The Debate Over Energy Policy

From last night’s presidential debate transcript, both of the candidates sound off on energy policy. Comments from me are inserted into the text as [RR: comment].

Schieffer: Let’s go to — let’s go to a new topic. We’re running a little behind.

Let’s talk about energy and climate control. Every president since Nixon has said what both of you…

McCain: Climate change.

Schieffer: Climate change, yes — has said what both of you have said, and, that is, we must reduce our dependence on foreign oil.

When Nixon said it, we imported from 17 to 34 percent of our foreign oil. Now, we’re importing more than 60 percent. [RR: I predict over the next 4 years that this dependence will increase, unless we are in an extended recession/depression.]

Would each of you give us a number, a specific number of how much you believe we can reduce our foreign oil imports during your first term?

And I believe the first question goes to you, Sen. McCain.

McCain: I think we can, for all intents and purposes, eliminate our dependence on Middle Eastern oil and Venezuelan oil. Canadian oil is fine. [RR: In 2007, the U.S. imported 2.2 million barrels per day from the Middle East and 1.4 million barrels per day from Venezuela. That is greater than Canada’s total oil production, and Canada uses 2/3rds of the oil they produce internally. Sources: U.S. Imports by Country of Origin and Canadian Oil Production]

By the way, when Sen. Obama said he would unilaterally renegotiate the North American Free Trade Agreement, the Canadians said, “Yes, and we’ll sell our oil to China.”

You don’t tell countries you’re going to unilaterally renegotiate agreements with them.

We can eliminate our dependence on foreign oil by building 45 new nuclear plants, power plants, right away. We can store and we can reprocess. [RR: While I agree with the need to build more nuclear plants, this will do little to reduce dependence on foreign oil. The vast majority of electricity in the U.S. is produced from coal, and only about 1% is generated from petroleum. New nuclear plants will probably end up satisfying new demand, and displacing old coal-fired plants. Source: Electric Power Monthly]

Sen. Obama will tell you, in the — as the extreme environmentalists do, it has to be safe.

Look, we’ve sailed Navy ships around the world for 60 years with nuclear power plants on them. We can store and reprocess spent nuclear fuel, Sen. Obama, no problem.

So the point is with nuclear power, with wind, tide, solar, natural gas, with development of flex fuel, hybrid, clean coal technology, clean coal technology is key in the heartland of America that’s hurting rather badly.

So I think we can easily, within seven, eight, ten years, if we put our minds to it, we can eliminate our dependence on the places in the world that harm our national security if we don’t achieve our independence. [RR: It could be done, but only by taking a big bite out of demand. If we reduced our per capita energy usage to European levels, we could cut our oil imports by about 70%. To become completely independent (assuming current supplies) would require a cut in our consumption of 75%.]

Schieffer: All right. Can we reduce our dependence on foreign oil and by how much in the first term, in four years?

Obama: I think that in ten years, we can reduce our dependence so that we no longer have to import oil from the Middle East or Venezuela. I think that’s about a realistic timeframe.

And this is the most important issue that our future economy is going to face. Obviously, we’ve got an immediate crisis right now. But nothing is more important than us no longer borrowing $700 billion or more from China and sending it to Saudi Arabia. It’s mortgaging our children’s future. [RR: Agree with that. We are enriching other countries and weakening the U.S. with our high level of dependence on foreign oil.]

Now, from the start of this campaign, I’ve identified this as one of my top priorities and here is what I think we have to do.

Number one, we do need to expand domestic production and that means, for example, telling the oil companies the 68 million acres that they currently have leased that they’re not drilling, use them or lose them. [RR: Pandering. There is already such a provision. Oil companies aren’t out leasing land just to sit on it.]

And I think that we should look at offshore drilling and implement it in a way that allows us to get some additional oil. But understand, we only have three to four percent of the world’s oil reserves and we use 25 percent of the world’s oil, which means that we can’t drill our way out of the problem. [RR: True, we can’t drill our way out. But it is extremely naive to think we can ramp up enough biofuel production in the next 10 years to displace very much petroleum – and we certainly couldn’t do that without the risk of unintended consequences.]

That’s why I’ve focused on putting resources into solar, wind, biodiesel, geothermal. These have been priorities of mine since I got to the Senate, and it is absolutely critical that we develop a high fuel efficient car that’s built not in Japan and not in South Korea, but built here in the United States of America. [RR: As I have said before, the problem is not one of supply. There are plenty of fuel efficient cars to choose from now. The problem is getting people to demand them. We saw demand pick up sharply when gas prices rose set new records earlier this year, which is why I think a gas tax would go a long way toward addressing the issue of the fuel efficient car. If the demand is there, the cars will be built. If gas is expensive, demand will be there.]

We invented the auto industry and the fact that we have fallen so far behind is something that we have to work on.

Now I just want to make one last point because Sen. McCain mentioned NAFTA and the issue of trade and that actually bears on this issue. I believe in free trade. But I also believe that for far too long, certainly during the course of the Bush administration with the support of Sen. McCain, the attitude has been that any trade agreement is a good trade agreement. And NAFTA doesn’t have — did not have enforceable labor agreements and environmental agreements.

And what I said was we should include those and make them enforceable. In the same way that we should enforce rules against China manipulating its currency to make our exports more expensive and their exports to us cheaper.

And when it comes to South Korea, we’ve got a trade agreement up right now, they are sending hundreds of thousands of South Korean cars into the United States. That’s all good. We can only get 4,000 to 5,000 into South Korea. That is not free trade. We’ve got to have a president who is going to be advocating on behalf of American businesses and American workers and I make no apology for that.

Schieffer: Senator?

McCain: Well, you know, I admire so much Sen. Obama’s eloquence. And you really have to pay attention to words. He said, we will look at offshore drilling. Did you get that? Look at. We can offshore drill now. We’ve got to do it now. We will reduce the cost of a barrel of oil because we show the world that we have a supply of our own. It’s doable. The technology is there and we have to drill now.

Senator Obama didn’t reiterate his call for a windfall profits tax as part of his energy policy plan. But you can see that provision on the web page describing his energy plan: Barack Obama’s New Energy Plan. You know, I think I could support that if he has a provision to cut tax rates if oil prices fall. But I don’t see that happening.

For balance, here is Senator McCain’s energy plan: John McCain’s Lexington Project. And while McCain doesn’t support a windfall profits tax, the irony is that as Alaska’s governor his running mate pushed one through. (You can read a pretty balanced account of that story here).

84 thoughts on “The Debate Over Energy Policy”

  1. Very interesting RR, thank you!

    With that said, so where do you honestly see our country in say 10 years with regards to energy? Obama Presidency? McCain Presidency? Does it matter do you think?

    I’d be interested to know your honest thoughts.

