Together, We All Pay More For Healthcare

Health Care's Simple Economics
04/30/09 - by Donald J. Boudreaux, Chairman of the Economics Department at George Mason University.

Parable: "The ten of us went to dinner together. We agreed to split the bill. I ordered a bottle of wine, the Steak Grande, and the Fudge Remorse dessert. Eating as a group is quite expensive."

[edited] Consider Medicaid and Medicare, huge socialized health-care programs funded with tax dollars. Millions of Americans covered by them consume medical services without paying the full costs. The result is that these services are over-consumed.

Russell Roberts is my George Mason University colleague. He asks, if you go to dinner with a large group of strangers, and you know that the bill will be split evenly, will you order pricier dishes and drinks than if you were paying only for yourself?

The answer is surely "yes." Let's say that you'd be content to order the pork chop priced at $15, but would get even greater enjoyment from ordering the rack of lamb priced at $25. If you alone were responsible for your tab, you'd order the lamb only if it is worth to you at least the extra $10 that it costs. So suppose that you value the lamb by only $8 more than you value the pork chop. In that case, you'd order the pork chop. You wouldn't spend an extra $10 to get extra satisfaction worth only $8.

But if the bill is evenly shared among yourself and nine others, then if you order the lamb, your share of the higher bill will be only $1. That's $10 split evenly 10 ways. You'll order the lamb.

Such sharing of our medical-care bills takes place now on a massive scale. It is impossible to see how expanding this sharing will reduce the bill for each of us.

Fact Check on Obama

FACT CHECK: Obama disowns deficit he helped shape
04/29/09 - Associated Press by Calvin Woodward at KnoxNews.com

Calvin Woodward examines and criticizes Obama's statements. [edited]

Obama met citizens Wednesday at a high school in Arnold, MO in advance of his prime-time news conference. Both forums were a platform to review his progress at the 100-day mark and look ahead.

Here are Obama's claims. The analysis is in the linked article.

• I am not responsible for the huge budget deficit waiting for me on Day One.
• The Recovery Act has already saved or created over 150,000 jobs.
• This budget will strengthen our economy.

  - Investments in education will equip our workers with the right skills and training;

  - Investments in renewable energy will create millions of jobs and new industries;

  - Investments in health care will cut costs for families and businesses;

• I inherited a $1.3 trillion deficit. That wasn't me. There is almost uniform consensus among economists that we are in the middle of the biggest financial crisis since the Great Depression. We had to do a stimulus package, and we had to do something about the banks. Those are one-time charges
• We know that the more we do to prevent disease, the more we can obtain serious savings down the road. If we make those investments, we will save huge amounts of money in the long term.
• We can support Social Security benefits by raising the cap on the payroll tax.
• I hope that by working in a bipartisan fashion, we are going to get a health care reform bill by the end of the year, and we'll make the kinds of investments that will make everybody healthier.

2006 Tax Comparisons

The information below for tax year 2006 is from the Tax Foundation "Federal Individual Income Tax Data 07/18/08".
These tables are also available as an Excel workbook.

This page shows a scrolled version of the tables. You can also view a wide format version with no need to scroll.

2006 Tax Data Split Into Separate AGI Slices

(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)	(11)	(12)	(13)	(14)
Slice	Rank	Tax Returns (MM)	AGI Min	Total AGI (B)	Percent of AGI	Tax Paid   (B)	Tax Rate on AGI	Tax Rate Ratio	Tax Share	Slice	AGI Per Return	Tax Per Return	Tax Per Return Ratio
All	100%	135.7	$0	$8,122	100%	$1,024	13%	1.8	100%	All	$59,844	$7,543	2.3
1%	99%	1.4	388,806	1,792	22%	408	23%	3.3	40%	1%	1,320,289	300,893	92.8
4%	95%	5.4	153,542	1,186	15%	207	17%	2.5	20%	4%	218,434	38,187	11.8
5%	90%	6.8	108,904	865	11%	109	13%	1.8	11%	5%	127,532	16,071	5.0
15%	75%	20.4	64,702	1,693	21%	158	9%	1.3	15%	15%	83,147	7,781	2.4
25%	50%	33.9	31,987	1,570	19%	110	7%	1.0	11%	25%	46,265	3,243	1.0
50%	0%	67.9	0	1,016	13%	31	3%	0.43	3%	50%	14,979	450	0.14

This table reports data from the Internal Revenue Service about all tax returns showing positive AGI (Adjusted Gross Income) whether or not any tax was owed.

Each row is data for a "slice" of taxpayers. The usual IRS data reports averages for groups of taxpayers from the top (as shown in the table far below). The IRS data reports on the top 1% 5% 10% 25% 50% and All returns. I split out each slice by computing the difference between groups.

This presentation makes it easy to compare your situation to your "tax neighbors". Are their taxes fair? Should they pay so much less or more than you do?

Read more ...

The first row is for all returns averaged together. The last row reports the 50% of tax returns with the lowest AGI's. The row "25%" reports the next one-quarter of tax returns having higher AGI's. The next higher rows report the one-quarter of tax returns with the highest AGI's.

The "25% row in yellow is the one I use for overall comparison. It is the "middle class" slice, the second one-quarter of returns from the top.

Column (10) "Tax Share" is the one usually quoted in articles. The top 1% of taxpayers paid 40% of the income tax in 2006. The top 10% paid altogether 71% of the tax, amounting to $725 billion.

Compare this to the additional $4-6 trillion in borrowings that the Obama administration wants to spend. That additional spending is 6-8 times as much as the total tax paid by the upper 10% of taxpayers. So, who is going to pay for that additional spending?

A middle class taxpayer with $46,300 of AGI paid about $3,300 in federal tax. $4-6 trillion in extra spending, spread out in proportion among all taxpayers, would require a payment of $13,000 to $20,000 from that person, being 28-42% of one year's AGI.

An upper class taxpayer at the 90% rank now pays 13% of AGI in tax. He would have to pay 52-78% of one year's AGI to pay for the increased spending, if spread in proportion among taxpayers.

Column (9) "Tax Rate Ratio" compares your effective tax rate to your tax neighbor. The middle class, yellow row is set as the standard (set to 1.0), paying 7% of AGI as tax. Note that this is the "whole" rate, 7% of total AGI. It is not the "marginal" rate that is quoted in the tax tables in tax return instructions.

The average tax on the first 50% is a whole rate of 3% on AGI, a .43 fraction of the rate paid by the middle class slice. Someone earning about $130,000 paid a whole tax rate of 13%, which is 1.8 times the rate paid by the middle class slice.

From the Tax Foundation link, 43 million tax returns had exemptions, deductions, and tax credits resulting in zero tax. Some even received money back from the IRS for the Earned Income Tax Credit (and other credits), which are not included in the IRS data. These returns are part of the lowest 50%, but are not split out because they are not separately reported.

Legend:

  (1)  Slice - Groups of taxpayers according to AGI (Adjusted Gross Income). AGI is total income less deductions for such as IRA contributions, and moving and business expenses. You get Taxable Income when you subtract deductions, allowances for dependents, and qualified expenses (eg. child care).

  (2)  Rank - Where each row ranks according to AGI. The yellow row represents 25% of all individual tax returns, and sits above 50% of all tax returns.

  (3)  Tax Returns (MM) - The millions of tax returns in the slice, 33.2 million returns in the yellow slice.

  (4)  AGI Min - The minimum AGI for returns in this slice. Returns in the yellow slice have AGI between $30,881 and the next higher slice ($62,068).

  (5)  Total AGI (B) - All AGI reported in this slice.

  (6)  Percent of AGI - (Slice AGI)/(Total AGI). The percent of AGI contained in this slice. Note that the slices are not equally wide and have different AGI's, so these numbers don't relate easily to each other.

  (7)  Tax Paid (B) - Total tax paid for this slice, in billions.

  (8)  Tax Rate on AGI - (Col 7)/(Col 5). Tax paid as a percent of AGI.

  (9)  Tax Rate Ratio - The effective tax rate for this slice compared to the 7% tax rate for the "middle class" yellow slice. For example, the value 1.8 for the "5%" row says that those people are paying tax at a rate that is 1.8 times the rate for the "middle class". The ratio is 1.0 in the yellow row because we are comparing this row to itself.

(10)  Tax Share - The percent of total tax collections paid by this slice.

(11)  Slice - Repeats (Col 1) for convenience in reading the table.

(12)  AGI Per Return - The average AGI reported for each return in the slice.

(13)  Tax Per Return - The average tax paid for each return in the slice.

(14)  Tax Per Return Ratio - This compares the amount of tax paid by an average individual in each slice, to the average "middle class" return in the yellow row.

 

2006 Tax Data by Upper AGI Groups

(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)	(11)	(12)	(13)
Group		Tax Returns (MM)	AGI Min	Total AGI (B)	Percent of AGI	Tax Paid   (B)	Tax Rate on AGI	Tax Rate Ratio	Tax Share	Group	AGI Per Return	Tax Per Return
All		135.7	$0	$8,122	100%	$1,024	13%	0.9	100%	All	$59,844	$7,543
Top   1%		1.4	388,806	1,792	22%	408	23%	1.6	40%	Top   1%	1,320,289	300,893
5%		6.8	153,542	2,978	37%	616	21%	1.5	60%	5%	438,805	90,729
10%		13.6	108,904	3,843	47%	725	19%	1.3	71%	10%	283,169	53,400
25%		33.9	64,702	5,536	68%	883	16%	1.1	86%	25%	163,155	26,029
50%		67.9	31,987	7,106	87%	993	14%	1.0	97%	50%	104,710	14,636
Low 50%		67.9	0	1,016	13%	31	3%	0.22	3%	Low 50%	14,979	450

This table gives Federal income tax statistics in the usual way, reporting on groups from the top by AGI. For example, column (11) in yellow reports that the top 1% of tax returns collectively paid 40% of all Federal income tax, and the top 5% collectively paid 60%.

This gives a good idea of what is happening to the top 1% or 5%, but it averages together what is happening to the lower groups. This data is recomputed to give the first table above, "2006 Tax Data Split Into Separate AGI Slices".

Why Test? You Are Already in the Hospital

The "Too Sick to be in the Hospital" Test
04/24/09 - Throckmorton's Other Signs by Throckmorton

Bureaucracies are amazing. They divide responsibility and ignore obvious problems to satisfy some grand plan.

It seems that Medicare wants to cut down on unneeded testing. The answer: Don't give the test at all if the patient is in the hospital. That will do it!

[edited] Medicare will not pay for a PET or CT scan unless it is done as an outpatient. If the patient is really sick from their cancer and is in the hospital, they can't have the test, even though it would help determine how best to treat them so that they can get better and leave the hospital!

Diagnosing people is expensive. If they are already very sick, just what is the point? (sarcasm warning)

All people and organizations seek income and avoid costs. Socialized or centralized healthcare is paid up-front and delivers services after the fact. How hard will a system work to earn the money that they have already been paid? This is something that everyone can understand in their gut. A customer is lost without competition for his dollar.

