Happy Anniversary

October 3 is the first anniversary of TARP - the Troubled Asset Relief Program. You recall that the original intent of the bill was to purchase troubled assets from financial institutions to restore confidence in the credit markets. I had written when the act was proposed that it was doomed to fail. What was the price for the assets purchased? If purchased at market value, then it would do the institutions little good because it would still leave their balance sheets impaired. If purchased at a premium then the Feds would be stuck with an instantly underwater asset. In any event, it escaped me how all of this was to restore confidence. Of course, even the government soon realized the folly of its ways and quickly modified the implementation of the act - much to the chagrin of some legislators - to inject capital instead into failing institutions. I was actually ok with this if the capital was in the form of preferred stock. I favored the use of cumulative preferred where dividends were "guaranteed". If not paid then there would be an arrearage where the missed preferred stock dividends would all be paid prior to any payments to common stockholders. Of course, preferred stockholders do not have a vote or a direct say which seemed appropriate for the federal government. However, I was not surprised when the Feds decided to purchase common stock instead which gave this government entre into the decision making process at the largest financial institutions in the country. The president insists that he does not want to run the banks, he does not want to run the automobile industry and he does not want to run the insurance industry. Really? Then why is he? Have you heard a definitive exit strategy from the president? Neither have I.

More Random Thoughts

The president in his speech to Wall Street on September 15 said that the days of "reckless behavior and unchecked excess at the heart of this crisis" are over. Au contraire, it is continuing. Only this time it is the government that is engaging in reckless behavior and unchecked excess. How else would you describe the $2 billion deficit, TARP, stimulus, cap and trade and health care reform?

Given the dislike for both parties, some are advocating a third party - like the Libertarian party. The problem is that given the structure of our political process a third party will insure permanent power being ceded to the Democrats. This is because the libertarians will come from the Republican base leaving the democrats with solid majorities in congress. America traditionally is divided into thirds. One third calling themselves democrats, one third republicans and one third independents. The power goes to the party that can sway the independents to their side. If members of the republican base have had it with the Washington republican establishment, then they need to vote them out of office and replace them with conservative republicans.

Isn't it interesting that the left's reaction to Joe Wilson's singular outburst has been the charge of "racism"? I personally don't know how they got there from there but it has been the manta of the media and the left ever since. This tells me that they have lost the battle over healthcare. The cry of "racism" is a last desperate attempt to get votes from the opposition to such an odious package. "I can't vote against this because I don't want to be accused of racism." Well I guess we are all racists now. I oppose health care "reform" - actually its health care takeover - for the reasons given in the editorial below. Since I will put my bona fides up against anyone (with the possible exception of John Lewis), dare they call me a "racist"?

Health Care Overhaul Not Needed

This article appeared in the Knoxville News-Sentinel on September 6, 2009.



The nation is engaged in a spirited debate on health care, and it is wonderful to see democracy in full voice. Is there justification for a government takeover of health care?

First, is the debate over the quality of health care itself? Certainly, there is no dispute that cancer survival rates in the United States are dramatically higher than in managed-care countries. What about the delivery of health care? In Canada, a million people are waiting to see specialists, while another million are waiting for operations. This is in a country of 33 million! Can you imagine 18 million Americans waiting either to see a specialist or for an operation? Certainly, the issue is not access to health care since hospitals do not deny treatment to those who show up at their doors. Thus, the reason cannot be poor U.S. health care.

Second, is the debate over insurance? The Administration's estimate of 47 million "Americans" without insurance is bogus. Of that number, perhaps 12 million are illegal immigrants. Some 16 million make more than $50,000 a year but opt not to have insurance, and 9 million are unemployed but are typically without insurance for less than four months.

That leaves about 10 million citizens or 3 percent of the total population. It is irrational to dismantle U.S. health care for so small a number. A system could be constructed to cover this 3 percent and to provide catastrophic care for a fraction of the costs of a government takeover.

