The Only Thing We Have to Fear....

...Is toxic crap sandwiches like this, from people who bloody ought to have known better:







You would think that getting to witness the metastasis of Collectivism in its Communist and Fascist forms would bring a modicum of pause to the centralizing aspirations of this Depression-stretchingly pig-headed Prog.  

But you'd be wrong.

Hey Franklin, "Private power" is SUPPOSED to be stronger than the bloody State. Ownership of the government is the CHARTER AND RIGHT of individuals and groups (i.e., CITIZENS).

And all the blather which will no doubt follow this Self-Evident (sound familiar?) observation (since I just posted a version of these comments on Facebook, where I found this stomach-acid-squirting pic), you know, the familiar effluvium about "Corporate Influence subverting the electoral process for the benefit of special interests and Fat-Cats," will only serve to illustrate more clearly the gravity of FDR's error. For that kind of Crony Capitalism is, at its core, profoundly ANTI-Capitalist...and thrives most exuberantly and perniciously under conditions in which the excessively bloated power of the State emboldens it to engage in the hubristic exercise of picking winners and losers.

When the MARKET --to as great a degree as practicable-- is allowed to operate as the selective agent by which value is assigned, and the (humble, lean, CITIZEN-OWNED) State is NEVER promoted from the status of control rod to that of reactor, then liberty may truly thrive and evolve as the ecosystem it is supposed to be, rather than the managed paddock envisioned by Collectivists like FDR and his Statist stepchildren.

Harrumph, I say!

Hubris and Fallen Columns

From the opinion pages of the WSJ  comes this withering synopsis of POTUS Obama's relentless (and ultimately self-defeating) pursuit of a Progressive Tranformation Of America (tm).  In short, it's turned out pretty much as you'd expect.

It really is extraordinary how opaque he was (and remains) to the practical and the political  implications of his actions, and thus how  utterly he has squandered what could have been a  most auspicious moment for him.

Oddly, my tear ducts register no activity at all.

"Recovery From Unusual Attitudes"

This started out as a reply to Mr Hengist's most righteous fisking of WaPo's Eugene Robinson, but it really started to look like a post unto itself. So here we are.

Robinson's blatherings are, alas all-too characteristic of the desperate delirium tremens which beset the Left as the rivets are systematically popped from the wings of their world-view ('Hey, nothing happened when we lost the first few! Guess we can ditch a few more...Wait, what's that wobble?...'): 

The European Super-Nanny is making like the Black Knight from "Monty Python and the Holy Grail" ("'Tis but a flesh wound!!"). All the Keynesian stimulus spending here at home is having pretty much the effect you'd expect from applying a defibrillator to a patient slipping into a diabetic coma. The Tea Parties are maddeningly/bafflingly failing to go away, lose elections, or start lobbying en masse for racial purity or putting Jesus on Mt Rushmore.

I almost feel sorry for them...between attacks of chortles and guffaws.

The dynamic has been the same for so long, that any change can only be seen by Leftists as pathology: The hard Left has dragged the Democratic party further and further to port, while a squishy-center-Right GOP has had rather a flaccid foot on the starboard rudder pedal. What force there has been in that countervailing direction has been so confoundedly conflated with Social Con issues that it's been unable to gather as much traction with a population which was not sufficiently attentive to the fiscal/federalist issues to see past the clouds of brimstone. And so the ship of state has swept in a leftward spiral so comprehensive as to be undetectable to the vast majority of folks who don't pay really close attention to such things. It's a situation eerily akin to that which resulted in the death of JFK, Jr, as his small plane swept in a long descending curve --utterly unnoticed by the seat of his pants and his untrained middle ear-- toward the choppy seas off Martha's Vineyard (link is to a really interesting article, with more levels of meaning and relevance than I'd expected to find for purposes of illuminating this small point. Worth your time).

That has now changed. With the Tea Parties, the small-government, fiscal-restraint message has risen to the top, at just the time when the public was paying attention (and yes, reciprocal causation is surely in effect here). It has outshone (though by no means obliterated) the SoCon channel, and assumed a position of a firm, energized counterforce to the sinister slippage that's dragged us so far off-true.We begin to see evidence of the emergence of that dialectic I've been prattling on about for so long. And it's about time!

