Tuesday, September 30, 2008

The Obama Youth And The Hitler Youth Equals The Lost Girl




The Great Crash of 2008: The Bolshevik Putsch

If the American economy is going to be wrecked, it will not be wrecked by a mere spike in mortgage default rates. It will be wrecked by the massive government intervention in the economy that is justified as a response to the mortgage defaults. And that is precisely the direction we are currently headed.

The left has used the financial crisis to argue that free markets have been discredited, reversing the rightward drift of American politics that began in 1980. The "Reagan Revolution" is a somewhat inadequate term for the ascendancy of pro-free-market ideas in the past quarter century—Reagan himself was not a very consistent free-marketer—but the left takes this as their target and are now staging an anti-Reagan counter-revolution.

I observed this a few weeks ago in my analysis of Barack Obama's convention acceptance speech, in which I pointed out this line: "For over two decades, he's subscribed to that old, discredited Republican philosophy—give more and more to those with the most and hope that prosperity trickles down to everyone else." As I wrote, "The references to 'two decades' and to 'trickle-down economics'—a derogatory term for Ronald Reagan's pro-free-market policies—make his meaning clear. It is the free market that he wants us to regard as 'discredited.'"

Obama is now repeating this line of attack, responding to John McCain's ridiculous vow to fire SEC Commissioner Christopher Cox by declaring:

I think that's all fine and good but here's what I think. In the next 47 days you can fire the whole trickle-down, on-your-own, look-the-other way crowd in Washington who has led us down this disastrous path. Don't just get rid of one guy. Get rid of this administration. Get rid of this philosophy. Get rid of the do-nothing approach to our economic problem and put somebody in there who's going to fight for you. [Emphasis added.]

And it is not just the far left. The article below indicates how the current bailout is being engineered by two centrist pragmatists, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, who believe that there is no room for ideas and principles in the middle of a crisis—which is, in reality, precisely when one needs them most.

The article below also highlights the way in which Paulson and Bernanke are making trillion-dollar decisions on their own initiative, leaving actual elected officials guessing what they will do next with the taxpayers' money.

George Will has an outstanding column describing Paulson as the "fourth branch of government" and making a point I have argued for years but have never seen made clearly in the mainstream media, until now.

[S]ince the federal government was transformed into a regulatory state in the 20th century, Congress has routinely delegated essentially legislative powers to the executive branch and independent agencies. This is one reason conservatives regret the growth of government: it entails supplanting the rule of law—laws written by elected representatives—by the rule of rules written in the executive branch.

So this bailout plan is not just an attack on economic freedom. It is also, by necessity, an attack on our political freedom.

"A Professor and a Banker Bury Old Dogma on Markets," Peter Baker, New York Times, September 20 "It just happened dramatically," Mr. Paulson said in an interview on Friday. "There was only one way that we could reassure the markets and deal with a very significant and broad-based freezing of the credit market. There was no political calculus. It was overwhelmingly obvious."

Just like that, Mr. Bernanke, the reserved former Ivy League professor, and Mr. Paulson, the hard-charging former Wall Street deal maker, launched what would be the government's largest economic rescue operation in modern times, one that rivals the Iraq war in cost and at the same time may redefine Washington's role in the marketplace for years….

Along the way, they have cast aside the administration's long-held views about regulation and government involvement in private business, even reversing decisions over the space of 24 hours and justifying them as practical solutions to dire threats.

"There are no atheists in foxholes and no ideologues in financial crises," Mr. Bernanke told colleagues last week, according to one meeting participant.

The improvisational nature of their effort has turned President Bush and Congressional Democrats into virtual bystanders, sometimes uncertain about what comes next and left to wonder about the new power dynamics in the capital. Seemingly every time lawmakers tried to get a handle on what was happening and what role they might play with elections around the corner, Mr. Paulson and Mr. Bernanke would show up again on Capitol Hill for another evening meeting with another surprise development.

II. The Fed's "Infinite Balance Sheet" Here's the one line from the whole mortgage bailout story that really ought to make your blood run cold: a former Federal Reserve governor's assurance that it is no problem for the Fed to organize a trillion-dollar financial bailout because the its balance sheet—referring to the assets it has to draw on—is "infinite."

What he means is that the Federal Reserve has an unlimited ability to create money to pay off its debts—or in this case the debts of the companies being bailed out. See a catalog of all the programs the Federal Reserve is currently using to flood the financial markets with cash.

But creating an unlimited amount of new money means inflation. So the Fed's "infinite balance sheet" really means that the Fed has an unlimited ability to siphon off all of our assets by debasing the value of our money.

Actually, though, even on those terms it is not infinite. Zimbabwe's central bank tried to take its balance sheet to infinity and beyond, only to find that it ran out of the paper and printing presses necessary to keep printing money. No central bank's balance sheet is really infinite; it is limited to merely taking everything we've got.

"Is Fed's Balance Sheet in Trouble?" Lee Brodie, CNBC, September 17 Where does Uncle Sam come up with huge sums of money during a financial emergency? Like the rest of us, the government taps available reserves and, if needed, it borrows some more.

Well, guess what? After the recent buying spree (also known as bailouts) the Fed needs some dough. As a result, the Treasury Department has begun to sell bonds specifically to fund the Fed's coffers.

Just minutes after unveiling the financing program, the Treasury said it would sell $40 billion of cash management bills—essentially a fresh batch of debt—on Wednesday at the US central bank's request as part of an attempt to "help them better manage their balance sheet."

In other words, the nation is taking on more debt to prevent AIG, as well as Freddie and Fannie from collapsing.

That sounds like a bit of a problem, but former Federal Reserve governor Wayne Angell says that's not the case.

"I am very comfortable with the Feds actions," he says on "Fast Money." "The most important thing to remember is the Fed's balance sheet is not finite. It's infinite. It can expand."

III. The Free Marketers Regroup: Naming the Problem The direction of the response to the current mortgage crisis is not inevitable—if the pro-free-marketers can regroup and rally and demonstrate to the American people that government is the problem in this case and not the solution.

My own effort from last week has now been posted at Jewish World Review, but I am far from alone. Recovering from what seems like a few days of sheer shock at the appalling scale of the federal government's trillion-dollar bailout plans, pro-free-market commentators have finally launched their counter-attack.

A Wall Street Journal editorial dismisses as a fable the attempts to blame the crisis on deregulation, and it goes on to list all of the government regulations that contributed to the disaster. Another Journal article gets specific about the role of Fannie Mae and Freddie Mac: "the vast accumulation of toxic mortgage debt that poisoned the global financial system was driven by the aggressive buying of subprime and Alt-A mortgages, and mortgage-backed securities, by Fannie Mae and Freddie Mac."

This article also names one of the chief congressional culprits, unearthing this smoking gun quote: "Rep. Barney Frank (D., Mass), for example, now the chair of the House Financial Services Committee, openly described the 'arrangement' with the [government sponsored entities, Fannie Mae and Freddie Mac] at a committee hearing on GSE reform in 2003: 'Fannie Mae and Freddie Mac have played a very useful role in helping to make housing more affordable...a mission that this Congress has given them in return for some of the arrangements which are of some benefit to them.'"

What "arrangements" are those? Congress saved Fannie and Freddie from scrutiny for shady accounting practices and blocked an effort in 2005 to halt their growth and reduce the risks they could take. For more on this story, and the corrupt role played by Democratic politicians, see here.

But I've saved my main link for an aspect of this crisis that I have not already mentioned. The article below cites the effect of new "mark to market" accounting rules—imposed by Congress as part of the Enron hysteria in 2002—as one of the factors serving to magnify a 6.4% mortgage delinquency rate into a system-wide financial crisis.

In effect, the "mark to market" rules create exaggerated losses on paper, even for loans that homeowners are still paying. Then these paper losses trigger a whole other set of regulations governing how much assets banks and insurance companies must keep on hand to cover deposits or potential claims. The result is to force some otherwise healthy companies into insolvency.

"Maybe the Banks Are Just Counting Wrong," John Berlau, Wall Street Journal, September 20 The latest mortgage delinquency rate is just 6.4%—historically high, but not anywhere close to the mortgage default rate of over 40% in the depths of the Great Depression….

For decades, lenders used historical cost accounting, meaning that a loan would be booked at its cost at the time it was made. Payments would be recorded as they came in, and the book value of the loan would only change if it was sold or became impaired, perhaps because of default.

The pressure to change this method came after the collapse of US savings and loans in the 1980s, and the Japanese banking crisis of the '90s. Regulators and accounting bodies argued that traditional accounting allowed banks to "hide" bad assets on their books, and that financial instruments needed to be valued based on what they would trade for in a market today….

