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Zero Hedge

Romney: [The] former head of Goldman Sachs, John Whitehead, was also the former head of the New York Federal Reserve. And I met with him, and he said as soon as the Fed stops buying all the debt that we're issuing--which they've been doing, the Fed's buying like three-quarters of the debt that America issues. He said, once that's over, he said we're going to have a failed Treasury auction, interest rates are going to have to go up. We're living in this borrowed fantasy world, where the government keeps on borrowing money. You know, we borrow this extra trillion a year, we wonder who's loaning us the trillion? The Chinese aren't loaning us anymore. The Russians aren't loaning it to us anymore. So who's giving us the trillion? And the answer is we're just making it up. The Federal Reserve is just taking it and saying, "Here, we're giving it." It's just made up money, and this does not augur well for our economic future. You know, some of these things are complex enough it's not easy for people to understand, but your point of saying, bankruptcy usually concentrates the mind.

And that is how the Fed effectively took over control of the United States, as without it, it is game over. This is also why the ongoing presidential election is a farce, and has absolutely no bearing or significance for the future of the US, whose true ruler does not reside at 1600 Pennsylvania Avenue, but instead holds America hostage in a powerful Stockholm Syndrome grip from the deep recesses of the Marriner Eccles building located, paradoxically, on Constitution Avenue.

Don't worry though: like any "true democracy", the real "leader" of the nation will never be eligible for popular vote. Ever.

This is the last beleagured, overwhelmed, line of defense of our welfare state. When people with money worldwide realize what's happening, they will be forced by economic reality to stop accepting dollars. When people with money to lend won't prop up the government, and people with things to sell won't accept dollars, the whole thing falls apart, and it's going to happen unbelievably fast.

Something I feel the need to point out when people talk about current issues with the real estate market, for instance, housing prices fall yet again, mortgage rates hitting new lows yet again or the Federal Reserve indicating a need to keep returns low

Q: What happens when you artificially restrict demand (in this case by preventing large numbers of people from qualifying for a mortgage)

A: The price falls until it's low enough that the market will absorb the supply. Profits (return for mortgage investors) becomes non-existent. Money moves elsewhere. Because the supply of people who *don't* need a loan for property is limited to the rich, few people can buy homes. Prices for real estate fall.

Q: What happens to people who move their money from becoming mortgage investors to real estate investors?

A: As prices fall, the same money buys better properties. Capital returns become minimal, but rental returns become very attractive on their own as people who are prevented from buying are forced to rent, driving up demand for, and therefore price of, rental properties.

Q: What happens if you remove those restrictions (Dodd-Frank, et al)?

A: The above trends reverse. Those already wealthy people who moved their money from mortgage investment to real estate investment see massive capital returns as those formerly shut out return to the market.

Q: What is the net effect of this?

A: Massive wealth transfer from those consumers less well off to those with larger financial reserves, including major financial corporations.

Q: Ignoring what the politicians involved say, can I find in their actions any difference between those actions and a directed "evil plan" or conspiracy comparable to those hatched by any number of bad movie villains?

A: Thus far, those involved have gotten away with it.

Otherwise, no

I also feel obliged to point out that even if Dodd-Frank is never repealed, the intended beneficiaries are reaping large gains and will continue to reap them.

UPDATE for clarity

Q: Are the actions of these politicians a credible method of attaining what they say they want - protections for consumers, punishment of those responsible, and avoidance of a repetition?

A: No.

Caveat Emptor

Make no mistake - it was an assassination. Team of heavily armed men hired by a group breaking down the door with orders to shoot him dead rather than capture. The only difference is instead of wearing business suits and acting on the orders of the head of a mob "family" or of those of a drug cartel, these men were United States Navy personnel, acting under the orders of a lawful chain of command that reached all the way to the top levels of the US Government.

I'm not certain I disagree with whomever gave the kill order. That's not the point. The point is that this is official, even bragged about evidence for the entire world to see that the United States considers assassination to be within the legitimate tools of war. Whatever past misdeeds have been committed in this way (and its probably a larger number than you're thinking), there was always at least a thin layer of official deniability. Everyone concerned may have known the United States did it, but it wasn't officially touted as something ordered by the lawful legal chain of command publicly. If some group in the future wants to consider assassinating the President of the United States (or other officials), the assassination of Bin Laden is going to be cited as official evidence that we think it's within the rules of war.

I don't think that's an entirely Bad Thing, because there is a good case to be made that if war has personal consequences for those who order it, there's likely to be a lot less of it. However, whatever beneficial things we may get (like putting the fear of a bullet into Khaddafy or Kim Jong Il) could have been gotten with a less political operation. The bad things are almost purely the result of the high profile political nature of the announcement. Had, instead of the President himself making the announcement by breaking into prime time television, a lower level government spokesperson had mentioned something like "We have come into the possession of Osama Bin Laden's body" in a routine press conference, with carefully controlled details limiting the apparent extent of our involvement, it would have been far better for all concerned once the dust settled.

I assure you, the rest of the world sees the warts on the United States at least as clearly as we do. When we do something like this, we remember. Even though they may be celebrating with us now, our allies and Osama's other enemies will remember later on. There will be consequences to this. Given the number of people trying to have President Bush or Vice President Cheney arrested and tried in other countries for alleged crimes against humanity, I think Barack Obama may be well advised to restrict his travel itinerary after he leaves office, because whatever evidence or lack of it there might be against officials of the Bush administration, the evidence against the Obama administration will be henceforth much stronger. Furthermore, there will be diplomatic consequences for the worse. No other nation that I'm aware of has ever officially acknowledged - let alone bragged - that it did something like this. The Israelis have done a number of snatch raids with the object of bringing the targets in for trial, and government assassination is as old as government, but never has an assassination been celebrated by a Head of State in a public and official manner. Since at least the Treaty of Westphalia in 1648, assassination has been officially verboten by international law, and while violations have been frequent, they've all had at least a thin layer of official deniability built in - until now.

What are Pakistan's thoughts on the matter? They have been at least a sometime ally in the war we have been fighting since 9/11/2001. Their territory has violated, troops moved in, a building in the suburb of their capital torn apart by gunfire, and people under the protection of Pakistani sovereignty killed (you know, the other people, some of whom were legally Pakistani residents or citizens). Pakistani jets scrambled looking for the invaders - it was good luck the American helicopters managed to avoid them. Suppose Canada sent troops on a mission of this kind onto US soil? Suppose Mexico did - what would our reaction be? Suppose the Canadian Prime Minister or the President of Mexico went on national TV and gloated about it, as Barack Obama did? The argument has been made that Pakistan has been aiding and abetting Al-Qaeda. Well, if so, what are we going to do about it? (Given the current status of US forces and finances, I don't see what can be done about it short of turning Pakistan into a nuclear wasteland. Our forces simply have too many other commitments). And if they have not been in fact assisting Al-Qaeda, how do we justify what we did to them? This is a deadly insult to their national sovereignty, far more than it would be to ours because of the nature of their dominant culture - more devoted to "face" than ours. Especially given the way we pressured the last leader of Pakistan to depart, I would be inclined to the viewpoint that Pakistan will extract it's payback. And they are a nuclear power themselves.

Personally, I cannot help but be glad Bin Laden is dead. Intellectually, I'm appalled by this. However, the fact remains. I am human with human emotions, not a robot. I can't turn it off. I could ignore it, I suppose, but that would add self deception to the list of failings. I wasn't glad when Saddam Hussein was hanged - it needed to be done, but there was only a sense of "that's over". Ditto any number of other world malefactors with far worse crimes against humanity than Bin Laden (most of whom died natural deaths in their beds, unfortunately). But Osama Bin Laden was personal, somehow. My only direct connection with anyone he killed directly was that my E&O folks were in the World Trade Center, and "You killed my insurance agent!" just doesn't resonate as a reason to kill someone. But I do feel a connection to the people he killed and their families. It very well could have been me or mine. "There but the grace of god go I." Maybe I will pay somehow for this failing in whatever afterlife there may be. If so, it will be a legitimate collection.