Begging for Medical Care
The bureaucracy sees you as a cost, especially if you have already paid.

A Quick Explanation for the Recession

An Explanation for the Great Recession
03/25/09 - The Angry Economist

Warning. You will need some self confidence to read this explanation. It is short and understandable. You may tend to believe complicated presentations that you don't understand. Really, if you don't understand something, they haven't explained it very well, or they are hiding their own ignorance.

[edited] Austrian Economists can explain this recession in the same way that all the other ones are explained:

[ Sorry, you will have to go to the original article to find out. ]

What is Krugman (the moron) telling us that we need to do? Spend, spend, spend, don't save!

Every REAL economist will tell you that's stupid. Everyone believes Krugman only because he got a Nobel Prize back before his brain failed.

+ + + + +

Cargo Cult Economics
Obama's economic team says "Spend, Spend, Spend". They claim that government spending multiplies wealth. Actually, private spending AND SAVING has the same effect in creating a vibrant economy. Savings don't sit around being lazy at the bank. They provide the means to build businesses, employ people, and buy commercial goods.

We Can't Stop Carbon Emissions

From Peter Huber's book Bound to Burn
04/21/09 - ChicagoBoyz by Jonathan

[edited] We rich people can't make a lasting dent in emissions. We don't control the global supply of carbon.

We can't stop 5 billion poor people from burning the couple of trillion tons of cheap carbon that they have within easy reach. The 80% of humanity in the developing world desperately need cheap energy, and that will drive global carbon emissions. If we are foolish enough, we can impose carbon controls on ourselves that will send jobs and industries to their shores, making them grow even faster, and their carbon emissions faster still.

Ten countries ruled by nasty people control 80% of the planet's oil reserves, about 1 trillion barrels worth about $40 trillion. They can lift most of their oil for a cost under $10 a barrel. They will drill, pump, and find buyers. Oil is all they have.

The bad news is that we will have to adapt, if human production of CO₂ is a problem. We won't be able to stop it. The good news is that CO₂ is not a problem in the first place.

Dispelling the Global Warming Myth
The atmosphere warms and cools because of solar output, not carbon dioxide.

The Global Warming Hockey Stick Hoax
The data and computer models in support of global warming are poorly constructed and don't predict anything.

The Fake History of the Depression

The Fake History of the Depression
04/20/2009 - Mises Daily by Robert P. Murphy

His new book is "The Politically Incorrect Guide to the Great Depression and the New Deal".

[edited] Nobel laureates and presidential advisors proclaim that it was Herbert Hoover's free-market penny pinching that exacerbated the Depression. They say that the economy was saved only when FDR boldly ran up enormous deficits to fight the Nazis. But, this official history is utterly false.

Contrary to what you have heard, Hoover was a textbook Keynesian after the stock-market crash. He cut income tax rates for 1929 by one percentage point and increased federal spending by 42% from 1930 to 1932.

This enormous jump in spending occurred while tax receipts collapsed, due to the decline in economic activity and the price deflation of the early 1930s. This combination led to unprecedented peacetime deficits under the Hoover administration — something FDR railed against during the 1932 campaign!

Hoover spent $4.6 billion against only $2 billion in tax receipts. The 1932 deficit would translate into an astounding $3.3 trillion deficit in 2007 (instead of the actual deficit of $162 billion for that year). Hoover's 1932 deficit was 4% of GDP.

GDP is Gross Domestic Product, or total national income. The official government measures of rising GDP during the war years is misleading. Massive military spending was included in GDP, even though producing tanks is hardly the same measure of prosperity as producing consumer goods.

Normally, when the Fed prints money to buy massive quantities of goods (such as war supplies), the price level and cost of living goes through the roof. The price level is expressed as the CPI, the Consumer Price Index. The government applied price controls during the war. [ Price controls were either ineffective or produced shortages. -AG ]

Say that your salary goes up from $30,000 to $33,000, a 10% increase. But, the cost of what you buy goes up 10% also because of inflation. Your "inflation adjusted" income is still $30,000. The same applies to GDP, which is supposed to measure total income.

Statisticians would normally adjust for the price level to compute the "inflation adjusted" GDP. This adjustment couldn't occur, because the government made it illegal for the CPI to go through the roof. Official measures showing "real GDP" rising during World War II are as phony as the Soviet Union's announcements of industrial achievements.

+ + + + +

Building tanks and bombs doesn't make you rich. Building new infrastructure (bridges, roads, and railroads) only increases prosperity if it is highly useful. Just the building of the structures doesn't do a thing.

A Tested Stimulus Plan
The housing crisis is the result of our last stimulus plan. How do we like it?

Cargo Cult Economics
Spending and saving by individiuals is more "stimulative" than taxing and spending by government.

An Artwork Thought to Have Merit

Thought to Have Merit
06/20/06 - WSJ OpinionJournal by Lionel Shriver

An English sculptor loses his head.

[edited] In this year's summer show at London's Royal Academy of Arts, "Exhibit 1201" is a large rectangular tablet of slate with a tiny barbell-shaped bit of boxwood on top. Its creator, David Hensel, must be pleased to have been selected from among some 9,000 applicants for the world's largest open-submission exhibit of contemporary art.

Nevertheless, he was bemused to discover that in transit his sculpture had gotten separated from its slate base. The Royal Academy had judged the two components as different submissions. They rejected his artwork proper, a finely wrought laughing head in jesmonite. Instead, they honored the slate base and boxwood support. "It says something about the state of visual arts today," said Mr. Hensel. He didn't say what. He didn't need to.

The Royal Academy denies having made an error. The slate tablet and hastily carved wooden support were, according to an official statement, "thought to have merit."

The short piece of wood for supporting the sculpture was quite nice, in its own way. See pictures of the support and the laughing head.

We Must Spend or We Are Going to DIE!

From: Ruling Class
To : Public
Re : We must tax and spend now, or we are all going to DIE!

We don't want to tax and spend (cough), but we must react to the crisis that we have identified. We are going to borrow, spend, and tax reluctantly to support our actions. The alternative is DEATH. No one wants that.

So what if you are poor in the future? At least you will be alive, and we will continue to guide you through supportive government to help you out of poverty. We will create and assign the jobs of the 21st century. Your children will pay most of the taxes, and we are training our children to have the public spirit that will allow them to rule wisely.

We have heard no reasonable argument or plan to do anything else. It is irresponsible for some people to say that there is no crisis, or that our spending will not solve the crisis. If you don't have a plan, worked out in detail, ready to implement, with people in office who support you, then you have nothing to offer.

Who are you? If your ideas were important, you would be in office and be one of us, not part of the public. You didn't care enough to be elected, so don't complain now.

We think that you are complaining because you have some money in the bank. You should realize that most Americans don't have savings, so you are unnaturally well-off.

What you have is one vote, and we have more votes than you do. We are going to arrange for everyone to participate in the American Dream, not just those with savings. Learn to appreciate the simple life, and have some respect for the people who are duly elected.

Less carbon, more community!

--------------
A Tested Stimulus Plan
The housing crisis is the result of our last stimulus plan. How do we like it?

Contact Congressmen, Senators, and the President

Congressmen and Senators

Call the Congressional Switchboard. Ask to be connected to your congressman's or senator's office.

Read more ...

Pay to call:

 202-225-3121 Congressman 
 202-224-3121 Senator

Toll Free:

1   Listed once in sources visited on the web.
2   Listed 2+ times.
**  Listed many times as the main number.
xx  Discontinued.

1   800-417-7666
1   800-459-1887 
2   800-614-2803
2   800-828-0498
2   800-833-6354
1   800-862-5530
2   866-220-0044
1   866-338-1015 
2   866-340-9281
2   866-808-0065
2   877-210-5351
**  877-762-8762
2   877-851-6437
xx  888-355-3588
1   888-818-6641 

Congressmen and Senators
Find web pages for sending email to your representatives.
Also, phone and fax numbers.
 

Contact the President

The White House web page
A web contact page. There seems to be no toll-free number.

Comments:    202-456-1111
Switchboard: 202-456-1414
FAX:         202-456-2461

TTY/TDD
Comments:        202-456-6213
Visitors Office: 202-456-2121

Richard Epstein Discusses Barack Obama

Prof. Richard Epstein Discusses Barack Obama
04/02/09 - TV.NationalReview - Uncommon Knowledge with Peter Robinson (7:23)

Richard Epstein was a colleague of Barack Obama. This video is a discussion between Robinson and Epstein about Barack Obama's talents and shortcomings. The following is my edited transcript.

Richard A. Epstein is the James Parker Hall Distinguished Service Professor of Law at the University of Chicago, where he has taught since 1972.

Peter M. Robinson is a research fellow at the Hoover Institution, and the editor of Hoover’s quarterly journal "The Hoover Digest".

- - -

Robinson: You wrote in Forbes in Oct 2008,

I know Obama through our association at the University of Chicago Law School and through mutual friends in the neighborhood. We have had one or two serious substantive discussions, and when I sent him e-mails from time to time in the early days of his Senate term, he always answered in a sensible and thoughtful fashion.

And yet, for assessing the likely course of his presidency, I don't know him at all.

How can you say such a thing?

Read more ...

Epstein: It's very easy. Obama has the world's most perfect human disposition. He can sit in a room with you, he can listen to you, and he can talk to you, and you really get the sense of a man who is in complete self control.

But, that's the very feature that makes him so hard to read. He is so much in self control, that if he doesn't want you to know in a conversation what he is thinking, you can be there for 30 minutes and never be able to figure out what he believes. You can only have him question you about what you believe. He keeps all of his thoughts to himself.

Robinson: So, he is like Leonard Nimoy, like Spock, the Vulcan in Star Trek.

Epstein: He basically knows how to keep that shield over his face.

It is almost unnerving to talk to him, because you want to say "I agree with you", as opposed to having him ask another question so that he can understand your position a little better.

His speech is completely inconsistent with his political record. As a member of the Senate he had the most left wing voting record of anyone there. More so than people like Hillary Clinton. And that is, of course, the way he moves

Obama worked as a community organizer and was in many cases very constructive. He organized public/private partnerships to help the homeless and downtrodden.

But, the difficulty you get, for someone who has only worked in that situation, is that he believes the creation of private wealth is something the government cannot influence or destroy. He has many fancy redistribution schemes, in addition to his health plan and new labor laws, which are all wealth killers.

He is about to engage in a series of proposals to redistribute wealth that we do not have.

Robinson: You are quoted in the Boston Globe, "I like Obama but I reject the suggestion that he is an intellectual. He is an activist merely mimicking the mannerisms of an intellectual." How good is Obama's mind?

Epstein: His mind is pretty good, but it is a clever "means-ends" mind. He has never written a scholarly article in his entire life.

Robinson: He was President of the Harvard Law Review but never wrote an article.

Epstein: If he did, it was unsigned and not academically significant.

Robinson: Would you ever give him tenure at the University of Chicago Law School?

Epstein: No, no, no. Jody Cantor got this story from somebody, but it isn't true. We did not give Obama a tenured offer. Obama was such an engaging fellow, that we all, including me, would have offered him a tenured track position [not tenured, but leading to tenure if the work is high quality].

