Economists weigh in on the Paulson bail-out

The Economists' Voice has several columns questioning the proposed financial bail-out. The writers all acknowledge that something must be done to address the mountain/planet (pick your metaphor) of bad debt in the financial system. However, they express concerns about the government (taxpayers) overpaying for the debt and thereby needlessly transferring money to Wall Street.

Luigi Zingales recommends that the bail-out be structured closer to a bankruptcy proceeding,

As during the Great Depression and in many debt restructurings, it makes sense in the current contingency to mandate a partial debt forgiveness or a debt-for-equity swap in the financial sector. It has the benefit of being a well-tested strategy in the private sector and it leaves the taxpayers out of the picture...Forcing a debt-for-equity swap or a debt forgiveness would be no greater a violation of private property rights than a massive bailout, but it faces much stronger political opposition.

Aaron Edlin writes an open letter to Secretary Paulson:

Today, I read the U.S. Treasury’s humble request for the authority to spend 700 billion taxpayer-owned dollars. This taxpayer’s answer: "No."

Edlin continues,

You could under this legislation pay $700 billion for "paper" having a face value of $800 billion even though the paper’s market value has sunk to $100 billion or even though the paper has no market, so long as you think the purchase promotes stability sufficiently. You could do so with no review and no appeal. I suppose, taking the words of your legislation literally, you could spend the entire $700 billion buying a single mortgage owned by Goldman Sachs if you thought such a cash injection was just the trick...

And here is a disturbing thought: if the initial tab is $700 billion, is it possible you may wind up coming back for much more? Could the administration that brought us the $2 trillion dollar war bring us a $2 trillion dollar bailout?

Sadly, Congress is more focused on window-dressing for the bail-out than on fundamentally restructuring it to make it more effective and less costly. Yes, we need to do something to clean up the financial mess, but the bail-out is not the way to go.

The House moves toward a compromise energy policy

On a largely party-line vote, the House of Representatives yesterday passed compromise energy legislation that includes a modest expansion of off-shore energy exploration and drilling, repeals tax breaks for oil companies, provides incentives for renewable energy sources, releases oil from the strategic reserve, adds "use or lose" provisions to existing oil leases, and reduces the budget deficit.

The legislation is far from perfect. Oil drilling would only occur if the affected states allowed it (a good thing). However, the states do not get any revenue from the drilling; so, they bear the risk of potential environmental damage but get few of the benefits.

Also, the legislation plays games with the strategic petroleum reserve. The reserve should be maintained for true emergencies, such as a devastating hurricane in the Gulf of Mexico, an embargo by some increasingly unfriendly producers, or a disruption in production or shipping from the Middle East.

The process for considering the legislation was also flawed, with the Democrats not releasing the text of the bill until shortly before the vote.

However, the House bill is a significant compromise, and it isn't the final version. The Senate will take up the legislation next where there will be opportunities to fix some of these provisions.

Energy policy still faces a long and tough track. Democrats and Republicans both seem to be looking for poison pill amendments to derail the legislation and then use negative votes against their opponents come November. Hopefully, the grown-ups in the parties will keep the bill moving forward.

Work at Home -- Earn Nearly $1,000 per Month!

Gov. Sarah Palin has found a great way to scam the taxpayers of Alaska--get them to pay per diem (a travel allowance for meals and incidental expenses) for the days that she spends in her primary residence in Wasilla. The Washington Post reports that during the first 19 months that Palin was in office, she spent 312 days at her Wasilla residence and charged taxpayers nearly $17,000 in per diem expenses.

It's fine if the Governor wants to maintain a residence separate from the Governor's mansion in Juneau, but she shouldn't stick taxpayers with the bill.

The Post also reported that the Gov. has charged the state for $43,000 in travel expenses for her family, including funds for ferrying the family to Juneau.

As we've seen in North Carolina, governors seem to view these travel funds as their own personal piggy banks. I wonder if our own state voters, who have been so outraged at Gov. Easley's behavior will be equally upset with Gov. Palin's.

Red Cross needs your help

The American Red Cross has had to borrow money to cover its relief efforts for Hurricane Gustav.

Americans struggling in a soft economy have not responded with an outpouring of giving as they did three years ago when Katrina left indelible images of devastation and suffering. Gustav spared New Orleans the death and destruction that forecasters predicted but also dampened donations to the Red Cross, which mounted one of its largest mobilizations in years.

