Allow me to explain (b). The government made those loans interesting for tax reasons for large banks. (read the CRA)

Oh, so you've read the CRA. Good. So you can explain the tax credits to banks (or better yet, cite the CRA!)? What they were? What was requird to get them? Tax incentives for borrowers is one thing, but for banks? That's darned interesting.

So there we have it. Lots of loans, who are, in the long term, extremely unprofitable BUT having them in your possession on Jan. 1 of any year is unbelievably profitable.

You didn't come anywhere near reconciling your claim with the four pieces of evidence I pointed out. Like how that affects the majority of the subprime lenders--who were not covered by the CRA. At all. Or again, why CRA covered loans did not underperform mortgages in general.

It seems you've dropped the GSEs from you complaint. What happened there? Where is the devastating explanation of how they drove the housing crisis from behind?

So you've created a game of "hot potato". You have a package that blows up & you pass it around.

Ding! That's definitely the source of the problem. But the incentive to do it is there in the absence of the CRA or any other bogey man piece of legislation. How do we know this? Because the majority of the hot potato loans were being originated by "nonbank entities" rather than by regulated institutions. I would think somebody as data driven as yourself would have checked that out.
You seem... err... out of your depth on this one.

Sulphur dioxide emissions have reduced by a little under 50% in the US. World-wide, however, they have risen. The net result was, obviously, a large rise in these emissions...However, the policy only bought some time, it did not solve the problem.

Sooo... "buying time" is not a useful activity at all, right? Because to me, that's a very useful activity. The longer you have to sort out your emissions problems, the better off you are for reasons explained below.

More to the point, was our economy crippled in the process? Why am I not busy stacking millions of skulls of dead American children in a gulag somewhere?

I can't find any CFC numbers. However, CFC's cause the expansion of the gap in the ozone layer. I wonder if it has shrunk ? Since if your claims are right, then we'd see a massive shrinking of the hole in the ozone layer ... I'm sure you've checked that beforehand ... heh ... I forgot ... democrat ...

Did you use your mad data-finding skills to note that CFCs take an average of 15 years to get to the upper atmophere and stay there for an average of 100 years? Considering the date of the Montreal Protocol and that total atmospheric concentrations of the chemicals didn't start decreasing until the early / mid 90s, no I wouldn't expect that at all.

The data from the Montreal Protocol agreements are an excellent example of what can happen when a handful of the top powers get together and tax an emission. It lowers their emissions and spurs innovation, creating products that then make lowering emissions a low-cost, enabling countries that originally didn't sign on (*cough* China) to be more easily goaded into lowering their emissions. But perhaps I should defer to a more rational person who has spent 3 minutes on Wikipedia.

Without the introduction of either CRA and Fannie/Freddie you can be absolutely sure that this would not have happened, and there would have been marginally less houses developed on American soil (not much less though, and they're all seriously undervalued now as a result).

Oh, good. Maybe you can be the first person who can answer these simple questions about the situation. Let's say you're a bank. Let's say the evil leftist government comes to you and says you have to loan a certain amount of money to filthy poor people. You know that each loan is, on average, unprofitable. Do you:

a) Grumble about it, do the bare minimum, and then use your enormous lobbying clout with Congress to make the problem go away?
b) Make as many of those unprofitable loans as you possibly can, searching under every rock and log for loan candidates, leveraging yourself out the wazoo to do it in order to maximize your losses.

Your theory should explain:

1) Why profit maximizing firms generally chose (b).
2) Why a law that simply says, "You must loan money where you take deposits" and applies only to regulated banks would cause non-bank entities to take over the loan market by making exactly those loans even though they were not regulated under the CRA.
3) Why the GSEs, who were presumably "driving" the whole thing, managed to spend most of the sub-prime run-up *losing market share* to these non-bank entities.
4) Why the CRA loans that presumably are the cause of all of this managed to do so without actually underperforming the mortgage market in general.

