Given the huge cost of the war in lives and financial resources, it’s about time the Republicans came around. Although it would be nice if more than just a few would would be willing to go public about it:

Obama did his best Bush impression the other day talking about healthcare. See if you notice anything odd about his math:

Well damn, if employers would be paid 2900% of your current insurance premium. If those numbers are correct, well gee, they probably could give me a raise. I might have to change my mind on healthcare reform.

Of course, Obama shouldn’t feel too bad, it’s not like Bush didn’t do this all the time. Harry Reid said losing 36,000 jobs was good. Or take our space cadet, speaker of the house Nancy Pelosi, who claimed unemployment would skyrocket to somewhere around 167% if the stimulus package wasn’t passed:

Fed Pledges to Keep Rates Low For Foreseeable Future

According to Bloomberg, Ben Bernanke and the Federal Reserve have pledged “to keep the main interest rate near zero for an “extended period” and confirmed that emergency measures to prop up the housing market will end as planned this month.”

With the first time homeowner credit set to end soon, it will be interesting to see if low interest rates will keep the housing market from collapsing even further. It will also be interesting to see what effects such a policy will have on inflation.

Gold Rush?

Speaking of inflation, while it certainly hasn’t set in yet, gold prices have been steadily creeping up. It currently stands at $1124.30 an ounce. This could be a sign of things to come.

Jeff Clark pointed out at LewRockwell.com that both the Reserve Bank of India and China have hinted at having interest in buying the next batch of gold to be sold by the IMF (about 191.3 tons). The last time India bought 200 tons of gold, prices went up 14.2% in 4 weeks. Is demand increasing for hedges against inflation?

The End of ‘Too Big to Fail’… Hopefully, but Probably Not

Is Chris Dodd actually doing something right? I know, it doesn’t seem possible given his track record. But Dodd has put a plan together to unwind the infamous ‘too big to fail doctrine’ that created the moral hazard that helped bring on this financial crisis in the first place. Conservative financial commentator, Larry Kudlow, actually gives Dodd some credit, explaining that:

“…under the Dodd scheme, large complex companies will have to submit plans for rapid and orderly shutdowns should they go under. These are called ‘funeral plans.’”

Unfortunately, the plan has loopholes. Kudlow continues, “It is possible that a government-resolution process could keep big banks alive or in conservatorship, such as with Fannie and Freddie.” In fact, Fannie and Freddie aren’t even mentioned (two more big contributors to the financial crisis) and it also gives a lot of power to the Consumer Financial Protection Agency. Oh goodie, another government bureaucracy to save us all (note sarcasm).

But Kudlow concludes that at least “…with the Dodd plan, the possibility remains that a true bankruptcy process will replace government bailouts.” Well I guess that’s at least possibly an improvement.

As Chris Edwards explains:

“It reveals that Bush and his team started blowing their budget almost immediately. They kept spending more and more — wars, a giant new homeland-security bureaucracy, a big-government response to Katrina, the prescription-drug bill, doubling K-12 education spending, big pay raises for federal workers, financial bailouts, and so on. I can’t think of a single crisis that occurred on President Bush’s watch that the Bush-Rove team didn’t have an interventionist and big-spending response to.”

And Obama has simply been “Bush on steroids.” If nothing else it shows pretty convincingly that government forecasting is all but useless. But the more important thing to ponder is what Edwards finishes the article saying:

“It scares the hell out of me that federal spending down the road could be 41 percent higher than even the huge increases projected by Obama. But that seems to be where we are headed unless we put in place laws or constitutional amendments to really clamp down on the spend-happy politicians of both parties.”

Ultimately, I believe the economy would have been in an awful, terrible state for 6-12 months had insolvent financial institutions been allowed to fail. As former Treasury Secretary Hank Paulson suggested, unemployment may have reached 25%. (1) The Federal Deposit Insurance Corporation (FDIC) would have only been able to repay a portion of lost bank account balances. With a void in the financial system of that magnitude, businesses wouldn’t have received loans to meet short-term obligations, expand or fund start-ups. (But it should be noted that banks were not making loans anyway, even after receiving bailout funds. I would’ve done the same thing if I owned a bank.) Life would have been rough, to say the least.

But when a paternal government wishes to quell the people’s pain, do they simply prolong it? Geithner acknowledges in the video that taxpayers should be outraged by the bailouts, as well as banks pushing the system to collapse, but given all other alternatives, he says it was best for us:

“We looked at all alternatives and there was no alternative, except default and collapse, [a] much greater cost and expense to the taxpayer to the one we chose, and we think we did what was in the best interest of the public and the taxpayer, and have an outcome today which is much less damaging because of what we did there.”

It’s easy to see why Geithner and the brain trust behind the government intervention of Henry Paulson, Ben Bernanke, George Bush, Barack Obama and company, would feel this way. The scenario I painted above speaks for itself. The problem is that the “outcome today” is not that amazing either. Underemployment was at 17.6% in December; unemployment at 10%. Probably more important is the fact that the original problems really haven’t been fixed. Toxic debt is still weighing down the bank’s balance sheets. Housing is still overvalued. The United States consumes, not produces. Entrepreneurs have no certainty of what government action will be moving forward. And all of this with pledges on the taxpayer’s behalf for roughly $11 trillion in bailouts and stimulus. Click the link for a breakdown which includes all of the various programs and initiatives.

The economy is not in a position to thrive. Which, frankly, is what I want, Mr. Geithner. An economy that can grow for the long haul, in a sustainable trajectory free from bubbles. So it’s not only that we have a right to be outraged by the government actions, and inactions prior to the collapse, and the ensuing government response. It is also true that trading 6-12 months of Armageddon for potentially years of an only somewhat crappy situation, is not everyone’s option of choice. Some people actually want a sound economy.

Banks began collapsing in March of 2008. If the banks would have been allowed to fail, toxic home loans, unrecorded derivatives, and credit default swaps would have been liquidated; the system flushed clean. Other banks still standing would have swooped in and taken the fallen bank’s infrastructure: buildings, technology, etc. The government could have assisted in fast-tracking the bankruptcy process. It is possible the financial system could have been fully revamped, and ready to actually start underwriting loans by 2009. Surely they would be back on their feet by now. Had the government not been spending its time propping up overvalued home prices, maybe buyers would be purchasing excess housing inventories by now.

The answer to any dilemma is almost never covering up the real problems. The bailouts are certainly unfair, as Geithner points out. But so is life. The greed and bailout culture reveals a values crisis in this country. Couple that with an economy in no position to thrive for the long-run and it’s difficult to be optimistic about our leadership. The people will survive and figure it out. We have no other choice. But I gave up on the two-party system long ago. It has failed us and we need a greater diversity of options.

