Friday, November 28, 2008

Taibbi: 'They screwed it up just right'

Requiem for a Maverick

By Matt Taibbi

November 27, 2008  |


Election night at the Biltmore in Arizona is a hilariously dismal scene, like a funeral for a family member nobody liked, who died owing everyone money. The rats here are already bailing off the ship with lightning speed, like L.A. Dodgers fans leaving a playoff game to catch the latest episode of Entourage. The exodus, in fact, begins about eight seconds into John McCain's concession speech, which incidentally starts off on the classiest of notes: with the remaining crowd cursing the name of the new president.


"A little while ago, I had the honor of calling Sen. Barack Obama," McCain begins.


"Boooooo!" bellows the crowd. Outside the hotel, a wine-drunk young woman in a fluffy white ball gown probably last worn at a Liberty University frat mixer angrily flings a would-be celebratory pompom she has been clutching into my face. "I can't listen to this shit!" she yells, scooting away.


I peel the plastic pompom bits off my face and stick them in my bag, where they are soon joined by a McCain-Palin "Victory 2008" Election Night T-shirt — bought for gloating purposes at a rapidly plummeting discount. Republican-souvenir prices haven't been this low since Watergate.


By the time McCain finishes his short, commendably gracious speech a few minutes later, almost all the Republican revelers have begun to flee the premises. The few who stick around are trying to suck the last value out of the meals and cocktails they so willingly overpaid for earlier in the night, when there was still a chance they'd end up with something to celebrate. At the hotel exit, a pair of Arizona State students are grumbling about the food.


"We paid, like, 10 bucks for a burger," says 18-year-old Emily Zizzo.


"We were outraged," agrees her 20-year-old friend Dori Jaffess.


I ask them why they think McCain lost. Dori says a big reason is that "a lot of big movie stars came out for Obama." I ask her which ones.


"Um, Puff Daddy?" she says. "Although I don't know if Puff Daddy came out for Obama."


"There's Oprah," adds Emily.


"Yeah, Oprah," says Dori.


A few yards away, a pair of thirtysomething women in an advanced wine slog have gotten into a screaming match with a Hispanic cameraman. One of them, 33-year-old Kristen McEntire, is already spinning out a conspiracy theory to explain McCain's defeat, suggesting that the media called the election in some key states before the polls closed, tricking hordes of would-be McCain voters into staying home. Obama, she assures me, is a "novelty" who will "go away within the next couple of years."


"Um," I say. "Go away?"


"I just don't think America's ready for a black president," she explains. "And I don't mean that in a racial way whatsoever."


It sounds strange to say, but this election season may have done to the word "Republican" what 1972 did for the word "liberal": turned it into a poisonous sobriquet that no politician with bipartisan aspirations will ever again welcome. The Republicans didn't just break the party — they left it smashed into space dust. They weren't just beaten; the very idea of Republican conservatism was massively rejected in virtually every state where large chunks of the population do not believe in the literal existence of a horned devil, and even in some that do.


They lost in every way imaginable, on every political front. The symbol of their anti-gay crusade, Colorado congresswoman Marilyn Musgrave, was beheaded. The party that had made so much hay running against Mexicans saw noted anti-immigration crusader Bill Sali of Idaho ousted along with several other members of the Immigration Reform Caucus. The GOP's grasp on the so-called "moral values" issue likewise went up in roaring flames, with Rep. Vito Fossella of Staten Island the poster child — his morals were once so perfect that he refused to be seen with his gay sister, and now he's a national joke, bounced after being caught drunk driving and having unprotected, babymaking sex with a married Air Force officer.


The ironic thing is that the destruction of the Republican Party was a two-part process. Their president, George W. Bush, did most of the work by making virtually every mistake possible in his two terms, reducing the mightiest economy on Earth to the status of a beggar-debtor nation like Pakistan or Zambia. This was fucking up on a scale known only to a select few groups in history, your Romanovs, your Habsburgs, maybe the Han Dynasty, which pissed away a golden age of Chinese history by letting eunuchs take over the state. But John McCain and Sarah Palin made their own unique contribution to the disaster by running perhaps the most incompetent presidential campaign in modern times. They compounded a millionfold Bush's legacy of incompetence by soiling both possible Republican ideological strategies going forward: They killed off Bush-style neoconservatism as well as the more traditional fiscal conservatism McCain himself was once known for by trying to fuse both approaches into one gorgeously incoherent ticket. It was like trying to follow the recipes for Texas 10-alarm chili and a three-layer Black Forest chocolate cake in the same pan at the same time. The result — well, just take a bite!