Basically, the argument makes no sense from an economic perspective. At least, not if you believe that supply curves slope up and demand curves slope down, or that rational firms maximize profits given a set of constraints. That's why on one side of this argument, you have crackpots like Kevin "Dow 36000" Hasset, and on the other side, you have people like Janet Yellen.

You've been had. This was your run of the mill speculative bubble that was exacerbated by what amounted to unregulated insurance markets and artificially low interest rates pushed by the Fed. If you can put together a coherent theory that hangs properly on economic principles and matches up with the data, I'd love to see it.

You didn't answer my question : cap&trade will not lower emissions, and neither will cap&trade + tariffs. There is NO way to fix the bill that does not violate basic concepts of economy. Why do you think you can "fix it anyway" ?

That's because I disagree with your premises. If you they were correct, we would not have seen government policy working with other emissions as it has. You didn't answer my questions about CFCs and sulfur dioxide, probably because you can't square it with your assumption that emissions taxes simply cripple the economy and don't reduce emissions. You might as well say, "Ice is not cold. Why the hell would you put it in your drink to cool it off? It is because you're a STATIST COMMUNIST??"

An example for this type of business model would be the gaming industry, where the standard practice is to sell hardware at a loss in order to get your system as widely distributed as possible in the hopes that software liscenses will cover your expenditures.

So what would be a good example of a (long-term profitable) instance of a business model in which you buy carbon credits for a higher price than its marginal product, then? Companies are free to buy any number of assets at unprofitable prices. They rarely do, because there usually aren't perverse incentives to do so.

And as for companies that deal in international markets, forget about that poor US company being able to compete with anyone when they automaticallty have a additional expense on their books that no one else has simply because of this carbon fee.

The question is, which markets are we looking at? If the US, Australia, and Europe are generally cutting back CO2 output and imposing import tariffs on countries that are not, your losses are mainly going to be in the export market that consists of countries other than the US, Australia, and Europe. What percentage of US GDP is net exports to those countries?

A recent study in Spain found that for every green job created through these type of government programs 2.2 jobs were lost. Not to mention that their energy costs have gone up 31% under that system.

I don't think that we should labor under the assumption that a tax like this one is supposed to result in a net increase in jobs, especially in the short run. It's essentially recognizing that something that we treat as "free" is not free in reality. That's not going to be good news no matter how you slice it.

Let me ask you : are you SURE that you could have fixed those laws (not, mind you, with the benefit of hindsight) ?

Actually, I still would still have supported TARP in its original form as it was better than nothing, unfortunate losses notwithstanding. I would have liked to have seen something that addressed the solvency issue more agressively early on to wring some of the uncertainty out of the system, but putting a floor under systemic bank collapses was a good call. Many economists were calling for proper capital injections in the form of equity purchases rather than the no-questions-asked purchases of questionable assets that happened early on. I was among those who thought that the way things went later, with the government trading capital for a dilution of ownership was the right way to stabilize broken banks while not piling on massive moral hazard.

My objection to this particular cap and trade bill is this: Given its length, it's likely not a cap and trade bill. It's more than likely a "some parts of the industry sort of cap and trade with thousands of complicated exceptions to the point where it's just a random wealth transfer to constituent industries" bill. That's a separate issue from whether the general principle is correct. A proper set of cap and trade regulations should be describable (if not politically passable) in a hell of a lot less than 1200 pages.

How does single 'family' factory compete with a large multinational for these rights?

That depends on which one is able to make better use of the CO2. If the large multinational needs the CO2 to produce something that's immensely profitable, then it's worth it to bid the price up beyond what the smaller company would pay. If it's the other way around, then the small company wins.

It's not a matter of how big you are. It's a matter of how much you *really* need that CO2. You'll certainly pay no more for it than its usefulness in making you a profit. If, for example, you could make a $10 profit by emitting a ton of CO2, there's no reason in the world for you to pay $11 for that credit.

If all their wealth is being generated by local production facilities that will now all have an added expense to operate how can they hope to compete with a company that has offshore facilities that they can easily use to offset the expenses.

