Doing The Job Of The MSM: Telling The Truth

(h/t Ace)

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A Man Among A Bunch Of Wimps

Reader Branden B. brought the following quote to my attention:

Fox News quotes Rep. Artur Davis of Alabama, a member of the Congressional Black Caucus:

Like a lot of my Democratic colleagues I was too slow to appreciate the recklessness of Fannie and Freddie. I defended their efforts to encourage affordable homeownership when in retrospect I should have heeded the concerns raised by their regulator in 2004. Frankly, I wish my Democratic colleagues would admit when it comes to Fannie and Freddie, we were wrong.

(from Taranto)

Like many congressman, Davis is probably elected from such a safe district he could quite literally drive drunk off a bridge, killing his car-mate, and still get elected.

But hey, at least he's honest. You won't get that kind of honesty from Barack Obama or Chris Dodd or Barney Frank.


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2008 Presidential Debate #2 Post-Mortem

9:37: Another reader responds to Matt B.'s idea about John McCain appointing Mitt Romney as "economic czar":

Oh man, I LOVE the Romney idea. Why not do it? The more I think about it, the more I love it. two vice presidents (for all intents and purposes)

9:22: Mark Steyn on John McCain's proposed mortgage bailout plan (this pretty much sums up how I feel about it too):

A fellow New Hampshirite writes:

Nina Easton nailed it by referring to McCain's mortgage buy up plan as a death knell for free market capitalism. Out in California Reagan is spinning in his grave.

No argument from me. As NR's resident demography bore, I often make the point that one of the reasons why America has a healthier birth rate than any other western nation is because it's the cheapest one in which to buy a four-bedroom house on a nice big lot. You look at how the Dutch and Germans live and it's no wonder they're in no hurry to have kids. So I value a sane, affordable housing market more than, say, the British version - in which you buy a half-million-pound basement flat in a seedy rundown East End slum, install a cat flap in the back door, and sell it two months later for 1.3 million.

Will massive government intervention restore the health of the American property market? It's not clear to me why the government needs to buy up all these mortgages. We talk of "keeping people in their homes", but in what sense are they "their homes"? Many of these home "owners" obtained such ridiculous mortgages that they have minimal equity in them: Losing "their homes" is, in that sense, little more in cash terms than losing the security deposit on your rental apartment. Listening to all these proposed government interventions designed to stave off reality, I'd rather leave it to the market.

But then, as Andy put it, we have a non-conservative making the conservative case in this election, which is why McCain and Obama seemed, in that first 45 minutes, to share so many basic assumptions.

9:16: Dick Morris: 'Bill Ayers taught that the purpose of college education was to radicalize students politically--and then he put Barack Obama in charge of dispersing $50 million to that end.'

This is an interesting take on the association: Ignore the friendship and 'guilt by association,' and focus instead on the fact that they both agreed, philosophically, that the purpose of education should be to radicalize students.

9:09: Robert Gibbs was on with Sean Hannity and accused him of being an anti-semite because he had an anti-semite on his show. This was in response to questions Hannity raised about Obama's assocations with Bill Ayers & Jeremiah Wright.

The difference, of course, is that Sean Hannity is a journalist while Barack Obama is a Senator and candidate for President.

(if someone can find me video of this exchange, I'd appreciate it.)

8:57: Erick Erickson of RedState, who is a class act, on CNN's "analysis" of the debate and the state of the race:

First there was David Gergen tonight who said, "It's too early to declare it over because Barack Obama is black." Yes, he thinks the "Bradley Effect" could cost Obama 5 to 6 points.

James Carville then chimed in and subtly hinted at massive riots if Obama loses going into the election ahead in the opinion polls.

Then Paul Begala piled on calling Sarah Palin's attacks on Obama "dangerous." He had the nerve to cite the AP calling her attacks "racially tinged" saying "That's the AP, not a Demcrat."

Begala then said Palin's praise of small town America hints at racism, the South, and killing Obama.

That, ladies and gentlemen, was actual political commentary on CNN.