This supposed "reform" is exacerbating the current crisis…. Financial Accounting Standard 157, which US regulatory agencies put into effect last November, requires accountants to look at market "inputs" from sales of similar financial assets even if there isn't an active trading market. That means that less-leveraged banks holding mortgages that haven't been impaired often have to adjust their books based on another bank's sale—even if they plan to hold their loans to maturity. Yale finance Prof. Gary Gorton wrote in a paper presented last month at the Federal Reserve's summer symposium: "With no liquidity and no market prices, the accounting practice of 'marking-to-market' became highly problematic and resulted in massive write-downs based on fire-sale prices and estimates."

These write-downs, based on accounting standards, can jeopardize balance sheets and solvency—much like a spreading contagion. In effect, a single bank's fire sale can decrease the "regulatory capital" (or the total dollar value of assets that government regulations require banks and other financial institutions to keep as a reserve to immediately make good on their obligations to depositors and other creditors) of others.

IV. The Free Marketers Regroup: Naming the Solution So what is the free-market solution to the current financial crisis?

Don Luskin offers what he describes as a "principled" conservative analysis, which unfortunately ends up being a textbook example of un-principled, cost-benefit Pragmatism. But he does present some good evidence that the crisis is not nearly as severe as it is being billed and that its cost need not reach anywhere near as high as the $700 billion requested by the Fed—indicating that there is no need for a bailout in the first place.

Luskin also raises another important objection to the bailout: the "troubling ethical questions about which assets would be acquired, from whom, in what priority order, and, most critically, at what price." In other words, there is enormous potential for the Fed to implement the bailout as it has done so far: according to arbitrary rules under which some firms are bailed out and other are not; some on better terms and others on worse term.

And some of the pro-free-market arguments are beginning to reach the right ears. South Carolina Senator Jim DeMint has released a good statement opposing the bailout and arguing instead that "We should start by reforming government policies and programs that created this mess, including the Federal Reserve's easy money policy, the congressional charters of Fannie Mae and Freddie Mac, and the Community Reinvestment Act."

Finally, in the article below Jerry Bowyer offers a four-step deregulation plan, targeting "mark to market," the Community Reinvestment Act, and Fannie and Freddie—but also eliminating a law that punishes private investors for offering capital to banks by requiring them to be regulated as if they, too, were banks. It is because the government restricts the availability of this private capital that it then has to offer government capital instead.

"The Bowyer Bailout Alternative," Jerry Bowyer, CNBC, September 23 Over-regulation brought us to this crisis, not under-regulation. If we get the diagnosis wrong, then the prescription will be wrong too….

Don't suspend mark to market, abolish it. It's part of the whole Sarbox, Spitzer, FAS 157 wave of punitive regulation after Enron. It makes no sense to impose and universalize temporary downturns, especially during panics.

Abolish the Bank Holding Company Act. It's a remnant of the 1920s before branch banking. Its only current effect is to keep private equity from buying majority stakes in troubled banks…. Get rid of this dinosaur and private equity will start the capital infusions.

Abolish the Community Reinvestment Act….

Before we subsidize these institutions, let's stop the things we are already doing to collapse them.

Monday, September 29, 2008

The Great Crash of 2008: A Communist Conspiracy?

America waits with bated breath while Washington struggles to bring the U.S. economy back from the brink of disaster. But many of those same politicians caused the crisis, and if left to their own devices will do so again.

Despite the mass media news blackout, a series of books, talk radio and the blogosphere have managed to expose Barack Obama's connections to his radical mentors -- Weather Underground bombers William Ayers and Bernardine Dohrn, Communist Party member Frank Marshall Davis and others. David Horowitz and his Discover the Networks.org have also contributed a wealth of information and have noted Obama's radical connections since the beginning.

Yet, no one to my knowledge has yet connected all the dots between Barack Obama and the Radical Left. When seen together, the influences on Obama's life comprise a who's who of the radical leftist movement, and it becomes painfully apparent that not only is Obama a willing participant in that movement, he has spent most of his adult life deeply immersed in it

The Complete Article At THE AMERICAN THINKER

Sunday, September 28, 2008

The Sunday Not So Funnies

Credit crunch banker leaps to his death in front of express train

By Christopher Leake

Tragedy: Kirk Stephenson took his own life despite a successful 20-year City career, vibrant social life and a loving family

The City was in shock last night after the apparent suicide of a millionaire financier haunted by the pressures of dealing with the credit crunch.

Kirk Stephenson, who was married with an eight-year-old son, died in the path of a 100mph express train at Taplow railway station, Berkshire.

Mr Stephenson is believed to have taken his own life after succumbing to mounting personal pressures as the world’s financial markets went into meltdown.

The death of the respected 47-year-old City figure evokes memories of the 1929 Wall Street crash in America and comes as:

• Bradford & Bingley teeters on the brink of nationalisation after a dramatic share price slump.

• David Cameron faced embarrassment on the eve of the Tory conference after members of a secretive club of Conservative donors were linked to the ‘short-selling’ of Bradford & Bingley.

• Gordon Brown was wrongfooted by Shadow Chancellor George Osborne, who announced plans to set up an independent watchdog to police the Treasury and strip it of key powers if the Conservatives win the next Election.

New Zealand-born Mr Stephenson, who owned a £3.6million, five-storey house in Chelsea and a retreat in the West Country, was chief operating officer of Olivant Advisers.

Last year, the private equity firm tried to buy a 15 per cent stake worth almost £1billion in Northern Rock before the bank was nationalised, bidding against Virgin boss Sir Richard Branson.

Saturday, September 27, 2008

The Great Crash 2008: The Path To Socialism?

The financial bailout package has been derailed in Washington, as negotiations for a quick agreement on the $700 billion bailout unexpectedly fell apart last night.

Good. The bailout is a massive, big-government boondoggle that would amount to a de facto nationalization of a big swath of the financial industry. No wonder Democratic Representative Barney Frank—one of the "affordable housing" con artists who got us into this mess—reports that he was "ready to make a deal" with the Bush administration.

Of course he was. How else could Frank get provisions limiting the pay of Wall Street CEOs handed to him on a silver platter by a Republican administration? But Frank emerged disappointed, telling reporters that the bailout is being blocked by an "ideological civil war" among Republicans.

Even better. If ever there were a good time for an ideological civil war, this is it. It's time for the free marketers to fight back, especially against the Bush administration.

I personally think it would be best for the bailout to be killed altogether (see item #2 below), but it looks like the best thing being offered is a plan put forward by my own congressman, Virginia's Eric Cantor, whose plan is described by the Washington Post.

"Under the alternative Republican plan, the government would set up an expanded insurance system, financed by the banks, that would rescue individual home mortgages. The government would not have to buy up the toxic mortgage-backed assets that are weighing down financial institutions." The plan "would also cut taxes on dividends and capital gains."

This at least limits the amount of government money being pumped into the economy, limits the reach of government into the financial industry, and improves the value of financial assets by reducing the taxes on them. But it is still not the ideal, which would be to do nothing and do it on principle.

"Talks Implode During a Day of Chaos; Fate of Bailout Plan Remains Unresolved," Sheryl Gay Stolberg, New York Times, September 26 By 10:30 p.m., after another round of talks, Congressional negotiators gave up for the night and said they would try again on Friday. Left uncertain was the fate of the bailout, which the White House says is urgently needed to fix broken financial and credit markets….

When Congressional leaders and Senators John McCain and Barack Obama, the two major party presidential candidates, trooped to the White House on Thursday afternoon, most signs pointed toward a bipartisan agreement on a grand compromise that could be accepted by all sides and signed into law by the weekend. It was intended to pump billions of dollars into the financial system, restoring liquidity and keeping credit flowing to businesses and consumers….

But once the doors closed, the smooth-talking House Republican leader, John A. Boehner of Ohio, surprised many in the room by declaring that his caucus could not support the plan to allow the government to buy distressed mortgage assets from ailing financial companies.

Mr. Boehner pressed an alternative that involved a smaller role for the government, and Mr. McCain, whose support of the deal is critical if fellow Republicans are to sign on, declined to take a stand….

Friday morning, on CBS's "The Early Show," Representative Barney Frank of Massachusetts, the lead Democratic negotiator, said the bailout had been derailed by internal Republican politics.

"I didn't know I was going to be the referee for an internal GOP ideological civil war," Mr. Frank said, according to the AP….

