The Locker Room

October 6, 2008

Bailout buyers' remorse

Posted by Jon Sanders at 4:28 PM

To update, the DOW closed down nearly 370 points, a 400-plus-point recovery from earlier this afternoon. Hang on, everyone:

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Scam revealed — buyers' remorse sets in hard

Posted by Jon Sanders at 3:35 PM

It was a week ago that the Drudge Report ran with its doomsday red font about the stock-market meltdown with clear implications that the failure of the $700,000,000,000 "bailout" plus pork, pork, PORK bill was responsible for a (then) record-setting selloff. Headlines included:

  • THE VOTE: 228 NAY; 205 YEA...
  • -777.68 (-6.98%)...

Not to pick on Drudge; this was the script last week: See? the market needs the bailout bill! Listen to the market!

Although there were many who interpreted the markets quite differently; among them, Dr. Roy Cordato, who noted upon the "surprising" (to the government-bailout-NOW scriptwriters) rebound the next day:

The Dow is up 490 points, the price of oil is down below $100, and the dollar is strengthening. Yep, things sure are falling apart. The amazing thing is that the performance on the stock market today is being attributed to talk of a new bailout deal. Gee, it couldn't possibly be that on sober reflection there's some relief that the old deal failed, could it? Or maybe a sense that the Bush/Paulson scare mongering is just that? Time is on the side of freedom. The politicians know that they have to "fix" this thing before it fixes itself and they end up with egg on their face.

And today, the first day for the markets to react to the passage of the bill Friday? Well, to get a sense of what a glorious "rescue" it's been, here are some of the current headlines on the Drudge Report, and would you believe they're in the doomsday red, again?

  • DOW PLUNGES RECORD 800... [this is in flashing red font]
  • STAMPEDE AT NBC: Jim Cramer warns investments could lose 20% of value...
  • FLOOD AT FED: Doubles Cash Sales to $900 Billion...
  • GOODBYE, 10,000

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The church and Galileo

Posted by Mitch Kokai at 1:29 PM

If you know much about Galileo, you've likely heard that the Catholic church took aim at him because of his support of the theory that the earth revolved around the sun.

John Hubisz, adjunct professor of physics at N.C. State University, explained at today's John Locke Foundation Shaftesbury Society meeting that the popular account of that story is wrong.

3:30 p.m. update: Watch the entire presentation here.

You'll find other John Locke Foundation video presentations here.

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A new NC econ blog to check out

Posted by John Hood at 1:15 PM

My friend Randy Parker, economics professor at East Carolina, recently started a macroeconomics blog that Locker Room readers may find interesting. Here's an excerpt from his latest post:

...[W]hen it is all said and done, please remember that the only way that you and your family and those of your ancestors have escaped the grinding poverty that characterizes most of the world's population is through the evolution of free markets here in the U.S. and throughout our economic history. If you take the income level of what we define today as poverty ($10,400 for an individual in 2008), 13% or so of our population are classified as poor. If you take that same income level and put it into equivalent purchasing power dollars in the year 1900, the turn of the last century, guess what percentage of the U.S. population in the year 1900 was below what we consider poverty today? The answer: 90%.

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New York Times avoids cognitive dissonance

Posted by George Leef at 1:05 PM

Yesterday's New York Times ran this article in its opinion section, the gist of which is that capitalism is ever more in disrepute that we need to find a better economic model.

This is smarmy journalism. The left is desperate to use the current crisis to push for even greater government interferences with the voluntary processes of the market -- producing and selling goods and services. It is equally desperate to avoid having ordinary people figure out that they're now going to have to pay for the visionary boondoggles of the politicians who always claim to be their friends. That bit of deception MUST be maintained and the Times is playing the role of Pravda.

I just sent the following letter to the editor:

As predictable as the sunrise, the Times seizes upon the present economic turmoil to publish a piece arguing that capitalism lies in discredit. We supposedly need to trade in that old capitalist clunker in favor of a fresh new model with lots of socialistic, regulatory features.

I have to wonder -- didn't it occur to writer Alex Berenson to solicit the opinion of any economist who understands that our current travails are due to interferences with the free market? Or was he told not to bother since dissent would undercut the message of the piece?

We wouldn't be in this mess except for the massive economic distortions brought about by forces outside of capitalism -- the Fed's artificially low interest rates, federal pressure on banks to make foolish loans, and the recklessness of two government-sponsored entities (Fannie Mae and Freddie Mac). Can't you tolerate the cognitive dissonance that government economic interventions boomerang?

