President Obama
By Dan | November 4, 2008 - 11:50 pm - Posted in Op Ed, Politics & Policy, Uncategorized

Congratulations to Senator Barack Obama on becoming the 44th president.

As I have already mentioned, I am concerned about America’s path in the next few years.  Tonight is not the time for warnings or recriminations.  Tonight is the beginning of the process of unifying our country behind our new leader.

I have few requests of Republicans, Conservatives and fellow right wingers of all stripes:

Let’s not do to Obama what the left did to Bush.  The election is over, and by January 20, Barack Obama will be our president.  That is our system, let’s not whine about the outcome for four years like petulant children.  If you cannot respect the man, respect the office.  We are better than the left because of our respect for the rule of law over the rule of men; let’s show it with class and dignity.

Let’s focus our efforts on growing our talent pool and phrasing a rational, coherent statement for the future of the party.  Now is the time to clean house of the Republicans who cost us this election and endangered the Reagan Revolution.  We’re the opposition now, and we need to present a clear, clean and fiscally responsible alternative to the Democrats.  The saddest part of this election is that, even with Pelosi, Reid and Barney Frank as the face of the Democratic party, the Republicans still lost ground.

Rejoice in the small things.  True John McCain lost, but at least American can’t be called racist.  At least now, Iraq, Gitmo, the war on terror, the economy and job loss number can fairly be put on the Democrats.  We cannot count on the press holding Democrats accountable, but Americans will see progress or failure with their own eyes.  Obama won the keys to the kingdom, we will see what his policies do to it.

Finally, keep the faith.  Laissez faire capitalism is still the best, most efficient economic system.  A strong military abroad and fiscal responsibility at home are still keys to American exceptionalism.  Government never solved a problem without creating a bigger one; we need to stay focused and not compromise our message.  Remind each other what these principles mean to us.  Remember that four years of Carter gave us eight years of Reagan.  His heir is out there.

By Dan | October 8, 2008 - 8:48 am - Posted in Uncategorized

I retract my endorsement of John McCain for president.  I continue to believe he is the better option than Barack Obama, but Senator McCain’s promise last night to purchase struggling mortgages and renegotiate their terms runs counter to every economic principle Daily Danet stands for.

No one wants Americans to be evicted from their homes, but wasting taxpayer dollars to reward bad behavior is not the answer to our current crisis.  My wife and I have not purchased a home over the past four years for the simple reason that we could not afford to.  Prices were too high and the mortgage payments would have been untenable.  Unless, of course, you assumed that housing prices would continue to rise.  We knew better, so we rented.

The fact that many people continued to buy into the escalating housing market (with the help of aggressive lending practices) meant that those inflated prices remained artificially high.  This feedback loop kept many smart people out of the housing market, my wife and I included.  It will not be my burden to rescue someone who made a reckless financial decision.

As for the election, it is over.  Barack Obama will win as McCain’s reckless fiscal policy will demoralize the base.  Even without this issue, Obama’s friends at ACORN are already stealing the election in Ohio and Florida.  My recommendation to conservatives is to sleep in on election day.  You will need your rest for the coming four-year nightmare.


The recent market turmoil has produced an astonishingly predictable wave of populism.  Even McCain and Palin are blaming corporate greed and abuse of the public trust.  (To be fair, corporations cannot fairly abuse the public trust as they are formed for the benefit of their own shareholders, not the public.  Somewhere, Ayn Rand is rolling over in her grave.)

The most idiotic line of attack, not surprisingly, is coming from the Democrats.  In an effort to pin the market’s problems on Senator McCain, Obama has pointed to the 1999 Gramm Leach Bliley Act.  The wholly uncontroversial act was passed by nearly unanimous vote and signed into law by Bill Clinton.  Of course, as the lead sponsor, Senator Phil Gramm’s connection with Senator McCain’s campaign gives Barack Obama some Hope® to link the two to the current market problem.

Obama, having no economic experience beyond the begging for, squandering and doling out of tax dollars, is perhaps not familiar with the purpose and history of the Act.  (One of the more entertaining aspects of the last several days has been watching the mental midgets at Daily Kos, the Huffington Post and elsewhere espouse their opinion on GLB.  If asked before the recent market crisis, I would bet most of these people would think Gramm Leach Bliley was professor of Dark Arts at Hogwarts.)

I never thought this would come in handy, but as it turns out, I work with GLB every day, so I do know a little about it.  Which is to say, a great deal more than apparently what Obama and the Democratic party know about it.

GLB overturned a depression era law known as Glass Steagall (and no, that’s not a magical transparent bird from Harry Potter).  Glass Steagall prohibited retail banks (banks that make their money by holding deposits and lending money to consumers) from engaging in insurance and commercial and investment banking (like Goldman Sachs, these banks make their money mostly from investing in and lending money to corporations).  The rationale was simple: during the market crash of 1929, which precipitated the Great Depression, many retail banks failed because their assets were tied up in the stock market.

