October 6, 2008

I’ve Always Been Suspicious of Those Who ‘Know’ …..

Filed under: Economy,Taxes & Government — Tom @ 4:00 pm

….. exactly why the stock market goes up and down.

The popular assumption, that the markets believe that “the bailout isn’t enough,” isn’t flying with me.

Try this out:

  • Last week: Dow drops 700+ points after the bailout bill fails by a narrow but clearly reversible margin (i.e., it appears that passage in Round 2 is certain). All Nancy Pelosi has to do is shut her partisan piehole the second time around. Markets, contrary to the pronouncements of the punditry, are not pleased at the prospect of passage.
  • Next day: Dow comes back about 500 points because it looks like there will be more resistance to passage than originally thought, as talkers and pundits across the political spectrum let loose.
  • Forward progress generally continues until the House vote on Friday, in the belief/hope that the bailout might not make it.
  • After the House vote, markets tank because a major and basically unlimited intervention by the government (maybe necessary, maybe not) will likely drag down future profits, hold back growth, and stifle innovation. Thus, stock values, based as they are on discounted cash flows (remember?), plummet.
  • Markets continued downward today. Counting Friday afternoon, the Dow lost over 1,000 points after the bailout bill passed, before recovering about 400 points in about the final hour today. Why wouldn’t that big drop have occurred because it appears that government interventions (again, maybe necessary, maybe not) will be more widespread and more internationally based than expected? Further government intervention means further dives in discounted cash-flow valuations. That, of course, would drive stocks down further.

Someone tell me why my readings are any better or worse than the so-called “experts” who pretend to know exactly why the markets are moving as they are.

Isn’t it funny how the media is pretending that the “experts” are “somehow” all saying the same thing (more government intervention is coming, and the markets are plunging despite that, not BECAUSE of it)? I doubt very much that the “experts” all agree on this unanimously.

ISM Non Manufacturing Index Comes in at 50.2% (Very Slight Expansion)

Filed under: Economy — Tom @ 10:52 am

The Institute for Supply Management’s report is here.

The result is a bit lower than last month’s 50.6%, and slightly exceeded expectations of 49.9%. That is, the smarties predicted slight contraction, and the reality was slight expansion.

That’s not ideal by any stretch, but it isn’t sky-is-fallling news either.

Relatively Light Posting Alert, and an E-Mail Proposal I Have Received

Filed under: General,Scams,Taxes & Government — Tom @ 10:21 am

Business and other writing commitments will keeps things semi-quiet (NOT totally quiet) around here until Wednesday morning.

In the meantime ….. I want to make readers aware of this interesting proposal I received via e-mail over the weekend. It came to me in all caps, but I revised it to improve its readability.

It seems to have some relationship to what I discussed in this post earlier this morning.

Perhaps one of you can report back to me as to the legitimacy of this matter.
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Bailout Saga Proves That Elites Don’t Care What We Think

Filed under: Economy,Taxes & Government — Tom @ 10:07 am

A loophole-laden monstrosity puts a broken political culture on full display.

______________________________________________

This column originally appeared here at Pajamas Media on Saturday.

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In mid-September, when it became clear to Hank Paulson, Ben Bernanke, and George Bush that extraordinary measures were needed to address the mess that had built up in the financial markets during the past decade or so, their first instincts should have been to say:

  • “We need to have a complete plan to deal with this.”
  • “We need to make a case to Congress and the American people that our plan will work.”

They did neither of these things; nor did they even seem to consider whether what they wanted was even constitutional.

Instead, they in essence demanded that Congress and the American people give them a blank check, saying, “Do this, or else.” A week ago Sunday, I called it blackmail. I stand by that.

Of course, a large plurality of Congressmen and Senators, along with a majority of the American people, were repulsed. The wonder is that everyone wasn’t.

Among the repulsed were well over 150 economists from across the political spectrum, including three Nobel laureates, who signed a letter of protest (also carried here; bolds are mine):

As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:

1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses.  Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.

2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If  taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.

3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America’s dynamic and innovative private capital markets have brought the nation unparalleled prosperity.  Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.

For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come.

The monstrosity that became law on Friday (PDF-formatted first 250 pages here) does not begin to adequately address the group’s three key concerns.

Fairness? Let’s talk about fairness to taxpayers and future generations. What assurances do we have, if any, that monies recovered when purchased assets are resold will go towards reducing the just-increased national debt? I fear it will instead be diverted to Uncle Sam’s day-to-day operations, enabling Congress and future presidents to further cover up an already over-the-top annual structural deficit. If you don’t think this can happen, just remember how Social Security has been stripped bare for four decades.

Ambiguity? You can’t get much more ambiguous than what a Treasury official told Forbes Magazine on September 23 (bolds are mine):

….. some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number.”

Again: Blackmail.

Oh, and do you think that even the made-up $700 billion now enshrined into law is any kind of real limit? Think again.

The supposedly limiting language in Section 115 of the bill has to do with “the authority of the Secretary to purchase troubled assets” to certain amounts “outstanding at any one time.” Treasury’s authority starts at $250 billion; Congress can increase that authorization to as much as $700 billion.

