Blue Collar Muse

Now that our Representatives in DC are done abasing themselves before political logic at the altar of “Being seen doing something, no matter how destructive, is better than being seen doing nothing!”, let’s take a look at what just happened.

Stripped to essentials, you and I are being forced to buy something the current owners don’t want and which destroyed individuals and companies which owned even some of it. Government believes the magic pixie bailout dust which will ensure success is assuming responsibility for all of it.

Wall Street holds a bag full of bad mortgages. So bad, owning them has already destroyed companies with even a mix of good and bad ones. Government is going to buy just the bad ones! But Government has no money with which to purchase mortgages, good or bad, that doesn’t come from taxpayers. Your Government is buying, in your name and with your money, mortgages the mortgage experts know are bad, don’t want and wish they had never made.

“Unknown” is the best description for the prices taxpayers will pay for these mortgages.  It is currently unclear how the value of the bad mortgages will be determined.  Wall Street will want as much as possible to reduce their losses. Government has little incentive to realistically assess their value.  This would seem to assure a good deal for Wall Street and a lousy deal for Main Street. The Director of the Congressional Budget Office, Peter R. Orszag, told Congress that in plain terms in a recent hearing. (Orszag’s comments appear between 22:30 to 23:00)

Government believes it will perform better than the Market. 337 legislators with nothing at stake but re-election feel better qualified to risk taxpayer’s money and future than the 200,000,000 taxpayers either opposed to or unsure of the plan.  By what measure are they more qualified?  By virtue of being able to ignore the people and impose their will on them.  But being powerful doesn’t make one right.

Bailout opposition drops dramatically if one assumes Government is making a sound investment. Tell taxpayers they’ll get their money back when the homes they’re buying are re-sold and many more favor the deal. But will that actually happen? All we have are assurances on that point.  Government doesn’t know it will work out well, they hope and assume it will.

There are some great ideas for Private Sector involvement. That few investors are clamoring to be let in on the action is telling. However, if profiting from bad mortgages was the sure thing Government needs it to be to garner public support, we wouldn’t need the Bailout. The Private Sector would be lined up to do it.  That they’re not undermines the Government’s contention this is a low cost, no cost, or even profit making venture.

Interestingly, the Bailout isn’t about the Housing Market at all.  It’s about the Credit Market.  Holding bad mortgages is a threat to financial health.  In today’s volatile market, even the hint of weakness spells disaster.  No one knows how much in bad mortgages anyone else is holding so no one is extending credit.  The borrower may be destroyed in mere hours by a loose word or a breeze on their house of cards. The Government solution is to buy up all the bad mortgages.  Freed from worry about risk, lenders will begin extending credit again.  This is exactly the solution the Market would have imposed had it been allowed to with some differences in implementation.

The Market would not make taxpayers responsible for the sins of others.  It would have relaxed tension in the Credit Market by making those responsible for bad lending decisions endure the consequences.  This would dump bad loans on the market at a low price for investors to see as good investments which they then begin buying.  As the Market cleansed itself confidence between surviving lenders, demonstrating unquestionable financial soundness by virtue of their survival, would increase and the Credit Market would loosen. This is essentially identical to Government’s plan while taking a little longer. Government is underscoring the soundness of Market principles without being willing to permit Market processes.

By far the worst result of the Bailout is deeper Government intrusion into the Private Sector. The crisis was not a failure of the Market. The Market expects there will be downturns, corrections or cutbacks at times. No one likes them, but only certain forms of Government abandon responsible behavior to avoid them.

We used to have wise and responsible Government; limited and small, it taxed little and meddled less. That allowed a Free Market in a truly Private Sector to transform a wilderness into the world’s richest economy in mere decades. The inertia of that Economy carried us forward despite the low speed, high drag baggage of Woodrow Wilson’s Socialism, FDR’s New Deal and LBJ’s Great Society.

But even that powerful engine is not immune to the braking action of constant friction.  Today Government spends hundreds of billions monthly in unconstitutional entitlements. Crying that a minority will fail in their quest for success, it impedes the majority’s quest, ignorant that a single success does more than a single failure can wipe out. Left alone, we would provide far more for the least of us than the pittance Government doles out for votes. But that garners no power for Government.

Barack Obama and Democrats have already told us what they intend if elected. They plan even more Government regulation and control, weakening even further the economic engine that is Capitalism. They won’t be satisfied until the engine stops altogether.