[T]he bailout legislation, which would authorize unprecedented government intervention to buy distressed debt from private firms, would include limits on pay packages for executives of some firms that seek assistance and a mechanism for the government to take an equity stake in some of the firms, so taxpayers have a chance to profit if the bailout plan works….

Representative Eric Cantor of Virginia, the chief deputy whip, was circulating an alternative course that would rely on government-backed insurance, not taxpayer-financed purchase of mortgage assets….

House Republicans have spent days expressing their unease about a huge government intervention, which they regard as a step down the path to socialism.

II. Banning Reality The negotiations over the financial bailout plan have a hysterical quality to them, especially in the insistence that the plan be passed immediately, with little time for discussion and debate. A fan of Ayn Rand's novels says it reminds him of a line from Atlas Shrugged, when James Taggart declares, "At a time like this, we can't afford the luxury of thinking."

The more I think about this bailout, the more I'm convinced that it should be killed. It should be killed because it just offers more of what got us here in the first place. What got us here was an attempt to use the power of government to artificially stimulate the economy, to prevent any form of financial failure, and above all, to pledge the federal finances to keep easy mortgage credit flowing.

What the economy needs right now is precisely what this whole bailout is intended to avoid: more failure. Companies that took excessive risk and have suffered crippling losses should be allowed to fail so that they can be bought out or replaced by firms that were better managed. Homeowners who overextended themselves should be allowed to become renters again. The market should be allowed to bottom out.

That's why I give the main link of this item to the article below. Though it focuses on the very limited issue of the SEC's ban on short sales, it makes a wider point that very much needs to be made in this case: that failure and price drops are vitally necessary to the operation of a free economy, since they communicate information to corporate management and help to move capital into more qualified hands.

I should also point out that any form of private buy-out is preferable to a government bailout. A dollar put into a private buy-out of a failing firm is better than ten dollars put into a government bailout. The private dollar is much more likely to be invested in the most efficient way, since the investors are risking their own money and not some unlimited pledge on the future earnings of taxpayers.

In short, what is needed from the government is not the frenzied activity we're seeing, but inactivity—the "grim, determined, alert inactivity" famously attributed to Calvin Coolidge.

No one is quite saying this yet, but some people are beginning to fight back. John Allison, CEO of BB&T, a bank that is not failing, offers a letter to Congress from "a healthy bank's perspective," in which he warns that the bailout could be a subsidy for incompetence, at the expense of the many other institutions that did not take foolish risks.

In other updates on this story, the Hot Air blog digs up a 1999 LA Times article praising the Clinton's administration's "affordable housing" policies as "one of the hidden success stories of the Clinton era." But that "success" reads a little differently in retrospect, especially when the reporter gushes that "Fannie Mae has agreed to buy more loans with very low down payments—or with mortgage payments that represent an unusually high percentage of a buyer's income. That's made banks willing to lend to lower-income families they once might have rejected." Which is precisely how we got here.

Finally, I recently linked to an article arguing that current "mark to market" standards are responsible for exacerbating the crisis. But a reader brought to my attention a good article from Nicole Gelinas arguing that this was not a cause and that "mark to market" pricing was just the messenger that delivered the news of financial failure.

"The SEC Wants to Ban Reality," John Tamny, RealClearMarkets, September 25 [T]he SEC's decision last week [banned] the short sale of shares issued by 799 companies. As one would expect, the number as of this writing has risen to 900 firms whose shares can no longer be sold short. In what is America's "everyone gets a trophy" economy, if firms don't like the opinion of certain investors, they can go to the government and have those bears banned….

[T]o the extent that short sales drive down the prices of certain stocks, this is wonderful information that insures the process whereby capital is taken from the firms thought to be misusing it, and invested in those thought to be taking better care. The basic reality is that today's market winners won't necessarily be tomorrow's, so if short sales are banned to the alleged benefit of certain companies, there will be other, potentially more vibrant companies of the future that will miss out on the capital that would reach them in a free market.

Think of it in terms of market laggards such as GM, Blockbuster and Circuit City. Absent the ability of short sellers to influence a fall in their respective share prices, existing shareholders would have very little reason to sell all three and place the capital with better management. To the extent that short sellers have impacted the decline of all three firms, it's been all to the good for capital being moved in the direction of management less likely to destroy it.

Friday, September 26, 2008

The Wall Street Casino Goes Broke

Why should American taxpayers give US Treasury Secretary "Hank" Paulson a blank check to bail out the shareholders of busted banks? Why should the Treasury turn itself into a toxic waste dump for their bad loans? Why not let other banks join the unlamented Brothers Lehman in bankruptcy court, and start a new bank with taxpayers' money? Or have the Treasury pay interest on delinquent mortgages, and make them whole? Even better, why not let the Chinese, or the Saudis or other foreign investors take control of failed American banks? They've got the money, and they gladly would pay a premium for an inside seat at the American table.

None of the above will occur. America will give between US$700-$800 billion to the Treasury to buy any bank assets it wants, on any terms, with no possible legal recourse. It is an invitation to abuse of power unparalleled in American history, in which ill-paid civil servants will set prices on the portfolios of the banking system with no oversight and no threat of legal penalty.

Why are the voices raised in protest so shrill and few? Why will Americans fall on their fountain-pens for their bankers? If America is to adopt socialism, why not have socialism for the poor, rather than for the rich? Why should American households that earn $50,000 a year subsidize Goldman Sachs partners who earn $5 million a year?

Believe it or not, there is a rational explanation, and quite in keeping with America's national motto, E pluribus hokum. Part of the problem is that Wall Street, like the ethnic godfather in the old joke, has made America an offer it can't understand. The collapsing the mortgage-backed securities market embodies a degree of complexity that mystifies the average policy wonk. But that is a lesser, superficial side of the story.

Paulson's dreadful scheme will become law, because Americans love their bankers. The bankers enable their collective gambling habit. Think of America as a town with one casino, in which the only economic activity is gambling. Most people lose, but the casino keeps lending them more money to play. Eventually, of course, the casino must go bankrupt. At this point, the townspeople people vote to tax themselves in order to bail out the casino. Collectively, the gamblers cannot help but lose; individually they nonetheless hope to win their way out of the hole.

Americans are so deep in the hole that they might as well keep putting borrowed quarters into the one-armed bandit. They have hardly saved anything for the past 10 years. Instead, they counted on capital gains to replace the retirement savings they never put aside, first in tech stocks, then in houses. That hasn't worked out. The S&P 500 Index of American equities today is worth what it was in 1997, after adjusting for inflation (and a pensioner who sells stock purchased in 1997 will pay a 20% capital gains tax on an illusory inflationary gain of 40%). Home prices doubled between 1997 and 2007 before falling by more than 20%, with no floor in sight.

As it is, many of the baby boomers now on the verge of retirement will spend their declining years working at Wal-Mart or McDonalds rather than cruising the Caribbean. Some of them still have time to tighten their belts and save 10% of their income (by consuming 10% less), plus a good deal more to compensate for the missing savings of the 1990s.

Altogether, they'd rather gamble, and if that requires a bailout of the house, they gladly will chip in to pay for it. After all, today's baby boomers won't pay for the bailout. The next generation of taxpayers will pay for Paulson's $700-$800 billion. If that enables the present generation to keep borrowing rather than saving, it is no skin off their back. If home prices continue to collapse, the baby boomers will die in debt anyway, working at low-paying jobs until the day before their funerals.

The homeowners of America hope against hope that somehow, sometime, the price of their one only asset will bounce back. The character of Mortimer Duke in the 1983 film Trading Places comes to mind. After losing his fortune in the frozen orange juice futures market, Duke screams, "I want trading reopened right now. Get those brokers back in here! Turn those machines back on! Turn those machines back on!" If a reverse takeover of the US government by Goldman Sachs is what it takes to turn the machines back on, the American public will support it. Sadly, there is no reason to expect the bailout of bank shareholders to have any effect at all on American home prices, which will continue to sink into the sand.

Contrary to what the Bush administration says, it is not the case that banks' troubled mortgage assets cannot be sold in the private market. Those are the so-called "Level III" assets that banks say they cannot value. But that is only a dodge that the banks use to postpone taking losses. There is a ready bid for these assets from hedge funds, in multi-hundred-billion-dollar size. The trouble is that the market bid is 25% to 30% below the prices that banks carry these assets on their books. Traders at Wall Street boutiques who specialize in distressed securities say that US regional banks regularly make discreet offers to sell private mortgage-backed securities (not guaranteed by a federal agency) at prices, for example, of 75 to 80 cents on the dollar. Hedge funds bid, for example, 55 to 60 cents in return.