  2. Good point about nuclear not reducing US oil imports significantly. It is interesting to see how a single energy conversion technology is often touted as the cure-all to our energy problems. Why doesn’t the mainstream media discuss this more?

  3. It is either foolish or dishonest (make up your own mind) for Obama to suggest that the answer to foreign oil dependence is to force companies to drill on the land to which they bought drilling rights.

    If Obama were serious about energy independence, he would have called for a careful rollback of excessive governmental regulation which prevents drilling. He would have called for opening more US territory to leasing.

    But Obama did not — and is anyone surprised? When Obama makes someone as weak as John McCain look good, you know we are in trouble.

  4. in obama’s defense, at least he mentioned that energy policy will be his top priority. I think he knows more than he says he knows because good energy policy won’t help him get elected. but he keeps saying that we need a long term strategy and that will be his first priority. this is an area that I personally believe needs federal funds and can’t be solved by free markets.

    maybe i am just reaching, but his willingness to say that energy policy is his top priority gave me some hope. (he said this in the second debate when asked to rank his priorities) mccain is giving it lip service, but i don’t see the same commitment.

  5. Prior to 3rd Presidential Debate, World Energy TV Interviews Matt Simmons, Clayton Williams and Others

    “Oil investor Matt Simmons asserted that about half of Obama’s comments make some sense, and only about 10 percent of McCain’s make sense. Rod Erskine of Erskine Energy, by contrast, believes that “McCain has a little better handle on energy than Obama does, but I don’t think either candidate — or the American public — really understands what it takes to drill for, find and develop oil and gas.”

  6. What would be your perspective on a massive program to flip the auto fleet to plug-in hybrids. I’ve seen it suggested that we could reduce our demand by 75% if the fleet flipped. As a bonus, that would allow for greater electricity production (from renewables, nuclear, whatever) to help with reducing oil dependence.

    I would accomplish this switch by either a mandate that all cars be plug-ins (with a matching tax credit).

  7. With that said, so where do you honestly see our country in say 10 years with regards to energy? Obama Presidency? McCain Presidency? Does it matter do you think?

    Sadly, I don’t think either of them are going to make aggressive enough moves to significantly reduce our foreign oil demand. Obama is going to overestimate how much oil can be displaced by biofuels, and McCain is going to overestimate how much extra supply we can get from drilling.

    Which plan is better? While I am not a fan of either plan, McCain’s is better because it is more realistic. He recognizes the need for more nuclear power. On the other hand, I think he will sell the wind and solar industries short.

    RR

  8. What would be your perspective on a massive program to flip the auto fleet to plug-in hybrids.

    100% in favor. In fact, I believe that PHEVs and electric cars are going to play a dominant role in just a few years.

    RR

  9. 100% in favor. In fact, I believe that PHEVs and electric cars are going to play a dominant role in just a few years.
    Good for you. However, I’m not so sure. The fact that even with $4/gal there are NO (count’em: none) commercial PHEV or EV on the market has me a tad skeptical. These things are going to go from zero to hero without any problem? Where have we heard that before? Oh yeah, TDP: The Next Big Thing.

    Not sure why you are so realistic (some might say pessimistic) when it comes to liquid fuel alternatives, RR, but when it come to electrification of transport you sure favor the rose-tinted glasses.

  10. Politics aside, the bottom line is that we ALL need to make sacrifices together to achieve the “European per capita consumption of oil” This is the first step towards any kind of ,technology dependent or not, future. Let’s transcend politics for a moment and consult reality. What do Europeans daily do differently that Mericans? For one, I’ve heard Europeans pay a lot more for transportation fuel and drive significantly less per capita.

    To me, it is obvious that the biggest waste of oil in Merican culture is the single occupancy passenger automobile(SOPA). I know several Pious folks who daily drive around town alone in hybrid cars, and spit on anything with four wheel drive. Is this entire situation not desperately silly to anybody else?

    Why our old school, open road, freedom is a steering wheel, country facilitates and supports the use of SOPA’s is intolerable to me. It is even more depressing that no politician has the kahonee’s to even address this issue.

    1 Passenger cars burn more oil collectively than the entire utilitarian sector (tractors, ships, wallmart trucks, trains, planes, mfg’s etc.) (paraphrased from a national laboratory transportation fuels researcher)

    2 Every 13 seconds somebody dies as a result of negligent driving, which is more than from intoxicated driving (quoted from a radio ad from http://www.negligentdriving.org/

    3 Merica is the king of obiesity(esp children) Video games, computers, sugar, diabetes, lack of self propelled physical motion in general. Is this stuff not expensive, healthcare is another source of much of the waste in Merican culture. Kids go from video games to SOPA’s to the hospital. I’ll leave it there. I have no sources for this bit common knowledge.

    Have any politicians addressed public transportation, or methods of adapting/stopping our stupidly sprawled, suburban infrastructure to free Mericans from the clutches of the SOPA and the fuel nozzle? Is waiting 5 minutes for transportation, and interacting daily with the community such an intolerable existence? WTF? POP THE BUBBLE.

    P.S. my money is where my mouth is. My fuel(gasoline) costs over the past two years are roughly half of my auto insurance costs.(Gasoline is so cheap!) I moved closer to my job, I ride my bicycle everywhere, even in snow, and I am not fat. My carbon footprint(including two plane trips) last year was 30% of my average Merican peer. This is reality, turn off the TV and WAKE UP! Be the change.

  11. The media – just like most of the population – has a very low energy IQ:
    America’s Energy IQ

    Energy IQ? Are you kidding me? That’s more like an Oil Industry IQ!

    #2. Where does ExxonMobil, the largest U.S. oil and natural gas company, rank in size among the world’s largest holders of oil reserves?
    You actually expect Joe Plumber to know this stuff? Gotta be kidding. The only questions I thought were relevant were, in order of decreasing relevance: 23, 16, 14, 15. The rest is mostly an exercise (probably necessary) to correct people’s misperceptions of the oil industry (profits, ownership, just how much we depend on foreign oil). But hardly what I would call key to understanding energy issues. Good background information, but not key to understanding the issues.

    They just don’t know how to evaluate energy claims. That’s a very big part of why I started this blog.
    Now you are talking about something completely different, and something not touched by the so-called Energy IQ. This has more to do with modern day superstition, you know, the belief that with the right technology you can simply transform water into gasoline (as all those patents that Big Oil has locked away in Fort Texas proves). The problem here is a basic understanding of the laws of thermodynamics. In other words, education. And that’s a whole new subject…

  12. “You actually expect Joe Plumber to know this stuff? Gotta be kidding. “
    “But hardly what I would call key to understanding energy issues.”

    I wouldn’t expect Joe the Plumber, let alone the average politician to know this stuff. But then I would expect them to not criticize an industry they don’t know much about, criticism that can lead to poor energy policy. This kind of uninformed input to policy making and the resulting pandering IS a problem, I believe.