With this language, under its “Troubled Assets Relief Program” (TARP) authorization, Treasury can initially purchase $250 billion in “troubled” loans. If it auctions off $50 billion of that amount, there will then be only $200 billion “outstanding.” Treasury can then go out and purchase another $50 billion. This can go on and on and on.

As far as I can tell, there is nothing that would prevent Treasury from continually buying, reselling, and replacing loans, thereby busting the supposed “limits” by hundreds of billions, if not trillions.

Given the billions that financial firms appear poised to make in managing the largely outsourced program, Wall Street has the ability, and every incentive, to turn TARP into a fee-generating perpetual-motion machine while it is in place (theoretically, until the end of 2009).

Long-term effects? Heck, we’re already seeing proof of the long-term effects in the short-term. California’s Arnold Schwarzenegger, whose state has a welfare dependency rate that is 2-1/2 times that of the rest of the nation, is making noises about getting his own $7 billion bailout. The auto industry is getting what was unthinkable even two years ago: $25 billion in loan guarantees, and with barely a whimper of objection.

As I wrote yesterday:

….. what possible response, other than “okey-dokey,” is there to anyone who says, “Well, if you could handle $700 billion for the financial-services industry, how can you not provide $_____ (fill in the blank) for _________ (fill in the blank)?”

When the problem became clear, a mature Washington political culture would have done something close to the following:

  • Bush, Bernanke, and Paulson would have consulted with some of the aforementioned economists to craft a plan that would meet the three concerns they were forced to raise after the fact.
  • Bush would have called a joint session of the Senate and House to give Bernanke, Paulson and economists the chance to make their case to Congress and the nation.
  • Bush would have insisted that any changes to what they proposed would have to be germane to the plan (i.e., no pork, and nothing else extraneous).

Instead, what was three pages turned into 451. What was a bill with a made-up $700 billion price tag became a pork-laden bill with a made-up $850 billion price tag chock full of unrelated and dangerous provisions too numerous to mention here.

The just-enacted legislation will likely haunt the economy, and the nation, for years.

That we have a nearly incorrigible and immature Washington political culture has never been more clear.

Positivity: Mom Screens the Bride

Filed under: Positivity — Tom @ 10:01 am

From Pennsylania (HT to an e-mail from Jill at WLST):

By Internet link, hospitalized woman witnesses daughter’s Bethlehem wedding

October 6, 2008

She entered the room — the veiled, auburn-haired bride in a white gown flanked by her father — and there was silence, as those who watched paused to catch their breath.

Certainly, no one could have been prouder than the bride’s mother, who wept at the sight.

Dressed in a shimmering black and turquoise embroidered pant suit, Fran Miller of Lower Macungie Township watched the fairy tale unfold not from an aisle seat at the Hotel Bethlehem on Saturday, but through a live video from her hospital bed at Lehigh Valley Hospital-Cedar Crest.

Surrounding her were the smiling faces of those who had seen her through almost continuous hospitalization over the last year and a half. This time they came — family, friends, nurses and medical staff — on their days off to share in the mother’s joy on her daughter Michele’s wedding day.

”She’s a beauty, Fran,” said one of the nurses.

”Just like you, Fran,” said another.
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Things I’d Like To Post About Today ….. (100608, Morning)

Filed under: TILTpatBIDHAT — Tom @ 9:52 am

…. But I Don’t Have Any Time For:

  • Of course, now the hue and cry is that the blackmail-driven, pork-infested bailout passed last Friday wasn’t enough.
  • Charles Gibson, on Sarah Palin (HT Warner Todd Huston at NewsBusters) — “….. it’s important to expose her, more so than Joe Biden.” Really? I guess that’s why Biden’s plagiarism and mountain of gaffes aren’t nearly as important as Palin’s take on creationism, which after all is soooooo relevant to her anticipated duties. (/sarc)
  • Speaking of Palin Derangement Syndrome, I did a relatively rare not-mirrored-here post at NewsBusters about a comment by MSNBC’s/NBC’s Keith Olbermann during last night’s Sunday Night Football broadcast.
  • Is Barney Frank’s former “partner” Herb Moses (“The two lived together in a Washington home until they broke up in 1998″) the guy responsible for catastrophically lowering the programmed loan approval standards at Fannie Mae (as explained here)? As Ed Morrissey notes, “Frank was supposed to oversee the actions of Fannie Mae as a government-sponsored entity.” Some “oversight,” given that Moses may have been the one most responsible for producing Barney’s Rubble.
  • I “love” the gullibility and lack of follow-up on things like this — Concerning excessive and/or foreign-based illegal campaign contributions received by Team Obama, Newsweek’s Michael Isikoff let a Messiah spokesman get away with claiming that “the campaign has no idea who the individuals are and has returned all the donations, using the credit-card numbers they gave to the campaign.” Many of these contributions go back over a year. Was EVERY credit-card number still valid? If not, then the campaign’s claim that ALL contributions were returned is not true. Prove it, guys.
  • Someone should ask the PUNK (Previously Unaccomplished Nonsupporter of Kin) Messiah if he approves of the initiative to abolish (not reduce, ABOLISH) the state income tax in supposedly uber-liberal Massachusetts. After all, his good friend Deval Patrick is governor there.