Wednesday, October 29, 2008
The Bailout Reader
The events taking place in the financial market offer an illustration of the soundness of the Austrian theory of money, banking, and credit cycles, and Mises.org, which has long warned of precisely the scenario playing itself out today, is your source not only for analysis of these events but also the economic theory that helps explain what is happening and what to do about it. There are many thousands of articles available, and also the full text of thousands of books as well as journal articles....
Credit Panic: Stages of Grief
...But Washington's culture is fundamentally different from Wall Street's culture. Politicians of all parties thrive by avoiding responsibility and shifting blame. Congress has not even held hearings yet in the area where it is most clearly responsible: social engineering through banking by pumping mortgages to unqualified borrowers via Fannie Mae, Freddie Mac and laws that required banks to make bad loans. Hearings are promised after the election.
Accepting responsibility for the folly of Fannie and Freddie is crucial. Markets expect even more politicized lending now that the government has direct stakes in banks. Treasury Secretary Henry Paulson offers assurances that banks will operate without political influence, but just last week a group of Democratic senators agitated for lending rules aimed at supporting their social goals.
We've learned that complex modern banking can barely cope with its core function of allocating capital efficiently, much less politically. Denial of this basic point is undermining the beginnings of a return to confidence.
Indeed, a relevant lesson from the Great Depression is that economic recovery was postponed for years by what economist Robert Higgs calls the "regime of uncertainty." Mr. Higgs traces the uncertainties caused by extreme government economic intervention in the 1930s through laws, regulations and confiscatory tax rates. He writes in The Independent Review that "businesspeople may be more or less 'uncertain about the regime,' by which I mean, distressed that investors' private property rights in their capital and the income it yields will be attenuated further by government action."
Or, as Amity Shlaes, author of the best seller on the causes of the Great Depression, "The Forgotten Man," puts it, our current economy is in a "recession of uncertainty." Until Washington accepts responsibility for its role in politicizing banking over the past several years, markets will not be confident about the rules of the road....
Fannie Mae, Freddie Mac wielded big clout in Washington
Washington - Mortgage giants Fannie Mae and Freddie Mac didn't just dominate the nation's $12 trillion home loan market, they were also masters of influence in Washington.
As government-sponsored enterprises, Fannie and Freddie owned or guaranteed some $5 trillion in residential mortgages – a cushion for creating two of the most extensive lobbying operations in Washington.
At its peak – last week, just before the Treasury Department announced a government takeover – the operations ranged from campaign contributions and outright lobbying to a grass-roots charitable giving operation that covered nearly every congressional district.
"They were the most powerful companies in the country, and literally controlled the Congress," Peter Wallison, a senior fellow at the American Enterprise Institute. "Congress would not do anything they did not want Congress to do – and that came through some very sophisticated political activities and public relations that made it very difficult to challenge them."
Since 1990, Freddie Mac has contributed more than $9.7 million to federal campaigns. Fannie Mae's political action committee chalked up more than $2.9 million since 2004, according to the Center for Responsive Politics. Together, they spent some $7.4 million in lobbying in the first six months of 2008 alone.
That's just the beginning. What's most remarkable about the influence operation is its sheer vastness.
Over the last decade, Fannie and Freddie together hired nearly every lobby shop in Washington – so many, in fact, that opponents complained that they had trouble finding someone to represent their interests. ...
Tuesday, October 28, 2008
Media's Presidential Bias and Decline
The traditional media are playing a very, very dangerous game -- with their readers, with the Constitution and with their own fates.
The sheer bias in the print and television coverage of this election campaign is not just bewildering, but appalling. And over the last few months I've found myself slowly moving from shaking my head at the obvious one-sided reporting, to actually shouting at the screen of my television and my laptop computer.
But worst of all, for the last couple weeks, I've begun -- for the first time in my adult life -- to be embarrassed to admit what I do for a living. A few days ago, when asked by a new acquaintance what I did for a living, I replied that I was "a writer," because I couldn't bring myself to admit to a stranger that I'm a journalist. ...
Willie Sutton Goes to Harvard
WASHINGTON -- Washington is having a Willie Sutton Moment. Such moments occur when government, finding its revenue insufficient for its agenda, glimpses some money it does not control but would like to....
...The almost erotic pleasure of spending money that others have earned and saved is one reason people put up with the tiresome aspects of political life. And now the government's response to the financial crisis, including the semi-nationalization of nine major banks, has blurred -- indeed, almost erased -- the distinction between public and private sectors.
Hundreds of billions of dollars that the political class would have liked to direct for its own social and political purposes have been otherwise allocated. That allocation, by government fiat rather than by market forces, must reduce the efficiency of the nation's stock of capital. Which in turn will reduce economic growth, and government revenues, just as the welfare state -- primarily pensions and medical care for the elderly -- becomes burdened by the retirement of 78 million baby boomers.
