Resurrecting the failed policies of the Clinton era, President Obama has proposed the nationalization of the student lending industry. Beginning in fiscal year 2010, the federal government will become the sole underwriter and issuer of government backed student loans. Previous attempts to absorb these operations into the government bureaucracy have ended in utter failure. Undeterred, President Obama ignores previous failures and dooms large student lenders, such as Sallie Mae and Citigroup, by forcing them to compete exclusively in the smaller and risky private student loan market. With funding for these loans extremely scarce, Presendent Obama has effectively doomed Sallie Mae and others to allow their portfolios to runoff, close their government lending operations, and teeter on the brink of failure.
The Democrats’ most recent attempt to revert to their socialist tendencies and sabotage the existing student lending network occurred when they took control of Congress under the Bush administration. In 2007, they voted to reduce the subsidy that facilitates the below market rate federal student loans. Their actions destroyed the narrow margins inherent in the origination of federal student loans, driving many banks and specialized lenders to exit the market. This caused severe disruption in the student loan market leaving students scrambling to find funding. Amidst the turmoil, Sallie Mae continued to underwrite new loans, despite losing money on each, leaving them with approximately 35% market share in a disrupted market.
President Obama now wants to take the process one step further by fully nationalizing the underwriting and approval of federal student loans. He claims immense savings by eliminating the subsidies provided to private student lenders, but fails to account for the significant infrastructure and bureaucracy required to execute an efficient loan origination process. All the rhetoric and promise of a brave new world complete with socialized medicine, nationalized industries, and expansive government bureaucracy is now coming to fruition just one month after President Obama took office.
On news of the nationalization of student lending, Sallie Mae’s stock promptly declined more than 30%. Further government involvement in industries of all stripes will become a self-fulfilling prophecy as random acts of capital destruction will drive investors out of the market and discourage risk-taking. No sensible long term investor would deploy precious resources in an industry subject to whimsical government intervention, the nullification of existing contracts (e.g. Obama’s mortgage proposals), or abrupt changes to the rules of the game. The current recession will be more severe and protracted now that Obama has attacked the tenants of capitalism and perpetuates the uncertainty that challenges long term capital investment. Be cautious with whatever wealth you still possess because the socialists and income redistributors are empowered by a critically ill economy and a false sense of post-election validation of their dangerous policies.
Friday, February 27, 2009
Wednesday, February 25, 2009
A Continuation of the Charade
Full of colorful language and lacking substance, President Obama continues the charade. He fumbles around Washington allowing the left wing extremists in Congress to dictate the agenda. Just as it took the bursting of the housing bubble for Americans to realize that excessive consumption cannot be maintained indefinitely, it will take a complete collapse of the dollar and the Treasury market to finally instill fiscal discipline in Washington. Unfortunately, years of gratuitous earmarks and excessive government spending may just be the bubble from which we cannot recover.
Monday, February 23, 2009
Immigration Reform and the Populist Movement
One of the few positives of the economic “stimulus” plan was the provision limiting the ability TARP recipients to hire foreign workers over American workers. Drafted by Senators Bernie Sanders and Charles Grassley, the provisions require only that a good faith effort be made to hire American workers over foreign workers, but the increased government scrutiny over the recipients of federal bailout money should give pause to any employer seeking to violate the spirit of this rule. Substantial research has shown that, despite an abundance of well educated domestic talent, employers often seek to hire foreign workers in an attempt to lower labor costs.
The argument for the importation of labor is often framed as a void of qualified American workers necessitating the importation of foreign employees. Economists often argue that an unlimited number of H1B visas would enable US companies to hire the best and most qualified talent despite their origin. While this is sometimes the case, the argument often fails due to social bias, stereotyping, and issues with bounded rational decision making. Limited search capabilities, biased or ethnocentric evaluation methodologies, and flawed heuristics often lead to sub-optimal outcomes. Driven strictly by the bottom line, management often seeks to hire an acceptable, rather than the best, worker at the lowest cost. Foreign workers are conveyed non-monetary benefits, through the privilege of residency and employment in the United States, leading them to often accept lower wages than comparable U.S. citizens. It is these reasons that foreign workers often dominate certain fields, such as engineering or computer programming, not a dearth of qualified domestic employees. Many engineering students in the US opt for careers in other fields when confronted with an overwhelming inflow of foreign workers and the corresponding suppression of market wages.