On rare occasions, the bank seller and the hedge fund buyer will meet in the middle, although very few transactions occur. Although many banks are desperate to sell, they cannot accept the offered price without taking losses over the threshold of mortality, for write-downs of this magnitude would destroy their shareholders' capital. Investment banks typically hold about $30 of securities for every $1 of capital, so a 3% write-down would leave them insolvent. Lehman Brothers classified 14% of its assets as Level III at the end of the first quarter; Goldman Sachs was at 13%. Why is Lehman bankrupt, and Goldman Sachs still in business? If Secretary Paulson, the former head of Goldman Sachs, had not proposed a general bailout last week, we might already have had the answer to that question.

For the Paulson bailout to be helpful to the banks, it must buy their securities at much higher prices than the private market is willing to pay. Otherwise it makes no sense at all, for the banks could sell at any moment to the hedge funds. But that is a subsidy to private banks, administered at the whim of the Treasury Secretary, without oversight and without the possibility of legal recourse.

Some Democrats in Congress are asking for some form of oversight, but it is hard to imagine how they might use it, for a Treasury with $800 billion to spend would constitute the whole market bid for low-quality mortgage assets, and would set whatever prices it wished. Professionals with years of experience set prices on these securities with great uncertainty. How would an overseer determine if it had set the correct price? And if the Treasury decided to bail out one bank (say, Goldman Sachs) rather than another, how would the overseer judge whether that decision was judicious, politically motivated, venal, or arbitrary?

Opposition to the Treasury plan is disturbingly thing. Bloomberg News on June 21 quoted the Democratic chairman of the Senate Banking Committee, Christopher Dodd, saying, "I know of nobody who is arguing over the amount of money or even about that the secretary ought to have the authority to purchase these toxic instruments, these bad debts."

Why the taxpayers of America would allow their pockets to be picked in this fashion requires a different sort of explanation than one finds in economics textbooks. My analogy of gamblers taxing themselves to bail out the casino is inspired, in part, by a remarkable new book by the Canadian economists Reuven and Gabrielle Brenner (with Aaron Brown), A World of Chance. In effect, the Brenners re-interpret economic theory in terms of gambling, showing how profoundly gambling figures into human behavior, especially in such matters as so-called life-cycle investing. The 50-ish householder who has not made enough to retire may take outsized chances, considering that as matters stand, he will work until he drops dead in any case. The Brenners write:

If people reach the age of fifty or fifty-five and have not "made it," what are their financial options to still live the good life? Except for allocating a few bucks to buy lottery tickets, it is hard to think of any other option. If people find themselves down on their luck and see no immediate opportunities to get rich, what can they do to sustain their hopes and dreams? Allocating a fraction of their portfolios with a chance to win a large prize is among the options. And when people are leapfrogged - that is, when some "Joneses" who were "below" them jump ahead - how can they catch up? They will tend to challenge their luck for a while, taking risks that they might have contemplated before in business, financial markets, and other areas but did not follow up with action.

A World of Chance undermines our usual view of "economic man" and substitutes the angst-ridden, uncertain denizen of a world that offers no certainties and requires risk-taking as a matter of survival. I hope to offer a proper review of the work in the near future. As my marker, though, permit me to leave the thought that for providing a theoretical foundation for the counter-intuitive behavior of American taxpayers, the Brenners deserve the Nobel Prize in economics.

Alas for the gamblers of America: they will tax themselves to keep the casino in operation, but it will not profit them. Where, oh where, is America's Vladimir Putin, who will drive out the oligarchs who have stolen the country's treasure and debased its currency?

Saturday, September 20, 2008

The Importance of Sarah Palin

But remember that a vice-presidential selection is about more than just winning an election. Today, vice-presidents tend to be more active than they were even a few decades ago in contributing to the actual work of the administration once it is in office. And even more significant is the fact that a vice-president tends to become the incumbent president's successor as his party's candidate eight years from now, with the potential to shape the direction of the party for decades to come. That is particularly true of Governor Palin, who has been received with such enthusiasm by Republicans that some have even begun to wonder if the wrong person is at the top of the ticket. No matter what happens this November, Palin is suddenly a top contender as the Republican presidential nominee four or eight years from now.

So if Sarah Palin is potentially the future of the Republican Party, it is vitally important to ask: who is Sarah Palin? What does she stand for? In what direction will she take her party?

This is the real reason why we should be concerned about Sarah Palin's lack of Washington experience. The importance of experience is not just about whether the candidate is prepared to exercise the duties of his office; it is about whether we are prepared to elect him to that office. A candidate with experience on the national stage has sponsored legislation, made decisions, talked extensively with the national press, and done all of the other things that make his character and ideas a "known quantity." (In Barack Obama's case, he has failed to do some of these things—which is equally revealing.) But Palin's personal character is well known only to Alaskans; her record had not been well-researched and her ideas had not been broadcast before a few weeks ago. We need to discover all of these things—and now is the worst time to try to discover them.

This is a bad time because the truth is being shrouded by partisanship—on both sides. By this point in the race, a larger number of people have already made a commitment to one presidential candidate or the other, and they want their man to win. So they will interpret McCain's vice-presidential selection in a way that reinforces that pre-existing preference. Democrats will attack Sarah Palin, if for no other reason than that they want Barack Obama to win and they oppose anyone who endangers that goal. Republicans will defend her just as vigorously because they had already grudgingly decided to vote for McCain in order to stop Obama—and Palin finally made them feel good about that choice.

The fact that politicians on both sides have their partisan "talking points" on this issue and stick unwaveringly to that established agenda is no surprise. What makes it so difficult to assess Palin is that the press has transformed itself into a wing of the Obama campaign.

I usually don't encourage complaints about press bias. Of course the mainstream media is biased to the left; everyone knows that, except possibly the mainstream media itself. So the only alternative is to take that bias into account and find ways to push back against it and to go around the mainstream media to connect with the voters directly. In balance, I think this turns out to be an advantage for the Republicans and a disadvantage for Democrats, who frequently mistake the adulation of the press for the support of actual voters.

That said, I have never seen anything like the wave of hostility and contempt aimed at Sarah Palin from the moment she was nominated. This press partisanship is a crucial part of the story, because it explains the difficulty of discovering who Sarah Palin is. And ironically, the pompous hostility of the press has served as a foil which Palin has used to increase her popular appeal.

Here is just a sampling of the campaign of lies and half-truths launched against Palin. She is accused of banning books in the Wasilla public library when she was mayor—but the list of supposedly banned books that has been circulated on the Internet includes titles that hadn't even been published at the time. She is accused of being such an anti-evolution zealot that she supposedly referred to dinosaurs as "lizards of Satan"—a cheap parody of the views of the creationists (which are a cheap parody to begin with). She is accused of being opposed, not only to abortion, but to contraception, an even more extreme religious-right viewpoint—except that this claim is not true.

Most of these smears were limited to the Internet—but some of them made their way into the mainstream media, and all of them have been widely accepted as truth by those who want to dismiss Palin. (For example, last weekend's Saturday Night Live parody of Palin and Hillary Clinton, while generally very funny, made a brief reference to the dinosaur claim.) To its credit, one mainstream media outlet, Newsweek, went so far as to create a "Sliming Palin" page to debunk all of these claims.

Feminists suddenly decided that it is impossible for a woman with young children to seek high achievement in her career. This claim was propagated, of course, by many high-achieving women in the media who have young children. Michelle Malkin—herself a commentator and mother—has a thoroughly devastating overview of the outright hypocrisy of female commentators on this issue.

And of course, no one could avoid noticing the bias in the "20/20" broadcast of the first big media interview with Sarah Palin. Before the interview even began, we were given an introduction to the governor's background by ABC reporter Kate Snow, the general tone of which is summed up in this sentence: "But as you get to know Alaska Governor Sarah Palin, you discover that, like so many American stories, hers is part fact and part fable, and a lot of that grey area in between that's hard to pin down in modern American politics." That last phrase about "grey areas" is ABC's excuse to dredge up a lot of unproven innuendo, without accepting the responsibility of discovering the actual facts.

"Part fact, part fable" is definitely an accurate description—of Barack Obama's biography. But we are still waiting for the interview that begins by describing him that way.

The introduction went on to note, in a snide tone, that in the past two weeks Sarah Palin has given the same speech over and over again at various campaign appearances. There is nothing unusual about this; it's called a "stump speech," and all politicians do it. But this was used to imply that Palin is lacking in substance and can only repeat by rote a speech given to her by others.

The overall message about Sarah Palin was none too subtle: this woman is an uneducated nobody with a faked resume—she's a liar and a fraud. By the time Snow's introduction was over, I felt as if I no longer had to watch the interview; I had already been told what to think.