As government searches with increasing desperation for money with which it can work its will, Willie Sutton Moments will multiply. Government has an incentive to weaken the belief that the nation needs a vigorous and clearly demarcated sector of private educational and philanthropic institutions exercising discretion over their own resources.
So the frequently cited $700 billion sum is but a small fraction of the cost, over coming decades, of today's financial crisis. The desire of governments to extend their control over endowments and foundations is a manifestation of the metastasizing statism driven by the crisis. For now, its costs, monetary and moral, are, strictly speaking, incalculable.
Sunday, October 26, 2008
Army Private Subjected to Anti-Semitic Attacks Brutally Beaten By Soldiers
A U.S. Army soldier was brutally beaten by other soldiers in his platoon earlier this month following two incidents in which a drill sergeants allegedly used anti-Semitic slurs to address the soldier.
Pvt. Michael Handman, 20, who has just completed his fifth week of basic training at Fort Benning, Georgia, was recently released from a hospital where he was treated for a concussion, facial wounds, and severe oral injuries following the attack, according to the boy’s father, Jonathan Handman.
The soldier’s father said he received a disturbing telephone call last week from his son’s commanding officer “to tell me that my son is OK and out of the hospital.”
“Apparently he got his clocked cleaned and beat to the point that he was sent to the hospital by ambulance with a concussion,” Jonathan Handman said in an interview. “He was in bad enough shape that they did a head and neck [CAT] scan.”
Jonathan Handman said his son was lured into a laundry room at the Fort Benning Army base by other soldiers, knocked unconscious and beaten while he lay on the ground.
Michael Handman enlisted in the Army earlier this year. He wears a yarmulke with his uniform, which apparently led his drill sergeants to refer to him as a “fucking Jew” and a “kike” and a demand that he remove the yarmulke during dinner, according to his father. The soldier recently wrote a letter to his mother Randi recounting the anti-Semitism he has endured by his drill sergeants and members of his platoon since arriving for basic training at Fort Benning....
...While attending the United States Air Force Academy in Colorado Springs in the 1970s, Weinstein was subjected to a virulent series of anti-Semitic attacks which he describes in gripping detail in his book, With God On Our Side: One Man's War Against An Evangelical Coup in America's Military (St. Martins Press, 2006).
Recently, in fact, Weinstein launched MRFF more than three years ago after his sons, Casey and Curtis, also U.S. Air Force Academy graduates, told him they were harassed about their Jewish faith and urged by other cadets and Air Force officials to convert to Christianity. Weinstein's daughter-in-law, Amanda, likewise an Air Force Academy graduate and a Christian, also experienced wrongful religious pressure from Christian fundamentalist officers at the Academy. Weinstein said his son Curtis, like Michael Handman, was also called “A fucking Jew.”
Recently, Weinstein's family was the subject of a much-publicized hate crime attack where, among other things, his house was marked with a swastika and a crucifix....
Saturday, October 25, 2008
YouTube Videos Draw Attention to Palin’s Faith
... What is known, however, is that Ms. Palin has had long associations with religious leaders who practice a particularly assertive and urgent brand of Pentecostalism known as “spiritual warfare.”
Its adherents believe that demonic forces can colonize specific geographic areas and individuals, and that “spiritual warriors” must “battle” them to assert God’s control, using prayer and evangelism. The movement’s fixation on demons, its aggressiveness and its leaders’ claims to exalted spiritual authority have troubled even some Pentecostal Christians. ...
...Critics say the goal of the spiritual warfare movement is to create a theocracy. Bruce Wilson, a researcher for Talk2Action, a Web site that tracks religious groups, said: “One of the imperatives of the movement is to achieve worldly power, including political control. Then you can more effectively drive out the demons. The ultimate goal is to purify the earth.”
Ms. Palin referred to “prayer warriors” in a radio interview Wednesday with Dr. James C. Dobson, the founder of Focus on the Family, a conservative Christian multimedia ministry. Dr. Dobson told Ms. Palin that he and his wife, Shirley, were praying for her, and that they had convened 430 people last weekend to pray for “God’s perfect will to be done on Nov. 4.”...
Friday, October 24, 2008
In Defense Of Liberty
...The first lesson to learn is that the Community Reinvestment Act of 1977 was a mistake. The law forces banks with branches in poor neighborhoods to lend money there--which is to say, to lend money to people with poor credit ratings. This price is exacted from any bank looking for permission to add a branch or buy another bank. The rule is enforced by private community organizations like Acorn.
There are two ways that banks cope with the law's demands. One is simply by avoiding poor neighborhoods altogether, leaving the business of providing financial services there to pawnshops, check-cashing outlets and businesses making usurious payday loans. The other is by writing a lot of mortgages. That means issuing subprime mortgages with low down payments and low teaser rates. The monthly payments, that is, start out looking affordable. After a while the loan resets to a much higher rate.
