Bailout Plan

In light of the current 'Stimulus' plan and the protests against it, I have dusted off the plan I proposed on 27 August 2008.  The reason I am re-posting this is because I do not understand how the new government spending proposal is supposed to directly stimulate the economy.  I use the word, 'directly' for a reason. 

Direct Stimulation

I can comprehend how a direct rebate to the American taxpayer stimulates the economy.  The taxpayer takes the money and does 1 or 2 things with it that are easy to understand.  He either (1) spends it, (2) he saves it or (3) does some combination of the two.  The direct cost to the government is the price of the paper the check is written on, postage, and the costs associated with borrowing the money. 

The consequences of the payment are profound - if the individual spends the money, he is spending it on goods and services that he personally enjoys - there is no bureaucrat in the middle making these decisions for him.  The money thus spent goes to those firms who make the things the individual enjoys - the market then works as advertised.

If the individual chooses to save the money he is still benefiting the economy.  The bank that he puts the money into now has assets that it may write loans against. 

If the individual repays debts, that still stimulates because the bank has reacquired assets and the individual can use those dollars that were previously devoted to interest in the pursuit of more consumer goods.  The benefit of this type of system is that it requires no bureaucrats in order to properly function.  All the beneficiaries of this system have to do is make good decisions in the aggregate and everyone benefits.

Issues with the current plan

The current plan, however requires bureaucrats in order to function properly.  Since so many dollars are filtering through the hands of so few bureaucrats, any mistake on the part of the administrators is magnified greatly.

The other issue I have with the current bailout plan is that it rewards bad behavior.  That is not quite accurate - it provides incentives to people to engage in bad behavior.  It doesn't just reward bad behavior, it encourages more bad behavior.  The government paying the loans of people who made bad borrowing decisions rewards 2 groups of people - those that made the bad borrowing decision and those lenders that made poor lending decisions.  This is not the kind of twofer that we need.  Additionally, all this type of plan can achieve, at the most, is a return to status quo ante.  You cannot move forward, and you cannot improve the economy as a whole.  This is because the plan is based on 2 groups of people who have made bad decisions in the past.  Success of the Obama plan, therefore, relies on those who have been unreliable in the past.

By contrast, however, Instugator's plan relies only on those who have been reliable in the past.  All that has to happen for my plan to succeed is that those people who have been reliable continue to be so.

Here is Instugator’s bailout plan.

Principles:

1. Reward those who practice good behavior

A. Paying your mortgage on time is good behavior

2. Do Not reward those who practice bad behavior

A. Borrowing what you cannot afford is bad behavior.

B. Having an interest-only mortgage is bad behavior.

C. Having an ARM is questionable.

D. Investment Bankers who purchase CDO’s without understanding the underlying value of them are engaging in bad behavior.

E. Those who sold CDO’s without including the data necessary to understand the underlying value are engaging in bad behavior.

3. Do not let those most directly responsible for the current mess come within 100 miles of the bailout money.

A. Those whose W-2 forms show that they work for congress, Freddie, Fannie, or any investment bank in need of a bailout need not apply.

The Plan:

1. Take the $700B <or whatever number is currently in vogue>

2. Find those people who-

A. Have a conventional mortgage.

B. Have always paid it on time.

C. Have never declared bankruptcy

3. Establish an agreement that the Gov’t will:

A. Pay off the mortgage of those who meet each condition in item 2.

(This allows banks to resume mortgage lending and permits those who engaged in good behavior to go bargain-hunting - thus rewarding good behavior)

B. Each person whose mortgage is paid off will agree to make monthly payments to a money-market account

(This increases short term liquidity - also allows those with good behavior to use their work ethic to the betterment of all)

C. Each person agrees to re-finance their house at the end of a 5-10 year period of time at market value to repay the Gov’t.

(This repays the bonds that the govt will have to put on the market to fund the plan)

4. The government will issue bonds to pay for this plan (up front).

5. Bonds are repaid prior to maturity by those bailed out.

(People with good behavior are people who are less risky - that is why they have good credit ratings)

6. In the event the number of bailoutees exceeds the dollars available, applicants from the acceptable pool will be chosen by lottery.

Instugator, as author of the plan, recuses himself from participating.

Related articles by Zemanta:

• Judith Ellis: Embracing Insanity in this Crisis
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• Dean Baker: The Banking Industry Wants To Help YOU!!!
• Global Mortgage Ripoff Revisited

Senator Obama and Guns

Story here.

I notice the good senator does not say, "I will veto any legislation that categorically bans guns."

I also notice that he does not include the concept of self defense in his denials.

McCain Tonight

4 Sep 2008 1928CDT a Recommendation (ahead of time) to Sen John McCain:

Do not try to outshine Gov. Palin - you may not be able to; if you don't it will be turned into a negative.

Instead, focus on your key speaking strengths: You are a humble and engaging man. Focus on that - be yourself - humble and engaging - and if you do, your speech will be both memorable and successful. Walk around, hold the mic - engage the audience - focus on reaching beyond the base, but don't compromise your principles.

