Jim's shared items

The Obama administration tried to sneak this one under the radar by making it official on Christmas Eve.  The Washington Post did a good job catching the story:

The Obama administration pledged Thursday to provide unlimited financial assistance to mortgage giants Fannie Mae and Freddie Mac, an eleventh-hour move that allows the government to exceed the current $400 billion cap on emergency aid without seeking permission from a bailout-weary Congress.

...But even as the administration was making this open-ended financial commitment, Fannie Mae and Freddie Mac disclosed that they had received approval from their federal regulator to pay $42 million in Wall Street-style compensation packages to 12 top executives for 2009.

The compensation packages, including up to $6 million each to Fannie Mae and Freddie Mac's chief executives, come amid an ongoing public debate about lavish payments to executives at banks and other financial firms that have received taxpayer aid. But while many firms on Wall Street have repaid the assistance, there is no prospect that Fannie Mae and Freddie Mac will do so.

Alea iacta est.  I think it very unlikely that the Democrats will be able to retreat from this now--has any major bill ever simply failed in conference?

The good is that some people who cannot now acquire insurance will get it; even if this does not make them noticeably healthier, it will make them less worried, and insulate them from catastrophic medical bills.  If our technocrats get things right, we may improve the practice of medicine--the most hope probably lies in improving IT and streamlining the bloated provider administrative processes.

The bad in my opinion, is that I'm not particularly sanguine about the ability of our technocrats to deliver unmitigated fabulousness, nor our politicians to resist the lobbying groups who will be steadily pressing them to make everything less fabulous.  I think we'll probably end up eventually with price controls that reduce innovation, providers that turn into horrid quasi-public utilities, brain drain out of the medical profession, and pretty serious rationing, which as David Cutler told me the last time I interviewed him, no other country has managed to avoid.

Oh, and there's a good chance we'll also end up with a fiscal crisis.  Those are usually pretty bad for everyone, but particularly the everyones who rely on government benefits.

Beyond that, I'm not sure how much more point there is in talking about it until the legislative particulars emerge from the final bill.  At this point, pretty much everyone is exhausted--the politicians, the CBO analysts, and the journalists who cover it.  I assume y'all are too.

So go have a merry Christmas.  Whatever you think of this bill, things will still be better than they ever have been in all of human history whether or not it passes.  So go out and sample some peace on earth and goodwill to men for a few days.  After the holiday, we can all get back to shouting at each other.

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2009 was the worst year for American foreign policy since the Carter administration. At the Telegraph, Nile Gardiner reminds us of Barack Obama's top ten foreign policy follies of the year. It promises to be the most depressing of the many top-ten lists we'll read between now and New Year's. Gardiner provides links and cites chapter and verse, so his article should be read in its entirety. But here's the list:

1. Surrendering to Russia over missile defence.
2. Appeasing the mullahs of Iran.
3. Ending the war on terror.
4. Announcing a surge while declaring an exit.
5. Apologizing to France for America's "arrogance."
6. Giving DVDs to the British Prime Minister.
7. Siding with Marxists in Honduras.
8. Bowing to emperors and kings.
9. Embracing genocidal killers in Sudan.
10. Throwing Churchill out of the White House.

It's been a long year.

President Obama met with a dozen small banks yesterday, urging them to keep lending.

He did not have to tell that to this group — about 6500 mostly AAA rated, regional and community banks — who have been happily lending away. Its how they earn their money.

The larger banks, on the other hand, are the ones who have cut back lending dramatically. This is especially true of the 10 biggest banks.

Why?

Its the rational thing to do.

These banks STILL have to much debt, too little capital. They books are festooned with bad loans, which, thanks to our corrupt Congress, they no longer have to disclose appropriately. Thanks to Mark-to-Make-Believe, they can pretend these assets are worth near what they paid for them. In reality, they cannot sell them even at 50% off.

Lending money is a risky business; there is the possibility of loss. Under-capitalized banks cannot take that chance. By not lending, their capital base goes up. IT is the rational thing to do from their perspective.