The problems occasioned by the latter approach were compounded by a 1995 law permitting the securitization of subprime loans. Securitizing frees the mortgage originator from an obligation to hold weak loans in its own portfolio and thus makes that originator more indifferent to the risks. Beginning in the late 1990s the White House and Congress also put strong pressure on Fannie Mae and Freddie Mac to buy securities backed by these mortgages. Over the years 2005--07 about 40% of the mortgages that the two enterprises added to their portfolios of single-family loans were junk loans....
Blame Fannie Mae and Congress For the Credit Mess
Many monumental errors and misjudgments contributed to the acute financial turmoil in which we now find ourselves. Nevertheless, the vast accumulation of toxic mortgage debt that poisoned the global financial system was driven by the aggressive buying of subprime and Alt-A mortgages, and mortgage-backed securities, by Fannie Mae and Freddie Mac. The poor choices of these two government-sponsored enterprises (GSEs) -- and their sponsors in Washington -- are largely to blame for our current mess.
How did we get here? Let's review: In order to curry congressional support after their accounting scandals in 2003 and 2004, Fannie Mae and Freddie Mac committed to increased financing of "affordable housing." They became the largest buyers of subprime and Alt-A mortgages between 2004 and 2007, with total GSE exposure eventually exceeding $1 trillion. In doing so, they stimulated the growth of the subpar mortgage market and substantially magnified the costs of its collapse.
It is important to understand that, as GSEs, Fannie and Freddie were viewed in the capital markets as government-backed buyers (a belief that has now been reduced to fact). Thus they were able to borrow as much as they wanted for the purpose of buying mortgages and mortgage-backed securities. Their buying patterns and interests were followed closely in the markets. If Fannie and Freddie wanted subprime or Alt-A loans, the mortgage markets would produce them. By late 2004, Fannie and Freddie very much wanted subprime and Alt-A loans. Their accounting had just been revealed as fraudulent, and they were under pressure from Congress to demonstrate that they deserved their considerable privileges. Among other problems, economists at the Federal Reserve and Congressional Budget Office had begun to study them in detail, and found that -- despite their subsidized borrowing rates -- they did not significantly reduce mortgage interest rates. In the wake of Freddie's 2003 accounting scandal, Fed Chairman Alan Greenspan became a powerful opponent, and began to call for stricter regulation of the GSEs and limitations on the growth of their highly profitable, but risky, retained portfolios.
If they were not making mortgages cheaper and were creating risks for the taxpayers and the economy, what value were they providing? The answer was their affordable-housing mission. So it was that, beginning in 2004, their portfolios of subprime and Alt-A loans and securities began to grow. Subprime and Alt-A originations in the U.S. rose from less than 8% of all mortgages in 2003 to over 20% in 2006. During this period the quality of subprime loans also declined, going from fixed rate, long-term amortizing loans to loans with low down payments and low (but adjustable) initial rates, indicating that originators were scraping the bottom of the barrel to find product for buyers like the GSEs.
The strategy of presenting themselves to Congress as the champions of affordable housing appears to have worked. Fannie and Freddie retained the support of many in Congress, particularly Democrats, and they were allowed to continue unrestrained. Rep. Barney Frank (D., Mass), for example, now the chair of the House Financial Services Committee, openly described the "arrangement" with the GSEs at a committee hearing on GSE reform in 2003: "Fannie Mae and Freddie Mac have played a very useful role in helping to make housing more affordable . . . a mission that this Congress has given them in return for some of the arrangements which are of some benefit to them to focus on affordable housing." The hint to Fannie and Freddie was obvious: Concentrate on affordable housing and, despite your problems, your congressional support is secure....
Analysis: Reckless Mortgages Brought Financial Market to Its Knees
...Surprisingly, research done by economists a decade ago in 1998, particularly by Professors Ted Day and Stan Liebowitz at the University of Texas at Dallas, predicted the current problems and tried to warn people of a different cause. Starting during the early 1990s, mortgage-underwriting standards have been consistently weakened. Many of the names involved in the forefront of those changes, Freddie Mac and Fannie Mae as well as Countrywide and Bear Stearns, have been the most prominent financial entities to become insolvent.
Others did not share these economists' concerns. The Wall Street Journal quoted Congressman Barney Frank in 2003 as criticizing Greg Mankiw, chairman of President Bush's Council of Economic Advisers, "because he is worried about the tiny little matter of safety and soundness rather than ‘concern about housing.'"
The changes in underwriting standards were pushed to accomplish what many called a "noble goal" -- an increase in home ownership among poor and minority Americans -- but the changes created a time bomb that was set off as soon as property values began to decline. The new rules involved eliminating verification of income or assets, little assurance of the ability to pay the mortgage, and virtually eliminating down payments.
Making it possible for otherwise unqualified people to buy homes increased demand and increased the price of houses. As long as housing prices rose, the problems inherent in not requiring down payments or relaxing other standards were hidden. While prices rose, no one had to default. Instead, if someone was unable to pay the mortgage, the obvious option was to sell the house at a profit. As long as prices continued to rise, people could accurately claim that the new standards did not have an appreciably different default rate than the old standards.
