Daily Read - 3/8/10

Another broken campaign promise, or a promise that should have never been made?  A Congressional panel is considering whether "mass killings of Armenians during and after the first world war" was genocide.  "Barack Obama had promised during his election campaign to recognise the event as genocide. But before the vote his advisers said that while he acknowledges a genocide personally, he urged unsuccessfully that official interpretation be left to the parties involved."  As I've often noted, President Obama made an awful lot of promises on the campaign trail, many that were mutually exclusive.  However, in this case he made a promise to do something, then later says it should be "left to the parties involved."  So, why would the President promise something he knows he can't deliver, and that he isn't even responsible for?  (Economist)

"The 2008 Farm Bill lifted the ten-year statute of limitations on the government's ability to withhold Social Security benefits in collecting debts other than student loans—for which the statute of limitations was lifted in 1997—and income taxes, where the limit remains 10 years." This change allows the government to reduce Social Security benefits to offset unpaid debts. Unfortunately, the government does a terrible job of tracking these debts accurately. An attorney who has worked on Social Security overpayment cases says very few cases were accurate, and "Most people can't find or afford help, and give up very quickly and end up with painful offsets on a fixed budget." Another case in the article concerns a grandmother whose "granddaughter had forged her signature on a [student] loan application." The student loan company agrees the loan should have never been made, but due to strange legal hurdles and bureaucratic incompetence, the grandmother had to fight for several years before getting a disability waiver, and repayment of withheld benefits.  If a private company acted this way, people would be up in arms.  (WSJ)



More on why banks aren't lending and the financial crisis is far from over: 1) the WSJ has estimates today on what additional capital banks might have to hold when new international bank standards go into effect: "Morgan Stanley might need to hold $269 billion of regulatory capital against its credit derivatives book, BofA $108 billion and J.P. Morgan $21 billion," according to Goldman Sachs calculations.  With these requirements coming, Congress must be careful not to burden banks further.  "The real reform of Wall Street could originate not on Capitol Hill, but in a sleepy Swiss town."  2) While banks know they will need to hold extra capital at some point in the future, their existing loans continue to deteriorate.  The WSJ reports that banks continue to "face demands to buy back defectively underwritten mortgages."  Many, but not all, of these loans, are being pushed back by Fannie Mae and Freddie Mac, as I noted last week.  3) the Obama administration is pursuing a program that "will allow owners to sell for less than they owe and will give them a little cash to speed them on their way."  While such "short sales" may be better for the banks than foreclosure, banks would take the hit on what the borrower owes, versus what they can sell the house for under current market conditions.

Congress beware: although some claim the US is behind the UK in financial reform because the UK "announced a 50 per cent payroll tax on all bonuses greater than £25,000 in December," regulators there insist it is a one-time tax," due to "fears of damaging London’s reputation as a financial centre."  (Financial Times)

Weekend Read - 3/7/10

Need a bait shop?  There's an app for that, reports the Baltimore Sun's Jay Hancock.  (pictured, right)

"An air traffic controller at New York's Kennedy Airport was suspended for allowing his young son to radio instructions to several pilots."  "This is what you get, guys, when the kids are out of school," was the explanation offered, on air, by the boy's father.  (AP via Yahoo)

Germs are faster than the 5-second rule, according to a study.  Who funded the study?  Clorox, of course.

"Colossal Colon comes to Hunterdon Medical Center" (pictured, story here)

Daily Read - 3/5/10

"Federal workers earned an average salary of $67,691 in 2008 for occupations that exist both in government and the private sector, according to Bureau of Labor Statistics data. The average pay for the same mix of jobs in the private sector was $60,046 in 2008, the most recent data available." Also, benefits "averaged $40,785 per federal employee in 2008 vs. $9,882 per private worker" Particularly striking is the data showing that Federal clergy earn almost double what private clergy make. Whatever happened to separation of church and state? (USA Today)

"Fannie Mae and Freddie Mac may force lenders including Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. to buy back $21 billion of home loans this year as part of a crackdown on faulty mortgages."  Why?  "Banks that sell mortgages to Fannie Mae and Freddie Mac have to provide “representations and warranties” assuring that the loans conformed to the agencies’ standards. With more loans going bad, the agencies are demanding that banks turn over loan files, so they can scour the records for missing documentation, inaccurate data and fraud...The mortgage firms are looking at every loan more than 90 days past due" and asking for documentation from the banks.  This is a great attempt to push responsibility for the losses on these loans back to the banks that issued them.  However, the Bloomberg article also points out that the banks will lobby Congress to stop this practice, claiming it "might be counterproductive, since the Treasury and Federal Reserve are trying to help banks heal."  I hope they don't succeed - making banks responsible for their own loans will do more good than any "Consumer Financial Protection Agency."