8:52: Awesome Amanda Carpenter (Townhall) on a key moment in the debate:

OBAMA: "This is the guy who sang bomb, bomb, bomb Iran...who called for the annhilation of North Korea...who said, 'next up Baghdad!"

MCCAIN: "I understand what it's like to send young Americans into harms way. I was joking with a veteran about going into Iran...I'll get Osama Bin Laden my friends, I'll get him no matter what...but I'm not going to telegraph my punches."

Obama was flippant and arrogant. The libs will love it, the conservatives will hate it and the independents will be uncomfortable.

8:24: Matt B., who texted earlier, emails to make his Romney point perfectly clear:

If I were McCain with the first economic question of the night I would have stood up and said that "when I am elected I will appoint Governor Romney as our economic czar.....having said that here is our economic plan of how we are going to fix this thing.....this is how it works, this is what it is going to do and this is why Obama is naive and his plan is dangerous and the wrong path to prosperity."

Then I would send out Romney, who still has a great base to all of the TV shows, even stumping, and explain the plan and why Obama's is dangerous and naive. This would create essentially a McCain-Palin and Romney ticket. McCain could continue and focus on what he is good at (the war and foreign policy), Palin could focus on what she is good at (attacking and calling a spade a spade), and finally Romney could do what he is good at (economic growth and superiority).

It would be unprecedented, game-changing, and I would predict a landslide in November.

8:08: McCain's plan to nationalize mortgages? I hate it. Is that strong enough language? It wasn't enough to nationalize the bad debt of our banks, now we're supposed to buy and renegotiate the mortgages of people who bought homes they couldn't afford?

Once again, responsible America pays for the mistakes of foolish America.

8:05: Ace:

Ugh. Barack Obama is a lying c... country western singer, but no game changer, so effectively he wins.

McCain has one debate and two weeks of serious negative campaigning left. That's all that can help.

7:58: Another reader, responding to Romney's advocacy of the McCain economic plan, texts:

If I were McCain I would have stood up tonight and named Romney the economic czar and [then I would] send him on every news show from here to November talking about the McCain economic plan ... thus creating a McCain-Palin & Romney ticket.

And discrediting Obama's economic plan as dangerous and the wrong path to prosperity.

7:55: Jason Steorts on debate strategy:

Politics requires you to look people in the eye and earnestly say things that you know to be tendentious.

7:44pm PDT: What the hell is going on with Frank Luntz's focus groups? Before he was on camera they told him they thought John McCain had done better on the economy. But then, when asked on camera who did better, only 3-4 of them raised their hands.

Tell me again: Why do we even listen to these focus groups?

I agree with Bill Kristol, Tom Brokaw did a disservice to the country by sanitizing all of the questions and making this a re-hash of talking points we'd heard before. And that was disappointing. For the most part, I heard all the same things I've heard from both of these guys before.

I hoped they would get into a fight about Fannie/Freddie and the causes of the economic crisis and except for a few minutes at the beginning, we didn't hear it.



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2008 Presidential Debate Live Blog #2

7:34: For the first 25 mintues, John McCain was ill at ease and Barack Obama was smooth and fluid. He sharpened in the middle (where Obama seemed flustered) and stayed strong to the end. That said, I'm not sure we'll derive any game-changing soundbites from this debate. Though, after their respective campaigns get done combing through the video, I could be wrong.

7:30: Mark Steyn on Obama's Darfur position:

If it's "the right thing to do" to save Darfur, why is it suddenly the wrong thing to do if the Russian guy declines to stick his hand up at the Security Council?

This is poseur moralism, the kind of limp-wristed passivity that finds Obama referring earlier to "the tragedy of 9/11". A tsunami is a tragedy, a terrorist attack that kills thousands of people is an act of war - and a president ought to understand the difference.

7:25: McCain: "Everything I learned about leadership, I learned from a Chief Petty Officer." That's a good moment for John McCain.

7:23: Is Russia an Evil Empire under Putin? Clever answer by John McCain: Yes means it's another Cold War. No means I'm ignoring Putin's bad behavior.

