I am extremely uncomfortable with the bailout when hardly a word is spoken about how we are going to avoid repeating this mistake. So far the only mortgage reform I have seen has been performed by the market. Securities based on sub-prime and Alt-A mortgages are practically worthless. Companies holding these securities cannot sell them because it would force them to officially recognize that the securities they continue to hold are worthless and trigger bankruptcy. The problem is that the mark-to-market pricing says we are a bunch of fools for issuing so many of these mortgages in the first place. For its part Congress has done nothing to take the bullets out of the sub-prime mortgage gun. Since we have already shot ourselves in the foot once, I am hoping that Congress would take the opportunity to avoid loading the gun again by enacting some real mortgage financing reform before the window of opportunity closes.

If a friend or relative came to me to borrow money for their business, I would have a lot of questions before I gave them all of the money they requested. For a friend I might provide emergency funding with just a few questions. Before I committed any more of my money I would want to hear and evaluate all of their ideas to reduce my risk of not being paid back. Using this same logic I feel it prudent to partially fund the bailout but I think there are a lot of good ideas out there that can potentially lower the cost to the tax payers and help avoid repeating past mistakes.  I think any further funding should be subject to a full debate by Congress. It would be nice if Congress would use this opportunity to improve their image. It would be nice if they could seek the high road in the debate and not add "partisan projects" to the funding. We are not happy with the bailout so don’t make it worse. We can be very fickle voters during a recession.

From the  CBO Director’s Blog we get this insightful analysis. He was attempting to clarify an article in the Washington Post about his testimony. This bill is pretty ambiguous to the average person. We know about how much this bill is going to cost and that it is going to pass quickly without a lot of outside review. My gut feeling is that the average person is pretty scared that this bill will result in a severe recession. That means unemployment for some people so they are mad and scared. This is a very dangerous time for politicians seeking re-electon. The paragraph that I include below from his post explains how we could stabilize some of the non-functioning mortgage markets and how a government investment may provide an incentive for the remaining participants to work out a solution. Of course no one is talking about the problems facing the home owners and how we are going to avoid repeating this problem in the future. It sounds like an awfully big Band-Aid.

Finally, it seems worth emphasizing again a key point from yesterday’s testimony ”” that the financial markets face two distinct, but related, problems. One problem is that the markets for some types of assets and transactions have essentially stopped functioning. To address that problem, the government could conceivably intervene as a “market maker,” by offering to purchase assets through a competitive process and thereby provide a price signal to other market participants. That type of intervention, if designed carefully to keep the government from overpaying, might not involve any significant subsidy from the government to financial institutions. The second problem involves the potential insolvency of specific financial institutions. Restoring solvency to insolvent institutions requires additional capital injections, and one possible source of such capital is the federal government. Although the problems of illiquidity and insolvency are interrelated, they are at least conceptually distinct. Indeed, some policy proposals appear to be aimed primarily at the illiquidity of particular asset markets, and others appear to be aimed primarily at the potential insolvency of specific financial institutions. The Treasury proposal appears to be motivated primarily by concerns about illiquid markets. The more the government overpays for assets purchased under that act, however, the more the proposed program would instead provide a subsidy to specific financial institutions, in a manner that seems unlikely to be an efficient approach to addressing concerns about insolvency.

Troubled Asset Relief Act and insolvencies
Peter Orszag
Thu, 25 Sep 2008 16:45:56 GMT

It is easy to view McCain’s and Obama’s responses to this crisis as predictable but this maybe the most important law making session in the last fifty years. It is very possible that this piece of law making will severely restrict the political agenda for the next four years. If you are not part of the debate, you are probably voting “present” for the next four years. That’s not fair to these hard working candidates to see their hopes for grand accomplishments squashed before they are even elected but it is reality.

Here is the Ann Althouse post:

This is, I think, a smart demonstration of leadership. McCain is suspending his campaign and seeking a postponement of the debate that is scheduled for this Friday.
Meanwhile, speaking of leadership, where’s our incredible shrinking president, Mr. Bush?
UPDATE: Obama says that "there are times for politics and there are times to rise above politics and do what’s right," but now is not the time to cancel the debate. "This is exactly the time when people need to hear from the candidates." And: "Part of the president’s job is to deal with more than one thing at once. In my mind it’s more important than ever."
I suppose Obama couldn’t very well follow McCain’s lead. In fact, if McCain had really been serious about this, he should have worked it out with Obama in private, so that the two men could make a joint announcement. McCain went for political theatrics, and I guess he can use it against Obama now, which was probably the point, but Obama’s reaction was so predictable that McCain’s show of statesmanship was entirely bogus, so I will be impervious to that rhetoric.

"I am calling on the president to convene a meeting with the leadership from both houses of Congress," says McCain.
[email protected] (Ann Althouse)
Wed, 24 Sep 2008 19:24:00 GMT

One of the fascinating aspects of this presidential election is the decision making by both candidates and the comparisons these candidates are inviting to previous Presidents. John McCain says Teddy Roosevelt is his favorite president and I think Barrack Obama has a lot of admiration of John Kennedy. By selecting Sarah Pallin as his vice presidential choice, John McCain has paid a fascinating homage to Teddy Roosevelt. Many of the characteristics that made William McKinley select the unknown governor of New York as his running mate in the presidential race of 1900 are present in Sarah. Both Teddy and Sarah were governors for only two years and had gained some notoriety fighting the political machine when they were asked to join the presidential race. Both Teddy and Sarah share similar passions in life. They both love the outdoors, are avid hunters, have large families, and were under 45 years old when they were asked.

I am not sure whether John Kennedy is Barrack Obama’s favorite president but he probably has enjoyed the comparisons made by the press. John Kennedy remains a popular president. In looking at the McCain decision I cannot but look at the decision by Barrack Obama to not follow the lead set by John Kennedy. I think it is fair to say that John Kennedy despised Lyndon Johnson. John Kennedy was in a much more dire political situation and needed Lyndon Johnson to deliver the southern states if he was going to have a chance at wining the presidential race. John Kennedy made the tough decision and the rest is history.

John McCain’s presidential campaign was in a dire situation. It is fair to say that either of the Democratic candidates were expected to easily win the the Presidential election. From one perspective McCain was taking a huge risk by selecting Sarah Pallin as his running mate. This could be disastrous for the future of the Republican party. From another perspective he was taking the risk he needed to take if he wanted to be President. He was taking a risk John Kennedy would understand.

It is not hard to conclude that John McCain was both lucky and brilliant. It took a lot of guts to make that decision but he needed a little help from his friend, Barrack Obama.  Barrack had the tough decision of whether to ask Hillary Clinton to be his running mate.   He chose Joe Biden. It was a safe choice but not necessarily the choice we might expect from a candidate hungry to “do what it takes to win”. It was a choice that disappointed the Hillary supporters and created a huge opportunity for John McCain. This was the bit of luck John McCain needed and a choice that probably has John Kennedy rolling over in his grave.

Each of us is now confronted with the ultimate question about this presidential race. Does Barrack Obama have the courage to make the tough decisions?

Political conventions are necessary evils. I despise them because they are so boring. Both parties shared a pressing problem of unifying their parties. I would have to say that the Republicans succeeded beyond their wildest dreams and the Democrats are hopeful. In this area McCain’s pick of Sarah Palin was a stroke of genius. She has energized the common folks more than any candidate I can remember. The scuttlebutt is that the McCain campaign received over $10 million in donations after the announcement. She is not perfect but you cannot help but marvel when you hear a few folks say admiringly, “Yes and she is only a heartbeat away!”