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(1) Hank Paulson: Without Bailout, Unemployment Could Have Reached 25% – CBSNews.com, retrieved January 29th, 2010, http://www.cbsnews.com/blogs/2010/01/28/politics/politicalhotsheet/entry6152317.shtml

“It’s hard to get a man to understand something when his job depends on him not understanding it.” (1)

Those are the words of Al Gore, quoting Upton Sinclair, in his Academy Award/Nobel Prize winning documentary An Inconvenient Truth. It’s the good ol’ follow-the-money line. It presupposes that American corporations oppose any measure to cap carbon emissions because it will hurt their profits. And this makes sense: if we move away from oil, oil companies will be devastated. Thus, we must push through a carbon trading scheme to offset emissions, even if, no, because corporations oppose it. Paul Krugman went so far as to call anyone who opposed such a bill a “traitor to the planet.” (2) This same sentiment is best articulated by the most liberal member of congress, Dennis Kucinich:

“[H.R. 2454, the cap-and-trade bill] is regressive. Free allocations doled out with the intent of blunting the effects on those of modest means will pale in comparison to the allocations that go to polluters and special interests. The financial benefits of offsets and unlimited banking also tend to accrue to large corporations. And of course, the trillion dollar carbon derivatives market will help Wall Street investors. Much of the benefits designed to assist consumers are passed through coal companies and other large corporations, on whom we will rely to pass on the savings.” (3)

Wait a minute Dennis, carbon trading is a regressive tax to benefit the rich, well-connected corporations? Nonsense! Or perhaps, we should go ahead and take Al Gore’s advice and follow the money. And perhaps, we should start with Al Gore’s own words, taken from the bonus material on the DVD release of An Inconvenient Truth:

“A lot of business leaders are changing their positions. New businesses and CEO’s and corporations every week are now joining this new bandwagon saying ‘we want to be part of the solution and not part of the problem.’” (4)

Where did Al Gore’s skepticism go? I thought businessmen just wanted to pad their bottom line; now they want to save the planet? If we follow the money, we can see that there’s a lot of money in “being green.” Just the image of being green helps a company’s brand name, as IBM seems to have taken note of:

Saving millions on energy costs is one of those win/win things they talk about in business school so often; unfortunately, it goes deeper than that. Dennis Kucinich is right. The carbon trading scheme that passed the House and is making its way to the Senate is a new derivatives market set up at the behest of Goldman Sachs and other major Wall Street financial firms. Out of curiosity, how did the last financial derivatives market turn out? And yes, it is also a regressive tax, (Who do you think is hurt most by higher energy bills?).

While it’s true that major energy companies are not fond of having to cap their emissions, financial firms can only gain by having a new market to trade in. What people miss when looking at the corruption caused by corporations and government being in bed together is that different corporations have different goals. Many companies may oppose government health care, but companies such as GM and Ford, who are drowning in health care costs, could benefit significantly from government-run health care. Google supports net neutrality, AT&T opposes it. And on and on it goes.

So who stands to benefit from cap and trade? Well, Goldman Sachs for one. In January of 2009, Goldman Sachs bought Constellation Energy’s carbon trading operation. (5) Maybe, just maybe, they see a potential market to exploit. Even Al Gore himself is getting in on the take. Al Gore is an owner of the venture capital company Kleiner Perkins Caufield & Byers. His company backed a small start-up firm named Silver Spring Networks, which produces equipment to make electricity grids more efficient. In October of 2009, the U.S. Department of Energy gave out $3.4 billion of “smart grid” grants; $560 million went to utilities with which Silver Spring has contracts. (6) The Telegraph predicts that “Al Gore could become the world’s first carbon billionaire.” (7) Maybe that’s where Al Gore’s skepticism went: right to the bank.

This may seem outrageous, but that whole mess of corruption pales in comparison to the company that helped draft the initial concept for a carbon trading system: everyone’s favorite, now-defunct, energy trading firm, Enron.

In 1997, then Enron CEO, Ken Lay wrote an op-ed entitled “For Prevention’s Sake: Focus on Climate Solutions.” In it he strongly advocated the Kyoto Protocol, which would cap carbon emissions worldwide. On August 4^th, 1997, Ken Lay met with Bill Clinton, Al Gore and others at the White House to discuss Kyoto. Ken Lay was an enthusiastic supporter. This may seem odd to some because George Bush was a close friend of Ken Lay, but Bush refused to sign the Kyoto Protocol. Apparently, George Bush either had other special interest groups to appease, or he simply disagreed with his friend (almost certainly the former). Ken Lay never gave up, though. In 2001, Lay sent an emissary to the Bush administration to lobby for Kyoto. Why would Enron support cap and trade? The answer is the same as the answer for Goldman Sachs: it created a new energy market for them to trade in. Enron went bankrupt soon afterwards however, before it could influence any more politicians. (8)

But even though Enron is now gone, its baby lives on. Investigative Magazine, a New Zealand journal, concluded that “…without Enron there would have been no Kyoto Protocol.” (9) This may be a bit hyperbolic, but Enron did help establish and trade extensively in the $20 billion-per-year sulphur dioxide cap and trade scheme the EPA set up to deal with acid rain. Enron’s link to carbon trading is simply undeniable.

Furthermore, making money off of global warming solutions extends beyond trading carbon credits. Archer Daniels Midlands, the company TJ Rodgers, CEO of Cypress Semiconductors Corporation, calls “the pork barrel champion of all time,” (10) has made a fortune off of corn ethanol subsidies. Regardless of whether corn ethanol reduces carbon emissions (it doesn’t), it should be quite telling that Archer Daniels Midlands has received billions of dollars from the federal government to grow corn, (and you thought farm subsidies went to poor farmers and not big corporations). Does the president of ADM care whether corn ethanol is effective? Perhaps, but he certainly cares that it is effective in padding the bottom line.

Archer Daniels Midlands has consistently donated to both parties and received massive direct subsidies as well as sweetheart regulations. Dan Carney, writer for the liberal Mother Jones magazine, states “no other U.S. company is so reliant on politicians and governments to butter its bread.” (11)

ADM benefits in three ways. First are direct subsidies, which are notably the least important. The second is an enormous tariff on sugar, (at the behest of both ADM and the Fanjul family’s sugar dynasty, which has also donated consistently to both parties) (12).  This makes sugar more expensive in the United States and thereby increases the demand for corn ethanol. The final relates to corn ethanol, which Dan Carney describes as follows:

“The third subsidy that ADM depends on is the 54-cent-per-gallon tax credit the federal government allows to refiners of the corn-derived ethanol used in auto fuel. For this subsidy, the federal government pays $3.5 billion over five years. Since ADM makes 60 percent of all the ethanol in the country, the government is essentially contributing $2.1 billion to ADM’s bottom line.” (13)

And while it’s true that Mother Jones is very skeptical of corporations and the free market itself (not that ADM represents a free market) it’s worth noting that the libertarian Cato Institute agreed with them completely, calling Archer Daniel Midlands a “case study in corporate welfare.” (14)

It becomes quite obvious that there’s a lot of green to be made in being green. But since we’re following the money, why stop with just corporations? Two other institutions come immediately to mind as possible global warming benefactors: the government and universities.

Government’s incentive should be obvious. If corporations all too often seek money without regards to the human cost, governments all too often seek power without regards to the human cost. An extremely short glance at the blood-soaked 20^th century should be evidence enough of this. And the more of the economy that the government controls, taxes, or regulates the more power they have. European governments have gone so far as to ban the sale of incandescent light bulbs. (15)

Universities are a little more complicated. It works like this: many academics are reliant on government grants to fund their research. Donald Miller, of the Science and Public Policy Institute describes how a system so reliant on government financing creates—what he refers to as—”scientific dogmas.” (16) Namely, once a “consensus” has been reached, funding dries up for any alternative theories. This is what I would refer to as the “anti-scientific method.” The scientific method involves proposing a theory and then watching as everyone and their brother attempts to obliterate said theory and make a fool out of you. If a theory can withstand the initial barrage, then it simultaneously becomes accepted while awaiting the next onslaught of skepticism. So what happens when scientific theory becomes “dogma” and scientists are reliant on government funding? It creates a major incentive for scientists to fall in line. And when that “dogma” involves a political hot-ticket, there’s major incentive to get in line for government grant money.