Ah. I may be misreading your question. The problem you're asking about is whether an international corporation could just remix its balance of local and international production to reduce its burden. I would say that the correct way to handle that is to slap an ofsetting import tariff on energy-intensive goods that don't come from places that are similarly capped. In fact, if you don't do that in the first place, a cap-and-trade system is DOA as the first thing that would happen is all of your carbon-intensive work will be immediately outsourced to unregulated countries. You might as well skip the whole thing.

That's an interesting illustration of... well... riders in a huge bill. Let me start by saying that the particular instance of cap and trade concerns me for much the same reason. Its sheer length pretty much guarantees that it's likely to be hopelessly broken. I almost certainly wouldn't vote for it if I were in the Senate. You may be surprised to know that I would support something similar to the Read the Bills Act.

That being said, despite my misgivings about how TARP was administered, if the main complaint is that it gave a couple of billion dollars to rum producers, it would have been a very deft manuver indeed. I can come up with much bigger complaints than that.

Meanwhile the rest of the world improves their lives to half that point ... so what has happened ? Emissions increase tenfold (factor 9.82). Suppose the US did nothing ? Emissions increase tenfold (factor 10.5).

You could have used exactly the same reasoning to explain why we were going to obliterate the ozone layer no matter what public policy was adopted. However, we're watching as concentrations of the most important chemicals are leveling off or decreasing and replacements for those chemicals are being found. Do you suppose that would have happened if we hadn't acted?

That's because the difference between those two is a difference of scale, not a fundamental difference.

That's absolutely right. And in the grown up world, most important differences are a difference of scale and proportion. We think about things, talk them through, and decide where the sweet spot is. Five miles per hour on the freeway? Probably too slow. Unlimited speed? Probably not safe. Should I argue with my boss when he suggests an unwise schedule? Ignore it and let it slide? Stab him to death with scissors? We make these sorts of decisions every day. Welcome to the real world.

You see, it is a form of "the broken windows fallacy". The private sector appeared to be failing to take care of people, so popular sentiment demanded the government to take over ...

That's about the biggest stretch to get to Bastiat that I've ever seen. Not every inefficient government action is analogous to the broken windows fallacy. Not at all.

I'm not saying massacres and shortages will start because of any one thing democrats do. But anything that raises taxes brings those massacres closer.

No, you just completely lack perspective. CO2 rationing = billions of deaths. Democrats not wanting to bomb Iran into oblivion = Iran is their favorite government. I see it a lot--just not in people who do a good job governing.

You might want to read "atlas shrugged". Urgently.

You know, I read my share of Rand in college, and just never got a kick out of fantasizing about being one of the "special" people who really drove society or brooding over how everybody leeching off of me is keeping me down. Maybe if I had gotten into it during my brooding teenage years. While we're recommending books, you may want to grab a copy of, Environmental Economics: An Elementary Introduction.

So we solve the problem of Americans having to pay more taxes than people of other countries by ...

tadaaa

Establishing ANOTHER set of new taxes. Because, you know, this one will work ...

Well, yes. If by "work" you mean "inhibit the flow of some goods across borders" then a tariff will work. That's what tariffs do.

Seriously, you have to be a democrat to come up with that one. I refuse to dignify this latest "idea" with a reason why it won't work, because you should be able to do so yourself.

Of course not, Why would you? That would involve stuff like showing the economic model you're using and explaining yourself. Why do that when you can post ream after ream of self congratulatory pap instead?

Well I hate to say it, but it's been tried, and a billion people died.

Oh, I forgot. You're one of the nutbars who can't tell the differences between, "we're paying a tax to pay for this road," and, "Up against the wall, comrade."

Do you seriously think there is any lack of consumers world-wide that makes the American market critical under any tax rate ?

Yes, in fact I do. When you add together the US and Europe, that's a pretty big piece of the world's export market for a country like China. Sure, they could cut their export down to, say, India, but that might raise questions about what the costs and benefits are. It looks to me like exports make up just about half of China's GDP, and every source I can find indicates that exports to the US make up a huge percentage of their net exports.

