Schiff for Senate

The Perfect Replacement for Dodd



Everybody is wrong sometimes about some things, maybe even a lot of things. But few are more wrong more often than Connecticut's pathetic U.S. Senator Christopher Dodd. His role in the economic meltdown of the past year alone is a disgraceful farce of errors, bad judgement and scandal, as outlined in the Wikipedia:

In his role as chairman of the Senate Banking Committee Dodd proposed a program in June 2008 that would assist troubled subprime mortgage lenders such as Countrywide Financial in the wake of the United States housing bubble's collapse. Condé Nast Portfolio reported allegations that in 2003 Dodd had refinanced the mortgages on his homes in Washington, D.C. and Connecticut through Countrywide Financial and had received favorable terms due to being placed in a "Friends of Angelo" program. Dodd received mortgages from Countrywide at allegedly below-market rates on his Washington, D.C. and Connecticut homes. Dodd had not disclosed the below-market mortgages in any of six financial disclosure statements he filed with the Senate or Office of Government Ethics since obtaining the mortgages in 2003.

Senator Dodd was involved in issues related to the federal takeover of Fannie Mae and Freddie Mac during the 2008 subprime mortgage crisis. During this period, Dodd denied rumors these firms were in financial crisis. He called the firms "fundamentally strong", said they were in "sound situation" and "in good shape" and to "suggest they are in major trouble is not accurate".

In early September, after the firms continued to report huge losses, Secretary Paulson announced a federal takeover of both Fannie Mae and Freddie Mac. Dodd expressed skepticism of the action, which the Treasury estimated could cost as much as $200 Billion.

Dodd is the number one recipient in Congress of campaign funds from Fannie Mae and Freddie Mac. Critics also charge that Dodd ignored repeated warnings that the two firms were in need of major reform.



In February 2009 Kevin Rennie, a columnist at the Hartford Courant, ran an op-ed concerning Dodd's acquisition of his vacation home in Roundstone, Ireland. The article alleged that Dodd's former partner in buying the home had ties to disgraced Bear Stearns principal Edward Downe, Jr. who has since been convicted of insider trading by the Securities and Exchange Commission.

From the fall of 2008 through early 2009, the United States government spent nearly $170 Billion to assist failing insurance giant, AIG. AIG then spent $165 million of this money to hand out executive "retention" bonuses to its top executives. Public outrage ensued over this perceived misuse of taxpayer dollars.

Obviously Dodd deserves to be voted out of office, and by a landslide margin. But who should replace him? A name coming up more and more is Peter Schiff (below) the economic genius who was nearly alone in warning of the current crisis before it occurred. While Dodd was always wrong, Schiff was almost always right, as reported in the Wikipedia:



In an August 2006 interview Schiff generated controversy when he repeated his long-held investment thesis: "The United States economy is like the Titanic and I am here with the lifeboat trying to get people to leave the ship ...I see a real financial crisis coming for the United States." On Dec 31, 2006 in debate on Fox News, Schiff forecast that "what's going to happen in 2007" is that "real estate prices are going to come crashing back down to Earth." In fact, the median price of an American single-family home did fall in 2007, for the first time in decades. As part of these exchanges on Fox News and his repeated appearances on financial news network CNBC (where he was consistently ridiculed by the network's hosts), Schiff had mentioned factors such as speculators and "the absence of lending standards" which are now seen by many to indeed be contributing factors to the "housing crisis" of 2007-2009.

Schiff also discusses the role of the U.S. consumer in the world, saying that the U.S. consumer thinks he's doing the world a favor by consuming what the rest of the world produces. He is quick to point out that this relationship will come to an end much sooner than people imagine, and with negative consequences for the U.S. Schiff has been quoted as saying: "Consumption is its own reward for Production" —meaning that without production, the US cannot indefinitely sustain its ongoing consumption. Schiff, and other adherents of Austrian economics, promote savings and production as "the engine of economic growth—not consumption".

Schiff has said on numerous occasions that the current economic crisis is not the problem; it is the solution. He claims the transition from borrowing and spending to saving and producing cannot be accomplished without a severe recession, given the current imbalances of the U.S. economy. But according to him, that transition needs to happen. He also thinks the government is doing no one a favor by trying to "ease the pain" with stimulus packages, bailouts and such. Schiff believes these actions will only make the situation worse and possibly result in hyperinflation if the government continues to "replace legitimate savings with a printing press."

Schiff is a firm believer in reducing government regulation of the economy. Schiff worries that Barack Obama will increase such regulation.

As Schiff says in his latest column:



Harry Browne, the former Libertarian Party candidate for president, used to say: “the government is great at breaking your leg, handing you a crutch, and saying ‘You see, without me you couldn’t walk.’” That maxim is clearly illustrated by the financial industry regulatory reforms proposed this week by the Obama Administration.

The underlying problem is that the excessive risk taking which brought about the crisis was not market-driven, but a direct consequence of government interference with risk-inhibiting market forces. Rather than learning from its mistakes and allowing market forces to once again control risks and efficiently allocate resources, the government is merely repeating its mistakes on a grander scale – thereby sowing the seeds for an even greater crisis in the future.

As is typical of government attempts to control economic outcomes, Obama’s plans focuses on the symptoms of the disease and not the cause. The American financial system imploded for two reasons: cheap money and moral hazard – both of which were supplied by the government. Under the proposed new regulatory structures, these toxic ingredients will be combined in ever-increasing quantities.

The proposals most notably involve extra regulatory oversight of financial entities that the government deems “too big to fail.” This implies that it is desirable to have such entities in the first place, and that the government will continue to back those large organizations that fall under its protection. These “too big to fail” firms will enjoy a competitive advantage over smaller firms in attracting capital, as lenders will perceive zero risk in extending them credit. This will cause these firms to grow even larger, producing even greater systemic risks and larger losses when the next round of bailouts arrives. Meanwhile, smaller firms which seek to expand, and which propose no systemic risks, will face greater challenges as higher capital costs render them less competitive.

If the government did not provide these bailouts or guarantees, then the market itself would ensure organizations did not grow beyond their ability to attract capital. It is only when market discipline is overcome by government guarantees that systemic risks arise.

Obama proposes to entrust the critical job of “systemic risk regulator” to the Federal Reserve, the very organization that has proven most adept at creating systemic risk. This is like making Keith Richards the head of the DEA.



Frankly, I'd put Keith Richards in charge of almost anything ahead of Chris Dodd. Like so many others who helped to bring about this unnecessary fiscal crisis and whose stupidity is unnecessarily prolonging it, Dodd deserves to be severely punished at the polls. Schiff is just the one to do it, and according to the Wall Street Journal Schiff is seriously considering it. Let's hope he goes through with it and runs, as Schiff is exactly the sort of person now needed in Washington.

Bikers

Every morning I start my day with a stroll through paradise. Despite all the shit that's gone down, I know that overall I'm one lucky dude. After the rain we've been having it was nice to have clear skies as I took the woodland way into downtown Northampton today. The bright sunlight made the path into a study in darkness and light.



I like this rock between two trees. It looks like a face if you look at it right.



Which I'm sure is why someone put it there. Suddenly a whole bunch of bikers came zooming by!



One had a flat tire, and people were helping. One of them was my friend Joe (below giving the thumbs up) from the Amherst Survival Center.



It turns out the bikers (but not Joe) were going to bike cross-country on an adventure you can follow by going here.

At the end of the trail was parked this very green car.



Today's Video

Keep your head up.