I’m not convinced we’ve reached the point of no return in our rush to self destruction at the hands of Socialists and Central Planners. But neither am I convinced we have not. The bailout is a huge step in that direction. Granting Democrats control of all 3 branches of Government would be another. And I’m not sure Americans and the GOP is up to the challenge of stopping it. For now, work like it all depends on you and pray like it all depends on God. In the final tally, it does.

Blue Collar Muse

Popularity: 75% [?]

I’m traveling today so I’m taking the liberty of simply cutting and pasting the text of an email I got from my good friend Fred Thompson.  Actually, I’ve never met the man, it just sounds cool to say it like that since he emailed me personally and all.  FDT writes a regular column at TownHall and this was his from a day or so ago.

The Danger of Government Guarantees

I’ll bet it came as a surprise to most folks that the financial stability of the world as we know it depends upon the survival of a couple of outfits called Fannie Mae and Freddie Mac. Yet that’s what the so-called experts are telling us. Moreover, we taxpayers are now being asked to guarantee Fannie and Freddie’s tab, one that could make the $124 billion S&L bailout of the late 1980s look cheap.

So how did we get stuck with this bill? Well, Congress wanted to “do something” about what it saw as a “housing problem.” To them that meant that they should create an even bigger problem.

So Congress passed laws that made it easier for hopeful home-buyers to buy houses … even when they couldn’t afford them. Then the Fed and other regulators helped, in the form of easy money and loose credit standards for mortgages.

Not surprisingly demand for houses grew, home prices rose, lenders financed additional questionable mortgages, fueling even higher prices and so on. You get the picture. This is called a bubble.

Then an amazing thing happened – apparently impossible to foresee. Home prices did not continue to rise forever! Home prices came down and easy money dried up, causing the above mentioned cycle to reverse. In other words, the bubble burst.

So you’d think the in-over-their-heads homebuyers and the mortgage bankers would take the hit, and the market would right itself. No reason for an international meltdown here, right?

Not so fast my friends. Years earlier Congress established Fannie and Freddie as purchasers of these mortgages, which they could bundle up, repackage and sell to investors, freeing up more mortgage money. As government creations tend to do, the two companies grew until they either owned or guaranteed about half the nation’s $12 trillion dollars in mortgages.

Fannie and Fred were “government sponsored enterprises” which means heads they win, tails you lose. If they make money stockholders, creditors and Fannie and Freddie employees – some making millions annually – get the benefit. But now that mortgages have hit the skids, with mounting losses, the taxpayers potentially face trillions in exposure. This is because there is an “implicit” (read “actual”) government guarantee of Fannie and Freddie’s obligations and both are now too big to be allowed to fail. This is called the “bailout phase,” which will probably lead to a bigger bubble in the future.

Lost in this immense, complex mess is the root problem most people are missing: the government is gradually becoming the guarantor of seemingly every important aspect of American secular life, creating incentives and bureaucracies that cause failure and invite fraud.

In Fan and Fred’s case, it was in no one’s interest to turn off the bubble machine. Just the opposite. The system induced borrowers to take on financial obligations they could not afford and lenders to lower lending standards. Fannie and Freddie went along because their managers’ compensation depended on the firms’ short term financial performance. And investors continued to buy complex security packages they didn’t understand, because the securities were viewed as government-backed.

Heavy campaign contributions by those benefiting from this scheme induced Members of Congress to avert their gaze from the ugly mess that was unfolding.

You’d think we’d have learned by now: when the backstop of the federal treasury makes it easier for politicians, lenders, borrowers, welfare recipients, government contractors, or anyone else, to serve their own self interest at the expense of the taxpayer, many will do just that.

That is why we continue to see self-dealing, moral lapses, outright fraud and lack of management and oversight in a wide array of programs and government-sponsored entities, from housing to Medicare, education and the Small Business Administration, all costing taxpayers billions, even trillions of dollars.

Our Founding Fathers knew more than a little bit about human nature. It is one reason why in the Constitution, the federal government was given certain delineated powers and no others. I hate to burst another bubble, but our government simply doesn’t have the authority or the capability to be the guarantor or insurer of our every need or desire. Isn’t it time we started sending that message loud and clear to the big enablers in Washington?

Blue Collar Muse

Popularity: 32% [?]

With Poll numbers showing the Democrat led Congress is enjoying the worst approval numbers since I don’t know when, the Democrat’s strategy to combat this perception in the minds of voters would seem to be - more of the same behavior that earned them abysmal ratings originally.

