Wednesday, April 28, 2010

Greece Should Default

Opening note: Apologies to readers for which Greece's problems are not interesting; they are interesting to me, so I'm blogging about them.

It's strange to me, other than as a political game, that the EU/IMF would even be considering "bailing out" Greece. For starters, it's clear that the country has economic problems, the extent of which are probably not even acknowledged to-date, and which are largely due to their unfunded social support obligations and their largely socialist system (hm... remind you of anyone else?). That's a big problem, to be sure, and will need to be addressed if the country is to recover and become financial solvent. The second problem is that the "bailout" isn't really one, it's just some money to extend and pretend; it doesn't address the structural problems directly, and although the EU is negotiating to have austerity measures attached to any handouts, these are far from a sure-thing to be implemented or stuck to, or work even if they are (without fixing the fundamental problems).

However, there's still another, stronger, reason why it makes no sense whatsoever for the EU to be giving handouts to Greece, and that's the Greek people themselves. Far from accepting their condition and being ready to commit to making the necessary changes and sacrifices to restore their badly-hurting country to financial health, they are actively protesting the to-date reductions in their [very generous] salaries and government benefits. Their actions clearly demonstrate a sense of entitlement which is common in socialist systems, and a complete lack of appreciation or consideration for their precipitous financial state. Giving them money at this point would likely only encourage this sentiment, and strengthen a system which needs to fail, for the long-term benefit of not only Greece, but other countries with similar socialist systems, and those which are rapidly moving in that direction.

Until Greece is allowed to hit rock bottom, and its people are forced to endure enough of the reality which is the natural consequence of the system and leadership they have chosen, they will not be able to recover, restructure, learn from the hard lessons, and start fresh on a solid foundation. Psychologists and drug councilors have known this for decades, it's about time nations figured it out as well.

Friday, April 23, 2010

Greece and the Need for Dynamic Currency

The debt situation in Greece is interesting to me, not just because it represents an interesting dynamic in national solvency and international economics, but also for highlighting the need to have dynamic currencies, particularly for countries which cannot spend within their means (which, for practical purposes, is all countries). Inevitably, eventually, for those countries, you will encounter a situation where you need to effectively print more money to cover you spending obligations; it's a pretty common thing, and is generally accepted by people as a necessary consequence for any fiat currency system. This isn't the end of the country, or even all that bad, it just devalues the rest of the currency proportionally, and life goes on.

In the case of Greece, however, they have created a situation which is unsustainable. On the one hand, they have signed on to a currency which is cross country and cross economy, which they cannot arbitrarily and unilaterally devalue. On the other hand, they have a largely socialist government and economy with large entitlement spending, which will inevitably overspend its income (both due to the spending, and the lack of income from industrial competitiveness which is a common aspect of socialist systems). At some point, something needs to give: either the other euro nations will absorb the losses from Greece's failed government/industrial structure, or Greece will need to default on its debt, and likely fail/restructure as a government/country.

This could have been avoided, however, if Greece had a dynamic currency, even only for it's national obligations (and thus still used the Euro for day-to-day commerce in the country). Sure, their national currency would probably be in hyperinflation free-fall at this point, and it wouldn't do anything to address the structural failure of their political system in general, but it would limit the fallout and impact of their failure as a country on the rest of the other Euro zone countries, and particularly on those with less insolvent political and economic systems. At least then when Greece and the other insolvent Euro countries failed (as an inevitable direct-effect of their own government and policies), the damage would be more contained, and there would be much less danger of a collapse of the Euro itself.

Of course, this argument can be easily extrapolated to any country which is incapable of spending within its means, to better protect those that are from the fallout of collapse... I leave that as an mental exercise for the reader. :)

Monday, April 19, 2010

Financial Reform: Housing Market Edition

When considering any sort of government "reform", there's always a philosophical fine line. On the one hand, it's beneficial for the government to help people, solve problems, and prevent the sort of financial disruptions which endanger the market and ruin people's lives. On the other hand, it would be better to do nothing at all than allow the circumstances to be used as an excuse to enact unrelated takeover policies, give more power to ineffectual or corrupt organizations, and/or abuse the rights of the people under the guise of "security" or "stability". In that spirit, it's my hope that my musings will fall on the former side of the philosophical line, in stark contrast to everything being enacted and proposed by the contemptible scum in Congress, which clearly and repeatedly falls overwhelmingly more on the latter side.

