The Health Care Crisis in the Suburbs

My wife just donated to a fundraiser for the mother of a boy that my son played basketball and soccer with in grade school. She was recently diagnosed with breast cancer but she has no health insurance. She is divorced and she is unemployed because she has spent the last year taking care of her mother who suffers from dementia. At least she has the comfort of living in a country that doesn't infringe on its citizens' freedom by providing government sponsored health care.

Charlie Gasparino: CNBC (and WSJ) Jackass of the Day 11/6/09 (Part 3)

Perhaps the most disingenuous claim that Charlie makes in his WSJ piece is that the United States government was a “co-conspirator” with “the greed merchants.” As I listened to him on his CNBC spots, it seemed clear to me that he viewed the government as bearing primary responsibility as if Wall Street had been duped into generating all those toxic loans and securities. This of course plays perfectly into the conservative thesis that the solution to the problem is to have the government do less to regulate activities on Wall Street. Like the rest of Charlie’s theory, any relationship to reality is coincidental at best.

The government was not a co-conspirator with the greed merchants. The government was the hireling of the greed merchants. It wasn’t some member of Congress who came up with the idea that the country would be better off if Glass-Steagall Act were repealed and then went out to persuade banks to engage in securities underwriting. It was the banks who lobbied the government. It wasn’t the SEC that talked the investment banks into adopting irrationally risky capital ratios. It was the investment banks led by Hank Paulson of Goldman Sachs who lobbied Christopher Cox for the rule change that allowed them to take on more risk.

The government failed not because it induced Wall Street to do things it did not want it to do. It failed because it did whatever Wall Street wanted it to do. The government was the flunky in this conspiracy, not the mastermind. The government was the night watchman who gets a few bucks to leave the door unlocked while the thieves rifle the vault. Like all good flunkies, Charlie figures it should take the fall while the masterminds waltz away with the loot.

Charlie Gasparino: CNBC (and WSJ) Jackass of the Day 11/6/09 (Part 2)

Charlie’s argument about the government encouraging home ownership is trickier and it requires some consideration of American political history.

It may well be that of all the rights the Founding Fathers sought to protect from government interference, property rights were foremost in their minds. It may also well be that nowhere else in the world could you have found popular support for a revolution based on property rights. In Europe, there were unpopular governments, but in there were also vast segments of the populace who owned no property and had no reasonable prospects of ever obtaining any property. As a result, you couldn’t build an army motivated primarily by the vindication of the right to property.

In America, however, things were different. Thanks to the Indians’ susceptibility to European diseases, there were vast tracts of land there for the taking. Everyone could aspire to own a piece of the land from which he could provide for himself. From this comes Thomas Jefferson’s vision of the ideal citizen as the yeoman farmer. The common man would fight for a government that protected property rights in America because the common man could carve out his own piece of property from the wilderness.

As vast as America might have seemed to the Founding Fathers, it wasn’t unlimited. As immigrants flocked here from Europe, all the good land was eventually taken. As the frontier closed and the poor man no longer had the option of packing up and making a new start out west, it became more difficult to maintain popular support for a government whose sole goal seemed to be the property interests of the wealthy.

Things came to a head in the Great Depression as the last parcels of land that had been available to homesteaders in Oklahoma turned to dust and the citizen farmers that were expected to form the backbone of the republic found themselves on the road. Under Franklin Roosevelt, the government actively intervened in an effort to provide the equality of economic opportunity that had once been available simply by virtue of unoccupied space.

The pendulum always swings though and in 1980 Ronald Reagan was elected on a promise to return America to a simpler time when government protected an individual’s property rights and otherwise stayed out of the way. Unfortunately, land was no longer just there for the taking and another method was needed to convince the common man that he shared the wealthy man’s interest in the protection of property. It is no coincidence that the massive expansion of consumer debt started in the Reagan years.

Charlie bemoans the transformation of home ownership from “something that must be earned into something close to a civil right,” an event that he seems to locate during the Clinton administration. What he misses is that the roots of the notion go right back to our founding. You cannot elevate property rights above all else in a democracy if everyone does not have some opportunity to acquire property. The only way to maintain the illusion of the conservatives’ beloved “ownership society” is easy money that makes both the easy credit with which to buy things and the asset bubbles that create the illusion of wealth.

Charlie Gasparino: CNBC (and WSJ) Jackass of the Day 11/6/09 (Part 1)

Consider the following game:

From a standard deck of fifty-two playing cards along with two jokers, I let you pick a card. If the card is a spade, heart, diamond, or club, you receive $20,000. If the card is one of the jokers, you lose $1,000,000. Would you play the game?

Unless you are a fool, you wouldn't. After drawing the entire deck, you would be out $960,000.

Now let's change the game:

You draw cards from the same deck. You still get $20,000 every time you draw a spade, heart, diamond, or club. Now, however, when you draw a joker, you lose half of what you have made up until that point and some unknown innocent party loses $1,000,000. Would you play that game?

If you had some sense of ethics, you might not, however, if you were a Wall Street trader or executive, you would play all day long.

In a Wall Street Journal Op-Ed today and frequent spots on CNBC, Charlie Gasparino claimed to have identified the cause of the financial crisis. Anyone who is familiar with those two fonts of wisdom won't be surprised to learn that it wasn't the over-compensated traders and executives on Wall Street who took irrational risks. It was...brace yourself...the government! Specifically, it was the government leading those risks takers to believe that they would get bailed out if their bets went sour and that same government encouraging undeserving peons to believe that home ownership was a right. I will only try to address Charlie's first reason for blaming the government in this post.

The problem with Gasparino's "moral hazard" thesis is that the traders and executives who worked for companies that got bailed out didn't do any better than the ones who worked for companies that didn't get bailed out. Think about it. Bear Stearns got bailed out and Lehman Brothers didn't. However, both Jimmy Cayne and Dick Fuld took a bath on their holdings in company stock as did all the traders and executives in those companies. Moreover, traders and executives in both companies lost their jobs. If the potential for a government bailout played a role in the risks they took on behalf of their companies, why didn't the bailed out executives come out way ahead?

The reason is that the risk that Wall Street traders take is driven by the nature of their compensation packages, not by the possibility of bailouts. Like players in the second game I described, Wall Street executives get paid generously if their bets work out and they have to give up part of what they made if things blow up in their faces. However, it doesn't matter to the executives and traders who takes the loss when they draw the joker. If their company is bailed out, it is the taxpayer. If it is allowed to fail, it is their company's lenders, customers, and counter-parties that take the hit. The executives and traders are indifferent between the two. They will take the risks they do as long as the losses fall somewhere else and that is a function of the manner in which they are compensated, not the extent to which the government backstops the market.

Glenn Beck's Rejection of Rational Thought

On Beck's delusional rantings:

These are postulates that it is only possible to believe after you have utterly closed yourself off to conventional ways of knowing, after you have decided that the reporting and analysis and scholarship on these subjects are not worth reading, and that you will choose ideological fairy tales over reality until the day a magical phone call comes from on high.

Glenn Beck's Hotline to Nowhere by Thomas Frank in today's Wall Street Jounal:

Yesterday's Elections Results

It was very gratifying to see Glen Beck, Rush Limbaugh, and Sarah Palin cause the Republicans to lose a congressional seat that they have controlled for over a century. I wonder if they will work their magic in Illinois next year and help elect a Democrat to Obama's former seat. It appears that moderate Republican Mark Kirk is seeking Sarah Palin's endorsement in the hopes of avoiding the fate that befell Republican Dede Scozzafava in New York's 23rd District.