The federal government gives all sorts of subsidies to encourage home ownership. The mortgage deductibility in the income tax is a big subsidy, but that is not the only one. The Federal Housing Administration guarantees mortgages against default. Subsidies given to Fannie Mae and Freddie Mac allow them to charge less in repackaging private mortgages that are then sold to financial institutions....
The End of Libertarianism and Other Adventures in Financial Policy Fantasy
...In Libertarian Land, government would not promote increased home ownership, so it would not have created Fannie Mae and Freddie Mac, or encouraged these institutions to extend subprime loans, or implicitly promised to bail them out if or when these loans failed. Thus a key ingredient in the recent financial turbulence would not have arisen....
Monday, October 20, 2008
Is Capitalism Dead?
The market that failed was not exactly free.
IS THIS the end of American capitalism? As financial panic spread across the globe and governments scrambled to contain the damage, reality seemed to announce the doom of U.S.-style free markets and President Bush's ideology. But this is wrong in two ways. The deregulation of U.S. financial markets did not reflect only the narrow ideology of a particular party or administration. And the problem with the U.S. economy, more than lack of regulation, has been government's failure to control systemic risks that government itself helped to create. We are not witnessing a crisis of the free market but a crisis of distorted markets.
...The 1999 repeal of the Glass-Steagall Act, a Depression-era law separating commercial banking and investment banking, passed with overwhelming bipartisan support in Congress and was signed into law by President Bill Clinton.
We'll never know how this newly liberated financial sector might have performed on a playing field designed by Adam Smith. That's because government interventions of all kinds, from the defense budget to farm supports, shaped the business environment. No subsidy would prove more fateful than the massive federal commitment to residential real estate -- from the mortgage interest tax deduction to Fannie Mae and Freddie Mac to the Federal Reserve's low interest rates under Mr. Greenspan. Unregulated derivatives known as credit-default swaps did accentuate the boom in mortgage-based investments, by allowing investors to transfer risk rather than setting aside cash reserves. But government helped make mortgages a purportedly sure thing in the first place. Home prices seemed to stand on a solid floor built by Washington.
Government support for housing was well-intentioned: Homeownership is a worthy goal. But when government favors a particular economic activity, however validly, it must seek countervailing control to ensure the sustainable use of public resources. This is why banks must meet capital requirements in return for federal deposit insurance. Congress did not apply this sound principle to Fannie Mae and Freddie Mac; they were allowed to engage in profitable but increasingly risky activities with an implicit government guarantee. The result was that taxpayers had to assume more than $5 trillion of their obligations....
You Want to Cover Everyone with This?
... It’s increasingly dysfunctional actually to talk about people in binary fashion as insured or uninsured because there are people with insurance who are going bankrupt…. On the other hand, there are people who are uninsured who are now able to access certain services for less out-of-pocket than people who are insured.
It is not clear to me why we pay Aetna $20, so they can pay Medco $15, so they can pay CVS $10, so CVS can collect their $5 copay from us for something we could have just bought at Wal-Mart for $4 in the first place….
Yet our debate in the public space is how can we get everybody into these traditional insurance products…at an increasingly unaffordable rate....
Obama and Big Business vs. a freer health insurance market
Barack Obama attacks John McCain's health care plan as spurring the "unraveling of the employer-based health care system." Big employers are siding with Obama.
Not surprisingly, employers want employees more dependent on them. Of course they don't want it to become more affordable for you to strike out on your own. Sure, "unraveling" the employer-based health care system" is a bad thing for employers, but it might also be good for everyone else....
...The New York Times reported that the U.S. Chamber of Commerce and the Business Roundtable didn't like the idea of people breaking free from their employer for healthcare. "To some in the business community, this is very discomforting," Chamber lobbyist Bruce Josten told the Times.
Of course it's discomforting—it could spur entrepreneurship and boost employee independence. Currently, the tax code punishes you for finding health care outside of your employer, which makes you more likely to stay in your current job, which gives your employer more control over you. Rejected for a raise? You still can't leave because you need health care. Want to strike out on your own? How will you afford health care for yourself and your employees?...
Saturday, October 18, 2008
Obama Voted 'Present' on Mortgage Reform
In each of the first two presidential debates, Barack Obama claimed that "Republican deregulation" is responsible for the financial crisis. Most viewers probably accepted this idea, especially because Republicans generally do favor deregulation.
But one essential fact was missing from the senator's narrative: While there has been significant deregulation in the U.S. economy during the last 30 years, none of it has occurred in the financial sector. Indeed, the only significant legislation with any effect on financial risk-taking was the Federal Deposit Insurance Corporation Improvement Act of 1991, adopted during the first Bush administration in the wake of the collapse of the savings and loans (S&Ls). FDICIA, however, substantially tightened commercial bank and S&L regulations, including prompt corrective action when a bank's capital declines below adequate levels and severe personal fines if management violates laws or regulations....
...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.