I witness the whole pathetic mess summed up a week before the election, on a baseball field in Quakertown, Pennsylvania. The campaign has scheduled an outdoor rally, with a joint appearance by McCain and Palin, at this crucial moment in the race. But now there is driving snow and sleet, trees downed on roads all around, and the campaign — with no alternate indoor plan — is forced to cancel the event at the last minute. I watch as locals keep pulling up to the field, looking for the candidate, a lonely, rain-soaked "Country First" banner whipping back and forth above the stage. The whole scene captures the essence of the McCain run perfectly: Instead of a plan, they had an endless succession of dumb ideas scrapped at the 11th hour in favor of even dumber ones.


It was like that all election season. McCain kicked off his campaign with a stump speech that emphasized his inspirational personal story and experience. Then he picked someone even less experienced than Obama as his running mate and switched to a strategy of attacking his opponent's relationships with people like Bill Ayers. When that petered out, he switched to a new line of attack, trotting out the socialism business and claiming Obama was running for the office of "redistributionist-in-chief." The McCain camp tried running against the press, they tried running against Washington, they tried running against the Bush administration, they even tried running against the "liberal feminist agenda" — the latter just a few weeks after Sarah Palin called herself a feminist.


John McCain and Sarah Palin, after all, represented two completely different approaches to Republican conservatism. McCain comes from the school of politicking that goes after as many votes as possible by waving a flag and saying as little as possible, which is to say he was basically a third-way Democrat with a Goldwater fetish. His basic plan heading into the general election seemed strikingly similar to that of the dipshit vice president character from the uninspiring but weirdly prescient Chris Rock movie Head of State, who ran on a platform of "I've been vice president for the last eight years, I'm a war hero and I'm Sharon Stone's cousin."


McCain's shtick wasn't exactly that, but it was close. He was a war hero who married an heiress to a beer distributorship and had been in the Senate since the Mesozoic Era. His greatest strength as a politician had up until this year been his ability to "reach across the aisle," a quality that in the modern Republican Party was normally about as popular as open bisexuality. His presence atop the ticket this year was evidence of profound anxiety within the party about its chances in the general election. After eight disastrous years of Bush, they thought they had lost the middle — so they picked a middling guy to get it back.


Which made sense, right up until the moment when they stuck him with Pinochet in heels for a running mate. Sarah Palin would have been a brilliant choice as a presidential nominee — and she will be, in 2012, when she leads the inevitable Republican counter-revolution against Obama's presidency. She's a classic divide-and-conquer politician, an unapologetic Witch Hunter and True Believer with a gift for whipping up the mob against the infidel. In a way that even George W. Bush never was, she is Karl Rove's wet dream, the Osama bin Laden of soccer moms, crusading against germs, communism, atheism and other such unclean elements strictly banned by American law.


Palin is exactly the kind of all-or-nothing fundamentalist to whom the career of John McCain had long existed as a kind of sneering counterargument. Up until this year, McCain had firmly rejected the emotional imperatives implicit in Bush-Rove-Gingrich conservatism, in which the relentless demonizing of liberals and liberalism was even more important than policy. While other Republicans were crusading against gay marriage in 2004, McCain bashed a proposed anti-gay-marriage amendment, calling it "antithetical in every way to the core philosophy of Republicans." While the president and other Republicans wrapped their arms around the Falwells of the world, McCain blasted those preachers as "agents of intolerance." He talked of seeing the hand of God when he hiked in the Grand Canyon, but insisted loudly that he believed in evolution. He even, for Christ's sake, supported a ban on commercial whaling. If there's anything that a decent Republican knows without being told, it's that whales are a liberal constituency.


But McCain didn't care. Back then, his political survival didn't depend on keeping voters artificially geeked up on fear and hatred for Mexicans or biology teachers or other such subversives. He was, after all, a war hero, and Sharon Stone's cousin.


In short, McCain entered this election season being the worst thing that anyone can be, in the eyes of the Rove-school Republicans: Different. Independent. His own man. He exited the campaign on his knees, all his dignity gone, having handed the White House to the hated liberals after spending the last months of the race with numb-nuts Sarah Palin on his arm and Karl Rove's cock in his mouth. Even if you wanted to vote for him, you didn't know who you were voting for. The old McCain? The new McCain? Neither? Both?


On Election Night, even those at McCain's farewell party seem to sense that their candidate had taken a seriously wrong turn. "It might have been better if he hadn't tried to appease the hardcore conservatives so much," sighs Tawnya Pfitzer, a 36-year-old Arizona doctor. "I think he should have concentrated on what made him who he is."


Maybe. But it probably wouldn't have made a difference.


