| 12/31/2008: Michael Reagan: Barack in
Limbo As he stands on the sidelines, seemingly oblivious to
what's going on in the world, President-elect Barack Obama opts out of the game by
proclaiming that there's only one president at a time.
That's another way of saying, "Let George do it," when the Middle East erupts in
violence, the economy continues to slump, and the governor of his state defies demands
that he step down.
His almost nonchalant approach to the turmoil around him has thus far protected him from
adverse reactions from his real base -- the media -- but that immunity from harsh
criticism has not extended to his political base, the far left. They are after him hammer
and tongs.
Barack Obama will not become president until January 20, but the far left of his party is
already blaming him for all sorts of alleged omissions. He seems to have violated the
liberal's major shibboleth, "No enemies to the left." He's suddenly acquired a
whole slew of them.
He may have chosen a few bomb throwers to serve in his Cabinet or the White House, but
that hasn't satisfied the more dainty of the lefties who are appalled at his selection of
Pastor Rick Warren, who committed the unpardonable sin of not only opposing gay marriage,
but actually promoted Proposition 8, which banned the aberration in California.
Up on Capitol Hill the Democrats are out of sorts because he failed to act more quickly on
his planned stimulus package, and Barney Frank -- an openly homosexual Democrat from
Massachusetts -- is enraged over the choice of Rick Warren.
They simply don't buy his only-one-president-at-a-time alibi. They want him to start
acting presidential now, and all he's been doing in Hawaii is physical exercise (when he's
not showing off his pecs to the gaga media).
The left is also unhappy with the economic team he's assembled -- a group of moderates who
embrace traditional approaches to economic policies rather than the openly socialistic
nostrums the Marxist wing of his party cherishes.
His problem with Congress lies in the fact that Congress never accepts responsibility for
anything. They shift whatever blame there is in any situation downtown to 1600
Pennsylvania Ave., but wallow in the glory of anything that goes right.
The boys and girls on Capitol Hill were more responsible for the current economic mess
that any other entity, but they shift the blame to the Bush administration, which had in
fact tried to forestall the crisis and was blocked from acting by such top Democrats as
Barney Frank and Sen. Chris Dodd, who were drinking heavily at the money fountains of
Fannie Mae and Freddy Mac.
The fact that they haven't done anything worthwhile is all Obama's fault, and starting on
January 20 they'll blame him for anything that goes wrong. His honeymoon will more quickly
resemble a marriage on the brink of divorce rather than a joyous romp at Niagara Falls.
All this, sadly, is simply a sign of the decline now evident in Washington with the utter
absence of backbone and leadership.
The taste of Barack Obama's triumphant victory could well turn out to be ashes in his
mouth rather than that of honey. He has climbed the hill to the top and found it covered
with thorns and thistles and poison ivy, instead of the roses he expected.
Shortly after the Bay of Pigs fiasco, Sen. Barry Goldwater dropped by the White House to
see his friend and former Senate colleague President John Fitzgerald Kennedy.
When Barry asked him how he was, JFK looked at him, threw up his arms and said "What
a lousy fouled up job this has turned out to be."
Welcome to the White House, President Obama. Enjoy your stay. Have a great New Year. You
are in our prayers.
And Happy New Year to one and all.
12/29/2008: Foundations
of Crisis by John Mauldin
...Doug Casey wrote a very prescient piece back in 1997. He has updated it
somewhat for today's times. The critical part is a summary of the work of Richard Strauss
and (friend) John Howe and their book The Fourth Turning, which I consider one of the more
important and prescient (that word again) books of the last 25 years (Amazon.com).
It should still be read today. It is seminal to understanding the times we live in.
Doug summarized the book and makes some observations based on that understanding,
many of which turned out to be true and some of which may well be in out future. I think
you will find this to be very useful and enlightening if you are not familiar with their
work, and a great review if you are.
Doug is chairman of Casey Research, author of numerous best-sellers over the last 25
years, raconteur and a certified expert in resources stocks. If you are investing in
natural resources stocks, energy or gold without reading Doug and his team at Casey
Research, you are missing the boat. They have a special offer for readers of Outside the
Box. You
can learn more about it here.
Foundations of Crisis
By Doug Casey, Chairman, Casey Research, LLC.
Everybody wants predictions. The following article does a little better than that, in that
I wrote it back in November of 1997, outlining several theories of history, and pointing
to a logical way of anticipating what will likely happen to the world at large over the
next generation.
As you will read, the methodology I relied upon for anticipating the events that are now
unfolding -- 11 years later -- were actually quite accurate, confirming, in my mind at
least, that now is a time to be very cautious in your personal and financial affairs.
...(It's been said that war is a force that gives life meaning. And I think that's true,
although it's perverse that the most destructive and idiotic activity that it's possible
to engage in would just have to be the most important. Maybe, after the orgy of
self-indulgence and conspicuous consumption that has characterized the past couple
decades, Americans collectively feel they need to prove something. There has to be some
rationale for the current war hysteria other than pure stupidity...)
...(In the historical context, 9/11 will be viewed as the opening kick-off for the coming
Crisis... and the messianic overreaction of Bush and his cronies as the catalyst for
turning things from bad to worse. It may be that Hurricane Katrina, for instance, a
completely accidental event, may be blamed for providing a pin to burst the financial
bubble -- which would be a pity, since the neocons could then blame it, not themselves.)
...A Parting Parable
...There was a merchant in Baghdad who went to the market with his servant. There they saw
Death, who stared at the servant in what seemed a threatening way. Later the servant said
"Master, lend me a horse. I shall ride to Samara, and there Death will not find
me." The merchant did so, then returned to the market, where he again saw Death, whom
he approached and asked why he had stared at his servant in such a threatening way. Death
responded, "I wasn't threatening him. I was just very surprised to see him here in
Baghdad, since I have an appointment with him in Samara later this afternoon."
[Read
it all]
12/27/2008: Change
We Can Believe In
Bailouts aren't working. Let's try something else. By THOMAS G. DONLAN
[Amen! but it ain't gonna happen with the morons and slime in Washington, Sacramento,
Albany, etc.]
THE YEAR NOW PASSING WAS bad enough; 2009 could be worse
unless we realize the Bailout Economy isn't working. Even then, it won't be good enough to
say that the economy just needs to be struck with a bigger hammer. We must accept failure
and try something else.
The nation's first step to recovery should be to abandon denial and resolve the mortgage
mess. Close Fannie Mae and Freddie Mac. Hand off their mortgage holdings to the Federal
Reserve. Unwind poorly collateralized mortgage-backed securities, turning them back to the
institutions that created them. Then get auditors and bank examiners to figure out which
banks are really insolvent as a result, and close them also. Sell houses at prices
investors will pay.
The Fed is the lender of last resort, so if this is the time for the last resort, let's
get on with it, for as short a time as possible.
Then we can quit subsidizing housing and homeowners. The mortgage-interest tax deduction
is of greatest benefit to those citizens who have the biggest houses, whether it makes
economic sense or not. Ending it would be one of the fairest methods of raising taxes
without raising tax rates. We can also end the inequitable exemption of tax on the first
half-million dollars (for couples) of capital gains from owner-occupied housing.
Capital-gains tax cuts generally are a good idea for stimulating investment; this tax cut
stimulated very unproductive investments.
Level the Playing Field
Other privileged taxpayers receive tax deductions, with unjust consequences for
those not so favored. Tax-free employee benefits and pension contributions are the
biggest, but the tax code is littered with relics of failed attempts at social
engineering. Every one of them leaves more tax for someone else to pay.
Which brings us to energy. Now that the Smart Car looks rather silly, let's move on and
create a level playing field in energy: No subsidies, no production quotas, nothing
off-limits. We should have our energy and pay for it, too.
We say we want energy efficiency and investment in new technology. There's an easy way to
get it: Enact a large energy tax, sufficient to make every American a frugal consumer of
power. This kind of social engineering would shake up business from Detroit to New
Orleans, from Wall Street to Market Street.
If we had free production and freedom to profit from it, American energy companies could
explore for oil in the offshore areas that have been off-limits, such as Florida's part of
the Gulf of Mexico, the continental shelf on both coasts and the north coast of Alaska.
American power companies would be generating more electricity from nuclear power.
Consumers would use only what they needed, and would be looking for ways to need less.
The big energy tax also could be the vehicle for a larger tax reform. We should not
heavily tax things we want, such as income, savings, profits, dividends and capital gains.
A consumption tax is more even-handed and healthier for the economy. At least we can start
with an energy-consumption tax and use it to reduce other tax burdens. At least it should
be big enough to replace the corporate income tax, which penalizes successful, profitable
companies and their customers.
Open Up Markets
Eliminate farm subsidies wasted on corporate farmers and gentleman farmers, who don't need
subsidies, and on marginal farmers, who shouldn't be farming. We don't have subsidies to
fill our groceries with vegetables, meat, fish or fruit; those farmers do just fine
selling their products in the relatively free market.
Let's strip the federal budget of all its other unnecessary subsidies for production, and
all its protections against superior foreign competition. The right way to support
American businesses is to insist that they face the toughest possible competition. Either
they become the toughest competitors in the world or pass their capital on to stronger
hands and newer ideas. The way to do it is to declare free trade with anyone. No tariffs,
no quotas, no buy-American clauses.
High tariffs and other trade restrictions helped make the Great Depression great. We must
not make that mistake again. And, while we are at it, let's remember that immigration is
just another form of free trade. We should open our country to anyone who can get a job.
If we have global markets and global sources of supply, we should have global sources of
labor as well. All three are sources of American prosperity, which will be renewed much
faster with them than without them.
Investing for Profit
Perhaps most important, we should quit talking about creating jobs as if that were an end
in itself. In particular, let's understand that public construction projects don't really
create jobs -- they just move employment from one sector of the economy to another. The
money that is taxed or borrowed for building a bridge to anywhere is money that can't be
taxed or borrowed for some other purpose. What's worse, it's money that won't be left in
the private sector to be invested or consumed by the individuals who earned it.
Paying for work is a form of investment, and any employer, public or private, should seek
a positive return. Putting money in people's pockets is welfare, even if the recipients
work for it. It may be necessary to relieve suffering, but it doesn't create wealth.
What matters in public and private finance is what's built, or what needed service is
provided, and whether the money will produce a positive return on investment. If jobs were
the important feature of a public investment, we could pay one jobholder to dig holes and
another to fill them up again.
Now that President Bush has passed the auto mess to his successor, there's an opportunity
for what Joseph Schumpeter called creative destruction. The Big Three and their suppliers
employ more than a million workers, to say nothing of another million or more who already
have lost their jobs. Making opportunities for them is a job for capitalists in the
market, seeking opportunity and profit.
A Bailout Economy can stumble along for decades, as it did in Britain between Churchill
and Thatcher. The new administration must resolve to avoid that fate.
12/27/2008: How Best to Spend That Trillion By GENE
EPSTEIN
[I hoped that Obama would be different; I hoped he really
meant to kill pork barrel spending and waste. I know we've heard it before but hope
springs eternal. But the "use it or lose it" feature of his "economic
stimulus" is, at best, naive, and at worst cynical. The money will mostly be wasted;
it will end up either in the pockets of useless government employees whose services are
unnecessary, and probably harmful, and in the pockets of constuction unionistas. The
economy will continue to stagnate until all the excesses are wrung out of it. Individuals
who work for a living and who own small businesses are cutting back, but the government
(at all levels) does not know how to cut back. Only in America can we get rich by spending
money we don't have on things we don't need and never worry about paying it back.
Politicians believe in "Spend when times are good and spend more when times are
bad." It will get worse before it gets better.]
Spend wisely, Obama.
GEORGE W. BUSH IS PROBABLY in no danger of being viewed in the economic history books as
playing Herbert Hoover to Barack Obama's FDR -- an unfair rap on Hoover anyway, since it
was Hoover who truly started the New Deal. But in light of all the recent press on
President-elect Obama's planned fiscal stimulus program -- running nearly a trillion bucks
over two years -- the fact that Bush has been no Grinch in this regard might be
insufficiently appreciated.
The comparison is worth making for a simple reason. If the fiscal stimulus applied so far
could have such apparently unstimulating results, then even a triple dose of the same
medicine might not do that much better.
Indeed, given all the question marks and potential harm associated with huge deficits, the
wiser course for the Obama administration would probably be to forget about stimulus
altogether -- wiser, in other words, to focus on spending those extra hundreds of billions
on two things only.
The first is infrastructure. Roads, bridges, tunnels, and mass transit are overdue for
repair, and the time is ripe to do it. More than 600,000 private- sector workers in the
construction industry have become unemployed over the past two years, people whose skills
and job preferences should make them well-suited for just such tasks.
The second item worth spending on is related to the first: state and local budgets. While
states and localities will be the recipients of most of the infrastructure money, they
need to prevent major cutbacks in their other activities. Yes, the states and localities
in most need of help are probably the very ones that were most profligate in the good
times. But the problem is that, while federal spending is properly counter-cyclical during
economic downturns, state and local spending tends to be dangerously in step with cycles,
weakening already weak local economies. Cash should be spent to prevent this.
These two proposed focuses for stepped-up federal spending are already very difficult for
any government to implement without funding pork-barrel projects, or otherwise encouraging
waste. To add a third focus -- government spending to prime the economic pump -- runs the
risk that the whole enterprise could be more boondoggle than boon.
The dangers are already apparent. For example, in his apparent eagerness to ensure that
the funds will be spent in time to strengthen the weak economy, Obama reportedly will
attach a "use it or lose it" clause to infrastructure money offered to states
and localities. This virtually guarantees that politicians proficient in creating pork
will be first in line. A different standard -- how about, "use it, don't abuse
it"? -- might take more time, but offers a better chance that the cash will flow to
worthwhile projects.
No matter what, the federal budget deficit will surely jump -- probably not by enough to
fully satisfy those who view deficits as catnip in times like these -- but by more than
enough to bother those of us who worry about the long-term side-effects, and even remain
dubious about the extent of the short-term benefits.
Meanwhile, under Bush, in just October and November, the budget deficit ran a whopping
quarter-trillion dollars higher than it did in those two months in 2007. And December is
shaping up as another budget buster.
12/27/2009: Israeli Gaza
Strike Kills More Than 200
[Where was the press when the Palestinians started shooting
mortars into Israel, day after day after day? I think Israel's response was quite
measured. They tried to kill only the Hamas "fighters" who are the real
aggressors. Maybe Israel should have killed 200,000 Palestinians, not just 200. The
terrorists from Hamas don't care who they kill. Maybe the Palestians' terrorist
(redundant) government might think twice before pulling this crap again. The absolute
power structure perpetrated under the guise of Islam has created a situation where Muslims
don't care about their own lives. Let's see if that's really true. "Kill 'em all and
let God sort 'em out."]
GAZA — Waves of Israeli aircraft swooped over the Gaza
Strip on Saturday, firing missiles at Hamas’s security headquarters and killing more
than 200 people, bringing the highest death toll in Gaza in years in a crushing response
to rocket fire by Hamas against Israeli towns.
After the initial air strikes, which also wounded about 600 Palestinians, dozens of
rockets struck southern Israel. Thousands of Israelis hurried into bomb shelters amid the
hail of rockets, including some longer-range models that reached farther north than ever
before. One Israeli man was killed in the town of Netivot and four were wounded, one
seriously.
A military operation against Hamas, the militant group that controls Gaza, had been
forecast and demanded by Israeli officials for weeks, ever since a rocky cease-fire
between Israel and Hamas broke down completely in early November and rocket attacks began
in large numbers against Israel. Still, there was a shocking quality to Saturday’s
attacks, in broad daylight on about 100 sites, as police cadets were graduating, women
were shopping at the outdoor market and children were emerging from school.
The center of Gaza City instantly became a scene of chaotic horror, with rubble
everywhere, sirens wailing, and women shrieking as dozens of mutilated bodies were laid
out on the pavement and in the lobby of Shifa Hospital so that family members could
identify them. The vast majority of those killed were Hamas police officers and security
men, including two senior commanders, but the dead included several construction workers
and at least two children in school uniforms.