George C. Leef

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The wrong scapegoat

Posted by Joseph Coletti at 11:41 AM

Sebastian Mallaby summarizes the problems with blaming deregulation for the current financial mess.

The key financiers in this game...were by no means unregulated. U.S. investment banks, regulated by the Securities and Exchange Commission, bought piles of toxic waste. U.S. commercial banks, regulated by several agencies, including the Fed, also devoured large quantities. European banks, which faced a different and supposedly more up-to-date supervisory scheme, turn out to have been just as rash. By contrast, lightly regulated hedge funds resisted buying toxic waste for the most part -- though they are now vulnerable to the broader credit crunch because they operate with borrowed money.

If that doesn't convince you that deregulation is the wrong scapegoat, consider this: The appetite for toxic mortgages was fueled by Fannie Mae and Freddie Mac, the super-regulated housing finance companies.

Mallaby adds that the next president will have to defend the market "against the inevitable backlash that follows this crisis," as Roy Cordato has done in a different context.

The whole thing is worth reading.

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James Grant on the financial crisis

Posted by George Leef at 11:35 AM

At least the Washington Post is willing to publish someone who won't help to push the line of the political establishment that the crisis is due to "deregulation" and "laissez faire philosophy." Here is a clear-eyed piece by James Grant published in yesterday's paper.

The economic distortions brought about by years of extremely cheap credit due to the Fed, steered into the housing industry by those wonderful GOVERNMENT-SPONSORED ENTITIES Fannie Mae and Freddie Mac and specifically loans to low-income people thanks to the Community Reinvestment Act, will take years to recover from. What we can anticipate is that the culprits in Washington will keep struggling to make the public think that the trouble is all due to "deregulation" forced by those "free market Republicans." Bush will be cast as Hoover, responsible for all economic woes.

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Re: Why Coble voted yes

Posted by Hal Young at 10:34 AM

To be fair, David, don't forget that Butterfield was a third N.C. Democrat who voted against the bill both times.

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Does performance pay ruin teamwork?

Posted by Dr. Terry Stoops at 10:21 AM

Washington Post columnist Jay Mathews argues that performance bonuses for teachers would undermine collegiality because "competition for money can bring out the worst in people."

I disagree. Here's why:

1. There is no empirical evidence that performance pay or bonuses would ruin teamwork. Mathews just has a hunch that they would.

2. Not all teamwork is beneficial. In fact, teamwork can be counterproductive if the team is headed in the wrong direction or if personality conflicts dominate.

3. Not all teachers like (or need) teamwork. By all means, allow teachers to work in teams, if they choose to do so, but also allow teachers to work alone.

4. Competition for money can (and does) bring out the best in people.

5. Most public schools are not the touchy-feely work environments imagined by people like Mathews. They are competitive places already, and a great deal of the teamwork that occurs is imposed on teachers by school administrators. Thus, it is not a choice between teamwork and competition. It is a choice between unrewarded and rewarded competition.

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Why Coble voted yes

Posted by David N. Bass at 09:03 AM

This New York Times article profiles some of the congressional lawmakers who were pressured to switch their vote from "no" to "yes" on the bailout bill. The first representative mentioned: Howard Coble, a Republican from North Carolina's 6th district.

Why did Coble do a switcheroo? Well, a couple of reasons:

The bill was improved, Mr. Coble believed, by amendments that were adopted by the Senate on Wednesday. He welcomed an increase in the protection of bank deposits, raising the amount that can be insured by the Federal Deposit Insurance Corporation to $250,000 per depositor per bank from $100,000. He was also swayed by the Senate’s addition of a tax provision, which will shield more than 20 million middle-income households from the alternative minimum tax, originally aimed at high-income people.

Among other provisions added in the Senate was a tax break for movie and television production companies that shoot films in the United States. While some lawmakers denounced this as a pet project, Mr. Coble said it was important to his state. The Civil War epic film “Cold Mountain,” he recalled, may have been set in North Carolina but it was filmed in Romania.

The condensed version: there were some tempting local goodies in there that Coble couldn't pass up. The question, of course, is whether these goodies justified pushing America over $10 trillion in debt.

The second reason:

...was in no small measure the torrent of telephone and e-mail that had swung in favor of the bill.

He [Coble] called the vote one of the most difficult he has ever cast. “Half of my constituents will be annoyed with me, and half will be pleased,” he said.

It should be noted that Democrats Heath Shuler and Mike McIntyre stayed consistent and voted against the bailout plan a second time.

