I read Erick’s post Monday morning and there are a couple of things I disagree with. There is a name for people who think that Palin or Bachmann are stupid.

Democrats.

However, there are plenty of Republicans who think that, at this point in her life, Sarah Palin doesn’t have the experience to run for President. Bachmann is in the same position.

Secondly, I can’t agree with anybody who leaves Herman Cain out of the group of smart guys. He has a different mix of talents from Romney or Daniels or Gingrich, but I think that he belongs in that group. People who are good with numbers, who can manage, and who can inspire are rare. A lot of folks can do one, some can do two, but few can do all three.

Mitt Romney:

I like Romney. He is a very impressive guy, and he would make a fine President if he won. Polls show him to be competitive with Obama. However, I think he lacks the ability to inspire. I also don’t think he is a strong conservative.

I think people make too much of his history with healthcare. Back in 2007, nobody seemed to think that Romneycare or the individual mandate was a terrible idea. I bet I could dig up quite a few quotes from conservative pundits who praised it at the time.

Times have changed of course, and Romney has to deal with that.

Tim Pawlenty:

I supported him for McCain’s VP. I think he is a good guy. The trouble is, he doesn’t seem to get much traction with the voters. He supported ethanol because Minnesota is a big corn producing state. He was trying to do the best for his people.

Herman Cain:

I don’t understand why Erick thinks he doesn’t appeal to the elite. He understands what it takes to run a medium sized company. That’s pretty elite! However, he also understands what it is like to come from a family that isn’t rich. His life experience, and his race, potentially gives him very broad appeal.

Mitch Daniels:

I don’t get this guy’s appeal. He’s spent most of his life in Washington. As W’s budget director, he is directly responsible for the deficits run up during the Bush years. Look for Obama to remind people of that!

Yes, he seems to have done a good job as Governor of Indiana. However, he has a tremendous amount of professional baggage because of his time in the Bush White House. His decision to pick a fight with social conservatives also strikes me as very poor political judgement. Socons are an important part of the Republican base. Social issues don’t hurt Republicans in national elections the way they do in California.

Why annoy social conservatives when you don’t have to? Maybe because he really doesn’t like them?

My take is that he is being pushed by the Republican elite inside the beltway.

Newt:

In 2008 he came up with “Drill Here. Drill Now. Pay Less.” The McCain campaign picked up on that and it worked well for them. He’s had some good ideas in the past, but I think he more on the left of the Party now. I don’t know what he thought he was doing on last Sunday’s talk show. The reponse to his comments was predictable, and he owes Paul Ryan an apology.

Palin and Bachmann:

Smart. Charismatic. Inexperienced. Their fan clubs may overlook their lack of experience. The rest of the country won’t.

If I was voting tomorrow I would be torn between Romney and Cain. Romney is the sensible pick, and Cain is the exciting hail Mary pass. I really want to see more of Cain. Is he ready for Presidential politics? Would it be crazy to pick somebody who has never run for office before?

(Technical note: I’m using IE 9, and am having a lot of trouble with the blogging section of the site. Sorry for the presentation of the post)

1/ People facing foreclosure should be offered a deal. Instead of paying into Social Security, they would be allowed to use that money to help pay their mortgages, and they would stop accumulating Social Security benefits. Older people would be offered an additional option. Government would offer them a lump sum payout in return for an agreement to reduce the Social Security benefits which they had built up.

This would only be offered in cases where it was very likely to succeed in keeping people in their homes. There would be a minimum level below which Social Security benefits could not be reduced.

2/ People who go through foreclosure should face a lifetime ban on getting another mortgage. Many people, especially in California, are walking away because they have lost a lot of money on their homes and want to stick the bank with the loss. They could pay the mortgage, but it isn’t really in their financial interest to do so. They need to be given a strong incentive to keep paying.

3/ Improving the McCain plan. Like many things in finance, the question is at what PRICE does McCain plan to buy people’s mortgages at? I think there is a role for this plan in trying to avoid an overshoot in the housing market. Buying mortgages at close to the long run historical value of the house would not be a bad scheme. The ratio of house price to household income used to be about 1. See this chart from Calculated Risk.

4/ As a last resort, the Treasury should prepare a detailed plan for a Swedish style nationalization of the US banking system. Publishing such a plan would help confidence in our financial system.

5/ Where is the Obama plan? Presidents can’t just criticize other people’s initiatives. They need plans of their own. Is Obama capable of producing one?

I’ll try to come back this evening or tomorrow morning to answer comments on this diary.

This bailout is potentially the greatest robbery ever attempted.

It will funnel hundreds of billions of American taxpayer wealth to private corporations. The way it does that is this. The value of the assets is unknowable, because that depends on how much housing prices fall. The price of the assets is what somebody is willing to pay for them. That somebody is going to be the Treasury Secretary. By setting a high price for the assets, he will be able to funnel hundreds of billions to his former colleagues in the banking industry.

The proposed legislation gives Paulson absolute power over huge amounts of wealth. He will only give a report once every SIX MONTHS. Section 8, shown below, appears to place him above the law.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

This gives far too much power to one guy.

So what’s the alternative?

One alternative is to focus not on bailing out the banks but to bail out their creditors when the banks fail. The government would take control of the bank and all its assets in return for taking on all the the liabilities. The bank would continue to run on in a kind of Chapter 11 bankruptcy situation as its non-profitable operations were liquidated and its profitable operations were sold. Operations that are essential to the wider economy could continue to be run under government supervision until buyers were found.

This is a better solution because it doesn’t help the bankers who created the mess. They either get sold or laid off. It bails out people who had faith in the American financial system and who thought that they were safe doing business with blue chip companies like Lehman Brothers and AIG. If our present difficulty is a liquidity problem rather than a solvency problem, the government may even make a profit on the bailout.

