When Does It Stop?

The Atlanta Journal-Constitution contained two articles yesterday that were side-by-side on an inside page of the front section.   The juxtaposition could not be better, although I am sure it was not an intentional decision by the AJC’s liberal editors. 

The first article reports that the National Debt Clock located in New York City has run out of digits to record the growing figure.   It seems that the digital dollar sign on the National Debt Clock cannot record a figure in excess of $10 trillion.    According to the article, the federal government’s current debt is about $10.2 trillion, but this figure does not include the government’s obligations in the recent bailout—or if you prefer rescue—package approved by Congress and signed by President Bush.  The article points out that Seymour Durst, a late real estate developer from New York, installed the National Debt Clock in 1989 to call attention to what was then a $2.7 trillion national debt. 

The second article reports that House Speaker Nancy Pelosi is proposing a new $150 billion economic stimulus plan because of the faltering economy.   The first economic stimulus package involved sending out checks to individuals whose income was below an arbitrary level specified by Congress.   The taxpayers who pay the largest share of the total income tax burden, of course, did not receive a check.   The money to pay for the first stimulus package was borrowed by the federal government and increased the federal debt recorded on the National Debt Clock.    It is clear beyond doubt that the first stimulus plan did not solve the current economic crisis.   Speaker Pelosi must think a failed plan is worth trying again.   

If I had been an editor of the AJC, I would have added two more articles to the same page.   The first would have discussed John McCain’s proposal for the federal government to purchase and own $300 billion of bad home-loan mortgages.   The second would have pointed out that our national debt is going up dramatically at the same time that the nation’s wealth is plunging.   According to The Wall Street Journal, U.S. stocks have lost $8.4 trillion in value in the last year.  A company that takes on more debt when its business is declining usually ends up in bankruptcy. 

Even without the two additional articles I would have added to the same page, the two side-by-side articles in yesterday’s AJC describe the current financial crisis better than anything the experts on television are saying.   Is it any wonder that the stock market continues to plunge?   When is it going to stop?                 

The Second Presidential Debate

One thing is abundantly clear from last night’s debate between John McCain and Barak Obama.   The country’s slide toward socialism is going to continue at an accelerated pace regardless of who is elected President.   Both candidates support even more government control over virtually all aspects of the economy.   You know the slide is irreversible when McCain, the Republican candidate, proposes that the federal government spend $300 billion to purchase home mortgages on top of the $700 billion bailout package just approved by Congress last week.    Under McCain’s new plan, the government would purchase and own bad home-loan mortgages and would then presumably forgive a portion of the debt owed on each mortgage.   This plan may be necessary to reverse the high home foreclosure rate, but it would reward people who have incurred more debt than they can repay at the expense of taxpayers who have kept their own debt at levels they can afford.     

The only real news from the debate involved McCain’s proposal for the government to buy bad home-loan mortgages, and even this proposal did not receive much attention.   For the most part, the debate consisted of the moderator asking a question and the candidates responding by regurgitating their talking points.   I found the debate to be fairly boring and uninformative.    I didn’t learn anything new about the candidates or their positions.   I found myself hoping for another debate between Joe Biden and Sarah Palin so I could at least look forward to Palin’s smiles and winks and her refreshing way of discussing the problems facing the country.

During the debate last night, Obama, as he has done in the past, repeatedly linked McCain to President Bush and the current problems with the economy.   It’s a good strategy because it is working.   It’s also dishonest because there is little McCain could have done to prevent the current crisis, which started in the subprime mortgage market supported primarily by the Democrats.   But that is irrelevant.   After all, this is politics.  Why let the truth get in the way of a good campaign issue?   This is the way the game is played. 

Time is slipping away for McCain.   Everything is going against him.   Bad news on the economy is good news for Obama and terrible news for McCain.   For McCain, it’s guilt by association, which deeply offends Obama when the subject is Bill Ayers, the Rev. Jeremiah Wright, or Tony Resko, but suits him perfectly when the subject is President Bush and the economy.   It’s a double standard, of course, but Obama assumes correctly that most Americans will not see the hypocrisy and that most members of the media, who are his cheerleaders, will ignore it. 

In my view, both McCain and Obama performed reasonably well.   Once again, I think McCain demonstrated his superior knowledge in the area of foreign affairs, but I don’t think there was an overall clear winner of the debate.   All Obama needed was a tie to maintain his growing lead in the polls.   McCain needed a knockout blow, or he needed for Obama to make a mistake.   Neither one of these things happened.    

Biden's Fantasy World

In today’s edition, The Wall Street Journal published an editorial under the heading “Biden’s Fantasy World”.   Here it is:

In the popular media wisdom, Sarah Palin is the neophyte who knows nothing about foreign policy while Joe Biden is the savvy diplomatic pro. Then what are we to make of Mr. Biden's fantastic debate voyage last week when he made factual claims that would have got Mrs. Palin mocked from New York to Los Angeles?

Start with Lebanon, where Mr. Biden asserted that "When we kicked -- along with France, we kicked Hezbollah out of Lebanon, I said and Barack said, 'Move NATO forces in there.  Fill the vacuum, because if you don't know -- if you don't, Hezbollah will control it.'  Now what's happened?  Hezbollah is a legitimate part of the government in the country immediately to the north of Israel."

The U.S. never kicked Hezbollah out of Lebanon, and no one else has either.  Perhaps Mr. Biden meant to say Syria, except that the U.S. also didn't do that.  The Lebanese ousted Syria's military in 2005.  As for NATO, Messrs. Biden and Obama may have proposed sending alliance troops in, but if they did that was also a fantasy.  The U.S. has had all it can handle trying to convince NATO countries to deploy to Afghanistan.

