Never Mind

Erin Brokovich found her fame and fortune by suing PG&E for dumping hexavalent chromium in the water supply for Hinkley, California. The chemical is considered a probable carcinogen, so if it were a health hazard for the town's residents, cancer death rates should be greater than normal.

Fortunately for Hinkley's residents, although not for Brokovich's reputation, a study published in the Los Angeles Times indicates that the town had less cancer than would be expected for its demographic characteristics.

Why Now

The reaction to the latest batch of confidential documents that Wikileaks has released is a very interesting commentary on our public discourse. Many Democrats, columnists, and foreign governments are aghast that diplomatic correspondence has been made public.

To be sure, these leaks are embarrassing and potentially damaging, to the extent diplomats are less willing to share information for fear it may be leaked in the future.

Moreover, there are individuals named who they or their families may suffer retaliation for exposing their actions, so lives may be lost because of Julian Assange's war on America.

And we certainly have had confirmed or learned a number of interesting things, most notably that many Arab nations are more aggressively encouraging the United States to attack Iran to prevent it from developing nuclear weapons than Israel has publicly done so.

But there were earlier Wikileaks of American military reports, which did not receive widespread condemnation for being made public - even though the exposure of individuals in Afghanistan and Iraq who have assisted the United States and thus whose lives were put at risk by Wikileaks.

The logical conclusion is that the leak of American military reports during the Bush administration was fine for many in this country and the world, but the leaking of State Department cables under both the Bush and Obama administration is unacceptable.

It is hard not to come to the conclusion that going after the "good" State Department, the Obama administration, and implicating foreign governments is what made these leaks a problem, while leaking information on the "bad" American military is OK for many.

And this is what is so upsetting about the world's reaction to the Wikileaks episodes.

A Deal Worth Making

Count me as a supporter of the recent deal between the Obama administration and Congressional Republicans to prevent the Bush tax cuts from expiring on January 1 and to resolve absurd state of estate tax law.

The compromise is just that: it reflects many elements which are disturbing. Most importantly, the tax cuts and estate tax are resolved only for the next two years, whereas the positive impact on economic growth from the Bush tax rates would be much more significant if the tax law was permanent.

To reignite economic growth and reduce unemployment, we need individuals, businesses, and investors to take risks on new investment opportunities, and the aftertax rate of return on those investments is the fundamental determinant of whether, and how much, new investment occurs. And since new investments have a return typically measured over many years (often decades), lowering taxes (or more accurately, not allowing tax rates to rise) permanently would raise aftertax returns much more significantly than a two year tax plan with the tax rates scheduled to rise afterward.

But allowing tax rates to rise would be much worse, so two years of lower taxes with the ability to refight the battle later is better than nothing.

The estate tax change is genuinely a good thing, since estate tax law has been subject to the absurdities that John McCain and others inflicted on the nation when the Bush tax cuts were first passed. Estates were not taxed at all in 2010, but death tax rates were scheduled to increase dramatically on January 1. The compromise raises the level at which estates gets taxed, and reduces the tax rate, while preserving the estate tax. I'd much prefer to see estate taxes abolished, since after a lifetime of paying taxes on one's money, it is obscene to take 55% of one's money at death (the pre-Bush tax cut rate that would have taken effect on January 1 without the new law). But a 35% tax rate on estates over $5 million is more equitable than a 55% tax rate on estates over $1 million that would have occurred on January 1.

What is most disturbing in the law are the provisions that pay off various Senators for their support, such as maintaining the ethanol subsidy. It is also disappointing that spending wasn't cut to offset the cost of various provisions to reduce their impact on the budget deficit.

But this is the political reality of divided government: Republicans can't get all they want, nor can Democrats.

It is interesting that a number of aspiring Republican presidential candidates, such as Mitt Romney and Sarah Palin, oppose the deal. While that may or may not be good politics, it is bad economics.

Meanwhile, the Democrat left who oppose the deal, vociferous in their denunciations of the bill and Obama for agreeing to it, demonstrate their belief that the earnings of Americans belong to the government and that a tax cut (or preventing taxes from rising) is "giving" money to the affluent.

Quite the opposite: lower taxes mean people keep more of their own money, while higher taxes means the government confiscates more of your money.

The Pigs at the Trough Have Learned Nothing

While the tax deal Barack Obama negotiated with Congressional Republicans contains many features that will help the economy grow, it also faces added elements ostensibly needed to win the votes of wavering senators.

One such deal is a continuation of ethanol subsidies, which will cost $4.9 billion in 2011. Not only has Al Gore, the green lobby's "star", come out against ethanol on environmental grounds, after championing it for so many years, but it is adding billions of dollars to the budget deficit at a time of staggering deficits.

Even if ethanol had merits, we should be eliminating all business subsidies as one step in improving our awful fiscal situation.

The fact that with trillion dollar deficits projected for years the government can include this $5 billion give away that doesn't even achieve the environmental goals for which it is intended demonstrates the lack of seriousness of our political leaders.

This is how government financial crisis arise, and why tragically it often takes such a crisis to force people to make decisions they otherwise wouldn't.

TARP Returns

The federal government sold its remaining shares in Citigroup, resulting in a total profit of $12 billion on its $45 billion investment in Citigroup during the financial crisis.

As I wrote at the time, the government's investment in financial services companies under TARP is very different than its bail out of GM, Chrysler, Fannie Mae, and Freddie Mac. The two biggest American banks, Citigroup and JP Morgan, combined to make $88 billion from 2005-2007, while in that same period the two biggest auto makers, General Motors and Ford, lost a staggering combined $65 billion. Recall these years exhibited strong economic growth.

The significance of this vast difference in pre-crisis financial performance is that the TARP investment in the big banks had a much better chance of turning a profit than the TARP investment in the auto companies.

And that is exactly how things have turned out to date.

Then and Now

North Korea's latest military attack on South Korea yesterday and its disclosure of building a uranium enrichment facility continues the tyrannical regime's efforts to extract concessions from the United States and South Korea.

The South Korea responded by saying it would take "stern measures" if attacked again.

Attacked again? But yesterday's attack was the "again" - after sinking the South Korean warship this past spring that killed 46 South Korean sailors.

In a similar vein of wanting to keep tensions to a minimum, the Obama administration initially said it wasn't deploying additional military forces to the region, citing our existing forces in South Korea, Japan, and Guam.

It is instructive to review our response to the Cuban missile crisis in 1962 to see how far we've come in accepting threatening behavior today and attacks on us or our allies.

After the United States discovered that the Soviet Union had deployed nuclear missiles to Cuba, we imposed a quarantine on Cuba - a naval blockade in all but the name.

Vast military forces began to pour into our military bases in Florida and the Gulf coast as we prepared for a possible invasion of Cuba.

Most ominously, our nuclear-armed bombers in the Strategic Air Command greatly increased their air patrols and carried out attack runs aimed at the Soviet Union - each time pulling back before carrying out the attack but intending to intimidate the Soviets.

And the intimidation worked. Because despite the threat of looming war, which typically leads nations to at least prepare for war by deploying its forces accordingly, the Soviet Union didn't move a muscle. After starting the crisis with the deployment of its missiles, it then became terrified with America's overwhelming response and military superiority in the region and in nuclear weapons - so scared it didn't even prepare for war.

48 years ago, we responded to military threats by preparing for the worst, and in doing so, deterred war and obtained a better political settlement.

Today, we and our allies are the ones who are scared of preparing for war, and in so doing, increase the risk of war and of obtaining a worse political settlement.

Our enemies observe this, and plan accordingly. North Korea has had great success in pushing past previous "lines in the sand", only to find we don't really mean it and will appease them with concessions to avoid future provocations. Then North Korea repeats the cycle, crossing new lines in the sand and obtaining new concessions.

Will Barack Obama be up to the challenge to stop this dangerous pattern, that both Bill Clinton and George Bush engaged in?

American Leadership, or Not

Many countries believe the Fed's recent round of quantitative easing is designed to depress the value of the U.S. dollar relative to other countries, and thereby to increase American exports by making goods produced in America cheaper in foreign currency terms.