    We have a presidential candidate who says on national television, and perhaps even believes, that “use it or lose it” is a meaningful policy statement. Only low energy IQ can explain such a statement. Will continued restrictions on drilling become policy as a result of low energy IQ? I don’t view energy IQ as a mere trivial pursuits game.

    On that particular issue, Obama is either pandering, or else the quality of his energy advisors is suspect.

  13. I agree 100 percent with RR’s commentary on the “debate.”
    Only higher gasoline taxes will work, and the Baby Bottle Republicans and the Wimp Democrats will never stand behind the strong medicine we need.
    That being said, the energy “debate” will disappear soon anyway. Oil below $70 today on the NYMEX. Less than one-half the peak, and still going down.
    It could hit $10 a barrel again — who is going to care anymore, until the next squeeze?

  14. And dated Brent spot down to $66, and for some reason Brent has been leading the market of late.

  15. For those interested in energy policy and the presidential candidates:

    Scientists and Engineers for America Presents..
    Presidential Perspectives on Energy and Innovation

    Featuring
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    Co-chair, McCain California Energy Security Coalition
    Daniel M. Kammen,
    Senior Adviser on Energy and Environmental Policy
    for Barack Obama

    Tuesday, October 21
    6:30-8:00 P.M.
    Questions will be accepted from the audience, or in advance at
    Questions@SEforA.org

    Kresge Auditorium
    Stanford University
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    FREE to the public!
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  16. LOL, doesn’t a “massive program” to replace all our cars fail the “robbing the middle class to pay the middle class” test?

    Our current median new car price is about $28K. Let’s assume the promised $40K for the Volt is a floor. We will have the government kick in $12K per auto, and tax it back out of ourselves to pay for it again?

    Is Joe the Plumber going to let that one slip by?

    (Or will we promise a $12K per driver subsidy, more than one per family, and “tax cuts?” at the same time?)

    It’s innumeracy either way.

    – odograph

  17. Not sure why you are so realistic (some might say pessimistic) when it comes to liquid fuel alternatives, RR, but when it come to electrification of transport you sure favor the rose-tinted glasses.

    It is the only long-term option that I can see at the moment for keeping the transportation system running. Liquid fuels are going to deplete, biofuels aren’t going to scale – but electricity can scale up a lot from current levels. And PHEVs are on the verge of becoming competitive on price. Hybrids in general are already mainstream, and I believe plug-in hybrids aren’t far behind.

    RR

  18. Odograph-

    The Volt is just the first PHEV. And batteries are rapidly improving — talk now of a 80-mile-range Volt, second-gen, same size battery.
    True, subsidizing a Volt has drawbacks — on the other hand, every Volt is more valuable to our national defense than a tank or jet fighter. Every Volt improves our trade balance as well, and also cleans the air.
    Personally, I think the Volt will be a dud. Too expensive for an economy car, and gasoline may be back to $1.50 a gallon soon.
    I think the first PHEVs should be luxury cars, or cargo vans.
    But eventually, if gasoline does go to more than $5 a gallon, PHEVs and EVs will make sense, even to the consumer.
    I contend PHEVs make sense now, as a matter of national security, economic and environmental policy.
    Technically, or engineering-wide, it sure looks like PHEVs make sense. Every major manufacturer has plans to produce them, or straight EVs (no onboard ICE). I doubt so many different groups of smart guys could be wrong.
    If oil prices don’t keep falling (a possibility), the PHEVs are a game-changer.
    One might argue the emerging reality of PHEVs is helping to crater the market. Hey, the PHEVs will put a lot more oil on the market than domestic drilling, and a lot more quickly.

  19. Benny, It occurred to me that the Volt really should have been badged a Cadillac, for those very reasons.

    If it had to be expensive, it should have been marketed to conspicuous consumers.

    Heck, even for Greens, a Green Cadillac might have more appeal than a seemingly base Chevy.

    – odograph

  20. Odograph-

    Yeah, stock another $10k of doo-dads on the Volt, and sell it as a Caddie. The luxury of not stopping at smelly gasoline stations. Being first on your block to have an EV and get stares.

    As for p/u trucks/cargo vans, I know a lot of guys in the cabinet business, and they have to drive to jobsites at 12 mpg. They cannot take mass transit (tools) or control the commute by moving. Another 10k for a battery that saves $10 a day makes sense.

    But what I see: Gasoline tanks and the Volt does too. The PHEV introduction gets delayed by 5 years.

  21. Both candidates didn’t do a great job. {But in practice either of them is likely to do more about CO2and clean energy than any previous president.}

    If I can change the topic, what energy stocks does everyone think are the best values right now?

    Is there a future in oil sands: (within oil sands, I think PCZ might be a good bet followed by MRO)

    Oil sands need oil prices to stay above $50 (which means we need to assume no short term global recession.)

    In terms of integrated oil/refining plays (that will retain more value even if oil prices drop, might the Chinese companies merit a look (PTR/SNP/CEO)? PBR from Brazil?

    Among the big western oil majors, RR might favor COP. How do TOT, and the rest of the big companies compare?

    In natural gas?
    is CHK the best play?

    What are everyone’s favorite plays in solar PV and wind?

    The above is scattered. Perhaps we could have a detailed discussion in each section of the market.

  22. I forgot to ask everyone’s favorite plays in coal. JOYG anyone?

    Within solar PV:

    -among the poly makers
    -wafer and ingot makers
    -solar cell makers (SPWRA has the best efficiency, the rest are at 14 to 16% efficiency)
    -modul makers
    -bulding integrated solar and solar instilation
    -silicon thin film
    -CIGS thin film
    -CdTe thin film
    -Gallium arsenide (GaAs) thin film
    -other thin film makers (no public company that I know is significantly levered to other thin films)
    -equipment makers supporting poly solar cells, silicon thin film, CdTe thin film, CIGs thin film, other thin film makers such as SOLR and AMAT (about 40% of revenue from solar in 2009)

  23. It is the only long-term option that I can see at the moment for keeping the transportation system running.
    I think you are suffering from a reverse devil-you-know syndrom: you are overly skeptical of liquid fuels, because you understand the oil business so well, and know how difficult it would be to replace it. EVs (viewed from the relative distance) look great by comparison…

    Liquid fuels are going to deplete, biofuels aren’t going to scale
    You mean crude oil is going to deplete, eventually. Biofuels would work great if we started with waste, currently taking up valuable landfill space, and doing nothing much, other than creating a stink.

    …but electricity can scale up a lot from current levels.
    Seeing as electricity is just a carrier, I’m not sure that statement means much. Did you mean solar?

    And PHEVs are on the verge of becoming competitive on price.
    As the man in the ad says: “Forward-looking statements contain an element of risk.” At $40,000 the Chevy Volt is hardly what I would call on the verge of anything, other than being a collector’s item.

