ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Friday, March 07, 2008

McCain Responsible for "Outsourcing" of New AF Tanker According to Pelosi - What Balogna!

Some folks will say anything. That is especially the case with Nancy Pelosi. Truth and facts are seldom a consideration.

McCain DID intervene in the Boeing v. Northrup-Grumman/Airbus deal, but not for the reasons Pelosi implies. He did it because the winners' aircraft flew further, carried more and cost less than Boeing's product. There was considerable question at the time about why Boeing's aircraft was even being considered given these facts.

The departure of Phil Condit as CEO of Boeing in 2003 was under a dark cloud after he hired someone from the Pentagon to "help out" on this multi-billion dollar contract.

Pelosi is well aware of all this.

This will all come out over time, but it just goes to show how low some folks will go.

Pelosi points finger at McCain on Boeing
By James Politi and Demetri Sevastopulo in Washington

Published: March 7 2008 02:00 | Last updated: March 7 2008 02:00

The controversy over the Pentagon decision to award a $35bn refuelling tanker contract to EADS spilled into the presidential race yesterday, when a senior Democrat suggested that John McCain, the Republican nominee, was responsible for the deal being "outsourced" to a European company.

Nancy Pelosi, the Democratic House speaker, said Boeing had been on course to supply the US Air Force with tankers until Mr McCain "intervened".

"My understanding is that it was on course for Boeing before. I mean, the thought was that it would be a domestic supplier for it," Ms Pelosi told reporters.

"Senator McCain intervened, and now we have a situation where the contract may be - this work may be outsourced."

The air force originally chose Boeing to supply it with 100 tankers. But Congress cancelled the deal after it emerged that Darleen Druyun, a former top air force acquisitions official, had held illegal job discussions with Boeing while still negotiating the deal. Ms Druyun admitted boosting the value of the deal to help Boeing.

Mr McCain has pointed to his aggressive investigation into the Boeing deal as evidence that he is willing to stand up to powerful corporate interests.

The tanker scandal claimed the career of former Boeing chief executive Phil Condit. Ms Druyun and Mike Sears, Boeing's former chief financial officer, were sent to jail.

The suggestion by Ms Pelosi came as Boeing supporters on Capitol Hill opened a new line of attack against the deal, which ultimately could be worth more than $100bn as the air force replaces its entire fleet of about 600 in-flight refuelling tankers.

Pat Roberts, a Republican senator from Kansas, where Boeing has a strong presence, claimed the decision to award the deal to EADS and Northrop Grumman, its US partner, ran counter to US trade policy.

Mr Roberts said the decision "defies common sense" because the US was pursuing a subsidies case against Airbus, a subsidiary of EADS, at the World Trade Organisation.

"This is an outrage. It truly makes me question our trade agenda," the Kansas senator told the Senate finance committee.

Mr Roberts' attack follows a spate of criticism in Congress. The decision stunned most analysts, who expected Boeing, which has supplied the US military with in-flight refuelling tankers for five decades, to win.

Boeing will have 10 days to lodge a protest with the Government Accountability Office, the oversight arm of Congress, after it receives an air force briefing.

Copyright The Financial Times Limited 2008

Your Co-Conspirator,
ARC: MontereyJohn

Voters Experience Coyote Love with Obama

They all get pretty at closing time. But then comes the next morning. Well, er, it seemed like a good idea at the time.

Now that the fainting spells appear to be done with and the smoke has cleared from Super Tuesday Version 2.1, what are the folks thinking about Obama?

A good friend of mine, an Edwards Democrat, said to me months ago about Obama. "All wind, no sails." I pooh-poohed him. I was taken in by Obama's soaring oratory. I further said, much to my current embarrassment, "Obama does not set off my BS detector." Well, now that detector is screaming at me. (Much to my friend's credit, he has not rubbed my nose in this.)

The "hope" and "change" thing has now worn thin with many folks. The perfume and lovely wrapping no longer hides the void inside. There's no there there.

So, like the remorseful person the morning after, folks have awkened to look at who they are in bed with. "What was I thinking?" they scream silently to themselves as they consider gnawwing off their arm so that they can get away silently rather than wake that person up.