Barney Frank "has unexpectedly called into question the safety of investing in Fannie Mae and Freddie Mac, raising the specter that investors who have lent money to the two firms or bought their mortgage-backed securities could one day suffer losses." (WaPo)  Mr Frank, where were you before the mortgage giants imploded?  Oh, now I remember -- "'These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.'' (NY Times, September 11, 2003)  That exaplins why today's comments were "unexpected."

Krauthammer explains today why polls show that voters support many individual items in the health care reform proposals, but are "mystifyingly" against the bills in their entirety:

"Allow me to demystify. Imagine a bill granting every American a free federally delivered ice cream every Sunday morning. Provision 2: steak on Monday, also home delivered. Provision 3: a dozen red roses every Tuesday. You get the idea. Would each individual provision be popular in the polls? Of course.

However (life is a vale of howevers) suppose these provisions were bundled into a bill that also spelled out how the goodies are to be paid for and managed -- say, half a trillion dollars in new taxes, half a trillion in Medicare cuts (cuts not to keep Medicare solvent but to pay for the ice cream, steak and flowers), 118 new boards and commissions to administer the bounty-giving, and government regulation dictating, for example, how your steak is to be cooked. How do you think this would poll?"

Daily Read - 3/3/10

For 15 years, a California hardware store put out coffee and doughnuts for their morning customers.  Not any more - due to an "anonymous customer complaint", the state has decided the store does not meet food-handling regulations.  (Ventura County Star, h/t Overlawyered)

A two-year-old boy in the UK spent four months in foster care because his parents refused doctor's orders to feed him junk food.

Yesterday, President Obama proposed "rebates of up to $3,000 for energy-saving home renovations," "saying the measure would boost employment and save energy."  "House Minority Whip Eric Cantor (R-Va.) pointed to a recent inspector general's report that said that such a program included in the economic stimulus package, at a cost of nearly $5 billion, is falling far short of expectations."  The problems with the last program were highlighted by blogger Mickey Kaus - the program has been bogged down by regulations requiring a "prevailing wage" for stimulus projects.  Instead of getting shovel-ready work done right away to stimulate the economy, as Obama intended, "The Department of Labor spent most of the past year trying to determine the prevailing wage for weatherization work, a determination that had to be made for each of the more than 3,000 counties in the United States," according to this ABC report.  The government can't get out of its own way.

The Senate was able to extend unemployment benefits and delay Medicare pay cuts for doctors after Jim Bunning proposed a tax measure to cover the cost of the bill.  Although agreeing with the contents of the bill, Bunning had been demanding that the bill be paid for, and not funded through the deficit -- in accordance with PayGo principles.

Rep. Charles B. Rangel (D-N.Y.) is not stepping down as chairman of the House Ways and Means Committee, in spite of the House ethics committee's findings and increasingly bipartisan pressure to resign.  Pelosi's vow to run "the most ethical Congress in history" is sounding very hollow.  [Update: Rangel resigned this morning at a last-minute press conference "in order to avoid my colleagues having to defend me during their elections"  Democratic Rep. Artur Davis said Rangel needed to step down "to restore the public trust."  Doesn't Rangel's admission that he's stepping down to help his party win elections in November undermine the "public trust"?  Admitting his obvious ethical lapses would be a start, but his statement today just underlines how clueless he is (and Pelosi too).  (AP via Yahoo)]

Yesterday's WSJ reported that "Lawmakers Keep the Change."  Members of Congress are allowed up to $250 per day for expenses while travelling overseas, and are required to return whatever is left over.  However, most "use the excess cash for shopping or to defray spouses' travel expenses. Sometimes they give it away; sometimes they pocket it."  "Congress has no system for tracking how the cash payments, called per diems, are being spent. Lawmakers aren't required to keep receipts and there are no public records." If you know anyone who works for a company that would allow this, let me know.