[Read more]
12/25/2008:
To All Liberals and Democrats:
Please accept with no obligation, implied or implicit, my best wishes for an
environmentally conscious, socially responsible, low-stress, non-addictive, gender-neutral
celebration of the winter solstice holiday, practiced within the most enjoyable traditions
of the religious persuasion of your choice, or secular practices of your choice, with
respect for the religious/secular persuasion and/or traditions of others, or their choice
not to practice religious or secular traditions at all.
I also wish you a fiscally successful, personally fulfilling and medically uncomplicated
recognition of the onset of the generally accepted calendar year 2009, but not without due
respect for the calendars of choice of other cultures whose contributions to society have
helped make America great. Not to imply that America is necessarily greater than any other
country nor the only America in the Western Hemisphere.
Also, this wish is made without regard to the race, creed, color, age, physical ability,
religious faith or sexual preference of the wishee.
To My Libertarian and Republican Friends:
Merry Christmas or Happy Chanukah and a Happy New Year!
12/24/2008: The Daily Reckoning PRESENTS: The mystery
of Bernard Madoff will be storied a hundred years from now. As history’s biggest
financial criminal, he took a cheap ripoff that you can use at home – the Ponzi
scheme – and turned it into a global empire worth some $50 billion. Read on...
MADOFF AS METAPHOR
by Llewellyn H. Rockwell
One ingredient was financial intelligence. Madoff had buckets of it. Early in his career,
he was the real deal, an actual innovator. He combined this with an amazing lack of
conscience, for his scam was rooted most fundamentally in lying and stealing. The
difference between him and all who came before was his grand scale, the grandest scale
imaginable.
There is a saying in the world of Austrian economics about the business cycle. The puzzle
is not to explain business failures. Those are part of the normal course of life, and the
sign of a healthy economy. The puzzle is to explain the “cluster of errors” that
appears at the beginning of a recession. How could so many have been so wrong about so
much at the same time? The business cycle is a system-wide failure, not merely the
mistaken judgment of a few.
So it is with Madoff’s scheme. The mystery isn’t how one person was able to fool
a few. The scheme in which yesterday’s “investors” are paid off with the
money of today’s victims is known in all places and probably all times – and it
always goes belly up to the originator’s complete disgrace. It is a classic example
of how moral laws are self-enforcing in the world of economics.
The critical difference this time is that Madoff ran his scheme during an economic boom, a
time when people’s normal sense of incredulity is put on the shelf. This is part of
the grave cultural distortion introduced by funny money. Money is the most widely demanded
good in society, and the Fed is making new quantities of it not as a reflection of new
real wealth, but purely as an administrative decree.
There is a sense in which funny money literally drives everyone crazy, leading to what is
sometimes called the “madness of crowds.” Guido Hulsmann explains it all in his
remarkably timely and revealing new book: The Ethics of Money Production . With artificial
stimulation from the credit machine, multitudes are willing to believe in something that
cannot possibly be true. In Madoff’s case, it was that he could, even in falling
markets, earn 15-20% a year without risk.
Why not? Most everyone believed in some version of the myth. We believed that house prices
would go up and up despite the reality that houses are physical things that deteriorate
from the instant they are finished, just like cars or computers or anything else. Why did
we believe this about houses? Again, you have to look to the fraudulent money system to
see why.
And we believed that we could all become millionaires by putting our money in the stocks
of companies that weren’t actually earning money or paying dividends, companies whose
wealth was entirely based on infusions of cash from the stock market which in turn were
based on the belief that others would buy the stocks and so on. In other words, we
believed that something out of nothing was possible, and anyone who didn’t believe it
was a chump. It’s exactly what people believed during the other great inflations of
history.
What’s more, we believed that buying these stocks constituted not consumption, but
savings for the future. In fact, people routinely attacked official savings data on
grounds that they did not include what people were “saving” in terms of their
stock market accounts. In a similar way, people were measuring our national wealth not in
terms of accumulated capital, but rather through consumption data, as if granite kitchen
counters in bigger houses were a measure of wealth instead of the opposite: the depletion
of wealth.
The left is big on attacking the salaries of investment bankers, and they were indeed
outlandish. But these too represented not a unique problem, but more evidence of
inflationary finance. In a bubble economy, the money chases what is most fashionable, and
financial services qualified. So the salaries were market. What was wildly distorted was
the market itself.
Now let’s talk about government finance during these years. The market tried to
correct itself from 1999-2001, but the government wouldn’t tolerate it. Instead, it
used every sign of downturn as an excuse to keep the illusion going, creating billions and
billions in new dollars. The Fed drove interest rates lower and lower despite the
non-existence of savings available to back them up.
(Low interest rates in a sound money system are a reflection of accumulated capital and
deferred consumption. When you see the Fed pushing them down during a boom, it is creating
a dangerous mirage.)
Did anyone stop and wonder where the government was getting all this money to pump up the
system? Yes, the Austrian economists warned us. The pages of Mises.org and LewRockwell.com
were filled with alarms. But it was something people wanted to ignore. We are talking
about human nature: the desire to believe in things that do not exist. The government was
happy to fuel this sense because it gave the Fed, its connected industries, and the state
more power and more money in the short term.
Madoff’s scheme played into the belief that wealth was not something to work for, but
something to scheme for. It could be generated by playing your cards right, hooking into
the right networks, and finding the right “investments.” The people with whom he
dealt had, it turns out, some internal sense that there was something a little bit shady
about the whole operation. But they dispensed with this sense when the fat checks arrived,
and concluded that whatever was making this perpetual motion machine operate, it did work.
But listen: the government right now is using the same tactic to convince you that it is
saving you from the recession. The whole scheme partakes of the same sense of denying
reality that characterized Madoff’s scheme. And I’m not just talking about
Social Security, which is almost an exact replica of the Ponzi version, except that at
least Charles Ponzi didn’t force people to give him money. I’m speaking of
something broader. The entire financial system that is propped up by the Treasury and the
Fed is based on the same idea: that something out of nothing is possible.
So they will jail Madoff. Wall Street would flog him if it could. He is disgraced for all
of history. But meanwhile, the likes of Bush, Bernanke, Paulson, Obama, and all the rest
are still riding high, even though their scheme is far larger and more egregious.
Most of us like to believe that we wouldn’t have been tricked by Madoff. But are you
being tricked by the elites who claim that they can conjure up a trillion dollars to
stabilize our economy by clicking a few buttons on a computer screen? Most people are.
Certainly the press seems to have bought it. Many people were outwitted by Madoff. Many
more people are today being outwitted by the government and its central bank. And it will
all end in disgrace and disaster, only on a far, far grander scale.
Regards,
Llewellyn H. Rockwell
for The Daily Reckoning
Editor’s Note: Llewellyn H. Rockwell, Jr. is president of the Ludwig von Mises
Institute in Auburn, Alabama, editor of LewRockwell.com, and author of Speaking of Liberty.
Comment on the blog.
12/23/2008: from Best of the Web
"Vice President-elect Joe Biden is worried about the 'exceedingly high expectations'
the world community has for Barack Obama's presidency," Politico reports:
"I have been contacted by so many world leaders. Their expectation for Barack's
presidency is overwhelming," Biden said. "They are so hungry to have an American
leader who they think has a policy that reflects our stated values as well as one they can
talk to."
And where might those "overwhelming" expectations have come from? Perhaps from
Obama himself, who said in his convention speech:
If we are willing to work for it, and fight for it, and believe in it, then I am
absolutely certain that generations from now, we will be able to look back and tell our
children that this was the moment when we began to provide care for the sick and good jobs
to the jobless; this was the moment when the rise of the oceans began to slow and our
planet began to heal; this was the moment when we ended a war and secured our nation and
restored our image as the last, best hope on earth. This was the moment--this was the
time--when we came together to remake this great nation so that it may always reflect our
very best selves and our highest ideals. Thank you, God bless you, and may God bless the
United States of America.
"Generations from now"? That's not good enough! We'll settle for nothing less
than the first 100 days.
12/23/2008: Government and Fraud from Texas Straight Talk, A
weekly column by Ron Paul
Billions of dollars were recently lost in the
collapse of Bernie Madoff’s self-described Ponzi scheme, in which too-good-to-be-true
returns on investments were not really returns at all, but the funds of defrauded new
investors. The pyramid scheme collapsed dramatically when too many clients called in their
accounts, and not enough new victims could be found to support these withdrawals. Bernie
Madoff was running a blatant fraud operation. Fraud is already illegal, and he will be
facing criminal consequences, which is as it should be, and should act as an appropriate
deterrent to potential future criminals. But it seems every time someone breaks the law,
politicians and pundits decide we need more laws, even though lack of laws was not the
problem.
The government itself runs a fraud much bigger than Madoff’s. Our Social Security
system is the very definition of a Ponzi, or pyramid scheme. If the government truly had
an interest in protecting people’s savings, they would allow people to opt out of
Social Security altogether. We would cut wasteful spending, such as our overseas empire,
to honor current obligations to seniors, and eventually phase the program out. Instead, as
with Enron and Sarbanes Oxley, I expect new, unrelated legislation to be proposed that
further damages freedom in the name of protecting us, amidst loud proclamations that they
have made the world safe.
Merely passing a law does not fix any problems, just as throwing paper at a recession does
not stop it. How can a government so complicit in mandatory public fraud effectively
pre-empt private fraud? I see no reason to believe that any new law, or regulatory agency
will solve anything. But I do see liberty slipping away every time Congress decides to
“do something”. We already have an oversight agency, the SEC, which did a poor
job overseeing and preventing this, but does a great job hamstringing honest, productive
businesses and driving them overseas.
Total trust in government solutions only creates moral hazard, and amplifies risky
behavior. Trust in government got us here. We trusted government to eliminate risk, but it
just made risk more creative and dangerous. We trusted the Federal Reserve, a
supra-governmental cabal of private banks, to know better than the free market what
interest rates should be, and how to stabilize the business cycle, but like a spinning top
that loses its balance, it has instead spun the business cycle and the economy wildly out
of control.
No governmental activity can negate market forces or nullify the cardinal rule of caveat
emptor. Government can however, use our fears against us and promise unrealistic outcomes
as a means to consolidate power and erode our liberties. Liberty comes with risk. This is
a fact of life. But life without liberty is not much of a life at all.
The only way the American people will get through these difficult times is through our own
resilience and ingenuity. At best, the government is irrelevant in finding prosperity
again. At worst, government can present a massive obstacle for the economy to overcome. If
we do not wise up and rein government back in to its Constitutional limitations, bloated
government could be a cumbersome unnecessary weight the economy will continually have to
support to stay afloat.
12/23/2008: from the Daily Reckoning
...George W. Bush said last week that he had to kill capitalism to save it:
“We abandoned free market principles to save the free market system,” he is
quoted as saying.
Let’s see, how does that work...perhaps you could try a little hanky pank with your
neighbor’s wife in order to save the sanctity of your marriage? Or rob a bank in
order to prevent theft? Or eat a few extra desserts at Christmastide in order to keep
slim?
We just don’t get it.
...What seems to spook people now is the possibility that everybody in charge of
everything is a fraud or a crook. Legitimacy has left the system. Not even the legions of
Obama are immune as his reliance on Wall Street capos Robert Rubin, Tim Geithner, and
Larry Summers seem tainted by the same reckless thinking that brought on the fiasco. His
pick last week for chief of the SEC, Mary Shapiro, is already being dissed as a shill for
the Big Bank status quo. In a few days we’ll discover what kind of bonuses are being
ladled out by the remaining Wall Street banks with TARP money and a new chorus of howls
will ring out.
...We’re coming close to the end of a remarkable year. And the wonders keep coming...
Last Friday, the Fed said it would make low cost loans to anyone who would help get
consumer credit pumped up again. “This includes hedge funds,” explained the
report in the Financial Times , “which have never been able to borrow from the US
central bank before.”
Isn’t that nice, dear reader? The helpful people at the Fed are going to provide
money so that hedge funds can speculate on consumer debt. Then, the Fed will have a new
kind of “asset” on its books – a loan to a hedge fund. From the date of its
founding in 1913 until just six months ago the Fed kept little more than U.S. Treasury
debt in its vault. Everything else was considered too risky for America’s central
bank.
But everything has changed in the last half year. The banks...the capitalists...and Wall
Street have all been humbled. Now, politicians are in the driver’s seat – in
Detroit...in Lower Manhattan...and all through the economy. And now the Fed has $1.5
trillion worth of the kind of “assets” that got the financial industry into
trouble in the first place.
Want money? Ask the hacks in Washington! Get in line!
Need to decide what kind of car to build? Ask a Senator or a Congressman?
Need to figure out if you should make a loan...or not make a loan...what business should
be saved and which one should be left to die? There’s some bureaucrat at the U.S.
Treasury who will help make the decision.
At long last, the dream of the bankers who set up the Fed has been realized. If you want
to control a society, get control of its money. Everybody needs money. Everybody wants
money. And they’ll have to come to you to get it.
In a gold-backed currency system, people have to respect the golden rule: he has the gold
makes the rules. That’s why the Roosevelt Administration confiscated gold in the
’30s; it wanted to make a lot of new rules.
But gold is limited...and hard to control. In political matters, it is uncooperative. Say
you want to prop up a failing industry...or buy off a pressure group...or pay off friends?
Where do you get the money? You only have so much gold...and you don’t want to waste
it. So you tend to be careful. That’s why the feds turned to the kind of money you
get from trees. Paper money is much more, shall we say, pliable... It is a go-along,
get-along kind of money. It’s ready to pick up the tab for any party, no matter how
outrageous...and ready to go along with any scheme...no matter how absurd.
And today, we have just the sort of situation for which paper money was invented. Absurd
and outrageous. The feds want to hand out money; they need some cheap money to hand out.
And since everyone needs money – in fact, at this stage of the crisis they are
desperate for it – they’re ready to go along with anything the feds want.
...How will it all end?
Bloomberg has found an answer:
“‘We’ll end a financial crisis with a fiscal crisis,’ says Vito Tanzi,
former director of fiscal affairs at the IMF. ‘We’ll get out with very large
public debt and very large public spending. That, for sure, will slow down the rate of
growth for the next 10 years or so.’”
Not just a fiscal crisis. A money crisis.
Public spending will be financed first by borrowing...and then by printing. You’ll
see Treasury bond yields – now at historic lows – shoot up. The dollar will
collapse under the pressure. Gold will soar.
When will this happen? How will it happen?
No one knows. But the Economist says it could happen before the end of 2009. It is
coming...but of that day knoweth no man.
12/22/2008: [Governor Moonbeam violates
his oath of office by fighting against Proposition 8]
...from the Wall Street Journal Law Blog:
California AG Reverses Course: Prop. 8
= Tyranny of the Majority
California Attorney General Jerry Brown speaks in Sacramento, Calif, Nov. 5, 2008.
(AP/Rich Pedroncelli) A month after California's High Court decided to review legal
challenges to Proposition 8, the state's ballot measure that banned gay marriage, gay
rights proponents picked up a bit more steam in their push to get the ban overturned. On
Friday, the L.A. Times reported that California Attorney General Jerry Brown asked the
court to invalidate Prop 8. It was an about-face for Brown, who initially said he planned
to defend the proposition.
But after studying the matter, Brown (UC Berkeley, Yale Law) reportedly concluded that
"Proposition 8 must be invalidated because the amendment process cannot be used to
extinguish fundamental constitutional rights without compelling justification." In
his brief to the high court, Brown noted that the California Constitution says that
"all people are by nature free and independent and have inalienable rights,"
which include a right to "privacy."
Although voters are allowed to amend other parts of the Constitution by majority vote, to
use the ballot box to take away an "inalienable" right would establish a
"tyranny of the majority," which the Constitution was designed, in part, to
prevent, he wrote. "For we are talking, necessarily, about rights of individuals or
groups against the larger community, and against the majority -- even an overwhelming
majority -- of the society as a whole."
