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How Did We Get into This Financial Mess?

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The New Deal Didn’t Always Work, Either
MANY people are looking back to the Great Depression and the New Deal for answers to our problems. But while we can learn important lessons from this period, they’re not always the ones taught in school.

The traditional story is that President Franklin D. Roosevelt rescued capitalism by resorting to extensive government intervention; the truth is that Roosevelt changed course from year to year, trying a mix of policies, some good and some bad. It’s worth sorting through this grab bag now, to evaluate whether any of these policies might be helpful. ...

...In short, expansionary monetary policy and wartime orders from Europe, not the well-known policies of the New Deal, did the most to make the American economy climb out of the Depression. Our current downturn will end as well someday, and, as in the ’30s, the recovery will probably come for reasons that have little to do with most policy initiatives.

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Global Warming Predictions Are Overestimated, Suggests Study On Black Carbon
A detailed analysis of black carbon -- the residue of burned organic matter -- in computer climate models suggests that those models may be overestimating global warming predictions....

...The findings are significant because soils are by far the world's largest source of carbon dioxide, producing 10 times more carbon dioxide each year than all the carbon dioxide emissions from human activities combined. Small changes in how carbon emissions from soils are estimated, therefore, can have a large impact....

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Blocking Obama’s Health Plan Is Key to the GOP’s Survival
...A “single payer” national health system – known as “socialized medicine” in the rest of the developed world – should be an essential part of the change that the core constituencies which elected Obama desperately need. Britain serves as an important political lesson for strategists. After the Labor Party established the National Health Service after World War II, supposedly conservative workers and low-income people under religious and other influences who tended to support the Conservatives were much more likely to vote for the Labor Party...

...The best way to win over the the portion of the working class in the South or the West that supported McCain and the Republicans is to create important new public programs and improve the social safety net. National health care [and other measures] will bring reluctant voters into the Obama coalition. That is how progress works....

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A Long Train of Abuses
If there’s one thing defenders of civil liberties know, it’s that assaults on constitutional freedoms are bipartisan. Just as constitutional darkness didn’t first fall with the arrival in the Oval Office of George W. Bush, the shroud will not lift with his departure and the entry of President Barack Obama.

As atrocious as the Bush record on civil liberties has been, there’s no more eager and self-righteous hand reaching out to the Bill of Rights to drop it into the shredder than that of a liberal intent on legislating freedom. Witness the great liberal drive to criminalize expressions of hate and impose fierce punitive enhancements if the criminal has been imprudent enough to perpetrate verbal breaches of sexual or ethnic etiquette while bludgeoning his victim to death.

No doubt the conservatives who cheered Bush on as he abrogated ancient rights and stretched the powers of his office to unseen limits would have shrieked if a Democrat had taken such liberties. But now Obama will be entitled to the lordly prerogatives Bush established....

... The late Murray Kempton used to tell me he remembered that Alf Landon, campaigning against FDR and specifically Social Security back in 1936, used to shout to the crowds words to the effect of “Mark my words, those Social Security numbers will follow you from cradle to grave.” Landon was right. Today you might as well have the SS number tattooed on your forehead, along with all other significant “private” data, preferably in some bright hue so the monitoring cameras along highways and intersections can get a clean hit. “Drill baby drill” has been the war cry of the government’s data-mining programs throughout the Bush years, and we can expect no improvement ahead.

Fourth Amendment protections have likewise gone steadily downhill. Warrantless wiretappers had a field day under Bush, and Congress reaffirmed their activities in the FISA bill, for which Obama voted in a turnaround from previous pledges. Incoming vice president Joe Biden can claim a significant role here since he has been an ardent prosecutor of the war on drugs, used since the Harrison Act of 1914—and even before then with the different penalties attaching to opium as used by middle class whites or Chinese—to enhance the right of police to enter, terrorize, and prosecute at will....