Then of course there is Charles Gibson's interview. The interview has been chopped up so many times by ABC and presented in so many different ways that it is like trying to hit a moving target, so I will just stick for now to the version presented on "20/20." Looking down his nose over his glasses, Gibson treated Palin with the air of a pompous college professor grilling a failing student. One of the first questions asked of Palin was how she felt on being nominated for the vice-presidency, and Gibson immediately volunteered two adjectives: "frightened" and "overwhelmed." Would he have done that to any other candidate? I have never seen it. Palin batted down these suggestions, of course, but Gibson had already made his subliminal impression on the audience: in his opinion, Palin should feel frightened and overwhelmed.

Gibson's substantive questions to Palin had an annoying habit of stating "well documented" facts supposedly contradicting Palin's previous statements and then inviting her to "clarify" the contradiction. Not all of Gibson's facts were accurate, but the phrasing of the question had a clear meaning: prove you're not a liar. And when Palin would give a perfectly clear answer to a question, Gibson would follow up with: "I'm still not clear…" and ask it again. His subtle message: she's evading and not answering my questions.

Again, this is only a sample. It is clear that the press wants their man Barack Obama to win—and as a result, they have obscured rather than illuminated our attempt to make an objective assessment of who Sarah Palin is, how she thinks, and what she stands for. And as I have pointed out, the worst consequence of this transparent bias may turn out to be that the press has destroyed the credibility it would need to make valid criticisms of Palin.

But there is enough information available to begin making our own independent assessment of Palin, using the bits and pieces we can discern through this veil of press partisanship. To do this, let's move past irrelevant details of her biography and past the debatable elements in her record.
Let's look at what we can find about Sarah Palin's ideas and principles.
It is clear that the press wants their man Barack Obama to win—and as a result, they have obscured rather than illuminated our attempt to make an objective assessment of who Sarah Palin is, how she thinks, and what she stands for. And as I have pointed out, the worst consequence of this transparent bias may turn out to be that the press has destroyed the credibility it would need to make valid criticisms of Palin.

But there is enough information available to begin making our own independent assessment of Palin, using the bits and pieces we can discern through this veil of press partisanship. To do this, let's move past irrelevant details of her biography and past the debatable elements in her record. Let's look at what we can find out about Sarah Palin's ideas and principles.

The upshot of most of the smears targeting Palin is that she is a religious zealot. But we now know that she didn't try to ban books at Wasilla's public library, she didn't try to mandate the teaching of creationism in public schools, and she does not, so far as anyone knows, actually think that dinosaurs are "lizards of Satan." The one clear indication we have as to the degree of her religious commitment is the fact that she is opposed to abortion in all cases, making an exception only to protect the life of the mother. And we know she means it because she chose to give birth to her youngest child even though she knew from genetic testing that it would have Down Syndrome, a severe form of mental retardation.

This fact does reveal a profoundly faith-driven outlook, because it illuminates Palin's implicit attitude toward reason and the intellect. The joy of having a child is watching it grow and develop on its way to becoming an independent adult capable of enjoying a full human life. This is why parents rejoice in every new discovery the child makes along the way—his first steps, his first words, the first time he figures out how to open up and rifle through your filing cabinets while you're trying to work (but I digress). The tragedy of giving birth to a mentally disabled child is that he will never complete this journey. He will never become an independent adult or develop a full use of the faculty that is man's essential characteristic: his reasoning mind. To knowingly choose to bring such a child into the world is evidence that the precepts of her faith take precedence over the value of the mind in Palin's view of the world.

That said, a New York Times profile on Palin's religious views is surprisingly anodyne. She believes in prayer, she believes in the truth of the Bible, "and that the task of believers is to ponder and analyze the book for meaning—including scrutiny…for errors and mistranslations over the centuries that may have obscured the original intent." Which is to say that she is pretty much a standard-issue American Christian. In fact, the big news from the New York Times article is that "the Palins moved to the nondenominational Wasilla Bible Church in 2002, in part because its ministry is less 'extreme' than Pentecostal churches like the Assemblies of God."

When she became governor of Alaska, she asked her childhood pastor for a verse from the Bible. Did she ask about the Bible's view on birth control, or homosexuality, or taxes, or any overtly political topic? No, he says, "She asked for a biblical example of people who were great leaders and what was the secret of their leadership." That's more Steven Covey than Jerry Falwell.

Barack Obama's religious associations—think of Jeremiah Wright and his "black liberation theology"—are much more disturbing.

Moreover, Governor Palin has soft-pedaled her religious views so far in the campaign. In the big speech that introduced her at the Republican convention, she didn't even mention abortion. In Charles Gibson's ABC interview, when he misquoted her as saying that the Iraq war was "a task that is from God," she replied that "I would never presume to know God's will or to speak God's words." And when asked what she thinks God's plan for the world is, her reply was very revealing: "I believe that there is a plan for this world and that plan…[is] for every country to be able to live and be protected with inalienable rights that I believe are God-given, Charlie, and I believe that those are the rights to life and liberty and the pursuit of happiness." Which is to say that she agrees with John Locke and Thomas Jefferson. This is the typical American "religion of the pursuit of happiness"—the combination of religious faith with the Enlightenment view of happiness as the proper goal of human life and freedom as the essence of the proper political system.

In short, if Palin has a radical religious agenda, it remains unstated.

If she is not a religious zealot, is Governor Palin a pro-free-marketer? Evidence for this comes from the refutation of an early rumor that Palin campaigned for the arch-religious conservative Pat Buchanan in 1996; in fact, she campaigned for Steve Forbes, the most pro-free-market candidate in that year's Republican primary.
the only economic issue on which we know much about her views is energy. She is pro-oil-exploration and pro-drilling, and she has told one interviewer that she is skeptical that global warming is caused by human activity—positions that appeal to staunch advocates of a free economy. On the other hand, she has continued her state's heavy intervention in the oil and gas industry. The state of Alaska has no state sales tax or income tax, but that does not exactly make it a low-tax state. Instead, it lives off of taxes on oil and gas revenues, which fund all of the state's expenditures and even allow the government to send an annual check to each of its citizens granting them a share of the state's oil loot. This bears less resemblance to a laissez-faire economy than it does to your typical Persian Gulf sheikdom.

Palin's signature achievement in office has been to negotiate a major deal for a pipeline to pump natural gas from the Alaskan oil fields down to the lower forty-eight. This is a crucial achievement for her state, because oil production in the North Slope fields is declining, but they contain trillions of cubic feet of natural gas that cannot be used because there is no economical way to transport it. Thus, a pipeline is necessary to keep Alaska's energy industry from shrinking. Yet Palin's pipeline deal included half a billion dollars in government subsidies to the builder.

In short, Palin is more pro-energy than she is pro-free-market. In the context of today's anti-energy environmentalist movement, that's not bad, but it does not make her a champion of economic freedom. In fact, the Gibson interview did reveal her approach to the question of the size and role of government. On the subject of economic policies, she came out in favor of low taxes, telling Gibson that "government has got to get out of the way, in some respects, of the private sector, being able to create the jobs that we need." But when asked how she would reduce government spending, here was her reply:

We're going to find efficiencies in every department. We have got to…. When bureaucrats, when bureaucracy just gets kind of comfortable, going with the status quo and not being challenged to find efficiencies and spend other people's money wisely…then that's where we get into the situation that we are into today, and that is a tremendous growth of government, a huge debt, trillions of dollars of debt that we're passing on to my kids and your kids and your grandkids.

Here is what I said about that when Barack Obama also proposed to pay for middle-class tax cuts by "go[ing] through the federal budget, line by line, eliminating programs that no longer work and making the ones we do need work better and cost less": "Does anyone remember the Grace Commission in the 1980s or Al Gore's task force in the 1990s? Eliminating 'waste, fraud, and abuse' is a perennial promise made by politicians, but it will never produce significant results, because you can't pare down a $3 trillion federal budget by squeezing out dimes."

Similarly, when pressed on the subject of "earmarks," such as the infamous "bridge to nowhere," Governor Palin replied that she was opposed only to the "abuse" of federal earmarks, explaining that "I [am] for infrastructure being built in the state. And it's not inappropriate for a mayor or for a governor to request and to work with their Congress and their congressmen, their congresswomen, to plug into the federal budget along with every other state, a share of the federal budget for infrastructure."