    Hybrids in general are already mainstream, and I believe plug-in hybrids aren’t far behind.
    Hybrids, yeah. PHEV, not so much. May change in a few years. May not. There is precious little real world data to suggest PHEVs are going to replicate the success of hybrids.

    Still sounds like TDP all over again…

  24. It is the only long-term option that I can see at the moment for keeping the transportation system running.

    What about CTL supplemented with nuclear power. Using nuclear power to produce heat (not electricity) This heat would be used to split water using an S-I thermal cycle. Then using the heat, H2, and O2 to turn coal into a liquid fuel.

    In this way, you put the nuclear power into the liquid fuel as opposed to into a battery.

  25. McCain was almost there. We build the nuclear plants,and back renewable sources to the hilt. THEN,we tax the hell out of gasoline and use the funds to subsidize PHEV’s and EV’s. Of course,he couldn’t say that and still get more than a dozen votes.

  26. “What about CTL supplemented with nuclear power.”

    Makes more sense than electric vehicles. Transportation energy sources need to pack a lot of energy into a small volume & be easily handleable. Electric vehicles will be sub-optimal until battery technology improves drastically. And it is a reasonable guess that, when battery technology does eventually reach nirvana, it will rely on exotic minerals imported from Africa, Russia, or China.

    RR did a review of Bryce's "Gusher of Lies" some time ago. The book takes 291 pages to say what could be said in 10, but it has a fascinating appendix on US imports of minerals — 100% of Rare Earths, 91% of Platinum, 81% of Palladium. Electric Vehicles are not going to provide independence from unsavory or unfriendly foreign regimes.

    On the other hand, use nuclear heat for Coal-To-Liquid or to mine liquid hydrocarbon transportation fuel from oil shale? Won't happen in ObamiNation, but it will happen someday.

  27. I don’t see a big future for coal to liquids. Isn’t coal production supposed to peak in 2025? Heck,it would take that long just to set up the infrastructure. I think it already peaked in the U.S. in energy quality.

  28. Oil was up a few bucks on plans by OPEC to cut production at least a million bpd next week. That’s after a cut of more than a million bpd in sept. I know some guys here think oil prices are all about demand. I sure don’t. OPEC can cut production a lot more than the world can cut consumption.

  29. Geoff Styles on Obama’s plan:

    Candidates & Energy: Obama Revisited

    On the one hand, he writes:

    Senator Obama has a detailed, coherent energy plan, and his team has clearly spent a lot of time assembling and refining the energy proposals outlined on the campaign’s website. Compared to the version I examined in January, during the primaries, the Senator’s energy and climate framework has evolved and become more realistic.

    But then:

    Senator Obama appears to consider the US tapped out for oil, and apparently expects his energy independence goals to be met without more help from that quarter. That assessment pervades his approach to the oil & gas industry, though recently he has described natural gas in more favorable terms. If anything, he seems to regard the domestic oil industry not as a potential source of new supply, but as a source of new tax revenue. His short-term energy program leads off with one-time energy rebates–$1,000 per family or $500 per individual taxpayer–funded by a windfall profits tax on oil companies. He hasn't put a price tag on this, but assuming all taxpayers would be eligible, it would require on the order of $20 billion dollars per year in new taxes over the next five years. Although there are legitimate differences of opinion on the justification for such a tax, its consequences for future US oil output are unambiguous: what you tax more, you get less of.

    RR

  30. Geoffrey’s conclusion is very similar to my own:

    There is much to like about Senator Obama's positive vision of cleaner energy, focused on making America more self-sufficient. At the same time, it would impose the biggest and most intrusive changes on US energy markets since at least 1980, entailing the collection and redistribution of many hundreds of billions of dollars–not temporarily, as contemplated for the current federal intervention in financial markets, but on an effectively perpetual basis. The benefits of cutting our energy imports and greenhouse gas emissions to a more sustainable level would be significant, though if we are serious about reducing our reliance on unstable foreign oil suppliers, it is counter-productive to pit solar, wind and biofuels against domestic oil & gas, which today contribute roughly 30 times as much net energy to the US economy, and could do more. We may indeed be entering a new era of big government; however, while parts of the Senator’s energy plan would stimulate new industries and new jobs, other portions would act as a drag on existing businesses, and on consumers. This may ultimately be necessary, in order to tackle climate change, but undertaking it during a recession would complicate efforts to revive the whole economy, not just its new green parts.

    RR

  31. Been out of pocket for a couple of weeks.

    For those of us old enough to remember it, the Obama plan sounds a lot like the Jimmy Carter plan of the late 1970s. Does anyone ever remember the US Synfuels Corp? At the time, Carter believed that government could outsmart business and pick the winners and losers in energy and technology. To say they were wrong would be an understatement.

    What we have in the US is a transportation fuel problem, not an energy problem. We have LOTS of energy here at home, just not a convenient or cheap way to turn it into transportation energy. Building more windmills and solar plants won’t solve that problem. But it does make for a pretty campaign commercial.

  32. More of why Obama would be a disaster. Obama to Declare CO2 a Dangerous Pollutant

    Setting aside the debate on whether human activity induces global warming, the Clean Air Act is entirely the wrong tool for the job. This builds on the horrendously poor Supreme Court deicision in Massachusetts v. EPA .

    Listing CO2 would overnight classify millions of large homes and businesses as “major polluters”. EPA would be forced to accept and process millions of applications for permits. Environmentalists would have a field day running roughshod and challenging every PSD air permit on any project they didn’t like.

  33. ” I know some guys here think oil prices are all about demand. I sure don’t. OPEC can cut production a lot more than the world can cut consumption.”

    A 50% drop in crude oil prices, in the face of rapidly disintegrating economies worldwide, is not about demand? I doubt that OPEC engineered this price collapse, since it’s costing them about $2-3 billion per day relative to July peak prices. If you accept that obvious conclusion, how can you be confident that the recent bubble was OPEC’s doing?

    Right now OPEC is clearly on the defensive. It’s not setting the market, it’s reacting to it. They’ll probably cut back some in an attempt to support higher prices, but I’ll bet any price increase related to that cutback will be small in relation to the recent price drop.

  34. “A 50% drop in crude oil prices, in the face of rapidly disintegrating economies worldwide, is not about demand?”

    50% in US dollars. Not near as much in other currencies. And no,I don’t think demand had much to do with it. It hit $147 when demand was declining too. The big boys bailed to raise cash. All commodities,except gold and silver,took a similar shellacking.

    “but I’ll bet any price increase related to that cutback will be small in relation to the recent price drop.”

    So they hold another “emergency meeting” a week later and cut another million bpd. And they do it until they get the price they want. Not rocket science.

  35. “better a smart liberal than an aged ideologue.”

