So the administration has rolled out its high speed rail plan. Perhaps not suprisingly, it look very similar to the old crappy rail system.

The old and new rail system

The old joke is that trains give you all the discomfort of airline travel, but in six times the time. The rail plan calls for trains to travel 100 miles per hour, so the joke should be revised to four times.

The fact is, trains are a great idea in a country the size of Japan, France or Britain, that you can backpack across in a day. They suck, just a little bit, for travel across a country 3000 miles wide. Why take a high-speed train that gets you from LA to NY in two days when you can fly and be there in 5 hours?

High-speed trains would be a better idea for high traffic commuter corridors. As an example, look closely at the map and you’ll notice you still can’t travel North. There is no connector between Oklahoma and Kansas City, or anywhere in Georgia up through Kentucky, Tennessee and into Indiana.

You can’t get from Albuquerque to Denver, Denver to Phoenix, Phoenix or Albuquerque to Salt Lake City, or any of those cities to anywhere in Texas.

If you are a salesman in the southwest, you can get to Chicago faster than you could run there, that’s true. Chances are most of your travel will still be by air, and flying short distances within your region, though.

It looks to me like someone went to Amtrak and said, “If you could go to all the same places using the same shitty routes, but do it marginally faster, what would that look like?”

Congrats, guys. You batted their answer out of the park.

Let’s be clear about one thing. The economic disaster we find ourselves in is not entirely the making of Wall Street. For the Democrats in the audience, it is not entirely the fault of Republicans. For the Republicans in the audience, this is not entirely the fault of Democrats. This is, to put it plainly, the net result of the perfect storm of stupidity.

If you have ever read The Perfect Storm, there is a great explanation of the three weather phenomenon that came together to create the system that is the focus of the book. The movie glosses over the explanation, so read the book instead.

What we are witnessing this week is the same interaction of three deadly factors. Any one of the three would be destructive. In total, however, they have just cost you and I a trillion dollars. And don’t for a moment think the total will end there. Mark my words, this bailout has only begun to cost us.

The Three Factors

Under a Republican congress and Democratic President, Washington expanded a Carter era relic called the Community Reinvestment Act.

The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound banking operations.

In other words, banks will make loans for houses to people who are ill-equipped to pay them back. The “encouragement” came in the form of penalties for not doing so.

Add to that another bill passed by a GOP controlled Congress with a Democratic President. That bill, the Gramm-Leach-Bliley Act sought to:

Enhance competition in the financial services industry by providing a prudential framework for the affiliation of banks, securities firms, insurance companies, and other financial service providers, and for other purposes.

In other words, prior to the law, Insurance companies could sell insurance, banks could do loans, securities firms sold stock, and never the three should meet. After the law, it was a free for all. Banks created securities out of the shitty loans they issued under the CRA, Insurance companies under wrote those while creating their own shitty securities, etc, etc.

Now into the mix you have to throw the American people. They look at the news and see home values going through the roof. The react the same way they did during the Beanie Baby craze. They rush out to get a piece of that action. They can buy a $5 stuffed animal and sell it for $300 on eBay, so they buy the hell out of Beanie Babies.

Unfortunately, economic laws will only support that for so long. The company will make more (thereby reducing demand for the things), people will lose interest, or some other force will enter the market and suddenly your left with crates full of stuffed animals rotting in closets. Beanie Babies were an artificial market.

In the same way, people saw home ownership as a great way to make money. Home flipping became the rage, people took out second mortgages to buy second homes, and suddenly everyone had to buy a house.

The Perfect Storm

The trouble is when you have people who can’t afford to buy houses meeting up with people who have to sell houses to keep from running afoul of laws designed to promote home ownership among the poor, you wind up with a) a guy who will lie about his income or b) a guy who will lie about the value of the house or the terms of the loan.

So suddenly a lot of people are invested in houses they can barely afford anyway, and the real terms of those notes go into effect. People can’t pay, so the value of that note becomes worthless.

