Reposted from reason hit and run blog is this piece explaining why Ron Paul voted against the 1999 “deregulation” that helped spur this bubble forward.

Mind you these statements were made in 1999.

Ron Paul in 1999 on the Current Crisis
Brian Doherty | October 21, 2008, 5:55pm

Especially interesting reading for those who blame, rightly or wrongly, Phil Gramm and his banking regulation reform for our financial mess. Ron Paul, the libertarian Republican, was against Gramm-Leach-Briley back in 1999, and here are some of his reasons why:

“today we are considering a bill aimed at modernizing the financial services industry through deregulation. It is a worthy goal which I support. However, this bill falls short of that goal. The negative aspects of this bill outweigh the benefits….”

“The growth in money and credit has outpaced both savings and economic growth. These inflationary pressures have been concentrated in asset prices, not consumer price inflation–keeping monetary policy too easy. This increase in asset prices has fueled domestic borrowing and spending.”
“Government policy and the increase in securitization are largely responsible for this bubble. In addition to loose monetary policies by the Federal Reserve, government-sponsored enterprises Fannie Mae and Freddie Mac have contributed to the problem. The fourfold increases in their balance sheets from 1997 to 1998 boosted new home borrowings to more than $1.5 trillion in 1998, two-thirds of which were refinances which put an extra $15,000 in the pockets of consumers on average–and reduce risk for individual institutions while increasing risk for the system as a whole.”
“The rapidity and severity of changes in economic conditions can affect prospects for individual institutions more greatly than that of the overall economy. The Long Term Capital Management hedge fund is a prime example. New companies start and others fail every day. What is troubling with the hedge fund bailout was the governmental response and the increase in moral hazard.
This increased indication of the government’s eagerness to bail out highly-leveraged, risky and largely unregulated financial institutions bodes ill for the post S. 900 future as far as limiting taxpayer liability is concerned. LTCM isn’t even registered in the United States but the Cayman Islands!”
.”..My main reasons for voting against this bill are the expansion of the taxpayer liability and the introduction of even more regulations. The entire multi-hundred page S. 900 that reregulates rather than deregulates the financial sector could be replaced with a simple one-page bill.”

I wonder how many of Jacob Weisberg’s favorite economic thinkers and politicians were this prescient this long ago? Add this to the “it’s all the libertarians’ fault” file.

Tags: financial crisis,Ron Paul
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We’re been hearing this a lot lately. Here’s an interesting take from the Washington Post of all places.

You can find the article at washingtonpost.com HERE

Is Capitalism Dead?
The market that failed was not exactly free.

IS THIS the end of American capitalism? As financial panic spread across the globe and governments scrambled to contain the damage, reality seemed to announce the doom of U.S.-style free markets and President Bush’s ideology. But this is wrong in two ways. The deregulation of U.S. financial markets did not reflect only the narrow ideology of a particular party or administration. And the problem with the U.S. economy, more than lack of regulation, has been government’s failure to control systemic risks that government itself helped to create. We are not witnessing a crisis of the free market but a crisis of distorted markets.

It’s true that the Bush administration has stood for light regulation of capital markets. But it did not invent this approach. By the middle of the last decade, experts across the spectrum believed that U.S. financial institutions faced outmoded restraints on their ability to innovate. Thus, the Clinton administration, supported by then-Federal Reserve Chairman Alan Greenspan, refused to tighten regulations on financial derivatives, memorably dubbed “financial weapons of mass destruction” by Warren Buffett. The 1999 repeal of the Glass-Steagall Act, a Depression-era law separating commercial banking and investment banking, passed with overwhelming bipartisan support in Congress and was signed into law by President Bill Clinton.

We’ll never know how this newly liberated financial sector might have performed on a playing field designed by Adam Smith. That’s because government interventions of all kinds, from the defense budget to farm supports, shaped the business environment. No subsidy would prove more fateful than the massive federal commitment to residential real estate — from the mortgage interest tax deduction to Fannie Mae and Freddie Mac to the Federal Reserve’s low interest rates under Mr. Greenspan. Unregulated derivatives known as credit-default swaps did accentuate the boom in mortgage-based investments, by allowing investors to transfer risk rather than setting aside cash reserves. But government helped make mortgages a purportedly sure thing in the first place. Home prices seemed to stand on a solid floor built by Washington.

Government support for housing was well-intentioned: Homeownership is a worthy goal. But when government favors a particular economic activity, however validly, it must seek countervailing control to ensure the sustainable use of public resources. This is why banks must meet capital requirements in return for federal deposit insurance. Congress did not apply this sound principle to Fannie Mae and Freddie Mac; they were allowed to engage in profitable but increasingly risky activities with an implicit government guarantee. The result was that taxpayers had to assume more than $5 trillion of their obligations. Contrast U.S. experience with that of Canada, where there is no mortgage interest deduction and the law requires insurance on any mortgage over 80 percent of a home’s purchase price. Delinquency rates at Canada’s seven largest banks are near historic lows.