[Interesting; the right to "marry" in a government-sanctioned transaction is
part of the right to privacy? Isn't it really the opposite? How is marriage private? Isn't
is really a new right to publicity? You file papers with the government, are married by
someone licensed by the government, and then file tax returns with government. You create
a massive trail of publicly-available transactions. How about real privacy? Get government
OUT of the marriage business and let people do whatever they want, WITHOUT permission of
the apparatchiks.
12/22/2008: Sarah Palin: Conservative of the Year by Ann
Coulter
Sarah Palin wins HUMAN EVENTS’ prestigious “Conservative of the Year” Award
for 2008 for her genius at annoying all the right people. The last woman to get liberals
this hot under the collar would have been … let's see now … oh, yeah: Me!
The entire presidential election year was kind of a downer for conservatives. Once the
“maverick” John McCain won the nomination, the rest of the year was like
watching a slow motion car crash. Except at least a slow-motion car crash is occasionally
entertaining. So it was going to be a long year.
Until Palin.
When McCain chose our beauteous Sarah as his running mate, the maverick was finally acting
like a real maverick -- as opposed to the media’s definition of a
“maverick” which is: “agreeing with the editorial positions of the New York
Times.”
Pre-Palin it had been one race -- boring old “You kids get off my lawn!” John
McCain versus the exciting, new politician Barack Obama, who threw caution to the wind and
bravely ran as the Pro-Hope candidate. And then our heroic Sarah bounded out of the Alaska
tundra and it became a completely different race. This left the press completely
discombobulated and upset. They didn't know whether to attack Sarah for not having an
abortion or go after her husband for not being a sissy.
I assume Palin was chosen because McCain had heard that she was a real conservative and he
had always wanted to meet one -- no, actually because he needed a conservative on the
ticket, but that he had no idea that picking her would send the left into a tailspin of
wanton despair.
But if anyone on the McCain campaign chose Palin because she would drive liberals crazy,
my hat is off to him!
True, Palin made some embarrassing gaffes.
She complained that we didn’t have
enough “Arabic translators” in Afghanistan -- not realizing the natives
don’t speak Arabic in Afghanistan, but rather a variety of regional dialects, the
most common of which is Pashtun.
Speaking to military veterans one time, Palin
said, “Our nation honors its unbroken line of fallen heroes -- and I see many of them
in the audience here today.”
She bragged about passing a law regulating
the nuclear industry that it turned out never became a law at all.
Some days Palin said Venezuela's dictator
Hugo Chavez should suffer "regional isolation" -- but then on others she’d
say she supported the president’s meeting with Chavez.
She told one audience about recent tornados
in Kansas that had killed 10,000 people. In fact, a dozen people were killed in the
tornados.
She referred to the “57 states”
that make up the U.S.
Speaking of her eldest daughter’s
pregnancy, she said Bristol was being “punished” with a baby.
As you probably know -- or guessed by now --
none of these gaffes were uttered by Palin. They are all Obama gaffes. Luckily, he made
them to a star-struck press that managed not to ask him a difficult question for two
years.
It seemed like the media would introduce an all-new double standard each day throughout
the two glorious months of Palin’s candidacy.
I don’t remember, for example, zealous inquiries into the supposedly peculiar
religious practices of any candidates in past elections. No one in the press touched on
Sen. Joe Lieberman’s religious beliefs when he was Kerry’s running mate. (Nor,
while we’re on the subject, was the media particularly interested in the beliefs of
the religion that inspired the 9/11 attacks on America.)
But the press snapped right back into their anti-religious hysteria for a candidate who
was a Pentecostal! The same media that couldn’t be bothered to investigate
Obama’s ties to former Weathermen or Syrian Nationalist Tony Rezko was soon hot on
the trail of a rumor that Palin’s church had a speaker 30 years ago who spoke in
tongues!
Let me think now: Were there ever any unusual or otherwise noteworthy speeches or sermons
given in churches where Obama worshipped? Hmmm … it's on the tip of my tongue.
Liberals also suddenly decided that a woman with children could not handle the stress of
higher office. Until Palin reared her beautiful head, this is precisely the sort of
thinking liberals would have denounced as the Neanderthal, backwards, good old boy network
attitude that had created a “glass ceiling.”
Let’s consider the facts: Palin’s oldest son was about to be under the tender
care of Gen. David Petraeus after being shipped off to Iraq. Her next oldest child was
about to be married and probably would prefer that her parents butt out. That left three
children under the age of 15, which was almost the same as Obama had.
So Palin had one more child -- and a lot more executive experience -- than the guy at the
top of the Democrats’ ticket. (I suspect what liberals were really mad about was that
if Palin became Vice President, she probably would have hired a nanny who was a U.S.
citizen.)
Having indignantly rejected experience as a presidential qualification in the case of
Obama, liberals had to raise questions about Palin’s experience gingerly. But, in
short order, they threw caution to the wind and began energetically criticizing Palin for
her lack of experience. I call that two … two … two standards in one!
Like most Democrats, both Obama and Biden boasted of their humble beginnings, while having
fully adopted the attitudes, pomposity and style of the elites.
Meanwhile, Palin is the sort of genuine American that brings out the worst, most egregious
pomposity of liberals. For weeks, Carl Bernstein was showing up on TV to announce:
“We still don’t have the date of first issuance of her passport.” Members
of the establishment would be astonished to learn that more Americans have guns than
passports.
Liberals were angry at Palin because they thought she should look and act like Kay Bailey
Hutchinson: Upper crust, prissy and stiff.
Palin had a husband in the Steelworkers Union, a sister and brother-in-law who owned a gas
station, and five attractive children -- one headed for Iraq, one a Down’s syndrome
baby and one the cutest little girl anyone had ever seen.
In a nutshell, Palin was everything Democrats are always pretending to be, but never are.
She didn’t have to conjure up implausible images of herself duck hunting as Hillary
Clinton did. Nor was Palin the typical Democratic elected female official who went
straight from college into politics, like Nita Lowey.
Despite their phony championing of “women’s issues” (i.e. abortion) there
was not one Democrat woman who could win a head-to-head contest with Palin. Especially not
if we got to see their faces. Democrats may have a fleet of women politicians, but they
don’t have a deep bench of attractive ones. You don’t even think of most
Democratic woman as women: Rosa Delauro, Nita Lowey, Patty Murray, Janet Napolitano -- and
the list goes on. Oh, sure, there are the odd female Democrat sex kittens -- your Janet
Renos, your Donna Shalalas -- but they're the exception to the rule.
After Palin gave her barnburner of a speech at the Republican National Convention, a
friend of mine in a liberal industry told me his friends were aggressively confronting him
demanding to know if Palin was raised by a secret cult of Christians that taught children
nothing but Creationism and public speaking.
Oh, how I wish he had said “yes.” Imagine the aneurisms! I think what liberals
were to say was: Gosh, she’s an exceptionally attractive mother of five!
The Obama campaign was so alarmed by Palin’s speech, it loudly dismissed the speech
saying she didn’t write it. At least that’s what a press release written by an
Obama campaign staffer said.
Indeed, the first words out of every Palin critic's mouth were: "Good speech, but she
didn't write it." So I guess all liberals were reading the same talking points
written for them by the Obama campaign. At least Palin pays her speechwriters. Neil
Kinnock is still waiting for his check.
Speaking of Joe Biden, he said that Palin’s speech had a lot of style but little
substance. Inasmuch as Biden was Obama's running mate, I think that meant he liked it!
A newspaper in Boston responded to Palin’s speech by interviewing hairdressers who
criticized Sarah's hairstyle. (Where were these people after Joe Biden's speech?)
Trendy dinner party opinion soon demanded that all liberals take up the cry that Palin
must let the press have a whack at her. Almost immediately after she was introduced to the
nation, the cry went up: “When are we going to be allowed to ask Palin
questions?”
Palin’s refusal to meet with the press for one week after being chosen as
McCain’s running mate was evidently more maddening than Obama's refusal to appear on
Fox News for almost the entirety of his campaign.
Everyone acted as if Obama’s feat of running for President for two years constituted
a complete and thorough vetting.
It might have been, except that the entire media had apparently agreed: “OK, none of
us will ask Obama about Tony Rezko, William Ayers, and Jeremiah Wright.”
Hillary was hissed by the audience for mentioning Rezko at a Democratic debate and George
Stephanopoulos nearly lost his career for asking Obama one William Ayers question at
another.
Osama bin Laden was more upset about the Rev. Jeremiah Wright than liberals were --
especially after "Jeremiah Wright videos" passed "al Qaeda videos" for
most total viewings on Youtube. (He was kicking himself for not coming up with that
“God Damn America” line first!)
Who cares if Palin was qualified to be President? She was running with John McCain! There
was no chance that ticket was going to place her anywhere near the presidency. In fact, I
can’t think of a better place to put someone you wanted to keep away from the White
House than on a ticket with McCain.
Palin was a kick in the pants, she energized conservatives, and she made liberal heads
explode. Other than his brave military service, introducing Sarah Palin to Americans is
the greatest thing John McCain ever did for his country.
But unless Palin is going to be the perpetual running mate of “moderate”
Republicans who need conservative bona fides, she will need to become wiser and better
read. Even Reagan didn’t run for President in his 40s. (True Obama is in his 40s, but
we are not Democrats.)
Perhaps Palin’s year is 2012, but I would recommend that she take a little more time
to become older and wiser. She ought to spend the next decade being a good governor,
tending to her children so none of them turn out like Ron Reagan Jr., and reading
everything Phyllis Schlafly, Thomas Sowell, Ronald Reagan and “Publius” have
ever written. (She also might keep in mind that HUMAN EVENTS was Ronald Reagan’s
favorite newspaper!)
In time, HUMAN EVENTS’ 2008 Conservative of the Year will be ready to be our
President and someday can sweep into office and dismantle all the heinous government
programs Obama and the Democrats are about to foist on the nation. Who knows? She might
even be able to run as the candidate of "hope" and "change."
Read HUMAN EVENTS' exclusive
interview with Gov. Sarah Palin
12/21/2008: The Great Illinois Horse Track Bailout
of 2008 By Chuck Muth
Ho, ho, ho-ly cow! Boy, did Christmas come early for
Illinois' dying horse racing industry this year or what?
Here's the issue in a nutshell. People in Illinois aren't going to horse tracks the way
they used to. It's a dying industry. On the other hand, people ARE going to Illinois
casinos. It's a thriving industry. So two years ago the Illinois Legislature passed a new
"temporary" 3 percent tax on the four most successful casinos in the state and
redirected the money to the unsuccessful horse racing industry in an effort to
"save" it.
But it's hard to even call this a tax since not a dime of the money went to the state or
to any other public use.
So if this punitive "Success Tax" isn't exactly a tax, what would you call it?
Well, Barack Obama - himself a former Illinois state legislator - would call it
"spreading the wealth." Karl Marx, the well-known socialist, would call it
"From each according to his abilities; to each according to his needs." Robin
Hood would call it "robbing the rich and giving to the poor." Of course, common
street thugs would probably call it something far simpler.
"Stick 'em up!"
The four casinos slapped with the "Success Tax" challenged it in the Illinois
courts. But they rolled snake-eyes there - which probably should come as no surprise. Why
would anyone think that judges who come out of such a corrupt, anti-business political
environment would think and act any differently on this issue than your average Chicago
community organizer?
Indeed, the Illinois Supreme Court gave its "Good Comrade" stamp of approval to
this government imposed and enforced redistribution of wealth scheme. The gaming companies
have appealed to the United States Supreme Court where, if there's any justice, the
legislation will be struck down. The problem is the conservative Roberts Court may well
decline to even review the case, seeing it as a state rather than federal issue.
At which point that should be the end of it. Remember, the tax was only
"temporary." It was to sunset this year. And the money has already been deducted
and is being held in an escrow account pending the end of the appeals process, at which
time it will be released to the prevailing party.
Alas, once government gets its claws into you it's virtually impossible for them to let
go. So two weeks ago the Illinois Legislature passed the 3 percent "tax" AGAIN.
As it turns out, two years of taking some $80 million from successful private casino
companies and giving it to unsuccessful private horse racing companies didn't do the
trick.
Unfortunately, that's not where this extortion story ends. Enter Illinois Gov. Rod
"Pay to Play" Blagojevich.
Page 39 of the recent criminal complaint issued by the United States against "Don
Blago" is a reference to "a law which involves directing a percentage of casino
revenue to the horse racing industry" - which the governor has since signed back into
law. Reading the transcript of the recorded conversations between the governor and
"Fundraiser A" at the behest of "Contributor 1," it almost sounds like
one of those jokes: "A governor, a fundraiser and a lobbyist walk into a bar."
But there's nothing funny about the Legislature and governor confiscating money from one
business to hand to another. I mean, isn't that what a congressional bailout is for?
In any event, this sad state of affairs in Illinois is likely a preview of what's in store
in the coming Obama-nation. Businesses and individuals who dare to be successful and make
a profit will be looted to fund failure and sloth.
But those cheering on this new American "tax the rich, feed the poor" socialism
should take note of the end of that song lyric: "Until there are no rich no
more." Like it or not, the reality is that poor people don't start companies. Poor
people don't create jobs. And poor people don't pay $80 million to prop up horse tracks.
The Obama socialists better be careful what they wish for.
12/19/2008: from the Daily Reckoning
Free Bernie Madoff!
...The press...investors...regulators...they’re all howling for Bernie Madoff’s
head. Of course, we wouldn’t mind if they lynched him. Still, he’s a hero to us.
He’s the Rod Blogojevich of money – showing us how the system really works.
He’s opened a window on the financial world...giving us all a remarkable and vivid
lesson...in investing...in pyramid schemes...in the markets...and in Wall Street. As a
result of such eye-opening instruction, Bernie Madoff will save more investors more money
than the SEC ever will.
They’ll think twice before giving money to friends to invest for them... They raise
their eyebrows and their doubts when someone promises them consistent high rates of
returns.
The feds are charging Madoff with running a $50 billion Ponzi scheme. Charles Ponzi took
money from investors and then used their money to pay out profits to earlier investors. As
long as the new money kept coming into the system, it worked like a charm. So what’s
the difference between Madoff’s Ponzi scheme and the scheme run by Wall Street...in
which all the investment houses, the rating agencies, the mortgage companies, Fannie Mae,
Freddie Mac and the regulators themselves were complicit? As long as new money was coming
into the system, who complained?
...The latest reports say Madoff promised investors steady 13% returns. How could he do
that? Of course, he couldn’t. Stocks have gone nowhere for the last 10 years. The
average rate of return? Zero. Promising 13% was clearly a flim flam. But investors must
have guessed that he was swindling his retail trading customers in order to deliver
steady, above-market returns to his investment accounts. They may not have understood how
it worked, but maybe they didn’t want to.
Nobody is as easy to scam as a scammer...and Madoff scammed them all. Bravo!
Of course, Madoff should get the gallows; we don’t dispute it. But, often,
there’s not a lot of distance between the hanged man and mob that is lynching him.
The people who most want to see Bernie swing are the people who invested money with him.
Most were very sophisticated investors. They knew perfectly well that there is no magic
way to transform a zero-return market into a 13% return market. If they were to get 13%,
they knew they had to take a big risk. In this case, the risk was that Bernie Madoff was
lying...
12/17/2008: from the Daily Reckoning
...There are really only two ways out of this mess – up or down. People owe too much
money...and they’ve invested in too many things that aren’t worth what they paid
for them. There’s no easy way out. Mistakes are mistakes; somebody’s got to pay
for them. Either the people who made the mistakes...or people who didn’t.
The feds can just butt out...and let the market take care of itself. That will mean HIGHER
real returns on capital. Real money will be scarce. People will pay for their own mistakes
– dearly. Savers will be rewarded with higher yields. They will save more. Prices
will fall. The economy will go through a tough, but relatively quick, reorganization.