We never got to an offer. Obama has a high level of self-knowledge, as much as anyone I have ever met. He realized that he was not cut out for an academic career. It wasn't what he wanted.

Robinson: A headline in Politico last week reads Obama tightens reins on capital and says "President Barack Obama and his allies around Washington are about to give the capital a bracing lesson in one-party rule." Are you surprised?

Epstein: No. It's the same element, Obama is in complete control of himself. He is a fierce competitor and he likes to be in control of his environment.

His positions are not close to the middle, and so he sees no reason to compromise with Republicans unless and until they can mount a veto threat in the Senate. He is very, very dogmatic about his substantive positions. He knows what he believes and he knows why he believes it, and it is extremely difficult for people on the outside to change his mind.

The fundamental mistake of his entire world view is that he treats contracts as devices for exploitation and not as devices for mutual gain, and he assumes that redistribution can take place without any negative impact upon production.

If you live in that kind of a fairy land, which I think he does, every one of his major social and economic initiatives are going to misfire. And, if they succeed, God forbid, in getting through, they are going to intensify the downturn that we have already experienced. He is the wrong guy for the job based on his intellectual format. The question is whether you can force him back.

Robinson: He has a reputation as a brilliant orator. We now know that he will not give even brief remarks, the kinds of things that chief executives from Washington, through Reagan, through even George W. Bush would give with only a note card or even off the cuff, he won't speak without a teleprompter. How come?

Epstein: Same point. He is very much a man who wants to be in total control. The moment you start to improvise, you are like me, and you will start calling the President "this guy", and then you will say no, that's not the phrase I should have been using in this circumstance.

Robinson: Charles Krauthammer described the dinner that Obama attended at the home of George Will with a number of conservative journalists shortly before the inauguration.

Krauthammer said that after Obama left, some stayed around and talked for an hour or so, and they could not decide whether he was a centrist who wanted to throw bones to the Left, or a Leftist who was willing to throw bones to the center. Which is it?

Epstein: The reason they couldn't figure it out is the same thing that I mentioned before. Obama has a sort of stone-faced experience, and it is quite on purpose.

The answer is pretty clear. He is a man on the left who will, if necessary, throw bones to the center. He is not a man from the center. Some of the appointments of his may sound centrist. But again, I just don't believe in this as a serious indicator.

David Axelrod is a high powered politico. He has much more influence on anything that Obama does than someone like Lawrence Summers, who might have much more sense on these economic issues.

How do I know that? Well, I was certainly not there for the conversation. But, when I hear Larry Summers announce that collective bargaining and organized labor produces productivity, I don't treat that as a statement of an independent judgment. I treat that as a sense that if the administration is really strongly pro-labor you have to sort of throw some bones in that particular direction, as an independent advisor, in order to lend a certain degree of seriousness to what's happening.

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The Obama I (Don't) Know
Oct 2008 - Forbes.com by Richard Epstein
About the inscrutable Obama and the bad effects of his proposals.

Leading the People
If You Don't Agree Now, You Will Later
People who want to lead you to a better world want control, committees, and universal participation. We all must pitch in.

Obama and God
When God talks to you through your inner voice, it is even better than prayer. Obama experiences this every day, in his own words.

--------
How a Community Organizer Became President
01/14/10 - TCU Nation by dwood
Via Amused Cynic.

L. David Alinsky is the son of the famous Chicago radical, the late Saul D. Alinsky. The Boston Globe published his letter on 08/31/08 boasting that Barack Obama had made enormously effective use of his training in Saul Alinsky's methods.

David Alinsky [edited]: "I am proud to see that my father's organizing model is being applied to affect the 2008 Democratic campaign. It is a fine tribute to my father as we approach his 100th birthday. My father produced a powerful strategy for initiating change and making it really happen, when executed meticulously and thoughtfully. Obama learned his lesson well."

dwood:  Obama's most significant education was not at Columbia or Harvard Law, but the years he spent training in the Saul Alinsky system for community organizing, and teaching workshops on Alinsky's methods.

A Trillion Dollars On Display

What does one TRILLION dollars look like?
04/01/09 - PageTutor.com

The final graphic at the above link shows the volume of $1 trillion in $100 bills, stacked onto 10,000 shipping pallets. The graphic is 50 wide, 100 deep, and 2 high.

$1 trillion would buy 4 million houses, each house costing $250,000.

Read more ...

Fannie Mae and Freddie Mac are Government Sponsored Enterprises, and the biggest companies in the mortgage market. They borrowed $5.4 trillion to buy home mortgages and package them into bonds. At least $1.5 trillion were sub-prime mortgages, the ones most in trouble now. They set the standards for what was required for a loan. They did this under close government oversight, regulation, and approval. They are essentially departments of the government.

Private banks put together another $1.5 trillion of sub-prime mortgages, all under government oversight, regulation, and approval.

AIG went broke guaranteeing the value of private bonds built on mortgages that were entirely similar to those that Fannie and Freddie were buying and packaging into their own bonds. The credit rating agencies regarded these bonds as AAA, highest quality. Maybe this is why the government felt like bailing out AIG, since AIG was doing exactly what the government wanted it to do when it failed.

It is ridiculous for our legislators to claim that this crisis was caused by a "lack of regulation" of financial services. Consider the following when you hear cries for "more regulation" to keep such disasters from happening in the future, unless you mean more regulation of Congress.

• The losses are concentrated in the institutions which were most directly regulated.
• The regulation was done by congressional and senate committees, and by OHFEO, the requlatory agency created by Congress to control housing lenders.
• Housing loans and housing policy were the most regulated parts of our economy.
• Lenders were doing what the government wanted them to do, using decreasing credit standards for granting loans.

Financial Rescue Nears Value of Total GDP
03/31/09 - Bloomberg.com by Mark Pittman and Bob Ivry

The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s.

This money isn't yet lost, so it is not yet budgeted as an expense. I suspect that trillions will in fact be lost from these "stabilizations" and guarantees.

Spending on "stimulus" and new government programs will increase the cumulative deficit to $9.3 trillion by 2019, in addition to a $1.9 trillion increase in taxes over the same period. The Congressional Budget Office made these estimates. The CBO reports to Congress, and is now directed by the Democrats as the majority party.

It will be your job to pay it all back, or maybe your children's job.

The government isn't helping our country's problems. It caused our financial problems through guarantees and housing policy, and now it is making those problems bigger.

People in the private sector have the knowledge to unwind this mess. The government is discouraging them from acting, through unpredictable policies and massive borrowing that could ruin them.

- -
We Guarantee It
The government is guaranteeing us into poverty.

- -
Visualizing the US Debt
July 2011 - Demonocracy
Similiar graphics showing $1 trillion, and more showing the size of the US Debt. Did you guess higher than the Empire State Building in New York City?

Organic Pesticides Fail Safety Review

Organic Pesticides Fail EU Safety Review
03/30/09 - OpenMarket by Greg Conko

The European Food Safety Authority (EFSA) has rejected 13 of 27 commonly used "organic" pesticides. That organic carrot doesn't look as good any more.

[edited] Many people buy organic food because “they’re grown without pesticides.” That is not true. Organic farmers use a variety of chemicals to control insects and plant diseases, including potentially dangerous substances such as copper sulfate, rotenone, pyrethrum, ryania, and sabadilla.

These “organic” pesticides are derived from minerals or plants, are lightly processed, and thus are considered to be “natural” for use in organic agriculture. Yet, ounce for ounce, most are at least as toxic or carcinogenic as many of the newest synthetic chemical pesticides.

According to the Farmer’s Guardian newpaper, EFSA “has approved just 14 of the 27 organic pesticides put before it … although many have received a derogation for continued use.” Because more stringent rules are due to be promulgated next year, the European pesticide industry expects that more of the organic pesticides will be found unsafe.

Plants Make Natural Pesticides
To confuse the issue, plants produce their own carcinogenic pesticides in amounts that far exceed any residues from the pesticides applied by farmers. Fortunately, they have no significant affect on us. Broccoli, anyone?

Is There a Future for Business Schools?

Is there a future for Business Schools?
03/24/09 - Mises.org by Tim Swanson
This short post supplied the links below.

- - - -

The End of Business Schools?
09/01/02 - AOM Online by Jeffrey Pfeffer and Christina T. Fong

This study has a scholarly approach. They find that it took about one month to convert professionals from other fields into business consultants.

[edited] Available data suggests that business schools are not very effective. Career success does not correlate with having an MBA degree or grades earned in courses. There is little evidence that business school research influences management practice. These results question the relevance of management scholarship.

Consulting firms in the late 1990s found it difficult to compete with high-technology start-ups for talent. They had always hired some people without MBA degrees, but they increased the numbers, to include lawyers, doctors, and philosophers.

Consulting firms had to provide training so these individuals could give advice to companies using business knowledge and language. Many started or expanded 3-week programs to teach new hires the basics. Apparently, it took only 3-4 weeks for people to cover what business schools take 2 years to teach.

Internal studies found that the non-MBAs did no worse and sometimes better than their business school counterparts.

- - - -

MBA Schools Have Nothing to Offer in Our New World
03/25/09 - Bloomberg by Matthew Lynn

A general complaint against business schools. What could they have been teaching?

[edited] The MBA factories took a pseudo-scientific approach to finance. They promoted a mechanistic management style, and they taught a managerial elite more interested in rewards than producing lasting wealth for their societies.

They taught that running a company could be mastered by anyone through a set series of formulas from a textbook. The entire private-equity industry, mergers, and acquisitions are founded on that principle.

Academia largely invented the intellectual tools that led us into the financial meltdown. Complex models for pricing risk created the market for the options and derivatives contracts that have caused so much trouble in the past year.

The business schools took mysterious and unknowable "risk" and tried to make it as easy to count as peas in a pod. They encouraged a generation to go into investment banking armed with the belief that they had mastered risk.

In reality, management is a skill that is acquired through experience, judgment, and flair. Billions are about to be wasted relearning a simple fact that should never have been forgotten.

- - - -

Did Joseph Wharton Cause The US Financial Meltdown?
10/21/08 - Mises.org by Tim Hartnett

A disapproving review of what Americans will support, as long as an MBA in finance is proposing it. If you can't understand what they are saying, they must be smarter than you.

[edited] Americans are raised to believe there can be no such thing as a glut in graduate degrees. We don't think that any form of schooling can do harm.

What are the talents of the guys who rise to the top of established business empires? A good lot of them seem to specialize in finding ways to produce revenue, but not much of anything else.

Well into the 20th century, journeymanship in a business was a natural route to an executive position in big-time corporate America. People with the hands-on experience in mechanics, sales, manufacturing, and agriculture were residing at the top of many fields of trade. As late as the 1950s, entrepreneurs with widely divergent perspectives arising from a vast array of influences and experiences held sway in American industry. Today, those back roads are almost unknown.

The latest line is that government bailouts are good investments. This comes from politicians, ex-politicians, TV personalities, and people who run the cocktail circuit from the west side of the District to the east side of Manhattan.

