Quote of the Day

It is remarkable how many political "solutions" today are dealing with problems created by previous political "solutions."

Thomas Sowell

Party like it's 2004

Sweet

Random Rumination

I have been steeped in thought for some time. I have been thinking about the Civil War and its affects and the Federalist papers (don't ask, i have an odd mind) lately and have come up with a conclusion: the defeat of the south has extinguished the check on government power intended by Madison and the founders.

It is normally apostate to say anything negative about the south losing the civil war but stick with me here. In Federalist 10 Madison wrote about faction. He basically explained his plan to stop the hording masses (factions) from using the democratic system to take peoples private property. He first explains that we cannot extinguish the fire that is faction. Faction is to democracy what air is to fire (rough paraphrase). To outlaw faction would be to enact a cure that would be worse than the disease (rough paraphrase again). His plan was instead to widely distribute power. Have each state act as a sovereign entity with all powers not enumerated to the federal government. Therefore, the competing interests of sovereign states would prevent a metaphorically huddled mass of poor voters with pitchforks.

This seems to make a lot of sense. But there is one problem: states are no longer sovereign entities. Not since the Civil War. States lost sovereignty rights at Appomattox court house. North and South.

So if states are no longer sovereign then what is preventing the masses armed with pitchforks and ballots from seizing the property of the minority? Not much. We have seen the power of the federal government increase in all areas of life and there seems to be no brake peddle. The middle class acted as the stopper in the past but they have realized that there is no need to get screwed. Just join the party. Get tax cuts without sacrificing government insurance or things like corporate welfare, and continue to demand more services.

I guess Madison's brilliant architecture couldn't last forever.

Economic Outlook...Dim Government's Response....Worse

American's seem to have an amazingly tiny attention span. When the "subprime" mortgage problems began to bubble up people were worried. Now? Most people don't seem to care. That's unfortunate because the hammer hasn't fallen yet. It takes time but it will trickle down. Buckle up.
Merrill Lynch - $8 billion in write offs for bad debt. They went from a profit of $3 billion to a net loss of $2.3 billion.

Bank of America - 32% drop in 2007 Q3 profits. Net income fell 1.72 billion dollars.

Bear Stearns - 61% drop in 2007 Q3 profits. Total revenue fell 38%.

Countrywide Financial - 37% drop in Q1 2007 profits. Net income fell 249.5 million.

Citigroup - 57% drop in Q3 2007 profits. $6.5 billion in pretax losses and write downs.

I could go on, but these are the best examples. The bigger question is what does this mean? The drop in profits alone is irrelevant for the wider economy. What is relevant is how these loses have tightened equity markets. Less capital leads to less investment which leads to fewer jobs. It is a very simple equation. The fed has bailed out the banks with bundles of cheap cash (notice the dollar's value falling hourly?), but banks will still tighten their lending practices.

What is the government proposing to do? Exacerbate the problem of course. Congressman Barney Frank is proposing to...

"require all mortgage originators to present consumers with loan products appropriate to their current circumstances, ban prepayment penalties for sub-prime mortgages and forbid incentive payments to lenders who steer borrowers into higher-cost loans" (from The Hill)

Imagine if we instituted such rules for restaurants. What would happen? The menu would change for most people depending on who decides the definition of "appropriate", the restaurant wouldn't be able to punish you if you walked out on your check, and waiters would not be allowed to encourage you to buy the extras (desserts, appetizers, drinks). Does not sound like a desirable economic situation for either the buyer or the seller. Essentially the same will happen in the real estate market. There will be a capital crunch.

I'm no historian but this is eerily similar to what happened in the great depression.

Some Common Sense On Iran

For some time I have been frustrated over the inevitable war coming with Iran. The administration has made it abundantly clear that Iran is the center of all the worlds ills. This should come as no surprise. Along with being a convenient diversion from the failures in Iraq, it is a great way to coalesce the American people against a common enemy. It worked wonderfully for so many years so why abandon the formula?

The only problem is that it is divorced from reality. Fareed Zakaria tosses a dash of common sense over the issue below...

Here is the reality. Iran has an economy the size of Finland's and an annual defense budget of around $4.8 billion. It has not invaded a country since the late 18th century. The United States has a GDP that is 68 times larger and defense expenditures that are 110 times greater. Israel and every Arab country (except Syria and Iraq) are quietly or actively allied against Iran. And yet we are to believe that Tehran is about to overturn the international system and replace it with an Islamo-fascist order? What planet are we on?

The only advice i can give is to hold onto your oil stocks and wait for the war.

Midterms

Midterms killing me at this time. Check back for a pulse.

Notice a Trend?

From Slate.

State Secrets?

What information can be considered a "state secret"?

Here, the Supreme Court refused to hear a case in which a German man was mistakenly abducted in Albania and tortured in a secret Afghanistan prison. Khaled el-Masri's lawsuit was tossed out of federal court and the 4th circuit court of appeals before being turned down by the supremes because the government claimed the case would compromise national security. The precedence for the case in the article below....

The Supreme Court created the doctrine in a 1953 decision, United States v. Reynolds, which began as a lawsuit by survivors of three civilians who had died in the crash of a military aircraft. In pretrial discovery, the plaintiffs sought the official accident report.

But the government, asserting that the report included information about the plane’s secret mission and the equipment that it was testing, refused to reveal it. The Supreme Court upheld the government, ruling that evidence should not be disclosed when “there is a reasonable danger that compulsion of the evidence will expose military matters which, in the interest of national security, should not be divulged.”

It appears that there may be some risk involved in revealing the location of secret prisons, but what is the criteria? I am not a lawyer (I only play one on the Internet), but it seems the government has a free hand to define "state secret".

There is no burden to prove that a fact must remain secret beyond merely stating so. Is what happened to Pat Tillman a state secret? It is if they want it to be. Also, what does the term "national security" encompass? That is potentially a very large field. According to the presidential candidates regulating the Internet and global warming are "national security" issues.

I can only hope the judiciary would not allow such a wild expansion.

Non-Interventionist vs Isolationist

Most people commonly confuse a non-interventionist with an isolationist foreign policy. Here, Ron Paul distinguishes the two.

In economics they are very different but are similar regarding diplomacy. A non-interventionist favors free trade and open travel (as Paul mentions) while an isolationist is not thrilled with either idea. A good example of a classic isolationist is Senator Webb. He is against the war and an intrusive foreign policy in general, but also opposes free trade deals because he claims they hurt American workers. The non-interventionist Ron Paul is also against an intrusive foreign policy, but supports free trade, travel, and currency.

In foreign policy there is very little difference. They are very similar in how they oppose the current administrations quest to spread democracy. To be fair to Bush, he isn't the first and will not be the last to take the democracy mantle, but he has taken it to new heights. Democracy cannot be exported to whoever we want whenever we want. In fact, there is no example of a country successfully importing democracy without several preconditions being met in the modern world.

A country must first have a somewhat distinct middle class, a history with free or semi-free markets, a common cultural bond, and a functioning judicial system able to protect private property rights. Iraq met only one of the above criteria (a middle class, however weak). No surprise that they have failed miserably in the short run. Maybe in 10-20 years it will catch-on, but don't hold your breath waiting.

Paul is correct to distinguish non-interventionism from isolationism in the economic world but they are exceedingly similar in the foreign policy world.

Need inspiration or motivation?

The 60 minutes interview with Clarence Thomas is the best interview i have seen in a long time. Justice Thomas is an interesting and captivating individual, but it is his personal story which is inspirational. After seeing it I honestly felt energized and motivated. Hope it does the same for you if you have not already seen it.

Interview Part 1
Interview Part 2