No Runny Eggs

I don’t know what happened to Shoebox’s post on this, so I best fix that…

[youtube]http://www.youtube.com/watch?v=YFpU5KSI3TU[/youtube]
(via House Republican Leader John Boehner’s YouTube channel)

It’s important to note that the secret ballot for unionization elections was put in place to protect the union organizers from retaliation by business owners. If it weren’t so serious, it would be funny that it is now the anti-union forces are the ones that need the protection of the secret ballot.

John Hawkins did another of his world-famous Right Wing News polls, this one on the bailout. My answers are below, with the note that I sent this in before the market cratered.

1) Is the PRIMARY cause of this crisis…

A) Deregulation, market forces, and Wall Street?
B) Government interference in the market?

B – Government interference in the market (specifically, the Clinton-mandated supersizing of the subprime mortgage market)

2) Do you support the bailout?

A) Yes
B) No

B – No (only because my prefered answer of an expletive preceding the two-letter answer isn’t here)

3) Politically, is it smarter for Republicans in Congress to support or oppose the bailout?

A) Support
B) Oppose

B – Oppose (I will throw the caveat that they need to explain that this is Socialism-Heavy)

4) If John McCain signs on to the bailout, does it help or hurt his chances of getting elected?

A) Help
B) Hurt

B – Hurt (he’s not going to get the Socialists that are happiest with this bill)

I thought Shoebox was on John’s e-mail list, but I don’t seem to see him listed among those who sent in responses.

Shoebox already took the non-Pulp Fiction version of this question, and I do recommend you read it. I may as well throw in my 2-cents’ worth.

I firmly believe that the Democrats do want the market to crater itself for their political benefit. Unlike Shoebox, I think they’ll be successful in conning the public into believing that they are not at fault, and that one-party Socialism (formerly known as Communism) is the “answer”. After all, where else but this end of the blogosphere and talk radio (and portions of Fox News) are you going to hear about the massive role the hyper-enforcement of the Community Reinvestment Act, ordered by Bill Clinton and the Democrats, had in creating the supersized-and-crashed subprime market? Where else are you going to hear that a sufficient number of Democrats on Barney Frank’s committee voted against it to kill it?

That is not to say that the financial sector didn’t have their own hand in this. They took that mandate and ran very hard with it, with ridiculously-easy-to-get very-low-to-no-interest loans on items such as cars and credit cards. They also joined the “don’t blame me” generation, demanding that others cover their losses or else VERY BAD THINGS WILL HAPPEN! Unfortunately for us, they are virtually unique in the private sector in their ability to cause those bad things to happen, and yesterday’s historic market crash and the complete lockup of institutional credit outlined by Shoebox are but a taste of what they can cause to happen if they don’t get their way.

Still, I am glad the “grand compromise” was killed yesterday. It combined both Socialist approaches of buying up the “distressed” paper and seizing effective control of the financial sector (i.e. the Fannie/Freddie/AIG approach that failed spectacularily with those 3 entities) with almost no actual upside for those few of us that still believe in the free market. Indeed, almost everything that was sold as an “upside” merely stripped out the further overreach from the Dems’ counterproposal.

There was no addressing the government’s role in creating the subprime bubble. There was no assurance that the assets bought/seized by the government would ever be turned back over to the private sector. Indeed, if the government refused to turn a sufficient number of assets back to the private sector to pay back the $700 billion (or whatever they ultimately would have spent), they would act to make it a non-paid seizure.

So, what now? If I thought this had a snowball’s chance in Hell of flying, I’d go back to the Paulson proposal, get the decision on which securities to buy up out of the Treasury (Shoebox mentioned Mitt Romney, Asian Badger mentioned Michael Bloomberg, T. Boone Pickens mentioned the FDIC this morning on CNBC), and make it very clear that “RTC 2.0” was a temporary, one-time solution that is focused on reintegrating those securities into the private sector ASAP. Further, I would repeal the Community Reinvestment Act. Beyond the modified Paulson plan and the elimination of the CRA, nothing, and I mean NOTHING, would be a part of this. No death to golden parachutes, no tax cuts, no giveaways to ACORN, no earmarks, NOTHING!

Of course, the Democrats won’t like that; they want Communis…er, one-party Socialis,…er, screw it, Communism. Unless there is something even worse, from a free market point of view, that comes up, I don’t see any action until the next Congress. I honestly don’t know if the markets can or will hold on for another quarter, and if that crash happens in the next month, 2008 will make 2006 look like a major win.

In short, we’re fucked.

I’ll state up front that while I can toss numbers like nobody’s business, I’m not an expert on Wall Street economics. Like Shoebox, I don’t know which way, if any, is the right way out.

First, we have to remember why we are where we are, with an effectively-frozen credit market and the largest of the financial institutions teetering on the brink of collapse. It is because of an insistence by the federal government that the financial institutions lend to the credit-unworthy, combined with the gusto with which the financial institutions did lend to the credit-unworthy with the beliefs that housing prices would perpetually increase and that the federal government would step in if they got into trouble, that we got to a point where a correction in the housing market would threaten to bring the entire system down.

Compounding that is the Red Chinese factor. They hold a lot of debt, and the word is they’re calling it in right now.

