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Posts Tagged ‘government interventionism

$1 Million/Day for 2,295 Years: Senate Bailout Plan…

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money-stacksThe US Senate is set to pass a so-called “bailout bill” that amounts to $838 billion. To give that some sort of perspective, you’d have to spend a million dollars a day for two thousand, two hundred and ninety-five years to spend an equivalent amount. Of course, that doesn’t include the interest which will accrue on that staggering debt.

How will this gigantic tab be paid? It’ll by paid by the US taxpayer: $6,2,36 per taxpayer, to be precise. That, of course, is on top of the $13,500 each taxpayer is already on the hook for via the original TARP money, the bailout of AIG, Lehman, et al. New total: $19,736 for each and every taxpayer, on average, plus interest.

There’s an additional downside: money invested in the government bonds to subsidize this massive spending is, of course, money which will not be otherwise invested in the economy for such things as actually spurring economic growth: for every dollar invested in a government bond, there’s one less dollar available for private companies looking to grow and expand.

The total amount borrowed for “bailout” spending to date? $2,651,797,108,408.

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Auto Bailout Cost to Canadian Taxpayers…

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The Globe and Mail reports¹ the total cost of a so-called bailout of the “Big Three” by the Canadian government, which has committed to 20% of the US government bailout, to ultimately cost Canadians between $15 billion and $25 billion.auto-bailout

What’s that mean for the individual Canadian taxpayer?

According to Statistics Canada, there were 9,275,765 full-year, full-time earners as of 2005². That’s a pretty good proxy for the number of income taxpayers. So, let’s take the conservative figure of a bailout cost of $15 billion. That puts each full-year, full-time worker in Canada on the hook for $1,617.

Of course, if you personally believe in supporting the “Big Three”, there’s nothing preventing you from voluntarily using $1,617 of your income to either buy their products or their shares. Unfortunately, the government’s bailout proposal removes that choice from the taxpayer and forces the issue, whether any individual agrees with spending $1,617 of their income to support three private companies or not (and would perhaps prefer to spend $1,617 of their hard-earned money to bail themselves out instead)…

An Open Letter to Obama – Bailout Request #459…

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Dear President-Elect Obama and your fellow Democratic lawmakers,money-stacks

I run a rather large company. We are currently on the threshold of bankruptcy due to the “credit crisis”. This bankruptcy would cause numerous job losses, so as you can imagine, we need help.

Here’s a bit of background on our operations:

We produce a product the general public doesn’t much care for. They can find a better product from our competitors, often at a much better price.

We also pay our employees considerably more than the competition does; about 80% more, in fact.

About a third of all our sales are to our own employees, at heavily discounted prices. Since they’re paying considerably less than the general public, their decision to purchase our products distorts the competitive pressures which would normally exist and which would force us to produce products that the general public would buy.

We’ve faced substantial competition for many years now – decades, actually. But we believe in a consistent business model, to the exclusion of profitability, agile adaptibility and long-term success and viability.

We’re not exactly at the forefront of innovation, but we promise to get there. Maybe. We’ll see.

Our competitors – evil, foreign-based companies – have been moving their plants to the United States. We have countered this invasion by moving our jobs to foreign countries. There, we can overpay our workers too.

Our success is critical to the US economy. After all, just look to history and you’ll see America once had a booming horse and buggy industry. They were allowed to fail when superior competition emerged. The economy has clearly never been the same since.

We need taxpayer money, and lots of it – at the current rate we’re burning through our cash, we’ll be broke soon. We need to be able to burn through taxpayer cash too. And, frankly, if the taxpayers won’t buy our products, we think we should nonetheless take their money. I’m sure you’ll agree that’s reasonable.

As you can see from the points I’ve outlined above, there is clearly nothing wrong with our business model – the robust way in which we do business should not be measured by profitability or long-term viability; nor should the fact no lending institution or investors will lend us money to continue our business as it currently is run be taken to reflect poorly on our management decision and overall strategy. It’s just this “credit-crisis” thing that’s causing us a whole lot of grief. Without that thorn in our side, we’d no doubt be a viable, healthy company.

If you give us the money we are seeking, we’re sure it’ll all turn around – the staggering loss of market share we’ve experienced over the course of the past couple of decades is quite obviously an anomoly which will blow over in due course. Hopefully soon. Hopefully very soon.

Thank you in advance for this bailout. You’ve made the difference between all our workers being laid off and most of our workers being laid off.