Cayote love has come to many of Obama's worhsipers.

Your Co-Conspirator,
ARC: MontereyJohn

WSJ Troubled by Bernanke As Well

It's good to see that we're not the only ones laughing at Bernanke and his idiotic proposal the other day to have lenders simply reduce their principal on mortgage loans. From yesterday's Wall Street Journal:

Bernanke's 'Principal'
March 6, 2008; Page A14

We've seen some puzzlers over the years, but we'll admit we never expected to see a Federal Reserve Chairman talking down the capital cushion of the nation's banking system.

But there it was on Tuesday, the equivalent of a CEO shorting his own stock, as Ben Bernanke encouraged the nation's bankers to write down the principal on millions of mortgage loans. Voluntary loan modifications aren't doing enough to stop foreclosures, declared the chief steward of the U.S. financial system. "In this environment," he said, "principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure."

Mull over that one for a moment. Mr. Bernanke and the Fed are charged with protecting the soundness of the banking system. The bulwark of such protection is shareholder equity -- capital -- which is generated in part by income-producing assets known as loans. Yet the Fed chief has now advised that, as a matter of public policy, banks should take a chunk of that capital and transfer it to mortgage debtors. How this additional charge -- and new political risk -- against bank earnings will ease the mistrust at the heart of the current credit crisis is a mystery.

This came only a few days after Mr. Bernanke had publicly advised Congress that more banks will fail. And it came on the same day that the Fed's Vice Chairman, Donald Kohn, told Capitol Hill that bank earnings are under increasing pressure. Amid such earnings strain and uncertainty about how far real-estate prices will fall, now seems an especially bad time for a Fed chief to instruct banks to create further losses.

It's not as if bankers don't understand their mortgage predicament, or have no sympathy for borrowers. But how, and whether, to renegotiate their loan contracts is a matter for them to decide. They might choose to lower the interest rate on some mortgages, reduce the principal amount on others, or foreclose and repossess homes on the hopeless cases. If the Fed, in its regulatory role, thinks a bank should be more aggressive in taking asset write-downs, it can order that on a bank by bank basis. Elevating principal write-downs to a general banking principle is regulatory overreach.

Only the day before Mr. Bernanke dropped his bomb, Treasury Secretary Hank Paulson disclosed that "since July more than one million struggling homeowners received a workout -- either a loan modification or a repayment plan that helped them avoid foreclosure." In January alone, there were 167,000 such modifications, with the number of borrowers receiving help rising faster than the number of foreclosures.

Mr. Bernanke's broadside might well hamper these voluntary workouts by signaling to other borrowers that they needn't do anything at all. They can merely sit tight and wait for their banker to tell them they don't owe nearly as much as they thought. Or they'll conclude they can wait for Congress to provide its own mortgage bailout, this time on the backs of taxpayers who decided not to speculate on real estate during the housing bubble, or not to purchase a more expensive home than they could afford.

It's no coincidence that one of the chief advocates of a government mortgage bailout, House Financial Services Chairman Barney Frank, hailed Mr. Bernanke's remarks as an endorsement. Meanwhile, Mr. Paulson had to wonder why Mr. Bernanke was undermining the Treasury Secretary's sensible public opposition, expressed on Monday, to a taxpayer rescue. Do the gentlemen not like each other?

The worst irony here is that the mortgage crisis is in large part the fault of the Fed's own reckless monetary policy. Low real interest rates for too long created a subsidy for debt that spurred the housing and credit bubbles that have now burst. Prices got higher than they should have been, and the first step in any recovery is letting those now-falling prices find a new bottom. Government interference in that price discovery will only prolong the crisis, increasing the chances that the losses are eventually dumped onto taxpayers.

The government is already well down this road with its expansion of the Federal Housing Administration's authority, and its unleashing of an unreformed Fannie Mae and Freddie Mac. Given his ostensible independence, the Fed Chairman is supposed to be a crucial restraint on all of this moral hazard and political panic. If the Fed can't do that, we might as well let Congress run the banking system.