So, then, how to prevent future housing bubbles/pops, if indeed possible, without pissing on the Constitution?

I would propose a couple things (in-part based on the success Texas had in limiting the housing bubble in their state, based on strict lending limits). First, I would mandate that home loans be categorized (by the GSE's or banking/lending oversight organizations, whichever is more appropriate) as follows:

Class A: Any loan for which all the following items are currently true:
- The borrower owes no more than 80% of the current value of the underlying asset on all loans secured, in whole or part, by the asset
- The borrower provided adequate asset/income information to verify payment ability for the loan at the time of borrowing, and that information is attached to the loan documents
- The maximum annual payment on the loan, at any time during the lifetime of the loan, and assuming current interest rates, does not exceed 35% of the income of the borrower
Class B: Any loan which does not meet all the above conditions

Second, I would impose the following restrictions on financial market participants, based on the above ratings:
- No organization which is supported by federal funds (eg: GSE's, banks in concert with FHA, banks borrowing from the Fed, banks with access to the Fed discount window, etc.) may make any loan which would not be ranked 'A' at time of inception.
- No security which contains, or contains any derivative of, any loan which is not ranked 'A' may be rated 'AAA' (or equivalent "investment grade") by any rating agency.
- No loan which is not ranked 'A' may be purchased by any GSE. The GSE's will also insist on "buyback" clauses if the loan falls below 'A' rank in the first 'n' months after purchase (probably 6-ish), re-evaluate loans near the expiration of this option, and insist on buyback if they are no longer rank 'A'.

Now, admittedly, this is only a partial solution, and does have some limitations. In particular, it doesn't prevent 95%+ financing, it just limits the ability of putting big money into these risky loans. It also does not entirely eliminate the possibility of taxpayers holding bad loans, although it should significantly reduce the magnitude. I'd also probably add a clause to ensure originators always hold some percentage of all loans, but the specifics of that would require more information and calculations than I'm willing to research/do.

Anyway, that's how I'd propose to [partially] prevent future housing bubbles, in contrast to all the unrelated power-grab and socialist crap Congress will label as "reform". Feel free to leave your thoughts too.

Thursday, April 15, 2010

Tea Party Pledges

I've been meaning to make this post for a little bit, kinda as a public service (for the infinitesimal subsection of the public who will read it, I guess). The basic idea is that since no single person is going to fix our government, and creating a new political party which embodies the libertarian ideals of the Tea Party movement is probably counter-productive in our political system, what would probably be the most effective is trying to support candidates who ascribe to certain ideals which match those of the Tea Party, and/or would likely lead to fixes in the government if upheld.

Of course, everyone has their own opinions of what those pledges/ideals should be; some are short-term reactionary to current events, some are fringe, some are good, and some are not obvious, and there are many others. The fringe ones are the most dangerous, of course, since they divide the movement and weaken the effect of promoting change. However, the short-term reactionary and small-scale pledges are also sub-optimal, since they will need to be changed regularly, and don't represent the sort of fundamental clean-up which government needs. So, in that context, I'll propose what I would like to see as pledges from "Tea Party" candidates, in hopes that some/all of them might somehow get adopted by at least part of the movement, and have the desired beneficial effect on the government, and by extension the country. I'll also include the rationale for each pledge, for clarification and explanation, as well as indication of desired effect.

Pledge #1: I believe that government exists to fulfill its necessary roles, and that expanding its size and roles is dangerous for the people. I will work to support limiting the size and power of government, and improving transparency in its operations wherever possible.

Rationale: This is sorta the setup clause, if you will, as well as an ideological differentiator. Nothing particularly concrete here, but a good overall statement towards the sentiment of the movement. There are many benefits to small government for the people (detailed elsewhere), which I don't feel the need to repeat here.

Pledge #2: I will vote against any bill which contains any provision which I do not feel benefits the American people on the whole, regardless of the value of the bill as a whole. I will also vote against any bill I have not read in its entirety, or do not entirely understand.