One of the great clichés of campaign journalism is the notion that American elections have long since ceased to be about issues and ideas. Instead, pompous cliché-spreaders like myself have argued, our TV-age political contests have devolved into grotesque marathons of mawkish entertainment programming, intellectually on par with a season of Survivor, in which the command of the most powerful military force in human history is handed to that unscrupulous nitwit who over the course of 18 months succeeds in getting himself photographed the most times and in the most swing states bowling a strike or wearing a duck-hunting costume.


We've dumbed this process up so much over the years, in fact, that it had lately become hard to imagine an American presidential election being anything but an embarrassment to the very word "democracy." By 2004, that once-cherished ideal of political freedom and self-governance that millions of young men and women gave their lives to protect as recently as WWII had been reduced to the level of absurdist comedy. You had a millionaire Yalie in an army jacket taking on a millionaire Yalie in a cowboy hat, fighting tooth and nail for the right to be named the man "middle America most wants to have a beer with" by a gang of Ivy League journalists — a group of people whose closest previous exposure to "middle America" was typically either an episode of Cops or a Von Dutch trucker hat they'd bought for $23 at Urban Outfitters.


In short, it was an utterly degrading bourgeois/ruling-class media deception that "ordinary Americans," if they had any brains at all, ought to have been disgusted by to the point of rebellion. But ordinary Americans, alas, would have been perfectly happy to spend the rest of eternity mesmerized by the endless and endlessly condescending I'd Like to Have a Beer With You sideshow, leaving the boring policy stuff to the people who actually pay for the campaigns. Things could have just kept getting dumber and dumber, and no one would have been surprised. There was certainly no trend that suggested our presidential elections were bound to return to being great, sweepingly important contests of ideas. But that's what happened.


Like millions of Americans, I watched Barack Obama's victory on Election Night in a state of amazement. The only thing that gave me pause was the question of what kind of country this remarkable figure was now inheriting. Some of the luster of Obama's triumph would come off if the American presidency were no longer the Most Powerful Office in the World but simply the top job in a hopelessly broken nation suffering an irreversible decline.


Of all the problems facing this country by the end of the Bush years, the biggest is the absence of a unifying national idea. Since the end of the Cold War, America has been grasping left and right for an identity. We tried being a "world policeman" in Somalia, which didn't work so well. We tried retaining our Cold War outlook by simply replacing communists with terrorists. We created two bubble economies that blew up in our faces, and headed into 2008 a struggling capitalist state with a massive trade deficit and an overtaxed military that suddenly had to ask itself: For the supposed world leader in the community of nations, what exactly is it that we're still good at? Who are we, and what do we represent to the peoples of the Earth here and now — not in 1775 Concord, or 1945 Paris, or 1969, from the surface of the moon?


When Obama took the stage in Grant Park as president-elect, that question was answered. We pulled off an amazing thing here, delivering on our society's most ancient promises, in front of a world that still largely thought of us as the home of Bull Connor's fire hose. This dumbed-down, degraded election process of ours has, in spite of itself and to my own extreme astonishment, brilliantly re-energized the American experiment and restored legitimacy to our status as the world's living symbol of individual freedom. We feel like ourselves again, and the floundering economy and our two stagnating wars now seem like mere logistical problems that will be overcome sooner or later, instead of horrifying symptoms of inevitable empire-decline.


For this to happen, absolutely everything had to break right. And for that we will someday owe sincere thanks to John McCain, and Sarah Palin, and George W. Bush. They not only screwed it up, they screwed it up just right.

Tuesday, November 25, 2008

Alabama, Detroit, and parochial politics

All politics is local!  This article gives insight as to why Alabama's Republicans are calling the Big 3 "dinosaurs." 

Note that Alabama paid $175,000 in tax concessions and subsidies for each job brought to the state by auto makers Mercedes, Toyota, and Honda. 

Gee, if only the answer to helping the Big 3 were as simple as "letting free markets work," then we wouldn't have to worry.  But what free markets?  Where are they?  Where is the auto market in the U.S., Japan, China, EU, or S. Korea that is free of protective tariffs, preferential subsidies and tax breaks? 

If GM offered to close its plants in Detroit and move them to Alabama, at a cost of $175,000 per job to Alabama's taxpayers, would free-market cheerleaders like Sens. Rick Shelby and Jeff Sessions support the deal?  You bet your free markets they would.

I wonder if Japan, China, S. Korea, and India allow foreign investors to play off different regions/provinces, inciting internal FDI bidding wars for the biggest subsidies and tax breaks, like the United States does?  Are we the only developed country that encourages this self-defeating "race to the bottom?"