The recently-released emails between leading climate scientists lend a lot of creditability to this argument. For example, look at this one from climatologist, Kevin Trenberth:

“If you think that Saiers is in the greenhouse skeptics camp, then, if we can find documentary evidence of this, we could go through official AGU channels to get him ousted.” (17)

Basically, Trenberth is trying to oust a scientist from a professional organization for disagreeing with him. Dogma indeed. Other emails allude to manipulating data to fit with this “dogma.” Furthermore, we have to ask whether academics and scientists proposing solutions such as cap-and-trade (a system that would give the government more power) would be more likely to receive grant money and political attention than those proposing, say, deregulating nuclear power. It may sound a bit conspiratorial, but it’s a question worth asking.

Now none of this is to say that corporate-financed research is any less biased. It would seem that smoking isn’t bad for you if you trusted the tobacco companies’ research back in the day. It’s just to say that skepticism needs to be applied everywhere. And the money needs to be followed everywhere.

And following the money leads to some interesting conclusions doesn’t it Mr. Vice President? As I illustrated in my previous article, there are plenty of other, better ways to deal with global warming than cap-and-trade, assuming it’s worth dealing with at all. Unfortunately, those methods don’t enrich the special interests. So understandably, albeit shamefully, those methods are ignored.
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Previous: The Market and Global Warming: Alternatives to Cap and Trade
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(1) Al Gore, An Inconvenient Truth, Lawrence Benders Productions, 2006
(2) Paul Krugman, “Betraying the Planet,” The New York Times, June 26, 2009, http://www.nytimes.com/2009/06/29/opinion/29krugman.html?_r=1
(3) Dennis Kucinich, “Passing a weak bill today gives us weak environmental policy tomorrow,” Speech on House floor, June 26, 2009,  http://kucinich.house.gov/News/DocumentSingle.aspx?DocumentID=134813
(4) Al Gore, An Inconvenient Truth, Lawrence Benders Productions, 2006, the bonus section can be seen at http://www.youtube.com/watch?v=TPem4XLr-Bc
(5) “Update 1-Constellation to sell London unit to Goldman,” Reuters, January 20, 2009, http://uk.reuters.com/article/idUKN2031523720090120
(6) John M. Broder, “Gore’s Dual Role: Advocate and Investor,” The New York Times, November 2, 2009, http://www.nytimes.com/2009/11/03/business/energy-environment/03gore.html?_r=1&em
(7) “Al Gore could become world’s first carbon billionaire,” The Telegraph, November 3, 2009, http://www.telegraph.co.uk/earth/energy/6491195/Al-Gore-could-become-worlds-first-carbon-billionaire.html
(8) See Dan Morgan, “Enron Also Courted Democrats,” Washington Post, January 13, 2002, http://www.washingtonpost.com/ac2/wp-dyn/A37287-2002Jan12?language=printer and Timothy P. Carney, The Big Ripoff: How Big Business and Big Government Steal Your Money, Pg. 200-203, John Wiley & Sons Inc., Copyright 2006
(9) Thomas Lifson, “Enron, Kyoto, and trading pollution credits,” American Thinker, March 12, 2007, http://www.americanthinker.com/blog/2007/03/enron_kyoto_and_trading_pollut.html
(10) T.J. Rodgers, “The Free-Market Case for Green,” Uncommon Knowledge, September 26, 2008, http://www.youtube.com/watch?v=jCjM2leF5F8
(11) Dan Carney, “Dwayne’s World,” Mother Jones, July/August 1995, http://www.motherjones.com/politics/1995/07/dwaynes-world
(12) Timothy P. Carney, The Big Ripoff: How Big Business and Big Government Steal Your Money, Pg. 56-63, John Wiley & Sons Inc., Copyright 2006
(13) (11) Dan Carney, “Dwayne’s World,” Mother Jones, July/August 1995, http://www.motherjones.com/politics/1995/07/dwaynes-world
(14) James Bovard, “Archer Daniels Midlands: A Case Study in Corporate Welfare,” September 26, 1995, http://www.cato.org/pubs/pas/pa-241.html
(15) James Kanter, “Europe’s Ban on Old-Style Bulbs Begins,” The New York Times, August 31, 2009, http://www.nytimes.com/2009/09/01/business/energy-environment/01iht-bulb.html
(16) Donald Miller, “The Trouble With Government Grants,” Science and Public Policy Institute, April 21, 2008, http://scienceandpublicpolicy.org/reprint/gov_grant_system_truth_or_innovation.html
(17) See “ClimateGate – Climate center’s server hacked revealing documents and emails,” Examiner.com, November 20^th, 2009, http://www.examiner.com/x-25061-Climate-Change-Examiner~y2009m11d20-ClimateGate–Climate-centers-server-hacked-revealing-documents-and-emails#update

Nicolas Cage has gone and gotten himself in a bit of financial trouble. It might surprise you that someone who makes tens of millions of dollars per movie could be headed the way of Lehman Brothers. However, when you look at the purchases he’s made, well, the reason for his money woes becomes somewhat more understandable:

- 30 to 50 cars and 18 motorcycles including a $500,000 Lamborghini, previously owned by the Shah of Iran

- Several supposedly-haunted mansions in New Orleans

- A jet

- A castle

- Two Bahamanian islands

- Over a million dollars worth of comic books

- And my favorite, a $276,000 dinosaur skull he won in a “heated auction with Leonardo DiCaprio” (1)

Apparently, a penny saved is a penny that can’t be spent on a Bahamanian island. It’s safe to say Nicolas Cage’s spending spree makes the average American, who had a negative savings rate for most of the decade, look like our frugal grandparents who love to recite tales of the Great Depression.

This summer, the IRS rewarded Nicolas Cage for his “efforts” with a $6 million tax lien on his New Orleans properties for unpaid taxes. So the IRS, lead by tax cheat Timothy Geithner, is cracking down on Nicolas Cage for unpaid taxes. How ironic. Or perhaps, “how fitting” would be a better way to put it. After all, I think Tim Geithner, our spend-happy Congress, the Federal Reserve, George Bush and Barack Obama can give Nicolas Cage a run for his money (what little is left of it) when it comes to irresponsible spending. Honestly, look at what our government has been doing:

- $700 billion bank bailout

- $25 billion auto bailout

- Take over of Fannie Mae, Freddie Mac, GM and AIG

- $787 billion stimulus package

- $2 billion “cash for clunkers” program

- $1 trillion injection of capital from the Fed (2)

- Attempting to pass healthcare reform which is expected to cost $1 trillion over 10 years (probably a low estimate) (3)

- Attempting to pass cap and trade which could cost the United States as much as $100 to $200 billion a year (4)

Much of this was done by Bush and the Fed, but Tim Geithner, as Treasury Secretary, has certainly pulled his own weight in the Obama Administration when it comes to fiscal recklessness. The United States is going to have a $1.4 trillion deficit this year, pushing the national debt up over $12 trillion. Furthermore, we may have as much as $107 trillion in unfunded liabilities; a sort of ticking time bomb nobody wants to talk about. (5)

