Nice Work, If You Can Get It

Barney Frank is the hero and, along with Chris Dodd, has his name on the title of the recent Financial Reform bill making its way through Congress. He has been getting high praise from liberals for his victory over greed and wall street interests.

That's like rebuilding the World Trade Center and calling it the Mohammad Atta Towers.

He took big money in campaign contributions from Fannie Mae and Freddie Mac. In the summer of 2008 he said the following:

I think this is a case where Fannie and Freddie are fundamentally sound, that they are not in danger of going under. They’re not the best investments these days from the long-term standpoint going back. I think they are in good shape going forward.

Since 2003 he has been the ranking Democrat on the House Financial Services Committee and became its chair in 2008. In response to the Bush Administration's concern that Fannie and Freddie were in trouble, he said:

"These two entities...are not facing any kind of financial crisis.... The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

And roundly blocked any attempt by the Bush administration to reduce Fannie and Freddie's contributions to the housing bubble (Bush wanted what the executive branch normally has, oversight and enforcement of the law, instead of Congress both establishing and overseeing these entities).

OK, maybe Barney's not a bad guy (he is) and maybe he didn't have a conflict of interests (he did) and maybe he was unaware that Fannie and Freddie were artificially inflating the housing market (he wasn't). Maybe he just made a few mistakes.

OK - we all make mistakes. But where I come from, you get fired for this sort of thing and your reputation tends to suffer. You're not lauded with praise for closing the barn door after the cash cow is gone.

Obviously I don't come from Washington DC.

Or Boston.

The Golden Goose

Most everyone owns a cell phone, but few people know what happens inside ... that there are millions of transistors working hard to handle your phone calls, web browsing, text messages, pictures, songs and every other app. People take it for granted that it "just works" and they really have no reason to peek behind the curtain. This is as it should be.

There is a part of our economy that most people don't understand: venture capital. We see companies like Google, Intel, Ebay, Apple, Amazon, Dell, Amgen and Cisco (just to name a very few) and generally have no idea what made them possible. The mechanisms for bringing together ideas, people and capital into the right situation are a complete mystery to all but very few.

But Venture Capitalists might be the most important players in our lives, enabling (or having enabled) almost all the recent technological advancement we see around us. And, up until recently, the US had a near monopoly on VCs and their investment vehicles. Nonetheless, we still are the epicenter, with approximately 75% of worldwide venture based capital existing in the US. But, that number is shrinking.

VC backed firms accounted for almost 90% of US job growth in 2008. That year, these firms contributed $2.9 trillion dollars to our economy*. And these are not generally low paying jobs.

Unfortunately, unlike the cell phone, people's ignorance of this critical process can be dangerous, especially when politicians are unfamiliar with the golden goose of VC investing.

George W. Bush was the first MBA president, but I saw little evidence of it. He held back quality immigrants that are the lifeblood of young tech firms. He allowed Sarbanes-Oxley to greatly reduce the likelihood of a start-up going public (exit strategies are key to attracting capital). He allowed tariffs, entitlements and a rising debt to reduce the amount of capital available to entrepreneurs.

Sadly, Barack Obama is arguably worse. I think Bush at least understood the basics of wealth creation, but Obama has never even participated in the private sector. Never had to make a payroll. Never had to raise capital. Never had to focus on a market. Never had to navigate the enormous red tape and government bureaucracy and go to the expense of hiring lawyers and CPAs to help. It's safe to say that in any room of business people, Obama is the least qualified.

And it shows. Noticeably absent from the stimulus package was any significant private sector infusion. Actually, the private sector would have preferred not to have a stimulus package and to simply either reduce taxes or just keep the enormous debt from getting any larger. I've already outlined in an earlier blog how I feel the Health Care legislation is unfriendly to small and growing businesses. And the rhetoric coming from the White House is hardly friendly to any capitalist, let alone the venture variety.

I'm certain that many liberals have good intentions, but they have no idea how their tinkering threatens the engine of growth that gives them the resources with which to do their tinkering. I know very few liberals who have actually seen the birth of wealth first hand, which is probably why they see it as a zero sum game, with benevolence derived from redistributing it.

Watching liberals try to manage the economy is like watching a surgeon open up a cell phone to improve reception. The physician is smart, educated, well intentioned and dedicated, but the most likely outcome is a broken phone. Don't mess with the Goose.


* Source: National Venture Capital Association

That Credibility Thing

Iran is a threat to the middle east, Israel, the world economy and to its own (mostly) innocent people. The Iran government has been rushing to build a nuclear weapon for the last few years and is finally within sight of their prize. In response, the Obama administration is "getting tough". On the list of possibilities are more sanctions and, as a last resort, military engagement.