Sincerely,

One of Three

List of House Members Who Voted for Bailout…

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Here’s the complete list of the members of Congress who voted in favor of the bailout bill:

Roll Call for Bailout Bill Vote

FINAL VOTE RESULTS FOR ROLL CALL 681

(Democrats in roman; Republicans in italic; Independents underlined)
H R 1424 YEA-AND-NAY      3-Oct-2008      1:22 PM
QUESTION: On Motion to Concur in Senate Amendments
BILL TITLE: Emergency Economic Stabilization Act of 2008

Yeas Nays PRES NV
Democratic 172 63
Republican 91 108
Independent
TOTALS 263 171

—- YEAS    263 —

Abercrombie
Ackerman
Alexander
Allen
Andrews
Arcuri
Baca
Bachus
Baird
Baldwin
Barrett (SC)
Bean
Berkley
Berman
Berry
Biggert
Bishop (GA)
Bishop (NY)
Blunt
Boehner
Bonner
Bono Mack
Boozman
Boren
Boswell
Boucher
Boustany
Boyd (FL)
Brady (PA)
Brady (TX)
Braley (IA)
Brown (SC)
Brown, Corrine
Buchanan
Calvert
Camp (MI)
Campbell (CA)
Cannon
Cantor
Capps
Capuano
Cardoza
Carnahan
Carson
Castle
Clarke
Cleaver
Clyburn
Coble
Cohen
Cole (OK)
Conaway
Cooper
Costa
Cramer
Crenshaw
Crowley
Cubin
Cuellar
Cummings
Davis (AL)
Davis (CA)
Davis (IL)
Davis, Tom
DeGette
DeLauro
Dent
Dicks
Dingell
Donnelly
Doyle
Dreier
Edwards (MD)
Edwards (TX)
Ehlers
Ellison
Ellsworth
Emanuel
Emerson
Engel
Eshoo
Etheridge
Everett
Fallin
Farr
Fattah
Ferguson
Fossella
Foster
Frank (MA)
Frelinghuysen
Gerlach
Giffords
Gilchrest
Gonzalez
Gordon
Granger
Green, Al
Gutierrez
Hall (NY)
Hare
Harman
Hastings (FL)
Herger
Higgins
Hinojosa
Hirono
Hobson
Hoekstra
Holt
Honda
Hooley
Hoyer
Inglis (SC)
Israel
Jackson (IL)
Jackson-Lee (TX)
Johnson, E. B.
Kanjorski
Kennedy
Kildee
Kilpatrick
Kind
King (NY)
Kirk
Klein (FL)
Kline (MN)
Knollenberg
Kuhl (NY)
LaHood
Langevin
Larsen (WA)
Larson (CT)
Lee
Levin
Lewis (CA)
Lewis (GA)
Lewis (KY)
Loebsack
Lofgren, Zoe
Lowey
Lungren, Daniel E.
Mahoney (FL)
Maloney (NY)
Markey
Marshall
Matsui
McCarthy (NY)
McCollum (MN)
McCrery
McGovern
McHugh
McKeon
McNerney
McNulty
Meek (FL)
Meeks (NY)
Melancon
Miller (NC)
Miller, Gary
Miller, George
Mitchell
Mollohan
Moore (KS)
Moore (WI)
Moran (VA)
Murphy (CT)
Murphy, Patrick
Murtha
Myrick
Nadler
Neal (MA)
Oberstar
Obey
Olver
Ortiz
Pallone
Pascrell
Pastor
Pelosi
Perlmutter
Peterson (PA)
Pickering
Pomeroy
Porter
Price (NC)
Pryce (OH)
Putnam
Radanovich
Rahall
Ramstad
Rangel
Regula
Reyes
Reynolds
Richardson
Rogers (AL)
Rogers (KY)
Ros-Lehtinen
Ross
Ruppersberger
Rush
Ryan (OH)
Ryan (WI)
Sarbanes
Saxton
Schakowsky
Schiff
Schmidt
Schwartz
Scott (GA)
Sessions
Sestak
Shadegg
Shays
Shuster
Simpson
Sires
Skelton
Slaughter
Smith (TX)
Smith (WA)
Snyder
Solis
Souder
Space
Speier
Spratt
Sullivan
Sutton
Tancredo
Tanner
Tauscher
Terry
Thompson (CA)
Thornberry
Tiberi
Tierney
Towns
Tsongas
Upton
Van Hollen
Velázquez
Walden (OR)
Walsh (NY)
Wamp
Wasserman Schultz
Waters
Watson
Watt
Waxman
Weiner
Welch (VT)
Weldon (FL)
Weller
Wexler
Wilson (NM)
Wilson (OH)
Wilson (SC)
Wolf
Woolsey
Wu
Yarmuth