Is the Word "Teabagging" Offensive?

Opponents often refer to members of the Tea Party movement as "Teabaggers," who respond that it is an offensive term.  Is it?  According to this list, yes.  (h/t to Newsweek's Gaggle blog here)

Daily Read - 3/2/10

Nicholas Kristof had an interesting column in Sunday's NY Times about the growing role of religious conservatives in humanitarian efforts.  "Some liberals are pushing to end the longtime practice (it’s a myth that this started with President George W. Bush) of channeling American aid through faith-based organizations. That change would be a catastrophe.  In Haiti, more than half of food distributions go through religious groups like World Vision that have indispensable networks on the ground."  In a follow-up post on his blog, he adds: "The United States is doing far more for Africa today than a decade ago largely because evangelicals became a strong constituency for the Pepfar AIDS program and the PMI malaria program."

However, help for Africa isn't a popular story.  In 1998, President George W. Bush toured Africa with Bob Geldof to increase awareness of American humanitarian efforts there.  In a Time article, Geldof asks "why doesn't America know about this?"  Bush responded ""I tried to tell them. But the press weren't much interested."

Also in the NY Times, a February 10 article talks about how food stamps are becoming easier to get, have less stigma attached to them than cash welfare, and how states are increasing their efforts to market food stamp programs.  In New York, the city wants the programs to “help New York farmers, grocers, and businesses.”  States also have an incentive to use food stamps instead of other forms of assistance because it's not their money.  “This is all federal money — it drives dollars to local economies,” said Russell Sykes, a senior program official.

Personally, I'd prefer private assistance in the form of food banks.  I noted last month that Feeding America, the national network of food banks, raised 51% more money in 2009 than in 2008.  Google "food bank" or "food pantry" and you can find lots of ways to help without dealing with a massive government bureaucracy.

Thomas Sowell is baffled by ObamaCare. "One of the biggest reasons for higher medical costs is that somebody else is paying those costs, whether an insurance company or the government. What is the politicians' answer? To have more costs paid by insurance companies and the government." He argues any projections of the costs of ObamaCare will be too low, because "they are based on how much medical care people use when they are paying for it themselves. But having someone else pay for medical care virtually guarantees that a lot more of it will be used."  Just like the food stamps example above, if someone else is paying for it, why not spend more?

Pundits, politicians, and news stories often refer to the $700 billion TARP program as if all of that money went down the drain.  They also over-emphasize the impact of the banks, while de-emphasizing Fannie, Freddie, and the auto companies.  An article in today's Wall Street Journal says estimates on TARP losses are being revised down from about $341 billion to about $117 billion.  The "unlikely stars of the bailouts are U.S. banks", who collectively have paid back about 70% of the government's investments.  The auto companies still owe $28 billion, AIG owes $48 billion, while Fannie and Freddie are still asking for more assistance.  The CBO has a separate estimate for losses of $99 billion, $47 billion of that from the auto companies.

The government's reaction?  To demonize Toyota, and to keep pushing for bank punishment.  It's politically better to attack banks, who paid back TARP, than auto companies and government quasi-agencies who haven't.  My guess is that years from now, most Americans will still think TARP only bailed out irresponsible bankers and that the government knows best.

Daily Read - 3/1/10

Sen. Jim Bunning of Kentucky is taking a lot of heat today for blocking a bill containing extensions for unemployment benefits because he is concerned about the impact to the deficit - he wanted the benefits to come from existing stimuls funds.  Getting less attention is the $1 billion (out of the $10 billion cost of the bill) that would postpone a 21% Medicare physician pay one more month.  AMA President J. James Rohack, MD wants the Senate to "stop playing games with Medicare patients and the physicians who care for them."  The related WSJ story is titled "Senate Gridlock Triggers Medicare Payment Cuts," which is a very ironic headline because the Medicare cuts are legally required, and "gridlock" in this case meant the Senate was unable to prevent the enforcement of its own laws.  In the meantime, the Centers for Medicare and Medicaid Services is not making payments to doctors for 10 days, hoping the Senate can get its act together and postpone enforcement of its own laws even further.  Is it any wonder many Americans don't think the government can control health care costs?