This had led to much outrage expressed by international leaders, with Brazilian leaders saying the U.S. is engaged in a "currency war." Germany's Finance Minister Wolfgang Schaueble not only thinks QE2 is bad policy but says it violates the Obama administration's international commitments. Schaueble said: "These huge economic problems cannot be solved with more debt. That was the joint policy all developed nations, even the United States, agreed on at the G20 summit in Toronto."

Schaueble went on to say the United States should follow Germany's example of how to deal with the financial crisis - in which Germany cut government spending!

And how does Barack Obama feel about the Fed's QE2 policy in light of this international criticism of American policy? He supports the Fed's actions.

The U.S. dollar has a unique role in the world economy as the global reserve currency. Many nations (through their central banks holding most of their foreign currency reserves in dollars) and individuals look to the dollar as the ultimate safe store of value; the dollar is the currency used to price many commodities (such as oil); and is the benchmark for setting interest rates.

Having the global reserve currency provides the United States great financial flexibility. For decades, China and Japan have been sending America products that fill our homes, and in returns we have been sending them dollars that fill their central bank reserves. It also allows the federal government to run huge deficits and confidently believe it can easily borrow the money to support such debts.

However, the price for having the reserve currency is that the United States has a global responsibility to manage our financial affairs in a prudent manner. Huge budget deficits, a housing-led financial crisis, and debasing the dollar through QE2 all contradict the required prudence.

This is why there is such international outrage directed at the United States, for understandable reasons.

What do we need to address this problem? Stop QE2, cut government spending dramatically to reduce the budget deficit, approve the free trade agreements with South Korea and other nations that the Democrats have stalled for several years, and implement policies that promote economic growth through lowering tax rates and reducing regulatory burdens such as ObamaCare.

Solutions exist which can improve the economy, ease international tension, and restore American leadership to the world. Unfortunately, Barack Obama is not the man for such a job.

Surprise, Surprise

The Federal Reserve has recently began another round of what it calls quantitative easing (dubbed in the press QE2, to reflect the second time the Fed has engaged in this policy since the financial crisis began and as a play-on-words with the famous passenger liner). And the amounts are huge; the Fed is spending $900 billion on this effort: $600 billion in new money and $300 billion by reinvesting proceeds from previous bonds it bought that have matured.

Quantitative easing is a fancy term for printing money, since it means that the Federal Reserve will buy bonds on the open market from investors and pay for it with newly created money (in the modern era, such vast amounts of newly created money are in the form of electronic credits deposited to an investor's account, not printed dollars - although such credits could of course be converted into dollar bills if desired).

The Fed's stated goal is to lower interest rates of U.S. government bonds, since, all else being equal, by adding its demand to the market, the price of bonds should rise (and interest rates decline as bond prices rise). This is the application of the laws of supply and demand to the bond market. And lower interest rates on government bonds tend to lead to lower interest rates on mortgages and loans to corporations, to higher stock prices, and to greater risk taking on the part of investors who seek higher returns away from government bonds.

But the problem with the Fed printing money is it raises the specter of higher inflation in the future, since, all else being equal, more money in circulation means prices should rise. This is the application of the laws of supply and demand to the money supply and the economy's price level. Further, if investors believe inflation will increase in the future, they will demand higher interest rates on bonds today to compensate them for investing their money at a fixed rate of return.

So some factors suggest QE2 will lead to lower interest rates, and other factors suggest it will lead to higher interest rates. The Fed is betting that lower interest rates will predominate, while many have criticized the Fed for downplaying the risks from higher inflation.

So who is right? Well, so far, QE2 has led to higher interest rates! That could change with new market conditions, but so far the Fed's plan is not doing what it intended.

Two Steps Forward, One Step Back

Recently, it seemed that Barack Obama was getting a new seriousness about foreign policy. During his Asian trip, he told an audience that the United States would not be leaving Afghanistan in July 2011, notwithstanding his previous comments to begin withdrawing troops then.

One of the colossal mistakes Obama made in announcing his Afghanistan "surge" was to concurrently announce the withdrawal of American troops 20 months later - thus giving comfort to the Taliban that they could wait out an impatient America and causing Hamid Karzai to accommodate the Taliban given his desire to secure political power for himself without the benefit of American power in the near-term.

So Obama's comments mark an attempt to change direction, give heart to America's allies in Afghanistan that we have staying power, and to cause our enemies to realize we aren't leaving until we secure our goals.

Likewise, within a few days of Obama's comments on Afghanistan, an administration official indicated the need for the American military to remain engaged in Iraq longer than previously discussed. Since this shift in policy was made during a belated effort by the Obama administration to resolve the political stand off in Iraq that has led to delays in forming a new government after elections this past March, it has the appearance that such an American commitment was demanded by some of the political parties in Iraq - since an American presence helps ensure that sectarian disputes don't turn into civil war.

Both these changes are critical to having America as favorable an outcome in Iraq and Afghanistan as we can, and it is a sign of growing maturity on the part of Obama to change course.

It may also be a recognition that now that the Obama has suffered a severe loss in the mid-term elections, his ability to achieve any of his agenda on domestic policy is in tatters - whereas foreign policy remains largely (but not entirely) his prerogative. This growing assertiveness of America's interests may also be a way for Obama to move right in preparation for the 2012 elections.

Unfortunately, all is not well with Obama's recent foreign policy pronouncements. While in Indonesia, he felt the need to criticize Israel again for building more housing in the Jerusalem. Obama's previous criticisms of Israel for such construction activity led to a breakdown in the very discussions between the Israelis and Palestinians that Obama so fervently wanted to encourage.

So Obama's recent maturation on foreign affairs can't fully overcome his desire to appease his Indonesian hosts nor his left wing base.

Well Done, Mitch

While one always prefers a politician to do the right thing because they come to that conclusion on their own, without political pressure to change their mind, it is still better to come to that conclusion eventually while the issue is at hand. And the sooner, the better.

As example, Barack Obama could have concluded from Scott Brown's stunning Senate win in January 2010 that his healthcare legislation was a bad idea. Instead, the President doubled down - and the "shellacking" he and his party took in the mid-terms elections were the result.

This week, Mitch McConnell, the Republican leader in the Senate, came out strongly against earmarks - reversing course from comments he made a week ago. McConnell no doubt saw the intense opposition his pro-earmark comments generated, and quickly accommodated the anti-spending sentiment in the country.

Republican Waffling

Earmark spending is the effort by individual Congressmen to get specific spending proposals for the benefit of their district enacted into legislation, such as the infamous Bridge to No Where in Alaska that would cost a couple hundred million dollars to connect to an island with 50 residents. Not only do earmarks cost about $8 billion a year, but it is often the grease to getting other legislation passed (think along the lines of: "if you vote for this healthcare bill, I will make sure you get that earmark you want"). As such, it has been called the "gateway drug" to expanding government spending.

Some have argued that earmarks are a legitimate Congressional prerogative to battle the power of the president. Some have said it is a way for Republicans to right the balance of spending toward their districts, since so much of the spending explosion under the Democrats went to Blue states and districts. While there may be some validity to those points, they miss the larger picture.

If the government can't eliminate earmarks, which so many Americans detest, how can the government tackle the big spending amounts?

And if someone thinks $8 billion isn't that much money, then that perfectly defines the spending problem we have in Washington - it is a staggering amount of money, averaging out to over $100 for a family of four, and until the government starts thinking every dollar matters, it won't have the conviction to cut the many hundreds of billions of dollars in spending that is necessary to balance the budget.

House Republicans in the past voted to end earmarks, but under Nancy Pelosi's leadership Democrats went ahead with earmarks. Now that the House has turned Republican, and the likely next Speaker of the House John Boehner and likely next Majority Leader Eric Cantor have continued to speak out forcefully against earmarks, we can count on the House to eliminate earmarks.

Unbelievably, some Senate Republicans aren't sure. Minority leader Mitch McConnell and others are opposing the efforts to end earmarks. And now Barack Obama is getting to the right of some Senate Republicans by calling for a ban on earmarks.