—- NAYS    171 —

Aderholt
Akin
Altmire
Bachmann
Barrow
Bartlett (MD)
Barton (TX)
Becerra
Bilbray
Bilirakis
Bishop (UT)
Blackburn
Blumenauer
Boyda (KS)
Broun (GA)
Brown-Waite, Ginny
Burgess
Burton (IN)
Butterfield
Buyer
Capito
Carney
Carter
Castor
Cazayoux
Chabot
Chandler
Childers
Clay
Conyers
Costello
Courtney
Culberson
Davis (KY)
Davis, David
Davis, Lincoln
Deal (GA)
DeFazio
Delahunt
Diaz-Balart, L.
Diaz-Balart, M.
Doggett
Doolittle
Drake
Duncan
English (PA)
Feeney
Filner
Flake
Forbes
Fortenberry
Foxx
Franks (AZ)
Gallegly
Garrett (NJ)
Gillibrand
Gingrey
Gohmert
Goode
Goodlatte
Graves
Green, Gene
Grijalva
Hall (TX)
Hastings (WA)
Hayes
Heller
Hensarling
Herseth Sandlin
Hill
Hinchey
Hodes
Holden
Hulshof
Hunter
Inslee
Issa
Jefferson
Johnson (GA)
Johnson (IL)
Johnson, Sam
Jones (NC)
Jordan
Kagen
Kaptur
Keller
King (IA)
Kingston
Kucinich
Lamborn
Lampson
Latham
LaTourette
Latta
Linder
Lipinski
LoBiondo
Lucas
Lynch
Mack
Manzullo
Marchant
Matheson
McCarthy (CA)
McCaul (TX)
McCotter
McDermott
McHenry
McIntyre
McMorris Rodgers
Mica
Michaud
Miller (FL)
Miller (MI)
Moran (KS)
Murphy, Tim
Musgrave
Napolitano
Neugebauer
Nunes
Paul
Payne
Pearce
Pence
Peterson (MN)
Petri
Pitts
Platts
Poe
Price (GA)
Rehberg
Reichert
Renzi
Rodriguez
Rogers (MI)
Rohrabacher
Roskam
Rothman
Roybal-Allard
Royce
Salazar
Sali
Sánchez, Linda T.
Sanchez, Loretta
Scalise
Scott (VA)
Sensenbrenner
Serrano
Shea-Porter
Sherman
Shimkus
Shuler
Smith (NE)
Smith (NJ)
Stark
Stearns
Stupak
Taylor
Thompson (MS)
Tiahrt
Turner
Udall (CO)
Udall (NM)
Visclosky
Walberg
Walz (MN)
Westmoreland
Whitfield (KY)
Wittman (VA)
Young (AK)
Young (FL)

How McCain Blew His Golden Opportunity…

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In a week of shocking developments, including a defeated bill which sought new government spending in excess of the defense budget (and, in fact, any single item of the general budget), Senator John McCain blew a golden opportunity to put his well advertised but difficult to discern “maverick” reputation on the line on behalf of the majority of american people.

While the Democratic party, and Senator Barack Obama, and President Bush and many Republicans believe artificially increasing the supply of credit by way of government intervention at the expense of more than $7,000 for every taxpayer (and with all the urgency of a stick up artist poking his gun in your ribs and demanding your wallet) is a prudent idea, the bulk of the US population believe otherwise.

They’re right.

Contrary to virtually all media reports, government interventionism led directly to the current “crisis”. Despite this, the only solution proposed revolves around additional government intervention. Media “pundits” notwithstanding, “Main Street” understands the profound hypocrisy at play here. Unfortunately, in an election year featuring one candidate deeply commited to government interventionism and another candidate desperately commited to the idea that a leader should be seen to be doing something, even if that something is the wrong thing, the majority of americans have no one representing their views, or their pocket book.

John McCain has shown a shocking lack of courage in not standing up to the special interests who support the proposed government bailout. These same special interests, who routinely espouse the merits of free enterprise (but only when free enterprise works to their advantage) and are now calling for government intervention on a scale never before seen. John McCain supports their pleas.