Alabama emerges as foe to auto aid
By Bryce G. Hoffman
November , 2008  |  The Detroit News

Saturday, November 22, 2008

Friday, November 21, 2008

U.S. health care and the auto bailout

This blog post was written 3 years ago but it's amazingly relevant today.  Would we be discussing a bailout of GM and Ford today if national health insurance had been adopted just a few years ago?   

When we criticize the Big 3 for not being competitive, let's remember that all their competitors enjoy: (1) state-funded health care for their workers and retirees (except in China); (2) state investment in their companies; and (3) non-reciprocal trade regimes, which protect their home markets against U.S. imports. 

So, in that context, what is the economically "fair" thing for Congress and U.S. taxpayers to do? 

The issue of national health insurance is especially important.  If you believe pundits like Michael Barone, it's health care costs that are killing GM.  That is, if GM were not solely responsible for paying the health care costs of its current and retired employees, it would not need a bailout right now.  So why aren't we debating a system of national health insurance right now, instead of debating a bailout of the Big 3?  If we want the U.S. auto industry (and other manufacturers) to be competitive on cost in the long run, they must not be burdened with health care costs of their employees.  Or, if employers will continue to be responsible for paying the majority of their employees' health care costs, Congress must adopt radical reforms to drastically lower the $2 trillion annual cost of health care in the United States.

This is not to say GM and Ford don't need to make big cost cuts and other changes to remain competitive.  But those are all changes that good managers are able to make.  Even the most excellent managers cannot overcome the high cost of U.S. health care.

Unfortunately, the situation is now critical, as GM will run out of cash in a matter of 1-2 months, and its survival won't wait for a fractious and bitter national debate over health care reform.  If we're going to save GM and Ford, we have to do it in the next several weeks.  We'll have to talk about reforming our health care system later.  But talk about it -- and act -- we certainly must, for the sake of America's global economic competitiveness

Buchanan: Big 3 and GOP's shared fate

As GM Goes, So Goes the GOP

By Patrick J. Buchanan

November 18, 2008  |


Understandably, Republicans are seething.


When Hank Paulson demanded $700 billion to haul away the trash in the dumpsters of JPMorgan Chase and Goldman Sachs -- assuring us we could hold a garage sale of the junk -- they rebelled. They acted as the nation, by 100 to one, demanded. They killed the Wall Street bailout.


The Dow quickly sank another 1,000 points, and, charged with criminal irresponsibility by the elites, the GOP buckled, reversed itself, rescued the bailout -- and was wiped out on Nov. 4.


Now we hear from Paulson that the $700 billion Congress voted will not, after all, be used to buy up all that rotten paper on the books of the big banks. Some banks are using the cash to buy other banks.


So Republicans are right to be enraged. They are victims of the biggest bait-and-switch in political history. But they are now about to do something terminally stupid. With GM, Ford and Chrysler teetering on the brink, they are turning a cold stone face to Detroit and are about to follow the counsel of that quintessential Bushite Dick Darman, who said of our computer chip industry, "If our guys can't hack it, let 'em go."


America responded -- by letting George H.W. Bush and Darman go.


Are Republicans aware of what they are about to do?


When workers, execs, engineers, dealers, salesmen and suppliers are all factored in, the Big Three employ 3 million people who contribute $21 billion a year to Social Security and Medicare, and $25 billion in federal income taxes. Add in all the businesses that depend on the auto industry, and we are talking about one-tenth of the U.S. labor force.


As columnist Tom Piatak of Chronicles and writes, 850,000 retirees, and their families, depend for pensions and health care on the Big Three. If they go under, the burden falls on us.


And to let the auto industry die is to write America out of much of the economic future of the planet.


In a good year, like 2005, Americans buy more than 17 million new cars, and West Europeans as many. Tens of millions in Eastern Europe, Russia, China, India and Southeast Asia are now moving into the middle class each year. These folks will all need or want one or two family cars. If we let the U.S. auto industry die, that immense and burgeoning market will be lost forever to America, and ceded to Asia.


"Who cares?" comes the free-traders' reply. Japanese and Koreans are setting up factories here. They can pick up the slack.


But that means Americans will work for and depend on foreign companies for a necessity of our national life as vital as the imported oil and gas on which our cars and trucks operate. All the profits of the mighty automobile industry in America will be sent abroad.


Before Republicans follow this free-trade fanaticism to their final interment, they might study the results of a poll by Peter Hart:


-- Seventy-eight percent of Americans believe the U.S. auto industry is highly or extremely important. Three percent think we can do without it.


-- Ninety percent of Americans believe the death of the U.S. auto industry would do great damage to our economic future.