Most important, the banks that have succumbed to financial problems -- Wachovia, Washington Mutual and IndyMac, among others -- got into trouble by investing in bad mortgages or mortgage-backed securities, not because of the securities activities of an affiliated securities firm. Federal Reserve regulations significantly restrict transactions between banks and their affiliates.
If Sen. Obama were truly looking for a kind of deregulation that might be responsible for the current financial crisis, he need only look back to 1998, when the Clinton administration ruled that Fannie Mae and Freddie Mac could satisfy their affordable housing obligations by purchasing subprime mortgages. This ultimately made it possible for Fannie and Freddie to add a trillion dollars in junk loans to their balance sheets. This led to their own collapse, and to the development of a market in these mortgages that is the source of the financial crisis we are wrestling with today.
Finally, on the matter of deregulation and the financial crisis, Sen. Obama should consider his own complicity in the failure of Congress to adopt legislation that might have prevented the subprime meltdown....
Smaller Banks Resist Federal Cash Infusions
...And in offices around the country, bankers simmered.
Peter Fitzgerald, chairman of Chain Bridge Bank in McLean, said he was "much chagrined that we will be punished for behaving prudently by now having to face reckless competitors who all of a sudden are subsidized by the federal government."
At Evergreen Federal Bank in Grants Pass, Ore., chief executive Brady Adams said he has more than 2,000 loans outstanding and only three borrowers behind on payments. "We don't need a bailout, and if other banks had run their banks like we ran our bank, they wouldn't have needed a bailout, either," Adams said.
The opposition suggested that the government may have to continue to press banks to participate in the plan. The first $125 billion will be divided among nine of the largest U.S. banks, which were forced to accept the investment to help destigmatize the program in the eyes of other institutions....
BARONE: The coming liberal thugocracy
"I need you to go out and talk to your friends and talk to your neighbors," Barack Obama told a crowd in Elko, Nev. "I want you to talk to them whether they are independent or whether they are Republican. I want you to argue with them and get in their face." Actually, Obama supporters are doing a lot more than getting into people's faces. They seem determined to shut people up.
That's what Obama supporters, alerted by campaign e-mails, did when conservative Stanley Kurtz appeared on Milt Rosenberg's WGN radio program in Chicago. Mr. Kurtz had been researching Mr. Obama's relationship with unrepentant Weather Underground terrorist William Ayers in Chicago Annenberg Challenge papers in the Richard J. Daley Library in Chicago - papers that were closed off to him for some days, apparently at the behest of Obama supporters.
Obama fans jammed WGN's phone lines and sent in hundreds of protest e-mails. The message was clear to anyone who would follow Mr. Rosenberg's example. We will make trouble for you if you let anyone make the case against The One.
Other Obama supporters have threatened critics with criminal prosecution. In September, St. Louis County Circuit Attorney Bob McCulloch and St. Louis City Circuit Attorney Jennifer Joyce warned citizens that they would bring criminal libel prosecutions against anyone who made statements against Mr. Obama that were "false." I had been under the impression that the Alien and Sedition Acts had gone out of existence in 1801-'02. Not so, apparently, in metropolitan St. Louis. Similarly, the Obama campaign called for a criminal investigation of the American Issues Project when it ran ads highlighting Mr. Obama's ties to Mr. Ayers. ...
FDR's policies prolonged Depression by 7 years, UCLA economists calculate
Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.
After scrutinizing Roosevelt's record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.
"Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump," said Ohanian, vice chair of UCLA's Department of Economics. "We found that a relapse isn't likely unless lawmakers gum up a recovery with ill-conceived stimulus policies."
In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933....
..."The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes," Cole said. "Ironically, our work shows that the recovery would have been very rapid had the government not intervened."
Tuesday, October 14, 2008
Freedom Is Not the Issue? It Just Ain't So!
...Unfortunately, individuals often are unaware of government's true record because the media are working hand in glove with the ruling class.
Statists rely on political arithmetic that begins by erasing all of government's abuses from the ledger. Instead, people should begin by pretending that Leviathan doesn't exist—and then ask what politicians can do to make the masses happy.
Modern political thinking largely consists of glorifying poorly functioning political machinery—the threats, bribes, and legislative cattle prods by which some people are made to submit to other people. It is a delusion to think of the state as something loftier than all the edicts, penalties, prison sentences, and taxes it imposes.
Like Tom Sawyer persuading his friends to pay him for the privilege of painting his aunt's fence, modern politicians expect people to be grateful for the chance to pay for the fetters that government attaches to them. Even though the average family now pays more in taxes than it spends for housing, clothing, and food combined, tax burdens are not an issue for most American political commentators.
To call for government intervention is to demand that some people be given the power to compel others to submit. But coercion is a blunt instrument that produces many ill effects aside from the purported government goal. To rely on coercion to achieve progress is like relying on bulldozers and steamrollers for routine transit. The question is not whether a person can eventually reach a goal driving a steamroller, but how much damage is left in his wake and how much faster the destination could be reached without crushing everything along the way.