Unlike the "small-government conservatives," I don't make a big deal over earmarks or even federal transportation spending, because these things are trivial compared to the programs that are really driving federal spending. At their height, earmarks were about $30 billion per year—out of a $3 trillion federal budget. What is really causing the federal budget to balloon is the big middle-class welfare programs, Social Security and Medicare, and neither Palin nor McCain have said anything about cutting or privatizing those programs.

On economics and the size of government, Palin offers some vague rhetoric about low taxes and about government not being the solution for everything—but concretely, all she really offers is the promise that she and John McCain will be really tough "reformers" who will squeeze out waste in existing government programs and that they will be honest Pragmatists who will distinguish the good earmarks from the bad ones.

What about foreign policy? Sarah Palin has no record at all on foreign policy, and the campaign is certainly hoping that voters will look to McCain on that issue.

From what we can gather from her interviews, Palin has her heart in the right place: she believes in the importance of defending America and winning the War on Terrorism. Asked how she felt about accepting the vice-presidential nomination, she told Gibson that she was committed to the "mission" of a potential McCain administration, and she defined that mission as "reform of this country and victory in the war."

But it was clear that she had no knowledge of some very big and important foreign policy issues and a very shallow knowledge of others. The big gaffe, of course, was her blank response to Gibson's question about whether she agreed with the Bush Doctrine. I will grant that Gibson's question was phrased as a "gotcha," and that Gibson himself did not get the meaning of the Bush Doctrine right. But it was not just that Palin chose the wrong idea as the meaning of the Bush Doctrine; it was that she appeared to connect no meaning to the term. When asked what she thought the Bush Doctrine was, she replied, "His worldview?"

Like I said, this is a bad time to try to assess Palin, because our view of her will be obscured by partisan arguments from both sides—and the partisans from the right have leapt to defend Palin's ignorance on the Bush Doctrine. In the process, they have defined the term out of existence, arguing, as Charles Krauthammer does, that "there is no single meaning of the Bush Doctrine."

Gibson defined the Bush Doctrine as "anticipatory self-defense," i.e., attacking in order to stop an imminent attack from the enemy. But that principle is as old as war itself. The central tenet of the Bush Doctrine is a specific form of pre-emption: unilateral military action to prevent terrorist-sponsoring regimes from acquiring weapons of mass destruction. By muddying this identification, the conservative partisans are doing themselves and the country a great disservice, because the real Bush Doctrine is an idea that deserves to be preserved and defended, especially now when we ought to be invoking it against Iran.

What emerged very clearly from Palin's foreign policy questions—and also, to a certain extent, from her replies on domestic policy—is a lack of contact and familiarity with the national debate on these questions.

Decades of inside-the-beltway experience is no guarantee that a politician will know what he is doing; just look at Joe Biden. But not being immersed in the concrete facts about the big issues of the day is an enormously liability; it undercuts a leader's ability to make timely, independent judgments about events. Take, for example, Barack Obama's slow and confused response to the Russian invasion of Georgia. At first, he didn't realize the event was important enough to interrupt his vacation, then it took him a full week of conferring with his advisors to come around to something close to the position John McCain started with.

And the problem is not just knowledge of the facts. It is also important for a leader to be familiar with the debate on these issues, because he has to be a champion for the correct side in that debate, making his case to the nation and beating back arguments from the opposition. McCain's recent floundering on the economy—and the immediate loss of his lead in the polls—shows what happens when a leader is caught in unfamiliar intellectual territory and loses a round in the national debate. On foreign policy and national defense, Sarah Palin is the one caught in unfamiliar territory, with most of the right sympathies, but no fixed ideas on basic principles and policy.

So how is it that Palin has electrified the right? I have argued before that she has served to unite the various ideological factions of the Republican Party behind the McCain-Palin ticket. But these ideological factions are simply projecting their hopes onto her—and they are going beyond what she has so far earned. They are doing this because they are reacting to her personality, her attitude, her sense of life—which is more or less how the party chose McCain in the first place.

Republicans chose McCain because of his biography, his character, and his sense of honor—even though that "honor" is grounded in a Pragmatist grab-bag of emotional reactions, rather than any coherent ideology. In this respect, McCain truly has chosen his political "soul mate." If the essence of McCain's approach to politics can be described as "honor and pragmatism," Sarah Palin's approach should be described as "pluck and pragmatism": an appealing, cheerful, can-do spunkiness—backed by largely unformed ideas about the nature and role of government.

For this reason, Sarah Palin's appeal—both within the party and among the general public—is not best understood by reference to any ideological category. She is best understood as a conservative populist whose appeal is not ideological but cultural. Her appeal is not that she represents any particular set of ideas or takes any particular side in the political debate. Her appeal is non-ideological: it is the fact that she represents the outlook of the "regular people" as opposed to the "elites."

This article will be concluded next week.

Friday, September 19, 2008

Democommies Responsible For Market Meltdown

Big Government: Barack Obama and Democrats blame the historic financial turmoil on the market. But if it's dysfunctional, Democrats during the Clinton years are a prime reason for it.

Obama in a statement yesterday blamed the shocking new round of subprime-related bankruptcies on the free-market system, and specifically the "trickle-down" economics of the Bush administration, which he tried to gig opponent John McCain for wanting to extend.

But it was the Clinton administration, obsessed with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street's most revered institutions.

Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties.

The untold story in this whole national crisis is that President Clinton put on steroids the Community Redevelopment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but "predatory."

Yes, the market was fueled by greed and overleveraging in the secondary market for subprimes, vis-a-vis mortgaged-backed securities traded on Wall Street. But the seed was planted in the '90s by Clinton and his social engineers. They were the political catalyst behind this slow-motion financial train wreck.

And it was the Clinton administration that mismanaged the quasi-governmental agencies that over the decades have come to manage the real estate market in America.

As soon as Clinton crony Franklin Delano Raines took the helm in 1999 at Fannie Mae, for example, he used it as his personal piggy bank, looting it for a total of almost $100 million in compensation by the time he left in early 2005 under an ethical cloud.

Other Clinton cronies, including Janet Reno aide Jamie Gorelick, padded their pockets to the tune of another $75 million.

Raines was accused of overstating earnings and shifting losses so he and other senior executives could earn big bonuses.

In the end, Fannie had to pay a record $400 million civil fine for SEC and other violations, while also agreeing as part of a settlement to make changes in its accounting procedures and ways of managing risk.

But it was too little, too late. Raines had reportedly steered Fannie Mae business to subprime giant Countrywide Financial, which was saved from bankruptcy by Bank of America.

At the same time, the Clinton administration was pushing Fannie and her brother Freddie Mac to buy more mortgages from low-income households.

The Clinton-era corruption, combined with unprecedented catering to affordable-housing lobbyists, resulted in today's nationalization of both Fannie and Freddie, a move that is expected to cost taxpayers tens of billions of dollars.

And the worst is far from over. By the time it is, we'll all be paying for Clinton's social experiment, one that Obama hopes to trump with a whole new round of meddling in the housing and jobs markets. In fact, the social experiment Obama has planned could dwarf both the Great Society and New Deal in size and scope.

There's a political root cause to this mess that we ignore at our peril. If we blame the wrong culprits, we'll learn the wrong lessons. And taxpayers will be on the hook for even larger bailouts down the road.

But the government-can-do-no-wrong crowd just doesn't get it. They won't acknowledge the law of unintended consequences from well-meaning, if misguided, acts.

Obama and Democrats on the Hill think even more regulation and more interference in the market will solve the problem their policies helped cause. For now, unarmed by the historic record, conventional wisdom is buying into their blame-business-first rhetoric and bigger-government solutions.

While government arguably has a role in helping low-income folks buy a home, Clinton went overboard by strong-arming lenders with tougher and tougher regulations, which only led to lenders taking on hundreds of billions in subprime bilge.

Market failure? Hardly. Once again, this crisis has government's fingerprints all over it.

The Real Culprits In This Meltdown
By INVESTOR'S BUSINESS DAILY Posted Monday, September 15, 2008 4:20 PM PT

Saturday, September 13, 2008


Since the Fall of Communism, the Western Europeans have been complaining about a "unipolar" world in which America is the world's sole superpower. The Europeans foolishly imagined that they could become the other "pole" who would counterbalance the United States. Instead, they may get a new "bipolar" world—with an aggressive fascist Russia as the other pole.

Russia's figurehead president Dimitri Medvedev has now declared Russia's policy of reasserting a "sphere of influence" in nations on its borders—and beyond. It makes official Tzar Vladimir's policy of reconstructing the old empire Russia enjoyed under the Soviets and before.

The next target for reabsorption will be Ukraine, where Yulia Tymoshenko has betrayed the Orange Revolution for the sake of her own ambition by forming a new parliamentary coalition with the pro-Russian party she helped defeat in 2004.

