Bailing Out the Markets

The recent nose dive of stocks, apparently driven by a crisis in the subprime mortgage markets, raises the ongoing question of when and why government should intervene in the private sector. This fits into broader questions of the proper role of government overall, and the unique responsibilities the federal government has for maintaining the economy.

Recall that the U.S. Constitution was proposed in many ways to provide for the development of a strong commercial republic. The state of the macro economy, at least since the Great Depression, has been seen as a responsibility of the federal government. Fans of the free markets like to maintain the illusion that it runs without government assistance, but in fact the government often acts as a referee ensuring that the market is free from control by either the demand or supply side. That is what makes it free.

Critics though--appropriately--point out that often regulators bias decisions in favor of the industries they regulate in order to secure their solvency.

Market transactions can create problems for society as a whole, or for the politically powerful. This creates a political incentive for intervention. Critics argue that these interventions work against the long term efficiencies that markets promise and perhaps create moral hazards by subsidizing bad behavior.

The current situation, as we know, revolves around decisions by some lenders years back to take advantage of historically low interest rates and provide mortgages for people who might not normally qualify for them due to bad credit or low income jobs. These are the sub prime loans at issue. There is certainly much to applaud in allowing these individuals the opportunity to purchase homes (the American Dream and all that). The increase in the housing sector has been the biggest financial success story of recent years, some economists argue that if not for the housing boom, we may have been stuck in a recession. But the risky nature of the loans made them, perversely, more expensive to the borrowers and more likely to put them in a financial bind. They were more vulnerable to default, and this seems to have caught up with the borrowers and by extension the businesses that lent them the money.

What's worse is the fact that when times were flush subprime mortgage companies attracted the attention of hedge funds (investment firms for the wealthy) which made them components of their portfolios. Once the mortgage firms showed signs of trouble, the hedge funds began to suffer and investors feared for the economy as a whole.

The question is whether government ought top leave all this alone and let the marketplace work through the troubles, or it should intervene. The argument for intervention is partly based on the idea that these negative factors can have spillover effects on others not directly affected by this industry and partly a result of political reality. The affected parties have political supporters who might find it in their interest to be knights in shining armor.

There are two categories of need here though--one being the hedge fund and mortgage companies, the other the people who have lost their homes. Which set of need will be given priority. In a sense we already have our answer because the Federal reserve rode in to lower interest rates which makes money cheaper to borrow so the companies can cover the losses. Benefits for the borrowers do not seem to be on the horizon however, but given that fact that we are in the thick of a presidential race do not be surprised if candidates--more likely Democrats--start floating proposals to aid these people.

If the crisis continues, expect this to benefit Democrats in the same way that 9/11 benefited Republicans. It focuses attention on the issues that the general public seems to trust the part on.
This thing has legs, so expect more on it.

Lincoln?

As much as I like to complain about student ignorance abotu basic facts about government and history I wasn't quite prepared for yesterday. A small group of my fellow faculty and staff types gathered for a demonstration of clickers which can be used to assess what students know and whether certain concepts are being learned.

As a quick example of how it works the demonstrator asked the gathering to click yes or no to the following: "Lincoln was the first Republican president."

The results: 7 yes, 8 no.

I'll lay off my students from now on.

A Quick Neat Circle

So in the previous post I linked to a newspaper story that covered a testy exchange between Ken Armbrister, Rick Perry's Legislative Director and a roomful of community college representatives and I thought to myself that it might be interesting to write out some background on him. I then found out that he had replaced Dan Shelley. Both men had spent time in the Texas Legislature, which made them useful people to have in the position. I then find out that Shelley is now lobbying for Cintra, the Spanish road building company that won the rights to build the Trans Texas Corridor and destroy American sovereignty in the process.

I bet he's being paid in Ameros.