"Remember Chrysler, we all made out big on that one." is the common refrain. Skeptics might have difficulty recalling it as quite so clear cut. Sure, number three of the one-time "Big Three" is still with us, but who-got-what out of that sweetheart deal remains hazy.

Money passing back and forth between the amorphous blob in DC and listed corporations is as difficult to follow as a shell game. Finding our end of the "profits" is like trying to unravel derivatives. So we take their word that all is soundly managed. Between cigar puffs, the MBAs reassure us that "in five or ten years everyone will be sitting pretty." The public is expected to sit blinking like a corporate mistress in a James Thurber cartoon.

Dispelling the Global Warming Myth

The Dog Ate My Global Warming Data
09/23/09 - National Review by Patrick J. Michaels, senior fellow in environmental studies at the Cato Institute.

[edited] The data needed to verify forecasts of global warming have disappeared. Maybe they were lost or deleted from some discarded computer. A few people know what happened, they aren’t talking much, and what they say makes no sense.

Phil Jones and Tom Wigley authored the first comprehensive history of surface temperature, in the early 1980's. They worked at the United Kingdom’s University of East Anglia, Climate Research Unit. Their paper served as the primary reference for the U.N. Intergovernmental Panel on Climate Change (IPCC) until 2007. It supported the IPCC claim of a “discernible human influence on global climate", a warming of 0.6° ± 0.2°C in the 20th century.

Jones and Wigley used data from ground weather stations not designed to monitor long term trends. Many stations were placed near trees, in parking lots, and near heat vents. Changing urban settings surely biased readings. They modified the temperature data before using it in climate models. But, Jones and Wigley did not report their original data or how thay had modified it.

The Australian scientist Warwick Hughes wondered where the error estimate of “± 0.2°” came from. He wrote Phil Jones in early 2005, politely asking for the original data.

Jones responded “We have 25 years or so invested in the work. Why should I make the data available to you, when your aim is to try and find something wrong with it?”

That response discredits Jones. The entire purpose of looking at scientific results is to discover any errors.

Jones has given out some data, refused other requests, claimed he was restricted by confidentiality agreements, refused to release data to "non academics", and finally claimed not to have the original data because he lacked space to store it.

The story of climate change is based on this data. The history of science has many examples of fraud where data was conveniently lost or was later found to be altered in ways that were mistaken or biased.

A scientist without data is as persuasive as a cab driver. He has an opinion, but no facts to back it up. He is asking for trust. Trust is not a scientific principle of research or discovery.

- -
Heartland Institute 2009 Conference on Climate Change
03/10/09 - Heartland.org

[edited] Global Warming is not and never was a crisis. More than 75 papers and keynote addresses were presented by some of the world's leading climatologists, economists, policy makers, and opinion leaders. You can see videos and Power Point slides for many of the presentations.

- -
The Science Debate About Climate Change is Not Over
08/05/09 - OpenMarket by Marlo Lewis

There are three basic issues in the climate change debate: How much has the world warmed? How much from greenhouse gases? What will more greenhouse gases do? These issues are not settled, not even close, and here is why.

One of many points. The U.S. surface temperature record is supposed to be the best in the world. But, it is riddled with false warming biases. "We found stations located next to exhaust fans of air conditioning units, surrounded by asphalt parking lots, on blistering-hot rooftops, and near structures that absorb and radiate heat. We found 68 stations at wastewater plants, where waste digestion raises the air temperature."

There are nice graphs with medium scientific detail. It is quite readable, or watch the video.

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Global Warming Science is Not Settled
08/31/09 - ABC News by John Stossel

Stossel suggests that government is a poor choice for organizing effective research on Global Warming. His 8 minute video segment on global warming is easy to watch.

Consider that true science welcomes criticism and meets questions with detailed explanations. The claim that "the debate is over" is a mark of arbitrary authority, not the scientific method.

In history, Galileo offered explanation and observation of a solar system centered on the Sun. His government and Church oppressors placed him under house arrest and claimed that the debate was over.

- -
Dispelling the Global Warming Myth
03/22/09 - PowerLineBlog by John Hinderaker

[edited] The Heartland Institute sponsored the 2009 International Conference on Climate Change in New York. The Conference differed from most such events in that it was devoted to science, not politics or propaganda.

See the charts displayed at PowerLineBlog.

• Climate swings of the last 12,000 years. Our current temperature changes have been repeated far into the past.
• Temperature trends. The governmnet run IPCC predicts runaway temperature increases, but where is the trend from the actual data?
• If anything, the climate is cooling. Note that atmospheric temperature bounces around like a playful cat.
• Plot of atmospheric CO2 and atmospheric temperature. There is no correlation, see for yourself.
• Plots of solar radiation and CO2 versus atmospheric temperature. The Sun is doing it, and CO2 doesn't matter.

The most interesting one to me is that last graph of global temperature compared to variations in sunlight and carbon dioxide. Changes in solar radiation are driving temperature change, not carbon dioxide. Who would have thought that was possible (smile)?

Read more to see the graph ...

Click to view at full size.

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The Cause Of Global Warming
11/04/2000 - Lecture to the Wellington Branch of the Royal Society of New Zealand by Vincent Gray, Climate Consultant

Atmospheric temperature must be the standard for determining Global Warming, because ground measurements are dependent on changing local environment.

Roads, urbanization, and even weathering paint in ground stations creates changing measurements that are not consistent with gradually changing environmental temperature.

Gray examines many sources of data to come to his conclusions. Note that this was in 2000! Where is the detailed refutation by the Global Warming proponents?

[edited] Three methods of measuring global temperature show no signs of global warming, but a fourth method does:

• No - Tree rings, sediments and other proxys, for the past 1000 years.
• No - Weather balloons for the past 44 years.
• No - Satellites for the past 21 years.
• Yes - Surface measurements at weather stations.

Surface measurements give an intermittent and irregular average global increase of a mere 0.6°C (1.1°F) over 140 years. Individual records are highly variable and regional. In remote areas they sometimes show no change or even a decrease in temperature.

Temperature measurements carried out away from human influence show no evidence of global warming.

The small and irregular rise shown by many surface stations must be caused by changes in their thermal environment over long periods of time, such as better heating, larger buildings, darkening of surfaces, sealing of roads, increases in vehicles and aircraft, increased shielding from the atmosphere, and deterioration of painted surfaces.

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Global Warming Caused by Humans is a Scam
The famous Hockey Stick graph showing global warming is based on bad data and a political motivation.

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Carbon Dioxide Does Not Drive Climate
01/04/09 - WSJ.com Notable and Quotable
TalkingAboutTheWeather.com by Harold Ambler, via HuffingtonPost

[edited] The theory that carbon dioxide "drives" climate in any meaningful way is simply wrong. Carbon dioxide cannot absorb an unlimited amount of infrared radiation. Why not? Because it only absorbs heat along limited bandwidths, and is already absorbing just about everything it can. (read more)

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Global Warming in 1000 Years
Susan Solomon is a senior scientist at the National Oceanic and Atmospheric Administration, and lead author of an analysis published Monday.

[edited] Absorption of carbon dioxide by the oceans acts to cool the Earth. Release of heat from the oceans warms the Earth. These processes will work against each other to keep temperatures almost constant for more than 1,000 years.

After that, watch out!

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Global Warming: Best Predictions May Be Wrong
07/15/09 - Ace of Spades HQ   (Via Riehl World View)

Gerald Dickens is Professor of Earth science at Rice University.

[edited] There appears to be something fundamentally wrong with the way climate models link temperature and carbon. They do not explain what appears in the geological record.

Climate models explain only half of the heating that occurred during a well-documented period of rapid global warming 55 million years ago, the period known as the Palaeocene-Eocene thermal maximum, or PETM. The amount of carbon in Earth's atmosphere rose rapidly during the PETM for unknown reasons.

Something other than carbon dioxide caused much of the heating during the PETM. Some processes not accounted for in current climate models caused a substantial portion of the warming. These same climate models are used by the IPCC for the current best estimates of 21st Century warming.

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A Troubling Review of the IPCC
04/20/10 - Economist Richard Tol   (Via Don Surber)

[edited]   The IPCC has changed from a scientific institution that tries to be policy relevant into a political institution that pretends to be scientific.

There are more than enough climate activists, while there are too few solid and neutral bodies that make well-founded statements about climate change and climate policy.

The IPCC selects authors and bureau members by political belief, not on academic quality. The member countries are represented by their environment departments, instead of their research departments and academies.

Working Groups 2 and 3 of the AR4 (Assessment Report 4) violated all IPCC procedures. The conclusions are scientifically unfounded in part, and some are even copied from the environmental movement. The AR4 was substantially changed after the final review, even in parts that had already been accepted by the referees. Valid comments were ignored.

AR4 contains crude errors as a result, only some known publicly. These errors are in the chapters, the technical summaries, the summaries for policy makers, and the synthesis report. The errors are not random. Working Group 2 systematically portrays climate change as a bigger problem than is scientifically acceptable. Working Group 3 systematically portrays climate policy as easier and cheaper than can be responsibly concluded from the academic research.

The selection process for AR5 should be suspended until transparency is guaranteed and additional nominations are considered.

The Revolutionaries Ayers, Dohrn, and Rudd

Underground: My Life With SDS and the Weathermen
03/22/09 - NewYorkPost by Ronald Radosh

Mark Rudd worked with Bill Ayers and Bernardine Dohrn to change the world through terrorist violence.

[edited] In 1969, Rudd, Ayers, Ayers' wife Bernardine Dohrn favored "the necessity for violence in order to end the war and also to make revolution." They were fighting "a revolutionary war from within the United States," Rudd explains. When successful, the Weathermen would then build a new revolutionary army staffed by young defectors from the US armed forces.

At some level, Rudd knew that all he was doing was a terrible mistake, but, he writes, "I felt like a member of the crew on a speeding train, dimly aware of disaster ahead but unable to put on the bakes." Rudd acknowledges he was part of a "classic cult, true believers surrounded by a hostile world that we rejected. We had a holy faith, revolution, which could not be shaken."

Their attempts at guerrilla warfare ended with the 1970 New York City town house bombing, which Rudd, Ayers, and Dohrn approved. Rudd is honest about its intent, emphasizing how the bomb they built was meant to kill hundreds of GIs and their dates at a Fort Dix dance. It was, he now knows, a "fantasy of revolutionary urban-guerrilla warfare," done on their own, without police agents provoking them. He and his associates, he ruefully reflects, killed a broad and powerful movement opposed to the Vietnam War, all in the name of a fanciful goal.

Energy Can't Get Here From There

Energy "Plan" - No New Transmission
03/22/09 - ChicagoBoyz by Carl from Chicago

Deception and Policy

[edited] We are allowing our energy infrastructure to deteriorate. The Greens and the Left are disingenuous when they propose their "solutions", because they don�t want to do anything constructive. They decry "old school" solutions like building new coal plants, which are known, sensible and cost-effective. They promote complicated and unproven alternatives.