    A smart liberal with liberal majorities in the House and Senate. Has America ever suffered through that?

  36. Does anyone ever remember the US Synfuels Corp?
    You probably know better than the rest of us where this went wrong – seems like it became a gov. handout to certain coal producers.

    By comparison, I believe the Canadians undertook a similar initiative, and got some synthetic fuel production capacity in return for their investment.

    Do you have any information on those? Seems to me like maybe Carter didn’t have such a bad plan, more like it got raped by the lobbyists. Sigh. What’s new?

  37. 50% in US dollars. Not near as much in other currencies.
    Earth calling Maury!

    Call us when OPEC succeeds in lifting prices. Until then you are just crying wolf.

  38. “All commodities, except gold and silver, took a similar shellacking.”

    Is OPEC in these other commodities as well?

    “And they do it until they get the price they want”

    Do they want $70? If not, how did it get there? Did they want $10 in 1998?

    Did they refuse to consider anything more than $20+/- from 1986 through the early 2000’s? Because I’m wondering why we didn’t see $100 oil in 1988 or in 1994 or in 2001 if OPEC is getting the price it wants, regardless of supply and demand.

  39. Optimist,the weakened dollar cushioned the oil price for much of the world. The reverse has been true since oil started falling. The Euro increased 50% in value from 2000 to 2008. While we paid 7X more for oil in Aug. than we did in 2000,Europeans paid half as much. The 50% drop of late is more like 32% in Euros. So yeah,a lot of the price movement lately has been a dollar event. A lot more has been a speculator covering his ass event.

  40. “Is OPEC in these other commodities as well?”

    No,but investers are. It’s no coincidence copper,corn,and oil are all down by similar amounts. Did chickens suddenly go on a diet?

  41. Optimist said: You probably know better than the rest of us where this went wrong – seems like it became a gov. handout to certain coal producers.

    No, it was a poorly conceived idea with political interference.

    By comparison, I believe the Canadians undertook a similar initiative, and got some synthetic fuel production capacity in return for their investment.

    No they didn’t. There is one plant, Great Plains, in North Dakota that got some money and is still running.

    Do you have any information on those? Seems to me like maybe Carter didn’t have such a bad plan, more like it got raped by the lobbyists. Sigh. What’s new?

    How about raped by congressman? Here is a quote about Synfuels Corporation from the book The Government Role in Civilian Technology:

    Energy programs of that time were hindered by excessive political interference. Political influence on funding allocation decisions, selection of R&D projects, or the direction and conduct of scientific research is counterproductive and damaging to the success of federal technology efforts. Fuel-cell projects under the SFC, for example, were allotted to each of the 50 states, regardless of economic viability. Implementation of energy performance standards for buildings was held back by complex regulations. The clean coal technology project was hampered by congressional involvement in technical design and operational management. Although programs such as the tertiary oil recovery initiative and the R&D program in photovoltaic cells attained some success, these technologies were not widely adopted.

    So Optimist, you and Obama live in the fantasy world where governemnt run programs function perfectly. It is just those pesky capitalists and big corporations that foul things up.

  42. “No,but investers are. It’s no coincidence copper,corn,and oil are all down by similar amounts. Did chickens suddenly go on a diet?”

    Right. And do we have evidence that these investors are the same people running OPEC?

  43. Probably the most interesting question, given the possible Democratic President and Congress, is how liberal they really are, in a historical sense.

    I get the idea that the fall of Communism has moved everybody right, to a more free market position. The Bush administration obviously followed that with a zeal, not just reducing regulations, but also reducing staffing for regulators (across the board, from environmental to banking).

    If the pendulum swings back a bit, it may look “liberal” to the extreme right, but I’m betting it will be no more than “moderate” given the norms, averaged, of the last 50 years.

    (Remember Nixon, the Republican, installed federal wage and price controls … actions off the political map these days. And Ron Paul would tell us that it was Nixon’s gold actions were the root of modern problems as well.)

    – odograph

  44. Barry L. Ritholtz, writing at The Economist, support my pendlum argument:

    “Over the past 30 years, the United States has moved from an environment of excessive regulation to excessive deregulation. This philosophical change was taken to irrational extremes, and it lay at the heart of the current financial crisis.

    A brief history: after the second world war, the global economy was expanding dramatically – and government bureaucracy expanding with it. By the late 1960s, US regulatory oversight had become time-consuming and expensive. Reducing regulation became a political rallying cry. It started with President Carter, and accelerated dramatically under President Reagan. At first, expensive and onerous provisions were targeted. Eventually, deregulation became an end unto itself, rather than a means to an end. Along with the costly, unnecessary regulations, effective and necessary safeguards were also removed.”

    more here

    – odograph

  45. Cheers to the folks bringing up electric vehicles that are actually necessary. The focus on Single Occupancy Passenger Automobiles(SOPA’s) makes me sick! In the real future, the plumber ‘Joe’ will NEED to carry stuff around in a van to do a necessary service. Soccer mom can take her kids on a bus for god’s sake.

  46. Odograph – Ritholtz and the Dems like to place blame for the financial mess at the feet of Phil Gramm and others who pushed deregulation. However there is more than one point of view on this. Here is a quote from a famous conservative on rolling back Glass-Steagall:

    “No, because it wasn’t a complete deregulation at all. We still have heavy regulations and insurance on bank deposits, requirements on banks for capital and for disclosure. I thought at the time that it might lead to more stable investments and a reduced pressure on Wall Street to produce quarterly profits that were always bigger than the previous quarter. But I have really thought about this a lot. I don’t see that signing that bill had anything to do with the current crisis. Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch (MER) by Bank of America (BAC), which was much smoother than it would have been . . .

    So, is this person right or is Ritholtz and Obama right?

    There is a lot of blame to go around for the crisis.

  47. If I’m going to count myself smart about anything, it’s that I stopped worrying about oil 18 months to 2 years ago, and started worrying about debt and our society.

    Look it up

    You can’t scare me with snippets and short politicized summaries, because I’ve been in this too long.

    No, the government did not create this. A debt-loving society created this. They (we?) did it through every private and public institution we controlled.

    We ran up our credit cards, and our home equity lines of credit, and our national debt, all at the same time.

    But yes, Barry is right that deregulation, and reduced ranks of regulators, greased the skids.

    Go read again the “what I saw” piece by IndyMac’s guy. the paragraph that jumps out for me:

    “I finally finished my own airport parking lot appraisal report in late March, the same week that the Bush Administration laid off most of the OTS examiners. I don’t know which event precipitated my termination.”

    Did you get that? The Bush Administration laid off most of the OTS examiners? OTS as in Office of Thrift Supervision?

    – odograph

  48. So Optimist, you and Obama live in the fantasy world where governemnt run programs function perfectly. It is just those pesky capitalists and big corporations that foul things up.
    Me, and my bud, Obama, eh? LOL!