If your reaction to this is "yea, right", then this article will make sense to you.

As was discussed in an earlier blog, the left gave away any chance to be taken seriously on this topic during the Iraq war. They gave up and headed for the safe ground of opposing anything Bush did or said. The Iraq war was costlier (in terms of lives, money and good will) than anyone predicted, so the left could look smart in opposition (and their constituents did them the favor of not noticing that most of them had voted for the war in the first place). And oppose, they did. At every turn and opportunity, without hesitation.

(As an aside, isn't it nice not to have Iraq to worry about? If things continue on this trajectory, within a generation Iraq could be a shining example of peace and prosperity in a troubled region. It could take the path of Japan after WWII and again contribute to the greater good.)

But the true cost of the left's immature and short sighted behavior is just becoming evident. When an opponent negotiator does not believe you will use your last resort, they will not believe or accept any of the ultimatums that come before it. Sure, Obama can probably get some tougher sanctions through the UN, but what do Iran's leaders care? They run a totalitarian regime with very little threat of a revolution. Under sanctions, the people will suffer, but not the leaders.

Also, remember that we have no "smoking gun" or hard evidence that Iran is building a nuclear weapon; it's all speculation. Would the Democrats ever allow CIA intelligence and bluster from the enemy to be a sufficient cause for a preemptive strike? No chance, not after the words that came out of their mouth after Iraq became difficult. Wouldn't they look foolish(er)?

Ideally, the left would have remained committed to winning the Iraq war and the west could have then turned its gaze to Iran - with the desired effect. Now, Obama lacks the fear factor and, whether he would actually use the military preemptively or not, the Iranian leadership believes their path to nuclear statehood is unobstructed.

I have heard a couple of commentators question the west's right to deny Iran a nuclear weapon: "Who are we to decide who gets nuclear weapons and who doesn't?" This statement boggles the mind. Iran's leadership supports terrorism in Lebanon, Iraq and Gaza. They deny basic human rights to their people. It's like saying convicted criminals deserve weapons just as much as the police.

A free, democratic Iran with a track record of being a good citizen of the world? Sure, they can have a nuclear arsenal without me writing a blog article about them. Today's Iran? Are you kidding?

Obama and the left have painted themselves into a corner. The irony is that their lack of credibility makes military conflict much more likely. If the threats don't work, it's all that's left.

Cuba and the Left

Many is the liberal that I've heard talk in glowing terms about the health care system in Cuba. The fact that communist countries often force their citizens to sacrifice many things in order to optimize a few should be no surprise to anyone. The fact that we still debate the merits of this is bewildering.

The US has recently taken half a step toward communizing (socializing? nationalizing?) health care, largely based on the argument that our capitalist system has failed. While this is a lie (see previous article), enough people bought it. Some talked about how "health care is too important to leave to the free market". Really?

What about food?

Food is just as or more important than health care, right? Is food too important to leave to the free market? The good news is we have a largely free and capitalist system of food production, delivery and distribution. The government does a little to ensure safety, but by and large it is capitalism's invisible hand that puts dinner on our tables.

It would be ridiculous for someone to say we need to nationalize the food system. Think about it. 99% of the people of the US have access to way more food than they need and the bottom 1% are well handled by charities. Very, very few people in our country starve. Competition among food growers has created amazingly high yields. Customers like organic foods, so it has become a large market. Innovation at the grocery store has reduced costs and have given us a myriad of choices on every aisle. You can practically eat a meal with the free samples.

Imagine Howard Dean on CNN screaming "We can't count on the greedy supermarket chains to deliver quality products! Millions will go hungry! Yeeaeaaaaaa!"

I mean, I think people would consider that ridiculous. I admit the possibility exists that I'm wrong.

Let's compare this to Cuba, the left's shining example. Their farms are horribly inefficient and provide only about 20% of the country's food needs. Supermarkets go for weeks without basic supplies such as bread or milk. Raul Castro has "reformed" things a bit ... farmers are now allowed to buy their own shovels and boots without having to wait for them to be handed out. But, not their pesticides or fertilizers. Can't push this liberty thing too far lest the state lose control. Must of last year's tomato crop rotted because government trucks failed to collect them on time. Food rationing is part of Cuban life.*

Maybe it would be instructive for liberals to spend some time in Cuba. Many that I know enjoy going to trendy restaurants and traveling to exotic destinations (conveniently forgetting about global warming for a few days). Perhaps it would be enlightening to see a place where opening a restaurant is illegal and it is forbidden for most citizens to leave the country.

Sadly, our health care system was not capitalist enough to be sufficiently successful. So, liberals said that capitalism was to blame and made it less so.

Yes, we can probably give government-run health care to everyone and even make it decent quality (for a while). But at what price?