Perry Backs Down

In our last episode, the governor vetoed $150 million in community college health care spending because he believed they were spending the money on employees that were not eligible for the funds (though the rumor mill has it that it was because the president's of the community colleges endorsed one of his opponents in the past election).

Now it seems that he has had a change of heart--possibly because everyone was upset at him--and wants to restore most, though not all, of the health care money, and add some more for this and that.

Rick Perry and the New World Order

This is all news to me. Rick Perry is in cahoots with others (including apparently President Bush) to tear down the borders with Canada and Mexico and create a North American Union with a brand new currency called the Amero. I had no idea.

And they say the web's full of crap.

Rove's Resignation

It is common place for commentators to discuss the close relationship between George W. Bush and Karl Rove. He has been fixed to the side of the president at least since his decision to run for Texas Governor.

Before that he worked as a kid (literally) in the Republican Party and the Nixon White House. He cut his teeth running political races in our neck of the woods and developed his technique of identifying local Democrats--who used to be conservative once upon a time--with the more liberal national party. This allowed the Republican Party--which used to be moderate once upon a time--to bring the conservatives into their camp.

It didn't hurt that he was able to fall under the radar screen of the Bush Dynasty. It is said that each needed the other, and I'm in no position to disagree. One wonders where he would be now had Reagan not asked HW Bush to be his VP.

Here's a brief handful of some of the back and forth about Rove and his influence on contemporary politics. He clearly fits into a discussion of parties and we will do so in 2301 when we hit parties around October. We'll discuss his (apparently failed) efforts to increase the size of the national Republican Party by taking his Texas strategy nation-wide.

- Summary of editorial opinions.
- Summary of some of the blogs.
- Rove interview with Chris Wallace.
- More wrap ups from Slate.

Back to the Grind

The new semester starts in less than a week so its time to ramp this back up.

No epiphanies during the break, but I plan to spend time on fewer, longer posts honing in on a smaller number of topics. Past posts, I believe, lacked focus. I've spent the past week working on power points for upcoming lectures and will review previous entries and integrate them into lecture material.

It's been an active week and a half and I'll collect what I can about the more important recent events:

- Karl Rove's resignation
- The Fed bailing out the hedge funds--and the overall economy as well
- Tony Snow's resignation
- and a few odds and ends

Sabbatical

I'm imposing a one week sabbatical on myself and will not post anything until next Thursday. A new semester is coming up and I want to rethink how I use this site.

Anyone who stumbles across this, or has signed up to receive posts in their email, is welcomed to give me feedback. I'm not sure that I've figured out how to use it best, or to its full potential.

I anticipate modifying it so I can use it as an online text book as well as a communicative device, so expect to see changes in the layout. I also need to review recent events and fill in some gaps I've let slide--comments on immigration reform etc. Additional posts will distract me from getting this done, so unless something serious happens in the next few days, nothing new until next Thursday.

Again, please help out by dropping me a line: kjefferies@alvincollege.edu.

Kos v. DLC

This has to be great news for Republicans. Daily Kos is officially calling out the DLC, calling them sad and ridiculous. He argues that the future of the Democratic Party depends upon them tilting further to the left, towards populism, and abandoning the middle.

The DLC's principle success, the election of Clinton in 1992 and 1996, wasn't significant he argues because he only won by pluralities. He promises solid majorities for the Democrats if they abandon the middle and push progressive candidates: "We helped build this majority. Not the DLC's 350 or so members. This is no longer their party. And as such, we can look forward to finally being truly competitive for years to come." He is almost certainly over reaching in this assessment. Scandal, incompetence and Iraq won Democrats the majority vote for Congress.

They are responding to an opinion piece in the Washington Post by two leading DLC Democrats urging the party not to ignore the "vital center." Losing the center risks elections, but a strategy shutting the center out makes it easier for party activists to pass their agenda--if in fact they do win. Kos argues that this is just the party establishment preserving its position of power, and there is certainly truth to that.