Third, is it because the rising costs of health care are the result of little competition? The president argues that a "public option" run by the government would create competition in the insurance marketplace and drive down costs. His example of the postal service giving competition to FedEx and UPS is laughable, and everyone knows it. It is the other way around. The postal service loses $7 billion a year and would lose more if its monopoly on first class mail were repealed. The reason why there is little competition and that costs are high is because the government prohibits competition. States set the rules, prohibit interstate competition and set costly mandates that drive up rates. If the president wants competition, the way to provide it is to take the government-imposed restrictions off the provision of insurance.

Fourth, is the proposed takeover because of costs? The president has stated that we pay a larger percentage of our gross domestic product (17 percent) for health care than any other industrialized country and that this cost is a "threat to our economy?" As Craig Karpel pointed out in the Wall Street Journal, would we be less threatened if we spent 8 percent like Haiti? Health care would be a threat to our economy only if it resulted in a net loss to the country. But does it?

Health care is a good like any other good. It employs 10 percent of the U.S. work force, contributes significantly to American exports, and its existence has lessened the impact of the recession. Karpel points to a study by Bob Hall of Stanford University and Charlie Jones of North Carolina State University that finds that by mid-century, the optimal amount of U.S. health care spending should be 30 percent of GDP.

If the president's assertion of a "threat" is true, it is true not for the health care industry, which is a productive part of U.S. society. The threat comes from the portion of the economy that is a net loss. It comes from the net loss of enterprises such as the post office, Amtrack, Social Security, Medicare and Medicaid. It comes from the federal government.

Is this the change we were promised?

Remember the old saying "If you can keep your head while all those around you have lost theirs - then you probably have misinterpreted the situation?" Well thats how I feel about this administration and its actions. The president as a candidate constantly berated the Bush administration for running up record deficits of $400 billion. Bush was irresponsible so said candidate Obama by increasing federal spending while cutting taxes. Never mind that tax receipts increased - it was just because that spending increased by more. So instead of getting fiscal responsibility, we are getting just the opposite - fiscal irresponsibility. The budget deficit is projected to increase by a factor of four to $2 trillion. The administration is saying that they had to do this because they didn't realize the depth of the mess that Bush had gotten us into. Only an Obama loyalist would believe such nonsense. The surge of spending on bailouts, on TARP II, on "stimulus" packages, on cars-for -clunkers, on the takeover of banks, the domestic automobile industry,of Fannie Mae and Freddie Mac, the obscenity of AIG and on you-name -it had less to do with Bush than to do with an attempt to increase the federal government's reach in the economy. This reach is going to manifest itself in a projected budget deficit of $10 trillion over the next ten years. Yet this projection from CBO is a rosy scenario. It assumes dramatic increases in tax revenues that could only occur if all the Bush tax cuts lapse, if the dreaded alternative minimum tax is kept and if taxes are raised across the board. If these all do not occur then the deficit will be $2 billion more. Lest we have short memories, the electorate voted out the first President Bush for violating the "read my lips, no new taxes" pledge. The current president has also made a pledge of not raising the taxes in any form for those making $250,000 or less. He cannot possibly keep that promise. If he violates it, he will be shown the door. The only alternative is to see huge tax increases during a second Obama term - if he somehow gets re-elected. However, keep in mind. If he is re-elected and pushes through these tax increases, then all those out side of "safe" districts will be defeated. You would think that these vulnerable politicians in swing districts would know this and vote against "change".

Congratulations Ben!

