Bailing Out Failed Entrepreneurs

Remember when Obama first said that this bailout was not going to reward speculators? Check out this little quote from NPR's All Things Considered this morning:

Tucker Roberts, 31, of Crested Butte, Colo., purchased a townhouse for just under $500,000 two years ago. He was hoping to sell it for a profit soon, but instead prices have gone down.

"So now I own a house that's worth, probably, $150,000 to $200,000 less than my total mortgage is on the place," says Roberts.

His salesman salary ranges from $50,000 to $75,000 a year, so the $3,400 monthly mortgage is nearly impossible to afford. Until recently he had two roommates but now that they're gone he's burning through his savings and says he may have to liquidate other assets to keep current on the payments.

"By spring of next year if I can't get my house sold or I can't start making a lot more money, there'll be a three bedroom two-and-a-half bath house for sale really cheap through a bank," says Roberts.

Roberts is among those a new U.S. Treasury Department program is designed to help. The $75 billion foreclosure relief plan is for those facing imminent hardship. It offers cash incentives to lenders who modify mortgages on single-family houses up to $729,750.

With all due respect - are you kidding me? He bought a half a million dollar townhouse at the ripe old age of 29 making 50k a year. Put two roommates in the house to cover a 3400 dollar mortgage. Hell - how many people does anyone out there know with a THREE THOUSAND FOUR HUNDRED DOLLAR MORTGAGE?

Then he friggin admits he was flipping, but this new Treasury plan was DESIGNED TO HELP HIM??????

This entire plan has lost sight of its originally intended goal of helping people who were screwed into bad mortgages. The reason it has is simple - the vast majority of people who are "stuck" were speculating. We've seen the enemy and it is us. The only real victims here are those of us who did not speculate. We are going to bail out a bunch of folks who made bad bets and now want "the government" to bail them out. Of course "the government" will ask those of us "suckers" to pay for the entrepreneurs' failure. Since when was that the American way?

The banks, Countrywide, real estate agents cannot be solely blamed. You can't con an honest person, but you can sure as hell con a greedy one. We have to point the fingers of blame at ourselves when there were at least four television shows about house flipping on cable just last year. Two of the shows basically had the same name - one was called Flip that House, and the other was originally called Flip this House. They couldn't even come up with original names for it. Bravo had a show called Flipping Out which now seems prophetic. Now I wonder if they'll have shows called "Bail Me Out," or maybe "Up Side Down in Phoenix!" or possibly "Foreclose This!"

This has become total and utter risk abatement by the government. Young Tucker took a calculated risk in the marketplace. It did not work out for him. The asset lost value. It was never, NEVER in his mind supposed to be a home in the traditional sense. He might as well have been buying gold, or internet stocks, or tulip bulbs.

Now instead of putting him through the same entrepreneurial process that Henry Ford went through several times in his life, losing his shirt, before he made it big, Tucker will be "bailed out" by the Feds. To what end?

He's now trapped in a house he doesn't want. Some young couple that's saved diligently for this opportunity will be denied the chance to purchase that home. The rest of us will not benefit from this supposed price support because this will simply put off the inevitable - he'll have to sell the house at a loss eventually. And besides, we are also paying 75 billion dollars to put off this problem. Of course with the Feds throwing around trillions, 75 billion seems like pocket change doesn't it?

The lesson Tucker learns is that there really isn't any risk anymore. There was no downside. No one loses. Everybody gets participation ribbons, even the kids who finish last. No more jokes about France people. At least in France people still have to pay their debts. Check out this quote from a piece on the situation in the French debt and housing market from last year:

Only 57 percent of French people own their own home, around 10 points below the euro zone average and banks have generally required large deposits for home purchases, limiting the build up of large loans.

OECD data shows the debt of French households was only 89.1 percent of income in 2006. In Britain and the United States that ratio stands at 168.5 percent and 139.7 percent respectively.

France has not made the idea that everyone must own a home the national mantra. France, the land of markets and responsible government. How early to the bars open around here...............

UPDATE:

TIN CUP ALERT

Folks I'm going to be asking donations be sent to poor Chadi Moussa. Read about his horrible, heart-wrenching saga in this New York Times piece that has brought my frustration with this "bailout" to new heights. Mr. Moussa bought a 2.25 million dollar home that's lost half its value..................unfortunately, the piece seems to say, he doesn't qualify for a bailout. Sob, sob, sob.