"The Obama administration is planning to use the government’s enormous buying power to prod private companies to improve wages and benefits for millions of workers," reports the NY Times.  "Although the details are still being worked out," the plan would send more government contracts to companies that pay higher wages and offer better benefits.  With union membership moving from private companies to public jobs (see chart), would this policy effectively put the government in the historial role of unions?  The Marginal Revolution blog shares concerns "about the long term consequences of creating a dual labor market in which insiders with government or government-connected jobs are highly paid and secure while outsiders face high unemployment rates, low wages and part-time work without a career path."  "Outsiders" then have a large incentive to become "insiders," which further entangles government and business.

The article also notes that many workers under federal contracts "— like cafeteria workers, security guards and landscaping workers at federal buildings — earn less than $22,000 a year, the federal poverty line for a family of four."  Some are arguing the policy could actually lower government costs, because raising the pay of these contractors would reduce their eligibility for food stamps, Medicaid, and other government programs.  I previously noted that the roll-back of these subsidies, combined with new subsidies under health care reform, may result in a 70% marginal tax rate for people at the poverty level.  Therefore, this new policy would simply take benefits away with one hand, and provide a higher salary with the other through yet another layer of bureaucratic nonsense.

The Economist asks whether last week's health care summit was a "waste of breath."  The article says President Obama made "some progress on bipartisanship," because he "was often seen scribbling notes," acknowledged both political parties have similar goals, and "asked the Republicans to think of ways to bridge the divide on them."  For a President who promised bipartisanship would be a mark of his presidency, how is pushing the burden for bridging the divide onto the opposition "progress on bipartisanship"?  It may be progress on passing blame, but not on leadership and taking responsibility.

Fannie Mae recently reported a fourth quarter loss of $16.3 billion, but president and CEO Mike Williams says "we are helping homeowners across the country, supporting affordable housing, and providing financing to keep the residential markets functioning."  When he says affordable housing, does he mean affordable to the homeowner, or to taxpayers?  A Wall Street Journal editorial says "losing money is now Mr. Williams's job...the Obama Administration has ordered them to modify hundreds of thousands of mortgages in an attempt to avoid foreclosures."  "Add Fan and Fred together, and taxpayer losses so far are $126.9 billion, and counting."  So, instead of fixing the problem, the government won't even propose a plan for reforming Fannie and Freddie until next year, while purposefully running massive losses and keeping it off the government's books.  I guess they are putting this politically difficult work off until after the election, like the deficit commission.

I'm finally reading Freakonomics, and got a kick out of former Illinois Governor Rod Blagojevich's "plan to mail one book a month to every child in Illinois from the time they were born until they entered kindergarten".  Statistically, children from homes with more books usually do better in school, because "books are a proxy for well-educated parents".  Blagojevich apparently believed the mere presence of books caused the better performance.  Fortunately, the legislature voted against his plan.  (referenced on the Freakonomics blog, here)

Health Insurance Reform Should Be About Better Insurance, Not Entitlements

Hedge fund manager Cliff Asness writes in a Bloomberg article that true health insurance reform should focus on restoring the true purpose of insurance:  "True insurance comprises two things. The first one is a goal: to protect against very large losses. The second one is a method: the proper assessment and pricing of risk."

He argues health care costs are too high partly because "All incentive for the consumer to control costs is abandoned."  Why?  Most health care costs, "including routine and minor care," are paid for by someone else, and the most common someone else (your employer) has a tax incentive to provide more health care benefits.

In pursuit of social "equality", politicians are moving toward arguing "the same premium must be charged for a well-protected, unscathed house as for one that is already on fire."  "The business of insurance is about determining risk and charging accordingly. It’s why insurance companies exist. If we eliminate that, medical insurers are just form-processing companies for the government."

Instead of heavily regulating insurance for everyone due to the few that have extremely high health costs and poor (or no) insurance, Asness claims "direct state subsidy is far more efficient."  Not an easy thing for a libertarian like Asness to say.