* much of this data came from The Economist, March 27 edition.

Halfway Across the Bridge

"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Ben Franklin

I've not read the new health care law in its entirety. I don't know all the effects it will have on our country. But, I've read excerpts and I have some educated guesses:

- Because young people, who are generally healthy, will now be required to purchase health insurance*, their premiums will be unfairly high because the insurance companies will need to pay for their new customers with pre-existing conditions and the elderly. Young people will voice their unhappiness and government will subsidise, thus raising the cost to the taxpayer.

- Because companies will be required to provide health insurance if they grow bigger than 50 employees, they will actively try to remain at 49 for as long as possible. This could involve splitting into 2 companies and growing independently. Tension will arise as the government tries to punish these companies and costly legal proceedings will further reduce the efficiency of our economy while the growth of small businesses is slowed.

- Because large companies are now required to cover all employees, they will become less profitable and will either lay off employees to compensate or they will have less money to invest in growth. Either way, the US economy will take a hit.

- Because companies want to avoid adding costlier employees (or want to stay at 49 employees), temp agencies will see a rise in demand. This will create an unnaturally large population of people without job security, working day to day or project to project. This will further dampen economic growth as these people hesitate to make long term investments, like buying a house.

- The large number of citizens with newly minted insurance will overwhelm the health infrastructure. Previously, these people were given care after they became sick (in ERs or free clinics). Now, they will have access to preventative care, optional procedures and regular check-ups. This will both increase the cost of health care in the US as a percentage of GDP and will also bring about some form of rationing. Not death panels, but rationing.

- Once the new health care law has been in effect for some time (2-5 years), like any government intrusion into a market, people will become disgruntled with the service and costs will skyrocket. Health care will go from 15% of GDP to 20% to 25%.

Left leaning politicians will then play the next card ... nationalization of health care. They will proclaim that capitalism has again failed (!) and the country will dutifully cross the rest of the bridge.

Bottom line: this plan is unsustainable and I am convinced that is by design. The left knows that the demonization of capitalism is almost complete and that society has an inexplicable tendency to attenuate its own freedoms. They will need to break health care before they can, in their minds, fix it and realize their dream of a single payer, government run system.

Obamacare is not a tool, it's a weapon.


* Insurance is no longer the right word. Since the insurance companies are no longer permitted to evaluate risk and exclude people, we now have a shared health care pool.

Global swarming

Most of the educated liberals that I know are not very religious, but they seem to make an exception in the case of global warming.

Of all the topics that bubble up for this blog, this one is by far the most mind-boggling, to the point of amusement. People seem to have lost their mind. Case in point: here's an article that actually says some indigenous Peruvian mountain people are going to freeze because of global warming ... and it's the civilized world's fault. Honestly.

As near as I can tell, the following statements are true:

1) The earth may be warming, it's not clear
2) Humans may be causing the warming, it's not clear
3) Only at enormous cost could we substantially decrease the human contribution (greenhouse gases) to climate change, if it exists
4) Decreasing the human contribution may reverse global warming, if it exists
5) Global warming may be a bad thing, it may be a good thing ... either could be argued

And here is the non-sequitur conclusion I am being asked to accept:

Therefore, we should start shutting down all the factories and turn off all the cars and revert to a pre-industrial lifestyle. Now, before it's too late.

Does anyone realize that the average global temperature hasn't risen this century? During the entire Bush presidency he was berated for not doing something about something that didn't exist during his entire presidency. Actually, maybe he had a secret program to eliminate global warming and succeeded . . . maybe he deserved the Nobel Peace Prize more than Al Gore.

Since humans are not quite sensitive enough to temperature to notice a tiny fraction of a degree of warming over several decades, they must be very sensitive to something else in order whip themselves into such a frenzy. Could it be the scare tactics, propaganda and visions of the apocalypse? Or the political correctness of group-think that conveniently links environmentalism to anti-capitalism? Since we know that corporations are bad, anyone who opposes them must be good, right?

The science of global warming is shaky at best. The computer models are immature and are proven wrong with each passing day. I can write a computer model that predicts with 100% accuracy the past behavior of the stock market. I'll predict this week's performance next Saturday. You'll be very impressed.

My observation is that our planet is nicely self-regulating. The planet warms a bit thanks to extra CO2 in the atmosphere? No problem. That'll just lengthen the growing season and cause more CO2 to be absorbed by the planet's flora. Next thing you know, we're back to where we were. That assumes that CO2 is the culprit, not at all a certainty.

And what role do the solar cycles play? What if our computer models say that man is causing global warming but really it's an active period of the sun's brightness. What if we put dampers on our economy, reduced GDP and industrial output, only to learn that we're impotent after all? Wouldn't we look a little silly? Wouldn't a lot of people suffer for no good reason?