Debts will be written off or paid off...or worked off. Investors will lose
money...business and consumers too. It will be long and hard, but gradually balance sheets
will be strengthened...and the economy will be re-capitalized with savings. Still, many
people will go broke. And riots will break out ...as the lumpen malcontents take to the
streets demanding that their government ‘do something.’
Of course, there is nothing the government can do...but cause more mischief. That’s
the low road – the road the feds have taken...by cutting interest rates to zero and
spending trillions of dollars they don’t have. It’s the low road they’ve
been on for many years...it’s where they feel most comfortable...and where they can
do most damage. Instead of recapitalizing the economy by favoring savers, the feds are
continuing the process of de-capitalizing it. Yields go down, not up. Savers get
discouraged...and ripped off. Money becomes cheaper and cheaper...eventually reducing the
debt load via inflation. Reckless spenders’ debts are erased. Mortgages are wiped
away. Speculators make money on wild bets. Debtors come out way ahead – including the
biggest debtor of all – the US federal government,
Meanwhile innocent savers, ordinary householders, taxpayers, foreign creditors, unborn
children – all pay the price...
12/21/2008: Caroline Kennedy for Senator of New York?
Instead, I propose Paris Hilton to replace Hillary Clinton (I'm sure she is a resident of
New York, as much as Hillary ever was) or Barbara Boxer. At least Paris
said something intelligent about an issue (unlike either Caroline Kennedy or
Barbara Boxer) and looked fantastic while doing so. And
her run for "fake president" is over, so she is available.
12/21/2008: How to avoid Bernie Madoff
impersonators.
I don't believe that Bernie Madoff is unique; what he did may be larger in scope, but it
is all too similar to what MOST money managers do. They rake off a percentage (usually 3%
minimum) of YOUR assets whether or not they make a profit. And if they make a profit? They
take 20% of the profit. In retrospect, only the best 5-10% of money managers were worth
the 3% (and that probably was an accident; if 1000 monkeys threw darts to pick
investments, by mere chance, more than 5% would out-perform the market). Fund of
Funds? What a scam. They don't even manage your money. They just take a cut of
YOUR assets to transfer it to someone else, like Bernie Madoff, who manages the
investment. They CLAIM they screen the managers, but the Madoff scam shows that to be a
joke. How much due diligence could they have done?
Anyway, here's how to avoid Bernie's pals; just remember these aphorisms:
(1) If it's too good to be true, it probably is.
(2) Anyone who makes exceptional claims (of profits) must
provide exceptional proof.
(3) You earned the money; you need to take personal
responsibility for investing it.
(4) No one on Wall Street (literally or metaphorically)
cares about you; they care only about making money. They don't mind if you make money
because that helps them make more, but that is NOT their primary concern.
(5) You cannot con an honest man.
(6) Greed kills.
(7) MBA whiz kids are not necessarily smart; they are merely
educated... educated by people (their professors) who, if they could, would be rich, not
teaching at Harvard or Yale or Berkeley.
(8) Economists, especially those who work for the government
or advise politicians are usually wrong. Their opinions are designed to support their
political biases; Paul Krugman is a good example. He is smart; and when he is objective
(from time to time), he can provide valuable insight, but he is usually blinded by his
liberal bias.
And last but not least:
(9) You can safely bet that the government will always do
the wrong thing and make any given situation worse. Problems caused by (a) too much
credit, (b) artificially low interest rates, and (c) too much regulation will be addressed
by government with more credit, lower interest rates and more regulation. What qualifies
either Bush or Obama and their minions to piss away my life's savings, and the life's
savings of everyone who saved rather than spent, to bail out the Wall Street thieves, the
union thieves, and the deadbeats and liars who believed they could borrow their way to
wealth.
12/19/2008: Spitzer
Hit by Madoff
Eliot Spitzer, who as New York attorney general was known as the “Sheriff of Wall
Street” for his crusade against investment fraud, has acknowledged that his family
was swindled by the man accused of running what could be the largest Ponzi scheme in
history.
According to a National Public Radio report, Mr. Spitzer revealed at a holiday party this
week that his family real estate firm had invested money with Bernard L. Madoff, the
financier who authorities have said confessed to a $50 billion fraud.
The report did not say whether Mr. Spitzer said how much the firm had lost. A spokesman
for Mr. Spitzer could not be reached for comment.
[Sheriff of Wall Street, indeed...Greedy,
Power-Hungry thug]
12/19/2008: Most
Annoying Airline Passengers Ever By Carol Hartsell
There's nothing like the holiday season for spreading joy
and promoting goodwill. And there's nothing like holiday travel for putting a bullet in
the head of that ill-conceived universal goodwill.
And now it's worse than ever. Higher ticket prices, extra charges for bags, more expensive
in-flight cocktails (have you no decency, Delta?), all just add more insult to injury. In
fact, the only travelers seeing their luck improve are overweight Canadians, who now have
the legal right to purchase two seats for the price of one.
But the misery that is airline travel isn't solely the fault of the airlines themselves.
Our fellow passengers do their part, too (remember "Planes, Trains, and
Automobiles"?).
To wit, we've compiled a list of the worst offenders in the aggravating airline passenger
yearbook. Check it out, and see who you recognize. And, of course, let us know who we
forgot.
12/19/2008 The Madoff
Economy By PAUL KRUGMAN
[Occasionally, not often, even Krugman can get it
right]
The revelation that Bernard Madoff — brilliant investor (or so almost everyone
thought), philanthropist, pillar of the community — was a phony has shocked the
world, and understandably so. The scale of his alleged $50 billion Ponzi scheme is hard to
comprehend.
Yet surely I’m not the only person to ask the obvious question: How
different, really, is Mr. Madoff’s tale from the story of the investment industry as
a whole? [Amen]
The financial services industry has claimed an ever-growing share of the nation’s
income over the past generation, making the people who run the industry incredibly rich.
Yet, at this point, it looks as if much of the industry has been destroying value, not
creating it. And it’s not just a matter of money: the vast riches achieved by those
who managed other people’s money have had a corrupting effect on our society as a
whole.
Let’s start with those paychecks. Last year, the average salary of employees in
“securities, commodity contracts, and investments” was more than four times the
average salary in the rest of the economy. Earning a million dollars was nothing special,
and even incomes of $20 million or more were fairly common. The incomes of the richest
Americans have exploded over the past generation, even as wages of ordinary workers have
stagnated; high pay on Wall Street was a major cause of that divergence.
But surely those financial superstars must have been earning their millions, right? No,
not necessarily. The pay system on Wall Street lavishly rewards the appearance of profit,
even if that appearance later turns out to have been an illusion.
Consider the hypothetical example of a money manager who leverages up his clients’
money with lots of debt, then invests the bulked-up total in high-yielding but risky
assets, such as dubious mortgage-backed securities. For a while — say, as long as a
housing bubble continues to inflate — he (it’s almost always a he) will make big
profits and receive big bonuses. Then, when the bubble bursts and his investments turn
into toxic waste, his investors will lose big — but he’ll keep those bonuses.
O.K., maybe my example wasn’t hypothetical after all.
So, how different is what Wall Street in general did from the Madoff affair? Well, Mr.
Madoff allegedly skipped a few steps, simply stealing his clients’ money rather than
collecting big fees while exposing investors to risks they didn’t understand. And
while Mr. Madoff was apparently a self-conscious fraud, many people on Wall Street
believed their own hype. Still, the end result was the same (except for the house arrest):
the money managers got rich; the investors saw their money disappear.
We’re talking about a lot of money here. In recent years the finance sector accounted
for 8 percent of America’s G.D.P., up from less than 5 percent a generation earlier.
If that extra 3 percent was money for nothing — and it probably was — we’re
talking about $400 billion a year in waste, fraud and abuse.
But the costs of America’s Ponzi era surely went beyond the direct waste of dollars
and cents.
At the crudest level, Wall Street’s ill-gotten gains corrupted and continue to
corrupt politics, in a nicely bipartisan way. From Bush administration officials like
Christopher Cox, chairman of the Securities and Exchange Commission, who looked the other
way as evidence of financial fraud mounted, to Democrats who still haven’t closed the
outrageous tax loophole that benefits executives at hedge funds and private equity firms
(hello, Senator Schumer), politicians have walked when money talked.
Meanwhile, how much has our nation’s future been damaged by the magnetic pull of
quick personal wealth, which for years has drawn many of our best and brightest young
people into investment banking, at the expense of science, public service and just about
everything else?
Most of all, the vast riches being earned — or maybe that should be
“earned” — in our bloated financial industry undermined our sense of
reality and degraded our judgment.
Think of the way almost everyone important missed the warning signs of an impending
crisis. How was that possible? How, for example, could Alan Greenspan have declared, just
a few years ago, that “the financial system as a whole has become more
resilient” — thanks to derivatives, no less? The answer, I believe, is that
there’s an innate tendency on the part of even the elite to idolize men who are
making a lot of money, and assume that they know what they’re doing.
After all, that’s why so many people trusted Mr. Madoff.
Now, as we survey the wreckage and try to understand how things can have gone so wrong, so
fast, the answer is actually quite simple: What we’re looking at now are the
consequences of a world gone Madoff.
12/18/2008: from Best of the Web Today: Blag-Rolling
in New York?
Caroline Kennedy, daughter of John F. Kennedy, has let it be known that she wants the
Senate seat Hillary Clinton, wife of Bill Clinton, is about to vacate. Gov. David
Paterson, son of Basil Paterson, will appoint the new senator, who will face voters in a
2010 special election. WCBS-TV reports on why Gov. Paterson may choose Miss Kennedy:
As the daughter of slain President John F. Kennedy and a
niece of both Sen. Edward Kennedy of Massachusetts and the late Sen. Robert F. Kennedy of
New York she has political star power that is almost unparalleled, and fundraising muscle
that would come in handy as the governor himself seeks election to an office he inherited
when Eliot Spitzer resigned earlier this year.
So Paterson may appoint Miss Kennedy to the Senate in the
expectation that Miss Kennedy will raise money for Paterson's campaign. We suppose this is
different from the arrangement Gov. Rod Blagojevich allegedly discussed with "Senate
Candidate 5," but we're not sure exactly how.
12/18/2008: from Best of the Web Today: Is 'Social
Work' Mere Ideology?
"A former student at the Rhode Island College School of Social Work is suing the
school and several of his professors for discrimination, saying he was
persecuted by the school's 'liberal political machine' for being a
conservative," Fox News reports:
William Felkner, 45, says the New England college and six professors
wouldn't approve his final project on welfare reform because he was on
the
"wrong" side of political issues and countered the school's
"progressive"
liberal agenda.
Felkner said his problems with his professors began in his first
semester,
in the fall of 2004, when he objected in an e-mail to one of his
professors
that the school was showing and promoting Michael Moore's
"Fahrenheit 9/11"
on campus. He said he objected because no opposing point of view was
presented.
He said Professor James Ryczek wrote to him on Oct. 15, 2004, saying he
was
proud of his bias and questioning Felkner's ability to "fit with
the
profession."
"I think the biases and predilections I hold toward how I see the
world and
how it should be are why I am a social worker. In the words of a
colleague,
I revel in my biases," he wrote. . . .
Felkner says he was also discriminated against by Professor Roberta
Pearlmutter, who he says refused to allow him to participate in a group
project lobbying for a conservative issue because the assignment was to
lobby for a liberal issue. He alleges that Perlmutter spent a 50-minute
class "assailing" his views and allowed students to openly
ridicule his
conservative positions, and that she reduced his grade because he was
not
"progressive."
This quote from a social-work prof at another college intrigued us:
Kim Strom-Gottfried, professor of social work at U.N.C. Chapel Hill,
said
that faculty members should not impose their politics on students.
"My bottom line is I think clearly as faculty we have to appraise
our
students based on required competencies and demonstrations of that,
whether
critical thinking or whatever, but there shouldn't be a belief litmus
test
for joining the profession or for an assignment," Strom-Gottfried
said.
"The questions I have in cases such as his--why would someone
choose to
affiliate with a profession that's so at odds with his beliefs and his
value-base? That's always a question for me," she said.
A curious attitude: She doesn't approve of the faculty imposing its politics, but she
seems to think those politics are inherent to the "profession," so that social
work is "at odds" with the "beliefs" and "value-base" of
anyone who is conservative politically.
As we tried to make sense of this, we realized that we really don't know exactly what
"social work" is. We tracked down this definition from the Web site of the
International Federation of Social Workers:
The social work profession promotes social change, problem solving in
human
relationships and the empowerment and liberation of people to enhance
well-
being. Utilising theories of human behaviour and social systems, social
work intervenes at the points where people interact with their
environments. Principles of human rights and social justice are
fundamental
to social work.
This does have an ideological tilt that you wouldn't find in, say, the study of physics.
Yet social work does at least have pretensions of science:
Social work bases its methodology on a systematic body of
evidence-based
knowledge derived from research and practice evaluation, including
local
and indigenous knowledge specific to its context.
If you were really interested in applying "evidence-based knowledge" in the
furtherance of "social justice," studying welfare reform would seem an eminently
worthy endeavor. But if Perlmutter's allegations are true, the members of the faculty at
the Rhode Island College School of Social Work have already made up their mind. Whatever
element of science there is in social work has given way to prejudice and preconception.
If Perlmutter proves his case, lawmakers in Providence might consider doing the taxpayers
a favor and simply shutting the school down.
12/17/2008: Why the Fed is an albatross;
Walter E. Williams compares economic conditions before and after 1913\
Congress is on a spending binge. With all the
calls for bailouts, economic stimulus and other assorted handouts, there is a real risk of
inflation in our future. If we do have a rapid inflation, it's likely that Congress, as
they did in the financial meltdown, will blame it on everybody except themselves. Before
Congress begins to shirk their responsibility, let's understand what an inflation is and
is not.
Several prices rising are not inflation. Only when prices across the board rise is there
inflation. But just as in the case of diseases, describing a symptom does not necessarily
tell us the cause. That is the same with inflation; it is a symptom of something else.
Nobel Laureate and noted monetary theorist Milton Friedman explained, "(I)nflation is
always and everywhere a monetary phenomenon, in the sense that it cannot occur without a
more rapid increase in the quantity of money than in output." Put another way,
inflation results from an increase in the supply of money relative to the demand for
money.
That being the case, who is responsible for inflation? It's not you or I because if we
privately increased the supply of money to finance profligate spending, we would be
charged with counterfeiting and go to prison. The Federal Reserve Bank, our central bank,
is the only entity legally permitted to increase the supply of money, to finance Congress'
profligate spending. The Federal Reserve Bank is supposed to be independent, but it
typically accommodates the wishes of Congress and the White House.
Central banks are villains in most countries; ours is just not as bad as others. In 1946,
Hungary's central bank gave it the world's highest inflation rate. Prices doubled every 16
hours, creating an annual inflation rate of 13 quadrillion percent. Last October,
Zimbabwe's central bank produced history's second-highest rate of inflation. Prices
doubled every 25 hours, giving it an annual inflation rate of 80 billion percent. By
comparison, Germany's inflation rate, which brought about the social disruption
responsible for Hitler's rise to power, was a mere 30,000 percent, which saw prices
doubling every four days. You say, "Williams, that couldn't happen here." Except
during the Revolutionary War and the War of 1861, our inflation has never exceeded 20
percent, but keep in mind that any hyperinflation was once 20 percent.
Knowing the dangers posed by central banks, we might ask whether our country needs the
Federal Reserve Bank. Whenever I'm told that we need this or that government program, I
always ask what we did before. It turns out that we did without a central bank from 1836,
when President Andrew Jackson closed the Second Bank of the United States, to 1913, when
Federal Reserve Act was written. During that interval, we prospered and became one of the
world's major economic powers.