Disclosure: I did not want to vote for you, but I am inspired by Gov Palin and I want you to win this election. Best of Luck!

Stew

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Update: 6 Sep 2008

I enjoyed your speech. I know you didn't read it here first, but I think you focused on your strengths and succeeded in reaching beyond the base.

Bill Whittle's article from National Review Online captures my feelings exactly.

For those who missed it, here is John McCain's acceptance speech as recorded by CSPAN.

Sen. John McCain's full speech to the RNC.

See for yourself.

Govenor Palin's acceptance speech

Wow.

Joan and I sat riveted throughout the entire speech, offering 'high-fives' and 'fist-bumps' each time she delivered a great line. Yes we are fans!

My reaction to Senator Obama's speech is here.

My reaction to Govenor Palin - spectacular!

In the interest of fairness, however, here are the two speeches - side by side.

Senator Obama:

Sen. Barack Obama's Full Speech to the DNC

Govenor Palin:

Vice Presidential Candidate Gov. Sarah Palin (AK) at the RNC

Judge for yourself.

MSM Fails key test

Start by looking at this post, over at Confederate Yankee.

The key quote I saw?

We now know far more about Sarah Palin in just four days than we've learned about Barack Obama in 17 months.

This is the theme from a previous post of mine, Confederate Yankee does it better.

Sen Obama's Acceptance Speech

Updated and bumped: I guess I was not the only one disappointed by the speech. Look here.

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Disappointing

I listened to the entire speech. I kept hoping for lines like;

...we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe

I have a dream that one day this nation will rise up and live out the true meaning of its creed: "We hold these truths to be self-evident, that all men are created equal."

I have a dream that one day on the red hills of Georgia, the sons of former slaves and the sons of former slave owners will be able to sit down together at the table of brotherhood.

I have a dream that one day even the state of Mississippi, a state sweltering with the heat of injustice, sweltering with the heat of oppression, will be transformed into an oasis of freedom and justice.

I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character.

Mr. Gorbachev, tear down this wall

Didn't happen. In fact, I can only remember one quote. "Thank you".... many many times.

Sen Obama presents himself as the post-racial candidate who has adopted his black roots at the expense of his white ones. No? Read his book-Audacity of Hope or Dreams of my Father (or have him read it for you)

Here were his opportunities

1. He has to demonstrate his post racial credentials
2. He has to reach beyond his base - they nominated him, this speech is not to thank them, but to start his campaign.
3. He has an opportunity to electrify the country (38 million will be watching)

Here are my post-facto recommendations.

Start with Dr. King
Recognize the struggle
Acknowledge that we have moved into the era of Post-Racial Politics
Deliver a great tag line
Promote policies that appeal to the country as a whole - avoid Democratic boilerplate
Accept the nomination - bask in the applause
Wind down and thank the people who helped you get this far - in context of mobilizing them for the general election
Introduce your team

Didn't happen. I am disappointed.

Experience

Here is the report; a snapshot of an upcoming interview with CNN's Anderson Cooper.

Senator Obama is comparing the experience garnered running an election campaign with that of running a small city (Wasilla, Alaska), Governor Palin's job from 1996 - 2002. (Timeline here)

Bias Test - will Anderson let this comparison stand? or will he call Senator Obama out for this ridiculous comparison?

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Update: Anderson did not challenge the comparison. The transcript is here.

OBAMA: Well, you know, my understanding is, is that Governor Palin's
town of Wasilla has, I think, 50 employees. We have got 2,500 in this
campaign. I think their budget is maybe $12 million a year. You know,
we have a budget of about three times that just for the month.


So, I think that our ability to manage large systems and to execute, I
think, has been made clear over the last couple of years. And,
certainly, in terms of the legislation that I passed just dealing with
this issue post-Katrina of how we handle emergency management, the fact
that many of my recommendations were adopted and are being put in place
as we speak, I think, indicates the degree to which we can provide the
kinds of support and good service that the American people expect.

COOPER: Senator Obama, thank you for your time.

OBAMA: Great to talk to you, Anderson.

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Here is an idea, while we are making nonsensical comparisons - Compare Senator Obama's legislative history with Senator McCain's accomplishments at the US Naval Academy.

During the same period of time (1996-2002) Senator Obama was a State Senator from Illinois. I doubt he had more than 50 employees, nor did he manage a budget of $12M.

Senator, if this is the best you can do, you are relying on the good graces of Anderson Cooper not to make you look like a buffoon.

I will look at the transcript following Anderson Cooper 360.

Where is Sen Obama?

Update as of 1 Sep 08 15:14 CDT: Sen Obama Responds. Reported by Ben Smith. Thank You Senator.

Update: Here is the controversy. Thanks Amanda.


The good Senator once said that he will run a campaign free of personal attacks. He also said that his family is 'off limits'.

Minions who support him are attacking Gov. Palin and her family.

Where is Sen. Obama's leadership in this issue?

I won't link to the Daily Kos. So read about the attacks here. (Thanks Michelle)

Calling Senator Obama, Cleanup on September 1st.