-- By 55 percent to 30 percent, Americans favor federal loans to save it. And by 64 percent to 25 percent Americans back President-elect Obama's resolve not to let the U.S. auto industry go under.


If the GOP blocks these loans, and the industry dies, the party can forget about Ohio, Michigan and the industrial Midwest. For the Reagan Democrats will never come home again. Nor should they.


By the choices we make, we define ourselves and reveal what we truly care about. Thus, consider:


We bail out the New York and D.C. governments of Abe Beame and Marion Barry. We bail out a corrupt Mexico. We bail out public schools that have failed us for 40 years.


We bail out with International Monetary Fund and World Bank loans and foreign aid worthless Third World regimes.


We bail out Wall Street plutocrats and big banks.


But the most magnificent industry, the auto industry that was the pride of America and envy of the world, we surrender to predator-traders from Asia and Europe, lest we violate the tenets of some 19th-century ideological scribblers that the old Republicans considered the apogee of British stupidity.


Nancy Pelosi is talking about tying loans to a restructuring of the industry. But Congress is not competent to do that.


What needs to be restructured is the U.S. tax-and-trade regime.


Dump globalism. Instruct Japan, Canada, Korea, Germany and China that if they wish to sell cars here, they will assemble them here and produce the parts here. And we shall have the same free access to and same share of their auto market as they have of ours.


To accomplish this, use the same import quotas and tariffs Ronald Reagan used to save the steel industry and Harley-Davidson.


Reciprocal trade. Even Democrats like FDR used to practice it.

Thursday, November 20, 2008

Sad, shocking images of U.S. homes repossessed

Unfortunately, I learned a new word today: "trash-out."  I had no idea this is what happened.  I guess I had images in my head of moving trucks, long goodbyes, and orderly auctions, but definitely not this.  It's amazing what folks leave behind.

See this local news report on how the mortgage crisis is affecting Southern California: 

Wednesday, November 19, 2008

Is Obama the Anti-Christ?

You know, it's reassuring to know that we can have a calm, reasonable debate about whether Obama is or is not the Anti-Christ without getting caught up in all the hysteria of his possible evilness.  I mean, I phrased the issue with a question mark, which, after all, is a real sign of objectivity.  Indeed on an issue as important as this, we need to put our emotions and pre-conceived notions about Obama's infernality aside, soberly examine all the facts, including inscrutable passages from Revelation, and clips from FOXNews, and draw our own conclusions.  Otherwise, we run the risk of...

... Sorry, I couldn't keep that up.  This is nuts!!! 

For another laugh, or a cry, see this "reasoned" discussion post by Rodney850 on MyLot regarding Obama's Anti-Christ-iness:

"First Obama is very, very charismatic, of that there can be no argument. The question is, just exactly why is he so charismatic? Has he had great or fantastic accomplishments in his past? No. Has he sponsored or cosponsored sweeping "change" bills in his 143 days in congress? No. So we have to conclude that he actually meets the first criteria of the anti-christ which is a supernatural ability to sway people in his direction.  [That was easy!  One down, __ to go! - J]

"Second, and probably the most convincing factor is his stated desire to negotiate and bring the world together in peace, which goes right along with his charisma and how he was accepted on his world campaign and make no mistake, he was campaigning!  [Yes, a desire for world peace is a dead giveaway you're the devil.  I never trusted John Paul II or Mother Teresa either. - J]

"Finally, Barack Hussien Obama has not, nor will he ever be held to the same micro-scrutiny as the rest of the presidential candidates both past and present alike! At the risk of being the target of every liberal on MyLot, I will say that it makes a good case for Obama being the anti-christ whether he is or not!  [Wait, is he implying that this discussion is actually making Obama less of an AntiChrist?  Maybe we should just stop talking about it and slowly back away... - J]

"Whether he is or not really makes no difference, and this is why; if he is, no one can stop what is about to transpire even if they tried and if he isn't well, he's just another charismatic man with left field ideals and they are a dime a dozen." [Yes, faced with a possible AntiChrist, your best response is resignation.  Struggling only makes things worse.  If he is, it's God's will and there's nothing we can do about it; if he isn't, he's just another lefty, and [sigh] we'll just have to wait a little longer for the blessed Rapture, bloody war of all men, and the glorious Second Coming. - J]

Seriously though, one documentary film maker claims to have incontrovertible proof that Obama IS the Anti-Christ.

Derivatives and the financial crisis

This explanation on Credit Default Swaps is helpful to understanding our current economic crisis.