But let me guess : you've got YET ANOTHER new set of taxes that will solve every problem I've come up with yet.

What you've come up with is, "I'm extremely clever so I don't have to analyze your position." I'll freely admit that I cannot propose any sort of a tax on that.

You can keep coming up with new and inventive taxes that won't work due to the simple fact : today co2 emissions are NECESSARY TO LIVE.

That's true. And their costs are not borne by any market at the moment, so they will be produced in excess until we address that problem one way or another.

You cannot protect the commons without privatising them, you can't partition and privatise the athmosphere. That means nothing less than protecting the athmosphere is impossible.

Well, then we're doomed. Game over. Smoke 'em if you've got 'em. Of course that does raise the question, how did we manage to reduce so many other types of emissions worldwide? There must be different economic laws for sulfur dioxide.

In fact, reversing gravity would be a lot easier, since gravity probably is based on physical phenomena, while the thing about commons is based on pure mathematics.

Cool. Break out the math. Amidst all this masturbatory fervor, you haven't brought any to the table. I'd like to see a few variables taken into account. Let's start with a simple model that includes the market clearing price for US-only carbon credits assuming an efficient auction system, targeted tariffs on, say, the top 5 carbon producing goods that can be efficiently imported, a simple exchange rate model like US/China/compound worldwide composite currency, and go from there. If you've already crunched the numbers with a better model, feel free to share, though.

But, I know you'll say. We're smarter than that : we'll "build in a safety margin". Doesn't that sound decisive ? Of course, once the world sees the massive advantage that one player gets due to cheating, others will follow.

I'm guessing you totally missed my note about tarrifs to limit the offshoring of CO2 heavy industries to prevent the CO2 from simply moving across borders.

(like a certain government the democrats love above all others : Iran)

I'm sorry. I didn't realize I was talking to a person who was out of his fucking mind.

Why do you keep re-asking questions that have been answered before ? China will produce the amount that it was planning to produce ... and ... (since it still is communist, perhaps closer to fascism than to pure socialism, planning is actually a very central term to this discussion)

In addition, of course, China will produce all co2 that is produced by relocating American businesses.

Yep, you missed the part where I discussed that. Appropriately applied tariffs make importing carbon-intensive goods no more economically advantageous than simply paying market price for carbon in the local market. Those types of tariffs are also exactly the type of thing you'd use if you wanted to bring China to the negotiating table over adopting CO2 controls themselves.

You could even do this *while* massively lowering American co2 output and doing it without pushing a single legislative bill : build 20 nuclear power plants all over the US.

That sounds like a good idea, too. You'd have my vote on that.

We've gone over this already a few times. What democrats are doing, cap&trade will not lower output. This is not a point that merits serious debate, but a long since widely accepted (and proven) part of economic theory. Why and how, it's in every economics book, but it boils down to this : because increasing co2 output improves the lives of those who do it more than it destroys their lives.

Let me re-ask the question: If you don't ignore my suggestion about compensatory tariffs and actually make the price of imported carbon comparable to the price of domestic carbon, what will prevent a net decrease in carbon output? I'm not arguing that in the absence of barriers, the carbon production will simply move to where it's cheapest. Inserting those barriers is in every economics textbook I've read that covers this subject, so I'm asking why you'd neglect them.

So what is the reason for cap&trade ? Can you please give an answer that a rational person could accept ?

Well, I've given my reasons, but since you've chosen to argue against a policy that I wouldn't support, you don't follow.

Seriously, the way you're avoiding answering the question makes the "closet dictatorial communist" explanation very attractive : simple, direct and it is an actual explanation ...

Yes, that's definitely a good way to understand the world. It's easier to assume that people who disagree with you are doing so not because they understand the problem differently or weigh the costs and benefits differently, but because deep down, they're just evil. You caught me. My goal is the destruction of American society and the failure of motherhood and apple pie. Seriously.

