Response to Duffy

Duffy is God’s answer to a prayer.. I miss the old days of blogging when we were debating principals instead of people… Duffy has stuck to the old line of debating principals with facts, and that is what makes him special in the eyes of bloggers everywhere…

Since the passing of Steve Newton, he has been the only one to challenge me in any argument, and usually some pretty good stuff comes out of both sides during the exchange… I have respected that.. Cause once again, opinions mean dick. Facts are what we steer by.. It is my hope that in responding to his challenge that an answer may make itself apparent.. Who knows? It may not come from me… But if I’m the catalyst for bringing it out in the open, then… none of this was in vain..

Why I like to debate Duffy is simple.. Neither side, he or I, is concretely set in their opinions… We accept it when the other side makes sense… I usually go into such debates having no idea where they’ll end up… I hope the rest of you enjoy the ride as welI….

That said..

Duffy leads: Wall Street’s problems were caused by Fannie and Freddie loaning money to people they knew couldn’t pay and moreover, forcing banks to lend money to people who couldn’t pay. That was not deregulation but misregulation

kavips rebutt’s:Uh… Mr. President. That’s not entirely accurate.

First off, the Community Reinvestment Act of 1977 was developed for, and locked in on, urban developmental areas and had no part of the subprime boom, which primarily occurred out in western desert regions where owning 4 to 5 investment homes was normal… Those homes were overwhelmingly funded by loan originators NOT SUBJECT to the act… We all know the crises was not because people couldn’t afford a payment on their house. It came about, because with no occupants, people could not afford the payments of 4 to 5 houses….. Instead of one loan per borrower turning up in default; four to five were.

Second off, The housing bubble reached its point of maximum inflation in 2005.

Courtesy of NYT

Third off, During those exact same years, Fannie and Freddie were sidelined by Congressional pressure, and saw a sharp drop in their share of loans secured by the Feds… Follow the dotted line on the very bottom of the graph…

Courtesy of NYT

Fourth off; During those exact same years, private secures, like Delaware’s own AIG, grabbed the lions share of the market.

Courtesy of NYT

Remember these graphs for later on when I discuss the results of deregulation, versus regulation… But like it or not, these graphs conclusively show that private insurers, who thanks to Marie Evans, we now know were deregulated by Phil Gramm in the 2000 Omnibus Bill, were the primary cause of the worlds financial collapse.. Probably put best by these words of AIG’s spokesperson, who when asked why they didn’t have sufficient funds to cover losses, said point blank, “We were deregulated. We were no laws requiring us to keep any funds, ..so we spent it…”

Duffy leads: The loosely regulated hedge funds escaped this mess largely unscathed. Why? They can’t count on a bailout like the big banks. The Too Big To Fail banks were counting on a bailout (not unlike the S&L bailouts which started on the Republican’s watch) and they got them.

kavips rebutt’s:Uh… Mr. President. That’s not entirely accurate. I agree that the hedge funds did survive better than the banks. Not because of bailouts, but because they sold short during the crises and made billions while firms closed and people got thrown out of work. There is nothing wrong with that; I did the same. In fact close readers may remember my warnings that the crises was impending almost a year earlier. Very close readers may remember my telling them exactly when to sell, and at what point the stock market would rebound… I must say: I called it rather well. 🙂

“Hedge funds were not in my understanding, at fault in the credit crisis,” said David Ruder, former chairman of the Securities and Exchange Commission. “At the most what they did was to sell securities when some of their investments were declining and they needed to have liquid funds. They were not the architects of these problems.”

De regulated hedge funds are not the issue… De-regulated, excessively leveraged, mortgage securities, are a different story however… They, not the banks that held them, are the cause of the crises…Years from now, when academics search for causes of the stock market crash of 2008, they will focus on the pivotal role of mortgage-backed securities. These exotic financial instruments allowed a downturn in U.S. home prices to morph into a contagion that brought down Bear Stearns a year ago this month – and more recently have brought the global banking system to its knees.

Where you err is when you state that banks too big to fail, assumed they would be bailed out… By implication, you say imply they failed from squandering money, and wanted the bailouts.. But your tax dollars didn’t flow directly to the bottom line.

The roughly $200 billion the Treasury Department has handed out to battered banks was swapped for a special class of stock that pays a 5 percent dividend (rising to 9 percent after five years.) As of April 15, the Treasury had collected about $2.5 billion in dividend payments on its investment.

So in that sense, the bailout money represents an expense for banks. That’s one reason a number of banks have said they want to give the money back as soon as possible.