President Obama and his economic staff clearly subscribe to the same social biases and stereotypes that predominate the government’s immigration policies. Former Treasury Secretary and Obama economic advisor Larry Summers infamously stated in 2005 that women were inferior to men in math and science, not due to socialization or societal norms, but instead due to innate differences and the incompatibility of 80-hour work weeks with child rearing. With such advisors, there is no reason to believe that President Obama’s immigration policy will deviate from the traditional appeasement of corporate executives that seek to pad their salaries by exploiting cheap immigrant labor at the expense of qualified US citizens.
CNN’s Lou Dobbs reports on immigrant workers in America.
The argument for the importation of labor is often framed as a void of qualified American workers necessitating the importation of foreign employees. Economists often argue that an unlimited number of H1B visas would enable US companies to hire the best and most qualified talent despite their origin. While this is sometimes the case, the argument often fails due to social bias, stereotyping, and issues with bounded rational decision making. Limited search capabilities, biased or ethnocentric evaluation methodologies, and flawed heuristics often lead to sub-optimal outcomes. Driven strictly by the bottom line, management often seeks to hire an acceptable, rather than the best, worker at the lowest cost. Foreign workers are conveyed non-monetary benefits, through the privilege of residency and employment in the United States, leading them to often accept lower wages than comparable U.S. citizens. It is these reasons that foreign workers often dominate certain fields, such as engineering or computer programming, not a dearth of qualified domestic employees. Many engineering students in the US opt for careers in other fields when confronted with an overwhelming inflow of foreign workers and the corresponding suppression of market wages.
President Obama and his economic staff clearly subscribe to the same social biases and stereotypes that predominate the government’s immigration policies. Former Treasury Secretary and Obama economic advisor Larry Summers infamously stated in 2005 that women were inferior to men in math and science, not due to socialization or societal norms, but instead due to innate differences and the incompatibility of 80-hour work weeks with child rearing. With such advisors, there is no reason to believe that President Obama’s immigration policy will deviate from the traditional appeasement of corporate executives that seek to pad their salaries by exploiting cheap immigrant labor at the expense of qualified US citizens.
CNN’s Lou Dobbs reports on immigrant workers in America.
Thursday, February 19, 2009
The Chicago Tea Party
With frustration building among the majority that has prudently managed their finances, a respected voice of reason emerges from the trading pits of Chicago. We are sick of socialism, special interest handouts, and bailouts of the weak and irresponsible (corporations and individuals). President Obama, take note. The backbone of stability and growth in America is growing restless.
Rick Santelli of CNBC speaks of change that I believe in!
In case you fail to comprehend the logic emanating from Chicago, let me recommend some reading for you: Atlas Shrugged!
Rick Santelli of CNBC speaks of change that I believe in!
In case you fail to comprehend the logic emanating from Chicago, let me recommend some reading for you: Atlas Shrugged!
Saturday, February 7, 2009
Labor and Environmentalists Strike Back Against California Republicans
Forbes magazine recently reported on the increase in organized activism against economic growth and development. In particular, they chronicled a consulting organization, Saint Consulting Group, which will coordinate “grass roots” movements for or against a proposed economic development, often using less than scrupulous methods.
In California, such special interest activism has become ubiquitous. Projects are mired in courts for years as varying interest groups contest environmental, labor, and other complaints of dubious legal merit. As a result, the cost and development time of any project in California is significantly higher than in any other region of the country. One example that received national media attention was the expansion of athletic facilities at University of California, Berkeley. The proposed facilities, funded by private donations, were going to require the removal of some very old trees. Activists climbed and lived in the trees for almost two years while the project was contested in courts at a significant cost to the University. UC Berkeley did, of course, prevail in all of the legal proceedings, but not before the project was delayed for years, delaying the jobs and incomes that would be generated by the facilities expansion.
Governor Schwarzenegger and the Republicans in the legislature are fighting hard to reduce the ability of labor and environmental groups to hinder economic development in the state. In exchange for compromise on tax increases to cover the massive budget deficit, the Republicans are demanding reforms that will expedite the permitting and approval process that drastically increase the cost of conducting business in California. Given that the state has an unemployment rate of almost 9.5 percent, it would stand to reason that our legislators would be eager to stimulate job growth and economic development. On the contrary, the California Labor Federation has asked the state Attorney General to investigate Republicans for “vote trading” as they attempt to reach a compromise on the budget. The California Labor Federation, State Building and Construction Trades Council, Sierra Club California and the Planning and Conservation League claim that Republicans are withholding votes on the budget in order to demand the inclusion of a simulative reduction in environmental and labor barriers. According to their letter: ”This section prohibits any legislator from giving or offering to give his or her vote in exchange for another legislator’s vote on the same or a different matter. The budget negotiations, both as reported privately and publicly, clearly violate this anti-bribery statute.”