The new capitalist model that emerges from this crisis must operate according to more consistent principles. The Fed should set interest rates with the long-run value of the dollar in mind. Government must be more selective about manipulating markets; over the long term, business works best when it is subject to market discipline alone. In those cases — and there will and should be some — in which government intervenes on behalf of social goals, its support must be counterbalanced with taxpayer protections and regulation. Government-sponsored, upside-only capitalism is the kind that’s in crisis today, and we say: Good riddance.

Tags: capitalism,free market,washington post
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The run up to the current Presidential election has many people arguing vehemently about associations, age, buzz words, and a plumber that doesn’t understand the difference between net and gross.

At this point I’m completely sick of the political dialogue that currently exists. It is ignorant, pointless, and a complete distraction from the problems with the country.

Rather than needlessly bashing politicians based on populist rhetoric I’m going to focus on causes to support. Early voting in Texas begins today. As such I have a link to the current ballot in Texas HERE. Please review this before voting. I highly suggest checking the voting history of the current group of candidates.

Here is a map of the current Texas Congressional Districts so you can find who your representative is if you don’t already know.

To find your Texas House Rep go here.

There are resources to look at the voting record of your Congressman, Senator, and Future President.

Washington Post

For the free trade crowd check out Cato’s Freetrade.org. It breaks it down by vote, but also gives a trade matrix. Even if you’re not into the free market thing, just shoot for a different spot on the matrix and review the economic voting record.

For other issues, check the thinktank’s respective website and they’re likely to have a voting record tabulation with regards to their position.

Some key votes I will be using to weigh the current group is the recent bailout votes, FISA, Patriot Act, Immigration, Farm Bill, and the Economic mindset of the congressman.

Please vote in an informed manner. Whatever you do, please don’t vote from the gut. Its pointless and helps to keep this country shackled to the idiocracy or feel good politics that in the end pats us on the head while pulling the rug out from under us, or worse yet, fettering us with the chains of bondage, all for the sake of power.

Tags: election 101,politics
Categories: BJ, Philosophy etc
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The huge losses in the financial market have only shown me how little I understand about the inner workings of finance. Thankfully I know a whole lot more because of the crisis. Much like you quickly become more knowledgeable about a disease when you find out you’ve contracted it, this current mess has done well to at least give me a basic understanding of what happened.

My analysis might be flawed, and even my lexical understanding of the market itself might be highly colored by analogous terms I understand better than econ speak but I think I know what’s happening.

Functionally everyone involved purchased things they could not afford and did so with easy credit that was available to them. Consumers did this, banks said they will give them the credit, the secondary mortgage companies like FNMA and FHLMC (Fannie Mae, Freddie Mac) who help provide the backing for these mortgages were complicit. These mortgages and other loan based credit are then bundled and sold to other financial groups/institutions as investments. The federal reserve helps regulate this by setting limits on fractional reserve style banking, and regulating the deposit based lending from banks. In this sytem we’re dealing with two types of monetary supply. The first is cash based created through the treasury, the other is in the form of interbank loans. The federal reserve determines the percentage interest rate at which banks can loan each other money to make sure they stay within the fractional reserve guidelines determined by their total deposit amount.

Clear as mud?

What happened? People bought more than they could afford. Whether is was a mortgage that they directly couldn’t afford or other things that contributed to their inability to pay back the loans/credit they had taken out. The economy has boomed recently because of the increased credit. As purchasing power increases due to increased credit available to everyone, more people purchase more things. Banks started holding much lower amounts of fractional reserve (deposit to loan ratio), and investors were more likely to purchased the bundled bonds. These investments get spread around to countries, international banks, hedge funds, etc…

In this case the inability to pay means that those providing the money for the loans will lose money. These bonds and bundles are normally grouped to minimize this, but when a vast percentage of people cannot meet their financial obligations we find ourselves in the current situation. If no one can pay the price for the current market of houses, then the values of those homes and other goods/services will come down. Dropping value of assets combined with an inability for the consumers to follow through on the initial purchase price and you have dissappearing money. The bond holders and purchasers of the bundles lose money. They are then less likely to purchase more bonds. Credit tightens and that economic boom based on credit dries up. Less things will be sold. Less money will change hands.

The bubble burst. What the $700 billion dollar bailout does is it give the Treasury the authority to purchase $700 billion of those securities to provide financial backing to the institutions that created those loans. This doesn’t mean it would cost the taxpayer $700 billion, since there would be some return on investment. My issue is the power it would give the treasury. It opens up the door to even more cronyism in government finance. It might assuage things… but what it was meant to do was to inspire confidence in the financial market.

