Surreal Moment of the Day

The McCain campaign has blamed Obama for the defeat of the "bailout bill." In a released statement, the campaign said:

“Just before the vote, when the outcome was still in doubt, Speaker Pelosi gave a strongly worded partisan speech and poisoned the outcome. This bill failed because Barack Obama and the Democrats put politics ahead of country.”

Now, we also learn from CNBC that "In the end, Republican House members voted against it by a more than 2-to-1 margin. A majority of Democrats voted in favor." In short, while Democrats were generally skeptical, it was a lack of support from Republicans that doomed the bill.

McCain said he was suspending his campaign to help pass the bill. We are left with two choices: either McCain spent most of his time lobbying the Democrats, or he did a lousy job rallying the House members in his own party. The latter seems more likely.

Finally, McCain blames the bill's failure on Obama and Pelosi. But the vote tally shows that the House Republicans were primarily to blame. (Has the McCain campaign even seen the vote tally?) Therefore, McCain would have us believe that House Republicans voted against the bill because of some perceived slight by the Democrats, even though McCain was lobbying for them to accept it. In short, McCain is accusing House Republicans of putting "Ego First" instead of "Country First."

The Competitive Ideal

I used to think that "ambitious" and "competitive" were synonyms. Somehow, during my days on the conservative-right bandwagon, I came to think that ambition was the ideal to follow, and the pinnacle of ambition is self-interest.

That is false.

I was never comfortable with the idea that an unwilling society is dragged forward into the future by "captains of industry," "masters of finance," and "the smartest guys in the room." My experience with these sorts of people has been that society usually progresses in spite of, rather than because of, them. Because they have such competitive personalities, they put an enormous amount of energy into achieving their own success, and history tells us only about the most famous competitors. This is bad statistics; we are not told about the vast majority of competitors who failed, and we do not count the cost of innocent, unnamed civilians who get caught up in their self-absorbed madness.

Instead, Edgy now reveals that ambition need not be competitive! Edgy has discovered what many have known for a long time: it is very possible to be ambitious and also to have a cooperative nature. We are seeing even now an explosion of new outlets driven by such people. The popularity of the internet as a distributed information source, and its success at revealing diverse viewpoints and overthrowing entrenched media is one success of a network of ambitious-cooperative people, many of whom receive little monetary reward for their efforts. (When Edgy grows up, he wants to be cool like that.)

More about this to come.

Uh-oh...

Rumor has it that Jar-Jar Binks will be testifying to Congress tomorrow in favor of the Paulson bailout plan.

A Study in Contrasts

John McCain "straight talk" in June, 2008:

Calling for "no process questions from reporters" and "no spin rooms," the presumptive Republican presidential nominee proposed one debate a week from now until the Democratic party convention in August....

"What a welcome change it would be were presidential candidates in our time to treat each other and the people they seek to lead with respect and courtesy as they discussed the great issues of the day, without the empty sound bites and media-filtered exchanges that dominate our elections," McCain said in a letter to Obama released by McCain's campaign.

John McCain "straight talk" in September, 2008:

Tomorrow morning, I will suspend my campaign and return to Washington.... I am directing my campaign to work with the Obama campaign and the commission on presidential debates to delay Friday night’s debate until we have taken action to address this crisis.

Edgy's hypothesis: McCain's goals are 1) to stay out of situations where he is directly questioned by reporters or his opponents, and 2) if the Presidential debate is sufficiently delayed, the McCain campaign can argue that there is no time/need for the VP debate. This would save a potentially embarrassing Palin/Biden confrontation.

Gambling with Blank Checks

Edgy is a careful consumer. He won't buy something if he can't "look under the hood" and find out what he is getting. NPR Marketplace has been emphasizing today that Congress is being asked to sign over $700 billion for a Wall Street bailout without being told in detail exactly why the money is needed or how it will be used. Kudos to everyone in Congress who is at least pretending to stand up to this political thuggery.

This (proposed) $700 billion is US taxpayer money. (And also has an effect on all the governments and individuals around the world who own US dollars.) Since we, and not some abstract voting entity called "Congress," will be actually footing the bill, doesn't it seem reasonable that the US public should also be briefed on the specifics of why the bailout is needed, and where the money is going?

If our money is being used to bail out Wall Street, shouldn't we get a detailed estimate of how the money will be used, and a detailed report of where it went? Edgy gets that much information when he takes his car to the dealer. Why not for Wall Street?

How can we know if the government/Fed will use our money wisely? Surely we are not being asked to trust our government on faith? And given the staggering cost, waiting ten years to see how things turn out isn't very satisfying either. All the crooks will be long gone by the time their mismanagement is revealed.

Frankly, Edgy thinks that any company which wants taxpayer assistance should be required to post its entire set of assets and obligations publicly, including the "off-balance sheet" trickery that hides the real financial state of a firm. But that's another story.