Many people in Washington believe that Americans are so helpless that they cannot be fulfilled unless their rulers give them a reason to live. Brooks proclaimed in 1996 that “ultimately, American purpose can find its voice only in Washington.” ...
Sunday, October 12, 2008
False Apology Syndrome I'm sorry for your sins
There is a fashion these days for apologies: not apologies for the things that one has actually done oneself (that kind of apology is as difficult to make and as unfashionable as ever), but for public apologies by politicians for the crimes and misdemeanours of their ancestors, or at least of their predecessors. I think it is reasonable to call this pattern of political breast-beating the False Apology Syndrome....
...This inevitably leads to the false supposition that the moral life can be lived without the pain of self-examination. The locus of moral concern becomes what others do or have done, not what one does oneself. And a good deed in the form of an apology in public for some heinous wrong in the distant past gives the person who makes it a kind of moral capital, at least in his own estimation, against which he can offset his expenditure of vice.
The habit of public apology for things for which one bears no personal responsibility changes the whole concept of a virtuous person, from one who exercises the discipline of virtue to one who expresses correct sentiment. The most virtuous person of all is he who expresses it loudest and to most people. This is a debasement of morality, not a refinement of it. The end result is likely to be self-satisfaction and ruthlessness accompanied by unctuous moralizing, rather than a determination to behave well....
...The False Apology Syndrome flourishes wherever there has been a shift in the traditional locus of moral concern. At one time, a man probably felt most morally responsible for his own actions. He was adjudged (and judged himself) good or bad by how he conducted himself toward those in his immediate circle. From its center rippled circles of ever-decreasing moral concern, of which he was also increasingly ignorant. Now, however, it is the other way round. Under the influence of the media of mass communication and the spread of sociological ways of thinking, a man is most likely to judge himself and others by the opinions he and they hold on political, social, and economic questions that are far distant from his immediate circle. A man may be an irresponsible father, but that is more than compensated for by his deep concern about global warming, or foreign policy, or the food situation in Africa....
Saturday, October 11, 2008
AP Exclusive: Documents say detainee near insanity
A U.S. military officer warned Pentagon officials that an American detainee was being driven nearly insane by months of punishing isolation and sensory deprivation in a U.S. military brig, according to documents obtained by the American Civil Liberties Union and provided to The Associated Press....
..."I told him the last thing that I wanted to have happen was to send him anywhere from here as a 'basket case,' of use to no one, to include himself," the officer wrote in an e-mail to undisclosed government officials in June 2003. "I fear the rubber band is nearing its breaking point here and not totally confident I can keep his head in the game much longer."...
John McCain: Davenport Liveblog
...Before McCain’s arrival, a minister delivering an invocation said, “There are plenty of people around the world who are praying to their god, be they Hindu, Buddah, or Allah, that (McCain’s) opponent wins. I pray that you step forward and honor your own name.”...
Friday, October 10, 2008
Rage in the Town of Bethlehem
John McCain and Sarah Palin were backstage, and Lehigh County GOP Chairman Bill Platt was warming up the crowd of 6,000 at a rally here for the Republican ticket....
...Even the opening prayer was politically charged. "O God, we are in a battle that is raging for the soul of this nation," the preacher said. "You, O God, have raised up Senator John McCain and Governor Sarah Palin for such a time as this." The preacher went on: "Help them, O God, to strengthen our economy, to keep our taxes and spending low . . . and grant them the privilege of being elected the next president and vice president."
With such warm-up acts, little was left unsaid for the principals. Palin scolded Obama for "lecturing John McCain on the stakes of going to war" in the debate. "May I remind Senator Obama that Senator McCain served our nation in uniform for 22 years?"
The crowd liked McCain, but loved Palin. "You're a hottie!" a young man near the front called out to her.
"What does that have to do with anything?" she answered with a smile....
...If there is one thing we should be angry about in relation to the financial crisis – one thing far more infuriating than the apparently ‘evil’ bankers who are treated like voodoo dolls by the shallow anti-capitalists of the British press – it is this discussion of enforced austerity. Anyone who values choice, political imagination, individual liberty and independence should reject it. History tells us that austerity is not only an assault on our desire to live comfortable lives free from need or guilt; it is also a tool of political repression, which both springs from and reinforces the lack of a political alternative on how society should be organised. The Age of Austerity would not only prevent us from ‘buying new three-piece suites’ or ‘wasting hundreds on jokey Christmas presents from those idiotic mail-order catalogues’, as one commentator sneeringly puts it (3). It would also further increase state power over individuals and stifle political vision and debate.
It is striking that, for all the talked-up differences of opinion in recent months between the dwindling band of free-ish marketeers on one side and state socialists (or perhaps social-ishs?) on the other, there has been little live debate about the need for belt-tightening. That is because, long before the ‘credit crunch’ kicked in, there was a wide-ranging political consensus, spreading form left to right, from radical greens to dyed-in-the-wool Tories, that people’s material desires must be restrained. Whether it is justified on the green-leaning basis that our lust for stuff is destroying the planet, or the right-leaning notion that our materialism is undermining family life and community relations, it is broadly agreed that over-consumption must be tackled and austerity re-introduced, by force if necessary...