    Not guilty, your honor!

    Anyway, King, here is an article that you will love: Son Of Synfuels, courtesey of the NYT. Prophetic if you consider the publication date. It illustrates what I believe is a bigger danger today than just Uncle Sam: the unholy alliance between Big Business and Uncle Sam – Heads Big Business wins, tails Uncle Sam (that’s us taxpayers) lose.

    And an alliance the GOP seems very comfortable with, I might add. An issue you might raise with your buddy McCain, next time you go duck/moose hunting…

  49. No, the government did not create this. A debt-loving society created this. They (we?) did it through every private and public institution we controlled.
    Welcome back, Odograph!

    Uncle Sam is innocent, eh? Not quite!

    Your man, Bill Clinton, got it in his head that it would be nice if more minorities owned homes. Not a bad idea, by itself…

    So Slick Willy and friends on the Capitol designed some legislation to encourage banks to lend money to people they wouldn’t normally lend to, as these people didn’t have good enough credit scores. Discrimination! We can’t have that…

    Once the door of credit was opened to Mr. and Mrs. Subprime, well, you can’t exclude anybody with a bad credit score now, can you? That would really be discrimination. As established before, we can’t have that…

    The rest is pretty much details. How all and sundry proceeded to delude themselves that we had (abrakadabra) eliminated risk. What’s the point of getting good credit, if you’re going to get a loan anyway? Afterall, you’ve just been a human being…

    So, it started with your man, Slick Willy, and his noble idea…

  50. This is interesting: Tesla Hits the Brakes Amid Credit Crisis.
    Looks like the Tesla Roadster is pushed out at least another year.

    As I keep saying: Wake me up when EVs (any EV!) start selling in numbers worth noticing. Until then, I mean… IMHO they’re just another TDP…

  51. It’s simple, Optimist. We can see the shares of “originations” and “placements.”

    That is, who made the initial loans, and who acquired the resulting securities.

    As the bubble blew in its last misshapen surge, it was private companies who did the bulk of both. There is simply no numeric proof otherwise.

    We can always find politicians who applauded that though:

    “Such a country would be more stable, Bush argued, and more prosperous. “America is a stronger country every single time a family moves into a home of their own,” he said in October 2004. To achieve his vision, Bush pushed new policies encouraging homeownership, like the “zero-down-payment initiative,” which was much as it sounds—a government-sponsored program that allowed people to get mortgages without a down payment. More exotic mortgages followed, including ones with no monthly payments for the first two years. Other mortgages required no documentation other than the say-so of the borrower. Absurd though these all were, they paled in comparison to the financial innovations that grew out of the mortgages—derivatives built on other derivatives, packaged and repackaged until no one could identify what they contained and how much they were, in fact, worth.”

    Get that? Bush pushing zero-down loans?

    – odograph

  52. BTW ;-), point of history, I am a Republican and I did not vote for Mr. Clinton (any Clinton for that matter).

  53. Odograph,

    There was plenty of regulation and if the government had not been driving the fiasco with fannie an freddie the losses would have been around 1/2 of what they were.

    The Three Major Memes of the Great Bailout Bonanza


    Never mind that the financial industry is one of the very most regulated sectors of the economy here and abroad.

    Never mind that the two mega-corporations at the very center of the recent market meltdown, Fannie Mae and Freddie Mac, were massively regulated government-sponsored enterprises that were doing the bidding of the politicians to whom they gave cash so lavishly.

    Indeed, never mind that the Times story above features a chart showing that George W. Bush increased regulatory spending far more than any president since Richard Nixon (by some measures, Bush even routs Nixon).

    TJIT

  54. An example from someone in the industry of the massive regulatory apparatus that was in place.


    A few thoughts before I re-enter the fray

    Between the post-Enron documentation frenzy and the post-Patriot act money-laundering frenzy, regulators have staffed up and been empowered over the last years in ways I have never seen in my 20 year career.

    Compliance departments have staffed up to 3 or 4 times their prior levels to deal with the added regulatory inquiries, requirements and monitoring programs.

    One regulator has decided they need staff permanently on-site in my shop. They’ve never given a good reason for this, other than perhaps our offices are much nicer than theirs, and they can bill us for inventing new databases and reports that we have to create as they take advantage of our digs.

    TJIT

  55. One last article on the financial regulatory environment.

    Blaming Deregulation

    If that doesn’t convince you that deregulation is the wrong scapegoat, consider this:

    The appetite for toxic mortgages was fueled by Fannie Mae and Freddie Mac, the super-regulated housing finance companies.

    Calomiris calculates that Fannie and Freddie bought more than a third of the $3 trillion in junk mortgages created during the bubble

    everyone concedes that Fannie and Freddie poured fuel on the fire to the tune of hundreds of billions of dollars.

    TJIT

  56. TJIT, all those make the same error.

    They supply the wrong evidence for the claim.

    To prove Freddy and Fannie as the root of the credit crisis you have not prove not (a) that they were ‘bad’ but also (b) that they drove the sub-prime and securitized loan market.

    (a) is true, as you show.

    (b) is simply not.

    Look at any of the graphs of who were the players in the sub-prime fiasco:

    one example

    Note that I get and agree that Fredy and Fannie were bad, and should have been discarded along with the federal tax deduction for individual mortgages, but I am also able to separate cause and effect from political ideology.

    – odograph

  57. Two notes on this:

    “Calomiris calculates that Fannie and Freddie bought more than a third of the $3 trillion in junk mortgages created during the bubble … “

    First, why the heck are you trumpeting a minority role? Who bought 2/3s?

    Second, go back and look at when they bought them. Congress pressured Freddy and Fannie to come in after the bubble popped, in an effort to shore up the market for mortgage backed securities.

    It was a glimmer of the $700B bailout to come.

    – odograph

  58. Odograph,

    You have argued that deregulation was the cause.

    You can’t square that argument with the increase in regulatory budgets under bush and the vast amounts of regulation put in place as part of SOX regulations.

    Some of these regulations likely contributed to the meltdown. Mark to market was one of these government imposed regulations that likely helped accelerate the collapse of the companies that held mortgage related security instruments.

    The allowance of computerized risk models to replace capital requirement was a mistake. Again, regulations were in place, they were just changed.

    Given the size and budget of the folks regulating the financial industry arguing that deregulation caused the problem is difficult at best.

    The one exception to this are the GSEs, fannie and freddie.

    TJIT

  59. Odograph,

    I look at the collapse of the mortgage system as a failure cascade.

    In this case loss of confidence in and inability to determine the value of the mortgage backed securities collapsed the system. Rating agencies, mortgage originators, banks, and politicians all had a roll in setting the conditions that led to the collapse.

    The catalyst for the failure was the behavior of the the GSE’s (fannie and freddie).

