes to service increased federal debt.

Bottom line is that deposit insurance is not free, and as with all insurance, there are inherent risks. After a 15-year expansion in the U.S. economy (1992-2007) with banks being encouraged (or, perhaps more accurately, extorted) to engage in increasingly risky loans, (sub-prime mortgages, community re-development and re-investment) the current economic contraction has exposed bankers to increased risk, which may ultimately be borne by the taxpayer.

SOURCE

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Committee recommends gun rights resolution

February 9, 2009

Mostly those fly over states, the ones with square sides? They have been quietly  telling the Federal Government to take a hike. From unfunded mandates to inalienable rights we the people are telling the big-shots in Washington D.C. to back off. The constant and continual effort to wax fat from the backs of those that they attempt to laird it over is becoming more than can be bared. Not since prohibition has there been such a flare up of resistance against Federal tyranny. Soon, it will reach proportions that lead to the bloodiest conflict the United States has ever known. Latest of the rebellion is Wyoming:

CHEYENNE — A state legislative committee backed a resolution Friday that seeks to reinforce Wyoming’s right to bear arms.

The House Judiciary Committee endorsed the resolution unanimously. The resolution would instruct Congress to stop trying to pass federal legislation that restricts firearm ownership.

Rep. Dan Zwonitzer, R-Cheyenne, the legislation’s sponsor, said Wyoming citizens are concerned that Washington might begin imposing stricter gun control laws.

“A resolution like this isn’t going to change much,” Zwonitzer said, but added that the resolution would send the federal government a message.

The resolution mentions the Blair Holt’s Firearm Licensing and Record of Sale Act of 2009, a federal bill Zwonitzer said is gaining strength in Congress.

He said the bill would impose more stringent government licensing measures on gun owners and place increased restrictions on guns in homes with children under 18.

Zwonitzer said the resolution has wide support among Wyoming citizens. He said the bill would “strengthen the bond between us all.”

SOURCE

For too long the Federal government has used the interstate commerce clause as an excuse for wielding power that is in fact reserved to the states by the Constitution. Both the Ninth and Tenth Amendments are very clear about this, and no, you don’t need to be educated as a high powered attorney to understand the meanings. The Bill of Rights isn’t about what rights you, or the states have, it is about the limits of the Federal government. Over you as a person, and you as a state when combined with others in your locale.

Now, these very same people are attempting to pull a fast one on we, the people, that will have generational effects upon the ability of Americans to live a normal life:

“On page 151 of this legislative pork-fest [the ‘stimulus’ bill] is one of the clandestine nuggets of social policy manipulation that are peppered throughout the bill. Section 9201 of the stimulus package establishes the ‘Federal Coordinating Council for Comparative Effectiveness Research.’ This body, which would be made up of federal bureaucrats will ‘coordinate the conduct or support of comparative effectiveness and related health services research.’ Sounds benign enough, but the man behind the Coordinating Council, Health and Human Services Secretary-designate [since withdrawn] (and tax cheat) Tom Daschle, was kind enough to explain the goal of this organization. It is to cut health care costs by preventing Americans from getting treatments that the government decides don’t meet their standards for cost effectiveness. In his 2008 book on health care, he explained that such a council would, ‘lower overall spending by determining which medicines, treatments and procedures are most effective-and identifying those that do not justify their high price tags.’ Once a panel of government experts decides what is and what is not cost-effective by their definition, the government will stop paying for treatments, medicines, therapies or devices that fall into the latter category. … Mind you, they are not simply looking to exclude treatments that don’t work, but to exclude treatments that are effective, but whose cost, in their opinion, does not justify their use. You, the patient, and your physician don’t get a vote. This would make the federal government the single most important decision-maker regarding health care for every patient in America.” –public affairs consultant Douglas O’Brien

Things like the above are just the tip of the iceberg. It’s not simply about firearms rights, or abortion, it is about the fundamental rights of Americans to be free of oppression from government. Be that Federal, State, or local.

How so..?

“The so-called stimulus bill may not do much for the economy, but it’s certainly stimulating a lot of laughter, as its supporters are reduced to arguing essentially that it would be irresponsible not to waste boatloads of taxpayer money. We do not exaggerate. Consider this article by Michael Hirsh of Newsweek: ‘Obama’s desire to begin a “post-partisan” era may have backfired. In his eagerness to accommodate Republicans and listen to their ideas over the past week, he has allowed the GOP to turn the haggling over the stimulus package into a decidedly stale, Republican-style debate over pork, waste and overspending. This makes very little economic sense when you are in a major recession that only gets worse day by day. Yes, there are still some very legitimate issues with a bill that’s supposed to be “temporary” and “targeted” — among them, large increases in permanent entitlement spending, and a paucity of tax cuts that will prompt immediate spending. Even so, Obama has allowed Congress to grow embroiled in nitpicking over efficiency when the central debate should be about whether the package is big enough. When you are dealing with a stimulus of this size, there are going to be wasteful expenditures and boondoggles. There’s no way anyone can spend $800 to $900 billion quickly without waste and boondoggles. It comes with the Keynesian territory. This is an emergency; the normal rules do not apply.’ Who is this Michael Hirsh, who has elevated unrestrained spending of the people’s money to a high principle? Here’s his bio: ‘Michael Hirsh covers international affairs for Newsweek, reporting on a range of topics from Homeland Security to postwar Iraq. He co-authored the November 3, 2003 cover story, “Bush’s $87 Billion Mess,” about the Iraq reconstruction plan. The issue was one of three that won the 2004 National Magazine Award for General Excellence.’ The bill for ‘Bush’s mess’ is less than the margin of error in reckoning the cost of the ’emergency’ legislation about which Hirsh now chides lawmakers for ‘nitpicking over efficiency.'” –Wall Street Journal columnist James Taranto