Mitch McConnell is wrong on policy and clearly wrong on the politics of earmarks. The Republican ascendancy will be short-lived and unhelpful to righting the ills of the country if Senate Republicans get this wrong.

Who is the Biased One?

Around 7:30 pm on election night, Fox News came out with its estimate that the Republicans would gain 60 seats in the House of Representatives. Later that evening, CNN made its estimate that Republicans would gain 52 House seats.

As of Sunday morning, Republicans picked up 60 seats with eight races undecided. CNN now estimates that Republicans will gain 64 seats when the undecided races are resolved.

So if Fox is such a biased news organization in favor of Republicans, and CNN is the arbiter of truth, why was Fox more accurate with its prediction than CNN? And similarly, why was CNN's prediction inaccurate in a way that helped Democrats? Did CNN want to shade the results in favor of Democrats to maximize Democratic votes where polls remained open in the west at the time of their prediction?

There may not have been anything sinister going on at CNN, other than not being as good at making such predictions. Or perhaps more subtly, their left-leaning organization had a hard time believing the blood bath their preferred candidates were undergoing.

Fox's more accurate prediction (even they seem to have underestimated the Republican win if some of the undecided races break for the GOP) is evidence of being good journalists, notwithstanding that many of their commentators are conservatives. It isn't as if Fox predicted a Republican win of 80 or 90 seats, which some people speculated was possible in the days before the election.

This reminds me of a study published by the Pew Research Center's Project for Excellence in Journalism about the 2008 presidential election. The study characterized the percentage of stories in a journalistic outlet that were positive, neutral, or negative toward Barack Obama and John McCain. Here is that data:

			Obama						McCain
	Positive		Neutral		Negative		Positive		Neutral		Negative
Fox	25%		35%		40%		22%		38%		40%
MSNBC	43%		43%		14%		10%		17%		73%
CNN	30%		25%		39%		13%		26%		61%
NBC	43%		36%		20%		17%		30%		54%
Network TV	--		--		--		14%		29%		57%
Newspapers	45%		27%		27%		6%		25%		69%
Overall	30%		35%		29%		14%		29%		57%

Some interesting observations from the data. Fox's coverage was far more balanced than the other cable news programs and NBC (the study doesn't provide this data for CBS and ABC, nor NBC's Obama data, otherwise I would have included it in the table above).

Fox was equally negative toward Obama and McCain (40% each) and 14% more positive toward Obama than McCain (25% vs. 22%).

MSNBC, on the other hand, was 420% more negative toward McCain than Obama (73% vs. 14%) and 330% more positive toward Obama than McCain (43% vs. 14%).

CNN was 56% more negative toward McCain than Obama (61% vs. 39%) and 131% more positive toward Obama than McCain (30% vs. 13%).

Looking at NBC, network TV broadcasts, newspapers, and the media overall paints a similar picture as CNN and MSNBC - stories far more positive toward Obama and far more negative toward McCain than Fox.

So Fox is an outlier - it looks conservative not because its coverage is skewed Republican (as evidenced by the similar ratio of positive/negative stories about Obama and McCain) but because the rest of the media is so left-leaning as evidenced by its lopsided coverage in favor of Obama.

And the left is shocked and gasps in horror when Fox dominates the ratings, as it did on election. Fox's ratings not only beat the network election coverage but with 6.96 million average viewers dwarfed those of CNN (2.42 million) and MSNBC (1.94 million) combined.

Maybe the left should start living up to its claim to be advocates of science and reason and look at the data and think rationally about what it means. Instead, Obama claims Fox isn't even a real news organization. That's the response of a bully and a thug, not a man who claims science is on his side.

The End of the Beginning

Two years ago, I began writing this column in response to the fear that the policies of our government were undermining our (now partly) capitalistic economic system with strongly socialist policies. My initial concern was that a false narrative was developing regarding the cause of the financial crisis that engulfed the world in 2008, one which focused on an alleged lack of regulation, poor compensation practices by financial institutions, and exotic financial instruments such as derivatives. This led to TARP, bail outs for the auto industry, an explosion of government spending, healthcare legislation that would lead us to a European-style social democracy, efforts to regulate carbon, and looming crushing tax increases.

In short, the capitalist system that produced the greatest economic growth in the history of the world, which has occurred in America for over 400 years since the founding of Jamestown, was at risk of being overturn.

My column was my response to this erosion of our founding principles as articulated in the Declaration of Independence. As it turns out, millions of Americans felt similarly about the situation, and a grass roots effort arose throughout the country to oppose this assault on freedom sprang up. The Tea Party movement was a major, although by no means only, part of this effort.

Remarkably, further assault on our system was stopped with this week's election that produced a stunning defeat for Barack Obama and the Democratic party. Republican control of the House, and sufficient Senate numbers to lead a filibuster, ensure that new legislative efforts such as cap-and-trade are dead.

The election represents the end of the beginning of the effort to stop the socialist policies we have suffered these past two years. But there remains a great deal to do to get our economy growing again and creating jobs, to significantly reducing government spending and debt, to reform the housing market and Fannie/Freddie, to abolish ObamaCare, to reform the compensation and retirement policies of federal, state, and local governments to avoid the crushing financial burdens those policies have produced.

And we can't lose sight of the need to stop Iran from developing nuclear weapons, even if it means using military force to do so, and destroying terrorist networks and preventing states from using terrorism to advance their interests.

And so the struggle for freedom continues.

The House vs. The Senate

During the election coverage last night, a number of commentators suggested or implied that the Republicans, despite a historic victory in the House of Representatives, governor's races, and state legislative tallies, somehow didn't do all that well in the U.S. Senate.

The numbers simply don't bear that out.

It is critical to remember that all seats in the House were up for election, but only 37 Senate seats. As of this morning per CNN's estimates, the Republicans have picked up six seats in the Senate and 60 in the House. This assumes that the Republicans don't pick up Colorado or Washington (Alaska will remain Republican either way), which would make the gains in the Senate even more impressive.

These gains represent 16.2% (six out of 37) of the seats up for election in the Senate, which is more than the gain of 13.8% (60 out of 435) in the House. Even if you use CNN's estimated total, which allocates the undecided races between the parties, the Republicans would pick up 64 seats in the House, or 14.7% of all seats.

An alternative analysis looks at Republican gains as a percentage of Democratic seats up for election. There were 19 Democratic seats up for election in the Senate, and the Republican gain of six seats means 31.6% of Democratic seats were won by the Republicans (again, this would increase if Republicans eke out wins in Colorado or Washington). In the House, the current Republican gain is 60 out of 256 Democratic seats, or 23.4% of the available seats. CNN's estimated total gain of 64 is 25.0% of the available seats.

No matter how you look at it, the Republican victory in the Senate was more impressive than in the House. The reason the balance of power in the Senate didn't change hands is because only 37% of the Senate seats were up for grabs.

And the greater relative Republican strength in the Senate does not bode well for Obama. Due to gerrymandering, many House seats are not competitive so the relative underperformance in the House vs. the Senate by Republicans isn't surprising. But Senate races are statewide and represent broad swaths of voter sentiment, similar to Presidential elections.

Look for commentators to try to spin the Senate outcome as somehow undermining or inconsistent with the overall Republican victory. Doing so, they betray their partisanship and/or their innumeracy.

Choosing Presidents

One of the remarkable aspects of the country's reaction to Barack Obama's presidency is how many people express surprise at the leftist policies he has pursued.

There can be no doubt Obama is a man of the deep left, epitomized by his decision to push forward on healthcare legislation last winter despite Scott Brown's stunning upset victory in the January 2010 Senate election in Massachusetts. Brown campaigned as the 41st vote against ObamaCare in deeply Democratic Massachusetts and won on that basis - and yet Obama decided to ignore the political ramifications for his party and himself and forge ahead on his healthcare legislation. It is something Bill Clinton would never have done; instead, Clinton would have accommodated a new political reality by moving to the right.

The political defeat this Tuesday that the Democrats will experience, after Obama's stunning victory just two years ago, reflects the disconnect between what voters thought of him when he ran for President and what his actual policies have wrought.

