Monday, March 30, 2009

Return of the One Man "Filibuster"

Jonathan Chait, in an otherwise good TNR article, shows he doesn't understand Senate procedure as well as he thinks he does...
During the same time period, the Senate has developed a new, anonymous one-person filibuster called a "hold."
He's talking about unanimous consent. From the Senate's own glossary:
unanimous consent - A Senator may request unanimous consent on the floor to set aside a specified rule of procedure so as to expedite proceedings. If no Senator objects, the Senate permits the action, but if any one Senator objects, the request is rejected. Unanimous consent requests with only immediate effects are routinely granted, but ones affecting the floor schedule, the conditions of considering a bill or other business, or the rights of other Senators, are normally not offered, or a floor leader will object to it, until all Senators concerned have had an opportunity to inform the leaders that they find it acceptable.
In other words, what Chait terms a "hold" is really just an objection to a motion for unanimous consent. That objection can be easily overridden with a regular motion and a regular vote.

Senate leaders have been using unanimous consent to pass more and more legislation. Chait's problem is that a few Senators, led by Sen. Coburn of Oklahoma, have noticed that this procedure is being used to pass stealth pork: pet spending bills that they don't want debated on the Senate floor. Sen. Coburn and his allies have been reviewing each motion and objecting to the more egregious stuff, thus preventing their passage via unanimous consent. Some have characterized this as a filibuster, but as noted above it's easily overridden: the non-unanimous bills need only be presented on the floor for a straight vote (at which point they become subject to debate and, possibly, a real filibuster, but that's another discussion). In fact, Majority Leader Reid got frustrated with Sen. Coburn objecting to his pork, and bundled several bills into the so-called "Coburn Omnibus", planning to ram them through a floor session. Republicans banded together to filibuster the bill, and it failed, but if the bills hadn't been such obvious pork they probably would have passed. (I believe some of the more widely-supported measures were in fact reintroduced earlier this year and passed, but not by unanimous consent).

Eliminating the so-called one-man "filibuster" would gut the nature of unanimous consent. Imagine what it would be like if the Senate leadership could make any motion and, without debate or even a floor hearing, pass it over the objection of any Senator.

I don't think that's what Chait had in mind. He should study up on Senate procedure before calling for any more reforms to the uanimous consent rule.

"Home Run" Follow-Up

We had two couples looking at the house last week. Both seemed very interested. One couple in particular liked our features: open layout, two-car garage, great location, decent size yard. They, and the other couple, bought newly constructed homes.

Atta boy Gov. Huntsman. And thank you State Legislature. Mission accomplished: you diverted a buyer from an existing home to a newly constructed home. You saved another fat cat construction company from going out of business...for about one week.

Monday, March 23, 2009

"Home Run" Housing in Utah

On March 19, Utah Gov. Huntsman signed SB 260, authorizing 1600 "Home Run" grants to new home buyers. The state will pay a $6000 grant to those purchasing a new home. The grant is paid at closing, and is only applicable to newly-constructed, never-occupied homes. Total cost of the program is $10 million, paid out of Pres. Obama's federal stimulus package.

How will this help the economy? The idea is to encourage home buying while clearing the glut of new houses. Once the glut is clear, developers will start building again, thus employing all those out-of-work construction workers.

Some problems with this plan...
1. Whether or not the plan helps buyers is premised on the notion that a $6000 grant will lower home prices. How do we know that will happen? What's to stop sellers from raising their prices, and simply using the grant as a hollow sales incentive? Car manufacturers have been using "rebates" for years to the same effect: jack up the invoice price and offer a rebate to fool the suckers into thinking they're getting a good deal. The plan seems to have plenty of safeguards on the buyer side of the transaction, but hardly any on the seller side. It's plausible that the plan won't help buyers much at all.

2. Six thousand seems like a lot, but when it comes to home prices it's really not. First, it's paid at closing. I don't know if it can be used for down payment or closing costs. But even if it is, it won't reduce the monthly mortgage payments. That's the critical factor in home affordability, since income-to-debt ratio is the major risk component. You may have more money in your pocket after closing, but the bank's not going to care about that, and it won't affect your monthly payments one bit. This means the plan will do nothing to increase the number of buyers.

3. What it will do is shift buyers away from existing homes to new homes. While the $6000 grant won't affect monthly payments, it will reduce the overall cost of the mortgage. Given two otherwise equally attractive houses, the $6000 will invariably tilt the buyer towards the new home, leaving existing homeowners stuck.