There are essentially three things that can be done. The first is to essentially do “nothing”. The reason why I put that in scare quotes is that there are mechanisms in place to bail out individual financial institutions that fail, like Washingon Mutual. Indeed, I have to point out that the FDIC didn’t have to use any of its funds to complete that transaction. However, the fact that there is somewhere between $1.7 trillion and $7 trillion in “distressed” loans out there (or if one prefers, between 11% and 46% of the total value of the real estate) makes it improbable that, if a significant portion of those loans were to default, the current mechanisms can deal with that. True, not all of that is truly bad, but if even half of that is bad, it will make the S&L crisis look like a blip. It also does not address the immediate lack of liquidity in the markets in general and in the credit market specifically.

The second is the Paulson Socialism plan (the government buying that 11%-46% in value of the real estate) or the current Democratic Takeover of the Financial Sector alternative (the feds buying controlling stakes in the form of preferred stock in certain companies holding mortgage-backed securities). The model for the former is the successful Resolution Trust Corporation’s disposition of the assets of failed savings and loans at the end of the 1980s and the beginning of the 1990s. The main reason that worked in the long term is that the RTC actually sought to get rid of those assets when the private market was able to reabsorb them. That is something I am not at all confident the government will be able to do so this time around for two reasons.

First, we’re talking trillions of dollars now instead of a few hundred billion dollars then. The RTC took 6 years to get rid of just over $300 billion of assets. While inflation makes a straight ten-fold increase in the time for the market to recover sufficiently to reabsorb this not quite accurate, it is fair to say it would take far longer than 6 years to reintegrate the “distressed” mortgages into the private sector.

Second, we’re within 120 days of potentially having both the executive and legislative branches of government in the hands of the Democrats. The fact that the RTC existed for several years before the election of Bill Clinton, and then the Democrats only had total control of government for 2 years, had something to do with the ability and indeed the willingness of the RTC to actually return the assets to the private sector.

I will stipulate to the likelyhood that injecting that money will have the effect of at least temporarily restarting the credit market. However, what happens when that money is burned through, especially with more social economic engineering likely in the bill and almost certainly no fundamental fix of the governmental demands that caused this? The lack of long-term positive effect the similarily-sized economic stimulus return of welfare package earlier this year had ought to provide a clue.

There is even less of a guarantee that government will get rid of any stake in financial companies. Given that government policy played a very large part in this mess, and given that this approach is being pushed by those that are at their core anti-business, I do not want the government in complete control of those companies.

Finally, there is the House Republican plan, which Shoebox and I briefly touched on. It would make it easier for Wall Street to heal itself without the takeover of either real estate or corporations by the government, but there wouldn’t be a lot of immediate relief to the credit market. Whatever direct savings in tax and regulatory breaks the financial sector would see would flow back to the federal government in the form of insurance for the half of the MBS that aren’t already backed by the feds. Depending on the range of tax and regulatory breaks, there would be a lessening of the pressure on the credit market from businesses who, with additional cash in their pockets, wouldn’t be as dependent on the credit market to operate.

It also isn’t what Wall Street is looking for; they have their own immediate self-interest at heart. They like “free” cash like anybody else, and they like not having to take responsibility for their role like anybody else.

This press release from my Congressman, Paul Ryan, on House passage of H.R. 3221, the Fannie/Freddie bailout bill came into the mailbox a couple hours ago. Quoting Ryan from the press release:

My top priority is to protect the taxpayers, not the shareholders. Our current policy toward Fannie and Freddie is not only dysfunctional and rife with bad incentives, but it also has potentially disastrous consequences for taxpayers. This bailout plan aggravates the fundamental problem that led us here: Fannie and Freddie remain for-profit corporations but still enjoy a Federal guarantee at the taxpayers’ expense against any risk of loss. To force Americans already struggling to make ends meet to take on this risk is a dangerous precedent.

Congress has tuned out the voice of the taxpayer with today’s bailout bill. Since my first years in Congress, I have called for reforms in Congressional oversight of these mortgage giants, so that we could have avoided the current situation. We need to inject some commonsense into this debate, rather than set ourselves up for more taxpayer-funded bailouts in the future.

There are several other links of Ryan’s previous comments on this included in the linked press release:
– Ryan on the House floor (Windows Media video)
– Op-ed by Ryan and Rep. Jeb Hensarling at Politico.com on how to solve the Fannie/Freddie crisis
– The House Budget Committee (Republican Caucus) analysis of Fannie Mae/Freddie Mac.
– Ryan’s long history on GSE’s (dating back to 2000

It is good to know that Ryan and Hensarling aren’t alone. Michelle Malkin has Sen. Jim DeMint’s comments.

(H/T – JammieWearingFool)

Barack Obama’s chartered Midwest Airlines’ MD-80, en route from Chicago to Charlotte, North Carolina, made an unscheduled landing in St. Louis after what the Milwaukee Journal Sentinel reported as the emergency slide in the tail cone of the plane deploying in flight. ABC News’ Sunlen Miller reported an abnormally large dip shortly after takeoff from Midway during bad weather.

I’m glad that everyone’s okay, but I have two questions:

– Why would an eastbound flight from Chicago divert to St. Louis?
– Considering that Midwest is grounding its MD-80s because they’re too fuel-inefficient, why did the Obama campaign decide to charter one?