Are there excesses of ideological purity on the Right? Of course. "Go ahead and default! Make my day!" is not a tenable position (if for no other reason that it puts the decision of what obligations will be met squarely in the hands of a POTUS who can hardly be trusted not to make those spending decisions such that they'll deliver the maximum hurt to people who will be inclined to blame the GOP). But how different is this from the cacophony of Progressive fantacism from the other side ("Hey, what we really need is a bigger stimulus...and a Single-Payer healthcare system...and Big Cuts to the military...and to sign onto the Kyoto Protocol..."). The trouble, it seems, has been that the zealots on the Left have had a seat at the table, while those on the Right were mainly yelling from the foyer. 2010 changed that, with the predictable result that things have gotten...well...unpredictable.

It's this latter point which seems to have been at the heart of S&P's decision to downgrade the US' creditworthiness from "Superdoubleplus Excellent" to "Merely Superb." Of course there's going to be unpredictability as the American political trajectory realigns itself. You can't alter the course of such an immense vessel and not expect a fair bit cavitation and wake turbulence. What S&P did was to issue a traffic advisory for the vicinity of that vessel, and one can hardly blame them for it....that is, unless one's entire narrative is predicated on the notion that there has been no bias, and so no need for a course correction (except maybe [further] to the Left). For such folks, these Tea Party Freshmen are the Horsemen of the Apocalypse, gremlins with crowbars, grinning on the wings, or whatever other metaphor makes you twitchy enough. Just a bunch of troublemaking hooligans, holding the stately State hostage for...somethingorother.

Yes, things are like to get a mite messy for a while, and investors (and voters!) should take note, and take precautions. But messy is what freedom is supposed to be. This is especially true during periods of transition, which we are surely in. It is the apparent direction of that transition which has Leftists (at least those who are paying attention) so nervous. And so they are bound to make the agents of that change into villains, and to try and tar the messengers who see the writing on the wall as mere graffiti artists. All in the hopes of planting the memes deeply enough to escape notice, that Left is Straight, Center is Right, and Right is Down.

But, to the great (and deliciously Schadenfreudig) consternation of Eugene Robinson and his like, more and more folks appear to be learning to fly by their instruments.

Oh, and Put It On the Children's Tab

[by Mr.Hengist]

Republicans are a bunch of terrorist hostage-taking criminals for trying to impose their ideological insanity upon the nation, according to the excitable and apoplectic Left. In actuality they failed to bring fiscal sanity to our budget process - caved - and the can has once again been kicked down the road. Europe is circling the fiscal drain, America is trying to catch up with them, and Eugene Robinson is mad at the GOP. Oh, and the sun rises in the East, and - there! - I'm done with trite clichés for the time being.

Let’s have a look at the talking points Robinson has regurgitated for us this time:

“The so-called analysts at Standard & Poor’s may not be the most reliable bunch, but there was one very good reason for them to downgrade U.S. debt: Republicans in Congress made a credible threat to force a default on our obligations.”

Well, no, they didn’t; that power rests solely with the POTUS. In the event that the Federal Government does not have enough money to pay all its bills, the POTUS has the legal authority and obligation to allocate what monies are available on a discretionary basis. In that context, Robinson’s statement could be taken to mean that he believes the POTUS would not have prioritized our debt obligations, but that would be giving him too much credit.

“This isn’t the rationale that S&P gave, but it’s the only one that makes sense.”

Like most Liberals, when their opposition states something which doesn’t gibe with their worldview, they discard what they’ve been told and substitute their own fantasies. I believe him when he says that S&P’s rationale doesn’t make sense to him, but the problem lies with Robinson, not S&P.

"Like a lucky college student who partied the night before an exam, the ratings agency used flawed logic and faulty arithmetic to somehow come up with the right answer."

In short, Robinson likes the result, but the reasoning is in conflict with his worldview, so he's openly discarding it but keeping the conclusion. The right answer, for Robinson, is that America should be downgraded because of the intransigence of the GOP, so long as that downgrade can be pinned on them. To the extent that S&P was critical of anything that might make the Left look bad - well, that's just crazy talk!

Take a moment to review the actual document issued by S&P. S&P’s rationale for the downgrade is that the deal won’t stabilize our fiscal situation, and with an additional $2.4T increase in debt, that’s correct. They also say that the differences between the parties are “contentious and fitful” and that the debt ceiling has become a political bargaining chip, and that’s also correct. As far as bridging the chasm between revenues and spending, S&P notes simply that the two sides can’t agree on spending cuts and/or tax increases. S&P does not take sides in that debate.