This New York Times opinion article shows their duplicity by clearly stating that they don't WANT to solve the transmission problem, even if someone could wind their way through the rat's nest of financing, legal issues, and permit requirements. The article is a "confession" of their duplicity.

The US has failed to invest much in generation and transmission assets over the last 25 years. "Base load" generation consists of

• Coal plants -- no one is building new ones because of environmental legislation.
• Hydroelectric plants -- no one is damming rivers due to the Sierra Club.
• Nuclear plants -- far too expensive, regulation is uncertain, and Three Mile Island hasn�t gone away.

Even if all the forces were lined up for building generation and transmission, financing is very difficult right now, and the utilities have little incentive to stretch and fund something that the states could invalidate even after giving all the permits to go forward.

The greens and the Left will sabotage any constructive solution. Remember, they dismantled the completely constructed Shoreham nuclear plant on Long Island, pretty much bankrupting the Long Island utility company in the process. Needless to say, the utility had the permits to build it, but the Left played dirty with politics and lawyers and had it disassembled.

The actual platform of the Left is:

• Do nothing about generation.
• Do nothing about transmission.
• Invest a little bit in distribution.
• Talk a lot about conservation.
• Dance for a few years, let the problem get much worse, and hand it to the next administration. Really, it will go to the states, since the Federal government can't fix the problems, but can make them worse thru legislation.

----
Magic Power
Could they do the magic if they wanted to?

Posts about energy.

Begging for Medical Care

Natasha Richardson and "Medical Capital"
03/21/09 - Blog.Mises.Org by William Anderson

The famous actress Natasha Richardson hit her head in a minor fall while skiing. She developed an increasing headache and serious symptoms that required emergency treatment.

She died from an epidural hematoma, bleeding between the skull and the tough membrane (dura) surrounding the brain. The blood pools, clots, and puts pressure on the brain, contained by the rigid skull. Pressure eventually pushes down on the brain stem enough to shut down neurological functions controlling heartbeat and breathing.

Montreal does not have fast transportation to a primary hospital, even near a ski area. Why not? Patients are a cost to the system.

[edited] Canada has socialist medical care. Socialist systems tend to be undercapitalized, because equipment costs money, but doesn't increase reimbursements from the state. For example, the county where I work in the U.S. has 80,000 residents and has as many MRI machines (internal imaging) as does Montreal with millions of residents.

It took three hours to drive Natasha Richardson from the Mount Tremblant ski area to the trauma center in Montreal, because Quebec has no medical helicopter system. Helicopters are common in the USA.

In Canada, no medical device or advanced service produces income for the hospital, because no one can charge medical consumers for anything. An MRI machine or helicopter is purely a cost in a budget. Medical facilities have only so much money, and the purchase of costly machines removes funds from paying medical workers.

When a hospital in the USA (for now) purchases an MRI, that machine provides an income to the provider as patients use it. It pays for itself by delivering superior care.

Lack of medical helicopter cost actress
03/21/09 - News.Yahoo by Mesfin Fekadu (via Econlog.Econlib) by David Henderson.

[edited] Tarek Razek is Director of Trauma Services for the McGill University Health Centre, representing six of Montreal's hospitals.

Driving to Mont Tremblant from Montreal is a 2 1/2 hour trip. That is the closest trauma center. Our medical system isn't set up for traumas and doesn't match what's available in other Canadian cities, let alone in the States. Not being airlifted directly to a trauma center could have cost Richardson crucial moments. [This is what is available near a busy ski area -amg]

Richardson's initial refusal of medical treatment cost her two hours. Someone called 911 twice from her hotel room at the Mont Tremblant ski resort. She was driven to a local hospital that could not handle head trauma, then to a specialized hospital in Montreal, arriving about four hours after the second 911 call.

David Henderson:

[edited] The essence of "single payer" medicine in Canada is that only the government is allowed to pay for medical care. Thus the term "single payer."

The more serious the ailment, the more stringent the ban, with a few exceptions. So, if you want special treatment for cancer, you can't get it legally, and any doctor or hospital that tries to charge you faces serious penalties, up to and including a prison sentence. In that sense, Canadian health care is one of the most totalitarian systems in the industrialized world. It is far more extreme than the National Health Service of Britain.

That is what the world is like when you are a cost rather than a customer. When you go to an emergency room under socialized medicine, you are a pure cost. Your treatment may be directed by caring people of good will, but the institution is treating you only to raise its statistics, within the budget set at the annual (say) Medical Cost Process Review.

The bureaucracy sees you as a cost, especially if you have already paid. All people and organizations seek income and avoid costs. Socialized or centralized healthcare is paid up-front and delivers services after the fact. How hard will a system work to earn the money that they have already been paid? This is something that everyone can understand in his gut. A customer is lost without competition for his dollar.

Another thought. What would the food be like at a socialized "free" gourmet restaurant run by the government? Would they even wipe the tables? Of course, tipping is forbidden, and please eat everything on your plate.

Did the Canadian health system fail Natasha Richardson?
03/20/09 - KevinMD

[edited] Would Natasha Richardson be alive today if she had gone skiing in the United States instead? I don't think it would have made a difference.

Epidural bleeds are treated by drilling a hole in the skull to relieve the pressure. This often results in complete recovery. However, time is of the essence, and some are wondering if Ms. Richardson would have fared better Stateside.

Community hospitals would likely lack neurosurgical coverage in remote resort areas in the United States. In fact, because of the huge malpractice risk associated with the field, a neurosurgeon might not respond to an emergency call at a community hospital.

It is very likely that Ms. Richardson would have been transported to a tertiary care center if her accident happened here. The difference is that she would have been flown by helicopter, rather than taking hour-long drives by ambulance.

Dr. Crippen in the UK  blames the American wussification of today's doctor. A brave physician would have drilled the burr holes without the benefit of a CT scan (explanation and typical x-rays at the link):

It would be a career making or breaking decision. Few American doctors are brave. Defensive medicine is the order of the day. You cannot have a migraine in the USA without someone ordering an MRI scan.

Had this accident happened at base camp on Mt. Everest in a helicopter-blocking snowstorm, a doctor would likely have drilled. Had this accident happened in a ski resort forty years ago, before CT Scanners had been invented, a doctor would likely have drilled.

Then, a subdural/epidural haemorrhage was a clinical diagnosis. Apparently minor head injury, lucid interval, headache, sudden deterioration in consciousness, a dilated pupil, all adds up to an obvious diagnosis.

Medical technology has deskilled doctors.

The Policies of Bush -- I mean Obama

Bush Did It
03/20/09 - NationalReview by Victor Davis Hanson

What a difference an election makes. (sarcasm)

Obama's policy choices were so much better than the current policies of the hated President Bush  Obama  Bush. Hold on here. Just exactly who is in office? ?

[edited] President Bush was ridiculed today by critics of the Guantanamo Bay detention facility when he suggested that his administration no longer was incarcerating “unlawful combatants,” but was instead in the process of renaming them as mere “detainees.” The President also promised to close Guantanamo “within the year,” and added that he had assigned a “special task force” to look into the matter.

“Orwellian,” the New York Times fumed in an editorial entitled “Just Close It!”: “If the President’s Ministry of Truth thinks that his metamorphosing words change reality, then it is going to be a long four years.

This latest Doublespeak comes on top of the President’s ignoring his past assertions that ‘signing statements are unacceptable’ and continuing the policy unchanged from the Clinton administration.”

The Los Angeles Times joined in, adding, “Remember that Bush promise about posting pending legislation on his administration’s website before signing it into law? Well, somehow several days’ notice has evaporated into 24 hours, and now zilch.”

Much more at the link.

Cause of the Financial Crisis: Left vs Right

Their Mistake Was Trusting the Government
03/13/09 - ChicagoBoyz by Shannon Love

Shannon Love participated in a detailed, interesting discussion of his post about the failure of a small bank and the causes of the financial crisis.

Here is an edited version of what appears at the link. I intend it to be a bit more readable, and intact in tone and meaning. Red marks the comments of Shannon and his supporters. Blue marks the comments of his critics on the Left. Gray marks my editorial comments.

Rep. Maxine Waters was a major investor in OneUnited Bank, which lost heavily on its investment in Fannie Mae and Freddie Mac when they were taken over by the Treasury.

Ironically, she fully supported Fannie and Freddie in her congressional role on the House Financial Services Committee. That committee had oversight and detailed knowledge of what Fannie and Freddie were doing. They supported lending to risky borrowers without verifying the loan applications.

Her experience is an example of what happened to banks worldwide because of Fannie and Freddie and their government supported actions in the housing market.

Read more for the discussion ...

Shannon Love:

For leftists, OneUnited should represent the perfect small, minority owned bank. The “socially responsible” Maxine Waters invested in the bank and sat on its board. There is no evidence that it made predatory loans.

Yet, OneUnited failed, but not due to any short-sighted, greedy decisions of the bank’s management. The bank’s management and board members, including Waters, trusted that the mortgage-backed securities (MBS) issued by the government sponsored enterprises (GSEs) Fanny and Freddie were worth the paper they were written on.

OneUnited is a microcosm of the entire financial collapse. Over the past 40 years, the GSEs have piled up a vast store of toxic assets created by the attempt to get something for nothing, by fooling the market about the risk of residential mortgages.

A "toxic asset" is a loan that is hard to investigate or value. A "good" loan is supported by an honest borrower and by a house with enough value to repay the loan. A "toxic" loan may have a borrower in default or who can go into default, backed by a house of little value or fraudulently represented value. -amg.

Ratings firms gave the GSEs, and the MBS they issued, top ratings because of their implied government guarantee and oversight. Banks like OneUnited bought into the political myth, and now they and everyone else are paying for it.

I regard the failure of OneUnited and other institutions as the result of government action. Leftists need to explain why this is not true. They won't, of course.

Fred Lapides:

So, that explains the entire economic meltdown? Then, why is Greenspan apologetic? Glad to see the SEC, under Bush, and the credit rating dudes are all in the clear.

Shannon Love:

They are not in the clear. But the critical failure, the one that did everyone in, was with the GSEs. If everybody else had performed perfectly, the failure of the GSEs would still have brought down the system.

Look at Maxine Waters' bank. Are you seriously going to suggest that one of the most radical leftists in the congress was playing fast and loose? Should the SEC and other regulators have prevented her bank from purchasing government sponsored securities?

We're paying for 40 years of intentional market distortion. The crisis was caused by issuing too many risky loans. The entire reason for the existence of Fannie Mae and Freddy Mac was to encourage lenders to make loans that the free-market had determined were too risky.

How exactly was the SEC supposed to prevent that?

BGates:

Are you seriously suggesting that being a radical leftist puts Waters above suspicion?

Shannon Love:

No, but it probably puts Waters above suspicion for someone like Fred Lapides.

The sad truth is that no fraud is needed to bring down an institution if they bought into the GSEs. A lot of people fell for it across the financial world.

The basic problem is that the market is like Mother Nature; you can't fool her without paying a price. Government programs tried to trick the market and now we have to pay the consequences.

Andrew Garland:

Fannie Mae and Freddie Mac were specifically put outside the regulation of the SEC.