Since you have built shitty securities on the value of that house, the value of those securities go into the toilet. When that happens, the debt that the mortgage company is carrying becomes unsustainable and the house of cards comes tumbling down.

This is exactly what we’re witnessing. We’re seeing exactly what happens when an artificial market comes tumbling down. There never was a market for housing for people who can’t afford it. The government created one, took their eyes of the guys who were managing it, and is now asking us to throw another deck on the house of cards so people who can’t afford to borrow can keep doing so.

DC is Fundamentally Broken

I have said that Washington DC is so fundamentally broken it is going to drag the rest of the country down with it. I am more convinced of that than ever today.

With this bailout, we’re solving nothing. We’re simply allowing people who shouldn’t have credit to keep on borrowing. We’re enabling addictive behavior. The Congressmen who voted for the bailout should be tried as traitors.

Despite all of that, I was forced to watch to politicians on TV last night both of whom blamed “the greed and corruption of Wall Street” for the mess while giving a pass to the incompetence and stupidity of Washington. Make no mistake. This dismal situation was the result of horrible policy that started with, and was supposed to be overseen by, Congress. They passed the laws that allowed this to happen and ARE TAKING ABSOLUTELY NO RESPONSIBILITY for the mess they created.

What’s worse, is both candidates for President, and both candidates for Vice President, appear to have learned absolutely nothing from watching this happen and are pursuing the same ridculous policies that have crippled our nation.

I believe you can absolutely count on two things.

First, when the next Administration is about 6 months or a year into its term, they will have to deal with an economic disaster of Biblical proportions. This is a band-aid fix for a missing leg. It’s stupid and will do nothing but punt the problem into an off-year when the sheep aren’t watching.

Second, if you think we dodged a bullet with this bill today, you haven’t seen anything yet.

The attention to earmarks that has been paid in this campaign highlights the hypocritical nature of the American electorate. We decry “the other guy’s” earmarks. When our guy is bringing back the fat, we praise him. When the other guy is doing it, we vilify him. It’s one of the odd ironies of our political system.

The fact is, we judge our elected officials by what they do for their state. The jobs they bring home, the scientific research centers located in our towns, the military bases, the bridges, etc. When someone is good at attracting that investment in their home state, we call them effective. If they fail at bringing federal dollars back home, we call them ineffective.

We hire politician’s to do a job where the goal is to get stuff for their state. We give them the power – through the nation’s checkbook – to get that stuff. Then, we demand that they not do their job. It’s ridiculous.

If earmarks are evil, and we want to get rid of them, then we need to fundamentally change the role of the elected official. We cannot support a system where their election depends on their ability to deliver for the people, and then blame them for delivering.

Banning earmarks outright would take more political will than Congress has ever had. It’s like challenging them to put down their machine gun and walk willingly into a knife fight. They know they have the advantage over their would-be rivals. As long as they bring back the pork, they don’t have to find a real job.

Why would they want to give up such a powerful tool?

Since political hacks are inclined to take credit for the sun coming up every day, I will be the first to declare victory in my ongoing campaign against the USDA Graduate School. An alert reader (holy crap! I have readers?) points me to this little passage in HR 6124 which became law in June.

`(B) TERMINATION OF AUTHORITY- The authority under paragraph (1) shall terminate on the earlier of–

`(i) the completion of the transition of the Graduate School to an entity that is non-governmental and not a nonappropriated fund instrumentality of the United States, as determined by the Secretary; or

`(A) IN GENERAL- The Secretary of Agriculture is authorized to use funds available to the Department of Agriculture and such resources of the Department as the Secretary considers appropriate (including the assignment of such employees of the Department as the Secretary considers appropriate) to assist the General Administrative Board of the Graduate School in the conversion of the Graduate School to an entity that is non-governmental and not a nonappropriated fund instrumentality of the United States, including such privatization activities not otherwise inconsistent with law or regulation.