Wednesday, October 08, 2008
Socialism and Medicine, Part 3
...Besides being a scam as far as health is concerned, universal health care is a great way of implementing one of socialism’s main objectives through the back door: equalization of incomes through redistribution of wealth. Let us not forget that Lenin called medicine the “keystone in the arch of socialism.” In Canada, for example, socialized medicine is a reality of everyday life. Everybody has to have insurance. It is universal, it is mandatory, and it is affordable. People with low incomes may pay as little as $300 a year through their taxes whether they like it or not.
Those in the upper-income category may pay as much as $22,000 for the same low-quality insurance policy. Canada’s upside-down-and-backward universal health care makes sure that anybody can go to the doctor because of a sniffle without paying the bill. On the other hand those who are really sick are “guaranteed” to be circling around the emergency room or piled up on gurneys in the corridor, and they are forced to pay for such care on the basis of income. It is the ultimate sliding scale.
Can you think of any other product that you have to pay for according to your income? When you buy a car, does the dealer look at your tax return and say, “Well, this car is going to be ten times as much for you as it is for me”? It’s a great way to redistribute the wealth. ...
Robert Nozick Vs. The U.S. Congress
Now that yesterday's market nosedive shows the disappointing Congressional bailout has not calmed markets, let the post-mortem begin. Disasters like this latest financial meltdown don't just happen. Mistakes this huge require an impoverished political philosophy to grease the skids. Fannie and Freddie didn't design their horrific lending policies by chance. No, behind this lending fiasco lay the strong collective preference for the "patterned principles" of justice that Robert Nozick attacked so powerfully in his 1974 masterpiece, Anarchy, State, and Utopia.
Believers in patterned principles hold that there is some preordained social order that is more just than others. Accordingly, the function of the state is to use the levers of powers to manipulate behavior to achieve the desired outcomes. These patterned principles stand in opposition to historical principles of justice, which are content to establish the rules of the game and then let the legal moves by individual players determine the social outcomes. For Nozick, the key rules were rules of justice in acquisition (to set up the initial property rights) and justice in transfer, whereby those rights (and others derived from them) could be exchanged or combined through voluntary transactions....
How Government Stoked the Mania
...Part of this story is true. The fall in housing prices did lead to a sudden increase in defaults that reduced the value of mortgage-backed securities. What's missing is the role politicians and policy makers played in creating artificially high housing prices, and artificially reducing the danger of extremely risky assets.
Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low and moderate income borrowers. For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target -- 42% of their mortgage financing had to go to borrowers with income below the median in their area. The target increased to 50% in 2000 and 52% in 2005.
For 1996, HUD required that 12% of all mortgage purchases by Fannie and Freddie be "special affordable" loans, typically to borrowers with income less than 60% of their area's median income. That number was increased to 20% in 2000 and 22% in 2005. The 2008 goal was to be 28%. Between 2000 and 2005, Fannie and Freddie met those goals every year, funding hundreds of billions of dollars worth of loans, many of them subprime and adjustable-rate loans, and made to borrowers who bought houses with less than 10% down....
...The Community Reinvestment Act (CRA) did the same thing with traditional banks. It encouraged banks to serve two masters -- their bottom line and the so-called common good. First passed in 1977, the CRA was "strengthened" in 1995, causing an increase of 80% in the number of bank loans going to low- and moderate-income families.
Fannie and Freddie were part of the CRA story, too. In 1997, Bear Stearns did the first securitization of CRA loans, a $384 million offering guaranteed by Freddie Mac. Over the next 10 months, Bear Stearns issued $1.9 billion of CRA mortgages backed by Fannie or Freddie. Between 2000 and 2002 Fannie Mae securitized $394 billion in CRA loans with $20 billion going to securitized mortgages.
By pressuring banks to serve poor borrowers and poor regions of the country, politicians could push for increases in home ownership and urban development without having to commit budgetary dollars. Another political free lunch....
Monday, October 06, 2008
The financial turmoil has pushed the Obama campaign into the lead, and this is mostly justified. Barack Obama is more thoughtful on the economy than his opponent, and his bench of advisers is superior. But there's a troubling side to the Democratic advance. The claim that the financial crisis reflects Bush-McCain deregulation is not only nonsense. It is the sort of nonsense that could matter.
The real roots of the crisis lie in a flawed response to China. Starting in the 1990s, the flood of cheap products from China kept global inflation low, allowing central banks to operate relatively loose monetary policies. But the flip side of China's export surplus was that China had a capital surplus, too. Chinese savings sloshed into asset markets 'round the world, driving up the price of everything from Florida condos to Latin American stocks.