Rethinking Assumptions: Who Sets the Rules of Capitalism?

I've been reading an essay called "Marxism in the Shadow of Hobbes" by John Sinisi. He first presents Adam Smith's "one system of property rights that leads to general prosperity and economic developement." In this system:

1) The state (courts and police) guarantee property rights to prevent conflict over resources.
2) The state guarantees individuals the rights to use, sell, and rent their properties as they choose.
3) The state enforces each individual's rights concerning his or her own body and person.

Sinisi then introduces the neo-Hobbesian criticism of Smith's system: individuals in Smith's system may find that the rules of the system itself put them at a disadvantage. They will break or bend the rules when it is to their advantage.

Edgy has recently come to similar conclusions, and is overjoyed to hear that he is not alone. (Thanks, neo-Hobbesians!) The rules of the American economy may well be biased against some people, or even entire classes of people. Furthermore, why are the rules of the market unquestionable when everything else in the market is negotiable?

Edgy is a gentle Anticlown, and hates violence for the sake of personal gain. Edgy is not talking about violence here. But I do think (without knowing much about neo-Hobbesians) that this framework explains a lot of things. For example, when music producers demand too much for their product and no competitive alternatives exist, consumers will start "breaking the rules." The cost of breaking the rules (e.g., risk of lawsuit) is just another kind of price that music consumers pay to get what they want.

Edgy doesn't recommend copying music illegally, especially now that you can buy it on iTunes for a buck. But it does explain a lot, doesn't it?

Finally, the Truth Can Be Told!

Kevin Hassett is blaming the Democrats for the Fannie/Freddy failures in a commentary piece today. Now, Edgy doesn't doubt that the Democrats had their hands in the FNM/FRE cookie jar. Hassett notes that Democrats have taken funds from Fannie and Freddie.

His argument is that Fannie and Freddie built up bad mortgage portfolios, and then apparently they used special mind control powers to confuse everyone else, and then something happened which he doesn't really explain, and maybe aliens were involved, and then BOOM! Bear Stearns fell and it went on from there. Hassett argues eloquently that nobody on Wall Street had two brain cells to rub together to keep them from doing the stupid stuff that made them tons of money on into 2007.

The turning point was when the Democrats opposed a 2005 bill that would have solved the problems of today, yesterday. Of course, Hassett can be forgiven for not having enough space to describe the reasoning behind the Democrat's opposition. (Laws are very complex, after all, and really confusing.) He also avoids pointing out that the Republicans, not the Democrats, controlled Congress in 2005. It would only have confused the point he was making.

Oh, by the way, Hassett is an advisor to the McCain campaign. That means you can trust him to give a balanced, objective view of the events of 2005. Thanks, Bloomberg, for making us informed voters!

"The Reserve" Serves Edgy Stale Crow!

Edgy found out yesterday that his money market fund was closed down. Yes, that's right, Edgy himself was one of the test cases that apparently prompted Paulson call for another huge bailout, this time for money funds! (Too late to help Edgy, it seems, but Edgy expects to pay for the bailout anyway.) Edgy's fund is run by a company called "The Reserve," and it's called the "Yield Plus Fund." It seems that 16.7% of its holdings were invested in another fund run by The Reserve, and that fund had trouble. There's some talk of lawsuits because of the way The Reserve handled the redemptions, giving its big customers first crack at the funds and leaving the little guys (like Edgy) with the remainders.

You don't expect to lose money in a money market fund. In fact, the prospectus for Edgy's fund says, "The cash entrusted to us is your reserve resource that you expect to be there no matter what. This is why we call ourselves The Reserve. Be you an individual, institution or a Fortune 500 company, this is your working capital to pay the rent, to finance inventory and receivables, to put food on the table. This is definitely not money to take risks with, and that is exactly how it should be managed."

Ha ha! It would be ironic if it weren't so... well, let's just say it is ironic. Meanwhile, they've said the losses will be at least 3% and have suspended redemptions from the fund. It sounds like Edgy will be very lucky to get anywhere near his original investment back "to put food on the table." At least there's plenty of leftover crow to eat....

Fed Serves Leftover Crow to US Taxpayers and Dollar Holders Everywhere

In the previous post, Edgy described some of the methods used by the Fed over the last year to inject money into the US market. As of today, open market operations, TAFs, and TIOs totalled about $340 billion dollars. Much of this debt was borrowed with mortgages and other risky junk for collateral. That's like getting a loan from your bank and promising to give them your garbage if you can't (or don't want to) repay the loan! For comparison, the annual US budget deficit is projected to be $410 billion for 2008, and the total federal debt is about $10 trillion.

But wait, there's more!