What I am suggesting, is that the Federal government, at least the vast majority in the Congress, Senate, and Executive branches, are, in fact working day and night to change the Untied States into some socialist utopia, and that the several states, are rebelling.

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It’s the economy stupid!

December 9, 2008

It’s the economy stupid! Remember that being   said not all that long ago in a campaign speech? I sure do, and I also remember another politician being blasted because of what he said about the “fixes” that were being talked about back then.

Well, things have not really changed all that much have they? Nope, not that I can see. So, like a phoenix, the wraith returns.

by  Patrick J. Buchanan

In a deepening recession, what does the reasonable man do?

Seeing friends laid off, he will get rid of all but essential credit cards, dine at home more often, terminate unnecessary trips to the mall, put off buying a new car, give up the idea of borrowing on the vanishing equity in his house. He will begin to save and start paying down debt.

A company that has reached the limits of its credit and is staring at Chapter 11 will batten down the hatches, lay off nonessential workers, cut employee hours, put off expansion plans, cancel year-end bonuses and try to ride out the storm.

This is the natural behavior of people responsible for others in an economic storm of the magnitude of the category 4 hurricane heading our way. Yet, to see and hear our government, folks are doing exactly the wrong thing.

For the U.S. government is set to borrow on a colossal scale, unprecedented save in World War II, and to take America trillions of dollars deeper in debt to pick up the slack in the economy caused by the rational decisions of individuals and corporations.

The Fed, whose easy money policy created the housing bubble that has exploded in our faces, is back printing money and shoveling cash into the banks. And, though the Bush deficits are said to have been responsible for our troubles, a new Congress and president have advanced a deficits-be-damned, full-spending-ahead policy.

On top of Bush’s $455 billion deficit and hundreds of billions in bailouts for AIG, Bear Stearns, Fannie, Freddie and CitiGroup, Obama is talking up a new stimulus package of $500 billion to $1 trillion.

Our governors and mayors — who, facing deficits, had been cutting back — have now reversed field and are demanding to follow the federal formula.

When Obama arrived at the National Governors Association Conference in Philadelphia, they pounced. Led by Pennsylvania’s Ed Rendell, they handed Barack a bill: $138 billion. The governors want U.S. taxpayers to relieve them of what U.S. families face: the need to cut spending, pay down debt, make sacrifices, take pain and live within their means.

According to The Wall Street Journal, the mayors have now followed the governors’ lead, declaring they have 4,100 projects “ready to go,” which they want U.S. taxpayers to fund.

What are these projects?

Under the ever-popular rubric “infrastructure,” they include roads, bridges, schools and public buildings. California Gov. Arnold Schwarzenegger says he has $28 billion worth “ready to go,” which he would like folks in the other 49 states to fund.

Now, historically, bridges, highways, roads and public buildings have been regarded as pork. In the campaign, they were “earmarks” — payoffs for powerful constituents, a form of political corruption that reformers like Barack and John McCain were going to end.

Now, it seems, earmarks are our salvation.

Why are governments at every level doing this?

Because government believes that the restoration of economic health requires us to act against our natural instincts in a recession, and start buying and financing new homes and cars, and get back to the malls, lest this Christmas season become a bummer for retailers.

After all, 70 percent of our gross domestic product is now based on consumption, though Americans in recent years have had a savings rate of zero.

The disconnect between the instincts of average citizens and the policies of government could not be greater. Governments want us to act prodigally, while natural instincts and inclinations are telling us to act conservatively.

Conservatism and capitalism are giving conflicting signals.

Average Americans are behaving as though in rehab, trying to kick a bad habit of spending more than they earn and borrowing more than they can pay back, while the U.S. government is suggesting that what we really need is to return to the auto showrooms and malls, and start spending again, only in radically increased dosages.

Beyond the present recession, questions arise as to whether the U.S. model is sustainable. If government spending were the remedy to recession, why, after Bush’s deficits, are we in recession? And if the easy money of Ben Bernanke’s Fed is the cure for what ails us, how did we get sick when Alan Greenspan’s Fed was conducting a never-ending policy of easy money?

How does it stimulate the private economy to pump hundreds of billions of dollars into consumer checking and credit-card accounts, when more and more of what we consume — from computers to cars to clothes — isn’t even produced in America anymore?