The Red Cross anticipates spending $70 million for Gustav-related relief efforts but has only raised $5 million so far.

With several months to go in the current hurricane season and with at least two more storms poised to strike the U.S., the Red Cross needs all the help that it can get.

Employment recession continues to deepen

The monthly employment report from the Department of Labor today showed the the U.S. unemployment rate jumping from 5.7 percent in July to 6.1 percent in August. It also indicated that the economy shed another 84,000 jobs, with declines occurring in nearly every major industrial category.

Palin cut funds this year for teen moms

From the Washington Post web-site:

Alaska Gov. Sarah Palin, the Republican vice-presidential nominee..., earlier this year used her line-item veto to slash funding for a state program benefiting teen mothers in need of a place to live.

After the legislature passed a spending bill in April, Palin went through the measure reducing and eliminating funds for programs she opposed. Inking her initials on the legislation -- "SP" -- Palin reduced funding for Covenant House Alaska by more than 20 percent...Covenant House is a mix of programs and shelters for troubled youths, including Passage House, which is a transitional home for teenage mothers.

It looks like when it comes to supporting teen parents, the self-declared "hockey mom," just doesn't give a puck.

Earlier today the Associated Press reported that Sen. John McCain (Ariz.), the presumptive Republican presidential nominee, opposed funding to prevent teen pregnancies, a position that Palin also took as governor. "The explicit sex-ed programs will not find my support," she wrote in a 2006 questionnaire distributed among gubernatorial candidates.

So, no "straight talk" for teenagers, at least about the birds and the bees.

Looking a gift horse in the mouth

The Republicans called their convention short today, but not before Laura Bush and Cindy McCain called for people concerned about the situation in the Gulf Coast to contact an obscure link, http://www.causegreater.com/.

It seemed odd that they weren't directing people to the American Red Cross, which is already operating and which needs help to replenish its funds. Moreover, the Red Cross is incredibly efficient with just over 94 cents of every dollar contributed going to program operations.

Instead, their web-site directs donors to the Baton Rouge Area Foundation, an organization with an overhead rate 33 percent higher than the Red Cross (see the 2006 BRAF IRS 990 Forms). It also directs donors to Texas' OneStar Foundation, an organization that spent more than 1/6 of what it raised in 2006 on management expenses.

Republicans regularly rail against waste but apparently have a blind spot when it comes to private organizations. Please give generously to organizations, like the Red Cross, which operate efficiently.

Palin's earmark flip flops

The New York Times and Washington Post both report how Gov. Palin was for the "Bridge to Nowhere" before she was against it. Gov. Palin's support for the project only disappeared when it became clear that Washington would not come up with extra money for cost over-runs.

As for her claim that she "told Congress 'thanks but no thanks' on that Bridge to Nowhere," Alaska kept ALL of the money that Congress had appropriated for the bridge, the state just spent it elsewhere.

Gov. Palin's conversion to earmark "reform" is not only inconsistent but also very recent. The Times article goes on to report

As the new mayor of tiny Wasilla, Alaska, in 2000, Ms. Palin initiated a tradition of making annual trips to Washington to ask for more earmarks from the state’s Congressional delegation, mainly Representative Don Young and Senator Ted Stevens, both Republicans.

“It was about being face-to-face with those who were actually writing the budget,” she told The Anchorage Daily News in 2006, boasting that she brought home more money for priorities like upgrades to the local sewer system.

She directed Wasilla to employ Washington lobbyists to press for federal money for the town, helping obtain more than $8 million in earmarks for projects ranging from waterworks to a shelter.

Update: Although Gov. Palin is stating in rallies that she "told Congress 'thanks but no thanks,'" her actual press statement at the time said

"Ketchikan desires a better way to reach the airport, but the $398 million bridge is not the answer," said Governor Palin. "Despite the work of our congressional delegation, we are about $329 million short of full funding for the bridge project, and it's clear that Congress has little interest in spending any more money on a bridge between Ketchikan and Gravina Island," Governor Palin added. "Much of the public's attitude toward Alaska bridges is based on inaccurate portrayals of the projects here. But we need to focus on what we can do, rather than fight over what has happened."

Funny, the words "thanks but no thanks" are neither stated nor implied. Shouldn't a candidate who was selected to bring "change and reform that we need in Washington" be just a tad more honest?