I urge, nay, implore you, to send him whatever help you can to help him in this difficult circumstance..............when's the next flight to Paris?

The Philanthropy Wars

Full disclosure - as I noted when I opened this blog, I work for a non-profit.

A lot has been made about Obama's proposal to limit the tax deductions that rich people get when they are contributing to charity. Folks who study philanthropy at Indiana argued that the plan would reduce charitable giving by "several billion dollars" a year with the implication that this is a bad thing.

Of course folks in the philanthropic world are just like any other organized interest that receives a government granted tax advantage. I see them as no different than farmers who get checks to not plant crops. They are going to produce reports that defend their positions. And like farmers they produce a "good" but it's less tangible than soy beans.

Then yesterday this piece in the WSJ's Opinion section argues that some "activists" are interested in forcing non-profits into giving to specific causes regardless of donor intent. So if donors gave money to an organization with the explicit purpose of promoting Beanie Baby appreciation, the National Committee for Responsive Philanthropy would like to see 50% of that money going to lower income and other "marginalized" groups. So what's more important, donor intent or broad social goals that have nothing to do with original donor intent? It's been a big question in philanthropic circles for a while.

But there's a political side to this stuff that has been simmering for a while as well. For a number of years these folks have been going after certain foundations based on their ideology. Originally it just looked like they wanted it known that some foundations were right-wing. Now it seems they want to redefine who ought to be allow to called a "charity" and receive the tax benefits that accompany that title.

Non-profits, like limited liability corporations, exist because the state has carved out a unique tax situation for them. In theory governments do that because they deem the work and "goods" produced by philanthropic organizations to be both important in a free society and somehow underprovided by both the government and for-profit sector.

Of course the state has the right to wonder if giving broad tax breaks to foundations, some of which will promote Beanie Babies and other malaria eradication, is worth it. The key point is that the existence of foundations rests on the whims of the government - and governments change hands.

It now seems that the worm has turned. Folks within the administration and in society at large are wondering what constructive role philanthropy, that doesn't fit certain ideological criteria, can play. Or they're just plain hostile to what they see as the unfair advantages given to rich donors to promote public policies free from having to pay taxes. Or they may simply believe that, as is the case in Europe for example, government should step in and play a much larger role in providing the "goods" that non-profits previously produced because government can do a better job of providing those goods.

In some ways a thorough re-examination of what a non-profit is, what it's tax status should be, and what activities they can engage in is a useful enterprise. Foundations last year gave more than 42 billion dollars in grants. That's a really big number, and Europeans now think that foundations are nothing more than intermediaries to dodge taxes. If that's true, and no "good" is provided, than the state has a right to re-think the tax benefit it provides.

But that tax advantage shouldn't be used to skew public debate. For example, labor unions now support a wide range of liberal think tanks (which are all non-profits) that have emerged in the past ten years. These guys are a good example who receive about 30% of their funding from unions. As lobbying groups, they are now engaged in a fight with conservative groups over the future direction of American society.

It's pluralism, and I think it's a fair fight that should be based on the merit of the ideas. The notion that one side should somehow be prohibited from benefiting from the tax code because you don't like their ideas strikes me as pretty ridiculous. I mean conservative groups aren't denying the Holocaust or arguing for a flat earth. They have legitimate positions that deserve a fair hearing in the public sphere, just as the left's positions do. Any attempt to legislate those views out of the debate is not only contrary to the values of any free and liberal society, it's also doomed to fail because a lot of folks believe in those positions rightly or wrongly.

And finally, as this article from the Washington Post shows, even conservative, stodgy, old non-profit institutions like the Roman Catholic Church can adapt to changing times and different incentives. Try to put them out of business by changing the tax code, and they will simply pursue their goals in other ways that the "smart people" cannot possibly imagine.

Jim Cramer He Isn't

As I've said on a number of occasions here, I hate George Bush and blame him for a lot of our current problems, but today's flip piece in the NYT about comments from Obama about the stock market losses during an impromptu press event with Gordon Brown was either very poorly written or represents someone who doesn't get the pain people are going through.

The president did not offer any specific stock tips, but suggested that he believed the market might be close to its low point.

“Profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal,” Mr. Obama said, “if you’ve got a long-term perspective on it.”

That first sentence better have been a lame, inappropriate joke from the Times reporter or else he really messed up. And if it was a joke, I personally don't think it's particularly funny that folks have lost more than 10.4 TRILLION DOLLARS in wealth in less than 2 years.

The second point I'm sure comes without the slightest bit of self-interest as is the case with most politicians because although he denies that he looks at "day to day gyrations" it sure must be unpleasant to be looking at "day to day massive losses in potential tax revenue" for any politician. He better hope it's near its low point or else we may make Iceland's financial implosion look pretty good before too long.

What may be much more troubling for Obama is that when folks like Paul Krugman constantly invoke the Great Depression, this current crisis is different in two ways. First, it's not nearly as horrible in terms of lost value. Second, the long bear market from the Great Crash of 1929 till 1932 ended in the summer of 1932 when it was clear the country was going to get a new president. Instead this bear market seems to be getting much worse as the macro situation worsens (which is not his fault) and responses to his plans fall flat (which, much as the Dems want to deny it, is now his responsibility). Someone in a national media outlet is going to figure this out and wonder about the Audacity of Markets. How Obama responds then will be interesting to see.

Headache Inducing

The Czarina, as some of you know, is a philosopher. So I'd like to ask her what type of philosophical term is associated with the following stupid action:

1) You're in the middle of a major economic crisis that appears to have been caused, at least partially, by banks and government giving lots of credit to people who should not have had access to said credit.

2) You now propose a new plan to give those same unqualified people another 200 billion dollars (200,000,000,000) in credit for things like cars, boats, credit cards, monster trucks, and new RV's as a solution to the current problem.

I'm not sure what the philosophical term is, but I believe the plain old English phrase is Zimbabwenomics. Or maybe "are you fucking kidding me?"

Don't Get a Toothache in Fort Kent, Maine

The New York Times has an article about a shortage of dentists in Maine. It's weird because it reminds me very much of this hysterical little number they had last week about how instead of using Charmin we should all employ cardboard or reusable sponges in our restrooms. It made me want to check the quality of the TP in the Times public restrooms.

Like the toilet paper piece, it's not new. FoxNews covered the dentist shortage late last year for example. Also like the toilet paper piece it coincided with the announcement of an Obama initiative - health care reform.

Anyway the gist of the Maine dentist shortage piece appears to be that there aren't enough dentists, especially in rural areas. The author attributes this to the vague notion that "many young graduates do not want to work in rural areas." Now setting aside for a moment the fact that the author of this piece lives in Manhattan, which might bias her against the joys of rural life, that explanation seemed to me to be a bit vague.

So I actually did some RESEARCH (which I guess was left out of the history degree that Katie Zezima got at BU) because according to this little piece from an actual Maine newspaper the problem is very different. The reason dentists don't want to get a hobby farm and practice out in the middle of nowhere is that most folks in those areas get their dental work reimbursed by MaineCare which is state provided health insurance for poor people.

Now according to the advocates universal health care, programs like MaineCare are supposed to overcome the "market-based" problems that limit access to decent medical care for folks who don't have insurance in the middle of nowhere - and Maine has a lot of "nowhere" where kids are so bored they are popping Oxycotin and shooting up because there's nothing to do.

Anyway, why is there this shortage of dentists when MaineCare should be providing dentists to rural Maine? It terms out, market incentives are the problem, because despite the attraction of the annual moose hunts in rural Maine, dentists don't like getting paid 13 bucks to examine a kids mouth, which is all that MaineCare will pay.

So will Obama's universal healthcare create doctor and dentist shortages by "cutting costs?" Something to chew on for advocates of universal healthcare - or maybe gum on if things go like they do in rural Maine.

The Bloom is Coming Off of the Rose

I, without much sleep or coffee to confirm this bold judgment, declare today the first day I have seen an article like this one in which implicitly, President Obama gets criticized for his economic policy on the frontpage of a major, mainstream newspaper. It doesn't mention Obama or his administration explicitly, but it does point out that markets have tanked and said "tanking" reflects skepticism about whether governments are "doing enough."

Of course in my view, they are doing more than enough. But from a political perspective, seeing something like this at the top of the Washington Post webpage the day after the markets hit their lowest level in 12 years says something - and it's not exactly "Good Morning Mr. President!"