The people of California demand action on the budget crisis and for their elected officials to come to the table and compromise on the issues that hamper the economic growth and development of our great state. Compromise requires each side to make concessions in order to reach an agreement. While the liberal left might dominate the legislature in numbers, they do not possess the votes to unilaterally dictate the terms of the budget. Maybe they should work seriously on a reasonable compromise that stimulates growth in the state’s economy rather than resorting to threats and coercion to limit the opposition to their agenda.
In California, such special interest activism has become ubiquitous. Projects are mired in courts for years as varying interest groups contest environmental, labor, and other complaints of dubious legal merit. As a result, the cost and development time of any project in California is significantly higher than in any other region of the country. One example that received national media attention was the expansion of athletic facilities at University of California, Berkeley. The proposed facilities, funded by private donations, were going to require the removal of some very old trees. Activists climbed and lived in the trees for almost two years while the project was contested in courts at a significant cost to the University. UC Berkeley did, of course, prevail in all of the legal proceedings, but not before the project was delayed for years, delaying the jobs and incomes that would be generated by the facilities expansion.
Governor Schwarzenegger and the Republicans in the legislature are fighting hard to reduce the ability of labor and environmental groups to hinder economic development in the state. In exchange for compromise on tax increases to cover the massive budget deficit, the Republicans are demanding reforms that will expedite the permitting and approval process that drastically increase the cost of conducting business in California. Given that the state has an unemployment rate of almost 9.5 percent, it would stand to reason that our legislators would be eager to stimulate job growth and economic development. On the contrary, the California Labor Federation has asked the state Attorney General to investigate Republicans for “vote trading” as they attempt to reach a compromise on the budget. The California Labor Federation, State Building and Construction Trades Council, Sierra Club California and the Planning and Conservation League claim that Republicans are withholding votes on the budget in order to demand the inclusion of a simulative reduction in environmental and labor barriers. According to their letter: ”This section prohibits any legislator from giving or offering to give his or her vote in exchange for another legislator’s vote on the same or a different matter. The budget negotiations, both as reported privately and publicly, clearly violate this anti-bribery statute.”
The people of California demand action on the budget crisis and for their elected officials to come to the table and compromise on the issues that hamper the economic growth and development of our great state. Compromise requires each side to make concessions in order to reach an agreement. While the liberal left might dominate the legislature in numbers, they do not possess the votes to unilaterally dictate the terms of the budget. Maybe they should work seriously on a reasonable compromise that stimulates growth in the state’s economy rather than resorting to threats and coercion to limit the opposition to their agenda.
Thursday, February 5, 2009
Productivity vs. Pork
Congress has proven, once again, to be incapable of learning from previous mistakes and following President Obama’s rhetoric of “change we can believe in”. Instead, they have resorted to loading the bill with pork and special interest favors while largely ignoring the President’s requests for investments in infrastructure.
The only way to improve the standard of living in America is to make investments in our infrastructure. Investments in utilities, roads, bridges, and energy efficiency will pay dividends for generations as we reap future productivity benefits, reduced dependence on foreign oil, and more efficient utilization of resources. President Obama has emphasized such investments as a vehicle to stimulate the economy and create jobs yet Congress has largely ignored his guidance and has chosen to feast upon the fear and discontent of the American people to push through their social agenda. The pet projects and special interest handouts would quickly be defeated except for the over-hyped sense of urgency that enables these amendments to largely evade rigorous scrutiny.
Continued stimulation of current consumption on frivolous items rather than investing in our future sounds more like business as usual rather than “change we can believe in.”
The only way to improve the standard of living in America is to make investments in our infrastructure. Investments in utilities, roads, bridges, and energy efficiency will pay dividends for generations as we reap future productivity benefits, reduced dependence on foreign oil, and more efficient utilization of resources. President Obama has emphasized such investments as a vehicle to stimulate the economy and create jobs yet Congress has largely ignored his guidance and has chosen to feast upon the fear and discontent of the American people to push through their social agenda. The pet projects and special interest handouts would quickly be defeated except for the over-hyped sense of urgency that enables these amendments to largely evade rigorous scrutiny.
Continued stimulation of current consumption on frivolous items rather than investing in our future sounds more like business as usual rather than “change we can believe in.”