The justifications for Federal Reserve Act of 1913 was to prevent bank failure and
maintain price stability. Simple before and after analysis demonstrates that the Federal
Reserve Bank has been a failure. In the century before the Federal Reserve Act, wholesale
prices fell by 6 percent; in the century after they rose by 1,300 percent. Maximum bank
failures in one year before 1913 were 496 and afterward, 4,400. During the 1930s, inept
money supply management by the Federal Reserve Bank was partially responsible for both the
depth and duration of the Great Depression.
It is not wise for us to permit a few people on the Federal Reserve Board to have life and
death power over our economy. My recommendation for reducing some of that power is to
repeal legal tender laws and eliminate all taxes on gold, silver and platinum
transactions. That way there would be money substitutes and the government money monopoly
would be reduced and hence the ability to tax -- some people would say steal from -- us
through inflation.
Anatomy of a Breakdown: Concerted
Government Policy Helped Trigger the Financial Meltdown—and Will Almost Certainly
Extend it By Mike Flynn (Reason Magazine January 2009)
It was not an absence of federal intervention that produced
the Great Financial Panic of 2008. Contrary to the assertions of those clamoring for new
regulations, the liquidity shortage and credit freeze that triggered Washington’s
biggest intrusion into the economy since Richard Nixon’s wage and price controls were
caused by bad government policy and worse crisis management.
As the housing bubble inflated from 1997 to 2006, banks fueled by the Federal Reserve,
prodded by activists, and egged on by Wall Street, created ever more exotic mortgage loans
that pushed up housing prices and extended mortgage debt to families vulnerable to
economic downturns. Several layers of financial products were tied to these mortgages. As
some of the derivative instruments and underlying mortgages collapsed, collateral damage
raced through the entire system.
In 2008 the Bush administration took a series of frantic steps to stop the bleeding. It
backed a hostile takeover of the investment bank Bear Stearns. It took over home lending
behemoths Fannie Mae and Freddie Mac, an act that put $5 trillion worth of
mortgages—more than $1 trillion of which are subprime—on the federal
government’s books, not to mention the $200 billion it had to commit to guarantee
Fannie and Freddie’s debts. It made hundreds of billions of dollars available to
banks through the Fed’s ‘discount window,’ its mechanism to make short-term
loans to certain institution, put up $85 billion to take over the insurance giant AIG, and
offered another $250 billion to individual banks to rebuild their balance sheets.
In October the administration convinced Congress to authorize the Treasury Department to
spend upwards of $700 billion buying up toxic mortgage-backed securities, most of which
contain sizeable numbers of subprime mortgages. Each step not only failed to calm the
market but seemed to increase the sense of impending doom (also fanned by sky-is-falling
pronouncements from President Bush on down). After a month of US government action, the
mortgage crisis had grown into a global financial panic, the repercussions of which
we’ll be living with for decades.
The Roots of the Crisis
Throughout the 1990’s and the early years of this century, both major political
parties became intoxicated with the idea of promoting ‘affordable’ housing. By
the time the crisis blew up, Congress was mandating that roughly 50 percent of the
mortgages issued by Fannie and Freddie go to households making below their area’s
median income.
Many conservative commentators have blamed the housing mess on the 1977 Community
Reinvestment Act (CRA), which essentially required banks to increase lending in low-income
areas. While the CRA was a bad law, its role in recent events has been overblown. After
all, it was on the books for decades before the bubble began. The law’s worst legacy
is the permanent network of ‘affordable housing’ advocates that sprang up after
it passed. These groups, which were intended to facilitate lending in poor areas,
continually called for increased activity by banks and additional government support for
affordable housing initiatives. The CRA also helped create a climate in which lending to
low-income households was a key metric and condition regulators used in approving bank
mergers.
Other, more recent developments played a bigger role in the financial crisis. In 1993 the
Federal Reserve Bank of BostonClosing the Gap: A Guide to Equal Opportunity Lending.”
The report recommended a series of measures to better serve low-income and minority
households. Most of the recommendations were routine and mundane: better staff training,
improved outreach and communication, and the like. But the report also urged banks to
loosen their income thresholds for receiving a mortgage. In the years after the report was
published, activists and officials—especially in the Department of Housing and Urban
Development, under both Bill Clinton and George W. Bush—used its findings to pressure
banks to increase their lending to low-income households. By the turn of the century,
other changes in federal policy made those demands more achievable. published “
You can’t lend money if you don’t have it. And beginning in 2001, the Federal
Reserve made sure lots of people had it. In January 2001, when President Bush took office,
the federal funds rate, the key benchmark for all interest rates in this country, was 6.5
percent. Then, in response to the meltdown in the technology sector, the Fed began cutting
the rate. By August 2001, it was at 3.75 percent. And after the terrorist attacks of
September 11, the Fed opened the spigot. By the summer of 2002, the federal funds rate was
1.0 percent.
The central bank’s efforts went so far that, at one point in 2003, we had interest
rates below the rate of inflation, or effectively negative. Institutional investors,
looking at low yields on Treasury securities, needed a place to park money and earn some
kind of return. Mortgage-backed securities became a favorite investment vehicle. Under
traditional models, they were very safe and, because of Fed policy, even the most
conservative fund could earn better returns than they could on Treasury notes.
Investment houses would bundle individual mortgages from several banks together into
bond-like products that they would sell to individual investors. Mortgages historically
have been seen as among the safest investment, and the era of rising house values
transformed “safe” into “guaranteed returns.”
For the first half of this decade, trading in mortgage-backed securities exploded. Their
growth provided unprecedented levels of capital in the mortgage market. At the same time,
investment houses were looking to replace the healthy fees earned during the dot-com
bubble. Mortgage-backed securities had fat margins, so everyone jumped into the game.
The additional capital to underwrite mortgages was a good thing—up to a point.
Homeownership expanded throughout most of Bush’s presidency. During the last few
decades, the American homeownership rate has been around 60 percent of the adult
households. At the height of the bubble, it reached almost 70 percent. It is clear now
that many people who got mortgages at the high-water mark should not have. But Wall Street
needed to feed the stream of mortgage-backed securities.
Fannie and Freddie
It’s hard to overstate the role Fannie Mae and Freddie Mac played in creating this
crisis. Chartered by Congress, Fannie in 1938 and Freddie in 1970, the two
government-sponsored enterprises provided much of the liquidity for the nation’s
housing market. Because investors believed—correctly, it turns out—that Fannie
Mae and Freddie Mac were backed by an implicit guarantee from the federal government, the
companies were able to raise money more cheaply than their competitors. They were also
exempt from federal, state and local taxes.
The chief mission of Fannie Mac and Freddie Mac was to buy up mortgages issued by banks,
freeing up bank money for additional mortgages. Fannie and Freddie would package these
mortgages into mortgage-backed securities and sell those on the secondary mortgage market,
providing cash to continue the cycle. Even when selling these securities, they often
retained the full risk for any default, pocketing a portion of the interest payments in
return.
Fannie and Freddie would also keep a portion of these mortgages in their own investment
portfolios, providing a constant influx of interest payments. Starting in the 1990’s,
they increasingly created and traded in complex derivatives, financial instruments
designed to insulate them, through hedging, from mortgage loan defaults and interest rate
increases. From the mid-‘90s through the early 2000’s, Fannie Mae and Freddie
Mac were the darlings of Wall Street, with steady earning growth and solid credit ratings.
Fannie’s share priced peaked in 2001 almost 400 percent above its 1995 level; Freddie
peaked in 2004, almost 500 percent higher than in 1995. This growth would not last
In June 2003, Freddie Mac surprised Washington and Wall Street with a management shake-up.
The top executives were sent packing, and a new auditor, Price-Waterhouse-Coopers,
identified several accounting irregularities on the company’s book, especially
related to its portfolio of derivates. The company would have to restate earning for the
previous several years.
Just days before, the agency responsible for regulating Freddie, the Office of Federal
Housing Enterprise Oversight, had reported to Congress that the company’s management
“effectively conveys an appropriate message of integrity and ethical values.”
Just how wrong this assessment was would soon become abundantly clear.
As the extent of the accounting irregularities emerged, federal regulators descended on
the company and quickly determined that the accounting troubles extended to Fannie Mae as
well. With concerns about the companies growing, the Bush administration unveiled
proposals to rein them in. Then-Treasury Secretary John Snow proposed putting Fannie and
Freddie under his department’s oversight and subjecting them to the kind of controls
over risk and capital reserves that apply to commercial banks. (Fannie’s
debt-to-capital ratio was 30 to 1, whereas conventional banks have debt-to- capital
rations of around 11 to 1.)
But Fannie and Freddie by this point were political powerhouses. When the accounting
scandal first emerged, Fannie’s chairman was Franklin Raines, former director of the
Office of Management and Budget under President Clinton. Its vice chairman was Jamie
Gorelick, a former Justice Department official who had served on the 9/11 commission. The
two companies provided tens of millions of dollars in annual campaign contributions and
spent more than $10 million a year combined on outside lobbyists.
Fannie and Freddie rallied their friends on Capitol Hill, who immediately pushed back
against the Bush proposals. Representative Barney Frank (D-Mass.), the ranking Democrat on
the House Financial Services Committee, said, “These two entities—Fannie Mae and
Freddie Mac—are not facing any kind of financial crisis. The more people exaggerate
these problems, the more pressure there is on these companies, the less we will see in
terms of affordable housing.” The reform effort fizzled.
In 2006 the Office of Federal Housing Enterprise Oversight issued the blistering results
of its investigation. The irregularities, investigators concluded, amounted to
“extensive financial fraud.” The purpose of the deception was clear: to
“smooth” earnings from year-to-year in order to maintain increasing returns and
maximize executive bonuses. Raines, for example, earned more than $50 million in bonuses
tied to earnings growth during his six-year tenure.
Interestingly, the report noted two questionable transactions Fannie conducted with the
investment bank Goldman Sachs in 2001 and 2002 the pushed more than $100 million of
existing profits into the future, creating a kind of cushion for future earnings. The
chairman of Goldman Sachs when the dodgy transaction took place was the man behind the
2008 bailout: Treasury Secretary Henry Paulson.
In the end, Fannie and Freddie had to restate more than $15 billion in earnings. The
Office of Federal Housing Enterprise Oversight and the Securities and Exchange Commission
fined Fannie $400 million and Freddie $125 million. There was a new push for tighter
oversight on the Hill, but this too withered as Fannie and Freddie rallied support through
increased lending to low-income borrowers.
Then Fannie and Freddie went on a subprime bender. The companies made it clear they wanted
to buy up all the subprime mortgages—and Alt-A mortgages, whose risk is somewhere
between prime and subprime—that they could find. They eventually acquired around $1
trillion in loans. The market responded. In 2003 less than 8 percent of all mortgages were
subprime. By 2006 the number was more than 20 percent. Banks knew they could sell subprime
products to Fannie and Freddie. Investment banks realized that if they laced
ever-increasing amounts of subprime mortgages into mortgage-backed securities, they could
add slightly higher levels of risk and, as a result, boot the returns and earn bigger
fees. The ratings agencies, thinking they were simply dealing with traditionally
appreciating mortgages, didn’t look under the hood.
But after several years of a housing boom, the pool of households that could responsibly
use the more exotic financing product had dried up. Essentially, there were no more people
who qualified for even a subprime mortgage.
Banks realized they could make ever more exotic loan products (such as interest-only
loans), get the affordable housing activists off their backs, and immediately diffuse
their risks by folding the mortgages into mortgage-backed securities. After all, Fannie
and Freddie would buy anything.
The Crash
Everything worked as long as housing prices continued to rise. Suddenly, though, there
weren’t enough buyers. At the same time, the first wave of the more exotic mortgages
began to falter. Interest rates on adjustable-rate mortgages moved higher; the Fed was
finally constricting the money flow, with the federal funds rate peaking at 5.25 percent
in July 2006. Mortgages that were initially interest only were close to resetting, with
monthly payments jumping to include principal. A significant number of these mortgages
moved into default and foreclosure, which further dampened housing prices.
The overall foreclosure numbers were small; someone simply looking at housing statistics
could be forgiven for wondering what all the fuss was about. Nationally, throughout 2007
and 2008, the numbers of mortgages moving into foreclosure was only about 1 percent to 2
percent, suggesting that 98 percent to 99 percent of mortgages were sound. But the
foreclosed mortgages punched way above their weight class; they were laced throughout the
mortgage-backed securities owned by most financial institutions.
The complexity of these financial products cannot be overstated. They usually had tow or
three “tranches,” different baskets of mortgage that paid out in different ways.
Worse, as different firms bought and sold them, they were sliced and diced in varying
ways. A mortgage-backed security owned by one company could be very different when it was
sold to another.
No one fully understood how exposed the mortgage-backed securities were to the rising
foreclosures. Because of this uncertainty, it was hard to place a value on them, and the
market for the instruments dried up. Accounting regulations required firms to value their
assets using the "mark-to-market" rule, i.e., based on the price they could
fetch that very day. Because no one was trading mortgage-backed securities anymore, most
had to be "marked" at something close to zero.
This threw off banks' capital-to-loan ratios. The law requires banks to hold assets equal
to a certain percentage of the loans they give out. Lots of financial institutions had
mortgage-backed securities on their books. With the value of these securities moving to
zero (at least in accounting terms), banks didn't have enough capital on hand for the
loans that were outstanding. So banks rushed to raise money, which raised self-fulfilling
fears about their solvency.
Two simple regulatory tweaks could have prevented much of the carnage. Suspending
mark-to-market accounting rules (using a five-year rolling average valuation instead, for
example) would have helped shore up the balance sheets of some banks. And a temporary
easing of capital requirements would have given banks the breathing room to sort out the
mortgage-backed security mess. Although it is hard to fix an exact price for these
securities in this market, given that 98 percent of underlying mortgages are sound, they
clearly aren't worth zero.
Alas, the Fed and the Treasury Department, in full crisis mode, decided to provide their
own capital to meet the regulatory requirements. The first misstep, in March, was to force
a hostile takeover of Bear Stearns, putting up $30 billion to $40 billion to back J.P.
Morgan's purchase of the distressed investment bank. In the long term, it probably would
have been better to let Bear Stearns fail and go into bankruptcy. That would have set in
motion legal proceedings that would have established a baseline price for mortgage-backed
securities. From this established price, banks could have begun to sort out their balance
sheets.
Immediately after the collapse of Bear Stearns, rumors circulated on Wall Street of
trouble at another investment bank, Lehman Brothers. Lehman went on a P.R. offensive to
beat back those rumors. The company was successful in the short term but then did nothing
during the next several months to shore up its balance sheet. Its demise in September-the
only major bankruptcy allowed during bailout season-was largely self-inflicted.
The collapse of the mortgage-backed security market now started to pollute other financial
products. Collateralized debt obligations and credit default swaps are complicated
financial products intended to help spread the risk of defaults. An investor holding a
bond or mortgage-backed security may purchase one of these products so that, in the event
the bond or mortgage-backed security defaults, they would recoup their investment. Bonds
rarely default, so collateralized debt obligations and credit default swaps had
traditionally been a fairly safe and conservative market.
But like the underlying bonds and mortgage-backed securities, these instruments became
more exotic. Companies sold credit default swaps on an individual bond or security to
multiple investors. If there was a default, each one of these investors would have to be
paid up to the full amount of the bond or security. Imagine if you bought fire insurance
on your house and all your neighbors did too. If your house burned, everyone would be
compensated for the loss of your house.
Suddenly, stable firms such as AIG, which aggressively sold credit default swaps, were
over-exposed. These developments threw off the accounting in one division of AIG,
threatening the rest of the firm. Given a few days, AIG could have sold enough assets to
cover the spread, but ironclad accounting regulations precluded this. So the government
stepped in.
The Bailout
The one-two punch of Lehman's failure and the government's $85 billion bailout of AIG on
September 16 spooked both Wall Street and the White House. With Fannie Mae and Freddie Mac
already in government receivership, there were fears that the weakness stemming from
mortgage-backed securities would spread through the entire financial system. Money began
leaving the markets to seek the security of Treasury bonds.