There are several factors which account for this misunderstanding of Obama. First, he lied about the nature of his beliefs on the campaign trail and convinced enough Americans he wasn't as leftist as he really is. For example, during his primary battle with Hillary Clinton, Obama criticized Clinton for supporting an individual mandate as part of healthcare legislation. The individual mandate - the requirement that everyone buy health insurance or be fined if they don't - is a necessary element of any comprehensive government expansion into healthcare which both Clinton and Obama knew. Clinton was honest about it, while Obama lied to stake out a more politically palatable position. But when it came to craft legislation, naturally ObamaCare included the individual mandate.

Second, many Americans wanted to believe the "hope and change" message, with particular attention on the significance on voting for the first black President. Voting to make you feel better about yourself can easily lead to bad outcomes, since it downplays the policies and values the candidate represents.

Third, many people believe the best candidate is someone who is "really smart". I heard a prominent dentist say, "I voted for Obama because he is so smart, and I'm so disappointed and surprised that someone so smart pushed for a government takeover of healthcare." Although I've never been convinced Obama is that smart, I suspect he is smarter (as in a higher IQ) than John McCain - who had many good qualities but brilliance wasn't one of them.

But this is one of the most ridiculous standards of all. Who needs campaigns, and political careers, when we can just administer IQ tests and save all the trouble of an election? More seriously, while a degree of intelligence is needed to be President, what is more important are the candidate's values and world view which will shape the thousands of decisions that get made when if office, many of which are unknown during a campaign and therefore can't be discussed or debated.

As example, look at the Obama administration's policies toward the political crisis that developed in the summer and fall of 2009 in Honduras. The Honduran Supreme Court ordered the arrest of the president for violating a constitutional prohibition against seeking a second term, which the Honduran military carried out with overwhelming support by the Honduran political establishment including the political leaders of the Honduran president's party.

Outrageously, the Obama administration sided with the Honduran president and his supporter, Hugo Chavez, who is establishing a tyranny in Venezuela using similar tactics. How on earth could an American president support a would-be tyrant over those seeking freedome?

And this is where a President's core values and world view take over, because Barack Obama is a man of the left, and when the leftist president in Honduras claimed it was a coup that led to his ouster, rather than his violations of the law, Obama and his administration took his side.

During the 2008 presidential campaign, I had the view that the three most important things to know about Barack Obama were that he attended Reverend Wright's church for 20 years; started his political career at Bill Ayers' home; and was married to Michelle Obama.

Obama sat in Wright's church and listed to him preach his hatred and bitterness toward America, which even a good Democrat like Oprah Winfrey found unacceptable and left Wright's church many years ago. Bill Ayers was a terrorist from the 1970s who on September 11, 2001 didn't regret his terrorist actions 30 years before, and moved into "acceptable society" by becoming a professor to promote his leftist agenda through academia. And Michelle Obama said she was never proud of her country until it nominated her husband for President - never mind that she had attended Princeton, had made $300,000 per year as a hospital administrator, or that her husband had been a U.S. Senator - words of a bitter leftist.

Obama's intelligence tells us nothing about why he supported tyrants in the Honduran debacle, but his values and world view tells us a great deal why he did. He saw a fellow man of the left, allegedly trying to "help the poor and oppressed", so he chose accordingly.

It is a decision George Bush or John McCain, with very different values and world views, would not have made.

So when you evaluate political candidates, the most important assessment you can make is to determine what is the candidates core values and view of the world. This, more than any other factor, will determine which policies they pursue or support once in office.

That Was Fast IV

Industrial giant 3M announced it will no longer offer group health insurance to retirees not old enough for Medicare, beginning in 2015. Instead, 3M will offer some financial support for such retirees to purchase their own insurance.

The reality of ObamaCare is making a mockery of President Obama's claim that people can keep their current insurance policies if they want: the government has changed the health insurance marketplace, making it difficult or impossible for companies and health insurers to continue with existing insurance plans.

While this may be an "unintended consequence", I believe it is exactly intended - with the goal of driving more people to government provided health insurance, since if ObamaCare destroys wide swaths of the private market, the government will expand its role in healthcare.

Believe It or Not

The government at all levels is being overwhelmed by its compensation practices. Staggering pension and healthcare liabilities, if unchecked, will bankrupt either the economy or government budgets. Paying above market wages and benefits raise taxes and reduce funds for other government services.

The Wall Street Journal reports that New York City pays $100 million to teachers who were laid off due to their school being closed. Moreover, 59% hadn't applied for school openings nor attended teacher job fairs.

If we pay people for not working, don't be surprised when they don't work.

That Was Fast III

McDonald's has announced it may drop health insurance for 30,000 of its restaurant workers if certain changes are made to ObamaCare.

The specific provision that is causing a problem for McDonald's is the requirement that health insurance spend at least 80-85% of its premiums on medical expenses. Because of high turnover and low premiums for its health insurance for restaurant workers, administrative costs are higher than 15-20% of the total premiums.

McDonalds has requested that regulators waive the requirement so it can continue to offer health insurance to its restaurant workers.

Barack Obama said people could keep their existing health insurance policies if they wanted under his "reform". But ObamaCare has made it impossible for some health insurance, and uneconomic for other plans, to continue.

That Was Fast II

As I wrote in July, the Democrats' policies are so bad that in some instances the deleterious effects occur very quickly and clearly.

This isn't so with many government policies, where the negative consequences can take to manifest themselves and can be obscured due to the passage of time and the complexities of many economic issues.

So a policy whose negative effect is so clear and quick must really be bad to so qualify.

And Obama's healthcare debacle does so. This week, new regulations took effect requiring insurance companies to issue insurance for children without considering pre-existing conditions, known as guaranteed issue.

While that sounds nice, the result has been that most of the major insurers this week stopped issuing children's only health insurance policies.

Why would the insurers do this? Because if a person is guaranteed to be issued a health insurance policy without taking into account pre-existing conditions, nothing stops the person from getting the policy until a medical condition arises. So insurance tends to be bought only by sick people, with those needing the most expensive coverage most likely to buy, driving up medical claims costs per customer. The insurance companies then have to increase premiums to cover the cost, which provides greater incentives for people to wait until a medical condition arises worth paying the increasing premiums. This is a vicious cycle, and leads to the destruction of the market.

And it just did for children's only policies.

To make this point more clear, let's use a very simplified example. Health insurance in reality is more complicated than my example, since there are many possible outcomes beyond two that I use for this illustration, and there are co-pays and deductibles. But this demonstrates the essence of the problem.

Imagine there are two outcomes for consumers regarding their medical costs for the next year: they either have no medical costs for the year or they have a major medical condition that costs $100,000. And let's say for the overall population that there is a 10% chance the catastrophic problem occurs and 90% chance there is no cost. And let's add that there is no way to test or screen to see if customers have this medical condition before they buy insurance - in other words, you only know you have this condition when symptoms develop.

If the insurance company can sell insurance to a broad, representative sample of the population, on average it will incur $10,000 of medical costs per customer, since $10,000 is the expected outcome (10% chance of paying $100,000 and 90% chance of paying $0).

Let's also assume the insurance company needs to add 20% to its medical costs to cover its overhead and earn a profit. So in this case, the insurance company would charge $12,000 for an insurance policy. Customers would have a strong incentive to buy insurance, since if they went without insurance they would have a 10% chance of facing a huge medical bill of $100,000. So insurance serves its fundamental purpose, which is to protect against large, uncertain risks.

But now imagine that the law requires guaranteed coverage and prevents insurers from using pre-existing conditions to deny coverage.

Smart customers will realize they can avoid paying $12,000 when they have no major medical problem and can instead wait until the condition develops - and then buy insurance for $12,000 to pay $100,000 of medical bills. That's a great deal for the savvy customer.

So after some period of time, the behavior of savvy customers will change the sample of people buying insurance - healthy customers tend not to buy insurance and those who develop symptoms rush to buy insurance - so now 20% of the insured population develops the major medical problem. The insurer's expected medical cost per customer is now $20,000, and now charges $24,000 for insurance coverage - up from $12,000.