Speaking of which, Mr. Biden also averred that "Our commanding general in Afghanistan said the surge principle in Iraq will not work in Afghanistan."  In trying to correct him, Mrs. Palin mispronounced the general's name -- saying "General McClellan" instead of General David McKiernan.  But Mr. Biden's claim was the bigger error, because General McKiernan said that while "Afghanistan is not Iraq," he also said a "sustained commitment" to counterinsurgency would be required.  That is consistent with Mr. McCain's point that the "surge principles" of Iraq could work in Afghanistan.

Then there's the Senator's astonishing claim that Mr. Obama "did not say he'd sit down with Ahmadinejad" without preconditions.  Yet Mr. Biden himself criticized Mr. Obama on this point in 2007 at the National Press Club: "Would I make a blanket commitment to meet unconditionally with the leaders of each of those countries within the first year I was elected President?  Absolutely, positively no."

Or how about his rewriting of Bosnia history to assert that John McCain didn't support President Clinton in the 1990s.  "My recommendations on Bosnia, I admit I was the first one to recommend it.  They saved tens of thousands of lives.  And initially John McCain opposed it along with a lot of other people.  But the end result was it worked."     Mr. Biden's immodesty aside, Mr. McCain supported Mr. Clinton on Bosnia, as did Bob Dole even as he was running against him for President in 1996 -- in contrast to the way Mr. Biden and Democratic leaders have tried to undermine President Bush on Iraq.

Closer to home, the Delaware blarney stone also invited Americans to join him at "Katie's restaurant" in Wilmington to witness middle-class struggles.  Just one problem: Katie's closed in the 1980s.  The mistake is more than a memory lapse because it exposes how phony is Mr. Biden's attempt to pose for this campaign as Lunchbucket Joe.

We think the word "lie" is overused in politics today, having become a favorite of the blogosphere and at the New York Times.  So we won't say Mr. Biden was deliberately making events up when he made these and other false statements.  Perhaps he merely misspoke.  In any case, Mrs. Palin may not know as much about the world as Mr. Biden does, but at least most of what she knows is true. 

A History Lesson

The current financial crisis started in the market for subprime mortgages and then spread to other parts of the economy.   As usual, our politicians are blaming everyone but themselves and are saying the current crisis proves the need for more government regulation.  I agree that new regulations are needed, but the truth is that well-intended but misguided government regulations started the avalanche that snowballed into the current crisis, which is now threatening the entire economy.   If there is anything we should learn from history, it is that well-meaning legislation frequently has unintended consequences.

Let’s take a little history lesson.  The following article, which appeared in The New York Times on September 30, 1999, explains the genesis of the problem we are facing today.   Portions of the article have been omitted to conserve space. 

Fannie Mae Eases Credit to Aid Mortgage Lending 

By Steven A. Holmes 

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans.  Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

**********

Jeff Jacoby, a columnist for The Boston Globe, provided his perspective on the causes of the financial crisis in a column published on September 28, 2008, which stated in part as follows:

While the mortgage crisis convulsing Wall Street has its share of private-sector culprits,…. they weren't the ones who "got us into this mess."  Barney Frank's talking points notwithstanding, mortgage lenders didn't wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers.  It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so - or else.

The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and "redlining" because urban blacks were being denied mortgages at a higher rate than suburban whites.

The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless.  Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to "meet the credit needs" of "low-income, minority, and distressed neighborhoods."  Lenders responded by loosening their underwriting standards and making increasingly shoddy loans.  The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this "subprime" lending by authorizing ever more "flexible" criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued.

As long as housing prices kept rising, the illusion that all this was good public policy could be sustained.  But it didn't take a financial whiz to recognize that a day of reckoning would come…. [Frank’s] fingerprints are all over this fiasco.  Time and time again, Frank insisted that Fannie Mae and Freddie Mac were in good shape.  Five years ago, for example, when the Bush administration proposed much tighter regulation of the two companies, Frank was adamant that "these two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis."   When the White House warned of "systemic risk for our financial system" unless the mortgage giants were curbed, Frank complained that the administration was more concerned about financial safety than about housing.

Now that the bubble has burst and the "systemic risk" is apparent to all, Frank blithely declares: "The private sector got us into this mess."  Well, give the congressman points for gall.  Wall Street and private lenders have plenty to answer for, but it was Washington and the political class that derailed this train.   If Frank is looking for a culprit to blame, he can find one suspect in the nearest mirror.

**********

Would more government regulations have prevented the current crisis?  Writing in The Los Angeles Times on October 2, 2008, J.D. Foster, a fellow at The Heritage Foundation, said:

Europeans have been rather smug about our troubles, but they're now looking at failures of their own major financial firms, nationalization of their banks and threats of a banking panic.  It turns out their heavier regulatory hand was no defense against the current crisis.  Nor did their regulators fare better in ferreting out the gathering dangers. 

Today's financial troubles have many fathers in Washington, on Wall Street and, yes, even on Main Street. (Ask anyone who lied on a mortgage application.)  As the crisis recedes, Americans will need to understand what went right and what went wrong with private behavior, public policy and our regulatory system.  More than ever, we'll need careful, thoughtful analysis -- not Washington's usual high-pitched rants. 

********** 

There is plenty of blame to go around, but it is clear that our current problems started when government decided to interfere with the private economy.  Well-intended government policies are a principle—if not the major—cause of the current financial mess.    Now the same members of Congress who adopted these policies will be passing new laws designed to prevent future problems.   I wonder how many new unintended problems will be caused by the new laws and regulations soon to be imposed on private enterprise (or what used to be referred to as private enterprise).