Credit default swaps are the most widely traded form of derivative.  One commentator called CDSs "pure gambling": "They are wagers on whether people will default on their debts, such as mortgages. They are not to be confused with insurance against loans going bad. Insurers must hold reserves against risk."

In a 2003 letter to his company, Warren Buffet famously and prophetically called derivatives "financial weapons of mass destruction," and a ticking "time bomb" for the world economy. Derivatives used to be used as insurance on investments.  Starting in the 1990s they became a source of investment on their own. 

A derivative is any financial instrument which derives its value from another financial instrument.  Logically, if the instrument upon which a derivative is based loses all its value, so should the derivative.  Enormous wealth can be built up with derivatives, but that wealth is often not based on any kind of reasonable debt-to-asset ratio.

The Bank for International Settlements estimated that total derivatives trades exceeded one quadrillion dollars – 1,000 trillion dollars!  That's greater than the value of the entire world economy.

Hedge funds, by the way -- which are totally unregulated and purposely take on huge risk -- invest heavily in derivatives.  How heavily?  Nobody knows, not even the banks like Goldman Sachs that lend the hedge funds money.  How many hedge funds are there?  Again, nobody knows.  How much wealth do they control?  It's a mystery.  Only very wealth investors are permitted to invest in hedge funds; and many of them operate outside the U.S.

According to one example:

"A hedge fund could sit back and collect $320,000 a year in premiums just for selling 'protection' on a risky BBB junk bond. The premiums are 'free' money – free until the bond actually goes into default, when the hedge fund could be on the hook for $100 million in claims.

"And there's the catch: what if the hedge fund doesn't have the $100 million?  The fund's corporate shell or limited partnership is put into bankruptcy; but both parties are claiming the derivative as an asset on their books, which they now have to write down.  Players who have 'hedged their bets' by betting both ways cannot collect on their winning bets; and that means they cannot afford to pay their losing bets, causing other players to also default on their bets. 


"The dominos go down in a cascade of cross-defaults that infects the whole banking industry and jeopardizes the global pyramid scheme. ... It is also why the banking system cannot let a major derivatives player go down, and it is the banking system that calls the shots." 

Here's what former Fed Chair Alan Greenspan had to say about regulating hedge funds [italics and emphasis mine]:

"The hedge funds, as far as I can see, cannot be regulated directly in this country. Two things will happen: either you regulate them and they will disappear because the nature of their business, they would perceive, cannot be effective if it's regulated, or far more likely, they will move to a different venue and trade, because they don't need the United States particularly. Now, starting with the premise that we can't do anything, the question really then gets to what do we do in lieu of that to protect the American financial system, which is what it's all about. And in my judgment, the most effective, indeed, really the only significant, effective means that we have to make certain that they, that group of hedge funds, does not create a problem is by making certain that the banks and others who lend them money have direct supervision themselves, as they do, and due diligence to make certain that when they lend money, they're doing it most sensibly."

Alan Greenspan, although he didn't understand derivatives, defended them against government regulation, banking "on the good will of Wall Street to self-regulate as he fended off restrictions."  A fellow Fed board member remembers Greenspan "as consistently cheerleading derivatives."  In the late 1990s, Clinton Administration officials Robert Rubin and Larry Summers joined Greenspan in opposing regulation of derivatives, warning that regulation could cause a "financial crisis" and "chaos."  Congress certainly didn't understand derivatives, and it bowed to Greenspan's unassailable opinion, denying the federal government a mandate to oversee derivatives trading.

A few members of Congress were worried though.  In 2000, Rep. Bernie Sanders (I-VT) asked Greenspan, "Aren't you concerned with such a growing concentration of wealth that if one of these huge [Wall Street] institutions fails that it will have a horrendous impact on the national and global economy?" 


"No, I'm not," Greenspan replied. "I believe that the general growth in large institutions have occurred in the context of an underlying structure of markets in which many of the larger risks are dramatically — I should say, fully — hedged."  By "hedged," Greenspan meant that financial markets were fully "insured" by derivatives.

Greenspan, now defending his legacy, blames the current financial crisis on Wall Street bankers, not on a lack of government regulation.  "They gambled that they could keep adding to their risky positions and still sell them out before the deluge," he wrote. "Most were wrong." 

And testifying before the House Committee on Oversight and Government Reform in October, Greenspan said, "Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief."