Congress maintained close oversight of what Fannie and Freddie were doing, and approved of it. Congress created OFHEO (The Office of Federal Housing Enterprise Oversight) especially to regulate Fannie and Freddie. The much larger and more visible SEC (Securities and Exchange Commission) was available, but Congress wanted its own regulator.

OFHEO was captive to House congressional committees, and outside the influence and control of the Bush administration.

This seems unconstitutional to me, but I am not an expert.

The House Financial Services Committee did not object, and actually encouraged more lending to subprime borrowers. Barney Frank (D. MA) has served as most senior Democratic member on this committee at least since 1992, and has chaired the committee since 2007 in the Democratic majority.

There is a long history of Barney Frank proclaiming that all was well with Fannie and Freddie, and no further oversight or inquiry was needed.

"We Guarantee It"
A collection of news and analysis about the causes of the mortgage and financial crisis. How the government directed massive resources into subprime lending by implicitly guaranteeing the actions of Fannie Mae and Freddie Mac.

Zach:

Despite the rating agencies and the role of Fannie and Freddie, there was still considerable private sector action needed to make this crisis endemic to the system itself.

1. Greedy, mostly middleclass homeowners who sought homes slightly outside their means.

2. CDO's which made "too big to fail" a reality

A "CDO" is a Collateralized Debt Obligation. This is a collection of MBS bonds that is bundled together and sliced into layers. Each layer is a CDO bond having a different priority of repayment, if there are losses in the underlying MBS bonds. This complexity is blamed for the current difficulty in "unwinding" the bond obligations and renegotiating the underlying mortgage loans. -amg.

Saying that leftists have to explain themselves is just a hyperbolic, knee-jerk simplification.

Shannon Love:

Blaming financial problems on greed is like blaming a building collapse on gravity. Both are universals that need to be planned for. Creating a system that will fail if people are "greedy" is just stupid.

The central problem here is that government intervention blinded the market to the risks of residential mortgages. The government made it seem safe to buy securities based on bundled mortgages. That is why their use grew in the private sector. Indeed, most of the growth in the industry came about as private institutions took market share from the GSEs.

This isn't a moral problem of greed. The government intentionally destroyed information so that the financial system could no longer calculate risk. Once blinded to risk, the entire system began to come off the rails.

Leftists who extoll the virtues of political systems versus private alternatives should explain why government issued securities proved to be worth less than similar, private securities. If the political system makes such great decisions, then the GSEs should be a financial Gibraltar in a private collapse, instead of ground zero.

Sean F:

The issue is not with greed, which is universal. The issue is with market failure to accurately price risk. The market is imperfect, like any human creation.

Factors such as imperfect information and bad incentives make it more likely for market failure to occur. To oversimplify a little, markets aggregate human behavior and markets are more likely to fail where humans don't know very much and have structural incentives to behave badly. Both of those things were true about the US banking and securitized debt markets.

It is unsurprising that Canada, which regulated CDO and MBS trading in general, has come out of this rather well. It is unsurprising that Iceland has come out of this mess in perhaps the worst shape, whose banking system was run by an ideologue whose favorite thinker was Hayek.

Personally, I think the current economy is a huge problem for the conservative movement in the US.

Here's why. People are remarkably reluctant to admit mistakes. Political opinions and "truths" tend to be formed early and are very resistant to change. Cognitive dissonance (when the real world annoyingly refuses to do what we think it should) actually tends to encourage further denial.

And the conservative movement in the US is in denial right now. It experienced some success with the idea of solving economic problems through tax cuts and deregulation. It then jumped to the unwarranted conclusion that deregulation and tax cuts were the panacea to any economic issue. Predictably, that led to a giant mess.

Now, the movement is in denial and produces convoluted explanations that convince only those who are already conservatives. I think this is good news for the Democrats because the Republicans will lose independents, new voters, and the educated.

The whole effort to paint the GOP as the party of Rush was a masterstroke. It's hard to deny because it's at least partially true. The conservative "base" has only helped the GOP electorally - so far. If Rahm's strategy to make the GOP "base" an electoral liability pays off, we could experience a realignment along the lines of 1980.

So in short: the GOP's attempt to blame the collapse on Clinton, Maxine Waters, and big government is a good strategy -- for the Democrats.

K.J. Webb:

What is it, Sean F, that you think conservatives are denying? If it's the ability of the Dems to make rhetorical hay out of the crisis, you could be right. Politics ain't beanball, as a noted Chicagoan once said. And another notable once said that a conservative is someone who stands athwart history and yells Stop.

But if you're really talking about the roots of the crisis, and not just indulging in schadenfreude, then I haven't really heard you take issue with Shannon's thesis that at the bottom of it all is a government policy, which encouraged making loans to folks who would not otherwise have gotten them, with ensuing moral hazards and unnatural events cascading therefrom.

I'm a Canadian. Right now we're sitting somewhat prettier than we customarily do when we compare ourselves with our elephantine neighbour. However, history matters. Canada didn't have to confect a social policy to deal with a legacy of slavery and a permanent underclass.

It didn't matter so much to Canadians that it was relatively harder for our poor to get credit, not having institutions like Fanny and Freddie. We didn't see the necessity, given that there aren't racial and cultural divides in need of healing.

In big cities like Montreal, the poor and somewhat poor happily rent apartments all their lives and don't think of buying a house. Nobody thinks they need to do this to show that that they've escaped the noose of poverty and racism.

Canadians are inherently less likely to take risks anyhow. This is broadly the cultural effect of a former colony in a northern climate with a great playground for adventure next door. The risk-takers in our midst usually head off south of the 49th [the U.S.]. These are not reasons for national congratulation, particularly, but history and culture matter.

A dose of reality always gets administered by the dismal science [economics] when nature is mocked. It may be hard for a liberal to believe, but conservatives see such effects as validation. As another Chicagoan said [economist Milton Friedman], ideas have consequences

Shannon Love:

Sean F said:
The issue is not with greed, which is universal. The issue is with market failure to accurately price risk. The market is imperfect, like any human creation.

Factors such as imperfect information and bad incentives make it more likely for market failure to occur. To oversimplify a little, markets aggregate human behavior and markets are more likely to fail where humans don't know very much and have structural incentives to behave badly. Both of those things were true about the US banking and securitized debt markets.

I agree with everything in these paragraphs. Where you go off the rails is your lack of examination of why the market failed to accurately price risk.

Let me give you a hint: The commercial real estate market has no government intervention at all, it has some securitization, and it was fine until the entire financial system tanked. You have previously argued that private individuals cannot price risk without the guiding hand of the State. If so, why didn't the commercial real estate market bubble and burst before the heavily regulated residential market?

The market did not price risk properly because the government set out specifically to blind the market to the risk of residential mortgages. The entire point of the creation of Fannie, Freddie, and other GSEs was to hide the risk of residential mortgage lending!

Do I need to repeat that?

You claim that free-market advocates are in denial, but it is you that can't see the problem, even when you type it out yourself. Unless you can explain why 40 years of government intervention in the market did not produce dangerous distortions, you look really foolish.

K.J. Webb:

In a talk show interview, Phil Donahue accused Milton Friedman of basing everything on greed. Friedman pleaded guilty, but asked incredulously whether Donahue really believed that leaders in the Communist world, and politicians in general, operated on some different principle. Donahue didn't have much of a reply except to suggest that virtue would be a better principle.

Doesn't that say it all about the wishful thinking of the liberal worldview? And there is a sinister implication that if you aren't virtuous, then a Robespierre or Pol Pot will see that you get that way.

Tyouth:

The government made securities based on bundled mortgages seem safe. That is why their use grew in the private sector.

When the GSEs changed the rules of the game by backing insecure loans, private institutions figured to stay in the game and began the same loose practices in order to stay competitive and get what they saw as their share of the spoils.

You can call it greed if you want to, I suppose, although it also might be seen as a matter of keeping one's job, a created moral hazard.

Ginny:

In previous booms and busts, weren't commercial properties hit harder than private ones? They would seem considerably more volatile in theory, but they haven't been exceptionally problematic at this time. This may indicate how much more tinkering it takes to increase that volatility.

Sean F:

To KJ Webb:

I think conservatives are denying the responsibility for the economic collapse that occurred under 8 years of a conservative presidency that prided itself on a lack of oversight and a lack of regulation of new financial products. And of old financial products too, like stocks. The SEC went down the tubes.

The excuses go something like this. Bush wasn't conservative (so only successful conservatives are conservative?), and excessive regulation was really the problem.

The problem is that sure, people tend to believe even imperfect explanations if the explanations reinforce their current beliefs, and yes, these explanations might convince conservatives. They're not likely to convince non-conservatives, because they're not very credible. When even Greenspan thinks deregulation was the problem, the old time religion just ain't gonna fly, if you pardon the mixed metaphors.

To Shannon Love:

You are rational and smart, from what I've seen of your posts. Try a thought experiment -- assume you're not correct. Assume that government policy with Fannie and Freddie wasn't the problem that led to the collapse. Don't assume they didn't distort the market -- that would be unrealistic -- but set aside, for a minute, the assumption that their distortion was the trigger.

Look at all the evidence suggesting that something other than Freddie and Fannie was the problem. Give it a fair hearing, no preconceptions. Do what I do. read the rational people you don't necessarily agree with you ideologically. Try Krugman. Read Marginal Revolution. Not everyone's opinion is entitled to the same weight so discount those who, regardless of partisan affiliation, don't have any basis for their opinions.

You may still come out the same way, believing regulation is somehow, as usual, the problem. But you may not. At least you may not be so sure whatever answer you have is correct.

Dave T:

To Sean F:

If deregulation is the source of the current economic problems, then what, specifically, needed to be regulated? If something like risky mortgages needed further oversight, for example, that would put banks and other lenders in a difficult position.

On the one hand, Fannie Mae and Freddie Mac were encouraging such mortgages and willing to buy them. On the other hand, a stronger regulatory body would be telling lenders that they can't do those mortgages.

So, Fanny and Freddie would themselves really need to be regulated. Without Fannie and Freddie to buy those loans, banks would be less willing to take on any risky mortgages. The responsibility for that regulation would fall on Congress, rather than the President. And now, we have the problem that Barney Frank and others prevented any such further restrictions on Fannie and Freddie.

K.J. Webb:

Let me see if I understand you, Sean. You're willing to half accept that the underlying cause of our current problems was government policy regarding Fannie and Freddie. But you think that lots of regulation could have controlled the underlying pathology, permitting the benign aspects of market distortion and suppressing the malignant ones.

That is, poor people would get loans backstopped by the government (a good thing), and the same government would root out all the morally hazardous activity that would otherwise naturally flow from this policy. Voila: the Just Society.

Conservatives don't deny the possibility of crisis, whoever is at the helm. Indeed they think it's part of the structure of reality. Liberals think it's always preventable and always someone's fault, likely someone with evil in his heart, a greedy Republican or Texas yahoo, or both.