“And no, I can’t join the `we’re all at fault' chorus. Absent the threat of willful default, a downgrade would be unjustified and absurd. And history will note that it was House Republicans who issued that threat.”

Not exactly true, since the decision to default would lie with the POTUS. At any rate, history will also note that the POTUS threatened to veto any bill which did not extend the debt limit sufficiently to get us past the next election. To get him past the next election - and the Left has no problem with that.

“There is no plausible scenario under which the United States would be unable to service its debt.”

That's true - in medium term. Not servicing the debt would be a choice, not a necessity, and that choice lies with the POTUS.

“If political gridlock were to persist, our government would be able to pay bondholders with a combination of tax revenue and funds raised by selling more Treasury bills.”

Tax revenue alone would cover our debt obligations and avert default, albeit without enough left over to meet other obligations. Treasury bills could not be sold, however, unless they came from the Social Security “Trust Fund” in which case every T-note sold would lower our debt by equal measure, allowing for us to borrow that much more.

“And in the final analysis, as Alan Greenspan noted Sunday on `Meet the Press,’ the United States `can pay any debt it has because we can always print money to do that.’ I know this kind of talk is horrifying to Ron Paul and others who believe we should be walking around with our pockets full of doubloons, but most of us find paper money more convenient.”

... aaaaand, just like that, there it is. No apology, no regret, no pleading for the possibility of considering the necessity of doing the unthinkable. That last-ditch seawater-on-the-reactor cut-off-your-leg-to-save-your-life nuclear bomb of fiat currency mismanagement is casually put on the table with snide contempt.

Sure, the Treasury could simply create as much money as we owe and pay it off that way, and if it really were no big deal, why isn't Robinson wondering why we haven't done it already? $14T in the hole? Clickety-Clack, the Treasury can create that amount. Heck, why stop there? Why not turn that minus sign into a plus sign! Why not fill our coffers with $140T and fix this deficit problem for the foreseeable future?

The answer is this: “printing” our way out of this would rightfully be considered a default, both by the rating agencies and the rest of the world. It would literally destroy our economy, and, by the way, we’d never be able to borrow again. The result looks like Zimbabwe, and here, Robinson floats the idea as a viable alternative.

Eugene Robinson: charitably speaking, you are an idiot.

“What happened this summer is that Republicans in the House, using the Tea Party freshmen as a battering ram, threatened to compel a default.”

Wrong, wrong, wrong. Aside from the repetition of the false assertion that the Congress could force a default, Robinson has the dynamics of this completely inverted. The Republicans did not “use” the Tea Party freshmen; the Tea Party freshmen held firm and forced the Republicans to get a better debt deal. He writes in the WaPo, but does he even read it?

“More accurately, they demanded big budget cuts as the price of raising the debt ceiling. If the Senate and President Obama did not comply, the Treasury’s access to capital through borrowing would have been cut off.”

Well, one could have simply said so, but what’s a Liberal opinion piece without throwing up partisan hyperbole?

“The government’s cash flow would have been slashed by 40 percent, leaving not nearly enough to fund essential operations, pay entitlements and also service the debt. Somebody was going to get stiffed. Paying interest to bondholders could have been given priority over competing obligations such as salaries for our people in military service and Social Security checks for retirees. But for how long?”

OK, so did the House Republicans threaten to default or was default always an option of the POTUS? As Robinson admits here, it was always an option. Social Security, on the other hand, was never threatened; as I described above, the “trust fund” – which has in excess of $2T – is guaranteed convertible into U.S. dollars and allows for an equal amount to be borrowed through the sale of regular Treasury bills. Sure, it exchanges one IOU for another, but the SS recipients would get paid. In fact, we could do that and not touch tax revenues at all, for a while.

That, by the way, is the answer to, “But for how long?” For a while, until we can get more tax revenue and/or cut our spending. A better question would be, "How, by Crom, did we get to the point that 40% of our spending has to come from borrowing?" There's a reason this keeps getting called "unsustainable." It might be a debate worth having whether we should increase taxes or not, but when our elected officials keep finding new entitlements to grant (as noted below), it's easily demonstrable that no amount of taxation will ever sustain the nanny state they envision.