Bernanke is really terrible, as this Op-Ed points out. While Greenspan caused much of these problems, Bernanke's approach to the situation is the worst of both worlds

As I pointed out back in January, a 1-time large rate reduction should've been made, with the understanding that that was it.... it appears that the Fed may continue to cut rates in drips & drabs, prolonging the slide.

Perhaps Bernanke is part of the Obama cult and is looking to destroy the economy before election day?

Your Co-Conspirator,
ARC: St Wendeler

Good Grief! What are the House Democrats Thinking... Well, Never Mind

There was a House committee meeting involving Chertoff and and several staffers from Homeland Security. What was on the Democrats' minds? Threats to our national security? Not so much. They seemed to be more concerned about the diversity among the folks appearing before the committee from the DHS.

From The Corner at NRO this morning:

Definition of "Bean Counting" [John J. Miller]

From a House hearing yesterday with DHS secretary Michael Chertoff, according to the Wash Post:

Rep. Bobby Scott (D-Va.) asked all the Chertoff aides sitting behind him at the hearing to stand up. Men in ties and jackets, all of whom appeared to be Caucasian, stood up. Without comment, Scott moved on to ask Chertoff about another issue.

But Rep. Melvin Watt (D-N.C.) returned to the diversity question. "You brought 10 staff people with you," he said, "all white males. . . . But I hope you've got more diversity in your staff than is reflected here. Please reassure me that is the case."

"I think that is definitely the case," Chertoff said.

"Okay," Watt said, and appeared to begin moving to another question.

But Chertoff continued: "I wouldn't assume that the ethnic background of everybody behind me is self-evident."

Watt replied: "I wouldn't assume the ethnic background of everybody behind you is self-evident, but I think I know an African American when I see one. . . . If anyone wants to stand up and volunteer and tell me they are an African American, I hope they will do that right now."

No one stood. Some in the audience began laughing.

"If anybody is a female that's sitting back there and wants to stand up and volunteer to tell me that," Watt continued, "I hope they will do that right now. And I want the record to show clearly that nobody stood up to volunteer in either one of those categories.

"So if you want to make that point and be cute about it," Watt said, "let me be explicit about it. . . . If we are going to do law enforcement in this country . . . we need to understand that there is an element of diversity in our country that is not represented here."

There is more than one or two kinds of diversity:

As it turns out, there was indeed diversity in the group, a DHS spokesman said yesterday. One of the men was of Peruvian heritage, he said, another was born in Russia of Jewish heritage and a third was a lawyer originally from Iran.

These folks are idiots.

Your Co-Conspirator,
ARC: MontereyJohn

Enough with the Rate Cuts!

Crude oil closed at about $104 yesterday. Holy smokes! Had enough?

There is one very good reason for that. Oil is priced in US dollars. The US dollar is in freefall. Truth is, in "real money" oil does not cost all that much more than it did 20 years ago. The dollar goes down 25%, oil goes up 25%. It's not rocket science. Of course at the same time there is increased demand from places like China and India, but the immediate offender here is the falling dollar.

Interest rates at their current low level in this country are not sustainable. Yes they bail out the few, such as folks who took mortgages that they never should have taken, but at what expense? We are heading for hyperinflation if this is not stopped very soon.

We need to stop focusing on bad old OPEC and take a look much closer to home.

Your Co-Conspirator,

Thursday, March 06, 2008

A Brit's View of Islam

Your Co-Conspirator,
ARC: MontereyJohn

Wednesday, March 05, 2008

Federal Reserve Chairman to Lenders - Just Cut the Principal!

Ben Bernanke has gotten mixed reviews on this blog and within the larger media. My biggest beef with him is that every time he opens his mouth, the market tanks. His lack of consistency and his often too direct statements are the worst of both worlds - a Fed Chairman who'll tell you exactly what he's thinking, but you can't bet that his position will be the same from day to day.