Now the initially unsavvy customers - people who are representative of the overall population in terms of having a 10% chance of developing this major medical problem - buy less insurance, since the cost is now $24,000 but there chances of paying $100,000 are still the same 10%.

As these customers drop insurance, the percentage of actual customers who have the major medical problem further increases. If the pool is now comprised 40% of those have or develop the medical problem, the expected medical bills are now $40,000 per customer. This leads to higher prices for insurance, which then provides more reason for customers to only buy insurance when the medical condition arises.

The result? The insurance company stops selling guaranteed issue policies since the market breaks down.

And this is why the health insurers stopped selling children's insurance this week.

We can thank ObamaCare for this and many more gifts to come.

Now They Tell Us

The Obama administration has proposed expanding the government's ability to wiretap emails and internet services like Facebook by requiring technology changes to allow the wiretapping to occur. This reflects the tremendous growth in communicating through the internet as compared to phone service in the past.

In principle it seems to be a reasonable proposal, since the government still has to go through the normal legal hurdles to obtain a wiretap.

But it is another about face for a Democratic administration, given the enormous abuse the Bush administration took from Obama and fellow Democrats for conducting surveillance, such as wiretapping, on potential terrorist communications.

A Fearful America

The Labor Department announced that the unemployment rate rose to 9.6% as the economy lost 54,000 jobs in August.

Normally at this time in a recovery, unemployment is declining and GDP is growing quickly.

What happened? Businesses and investors have become very cautious about making new investments, whether in the form of spending capital on new factories or increasing expenses to expand operations or develop new products lines. With tax increases looming, the further socialization of the healthcare industry underway, an unprecedented monetary policy that stokes the fears of future inflation, the assault on the financial services industry through new legislation and its demonization by politicians and the media continuing, non-defense government spending running at unprecedented levels, the increase in the minimum wage pricing some workers out of jobs, and previously negotiated free trade agreements stalling in Congress, businesses and investors have many good reasons to be nervous about the future.

One manifestation of this fear is the mountain of cash that American companies are keeping on their balance sheets, at over $2 trillion in aggregate. In more optimistic times (i.e., during other recoveries from recession), companies would be rushing to invest that money, or return it to their shareholders to invest, which would be the most effective stimulus plan of all.

But that requires a confidence in the future that is lacking. Another "change" that we can thank Barack Obama for.

Repentant Sinners

If Barney Frank doesn't waffle, his recent statement that Fannie Mae and Freddie Mac "should be abolished" may be the best thing a Democrat has said in a long time.

If Canada can have home ownership rates above those of the U.S. without their equivalent of a Fannie Mae or tax subsidies for mortgage interest, so can we.

And then we can avoid a housing-led financial crisis in the future.

An "Honest" Politician

New York City councilman Jumaane Williams made an interesting admission the other day: he said he favors allowing elected officials in New York City to serve three four year terms, instead of two under term limit restrictions, so they could receive a pension - which requires 10 years of service.

Of course, Williams' admission is a damning indictment of a political class that seeks money through the political system - and speaks to a significant motivation behind many people's interest in politics: the hope to secure money for oneself through the political system.

In the late 1990's, a former Democrat from Oklahoma said that what many people don't realize is that a critical motivator behind many Democratic politicians' support of further government spending is the desire for them personally to benefit from that spending - in the form of more jobs for elected and appointed officials.

Councilman Williams makes that point crystal clear.

Misplaced Priorities

A federal judge ruled that six Somali pirates can't be charged with piracy under U.S. law. The six are accused of attacking a U.S. Navy ship off the Somali coast.

While it may seem like a bizarre ruling, the judge appears to have made the correct legal ruling. The controlling case is a U.S. Supreme Court ruling from 1820 that defined piracy as "robbery at sea". Prosecutors tried to expand this definition of piracy to includes any violent acts at sea, since the pirates were thwarted in completing their attack so no robbery occurred.

But the judge didn't bend to political expediency or use today's norms to decide the case: his decision rests on the law as it stands.

The pirates do face other charges with lesser penalties, but what this case illustrates is the need for a new, revised law to govern piracy in the U.S.

So while the Obama administration has been in extremely active in promoting legislation to reorder our economy, they have dropped the ball on promoting new laws to protect us from modern threats.

The More Things Change, the More They Remain the Same

Fannie Mae and Freddie Mac, the two government-sponsored entities that were designed to promote home ownership, have been the biggest drain on the government's coffers by far in the TARP bailout. The government has poured $148 billion into them so far, on top of guaranteeing trillions of dollars of their debt.

These staggering losses are a manifestation of their seminal role in fueling the housing bubble and ensuing financial crisis. The government used them to subsidize housing, and in Democratic Congressman Barney Frank's words, he wanted to "roll the dice" with Fannie and Freddie to promote home ownership among low income people.

That "role of the dice" led to our catastrophic financial crisis.

So you might think, in a rational world where the Obama Administration claims it wants to prevent future financial crises, that the government would recognize that subsidizing the housing industry and mortgages should end, so bubbles are less likely to develop and so taxpayers are no longer on the hook for bad mortgage loans.

But the power to influence and control the housing industry, and to direct subsidies to favored constituents, is to tempting to the Obama crowd. Treasury Secretary Timothy Geithner has kicked off the administration's discussions of "housing reform" by saying that ther government should retain a role in the the mortgage finance business. Moreover, Geithner says one reason for this need for a government role is that 90% of new mortgage loans made over the past three years have had government support - suggesting that the private market can't provide sufficient mortgage lending.

What it really means is that it is hard for private mortgage lending to compete with government subsidized lending. Canada, which despite its left-oriented government policies has no equivalent to Fannie and Freddie, has no problem providing private mortgages with home ownership rates at or above those of the United States.

The government needs to end its myriad of subsidies for housing: it needs to wind down Fannie Mae and Freddie Mac and other government-sponsored mortgage supporters; it needs to repeal the Community Reinvestment Act which promotes non-economic lending; it needs to end the mortgage interest deduction to reduce the incentives to borrow; and it needs to end the favored tax treatment of capital gains on housing vs. other investments.

Stolen Election, Stolen Future

The Wall Street Journal reports that Minnesota Majority, a conservative watch dog group, has found in the two counties checked so far 341 illegal votes by felons in Democrat Al Franken's defeat of Republican Norm Coleman in the 2008 U.S. Senate election.

Since Franken won by 312 votes, and there 85 additional counties in Minnesota not checked, it looks like Franken won the race with illegal votes by criminals.

As the 60th Democratic, Franken's vote was able to overcome a Republican filibuster on healthcare.

Now you know why Democrats oppose using identification such as drivers' licenses to confirm the eligibility of voters. They benefit from fraudulent votes.

And our future has been changed accordingly.

Now They Tell Us

The U.S. Department of Transportation analyzed data recorders from Toyota vehicles in accidents they have been blamed on sudden acceleration. The result? The accelerator was engaged while they brakes were not.

In other words, the drivers mistakenly pressed the accelerator and not the brake - or at least claimed so in the accident investigation to deflect blame from themselves.

This is consistent with the government's investigation of supposed "unexplained" acceleration of Audi cars in 1989.

Out of 3,000 sudden acceleration complaints involving Toyotas and Lexuses, only one was confirmed as a problem with the vehicle, due to a floor mat issue.

Toyota, which built a highly profitable auto company without government subsidies or bailouts because it made cars people want to buy with a market cost structure, deserved better than the assault politicians and the media unleashed on the company earlier this year.

In a world where the U.S. government is a large shareholder in GM and Chrysler, it makes one wonder how much of the Toyota-bashing was driven by a desire to help the government-owned auto companies and the UAW.

Crime and No Punishment

The New York Sun comments on the state of New York passing a new law to prevent the New York Police Department from using its database of information gathered from its stop and frisk efforts. The database has been used to produce the past 18 months over 170 arrests, including 17 murders, 7 rapes, 11 shootings, and 36 robberies.