If you are one of those who has been condemning "assassination squads" loudly and clearly while Bush was president, and have not yet condemned this assassination, or have even spoken in favor of it, I think we can safely conclude that your real motivation was political party of choice - raw naked political partisanship. I'm not exactly happy about assassination squads under anyone, but I have to admit there are times it is necessary to the interests of the United States and far less costly in terms of lives than any other alternative. I am not pleased, however, at the official sanction this one has been getting. It may be necessary to do occasionally, it isn't ever necessary to rub the face of the rest of the world into the fact we did it. In fact I can think of no beneficial aspect whatsoever to said face-rubbing.

Had the administration been content to make a low profile announcement, that took no official credit for the kill, the interests of the United States would have been better served. By turning it into an official circus for political gain, Mr. Obama has damaged the interests of the United States in furtherance of his own political career.

This year there's a lot of political energy being expended in the name of ousting big government incumbents from office. That's treating the symptoms of the disease, not the disease itself.

It's tempting to humanize the problem, to say "If we get rid of that problem personality incumbent, the whole situation will clear itself up." It's also false in this case because the entire system that has evolved puts all of the individual incentives for those in charge of spending our money to spend more of it.

Some of those incumbents are real problems. But as much as it would please me to write their political obituaries, they are symptoms, not causes. Furthermore, modifying the system is much more difficult. Easier by orders of magnitude to turn the current Public Rascals of the day out of office and declare the problem solved while the real issue continues to fester. We've been doing this since the election of 1980 at least, and while Ronald Reagan and his administration did a lot of good (mostly on the tax side), even they didn't begin to address the real problem, which is the way our budget is written and the public money is spent.

Furthermore, every time we have succesfully traded in a group of politicians who were bigger problems for another group who were slightly less of an immediate problem, those whose interests are in the status quo have gotten better at defending that status quo: better at making going along with them seem like the politically viable, smart thing to do better at subverting the new people to become just as much of a problem as the old group ever was, better, in short at continuing and enlarging the siphons of money moving from the US Taxpayer into the pockets of those who want it.

Our budgetary process is one huge tragedy of the commons. All of the incentives for individual law-makers are on the side of approving funding for everyone who asks. They say yes to interest group A, they have supporters - at least until the next allocation. They say no, they have people who will work against their defeat forever. Given the narrow political margins on which most elections are decided, having even one or two tiny groups working against you is often the margin of victory or defeat. Nor is it a realistic expectation to expect substantial portions of Congress to voluntarily leave after one or two terms, or ever, and even if they were required to leave after a certain number of terms, this would still be the situation they faced for re-election until they hit their term limits. Frankly, given the ease with which even a small number of Congresspeople can mandate a large amount of spending, term limits are no solution at all to this problem.

Many, if not most, of these interest groups are in favor of worthy, beneficial causes worthy of support. But going back to the original example of cows on a common meadow, producing and having those cows was a good thing, too. Lots of beneficial things come from cows - beef, milk, fertilizer, and future cows being particularly noteworthy. All of these are important and beneficial to the people who keep cows, and the people who buy their products. But there are only so many cows a given piece of land can support, and if more cows are pastured on the land than it can support, not only do the cows fail in the production of the goods for which they are being kept, but the land itself can be ruined to the point where it cannot support as many cows as it originally could - and in some instances, becomes incapable of supporting any cows at all.

The political landscape for the last several decades at least is one that environmentally favors unrestrained spending. It is in each Congressperson's individual interest to support taxing the country as much as they possibly can, and once that limit has been reached, borrowing as much as possible against future tax revenues in order to finance continuing that spending. We have gone forty years straight without once balancing a federal budget.

None of this is news, or rather, none of it should be news. There have been those trying to call attention to this situation since the early 1970s, at least. It's just that the scale of the problems it has caused has finally gotten so large that they can no longer be denied. But a single orgy of suddenly throwing out a few particularly egregious contributors to the problem will not solve the structural problem with the system.

In the aggregate, people will follow the individual incentives. There will likely be a few that do not - individuals in Congress I can name that do not follow this system of political patronage, or at least, do so less than others. But the supply of saints is strictly limited, and one of the great constants of the last 20 Congresses has been that a supermajority of each and every Congress in the last forty years has followed this system, and this constant is not likely to change. So long as the individual incentives are for Congresspeople do do this, they will.

If we are to survive as a country, it is precisely those structural problems favoring spending that we must eradicate. We must enact meaningful, external controls upon the power of Congress to spend. There has to be an overall limit to what Congress is allowed to spend. The point is not to say, "Congress may fund this but not that". That's one of the things we elect them for, one of the things they conduct such costly job interviews (known as "political campaigns") in order to land the job of congresspeople. Furthermore, putting hard limits into law and various Constitution-equivalent documents around the world have a tendency to lock governments into increasingly ridiculous numbers if they are too low, or encourage even faster government growth and over-use of resources if set too high.

The ability of Congress to set healthy overall limits on spending has, however, been proven to be structurally broken. I think that Congress is the only possible arbiter of how to allocate the public funds available, but they do not necessarily need to remain the ultimate arbiter of how much is available. Any effective control is going to require constitutional amendment, making it problematical to get through Congress, but nonetheless necessary if we are to prosper as a nation in the future. The current situation where everybody is apparently entitled to an unlimited money siphon from the wallets of the American taxpayer cannot continue. If the situation continues, we will see more individual Americans leaving for greater economic opportunity elsewhere, following the corporate diaspora that has been taking place for decades for precisely these same reasons. The result? The United States becomes a permanent economic basket case, if not dissolving altogether. This is becoming a possibly imminent concern, as our public obligations are on the verge of overwhelming our ability to pay already.

We need someone or some group that can say "This is the limit of what you can spend" and make it stick. I can make any number of suggestions as to how to solve this problem, and others have been made already.

  • investing an overall spending limit veto in the office of the President
  • investing an overall spending limit veto a newly created office, elected nationally with only the powers needed to enforce such a veto
  • a committee appointed by state legislatures or state governors
  • an emeritus committee of presidential economic advisers
  • Congressional appointment of one or more people
  • Delegating this power to the Supreme Court (or other judicial group)

All of the above suggestions have their problems. I would tend to favor suggestions that cause the people with power to veto the budgetary amount to come from outside the Congressional system, owing nothing to Congress, because it seems obvious to me that allowing Congress to choose those charged with this duty would result in no effective control of the problem.

I would also tend to support investing this power in as few people as possible, for as short a period as possible. It is much easier to hold individuals accountable rather than groups, as evidenced by the fact that Presidents gain a lot of blame or credit for situations they had nothing to do with simply by virtue of being a visible target.

I tend to support making the period in office as short as possible because if they're not doing an acceptable job, they can be gotten rid of relatively easy at the next regular choosing of the office-holder. Ideally, I'd like to see this job to be sort of a one-shot 1 or 2 year stint of public service, followed by a lifetime ban from all future governmental positions, so that it is typically an "elder statesman" sort of person who seeks the job immediately prior to retirement, whether from government service or from the business community.

Notice I am not saying one word about which programs are more worthy than others. That should be an ongoing national debate that varies with the situation, and the situation in the future will always change over time. What I am saying is that there are more worthy causes to support than there are resources to support them with, and if we're throwing an unsustainable amount of resources at dealing with them, the problems will only get worse.

Furthermore, a situation where Congress is limited in the overall amount of what can be spent will far more effectively eliminate waste than any agency audit I'm aware of, as everyone who got less funding than they want will scrutinize what should be cut so they can get more of what they want. Many very smart people have written about how such control mechanisms operate, the two best I'm aware of being The Transparent Society and An Army of Davids. But there's no incentive for people to scrutinize other problems and how money can be more effectively spent and what the priorities for spending really should be as long as there is an apparently unlimited supply of spending, and that is the environment we are currently in.

I said a few days ago that Banks hate the concept of mortgage brokers, because without brokers, they could jack up their margin per loan. Here's what they're doing about it: Introducing a bill into Congress making it impossible for mortgage brokers to do exactly what the banks themselves do.

You can track HR 1728 here.

Text of HR 1728. Most of it is redundant, iterating other things already done. One that isn't, however, is found in Section 103, subsections 1, 2 and 4

'(1) IN GENERAL- For any mortgage loan, the total amount of direct and indirect compensation from all sources permitted to a mortgage originator may not vary based on the terms of the loan (other than the amount of the principal).

This means that they are not permitting differing compensation to an originator based upon the tradeoff between rate and cost of real estate loans. Defensible, in and of itself. But not in conjunction with other parts of this section.