And yet we spend, spend and spend some more. And yes, shocking as it may sound, some of this spending is of somewhat dubious merit. Remember some of the things that were put into the stimulus bill? (And keep Nicolas Cage in mind while doing so):

- $650 million for digital TV coupons

- $44 million for repairs to U.S. Department of Agriculture

- $200 million for the National Mall ($21 million of it for sod)

- $50 million for the National Endowment of the Arts

- $1.1 billion for the Amtrak, which, by the way, is chronically broke

- $2 million for North Miami households to switch to energy-efficient light bulbs

- $500,000 for a dog park in Chula Vista, California

- $50,000 for two dog parks in Lewiston, Maine (apparently Barack and Tim like dogs)

- $33,725 for automatically flushing toilets in Sumter, South Carolina

- $886,000 for a 36-hole “disk-golf” course in Austin, Texas* (6)

Again, we can’t give all the credit to Timothy Geithner, but he is the Treasury Secretary, so I think he deserves a large share. And while he has done a very good job of spending us into oblivion, I think Nicolas Cage could do him one better. Therefore, I am proposing Timothy Geithner step down and let the master of financial incompetence replace him. And while we’re at it, I think we should nominate Mike Tyson as the next Fed Chairman, just for good measure.

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*Several of these projects were not officially in the stimulus bill, but instead were projects proposed to take place with stimulus money.

(1) Lindsey Robertson, “Nicolas Cage’s Outrageous Decades-Long Shopping Spree,” Yahoo! Movies, November 4, 2009, http://movies.yahoo.com/feature/movie-talk-nicolas-cage-spending.html
(2) Eamon Javers, “Bernanke’s trillion dollar decision,” The Politico, October 24, 2009, http://news.yahoo.com/s/politico/28677
(3) Nick Loris, “Treasury Admits Cap and Trade is a Massive Tax,” The Heritage Foundation, September 16, 2009, http://blog.heritage.org/2009/09/16/treasury-admits-cap-and-trade-is-a-massive-tax/
(4) Susan Page, “How much health care for $1 trillion?,” USA Today, July 15, 2009, http://www.usatoday.com/news/washington/2009-07-14-trillion-dollars-for-health-care_N.htm
(5) For deficit, see “Federal Budget Deficit Totals $1.4 Trillion in Fiscal Year 2009,” Congressional Budget Office, November 6, 2009, http://cboblog.cbo.gov/?p=422, For debt, see “U.S. National Debt Clock,” Brillig.com, http://www.brillig.com/debt_clock/, For unfunded liabilities, see Bob Brooks, “The 107 Trillion Dollar Problem,” Prudent Money Blog, June 25, 2009, http://www.mahalo.com/answers/economics/according-to-one-recent-estimate-the-unfunded-liability-of-social-security-plus-medicare-is-107-trillion-dollars-how-will-this-be-paid
(6) Terry Neese, “Stimulus Package Will Not Help Small Business,” Terry Neese’s Blog, February 2, 2009, http://terry-neese-blog.com/stimulus-package-will-not-help-small-business/

Gay marriage has been a contentious issue in the United States over the last decade. Currently, six states allow for gay marriage and several others allow for civil unions. (2) In other words, people who believe in freedom of contract, (listening free-market conservatives?), have completely succeeded in only 12% of the states. Furthermore, Proposition 8 in California, and similar legislation in other states, has officially outlawed gay marriage. George Bush even proposed a constitutional amendment to define marriage as between a man and a woman (whatever happened to federalism, conservatives? Then again, George Bush was no conservative).

Arguments against gay marriage typically fall into three categories: 1) The Bible says it is bad, 2) we have to preserve the “sanctity” of the institution and 3) gay marriage will lead down a slippery slope, where if we allow gay people to marry, soon enough polygamy, or even ‘man and goat’ will become common place.

Let’s start with the Bible. The Bible does say “do not lie with a man as one lies with a woman; that is detestable.” (3) However, the Bible also says:

“If a man has a stubborn and rebellious son who does not obey his father and mother and will not listen to them when they discipline him, his father and mother shall take hold of him and bring him to the elders at the gate of his town. They shall say to the elders, ‘This son of ours is stubborn and rebellious. He will not obey us. He is a profligate and a drunkard.’ Then all the men of his town shall stone him to death.” (4)

Good Lord, talk about a vicious non sequitur! Are you going to feel all warm and fuzzy while enforcing that? I think it’s fair to say that regardless of whether or not you believe in God, the Bible was written by fallible human beings about God. Remember, here’s what passed for marriage back in the Old Testament:

“King Solomon, however, loved many foreign women besides Pharaoh’s daughter – Moabites, Ammonites, Edomites, Sidonians and Hittites. They were from nations about which the LORD had told the Israelites, “You must not intermarry with them, because they will surely turn your hearts after their gods.” Nevertheless, Solomon held fast to them in love. He had seven hundred wives of royal birth and three hundred concubines…” (5)

I think Warren Jeffs might even find this arrangement a bit outlandish. And is it really any mystery why Solomon eventually went off the deep end? Multiply standard spousal nagging by a factor of 1000 and the guy never really had a chance. But I digress, let’s turn to Saint Paul and the New Testament:

“Now to the unmarried and the widows I say: It is good for them to stay unmarried, as I am. But if they cannot control themselves, they should marry, for it is better to marry than to burn with passion.” (6)

Or in other words, marriage is not an essential covenant of divine importance, but instead, a fail-safe, in case your will power fails and you simply have to get your rocks off.

Oh, but the sanctity of marriage must be maintained. It is an institution of historical consistency and importance. Well, if marriage must remain consistent, perhaps we should adjust the modern institution to return it to what it used to be. We should go back to the days of polygamy and concubines. We should bring back arranged marriages. We should reinstate dowries and have the bride-to-be’s family pay the groom-to-be’s family for the “privilege” to marry him. Interracial marriage should be banned again in southern states. India should reinstate suttee (where a widow is expected to commit suicide), China should bring back foot binding and many Islamic countries should just hold onto their Sharia Law. Sharia Law is after all, quite reasonable. Say my hypothetical wife cheats on me; she should be stoned to death. And if I cheat on my hypothetical wife; she should be stoned to death, for sleeping with an adulter (namely me). I think that’s fair.*

As far as the slippery slope argument goes, polygamy already exists, especially among some fundamental elements of the Mormon Church. Currently, in some cases there is a scam where every wife, except the first, applies for welfare claiming to be a single mother. Is much going to change even if we fall all the way down this slope? That scam would at least come to light. Regardless though, people are still going to do what they do, and some crazy person would likely try and marry a goat. The thing is, he’s probably already de facto done it. If we bring him out into the open, it would make it that much easier to laugh at him (and laughter is good for your health). Still, if it’s that big of a deal, change the law to state that marriage is between two people, regardless of gender. Although, I’d personally prefer to just remove government from the institution of marriage entirely.

Regardless of the slippery slope, it’s needless to say that the sometimes racist, frequently misogynistic and often completely ridiculous history behind the institution of marriage warrants little to sanctify. Of course, that’s not to say marriage and the family are not important. I certainly wouldn’t want the state to take over raising children in some sort of dystopian tyranny reminiscent of George Orwell or Aldous Huxley. It’s simply to say that the institution itself is irrelevant. What it means to you, individually, is all that really matters.