Rationale: This is the first "meat" pledge, and is meant to create a legislative stand against payoffs, bribes, earmarks, and all other forms of incentives and "horse trading" which has created to much bad legislation. If something is important enough for Congress to pass, it should be separable into small enough bills such that you can achieve a majority vote on merit, without any bribes or handouts. Admittedly this would be a large change to the way Congress does business, but one which I think would have dramatic benefits in the long run, both in less government, and less bad laws.

Pledge #3: I support the 10th Amendment, will oppose any actions which clearly violate it, and will support actions which correct previous actions which violated it.

Rationale: Another "small government" pledge, this one about the federal government overstepping its authority. Nothing too onerous here, but another good ideal for candidates to have.

Pledge #4: I understand and accept that the government cannot limit its spending by itself, and unbounded spending leads the country to financial ruin. Therefore, I promise to:
1. Work to limit the governments income from taxation (in all forms) to at, or preferably below, current levels
2. Work to prevent the government from devaluing its currency to create more income (by "printing" money)
3. Work to improve accuracy and transparency in all government accounting, particularly in areas where the government is currently intentionally distorting statistics
For all these, I will support actions which makes these changes and limits as incontrovertible as possible by the government in the future.

Rational: This is a biggie, and covers a lot of things, all related to keeping the country financially solvent long-term. The tax limit I envision would be a hard-cap on total taxes as a percentage of income, but the pledge is general enough to allow other options. Item #2 is largely tied into the Fed; elimination would be the best option, but there are others, and the pledge leaves it open. #3 is related to distortions in the CPI and other statistics, which have wide-range distorting effects, and need to be stamped out. Of course, the best place for these changes would be in the Constitution, where they cannot be controverted and abused again in the future, but the pledge leaves it open for incremental and/or sub-optimal methods of trying to fix the problems.

Pledge #5: I support freedom of religion in the US. I understand that in order to keep that freedom for everyone, we must preserve the separation of church and state, and keep religion of any kind out of government. As such, I promise that my personal religion, if any, to the best of my ability, will not be a factor in any decision I make while in public service, nor cited in reference to such, nor made any more visible during my time in public service other than what observation requirements I might have. If I think I will be unable to make decisions without the influence of my religion, I promise not to pursue or accept public office, for the benefit of the country.

Rationale: It's become obvious that religion has no place in our government, and trying to put it there is asking for trouble and conflict. It's time the country really started practicing what was first envisioned as just protection from different religions, and now should be protection from all religious bias. It's fine to have morals (obviously), and fine to be religious, but these have no place in public service, for the good of the country.

Anyway, those are the pledges I would want from candidates (first pass); comments are welcome, as are forwards/quotations. I guess I too had a dream today...

Monday, April 12, 2010

The Curious Case of dermdoc

So I came across this news report, which, by itself, isn't particularly newsworthy. Basically, a guy on a message board claimed to be laying off someone because he (the employee) was an Obama supporter, and Obamacare was going to cost the medical business a lot of money, and people need to understand that [political] actions have consequences. There was also some general semi-founded ranting about Obamacare, and not much else to the story... but it got me thinking.

I've ranted before about the problem, especially in a representative democracy, of people being unable to correlate the consequences of their political actions to real-world changes. In a high-level sense, this might be an area where employers could really make a positive contribution to enforcing the correlation directly: by laying off people who indirectly created the business need to lay off people (eg: by voting for socialists), a business owner would be aptly rewarding people for their political actions. After all, if you have two equally-qualified people vying for one position because another position was eliminated due to the actions of one of the potential employees, it seems only fair to let that employee go, both to that employee and the system as a whole.

On the other hand, though, it brings up the interesting and potentially precipitous concept of discrimination based on political views. Now, political views are not a protected class, so there's no direct legal issue; indeed, employers are doing more extensive personal background checks on employees now, and disqualifying people for a variety of non job-related personal things. The counter-argument to the [legal] discrimination would be that an employee can keep his/her political views private if they don't want them to bias employment applications. However, this begs for a much higher level of anonymity than is currently the norm, especially in the age of social networking and information aggregation, and much more discretion in inter-personal discussions, which is also not preferable.