'(A) IN GENERAL- For any mortgage loan, a mortgage originator may not arrange for a consumer to finance through rate any origination fee or cost except bona fide third party settlement charges not retained by the creditor or mortgage originator.

'(B) EXCEPTION- Notwithstanding paragraph subparagraph (A), a mortgage originator may arrange for a consumer to finance through rate an origination fee or cost if--

'(i) the mortgage originator does not receive any other compensation from the consumer except the compensation that is financed through rate; and

'(ii) the mortgage is a qualified mortgage.

This removes the ability of a broker to allow consumers the choice or paying the origination fee via yield spread. I've explained yield spread more than once. It can be thought of a "negative discount" because that's exactly what it is: Something the banks voluntarily pay brokers in order to get those brokers to bring them loans at that rate of interest. It is rooted in the secondary market for loans, and what that secondary market pays for such loans. If the secondary market won't pay a premium (i.e. more than face value of the note) for such loans, I've never heard of a single lender offering any yield spread on such loans. In fact, there's usually a difference of about 1.5 points between secondary market premium and yield spread, with yield spread being the lesser of the two. So if it's a $400,000 loan with a yield spread, that lender is making about $6000, over and above what they pay the broker - just for the act of funding that loan long enough to sell it on the secondary market. This premium has nothing to do with whatever interest the consumer may be charged - it's a strictly cash bonus earned by being an intermediary middleman between the broker and the secondary market. Many loans with secondary market premium bonuses are still charged discount by lenders. In short, this section prohibits brokers from simply sharing in the premiums earned by bankers on the secondary market.

Furthermore, there is absolutely nothing compelling lenders to offer yield spread in the first place for any loan. It is purely voluntary on their part. They do it because otherwise brokers will shop other lenders for their clients requesting loans in that current cost range. Since this happens to be the vast majority of all mortgage loans I have experience with, this will have no effect other than the restriction of consumer choice on the most popular loan choices, forcing them to go to direct lenders, prohibiting brokers from competing effectively. This is in the consumer interest how?

The answer is that it isn't. It's in the big direct lender's interests, because it would enable them to jack up their profit margin per loan.

The exception might be taken as allowing yield spread to be used to finance origination, except for the following in subsection 4

'(4) RULES OF CONSTRUCTION- No provision of this subsection shall be construed as--

'(A) permitting yield spread premiums or other similar incentive compensation;

'(B) affecting the mechanism for providing the total amount of direct and indirect compensation permitted to a mortgage originator;

'(C) limiting or affecting the amount of compensation received by a creditor upon the sale of a consummated loan to a subsequent purchaser;

'(D) restricting a consumer's ability to finance, including through principal, any origination fees or costs permitted under this subsection, or the mortgage originator's ability to receive such fees or costs (including compensation) from any person, so long as such fees or costs were fully and clearly disclosed to the consumer earlier in the application process as required by 129B(b)(1)(C)(i) and do not vary based on the terms of the loan (other than the amount of the principal) or the consumer's decision about whether to finance such fees or costs; or

'(E) prohibiting incentive payments to a mortgage originator based on the number of residential mortgage loans originated within a specified period of time.'.

The last sentence should be known as the "encouraging unethical mortgage originators clause" but it's that first sentence that's the real killer. It flatly prohibits yield spread, something that the lender's lobby has been after for years. Individual lenders pay yield spread because they make more money by encouraging brokers to place the loans with them (as I said, about 1.5 points per loan), while the industry as a whole has been looking for a way to ban it because if no lenders are legally allowed to pay yield spread, they will make even more money per loan, not to mention cut down on the competitive advantage brokers have by economizing.

I wrote in Yield Spread is a Beneficial Tool That Can Be Misused that yield spread is not a cost paid by consumers, and it isn't. It's a premium paid by banks so they can make more more money (roughly $1.50 per hundred dollars loaned) by doing a higher volume of loans. By having yield spread available as an option, consumers have the option of not increasing their loan balance, or not increasing it by so much. You can't do reduced cost loans, let alone zero cost loans, without yield spread.

Here's an example to illustrate: Suppose you have a $400,0000 loan at 7.5%, and rates drop (as they have currently). However, you're also planning to sell in a year or two. So you don't want to spend a huge amount of money you'll never recover before you sell the property on refinancing your property. Along comes a broker who says, "Instead of refinancing you at 4.5% with a point of discount and a point of origination, costing you $8000 extra on your loan balance, suppose I refinance you at 5.25% with no discount and no origination. I make what I need to via yield spread, and it only costs you about $2000 on your balance to refinance. You save 2.25% every year in interest cost, or $9000, so if you go a year and a half, that's $13,500 you save in interest charges, less $2000 on up front cost, giving you a net of $11,500 in your pocket a year and a half from now." Wouldn't you say "yes" to that? It is completely logical and to your benefit to do so. But HR 1728 would remove that option by prohibiting the payment of yield spread. The only people to benefit by this are the lenders who keep you in higher interest rate loans.

I personally work through a correspondent lender. We don't get yield spread (unless we choose to work as brokers instead) because correspondent lenders fund in our own name - thereby getting most of the secondary market premium that the big lenders get. HR 1728 would probably be a good thing for me, personally, at least in the short term by putting brokers out of business. But I have learned the hard way that anytime consumer choice is adversely impacted, I will pay for it later. Yeah, they're only coming for brokers and I'm not a broker. But then what happens next? Easy: Once true brokers are out of business, they figure out a way to kill correspondent lenders. Instead, I choose to help brokers, even though I haven't got a personal stake in it - yet. Furthermore, it seems rather spurious to villainize a process that is a much smaller piece of precisely the way the big lenders themselves do business.

Stand up and be counted as in favor of permitting yield spread. The only people who benefit from banning it are major lenders and corrupt politicians engaged in paying them back for campaign contributions and personal favors (Yes, I'm looking at you Barney Frank (D - Malfeasance), and Chris Dodd (D - Corruption), too.)

Caveat Emptor

Megan McArdle on Obama's proposed bailout

So the plan:

1. Forces the bloated and undercapitalized mortgage agencies to take on more debt without regard to creditworthiness

2. Cleans up only the least toxic loans

3. Will cost some unknowably huge amount of money

This is from a supporter.

My lunatic proposal for the day: why not make it easier to move homeowners out of homes they can't afford? Set up a streamlined foreclosure proceeding where a current or mildly delinquent homeowner can simply give the house to the bank and walk away. Do this with two legal provisos:

1. No tax on the forgiven loan

2. No black mark on the credit record. The bank marks the loan as fully satisfied.

The homeowner gets a fresh start, and the bank gets the house without the huge administrative costs that are normally associated with foreclosure. Everyone loses something, but no one loses a crippling amount, and there is no net transfer between two parties who are both in financial trouble.

I left a comment, but now let me expand on it.

We have always had Deed in Lieu of Foreclosure, which does precisely that, gets the borrower out now with only one (or one additional) black mark. However, it is not mandatory that lenders accept the offer. To give them some small amount of credit, lenders in aggregate are becoming more willing to do so. More of them are getting intelligent enough to do so. I would also strongly suggest making Deed In Lieu of Foreclosure much less of a black mark than it is. Someone who loses their job and promptly realizes the situation and takes steps to deal with it that do not result in a creditor losing money they don't have to is a responsible borrower. Someone who makes the lender go through the whole rigamarole of foreclosure is in an entirely different category. And someone who hires a lawyer to spin it out for 18 to 24 months extra while the lender keeps losing money needs to be placed in a special hell for the rest of their lives.

No tax of debt forgiveness was something we had from October 2007 through the end of 2008. I thought it was a good idea initially, but lender and market experience leads me to believe I was mistaken. It was what opened the door to more massive (temporary) increases in the available housing supply, massively lowering price equilibrium until we work through that inventory. My area (San Diego) being on the bleeding edge of this whole mess, had pretty much worked through previously existing problems and the market was ripe for a recovery and some of the data seems to suggest that one had started - and then people who were struggling got their "GET OUT OF DEBT AND TAXES FREE" card.