Sean F:

To KJ Webb:

First of all, I disagree that "liberals always think it's preventable and always someone's fault." It does not jibe with my experience, but I do get what you mean, and it is probably how conservatives see liberals. Reverse the words and it probably equally and more accurately (in my admittedly biased perception) applies to how liberals see conservatives, especially social conservatives.

Any attempt to "remedy" human behavior through enforced control is bound to fail. Human behavior is, for better or for worse, human behavior. Yes, of course government regulation of private activity, economic or not, always creates its own set of problems.

But one has to maintain a sense of proportion. The solution is not always worse than the problem. Our system of criminal justice is plagued with all sorts of problems. Would you rather have no police system and no criminal courts at all?

Also, I don't think that government policy was "half the problem". The policy probably made it worse. Would regulation of the CDO market have helped? It may not have eliminated the problem but it may very well have. And we came to know about the problems with Fannie and Feddie first, before the full scope of the crisis emerged, only because they were regulated and subject to public disclosure requirements.

Personally, I think you're right. We probably will see some liberal ascendancy as the pendulum swings back a bit. We're also likely to see liberal overreach; the left is just as susceptible to that as the right.

Personally, I suspect the growth of the regulatory state -- police, the SEC, zoning laws, whatever -- is really the result of the increasing and mindboggling complexity of modern life. State action is not a great tool to order human life. I don't know whether my view is shared by most of those on the American left, but I'm certainly not a big fan. I just don't see a better alternative. Some regulation, at least, is essential.

At a (rather pessimistic) minimum one could say that regulation through the political process at least legitimizes outcomes and prevents social instability.

One reason I don't hate taxes as much as I could is that I do think it's the price we pay for civilization. I can't think of one society that has endured as a democracy for a long time without a strong middle class and the attendant lower levels of income inequality that implies.

In my view the naive ones are conservatives who buy into the "research" churned out by think tanks like AEI. They imagine they are living in some heroic Randian free-market Eden with rewards for the deserving, risk-taking, yet honest, small business, salt of the earth, and with justice for everyone else.

K.J. Webb:

Sean, you're one of a vanishing breed - a liberal one could actually have a conversation with. I reckon that's why you're a regular on this site!

I will grant the wisdom of much of what you say about government as a sort of necessary evil, and it being a question of where we draw the line. At the very end of your post you make the natural assumption of all good liberals, that the real goal of the regulatory state is redistribution. You believe that disparities of wealth are socially destructive, perhaps evil.

When you say that regulation "legitimizes outcomes", aren't you really saying that it rigs the deck to get the outcomes which it wants? For only the best of reasons, of course!

That's what makes a reasonable guy like you, one that's half right!, a man of the Left on a continuum that leads to the Naomi Kleins of this world.

Thomas Sowell has written well on the reason socialism never dies. We thought it had been finally discredited some time in the late 80's, but he knew otherwise. The longing for utopia is perennial. So is the longing to soak the rich. I have some of those longings from time to time myself.

Shannon Love:

To Sean F:

Look at all the evidence suggesting that something other than Freddie and Fannie was the problem.

I would point out that your role in this conversation is to provide that evidence. Yet, although I've asked repeatedly for you to provide alternative evidence, you never do so. For example, you should explain why the commercial real estate securities market did not boom and bust.

Instead you make arguments like the following:

Try a thought experiment -- assume you're not correct. Assume that government policy with Fannie and Freddie wasn't the problem that led to the collapse. Don't assume they didn't distort the market -- that would be unrealistic -- but set aside, for a minute, the assumption that their distortion was the trigger.

I have had religious people make this exact argument to me in discussions on evolution/creationism. They ask me to ignore actual science and instead think about the possibilities of their particular religious explanation. I am unwilling to consider a religious explanation for matters subject to scientific study. They claim that this makes me closed minded and a slave to scientific authority.

You've made the same type of argument: You consider it axiomatic that markets will fail without continuous political interference. You take the recent collapse as "proving" your axiom and don't understand why I don't see that. Just like the creationist, you want me to ignore data and instead just adopt your viewpoint as an act of faith.

It ain't gonna happen.

You can't ignore the role of the GSEs (Fannie and Freddie) in the collapse for two reasons:

(1)  The GSEs were huge. Imagine what would happen to the economy if every bit of debt issued by the federal government prior to 2009 had been declared worthless overnight. That is pretty much what happened with the GSEs. If you want me to ignore them, you need to present a stronger, numbers based argument. You need to explain how the economy could have survived such a massive hit.

(2)  You need to explain your position, that even though the GSEs' insolvency preceded the crisis in the rest of the financial system, that the GSE insolvency was actually caused by the failure of the private parts of the financial system, and not the other way around.

I don't insist that the GSEs alone caused all the problems in the world's financial system. Obviously, the GSEs did not cause the problems that German and French banks have in Eastern Europe. However, they did play an enormous role in the damage done to the American part of the system. You have offered me no intellectual or quantitative argument for why I should think otherwise.

You are an honest and thoughtful guy, but I think you have a bad case of leftist insularity. You think it is so obvious that political intervention in the economy is usually for the better, that you don't even understand contrary arguments enough to shoot them down. You fall into the religious type of argument above, because you don't personally know anyone who thinks otherwise.

You believe that we here at a libertarian blog are just gaga over Bush's big-government conservatism. This shows that you really don't understand how we think. You don't address the factual argument we make, instead you invite us to abandon our intellectual constructs and make a leap of faith to join your "church".

Sean F:

To KJ Webb and Shannon:

Thanks for your gracious comments. The reason I read Chicagoboyz is because I find the posts interesting, the dialogue rational, and the posters intelligent. Quite unlike a lot of the blogosphere.

FYI, my aim is not to “convert” anyone. Joining a movement requires loyalty and faith – two things I suspect you can’t afford to have, if you want to think for yourself. I post here for selfish reasons - because debating ideas with thoughtful people helps me think through things, and because I think I can learn more by having a discussion with those who have a genuinely different perspective.

To Shannon:

Yes, the GSEs MBS debt was huge. But why do you think that somehow proves that big government or regulation was to blame for poor decisions at the GSEs? And why do you think that the GSEs' debt is the most important trigger of the entire financial crisis when so many other actors were involved? The real story is more interesting.

1.  Mortgage brokers, all private, are an unregulated part of the financial market with no controls. In the mid-1990s, they began surging growth by targeting high-risk borrowers, to the point that 20.1% of all US mortgages were subprime. They didn’t care about the risk because they repackaged and sold the loans immediately to investment banks. The credit rating agencies were paid to rate, and had an incentive not to upset their customers. They rated the higher tranches of CDO bonds as considerably lower risk than they actually proved to be.

Fannie and Freddie, and private institutions, bundled collections of home mortgages into MBS bonds (Mortgage Backed Securities). Private institutions bundled MBS into CDO bonds (Collaterallized Debt Obligations).

Mortage payments support the repayments of principal and interest on the MBS, and so on the CDOs. The CDOs are divided into layers called "tranches". If there are any mortgage defaults, the "higher" tranches ae paid first, leaving any losses entirely to the lowest or lower tranches. Buyers of CDOs knew this, and CDO tranches were priced accordingly.

2.  The investment banks made a lot of money selling these loans (now smelling like roses) as MBS to international investors. By 2007, the international market for these loans was $1.5 trillion.

3.  AIG and other international insurers sold insurance (credit default swaps) to the buyers of these loans who needed to hedge their risk. AIG probably knew that their risk estimation completely ignored systemic risk, but the money was too good to pass up. Investors thought they were golden because they had high-grade MBS bonds backed by insurance.

4.  This whole thing worked as long as payments were being made. When the economy slowed, payments stopped being made, and the whole system came crashing down, because the risk estimation, from everyone, was completely off. Some people, certainly the mortgage brokers, knew this from the start. But they didn’t have the right incentives to care, not when so much money was to be made in the short term.

Who came out ahead? According to the Prospect article below, the executives and officers of some mortgage finance companies cashed out before the market crashed.

• The poster boy is Angelo Mozilo, the CEO of Countrywide Financial, the largest sub-prime lender. He made more than $270 million in profits selling stocks and options from 2004 to the beginning of 2007.
• The three founders of New Century Financial, the second largest sub-prime lender, together realized $40 million in stock-sale profits between 2004 and 2006.
• Paul Krugman reported in The New York Times that the chief executives of Merrill-Lynch and Citigroup were paid $48 million and $25.6 million last year.

But they are just poster boys. The financial services industry made a killing by packaging sows ears as silk purses.

And where do the GSEs come into this? They were a part, but not the central part by a long shot. In 2000, Fannie, a "mortgage insurance" company, made a fateful decision to expand into sub-prime, relying on computer models to manage risk. Why? Politics. The Bush Administration wanted to expand home ownership, and the Democrats were not going to complain. If you want to be a cynic, the real explanation is supercharged stock prices. Franklin Raines was the CEO of Fannie for a while. He made $90 million between 1998 and 2004.

In 2004, Angelo Mozilo of Countrywide threatened to end it’s partnership with Fannie unless Fannie bought Countrywide loans. In 2003, Fannie had lost 56% of its business to competition from Wall Street banks. Also, Mozilo was a major GOP donor and player. The new CEO, Mudd, caved and agreed. Between 2005 and 2007, the company’s acquisitions of mortgages with down payments of less than 10 percent almost tripled. By 2007, the whole thing came crashing down.

Fannie wasn’t the cause of the crisis. It made the crisis worse because it was captured by unregulated mortgage brokers like Countrywide, who used it for their own short term profit.

See The NYTimes: Fannie, or more generally The NYTimes: The Reckoning.

Who is really responsible? Very poor structural incentives, a belief in deregulation for the sake of deregulation, a complete failure by the Bush Administration, and unwarranted faith in the ability of free markets to fix their own failures despite all the causes for market failure being present.

If you can get past the partisan language, the authors of the Prospect article below think conservative dogma had a major part to play in this crisis, and they make good factual points. An early analysis, from 2007 is eerily prescient. Looking back from 2009, they were dead on.

The American Prospect: Conservative Origins of the Subprime Mortgage Crisis

Shannon Love:

Yes, the GSE MBS debt was huge. But why do you think that somehow proves that “big government” or “regulation” was to blame for poor decisions at the GSEs?

Because they were government creations.

• They operated under an implied government guarantee that allowed them to borrow money at around half the cost of private actors.
• They operated under a custom set of laws and accounting regulations established by congress purely for the GSEs.
• They were created solely for the purpose of distorting the market to encourage the making of loans that the free-market judged as too risky.
• There is simply no way that their distortions of the market and their eventual catastrophic failure cannot be laid at the feet of the political system.

I don't think you understand just how huge the GSEs were in terms of market share of the MBS market.

Since the late 1980's, the GSEs bought at least 40% of every residential mortgage issued in the U.S. That grew to 54% by 2003, when they got busted for corruption.

Unlike in the private sector, most of those mortgages were bundled into MBS. The accumulation of these long term MBS means that 60%-70% of all MBS in the market today were issued by the GSEs.

Almost every company that went broke due to MBS, such as Waters pet bank, did so because they bought government sponsored MBS. Had the GSEs remained solvent and their MBS retained their value, we would not now have a major crisis even if every private issuer failed.