So far, gay marriage activists have focused on winning votes and pressuring supreme courts to legalize gay marriage. However, democracy at its best, is painfully slow; democracy at its worst is, as Thomas Jefferson put it, “two wolves and a lamb voting on what’s for dinner.” Sometimes, with these sorts of things, (consensual arrangements that don’t affect other people), you’ve just got to slip it through the back door.

The first thing to figure out is the definition of “marriage.” I was at a wedding recently where the pastor said, “marriage is not a contract, but a covenant.” Well that’s fine, as I’ve already said, marriage can mean whatever you’d like it to and a covenant sounds good to me. However, legally speaking, marriage is just a contract. So couldn’t any other contract represent something more than what it is legally speaking, like say, a covenant?

For example, let’s say John Johnson owns a successful business that he keeps in an LLC (Limited Liability Company). He is also an overweight alcoholic with a bleeding ulcer and intermittent bouts of explosive diarrhea. He lives in a loveless marriage with his chronically-depressed, pill popping, philandering wife, Joanne. His daughter is a tramp, his first son has been in and out of the penal system since he was 15 and his second son just came out of the closet and is now a gay marriage activist, despite John’s bitterly held homophobia. Basically, John’s life sucks. He does, however, have a successful business. He defines himself with it, keeps himself sane with it and derives any self-esteem he can muster from it. This LLC is more than a legal entity to John; it is the embodiment of John Johnson. Yet technically, his business is nothing more than a legal entity created for tax and accounting purposes.

Marriage may be a covenant, but legally speaking, it is nothing more than a contract. Thus, since any entity or contract can contain more meaning to the people involved than the actual contractual arrangement written up and filed at the local courthouse, anything that gets the job done can do. Perhaps the very institution of marriage should be opened up to a little bit of healthy market competition from other contractual arrangements.

Most other legal entities are business entities: they include LLC’s, trusts, S-corporations, C-corporations, non-profits and partnerships. So let’s say Lisa Smith and Meagan Fischer want to get married. They should just go open Lisa and Meagan Smith-Fischer LLC and voila, they’re as good as married. And you can still have a boring ceremony and then get blitzed at the reception afterward. Hell, you could do that without signing any contract.

There is one problem though: marriage comes with tax benefits. Can you receive tax benefits without actually operating a business? In an interview with an accountant, who’s also a good friend of mine, he described the feasibility of such an undertaking as follows:

“Andrew, this is probably the stupidest idea I’ve ever heard. Whatever drugs you’re currently taking, well, you desperately need to stop! I seriously start to worry about your sanity when you spew out ridiculous crap like this. And why the hell are you calling me about this? Do you not think I’m busy? Do you really think I don’t have anything better to do? I’m a Goddamn accountant! I mean, honestly, what the hell is wrong with you? But, to answer your question, yeah, you could open up a partnership or LLC without a business. However, to accrue any tax benefits, you would have to prove that there were actual business profits and expenses.”

What’s key to note here, is the tax advantages akin to those of a traditional marriage contract could be accrued through other legal entities, despite the original function of such entities having been initially designed to solely facilitate the undertaking of entrepreneurial endeavors. What we need is to discover a method in which normal expenses can be justified as business expenses, even if both partners are not actually running a business.

Here’s an option: one gay couple, looking to get married, need only find another gay couple looking to do the same. Both open an LLC or partnership. Then they simply sell stuff back and forth to each other in a way that will equalize the original income each couple receives from their jobs. It would be a bit of a hassle, but you would get many of the tax benefits of marriage, plus a few more (you can write off gas mileage for instance). This very well may be flirting with fraud, but if there are actual profits and expenses, what does the intent matter? Hopefully, it would all just go under the radar anyways. Regardless, what right does the government have to tell you who you can and can’t marry (or who you can and can’t sell and buy stuff from for whatever reasons)? The government is the one committing fraud here.

If nothing else, it’s something to think about. In my humble opinion, to legalize gay marriage we may just have to give a reach around to the legal system.

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Note: I am not offering legal advice. If you are interested in opening an LLC, see here. But talk to an attorney if you actually want to try this.

*This is technically not true, Sharia Law’s Draconian penalties are supposed to apply to married men who commit adultery as well. (7) Although, the Qur’an states both men and women should ‘only’ receive 100 lashes:

PICKTHAL: The adulterer and the adulteress, scourge ye each one of them (with) a hundred stripes. And let not pity for the twain withhold you from obedience to Allah, if ye believe in Allah and the Last Day. And let a party of believers witness their punishment. (8)

The death penalty is what appears to be used much of the time, though. And in practice, it doesn’t seem be administered in an equal way. The allusion I’m making is to “honor killings,” where a woman who is raped (or “steps out of line” in some other way) is often killed by her husband or father in some insane attempt to save her “honor.” I don’t believe Sharia Law sanctions this, but the practice is tolerated in many Muslim countries. (9)

(1) Penn Jillette, “Glenn Beck Clips 05-19-09 Magician Penn Jillette Get Glenn To Say Gays OK,” Glenn Beck Program, Fox News, retrieved August 29, 2009, http://www.youtube.com/watch?v=I3RdQyd8YJc
(2) “Same-sex marriage in the United States,” Wikipedia.org, retrieved August 29, 2009, http://en.wikipedia.org/wiki/Same-sex_marriage_in_the_United_States
(3) The New Students Bible: New International Version, Leviticus 18:22, The Zondervan Corporation, Copyright 1992
(4) The New Students Bible: New International Version, Deuteronomy 21:18-21, The Zondervan Corporation, Copyright 1992
(5) The New Students Bible: New International Version, 1 Kings, 11:1-3, The Zondervan Corporation, Copyright 1992
(6) The New Students Bible: New International Version, 1 Corinthians, 7: 8-10, Zondervan Corporation, Copyright 1992
(7) See Sahih Bukhari, Book 82, 815, Cited from University of Southern California Center for Muslim-Jewish Engagement, http://www.usc.edu/schools/college/crcc/engagement/resources/texts/muslim/hadith/bukhari/082.sbt.html#008.082.815
(8) Qur’an, Surah 24 verse 2, Cited from University of Southern Califonia Center for Muslim-Jewish Engagement, http://www.usc.edu/schools/college/crcc/engagement/resources/texts/muslim/quran/024.qmt.html#024.002
(9) See Terri Judd, “Barbaric ‘honour killings’ become the weapon to subjugate women in Iraq,” The Independent, April 28, 2008, http://www.independent.co.uk/news/world/middle-east/barbaric-honour-killings-become-the-weapon-to-subjugate-women-in-iraq-816649.html

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Next in Lies, Damned Lies and Statistics: Part 5: The Female-Male College Gap

Previous in Lies, Damned Lies and Statistics: Part 3: All Fiat Currencies Fail

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“One death is a tragedy. A million deaths is a statistic.” – Joseph Stalin

Statistics about non-economic matters can be manipulated as well. One of the most disturbing regards war casualties from Iraq. The government has a great incentive to downplay the number of Americans who have died in Iraq as to make the cost of the war look smaller and not surprisingly, they’ve taken full advantage of it.

The primary way they’ve done this is to disaggregate the figures. In other words, official war casualty statistics are given out in pieces, instead of a whole, to make the actual number of deaths look smaller than it really is.