Then, on September 18, it was reported that the Reserve Primary Fund and the Reserve
International Liquidity Fund, two commercial paper money market funds, "broke the
buck," meaning they lost money. The commercial paper market is supposed to be boring.
Every day, companies around the world borrow hundreds of billions to smooth cash flows;
the next day they pay it back, giving the bank that lent the money a very small return.
When these money market funds lost money, it was a signal that the commercial paper market
was drying up, that banks were hesitant to make even these very safe loans.
That's when the market freaked out. The Dow Jones Industrial Average fell over 600 points
on September 19. When the government announced that there would be a rescue plan, the
market temporarily rebounded. After some details of the plan emerged over the weekend, the
Dow had another selloff. A roller-coaster of selloffs and rallies followed, as the market
waited to see what the government would do. Every gyration, up or down, was used as an
argument for the bailout. If the market moved lower, it was because Congress hadn't
approved the bailout. If it moved higher, it was because the market was convinced the
bailout would happen. On October 2, after initially defeating the package, the House of
Representatives bowed to pressure and passed it.
The original plan crafted by the Treasury Department would have authorized the government
to spend up to $700 billion on mortgage-backed securities and other "toxic"
debt, thereby removing them from banks' balance sheets. With the "bad loans" off
the books, the banks would become sound. Because it was assumed that the mortgage-backed
security market was "illiquid," the government would become the buyer of last
resort for these products. There was a certain simple elegance to the plan. To paraphrase
H.L. Mencken, the solution was neat, plausible, and wrong.
No market is truly illiquid. Last summer, Merrill Lynch unloaded a bunch of bad debt at 22
cents on the dollar. There are likely plenty of buyers for the banks' toxic debt, just not
at the price the banks would prefer. Enter the government, which clearly intended to
purchase mortgage-backed securities at some premium above the market price.
We don't know yet what the premium will be nor how it will be determined. Well, in a sense
we do. It will mostly be determined by politics, not economics. This is the foundational
flaw in the Treasury Department plan.
The department has begun a process to determine the assets it will buy and the manner it
will set a price. As with everything in government, these are lobbyable moments, a time
when swarms of financial service firms, investor groups, and housing advocates try to game
the system for their clients or members. The further away from economics these decisions
are made, the more risk there is for taxpayers. The higher the premium over any current
market price, the longer the government will have to hold the assets and the more exposure
there will be for taxpayers.
The risk here is particularly high given the complicated and opaque nature of the
financial instruments involved. Few on Wall Street truly understand these products. The
bailout authorizes the Treasury Department to bypass normal contracting rules and hire
outside private firms to handle the purchases and manage the toxic assets. The fact that
these private firms have ongoing relationships with the banks selling the bad assets
creates a serious conflict of interest.
Some commentators have drawn parallels to the savings and loan bailout in the 1980s, when
the government established the Resolution Trust Corporation to dispose of the assets of
failed thrifts. But the Resolution Trust Corporation took on those assets only as thrifts
went bankrupt. Under the new plan, by contrast, federal bureaucrats and their outside
contractors decide which assets to buy, including equity stakes in commercial banks that
aren't particularly happy about having Uncle Sam as a major shareholder. Bureaucrats will
be actively investing taxpayer funds in individual securities and then managing the
portfolio until they decide to sell. You don't have to be paranoid to fear the political
dynamics that will shape these decisions.
More to Come
We have crossed a financial Rubicon. The bailout is just the beginning of Washington's
increased involvement in the economy. The government has now taken partial ownership of
the nation's nine largest banks. There is talk of bailouts for other weak industries,
including the carmakers and the airlines. There certainly will be a host of new
regulations that will likely be with us long after the government has sold off the last of
the bad debt. We could be entering an era where the financial services sector evolves into
a kind of regulated utility.
Mike Flynn is director of government affairs at the Reason Foundation.
12/16/2008: Bankruptcy Is the Perfect Remedy for
Detroit; Washington hates the idea because it would lose leverage. By TODD J.
ZYWICKI
While Washington tries to arrange a bailout, the Detroit Three auto makers and their
union, the United Auto Workers, keep insisting that bankruptcy would be the kiss of death.
Not so: a Chapter 11 bankruptcy filing will likely result in a stronger domestic industry.
To understand why, consider that the fundamental question to ask of any firm facing
bankruptcy is whether it is "economically failed" or simply "financially
failed."
If a typewriter manufacturer were to file for bankruptcy today it likely would be
considered an economically failed enterprise. The market for typewriters is small and
shrinking, and the manufacturer's financial, physical and human capital would probably be
better redeployed elsewhere, such as making computers.
A financially failed enterprise, on the other hand, is worth more alive than dead. Chapter
11 exists to allow it to continue in business while reorganizing. Reorganization arose in
the late 19th century when creditors of railroads unable to meet their debt obligations
threatened to tear up their tracks, melt them down, and sell the steel as scrap. But
innovative judges, lawyers and businessmen recognized that creditors would collect more if
they all agreed to reduce their claims and keep the railroads running and producing
revenues to pay them off. The same logic animates Chapter 11 today.
General Motors looks like a financially failed rather than an economically failed
enterprise -- in need of reorganization not liquidation. It needs to shed labor contracts,
retirement contracts, and modernize its distribution systems by closing many dealerships.
This will give rise to many current and future liabilities that may be worked out in
bankruptcy. It may need new management as well. Bankruptcy provides an opportunity to do
all that. Consumers have little to fear. Reorganization will pare the weakest dealers
while strengthening those who remain.
So why do the Detroit Three managements and the UAW insist that "bankruptcy is not an
option"? Perhaps because of the pain that would be inflicted upon both.
The bankruptcy code places severe limitations on the compensation that can be paid to a
manager unless there is a "bona fide job offer from another business at the same or
greater rate of compensation." Given the dismal performance of the Detroit Three in
recent years, it seems unlikely that their senior management will be highly coveted on the
open market. Incumbent management is also likely to find its prospects for continued
employment less-secure.
Chapter 11 also provides a mechanism for forcing UAW workers to take further pay cuts,
reduce their gold-plated health and retirement benefits, and overcome their cumbersome
union work rules. The process for adjusting a collective bargaining agreement is somewhat
complicated and begins with a sort of compulsory mediation process. But if this fails a
company can (with court permission) nullify the agreement. This doomsday scenario is
rarely triggered, however, as its threat casts a large shadow over negotiations, providing
a stick to force concessions.
Those Washington politicians who repeat the mantra that "bankruptcy is not an
option" probably do so because they want to use free taxpayer money to bribe Detroit
into manufacturing the green cars favored by Nancy Pelosi and Harry Reid, rather than
those cars American consumers want to buy. A Chapter 11 filing would remove these
politicians' leverage, thus explaining their desperation to avoid a bankruptcy.
In short, Detroit and the public have little to fear from a bankruptcy filing, but much to
fear from the corrupt bargain that is emerging among incumbent management, the UAW and
Capitol Hill to spend our money to avoid their reality check.
Mr. Zywicki is a professor of law at George Mason University School of Law.
We're all doomed!
12/13/2008: The
'Certified' Teacher Myth - It doesn't help classroom performance.
Like all unions, teachers unions have a vested interest in restricting the labor supply to
reduce job competition. Traditional state certification rules help to limit the supply of
"certified" teachers. But a new study suggests that such requirements also
hinder student learning.
Harvard researchers Paul Peterson and Daniel Nadler compared states that have genuine
alternative certification with those that have it in name only. And they found that
between 2003 and 2007 students in states with a real alternative pathway to teaching
gained more on the National Assessment of Educational Progress (a federal standardized
test) than did students in other states.
"In states that had genuine alternative certification, test-score gains on the NAEP
exceeded those in the other states by 4.8 points and 7.6 points in 4th- and 8th-grade
math, respectively," report the authors in the current issue of Education Next.
"In reading, the additional gains in the states with genuine alternative
certification were 10.6 points and 3.9 points for the two grade levels respectively."
...Far from regulating teacher quality, forcing prospective teachers to take a specific
set of education-related courses merely deters college graduates who might otherwise
consider teaching. That outcome may serve the goals of labor unions, but it's hard to see
how it helps the kids. If we want better teachers and more of them, relaxing certification
standards would be a good place to start.
12/13/2008: Greed, Arrogance, and Stupidity: the simple answer to the
question, "How did people fall for Bernie Madoff's Ponzi Scheme?" Read "How Bernie
Madoff Made Smart Folks Look Dumb" By JASON ZWEIG in the Wall Street
Journal ...an excerpt:
Robert Cialdini, a psychology professor at Arizona State University and author of
"Influence: Science and Practice," calls this strategy "a triple-threat
combination." The "murkiness" of a hedge fund, he says, makes investors
feel that it is "the inherent domain of people who know more than we do." This
uncertainty leads us to look for social proof: evidence that other people we trust have
already decided to invest. And by playing up how exclusive his funds were, Mr. Madoff
shifted investors' fears from the risk that they might lose money to the risk they might
lose out on making money.
If you did get invited in, then you were anointed a member of this particular club of
"sophisticated investors." Once someone you respect went out of his way to grant
you access, says Prof. Cialdini, it would seem almost an "insult" to do any
further investigation. Mr. Madoff also was known to throw investors out of his funds for
asking too many questions, so no one wanted to rock the boat.
This members-only feeling blinded many buyers of Mr. Madoff's funds to the numerous red
flags fluttering around his operation. When you are in an exclusive private club, you do
not go rummaging around in the kitchen to make sure that the health code is being
followed.
12/13/2008: Fees, Even
Returns and Auditor All Raised Flags: [When will people figure out that the
government cannot protect you? All they can do is spread the damage among your fellow
citizens.] By GREGORY ZUCKERMAN
Bernard L. Madoff is alleged to have pulled off one of the
biggest frauds in Wall Street history. But there were multiple red flags along the way,
including a series of accusations leveled against Mr. Madoff's operation. Now some are
asking why regulators and investors didn't pick up on the alleged scheme long ago.
...Harry Markopolos, who years ago worked for a rival firm, researched Mr. Madoff's
stock-options strategy and was convinced the results likely weren't real.
"Madoff Securities is the world's largest Ponzi Scheme," Mr. Markopolos, wrote
in a letter to the U.S. Securities and Exchange Commission in 1999. Mr. Markopolos pursued
his accusations over the past nine years, dealing with both the New York and Boston
bureaus of the SEC, according to documents he sent to the SEC reviewed by The Wall Street
Journal.
12/11/2008: from the Daily Reckoning
"...But now we can more fully appreciate the elegant wisdom and justice of the free
market system. Mr. Market may be a hanging judge...but at least he’s fair.
"The great asset bubble seemed to prove out the old expression 'the rich get richer
and the poor get poorer.' But it was all a mirage, caused by a bubble in credit. The rich
were getting richer...but only on paper. And now paper of all sorts is going up in smoke.
The 'rich' have lost a quarter to a half of their wealth. The poor have lost relatively
little. Now, the rich get poorer. And the poor? Well, they will always be with us. But
being poor is not so bad. Many of the middle-class lumpenhouseholders, for example, are
'upside down' on their mortgages. They’re below zero, in other words. The poor –
with nothing – are ahead of them."
12/12/2008: Five
Short Economics Lessons For the Age of Obama by John Hawkins
"If all we want are jobs, we can create any number -- for example, have people dig
holes and then fill them up again, or perform other useless tasks. Work is sometimes its
own reward. Mostly, however, it is the price we pay to get the things we want. Our real
objective is not just jobs but productive jobs -- jobs that will mean more goods and
services to consume." -- Milton Friedman
Barack Obama and the Democratic Party seem to have fallen in love with the idea of
"make work" jobs. In other words, they're going to take money from taxpayers and
then use it to "create green jobs," work projects, and other marginally useful
government programs. Then, to add insult to injury, these very same politicians who've
taken the money out of working people's pockets will pat themselves on their backs for
being compassionate enough to put people to work...
"Were we directed from Washington when to sow, and when to reap, we should soon want
bread." -- Thomas Jefferson
"Suppose I hire you to repair my computer. The job is worth $200 to me and doing the
job is worth $200 to you. The transaction will occur because we have a meeting of the
mind. Now suppose there's the imposition of a 30 percent income tax on you. That means you
won't receive $200 but instead $140. You might say the heck with working for me --
spending the day with your family is worth more than $140. You might then offer that
you'll do the job if I pay you $285. That way your after-tax earnings will be $200 -- what
the job was worth to you. There's a problem. The repair job was worth $200 to me, not
$285. So it's my turn to say the heck with it. This simple example demonstrates that one
effect of taxes is that of eliminating transactions, and hence jobs." -- Walter
Williams
"We don't have a trillion-dollar debt because we haven't taxed enough; we have a
trillion-dollar debt because we spend too much." -- Ronald Reagan
"It is the maxim of every prudent master of a family, never to attempt to make at
home what it will cost him more to make than to buy...What is prudence in the conduct of
every private family, can scarce be folly in that of a great kingdom. If a foreign country
can supply us with a commodity cheaper than we ourselves can make it, better buy it of
them with some part of the produce of our own industry, employed in a way in which we have
some advantage." -- Adam Smith
For the United States to remain an economic super power, we need to have competitive
businesses that employ productive workers. The American people have proven up to the task
for over 200 years and will remain so as long as the government doesn't get in our way.
Read
the entire essay.
Some Quotes on Liberty
1. A government which robs Peter to pay Paul, can always
count on the support of Paul. – George Bernard Shaw
2. America needs fewer laws, not more prisons. – James Bovard
3. War is just one more big government program. – Joseph Sobran
4. Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself.
There never was a democracy yet that did not commit suicide. – John Adams (1814)
5. They that can give up essential liberty to obtain a little temporary safety, deserve
neither liberty nor safety. – Benjamin Franklin
6. One of the greatest delusions in the world is the hope that the evils in this world are
to be cured by legislation. – Thomas B. Reed (1886)
7. If you are not free to choose wrongly and irresponsibly, you are not free at all.
– Jacob Hornberger (1995)
8. Giving money and power to government is like giving whiskey and car keys to teenage
boys. – P.J. O'Rourke
9. The more corrupt the state, the more it legislates. – Tacitus
10. Government is not reason; it is not eloquence; it is force. Like fire, it is a
dangerous servant and a fearful master. – George Washington
11. No man's life, liberty, or property are safe while the legislature is in session.
– Mark Twain (1866)
12. There is no worse tyranny than to force a man to pay for what he does not want merely
because you think it would be good for him. – Robert Heinlein
12/11/2008: WASHINGTON – A United Nations
climate change conference in Poland is about to get a surprise from 650 leading scientists
who scoff at doomsday reports of man-made global warming – labeling them variously a
lie, a hoax and part of a new religion.
Later today, their voices will be heard in a U.S. Senate minority report quoting the
scientists, many of whom are current and former members of the U.N.'s own
Intergovernmental Panel on Climate Change.
About 250 of the scientists quoted in the report have joined the dissenting scientists in
the last year alone.
In fact, the total number of scientists represented in the report is 12 times the number
of U.N. scientists who authored the official IPCC 2007 report.
Here are some choice excerpts from the report:
"I am a skeptic ... . Global warming has become a new religion." -- Nobel Prize
Winner for Physics, Ivar Giaever.
- "Since I am no longer affiliated with any organization
nor receiving any funding, I can speak quite frankly ... . As a scientist I remain
skeptical." -- Atmospheric Scientist Dr. Joanne Simpson, the first woman in the world
to receive a Ph.D. in meteorology and formerly of NASA who has authored more than 190
studies and has been called "among the most pre-eminent scientists of the last 100
years."
- Warming fears are the "worst scientific scandal in the
history ... . When people come to know what the truth is, they will feel deceived by
science and scientists." -- U.N. IPCC Japanese Scientist Dr. Kiminori Itoh, an
award-winning Ph.D. environmental physical chemist.
