Libertarian Leanings

Democrats and Financial Reform

It's all about taking care of your friends. According to the New York Post Chris Dodd's financial reform bill is filled with special-interest loopholes and exclusions.

But the section of the bill most littered with exemptions is probably the proposed consumer-protection bureau. In some instances, these exclusions actually roll back existing consumer protections.

Remember the mortgage crisis? Well, the primary consumer-protection law for homebuyers is the 1974 Real Estate Settlement Procedures Act. The law requires the timely, accurate disclosure of relevant closing costs and prohibits "kickbacks" for the steering of settlement services.

For example, your real-estate agent cannot, under RESPA, be paid a fee for steering you toward a certain home inspector, title company or other closing service. Yet, under the Dodd bill, real-estate agents would be exempted from RESPA. If that weren't bad enough, the Dodd bill exempts insurers and attorneys -- both now subject to RESPA -- from its consumer protections, too.

Although Dodd's bill is advertised to impose greater federal supervision over "too big to fail" institutions, It should come as no surprise that insurance companies are exempt.  Hartford, Connecticut used to be known as the Insurance Capitol of the World, hence the favored treatment.  According to the Post, the new and improved oversight will apply only to bank-holding companies, while insurance companies, which tend to have thrift charters rather than bank charters will be exempt. 

So, as the bill stands now, AIG and other insurers that accepted massive bailout funds, such as The Hartford, would not be automatically covered. That's a head-scratcher only if you forget that most insurance companies reside in Dodd's home state, Connecticut.

Business as usual – under a Democratic regime.

The Post Partisan Happy Warrior

EJ Dionne once again impresses with what he must think is his razor sharp analysis.  Sharp as a marble!  At any rate Dionne is hopeful that someone or something will rescue the Democrats between now and November, and he thinks it might be Obama peddling financial reform.  At a fund raiser for Barbara Boxer, Obama spoke words that boosted Dionne's shaky confidence – maybe that electoral tsunami isn't right around the corner after all.

In one paragraph, Obama did what many of the dispirited in his party have long been urging him to do: He linked the economic mess to past Republican policies -- much as Ronald Reagan blamed the economic downturn of the early 1980s on Democrats and liberals -- and turned the tables on bipartisanship by asserting that it is Republicans who are blocking concord.

Dionne's faith rests on three things.  First, Wall Street is solely to blame for the financial mess we're in.  Second, Wall Street hangs like an albatross around Republican necks.  And finally, American voters recognizes these facts which, are as plain to Dionne as the ears on Barack Obama's head.  If he's wrong about any it, chances are November won't be so blissful for him and his progressive cohorts.

The bad news for Dionne is that he's wrong on all counts.  Yes, Wall Street can share some blame, but the financial crisis was precipitated by foreclosures in the housing market.  Foreclosures in the housing market came about when the housing market bubble reached its bursting point.  The housing market bubble was the result of government directed lending standards that allowed just about anybody to buy a house with little or no money down.  Do the names Fanni Mae and Freddie Mac ring a bell?  Not with Dionne, they don't.

He's in denial about those "toxic assets" that were "clogging" the credit markets back in fall of 2008.  Credit markets were on the verge of meltdown because of those securitized mortgages that Fannie Mae and Freddi Mac were in the business of packaging and selling.  The mortgage backed assets became toxic because the underlying mortgages were going into foreclosure at a phenomenal pace.  Housing prices don't have to fall very far to put your house under water when you borrow 97% of the price or better to buy it. 

Yet, Obama and Dionne figure to blame the bad economy on Wall Street, and blame the state of Wall Street on Republicans. A minor fly in the ointment is the nearly $1 million in campaign contributions Obama raked in from Goldman Sachs employees.  Much to Dionne's delight the undaunted Obama fell back on his usual rhetoric.  He inherited this mess.  It's somebody else's fault.

"In this entire year and a half of cleaning up the mess, it's been tough because the folks very responsible for a large portion of this mess decided to stand on the sidelines," Obama declared. "It was as if somebody had driven their car into the ditch and then just watched you as you had to yank it out, and asked you, 'Why didn't you do it faster -- and why do I have that scratch on the fender?' And you want to say, why don't you put your shoulder up against that car and help to push? That's what we need, is some help."

Blaming political opponents is a winning argument for sure when he's preaching to his choir as he when he was stumping for Boxer.  Unfortunately for Obama and Dionne, the rest of the country is getting pretty tired of it, since the rest of the country has become a growing political opposition that has been on the receiving end of Obama's blame. 

But Obama is dense enough to think we should all be saying thank you, and Dionne is dense enough to agree.

