More Funds for AIG...

The U. S. Treasury Department announced today that another 30 billion dollars would be headed for troubled Insurance giant AIG. This is on top of the 150 billion already sunk into this Insurance Titanic, including 26 billion in loans from the Federal Reserve Bank.

This would put the US Government ownership of AIG at 80%.

It also would convert the stock that the US Government (Read: U S Taxpayers) has in the company from Preferred to Common Stock: and that means that if the company loses money, the U. S. Taxpayer gets socked first.

Now, with all this cash, could AIG actually lose money? Well, friends, they just reported quarterly losses of 61 billion.

The appropriate action is to allow AIG to fail, and distribute their clients to well-run companies. There are plenty of healthy, responsible Insurance companies who could and would benefit from taking on AIG's clients: companies like Guardian Life, New York Life, and the American Financial Group, all of whom have refused taxpayer bailout funds because they have operated their companies responsibly and profitably.

Which are the companies that are taking taxpayer funds?

- Banks that sold and traded in irresponsible sub-prime mortgages (required by Democratic President Carter, to 'help' low-income areas, and strenuously enforced by Democratic President Bill Clinton).

- Insurance Companies that invested in subprime mortgages and irresponsible banks after Banking Deregulation (signed by Democratic President Bill Clinton in 1999) permitted it. (See a pattern here?)

Meanwhile, healthy insurers that should be the focus of the public's purchases are put at competitive disadvantage by having the Irresponsible Government Favorites kept afloat with tax dollars. We are rewarding the inept, and hurting the wise.

Why? Why would Obama want 80% government control of an insurance Company?

Ah, lets just wait for his new Health Plan Initiative Wouldn't it be amazing if AIG suddenly became the US Government-funded Universal Health Insurer?

Hmmmm....

Why the Bailout is wrong.

Listening to some of our nations top political leaders, one gets an uneasy feeling that The Great Depression II is right around the corner, unless we entrust the federal government to engage in a massive 700 billion bailout plan that will ultimately save ‘main street’ from Wall Street’s mess. But if that’s the case, why have over 200 leading economists from Harvard, MIT, Northwestern, the University of Chicago, and other respected institutions signed a petition opposing rapid passage of this bailout?

In basic English, the argument in favor of the bailout goes something like this: banks and other financial institutions have purchased mortgages which, for many different reasons, are now worth far less than their purchase price. As a result, banks have lost money buy purchasing them, and they can’t convince anyone else to buy them. If they can’t sell their ‘paper securities,’ they can’t raise cash. This, in turn, means they have no money to lend, and credit markets will be so tight that ‘Main Street’ will grind to a halt: businesses will not be able to borrow funds to meet payroll or expand their enterprises, and consumers will be unable to purchase homes and cars or pay their college tuition bills.

This line of reasoning scares many Americans (as its meant to), but is faulty for several reasons.

First of all is the cost. What is not being revealed to the American public is that over the last 5 months, the Federal Reserve Bank has already provided over 1.1 trillion dollars to financial institutions, in exchange for paper securities, in order to inject cash into the banking system. The 700 billion bailout is in addition to that which has already been injected – with an accompanying bill of over $17,000 per American household before this is over.

Second is the risk. I asked a spokesperson for the Federal Reserve Bank of Boston why Washington Mutual didn’t take advantage of the Federal Reserve’s Bank’s cash offer over the last few months. I was told that there were financial criteria that needed to be met in order to obtain that funding: in other words, the less credit-worthy, the less stable institutions were unable to partake. That means that the 700 billion Congress is about to authorize will be used specifically for those institutions whose paper is the most worthless, leaving the US Taxpayer with nothing in return for its “loan’ to these inept banks. Some commentators suggest that in reality, the taxpayer will make a profit on this paper, but if that was a realistic possibility, there wouldn’t need to be a government bailout: some enterprising institution would have purchased that paper already.

Third is the Moral Hazard created by helping the inept. No one is guaranteed success in a market economy. In the rough and tumble of competition, some win and some lose. If the most ineffective, negligent, inattentive and even fraudulent activities are rewarded by a bailout, what message does this send to the banks who were prudent in their decision–making over these years? The well-run banks ought to profit, and ought to be stronger and inept banks close; instead, we, the taxpayer will be helping the most irresponsible institutions stay afloat, and will pay interest for the ‘honor’ of so doing.