Glass Steagall did two things: (i) it created the FDIC to insure deposits at retail banks up to now $100,000 and (ii) it prevented banks from exposing themselves to market risks that could again crash the entire system.

Over 60 years later, the economy and the markets had changed.  The Securities Act of 1933 and the Securities Exchange Act of 1934 had developed strong, robust markets that were, for the most part, self-correcting.  In addition, the Savings and Loan crisis had shown that restricting diversification was not necessarily the best way to prevent bank failures.  In addition, retail banks and large investment houses wanted to be a one-stop shop and compete with one another for the savings and investment accounts of their customers.  All of this lead to the repeal of the second major prong of Glass Steagall.  In a sense, that is all the GLB did: it allowed your checking and savings account to be held at the same place as your insurance policy and your mutual fund.

Obama, however, is now claiming that GLB should be repealed.  He’s flatly wrong.  Repeal of GLB would lead to disaster.  In fact, GLB is operating as the savior today.  Who saved Merrill Lynch from bankruptcy?  The largest bank in the world, Bank of America.  Glass Steagall would have made that illegal.  Who is rumored to be buying Morgan Stanley?  Wachovia, another retail bank that would have been prohibited by Glass Steagall from intervening.  Who is picking up the pieces of Lehman Brothers?  Barclays Bank, a UK bank known primarily for retail banking and credit cards.

Obama’s claim that GLB is the cause of the problem is even more idiotic.  The root cause of the current problem is over aggressive lending by mortgage banks like Fannie Mae, Freddie Mac, Countrywide and a slew of others.  These banks, after being pressured by Congress and President Clinton, made loans to lower income families that everyone knew could never be repaid by their income alone.  The buyers, to the extent they knew what they were doing, were thinking, “I’ll buy a $200,000 house I can’t afford.  I can pay interest only for a few years, then the house will increase in value and sell it at a profit and buy a new house for more money.”  The banks were thinking, “worst case scenario, we foreclose and sell the house for a profit.”  In essence, the banks and the homeowners were betting that housing prices would go up.  They were wrong.  In fact, the fast and loose credit rules further exacerbated the problem by artificially driving up home prices.  If more people can afford a home, home prices become less affordable.  (Note to Dems, this is where the Law of Supply and Demand meets the Law of Unintended Consequences).

So, you may ask, but only if you’re still paying attention, how does this bring down Lehman Brothers, who doesn’t have a mortgage brokerage?  Well, Fannie, Freddie and Countrywide were not content to hold these bad mortgages themselves.  A mortgage is just a promise from some putz to pay over 30 years.  If you’re a mortgage lender, you prefer your money up front (who doesn’t).  So the banks devised a new product called mortgage or asset backed securities (ABSs).  These are a bundle of thousands of mortgages, each with the same or similar terms.  The bank then sells interests in each of the ABS’s to investment banks like Lehman (and Merrill and Morgan Stanley).

The problem is, the ABS’s are only as good as the aggregate credit of the underlying homeowners.  If one or two in a thousand default, no problem.  The losses are offset by the payments from the others.  The only way this could fail is if a lot of buyers started defaulting on their home loans at the same time.  Well, guess what?  When you systematically extend credit to people who can’t afford it, you create systemic risk.  The bottom falls out when the first person can’t sell their home.  The next person to try to sell is facing a buyers market and we race to the bottom.  The fact that baby boomers are all retiring and trying to sell their homes at the same time compounds the problem.

To further complicate matters, the ABS’s were further divided and picked apart and merged with other instruments (like credit default swaps and other derivatives).  All of this means that even the whizkids at Lehman couldn’t figure out what their real risk was.  (Like John McCain, first Lehman, and now the taxpayers don’t know how many homes we all actually own.)  This led to a panic and a run on the investment bank.  Shares plummeted and investors in Lehman products bailed out.  In a sense, this is the exact opposite of the bank failures that lead to the Great Depression.  It wasn’t market speculation that lead to a run on retail banks, but retail banks’ speculative lending that lead to a run on investment banks.

The take home point here is that Gramm Leach Bliley is not the culprit.  Nanny state regulation and do-gooder intentions in the mortgage market are the culprit.  The sooner we realize that altruism is not a valid economic policy, the more we can avoid these messes.

Obama: No Mathlete
By Dan | August 29, 2008 - 9:21 am - Posted in Business Section, Edukashun, Politics & Policy, Uncategorized

In last night’s speech Barack Obama claimed that, “we import triple the amount of oil as the day that Senator McCain took office.“  So what?  Senator McCain has been in office for 26 years.  That’s an average increase of 4.2% per year (with compounding).