What do conservatives, few of whom have opposed the Obama plans and fewer of whom have called for repeal of Bush’s big-spending social programs, believe is the alternative approach to ending the recession and creating a sustainable economy?

For the economy we have seems to be condemned to an ever-deepening and widening cycle of crises, each brought on by the cure for the previous crisis, which is always the same: more government.

SOURCE

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Trying to make sense of bailouts and other such Socialist ideas

December 2, 2008

All over the internet I keep hearing things like, or along the lines of; Obama will save us from ourselves, and other such drivil. I hear on a near constant level that this is what free market economics gets for the people. When, in point of fact, the United States does not operate in a true free market economy, much less in a  laissez faire model. Which is actually what these very same people imply has been being used in recent memory. These are most often self appointed masters of economic thought. Picking and choosing bits and pieces of what they have learned, or just heard along the way. Never mind the basic tenets of Macroeconomics and Microeconomics, after all they have an agenda to pursue. That most often being the destruction of western society in general, and capatilism in particular. They are in fact usualy espousing Social Economics. However they do so based upon emotion, not upon reasoning and most often without any sense of logic.

Hence, I will post a bit about the Natural Laws of Economics. Please follow the link, as there is a wealth of information to be had there.

A natural law is a proposition that is universal to a subject matter. In science, a natural law consists of propositions describing and explaining observed regularities. There are in economics some basic regularities which have been designated as natural laws of economics. These include:

1. The law of demand. When the price of a good falls, the quantity demanded does not fall. Usually, the quantity demanded rises with a fall in price. Strictly, the law of demand applies to the substitution of cheaper goods for more expensive goods due to a relative change in price. The law of demand also applies to the whole economy: when the whole price level falls, with the amount of money remaining constant, a greater amount of goods will be purchased. 2. The law of supply. When the price of a good rises, the quantity produced does not fall. Usually, a higher price for a produced good results in a greater quantity produced.

3. The law of diminishing returns (law of decreasing marginal productivity). Given a fixed amount of some input, when ever more amounts of the variable input are added, eventually, the marginal product (the last unit’s contribution to output) declines.

4. The law of one price. In an efficient market, a financial asset will tend to have one equilibrium price, because of arbitrage.

5. Gresham’s law. Bad money drives out good money when the bad money is legal tender.

6. The law of reflux. In competitive free-market banking, there cannot be a permanent over issue of banknotes, since any issued in excess of the quantity demanded will be redeemed.

7. Law of supply and demand. In a free market, the equilibrium price of a good is that at which the quantity supplied equals the quantity demanded.

8. The law of diminishing marginal utility. As one obtains more and more of a particular good, eventually the marginal utility (value from one more unit) declines.

9. The law of unintended consequences. Human actions, and especially governmental acts, have consequences which were not intended and not anticipated by the actors.

10. The law of iterated expectations. One cannot use the limited information at some previous time in order to predict the forecast error one would make if one had better information later.

11. Engel’s law. The proportion of income spent on food in an economy is inversely proportional to the general welfare of the society in that economy.

12. Wagner’s law. As an economy grows, government spending has increased by a greater proportion.

13. Foldvary’s law of inequality. Inequality equals the concentration of a distribution times the number of units (I=CN).

14. Say’s law of markets. The supply of goods will pay the factors of production such that the payments are equal to the value of the product, and therefore aggregate quantity supplied equals aggregate quantity demanded.

15. Law of time preference. People tend to prefer to obtain goods sooner rather than later, and will pay a premium (i.e. interest) to shift buying from the future to the present.

16. Law of the market. Statements made by market participants are assumed to be truthful, and products are presumed to be safe and effective unless stated otherwise.

17. Pareto’s law of distribution. There is a general tendency for 80 percent of the consequences to result from 20 percent of the causes, which often applies to property, 80 percent of the wealth owned by 20 percent of the population.

18. Law of cost. All costs are opportunity costs, the true cost being what is given up to get something.

19. Law of comparative advantage. Trade takes place because parties specialize in the products which have a lower opportunity cost, rather than merely a lower physical cost.

20. The law of wages. The wage level of an economy, where labor is mobile and competitive, is determined by the marginal productivity of labor at the margin of production, i.e. the least productive land in use.

21. The law of rent. The economic rent of a plot of land equals the difference between its output and the output at the margin of production, i.e. the least productive land in use, using the same quality of labor and capital goods.

22. The law of capital goods. Investment in capital goods and human capital expand until the expected return on investment, adjusted for risk, equals that of the long-term real interest rate.

23. Walras’ law. If there is an excess quantity supplied in one market, there must be a matching excess quantity demanded in another market.

24. The law of economizing. People tend to economize, maximizing gains for a given cost, and minimizing costs for a given gain.

25. The law of economic rationality. Human action is economically rational if one’s preferences are consistent and if one economizes.

26. The Gaffney effect. The public collection of rent equalizes the discount rate for land usage, since otherwise people would have different credit costs for purchasing land.

Fred Foldvary


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