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The Bailout of Abominations

Posted by George Leef at 09:02 AM

That is how historian Robert Higgs describes the 2008 bailout bill, taking the phrase from the Tariff of Abominations of 1828. Read his thoughts here.

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Load of bull

Posted by Dr. Terry Stoops at 08:17 AM

The director of Wake County Human Services, Ramon A. Rojano, was suspended after some of his employees complained that he made unwelcome comments about their weight. I am not convinced that these comments warranted a suspension, but so be it.

But here is the kicker. According to the N&O article,

He said he is still learning the nuances of both the English language and what is appropriate to say in the South. Remarks that would have been fine in a Latin culture or in Connecticut were deemed offensive by some employees, he said.
Mr. Rojano's excuse is a load of bull. I recently heard him deliver a lengthy presentation on the county's human services programs and he seemed to understand the nuances of the English language just fine. (He's been in the United States for 22 years!) If he truly doesn't have an adequate grasp of English, then he has no business being the director of Wake County's human services programs.

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Latest dispatches from the political trail

Posted by John Hood at 07:53 AM

• Barack Obama's appearance at the Vance-Aycock dinner in Asheville and subsequent rally in Asheville demonstrate how North Carolina politics is changing.

• Beverly Perdue and Democratic-leaning groups attack Pat McCrory on a host of issues, while McCrory keeps his advertising positive and the Republican Governors Association criticizes Perdue's record. Democratic mayors in big NC cities endorse Perdue. McCrory promises openness and a press conference every week or so.

• The News & Observer profiles Kay Hagan. Before Obama's Asheville speech, she shoots hoops with him and other Democratic politicians at a local gym. Some Republicans say that Elizabeth Dole faces long odds.

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Yes, saving is a good thing

Posted by Mitch Kokai at 06:42 AM

One suspects Nancy Gibbs’ latest TIME column was motivated by a desire to tweak President Bush and his administration for encouraging our high-spending society. Regardless of the motivation, Gibbs makes valid points about the importance of frugality.
American greatness — the vision of the founders, the courage of the pioneers, the industry of the nation builders — reflected a mighty faith in the power of sacrifice as a muscle that made young nations strong.

Though her argument is basically sound, it’s unclear whether Gibbs understands that the sacrifice associated with private saving, the source of capital for economic growth, is different from the sacrifice associated with higher taxation. The latter results in redistribution of existing wealth and/or diversion of investment into less productive ventures than those that thrive in a free-market system.

Gibbs might benefit from reading this 2007 column about the importance of saving.

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Republicans in Hollywood … an endangered species

Posted by Mitch Kokai at 06:40 AM

TIME offers a nice report on the new right-leaning movie, An American Carol. The opening paragraph explains why such a conservative picture is so rare in Hollywood:
[T]here's the thing you don't admit to: that you vote Republican. "I preface it by saying I've been convicted of child molestation, and that breaks the ice," says director David Zucker of sharing his political views with liberal-leaning colleagues. "Then being Republican doesn't seem so bad to them."

For more on Hollywood’s peculiarities, click here, here, and here.

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What about the price controls?

Posted by Mitch Kokai at 06:39 AM

The Moment,” TIME’s weekly excursion into ersatz journalism, focuses this week on a comparison between 2008 and the America of the 1970s. David Von Drehle tell us:
Thanks to Hurricanes Gustav and Ike, which crippled Gulf Coast refineries, drivers in the Southeast are creeping around town with their gas gauges on empty, searching for a pump that isn't dry. And while oil companies said supply would improve by Columbus Day, the long lines aren't the only thing giving us déjà vu.

What Von Drehle ignores is the return of price controls. While price controls caused the gas lines and shortages of the 1970s, the de facto price controls of price-gouging laws in North Carolina and Georgia are causing the same problems now.

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Government efficiency

Posted by Mitch Kokai at 06:37 AM

Yes, I know it’s an oxymoron … proved again in this Business Week article about the problems associated with the government’s Energy Star program.

Speaking of the government, energy, and efficiency, remember that Daren Bakst has helped us learn how government-mandated energy-efficiency programs create unintended negative consequences.

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Today's Carolina Journal Online features

Posted by Mitch Kokai at 06:33 AM

The week's first Carolina Journal Online exclusive features Professor David Hartgen's new first-of-its-kind assessment of the Charlotte LYNX light-rail line. 

John Hood's Daily Journal draws attention to a new study that compiles data supporting the value of school choice.

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