Topic: Government and Politics

Hot Stock Tip

“For the past four years, the Clintons have jetted around on Vinod Gupta’s corporate plane, to Switzerland, Hawaii, Jamaica, Mexico — $900,000 worth of travel. The former president secured a $3.3 million consulting deal with Gupta’s technology firm,” according to the Washington Post.

The hot tip? Short the stock of any technology firm that values Bill Clinton’s advice at $3.3 million.

Senate Amendment Guts Immigration Reform

The Senate’s vote yesterday to cut the number of temporary worker visas in half knocks a big hole in the comprehensive immigration reform proposal now being debated in Congress. As I’ve written in a recent Free Trade Bulletin, allowing a sufficient number of foreign-born workers to enter the country legally to meet the obvious demand of our labor market is absolutely necessary if we want to reduce illegal immigration.

Ignoring our policy advice, the Senate voted 74-24 to adopt an amendment by Sen. Jeff Bingaman (D-N.M.) that would cut the number of annual temporary “Y visas” from 400,000 to 200,000. That number is almost certainly too low to provide the workers that our growing economy needs to fill jobs at the lower end the skill ladder for which there simply are not enough Americans available to fill them. The result, if the lower cap stands, will be continued illegal immigration.

The irony is that many of the senators voting to drastically reduce temporary visas are the same senators who warn that we should not repeat the mistake of the 1986 Immigration Reform and Control Act. That bill legalized 2.7 million illegal immigrants but was unable to stop more immigrants from entering the country illegally despite beefed-up enforcement. The real flaw of the 1986 law, however, was its complete lack of any temporary worker program to provide for future, legal workers.

By adopting the Bingaman amendment, a majority of senators have turned the current reform effort into something much more like the failed 1986 law. They have kicked the illegal immigration can down the road, leaving it to a future Congress to find a lasting solution.

Care to Wager on That?

We are hearing a lot about presidential polling these days. It’s easy to doubt the results of these polls: few respondents have focused at all this early on the presidential elections.

But there’s a better way to get information about how the presidential election is going: the Iowa Electronic Markets. These markets allow people to invest in futures contracts on specific events like the outcome of a presidential election or nomination. For example, if you own a futures contract on Hillary Clinton, and she wins the Democratic nomination, your receive $1 (and zero if she does not get the nomination). The relative prices of these contracts aggregate investor predictions about the outcome of the presidential races. Such predictions should be better than alternative forecasts since people in the markets have every reason to be as well informed as possible and have the chance to make money if they have superior information about the outcome of an election. Indeed, such markets have done better than traditional polling in predicting electoral outcomes.

How are things going these days at IEM? On the Democratic side, Hillary Clinton looked to be in trouble in early April; Barack Obama’s contract had drawn even in value. Since then, however, Hillary’s contract has steadily gained about 20 percent in price while Obama’s has lost about a quarter of its value. Obama did close a similar gap in contract value during the first two weeks of March so the Illinois senator is hardly out of the game. But the trend should be disconcerting for Obama. It looks like he needed the New Hampshire primary to fall ten months earlier than it will.

On the Republican side, the leader for the past two months has been “none of the above” or more specifically, an unnamed candidate other than Giuliani, McCain or Romney. Giuliani has generally and slowly trended downward over the past two months. McCain fell rapidly in March and stayed down until early May when he rose rapidly, passing Giuliani briefly last week. Now, however, McCain is falling as rapidly as he rose. He now trails both Romney and Giuliani. Romney has experienced three sharp upward spurts followed by equally rapid declines. Unlike Hillary, none of the top three seem to be gaining ground toward the nomination. The IEM strongly suggests that someone other than Giuliani, McCain or Romney will be the eventual nominee.

You can also buy a contract on the November 2008 result. Currently a Democratic winner-take-all contract goes for sixty cents; the GOP one goes for forty cents. Both contracts have gained (or lost) about ten cents since the end of the 2006.

In sum, there’s money to be made here if you believe Obama or John Edwards will get the Democratic presidential nomination. There’s even more money to be made buying a futures contract on a Republican victory in 2008. As a great investor once said (to paraphrase): “the moment to invest everything is the moment of absolute and complete pessimism.” The smart money is saying we are going to have our first female president in 2009. So there’s money to be made betting (um, investing) against that result.

A final thought: Shouldn’t someone check the White House accounts to make sure the president isn’t buying every DEM08 winner-take-all contract on offer? That would explain a lot.

Abortion Restrictions, Desperate Women, and Children Without Smiles

Moebius syndrome is a neurological disorder that causes facial paralysis, impaired speech, limb deformities such as club foot, difficulties eating, autism and an inability to smile. Moebius syndrome may have genetic roots but is also caused by misoprostol, a drug commonly used to induce abortions. In Brazil, where elective abortions are illegal, misoprostol is cheap and readily available. Moebius syndrome appears in 20% of children born after failed misoprostol abortions. Unfortunately, misoprostol abortions are also not very effective and 80% result in the pregnancy going to term. “Since the mid-1990s, dozens of cases of Moebius syndrome have been linked to misoprostol.” See the May 11, 2007 issue of Science [pdf].

More Special-Interest Favors for Fannie and Freddie

Created by politicians and bolstered by aggressive lobbying, Fannie Mae and Freddie Mac are quasi-private companies with special access to funds and special regulatory exemptions. With the playing field dramatically tilted in their direction, these morgage-industry behemoths are accumulating ever-larger portfolios. In a genuinely unfettered market, this would be just fine, but this is not the case. Because of their special access to the Treasury, Fannie and Freddie create a heads-they-win-tails-we-lose situation for taxpayers. If Fannie and Freddie prosper, it is the consequence of government favoritism that results in the economy’s capital being misallocated. If they fail, there almost surely would be a bailout reminiscent of the S&L fiasco. There has been an effort to slightly curtail the risks caused by the Fannie and Freddie subsidies, but the Wall Street Journal notes that the one decent provision of the bill was removed. Not surprisingly, there is widespread expectation that the White House will approve a bill that actually makes a bad situation even worse:

Their amendment to Mr. Frank’s bill, which passed by voice vote Thursday night, guts the one provision that made it worth the effort. What’s left is a regulator who would lack the authority to limit the risk that Fannie and Freddie’s $1.4 trillion mortgage-backed securities portfolios pose to the financial system, plus a $500 million a year boondoggle that goes by the euphemism “affordable housing fund.” …That leaves the White House and Treasury with some decisions. Administration officials were cautious about the Bean-Neugebauer amendment when first proposed, but Fannie and Freddie’s friends are betting the Administration wants a deal enough to accept even a bad one. However, a “reform” that does nothing to reduce the problem of putting so much housing risk into two companies, and which also includes an annual $500 million donation to “housing” activists such as Acorn is worse than the status quo.