Meanwhile, Russia's leaders are consolidating their dictatorial control at home through the murder of more journalists in restive provinces to the north of Georgia.

"Russia Claims Its Sphere of Influence in the World," Andrew E. Kramer, New York Times, August 31 President Dmitri A. Medvedev of Russia on Sunday laid out what he said would become his government's guiding principles of foreign policy after its landmark conflict with Georgia—notably including a claim to a "privileged" sphere of influence in the world.

Speaking to Russian television in the Black Sea resort of Sochi, a day before a summit meeting in Brussels where European leaders were to reassess their relations with Russia, Mr. Medvedev said his government would adhere to five principles.

Russia, he said, would observe international law. It would reject what he called United States dominance of world affairs in a "unipolar" world. It would seek friendly relations with other nations. It would defend Russian citizens and business interests abroad. And it would claim a sphere of influence in the world….

In his unabashed claim to a renewed Russian sphere of influence, Mr. Medvedev said: "Russia, like other countries in the world, has regions where it has privileged interests. These are regions where countries with which we have friendly relations are located."

Asked whether this sphere of influence would be the border states around Russia, he answered, "It is the border region, but not only."

Friday, September 12, 2008

Obama Will Lose In November

Presidential elections are always about the issues, but they are also always about more than the issues. We are selecting a person who will make crucial, life-and-death decisions, often on issues that are not debated in the campaign and cannot be anticipated beforehand. So we have to know about each of the candidates as a person—his history, character, ideas, and attitudes.

That's why I think Dick Morris is onto something in the article below when he describes this campaign as having two battles: the battle of John McCain and the battle of Barack Obama—that is, a battle to define, in the minds of the voters, the basic identity of the two presidential candidates. I think he is right that McCain has won his battle, but he is wrong that the battle of Barack Obama remains to be fought.

The battle over Barack Obama's history and character has already been fought, and Obama lost. That's why I have already predicted that he will lose the election—with the caveat that this prediction carries the usual degree of certainty possible in political matters, which is not very high.

Here is my reasoning. Thanks to an unusually heated primary campaign which attracted far more attention far earlier than in a typical election year, Barack Obama is already well known to the electorate. That's why his continuing shtick of talking about how he's new and unfamiliar to voters because he has a "funny name" always falls so flat. Obama has been in the national spotlight for four years and has been on the news practically every day for most of the past year.
By now, his name might as well be John Smith. People are used to it, and they are used to him. So if he were going to make them comfortable voting for him as commander-in-chief, he would have done so by now.

John McCain has also been on the national scene—and very prominently so—for so long that he is a thoroughly known quantity. So at this point, there is only one new element in the race, only one person the voters feel they have to get to know. The next month of the campaign will be the battle of Sarah Palin.

And the maddening thing about this for the Obama campaign is that in this battle, they will have to sit on the sidelines. I agree with Karl Rove, who argues that Obama only hurts himself by attacking Palin. The only result of that will be more campaign ads like this one.

Over the coming weeks, only Sarah Palin can win or lose the battle of Sarah Palin, as she makes more public appearances, gives more press interviews, and gives people a greater opportunity to figure out to their satisfaction who she is.

"November Lineup: Obama vs. Obama," Dick Morris, RealClearPolitics, September 10 Now that the conventions are over, it is evident that the battle of John McCain is over (McCain won) and the battle of Barack Obama will determine the outcome of the election. Now that McCain has definitively, and I suspect irreversibly, separated himself from George Bush, he has become an acceptable alternative to Obama for voters seeking change. The question now is whether Obama's extra quotient of change—or the different direction that change will take—is worth the risk of electing him.

Obama was wrong to invest so much in the Bush-McCain linkage. Any candidate can define himself at his convention. And if McCain chose, as he did, to use the gathering to distance himself from Washington and from the Bush administration, there was really nothing that Obama could do to stop him. He should have focused very specifically on McCain himself and taken shots at specific votes and bills that he introduced. Now, after the massive exposure McCain got at his convention and the demonstrable commitment to change embodied in the selection of Sarah Palin, it is too late.

The Obama campaign doesn't seem to get that it is running against McCain, not Sarah Palin…. Obama needs to remember who his opponent is.

Now, the election will hinge on a referendum on Obama. Is the extra health care coverage he would pass worth the huge tax increases he will impose? Nobody buys his claim that he will only increase taxes on a few rich people and give the rest of us tax cuts….

Is his plan to pull out of Iraq and his commitment to multilateralism in foreign policy worth the risk of putting someone with virtually no foreign policy experience in charge of our international relations in the middle of a war? Is his promise to respect the Constitution and ratchet back the intrusions of the Bush homeland security measures worth the extra risk of terror attack?...

The key point is that this race is now not about Bush or McCain or Bill Clinton or Palin. It's all about Obama.

Thursday, September 11, 2008

Richard Quinn: A Hero of 9/11

'Forward, the Light Brigade!'
Was there a man dismay'd ?
Not tho' the soldier knew
Some one had blunder'd:
Theirs not to make reply,
Theirs not to reason why,
Theirs but to do & die,
Into the valley of Death
Rode the six hundred.

The morning of September 11, 2001 at the World Tade Center was a modern day charge of the Light Brigade for New York City policemen, firemen, paramedics who literally charged the Mouth of Hell not knowing that officials in their own government "had blundered" and doomed many of them to death in heroic defense of God and Country.

One such fallen hero was Ricardo Quinn,Fire Department of NYC - Paramedic, Battalion 57

The following information about Ricardo Quinn was excerpted from: "Limited Help for Families of Medical Rescue Workers" September 23, 2001, By JIM DWYER

The family car never came home the night of Sept. 11 to Bayside, and the phone did not ring. So Ginny Quinn was pretty sure that her husband, Ricardo, had been stuck all night at Elmhurst Hospital Center, working as a paramedic. The next morning, she said, she got a call from another paramedic who asked, "Did Rick make it home?" Her husband, who had a shoulder surgery this summer and was on a light duty assignment, had not gone to Elmhurst Hospital. "He just hightailed it over to the trade center," Mrs. Quinn said. Mr. Quinn was one of eight paramedics and emergency medical technicians who ran into the burning towers and did not make it out alive.

From other paramedics, Mrs. Quinn learned that Mr. Quinn ran into Tower 2 and stopped to bandage a fellow medic who had been hit by falling debris. He helped load another patient into an ambulance, went back inside to help, and disappeared. "I know he went in there thinking of other people," Mrs. Quinn said, referring to her husband's run into the tower. "The world is missing a good, good person." She paused. "Well, it's missing 5,000 of them."

Like the professional British soldiers of the Light Brigade at Balcalava, Richard Quinn was a professional soldier as well -- albeit -- a soldier of the homefront who was frequently called upon to put life and limb on the line to save his fellow Countrymen. Mr. Quinn was a member of the elite New York City Fire Department; an organization that many apply to serve in, but few are selected. His specialization in the NYFD was the position of paramedic, and in execution of his office, Mr. Quinn saved many lives at the cost of his own.

Ricardo Quinn left behind him a family and many friends who remember him as a kind and honorable man. His service with an elite paramilitary organization -- the NYFD -- was of the highest level. The manner of his untimely and heroic death in the Service of God and Country is something that will never be forgotten.

Furthermore, it must never be forgotten that "Uncommon Valor Was Common" that terrible day on September 11, 2001 when hundreds of New York City's Best charged into buildings on fire and in danger of collapse, so like the British soldiers of long ago who charged the Russian cannons without infantry support because it was their duty and honor to do so.

The last picture we have of Ricardo Quinn is running into soon-to-collapse Building Two of the World Trade Center dodging flames, debris and falling bodies in his mission to save his comrades and the innocent laying about bloody and bleeding. He never returned. How many of us would have the courage to charge the Mouth of Hell even if our duty required it? Few of us, I'm sure...very few of us.

This is why we salute men like Ricardo Quinn.

This is why we will never forget the Heroes Of 9/11.

We sleep safely in bed tonight because our professional Servicemen like Ricardo Quinn stand the night watch and defend us from our enemies.

The fatalities were in the thousands, with 2973 people killed, including 246 on the four planes, 2602 in New York City in the towers and on the ground, and 125 at the Pentagon. Among the fatalities were 343 New York City Fire Department firefighters, 23 New York City Police Department officers, and 37 Port Authority police officers. Also, a further 24 people remain listed as missing in the attack on the World Trade Center to this day.
From "The Charge of the Light Brigade"
When can their glory fade?
O the wild charge they made!
All the world wonder'd.
Honour the charge they made!
Honour the Light Brigade,
Noble six hundred!