Bernanke's recent public discussion included this recommendation to lenders:

Bernanke's Call: Aid Homeowners
Fed Chief Asks Lenders To Take Aggressive Steps To Address Housing Crisis
March 5, 2008; Page A3

Federal Reserve Chairman Ben Bernanke, raising the level of urgency in dealing with the nation's housing crisis, called on lenders to aid struggling homeowners by reducing their principal -- the sum of money they borrowed -- to lessen the likelihood of foreclosure, and endorsed a bigger role for the federal government in backing such mortgages.

Mr. Bernanke's call, in a speech to bankers, is an acknowledgement [sic] the current focus on reducing homeowner's [sic] monthly payments by modifying their mortgage rates doesn't solve the underlying problem: the increasing number of American homes now worth less than their mortgages. It also suggests Mr. Bernanke is willing to advocate more aggressive measures to address the deepening housing crisis than the Bush administration has endorsed.

"The current housing difficulties differ from those in the past, largely because of the pervasiveness of negative equity positions," Mr. Bernanke told the Independent Community Bankers of America in Orlando yesterday. With negative equity, which means a home is worth less than its mortgage, "a stressed borrower has less ability...and less financial incentive to try to remain in the home.

"In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure" than reducing the interest rate," he said.

A "potentially important step" to make this happen, he said, is to expand the ability of the Federal Housing Administration to guarantee larger mortgages and mortgages on which the borrower is, or is about to be, delinquent, in effect having the federal government backstop many loans that would otherwise go into default.

Mr. Bernanke has taken an increasingly activist stance on multiple fronts in battling the housing crisis. He has slashed interest rates, backed fiscal stimulus and has positioned himself between congressional Democrats, who want more government resources committed to preventing foreclosures, and the Treasury, which has focused on voluntary steps by lenders such as modifying interest rates on mortgages.

So, someone takes out a loan with no money down on a home and Bernanke just wants the banks to eat it? He's calling for the lender to hand out a check for $250,000 on a home (valued at $250,000 at the time) and now tell the borrower, "Hey... remember that 250g's you owe us? Let's make it just 200g's and you can pocket the other 50.

The ramifications of such a "solution" are laughable:
  1. borrowers that are currently making their payments and working with their lender to get a reduced rate on their principal will stop those efforts in the hopes that they can get the reduced principal solution and/or refinancing from the FHA (aka the American Taxpayer)
  2. Borrowers will continue to seek out homes that are at or above their maximum limit for housing price, given the possibility of this type of a solution becoming the norm should they start to default
  3. Credit will become even tighter as lenders understand that not only are the rate terms re-negotiable in a static contract, but that they might also see pressure to just write off large portions of the amount borrowed as a loss just for the heck of it. Who would invest in a mortgage industry knowing that the terms of any contract might come under government pressure to be invalidated?

That Bernanke also calls for an increased role of the taxpayer to cover people's gambling home mortgage losses is one reason why I think Ben will be a one-term Fed chairman.

Your Co-Conspirator,
ARC: St Wendeler

Monday, March 03, 2008

Regulation Results in Economic Realities

It often seems that the Democrats discuss new policies and regulations (or condemn the ineffectiveness of existing regulation) without considering the actual economic impact such policies have. They often divorce effects from causes (or at least attempt to minimize the potential link between political policies and economic effects).

This excellent Op-Ed in the Wall Street Journal highlights how different political decisions have affected Texas and Ohio:


Texas v. Ohio
March 3, 2008; Page A16

As Barack Obama and Hillary Clinton race around Ohio and Texas for tomorrow's primaries, they are telling a tale of economic woe. Yet the real story isn't how similar the two states are economically but how different. Texas has been prospering while Ohio lags, and the reasons are instructive about what works and what doesn't in economic policy.

There's no doubt times are tough in Ohio. The state has lost 200,000 manufacturing jobs since 2000, home foreclosures are soaring, and real family income is lower now than in 2000. Meanwhile, the Texas economy has boomed since 2004, with nearly twice the rate of new job creation as the rest of the nation. The nearby table compares the states over a decade or so.