“S&P, however, gave a host of largely bogus reasons for its action. Why am I not surprised? This is a firm that aided and abetted the subprime crisis — and the devastating financial meltdown that ensued — by giving no-risk ratings to dodgy securities based on mortgages that should never have been written. The firm’s credibility is spent, as is that of the other ratings agencies, Moody’s and Fitch.”

The reasons S&P gave for the downgrade were far from bogus, but Robinson is correct in that the ratings agencies were complicit in the financial meltdown. However, the assertion that S&P’s “credibility is spent” is contradicted by the ensuing drop in the market. Obviously not, then, eh?

“Initially, S&P pinned the downgrade on the sheer size and weight of the mounting federal debt. Treasury officials noticed that S&P had made an error in its calculations, overstating the debt burden by a whopping $2 trillion. This discovery negated the ratings firm’s rationale — so it simply invented another.”

Reading this, you might be led to believe that those numbers alone formed the basis of S&P's rationale for a downgrade. Not so; Robinson is outright lying here. I've already linked to the original S&P report and it's worth reading. What's really more compelling here is that this “mistake” appears to be anything but a mistake. Here’s what appears to have happened: S&P used actual budgeting numbers vs. the Administration’s having used CBO numbers – and the CBO uses assumptions dictated by the WH, and those assumptions are completely implausible (The WH numbers assume that baseline expenditures grow with a nominal GDP increases of 5%/yr while inflation sits at 2.5%.) This is what Liberals are calling a “math error.” S&P revised that part of the budget analysis as the Feds implicitly threatened to strongarm S&P by holding hearings.

“Instead of basing its argument on economics, S&P made an ill-advised foray into political analysis. In its `revised base case scenario,’ the firm assumed that all the Bush tax cuts will remain in place past their scheduled expiration at the end of next year — even for households making more than $250,000 a year. But Obama vows not to let this happen, and S&P apparently fails to understand that after the election he will be in the strongest possible position to stand firm.”

It's amusing to read Robinson chastise S&P for making "an ill-advised foray into political analysis" when his own political analysis is so deeply flawed, and then to see that he in turn has no qualms in blundering about on his own ill-advised forays into economic analysis. You’ll recall that, the last time around, Democrats wanted to keep $298B of the $366B in “Bush” tax cuts. The Dems also promised to eliminate the Doc Fix as a part of the “savings” of Obamacare, but then reneged on that in a matter of months. Really, when you consider all the things POTUS Obama said he’d do, or not do, and then ended up doing the opposite – well, one can hardly blame S&P for a lack of faith. Heck, even in the midst of this Mexican hatdance around the fundamental problem of unsustainable entitlements the Obama Administration created a brand new entitlement.

“Obama should have made clear from the start that if necessary he would take unilateral action, based on the 14th Amendment, to ensure there could never be a default.”

Actually invoking the 14th Amendment for this purpose would have precipitated a constitutional crisis and, if his own party didn’t have control of the Senate, would surely and rightly have led to his impeachment. What’s more, the validity of any T-bills issued under such circumstances would have been of dubious authenticity and would therefore have commanded a high premium for the risk of their turning out to be worthless. Another excellent plan, Robinson.

Failure To Launch

I was thinking today about how fitting it was for President Obama to be present at today's final launch of another Shuttle. After all, I thought, who better to preside over the end of an Endeavor? But I suppose this works, too.

Anyway, that scrubbed liftoff was very much on my mind as I read this piece from Investors about the Reagan Administration's recession recovery and that of 44 (H/T to Instapundit).

I remember in the 80s how righteous I felt as I poo-poohed "Trickle-Down Economics" (and isn't that just an infelicitous pairing of images!). The difference from then to now is akin to that from rocket fuel to corn-based ethanol.

We'll be lucky if we clear the gantry at this rate.

UPDATE: Bad link fixed.

Canard Season: On the Economic Impact of Operation Iraqi Freedom

Via QandO, comes this devastating deconstruction at The American Thinker of the oft-repeated meme that the Iraq War was responsible for the ballooning deficits under which our economy now labors. The general idea has been that Teh Eeevil Booosh had squandered our Nation's wealth on his Massive Boondoggle (for the enrichment of the Oil Companies, the Military-Industrial Complex, or any other of a host of popular bogeymen). And so, the 'reasoning' goes, it is hypocritical in the extreme for Conservatives to now decry the deficits which we now endure under our Democratic Administration and (for now!) Congress.

