The House Bails on the Bailout

The House of Representatives voted 228-205 today against the massive $700 billion economic bailout (or "buy-in" if you choose Rep. Pelosi's preferred nomenclature). Below are a few gut reactions:

(1) Hank Paulson won't get his chance to do the Scrooge McDuck backstroke in a room piled 8 feet deep with dollar bills (which, by the terms of the failed bill, he literally might have been able to pull off without congressional, judicial, administrative, executive, or any other type of oversight);

(2) The stock market fell 700 points, signifying what I've been thinking all along: these companies aren't really worth what we thought they were when that flashing number on TV kept going up and we kept buying stock based only on the flashing numbers instead, oh say, SEC filings and the like;

(3) According to minority leader John Boehner, he couldn't muster the Republican support for the bill because Nanci Pelosi hurt their feelings before the vote (if that is really true, I'm jumping off a bridge);

(4) We are still a semi-capitalist society (high five to the Invisible Hand);

(5) Giant corporations still can't borrow millions of dollars in day-to-day loans to pay for their operating costs;

(6) Giant corporations have to borrow millions of dollars in day-to-day loans to pay for their operating costs?;

(7) My power is still on, and I get cable TV and the internet, food supplies are steady, I own a shotgun, two serviceable fishing poles and a whole bunch of camping equipment, and there are no riots in the streets. All-in-all, not a bad day.

Ok, so on a more serious note, I'll explain why I don't support the $700 billion bailout (other than the 700 billion reasons I just gave, or, for my part, my $2,000 piece of it). Ever since September 12, 2001, the Bush administration has been pushing legislation down our throats via a weak, ineffectual and compliant Congress (both Republican and Democrat) in the name of perpetual crisis. September 11 was a crisis and it demanded swift action (which we never took). The Bush administration has found a great source of power in perceived crisis and has used that perception to demolish the traditional role of the executive branch in our government and the role of the government in our lives. Their latest escapade has been to push a fundamentally flawed piece of legislation down Congress' throat in the name of yet another in a long string of "crises." Bravo to the lawmakers who finally stood up (what took you so long?).

It is true that our economy is in bad shape. It is true that there are several fundamental economic problems that need to be solved and, if the markets are left alone to work themselves out, things are going to get a whole lot worse before they get better. However, what we don't need is another 11th hour bill, rushed through Congress and signed by Bush's golden pen (subject, of course, to his signing statement) that ends up becoming yet another piece of regrettable crisis legislation.

Absurd Quote of the Day that Brought Me Out of Hiatus

You can hear the panicked screams emanating from Capitol Hill all the way down here in South Carolina. Lawmakers are suddenly faced with a very tough decision- how are we going to spend this $700 billion crisis money? Turns out that the bailout is deeply unpopular among the public, but hey what do we know?

This brings us to our absurd quote of the day that brought me out of hiatus. This gem comes from Rep. Jim Marshall (D-Ga.), who hails from the conservative 8th District of Georgia- the fightin' 8th. To set up the irony of this quote, I need only cite to Rep. Marshall's own website, the title of which claims: "Jim Marshall: Representing the People of Georgia's 8th District". Source. Seriously, check the link, its in the title, in big, bold letters. So imagine my surprise when I'm reading through the WaPo's coverage (Source) of the bailout this morning and I see Rep. Marshall saying this:

I am willing to give up my seat over this.

That's right, REPRESENTATIVE Marshall is willing to give up his seat to pass an incredibly unrepresentative piece of legislation that just happens to vastly extend the power of our federal government and enables our economy to continue down the road of becoming a full fledged Ponzi scheme, all because people (and by "people" I mean people in the Treasury Department and corporate America) got all freaked out because what is the equivalent of a large scale, corporate pay-day lending scheme stopped working. Gotta love it, folks!

Quote of the Day & A Little Background

A gem like this:

“This thing is moving fast, and it’s impossible to predict,” Rainey said of the factors affecting the economy. “It’s hard to understand.” Source

prompted me to ask the question: who is John Rainey, and why is it so hard to understand?

John Rainey is this guy:



He's also chair of the SC Board of Economic Advisors, chairman of the board of Easlan Capital Inc., has not one, but two law degrees (USC, Georgetown), and, apparently, doesn't understand why SC's economy is tanking.

More to come later.

Random Bits of News

(1) NBC Nightly News, 6/26/08, 6:40 pm, view the story here.

NBC ran a story about North Korea's recent compliance with international demands that they make their nuclear program transparent. Pres. Bush has announced that he will remove North Korea from the official "State Sponsors of Terror" list in light of North Korea's recent actions. Sen. Sam Brownback responded: "We're legitimizing a genocidal regime." Ok, I'm not a North Korea apologist. People have legitimate and justifiable worries about North Korea's treatment of its own citizens. But what does nuclear transparency have to do with state sponsorship of terrorism? We haven't proven that North Korea did, or attempted to provide nuclear technology to terrorist groups. The closest anybody's has come is suspicion that a POSSIBLE nuclear site in Syria was erected using information and technology from North Korea. But the fact that North Korea found Jesus in regard to their nuclear program doesn't necessarily mean they've quit sponsoring terrorism. And further, in regard to Sen. Brownback's comments, can people please stop misusing the term "genocide"...please. "Genocide", according to the United Nations, means "any of the following acts committed with intent to destroy, in whole or in part, a national, ethnical, racial or religious group, as such: killing members of the group; causing serious bodily or mental harm to members of the group; deliberately inflicting on the group conditions of life, calculated to bring about its physical destruction in whole or in part; imposing measures intended to prevent births within the group; [and] forcibly transferring children of the group to another group." Source. There is no proof that North Korea's government has engaged in such practices, despite their despicable treatment of their own people. Like I said, I'm not apologizing for North Korea, I only want my government officials to accurately characterize world events.