4. The glut was caused by overleveraged builders who needed to keep building (and selling) to stay in business (see for example the Traverse Mountain, Suncrest, Daybreak, and Eagle Mountain developments). They ignored falling indicators and kept building, gambling that the economy would return to "normal". They lost, and got stuck with unsellable inventories.

5. Given the opportunity, they'll do it again. As smart as they may be, these are not wise people. Good businessmen don't waste millions planning an 8000 unit development without a fallback plan. These are not good businessmen.

The market is forcing these companies out of business. That's a good thing. As they go out of business, the empty homes and lots will be forced into auction, where they will be sold at cut-rate prices. Catch that? Prices on the oversupply will fall all by themselves, and the inventory will clear itself. At that point the only builders left standing will be the good businessmen. They'll be more than happy to provide whatever new homes are needed at that point.

Granted the oversupply will continue to exert a downward pressure on prices. But that's good, since the market as a whole has been irrationally overpriced for years, and needs a correction.

This plan attempts to prop up new home builders at the expense of existing home sellers. To sell their homes, existing homeowners will have to lower their list prices to compete with the subsidized new home prices. But few buyers will be savvy enough to see the difference--how can anyone, let alone a new buyer, truly determine the absolute price value of something as subjective as a house? Buyers will thus be lured away by the prospect of a $6000 check, and existing home sellers will be left on the market.

And yet the plan will ultimately fail at its primary objective. It will NOT stimulate new home construction. The foolish home builders are going out of business. $10 million in subsidies won't keep them afloat, and will instead be passed on to their creditors. The smart home builders, who have the wherewithal to survive, will raise their prices and pocket the difference, waiting for the recession to end before committing to new home construction.

It's clear to me that this plan is 100% corporate welfare. It's sponsor, State Sen. Scott Jenkins of Weber, lists on his official conflict of interest disclosure "Construction industry" [sic]. And according to the Salt Lake Tribune, it was Clark Ivory, CEO of the state's largest homebuilder, that originally suggested the plan.

Full disclosure: my home has been on the market since November. I've lowered the price once, and I'm considering lowering it again. With this new plan in place, I will almost certainly have to lower the price or risk being on the market for many more months.

Dodd Under Fire

A combination of scandals have rocked Sen. Chris Dodd (D-CT). He's looking less and less likely to survive his reelection campaign next year.

But it's important to note that prominent Republicans on the Senate Banking committee are likely to have many of the same problems. Since 2003, the ranking Republican, Sen. Shelby of Alabama, has received over $90000 in campaign contributions from Citigroup, and thousands more from Price Waterhouse, JPMorgan, and other financial institutions. He's also received $37,500 from Cerberus Capital Management, which is a private investment company (i.e. hedge fund).

The second ranking Republican, Sen. Bennett of Utah, has since 2003 received over $200,000 from financial institutions, including Morgan Stanley, JPMorgan, American Express, Citigroup, Goldman Sachs, and, most notoriously, Fannie Mae and Freddie Mac. In fact, Sen. Bennett is the 7th largest recipient of Freddie Mac donations for 2008.

Dodd's problems have been largely of his own making. But many of those problems would have gone unnoticed without journalistic digging. Who knows what would happen if journalists started digging at Shelby, Bennett, and others? If Republicans really want to shed the corruption label, they need to clean house, starting with some of their most senior members.

(h/t Instapundit for the Dodd links)

Tuesday, March 17, 2009

AIG and the Financial Bounce

The DJI bounced up again today, almost to 7400. Financial stocks, including Citigroup and Bank of America, continue to do well.

As far as I know, Citi and BoA haven't accounted for their success. For all I know they could in fact be following a high-risk path to profitability.

But I just thought of another explanation. We know AIG made billion dollar payments to domestic and foreign banks. Neither Citi nor BoA have been mentioned as counterparties, but this BusinessWeek article does list Merrill Lynch, which is now part of BoA. The article goes on to point out that much of these payments will likely be passed on to other domestic banks.
Adam Lerrick, a fellow at the American Enterprise Institute, argues that viewing AIG's counterparties as the final beneficiaries of the government bailout is overly simplistic and probably not correct. It would not be unusual for the banks named in the report to have turned around, Lerrick says, and written a second round of contracts with yet other banks, quite possibly different U.S. players such as Merrill Lynch. In today's financial system, Lerrick argues, it would be impossible to be certain that the taxpayer bailout didn't eventually come largely back to supporting other U.S. firms.
If that's true (and I have no reason to doubt it), then I wonder how much of the financial sector's recent profitability derives from these AIG payments, which come from taxpayer-funded bailouts? And if these payments are driving Citi's, BoA's, and others success, can that really be called a profit? Or is it just "give a bank a bailout, and they'll profit for a quarter"?