Not important, it will be *critical*. The point of the tragedy of the commons is not that no-one behaves. In fact the point is that all but one single farmer behave. And it still blows the whole thing up. The whole plan has ZERO benefit unless you do this "important" thingy. And you yourself agree :

I'm not sure where you get the idea that I "agree" with the notion that a small net reduction in emissions is no better than no reduction.

Imagine this: The commons is the size of Montana and loaded with grass. If only one farmer misbehaves, the commons is not destroyed. If no farmers behave, the commons is destroyed. There is some critical mass of farmers required to destroy the commons. Yes, if your solution is above that critical mass, the commons will be destroyed. If you are below that critical mass, the commons will be degraded rather than destroyed. In either case, it takes longer to irreversibly damage the commons.

My suggestion is that degradation is likely preferable to complete destruction, especially if the plan does nothing to prevent more countries from signing on after the fact.

You cannot seriously believe that's what it's going to do, since such a claim goes against 50 years of established economic theory.

I'm very interested in hearing the established economic theory that indicates that China will increase its CO2 output just to spite us and offset our reduction in CO2 rather than simply producing the amount of CO2 it was planning to produce in the first place.

So, I ask again, what IS the purpose of cap&trade legislation ? Or is your answer simply "it's popular, you know, like those cabins on the titanic" ?

The purpose is to reduce the total amount of greenhouse gas emission. Properly implemented, it will do this. Improperly implemented, it will do exactly what you say it will. It's a simple question of doing it right.

This is something along the lines of:

Programmer 1: "There are five people on the team, and you're the cause of half the bugs. WTF is up with that?"
Programmer 2: "I also do half of all of the productive work. Find something else to complain about."

When added to the other joke called "carbon credits" I am amazed that somewhat intelligent people fall for this crap. It's OK if I pee in your pool, I filtered the toilet tank! Pure BS!

If your metric is the net amount of urine in both the toilet and the pool, peeing in the pool is OK as long as you don't pee in the toilet. What variable are you optimizing for?

The market has valued them at zero, which is why they don't exist in free markets.

That would be because in free markets as you define them, pollution costs zero dollars. Anything that reduces pollution or "allows" you to pollute is therefore worth zero dollars. This is not necessarily a good outcome.

Actually, it is not. The low quality mortgages pushed up the prices of all houses, because, suddenly, there were 10-15% fewer houses on the market â" that's a huge figure, actually, and caused a great distortion. Our Capitalist system is very efficient, and it proceeded to address the imbalance between the supply and demand. It just was not prepared for the demand to be artificially exaggerated by the government's meddling...

If what you're describing were the complete story, it would have ended with, "...and housing prices across the board went up permanently." It simply cannot explain a bubble in which prices skyrocket well beyond sustainable levels and then crashes. In order for that to happen, somebody somewhere along the lines needs to be incorrectly evaluating the value of something.

You don't have a way to force every last human on earth to comply.

That's certainly true.

And you can't ask people to starve for clean air and expect them to comply (which is exactly what you're doing btw).

Starvation? Seriously?

That's the whole problem in the "tragedy of the commons". It DOES NOT matter if "most" people behave. It does not matter if "nearly everyone" behaves. it does no good if "everyone except that one guy" behaves. All those things accomplish exactly nothing.

That assumes that one player (or a small number of players) are capable of doing just as much damage to the commons as the entire population is. This is simply not the case. I agree that it will be important to cut emissions in other nations. It does not follow that having some of the players reduce their emissions is of zero benefit.

If any of Ahmadinejad, Kim Jong Il, or the Chinese refuse to sign, you're just destroying the American economy without ANY advantage for the athmosphere.

Rephrasing what you just said, "If the US cuts its carbon emissions, Iran, North Korea, and or China will increase their carbon emissions by an equal amount in order to make it a net gain of zero." The only reason why this might actually happen is if we stupidly allow the offshoring of carbon-intensive production to non-capped countries. Otherwise, any country that doesn't participate is simply going to continue to produce whatever they perceive to be the optimal amount of CO2 emissions.