Fourth is the unfounded fear that credit will completely dry up. The fact is, banks do not lend their own money; they lend their depositors funds. Institutions may crash and burn, but their depositors funds are insured by the FDIC, and those depositors will simply place their funds elsewhere. Keep in mind that when Merrill Lynch was subsumed by Bank of America, there was no catastrophe: there was simply an efficient movement of resources. The Market worked without a taxpayer bailout. Similarly, when Washington Mutual ‘collapsed,” they opened the next day as part of JP Morgan. Not one depositor lost money, not one customer lost their line of credit – and not one dollar of taxpayer was required.

The Bailout is an unnecessary, expensive return to Feudal Britain, where the “Crown” owned title to all the land and used tax money to keep its favorite business partners afloat. This is precisely the time to allow the Marketplace to weed out poor investment firms and negligent banking facilities – and allow the rest of us to enjoy the prosperity that can be gained by resting secure in the knowledge that the best and brightest firms have been allowed to carry on financing activities

How Ron Paul blew it in New Hampshire

I will vote for Ron Paul on Primary day here in New Hampshire. I have been a Ron Paul fan for a very long time. But he and his supporters have snatched defeat out of what could have been a stunning showing, and its a shame.

The Republican Party has lost its principles and its soul. The GOP used to be the party of low taxes, fiscal responsibility, states rights, and a small-is-better philosophy when it came to the federal government. The Bush Empire has turned all that on its head, running up fantastic deficits, enacting Steel Tariffs, imposing No Child Left Behind on the states, and strengthening the power of the federal government to unprecedented levels through the Patriot Act and related provisions. Surely, somewhere, some Republican must be willing to stand up and declare that the Good Guys have actually morphed into the Evil Empire. For his entire career, Ron Paul has stood squarely in the true liberty-loving tradition of the Republican Party. And for that reason, I will cast my vote for Ron Paul in the Primary.

He has raised mind-blowing amounts of cash on the internet, drawing on the passion of the younger generation that tends to live on the net. But his numbers are not catching on much past the 10% mark in polls, even here in libertarian New Hampshire. Why is that?

Its not because of a media blackout. It's not because of a conspiracy against him.

It's because with all the issues he could have chosen to seize on, he chose the wrong ones: Immigration and The Federal Reserve System.

Someone needs to inform the political operatives that no one here in New Hampshire cares much about immigration. It's a virtual non-issue. New Hampshire is about as far from Mexico as you can get and still be on American soil. The immigrants who do arrive are by and large French-Canadian, and have been part of the New Hampshire social fabric for several hundred years. Further, all of the Republican candidiates are tripping over themselves trying to be the most mean-spirited, anti-immigration candidate...and no one here cares. Worse, Ron Paul is unable to differentiate himself from the pack on this issue. And even more troublesome, is that his position represents a retreat from the libertarian notion of greater freedom and less government.

Worse still is the near obsession that Dr.Paul and his followers have surrounding the Gold Standard and the Federal Reserve System. Dr. Paul has called for the abolition of the federal Reserve and a return to the gold standard. The more I hear him talk about this issue, the more convinced I become that he truly does not understand what he is talking about:

Dr. Paul has staked out this position because of the deblitating effect that inflation has on household savings. And he is correct: inflation destroys savings and value. What he doesnt seem to understand is that the United States has not seen high inflation in generations, and that is due largely to the effectiveness of the Federal Reserve Bank.

Every industrialized nation in the world has a "Central Bank." Most third world countries do NOT. Nations with these central banks experience low inflation (rarely double digits). In fact, the US inflation rate has been a mere 2% to 5% over the last few decades. (The seventies were an exception). Meanwhile, third-world nations without a central bank regularly experience inflation of 30%, 80%, 100%, or more.

The Role of the Federal Reserve System is to control inflation. They have done it, admirably. Authority for the System lies in the Constitution's clause giving the Federal Government the right to coin money.

The falling value of the US Dollar (which Dr. Paul has lamented) has been GOOD for New Hampshire: it means that the Chinese, and the Europeans, and next-door Canadians can now afford to purchase US goods, helping the manufacturing, retail, and tourism sectors upon which the New Hampshire economy is based. Ron Paul's lament about the falling value of the US Dollar carries little weight here: Retailers saw more Canadians crossing the border to buy US goods than ever before, *because* of the falling US Dollar.

And no one gives a crap about the Federal Reserve except college-aged idealists. Yup, that's right. Here in New Hampshire, people are concerned with fuel oil prices, health insurance, social security and pensions, jobs, and taxes.

Ron Paul could speak powerfully to Granite Staters about issues that are important to them. Instead, he has been sidetracked by non-issues.

And as a result, pragmatic New Hampshire voters will select John McCain (who is *not* seeking to be THE anti-immigration candidate), and who's frank talk about REAL issues resonates well with this state.