    They were politically powerful, they avoided additional oversight through various political and financial bullying techniques.

    Paul Gigot and the wall street journal had been arguing for years that they needed more oversight and chronicled how the GSEs avoided this oversight.

    The problem is they were the major creators of the market for what turned out to be bad paper. They purchased vast amounts of it long before the government took them over.

    One of the biggest problems was the fact that they were government backed gave market participants a false sense of security.

    Their were a lot of participants in the mortgage markets. The fact that the two government backed groups had around 1/3 of the bad paper is a good indication of how much they helped catalyze the system failure.

    TJIT

  60. “You have argued that deregulation was the cause.”

    Trivial to disprove, since my text is above:

    “No, the government did not create this. A debt-loving society created this. They (we?) did it through every private and public institution we controlled.

    We ran up our credit cards, and our home equity lines of credit, and our national debt, all at the same time.

    But yes, Barry is right that deregulation, and reduced ranks of regulators, greased the skids.

    Greasing the skids was not the cause, but it … greased the skids, get it?

    – odograph

  61. “The problem is they were the major creators of the market for what turned out to be bad paper. They purchased vast amounts of it long before the government took them over.”

    How the heck can you say this, after producing the 1/3 quote yourself?

    It really boggles my mind that people can ignore facts to make this case, even facts they have at their own fingertips.

    – odograph

  62. BTW TJIT, from your TigerHawk link:

    “No, there has been no shortage of regulation, just a shortage of regulation that has to do with systemic safety and solvency. Regulators have been obsessed with e-mail retention, policies, procedures, desk manuals, ‘know-your-customer’ files, control self-assessments, speed of audit follow-up, even encouraging staffing up for ‘regulatory risk’!. Most of the regulatory focus has been on matters clearly designed to support private litigation, such as retention of documents and correspondence, and policy description and attestations (like Sarbanes-Oxley). “

    Do you think “just a shortage of regulation that has to do with systemic safety and solvency” builds YOUR case?

    – odograph

  63. Odograph,

    You make a good point about the mortgage interest deduction.

    It was just one of many government policies that were designed to increase home ownership.

    These policies have been in existence for a long time and they helped create the environment that led to the financial collapse.

    The fact that government regulations and policies helped drive the meltdown means we need to be exceedingly cautious on how government power is applied to the problem.

    There is substantial risk that government action can make the problem worse and set up the environment for future train wrecks.

    Current EU and US biofuel policy is one example of this.

    Inappropriate government polices, put in place at the behest of rent seeking groups (homebuilders, mortgage companies, home buyers, corn producers and ethanol refiners, etc) that benefit from the policies they want.

    These private groups benefit from the policies and the general tax paying public pays for the benefits the private entities get.

    Obviously not a good situation.

    TJIT

  64. “The fact that government regulations and policies helped drive the meltdown means we need to be exceedingly cautious on how government power is applied to the problem.”

    I agree with this. For me it would mean, ideally less government subsidy for home ownership, but also appropriate regulation and oversight for solvency and systemic risk.

    – odograph

  65. Odograph,

    Agreed.

    The issue is setting up systems that keep things solvent without destroying innovation and cutting off credit to those who need it and use it responsibly.

    Not an easy thing especially with the politicians tendency to enact politically popular but economically destructive policies in time of crisis.

    TJIT

  66. Odo – I didn’t say that Bush didn’t share some responsibility, he does. But so does Barney Frank, Chris Dodd, Chuck Schumer, Robert Rubin, Franklin Raines, the CEOs of the financial institutions. So do the people who borrowed money they didn’t have to buy houses they didn’t need. Add to that those who used their credit to buy property to flip hoping to make a quick buck. And while we’re at it don’t forget the developers, appraisers, and bank loan officers who were scamming the system.

    Then you have lenders like Countrywide and their “friends of Angelo” in congress and at Freddie and Fannie getting sweatheart loans so they would look the other way (Dodd, Dorgan, Raines, etc.) while Countrywide continued to write bad mortgages.

    Aggressive use of the CRA and Freddie and Fannie moving into the sub-prime market, buying up Countrywide’s and others loans and then bundling them into mortgage backed securities is what caused this mess.

    There were a lot of people who could have done something but didn’t step up and do their jobs, or if they did they were shouted down at congressional hearings and told everything was alright.

    But I guess it is just a lot easier to blame Bush for everything.

  67. This paragraph is absolute bullshit:

    “Aggressive use of the CRA and Freddie and Fannie moving into the sub-prime market, buying up Countrywide’s and others loans and then bundling them into mortgage backed securities is what caused this mess.”

    There is no historical basis, the only place you hear it is in conservative talk radio echo chambers.

    If you want to actually understand this you have to drop crap like that for what it is.

    Period.

    – odograph

  68. To reiterate the truth, folks like Countrywide took the ball from Freddy and Frannie, and ran with it.

    It is absolute bullshit to say that Freddy and Frannie helped that or contributed to it at the time.

    Their ONLY role was to come back in after the crash as they were encouraged to pick up toxic assets and support the crashing market. You can fault politicians for pushing them to that premature clean-up role, but to say they contributed to the bubble of sub-prime instruments is to get the YEAR wrong!

    – odograph

  69. I looked it up. As of November 2007 Fannie Mae held a total of $55.9 billion of subprime securities and $324.7 billion of Alt-A securities in their portfolios.

    Sounds like a lot, right?

    Except, the value of U.S. subprime mortgages was estimated at $1.3 trillion as of March 2007

    In other words, Frannie controlled 4% of the sub-prime portfolio.

    http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

    – odograph

  70. Regarding the gas tax idea–
    This does not seem to be the answer to me. That’s like trying stop a crack addict from buying crack and getting her to pick up a more healthy habit by raising the crack price. It doesn’t work because there is an underlying issue that will resurface in whack-a-mole fashion if the plug’s not pulled on the problem.
    The government’s hands-off/deregulation attitude (along with its through-the-looking-glass style tax structure) has harmed the country, but it’s too late to be truly fixed by paternalistic involvement now, even the good kind. There comes a time when the child becomes an adult by taking responsibility for his own actions and the results, despite all his parents’ foibles. I think this is where we are in the U.S. today. The government didn’t do a very good job and now it’s time for the American people to grow up. read the rest at: http://www.outofaustin.wordpress.com

  71. From Barry Ritholtz, economist extraordinaire:

    “Nothing in any Bush speech that pushed for more lending to minorities and increased lower income home ownership caused the problem. Neither did any similar Clinton speeches. Nor did related the legislation related to the Bush speeches, nor did the CRA, nor Fannie Mae or Freddie Mac. Indeed, none of these actions required the sort of reckless lending that we saw from 2002-2007.

