Moral Hazardry, Obama Style

The first month of Barack Obama’s presidency has been marked by a singular economic concept: moral hazard.

One may think Keynesian would fit, what with all the record deficit spending Obama has proposed and gotten passed, but even John Maynard Keynes would shriek in horror at the perversion of incentives that underlie Obama’s economic vision for this country.

For those unfamiliar with the concept, “moral hazard” is most closely related to the insurance industry and works to describe any scenario that rewards bad behavior. For instance, as classically defined, ” when the cost of a disaster is reduced with insurance, people have less incentive to avoid the disaster.”

In ways past generations would have found unfathomable, the federal government has committed to bearing the costs of poor economic behavior like never before,  and like a strip club in the Bible Belt, is offering free passes to just about anyone who will take them. Except, of course, to those who didn’t screw things up.

Bailouts are now the norm, as if covering corporate losses should ever be the role of any government entity. To be fair, the government did cause a significant portion of the fallout. The “toxic assets” that have starred in the collapse of the banking sector were derived from bundled mortgages that were forced loans, subsidized by the United States government. In short, mortgages that in many cases should not have existed, or per a free functioning market only should have existed with a much higher interest rate. This accelerated demand, and increased home prices beyond equilibrium pricing.  Eventually, market forces resulted in the needed correction, and that came through mass foreclosure. To keep the money supply from dramatically shrinking, the bad bank assets had to be dealt with, but there were many other ways to go about it than allowing money to be poured down the rabbit hole.

The real problem, though, is that the perversion is now boundless.  Having apparently learned nothing from the most recent of history (or perhaps, having slept through Economics 101) , the president is looking to re-hazardize the mortgage industry with yet another in a steady line of his latest and greatest outlayings of cash, the tenet being that someone else should be held responsible for paying your mortgage for you.

Or, if you are an antiquated automaker whose management has allowed your company to get sphincter deep with union demands, you are entitled to an infusion of cash.

Whatever in the world is wrong with letting businesses, and people, fail? Failure is never a permanent condition, but it is the only way to ensure that tomorrow is going to be better than today.  Anything less and you are skirting the consequences today at the expense of those who  produce and are the ultimate resource for getting out of the mess and making tomorrow possible.  Not only do you lose today, but you lose tomorrow, and the next day. At the end, the “solution” ends up being more costly than it is worth.

As long as bad behavior is awarded, and good behavior is punished, there can be no true recovery. The market forces that employ people, increase productivity, and generate real, non-inflationary wealth will take years to realign from  the clumsy meddling of both the Bush and Obama administrations. We did not have to go there, but we did. We now must work amongst the moral hazard.

Don’t Undertake Then Abandon Me

The stimulus bill, for all its unworthiness, is set to pass today.

Congratulations, President Obama. You now own this economy. This is not because the current mess is your fault. It certainly is not. Like Bush, you inherited a weakening economy. Your responsibility stems from the basic tort principle of undertaking rescue. Once you begin to rescue an individual in distress, you must continue with your efforts because the presence of your rescue efforts would dissuade otherwise potential rescuers.  You can’t swim half way out to the drowning boy, get tired, and return to shore.

This is the way Obama has chosen to go about it. There were many other ways to address our economic problems, but they have all been dismissed.

The American economy was the Bush economy, just like the economic slow down prior to 9/11 was the Clinton economy. But now we have been sold, through our republican form of government, on a plan that will stimulate the economy and “create or save 3 or 4 million jobs”.  The rescue has begun. It was designed, planned and prioritized by Obama and his party. Let there be no mistake about that. The buck has stopped and is no dancing gleefully on the president’s desk.

Now that we are here, let’s discuss what we have got.

New Jersey Senator Frank Lautenberg had this to say about the final bill

“No, I don’t think anyone will have the chance to [read the entire bill],” Lautenberg told CNSNews.com.

His colleagues agreed.  The reason no one will have a chance to read it? Well, they’re in a rush. Keep in mind the “rush to war” in 2002, which had Democrats tied up in an unseemly array of knots, ended up taking about 13 months. It seems instead the imminent need to vote at 9:00 a.m. stems from House Speaker Nancy Pelosi, who has a date in Rome.

Ah, priorities and the people’s business. At least I can use them in the same sentence without fear of spontaneous combustion.