That gave central bankers a choice: Should they carry on targeting regular consumer inflation, which Chinese exports had pushed down, or should they restrain asset inflation, which Chinese savings had pushed upward? Alan Greenspan's Fed chose to stand aside as asset prices rose; it preferred to deal with bubbles after they popped by cutting interest rates rather than by preventing those bubbles from inflating. After the dot-com bubble, this clean-up-later policy worked fine. With the real estate bubble, it has proved disastrous.
So the first cause of the crisis lies with the Fed, not with deregulation. If too much money was lent and borrowed, it was because Chinese savings made capital cheap and the Fed was not aggressive enough in hiking interest rates to counteract that. Moreover, the Fed's track record of cutting interest rates to clear up previous bubbles had created a seductive one-way bet. Financial engineers built huge mountains of debt partly because they expected to profit in good times -- and then be rescued by the Fed when they got into trouble. ...
The Corporate State Fails
According to popular myth, the current financial turmoil is the result of Bush administration deregulation. One problem with that theory: there was no deregulation. The last banking deregulation, the Gramm-Leach-Bliley bill, was signed by President Bill Clinton in 1999. Oops.
Gramm-Leach-Bliley undid the New Deal-era Glass-Steagall Act, which — for no good reason — separated commercial banking from investment banking. The act was finally scrapped because the artificial separation of banking functions prevented diversification and made American banks vulnerable to full-service foreign competition. Repeal of Glass-Steagall doesn’t mean banks have not been subject to myriad regulations by the federal and state governments. Besides, Glass-Steagall has nothing to do with today’s troubles.
So the turmoil is not the spawn of deregulation. What then? We distinguish between regulation and intervention. It is possible for the government to abstain from regulating while still intervening ruinously in markets.
For example — and this is at the root of the current problems — the government can subsidize, underwrite, or even require foolish lending practices that the free market would prevent or punish. Such a program is every bit as interventionist as restrictive regulation is because it keeps the market process from working properly. The financial debacle can be fully accounted for by the government’s decades-long campaign to enable people to buy more housing than they can afford and then to underwrite the mortgages through its creations Fannie Mae and Freddie Mac, i.e., the taxpayers.
To put it in the simplest terms: Republican and Democratic governments deliberately shifted the risk of dubious mortgage-writing from lenders and borrowers to the public...
Sunday, October 05, 2008
IRS undercover operations: Privacy invasion?
...The bailout bill also gives the Internal Revenue Service new authority to conduct undercover operations. It would immunize the IRS from a passel of federal laws, including permitting IRS agents to run businesses for an extended sting operation, to open their own personal bank accounts with U.S. tax dollars, and so on. (Think IRS agents posing as accountants or tax preparers and saying, "I'm not sure if that deduction is entirely legal, but it'll save you $1,000. Want to take it?") That section had expired as of January 1, 2008, and would now be renewed.
Starting with the so-called Anti-Drug Abuse Act in 1988, the IRS has possessed this authority temporarily, with occasional multiple-year lapses. A 1999 internal report said the IRS had 126 "trained undercover agents" working in field offices at the time. This is the first time that such undercover authority would be made permanent.
Sens. Max Baucus (D) and Chuck Grassley (R) have been pushing to make it permanent for a while, claiming (PDF) in April that: "Undercover operations are an integral part of IRS efforts to detect and prove noncompliance. The temporary status of this provision creates uncertainty, as the IRS plans its undercover efforts from year to year."
There's another section of the bailout bill worth noting. It lets the IRS give information from individual tax returns to any federal law enforcement agency investigating suspected "terrorist" activity, which can, in turn, share it with local and state police. Intelligence agencies such as the CIA and the National Security Agency can also receive that information.
The information that can be shared includes "a taxpayer's identity, the nature, source, or amount of his income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, overassessments, or tax payments, whether the taxpayer's return was, is being, or will be examined or subject to other investigation or processing, or any other data received by, recorded by, prepared by, furnished to, or collected by the Secretary with respect to a return."
That provision had already existed in federal law and automatically expired on January 1, 2008.
What's a little odd is that there's been little to no discussion of the IRS sections of the bailout bill, even though they raise privacy concerns. Treasury Secretary Henry Paulson said this week: "I will continue to work with congressional leaders to find a way forward to pass a comprehensive plan to stabilize our financial system and protect the American people by limiting the prospects of further deterioration in our economy." He never mentioned the necessity of additional IRS undercover operations. ..
Saturday, October 04, 2008
Meat must be rationed to four portions a week, says report on climate change
People will have to be rationed to four modest portions of meat and one litre of milk a week if the world is to avoid run-away climate change, a major new report warns.
The report, by the Food Climate Research Network, based at the University of Surrey, also says total food consumption should be reduced, especially "low nutritional value" treats such as alcohol, sweets and chocolates....
Uh Oh. Guess What’s Really Behind the Financial Crunch?
It’s not the “Wall Street fat cats,” unless you mean by that the head of the the government sponsored corporation known as Fannie Mae....