Complete tax forgiveness didn't work, but that doesn't mean a partial measure might not be an appropriate solution. I believe that a lessened tax rate (say 25% of normally due tax) but not complete forgiveness would be a measure worth trying, but the complete forgiveness motivated a lot of people who could have and should have seen it through to bail out, creating more problems for everyone else. By leaving a portion of the penalty intact, it motivates those who can afford their payments, but simply don't want to, to keep going. As I said in Why You Should Not Walk Away From Upside-Down Real Estate, the market is going to come back, it is only a question of when. What we need to do is have an honest dialog about what is an appropriate share of the normal tax. The idea is we don't want people bailing out if they don't have to, and we especially don't want to encourage anything like buy and bail, or "Bail and Buy" bailing out of one upside-down property so they can turn around and promptly buy another one that isn't.

Apropos of that, the second idea, no black mark on credit record, is inappropriate as well, as it encourages both "Buy and Bail" and "Bail and Buy" type planning. Even if the credit report were completely unmarked, several questions on form 1003 (The federally mandated mortgage application form) will bring it to light on any future loan applications these folks may submit. Furthermore, this amounts to deceiving the system, and will set the stage for further problems on down the line.

If, however, all the people who lost their homes due to this get the standard treatment, that's a lot of folks and a lot of potential customers that lenders are going to make up their mind that they want a year or so down the line. Just because things are paranoid now doesn't mean it's going to last forever. Lenders will create appropriate programs and demarcations and grades of treating the issue, thereby dealing with the problem and bringing these people back into the market. The ones who lose their home but otherwise take care of their credit will be fine. They may pay a slightly higher rate (or need a bit higher down payment) than people who didn't have a short sale, foreclosure, or deed in lieu, but the lenders will decide they want them as borrowers nonetheless. It's as inevitable as gravity. The ones who don't take care of their credit otherwise will suffer appropriate penalties. And once the folks who get another mortgage loan make a couple more years of on-time mortgage payments, I'll bet they get treated just the same as someone who never had a problem, and that's as it should be.

People have been trying to deal with this like it's a little problem, that we can easily solve in one fell swoop and get past, and that nobody needs to suffer any pain except maybe the lenders. None of that is true. None of that is possible. This is a major problem, but the end can be in sight if the government will allow the markets to act in their own best interests. What we need is a rational plan that doesn't repeat the causes of the problem we're trying to recover from, that enables and motivates as many people as practical to work through their problems so that the problem is no larger than it needs to be, that doesn't make the problem worse, but nonetheless encourages dealing with the problem and getting past it.

Once we do all of that, it's just a matter of time until we're back to a more normal market. If the government uses the remaining money from TARP to help stabilize the credit markets and otherwise stops trying to "help", I think that the markets will get it through the heads of the participants what they need to do in order to get out of this. Everybody knows already what they would have to do to get through it on their own, but they're putting off the reckoning because they're hoping the government will step in and save them from the bad consequences of their own bad decisions. Well, a certain amount of that is necessary simply due to politics, but the money the government spends has other ill effects, and it doesn't come out of some hyperspatial vortex. The time for the government to step back and tell people to work through things on their own has definitely arrived.

Caveat Emptor

Today, the President announced "a plan" to theoretically aid homeowners. Unfortunately, judging from the information available, it looks more like a Wish List than a Plan.

People may be eligible to refinance if their loan to value ratio is 105% or less. Respectfully, Mr. President, that's not going to help a lot of people, who bought for zero down and have seen values slide thirty percent. You do the math: If values slid thirty percent, how much did they have to put down for this to help them?

While we're at it, what proportion of the homeowners at risk have mortgages through Fannie and Freddie? Very small. Even if they do have Fannie and Freddie first mortgages, what about the "piggyback" second loans with other lenders that enabled these folks to buy with zero or five or ten percent down?

They give three examples of refinancing, but are completely silent upon the likelihood of getting second mortgage holders to subordinate.

Second mortgage holders might be willing to subordinate if there are no costs added to the balance of the first mortgage. In other words, homeowner pays everything out of pocket. It is the rational thing to do. But second mortgage holders are not going to agree to go even more underwater than they are.

From the Q&A

Do I need to be behind on my mortgage payments to be eligible for a modification? No. Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default. This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.

This is false. Imminent risk of default is defined as being within thirty days of default. In California, you've got to be 120 days late to be in default. Therefore, in California you have be be three months late on your mortgage in order to be at imminent risk of default.

How do I know if I qualify for a payment reduction under the Homeowner Affordability and Stability Plan? In general, you may qualify for a mortgage modification if (a) you occupy your house as your primary residence; (b) your monthly mortgage payment is greater than 31% of your monthly gross income; and (c) your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits. Final eligibility will be determined by your mortgage lender based on your financial situation and detailed guidelines that will be available on March 4, 2009.

Um, this is what those lenders doing now. And by the way, Fannie Mae and Freddie Mac standards are (and have been for many years) 45% back end debt to income ratio. If you have no debts when you get your mortgage, this means up to 45% of your income for housing.

7. I owe more than my house is worth. Will the Homeowner Affordability and Stability Plan reduce what I owe? The primary objective of the Homeowner Affordability and Stability Plan is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford. Lenders are likely to lower payments mainly by reducing loan interest rates. However, the program offers incentives for principal reductions and at your lender's discretion modifications may include upfront reductions of loan principal.

Note the words "at your lender's discretion". Lenders don't want to modify principal, for many excellent reasons I went into in Mortgage Loan Modification. Incentives for them to do this are going to cause them to be willing to write down principal on a dollar for dollar basis with those incentives. Basic microeconomics. Since the incentives seem to be in the range of $1000 per loan, that's what you can expect.

10. Is my lender required to modify my loan? No. Mortgage lenders participate in the program on a voluntary basis and loans are evaluated for modification on a case-by-case basis. But the government is offering substantial incentives and it is expected that most major lenders will participate.

Once again, this is different from what lenders are doing now in what way? Oh, I'm sure that $1000 government incentive is going to make the critical difference in how much they are cutting the rates to avoid losing their entire investment of several hundreds of times that amount.

14. My loan is scheduled for foreclosure soon. What should I do? Contact your mortgage servicer or credit counselor. Many mortgage lenders have expressed their intention to postpone foreclosure sales on all mortgages that may qualify for the modification in order to allow sufficient time to evaluate the borrower's eligibility. We support this effort.

The Fact sheet has one provision that is sure to be popular, but is also certain to completely destroy the mortgage market down the line,

From the bullet points on page two:

Allowing Judicial Modifications of Home Mortgages During Bankruptcy When A Borrower Has No Other Options

This is a taking of private property without appropriate compensation, which violates the Fifth Amendment to the Constitution. It's been on a wish list of socialists and trial lawyers for decades, but until now, the government has been smart enough to see what happens next.

1. People can now keep their homes by declaring bankruptcy.

2. Amazingly enough, people who are in danger of foreclosure declare bankruptcy

3. Courts modify the indebtedness. Lenders don't get money, are stuck with a non-performing loan, and don't have any benefit from the security interest (that is, the property) given in the mortgage.

4. Lenders start treating real estate loans in accordance with all other loans and indebtedness of similar quality - in other words, mortgage rates go into double digits at a minimum, probably into the twenties. Down payment requirements increase.

5. Keeping in mind that The Mortgage Loan Market Controls the Real Estate Market, real estate markets suffer a crash that makes everything that has happened to date look like a mild accidental scratch.

And if we have this much trouble with losing 30% of value, what do you think happens when we lose 90% of what's left? In a circumstance like that, I would consider walking away from my mortgage.

I see no criteria for qualification, other than the basic "conforming loan limit". It's not clear whether this includes "super conforming" loans in high cost areas like mine.

Two months ago, I wrote that the previous president's plan wasn't really going to help much in The Hope (Dashed) For Homeowners Program. Absent that one killer condition of judicially modifying mortgages through bankruptcy, this plan would be no better but no worse, except for spending $75 billion dollars of taxpayer money for things the lenders are already doing.

But if the "judicial modification" of mortgages item is still in whatever bill makes it through Congress, that will do more damage to our economy than anything else I can think of that our government might possibly do, and that includes the $1.2 Trillion Congress and the President just agreed to waste a few days ago.

I am sorry, but I cannot stay silent on this matter any longer.

Several years ago there was a a Proposition on the California ballot regarding gay marriage. I voted in favor of gay marriage then, but as I recall, my side lost by something like 8 million votes. Given that, I accepted the fact until the next time there was a ballot proposition. If the voters speak, that should be the law of the land, absent a clear and convincing Constitutional reason otherwise. At least until the voters change their mind.