First of all, we must note the total cost of the war to all involved. Our allies, or the “coalition of the willing,” have lost 318 troops in Iraq. (1) Much more distressing, however, is the number of Iraqis who have lost their lives. The official count varies, but according to the AP, the number is 110,600. (2) However, this is certainly too low, as keeping accurate records in the chaotic aftermath of the invasion has proven to be almost impossible. Survey results from the ORB Group concluded that over 1.3 million Iraqi’s had died, as a result of the war, by August 2007! (3)

That survey is controversial, but it corroborates a study by The Lancet that estimated there had been 654,865 deaths 14 months earlier, in June of 2006. (4) Regardless of the actual figure, it is disgustingly high. Most of these people were not terrorists, Ba’athists or insurgents; they were just normal Iraqis living under the brutal regime of Saddam Hussein. It’s certainly good he’s gone, but given Iraq had no WMD, nor a connection to Al-Qaeda, the cost has proven to be unbearably high.

The official number of U.S. casualties is 4335. (5) Now, this is an accurate statistic, it represents the number of American soldiers who have died in Iraq since the war started. However, it is very misleading because soldiers are not the only one’s to have died and Iraq is not the only place they have died.

Let’s start with the location. George Bush repeatedly referred to Iraq as part of the “War on Terror.” If that is the case, then why aren’t we including the deaths in Afghanistan as part of the total? During World War II, the United States fought two separate enemies: Germany and Japan. Yet, it was considered a war against fascism and the total deaths from both theaters—just over 400,000—were given as a whole. This is not the case with Afghanistan. So far, 802 American soldiers and a further 538 coalition troops have died there. (6) It was difficult to find estimates for the civilian casualties in Afghanistan, but the official numbers are in the tens of thousands. (7)

Barack Obama has thankfully dropped the term “War on Terror,” (how exactly do you launch a war on a tactic?), so perhaps separating the war casualties makes some sense now. However, his behavior has been extremely Bush-ian. His anti-war campaign rhetoric has given way to either dishonesty or cowardice, as he’s operating in Iraq under what amounts to the agreement Bush negotiated with Iraq prime minister, Nouri al-Maliki before he left office and Obama is actually increasing our military presence in Afghanistan.

The next major segment overlooked by the statistics is American contractors. The United States military has privatized much of its non-military operations, things it used to do itself. For example, soldiers used to handle food services, now that is contracted out to companies like Halliburton. The United States has had well over 100,000 contractors in Iraq at any given time since the wildly premature declaration of “Mission Accomplished.” So far, 1395 contractors have been killed in Iraq. Many of these would have been American soldiers in previous wars, but regardless, they’re still people. Furthermore, 331 journalists and 423 academics have died in Iraq as well (although many of these journalists and academics were not American citizens). (8)

When we combine the wars and add the contractors, (we’ll leave out the journalists and academics, since most weren’t American) we come to a total of 6532, over 50% higher than the official tally. Add in the journalists and academics and the total comes to 7281, almost 70% higher.

This still doesn’t represent the total human cost, unfortunately. While the Pentagon officially counts any soldier who dies from their wounds as a war casualty, regardless of when and where, this is hard to do in practice. If a soldier is wounded, comes home, has a brain hemorrhage and dies, did his injuries cause his death? In spite of the inherent difficulties in measuring this, it appears Pentagon tallies have been done sloppily or possibly dishonestly. In 2004, GlobalSecurity.org released a report that revealed that during the Vietnam War, the Department of Defense defined a war death as “all those occurring within the designated combat areas and those deaths occurring anywhere as the result or aftermath of an initial casualty occurring in a combat area.” (9) However, the current DOD Instructions (1300.18) are silent on this matter. The report continued by summing up the situation in Iraq as follows:

“It is somewhat difficult to imagine that nearly 15,000 people were sufficiently sick or injured to require evacuation from the theater, but that only ten of them subsequently succumbed to the condition that required their evacuation. Overall, the ratio between wounded to killed-in-action is running about ten to one — about 7,000 wounded in action with over 700 killed in action. The ratio of those evacuated due to combat wounds [over 1,500 as of 01 August 2004] to those who died subsequent to evacuation [eight reported], presents a ratio on the order of two-hundred to one, which is puzzling. It is also puzzling that over 4,000 were evacuated due to non-battle injuries, but only two subsequently died and that over 7,000 were evacuated due to disease, but that none of them died.” (10)

John Rutherford of NBC News asked the Pentagon why five specific deaths were not counted in the statistics, to which the Pentagon replied: “The Army has reviewed the deaths of these soldiers and determined that they did not die as the result of wounds suffered supporting OIF [Iraq] or OEF [Afghanistan].” Here’s the description of one of them, what do you think?

“Army Sgt. Gerald Cassidy of Indiana suffered brain injuries in a roadside bombing in Iraq in June 2006. He arrived at Fort Knox, Ky., with blinding headaches, memory and hearing loss, and post-traumatic stress disorder. He was found dead in his room on Sept. 21, 2007. He may have been unconscious for days before his body was discovered.” (11)

So far the official tally of wounded soldiers is 31,469 (although some estimates place it at over 100,000. (12) Many of their wounds are extremely serious, including some so severe that they are brain dead. These men are also NOT included in the death toll, despite their lives, for all intents and purposes, being over. (13) Many of the wounded who have fared better will still live the rest of their lives with brain damage, skin burns, amputated arms or legs, lost eyes or ears, as well as an assortment of other grotesque injuries. And many of those who don’t count as wounded still have to face the terrible psychological effects of combat.

The New England Journal of Medicine published a study which found that while 5-9.4% of U.S. veterans had post traumatic stress disorder, (depending on the strictness of the definition), before deployment, 6.2-19.9% had PTSD after deployment; a difference of 10.5% under the broad definition of PTSD. (14) This has possibly led to a disturbingly large number of suicides among U.S. military veterans.

In 2007, CBS News investigated suicide among U.S. military veterans and determined that in 2005 alone, 6256 committed suicide! (15) The war has now been going for almost six and half years; if that number were held constant, (something we cannot assume), the total would now be over 40,000. Overall, the investigation showed the suicide rate for veterans, adjusted for age and gender, (young men are the most likely to commit suicide), was about twice as high as for non-veterans. A study by the Journal of Epidemiology and Community Health corroborated these findings. (16)

It is important to recognize that these studies involved all military veterans, not just those of Iraq and Afghanistan. Furthermore, correlation does not equal causation. Other factors, such as gun availability, may be involved. Needless to say, given the high rates of PTSD among veterans and the despicably poor care veterans have received at military hospitals, such as Walter Reed, it is highly probable that many of these suicides can trace their way back to the wars in Iraq and Afghanistan.

It is also needless to say that the casualty figures tossed out by the Pentagon dreadfully understates the real toll of war. Thus, it is even more unfortunate that the anti-war movement seems to have come to a complete halt now that Barack Obama is in office, despite the fact he hasn’t changed much of anything regarding foreign policy. Given the extraordinary and underreported human cost as well as the fact the U.S. is basically bankrupt and we’ve done exactly what Osama Bin Laden said he wanted us to do, the very least we could do is get those protests going again.