Bunk. Pure, unadulterated bunk. Have a peek at the chart, below.

Notice anything about the years? Specifically, recall which party was in charge of Congress from 2003 through 2007. Notice anything about the deficit trend lines during those years? How about right after?

The less I say here, the higher the probability that you will read the whole thing. And you should read the whole thing. The author cites the Government's own numbers (i.e., this isn't something cooked up at the Heritage Foundation  or somesuch). It is a bit of much-needed perspective, particularly as we approach the time when we get to decide who writes the next set of budgets.

Never Let Waste Go To a Crisis

Nice little piece by Nina Easton in (of all places!) Time Magazine. In it, Easton notes that, despite historical precedents which would incline one to believe the contrary, the current shambles which is the American economy has, by and large not driven vast numbers of people to seek succor at the teat of vastly increased government spending programs.

"Audacity" was a catchy campaign theme, but it's less attractive as a governing principle. The all-important swing voters who decide elections are nervous about dramatic expansions of the Federal Government--even and especially in this time of economic distress. As it turns out, this financial crisis was not the call to bold action that White House chief of staff Rahm Emanuel said shouldn't "go to waste." Quite the opposite: if he doesn't want his presidency to be held hostage by a string of nail-biter votes in Congress, Obama needs to recognize that he overestimated the public's appetite for taxpayer-funded solutions.

 I do think Easton is onto something here. Where the New Deal and the Great Society gained quite durable (if debatably healthsome) traction by offering the promise of remedies for the common American in difficult times, the ambitious Obama agenda of pumping up government and injecting it into greater swathes of the private sector have little to offer the man/woman on the street. Quite the contrary, as Americans witness the grim spectacle of  a lumbering jobless recovery, logarithmically expanding debts and deficits, and the "promise" of inflated taxation to provide vaporware revenues in a steadily deflating currency, the thinking which underlies these practices has been losing market share rather than gaining it.

This is a point to be considered very seriously by any Democrats who hope to hold onto their majority in the upcoming midterms.  These are precisely the circumstances under which one would expect desperate people to look to their government to swoop in and solve their problems. The fact that there is a far smaller-than-anticipated appetite for such top-down solutions presents an opportunity for the Democratic party to read some pretty stark tea leaves (pun intentional) and swing toward the center as it was forced to do after its rout in 1994. However, I have no particularly strong sense that the Obama-Pelosi-Reid axis possesses the canny pragmatism which typified their Clintonian forebears.

Similarly, I hope that Republicans, reflecting on the party's loss of focus after the "Contract With America," will look very carefully at the calls for a "big tent" approach which would have them compromise too strenuously on matters of leaner government and fiscal conservatism. While the idea of an ideological "Purity test" makes me uneasy as a goal state for the GOP, the fact of its proposal can and should serve as an important call to action for a party which has ceded far too much political territory to the centralizing, tax-and-spend philosophies of its adversaries.

While the Tea Partiers and Libertarians may push the envelope a mite too far for my tastes (and they surely do), they offer unmistakable evidence that a continued blurring of the lines between the Republican and Democratic parties will not be tolerated. Rather than the "civil war" and "fracturing" of the GOP which so many Liberals so gleefully declare, I see this as a healthy dialogue taking place within the ranks of those for whom free markets and free people can offer a legitimate alternative to the central planning. It is a conversation which will, it is hoped, delineate the degree to which the GOP chooses to stake its claim to a true and valid antithesis to the thesis that government-controlled "fairness" is a viable organizing framework for a liberal, mercantile republic.

If Easton's observations are as on-target as I suspect that they are, then there is fertile ground in the American electorate for the synthesis which could emerge from this process.

Money Quote

This really jumped out at me from the comments section of this depressingly trenchant editorial by Dick Morris on RealClearPolitics.

"You cannot legislate the poor into riches by legislating the wealthy into poverty. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend is about the end of any nation. You cannot multiply wealth by dividing it."

Dr. Adrian Rogers, 1931 to 2005

And that is about as succinct a description of the fatal flaw in the Liberal/Progressive/Socialist paradigm as I have yet encountered.