Make no mistake: Supporters of gay marriage have enough support to easily put such an initiative on the ballot in any election they should care to make the attempt. It only requires a tiny percentage of the voters to sign the initiative petition. We could have had such a proposition to change the law on the ballot in every election between then and now, but that has not been done.

I am going to take a few paragraphs for an aside here. I don't actually think the government should have anything to do with marriage. Living partnerships, yes. Any two adults want to form a business partnership for household expenses, raising of any children, that's fine with me. If the state wants to privilege certain partnerships, then it should privilege those partnerships without regard to the sexes of the two partners. But that's all in the nature of a business partnership. Whether you realize it or not, that's the entire historical basis of a state or government interest in marriage: The financial partnership interests. Call if domestic partnership, call it marriage, call it gobbledegook if you want. That's a legitimate state or government interest, particularly if it is privileging certain partnerships in certain ways, and I firmly believe that when government privilege is involved, the sexes of domestic partners should not be a criterion for discrimination.

Unfortunately, when the government started getting more involved in such things, there were only partnerships between one male and one female to consider. This in turn led to some noteworthy confusion which still exists - the financial arrangements of such partnerships, which are a legitimate state interest, with the spiritual arrangements, which are not, but rather within the domain of whatever religious body the partners happen to be a member of.

In short, the word marriage is subject to a confusion between the government sense of the term - a financial and business partnership between adults - and the religious sense of the term, having to do with the spiritual aspects and whether some particular religious body has blessed the union in accordance with whatever principles they hold sacred.

I would far rather see a complete bifurcation of the word "marriage" into "civil (or domestic) partners" and "spiritual partners." The former is a legitimate government interest; the latter is not - indeed, it appears to me to be forbidden from government interest by the First Amendment. I see no reason why these two functions should not be completely independent of one another. There is no reason to require civil partners be spiritual ones, nor vice versa. I see no reason why two adults cannot be one or the other without any requirement whatsoever for the other. I suspect the word "marriage" would be preserved in function on the spiritual side, where it has a far longer history and tradition, but that is not important. The explicit bifurcation of functions is.

There seems to me to be a lot of confusion on both sides of the issue. The pro gay marriage side seems to be intentionally glossing over (or perhaps glorying in) the fact that they are attempting to force spiritual acceptance on the faithful of just about every faith in the world. They don't accept each other's spiritual marriages (or for that matter, purely civil ones) despite the fact that they might otherwise meet that sect's requirements; why should they be forced into accepting a "marriage" that violates every belief they stand for? The anti gay marriage forces, for their part, seem to be deliberately confusing the state interest business and financial partnership with the non-state interest spirtual partnership that the various faiths may not accept. I've long despised the latter; but my state of mind has recently evolved into "A Pox Upon Both Of Their Houses."

We have previously established that the pro gay marriage forces have more than sufficient influence to place gay marriage onto the ballot any time they want, and proceed to influence the minds of the citizens in their direction by campaigning and giving those citizens reasons that those citizens should vote in their favor. That would be the intelligent, rational way to go about these things. Persuade the voting citizens that they are not threatened by gay marriage. We aren't, you know.

Instead, supporters of gay marriage took to the courts, trying to win their case by appealing to a few judges. Well, they eventually did. Four judges decided to re-write the state constitution by judicial fiat, making gay marriage legal and giving the gay rights community not only that, but classifying disagreement with the concept of gay marriage as "hate speech", something which is Unconstitutional no matter how many judges say it isn't in contradiction of all reason.

To change something that the citizens of the state had voted upon in the millions, and come up with a many millions plurality one way by judicial fiat is a raw wound, and it should not have surprised anyone with the IQ of an amoeba that there would be a push back, and so Proposition 8 qualified for the ballot, defining marriage as one man, one woman, and removing the hate speech classification.

I think it quite reasonable - only fair, in fact - that the homosexual community have the same rights of civil partnership as anyone else. I did not, initially, understand that the issue was broader, and so I was planning to vote against Proposition 8 as a matter of course. Sure, we had lost previously, and it certainly rubbed me the wrong way that four judges had undone the work of a multiple millions plurality of the voters because of their private prejudices and the fact that they happened to be a majority upon one particular court. That was very bad, but not bad enough to make me vote for Proposition 8. After all, here was another election, and if the voters voted the way I (initially) wanted them to, we would have gay marriage and have arrived at the spot where we should have been in the first place legitimately. I fully intended to vote against Proposition 8 until nearly the end of October.

That was when I found out about the "hate speech" feature of what the judges had done. Hate speech is a vile, evil concept that directly violates the First Amendment to the Constitution. I want to see what I see as justice done. I want to see homosexuals have full legal parity with heterosexuals. But it is vile, evil, and a corruption of everything I hold sacred to criminalize disagreement with me on this score or any other. Let us consider that if "hate speech" had been a fixture of life thirty years ago, homosexuals would not have many of the rights they enjoy now as a matter of course. You have the right to be heard, and to make your case, and to the victory if the citizens vote your way. NOBODY has a right to stifle dissent, to make disagreement grounds for criminal punishment. That's a right that not even traditional marriage has, and earlier in this article I said things about traditional marriage which might well be "hate speech" within the meaning of the law towards traditional heterosexual marriage, if such a protection existed. I'm glad it doesn't, and you should be also. Just because the body of public opinion favors you at this moment does not in any way give you the ability to freeze the status quo into place. How are we supposed to make future improvements if the status quo is frozen? Ladies and gentlemen, our children are going to have more data about the situation after we are gone than we could hope to. What right have we to freeze any decision of ours forever immobile into law so that they cannot change it? Do we somehow believe they will be more bigoted, more narrow minded, stupider, have less in the way of scientific knowledge? That's what criminalizing opposition to anything does.

Furthermore, gay marriage proponents had filed lawsuits against several religious houses seeking damages and the revocation of their tax exempt status for the horrible crime of disagreeing with whether gay marriage should be legal. What happened to that First Amendment clause about "nor restricting the free exercise (of religion)"? Only religions that meet certain dogmatic tests are to be permitted? Well, I can see restricting ones such as the Thuggees and Islamic Fundamentalists, who want to kill anyone who isn't one of them. But absent violence towards non-believers on the part of that sect, there is precisely zero in the way of legal, ethical, or moral justification towards outlawing religious belief. If you want crazy, harmful beliefs, Communism has killed a couple hundred million in the last century and made the lives of billions into living hells that anyone who could escaped by running away, drugging themselves into oblivion, or committing suicide, yet communists are still permitted to preach their vile mental poison of envy, which has been proven false upon the lives of billions of people within the memory of myself and billions of others alive today. By comparison, the recent history of any world religion except Fundamentalist Islam is a paragon of virtue.

I wrote a few paragraphs ago that heterosexuals are not threatened by homosexual marriage. But everyone is threatened by the concept of hate speech. None of our liberties is safe when hate speech is an avenue of legally closing down any debate. Furthermore, criminalizing hate speech isn't even beneficial. If the Nazis or the KKK want to preach their particular brand of hate, well it may be offensive to the targets, but it is one heck of a useful signpost that these miserable excuses masquerading as human beings should in no way, shape or form be trusted with power, money, votes, or even dignified by taking them seriously. By allowing it into the public discourse, we have a significant restraint upon the ability of these cretins and their allies to persuade us that they might somehow be mistaken for reasonable, rational people. By accepting a certain amount of verbal abuse upon the targets of hate, we immunize ourselves against the possibility that the proponents will ever be able to actually do anything worse.

And in the last few days of the election campaign and the aftermath, the proponents of gay marriage certainly demonstrated a vile streak of their own. Intimidation worthy of the Pinkertons against Unions at the beginning of the twentieth century isn't the first example that pops into my mind, but I'll use it. Communist guerrillas throughout the twentieth century who made a habit of intimidating and assaulting the political opposition before assuming power, and just imprisoning or shooting the survivors after they assumed power. A little old lady who happened to be a Mormon intimidated and subjected to more hateful behavior than anything she was accused of doing because she donated $100 of her own money to the anti gay marriage Yes on 8 campaign. I can understand her business being boycotted by those in favor of gay marriage - that's legitimate, just as it would be equally legitimate for pro gay marriage people to make a point of patronizing her business as often as possible. What is not acceptable is the vile treatment she received when she attempted the common courtesy of hearing out those she disagreed with. Another little old lady abused and assaulted by a mob of gay marriage proponents. I could go on for quite a while, but you can run the same search engines I can for the articles.