Second, and more importantly, what does that have to do with anything?  John McCain is one senator out of 100.  His biography is full of amazing stories of courage, sacrifice and accomplishment.  Surely, though, Senator Obama is not saying the John McCain has been single-handedly responsible for US energy policy for the last 25 years.  What else can we put on his shoulders?  US GDP has increased by 200% since McCain took office.  Hamburger sales have skyrocketed.  Shark attacks have been almost eliminated since McCain was elected.  Maybe he’s an oil importing, GDP raising, hamburger eating, shark killing leviathan.  If so, he has my vote.

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Recently, Oprah, had an episode about healthcare.  Oprah, Michael Moore and other guests continued to refer to healthcare as a right.  Many people disagree with this fundamental issue, but have difficulty articulating why. So here is my best effort to explain to the five people who read this blog, why it is I believe that healthcare is not a “right.”

The classic response is that a right is not something someone gives you, but something that no one can take away.  This a good bumper sticker, but it is not terribly instructive if you’re not already convinced.  I don’t presume to solve the problem of escalating healthcare costs.  Due in part to rapid advances in medical treatments, ordinary people are being forced to choose between lifesaving treatments that didn’t exist only a few years ago and bankruptcy.  Rampant lawsuits, anti-healthcare provider forces and those evil profit seekers can be left for another time.  A more basic question, however, is whether you (and I) have a right to healthcare.

Rights are not unlimited.  Rights can be restricted or even taken away.  For example, you have the right to liberty (to walk freely wherever you please).  But others can restrict that right in certain circumstances.  You cannot, for example, walk freely through your neighbors bedroom at night.  That would violate their right to privacy.  If you commit a crime and are tried and convicted, your liberty can be revoked completely.

Rights really only make sense in the context of a lawful society.  Governments are instituted, as a basic matter, to determine where one person’s rights end and another’s begins. For example, you have a right to free speech, but others have a right against defamation.  If you say something untrue and defamatory about someone, the government can determine whose right trumps.

From the perspective of the government, a right is something that can be ensured to one citizen without taxing (in the broadest sense) another citizen.  For example, the government can ensure your right to free speech without any cost to anyone else.  No one has to listen (you do not, for example, have the right to be listened to).  Nor does anyone have to publish your work.  You do not, however, have the right to a full-page spread in the Wall Street Journal.  If, however, you can afford to, you can purchase one (or the Wall Street Journal) and say pretty much whatever you want.  (Subject, of course, to others’ rights to be free from defamation and other torts).

In a (mostly) free and (mostly) just society like ours, rights are plentiful.  You have, to name a few, the right to bear arms, the right to your life, your liberty, the pursuit of your happiness.  To be sure, however, this does not mean the government must buy you a gun.  Nor does it mean government must purchase the things that make you happy.  It only means that government cannot restrict these rights without due process of law.

This is the crux of the issue: there is a difference between a right and a need.  For example, you need food, clothing and shelter.  You have a right to pursue these needs; the government will not prevent you from buying a home, buying food or buying a new pair of jeans.  The government does not, however, owe you a house, food or clothing.  You have no right to housing, no right to food and no right to clothing.

Consider a small society of 100 people, with laws not too dissimilar to ours.  Let’s assume 2 of these people are unable, for whatever reason, to afford their own home.  Among the other people are a carpenter, a logger, a blacksmith, a painter and a plumber.  If the government is to provide those two people with housing, it has to either (i) tax everyone to pay the workmen to build the house or (ii) compel the workmen to build the house for free.  Either way, the government must take something of value to provide this need to those who cannot obtain it on their own.

So it is with healthcare.  You need healthcare.  Everyone does.  But in order to provide you with that need, the government has to take from someone else.  They either have to tax those who can afford it or compel the doctors, pharmacists and hospitals to provide it for free.  You may think, as clearly many do, that this is not such an evil thing.  Think back to that “free” house, though.  Think how hard those workmen would work if they knew that they either weren’t being paid for their efforts, or that some nebulous body called “taxpayers” were paying them.  Also, consider how many people would voluntarily buy their own house when they knew that others had gotten on for free.  Imagine the standard of construction and innovation that would develop if housing were treated as a right; as something the government needed to provide.

Of course, governments do this all the time.  They tax one citizen to pay for another’s welfare (literally and figuratively).  They tax me to pay for your social security.  They tax you to pay for my passport.  They tax all most of us to provide for our common defense.  The point, however, is that that does not make it a right.

Governments have many purposes.  The common defense is one that most people agree on as a valid rationale for taxes.  Saving the spotted owl, however, is debatable.  So too is providing healthcare.

UPDATE: You like me, you really, really like me.  Thanks to John Hawkins at Right Wing News and the David All Group for the acknowledgment!