Archive for April, 2011
Do We Need China to Fund Our Mortgage Market?
Earlier this week I repeatedly heard the claim that if the federal government does not guarantee credit risk in the mortgage market, foreigners won’t buy U.S. mortgage-related debt. Before we test whether that claim is true, let’s first determine just how important are foreign investors in the U.S. mortgage market.
For the most part, foreign investors do not hold U.S. mortgages directly, but either hold Fannie and Freddie debt and mortgage-backed securities (MBS) or hold private-label MBS. As the private-label securities lack a government guarantee, we can ignore that segment of the market. The chart below depicts the percentage share of foreign ownership of these securities in recent years:
The chart illustrates that, at times (particularly around the peak of the recent housing bubble), foreign investors have been large providers of capital to the GSEs. In 2007, over 20% of GSE debt was held outside the United States, double the percentage from only a few years earlier. The increase was driven almost exclusively by purchases by foreign governments (mostly central banks for the purpose of currency manipulation). In 2007, this amounted to just over $1.5 trillion.
However, if we went back and looked at a year prior to the super-heated housing market — say 2003 — then this total is about $650 billion. Given that U.S. commercial banks now have about $1 trillion in cash sitting on their balance sheets, it appears that domestic sources could completely fund the U.S. mortgage market without any foreign funds.
Countdown to ‘Shutdown’?
Reason.tv (and Europe) aptly reminds us that a government shutdown won’t exactly halt the wheels of government. Enjoy!
I talked to Dan Mitchell this week on why the standard narratives about government shutdowns are largely myth.
GE and Obama: A Betrothal at the Altar of Industrial Policy
The angry Left has been calling for President Obama to fire Jeffrey Immelt from his position as head of the President’s Council on Jobs and Competitiveness. I think that would be a good idea, but for different reasons.
Sen. Russ Feingold, Moveon.Org, and the regular scribes at the Huffington Post see Immelt, the chairman and CEO of General Electric, as unfit to advise the president because GE invests some of its resources abroad and, despite worldwide profits of $14.2 billion, paid no taxes in 2010. No illegalities are alleged, mind you; GE — like every other U.S. multinational — responds to incentives, including those resulting from tax policy and regulations concocted in Washington.
But there are more substantive reasons for why Immelt is unfit to advise the president. In particular, GE is a major player in several industries that President Obama has been promoting as part of his administration’s cocksure embrace of industrial policy. With over $100 billion in direct subsidies and tax credits already devoted to “green technology,” President Obama is convinced that America’s economic future depends on the ability of U.S. firms to compete and succeed in the solar panel, wind harnessing, battery, and other energy storage technologies. Concerning those industries, the president said: “Countries like China are moving even faster… I’m not going to settle for a situation where the United States comes in second place or third place or fourth place in what will be the most important economic engine of the future.”
Well, just yesterday GE announced plans to open the largest solar panel production facility in the United States, which nicely complements its role as the largest U.S. producer of wind turbines (and one of the largest in the world). The 2011 Economic Report of the President describes the taxpayer largesse devoted to subsidizing these green industries:
[T]he Recovery Act directed over $90 billion in public investment and tax incentives to increasing renewable energy sources such as wind and solar power, weatherizing homes, and boosting R&D for new technologies. Looking forward, the President has proposed a Federal Clean Energy Standard to double the share of electricity produced by clean sources to 80 percent by 2035, a substantial commitment to cleaner transportation infrastructure, and has increased investments in energy efficiency and clean energy R&D.
And Box 6.2 on page 129 of the 2011 ERP conveniently breaks out those subsidies by specific industry, most of which are spaces in which GE competes.
Friday Links
- “Now the United States is a party to a civil war.”
- The United States v. Comstock decision didn’t really change the course of Necessary and Proper Clause doctrine.
- Collectivism fails the test of human reality.
- “For post-Cold War America, military adventures forever beckon — and their lessons are quickly forgotten.”