Well, you vile fascist pigs, here I am. Here I will stay. I voted FOR Proposition 8. Boycott my business all you want. Say all the vile things about me that you care to. I will simply delete them if they happen to be on my website. If they're not here, I'll simply get a lawyer and sue if they are within the definition of defamation - towards individuals, not causes - that has been quite correctly inscribed in our legal system for centuries. Physically assault me, and I will do my dead level best to pound you into the concrete - and then I'll get my lawyer and sue for assault. Or simply disagree with me in a civil fashion, and we can talk it over in a civilized manner. You have that right, and you might even persuade me. I don't want to classify disagreement with me or the status quo as "hate speech," and will fight any attempt to make it so.

And I will still continue to vote and speak in favor of equal civil rights for homosexuals - unless you somehow manage to convince me of what you have not done thus far: that said rights would constitute a threat significant enough to be worthy of denying equality to you. You're starting late in the game, but really making up for lost time there. I'm repulsed by your tactics and behavior of late, to the point where my flesh has crawled while reading a couple of articles about them. But I still think you should be treated equally before the government, and I understand that there are still areas where your treatment has not attained that standard (hospital visitation and funeral arrangements, to name two), and I will not only vote in favor of such equality, but vote for representatives who will vote in favor of such equality. Where I draw the line is in the use of legal force to stifle dissent, or to force religious folks to accept within their religion that which their holy books decry, whether those books be Christian, Jewish, Moslem, Zoroastrian, or whatever. I believe in equal rights, but not in special privileges. We should all have the right to be equal before the law - but none of us has the right to avoid a little unpleasantness and disagreement from time to time in dealing with those of differing beliefs.

The election is in a few days. While it has become plain to me that the reporting of the polls has been manipulated (along with everything else) by a media actively campaigning for Obama, the math apparently says that the amount of manipulation is not enough to flip the basic result: an Obama victory.

I would be very happy to be wrong about this, and enough people to make a difference could still change their mind, but I'm pretty much resigned to an Obama victory.

I'm still going to vote for McCain, and urge everyone I know to do the same no matter how hopeless it may seem to you.

I have seen too much evidence that Obama intends to lead this country into an economic, foreign relations, and Constitutional disaster of epic proportions.

I love this country.

Therefore, I am going to fight until the bitter end to save it.

I am going to the polls on Tuesday. I am going to vote for John McCain. I'm going to continue to urge all like minded voters to do so, no matter how hopeless the election may seem. That's the easy part. Who knows, we may still bring it off. In any case, by making the win as narrow as possible, it will reduce Obama's political mandate - and power to bring about dangerous change. If enough other people follow this path, we may even put enough spine into the Republican congressional leadership to stand up and make the best fight of it they can.

But if Obama wins, I am not threatening to leave the country. I am going to stay and hold that lying two-faced populist, totalitarian incompetent's feet to the fire to the limit of my ability to do so.

I am going to be scrupulously fair and give him credit for anything good he does.

I am not going to make up stuff about him. If what he has said he wants to do is what he does in fact do, the truth will be bad enough to convince anyone even vaguely rational. I won't need to make up chants like the deranged left has done for George Bush.

If the Big Lie works for the left, imagine what pure facts are going to do for the right and center.

I was too young to vote in 1976. But I remember that President Ford's leadership and plans were working, until he lost the election.

I remember all of what Jimmy Carter did. I lived through his hand-wringing about a "national malaise". The national malaise was of his causing.

Jimmy never tried to repeal half of the bill of rights, as Barack Obama has said (and voted!) to do. Specifically, the first, second, fifth, sixth, eighth, ninth, and tenth amendments are in danger of becoming dead letters if Barack Obama wins, and any pretense of the judiciary being neutral arbiters of the law. For that matter, the thirteenth amendment is in danger (the conscript national service corps he wants to establish). If Whoopi Goldberg is worried about being a slave, she should maybe vote against the man who has said he wants to do something that violates the thirteenth amendment, instead of for him because he indirectly shares some genetic heritage with the group who were slaves If you're worried about a draft, maybe you should vote for the man who believes in the all-volunteer military (John McCain), instead of the man who has said he wants to draft people - just not for the military.

Most importantly, Barack Obama has convinced me that he wants to give our most productive citizens and corporations as much reason to leave take their dollars, their jobs, their investments, and most importantly, their innovative energies out of our country and into others as he can. I want to keep these folks around, in this country, so I will raise the biggest voice I can in their defense.

I remember how Ronald Reagan turned us around. I'm looking around, and I just don't see such a figure in national politics today, and what Barack Obama wants to do will bar most of the avenues he had to make his case, get elected, and enact his agenda. So I'm going to stay, and I'm going to make as much of a fight of it as I can, no matter what anyone else does.

Barack Obama is no man on a white horse. He is a trojan horse. I'm fully aware of what happened to Laocoon, but I must stand up and speak the truth as I see it. I love this country too much to stand by, no matter the cost.

(expletive) unbelievable. Or rather, should I say, all too believable: House Democrats Contemplate Abolishing 401(k) Tax Breaks

Words fail, but I'm going to try anyway: Do you have any idea how much of a difference for the worse it will make for the economy? Do you have any idea how much it will hurt the retirements of the "working class" folks they say they are trying to help? For the economy, about the size of the mortgage meltdown bailout every year, while restricting our economic growth rate by at least a third. For the 401k, do the math with a 28% yearly drain on contributions and income within the account, and over a 40 year working lifetime, it cuts the size of the nest egg by a much larger factor than the tax rate.

It is the fact that this money currently accumulates tax deferred which is the biggest reason why it is a good investment. The company match is actually number two. Let's say you contribute $1000 per year. If you contribute multiple thousands, just multiply the results by however many times you contribute $1000. If you get an 8% compounded rate of return, this will cut the size of the nest egg from $281,000 per thousand per year, to $112,000 - sixty percent of the money just gone, and seventy percent of the actual increase in value (you would have $40,000 even if you put it in a mattress). And here's the sick part: For costing you $169,000, the government only collects $43,000 in taxes! If they just waited until you start withdrawing, at the end of your career, they'd get close to $79,000 at the same tax rate! Is this brain damaged or what?

Don't believe me? It's pretty trivial to program in the spreadsheet of your choice.

Change the assumption to a 10% rate of return (very achievable), and instead of $488,000 times however many thousands of dollars you contribute, you only have $163,000 as the multiplier, and the government only collected $63,000 in taxes, as opposed to over $136,000 if they just waited.

Admittedly, there's also Time Value of Money calculations to make, but this is just so unbelievably stupid that I had to check my calendar and the date stamp to make certain it wasn't an April Fools Day joke taken out of context. This is lose-lose-lose by any measure - unless your only criteria for "benefit" is "the government gets your money now"

These are set up to allow Presidential Candidates to appeal directly to large amounts of people. So how did they do?

The Second Debate: How did it influence your vote?
Was McCain, still McCain
Leaning more McCain
Was Neutral; still am
Leaning More Obama
Was Obama, still Obama free polls

I'm going to hold my tongue until later.

Three Poll Questions and lest it be unclear, one person, one vote (in each), i.e. enlightened democracy rules.

How did Sarah Palin do?

Did Your Opinion of Sarah Palin as Vice Presidential Candidate Improve or Deteriorate with her performance at the debate
Significantly Improve
Slightly Improve
No or not much change
Slightly Deteriorate
Greatly Deteriorate free polls

How Did Joe Biden Do?

Did your opinion of Joe Biden as Vice Presidential Candidate Improve or Deteriorate as a result of the Debate?
Greatly Improve
Slightly Improve
No significant change
Slightly Deteriorate
Greatly Deteriorate free polls

How did it influence your likely vote?

UPDATE: For some reason, pollcode is cutting out two answers I asked for "About equal - but I'm now more likely to vote Obama/Biden" and "About equal - but I'm now more likely to vote McCain/Palin" I've tried fixing this three times with no success. If one of these applies to you, since this is a voting question, please answer as if your respective choice did better and you're now more likely to vote for them

PS: If you voted while I was trying to fix it, those were lost. Please do make a vote that will be counted

Which Vice Presidential Candidate was more Impressive, and how will it effect your vote?
About equal - no change
Biden - But I was already Obamacan
Biden - I'm now more likely to vote Obama-Biden
Biden - but I'm still uncommitted
Palin - But I was already a McCainiac
Palin - I'm now more likely to vote McCain Palin
Palin - but I'm still undecided
I thought one was more impressive but I'm still voting the top half of the other ticket free polls

As last time, I'm holding my impressions until later.