In addition to the transparency embarrasment that is transparency.gov recovery.gov, the Democrats have broken a previous promise to allow 48 hours for legislators and the public to review the final bill before the vote

Actually — as of 5:15 pm (yesterday), the Democrats had broken their word. The stimulus bill — which we still haven’t seen — will be released late tonight and will be brought up on the House floor at 9 am tomorrow.

The following statement was released by Majority Leader Steny Hoyer at 4:57 p.m.:

“The House is scheduled to meet at 9:00 a.m. tomorrow and is expected to proceed directly to consideration of the American Recovery and Reinvestment conference report. The conference report text will be filed this evening, giving members enough time to review the conference report before voting on it tomorrow afternoon.”

It’s only 1,071 pages. What is some light reading overnight before a vote on the largest social spending bill in the history of the Republic?  And while I’m thinking about it, can I register transparency.gov? It seems clear by now that the administration and Democrat representatives won’t be needing it.

Besides, the worst of it is that the bill won’t really be doing anything, anyway.  Therein lies the rub – not only is it as liberal and porkish as anything we have seen in a long, long time, it is also going to be ineffectual, even by Keynesian standards.

Mr. Obama this is now your economy. Enjoy it, tremendously.

Nathan Moore is a criminal defense attorney practicing in Nashville, Tennessee, and is co-author of the political and current events blog MooreThoughts.com.

Taxing Arrogance

Barack Obama’s supporters voted for change. I just don’t think the change they got was the change they had in mind.

In another area of stark contrast with the predecessor administration, we are now witnessing one of the sloppiest cabinet filling efforts in recent memory. One has to go all the way back to Bill Clinton’s tax-evading cadre of attorney general nominees to get remotely close, and that was a sublimely professional effort compared to what we are seeing out of the nubile Obama administration.

Count ‘em. We are now up to four in the illustrious category of nominees to Obama’s cabinet who have had tax problems. Labor secretary nominee Hilda Solis is now on ice

A Senate committee today abruptly canceled a session to consider President Obama’s nomination of Rep. Hilda Solis to be labor secretary in the wake of a report saying that her husband yesterday paid about $6,400 to settle tax liens against his business — liens that had been outstanding for as long as 16 years.

The problem here, at least in my view, is not so much that Solis’ husband had some rather antique tax liens hanging around, but that the Obama administration’s vetting process has revealed itself to be decidedly incompetent. Or, more accurately, arrogant, which really is just a subform of incompetence.

Tom Daschle chaueferred himself out of the running for Health and Human Services, but that was only after the new Treasury secretary Timothy Geither, who also owed back taxes, had been confirmed.  Nancy Killefer, the nominee for Chief Compliance Officer (whatever that is), also withdrew her nomination after it was revealed that she had not paid District of Columbia payroll taxes.

So what’s the deal? Why are so many of Obama’s nominees having tax issues? And why was Barack Obama initially ignoring questions about why so many of his nominees have a hobby of tax evasion?

In an interview with Brian Williams, Obama did address the latter question, but in a most troubling fashion

President Barack Obama acknowledged Tuesday that he had “made a mistake” in trying to exempt some candidates for positions in his administration from strict ethics standards and accepted the withdrawal of two top nominees, including former Senate Majority Leader Tom Daschle, the first major setback of his young presidency.

It is clear the Obama administration knew about the tax issues of Obama’s nominees, but just didn’t care. The back taxes owed by Daschle came to light on Friday, but the administration stood silent, content to let the process continue, just as it did with Geither. It was Daschle himself who chose to withdraw his nomination from consideration. In short, the Obama administration has willfully and systematically dismissed back tax issues for its nominees as inconsequential.  They not only chose nominees with known tax debts, but then didn’t show an ounce of leadership when those tax problems became public.

The message is clear, no matter how earnestly the president employs Newspeak rhetoric in a vain attempt to muddle it – there are two sets of rules, one for us, and one for them. If they truly believed there was one set of rules, the administration would have taken it upon itself to weed out the tax-encumbered nominees from the process, but they didn’t – and that speaks volumes.

Nathan Moore is a Nashville criminal defense and civil rights attorney and co-author of the blog MooreThoughts.com with his wife, Sarah.