You say big banks were counting on a bailout, and they got them? That didn’t happen to these banks. New Mexico, Georgia, and Florida each lost a bank just last Friday. That brings to 8, the number of banks failed in June. Unfortunately if a bank is failing, it can’t bet on itself to fail, as can a hedge fund.

Duffy leads: Banks have successfully lobbied to get their losses absorbed by taxpayers and gains are kept private. How nice for them. They felt comfortable making insane gambles because they knew they’d be bailed out. Most of them were right. Also remember that it was Bill Clinton who tore down the wall between retail and investment banking. The idea was to give banks more stability as they typically perform as exact opposites in bull and bear markets. (FWIW, I think that was a good idea and I can tell you first hand that two of the Fortune 100 banks I worked for were carried by retail banking in bear years. They may not have had bonuses those years but they didn’t have layoffs either)

kavips rebutt’s:Uh… Mr. President. That’s not entirely accurate. The idea is that the banks made bad decisions knowing taxpayers would bail them out is the issue that is inaccurate. For the record, I have no qualms that it was the Clinton legacy who tore down the wall between banks and investment banking. Like you, I feel it was a good idea to do so… Again the problem was not primarily with banks making loans to people who could not pay.. Although, it was as late as October 2009, when I was made aware of one private Bank in Denver still exaggerating income to make loans look good enough on paper to get approval of securitization. What caused the collapse was the leveraging of those loans as securities, so that as the housing market became overextended, and the ARM jumped past the low cost opening years, the damage was 100 times worse because of leveraging. What made the collapse criminal, was that the insurance most financial institutions had bought from AIG, to cover such an improbable event, had already spent by that companies executives, out on bonuses to themselves. What made it doubly criminal, was that when they received government dollars through a taxpayer bailout, those same executives assumed it was to first go towards paying their bonuses again. However, very recent events may give some cover to the argument that some collusion was implicit in the bailing out of Goldman Sacs and AIG… Basically, once bailed out, AIG paid Goldman Sacs for shares twice as much as they were worth. The documents also indicate that regulators ignored recommendations from their own advisers to force the banks to accept losses on their A.I.G. deals and instead paid the banks in full for the contracts.

Paris Hilton On Top Of Scooter Libbey

Two public jailbirds had two opposite outcomes in each of their run- ins with the law. The real question that has yet to be asked is not so much as to why Scooter Libby got a pardon, that was a foregone conclusion, but what is most puzzling is why Paris Hilton did not?

I mean, as far as I know, Scooter has never been in a video. When I search for “One Night on a Scooter” my search comes up empty……And everyone knows that Scooter didn’t have his own reality TV show, but those scenes with Paris and Nicole, are classics. Nor did he do any car-wash commercials, at least as far as I know. And unless secrets are kept better in Washington, than they are in Hollywood, there is relatively no chance that Scooter was running around with an underwearless Brittney Spears, although if it is true that he was, then that for the first time, would shed light on why Brittney disintegrated like she did………….

Paris committed a serious crime. Scooter only, well it wasn’t a crime, all he did was lie, like what’s the big deal? It’s not like he tried to drive without a license, or anything horrific like that. He just told a white lie, and the stupid judge made his sentence was way harsher than that of Ms Hilton: how unjust is that?

And all those ga’ga Republicans make a big deal about Scooter outing a CIA agent, like it’s a crime, or something. What’s wrong with them? Haven’t they ever heard of the paparazzi? There are no secrets these days. If you want the truth and hard nosed investigative reporting, look in the tabloids. Making a big deal over blowing a CIA agent’s cover, come on, get over it.

So the question is why did Paris Hilton, who is “way more cool”, not get a pardon like Scooter Libby? Is there any justice left within the justice department of this administration?

The answer appears to be because she was sentenced in California. Had she been in DC, like Libby was, things may have turned out the same for both. But apparently, the Federal attorney personally responsible for keeping Paris Hilton out of trouble, was fired. Some claim it was for incompetence, but it was really just another ho hum political firing……

Unlike Paris Hilton, who told Larry King that she learned a valuable lesson, and now wants to help others less fortunate than herself, Scooter Libby says he is vindicated by his pardon. he was right all along and now he is asking others more fortunate, to help him. He rightly insists that he did nothing wrong, quite unlike that other person who drove their car when they weren’t supposed to.

But the major difference still exists between these two jailbirds, which could be summed up in this fashion. One talks to everyone through a grate; the other grates everyone when they talk…………………….

Impeachment proceedings need to start tomorrow, because of this example of uneven justice. Bush needs to pardon Paris Hilton and expunge her record. Otherwise……America needs to take him to task for unequal justice…….