- "The IPCC has actually become a closed circuit; it
doesn't listen to others. It doesn't have open minds ... . I am really amazed that the
Nobel Peace Prize has been given on scientifically incorrect conclusions by people who are
not geologists." -- Indian geologist Dr. Arun D. Ahluwalia at Punjab University and a
board member of the U.N.-supported International Year of the Planet.
- "The models and forecasts of the U.N. IPCC "are
incorrect because they only are based on mathematical models and presented results at
scenarios that do not include, for example, solar activity." -- Victor Manuel Velasco
Herrera, a researcher at the Institute of Geophysics of the National Autonomous University
of Mexico.
- "It is a blatant lie put forth in the media that makes
it seem there is only a fringe of scientists who don't buy into anthropogenic global
warming." -- U.S. Government Atmospheric Scientist Stanley B. Goldenberg of the
Hurricane Research Division of NOAA, the National Oceanic and Atmospheric Administration.
- "Even doubling or tripling the amount of carbon dioxide
will virtually have little impact, as water vapor and water condensed on particles as
clouds dominate the worldwide scene and always will." -- Geoffrey G. Duffy, a
professor in the Department of Chemical and Materials Engineering of the University of
Auckland, New Zealand.
- "After reading [U.N. IPCC chairman] Pachauri's asinine
comment [comparing skeptics to] Flat Earthers, it's hard to remain quiet." -- Climate
statistician Dr. William M. Briggs, who specializes in the statistics of forecast
evaluation, serves on the American Meteorological Society's Probability and Statistics
Committee and is an associate editor of Monthly Weather Review.
- "For how many years must the planet cool before we begin
to understand that the planet is not warming? For how many years must cooling go on?"
-- Geologist Dr. David Gee, the chairman of the science committee of the 2008
International Geological Congress who has authored 130 plus peer-reviewed papers, and is
currently at Uppsala University in Sweden.
- "Gore prompted me to start delving into the science
again and I quickly found myself solidly in the skeptic camp ... . Climate models can at
best be useful for explaining climate changes after the fact." -- Meteorologist Hajo
Smit of Holland, who reversed his belief in man-made warming to become a skeptic, is a
former member of the Dutch U.N. IPCC committee.
- "Many [scientists] are now searching for a way to back
out quietly (from promoting warming fears), without having their professional careers
ruined." -- Atmospheric physicist James A. Peden, formerly of the Space Research and
Coordination Center in Pittsburgh, Pa.
- "Creating an ideology pegged to carbon dioxide is a
dangerous nonsense ... . The present alarm on climate change is an instrument of social
control, a pretext for major businesses and political battle. It became an ideology, which
is concerning." -- Environmental Scientist Professor Delgado Domingos of Portugal,
the founder of the Numerical Weather Forecast group, has more than 150 published articles.
- "CO2 emissions make absolutely no difference one way or
another ... . Every scientist knows this, but it doesn't pay to say so ... . Global
warming, as a political vehicle, keeps Europeans in the driver's seat and developing
nations walking barefoot." -- Dr. Takeda Kunihiko, vice-chancellor of the Institute
of Science and Technology Research at Chubu University in Japan.
- "The [global warming] scaremongering has its
justification in the fact that it is something that generates funds." --
Award-winning Paleontologist Dr. Eduardo Tonni, of the Committee for Scientific Research
in Buenos Aires and head of the Paleontology Department at the University of La Plata.
The report also includes new peer-reviewed scientific
studies and analyses refuting man-made warming fears and a climate developments that
contradict the theory.
It is 4 degrees Celsius (39 Fahrenheit) today in Poznan, Poland, where the U.N. conference
is being held.
12/7/2008: If each of us carried a gun, we could
help to combat terrorism by Richard Munday
The firearms massacres that have periodically caused shock and horror around the world
have been dwarfed by the Mumbai shootings, in which a handful of gunmen left some 500
people killed or wounded.
For anybody who still believed in it, the Mumbai shootings exposed the myth of "gun
control". India had some of the strictest firearms laws in the world, going back to
the Indian Arms Act of 1878, by which Britain had sought to prevent a recurrence of the
Indian Mutiny.
The guns used in last week's Bombay massacre were all "prohibited weapons" under
Indian law, just as they are in Britain. In this country we have seen the irrelevance of
such bans (handgun crime, for instance, doubled here within five years of the prohibition
of legal pistol ownership), but the largely drug-related nature of most extreme violence
here has left most of us with a sheltered awareness of the threat. We have not yet faced a
determined and broad-based attack.
The Mumbai massacre also exposed the myth that arming the police force guarantees
security. Sebastian D'Souza, a picture editor on the Mumbai Mirror who took some of the
dramatic pictures of the assault on the Chhatrapati Shivaji railway station, was angered
to find India's armed police taking cover and apparently failing to engage the gunmen.
Gunmen had elite training `from Pakistan'
In Britain we might recall the prolonged failure of armed police to contain the Hungerford
killer, whose rampage lasted more than four hours, and who in the end shot himself. In
Dunblane, too, it was the killer who ended his own life: even at best, police response is
almost always belated when gunmen are on the loose. One might think, too, of the
McDonald's massacre in San Ysidro, California, in 1984, where the Swat team waited for
their leader (who was held up in a traffic jam) while 21 unarmed diners were murdered.
Rhetoric about standing firm against terrorists aside, in Britain we have no more legal
deterrent to prevent an armed assault than did the people of Mumbai, and individually we
would be just as helpless as victims. The Mumbai massacre could happen in London tomorrow;
but probably it could not have happened to Londoners 100 years ago.
In January 1909 two such anarchists, lately come from an attempt to blow up the president
of France, tried to commit a robbery in north London, armed with automatic pistols.
Edwardian Londoners, however, shot back – and the anarchists were pursued through the
streets by a spontaneous hue-and-cry. The police, who could not find the key to their own
gun cupboard, borrowed at least four pistols from passers- by, while other citizens armed
with revolvers and shotguns preferred to use their weapons themselves to bring the
assailants down.
Today we are probably more shocked at the idea of so many ordinary Londoners carrying guns
in the street than we are at the idea of an armed robbery. But the world of Conan Doyle's
Dr Watson, pocketing his revolver before he walked the London streets, was real. The
arming of the populace guaranteed rather than disturbed the peace.
That armed England existed within living memory; but it is now so alien to our
expectations that it has become a foreign country. Our image of an armed society is
conditioned instead by America: or by what we imagine we know about America. It is a
skewed image, because (despite the Second Amendment) until recently in much of the US it
has been illegal to bear arms outside the home or workplace; and therefore only people
willing to defy the law have carried weapons.
In the past two decades the enactment of "right to carry" legislation in the
majority of states, and the issue of permits for the carrying of concealed firearms to
citizens of good repute, has brought a radical change. Opponents of the right to bear arms
predicted that right to carry would cause blood to flow in the streets, but the reverse
has been true: violent crime in America has plummeted.
There are exceptions: Virginia Tech, the site of the 2007 massacre of 32 people, was one
local "gun-free zone" that forbade the bearing of arms even to those with a
licence to carry.
In Britain we are not yet ready to recall the final liberty of the subject listed by
William Blackstone in his Commentaries on the Laws of England as underpinning all others:
"The right of having and using arms for self-preservation and defence." We would
still not be ready to do so were the Mumbai massacre to happen in London tomorrow.
"Among the many misdeeds of British rule in India," Mahatma Gandhi said,
"history will look upon the act depriving a whole nation of arms as the
blackest." The Mumbai massacre is a bitter postscript to Gandhi's comment. D'Souza
now laments his own helplessness in the face of the killers: "I only wish I had had a
gun rather than a camera."
Richard Munday is the co-author and editor of Guns & Violence: The Debate Before Lord
Cullen
12/7/2008: Where have you gone, Sheriff Taylor? Paul
Jacob
Some time back I posed a question: “Could the most
important thing one does for one’s community be to send a pocket copy of the U.S.
Constitution to local politicians and police?”
The question was rhetorical, since the expected answer was “yes.”
Increasingly, our police and prosecutors seem more interested in putting people in prison
than in making society safe for peaceful folk. They need to look at the Constitution.
Regularly.
But the problem is not just ignoring the Constitution. The problem is ignoring common
sense.
It seems almost daily we read news reports that tell us of some insane bit of “piling
on” by law enforcement.
Take Trooper Michael Galluccio, of Boston.
John Davis was driving his wife Jennifer to a hospital. She was in labor. Her contractions
were a mere three minutes apart. And John had twice been waived on by troopers, using the
breakdown lane of Route 2, to get to a hospital during rush hour.
So John pulled up behind Galluccio and asked permission to go on just a little bit
further, to the hospital exit.
Not only did the trooper not heroically offer to escort them, he said no, and he made the
gasping Mrs. Davis bare her belly for him. And then he took up their time writing out a
ticket.
The trooper wouldn’t let them proceed on the open lane, but he did ask them if they
wanted an ambulance. They declined. They were so near their goal. “We just want to
get off this exit,” Mrs. Davis said.
Here we have a classic case of the letter of the law conflicting with the spirit. Laws are
made for men. And pregnant women. Everyone with a lick of sense knows what the trooper
should have done. But the trooper did exactly the wrong thing.
This enforcement mentality may seem to flow naturally from a “tough on crime”
stance. But it doesn’t. The crimes that need tough enforcement are assaults, murders,
burglaries, robberies. But in a medical emergency, driving on a special lane — or
even on the side of the road, with continuous honking of SOS in Morse code — can only
be seen as legitimate.
Unless you have forgotten the purpose for laws in the first place.
And many in law enforcement do.
Not long ago I reported on an even more absurd case, in Shreveport, Louisiana. There, the
police chief cooked up this hare-brained idea of holding gas station employees and owners
criminally liable in cases where drivers drive away without paying.
I can almost hear your incredulity. What? Is? Going? On? In? Shreveport?
Well, you see, the chief got the town council to require station attendants to make their
customers pre-pay. If they don’t, and the driver drives off without paying, then the
attendant is also a criminal!
This sort of regulation of everyday life is all too common. The basic idea is to scribble
out a criminal code to make it easy for law enforcement. To you and me, prepaying for fuel
is cumbersome. We rarely know how much gas we need beforehand. That is, we usually want to
fill the tank, not just put “ten dollars” in. This simple fact of consumer
preference, on the other hand, doesn’t mean anything to certain bureaucratically
minded police chiefs. Or politicians. For them, the purpose of citizens is to obey the law
whatever the law is.
Nonsense, of course. We fought a revolution to stop such nonsense. But it keeps coming
back up.
Of course, some of today’s prosecutorial overkill qualifies more as vengeance than
anything else. When the city of Sheboygan, Wisconsin, sent Jennifer Reisinger a
cease-and-desist letter for her linking to the city government’s website on her own
website, without one ounce of a good reason. Linking is the whole purpose of the Web, and
Ms. Reisinger, a political activist, had every reason and justification for putting up a
mere link to the city’s Web address.
But the city went ahead with the letter. Why? Because Ms. Reisinger was a pest. She had
tried to get Sheboygan’s mayor, Juan Perez, recalled. For this activism, she was
attacked by her own government. With a nasty, threatening letter.
So what are we to make of stories like this?
Well, I have a handy explanation: Power corrupts. We give police power over us, and we
give politicians and prosecutors an even higher-order power. Why? To defend our rights.
The police are vitally necessary. So are judges and (most of?) the rest. But, too often,
they tend to forget our rights and instead look upon their power as something to be
maximized. Rights? Schmights!
What we wind up with is a petty police state, haphazard and aggravating more often than
not. Kafkaesque, sometimes. Certainly, the opposite of my favorite lawman, Andy Taylor.
Now, Kafka never watched The Andy Griffith Show. It wasn’t high art, or black comedy,
so I’ve no sure idea what Kafka would have thought of it. But Sheriff Andy Taylor of
Mayberry never used his toughness in a bullying or bureaucratic way. He was respectful of
the public, interpreting both the rules and his own discretion with a heavy dose of common
sense.
Unlike modern America, Mayberry was never Kafkaesque. If searching about for standards,
better to reach into the oeuvre of Andy than of Franz. Our enforcement culture sure needs
something.
Copyright © 2008 Salem Web Network. All Rights Reserved.
Gun Control: Protecting Terrorists and Despots
Tragically, over the Thanksgiving holiday, the world was reminded how evil and cruel
people can be. According to emerging accounts of the events in India, about a dozen
well-armed and devastatingly well-trained terrorists laid siege on the city of Mumbai,
killing almost two hundred people, and terrorizing thousands.
Regardless of the reasons, the indiscriminate shooting on masses of unarmed and
defenseless people is chilling and reprehensible. How were these terrorists able to
continue so long, relatively unchallenged, killing so many?
India’s gun laws are her business, of course. However, once the shock of these events
and the initial reaction of fear passes, Americans should take away a valuable lesson
about real homeland security and gun control from this tragedy.
Gun control advocates tell us that removing guns from society makes us safer. If that were
the case why do the worst shootings happen in gun free zones, like schools? And while
accidents do happen, aggressive, terroristic shootings like this are unheard of at gun and
knife shows, or military bases. It bears repeating that an armed society truly is a polite
society.
The fact is that firearm technology exists. It cannot be uninvented. As long as there is
metalworking and welding capability, it matters not what gun laws are imposed upon
law-abiding people. Those that wish to have guns, and disregard the law, will have guns.
Gun control makes violence safer and more effective for the aggressive, whether the
aggressor is a terrorist or a government.
History shows us that another tragedy of gun laws is genocide. Hitler, for example, knew
well that in order to enact his “final solution,” disarmament was a necessary
precursor. While it is not always the case that an unarmed populace WILL be killed by
their government, if a government is going to kill its own people, it MUST disarm them
first so they cannot fight back. Disarmament must happen at a time when overall trust in
government is high, and under the guise of safety for the people, or perhaps the children.
Knowing that any government, no matter how idealistically started, can become despotic,
the Founding Fathers enabled the future freedom of Americans by enacting the second
amendment.
In our own country, we should be ever vigilant against any attempts to disarm the people,
especially in this economic downturn. I expect violent crime to rise sharply in the coming
days, and as states and municipalities are even more financially strained, the police will
be even less able or willing to respond to crime. In many areas, local police could become
more and more absorbed with revenue generating activities, like minor traffic violations
and the asset forfeiture opportunities of non-violent drug offenses. Your safety has
always, ultimately been your own responsibility, but never more so than now. People have a
natural right to defend themselves. Governments that take that away from their people
should be highly suspect.
How
the Credit Crisis Will Change the Way America Does Business
Huge financial companies will grow at the expense of
borrowers and investors.
By HENRY KAUFMAN
There have been more than a dozen financial crises since the
end of World War II. The aftermath of each was transitory, and markets rebounded rather
quickly. The current crisis will be different; it will usher in profound and lasting
structural, behavioral and regulatory changes. Here are some of the more important:
- International portfolio diversification has been undermined. This long-heralded
investment strategy has failed to weather the test of the current credit crisis. Many
non-U.S. stock indices have fallen more than U.S. equities markets, a trend especially
pronounced in very popular developing countries, where there was a growing belief among
investors that their economies would perform largely independently of the industrialized
world.
But developing nations depend heavily on the developed world to consume their products and
services and to finance their business activities. When liquidity is ample and credit
readily available, developing economies thrive. When global credit comes under pressure,
they suffer even more than their more developed counterparts. This is why the strategy of
international portfolio diversification needs to be rethought and improved if it is to
remain an abiding principle of asset allocation.
- Risk modeling will lose popularity. Elaborate modeling formulas for options and other
complex financial derivatives that are useful for dynamic hedging under normal
circumstances are of little use when transactions cannot be made without huge price
concessions. Stated differently, most models rest on assumptions about normal, rational
financial behavior, but lose their predictive power during times of financial euphoria or
panic. Consequently, the magnitude of the current crisis calls into question whether, even
after markets stabilize, sophisticated risk modeling can ever regain its former status.