Timing is Everything

In a letter addressed to SEC Chairwoman Mary Schapiro and signed by eight other House Republicans, Representative Darrell Issa demanded the Securities and Exchange Commission turn over records relating to the civil charges the commission brought against Goldman Sachs.  In his letter Issa accused the commission of violating federal law "by using the resources of an independent regulatory agency to promote a partisan political agenda."

From the text of Congressman Issa's letter:

...the events of the past five days have fueled legitimate suspicion on the part of the American people that the Commission has attempted to assist the White House, the Democratic Party, and Congressional Democrats by timing the suit to coincide with the Senate’s consideration of financial regulatory legislation, or by providing Democrats with advance notice. In fact, the aggressive campaign by Democrats in support of the legislation neatly coincided with the Commission’s announcement of the suit. For example:

--The Commission approved the Goldman suit in a vote that spit along party lines – a rare occurrence for approvals of enforcement litigation.

--Before the Commission had released its announcement, the New York Times published on its website a story describing the suit.

--Less than half an hour after the Times story’s publication, Organizing for America, the successor organization to Obama for America and now a project of the Democratic National Committee (“DNC”), sent millions of supporters an e-mail message from President Obama urging support for “Wall Street Reform.”

--Within hours, the Democratic National Committee had purchased AdWords advertising from Google, Inc. The DNC’s Google campaign fundraising advertisement, headed “Fight Wall Street Greed,” appeared whenever a user ran a Google search for the phrase “Goldman Sachs SEC.” It read, “Help Pres. Obama Reform Wall Street and Create Jobs. Families First!” and included a link to www.BarackObama.com, the website of Organizing for America.

--Democrats in Congress and the Administration have heralded the Commission’s suit against Goldman as a welcome boost to their case for the legislation.

--Members of the media have already begun to question the timing of the Commission’s suit and the actions of the Democratic National Committee.

Sure enough, a Google search on "Goldman Sachs SEC" returns BarackObama.com as its first hit .

Help Change Wall Street

www.BarackObama.com      It's Time for Financial Reform that Protects Main Street. Act Now!

Although Obama and the Democrats were all set and ready to pounce when the suit was announced, it's been reported that Goldman was blindsided.

Firms typically get a chance to settle such suits, but not in this case, Goldman said. The Wall Street giant said it was alerted to the probe in the summer of 2008 and was warned that it might face a suit in July 2009. It says it then responded in detail to the Securities Exchange Commission's inquiry in September, but heard nothing back from the government until Friday's unveiling of the civil suit. The SEC usually notifies firms ahead of a lawsuit as a courtesy to give them a chance for a last-ditch settlement or to prepare for the public fallout.

The move showed a combative streak from the SEC, which has been under mounting pressure after letting slip through its fingers early probes into the Ponzi scheme of Bernard Madoff and the alleged fraud of Texas financier R. Allen Stanford.

The case, SEC v. Goldman Sachs & Co. and Fabrice Tourre, sets the stage for what could become the signature lawsuit from the financial-crisis era. It comes at a time when the Obama administration is trying to move through Congress a bill to overhaul financial regulations in the wake of the crisis—legislation that would likely affect the regulation of products used in the Goldman deal.

Lawsuits by the SEC are subject to a vote by the agency's five commissioners, and the tally on the Goldman case will be closely watched in Washington, as the current commission is split along party lines—with two Republicans and two Democrats, plus one independent who was appointed by President Obama.

The way the SEC launched the suit "certainly doesn't follow the spirit" or practice of the agency, said Paul Atkins, who served as a Republican SEC commissioner last decade.

Naturally, the SEC says standard practices were followed in pursuit of the case, and the White House claims it got no advance notice. But they've been remarkably quick to use the charges against Goldman in their push for financial reform.

Update:  CNBC reports that the government has in its possession testimony directly rebutting the Securities and Exchange Commission's claim that ACA Management was unaware of Paulson & Company's intention to short a portfolio of mortgages assembled as Abacus 2007-AC1.  The SEC has charged that Goldman Sachs' failure to disclose Paulson's position was a "material" factor that might have caused ACA to back out of its own investment in the CDO.

Paolo Pellegrini told the government that he informed ACA Management that Paulson intended to bet against, or short, a portfolio of mortgages ACA was assembling.

If true, the testimony would go directly against government claims that ACA did not know Paulson was hoping the collateralized debt obligations would fail, and subvert charges that Goldman breached its duty by not informing ACA of Paulson's position.

CNBC has examined documents in which a government official asked Pellegrini whether he informed ACA CDO manager Laura Schwartz about Paulson's position in the portfolio, named Abacus 2007-AC1.

"Did you tell her that you were interested in taking a short position in Abacus?" a government official asked Pellegrini, referring to the name of the CDO portfolio.