I'm not surprised that the leftists in New York have, given the outrage vented over the Arizona immigration law which is less troublesome than New York City's stop and frisk policy, have put these restrictions in place.

When the left had its way with New York City's mayoral and police administration, crime rates soared, culminating in 1990 with over 2,200 murders. In 2009, fewer than 500 murders occurred. Not only did this save great suffering upon the part of the people not killed and their families, but it has led to a remarkable renaissance in New York as many people no longer fear living, working, or visiting the city.

Many factors no doubt contributed to this decline in crime, including stopping people who the police under a "reasonable suspicion" standard and frisk them. Not only are some arrested from these stop and frisk encounters, but the policy's biggest impact is probably as a deterrent to people carrying weapons - if you know the police may stop you, you are less likely to carry a weapon that can get you arrested. Moreover, the data derived from these encounters has gone into a database to investigate future crimes.

Retreating from the policies that save lives and make New York safer may make leftists feel better. Unfortunately, it makes all of us less safe.

That Was Fast

Often the negative consequences of the government's intervention in the market takes some time to become apparent. But the egregiousness of Barack Obama's assault on the free enterprise system is so pervasive that we often see the impact in remarkably, and sadly, short order.

As example, a couple weeks after the passage of the healthcare bill, a number of prominent companies reported large write-offs due to the increased costs the healthcare bill will impose on them. When Congressmen claimed this was false, because "everyone knows the healthcare bill will reduce costs and not increase them", Congress began an investigation.

That investigation was quietly and quickly shelved when corporate documents submitted in response to the investigation revealed that many companies had done analyses that showed they could save money by terminating their health benefits for employees, paying the penalties in the healthcare bill for doing so, and letting employees get government-provided health insurance.

Now we have immediate consequences from the recently passed legislation imposing new regulations on the financial services industry.

The new law makes credit rating firms, such as S&P and Moody's, liable for the quality of their ratings decisions. Previously, such ratings were considered opinions, and since the ratings are estimates of what may happen in the future, an opinion is what they are. But now, if investors lose money on a bond which was rated by a credit rating agency, the credit rating agency could be sued by investors and win damages. Since there are trillions of dollars in bonds issued each year, credit rating agencies could go bankrupt based on the vagaries of the economy and markets.

In response to this risk imposed by the new law, the credit rating agencies are prohibiting the use of their ratings in the offering materials given to potential investors for new bond issuances. But some bonds, particularly those related to consumer loans such as mortgages, auto loans, student loans, and credit card debt, are required by law to include such ratings in their offering documents.

The predictable result?

A number of bond offerings have been put on hold, as participants digest the implications of the new law. The firms are investigating if there are ways to get around the rules through the issuance of private bonds, at the price of lower liquidity for new investors and higher borrowing costs for issuers of debt.

This will reduce the capital available to expand the economy, increasing borrowing costs, impairing job creation, and reducing economic growth.

But it is good deal for trial lawyers, who must be salivating at the opportunity for new revenue streams from litigating future bond defaults.

You might think, in a world of thoughtful and honest government, such an important part of the financial services law was heavily debated, so its consequences were well understood. But if you thought that, you haven't been paying attention to government policy the past two years. This provision was added to bill on June 30, when the law passed.

Such is how our freedom is being eroded, in last minute deals to pay off favored constituents that impose dramatic costs to the economy.

Arizona Revisited

The initial media coverage of the controversial Arizona immigration law does not state a critical component of the law, which is that it only allows people to be questioned about immigration status if another crime is involved.

As example, here is the initial New York Times article dated April 23 on the law, and no where is this critical fact mentioned. The Wall Street Journal on April 24 is similarly guilty of missing this important part of the story. But in this July 6 story, the New York Times clearly that:

"The law, signed by Gov. Jan Brewer on April 23, makes it a crime to be an illegal immigrant in the state and requires the officers to determine the immigration status of people they stop for another offense based on a 'reasonable suspicion' that they might be illegal immigrants."

This is a profound difference, since illegal activity other than violating immigration law is a predicate to being questioned about immigration status. People are asked for identification all the time in this country, such as going through an airport or being stopped for a traffic violation. The notion, as popularized in the initial commentary on the Arizona law, of Nazi-like police officers demanding to see anyone's "papers" simply isn't relevant: only those people stopped for a crime and who the police reasonably suspect of being here illegally can be questioned about their immigration status.

Compare this to New York City's "stop and frisk" policy, where over 570,000 times in 2009, the NYPD stopped people under a "reasonable suspicion" standard. About 6% of the people stopped are arrested, so only a small percentage of people detained under "stop and frisk" are arrested.

It is clear that Arizona's law requires holds the police to a higher standard to question someone's immigration status than New York City's law does to allow the police to stop and frisk someone.

So where are the boycott calls of New York City? Should the NFL rescind granting the city the 2014 Super Bowl? Should New York's baseball stadiums be unable to host future all-star games until the stop and frisk policy is rescinded? Given the reaction to Arizona's law, these would seem reasonable steps to take against New York too for its even more egregious law enforcement policies.

But we don't hear boycott calls against New York, just like we didn't get accurate reporting on the Arizona law when it was first reported, when first impressions are made in the public's mind. The Obama administration decided to use the Arizona law to rally Hispanic voters to the side of Democrats, and their friends in the media didn't report on key aspects of the law to make it appear more egregious than it is.

Moreover, the Obama administration's lawsuit against the Arizona law has nothing to do with alleged civil rights violations. Instead, the lawsuit claims enforcing immigration laws is a federal, not state, government responsibility. That is an important issue, as all constitutional issues are, but not a civil rights crisis.

Moreover, the Obama administration has not sued other states or cities that actively oppose federal immigration law - highlighting the political gamesmanship Barack Obama is playing with this issue.

Such is the thoughtful discourse Barack Obama has brought to American politics.

Thanks for Nothing

The Wall Street Journal reports that, in response to new regulatory rules that reduce overdraft fees, banks may phase out free checking accounts.

So-called consumer advocates succeeded in getting the Obama administration to put restrictions on overdraft fees. In effect, banks were willing to provide free checking in return for earning fees in other ways, such as on overdrafts. So if the government removes one revenue source, the banking industry needs to make up the lost revenue. And since checking accounts cost money to maintain, instituting checking fees is a logical way to cover the cost of maintaining a checking account.

Unfortunately, many lower income Americans benefited greatly from free checking, since it provided a low-cost way to access the financial system. Otherwise, the new account fees will encourage many to close their accounts and keep their money in cash.

This is just another example of how government intervention in the economy creates unintended consequences, often to the harm of the very people the government is trying to help.

Crisis Management

Paul Rubin's column in the Wall Street Journal provides a useful reminder and comparison to the Louisiana-area disasters that befell the Bush and Obama administrations: Hurricane Katrina under George Bush and Deepwater Horizon under Barack Obama.

The leftist media lambasted Bush for not doing more to ameliorate Katrina, ignoring the most profound fact: the law required Bush to provide disaster assistance only after Louisiana's Democratic governor Kathleen Blanco asked for help, which delayed the federal government from providing disaster assistance. One can lament the law, and lament that Blanco was disastrously slow in asking for help, but Bush acted aggressively to provide help when asked.

Obama, on the other hand, is dealing with solely a federal responsibility. His administration has been torn by its need to appease environmentalists, as evidenced its vacillating on the use of chemical dispersant's; by its need to assuage its union supporters, by not suspending the Jones Act which prohibits foreign ships from operating in American waters (the Netherlands has offered to send ships, since they have expertise in cleaning oil spills but needs the law suspended - which is what Bush did for Katrina); and by its need to maintain safety regulations by delaying the use of barges to skim oil until they had sufficient life preservers on board.

And the Academy Award for comedy (or is it tragedy?) should go to Obama for asking movie director James Cameron for technical advice on stopping the gusher because of his experience in filming underwater for his Titanic movie.

And the regulatory failure occurred on Obama's watch.

Instead, Obama's great "contribution" to the disaster has been to use the government's power to coerce BP, outside of a normal settlement process, to pony up $20 billion without going through normal legal channels such as settling a lawsuit.