Scroll down or hit reload for UPDATES

Myth vs Fact on bailout compromise

If John McCain had not used his presidential campaign to shine a media spotlight on the process, the Dodd version would probably have been passed over the objections of House Republicans. Once the spotlight hit, Pelosi knew she needed political cover in the form of large numbers of Republicans voting for it (She claimed she wasn't bringing it to a vote unless a minimum of 100 Republicans agreed to vote for it).

If the House Republicans had not come to the bargaining table, to force anti-pork concessions in return for that political cover, the Dodd version would have passed over their objections.

Wall Street Journal has a history of who tried to fix it and when.

Q and O has a list of differences between the three plans - original Paulson, Democratic Congress, and current, after the House Republicans came to the table. Now, the bill is mostly insurance rather than a direct bail-out.

Ladies and Gentlemen, it looks to me like the House Republicans with assistance from John McCain just saved the taxpayers at least $150 billion dollars just by eliminating the ACORN slush fund. Possibly as much as $500 billion. On a $700 billion allocation.

UPDATE before publishing: Oh, hell: House defeats $700B financial markets bailout

Stocks plummeted on Wall Street even before the 228-205 vote to reject the bill was announced on the House floor.

Unpopular with the voters. Unpopular with a Congress that's facing re-election in five weeks. They really want to delay it until a "lame duck" session, but the markets can't wait.

However unpopular it may be, something is necessary, and necessary now. Three observations:

1) If Congress can't get something through in the next week, it will have done in one week what it took Hoover the rest of his term to do: Cause Widespread Banking Panic. We could see the bank runs of 1933-1935 all over again.

2) By being unwilling to support the bill en masse, the House Republicans shot themselves in the head. They came to the table, and used their minority influence and Nancy Pelosi needing political cover to the utmost. They stripped a lot of pork out of it, and got the main thrust redirected to insurance, rather than a direct buyout, and in stages as necessary. I am pretty sure that this bill was the best bill the taxpayers could have hoped for, and now the only proposal on the table currently is the Dodd monstrosity.

3) The House Democrats also shot themselves in the head. They also needed to support it en masse, in order to keep the House republicans on the hook. Now they're on the horns of a dilemma: Force an unpopular bill through on a party line vote, assuming all political responsibility, or do nothing, and be observed to do nothing, while the markets melt down. It doesn't get any stupider than that.

One minor question: Why is Chris Dodd still leading the Senate Finance Committee, rather than in jail? The answer is because Democrats are in the majority, and he is powerful among them.

One very major question: Is Congress going to act to fix this while the situation is still repairable, or are they going to wait until after the election, permanently driving a stake through the heart of the notion that when the issue is important enough, Congress can act responsibly in the best interests of the country.

There is no doubt. The markets are down five percent in the last hour since it happened. Congress needs to get together and fix this - because the crisis in financial liquidity is hitting us right in the spot that underlies the development and improvement of the entire economy. Every day they delay is going to mean more wealth wiped out - which will make the recovery that much harder. Nor are the bond or even government securities market going to be spared. We don't have five weeks for this. We may not have one.

I have just emailed all three members representing me (Filner, Boxer and Feinstein). I'm giving them an ultimatum, and a chance. If there is not a working, acceptable bailout plan in place before the markets melt down, my vote will go to the opposition - but if there is, and they support it, I will vote for them for the first time ever. I urge literally everyone to do the same.

This is that important that I am willing to vote for three of the worst voting records in Congress if they can get this one thing right.

I don't like this. I hate the thought of bailing out these incompetent, shortsighted assholes on Wall Street. It's just that if we don't, we're looking at hurting everyone a lot more that they will be if we approve this. It may be a "crap sandwich", but I'd rather eat a crap sandwich than what will happen if we don't eat that crap sandwich. At least what we had was about the least putrid crap sandwich we could have hoped for.

UPDATE: Michelle Malkin has been being a complete and unmitigated idiot on this, but she's got the complete roll-call vote. Find what your representative did.

UDATE 2: Hot Air has the update on why it failed: Pelosi couldn't suck it up and not make it a partisan political issue. Despicable, but the Republican response was just as stupid.

Video embed:

Republicans respond

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The good news is Boehner still wants to be part of the solution, if only Ms. Pelosi will stop stabbing him and his caucus in the back for the sake of political posturing.

UPDATE 3: Investors swarm T-bills as House rejects bailout . Not just T-Bills, but bonds of all sorts.

As the Dow Jones industrial average plunged nearly 780 points, the yield on the 3-month Treasury bill fell to 0.46 percent from 0.87 percent late Friday, after dropping as low as 0.32 percent. Low yields show that investors are prepared to get meager returns on an investment as long as it is secure.

However, expect any dip in rates to be short term (If you're in California and are thinking about a refinance, contact me right now:

LIBOR, or London Interbank Offered Rate, for 3-month dollar loans had risen to 3.88 percent from 3.76 percent on Friday, suggesting that banks have grown increasingly unwilling to lend to each other. LIBOR for 3-month euro loans, meanwhile, soared to 5.22 percent, the highest rate ever.

Now let me ask: What happens if the folks putting out those bonds cannot repay them? This is a credit crisis, which means that the standard refinance out of personal, government, or corporate debt is going to be both expensive and problematical if Congress cannot get on the stick about stabilizing the lending markets.

"Right now, banks don't trust one another," said Axel Merk, portfolio manager at Merk Funds. Even if the rescue package does get approved eventually, it "is a tool that the Treasury can use, but it's not the solution to all the problems out there."

If the banks don't trust one another, how the heck are they going to trust anyone else?

UPDATE 4: More on Pelosi's speech at Volokh Conspiracy

Speaker Pelosi's speech before the House today was remarkable, but not in a good way. She was trying to round up votes for a bailout package that shes claims to believe is essential for the stability of the American economy. She can't, and doesn't want to, pass the bill without a substantial number of Republican votes. So what does she do? You would think she would say, "let's pass this emergency measure now, in the best interests of the country, and talk about who is to blame later." Instead, Pelosi began her speech with a highly partisan tirade against "Bush" and "Republican" economic policies, which were allegedly to blame for this situation. She focused on an attack on the growth of federal deficits, which clearly are at best tangential to the current crisis. That, to me, is the sort of irresponsible thing you do when (a) you're not claiming there is a vast emergency; and (b) you are in the minority, and not claiming to exercise leadership. [Commenters point out that Republican Housemember were acting equally irresponsibly to the extent they rose to Pelosi's bait and voted against the bailout out of pique at Pelosi. True. But the Speaker of the House is a leader, not just a random member of the House, and her actions inevitably and justifiably get more scrutiny than those of her colleagues.

In the comments:

I have no idea why any particular member, or group of members, of the House, voted for or against the bill. All I'm saying is that if you are trying to rally the House to pass an emergency bill, you make it seem like there is AN ACTUAL EMERGENCY, which more or less precludes partisan attacks. E.g., after Pearl Harbor, no one was giving speeches in the House talking about how FDR's reckless provocations of the Japanese invited their attack, even if they believed it.

Daniel Drezner:

There have been two problems from the beginning with the proposed rescue plan. First, it was labeled a bailout, which is a really, really bad public opinion frame. (Let me add that neither presidential candidate has helped. McCain's interventions seem to have bolstered the House Republicans who said no; Obama's frame of Wall Street vs. Main Street made it easy for voters to believe that a financial meltdown would not affect them in the slightest.

Second, the idea of the package was to prevent a financial mewltdown. But here's the thing -- no one gets credit for stopping a meltdown if it doesn't happen. To use a security analogy, think about what would have happened if either the Bush or Clinton administrations had killed the leadership of Al Qaeda and the Taliban prior to June of 2001. Even if they had claimed that they were foiling a terrorist plot against the United States, no one would have known about it, and it would have been pretty easy to attack either administration for belligerent unilateralism. In other words, it was only after 9/11 that the American public was ready to take the actions that would have prevented 9/11.

