Saturday, October 4, 2008

In Defense of Speculators and Short-Sellers

From In Defense of Speculators and Short-Sellers, by Amit Ghate

Everywhere today government bureaucrats and media pundits blame unwanted price movements on speculators and short-sellers. If prices are “too high”--it’s the fault of greedy speculators; if prices are “too low”--it’s the work of evil short-sellers. To hear these critics tell it, speculators have the ability to create artificially high prices, while short-sellers can wantonly destroy sound companies. (Ignore for now the obvious question: “Where are the short-sellers in markets that are 'too high' and the speculators in markets that are 'too low'?")

Thursday, October 2, 2008

Economic Freedom: Why My Country Is the Best

Here is an excerpt from a well written article on Economic Freedom, by Dr. Eric Daniels

The example of American freedom is a powerful one. Nowhere else has the liberty of average citizens been greater, more secure, and more protected. Lovers of freedom have admired all its aspects, from our protection of religious conscience to our free elections, from our freedom of speech to our impartial judicial system to our ability to choose our own private associations and more. One of the most persuasive features of our freedom, of course, is America’s high degree of economic freedom and the wealth and widespread abundance that has resulted from it.

Such reasons are why I proudly proclaim my country as the greatest in history. And that people like Dr. Daniels are standing up and making the philosophical and pratical case for the America's greatness, gives me hope, even in face of our current political and philosophical corruption and errors, that in the end reason, truth, freedom and America will find themselves on top.

Tuesday, September 30, 2008

Proper Response to The Bailout

Key Points on "Rescue" Plan From A Healthy Bank's Perspective. BB&T has issued the following statement on the banking crisis and the proposed bailout.

1. Freddie Mac and Fannie Mae are the primary cause of the mortgage crisis. These government supported enterprises distorted normal market risk mechanisms. While individual private financial institutions have made serious mistakes, the problems in the financial system have been caused by government policies including, affordable housing (now sub-prime), combined with the market disruptions caused by the Federal Reserve holding interest rates too low and then raising interest rates too high.

2. There is no panic on Main Street and in sound financial institutions. The problems are in high-risk financial institutions and on Wall Street.

3. While all financial intermediaries are being impacted by liquidity issues, this is primarily a bailout of poorly run financial institutions. It is extremely important that the bailout not damage well run companies.

4. Corrections are not all bad. The market correction process eliminates irrational competitors. There were a number of poorly managed institutions and poorly made financial decisions during the real estate boom. It is important that any rules post "rescue" punish the poorly run institutions and not punish the well run companies.

5. A significant and immediate tax credit for purchasing homes would be a far less expensive and more effective cure for the mortgage market and financial system than the proposed "rescue" plan.

6. This is a housing value crisis. It does not make economic sense to purchase credit card loans, automobile loans, etc. The government should directly purchase housing assets, not real estate bonds. This would include lots and houses under construction.

7. The guaranty of money funds by the U.S. Treasury creates enormous risk for the banking industry. Banks have been paying into the FDIC insurance fund since 1933. The fund has a limit of $100,000 per client. An arbitrary, "out of the blue" guarantee of money funds creates risk for the taxpayers and significantly distorts financial markets.

8. Protecting the banking system, which is fundamentally controlled by the Federal Reserve, is an established government function. It is completely unclear why the government needs to or should bailout insurance companies, investment banks, hedge funds and foreign companies.

9. It is extremely unclear how the government will price the problem real estate assets. Priced too low, the real estate markets will be worse off than if the bail out did not exist. Priced too high, the taxpayers will take huge losses. Without a market price, how can you rationally determine value?

10. The proposed bankruptcy "cram down" will severely negatively impact mortgage markets and will damage well run institutions. This will provide an incentive for homeowners who are able to pay their mortgages, but have a loss in their house, to take bankruptcy and force losses on banks. (Banks would not have received the gains had the houses appreciated.) This will substantially increase the risk in mortgage lending and make mortgage pricing much higher in the future.

11. Fair Value accounting should be changed immediately. It does not work when there are no market prices. If we had Fair Value accounting, as interpreted today, in the early 1990's the United States financial system would have crashed. Accounting should not drive economic activity, it should reflect it.