When experts talk about the "financial house of cards" and the mortgage crisis, they're talking about derivatives.  If poor people had simply defaulted on their home loans, the U.S. economy would not be in a crisis today.  Small banks would have been able to recoup some of the value in those homes by re-possessing and re-selling them.  At the end of a mortgage is an asset, a house.  At the end of a chain of derivatives is... nothing.  Catastrophically for us, Wall Street's derivatives market inflated thousands of small mortgage loans into huge pyramids of debt, based on no real assets.  As long as housing prices stayed high and nobody had to pay out, everything was great, and Wall Street, which thought up all these derivatives, was making record profits as late as last year.  Today, more than half of Wall Street's profits from 2004-07 have disappeared.  

Those record profits came from derivatives trading and mortgage-backed securities.  Mortgages generated by small banks and mortgage lending companies sold so well as mortgage-backed securities, that those mortgage lenders borrowed more money themselves in order to issue more loans, so that they could turn around and sell them!  The getting was too good for everyone involved to stop.  The profits were big and easy. 

Then housing foreclosures started to increase in 2006 as sub-prime borrowers couldn't pay their adjustable-rate mortgage hikes.  Housing construction slowed, as new housing couldn't compete with existing housing selling at big discounts.  More vacant homes on the market depressed housing prices.  Some homeowners suddenly had "upside-down" payments, where they owed more on their home than it was worth (i.e. negative equity).  All this had a ripple effect on the economy, essentially affecting everyone. 

Even still, this should not have frozen credit markets and threatened the country with depression.  No, it was the abundance of mortgage-backed securities held by the Wall Street banks which suddenly lost most of their value, which caused our current financial crisis. 

This was wealth, quite frankly, that never should have existed.  Nor should there have been the easy credit that such wealth permitted.  It seems all we have left now is the "full faith and credit of the United States" to provide our economy with credit.  Maybe it's time to think up a new financial system, one where the government plays a much stronger role, either as direct lender, and/or strong regulator.        

Saturday, November 8, 2008

Goldberg: The lazy uninformed elect our leaders

This op-ed below, from a conservative Republican, is one of the most elitist (and ageist) articles I've read in some time. I mean, Republicans are supposed to be the defenders of Joe Sixpack, Joe the Plumber and "flyover country," while liberals are supposed to be snobby coastal elitists. Go figure. Nothing like an election to bring out a man's -- or a party's -- true colors.

Without a doubt there are many dumb Americans, on the left and the right. (And when you think about it, it's not exactly as if our two-party system encourages much creative thought or dissent; it's much more about the party faithful coming up with fancy new ways to market two very old and worn-out products.) Yet when it comes to politics, even smart people can be abysmally stupid. By "smart," I mean educated people who have experience, skills and knowledge that I will never have. A lot of smart Americans continue to believe that Iraq had something to do with 9/11, for example. Whereas most "dumb" (read: under-educated) blacks never bought into the rationale for invading Iraq, and are overwhelmingly against the war to this day. Turns out they are politically much savvier than the rest of America. Again, go figure.

So, accepting the above, and realizing that the right to vote is the most important right we've got, then by gum I want every eligible "idiot" in America to vote, and let the chips fall where they may. (The root of "idiot," by the way, means somebody who is rough, crude, or unrefined.) After all, it's their (your?) country too. And indeed, it might just be the idiots who save us from the smarty-pants who come up with brilliant, expensive ideas like invading and occupying Middle Eastern countries without provocation, and giving $700 billion bailouts to greedy coastal elitist bastards who knew better.

Also, consider this: common law requires convening, by force, a jury of your peers (read: a group of idiots) who are granted the legal power to take away your money, your freedom, even your life. We hail that principle as one of the great achievements of democracy and rule of law. Yet when it comes to our elections, our system makes it downright inconvenient for common idiots to cast a ballot. In fact, hundreds of thousands of registered voters can be deleted from the rolls within 90 days of the election, a clear violation of federal law, and our MSM and political elites say nothing. But in which case is the common man's vote more consequential, the 1 out of 12 life-or-death vote in a jury, or the 1 out of 100,000,000 vote in a national election where the popular vote doesn't even elect the president? Then why such outsized fear of "one man, one vote" in one little election? In fact, this is a very old and very elitist fear: our uber-"smart" Founding Fathers constantly fretted about the deplorable possibility of "mobocracy," hence they restricted the right to vote to white land-owning men, and established the Electoral College.

Finally, Jonah Goldberg's benefactor, National Review, spent a heck of a lot more time examining Obama's pastor and past associates than it did his policy proposals. Why? Because conservative elites correctly figured it better served their purposes to selectively inform their party faithful, in order to stir up their worst fears and passions with all kinds of half-truths, rumors, and fabrications. Media outlets like NRO, Human Events, Townhall, FOXNews, and right-wing talk radio did a horrible job of informing the electorate. (To put it more accurately, they did a great job of dis-informing them.) Over the past 21 months, rarely could they be bothered to talk about anything except Rev. Wright, Randy Ayers, Tony Rezko, Obama's "Marxist" mother, his "Muslim" grade school, his "terrorist" college roommates, his "missing" birth certificate, and the like. This pharisaic elitist Jonah Goldberg should remove the beam from his own MSM eye first.