Ben Bernanke has been nominated by the President for a second term as Fed chairman. Congratulations Ben! You earned it having provided the most accommodating monetary policy for the administration since oh Alan Greenspan. Since you were a governor at Greenspan's Fed, your reward from the Bush administration was being given the chairmanship. So accommodating is nothing new for you. Some have written that Larry Summers was a candidate for the job but the president did not want to give the impression of appointing a lap dog that would compromise the Fed's independence. As if the Fed's independence can be compromised more! However, I understand that the Fed can be intoxicating and that the chairmanship can be downright addictive. Reserach shows that the Fed is usually most accommodating when a chairman seeks to be reappointed by a new president. However, thereafter the Fed regains its stones. Anyway, if Larry Summers had been appointed, the president is smart enough to know that the Fed chairman has only one vote on the Open Market Committee. An appointment of an outsider would cause friction enough. An appointment of an obvious flunky might cause an outright rebellion. One thing to note is that some talking heads are contending that the policies of this president are intended to destroy the country. I for one find this hard to believe because it would lead to the defeat at the polls of his supporters in congress - and nothing is more important to our elected officials in Washington than re-election. Indeed, if the president wanted to wound the country, he would have not re-appointed Bernanke. That would have lead to a sharp decline in the stock market. The market would realize that all bets were off. The Fed would be in crisis. There would be never ending relenting monetary ease, higher rates of inflation and more monetarization of the national debt. So the president had his chance to spur a severe economic downturn and spurned it. So congratulations Ben. You sucked up to the president and got renominated. Hopefully after your confirmation by the Senate, you will regain your integrity and assert Fed independence. I can only hope.

So Where are Willie and LaToya?

Remember when people wonder why hurricanes were only named after women? Obviously, if they were named after men they would have to be called himacanes. Well the esteemed congresswoman Sheila Jackson Lee now famous for chatting on her cell phone during a recent town hall also is notable for two other things. First she asked if the Mars probe could take a picture where Neil Armstrong landed and second she wondered why the National Hurricane Center didn't have black names for hurricanes. Now before you laugh look at the following names for future hurricanes. For the complete list go to http://www.nhc.noaa.gov/aboutnames.shtml.

Atlantic Names

2009 2010 2011
Ana Alex Arlene
Bill Bonnie Bret
Claudette Colin Cindy
Danny Danielle Don
Erika Earl Emily
Fred Fiona Franklin
Grace Gaston Gert
Henri Hermine Harvey
Ida Igor Irene
Joaguin Julia Jose
Kate Karl Katia
Larry Lisa Lee
Mindy Matthew Maria
Nicholas Nicole Nate
Odette Otto Ophelia
Peter Paula Philippe
Rose Richard Rina
Sam Shary Sean
Teresa Tomas Tammy
Victor Virginie Vince
Wanda Walter Whitney

Audit the Fed?

I have made little secret the fact that I do not care for the Bernanke Fed. Although it appears that Bernanke is campaigning for re-appointment, his actions are consistent with those his predecessor used while President Bush was in office. Recall that government spending exploded under George Bush. Even though tax revenues increased federal expenditures increased by even more causing an increase in the deficit. The Fed accommodated by purchasing the Treasury bills used to finance the deficit resulting in driving down interest rates and keeping them down. The result was the boom in the mortgage market and the eventual bursting of the bubble. Then came the ill-fated stimulus programs under Bush and the TARP fiasco. Ignoring history which shows that stimulus programs always fail because consumers and businesses seek to pay down debt during recessions rather than increase spending, both Bush and Obama felt the political need to endorse such a program. There is little evidence that Obama’s stimulus has stimulated the economy. Rather it was used to bail out state governments.

In the meanwhile the Fed has continued to provide accommodative monetary policy. Now the Congress led by Ron Paul is seeking an audit of the Fed. They want to know who the Fed is lending to and how much. The Fed argues that such an audit would have an adverse impact on the borrowers as their clients and the market would react negatively to the information. Some back Paul’s bill because they are Fed conspiracy theorists and believe that the Fed is just helping to enrich a precious few. Others back Paul because they want more openness in government. So who is right – the Fed or Ron Paul?

Both. Revelation of the lending information will have an adverse market effect. However, that effect will be short-lived. Second, the congress should know what the Fed is doing. My proposal is for an annual audit to be conducted of the Fed and the information be given to the House and Senate banking committees in a closed door session. Much like the CIA reveals its operations to congress behind closed doors, so should the Fed.