Furthermore, there's an inherent danger of abuse based purely on ideological differences. While it might be noble and beneficial to have an employer bias employment decisions against people actively working to the detriment of his/her business, it might be hard to make the distinction between that case and an employer just biasing on the basis of ideology, without respect to the effect on the business. Moreover, there are some specific legal protections for supporting some ideologies and organizations which are explicitly working against the best economic interests of the businesses (eg: unions), and you could argue that those protections have legitimate justification in our society. Clearly, then, there would be advocates on both sides of the debate.

The question, then, remains: should an employer bias employment decisions against those supporting anti-business laws and/or political candidates? I don't know which side I would support. The best answer, in my mind, is more education and better correlation; it's unlikely that employees would support policies/candidates which caused their jobs to cease to exist, and it would be better for the country if people were better able to vote in a way which was actually beneficial for them. In discriminating against anti-business supporters, though, you would also run the risk of creating a large enough section of the voting populace to overwhelm the free-market supporters entirely, and bring the whole system crashing down in a government-largess, Atlas shrugging style event. Clearly if the direction was to allow alienation of those people who could not grasp correlation, for whatever reason, there must be a mechanism to protect the rest of the social organism from their continued cancerous influence, and without such a mechanism it might be better for the organism as a whole to maintain whatever unsustainable balance exists for as long as possible (sort of like prolonging the life of a terminally-ill cancer patient, and making them as comfortable as possible). In that case, if the patient is already too far along to be saved, it doesn't make a lot of sense to start cutting out bad cells and causing trauma, which argues for not exploiting or emphasizing the correlation.

As I said, I don't know what the right answer is, which is why I found the case curious. Let me know what you all think.

Tuesday, April 6, 2010

Paul Volcker: Right and Wrong

Paul Volcker is a smart guy, who got duped into being a stool pigeon for the Obama administration under the guise of having influence on fiscal policy. Among other things, this makes him a great target for liberal media elements, who delight in distorting his speeches into supporting their agenda.

For example, consider a speech today, in which Volcker made the otherwise innocuous observation that "at the end of the day", if the country is going broke and needs money, they must increase taxes to get it, and may need to explore other taxation schemes to fund every increasing entitlement programs and special-interest drags on the economy (such as cap-and-tax and other proposed programs). Simple, truthful, and direct... but probably not such a good idea.

Reuters US wrote this up as: Volcker advises raising taxes, implementing Europe-style VAT. Their report could be the poster child for liberal media distortion, since Volcker was basically advising the exact opposite (ie: control spending so we don't go broke), but Volcker could do better to not enable them too. As a respected financial adviser, it's clear your words are going to be distorted to support the liberal agenda by the media, and you should plan for that.

Even more so, though, I disagree with the statement itself. At the end of the day, the US should default on its debt and take the opportunity to fix the Constitution to prevent out-of-control spending in the future, rather than run up tax rates to 100% before defaulting. I would much rather deal with the pain and turmoil in a "quick" reorganization and restructuring, rather than prolonging the inevitable collapse with a massive tax burden the whole time. The only way to try to avert an eventual collapse is to make a stand now, hard-cap the amount of taxes, credibly commit to not raising them ever, and implementing harsh automatic corrections when the government creates policies which cause its spending to exceed its income, now or in the future. To acknowledge/promote that continued reckless spending will eventually inevitably be "rewarded" with higher taxes is a betrayal of the financial future of the country, and counter-productive to fixing the very real problem we're facing.

On the narrow scope of the facts of the matter, Volcker may be right; in the greater picture, though, he couldn't be more wrong.

Edit: Drudge Report's headline ("OBAMA MAN: RAISE TAXES, START EUROPEAN-STYLE VAT") begs the question: do two wrongs make a right? On the one hand, Volcker didn't really state or imply that we should be doing that; on the other hand, in the linked article from the liberal news outlet Reuters, the writer added the strong liberal skew and implication. I guess, in essence, Drudge's headline is correct, if "Obama Man" is the liberal news reporter who misrepresented Volcker's statements, although I doubt that's what he was going for. Shameful reporting on both sides, I guess; the eventual implied sentiment (ie: Obama's policies will necessitate raising taxes and exploring new taxation methods) is correct enough, but there's plenty of distortion and editorializing along the way.