By Jonah Goldberg
November 6, 2008 | USA Today

No doubt everyone is relieved to have the election behind us, even if some of us are less than ecstatic about its result. The president-elect and Democrats in Congress very much want to move forward, talk about the future and get busy on their agenda. After all, the oceans aren't going to stop rising on their own.

Of course, how we move "forward" (quotation marks are necessary because one man's forward is another man's backward) depends very much on how we view the larger meaning of the election. Was this a vote for radical leftwingery or a vote for moderation? Is the electorate pro-liberal or merely anti-Republican? What did voters have in mind? What do they expect?

The nice thing about such questions is that you actually get real debate about them, and we'll be hearing lots of that in the weeks and months ahead. But there are other questions no one ever asks, in part because our political discourse is choked with stupefying clichés and gassy assumptions about what matters and what doesn't.

So while the election is still fresh in our minds, let us look at some of the goofy assumptions and buzzwords that defined so much of the coverage discussion this year.

Ever since the primaries, Democrats have been promising to be "agents of change" (which kind of sounds like a brand of James Bond villain; watch out -- he's an agent of C*H*A*N*G*E). It's a weird quirk of our television-soaked culture that we think change is a good in and of itself. The phrase "change the channel" is a ubiquitous explanation for voters' desire to be done with President Bush. Fair enough, but change has no moral content. Winning the lottery is change, and so is catching a ball peen hammer to the bridge of your nose. The desire for change for change's sake is the stuff of children and attention-deficit disorder.

Speaking of children, the national obsession with the "youth vote" is one of the great embarrassments of deliberative democracy. Why is the participation of youth so vital? According to "youth activists" themselves, it's because they bring so much "passion" to politics. Passion, again, is not necessarily a good thing. Mobs and small children are passionate. There was a time when voting was supposed to be a matter for sober, mature reflection. Now it's more like a fashion statement. "In America," remarked Oscar Wilde long ago, "the young are always ready to give those who are older than themselves the full benefits of their inexperience." The only difference now is they get to vote.

In fact, everyone gets to vote, or at least that's the hope of vote-voluptuaries. The country is experimenting with ever-more-novel ways to make it easier for people to join "the process," which makes democracy sound like a digestive phenomenon. Gone entirely is the tradition of Election Day. Now it's Election Week or even Election Month in some states. Voting by mail, online voting, even voting by phone are increasingly in vogue, all because it's assumed that we desperately need input from voters who couldn't be bothered to get off the couch for a normal Election Day but can be coaxed to vote if it doesn't interfere too much with their video game schedule. In Arizona, there was an aggressive movement to make voting into a lottery, where casting a ballot could also lead to a big payday. The logic seemed to be that having the same folks who hang out at the local liquor store or keno parlor move their action to the polling station would enrich our democracy.

Of course, helping the infirm, the handicapped or soldiers overseas cast ballots makes sense. But do we really think the outcomes will be improved if we triple the turnout of the lazy and uninformed?

Apparently, the answer is yes, particularly judging by the virtual deification of "undecided" voters this year. I understand why campaigns care so much about the undecided voter in the last days of the election: They're kingmakers of a sort. But the press lionizes these people as geniuses and, judging from some of the focus groups we've been subjected to, these proudly indecisive and lazy voters actually believe all their good press.

After each debate, some network would convene a focus group of undecided voters who then preened over their lofty status. Pollster Frank Luntz, CNN's Soledad O'Brien or some other enabler would gush over how fascinating it was to talk to "real people." Indeed, so exotic are these creatures, most of the journalists actually observed them from the other side of a two-way mirror, like visitors to the "Earthling Exhibit" on some alien planet in that old episode of "The Twilight Zone." During the debates, the creatures were monitored every second, their instant reactions to the candidates' every vowel and burp were charted, often in real time, for the rest of us to decipher and applaud. Invariably, they shook their heads, more in sadness than anger, and complained they didn't get enough "specifics," as if presidential debates are the proper source of basic campaign information.

And that proves the point. These people are undecided because they don't do their homework. CNN profiled an undecided voter from Nebraska the day before the election who said he is "definitely pro-life" and a single-issue voter on abortion. But, according to CNN, he was still trying to figure out which candidate was pro-life. Um, really? Don't strain yourself trying to figure that one out.