When Government Determines Winners, We All Lose

A recent article in the Economist entitled "No Exit" chronicles the dangers of government officials selecting the economic winners and losers, but President Obama and his administration continue to promote a carbon emission caps by claiming it will usher in a new era of technological development and high tech jobs. The administration has bailed out the automobile industry in an attempt to preserve manufacturing jobs and prevent a further decline in employment, yet new claims for unemployment benefits continue at a pace of over 600,000 new claims per week. Most recently the U.S. International Trade Commission has ruled in favor of a complaint by the United Steelworkers Union that accuses China of dumping low cost tires in the U.S. market and disrupted domestic supplies. By embarking on a path of industrial policy-making and government intervention, the U.S. will distort the efficient allocation of capital and artificially support failing institutions. If the Obama administration hopes to avoid the lingering stagnation experienced by Japan over the past two decades, it will end its interventionist policies and allow competition and free markets to determine the most efficient allocation of resources.

The Economist reports that "As Japan struggles with its deepest recession since the war, the government has established a mechanism to give financial help to poorly performing firms, companies are being encouraged to provide support to their weaker suppliers, and banks are being asked to do their bit, too.... The problem is that keeping ailing companies on life-support holds back healthier firms and harms the economy overall. That is true everywhere, but Japan provides an extreme case that illustrates the dangers of coddling weak companies.... Banks are being pressured by the government to roll over existing loans and make new ones, and firms encouraged to extend credit and maintain business relations. The government’s recent stimulus measures give failing firms taxpayers’ money. A plan approved in May allocated ¥2 trillion ($21 billion) to prop up (indirectly) troubled companies. Pioneer, an electronics firm, Elipda, a chipmaker, and Japan Airlines are among the first to look for government support.... Weak firms need to exit the market, either by going bust or being sold to another firm, or the whole business environment gets stifled. Japan has far too much capacity in many businesses—eight mobile-phone makers, for instance, few of which make much money. This squeezes prices and margins, thus denying better-run firms the surplus capital they need to hire talented people, buy competitors or invest in research and development. It also locks up resources, both human and financial, that could be used more productively by stronger firms. Before the downturn, Japanese companies’ return on equity averaged around 10%, about half the level of American firms."

They conclude that "As governments around the world come under pressure to bail out everything from retailers to travel companies to automotive firms, Japan’s experience—a downturn followed by years of stagnation—serves as a reminder of the importance of destruction in capitalism. Instead of continuing to prop up struggling companies, Japan and other countries need to let them go under, so that new, better ones can be created."

Barney Frank Meddles in Mortgages

(Reuters) - Two U.S. Democratic lawmakers want Fannie Mae and Freddie Mac to relax recently tightened standards for mortgages on new condominiums, saying they could threaten the viability of some developments and slow the housing-market recovery, the Wall Street Journal said.

In March, Fannie Mae said it would no longer guarantee mortgages on condos in buildings where fewer than 70 percent of the units have been sold, up from 51 percent, the paper said. Freddie Mac is due to implement similar policies next month, the paper said.

In a letter to the CEO's of both companies, Representatives Barney Frank, the chairman of the House Financial Services Committee, and Anthony Weiner warned that a 70 percent sales threshold "may be too onerous" and could lead condo buyers to shun new developments, according to the paper.

The legislators asked the companies to "make appropriate adjustments" to their underwriting standards for condos, the paper added.

In an interview with the paper, Weiner said the rules have "had a real chill on the ability to get these condos sold," at a time when prices of condos have fallen enough to attract potential buyers.

In addition to the 70 percent sales threshold, Fannie Mae will also not purchase mortgages in buildings where 15 percent of owners are delinquent on condo association dues or where one owner has more than 10 percent of units, as the firm sees these as signals that a building could run into financial trouble, the paper added.

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When will these fools learn that their meddling will just cause greater long term problems and fail to achieve their objectives? The taxpayers will be saddled with growing losses on shoddy loans granted in the name of "stabilizing the housing market". When these people ultimately default as well, we will have failed to effect any significant changes in the housing market while squandering billions more taxpayer dollars.

Barack Obama, America's Supreme Leader

President Obama has embarked on a feverish attempt to "save" us from the alleged excesses of the previous administration and the economic crisis that has engulfed the world. His policies include income redistribution, the expropriation of private property, the abrogation of bankruptcy laws, the expansion of the welfare state and entitlements, the vilification of industry and capitalism, and the proliferation of crony capitalism and political favoritism.

There is no shortage of opinions about the President’s policies, but now you have the chance to make your voice heard!