If you think that's the one good thing Obama has done, realize that all businesses took note of the non-legal assault and will be that much more cautious in growing their businesses. The big reason we are having a jobless recovery in the private sector is the extraordinary uncertainty and fear the Obama administration has created in businesses due to its regulatory, legal, spending, and tax policies. The $20 billion from BP will only add to that fear.

Disturbing, but Not Surprising

The Wall Street Journal reports on an analysis that shows California Hispanics have shifted their already-low affiliation with the Republican further away from Republicans and closer to Democrats in the past four years.

For Latinos who registered in 2002-2006, 23% were Republicans and 50% were Democrats. In 2006-2010, it is 16% Republican and 56% Democratic.

Like it or not, Republicans need to realize the long-term political disaster their perceived hostility to Hispanics will produce: with Hispanics the fastest-growing demographic group in the country, political success will depend on being competitive with Hispanic voters - which means being sensitive to issues which are important to Hispanic voters.

George Bush and John McCain understood this, with their support of immigration reform.

But will the rest of the Republican party?

What are They Thinking?

According to the leftist members of the U.S. Supreme Court, terror groups deserve free speech protection more than American corporations.

In Citizens United v. F.E.C., the four leftist members of the court voted against the majority's decision to overturn restrictions on American corporations and unions from spending money in certain circumstances during elections.

And this week, three of the Court's four leftists (not John Paul Stevens, who voted with the majority) opposed a law that banned providing materials support to foreign terrorist organizations. The leftists are concerned that Americans can't provide advice or assistance to the parts of terrorist groups that engage in "lawful" pursuits.

Instead, the majority made the obvious determination that money and support is fungible, that aiding the "legal" activities of a terrorist group frees up resources for the terrorists to pursue their violent activities.

This makes sense only among the left, who seek political advantage by restricting corporate campaign contributions and who take a more casual attitude toward terrorism.

Speaking Truth to Power

Warren Buffet gave testimony this week to the Financial Crisis Inquiry Commission, which was created by Congress to investigate causes of the financial crisis.

In discussing how Moody's could have been so wrong, in hindsight, about credit ratings on mortgage-backed securities, Buffet said that 300 million other Americans also made the same mistake - including himself.

One of the fallacies behind the desire for giving regulators more power is that somehow regulators didn't have enough authority to stop banks from making bad loans in the run-up to the financial crisis. The various bank regulators have a great deal of power to change the behavior of banks under their jurisdiction - but there is no reason to believe that a regulator will have greater insight into the quality of a mortgage or other investment than the market or Warren Buffet.

In other words, if a brilliant investor like Warren Buffet doesn't see a bubble, why would you think a regulator will see it and, moreover, demonstrate the tenacity to stop what market participants otherwise believe to be reasonable investments?

The real cause of the crisis was the Fed's deeply accommodating monetary policy, and the government's push to get Fannie Mae and Freddie Mac and banks operating under the Community Reinvestment Act to increase lending to weaker credit risks.

None of that is being addresses in the financial regulatory legislation in Congress.

Who Needs Jobs Anyway?

If the price of something rises, do people want to buy more, the same, or less of that item?

If the price of something decreases, do people want to buy more, the same, or less of that item?

From daily experience, the answers are clear: at a higher price, people will buy less; at a lower price, people will buy more.

This Law of Supply and Demand is the foundation of economics.

Unfortunately, when it comes to public policy politicians often ignore this basic concept, no more so than in minimum wage laws.

What minimum wage laws do is raise the price of labor (wages) above its market price. When that happens, it is clear that employers will buy less labor (employ fewer workers). If you think that answer is wrong, go back to the questions I asked above and decide why people would buy more of something that has a higher price.

Unfortunately, the impact of minimum wage laws on raising unemployment is not a theoretical problem. A recent case in point is the experience of Samoa, which as a U.S. territory was on the receiving end of Congress' ongoing payoff to unions. Congress raised Samoa's minimum wage, and in response employers such as Sunkist laid off workers and move production to other locations.

And now that Samoa has skyrocketing unemployment, Congress wants to spend $18 million to ameliorate the unemployment problem it created with the minimum wage law.

Not only is this a further example that government intervention in the economy usually begets further interventions to address the adverse consequences of a previous intervention, but it shows the terrible real life consequences of ignoring basic economics. And it shows the disastrous impact of minimum wage laws, which act to increase unemployment.

Never Forget

This Wall Street Journal column reminds us of one of the key ingredients of the financial crisis: the opposition by Democrats to limiting the size of Fannie Mae and Freddie Mac.

Democrats used the power of the filibuster in the Senate to oppose reforms of Fannie and Freddie, because they wanted those firms to aggressively lend money to subprime borrowers to promote home ownership among poorer Americans. Barack Obama was voted with his fellow Democrats against reforms that would have cut taxpayer losses and lessened the extent of the financial crisis.

In other words, Democratic opposition to reforms were directly related to the cause of the crisis: the extension of too much credit to subprime mortgages. Or as Barney Frank put it, he wanted to "roll the dice" with Fannie and Freddie.

Trillions of dollars of losses later, massive unemployment, government bailouts, the socialization of greater swaths of American industry, and looming massive tax increases are the result.

The Future of Healthcare

Due to lies and disinformation dished out by Obamacare supporters, you might not realize that, in many states, health insurers need state regulatory approval for rate increases.

That's right. Those big rate increases that Obama likes to decry only take effect after state insurance commissions approve them.

Insurance commissions have taken a tougher line recently in approving rate increases, which will ultimately have the effect of driving health insurers out of the marketplace unless the regulators allow rates to reflect rising healthcare costs, which costs will be increasing under Obamacare.

But then again, that is probably exactly what Obama would like to see happen - then he and his supporters will claim that is why a public option is needed. The Democrats have a long history of opposing healthcare reforms that might obviate the need for greater government control (such as the long fight against Health Spending Accounts). Destroying the market for private health insurance is part of the same strategy.

Junk Science

A British medical regulator revoked the doctor's license of Andrew Wakefield, the man who claimed in 1998 that there was a link between children taking the measles-mumps-rubella (MMR) vaccine and autism.

The regulator not only found that Wakefield had accepted payments from a lawyer representing parents who believed the MMR vaccine caused autism, but that he had engaged in unethical behavior in conducting his research - such as taking blood samples from children without appropriate approvals.

Perhaps this case of the junk science surrounding the alleged vaccine-autism link will finally convince all parents of the critical need to get vaccines for their children. Enough kids and parents have suffered from believing otherwise.

War by Another Means

Israeli commandos boarded five ships trying to break Israel's blockade of Gaza, and according to the Israeli military, came under assault with clubs, knives, and gun fire by people on one ship. A gun fight ensued, and current press reports indicate nine people on the ship were killed with a number injured, including Israeli soldiers.

Since 2007 after the terror group Hamas took control of Gaza, Israel and Egypt have worked to prevent Hamas from smuggling arms into Gaza, which has included Israel enforcing a naval blockade of Gaza.

The ostensible purpose of the flotilla was to bring humanitarian supplies to Gaza. But considering that Israel announced last week that the ships' cargo could be delivered to Gaza so long as the ships first stopped in an Israeli port so the cargo could be screened to make sure military supplies weren't included, the fact that the flotilla's organizers proceeded with the attempted landing in Gaza indicates the mission was about something more:

The purpose of the trip was to provoke a confrontation with Israel, and hope that the resulting casualties would stir up an international uproar directed against Israel.

Clearly, if the purpose of the trip was merely to deliver the ships' cargoes to Gaza, Israel's offer to allow that would have solved the matter without incident or bloodshed. But the organizers instead proceeded with the mission, got its desired bloodshed, and will now get its international uproar.

If there were no condemnation of Israel, then terrorists and their supporters would not pursue tactics to create "incidents" that cause a PR storm for the terrorists' opponents.