Sunday, February 1, 2009
An Assault on Mediocrity
New blood joins this earth
And quickly he's subdued
Through constant pained disgrace
The young boy learns their rules
With time the child draws in
This whipping boy done wrong
Deprived of all his thoughts
The young man struggles on and on, he's known
A vow unto his own
That never from this day
His will they'll take away
…
They dedicate their lives
To running all of his
He tries to please them all
This bitter man he is
Throughout his life the same
He's battled constantly
This fight he cannot win
A tired man they see no longer cares
The old man then prepares
To die regretfully
That old man here is me
Metallica, “The Unforgiven”, Metallica (The Black Album) 1991
The current economic environment illuminates the constant struggle of man as he attempts to make his way in the world. The realities of life are never as omnipresent as the day when a young person cuts free of the parental umbilical and emerges into the world alone. Reality quickly challenges man’s sense of individuality and creativity as he confronts the demands of self interested employers and the natural selection of capitalism. Those with superior gifts, however, are often surpassed by those blessed with incredible luck or an uncanny ability to subjugate one’s pride and ambitions in the subservience of others. To those of true intellectual capacity or those that cherish their individuality and creative faculties, the preponderance of sycophancy and the ascension of mediocrity are nauseating. Their desire to pursue a more pure and idealistic path in life, one void of undeserving flattery of incompetents and advancement of servile fools, is in conflict with the realities of self-preservation and ethnocentrism. The incubation of young talent in a meritocratic environment is often foreign to corporate cultures that utilized flawed heuristics to evaluate candidates and employees. Managers and executives, often in positions of authority because they fit the stereotypical ideals of their predecessors rather than the possession of exceptional ability or intelligence, perpetuate mediocrity by prioritizing self-preservation. Managers prefer to surround themselves with trusted minions of similar background and inferior ability to legitimize their position of power and maintain a less threatening environment. Those of superior ability and intelligence are quarantined by threatened managers in an attempt to insulate themselves from those that might expose them as incompetent frauds. As a result, the truly gifted grow frustrated with the entrenched economic order and ultimately must quit to pursue their ambitions or resign themselves to a life of unfulfilled mediocrity.
To those that stand up against the oppression of mediocre leadership and take chances in the pursuit of your dreams, we salute you!
And quickly he's subdued
Through constant pained disgrace
The young boy learns their rules
With time the child draws in
This whipping boy done wrong
Deprived of all his thoughts
The young man struggles on and on, he's known
A vow unto his own
That never from this day
His will they'll take away
…
They dedicate their lives
To running all of his
He tries to please them all
This bitter man he is
Throughout his life the same
He's battled constantly
This fight he cannot win
A tired man they see no longer cares
The old man then prepares
To die regretfully
That old man here is me
Metallica, “The Unforgiven”, Metallica (The Black Album) 1991
The current economic environment illuminates the constant struggle of man as he attempts to make his way in the world. The realities of life are never as omnipresent as the day when a young person cuts free of the parental umbilical and emerges into the world alone. Reality quickly challenges man’s sense of individuality and creativity as he confronts the demands of self interested employers and the natural selection of capitalism. Those with superior gifts, however, are often surpassed by those blessed with incredible luck or an uncanny ability to subjugate one’s pride and ambitions in the subservience of others. To those of true intellectual capacity or those that cherish their individuality and creative faculties, the preponderance of sycophancy and the ascension of mediocrity are nauseating. Their desire to pursue a more pure and idealistic path in life, one void of undeserving flattery of incompetents and advancement of servile fools, is in conflict with the realities of self-preservation and ethnocentrism. The incubation of young talent in a meritocratic environment is often foreign to corporate cultures that utilized flawed heuristics to evaluate candidates and employees. Managers and executives, often in positions of authority because they fit the stereotypical ideals of their predecessors rather than the possession of exceptional ability or intelligence, perpetuate mediocrity by prioritizing self-preservation. Managers prefer to surround themselves with trusted minions of similar background and inferior ability to legitimize their position of power and maintain a less threatening environment. Those of superior ability and intelligence are quarantined by threatened managers in an attempt to insulate themselves from those that might expose them as incompetent frauds. As a result, the truly gifted grow frustrated with the entrenched economic order and ultimately must quit to pursue their ambitions or resign themselves to a life of unfulfilled mediocrity.
To those that stand up against the oppression of mediocre leadership and take chances in the pursuit of your dreams, we salute you!
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