There was another path for Mr McCain to take. He could have, for example, told the american people that the solution was for the government to get out of the business of guaranteeing low-quality loans. He could have said that the time for government to subsidize irresponsibility, be it on a personal level or institutionally, has long since passed. He could have made the case that picking the pockets of the people on so-called Main Street to subsidize Wall Street is profoundly un-american. He could even have put forth the (shocking, these days) notion that government is not, in fact, the solution to each and every problem. Instead, he seems to have charted a course intended to appear as “leadership”, but which leaves angry, financially threatened americans with no alternatives among Presidential candidates on the critical issue of a government bailout.

This is an issue with profound implications. Not just for americans today, but also for their children and grand children. In a country which espouses the freedom of the individual above all, but which increasingly proves the concept to be lip service at best, the populace has a choice of a “change agent” or a “maverick”, both of whom lack the courage to plot anything resembling a new course.

Land of the free? Home of the brave? Not anymore…

What Really Led to the Credit Crisis?

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While the US government tries to put a $1 trillion (yes, you read that right: trillion) bailout package together, and Mr. Barack Obama and others in favour of governmental economic interventionism call for greater regulation (without any specifics), there is plenty of discussion as to what got the economy to this perilous state.

The answer is very simple: risk has been divorced from financial underwriting decisions.

At the very heart of the current crisis are the so-called “sub-prime” mortgages. The banks who offered these mortgages faced no downside in the event a mortgage defaults. That not only makes for imprudent lending decisions, it rewards them.

Here’s why: a customer comes into a bank and requests a mortgage, the payments for which he or she can’t really afford. If the bank bears the loss in the event of a default, logic dictates the banker will very carefully scrutinize the customer’s finances and ability to repay the mortgage. Doing otherwise puts the bank at risk, so the mortgage application is diligently underwritten.

But that’s not the way the process actually worked.

Instead, the banker approved the mortgage application and issued the loan. The mortgage, meanwhile, was immediately sold to Fannie Mae or Freddie Mac. Fannie or Freddie guaranteed the mortgage against default, bundled it with other mortgages, and sent it to Wall St., where the bundle of (now guaranteed) mortgages was sold to investors as Asset Backed Commercial Paper.

On the surface, you have a winning combination: investors get a chance to invest in a product backed by real assets and with a guarantee against default. Banks get paid up front for the sale of the mortgage. The original customer gets to buy a house he or she never thought possible to afford. No one loses. The bank doesn’t care if the borrower ultimately defaults: it has cleverly divorced itself from the consequences of poor underwriting decisions. The investor who bought the ABCP doesn’t care much either: his or her investment is guaranteed against default by Freddie Mac and Fannie Mae who, it’s very widely believed, would never be allowed to collapse (which has since proven to be true). Even the borrower doesn’t care: the value of the house is sure to go up, building equity against which he or she can further borrow to buy that boat and big screen TV he or she has always wanted.

Except for one overlooked detail: the entire scheme is predicated upon housing prices never going down.

What might have prevented such a scheme from ever materializing? That’s easy: the linchpin of the whole dubious set up is Freddie Mac and Fannie Mae. That’s the point at which underwriting became divorced from risk. Without Freddie and Fannie guaranteeing the mortgages against default, the investors buying the ABCPs would have been confronted with the actual downside potential. That, obviously, makes them far less attactive investments, and acts as a natural braking mechanism against an oversupply of credit. With less money flowing back to the banks, the motivation to put ever more risky mortgages on the books is removed: the riskier any particular mortgage is, the less valuable it is when the bank sells it.

Suddenly, that same customer applying for a mortgage on a home he or she cannot possibly afford is confronted with a banker shaking his head and suggesting a far more modest mortgage, the payments for which the customer can actually afford to service.

How did Freddie and Fannie get into a position of causing such a mess? President Roosevelt, as part of his “New Deal” economic interventionism, created Fannie in 1938 specifically to cause an increase in liquidity for mortgages. That liquidity, exactly 70 years later, led directly to the current crisis.

And where does that leave us today? With the US government proposing a taxpayer financed $1 trillion bailout for the purpose of increasing lending liquidity. And removing, again, financial underwriting decisions from the consequences of those same decisions.

Take a moment to have a chat with your grandchildren: tell them the economic sky is going to fall yet again within the next 70 years. Tell them we’re sorry for causing it, but it seemed like a great idea at the time…