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Lies, Damned Lies and Statistics Series

Part 1: A Primer
Part 2: Income Stagnaton
Part 3: All Fiat Currencies Fail
Part 4: Iraq War Casualties
Part 5: Female-Male College Gap
Part 6: Male-Female Wage Gap
Part 7: Roger Maris’ Asterisk

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(1) Edited by Margaret Griffis, “Casualties in Iraq,” AntiWar.com, retrieved August 27, 2009, http://www.antiwar.com/casualties/
(2) Kim Gamel, “AP IMPACT: Secret Tally Has 87,215 Iraqis Dead,” ABC News, April 23, 2009,  http://abcnews.go.com/International/WireStory?id=7411522
(3) “September 2007 – More than 1,000,000 Iraqis murdered,” Open Research Business, September 2007, http://www.opinion.co.uk/Newsroom_details.aspx?NewsId=78
(4) Gilbert Burnham, Riyadh Lafta, Shannon Doocy and Les Roberts, “Mortality after the 2003 Invasion of Iraq: a cross-sectional cluster sample survey,” The Lancet, October 11, 2006, http://brusselstribunal.org/pdf/lancet111006.pdf
(5) Edited by Margaret Griffis, “Casualties in Iraq,” AntiWar.com, retrieved August 27, 2009, http://www.antiwar.com/casualties/
(6) Ibid
(7) “Civilian casualties of the War in Afghanistan (2001-present), Wikipedia.org, retrieved August 27, 2009, http://en.wikipedia.org/wiki/Civilian_casualties_of_the_War_in_Afghanistan_(2001%E2%80%93present)
(8) Edited by Margaret Griffis, “Casualties in Iraq,” AntiWar.com, retrieved August 27, 2009, http://www.antiwar.com/casualties/
(9) “Notes on Casualties in Iraq,” GlobalSecurity.org, last updated June 13, 2007, http://www.globalsecurity.org/military/ops/iraq_casualties_notes.htm
(10) Ibid
(11) John Rutherford, “Fallen But Not Forgotten: Closing in on 4000 Casualties,” MSNBC, February 13, 2008, http://dailynightly.msnbc.msn.com/archive/2008/02/13/661451.aspx
(12) Edited by Margaret Griffis, “Casualties in Iraq,” AntiWar.com, retrieved August 27, 2009, http://www.antiwar.com/casualties/
(13) Karl Vick, “The Lasting Wounds of War,” The Washington Post, April 27, 2004, http://www.washingtonpost.com/wp-dyn/articles/A44839-2004Apr26.html
(14) “Table 3. Perceived Mental Health Problems and Percentage of Subjects Who Met the Screening Criteria for Major Depression, Generalized Anxiety, Post-Traumatic Stress Disorder, and Alcohol Misuse,” The New England Journal of Medicine, July 1, 2004, http://content.nejm.org/cgi/content/full/351/1/13/T3
(15) See Mike Whitney, “Pentagon Cover Up: 15,000 or more US casualties in Iraq War,” Information Clearing House, November 17, 2007,  http://www.informationclearinghouse.info/article18737.htm, Armen Keteyian, “Suicide Epidemic Among Veterans,” CBS News, November 13, 2007, http://www.cbsnews.com/stories/2007/11/13/cbsnews_investigates/main3496471.shtml, and for the methodology, Pia Malbran, “Veteran Suicides: How We Got the Numbers,” CBS News, December 4, 2007, http://www.cbsnews.com/stories/2007/11/13/cbsnews_investigates/main3498625.shtml
(16) “Study: Suicide risk double among male U.S. veterans,” CNN, June 11, 2007, http://edition.cnn.com/2007/HEALTH/06/11/vets.suicide/index.html

Like any gum, bubbles taste good for awhile, until the flavor is gone.

The financial crisis has many people to blame, look in the mirror, and chances are, you’re one of them. (Did you buy a piece of real estate, hoping to ride a never-ending-price-inflation-palooza, to financial riches?) The media has identified scapegoats ad nauseum for the economic collapse, as well as the financial sector meltdown, and they have most of the issues right (but rarely complete):

• Profit-driven lenders used creative mortgage products to lend money to unworthy, sub-prime borrowers. Once the loans were made, and loan fees collected, they were bundled and sold off to the next poor sap. While passing the risk exposure from the unsound loans to somebody else, the original lender simultaneously collected another cash stream from the mortgage bundles.

• “Affordable housing” advocates bullied banks into making unsound loans (like chairman of the House Financial Services Committee, Barney Frank, community organizers like ACORN and quasi-private, government-hijacked Fannie Mae and Freddie Mac).

• George W. Bush and company routinely pushed an “ownership society” mentality.

• The American consumer obtained lines of credit they either knew they couldn’t afford, or were not informed enough to make a decision about (and in some cases lied about income and assets to obtain).

All of these folks are major players rightly deserving some of the blame. Why, though, does the Federal Reserve get such a relative pass for their role in causing the collapse? For me, it’s a colossal head-scratcher.

Yeah, about that whole saving the world thing...

CNN’s Anderson Cooper ran the series Culprits of the Collapse, where former Federal Reserve Chairman, Alan Greenspan, came in at number six. Who was CNN’s greatest culprit? You. CBS ran a similar wanted list called 25 Financial Crisis Culprits (news networks are so creative with these names…); a person associated with the Federal Reserve didn’t receive mention on CBS’ list until number 18, where once again, Alan Greenspan had a share of the blame distributed to him. Said CBS: “Former Federal Reserve chairman (who) now admits that the markets don’t regulate themselves.” (1) (2)

On Capitol Hill last October, Greenspan submitted this mind-bending testimony:

“I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.”

If financial institutions were greedy and joined the madness to make a buck, fine. If financial institutions were bullied by “affordable housing” forces to make some of these loans, fine. If the American consumer bought mini-mansions they couldn’t afford, fine. These folks haven’t been given a pass by either the government, or the media.

But where does a real estate bubble really begin? With low interest rates and additional cash to lend. Now, remind me again: who provides additional money and artificially low interest rates to “stimulate” the economy? That’s right, the Federal Reserve. If the financial crisis, caused by toxic mortgages, derivatives, and credit default swaps, was a giant game, the first play was made by the Federal Reserve. Simply put, if there’s no additional money to be loaned, and no artificially low interest rates to loan at, a real estate bubble doesn’t occur. Speculative manias have to start somewhere. Without a steroid shot of demand, it’s tough for too much mania to ensue.

Greenspan is a hyper-intelligent man. He was charged with the enormous task of managing the nation’s, and in some ways, the world’s economy. If he didn’t think that years of artificially low interest rates, extra money to lend and an entrepreneurial, profit-driven economy would cause a few bubbles, then I’ve found a flaw in the model that I perceived is the critical functioning structure that defines how economists work, so to speak.

The Fed is the first iteration of the game, and they seem to get a gigantic pass from the media, and naturally, a Keynesian government. In fact, some people still believe the Fed fixes the economy and smoothes out business cycles. Yeah, sure.

As Peter Schiff puts it: “Wall Street got drunk, but the Fed liquored them up.”

