Big Government

Why the Big Short didn’t work but the next one likely will!

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In promoting the Hollywood version of The Big Short by Michael Lewis, Paul Krugman (NYT, December 18) misrepresents the central point of this excellent book, previously made by Peter Wallison, who Krugman attacks for his Republican dissent to the 2010 Financial Crisis Inquiry Commission (FCIC) majority Report.

The Hollywood version reflects the Report’s fundamental conclusion that the root cause of the financial crisis was Wall Street greed: hardly newsworthy, disputable or dispositive. The Big Short is about the equally greedy speculators who were shorting the housing market: had they succeeded early on – as they do in less distorted markets – they would have prevented the bubble from inflating to systemic proportions.

Contrary to the “indifference” theorem (i.e., between debt and equity finance) of Nobel Laureates Franco Modigliani and Merton Miller, both household borrowers and mortgage lenders chose to finance almost entirely with debt, a strategy best described as “going for broke.” The first distortion – tax deductibility of debt – makes leverage desirable until discouraged by rising debt costs. The second distortion – federally backed mortgage funding as Depression era deposit insurance became virtually universal and the Fannie Mae “secondary market” facility morphed into a national housing bank – prevented these costs from rising. This highly leveraged strategy was guaranteed to fail systemically if bad loans entered the system.

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“We Were Poised for Real Criminal Justice Reform”

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Indeed.

Something similar happened in the early ’90s. It looked as though a political consensus favoring smaller government was taking shape. Republicans with a well-considered smaller-govt agenda took over the Congress and the Democrats started to cut deals with them. Then the Oklahoma City bombing happened, the Clinton Democrats outmaneuvered the Gingrich Republicans over the government shutdown, and the smaller-government impetus was weakened considerably (we did get cap-gains tax cuts, welfare and a few other reforms that did a lot of good in the subsequent decade).

But then Sept. 11, 2001 and the Middle East war kicked much of what was left of the smaller-government movement over the far horizon, and since 2009 a hard-Left executive branch has been extending and doing its best to entrench post-Reagan government expansion.

There are tides in the affairs of men. The problem with tides is that they can go out for a long time before they reverse and start to come in. Let’s hope that the statist tide has finally run its course and that we are near a reversal.

National Review goes Bananas

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National Review has now gone off the deep end on Donald Trump.

This strikes me as fear and panic but about what ?

But he is not deserving of conservative support in the caucuses and primaries. Trump is a philosophically unmoored political opportunist who would trash the broad conservative ideological consensus within the GOP in favor of a free-floating populism with strong-man overtones.

Cue pearl clutching. What exactly has “the broad conservative ideological consensus” achieved the past 20 years ? Personally, I think Reagan began the problem by choosing Bush for his VP. Bush was antithesis to Reagan’s message and had ridiculed his economic plans.

Sam Houston State University historian, writing on the Forbes web site, has a very odd blog post this morning. He criticizes MIT economist Simon Johnson for attributing the term “voodoo economics” to George H.W. Bush. Domitrovic calls it a “myth” that the elder Bush ever uttered those words. “You’d think there’d be a scrap of evidence dating from 1980 in support of this claim. In fact there is none,” he says.

Perhaps down in Texas they don’t have access to the Los Angeles Times. If one goes to the April 14, 1980 issue and turns to page 20, one will find an articled by Times staff reporter Robert Shogan, entitled, “Bush Ends His Waiting Game, Attacks Reagan.” Following is the 4th paragraph from that news report:

“He [Bush] signaled the shift [in strategy] in a speech here [in Pittsburgh] last week when he charged that Reagan had made ‘a list of phony promises’ on defense, energy and economic policy. And he labeled Reagan’s tax cut proposal ‘voodoo economic policy’ and ‘economic madness.'”

It’s amusing to see people try to deny facts. Some argue that Bush did not oppose “Supply side” theory. Still, that is what “Voodoo Economic Policy” referred to. What else ?

Bush promised “no new taxes” in 1988 but then raised taxes in 1990 creating or deepening a recession that cost him re-electiion and gave us Bill Clinton.

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Greg Abbot’s Constitutional Convention

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Texas Governor Greg Abbot has called for a Constitutional convention of states.

UPDATE: Conservative Wahoo is in favor.

Why do I support it? A few reasons:
1) I am a political junkie. I’ve seen two impeachments proceedings in the House and one Trial in the Senate. I’ve never seen a convention of the states.
2) I think there are some places where the Constitution could be improved (see below), but I prefer that those improvements be WITHIN the Constitutional process rather than by Executive fiat (see, Obama, B.)
3) I believe it would energize people in this country to a great degree–equaled only maybe by war–to really think hard about what this country means to them.

He has a summary of the Mark Levin proposed amendments from his book.

A convention is one of two ways that the U.S. Constitution can be amended, and it’s described in Article V. One way is that Congress can propose amendments approved by two-thirds of the members of both chambers. The other method allows two-thirds of the state legislatures to call for a convention to propose amendments. Republicans backing the idea are confident that because they control state government in a majority of states, their ideas would prevail.

Democrats are horrified. The Huffington Post first ran this post with a headline that he wanted Texas to secede! I guess they thought better of the scare tactic.

Texas Gov. Greg Abbott (R) on Friday proposed a series of amendments to the U.S. constitution that would permit states to override the Supreme Court and ignore federal laws.

One of the proposed measures would allow a two-thirds majority of the states to override federal regulations, while another sets the same threshold for overturning decisions by the Supreme Court. The governor also wants to change the Constitution to block Congress from “regulating activity that occurs wholly within one state,” and to require a supermajority of seven Supreme Court votes before a “democratically enacted law” can be overturned.

OK. That’s fair enough.

The plan lays out nine specific proposed amendments that would:

Prohibit congress from regulating activity that occurs wholly within one state.
Require Congress to balance its budget.
Prohibit administrative agencies from creating federal law.
Prohibit administrative agencies from pre-empting state law.
Allow a two-thirds majority of the states to override a U.S. Supreme Court decision.
Require a seven-justice super-majority vote for U.S. Supreme Court decisions that invalidate a democratically enacted law
Restore the balance of power between the federal and state governments by limiting the former to the powers expressly delegated to it in the Constitution.
Give state officials the power to sue in federal court when federal officials overstep their bounds.
Allow a two-thirds majority of the states to override a federal law or regulation.

Balancing the budget is probably pie-in-the-sky but the others sound reasonable to me.

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All in a Day’s Incompetence and Criminal Activity at the Rogue EPA

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We need to clean this place up. The EPA’s scandalous December
Will anyone ever go to jail for any of these things? Will anyone even be charged? If we assume not, why?

And for a further example: PLF and the Sacketts: an important win at the Supreme Court