"Yes, that was the purpose of the meeting," Pellegrini responded.

[...]

CNBC further learned that Pellegrini and Schwartz met at least three times to discuss the CDO and Paulson's short position on Abacus.

The Case Against Goldman

Regarding the SEC's case against Goldman Sachs, Wall Street Journal editors are, shall we say, skeptical.  I'd say you could add me to the list of skeptics, except that I was already on it.  It's not that I have any great financial or legal expertise, but rather that every action that the Obama administration takes has a political purpose. which is to benefit the Democratic Party.

By the way, Goldman was also one of the losers here. Although the firm received a $15 million fee for putting the deal together, Goldman says it ended up losing $90 million on the transaction itself, because it ultimately decided to bet alongside ACA and IKB. In other words, the SEC is suing Goldman for deceiving long-side investors in a transaction in which Goldman also took the long side. So Goldman conspired to defraud . . . itself?

[...]

Which leads us to the real impact of this case, which is political. The SEC charges conveniently arrive on the brink of the Senate debate over financial reform, and its supporters are already using the case to grease the bill's passage. "I'm pleased that the Obama Administration is using all of the tools in its arsenal to bring accountability to Wall Street and standing up for homeowners and small businesses across America," said Senate Majority Leader Harry Reid on Friday about the SEC case. "This is also why we need to pass strong Wall Street reform this year." Of course, this case matters to homeowners not at all.

So the Obama administration wants to give itself bailout power.  That doesn't mean they'll use it, necessarily.  It will likely depend upon how big the campaign contributions are, or whether the bailed are willing to promote some favored legislation. 

In The Meantime

Although I was very encouraged by last night's T.E.A. Party in Manchester, New Hampshire, I don't plan to write about it until the weekend.

In the meantime I thought I'd share this bit of humor I received in an email.

WHY I'M DEPRESSED

Over five thousand years ago, Moses said to the children
of Israel "Pick up your shovels, mount your asses and
camels, and I will lead you to the Promised Land." 

Nearly 75 years ago (when welfare was introduced)  Roosevelt said,
"Lay down your shovels,  sit on your asses, and light up a Camel. 
This is the Promised Land. 

Now Obama has stolen our shovels, taxed our asses, 
raised the price of Camels, and mortgaged the Promised Land! 

I was so depressed last night thinking about health 
care plans, the economy, the wars, lost jobs, savings, 
Social Security, retirement funds, and everything else . . . I called Lifeline. 

Because of all the outsourcing I was routed to a call center in Pakistan. 

I told them I was suicidal. 

They got really excited and asked if I could drive a truck.

Watch Out For Those Party Crashers

Wanted: A few good liberal activists to carry racist signs at the April 15th tea parties.  According to NowHampshire.com, New Hampshire Democrats are looking for volunteers. 

New Hampshire Democrats are engaged in a statewide search for liberal activists willing to attend so-called tea parties on Thursday and carry signs expressing racist or fringe sentiments, a Democratic source with knowledge of the effort tells NowHampshire.com.

According to the source, who sought anonymity for fear of reprisals, the Dems’ last minute scramble reflects a growing obsession among party leaders that they need to discredit the tea party movement soon or it will overwhelm them come the November election.

Former Democratic State Party Chairman Kathy Sullivan is heading up the search, the source said. Sullivan has been calling and e-mailing liberal activists trying to get them to attend tea parties in different parts of the state and hold signs denying the authenticity of President Barack Obama’s birth certificate and make racially disparaging comments to reporters.

I expect to be in Manchester with my camera tomorrow evening.  We'll see what develops.

Major TV Networks Biased Against the Tea Party

According to a recent study by the Media Research Center the major networks harbor a strong anti Tea Party bias.  No surprise there.  And the intensity of network hostility to the Tea Party is only mildly surprising.

• ABC, CBS and NBC aired 61 stories or segments on the anti-spending movement over a 12-month period, and most of that coverage is recent. "The networks virtually refused to recognize the tea party in 2009 (19 stories), with the level of coverage increasing only after Scott Brown's election in Massachusetts" in January, the report said, referring to the Republican's win of the Senate seat long held by Edward M. Kennedy.

• Overall, 44 percent of the networks' reports on the tea party suggested the movement reflected a fringe movement or a dangerous quality. "Signs and images at last weekend's big tea party march in Washington and at other recent events have featured racial and other violent themes," NBC anchorman Brian Williams said in a September report.

• Coverage of the movement pales in comparison with coverage of "protests serving liberal objectives," the report said. For instance, the Nation of Islam's "Million Man March" in 1995 garnered 21 evening news stories on the day of the march — more than the tea party demonstrations received in all of 2009.