It failed already.

Wall Street continued to take a huge dump after a slight boost when it passed the Senate. People are pulling their securities investments, taking huge losses in the process. Every investment based company is affected.

Foreign companies and government also purchased these securities and are hurting. The huge monetary supply of the US acts as a cushion, but other countries are going to be hit just as hard.

Credit will be harder to come by, prices will go down, failing companies will shed workers, and the baby-boomers who are now retiring are going to have to rethink how they’re going to retire.

Tags: financial crisis
Categories: BJ, Philosophy etc
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29% of people approve of President Bush. 14% approve of congress. 6% view the economy positively, yet more than 80% say they are satisfied with their circumstances and even more are happy with their jobs. While most Americans hate congress, they are overwhelmingly happy with their own congressman. Only 18% of Americans think they are worse off than their parents at a comparative stage in their parents’ lives.

There is a mortgage crisis. That huge crash you hear is only the market correcting itself. In this case it was allowed to grow far too large, and the subsequent economic downturn and market correction are going to come at a huge cost. Even so, buoyed by the weak dollar and increased exports the US has yet to have a single quarter of reduced output. A house is not an investment, yet there’s an entire generation of people who thought it was.

The “recession” is a combination of increasing gas and food prices and decreased asset value due to the housing correction currently taking place. Combine flawed regulation, bad US monetary policy, consumer perception about the housing market, the perception of easy money from reinsurers, and terrible underwriting practice by everyone involved and you have our current situation.

The best thing the US could learn from Europe is how to run a central bank. Controlling inflation should be the top priority rather than fueling economic booms and trying to soften busts. From 2002 – 2006 the top 1% of earners in the US had an average increase in income of 11%. For the remaining 99% there was an average increase of 2.4%. For the lowest 90% the average increase was 1%.

The moral of the story is, the news is full of crap. Everything you thought was happening in the last 6 years was a lie. Most things that are happening now are to your benefit unless you got an interest only loan, or took out an ARM and were planning to refinance. Most importantly, videogames are still only $60.

FYI. Most stats were yanked from this week’s economist.

Tags: damned lies,economist,lies,videogames
Categories: BJ, Philosophy etc
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The Supreme Court handed down the 5-4 ruling that the Washington DC gun ban is unconstitutional. It also affirms the individual right to keep and bear arms. Read the decision here.

It’s all over everything so I’ll refrain from posting a hundred links to reason, Andrew Sullivan’s blog, Cato, and everywhere else. I need to go check and see what the kossacks think about it.

Tags: dc vs heller,gun,gun ban,SCOTUS,supreme court
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There’s a great article in the latest reason magazine that has Ronald Bailey looking for a solution to global warming. As a reason magazine science correspondent he’s about as libertarian as you can get.

It was neat to see the author of Eco-Scam: The False Prophets of Environmental Apocalypse to then say this in 2005.

Anyone still holding onto the idea that there is no global warming ought to hang it up. All data sets—satellite, surface, and balloon—have been pointing to rising global temperatures. In fact, they all have had upward-pointing arrows for nearly a decade.

You can read the full text at reason online.

Obviously they believe the private market should solve the issue, but there’s no real reason for them to do so. Their proposals, spoken through clenched teeth it seems, are either a cap and trade system or carbon taxes.

The only true effect of all this is to make a competitive market and begin to quanitify the negative externality of climate change as related to greenhouse gas emissions by energy producers. I suggest reading the article.

Tags: global warming,libertarian,reason,reason magazine
Categories: BJ, Philosophy etc
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This weeks issue of the economist has a write-up on the Libertarian candidate for president Bob Barr. They came to roughly the same conclusion I did regarding his ability to act as a spoiler for McCain.

The article also perfectly sums up the problems Barr has regarding his personal record, not that any of that matters as much during a third party presidential run. In this case, his spotty personal history and close ties to traditional conservative values increases his chances of greatly affecting McCain.

Just a funny note. The Libertarian party is pretty much nuts. As expected of a group that puts individualism above any sort of collectivist mindset, you get a bunch of disjointed single issue voters willing to vote for every conspiracy theory known to man. It’s sad the party seems so crazy on the surface, since the CATO institute has the basic economic and social theory down without the frilly nuttery. Libertarians get the pot-smokers and government alien cover-up followers, while the republicans are stuck with AIPAC, the religious right, and hawks. Democrats don’t really get to have any pet issues though. Lieberman, Harry Reid, Kucinich, and Hillary Clinton all share a (D) but not much else. The problem is that the Libertarian convention makes the Reps and Dems look sane. Maybe one day they’ll stop appeasing the chaff (truthers) and just ignore the truly insane.

Tags: bob barr,election 2008,libertarian
Categories: BJ, Philosophy etc
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