- Cato Daily Podcast host Caleb Brown spoke with the junior Senator from Tennessee yesterday about his CAP Act legislation:
Negotiating a Budget Compromise
House Democratic Whip Steny Hoyer says “you can’t negotiate on the basis that one side gives 100 percent and the other side gives zero.” Good point. So let’s see: The budget is $836 billion higher than it was in President Bush’s last full fiscal year. The chart below the jump shows how much the House Republicans want to cut from that massive increase. Seems like if both sides — say, the Obama administration and the taxpayers — each give 50 percent, we’d cut the budget by $418 billion, half the recent increase.
The Budget Impasse: Who’s to Blame?
Today POLITICO Arena asks:
Will there be a budget deal? And has Obama shown himself to be a capable leader throughout this budget impasse?
My response:
Will there be a budget agreement? Who knows. Has Obama shown himself to be a capable leader in this budget battle? Please. One thing is clear, though: It’s beyond rich for Democrats to blame Republicans for this budget impasse.
Let’s remember that we’re talking about the budget for the fiscal year that began last October, which should have been passed well before then — when Democrats held the White House and both chambers of Congress by wide margins. In all that time, however, they couldn’t pass even one appropriations bill. Why? Because they were trying to game the November elections.
Well they lost those elections — big time. Yet even in the lame-duck session, when they still held all the cards, they couldn’t pass a budget. Now they blame the Republicans? For listening to the voters? What do they think those elections were about? Chopped liver?
Predicting the Supreme Court
Josh Blackman, my sometimes co-author, who is the president of the Harlan Institute (with which I too am associated) and czar — his title, not mine — of FantasySCOTUS.net, has co-authored a fascinating article that analyzes an information market he created to predict Supreme Court cases.
During the October 2009 Supreme Court term (last year), the 5,000 members of FantasySCOTUS.net made over 11,000 predictions for the 81 cases decided. Based on this data, FantasySCOTUS accurately predicted a majority of the cases and the top-ranked experts predicted over 75% of the cases correctly. FantasySCOTUS even has a Prediction Tracker to provide real-time predictions as to how the Supreme Court will decide.
Josh’s article is an absolute must-read for anyone who follows the Court closely and tries to figure out what “The Nine” will do. While I myself haven’t had the time to participate in FantasySCOTUS, perhaps I should go there every now and again to be better able to answer (the very common) media questions of how cases turn out.
China Cracks Down on Ideas. And Music. And Advertising.
The government of China finally confirmed that it has detained the artist Ai Weiwei. Meanwhile, Evan Osnos writes from Beijing for the New Yorker about China’s “Big Chill”:
Step by step—so quietly, in fact, that the full facts of it can be startling—China has embarked on the most intense crackdown on free expression in years. Overshadowed by news elsewhere in recent weeks, China has been rounding up writers, lawyers, and activists since mid-February, when calls began to circulate for protests inspired by those in the Middle East and North Africa. By now the contours are clear: according to a count by Chinese Human Rights Defenders, an advocacy group, the government has “criminally detained 26 individuals, disappeared more than 30, and put more than 200 under soft detention.”
Indeed, everywhere I turn today, there’s news about Chinese censorship and fear of dissent, of ideas, of art, of words like “luxury.” The Washington Post has a major article on Bob Dylan’s concert Wednesday night in Beijing. Dylan, the troubadour of the peace movement and the Sixties and civil rights, in the capital of the world’s largest Communist party-state. How’d that go? Ask Keith Richburg, whose Post article is titled “The times they are a-censored“:
Rock music icon Bob Dylan avoided controversy Wednesday in his first-ever appearance in Communist-led China, eschewing the 1960s protest anthems that defined a generation and sticking to a song list that government censors say they preapproved, before a crowd of about 5,000 people in a Soviet-era stadium.
Keeping with his custom, Dylan never spoke to the crowd other than to introduce his five-member band in his raspy voice. And his set list – which mixed some of his newer songs alongside classics made unrecognizable by altered tempos — was devoid of any numbers that might carry even the whiff of anti-government overtones.
In Taiwan on Sunday, opening this spring Asian tour, Dylan played “Desolation Row” as the eighth song in his set and ended with an encore performance of “Blowin’ in the Wind,” whose lyrics became synonymous with the antiwar and civil rights protest movements.