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DON'T REPEAT ERRORS OF NEW DEAL
...Even more than specific New Deal projects, Obama and his fellow Democrats are evoking Roosevelt's leadership style. In school, we learned that it was FDR's personality that pulled the country through the Depression. If only, the suggestion is, we can have a strong enough leader, Americans will also find recovery again. We need some "bold persistent experimentation" of the Roosevelt variety.

There is evidence, however, that FDR's very strength was a negative, because he used it to give himself a license to do true experimenting. In his second inaugural address, FDR said that he sought "an instrument of unimagined power for the establishment of a morally better world."

No one knew what it meant, and markets were terrified. Everyone feared FDR would regulate or prosecute them next. Businesses refused to invest. The 1930s' second half proved frustrating for the country: The economy was always recovering but never quite recovered. The Dow didn't get back to its 1929 level until the mid-'50s.

These facts are important to bear in mind. The New Deal inspired. But it is the wrong deal for the country, even now.

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Five Myths About the Great Depression
...The current financial crisis has revived powerful misconceptions about the Great Depression. Those who misinterpret the past are all too likely to repeat the exact same mistakes that made the Great Depression so deep and devastating.

Here are five interrelated and durable myths about the 1929-39 Depression:

- Herbert Hoover, elected president in 1928, was a doctrinaire, laissez-faire, look-the-other way Republican who clung to the idea that markets were basically self-correcting. The truth is more illuminating. Far from a free-market idealist, Hoover was an ardent believer in government intervention to support incomes and employment. This is critical to understanding the origins of the Great Depression. Franklin Roosevelt didn't reverse course upon moving into the White House in 1933; he went further down the path that Hoover had blazed over the previous four years. That was the path to disaster....

...Enlightened government pulled the nation out of the worst downturn in its history and came to the rescue of capitalism through rigorous regulation and government oversight. To the contrary, the Hoover and Roosevelt administrations -- in disregarding market signals at every turn -- were jointly responsible for turning a panic into the worst depression of modern times. As late as 1938, after almost a decade of governmental "pump priming," almost one out of five workers remained unemployed. What the government gave with one hand, through increased spending, it took away with the other, through increased taxation. But that was not an even trade-off. As the root cause of a great deal of mismanagement and inefficiency, government was responsible for a lost decade of economic growth....

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Another 'Deregulation' Myth
...Barack Obama nonetheless attacks President Bush's policies to "strip away regulation," without mentioning a single example. In an attempt to fill out Mr. Obama's talking points, the press corps has now fingered a 2004 change in SEC net capital rules. In fact, then-SEC Chairman William Donaldson's reform was anything but deregulation. A regulatory failure, yes, and a cautionary tale for those who think new regulation will solve everything....

...Was Basel II a libertarian plot cooked up at the Cato Institute? Not quite. It was the product of years of effort by the world's major central banks, intended to avoid crises such as the U.S. savings and loan disaster. Basel embraced the theory that a common set of global banking standards and more intensive study of the risks of particular assets would yield both more efficient use of capital and a more stable financial system....

...As for the SEC, if commissioners took on a massive burden in 2004 without realizing they had signed up to safeguard the world's financial system, then they overreached. But they sure didn't "deregulate."

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Lorne Gunter: Thirty years of warmer temperatures go poof
In early September, I began noticing a string of news stories about scientists rejecting the orthodoxy on global warming. Actually, it was more like a string of guest columns and long letters to the editor since it is hard for skeptical scientists to get published in the cabal of climate journals now controlled by the Great Sanhedrin of the environmental movement.

Still, the number of climate change skeptics is growing rapidly. Because a funny thing is happening to global temperatures -- they're going down, not up.

On the same day (Sept. 5) that areas of southern Brazil were recording one of their latest winter snowfalls ever and entering what turned out to be their coldest September in a century, Brazilian meteorologist Eugenio Hackbart explained that extreme cold or snowfall events in his country have always been tied to "a negative PDO" or Pacific Decadal Oscillation. Positive PDOs -- El Ninos -- produce above-average temperatures in South America while negative ones -- La Ninas -- produce below average ones.