Rather than engage in traditional money lending, these banks have decided to simply borrow from the Fed at 0%, and make risk free loans to the Treasury at 3%.

And, these banks are not lending because the way the Fed/Treasury bailouts were structured, they are encouraged NOT TO LEND.

Why? They need to rebuild their capital levels after 30 years of declining safeguards and capital ratios.

This is yet another unintended consequence of bailing reckless bankers from their folly. Theior oplace in the economy is so distorted, as to become nearly economically meaningless . . .

Dom Armentano contributes this great letter to today’s Wall Street Journal:

Your editorial is correct to condemn the Federal Trade Commission’s attack on Intel (”The 100 Years Chip War,” Dec. 18), but it is dead wrong to conclude that the government’s antitrust intervention is “unprecedented” or that antitrust laws really “exist to promote business and price competition.”

Have we forgotten the FTC’s eight-year (1958-1966) campaign against the Borden Co. to stamp out lower prices for evaporated milk? Or its 10-year (1957-1967) legal assault to end the Procter & Gample-Clorox merger in which the FTC’s primary argument against the consolidation was that the probable “economies and efficiencies” of the merger could be passed along to consumers?

Or how about the Justice Department’s 15-year (1953-1968) war against United Shoe Machinery in which United was ultimately ordered to create a competitor with divested shoe machinery assets, license out all of its own patents to the competitor, and then refrain from active competition with the new-born company for five years?

And have we already forgotten that the Microsoft antitrust debacle started with a two-year investigation by the FTC back in 1990 or that the Justice Department pursued the company for another 10 years because Microsoft bundled its Web browser, Explorer, with its Windows operating system, much to the delight of willing buyers. Recall that in the 1999 trial verdict, lower court Judge Thomas Penfield Jackson even ordered the company divested until the D.C. Circuit Court of Appeals unceremoniously discarded that absurdity in 2001. In short, the FTC’s assault on Intel is hardly unprecedented.

What these cases (and hundreds of others) establish beyond any reasonable doubt is that antitrust does not exist to promote business and price competition. Never has, never will. The theoretical and case evidence, some of which I’ve cited, is all the other way.

The real mystery surrounding antitrust is why knowledgeable observers of the free-market process persist in believing this fairy tale.

Dominick T. Armentano

Vero Beach, Fla.

I am reliably insured by all the progressives in my Twitter feed and comment section that this bill will pay for itself.  Along with the CBO and the Centers for Medicare and Medicaid Services, I have my doubts.  But say it's true.

Now what?

We still have a gigantic budget deficit pressing on us from Medicare.  Yes, you say you made serious Medicare cuts.  Then you turned around and spent that money on expanding coverage.  So the Medicare deficit, which will be $100 billion and growing in 2019, will still exist.  There will also be growth in the portion of Medicare that is currently paid for out of general revenue, putting further upward pressure on our deficits.  It's impossible to say exactly how much that $100 billion will be growing every year, but $15-20 billion seems like a reasonable estimate, as least during the senescence of the Baby Boomers.

This is why the argument that "If we can't make these cost cuts, we can't cut Medicare costs, so we're doomed anyway" is such a silly, facile argument. "Medicare cuts" are not some undifferentiated substance, which one consumes or doesn't as if they were cigarettes or baby carrots.  Medicare cuts range from easy to hard, and we just used up the easiest ones--cuts which, if you'll notice, weren't all that easy.  Doing this bill means it will be even harder in the future to cut Medicare, because the cuts we will have to make will almost definitionally mean deeper service cuts, and greater political controversy.  

Now, perhaps this bill will "bend the curve" and lower the rate of healthcare inflation.  But as I understand it--the details of this bill are still emerging from the thicket of legislative language--the deepest cuts are still found by altering the growth formula for provider payments.  This is not curve bending, it's haggling, and these are the sort of cuts which have so far proven the least able to withstand interest group pressure.

So we aren't done talking about healthcare.  We haven't even really started.  Our budget problems loom as big as ever, and we just used up both political capital, and some of our stock of tax increases and spending cuts, to pay for something else.