But in China, where the censors from the government’s Culture Ministry carefully vet every line of a song before determining whether a foreign act can play here, those two songs disappeared from the repertoire. In Beijing, Dylan sang “Love Sick” in the place of “Desolation Row,” and he ended his nearly two-hour set with the innocent-sounding “Forever Young.”
There was no “Times They Are a-Changin’ ” in China. And definitely no “Chimes of Freedom.”
Wash. Post, CBS, NBC Should Disclose Receipt of ObamaCare Subsidies
It’s not an easy period for major media organizations, what with all this creative destruction revamping that sector of the economy. So the Washington Post Co. couldn’t help but be pleased when it received a $570,000 bailout from ObamaCare‘s Early Retiree Reinsurance Program. That program allows the Obama administration to run up the national debt another $5 billion by doling out cash to corporations that provide retiree health benefits. The CBS Corporation received more than $720,000. General Electric, a part owner of NBC Universal, Inc., cleared nearly $37 million.
Since The Washington Post, CBS News, NBC News, and MSNBC have now received subsidies (the latter two indirectly) from this very controversial law, their reporters should disclose that fact to their audiences when reporting on ObamaCare. A disclaimer like this should suffice: “The Washington Post Corporation has received subsidies under the health care law.” That would be consistent with how NBC discloses its relationship with General Electric:
Oh, and kudos to the marketing whiz who decided to call all these ObamaCare spending programs “slush funds.”
Filed under: Cato Publications; General; Government and Politics; Health Care
New Budget Plan from Conservative House Members Would Do Best Job of Shrinking the Burden of Federal Spending
Just days after the introduction of a very good plan by the Chairman of the House Budget Committee, leaders from the Republican Study Committee in the House of Representatives have introduced an even better plan.
In a previous post, I compared spending levels from the Obama budget and the Ryan budget and showed that the burden of federal spending would rise much faster if the White House plan was adopted.
If the goal is to restrain government, the RSC blueprint is the best of all worlds. As the chart illustrates, government only grows by an average of 1.7 percent annually with that plan, compared to an average of 2.8 percent growth under Ryan’s good budget and 4.7 percent average growth with Obama’s head-in-the-sand proposal.
According to the numbers released by the Republican Study Committee, the burden of federal spending would fall to about 18 percent of GDP after 10 years if the RSC plan is implemented.
While that’s a great improvement compared to today, the federal government would still consume as much of the economy as it did when Bill Clinton left office.
Last but not least, for those who are focused on fiscal balance rather than the size of government, this is the only plan that produces a balanced budget. Indeed, red ink disappears in just eight years.
Cop-Cams on the Rise
The police in Austin, Texas will be testing nine different body-mounted cameras over the next 30 to 60 days. This is a positive development for both officers and citizens. It’s good legal defense for officers against false claims of excessive force and a training tool to show trainees best practices. It’s good incentive for officers to act within the bounds of the law. Video also makes for solid evidence in court. Many jurisdictions require law enforcement officers to record confessions and/or interrogations. Steve Chapman argued last year that the FBI should adopt such a policy.
Recording should be mandatory in SWAT raids, the most intense law enforcement encounters. I make the case for recording SWAT operations with Radley Balko and Clark Neily in this video:
Thursday Links
- DON’T FORGET: Our fiscal policy conference, “The Economic Impact of Government Spending,” featuring Senators Bob Corker (R-Tenn.) and Mike Lee (R-Utah), former Senator Phil Gramm (R-Tex.), Representative Kevin Brady (R-Tex.), and other distinguished guests, begins at 2:00 p.m. Eastern today. Please join us on the web–you can watch the conference LIVE here.
- Atlas Shrugged Motors presents the Chevy Volt.
- The parable of the Good Samaritan teaches us about the moral value of voluntary charity toward the needy–it says nothing about using coercive government programs of the modern welfare state.
- It is not the role of the Court to rewrite laws for Congress.
- The failed “war on drugs” has reshaped our budgets, politics, laws, and society–and for what?
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