Of course, as per the editorial, there is precious little evidence that the Obama Administration possesses even the rudimentary competence to implement its own cherished agendas for the transformation of this society. Quoth the generally objectionable but frequently correct Mr. Morris:

It appears that Obama is at sea when it comes to financial policy, economic-recovery planning and credit-rescue efforts. We're stuck not only with a socialist but seemingly an incompetent one.

Which is fine by me; nekkid emperors have nothing up their sleeves.

Sound and Fury

I think I have been exemplary in my patience.

I have watched as the Obama Administration made some potentially canny and promising early appointments (and retentions) in positions relevant to national security and international diplomacy. I have given due (if necessarily guarded) credit where appropriate.

I have watched as it took steps to set in motion a vast experiment in government management of the economy for the stated purpose of kicking in the afterburners on a system which was losing altitude at an alarming rate. I am far less than sanguine about the prospects of that experiment yielding the fruit which the Administration has put on the menu. I exist in a state of dread about the shape which the American economy will assume if a significant proportion of the Democratic proposals end up being adopted. A top-heavy, regulation-besotted, debt-rich, redistributionist, entitlement-clotted, engineered economy is just the sort of climate which any sane businessperson will seek to flee at relativistic speeds.

But, whatever. The Democrats have been yammering for longer than I care to contemplate about just this sort of economy's putative virtues for elevating the lot of humankind. Now they have a chance to run the program and let the data shake out as it will. It's a strange universe; they may not be wrong.

What has really chafed my nethers this evening is the sheer hypocrisy embodied by this story off the AP:

WASHINGTON (AP) - The economy is fundamentally sound despite the temporary "mess" it's in, the White House said Sunday in the kind of upbeat assessment that Barack Obama had mocked as a presidential candidate.

Really?

I don't even have to close my eyes to summon up the full scope of the derisive drubbing which the Obama campaign visited upon John McCain when he made just this sort of statement during his run for office. At the time Sen. McCain was painted as a tin-eared economic lightweight and panderer, rearranging deck chairs on the Titanic and all that. Now the Obama administration, awash in the blowback from the ceaselessly bleak catastrophism with which it strove to sell the immense spending bender it so quaintly insisted on calling a "stimulus," sees fit to co-opt the same language in order to sweeten the potion it has spooked us into drinking. Seldom has the word, "disingenuous" seemed to apply so very aptly. And, again, I am summoning all the politesse I can muster here.

In point of fact, I thought that McCain retreated far too abjectly on this point. Flawed and floundering as it was, I do believe that the "fundamentals" of the economy were far less intrinsically damaged than it was deemed politically expedient to acknowledge. People were (and are!) hurting, and perhaps not so favorably disposed to hear that the overall economy could be jump-started without wading in and tinkering with the code. Macroeconomics serves as a sour and unsatisfying brew when one's utility bills are piling up and foreclosure statistics are far more than a news item. I get it.

Still, the pressure to appear empathic and to be seen as Doing Something can get in the way of the sort of intelligent management of the interface between government and the economy which holds real promise for building on that economy's strengths and judiciously addressing its shortcomings. For someone who droned on so relentlessly about the evils of a "Politics Of Fear," Obama was only too willing to employ those very tactics when the time came to try and motivate the American people to sign onto his blueprint for a "new and improved" American economy...up until the point when he 'discovered' that collective psychological phenomena are variables in the functioning of that economy. Now he is scrambling to massage the message and offer up a little Hope. One might have thought it fairly obvious that sermonizing about the Imminent Collapse of Everydamnthing might be apt to engender a bit of pessimism in the market. Seems that little item was omitted from The One's flow chart. Rookie mistake.

A penchant for revisionist history had ever been the hallmark of the Obama campaign's M.O. It is not unreasonable to predict that this tendency will persist...so I'm not holding my breath for any belated acknowledgment that Candidate McCain was right after all. For the moment, I suppose I'll have to content myself with the fact that even the AP could not whitewash over the irony of today's statements.

Beware of Jedi Mind Tricks, fellow citizens.

ETA: Awsome pic courtesy of this thread, chock full of hilarity.