Let's start with the fact that Texas's growth puts the lie to the myth that free trade costs American jobs. Anti-Nafta rhetoric doesn't play well in El Paso, San Antonio and Houston, which have become gateway cities for commerce with Latin America and have flourished since the North American Free Trade Agreement passed Congress in 1993. Mr. Obama's claim of one million lost jobs due to trade deals is laughable in Texas, the state most affected by Nafta. Texas has gained 36,000 manufacturing jobs since 2004 and has ranked as the nation's top exporting state for six years in a row. Its $168 billion of exports in 2007 translate into tens of thousands of jobs.

Ohio, Indiana and Michigan are losing auto jobs, but many of these "runaway plants" are not fleeing to China, Mexico or India. They've moved to more business-friendly U.S. states, including Texas. GM recently announced plans for a new plant to build hybrid cars. Guess where? Near Dallas. In 2006 the Lone Star State exported $5.5 billion of cars and trucks to Mexico and $2.4 billion worth to Canada.

Ohio Governor Ted Strickland, a Democrat who supports Mrs. Clinton, blames his state's problems on President Bush. But Ohio's economy has been struggling for years, and most of its wounds are self-inflicted. Ohio now ranks 47th out of 50 in economic competitiveness, according to the American Legislative Exchange Council. Ohio politicians deplore plant closings even as they impose the third highest corporate income tax in the country (10.5%) and the sixth highest personal income tax (8.87%). A common joke is that Ohio lays out the red carpet for companies -- when they leave the state. By contrast, Texas has no income tax, a huge competitive advantage.

Ohio's most crippling handicap may be that its politicians -- and thus its employers -- are still in the grip of such industrial unions as the United Auto Workers. Ohio is a "closed shop" state, which means workers can be forced to join a union whether they wish to or not. Many companies -- especially foreign-owned -- say they will not even consider such locations for new sites. States with "right to work" laws that make union organizing more difficult had twice the job growth of Ohio and other forced union states from 1995-2005, according to the National Institute for Labor Relations.

On the other hand, Texas is a right to work state and has been adding jobs by the tens of thousands. Nearly 1,000 new plants have been built in Texas since 2005, from the likes of Microsoft, Samsung and Fujitsu. Foreign-owned companies supplied the state with 345,000 jobs. No wonder Texans don't fear global competition the way some Presidential candidates do.

So tomorrow the eyes of America will be on these two states moving in different directions. Ohio has an economy burdened by high taxes and work rules that impose heavy costs on employers. Texas embraces free trade, keeps taxes low, doesn't impose unions on business and has tooled itself for 21st century global competition. Ohioans may not like to hear this, but for any company considering where to locate a new plant or move an existing one, the choice between Ohio and Texas isn't even a close call.

The challenge for our national economy in a world of competition is to become more like Texas and less like Ohio.
1,000 new plants in the past three years is a statistic which I think Ohio politicians wish would be related to their state's economic investment - or even half that number. However, if those politicians do not recognize that the ridiculous, anti-competitive, anti-business regulations of the early- and mid-20th century are the cause for their perilous economic situation, it's unlikely that any new investments will be made in their state.

The anti-trade rhetoric of Obama, if put into policy prescriptions, would kill our economy for the coming decades. As the economic declines mount, politicians will seek to increase regulation and "punish" businesses even further.

You Can't Fix Stupid.

Oh, and can anyone show me the way to Galt's Gulch?

*** Update ***
Cafe Hayek also posts on this WSJ article and provides this excellent tidbit from another blogger:
Also, as Rossputin's Ross Kaminsky points out to me in an e-mail, the unemployment rate in Ohio in December 1993 -- the month before NAFTA took effect on January 1, 1994 -- was 6.5 percent. Says Ross: "It has never since touched a level that high again. Why the hell doesn't anyone say that in public? It's so obvious a thing to look at."

Great point. (Of course, the reason that Clinton and Obama don't speak this truth is because to do so would not help them politically. Remember, they seek office and power rather than truth and understanding. To expect either of them to utter even one politically inconvenient truth is as reasonable as expecting your pet turtle to recite from memory the Magna Carta.)


Your Co-Conspirator,
ARC: St Wendeler