The widely trumpeted mandate for change the Left claims American voters overwhelmingly handed them in November 2006 was rooted, in part, in Democrat charges the then GOP controlled Congress was out of touch with the American people. Evidence of the GOP’s disconnectedness was found in polling numbers that showed Congress with 35%-45% approval numbers leading up to the elections. As the election approached, those numbers began dropping as the the perception Republicans were poorly serving the interests of the nation gained traction. At election time, 2006, approval for the GOP Congress was at 25%-35%.

The nation “threw the bums out” and polls immediately evidenced the optimism Democrats like to point back to with approval numbers rising to the 35%-45% levels earlier enjoyed by the GOP. However, as Democrats failed to keep their promises on the War; wallowing in meaningless non-binding resolutions and neglecting their duties to debate, craft and pass a budget, the worm turned. Gone were the glories of 40%+ approval. By May of 2007, Democrats watched the 30s evaporate and hit bottom, sluggishly floundering in the 20%-25% range with occasional dips into the high teens! The worst was July, 2007 where Reid, Pelosi and company hit record setting lows at 14% and then 11% barely escaping a nightmare plunge into single digits!

You would think such messages would be taken seriously by Democrats. They certainly took notice when they perceived GOP numbers were down and made sure we all noticed, too. But you’d be wrong. After 8 months of what is arguably the worst ever performance for a Congress, Democrats continue to bluster and posture in the same ways that first earned them the disrespect of voters.

Two stories illustrate the inexplicable behavior of the Party that claims to be leading our nation. CQ Today reports Harry Reid is talking tough to get his party’s agenda addressed.

Even before the Senate took up its first bill of 2008, Majority Leader Harry Reid was on the floor making a familiar threat.

If lawmakers fail to reach consensus on electronic surveillance legislation (S 2248), warned Reid, D-Nev., “We may have to finish that work this weekend.”

Reid must think the specter of working on Saturday is a useful form of senatorial discipline, because he issued similar warnings at least 15 times last year.

The Senate actually met just once on a Saturday in 2007 — Feb. 17, to be exact — to address the troop “surge” in Iraq (S 574).

Generally, the rank and file stayed in for late nights instead of giving up their weekend plans, and, given his druthers, Reid said he’d like to continue that pattern.

“We’re going to have to spend some long hours here in the Senate,” Reid said. “Hopefully we won’t have to work weekends.”

If all it takes is the threat of a Saturday morning spent legislating instead of being entertained by lobbyists to get the Senate off the dime, there are much bigger problems in Washington than partisanship and gridlock. If this is the best Reid can find to illustrate his leadership it’s no mystery how Congress is held in such contempt by the nation. What’s next, putting Senators in time-out in the Senate well?

From the House comes this gem, also reported in CQ Today. Speaking of renewed attempts by Democrats to expand SCHIP, Alex Wayne notes

Democrats aren’t about to drop the issue, which they consider a political winner, especially in an election year. And with the economy in trouble, Democrats are trying to depict an expansion of SCHIP as part of an economic stimulus plan aimed at middle- and lower-income families.

“Times have changed since last October, when the president vetoed the compromise SCHIP bill for the second time,” Rep. Diana DeGette, D-Colo., said in a Jan. 18 conference call.

“Now it looks like our economy is heading into a recession. Not only will the 4 million families who would be eligible for health care coverage [under the bill] be without health care coverage . . . but also the economy will be without that stimulus that spending for health care would give us,” DeGette added.

Not only is “times have changed” a bit too dramatic an introduction to an event from just 90 days ago, DeGette further demonstrates her lack of understanding of language with her comment, “Now it looks like our economy is heading into a recession.” A recession is generally defined as two consecutive quarters of decline in real GDP. Evidently the Colorado Democrat is unaware that the US Economy has not had even one quarter of decline in the last 25 or so quarters! I’m not sure we’ve even had a single month of decline within that time frame. Maybe mail delivery is a little slow in the hinterland that is Colorado. How else to explain the misinformed Congressman’s erroneous statement?

There’s more … lots more, unfortunately. But it seems clear the Democrats strategy for governing is rudderless. It remains to be seen if the GOP will be able to steer the country into realizing that by November, 2008.

Wondering what one does with a horse, or a donkey, for that matter, you lead to water who doesn’t even know he’s dying of thirst …

Blue Collar Muse

Popularity: 37% [?]