This poem was written to memorialize a suicidal charge by light cavalry over open terrain by British forces in the Battle of Balaclava (Ukraine) in the Crimean War (1854-56). 247 men of the 637 in the charge were killed or wounded. Britain entered the war, which was fought by Russia against Turkey, Britain and France, because Russia sought to control the Dardanelles. Russian control of the Dardanelles threatened British sea routes.

Sunday, September 07, 2008

The Sarah Palin Factor Changes The Election

It was a glorious victory for a historically marginalized group whose contributions have too often been downplayed and overlooked, a group that has not received equal credit for equal work: vice-presidential candidates.

All this week, political analysts have been reminding us that vice-presidential running mates don't usually make much difference in presidential races, and there is good historical data to back this up. Geraldine Ferraro was initially well-received, for example, and Dan Quayle wasn't—yet Mondale lost in 1984 and Bush won in 1988. But as they say, historical trends are likely to continue until they don't.

After her speech last night—the text is here, but watch the video here—I suspect that in this election, John McCain's selection of Sarah Palin will fundamentally change the contest.

Until last night, I thought that Barack Obama was a charismatic politician who could give a really good speech. I guess it's been so long since we've seen the real thing that the standard has been set pretty low. Sarah Palin showed us what we've been missing.

Obama is very polished and intelligent, and while he is far better than most politicians at faking sincerity, there is still something detached in his delivery, a self-conscious formality that keeps him from being completely genuine. Sarah Palin, by contrast, managed to look both supremely poised on stage and completely comfortable. She delivered her lines flawlessly, but rested her arm almost casually on the podium as she spoke—an extraordinary self-assurance for a virtual unknown delivering this year's most highly anticipated, high-risk political speech. And when she saw banners in the audience reading "Hockey Moms 4 Palin," she seamlessly broke from her prepared text to ad-lib a joke. This is one of the most difficult things a speaker can do, and trust me, you don't want to watch Hillary Clinton attempt it.

The joke? "What's the difference between a pit bull and a hockey mom? Lipstick." At this last word, she gestured toward her own mouth.

A "pit bull with lipstick" is a good analogy for the polemical portions of her speech. She effortlessly accomplished another one of the most treacherous tasks a politician can attempt: she delivered withering political attacks and pungent jibes at her opponents without seeming shrill or mean-spirited. (Contrast her, in this regard, to Rudy Giuliani's speech earlier in the evening. He had some good lines, but he delivered them with a jabbing finger, an angry face, and a tense shout, all of which combined to make him seem petty.)

The polemics came one after another, and each hit home.

I guess a small-town mayor is sort of like a "community organizer," except that you have actual responsibilities.

I might add that in small towns, we don't quite know what to make of a candidate who lavishes praise on working people when they are listening, and then talks about how bitterly they cling to their religion and guns when those people aren't listening. We tend to prefer candidates who don't talk about us one way in Scranton and another way in San Francisco….

[L]istening to [Obama] speak, it's easy to forget that this is a man who has authored two memoirs but not a single major law or reform—not even in the state senate….

In politics, there are some candidates who use change to promote their careers. And then there are those, like John McCain, who use their careers to promote change. They're the ones whose names appear on laws and landmark reforms, not just on buttons and banners, or on self-designed presidential seals.

Palin delivered these one-liners with a smile, a note of cheerfulness, and a mischievous twinkle in her eye. She didn't convey a sense of being bitter or angry at her opponents, the way Giuliani did. Instead, she seemed to be amused by their foibles. This is the way Reagan attacked opponents—the smile, the shake of the head, and "there you go again"—and the American people love it. They like a "happy warrior" who is comfortable with the give-and-take of political battle, but who doesn't seem to take it too personally.

Slate's John Dickerson sums it up nicely when he writes: "It was clear Palin was having fun, and it's hard to have fun if you're scared or a lightweight."

This is one of the reasons Palin's performance will alter the race. When McCain introduced Governor Palin and the media began picking apart her record and dredging through her family's messy soap-opera, there was some question whether McCain had made a hasty and reckless decision in choosing a virtual unknown. Now he looks like a genius for discovering a major new political talent.

But Palin's speech was not just a showcase for her personal charm. Her one-liners and her fresh, outsider's appeal reinforced the theme of the speech, which was that she and John McCain would be political outsiders who would bring reform and change to Washington. In essence, it was an attempt to beat Barack Obama at his own game.

Here is her basic sales pitch:

Americans expect us to go to Washington for the right reasons, and not just to mingle with the right people….

The right reason is to challenge the status quo, to serve the common good, and to leave this nation better than we found it….

This was the spirit that brought me to the governor's office, when I took on the old politics as usual in Juneau, when I stood up to the special interests, the lobbyists, big oil companies, and the good-ol'-boys network….

I came to office promising major ethics reform, to end the culture of self-dealing. And today, that ethics reform is the law.

While I was at it, I got rid of a few things in the governor's office that I didn't believe our citizens should have to pay for.

That luxury jet was over the top. I put it on eBay.

And yes, that last part really is true.

Barack Obama was supposed to be the fresh face who would "change" Washington. But after a summer in which he hired Washington insiders by the dozen, chose one of them as his running mate, and made calculated moves to the center on one issue after another, he now seems like a conventional politician more concerned with his own ambition than with any kind of ideal. Obama squandered his advantage, and now Palin has just stolen the "change" and "reform" message that appeals to the independent swing voters who are likely to decide the election.

Palin's performance last night was so good that I began to hear some concerns this morning that she might overshadow John McCain. I disagree. The person she will actually overshadow is Obama. As this long presidential race enters a surprisingly brief home stretch—the election is exactly two months way—Palin will be the more interesting and refreshing personality, she will get more attention from the press, and she will attract more independent voters.

And the effect of last night's speech is not just that it will attract independent voters. It will also give John McCain the one thing he hasn't had up to this point: the enthusiasm of his base. He turned off free-marketers by embracing economy-choking energy rationing; Palin brings them back with her spirited advocacy of oil and gas exploration. The religious right was wary of McCain; Palin's anti-abortion stance and religiosity brings them back.

I wrote recently about how Palin supplies the two legs of the conservative coalition that McCain was missing. A friend responded with a good formulation of the sense-of-life impact of this ideological re-unification: "Republicans from different branches of the party are happy to feel a little bit like they've all been put back together again."

This was my sense of the audience reaction in the Excel Center last night. The Republican base wanted to like Palin and hoped that they could like her—and they were ecstatic to find that she exceeded their expectations. That's something that hasn't happened to Republicans in a long time. It is too mild to say that the conservative base emerges from Palin's speech "energized"; they will now be fanatical in their support for the party's ticket. And that will translate into hundreds of thousands of volunteers to make phone calls, goad their friends, and staff get-out-the-vote drives in November.

Fred Barnes is right when he calls Palin "a natural, gifted with the ability to connect with people in a way that few politicians can and to perform under extreme pressure. She has star quality." He is also right when he notes that "Republicans haven't seen anyone like Palin emerge from their ranks since Ronald Reagan first attracted national attention in 1964."

And here's where we need to throw a little bit of cold water on the glowing evaluations of Palin's speech. The speech that launched Reagan's career was far more substantive. It talked about a "time for choosing" between freedom and slavery, between standing up to the Soviets and appeasing them. It was a speech about basic principles. There was nothing half so profound in Governor Palin's speech

As you can tell, I really do like Sarah Palin; I have an awful weakness for tough, spunky, spirited women. But her personal qualities, while certainly relevant to her candidacy, are not decisive. We have to look at the actual policies she is likely to support. On that question, we still have not heard much from her own mouth.

What I can say so far is that she substantially mitigates my worst fear about McCain—but she adds a new fear that was not nearly as strong before.

My greatest fear about McCain was that he would ensure the passage of "cap-and-trade" energy rationing. But House Republicans have begun agitating for an opposite policy of increased oil drilling—and Palin's selection elevates that issue to the center of the McCain campaign.

On the other hand, McCain has not previously been noted as a crusader for the religious right. While Palin did not say anything last night about her consistent and radical anti-abortion stance, her presence on the ticket could now elevate a religious agenda to the center of the McCain campaign.

What we know already is that Palin will be the rare vice-presidential candidate who makes an important difference in the race. But we don't yet know enough about what effect she will have on the ideological direction of a potential McCain administration.

We can definitely say that she is likely to help McCain in the political horse race—but we cannot quite say whether it should help him.

Stay tuned.