That is one reason why the GSEs and the political complexes that created them bear the lion's share of the blame in the crisis.

I would point out that when it came to the regulation of the GSEs, the Democratic and Republican roles reversed. Bush tried on 18 separate occasions to bring the GSE practices in line with those of private issuers. The Democrats shot him down each time. This is especially important because the GSEs did not have the external discipline of the market as private actors did. They really needed political oversight.

The GSEs had the implicit guarantee of the government. Private banks would lend them money, buy their corporate bonds, no matter how risky was their inventory of mortgages. They could do what they wanted unless restrained by government regulation. But, the oversight committees encouraged further and riskier purchases of subprime loans. -amg

Mortgage brokers, all private, are an unregulated part of the financial market – no controls.

This is not true. All private mortgage issuers operate under the same set of federal and state laws. Countrywide and a small town bank all operated under the same laws. But, mortgage brokers didn't have the same free-market limits as did small banks that kept their mortgages in house.

In the mid-1990s, they began surging growth by targeting high-risk borrowers – to the point that 20.1% of all US mortgages were subprime.

Well, here the government played a role. It doesn't take a genius to know that high risk borrowers are more likely to be people in the bottom half of the income distribution. These are exactly the people that the Clinton administration sought to help by leaning on banks and by empowering leftist organizations to sue banks for discrimination.

This led to changes in long standing lending standards evolved in a free-market. Banks can't legally discriminate between borrowers, so changes in lending standards for some borrowers became changes in standards for all borrowers. Again, a government intervention drove a change that the free-market would not have made, because subprime loans are too risky.

They didn’t care about the risk because they repackaged and sold the loans immediately as MBS to investment banks.

You left out a part. It should read, "They didn’t care about the risk because they sold the loans to the GSEs which repackaged and sold the loans immediately as MBS to investment banks."

The GSEs were created specifically to sever the issuing of a mortgage from the risk of holding it. The mortgage brokers, both pure brokers and banks who acted like brokers, were not bugs in the GSE system, they were its intended agents!

The entire point in creating the GSEs was to induce banks to make loans that the free-market judged as too risky. To this end, they induced mortgage issuers to pay attention only to whether they could sell the mortgage to the GSEs.

The GSEs, with their government backing and political mandate, grew less and less concerned about the risk of the mortgages they bought. The entire risk assessment system of the residential mortgage market broke down. Which, again, was the point of creating the GSEs in the first place.

1.  The credit rating agencies were paid to rate, and had an incentive not to upset their customers. They rated the higher tranches as considerably lower risk than they actually proved to be.

There was no significant residential MBS market prior to the GSEs. No private MBS issuer could assure buyers that the securities would retain their value. The government stepped in to address this "lack" in the market. Only after the GSEs had been issuing such securities for nearly 30 years, did private institutions find they could also issue them.

The GSEs conditioned the market to treat MBS as safe investments, an intentional distortion. The private issuers used the same risk assessment methods of the GSEs. The rating agencies gave good ratings to the GSEs based initially on their [implicit, not formal] government backing, so they had no reason to downgrade the private issuers.

Again, without GSEs, there would be no high rating for MBS. The industry would not have developed on its own to the scale it did.

2.  The investment banks made a lot of money selling these loans (now smelling like roses) to international investors. By 2007, the international market for these loans was $1.5 trillion.

The GSEs did this first. You imply that the private MBS issuers where doing something different and irresponsible when in fact they were following the GSEs. And again, the accumulation of GSE MBS was so large that even if the private issuers remained solvent, the failure of the GSEs would have destroyed the system.

3.  AIG and other international insurers sold insurance (credit default swaps) to the buyers of these loans who needed to hedge their risk.

Which would have worked if the GSEs had not collapsed. We see private actors using the statistical models of the GSEs to assess risk. Had the GSEs not existed, this market would not have existed or it would not have grown so large.

4.  This whole thing worked as long as payments were being made. When the economy slowed, payments stopped being made

That is wrong. The whole system worked as long as the market value of the properties backing the MBS stayed up. When those values tanked, the MBS became worthless. It had little to do with the money coming in the door. Instead, the accountants downgraded the value of the GSE issued MBS to near zero. Anyone who held those MBS as assets found themselves technically insolvent, such as Waters' bank.

In 2000, Fannie, a mortgage "insurance" company, made a fateful decision to expand into sub-prime loans, relying on computer models to manage risk. Why? Politics. The Bush administration wanted to expand home ownership, and the Democrats were not going to complain.

You need to check your dates. Bush assumed office in 2001 and Fannie and Freddie had both been increasing their subprime lending since 1995. Bush certainly wanted to increase home lending, all politicians do, but when it comes to oversight on the GSEs, Bush is clearly on the side of the angels. He tried 18 times to reform their practices, but got shot down by the Democrats every time. The record on this is very clear.

The damage to the market was already done by the time Bush came into office. All of the trends that would lead to disaster were already running. Had Bush gone to the mat to restrict lending to home buyers, who would have supported him? Certainly, not the Democrats.

Fannie wasn’t the cause of the crisis. It made the crisis worse because it was captured by unregulated mortgage brokers like Countrywide, who used it for their own short term profit.

Fannie and Freddie did cause the crisis, because they created the entire residential MBS market along with the intentional alteration of the perception of risk.

• Had they never existed, the residential MBS market would be small and stable like the commercial MBS market.
• Had they never existed, there would have been no mortgage brokers or banks acting like mortgage brokers.
• The American Prospect article simply ignores the creation of the GSEs as instruments of market distortion.
• It ignores the role of the GSEs in the rise of the mortgage broker.
• It ignores that the mortgage industry is the most heavily regulated part of the financial sector.
• It ignores that the volatility of the mortgage industry has increased as regulation has increased.
• It ignores that the least regulated sectors work just fine, such as commercial mortgages.

I've read dozens of articles, blog posts, and comments from the leftist perspective, and none of them address any of the complaints of the free-market perspective. Indeed, just like the articles you link to, they don't give a hint that they understand the crucial free-market role of prices as a means of communicating information such as the risk of mortgages.

Instead, they see a moral drama, a narrative, in which the noble and altruistic leftist restrains the greedy and stupid business people. The entire story is not a technical examination of a system, but a morality tale with the conclusion that one political group should be dominant over the other.

If you want to criticize free-market types, conservative or not, criticize us for not recognizing the market distortions and responding accordingly.

• We should have pushed harder and sooner for more oversight of the GSEs.
• We should have forced rating agencies to asses the risks of private MBS without regard to the GSE versions.
• We should have destroyed the GSEs.

In the end, we collectively produced this problem by wanting something for nothing. We wanted houses, but we couldn't accept the verdict of the market that we couldn't afford them.

Our short sighted politicians gave us the easy answer of tricking the market. Back in the 70's, we built our housing policy around the guarantee of the Federal government, to hide the risk of mortgages. We were going to have a major problem. The market cannot be fooled forever.

Sean F:

You're saying that the GSE's distorted the market perception of risk and created the problem. That view allows you to sidestep any responsibility for private actors, and retain your trust that unregulated free markets don't fail.

But consider, if the GSE's were mostly responsible for the bulk of the crisis, then the commercial MBS market should be fine. After all, you claim it is the GSE's that are the major source of the distortion. So a market subject to the same forces but without the GSE's should be fine, or at least much less affected.

And therein lies a problem. The facts. The commercial MBS market is as dead as a dodo. See Commercial Mortgage Alert for a rather depressing roundup of the current news.

The above link is to the front page of a blog on mortgage news. The headlines change over time. It is not directly possible to identify the source of Sean F's conclusion. -amg

Perhaps one could jump through a few more hoops and come up with yet another explanation that somehow implicates the GSE's. I'm sure it might be fun to try. But at some point, you run into Occam's razor.

For most of those without the faith that markets can effectively self-regulate, anyone not part of the conservative movement, the simpler explanation is probably correct.

The conditions for market failure were ripe. The market failed. That doesn't mean markets are bad, they're great, better than most other forms of economic ordering.

But they're not perfect. Lowering taxes and trusting in the market doesn't always work. Deregulation or non-regulation can sometimes lead to an incredible amount of value destruction and market failure. It isn't always good.

I think this is very hard for the GOP to accept. Goes against the dogma. I think the party needs some more electoral drubbing before that happens. Sort of like the Democrats and welfare reform.

Shannon Love:

If the GSE’s were mostly responsible for the bulk of the crisis, then the commercial MBS market should be fine.

I will turn the question around in two ways.

First, if the free-market is to blame, why didn't the commercial real estate market exhibit the same rabid boom, and why didn't the commercial MBS fail? If your model is true, we should expect to see a correlation between the degree of government intervention and oversight and the stability and reliability of the market. Instead, we see the opposite, in many different financial sectors.

Second, if the free-market is to blame, why did the GSEs fail? They were and are government creations operating under special laws and with government backing? If any government agency should have been able to judge the systemic risk of the residential mortgage market, it was the GSEs. Why didn't they see the problem years in advance and limit their purchases to safe mortgages?

Why did they fail before the private entities? Why did their failure bring down so many otherwise solvent private entities? If government regulation is so good and great, why aren't the GSEs safe harbors in a financial storm, instead of the eye wall [most destructive part] of the hurricane?

At best, you are arguing that the politicians you place so much faith in are no better at managing risk than the free market. At worst, the political intervention created the problem.

And, I will answer your question directly. As a leftist, you have a hard time understanding that conditions alter economic behavior, especially government force. The GSEs distorted the entire residential mortgage market and altered the behavior of all actors in the market, whether they dealt directly with the GSEs or not.

Almost all players did deal directly, either selling mortgages to the GSEs 50% market share or buying their MBS or stock. The GSEs altered the standards and practices of the entire industry over the course of 40 years, as they were designed to do.

Even if private companies had done everything right (which they never do), the failure of the GSEs would have brought the system down, and they were certain to fail. The cost of distorting the market had to be paid eventually.

Without GSEs, there would be no failure. Without the example of the GSE MBS, no private company would have gone into the business, because no private buyers would invest in such risky securities based on only the assurances of a private issuer.

No private issuer could purchase the large numbers of mortgages needed to get statistical protection against mortgage defaults. It took the enormous pockets of the federal government to get the ball rolling. Only after two decades of large scale government backed MBS flooding the market, could private issuers get a foothold by using the same standards as the GSEs.

The GSEs are the elephant in the leftist parlor. You are sitting around sipping tea and leaning around the elephant to talk about the failure of the free-market. You won't acknowledge that it's your elephant that you brought to the parlor. You won't even admit that it died. Its comical.

The market failed. That doesn’t mean markets are bad. They’re great, better than most other forms of economic ordering. But they’re not perfect.

Perfection is for leftists and their utopias. The only thing that free-marketers assert is that the free-market is more robust than political meddling. The failure of the GSEs and the politically regulated markets, and the stability of the unregulated markets bear this out.

Markets fail, but they fail small-time. It takes the power and enormous scope of government to wreck an entire economy.