    Understand this simple fact: In an ultra-low rate environment, where prices are appreciating rapidly, and mortgages are being securitized, ALL THAT MATTERS IS THAT THE BORROWER NOT DEFAULT IN 90 days (or 6 Months). The goal was to make a loan that did not default in that period of time, it cannot be put back to the originator.

    As a mortgage salesman, you only lose your a fee if a borrower defaults within 3 or 6 months. What do you do to maximize your returns? The best way to do that — to put people in houses that would not default in 90 days — was the 2/28 ARM mortgages. Cheap teaser rates for 24 months, then the big reset. By then, it was no longer your problem.

    Can you grasp what a monumental change this was? Instead of making sure that borrowers could pay back ALL OF THE 30 YEAR FIXED MORTGAGE, you only had to find people who could afford the teaser rate for a a few months. THIS WAS AN ENORMOUS AND UNPRECEDENTED SHIFT IN LENDING.

    This is the key to the housing boom and bust, and ultimately underlies the entire credit freeze. And, it would not have been possible without the Greenspan ultra-low rates, which made the teaser portion (the “2” of the 2/28) of these mortgages so attractive.

    ~~~

    Those who continue to blame the CRA, Fannie Mae, etc. reveal their fundamental misunderstanding of how credit operates in general, what the financing process was like from 2002-07, and how this situation came to pass. Or worse, they understand it, and choose to lie about it anyway for partisan political purposes.

    You either understand these simple facts, or you don’t. If you cannot comprehend this, well, then, I am at a loss as to what that says about your cognitive functioning. But if you understand this, but spit out the nonsense anyway, then you are merely a partisan with no respect for the truth.

    And that seems to be the main people blaming the CRA and Fannie/Freddie for the credit/housing crisis — those folks who either can’t think — or wont.”

  72. ALL THAT MATTERS IS THAT THE BORROWER NOT DEFAULT IN 90 days (or 6 Months)

    Isn’t this what Soros in the Moyers interview called the ‘agent-principle’ problem ?

    RBM

  73. Get that? Bush pushing zero-down loans?
    OK, so are you willing to retract this nonsensical statement?
    No, the government did not create this. A debt-loving society created this.

    But I guess it is just a lot easier to blame Bush for everything.
    Hey, don’t blame us: Mr. Complete-lack-of-humility can only blame himself for the target painted on his back. Americans are quite forgiving, to those willing to admit their errors.

    Perhaps now he’ll have an answer to the question: What is the biggest mistake you made as president?

  74. Odograph – it appears that that well know conservative rag, the Washington Post agrees with me: Is Capitalism Dead?

    The “money quote”: Government support for housing was well-intentioned: Homeownership is a worthy goal. But when government favors a particular economic activity, however validly, it must seek countervailing control to ensure the sustainable use of public resources. This is why banks must meet capital requirements in return for federal deposit insurance. Congress did not apply this sound principle to Fannie Mae and Freddie Mac; they were allowed to engage in profitable but increasingly risky activities with an implicit government guarantee. The result was that taxpayers had to assume more than $5 trillion of their obligations. Contrast U.S. experience with that of Canada, where there is no mortgage interest deduction and the law requires insurance on any mortgage over 80 percent of a home’s purchase price. Delinquency rates at Canada’s seven largest banks are near historic lows.

    Without Freddie & Fannie buying up these toxic loans and bundling up into mortgage backed securities, this crisis doesn't happen. Without political coverage from congress, Freddie and Fannie wouldn't have been allowed to operate as they did. Under Raines they were unable to produce an auditible balance sheet and income statement. Fannie Mae accountant: I warned Franklin Raines

    See the date on that story – 2004!

  75. OK, Odograph. You seem to be very critical of GWB. Let’s imagine it is 2004 after the election. What would YOU have had him do differently in order to stop the credit crisis?

  76. King: Don’t cross your wires. Yes, Freddy and Fannie had accounting scandals. They were, broadly speaking, a bunch of crooks.

    That doesn’t mean they invented subprime though. It just means there would have been (smaller) problems without subprime.

    These are properly separable issues.

    And while I don’t think Freddy and Frannie (or CRA) were the “cause” neither to I think Bush alone could have prevented this. It’s more complicated than that.

    Optimist: I was dinging King a little with Bushes call for zero down loans, but it was more typical of all the political cheerleading than a real cause.

    But it would have helped if he’d supported oversight. It would have helped if he’d appointed an SEC Chairman a little less blind than Christopher Cox.

    (McCain’s call for Cox’s head was odd politically, and impossible for the President legally … but I suspect that McCain knew where some skeletons were buried, as was speaking to them.)

    – odograph

  77. Hey Odo – thanks at least for admitting that there was crooks at the GSEs.

    Freddie and Fannie were willing participants in the mess. Had they refused to buy subprime mortgages, even the small amount they owned, it would perhaps have calmed the market. When you see quasi-public officials stuffing their pockets with sub-prime profits it tends to put the imprimatur on the practice.

    The problem seems to be parties passing risk off to others in the chain. Whoever was valuing the risk wasn’t assigning enough of a premium. The loan originators figured out that as long as they made loans that didn’t default within the first year, they could send these loans to banks and investment houses that would buy them at a profit, with no recourse to the originator. The buyers should have been more wary. Credit Default Swaps and their derivatives are the issue. When the derivatives market (including CDS, energy, etc.) approaches $700 trillion, or roughly 10 times the GDPs of all the nations in the world, there is a problem. Nobody asked if the entity that you were paying CDS premiums to had the ability to pay off. Those who took CDS bets looked at it like free money, betting that the economy and the housing market would continue to grow.

    I’ve wonderd about Private Mortgage Insurance. Nobody seems to mention that in this discussion. The reserves probably aren’t enough to cover the losses, but those that borrowed with little or nothing down should have paid PMI.

    Now, I suppose that President Bush could have stepped in and tried to get Congress to pass laws regulating the CDS industry, insisting that those collecting premiums had adequate reserves to make payments. But that would likely have dried up mortgage credit in the US. Politically, it would have been suicide.

  78. I still bet that the Bush agencies regulated less than their ability, less than their legal mandate.

    “President Bush has installed more than 100 top officials who were once lobbyists, attorneys or spokespeople for the industries they oversee.” link

    That shouldn’t be surprising, just 2-3 years ago they were totally up-front about that as their goal.

    – odograph

  79. A comprehensive policy, requires a good comprehensive cross-analysis of the pros and cons of the various approaches to solving global warming. You may want to have a look at Debatepedia and the UN Foundation’s pro/con break down of twenty approaches to the global warming crisis (wind, solar, electric cars…):

    http://wiki.idebate.org/index.php/Global_climate_change_debate_portal

    As far a transportation goes, my conclusion is that the best policy is to move entirely toward electric cars, and then move to make all supplies of electricity as clean and renewable as possible (solar, wind, tidal…and, I think, nuclear.).

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