Obama Remodels The Financial System

From the Washington Post:

The plan seeks to overhaul the nation’s outdated system of financial regulations. Senior officials debated using a bulldozer to clear the way for fundamental reforms but decided instead to build within the shell of the existing system, offering what amounts to an architect’s blueprint for modernizing a creaky old building.

If Obama’s remodel goes like mine does, he’ll be making at least 6 trips to Lowe’s.  I’m doubtful this will do anything besides answer the “Do something” demand of voters.  I hold the basic premise that government action usually causes more problems…and unintended consequences.

For several decades campaign finance laws have been passed and re-written to “get money out of politics”.  Are we better off than in 1950?  Not sure.  Probably not.  The government’s been pushing automakers to build safer cars, but also more fuel efficient cars.  These are usually contraditory – (i.e. lighter, more fuel efficient cards are inherently less safe).  The extra costs have managed to help bankrupt an industry.

Finally, I notice this:  The article says the reforms are “…a sweeping effort to curb the kinds of reckless risk-taking that sparked the economic crisis”

Wasn’t the spark for the current crisis caused by Congress (Rep. Frank and others) putting the legislative gun to the head of banks to loan to people who couldn’t afford the payments and those payments finally coming due and not being paid?  How’d this end up – again – Wall Street’s fault?

Help Mom Kelly Palmer/Delta SkyMiles Donation

40-year old Kelly Palmer has a beautiful home in Loveland, Ohio, three young children, a loving husband, and pancreatic cancer.

Today, her friend Sharon Burton told Kelly’s story here on the Bill Cunningham Show.  Kelly is now 80 lbs, unable to get from bed, and no longer seeing doctors.

She’s begun her final journey.

Her husband’s parents live in England and have exhausted their resources on previous flights to help the family.  They could use any unneed, unwanted Skymiles to get them to the US to help their son Ian and three grandchildren – an 8-year old son and 6-year old twin girls – through this time.

If you have any, please contact Sonya Hytree at shytree@cinci.rr.com and visit http://www.caringbridge.org/visit/kellypalmer1

Reverse Mortgages Next Trouble Area

I seem to be always waiting for the next economic shoe to drop and thought I heard it when I read this headline: U.S. Regulator Sounds Alarm About Reverse Mortgages.  Luckily, I asked mortgage advisor Jay Reynolds what he thought.  Below are his thoughts that put my mind at ease.  Jay wrote:

There’s just enough info in that article to be dangerous. And a few inaccuracies.

1. The are no Fannie Mae HECMs anymore.

2. Any time you see the word “sub-prime”, know that the person who wrote it knows less than you do about mortgages.

Basically, proprietary reverse mortgages allow for loans in excess of the $625,500 HUD limit. Which makes sense, if you own a $2 million house. Generally they carry lower loan-to-value ratios anyway, so you have to have a pretty expensive property for them to makes sense in the first place.

There’s some bad info out there. But if you’d like to learn more, I’ve weeded it down to these three articles. The first one is incorrect in that the HUD limit on HECMs is $625,500, not $417,000.


You can contact Jay at 513-348-7712 if you have questions.

I Explain Inflation-Kudlow Solves It

Larry Kudlow gives a solution to the supposed looming inflation here.
Monetary policy is a bit difficult to explain and I’m still not sure I understand it the way I should.  It may be impossible for Americans to understand it.  That wasn’t always the case.  Here’s a snippet of William Jennings Bryan’s 1896 Democratic acceptance speech known as the Cross of Gold speech:

Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests and the toilers everywhere, we will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.

(N.B. the Wizard of Oz is said to be montary policy allegory.  In the book, they were silver slippers.)

But I’ll give it a try:  as I said on my radio appearance here inflation is too many dollars chasing too few goods.  That’s about it.  It isn’t too much spending or debt or unions or corporate greed.

Its the gov’t printing dollars at a rate faster than the economy grows.

The classic example is this: consider an island economy where there’s 100 people using $10,000 U.S. Dollars to carry out their economic activity.  It’s a small island so there’s not much growth per se so prices pretty much stay the same year to year.  Some of the $10,000 is saved and some is borrowed, but most of it is used for what it’s for – a medium of exchange.  Now say a suitcase full of $20,000 washes up on shore.  The 100 residents are fair and divide up the money.  They all feel 3x as rich – in the short term – but as the cash works it’s way into the economy prices triple and everyone feels as if they’ve gotten nowhere.  That’s inflation.  The suitcase washing up on short is the gov’t printing money.

Off the island, the people who get hurt by this are savers because their old dollars are devalued, those on fixed incomes who can’t afford the higher prices, those who signed longer term contracts (union, suppliers) who are stuck at the old agreed upon price.

Inflation encourages short term planning and discourages saving and investing.

Let’s hope Pres. Obama and Mr. Bernake listen to Larry.

Health Care/Tax on Roth IRA Conversion Coming

The Washington Post reports here on a tax on employer provided health benefits.  It’s hard not to think these people are stupid…or evil.  If you want less of something – employer provided health care – the best way to do it is to tax it…under the moral cover of using it for the benefit of others of course.

There was a time where the accepted wisdom was that Congress would never tax health care benefits.  That time has now passed.  There was a time where the accepted wisdom was that Congress would never tax social security benefits.  That time passed long ago.  This is why I don’t get exited about Roth conversions.  The time will come where they will tax them also.

Cocktail Experience Recipes

Thanks to all who showed for last night’s Cocktail Experience.  If you missed it, the Pimm’s Cup Cocktail was a hit.  Recipe is here.  Next month’s party will be a prohibition-era drink called The Bee’s Knees.  We hope you’re able to make that.  In August, the Cocktail Experience will go dark as our family will be getting some sun on the beaches of Hilton Head.

Thanks to Casey again for the music and Dan Becker for the great food he brought.

For those who enjoyed Alicia’s strawberry trifle, the recipe is here.

US Debt Won’t Inflate, Kudlow Explains

There’s an accepted wisdom out there that all this government spending is going to cause inflation.  While not good, it just ain’t so.  “Inflation is always and everywhere a monetary phenomenon,” said Milton Friedman.  Gov’t spending is fiscal policy, not monetary – but is the Fed Pres. Obama’s lapdog?  That’s the real danger.  Kudlow wonders here.  Any editor who wants a story can let me know.