`(1) CEASE OPERATIONS- Not later than October 1, 2009, the Secretary of Agriculture shall cease to maintain or operate a nonappropriated fund instrumentality of the United States to develop, administer, or provide educational training and professional development activities, including educational activities for Federal agencies, Federal employees, non-profit organizations, other entities, and members of the general public.

`(2) TRANSITION-

`(ii) September 30, 2009.’.

That’s right! The ridiculous waste of taxpayer time that is the USDA Graduate School must become a private entity or close its doors by October of next year.

Having flaunted its tax status to engage in direct competition with schools that don’t get such breaks, while still claiming to be “non-governmental” the USDA boxed itself into a corner. Apparently someone in government realized the ridiculous contradiction in calling it an NAFI while allowing it to use its government connection to skirt laws. So language was inserted to pull the plug on this $60 million boondoggle.

All I can say is it’s about time. Thank you to whatever House staffer followed my gripes about this and finally had the stones to kill it. Now the next question is, what bloated piece of bureaucratic crap do I set my sights on next?

P.S. I don’t actually believe I had anything to do with getting this killed, but I’ll be the first to pop the cork on a champagne bottle next October 1.

Update: My dear friend Anne was the first person to point out the absurd government abuse that is the USDA Graduate School. Any part I played in in getting it closed (which was none, but ignore that) starts with her.

About a year and a half ago, I posted on the ridiculousness that is the Graduate School, USDA.

[S]urely education initiatives would fall squarely under the Department of Education, right? After all, the department name kind of makes that obvious, doesn’t it?

Not to the guys at the Department of Agriculture, apparently. They operate the USDA Graduate School. “Hey”, you may be saying, “This must be like the DOE thing. There’s a logical explanation, right?”

Not that I can find. If this were some sort of program to teach subsidized farmers how to not grow corn, I could understand it. If it were a program to teach failed farmers how to do other things, I could get that to. Instead, this project seems to be a giant community college for anyone living in Washington, DC that wants to learn such critical life needs as: Creating a Podcast; Conversational French; Mushroom Identification; and Screenwriting.

In the nearly 18 months since, I have received the occasional e-mail or comment from people either chastising me for taking issue with such a noble program or, more recently, asking further questions about it. This comes from a note I received today.

Hi Turk! I came upon your USDA Grad School posts by a google search. Ironically, I was trying to do research on whether they are actually affiliated with the USDA or not. Just for background, the reason that I was trying to find this out is that government agencies can purchase many things tax-exempt at a state/local tax level in the state of [redacted], as states are
not permitted by the US Constitution to tax the US Government. However, [redacted] law does allow for the taxation of private universities from out of state. Naturally, they want to be tax-exempt as a government agency despite not receiving any funding as a government agency.

The author of this note cites a Washington Post article in which the Graduate School extols the virtue of not being funded by the USDA, and yet they tout the fact that the governing board is appointed by (you guessed it) the Secretary of Agriculture. So “funded by” and “controlled by” are two different things. Here are the kickers from that WaPo piece.

“We’re a self-financing organization,” Jerry T. Ice, the school’s executive director, said in an interview. “The folks that work at the graduate school are not federal employees.”

… The school has a staff of 300, an annual budget of more than $60 million and a governing board whose 17 members are appointed by the secretary of agriculture. (emphasis mine)

Sixty million dollars? And yet they want to skip taxes in the states in which they operate? They want to use a technical loophole to claim government affiliation for the purpose of avoiding obligations that apply to every “actual” college, but they want to profess their independence from such groups for the purpose of justifying their existence.

OMG! This is infuriating. It was bad enough when I thought this was simply a ridiculous holdover from some bygone era of retraining milk maids to use typewriters, but this has gotten absurd.

If there is, as the WaPo piece argues, some legitimate good that comes from this school, fine. In that case, get rid of the appointed board, let private companies bid for the right to run it, and privatize what should be a private entity. There is no compelling national interest in this program being run by USDA (or not run, depending on which argument you buy). Spin it off. Make it a commercial entity and let it pay taxes to the government rather than skipping out on its financial obligations while claiming exemption.