(2) US Supreme Court hands down a couple of interesting rulings:

(A) Exxon Shipping Co. v. Baker - the Court ruled that, at least in the context of maritime cases, punitive damages are limited to a 1:1 ratio to compensatory damages. While the ruling was not a constitutional ruling and therefore not mandatory outside of the maritime context, the Court made clear that the problem of unpredictability of punitive damages (in this case, $5 billion against Exxon) extends into all civil cases and left the door open for similar challenges to other punitive damages awards. Source.

(B) District of Columbia v. Heller - the Court ruled that the Second Amendment protects an individual right to own firearms unconnected with any service in the militia. Justice Scalia, writing for the majority, expressly overruled my April post on the issue (here), holding that the prefatory clause (e.g. the one about the militia) does not limit or expand the scope of the operative clause (e.g. the one that says citizens can own guns). I'm honored that the Supreme Court saw fit to rule on one of my posts, even if they did get it wrong. Source.

Raw Data: Come to Your Own Conclusions

(1) Top 2 Oil Consumers in the World (Source):

U.S.: 20,730,000 bbl/day
China : 6,534,000 bbl/day

(2) The Dollar to the Chinese Yuan (Source):

March, 2003: 1 Yuan = 0.120192 USD
March, 2008: 1 USD = 0.141401 Yuan

(3) Of the $9T (that's $9,000,000,000,000) US debt, $5T is financed through treasury securities (as of 2007) (Source)

(4) The Dept. of Defense spent $666B in 2007 (Source)

(5) Top 5 Foreign Holders of US Treasury Bonds (Apr. 2008) (Source):

Japan: $592.2B
China: $502B
UK: $251.4B
Oil Exporters: $153.9B
Brazil: $149.5B

McCain is Going to Lose Unless...

He runs against this guy:

McCain's people haven't figured this out yet. He is unelectable on Iraq and the economy and those are going to be the decisive issues this time around.

It's a pretty well-accepted phenomenon that candidates pander to the far right/left during the primaries and tend to move more toward the middle in the general. That's why I wasn't surprised to hear McCain's bad Iraq policy and bad economic policy up until he sealed the nomination. But he's been the Republican candidate for a while now and I don't see him moving toward the middle.

But moving toward the middle is not going to be enough of a winning strategy for McCain. He needs to move away from Bush's policies. Far, far, away. Miles away. If the world is a playground and Bush is in the sand box, McCain needs to be headed toward the jungle gym, pronto. This is his only real chance of winning in November.

Over the next month or so you'll see Obama begin to solidify his base and stake his claim to the Clinton voters. Even the ones that said they wouldn't support him will see McCain as an unacceptable alternative. Obama's already been playing the "Bush's third term" card against McCain. McCain deftly countered that Obama would be a second Jimmy Carter term, but the problem with that is that Carter's blunders are not fresh in the minds of every American.

If McCain truly wants to be the president, and not just a lame duck candidate in a year that his party doesn't think they have a chance (a la John Kerry, maybe?), then he's going to have to run against W. He needs to forget about Barack Obama, because this election is about George Bush.

Update: Some Speculate that Speculating is the Problem

WaPo Article Here

According to some lawmakers and some deep-pocketed investors, speculating on the futures markets is at least contributing to the higher prices. Apparently the regulations restricting futures trading to those who actually have a stake in the market (e.g. airlines, farmers, etc.) were lifted at the behest of companies (including Enron) in 2000. So, let's see, if we account for the policy lag, let's give it about, oh, 7 to 8 years, and here we are. Look's like the neo-cons' economic policies are about as useful as their foreign policies.

Basic law of economics: if it's cheap, demand goes up; demand goes up, price goes up; price goes up, supply goes up, price goes down. Ah, but what happens when the supply doesn't go up, or actually goes down? What happens when some players think they can manipulate the market to their own ends? A bubble, that's what.

If you read the article linked above, you'll see that the main concern of a commodities bubble is the effect it might have on financial institutions. So, what does this mean to the average consumer? Did it hurt your wallet when Bear Stearns collapsed? Is Wachovia's struggling margin really making it hard to put food on the table? No.

The real fear is that there will be a run on the banks like the one that happened during the Great Depression. If people don't have confidence in their banks, those people will take their money out of the banks. However, we have the FDIC that is supposed to insure runs on banks (or at least assure those who make deposits).

No, what is going to happen, and is already happening in the mortgage markets, is that credit will become more and more difficult to obtain. This is because we have become accustomed to living beyond our means and the financial institutions that have supported our habits are running out of suckers who will buy our debt.

Ultimately, when all is said and done, I expect to see a moderate adjustment in the standard of living for the average American, the poor will suffer the most (as they always do), and the concentration of wealth that has been building over the past decade will recede a bit. Then the banks will feel a little more comfortable lending us money, and the cycle will start all over again. Welcome to the bubble-bust economy. Without fundamental changes in the way we see money and credit, it will be a self-perpetuating phenomenon.