But the divisiveness could well turn out to be the Democrats' Achille's Heel. Republicans will certainly do what they can to drive the two sides apart. If the coalition cannot hold, the Republicans win. They may even attempt to stake positions on issues designed to lure some of the DLC'ers off to their party. It worked with Lieberman. This National Journal story about how Karl Rove charmed a meeting of DLC friendly Democrats hints about how it may be done.

Rage Boy

Just a pretty face you're likely to see during video coverage of the next anti-American rally somewhere in the middle east. Christopher Hitchens is tired of his impact on what books and magazines are available.

For some reason he reminded me of the guy in the rainbow wig who kept showing up at sports events in the 70s and 80s.

Ahh media.

Taking the Fifth. . . Literally.

Slate wonders about the impact of a recent executive order.

Nothing Changes?

The Mainstream media has been covering the latest (physical, not cyber) gathering of fans of the Daily Kos, a left-liberal blog that has helped pull the Democratic Party--for better or worst--further to the left than it was when Clinton was president.

E.J. Dionne calls Markos Moulitsas--aka Kos--the left's answer to Rush Limbaugh, whose mastery of talk radio has never been duplicated by liberals. Many are suggesting the internet, as a medium, tilts as much to the left as talk radio tilts to the right.

Like most opinion leaders on the edges of the liberal conservative spectrum, Kos focuses as much, if not more, rage on moderate Democrats willing to compromise with the president as he does on Republicans. The more powerful they become, or seem to become, the more they can persuade candidates to stake out positions to the left.

As an indication that they are succeeding, almost all the Democratic candidates spoke before the Yearly Kos, though none attended the annual meeting of the Democratic Leadership Council. The DLC helped develop the centrist ideas that won Clinton the elections of 1992 and 1996, and Gore the popular vote in 2000. But nothing fails like success and the liberal wing, which began rearing its head with Howard Dean's 2004 candidacy (Dean was an ex-DLC'er by the way) now wants it all. Which may not be a good thing for Democrats if they want to win in 2008. There just aren't that many hard core liberals out there.

Commentators also seem to point out an irony of the yearly convention--which was aimed at the liberal blogosphere. Once you got to see them, they looked suspiciously white, male and middle aged, just like everyone else in politics.

It makes you wonder if, once the web becomes mainstream, we'll be back where we all started.

Judging Thomas

Slate takes on the idea that Clarence Thomas is in fact an originalist. A radical more likely.

Young John Kerry: Republican Prospect

It looks like the Nixon White House thought John Kerry was a potential recruit.

Wiretaps

In 2302 we've been trying to make sense out of the U.S. Intelligence Community, without much success.

We tried to figure out exactly what the Director of National Intelligence does. Part of his job is to lobby Congress. Now he is in the news trying to persuade Congress to pass legislation to allow them to wiretap suspects without court orders.

Now on the Agenda: Bridges

While discussing public policy we covered the stages of the public policy process which begin with agenda setting.

Nothing raises awareness of bridge safety like a bridge collapse. Now newspapers across the country are questions about the stability of the country's bridges, and infrastructure in general.

Christian Science Monitor.
Washington Post.
Houston Chronicle.
Bangkok Post.
Pittsburgh Tribune-Review.
Wall Street Journal.
Port Arthur News.

Others point out that bridges have collapsed in the past, and we eventually forgot about them and no major efforts were made to improve bridge safety across the country.

Silver Bridge in 1967.
Schoharie Bridge in 1987.

Though Congress immediately allocated funds to repair the bridge, its a fair bet that as time goes by--and other tragedies replace this one in the publics' mind--little will happen.

Here's surveillance footage that caught the collapse.

The Judiciary Checks the Executive

The Federal Appellate Court in DC ruled that though the actual raid of Congressman's Jefferson's office in the capitol was was legal, the inspection of all confiscated documents was not, since it involved items related to legislative business. This was found to violate the separation of powers.

You can read the opinion here.