12. The proposed new merger accounting rules should be deferred for at least five years. The new merger accounting rules are creating uncertainty for high quality companies who might potentially purchase weaker companies.

13. The primary beneficiaries of the proposed rescue are Goldman Sachs and Morgan Stanley. The Treasury has a number of smart individuals, including Hank Paulson. However, Treasury is totally dominated by Wall Street investment bankers. They do not have knowledge of the commercial banking industry. Therefore, they can not be relied on to objectively assess all the implications of government policy on all financial intermediaries. The decision to protect the money funds is a clear example of a material lack of insight into the risk to the total financial system.

14. Arbitrary limits on executive compensation will be self defeating. With these limits, only the failing financial institutions will participate in the "rescue," effectively making this plan a massive subsidy for incompetence. Also, how will companies attract the leadership talent to manage their business effectively with irrational compensation limits?

Related Articles

The Cover letter sent with the above points to Congress

BB&T chief slams bailout plan

Bad Deal? BB&T chief takes issue with bailout

A Legislative Crime

Corporate Welfare: America vs. Congress et al.

Don’t Cap CEO Pay: End Bailouts

The Bailout: Just a $700 Billion Hedge Fund?

Urgent: Oppose Bailout of Wall Street Now

Calhoun on the Bubble *** Excellent ***

Bailout Crack

An Open Letter to Members of Congress on the Financial Mess

Was the Sub-Prime Mortgage Crisis Caused by Lack of Regulations?

Financial crisis: What Atlas Shrugged teaches us

Grim Prospects For Liberty

An Open Letter to Borrowers and Lenders: Take Responsibility for Your Decisions

Don't Blame Capitalism

Sunday, September 28, 2008

2 Days to Go!

I like to start every conversation about Iron Man by saying, "it is not the best movie ever made". Then proceed to say, Robert Downey Jr, the best film actor on the planet, gave one of his best performances. Jeff Fisher and Gwynethew Patrow were amazing. The movie is benevolent, uplifiting and even inspiring at times. And it is chalked full of great lines:

Is it better to be feared or respected. And I say, is it too much to ask for both?


Christine Everheart: You've been called the Da Vinci of our time. What do you say to that?
Tony Stark: Absolutely ridiculous. I don't paint.
Christine Everheart: And what do you say to your other nickname, the Merchant of Death?
Tony Stark: That's not bad. Let me guess... Berkeley?
Christine Everheart: Brown, actually.
Tony Stark: Well, Ms. Brown. It's an imperfect world, but it's the only one we got. I guarantee you the day weapons are no longer needed to keep the peace, I'll start making bricks and beams for baby hospitals.
Christine Everheart: Rehearse that much?
Tony Stark: Every night in front of the mirror before bedtime.
Christine Everheart: I can see that.
Tony Stark: I'd like to show you firsthand.


Give me a scotch. I'm starving.


Tony Stark: Am I making you uncomfortable?
Virginia 'Pepper' Potts: Oh, no, I always forget to wear deodorant and dance with my boss in a room full of people I work with in a dress with no back.
Tony Stark: Well, you look great, you smell great. But I could fire you if that would take the edge off.
Virginia 'Pepper' Potts: I don't think you could tie your shoes without me.
Tony Stark: I'd make it a week.
Virginia 'Pepper' Potts: A week, really? What's your social security number?
Tony Stark: [he pauses]
Tony Stark: Five...
Virginia 'Pepper' Potts: [smiling] "Five?" You're missing just a couple of digits.
Tony Stark: Right, the other eight. Well, I have you for the other eight.


Yinsen: [amazed at the arc reactor] That could run your heart for fifty lifetimes!
Tony Stark: Yeah... or something big for fifteen minutes.


I am Iron Man.

Put side by side with Batman: The Dark Knight, our current non-war with the Middle East, and the 2008 Presidential election, I think Iron Man shows how ridiculous America's philosophy, foreign policy and sense of life have become. Life is a wonderful thing -- to be enjoyed, celebrated, and protected -- Iron Man gives us a lot of all three.

Iron Man, while a comic/super hero movie and not as good as it could have been, and certainly not the best movie ever made, is still the best thing going in 2008.

I salute Marvel and Mr. Downey for getting the movie made and made so well!

If you haven't seen it already, in two days, Iron Man will be available on DVD. Order your copy now!