Delaware! Don’t Get “Mother” Puckered!

Once again conversation has turned to whether we should sell our roads to the highest bidder. What are the options?

First of all one needs to look at who has done it so far. In America there are very few cases from which to gather data. Those are the Skyway in Chicago, the Pocahantas Parkway in Virginia, the Indiana Turnpike, and the Texas superhighway at the border town of Laredo. Overseas there are two major players, one from Australia and the other from Spain.

Most of these leases are made for a period of 90 some years. The oldest, the Chicago Skyway, is only less than three years old. The newest, the Indiana turnpike deal, was signed as recently as last summer. So there is no evidence of the long term effects on privatizing toll roads. Therefore any argument for or against must be based on faith and theory. This is important for all to know as they listen to arguments pro and con.

Historically, toll roads were built by private investors. It was only rather recently that American taxpayers money was used to construct and operate major highways. So the concept of private highways is not new.

The question that needs to be asked is simple. Will we be better off if our roads are privatized?

Let us look at what happens when a road that has been built publicly is transferred to the private sector. First of all, a large purchase price is received by the seller. The Chicago skyway sold for 1.8 billion, the Indiana Turnpike sold for 3.85 billion, the Pocahontas Parkway sold for .6 billion. The savings continue as all maintenance is maintained by the consortium that purchases the road.

In Chicago, after expenses were deducted, the skyway over a year netted only a profit of 8.4 million. When this is applied to the roads purchase price of 1.8 billion, it yields a rate of return of .4%, a very low rate of return on the investment. In selling off its asset, the state loses the annual income of 8.4 million, but no longer has the debt of the highway on its books. It also has a large amount of cash to spend any way it wishes. If the highway is losing money as did the Pocahontas Parkway outside of Richmond, then a negative drain of finances is removed and responsibility and cost of upkeep is handed off to someone else.

However, no consortium buys a road to lose money. Their interest is in how much return they can receive on their investment. This raises the question of how much money they will invest in protecting the infrastructure, how high they will raise tolls, and what happens if they go belly up?

There is no evidence in this country on whether these roads will be kept up as well by private firms as they are currently maintained by the states. However in Europe and Australia the roads are kept in good condition. In both of those areas the roads were privately built by the firms themselves. They knew what they were buying and built the roads to last. One can only hope the Skyway’s bridges do not start to rot……therefore the argument that they will spend only the minimum allowed to keep the roads open is one we must settle before we sign any papers.

The tolls will go up. Indiana set a limit on how high the tolls could go. It is reasonable to assume that the tolls will be at the maximum set by law, since there is no governmental pressure that can be applied because of paying customers’ outrage.

There is an example that took place in this country that may portend what will happen if tolls are pushed higher. In Texas a thirteen mile highway bypassing Laredo was opened. This was to be the first piece of the trans Texan superhighway that would facilitate traffic to and from Mexico. The charges were the same as Delaware’s for about the same mileage that I95 crosses this state. 3$ for passenger cars and 16$ for trucks. This highway saved forty five minutes by bypassing the city proper. The price was too high; no one traveled it, it failed to make its debt payments, and was bought up by the state for one tenth of its cost. It turned out well for Texas. But most drivers were willing to take the longer route for free, than pay for the privilege of traveling quickly. This natural human tendency is seen in our own state, especially where Route 13 parallels Route 1. Each year more and more cars and trucks learn that exiting right off the bridge, bypasses the minimal 1$ toll.

And so what happens if we privatize I 95 and the privateers raise the toll to 5$. Will thru traffic deviate onto our Route 4’s and Old Baltimore Pikes? Many do so already, balking at the 3$ charge. More than likely the major traffic will take the alternate route South across Interstate 80 and south down Interstate 81 to avoid the collective tolls of New Jersey, Delaware Memorial Bridge, Delaware, and Maryland’s toll roads, thereby missing Delaware altogether and spending their discretionary income in other states. And will in-state commuters still continue to have free access I-95 into Wilmington to work, or will they be expected to pay 2600$ more per year so that their taxes do not rise 15$?

These are important questions that need to be asked before we jump in with both feet. Remember the Texas incident: there was no residual loss of business because it had not developed along the new highway. But when you privatize an existing road, you put each of those businesses that depend on that very road’s traffic to survive, in jeopardy.

Furthermore, one must be careful on whose advice one listens to. Goldman Sachs made 20 million in consulting fees on the Indiana deal. Of course they paint a rosy picture.

99 years is a long time. Like buying a new car, the feeling is great while the deal is new. However, get it wrong, and this state will suffer from being puckered on a lemon of a deal.