Saturday, June 26, 2010

A government bail-out that you won't see the Tea Party complain about

Continued federal subsidies to farmers. So much for the whole "free market, small government" capitalism thing that they're always talking about.

Thursday, June 24, 2010

Obama and BP

One thing I'd like to point out in light of all of the GOP attacks on the way Obama treated BP. Republicans have asserted that the 20 billion dollar escrow fund is a "shakedown" and that it is unlawful. Granted, they all backed off because they realized that it was politically a bad position to be in - but was there any merit to their position? I would argue no.

I agree that it would be illegal if Obama was trying to force BP into putting 20 billion into escrow, since damages claims should go through the tort system. But from what I know, Obama simply asked BP to do it, and BP complied instead. This is a subtle difference, but a relevant one.

If someone was to rear end me on the road, I could ask them to give me a few hundred dollars in cash. It would be convenient for both of us, after all. That way, I wouldn't have to deal with the courts, I wouldn't have to call the police. The person who hits be benefits as well, since their insurance won't find out and they end up paying less in the long run. That being said, if the person who hit me refused to give me a few hundred bucks cash, theres no way I could force them to do it. Instead, I would have to use the court system, and would probably try to get more than just a few hundred bucks in damages for my inconvenience.

Obama wanted BP to put 20 billion in escrow because it will result in very rapid payments to people who are injured financially by this oil spill. Obama benefits from this because it is going to be good politics - people will see that he made action on the issue, that people are going to get paid, and that BP is punished. Yet, BP stands to gain as well and I have no doubt that this is one of the reasons they complied with Obama's request. BP knows that using the tort system, they would have had to paid out huge sums of money anyways. Furthermore, not being seen by the American people, investors, the world as cooperating would probably injure their long-term bottom line by damaging their reputation.

Besides Obama and BP, I think the people on the gulf coast are going to benefit from this as well. It took decades for the Exxon Valdez oil spill damages to get paid out to some of the claimants. The tort system is a slow and cumbersome beast. It obviously is the judicator of last resort, but there is nothing illegal about avoiding the tort system if all parties agree.

Saturday, June 12, 2010

Strategic Default

Former Treasury Secretary Henry M. Paulson Jr. on strategic defaults: "Any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation.”

When I read that quote, I thought it was one of the most audacious things I had ever read. The entire world banking system was on the verge of collapse two years ago until it was rescued by the Obama administration. And the reason it almost happened was because bankers on Wall St. were recklessly speculating with the savings of American citizens. Who wasn't honoring an obligation? Regular citizens are held to a higher standard than banks?

Meanwhile, here are the Republicans going after strategic defaulters. Again, these are the regular citizens who have made a business decision that their home is no longer a smart investment. These citizens decide to cut their losses and walk away - and suffer the consequences in the contract, which state that they must surrender the property.

There may be an economic explanation for widespread strategic defaults should be discouraged, although I don't really see it at the moment. It is certainly bad for the housing market *now* but it wouldn't be bad for a housing market *in general*, since the threat of strategic default would serve as a powerful incentive for banks to not feed housing bubbles or try to profit off of them. At any rate, its pretty heinous to see the Republicans go gung-ho about pursuing regular Americans and forcing them to stick with bad business decisions when Mitch McConnell and the Republicans have been defending Wall Street from any regulation whatsoever.

If anyone remembers, Jim Cramer (of Mad Money) went on the Daily Show a couple years ago and got a beat down by Jon Stewart that was so complete that it was actually awkward to watch the show and Cramer looked like he was going to cry. Well the reason that Cramer caught Stewart's attention in the first place is that on Mad Money, Cramer referred to Americans who were walking away from their mortgages as "losers".

I'm just trying to figure out how in our culture, corporations and banks who f*ck up beyond belief deserve to be preserved, bailed out, and protected from any regulation. But average Americans, who don't do finance for a living, when they decide that they can no longer afford a mortgage and walk...what are they? They're "losers", who "aren't honoring their obligations". It is just too ironic that the only reason many of these citizen defaulters were in those mortgages in the first place is because banks were giving home loans people with bad credit for zero money down.

Thursday, June 10, 2010

The Oil

I think one important point that keeps getting lost on impatient Americans is why BP was drilling in the first place.  They were drilling because Americans refuse to use less oil.   BP had to drill because our energy policy for the last decade has been "drill baby, drill" when especially after 9/11 it should have been "conserve baby, conserve".  We didn't want nuclear power or mass transit.  We wanted SUVs and strip malls.  We went to war for it.  Now the gulf is paying for it.

The saddest thing is through all the whining and bitching about this oil spill, nobody is talking about how we reduce our dependence on oil.  We need a gas tax, nuclear power, and public transit - and soon.  Until we decide to make a sacrifice I seriously am sick of the whining about BP, who did the job we paid them to do, with risks that were clearly not part of the fee but that should have been (this is why we need an oil tax).