Present and Unaccountable

Barack Obama likes to go on about how "deregulation" under Republicans is at the root of the economic woes we now face. He holds this out like some kind of talisman, highlighting the Greed and Short-Sightedness of the GOP...a charge which, I fear McCain has not done nearly enough to debunk.

But bunk it is, of the worst kind.

Ed over at Hot Air linked to a Peter Wallison editorial in the WSJ which speaks to this bit of preposterous prevarication by The One. On this matter of "deregulation," it is worthwhile to quote the editorial at length:

If Sen. Obama had been asked for an example of "Republican deregulation," he would probably have cited the Gramm-Leach-Bliley Act of 1999 (GLBA), which has become a popular target for Democrats searching for something to pin on the GOP. This is puzzling. The bill's key sponsors were indeed Republicans, but the bill was supported by the Clinton administration and signed by President Clinton. The GLBA's "repeal" of a portion of the Glass-Steagall Act of 1933 is said to have somehow contributed to the current financial meltdown. Nonsense.

Adopted early in the New Deal, the Glass-Steagall Act separated investment and commercial banking. It prohibited commercial banks from underwriting or dealing in securities, and from affiliating with firms that engaged principally in that business. The GLBA repealed only the second of these provisions, allowing banks and securities firms to be affiliated under the same holding company. Thus J.P. Morgan Chase was able to acquire Bear Stearns, and Bank of America could acquire Merrill Lynch. Nevertheless, banks themselves were and still are prohibited from underwriting or dealing in securities.

Allowing banks and securities firms to affiliate under the same holding company has had no effect on the current financial crisis. None of the investment banks that have gotten into trouble -- Bear, Lehman, Merrill, Goldman or Morgan Stanley -- were affiliated with commercial banks. And none of the banks that have major securities affiliates -- Citibank, Bank of America, and J.P. Morgan Chase, to name a few -- are among the banks that have thus far encountered serious financial problems. Indeed, the ability of these banks to diversify into nonbanking activities has been a source of their strength.

Got that? The one bit of actual deregulation which Democrats are able to cite in connection with this mess not only was introduced and approved during a Democratic presidency, but ultimately fails the evidence test for any actual relationship with those institutions which have failed. The "deregulation" dog simply won't hunt, however plausible it may sound, since Republicans generally are in favor of reducing the stultifying effects of excessive regulation on the dynamism and efficiency of free markets. But while we're on the subject of the potential for sensible regulation to have staved off the Economic Crisis, see if you can guess who said this, and when:

For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac--known as Government-sponsored entities or GSEs--and the sheer magnitude of these companies and the role they play in the housing market. [Office of Federal Housing Enterprise Oversight]'s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO's report solidifies my view that the GSEs need to be reformed without delay.

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

Give up?

Then of course, there's this bit from the New York Times, from 2003. These last four paragraphs are particularly perky on the palate:

Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.

The problem here wasn't too much or too little regulation, but the wrong sort of regulation...the kind that mandated that loans be provided to those who could not afford them (under the ever-effective cover fire of possibly being branded with charges of racism), and that those loans be backed/bought up by the GSEs, FM&FM. This created powerful incentives to treat those risky loans like safe investments and to securitize them and spread them throughout the world economy like herpes in a rural co-ed dorm in Winter. That's the sort of thing that makes it impossible for a free-market system to accurately assign value and operate as it should. It artificially inflated the value of the housing market by flooding it with demand, while betting outrageously on the perpetual meteoric growth of that market, and studiously ignoring the fact that it was built on pure hot air.

Essentially, the GOP and some Democrats were trying to impose sensible regulation on regulators who were lacking in sense, so that they could then de-regulate the ensuing market and let it find its level based on the true value of what was being bought and sold. We are in an emergency largely because they failed to make their case with sufficient force.

Which brings us back to Barack Obama. The above-cited legislation, co-sponsored by Sen. McCain could very well have knocked the blocks out from under the noxious financial follies which have landed us in this quagmire. According to Wallison, however, it met with terminal resistance from some telling sectors:

In the summer of 2005, a bill emerged from the Senate Banking Committee that considerably tightened regulations on Fannie and Freddie, including controls over their capital and their ability to hold portfolios of mortgages or mortgage-backed securities. All the Republicans voted for the bill in committee; all the Democrats voted against it. To get the bill to a vote in the Senate, a few Democratic votes were necessary to limit debate. This was a time for the leadership Sen. Obama says he can offer, but neither he nor any other Democrat stepped forward.