The second alternative is to go to the root of the crisis, which is the people struggling with mortgages they can’t afford. By bailing out the homeowner, you also bail out the bank that owns the mortgage and the people doing business with the struggling banks.

One way this could work is for the government to take a stake in people’s homes in return for paying part of the mortgage. If the homeowner could afford to pay 60% of the current mortgage, Uncle Sam takes on the other 40%. The homeowner would be able to stay where they are for up to 10 years. At that time the government would require the house be sold in order to get its money out.

This solution would help to support the housing market, and avoid the disruption that the foreclosures are causing. This is a better solution than Paulson’s plan because it bails out everybody. Communities and local governments benefit, as well as the homeowners, the banks and the people who do business with them.

According to this article, in June 2008 Americans drove 4.7% fewer miles than in June 2007. Some of the biggest drops are in popular vacation states. While a certain well known Presidential candidate is going on vacation in Hawaii, it seems that other Americans are cancelling their vacation plans because of high gasoline prices.

Obama is lecturing us on conservation?

Waving tire gauges in the American people’s face is all very well. It could
help to save a small amount of oil. According to a public service ad run by
the Energy Department in 1991, proper tire inflation could save Americans just 50,000 barrels per day.

However, Americans are already cutting back, and according to the latest
weekly petroleum status report (pdf ), we have cut our oil consumption by nearly 600,000 barrels a day since this time last year. We’re obviously doing a lot more than just inflating our tires. People are driving less, airlines are cutting flights and truckers are driving slower.

We need a pragamtic energy policy which will do everything practical to get prices down. Conservation is a part of that, but its not enough. We need more production, and that means a Republican in the White House.

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Many people who are following this debate will already be aware that the the Energy Information Administration (EIA) put out a forecast which claimed that lifting the drilling ban would only add 200,000 barrels a day by 2030. EIA went on to claim that the effect on prices would be negligible. The forecast may be found here.

Many people on the wrong side of this debate are citing this projection in order to justify their obstructionism. For instance both the NRDC and Sierra Club websites, and columnists like Bob Herbert and Paul Krugman, use this projection as the major part of their argument against drilling.

I believe the EIA projection is total garbage and will try to explain why. It is difficult to criticize a projection when it is backed by the prestige of the Energy Department and when there is no explanation of how the number was arrived at. It would be very helpful if the Energy Secretary would order Phyllis Martin, the analyst responsible, to publish a detailed explanation of how the number was calculated.

So why do I think it is wrong?

1/EIA claims that it will take 18 years (2012-2030) for production to reach 200,000 barrels a day. EIA’s forecast doesn’t square with the experience of other countries in developing their offshore resources. For example:

The North Sea

The North Sea is a stormy stretch of water between UK and Northern Europe. Prior to the 1970s, the UK and Norway had never had any oil production of their own and were completely dependent on imports. In the 18 years from the first drilling in 1965 until 1983 North Sea production went from nothing to 3 million barrels a day. (BP Statistical Review, UK and Norway only) This was despite the challenges of harsh conditions and high cost.

Eastern Gulf of Mexico Lease Sale 181

At the end of 2001 the Bush administration leased an area of the Gulf of Mexico which had been closed for many years. Just six years later in 2007, the Independence Hub platform was nearing its capacity of 950 million cubic feet per day of production, which is equivalent to 150,000 barrels a day of oil.

2/There are individual platforms in the Gulf of Mexico which exceed 200,000 bbl/d. For example Thunderhorse.

3/ The EIA analyst states that their forecast is based on the initial development of the Gulf region.

“Exploration and development on the OCS in the Pacific, the Atlantic, and the eastern Gulf are assumed to proceed at rates similar to those seen in the early development of the Gulf region.”

The Gulf of Mexico was the pioneer of offshore oil and gas and they had to develop all the technology needed. Today that technology can be bought off the shelf, so things move much faster. The initial development of the gulf happened in the 40s and 50s when onshore oil was still abundant and prices were far lower than today.

4/Based on the resource assessment, lifting the drilling ban should increase the accessible offshore oil resources by 44%. However, the EIA forecast only projects a 9% increase in offshore oil production. This makes no sense!

5/The 2030 number assumes the drilling ban won’t be lifted before 2012. If Congress lifted the ban next week then EIAs numbers would be brought forward 4 years.

6/The EIA estimate is an (un)educated guess derived from a resource estimate which is also an educated guess. We won’t really find out how much oil the US can produce until we drill.

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I found a map from the 2000 resource assessment here. pdf
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I believe the most recent resource assessment is somewhat more optimistic

for the east coast. Note that resource assessments are only an educated

guess.

In my opinion anything outside Southern California and the Eastern Gulf is

quite speculative.

Oil in billion barrels, gas in Tcf.

By my calculation the gang of 10 gives access to something less than 22% of

the resources covered by the drilling ban. Less, because of the 50 mile

limit and other restrictions.

I think the gang of 10 gives us little and costs far too much.

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Only 51 wells have ever been drilled on the Atlantic coast. Here is a map

showing their locations. [pdf](http://www.gomr.mms.gov/homepg/offshore/atlocs/Atlantic_Index_Preliminary.pdf)

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What it shows
is that there are vast areas which have never been drilled.

There are three clusters of wells near Georgia, New Jersey and Cape Cod,

while the area from the Potomac to Savannah has never seen a drillbit. This

exploration was 30 years ago and it is now possible to produce oil in much

deeper water. Areas which would have been ignored in the 70s are now

viable.

Due to the lack of drilling, resource estimates for the South Atlantic

should be treated as highly speculative.

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