AIG Outrage

Jim VandeHei covers the uproar at AIG's management bonuses. He thinks White House and Congressional outrage rings hollow, considering how long the bonus plan has been publicly announced (more than one year). He doesn't mention the billions of dollars AIG has paid to foreign banks, nor the billions paid to troubled domestic banks like Goldman Sachs (h/t Instapundit).

This spontaneous outrage reminds me of a Johnny Miller story I heard. Miller was playing in a local pro-am. An amateur golfer in his group was struggling, and every time he made a bad shot, he'd explode with obscenities. This went on for a while, and eventually Miller stopped the outraged amateur mid-rant, and told him, "Look, you're just not a good enough golfer to be that angry."

Are the President, Treasury Secretary, and Congress good enough to be this angry? I don't think so.

Update: Eliot Spitzer points out Goldman's and other banks' double bailout, and then asks some very good questions.

Safety, Danger, and Attention Span

Glenn Reynolds has a good review of Tom Vanderbilt's latest book, Traffic: Why We Drive the Way We Do (and What It Says About Us). The main point is that added safety features can make us behave more dangerously. He follows a tangent and raises a very interesting point:
This approach could be taken beyond the world of personal transportation. We’re in the current financial mess in part because things that were actually dangerous—from subprime mortgages to risky financial instruments that no one fully understood—felt safe and ordinary. Modern financial markets, with computers, regulations, deposit insurance and bond ratings, felt as routine and as smooth as that four-lane highway in Spain, causing a lot of people who should have been paying attention to doze off. Investors might have been more careful if it had felt like they were driving down a twisty mountain road with no guardrails, especially since we really were engaged in the financial equivalent of high-speed mountain driving, only without the discipline of fear.
I wonder if there isn't some way to make government and the economy feel more dangerous without actually making it more dangerous? Or would this just be like someone setting their clock ahead 10 minutes to avoid being chronically late?

Thursday, March 12, 2009

7-year Old Girl Gets Her Organs Back

USA Today reports the surgery took 23 hours.

Would national health insurance pay for this? Would it really? The McNamaras had to search long and far to find Dr. Kato. Every other doctor told them the tumor was inoperable. On its face, the operation had to be incredibly risky (and expensive).

If national health insurance would pay for this kind of procedure, how would that reduce the cost of health care? Can you reduce health care costs and still keep the miracles?

(h/t Althouse)

Wednesday, March 11, 2009

Citigroup's Bounce

Citigroup has apparently turned a profit [WaPo] in the first two months of the current year. Binyamin Applebaum of the Washington Post has an interesting follow-up article detailing Citigroup's long history of risk-taking.

Question: The market reacted positively to Citigroup's profit news, but how does anyone outside Citigroup know that those profits are sustainable? Prior to last year, Citi profited while engaging in what is now known to be excessively risky transactions. How do we know they're not engaging in even more risky transactions, trying to gamble their way of their current crisis? Even if their January and February profits were legitimate, what risks are they willing to accept to push their stock price even higher? Is anyone at the Fed, SEC, or Treasury Dept. watching this?

Thursday, March 5, 2009

Bennett Votes to Keep Earmarks

From a NYT blog...
Nine Republicans voted with Democrats against Mr. McCain’s amendment: Senators Lamar Alexander of Tennessee, Robert Bennett of Utah, Christopher Bond of Missouri, Thad Cochran of Mississippi, Susan Collins of Maine, Lisa Murkowski of Alaska, Richard Shelby of Alabama, Olympia Snowe of Maine and Arlen Specter of Pennsylvania.

Dude needs to go.

Wednesday, March 4, 2009

Finally Someone's Serious About Solar

Solar power has a major drawback: it only works part of the day. In most locations, energy production drops significantly after a few hours, and vanishes entirely at night. This means solar can only be used during the day, and therefore cannot be used for primary base generation. There are two strategies for overcoming this problem: store excess energy for use during off-peak hours, or transmit excess energy from areas in peak hours to areas in non-peak hours. Neither strategy has been very feasible--batteries are inefficient, and global(!) transmission lines are prohibitively expensive.

So this is cool: Store solar heat in molten salt. It's not a slam dunk solution, but it's definitely better than anything else anyone's come up with.

(h/t JustOneMinute)

Monday, March 2, 2009

DJI below 7000

The Dow Jones Industrial Average finished below 7000 for the first time since 1997. In other words, according to the market, the current crisis has wiped out most of the productivity gains of the dot com era. Way to go bankers, way to go.