The United States is an empire built on debt. Budget deficits, financed by other countries like China and Japan, are not necessarily a bad thing, if the money is invested into productive capacities for future economic growth. But if the money is used to pay for goodies like big screen TV’s from China, or to remodel homes, there is no infrastructure investment for future growth. The money is spent on consumption, while the debt liability remains. And servicing a debt liability, i.e., paying interest on a loan, is not a zero-sum game for the U.S. if the loan is owned by another country (zero-sum game references the idea that a dollar paid on interest, is, at the same time, a dollar earned from interest by someone else). If it were a zero-sum game, one could argue that the money spent on mortgage interest (debt), goes right back into the U.S. economy. It is true, though, that Fannie Mae and Freddie Mac own or guarantee about half of the $12 trillion U.S. mortgage market. (4)

The housing bubble occurred due to easy money policies. A monetary bubble followed the housing bubble when the Federal Reserve showered the markets with liquidity, including public capital. For those keeping score at home, that’s two bubbles caused by the Federal Reserve, since 2000. Expansionary monetary policy, or expanding the amount of money in the economy to stimulate growth, was the Fed’s cure to the economy’s ails after the dot.com crash, and the slight recession following September 11th. Well, that and George W. Bush telling us to go shopping. The federal funds rate bottomed out at 1.00% in June 2003, before the Federal Reserve began slowly bringing the rate back up to sustainable levels. By June 2006, the federal funds rate peaked at 5.25%. The three-year run allowed for a period of record mortgage rate lows. (3)

At it’s peak, 5.25% was still a low rate of interest for most any lending activity, and it was far too late by the summer of 2006 to rein in the unsustainable demand for housing. The Federal Reserve attempted to fix a sluggish economy by inflating it, but they were unable to guess correctly as to when the extra money should be pulled out of the economy. The housing bubble was already out of control, and poised to burst by the summer of ’06.

Unsound mortgages were defaulting, and more were surely on the way as interest rates would re-adjust and the recession ate up jobs. The Federal Reserve swooped in to rescue the financial system. This was just as much a global play as it was domestic, as U.S. financial institutions had pooled most of the toxic mortgages together that had been made, and sold them abroad: meaning, the global financial system was at stake. Wall Street had also made bets on the housing market, and these mortgage-backed securities, in the form of derivatives, and credit default swaps. Without getting too deep into these financial instruments, let’s just say they allowed Wall Street to become even more of a giant casino than it already was. Unfortunately, some of the bets went bad, and were making bank balance sheets sink fast.

What would the Federal Reserve do to save the world this time around? It’s like a well-crafted superhero cartoon, with incremental perturbations, a climax and a resolution. Well, of course, the Fed figured they could solve this problem with more easy money policies. Forget the fact that those very policies caused the original housing bubble, and greatly contributed to the financial system meltdown.

Quantitative easing was instituted by the Fed, an extreme form of easy money, bringing interest rates down between zero and 0.25%, and increasing the money supply to unprecedented levels. If you want to know why the U.S. had $4.00 gasoline last summer, in the midst of a recession, look no further than the Federal Reserve. Yes, speculators manipulate short-term prices, while supply and demand ratios rule the day; but, remember, oil is priced in dollars. Devalue the dollar with easy money policies, and expect oil prices to be driven up.

The housing market has yet to stabilize. Don’t let government tax credit incentives, or a general improvement compared to prior devastation, fool you. A weak economy, a weak job market and over-supply in housing brings one scientific sounding truth: there are way more houses than buyers right now. In order to get more buyers, we’ll need more jobs and, probably, more people (immigrants…). The long-run trend on mortgage rates is up, as Treasury debt soars, and the Federal Reserve cannot continue to prop up an empire of debt with more debt (or, in this case, by purchasing mortgage-backed securities).

Meanwhile, as real estate crashes and burns, the financial sector is shaky and as the Fed uses easy money policies to save the day, the stock market is booming! The S&P 500 has increased 34% since March 9th. This is either because investors expect a significant improvement in the discounted future cash flows of the American economy (in layman’s terms, we’ll just consider this to be profits), or because there’s been another speculative mania. I’ll bet that it’s much more due to the latter, than the former. The increased money supply has not materialized into a lot of new credit, such as lending to small businesses. The majority of it has remained in bank coffers to help stem future expected losses. No, it seems having so much extra money in the economy, and investors scrambling around to preserve their wealth, has created this recent asset bubble in stocks.

For those keeping track at home, that’s three bubbles the Federal Reserve has had a hand in.

Some say the Fed’s intervention into the financial sector was necessary, to shore up a banking panic. Fed chairman Ben Bernanke is dancing around in Jackson Hole, Wyoming this week, taking credit for preventing a global depression. (5) I, however, am not quite as convinced that we’re all better off. I recognize that fallout from a failed Bear Stearns, AIG, Citi and other financial institutions would have been awful. But it’s hard to convince me that propping up banks and companies with taxpayer money, and inflationary policies, really helps the plight of the everyday American. Certainly, money could have been borrowed, taxed or printed, to make sure FDIC insurance was available, (expanded, if necessary), for depositors at these financial institutions. That would’ve helped individual depositors who were getting screwed by the Fed’s easy money policies and a liquored up Wall Street making unsound loans, and bad bets. I’m also not convinced that a bank run, followed by a bank panic, would play out in our modern internet world, the same way it did in the 1930′s. The capacity for public hysteria hasn’t changed, but the ability to disseminate reliable information, instantly, has. What if banks were allowed to go under? How long would it have taken for banks to become insolvent? What if the bankruptcy process was sped up? (This could have been a useful government intervention at the time.) If people were informed about FDIC policies, which banks were having trouble and how the problem was to be handled…would it have been such a disaster? Perhaps. But maybe insolvent banks, backed by reliable public information, would have gone insolvent much faster once some of their depositors rushed to pull their money out. The depositor’s action to pull money out would be out of fear and a rational response to reliable information. The banks that were solvent may not have had an epidemic of withdrawals. Now, almost a year and half removed from the initial Bear Stearns bailout, the financial system might be up and running again, healthy as ever.

If we had a banking system that required more than a 10% reserve ratio, bank runs wouldn’t be so scary. The first question I always consider whenever the government intervenes: does the intervention help the many, or the few? The second question: does the intervention hurt the many, while helping the few?

Propping up bad debt and poorly ran institutions is anti-capitalist, a turn in the wrong direction from the watered down pseudo-capitalism we have been practicing. The productive capacities and assets of these firms could be utilized, after emerging from bankruptcy, by firms who haven’t driven their companies into the ground; and the toxic debt could be liquidated from the economy. Instead, we have a Fed chair parading around in Jackson Hole, patting himself on the back for doing the exact same thing that caused, or assisted, three previous bubbles within the decade. While this hurts my capacity for Double Bubble jokes, that’s okay, in the interest of candor.

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(1) CNN.com – Anderson Cooper 360: Blog Archives – Ten Most Wanted: Culprits of the Collapse

http://ac360.blogs.cnn.com/2008/10/29/ten-most-wanted-culprits-of-the-collapse/

(2) CBSnews.com – 25 Financial Crisis Culprits

http://www.cbsnews.com/blogs/2009/02/12/politics/politicalhotsheet/entry4797935.shtml

(3) New York Federal Reserve – Historical Changes of the Target Fed Funds Rate

http://www.newyorkfed.org/markets/statistics/dlyrates/fedrate.html

(4) Bloomberg.com – Fannie, Freddie Tumble on Bailout Concern, UBS Cut

http://www.bloomberg.com/apps/news?pid=20601087&sid=a7NL_INfuOgs

(5) MarketWatch.com – We Saved the World from Disaster, Fed’s Bernanke Says

http://www.marketwatch.com/story/we-saved-the-world-from-disaster-bernanke-says-2009-08-21-10100