And (I can't resist adding this) I know no liberals who have reduced their intense vacation schedule via airplanes, luxury cruise ships and RVs in order to offer even a symbolic gesture to the cause. People, don't tell me we need cap-and-trade or rationing of fossil fuels and then jump on a plane to Vail ... you go from looking like a fool to looking like a clown.

The point is that we just don't know enough about the disease to prescribe radical remedies. It's like in the middle ages when a baby had a fever, we opened up the skull to reduce the pressure. In hindsight, those "doctors" were doing more harm than good.

Let's all pause, take a deep breath (didn't that fresh air feel good?) and cool down a little.

Are These Reasons Unreasonable?

Looks like the Senate version of the Health Care bill is likely to become law in the near future. As far as I can tell, the main motivation is to provide health insurance for a group of people that don't currently have any (not that they don't have health care, they just don't have insurance). Ask your average liberal and, as a broad smile covers their face, they'll tell you how great it will be to extend medical coverage to so many people.

However, there are also motivations to refrain from passing this bill. Let me try to list some of them.

1) The new law will require citizens to buy health insurance as a condition of existence . This is a first for our nation: become part of the collective or go to jail. In my view, it flies in the face of our nation's true independent spirit and violates the fundamental human right to choose your path through life. I have yet to speak to a liberal who even thought about this before getting excited about the bill, let alone saw it as a cause for worry. One suggested to me, after a day of chewing on it, that it's no different from the draft, when young men were forced to serve in the military. Given that the draft was temporary, full of exceptions (religious or conscientious objectors) and used only in national emergency, I don't see the equivalence. Will I be allowed to excuse myself from the new insurance requirement based on my fundamental beliefs in liberty and self-determination?

This new health bill says without hesitation: as a condition of living in this "free" nation, you will "pitch in". A seal is being broken that cannot and will not be repaired. I offer this guarantee: it's the first of many such tragedies.

2) The CBO conclusion that this legislation is fiscally responsible is a lie. The analysis was done over 10 years, the first 4 of which provide no benefits. This means that there are 10 years of revenue collection with only 6 years of expenses. Of course the numbers look friendly. But what about the following 10 years? Even assuming that it's possible to predict the financial viability of a government program 20 years out, no one is stressing about it. My sense is that the liberals know it will be a financial failure, requiring even more government intervention eventually leading to a single (govt) payer system. This is the holy grail.

3) Poor people being given tax money that they can use to buy their health insurance is yet another case of perpetuating the entitlement mentality and trapping people in their status quo. There has been nothing more cruel done to poor people over the last 50 years than giving them resources without earning them and with no requirements. How many generations of kids have to grow up watching Mom (and maybe Dad) dependent on govt for food, money, housing and now health care? Hey liberals, how did the housing projects of the 1960s and 70s work out? Don't you yet feel guilty for throwing these people into your prison cell? Could your expectations of the poor get any lower?

4) The "Health Care is a Right" slogan badly distorts the concept of a right. The founders of our nation had it correct: a right is inalienable, bestowed upon humans by our creator. A right can be violated, but not taken away. And a right is also not something that exists in one century but not another (Did Martha Washington have a "right" to a mammogram?) . Actual rights include freedom of speech, assembly and religion. Notice that none of these require another human to supply anything. There is no such thing as an inherent right for one human to control another.

But that is what is meant by the right to health care. Since MRIs, pharmaceuticals, surgeries and the like do not exist in nature and they must be created by other humans, a right to health care means a right to the labor of another ... absolutely and completely counter to our nation's ideals. I know that liberals feel strongly enough that the discussion should never come to this, that people should happily help their neighbor ... so strongly that they don't even bat an eye when forcing one human to help another. But slavery is what's happening nonetheless. Civilized slavery, but slavery.

5) There are better ways to reform health care, mostly by placing more responsibility and a sense of the costs involved closer to the individual. People should know that health care is not free, that there is not an infinite supply and that they should be smarter about their choices. It's not an all-you-can-eat buffet. But, people don't want to deal with the economic side of health care and this legislation further insulates the average patient. Here's a great article on that subject.

6) The significant problems with this health care bill will lead to another one. Medicare is on the way to bankruptcy and will need to be fixed. Liberals like to brag that Medicare has such a low administrative costs (3% compared to 20% for most insurance companies), but that's not exactly a fair comparison: insurance companies have to stay in business. My company could have a low overhead too if we had no expectation of financial performance. This new law, like Medicare, will go bankrupt and will have to be fixed. We're not passing a law right now, we're advocating a long series of them.

Please, liberals, tell me why these reasons are unreasonable and why we should tumble down this path. I'm sure I'm missing something.