Read the whole thing

UPDATE 5: Without a Bailout Plan, What Will the Cost Be?

But there's a catch: taxpayers are already on the hook for the failures of financial institutions, and it's possible that the bill will actually be larger without bailout legislation than with it. That's because the regulators who mind the financial industry -- the Federal Reserve, Treasury and FDIC -- will keep doing what they've been doing: stepping in to prevent the chaotic failure of banks and other large financial institutions. This means continuing to put hundreds of billions of taxpayer dollars at risk, but in a way that adheres to no clear plan of action and doesn't require members of Congress to explicitly approve their actions.

In other words, the costs will still be there, but the likelihood is that the economy will crash completely.

Where will congress go from here

UPDATE 6: via Hot Air, Rep. Paul Ryan

The Statement of Sen. Coburn, probably the most principled fiscal conservative in Congress:

Taxpayers deserve to know that there is no guarantee this plan will work, but there is a guarantee that we will face a financial catastrophe if we do nothing. If banks continue to fail and stop lending the average American could lose their job, be unable to secure a loan for a car, home or college education, and find their life savings and retirement in jeopardy. Our economy depends on having liquid assets available for credit and lending just as an automobile engine needs oil. If those liquid assets stop flowing, our economy will be seriously damaged and will require far more costly and lengthy repairs."

Karl Rove explains the politics of the failure of the bail out (audio). When the Democrats are promising the persecute the Republicans for approving it, but giving their own members carte blanche to vote against (and he names names), you shouldn't be surprised when the Republicans decide to bail on the agreement.

In other words, the Democrats are asking the Republicans to give them the election by voting for it, while they play partisan political games by allowing their vulnerable members it's okay to vote against this the unpopular bill, and stab those Republicans in the back with the electorate by demogoguing the issue. And they were surprised the Republicans bailed en masse?

Let's put this in more familiar terms. You and your co-worker are facing a review, at which point one of you is going to be let go. The problem is that there's a really big important job both of you have to get done together, or both of you will be let go. You manage to work together to find a way to get it done. Then you find out that your co-worker has enlisted a third party to slander your work with the boss and blame it all on you. Sure, you could be the mature adult, but that's a no-win situation for you, and your company isn't likely to give you a good review for your next prospective employer. So you decide to roll the dice and let your jerk of a co-worker's tactics be seen to have sabotaged the project. The outcome for the company isn't optimal, but the outcome for you can't get any worse, and you're preventing the co-worker from reaping gains for their tactics.

There are limits to how selfless you can expect even the most mature adults to be for your benefit when you're acting like a spoiled child. And the bulk of the blame for the fall-apart goes squarely on the shoulders of the jerk co-worker who played office politics when you both needed to cooperate. In this case, Nancy Pelosi and the Democratic leadership.

Quotes of the day

Diogenes spent a lifetime searching for one honest man. Where are we supposed to find 12? - Megan McArdle

Well, I hate it that we have to start looking in Congress - Glenn Reynolds, in response.

The one I keep remembering, even more than usual, is this one:

"I knew water runs downhill. I didn't dream how terribly soon it would reach bottom."
-Professor Bernardo de la Paz, The Moon Is A Harsh Mistress by Robert A Heinlein.

When I set the poll last night, I said I'd hold off on my comments until later. Here they are.

I can see why some people are saying Obama won. He sounded good. He seemed to make sense on a certain level. Unfortunately for him, this is the level of the people who pay attention to politics when there's something that twinges their conscience that they don't pay more attention. Because for the people who understand the facts and the history and how it all fits together, he got stomped.

He spent the whole debate running a very convincing bluff, that when you come right down to it, boiled down to his stump speech talking points. Senator Obama, your opponent is named "John McCain," not "George Bush," who is never running for anything else again. Furthermore, while trying to tie your opponent to a president that your party has been demonizing since the election of 2000 may be a winning strategy in certain instances (it did help George Bush in 2000, but not John Kerry in 2004), John McCain has separated himself very well from George Bush, at least to anyone who's been paying attention. Immigration, the surge in Iraq, fiscal policy on all levels, even the role of government (he being more of a conservative than George Bush ever was)

Senator Obama was woefully short not only on facts, but on truth, as well. Dr. Kissinger refuted Mr. Obama's contention about his position on talks with Iran before the talking heads were done. It wasn't George Bush's policies that caused the housing crisis, it was Bill Clinton's. When George Bush tried to reform the problem areas back in 2003, and John McCain in 2005, it was the Democratic party who made it clear they would kill the legislation in the Senate, making the whole thing pointless. The Democrats (including Barack Obama) demogogued the issue, claiming it was racial prejudice and class warfare, that those attempting reform didn't want poor people and minorities to be homeowners, using these as cover issues to prevent the change needed, which was simply to tighten the rules up so that there was some reason to believe that the folks buying and refinancing could really afford the payments. (This is remarkably similar to the way they have demogogued Social Security and Medicare reform). In short, George Bush inherited a system that he tried to change when he saw these problems five years ago, and he was prevented from changing it by the Democrats. Sure, he could have tried harder, but he only had so much political capital to spend, and the War on Terror has to be a higher priority for that. But this was not in any way, shape, or form George Bush's problem. It was Bill Clinton's, and George Bush tried to fix it and was prevented by the party that has been demonizing him for failing to fix it.

For those who pay attention (sadly, not as many as there should be, particularly among the young), John McCain more than held his own in the economic policy debate. He proposed specific ideas and concrete proposals. When Jim Lehrer asked Barack Obama what he would cut because of the bail-out, he segued into new program proposals straight off his stump speech. That's like being told it's a subtraction problem, and adding instead.

Senator McCain blew Senator Obama out of the water on foreign policy. From Georgia to Iran and Iraq and Afghanistan and North Korea, it was obvious who was used to handling this stuff, and who wasn't. Who understands what is still The Great Game, and who does not. The difference in their grasp of international politics should have embarrassed Senator Obama. I'll give him credit for acting ability, though. He kept running a good bluff, and even had the grace to agree with Senator McCain in about half a dozen instances when he knew anything else he said would get him stomped so badly it would destroy his bluff.

Senator McCain did manage to partially call Obama's bluff on energy policy. You can't have nuclear power without storing spent fuel and reprocessing it. But if Yucca Mountain (which Obama has repeatedly opposed), which all of the experts have agreed is the best possible available location for those, is not a good site, then there are no sites available, which reduces to being against nuclear energy.

John McCain does need to work on delivery, and he did let several opportunities to further tear apart Obama. Thinking about it, though, it's probably just as well he let most of the opportunities pass that he did. He was so far ahead that anything more would have been piling on.

The more I know about Barack Obama and his policies, the less impressive his substance becomes. He's got style, he's smooth, and he's got beautiful oration - a lot like Ronald Reagan in those respects. But underneath all that, Ronald Reagan had substance - more substance in a hangnail than Barack Obama has in his whole body. Last night, Barack Obama ran a good, coherent bluff - but John McCain had the winning hand, and didn't fold. It may not be obvious now, especially to committed Obamaphiles (When I visited the conservative websites last night, they were talking specifics, and the comments were jubilant. When I visited progressive ones, they were directing their audience to the polls they had to manipulate, and the comments were bitter), but Obama gave the McCain campaign so much ammunition for campaign commercials that those quotes which are going to come back to haunt him all the way through November 4th. There is material for about fifty ads on a theme of, "What does Barack Obama really stand for?" What he said in the debate, versus what he said in front of partisan audiences. Put about fifty of them out there, and even some of the nutroots will start to wonder.

2008 Presidential Debate 1

| | Comments (0)

Okay, here's the crucial question: How did it influence your vote?

Influencing your vote is, after all, what this whole campaign season is about

What Effect has the first debate had on your vote?
I was neutral, now I'm leaning Obama
I was neutral, now I'm leaning McCain
I was and am neutral
I was an Obama voter, and still am
I was an Obama voter, now I'm neutral
I was an Obama voter, now I'm leaning McCain
I was a McCain voter, and still am
I was a McCain voter, now I'm neutral
I was a McCain voter, now I'm leaning Obama free polls

If you have a comment, keep it civil. The more logical, the better. I'll hold off on my own comments.

PS We're playing enlightened democracy rules here. One person, one vote, period. No stuffing the ballot box.

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