Instead, by his own account, Mr. Obama wrote a letter to the Treasury Secretary, allegedly putting himself on record that subprime loans were dangerous and had to be dealt with. This is revealing; if true, it indicates Sen. Obama knew there was a problem with subprime lending -- but was unwilling to confront his own party by pressing for legislation to control it. As a demonstration of character and leadership capacity, it bears a strong resemblance to something else in Sen. Obama's past: voting present.

Indeed. Unlike John McCain, who has a long track record of irritating the hell out of his own party by taking the lead on issues which go against its orthodoxies, Obama has consistently squandered opportunities to demonstrate a similar degree of moxie. His lock-step adherence to the most liberal and doctrinaire policies of the Democratic Party have shown him to be far more of a joiner than an pioneer, and we are all now paying the price for his and his Democratic cronies' lack of vision.

(Note: portions of this post are lifted shamelessly from an email exchange with friends last week. Lazy? Sure. But why re-invent the wheel when I'm on a roll)

Ecolonics 101

Up till now, I have refrained from blogging about the financial crisis, as I'm the first to admit that I've scarcely reached yellow-belt status in my econ-fu (h/t to Mike for introducing me to that most excellent term). As they say, better to remain silent and be thought a fool than to speak and remove all doubt.

But I've been doing some pretty extensive (for me, on econ matters, anyway) reading and watching and listening and thinking, and think it's time to dip in a toe. What I have been able to glean, in very general terms, is that the crux of the immediate issue before us is akin to a massive bowel obstruction in the viscera of our economy. Stay with me here. This blockage was created by the great mass of illiquid assets in the form of mortgage backed securities (MBS), themselves comprising masses of mortgages whose value has been allowed to become so ambiguous that they cannot be moved. All of the tottering financial edifices which have become so infiltrated by these inert clots stand to collapse, as credit markets cannot function without some reliable indices of value against which to borrow, and the underlying value of the mortgages within these MBSs has become quite impossible to ascertain.

These obstructions need to get flushed out. The Paulson plan, as I understand it, is to authorize the Treasury to purchase these MBSs and other bundled bales of bad mortgages at substantial discounts under the prices originally paid for them, and thus to extract them from the market, to be combed through and valued in some meaningful, transparent way. They could later be sold off in an orderly (and maybe even, in some cases, profitable) manner. This would, in theory, free the overall economy of the drag which they represent, and permit a stabilization of the marketplace through a gush of liquidity.

Now, given that the projected price tag for this enterprise looks to hover just south of a trillion dollars, it is understandable that there is pressure to craft the deal in such a way that there is oversight and transparency. This is as it should be. Where I think there could be real problems, though, is in further gumming up the works with all manner of provisos and caveats and additional conditions (like, say, tacking other forms of debt onto the buyout which, while they may also be troubled, do not contribute as centrally to the constipation of the system as do the dead mortgages the plan was crafted to excise). Those who seek to graft their pet porkers and populist projects onto these negotiations risk undermining what confidence there is in what is surely a perilous and unprecedented rescue plan. Perception is a key factor here, one which is reflected in the markets, and they have been making like the vomit comet as the wrangling has dragged on.

I am in no way advocating for undue haste and desperation in pushing this thing through. The whole thing offends my free-market sensibilities something fierce. The X-rays need to be pored over, and the treatment needs to be refined and streamlined (notably, the terms under which the treasury gets paid back need to be quite a bit more clear), lest it prove worse than the disease. But undue foot-dragging also has consequences which need to be assessed and mitigated. This is one reason why I doff my hat to John McCain for his canny, bold and responsible move to suspend his campaigning and possibly delay Friday's debate on foreign policy while he (and hopefully his opponents, since all three of these guys still have jobs to do as sitting senators) heads to DC to partake in the process. Sure, it'll bring a blizzard of presidential politics to the proceedings, but that could hardly be worse than the sorry spectacle we've seen so far. I daresay it might even provide a chance for the candidates to demonstrate a bit of leadership.

Care should, of course, be exercised, but further obstructionism will just as surely come back to bite those who commit it.

After all, the enemy of my enema is no friend.


(NOTE: Edited for clarity and...um...flow)