- Financial concentration will gain even greater momentum and influence. This is the most
profound long-term consequence of the current credit crisis. Leading independent
investment banks already have been taken over by large financial conglomerates that are
controlled by commercial banking entities, as have giant deposit institutions. Within the
next year, many smaller and medium-sized financial institutions also will lose their
independent identities.
Today, more than half of all nonfinancial debt (debt held by households, nonfinancial
companies and government) is held by the top 15 institutions. These were the very firms
that played a central role in creating an unprecedented amount of debt by securitization
and complex new credit instruments. They also pushed for legal structures that made many
aspects of the financial markets opaque.
In the years ahead, the influence of these financial conglomerates will be overwhelming --
and they will limit any moves toward greater economic democracy. These conglomerates are
and will continue to be infused with conflicts of interest because of their multiple roles
in securities underwriting, in lending and investing, in the making of secondary markets,
and in the management of other people's money. And because there will be fewer market
participants of importance, the price volatility of financial assets likely will remain
high.
Through their global reach, these firms will transmit financial contagion even more
quickly than it spread in the current credit crisis. When the current crisis abates, the
pricing power of these huge financial conglomerates will grow significantly, at the
expense of borrowers and investors.
- The end of an era of ballooning nonfinancial debt. The rapid growth of nonfinancial debt
has been a key driver of U.S. economic growth in recent decades. Since 2000 alone,
nonfinancial debt outpaced the growth of nominal GDP by nearly $8 trillion -- more than
double the $3.5 trillion gap of the 1990s, which already was excessive. But the techniques
and institutions that generated the tidal wave of debt creation now are in disarray.
Already we are seeing a dramatic slowdown in rate of growth of household and business
debt, a trend that will continue for some time.
- U.S. government borrowing will continue to swell, at least for a few years. New net U.S.
government debt issuance could exceed $1 trillion per year -- as federal revenues slow,
spending increases, and funds are needed to rescue additional financial institutions.
There is a silver lining: The combination of shrinking private sector demands and
expanding federal demands will on balance improve the credit quality of many portfolios.
But the central question will be whether policy makers can define and implement a strategy
that will slow government borrowing as private-sector credit demands reassert themselves
in the medium term.
- Americans will begin to save again. The personal savings rate (as a percentage of
disposable family income) has been tepid for years, and actually fell below zero in 2006.
Since then, it has increased slightly into positive territory. Although this perplexes
many economists and policy makers, I see no mystery. The erosion of personal savings is
chiefly the result of massive debt creation.
A brief review of debt and savings rates since 1960 shows the correlation. From 1960 to
1990, according to the Federal Reserve, the growth of nonfinancial debt exceeded that of
nominal GDP by 1.5 times on average, while the savings rate averaged 9% per year. From
1991 to 2000, debt exceeded the growth of GDP by 1.8 times, while the savings rate
averaged 4.7%. Since 2001, debt has grown twice as fast as GDP, while the savings rate has
averaged a mere 1.4%. The lesson is clear: If the savings rate is to return to healthy
levels, we must put an end to the reckless creation of debt.
- Regulatory reform of financial markets will carry high stakes. While the need for reform
is widely acknowledged, less well understood is the extraordinary balancing act that U.S.
lawmakers must achieve. On the one hand, the new regulatory regime needs to be
comprehensive enough to take into account major structural changes that have unfolded in
recent decades. On the other hand, it must assure reasonable credit growth and competitive
credit markets. Every new measure will impinge on embedded interests, making the whole
enterprise -- essential as it is to our nation's economic health -- a major political
contest.
Mr Kaufman is president of Henry Kaufman & Company, Inc., and author of "On Money
and Markets: A Wall Street Memoir" (McGraw-Hill, 2001).
While the government destroys our currency and
transfers trillions of dollars from the politically weak to the politically powerful, I am
tired of debates about abortion, same-sex "marriage" and other social issues.
The government should stay out of them completely. There is no reason to waste our
resources worrying about and trying to control how people live.
I have a solution to the Proposition 8 dilemma. Get government out of marriage. For most
of human civilization, marriage was strictly a religious ceremony. Government had nothing
to do with it. But at some point, a bunch of busybodies, probably sometime after income
taxes were invented, decided to get the government to give special privileges to married
couples. Why should people pay less taxes just because they are married or have children?
Now, same-sex couples want to be "married" because they allegedly want those
same benefits. But in California, the state has already granted them identical benefits
(the government can only grant benefits, not rights) in civil unions, just without the
word "marriage" to describe the relationship. Why isn't that enough? Because
same-sex couples do not want tolerance, they want to force the rest of us to accept their
relationships. After all, that's what government is all about...force. Government forces
us to pay taxes and accept its sovereignty, just like a monarch.
Advocates of gay marriage do not advocate freedom (they exclude polygamists and
polyandrists). They do not advocate tolerance. Rather, they advocate forcing approval of
their chosen life style upon those who may have other opinions. The supreme court's
forcing of this issue will have the same adverse effects of Roe v. Wade. The issue likely
will fester for decades and result in many one-issue voters while we continue to lose more
and more of our freedoms to a nanny state and kleptocracy (see $700 billion bailout bill).
As a libertarian, I believe in live and let live. As a Libertarian candidate for State
Assembly in 2000, I was asked about my opinion on marriage. "Should marriage be
between a man and a woman?" My two Christian Democrat (Republican) opponents said,
"Yes, absolutely." My Socialist Democrat opponent equivocated. Everyone knew he
supported gay marriage but he didn't have the guts to admit it. The gutless part was that
I had already responded to the question with, "among other things." I suggested
that government stay out of marriage and not provide anyone with special benefits because
they choose to marry. I went on to say that government should let people live however they
choose, in group marriages, communes, whatever.
Nonetheless, I voted for Proposition 8 to ban same-sex marriage under the California
Constitution. I object to the California Supreme Courts short-sighted ruling. If
"equal protection" now means we all get the same benefits from the government,
then I want my multi-billion dollar bailout, food stamps, welfare checks, farm
"supports" for not farming, business subsidies, and all of the other government
hand-outs.
The final nail in the coffin was on election day. As I approached my polling place, I was
followed almost into the building by opponents of Proposition 8 who were handing out
"No on 8" propaganda. There are laws against electioneering withing 100 feet of
a polling place. Yet, the opponents of Proposition 8 were allowed to continue to hand out
their literature for (as I later found) several hours. I mentioned to the guy who handed
me his literature that it was illegal to be so close to the polling place and he backed
off a little, but not 100 feet from the door to the polling place. I guess such
restrictions only apply to those who are not politically favored.
I support freedom and tolerance, but not authoritarianism. Get the government out of our
lives and let us be free. Ask for government benefits and eventually you will all be
slaves. Read the Declaration of Independence and the Bill of Rights.
12/05/2008: Let's End Drug Prohibition
Most Americans agreed that alcohol suppression was worse than alcohol consumption.
By ETHAN A. NADELMANN
http://online.wsj.com/article/SB122843683581681375.html?mod=djemEditorialPage
Today is the 75th anniversary of that blessed day in 1933 when Utah became the 36th and
deciding state to ratify the 21st amendment, thereby repealing the 18th amendment. This
ended the nation's disastrous experiment with alcohol prohibition.
It's already shaping up as a day of celebration, with parties planned, bars prepping for
recession-defying rounds of drinks, and newspapers set to publish cocktail recipes
concocted especially for the day.
But let's hope it also serves as a day of reflection. We should consider why our forebears
rejoiced at the relegalization of a powerful drug long associated with bountiful pleasure
and pain, and consider too the lessons for our time.
The Americans who voted in 1933 to repeal prohibition differed greatly in their reasons
for overturning the system. But almost all agreed that the evils of failed suppression far
outweighed the evils of alcohol consumption.
The change from just 15 years earlier, when most Americans saw alcohol as the root of the
problem and voted to ban it, was dramatic. Prohibition's failure to create an Alcohol Free
Society sank in quickly. Booze flowed as readily as before, but now it was illicit,
filling criminal coffers at taxpayer expense.
Some opponents of prohibition pointed to Al Capone and increasing crime, violence and
corruption. Others were troubled by the labeling of tens of millions of Americans as
criminals, overflowing prisons, and the consequent broadening of disrespect for the law.
Americans were disquieted by dangerous expansions of federal police powers, encroachments
on individual liberties, increasing government expenditure devoted to enforcing the
prohibition laws, and the billions in forgone tax revenues. And still others were
disturbed by the specter of so many citizens blinded, paralyzed and killed by poisonous
moonshine and industrial alcohol.
Supporters of prohibition blamed the consumers, and some went so far as to argue that
those who violated the laws deserved whatever ills befell them. But by 1933, most
Americans blamed prohibition itself.
When repeal came, it was not just with the support of those with a taste for alcohol, but
also those who disliked and even hated it but could no longer ignore the dreadful
consequences of a failed prohibition. They saw what most Americans still fail to see
today: That a failed drug prohibition can cause greater harm than the drug it was intended
to banish.
Consider the consequences of drug prohibition today: 500,000 people incarcerated in U.S.
prisons and jails for nonviolent drug-law violations; 1.8 million drug arrests last year;
tens of billions of taxpayer dollars expended annually to fund a drug war that 76% of
Americans say has failed; millions now marked for life as former drug felons; many
thousands dying each year from drug overdoses that have more to do with prohibitionist
policies than the drugs themselves, and tens of thousands more needlessly infected with
AIDS and Hepatitis C because those same policies undermine and block responsible
public-health policies.
And look abroad. At Afghanistan, where a third or more of the national economy is both
beneficiary and victim of the failed global drug prohibition regime. At Mexico, which
makes Chicago under Al Capone look like a day in the park. And elsewhere in Latin America,
where prohibition-related crime, violence and corruption undermine civil authority and
public safety, and mindless drug eradication campaigns wreak environmental havoc.
All this, and much more, are the consequences not of drugs per se but of prohibitionist
policies that have failed for too long and that can never succeed in an open society,
given the lessons of history. Perhaps a totalitarian American could do better, but at what
cost to our most fundamental values?
Why did our forebears wise up so quickly while Americans today still struggle with sorting
out the consequences of drug misuse from those of drug prohibition?
It's not because alcohol is any less dangerous than the drugs that are banned today.
Marijuana, by comparison, is relatively harmless: little association with violent
behavior, no chance of dying from an overdose, and not nearly as dangerous as alcohol if
one misuses it or becomes addicted. Most of heroin's dangers are more a consequence of its
prohibition than the drug's distinctive properties. That's why 70% of Swiss voters
approved a referendum this past weekend endorsing the government's provision of
pharmaceutical heroin to addicts who could not quit their addictions by other means. It is
also why a growing number of other countries, including Canada, are doing likewise.
Yes, the speedy drugs -- cocaine, methamphetamine and other illicit stimulants -- present
more of a problem. But not to the extent that their prohibition is justifiable while
alcohol's is not. The real difference is that alcohol is the devil we know, while these
others are the devils we don't. Most Americans in 1933 could recall a time before
prohibition, which tempered their fears. But few Americans now can recall the decades when
the illicit drugs of today were sold and consumed legally. If they could, a
post-prohibition future might prove less alarming.
But there's nothing like a depression, or maybe even a full-blown recession, to make
taxpayers question the price of their prejudices. That's what ultimately hastened
prohibition's repeal, and it's why we're sure to see a more vigorous debate than ever
before about ending marijuana prohibition, rolling back other drug war excesses, and even
contemplating far-reaching alternatives to drug prohibition.
Perhaps the greatest reassurance for those who quake at the prospect of repealing
contemporary drug prohibitions can be found in the era of prohibition outside of America.
Other nations, including Britain, Australia and the Netherlands, were equally concerned
with the problems of drink and eager for solutions. However, most opted against
prohibition and for strict controls that kept alcohol legal but restricted its
availability, taxed it heavily, and otherwise discouraged its use. The results included
ample revenues for government coffers, criminals frustrated by the lack of easy profits,
and declines in the consumption and misuse of alcohol that compared favorably with trends
in the United States.
Is President-elect Barack Obama going to commemorate Repeal Day today? I'm not holding my
breath. Nor do I expect him to do much to reform the nation's drug laws apart from making
good on a few of the commitments he made during the campaign: repealing the harshest drug
sentences, removing federal bans on funding needle-exchange programs to reduce AIDS,
giving medical marijuana a fair chance to prove itself, and supporting treatment
alternatives for low-level drug offenders.
But there's one more thing he can do: Promote vigorous and informed debate in this domain
as in all others. The worst prohibition, after all, is a prohibition on thinking.
Mr. Nadelmann is the executive director of the Drug Policy Alliance.
12/01/2008: The Patriot Post, Monday Brief
THE FOUNDATION: "Were we directed from Washington when to sow, and
when to reap, we should soon want bread." --Thomas Jefferson
INSIGHT: "All socialism involves slavery.... That which
fundamentally distinguishes the slave is that he labors under coercion to satisfy
another's desires. The relation admits of many gradations. Oppressive taxation is a form
of slavery of the individual to the community as a whole. The essential question is -- How
much is he compelled to labor for other benefit than his own, and how much can he labor
for his own benefit?" --Herbert Spencer
OPINION IN BRIEF: "[O]ne kind of economic distortion ... will come
from the political directives issued by newly empowered politicians. First, bank
presidents are gravely warned by one senator after another about 'hoarding' their bailout
money. But hoarding is another word for recapitalizing to shore up your balance sheet to
ensure solvency. Is that not the fiduciary responsibility of bank directors? And isn't
pushing money out the window with too little capital precisely the lending laxity that
produced this crisis in the first place? Never mind. The banks will knuckle under to the
commissars of Capitol Hill. They control the purse. Prudence will yield to politics. Even
more egregious will be the directives to a nationalized Detroit. Sen. Charles Schumer, the
noted automotive engineer, declared 'unacceptable' last week 'a business model based on
gas.' Instead, 'We need a business model based on cars of the future, and we already know
what that future is: the plug-in hybrid electric car.' The Chevy Volt, for example? It has
huge remaining technological hurdles, gets 40 miles on a charge and will sell for about
$40,000, necessitating a $7,500 outright government subsidy. Who but the rich and
politically correct will choose that over a $12,000 gas-powered Hyundai? The new Detroit
churning out Schumer-mobiles will make the steel mills of the Soviet Union look the model
of efficiency. The ruling Democrats have a choice: Rescue this economy to return it to
market control. Or use this crisis to seize the commanding heights of the economy for the
greater social good. Note: The latter has already been tried. The results are filed under
'History, ash heap of.' " --columnist Charles Krauthammer
CULTURE: "We are witnessing a new hysterical style, in which the
Baby Boomer 'me generation' that now runs America jettisons knowledge of the past and
daily proclaims that each new development requires both a radical solution and another
bogeyman to blame for being mean or unfair to them. We haven't seen such frenzy since the
Y2K sham, when we were warned to stock up on flashlights and bottled water as our nation's
computers would simply shut down on Jan. 1, 2000 -- and with them the country itself. Get
a grip. Much of our current panic is psychological, and hyped by instantaneous electronic
communications and second-by-second 24-hour news blasts. There has not been a nationwide
plague that felled our workers. No earthquake has destroyed American infrastructure. The
material United States before the September 2008 financial panic is largely the same as
the one after. Once we tighten our belts and pay off the debts run up by Wall Street
speculators and millions of borrowers who walked away from what they owed others -- and we
can do this in a $13 trillion annual economy -- sanity will return." --Hoover
Institution historian Victor Davis Hanson
12/01/2008: Columbia Business School's Raymond
Fisman and University of California, Berkeley's Edward Miguel are development economists
who are at the forefront of what's being dubbed "forensic economics." Relying on
anomalies in everything from Indonesian stock prices to New York City parking tickets to
figures on antique imports and exports, they've been able uncover the tracks of
wrongdoers.
In their new book, "Economic Gangsters," the two document how forensic economics
can be used to root out corruption, offering fresh insights into how aid can be directed
to where it's needed in the developing world, rather than the hands of thugs.
...crimes are largely a matter of cost-benefit calculation unencumbered by conscience.
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