So it is up to Americans, and everyone in the international community, to realize the game that the terrorists play to fight their battles. If you want to stop terror, then you need to recognize this reality, blame the flotilla's organizers for embarking on their deadly game, and come to Israel's defense.

Cause and Effect

This Wall Street Journal article highlights one of the sad facts of government regulation and intervention in the economy: one act of government intervention often creates the demand for additional intervention later on.

In 1936, the federal government anointed the ratings on bonds provided by the credit rating firms of the day (Moody's, Standard, Poor's, and Fitch) as the basis for determining whether assets held by banks were of high quality.

Once the idea took hold, the government expanded its use including Securities and Exchange Commission rules in the 1970's that made the ratings agencies a more important part of the financial marketplace.

While it sounds like a good idea, the problem was (and is) that it reduces the need for banks to make their own determination of the credit quality of an investment. It allows regulators to substitute the judgement of the rating agencies for their own when assessing credit risk.

Because investors and regulators relied so heavily on these ratings, banks took on more risk than they otherwise would have. While it isn't the fundamental cause of the financial crisis, it certainly contributed to it.

The government, having made the financial crisis worse with its original regulations, now is using the financial crisis to increase its regulations - no doubt sowing the seeds for future losses due to forseen and unforseend effects from new regulations.

With respect to the ratings agencies, the government needs to get out of the business of promoting their role on assessing investments. If there is a market demand for their services, then let that demand determine their role in deals. Perhaps it looks similar to what occurs today. Perhaps their business model changes.

And in all cases, investors will be forced to be more thoughtful in their investment decisions rather than letting the agencies be their "crutch".

Blaming Corporations

The Wall Street Journal reported that Hewlett-Packard is being investigated by German and Russian authorities for allegedly paying $11 million in bribes to win a contract to supply computers and related products to the office of the prosecutor general of Russia.
It is against the law for U.S. companies to pay bribes, so of course HP shouldn't do so. But it is important to understand, if the allegations are true, that government officials have the greatest culpability for bribery.

It is the government official who wields both the power to decide who wins the contract AND who can use the power of government to aid or punish would-be contractors. Those two elements create a powerful position from which corrupt government officials can extract bribes.

Moreover, as the scope of government power over the economy expands, the opportunity for bribes increases. The best way to reduce bribery is to reduce the role of government in the economy.

By all means we should hold HP and other companies responsible for paying bribes. But government policies and officials who create the conditions for, or demand payment of, bribes need to be held most responsible for such corruption.

The Persecution of Goldman Sachs

If a person wants to buy a home, should he not do so because of the very fact that the seller wants to sell and therefore most "know something" to make it a bad purchase?

If someone wants to make an investment, such as in stocks, bonds, or a certificate of deposit, should she not do so because the seller wants to sell and therefore buying the investment is too risky?

If you think these are ludicrous perspectives on commonplace transactions, you are right.

But fundamentally, that is the essence of the SEC's allegations against Goldman Sachs it in the Abacus transaction involving subprime mortgages.

The Abacus deal required some parties to be "long" the deal (meaning they think the investment will increase in value) and others to be "short" the deal (meaning they think the investment will decrease in value). The SEC alleges that Goldman Sachs didn't disclose material information by not disclosing the name of the investor who was "short" the deal.

The "long" investors specialized in mortgage investments, managing billions of dollars, and as Warren Buffet said about the incident, knowing who the "short" is in the deal is irrelevant to making a proper investment decision.

Putting it another way, if you buy (taking the "long" position) a stock through your broker, you never know who the seller (analogous to taking the "short" position) is. Does that mean you shouldn't buy the stock until you know the name of the seller? Why would that matter? Clearly, the SEC doesn't think that is important since billions of shares a day are traded in the United States without the buyer knowing the identity of the seller.

This reflects a fundamental fact about economic transactions: the buyer and seller have different views on the items being bought/sold, and transact with one another to allow each to have their own view realized. Differences of opinions are fundamental to many economic transactions, particularly financial ones.

Even Bill Clinton concluded that Goldman Sachs broke no laws in the Abacus deal.

Moreover, it is worth noting how unusual the SEC's process was in deciding to bring the case. Goldman Sachs last spoke to the SEC in September 2009, and next heard from the SEC in April 2010 when the lawsuit was announced. Normally, the SEC notifies a party of its intent to sue them and then tries to negotiate a settlement before publicly disclosing the case.

Adding to the unusual nature of the case, the SEC's commissioner voted 3-2 to commence the lawsuit, with the three Democratic commissioners voting in favor of the suit and the two Republican commissioner opposing it. Again, such a partisan split isn't the norm for such prominent SEC suits.

If the SEC lawsuit against Goldman is so baseless, and was pursued in such an unusual manner, what might have motivated the agency to bring the case as it did?

First, one of the relatively unreported aspects of the matter - and a scandal of first order in its own right - is that on the same day the SEC announced its suit against Goldman, the SEC posted to its website, buried in a hard-to-reach link, an investigative report in its handling of the Bernie Madoff ponzi scheme.

The report revealed that the SEC's investigative arm had recommended that its enforcement arm pursue Madoff for orchestrating a ponzi scheme, but the enforcement division declined to do so because it preferred easier to win cases against more prominent firms. Literally, the SEC's shocking negligence cots investors many billions of dollars in a real, unambiguous fraud.

But that story got lost due to the sensational charges against Goldman Sachs. So the case against Goldman allowed attention to be deflected from the SEC's failure.

In addition, the partisan nature of the commissioners' vote highlights that the suit against Goldman serves a useful purpose for Democrats seeking to pass their financial services regulatory bill.

The SEC's gambit worked. It hid the Madoff report and whipped up the frenzy against Wall Street to help secure Senate approval of the new regulatory bill.

Only a small thing like justice got trampled in the process.

Weak Presidents

The nuclear deal that Turkey and Brazil negotiated with Iran demonstrates what happens when the world perceives America, and its president, as weak.

Turkey and Brazil both aspire to play a larger role in world affairs. Turkey is a powerful and relatively modern Muslim nation, and under its Islamic-oriented government has changed its foreign policy course decisively in the past few years. Turkey had been a reliable ally of America and had developed an important strategic relationship with Israel, cooperating on various defense and security matters.

Turkey now sees Iran as likely to become the regionally dominant power, once it obtains nuclear weapons, so naturally wishes to develop good relations with Iran to minimize tensions with a powerful neighbor.

Brazil has a growing trading relationship with Iran and currently runs a $1 billion trade surplus, so maintaining good relations with Iran is important. Moreover, Brazil wants America's role in the world in general, and Latin America in particular, to be reduced so Brazil can be the local power of significance.

And in fairness to both nations, if America is going to allow Iran to develop nuclear weapons, why shouldn't Turkey and Brazil try to win some diplomatic points in helping Iran and securing "peace"?

Herein lies the problem with Obama's appeasement of Iran, Hugo Chavez's Venezuela, Putin's Russia, and other thuggish regimes: if America won't stand up to oppose these bad actors, other nations aren't powerful enough to do so on their own or in concert with others - so they will accommodate the thugs too in their own way.

The price America is paying for electing Barack Obama president is incalculable. The end result will either be utter appeasement of a multitude of enemies (which is well underway) or war to escape the consequences of such appeasement - a war fought from a weaker position and fewer allies scared off by previous appeasement.

Political Capital

The Wall Street Journal reports on the efforts to save ShoreBank, a Chicago-based bank that is on the verge of being taken over by the FDIC due to bad loans it made. ShoreBank lends to poor communities.

Remarkably, Goldman Sachs, Citigroup, JP Morgan, and Bank of America have tentatively agreed to invest money as part of a $125 million capital raising process to stave off insolvency.

A person involved in the process to save the bank said: "Sometimes a bank like ShoreBank has to rely on karma, and the planets seem to have aligned to provide some karma with respect to this particular deal."

And here I thought that capital raising was about providing attractive returns for shareholders, and not about karma.

In reality, this is about Wall Street firms, facing intense government and PR scrutiny, looking to appease a politically-connected bank and score points with the Obama administration and Democrats.

It takes the phrase "political capital" to a disturbing, new level.