Dr. Hackbart also pointed out that periods of solar inactivity known as "solar minimums" magnify cold spells on his continent. So, given that August was the first month since 1913 in which no sunspot activity was recorded -- none -- and during which solar winds were at a 50-year low, he was not surprised that Brazilians were suffering (for them) a brutal cold snap. "This is no coincidence," he said as he scoffed at the notion that manmade carbon emissions had more impact than the sun and oceans on global climate.

Also in September, American Craig Loehle, a scientist who conducts computer modelling on global climate change, confirmed his earlier findings that the so-called Medieval Warm Period (MWP) of about 1,000 years ago did in fact exist and was even warmer than 20th-century temperatures.

Prior to the past decade of climate hysteria and Kyoto hype, the MWP was a given in the scientific community. Several hundred studies of tree rings, lake and ocean floor sediment, ice cores and early written records of weather -- even harvest totals and censuses --confirmed that the period from 800 AD to 1300 AD was unusually warm, particularly in Northern Europe.

But in order to prove the climate scaremongers' claim that 20th-century warming had been dangerous and unprecedented -- a result of human, not natural factors -- the MWP had to be made to disappear. So studies such as Michael Mann's "hockey stick," in which there is no MWP and global temperatures rise gradually until they jump up in the industrial age, have been adopted by the UN as proof that recent climate change necessitates a reordering of human economies and societies.

Dr. Loehle's work helps end this deception....

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Cleansing Iraqi Christians...Silence from American Religious Conservatives
The destruction of some of the world's oldest Christian communities continues despite a pro-U.S. regime and 150,000 American troops. Meanwhile, in the U.S., thousands of religious conservatives continue to invest their emotional capital in debates over Obama's birth certificate.

Perhaps they will start to caring about their religious compatriots in Iraq when Obama becomes president, that is if any Christians are still left in iraq. ...

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As Government Officials Press Banks to Lend, What (if Anything) Are They Thinking?
...If they had given the matter any informed thought, they would have realized that outpourings of cheap credit lie at the root of the entire sorry situation. Recall how the Fed pushed the Fed Funds rate down to 1 percent in the wake of the dot-com bust of 2000-2002. With Fed credit available to banks for years on end at a negative real rate of interest, how could they resist plowing ahead with loans that normally would have seemed absurdly risky, especially when they could pass much of the rotten paper along to Fannie, Freddie, and other buyers in the secondary market? The rest, as they say, is history....

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Strident And Wrong
...No fair and balanced account of the current meltdown can dwell exclusively on the failure of government to regulate credit-market derivatives. It must ask deeper questions about the antecedent events that brought credit markets to their knees.

Weisberg offers no such account. Alas, the financial rot started in the underlying home-mortgage market, with the government decision to subsidize home mortgages generally through low interest rates, and compounds the problem by offering special Fannie and Freddie guarantees at the low end of the market.

These foolish decisions prompted market actors to react just as libertarians fear: to profit privately from public foolishness. Savvy lenders looked less to the creditworthiness of their borrowers and more to unwise government guarantees that insulated them from risk. A high-risk loan of $1,000, without that guarantee, could be worth half that sum before the ink was dry. But who cares, if a government agency will pick up the slack?

Similarly, self-interested borrowers eagerly grasped at cheap-money loans, thereby driving up the price of underlying assets. But once these subsidies became too expensive to sustain, the capital markets raised the price of interest, which killed off refinancing for persons living beyond their means.

At this point, securitization, which diversified some risks, accentuated others by spreading the bad paper throughout the entire system. Now the high default rates on mortgages introduced massive uncertainty for valuing these financial instruments, which triggered government mark-to-market re-evaluations--which in turn forced a premature liquidation of assets. And presto, the failure of the Wall Street investment banks mushroomed into a larger financial crisis.

Weisberg is so intent on attacking libertarians as "intellectually immature" that he overlooks the point of this cautionary tale. Private markets magnify government errors....