In March, the Fed extended about $30 billion in credit to JP Morgan to help them buy out the failing Bear Stearns. Then the Fed stepped in to bail out Fannie Mae and Freddie Mac. It's hard to know how much it will cost us taxpayers to secure their debt; estimates range from tens of billions to trillions of dollars! On September 14th, the government said it would preserve free market principles (for once) and would not step in to bail out Lehman, prompting Barney Frank (Democrat Congressman) to declare September 15th "Free Market Day." Unfortunately, Free Market Day only comes once a year. The next day, the Fed ponied up $85 billion to bail out insurer AIG. This prompted Jim Bunning (Republican senator) to compare the Fed to Hugo Chavez's practice of nationalizing Venezuelan companies.

As of tonight, the market has rallied on hints that Treasury Secretary Paulson will announce a plan to have the government take over all the other problems on Wall Street, at taxpayer expense. Edgy expects to see Bernanke flying over NYC on a giant rainbow tomorrow morning, dropping warm cookies for everyone to enjoy. And President Bush will be hosting fireside chats every Monday evening.

The Federal Reserve Snarfs Down Crow; US Dollar Suffers

In late 2007, the credit markets seized up; banks no longer trusted each other to repay their inter-bank loans. To deal with this problem, the Fed began dramatically lowering interest rates. It also announced new programs such as the "temporary" Term Auction Facility by which banks and eventually other Wall Street firms could borrow from the Fed. (Don't bother trying to borrow from the Fed yourself; you have to be "too big to fail.")

Until this point, the Fed had resisted such measures because it was more concerned about rising inflation. But everything changed almost overnight, and the Fed began chewing on an expensive entree of roast crow.

Despite continuing inflation risks, the Fed has increased their loans and lowered rates. They began to accept riskier mortgage debt as collateral for the loans; you can follow the outstanding loans at The Slosh Report website.

On Wall Street, "risk" is something you buy and sell. If you want someone to take your risky debt as collateral, you have to pay them well to carry your risk. But the Fed prints its own money. The bottom line: every American dollar is now worth less because we are paying for the risks that Wall Street firms took on and couldn't handle. The Wall Street firms made big bucks buying and selling that risk. Now when it comes time to pay their bills, they pass them onto the Fed and it weakens every US dollar.

Meanwhile, the value of the dollar plummeted. (It has risen only in the last few weeks as other world currencies are having similar troubles.) Your house, your savings, and your retirement plan were devalued because the Fed chose to bail out the crooks on Wall Street who profited handsomely from their risky activities. You and I are the suckers left holding the bag.

The Chain of Ideas: Rabble-Rousers

Rabble-rousers lie at the bottom of the chain of ideas. They take information from the popularizers, re-package it, and present it to large masses of people. They have little contact with researchers or original sources, and they are more concerned with shaping public opinion than they are with accurately characterizing the world we share.

Rabble-rousing is extremely common and is becoming increasingly sophisticated. Television, talk radio, religious sermons, and pretty much anything political generally fall into this category.

Packaging information for mass consumption isn't necessarily bad. Often, it can even be entertaining. But too much of the time, rabble-rousers misrepresent and abuse facts to further their own goals. This means that they take advantage of people who don't recognize or aren't willing to challenge their tricks.

The Chain of Ideas: Popularizers

These folks provide a link between the specialists who publish in technical journals and the "layperson" who does not have the time, background, or resources to read those publications directly. Popularizers make things understandable to you and me. Along the way, some information is lost, and other information may be misrepresented. Just how much information is lost or altered will depend on the skill and intentions of the popularizer.

Examples include your high school textbooks and also some well-known descriptions of history, math, and physics.

The Chain of Ideas: Researchers

Most published research is not terribly groundbreaking, but falls in this secondary regime. Scientists use the tools that have been developed during times of great breakthroughs. We muddle on, testing, probing, prodding at everything and taking notes. Over time, trends start to emerge and a new breakthrough may be found. In the meantime, we collect data in an attempt to at least describe reality as well as we can, even if we do not always understand it. Our goal is to be reliable and accurate.

The Chain of Ideas: Original Sources

At the head of the chain of ideas are the "original sources." These are people -- like Plato, Descartes, Voltaire, Einstein -- who had breakthrough ideas, or who shaped the world through their work. Their history and works are usually so specialized that only experts can understand them. They are revered by many, even though few people try to read their original words.

We idealize these people. Often, they stood on the shoulders of those who came before them, and some benefited from the historical circumstances of their times. Their mistakes have been forgotten by history, and their triumphs have been exaggerated. Their names have been used by others to make money and gain power. Meanwhile, many "original sources" alive today are unrecognized or undervalued.

There's no substitute for reading or studying these "original sources." But make sure you read their own words; don't trust the hype of a biographer, or a hagiographer. Don't be surprised if you find that s/he has been misrepresented by the people who claim to follow their ideals!