Medical Schools Can't Keep Up

So says the Wall Street Journal.  When the millions of formerly uninsured enter the market in search of primary care physicians, there aren't going to be enough.

The new federal health-care law has raised the stakes for hospitals and schools already scrambling to train more doctors.

Experts warn there won't be enough doctors to treat the millions of people newly insured under the law. At current graduation and training rates, the nation could face a shortage of as many as 150,000 doctors in the next 15 years, according to the Association of American Medical Colleges.

That shortfall is predicted despite a push by teaching hospitals and medical schools to boost the number of U.S. doctors, which now totals about 954,000.

The greatest demand will be for primary-care physicians. These general practitioners, internists, family physicians and pediatricians will have a larger role under the new law, coordinating care for each patient.

Of course, it has been the policy of the American Medical Association to limit the number of doctors entering the medical workforce in order to keep physician compensation high.

According to a 2007 study by McKinsey&Company, physician compensation bumps up health care spending in America by $58 billion annually,on average, because U.S. doctors make twice as much as their OECD peers. And even the poorest in specializations like radiology and surgery routinely rake in around $400,000 annually.

[...]

But how has the AMA managed to get away with such princely remuneration that ordinary mortals in other professions—even ones such as law and engineering that also require arduous training—can only dream of? After all, in a functioning market, a profession offering such handsome returns would become a magnet for more people who, over time, would bid down "excess" wages.

But that's not how it has worked in medicine since 1910 when the Flexner report, commissioned by the AMA, declared that a surplus of substandard medical schools in the country were producing a surplus of substandard doctors. The AMA convinced lawmakers to shut down "deficient" medical schools, drastically paring back the supply of doctors almost 30 percent over 30 years. Few new medical schools have been allowed to open since the 1980s.

Still, the AMA along with other industry organizations until recently had issued dire warnings of an impending physician "glut" (whatever that means beyond depressing member wages), even convincing Congress to limit the number of residencies it funds to about 100,000 a year. This imposes a de facto cap on new doctors every year given that without completing their residencies from accredited medical schools, physicians cannot obtain a license to legally practice medicine in the U.S. Even foreign doctors with years of experience in their home countries have to redo their residencies—along with taking a slew of exams—before they are allowed to practice here.

The upshot of all this is that now the country is facing an acute shortage of doctors that even the AMA and its sister organizations cannot deny anymore. Indeed, the Association of American Medical Colleges, a private nonprofit industry advisory group whose forecasts effectively determine how many new doctors will be allowed at any given time, reversed itself in 2002 issuing this belated apology: "It now appears that those predictions [of a glut] may be in error."

Now there's a euphemism for you.  Predictions of a glut of physicians may have been in error.  Wrong.  Erroneous predictions were deliberate and purposeful.  It's all about the the supply curve.

Massachusetts - Price Controls In Action

When Massachusetts Governor Deval Patrick rejected the premium increases by the state's health care insurers, the insurers sued in Boston superior court arguing that the arbitrary rate cap will cost them $100 million in losses this year and prevent them from making good on anticipated claims.  And while their case is pending they've stopped selling new policies.

A court decision is expected by Monday, but state officials have demanded that the insurers—under the threat of fines and other regulatory punishments—resume offering quotes by today and to revert to year-old base premiums. Let that one sink in: Mr. Patrick has made the health insurance business so painful the government actually has to order private companies to sell their products (albeit at sub-market costs).

One irony is that Mr. Patrick's own Attorney General and his insurance regulators have concluded—to their apparent surprise—that the reason Massachusetts premiums are the highest in the nation is the underlying cost of health care, not the supposed industry abuses that Mr. Patrick and his political mentor President Obama like to cite.

What's a lefty governor to do?  How do you make a case for corporate profiteering when the major Massachusetts insurers are nonprofits, three which posted operating losses in 2009.

The sadder commentary is that the Massachusetts Attorney General and state insurance regulators were actually surprised to learn that their highest-in-the-nation premiums are due to "the underlying cost of health care, not the supposed industry abuse."  They should have known.

Root Causes

In his essay explaining why he is a libertarian, John Stossel raises the moral issue of what to do about the poor.

But isn't it wrong for people to suffer in a rich country?

[...]

David Boaz, executive vice president of the Cato Institute, took the discussion to a deeper level.

"Instead of asking, 'What should we do about people who are poor in a rich country?' The first question is, 'Why is this a rich country?' ...

"Five hundred years ago, there weren't rich countries in the world. There are rich countries now because part of the world is following basically libertarian rules: private property, free markets, individualism."

Barack Obama is attacking that problem at its root.  If left unchecked, the unprecedented levels of spending and regulation that he and his party he have imposed will make America poor.  It eases their collective conscience.