Daily Read - 2/24/10

Keith Hennessey has a good summary of President Bush's record of passing major bipartisan legislation. Interestingly, it includes items used in recent rhetoric to paint Bush as an extreme partisan and ideologue, and also includes things Obama is expanding or extending, without giving Bush any credit.  I'm not a big George Bush fan, but much of the criticism of him is based on fiction and partisanship, and takes little account of the truly difficult times he faced while in office.

The average number of years Americans spend in retirement has roughly doubled since 1970, according to this handy chart in the Economist. "Official retirement ages have failed to keep pace with rising life expectancy, making pensions increasingly unaffordable." The age Americans can qualify for Social Security needs to raised, which means governments and employers need to find ways to keep people working longer and being productive.

Blogger Jay Cost makes an interesting point about those who argue the Senate should not use reconciliation to pass health care because the procedure does not honor the majority rule principle of a Democracy: "the Senate is not a majoritarian institution!" Every state gets 2 Senators, regardless of population.

The FDIC reports: "Lending by the banking industry fell by $587 billion, or 7.5 percent, in 2009, the largest annual decline since the 1940s."  (Washington Post)  FDIC Chairman Sheila C. Bair says much of the decline is the "result of cutbacks by the nation's largest banks, which have tightened qualification standards for borrowers and increased the proportion of money that they hold in reserve against unexpected losses."  I'm sure that speeches vilifying bankers are being loaded into the president's teleprompter as I type this.  However, I doubt he will go much further in explaning the lack of lending that saying bankers are evil.  As Bair says, banks are still being burned by loans made over the last few years as creditors ability to repay keeps getting worse.  Bair says banks are holding extra reserves "against unexpected losses", but banks are also waiting (still) for financial reform measures out of Washington that will almost certainly raise their reserve requirements.  If they lent money that the government will later say they should have in reserve, they would be vilified for that too.  Washington needs to give up on scoring political points and finish whatever financial reform they decide on -- all they are accomplishing by delaying and demonizing is scaring the private sector from making investments.

The National Federation of Independent Business (here) says: "Washington still does not get it. It pays lip service to the fact that small business generates half of private sector GDP and creates over two-thirds of private sector net new jobs, but when it comes time to provide help, small business gets $30 billion IF banks decide to accept the TARP funds to support loans and IF the owners can subsequently get a loan from a bank. But for most firms, this dinky amount is of little help. More so, this new aid misses the main problem since only five percent of small business owners cite “financing” as their top business problem but 31 percent cite “poor sales.”"  The NFIB argues that Washington continues to press on with their high-spending, high-regulation agenda, which is the "death knell for private sector vitality."  "If the administration wants to count “jobs created and saved” it should also be accountable for “jobs destroyed or prevented.”"  (h/t Cato)

Obama the Financial Procrastinator

Banks continue to fail at an alarming rate. The chart below summarizes bank failure data from the FDIC by quarter. Q1 2010 looks like an improvement until you realize the data are only through early February.

More than a year after the collapse of Lehman Brothers, the government has no exit strategy for Fannie and Freddie, former Treasury Secretary Hank Paulson says we've made no progress on improving the regulations for dealing with failed financial institutions, and the number of institutions on the FDIC's "Problem List continues to soar - from 552 in September to 702 in December, noting that "that indicators of asset quality continued to deteriorate during the fourth quarter."

In the meantime, Obama and Democrats in Congress are simultaneously claiming victory over the job-creating power of the stimulus package, while claiming jobs are "top priority" for 2010.  So far, this has resulted in a $15 billion job bill proposed by Harry Reid.  They're using up countless hours blaming Republicans for the failure of a health care bill that couldn't get enough Democratic support, and has Democrats retiring from public office over the partisanship created.  While the FDIC reports bank profits are "still well below historical norms for quarterly profits," and that profit improvement indicates progress for the economy, the President rails against excesses in the financial sector to score political points without taking any meaningful steps toward addressing the real problems.

Financial reform should be top priority, and the longer Obama puts this off, the less likely he will be able to cry "I inherited this mess" when it blows up in his face.