The Politics of Doing Nothing

Fundbaby was the big winner this past weekend - at least with my parents. We took the little bugger to visit Grandma J, Grandpa G, and Unkle Rorie and he pretty much never hit the ground. Of course when we got home last night he brazenly expected this situation to continue..........that was pretty inconvenient for us at 5 am this morning. But all in all it was a great time - until the discussion turned to politics.

My Dad and I have never agreed on much of anything politically - and it's gotten worse since the recession began. We could agree on how much we hated George Bush, but we've reacted pretty differently to just about everything Obama has done since he's been in office.

Maybe because my Dad does some work with a bank, he's not opposed to bailing out banks. Maybe because he has some stock in Citibank, he doesn't see any problems giving them money either. And perhaps some of the work he does with a parts supplier to GM has skewed his view of helping Detroit as well, or maybe it's his love of big American cars. Still one has to tread lightly about pointing out such conflicts of interest when someone is holding your son while you are sipping coffee and reading the morning paper.

When we did get around to arguing I felt pretty stupid all weekend because my canned response, that we let things work themselves out without massive spending programs, to all of his views about this blizzard of government action and activity sounded so hallow and callous. "We have to do something!" he'd declare, and if the first few things didn't work we'd try other things. Why didn't I want to help people in trouble with their mortgages? Rick Santelli was a dingbat......you get the idea.

Of course unlike many of the talking heads and academics spouting off about our current problems my Dad did live through the Great Depression and can remember bread lines and other such stuff. His family's business survived, but times were tough and the impact of the New Deal was pretty profound on him and his generation.

Setting aside the economics of the spending spree and all of the proposed bailouts, I have to say that politically those of us firmly planted in the skeptic camp about the morality, efficacy, efficiency, and wisdom of all this government largess look like country bumpkins arguing that we need to do less, not more.

When the levy is breaking, you don't sit around and watch the water rolling in and hope the levy will fix itself. When planes flip out of control pilots rarely cross their arms and wait for the aircraft to right itself. Patients who are sick want doctors to take action to help.

The problem is that those types of analogies just don't work when the system that's having problems is self-correcting, as markets often are, the "pain" from the problem is not evenly distributed, and most importantly POLITICIANS not engineers or doctors or pilots are the ones saving us. And let's not forget that economics is not as advanced as engineering or aerodynamics today. And in my view, economics looks a lot like medicine did in the 18th century when going to a doctor was likely to get you killed.

The economics of recession are bad, but they are not universally bad, and unless we are really sure about the effectiveness of a potential "cure" it sure doesn't hurt to look at the cost of the "cure." The equation gets scary bad when someone from Washington shows up to help. But even if politicians were not involved in politics, the really key issue is that I believe the "cure" might be way worse than the disease, more expensive in the long run and will definitely have all sorts of unintended effects than we cannot foresee.

But the politics of being principled and saying, "I'm skeptical that all of this government will make things better," is usually not popular and easily ridiculed during crises because no one gets elected by saying "Let's do nothing." Hence this column by Frank Rich on how Obama should "savior this moment" when some folks are pleading we do less rather than more. He savagely attacks folks like Bobby Jindal (in ways I doubt anyone on the right would be allowed to do to a person of color) and Mark Sanford for wanting to do less based on their long held principles that government doesn't help things.

By pointing out that both are from poorer states he managed to score points about how callous they look. When he describes both of them as outdated he seems to be saying how those policies of "getting government out of the way" have failed - miserably.

As I've regularly noted, Bush spent more than any president in U.S. history - until Obama, so it's not as if this crisis was preceded by limited government. We also have experienced an explosion of capitalism throughout the world that has benefited a lot of people in places like China and India - something the left likes to ignore.

If former communist regimes throughout Eastern Europe and Asia are sticking with relatively free markets, why are we running from those positions? Is it because capitalism failed or because the politics of an advanced democracy provide the opening for political entrepreneurs to dole out gifts to their allies and supporters at the expense of the rest of us, whether it Halliburton, or the SEIU?

I hope Obama and his people get this "cure" right, but I fear that all they are doing is making the patient sicker and granting gifts to their friends and allies. Either way those of us who are openly contemptuous of government in general are living in tough times when letting nature take its course is viewed with scorn.