7:20: If Barack Obama won't even acknowledge the success of The Surge, how can we expect him to execute it and support it in Afghanistan? Or, if he doesn't believe The Surge worked in Iraq, why does he believe it will work in Afghanistan, as he has suggested?

There are serious inconsistencies in Obama's respective policies towards Iraq and Afghanistan.

7:18: Barack Obama's position on Iraq changes before my very eyes: 'withdraw over a period of time.' If my ears don't deceive me, it sounds like a re-characterization of his short timeline withdrawal.

7:13: I don't doubt that Obama is correctly pronouncing "Pakistan." But I have always found accent-affecting, like Barack Obama, to be off-putting.

7:11: Obama: 'If Osama is in our sights and Pakistan is unable or unwilling to get him, then we'll kill him.'

I like it, but think: Put those words in George Bush's mouth and the leftists would be all up in arms. Hell, not just the leftists, but most of the MSM and other liberal pundits.

What will they say when they hear those words fall from Barack Obama's lips?

7:08: Katie asks what is, in my opinion, the first good audience question of the night: What about Pakistani sovreignty? How does it compare to Cambodia during Vietnam? Should we attack?

Underlying all of this is, what is the principle?

Again, Barack Obama sounds a lot like George Bush on how he would decide to attack. This is a strange, hawkish position from a Democrat. Obviously, I agree with it, but I don't believe that Barack Obama actually means it.

7:05: Obama's criterion for intervention sounds vaguely familiar. It sounds like the moralistic Bush, neocon doctrine. Only he wouldn't have intervened in Iraq. Even though pulling out of Iraq would have made it look like Darfur and Rwanda.

There is no coherence or cogency to Obama's foreign policy because there is no core principle.

What do the polls say? That's how Obama would govern our foreign policy.

7:04: What is the Obama doctrine? About time someone asks Obama what his position is rather than what he is against. Outline your position, Senator.

7:02: [Obama's canned response on "I don't understand" prepped by Axelrod & co. after the last debate when McCain pointed out that Obama didn't understand a lot of things.]

7:00: McCain: "America is the greatest force for good in the history of the world."

6:58: Obama: 'Banks and credit cards go to Delaware (Joe Biden, anyone) because of their loose regulations.'

6:56: It's important, on health care, that McCain clearly state that he is not defending the status quo. He needs to acknowledge, upfront, that there are problems, but that government provided health care--DMV health care--is not the answer.

6:52: Obama: 'McCain is going to strip away the regulation that makes sure you get your mammograms and maternity [whatever].'

Thank goodness for that.

Snark aside, this raises an interesting point. This is what government health plans do. They fixate on particular procedures regardless of whether they are the most effective or efficient. Recent studies, incidentally, have shown that there is a more effective way of detecting breast cancer than mammograms.

Government mandated health care is not flexible the way a free market solution would be and is.

6:46: Obama: "It's easy for us to talk about this during a campaign [...]"

Yeah, Senator Obama, it is. Why, then, should be believe anything you tell us during the campaign?

6:44: McCain has finally hit his stride. Why does it take him so long to get to this point? Who knows? Slow starter, perhaps. Either way, he's finally there and Obama is flustered.

6:42: Record vs. rhetoric. This is a clever way to answer anything Obama says on taxes because it casts everything Obama says as empty rhetoric--especially when contrasted with his record. He says he wants to cut taxes. His record says he has never cut taxes--despite promises to do so when he ran for the Senate.

6:41: Same reader texts: "Obama sounding too nuanced and labored with his tax talk. This is where we want him." Yes.

6:36: John McCain: ' I'm not in favor of tax cuts for the rich. I am in favor of leaving tax rates alone and expanding tax credits for families.'

Finally, John McCain talks about taxes and hits his stride. This is the best I've seen McCain all night and clearly frustrated Barack Obama who wants, now, to for-go the rules and respond to McCain's answer on taxes.

A reader texts: "Re: taxes--Finally, McCain sounds on his game."

6:31: Barack Obama is talking about the 'spending side and the revenue side': The Econ guys will like this.

6:27pm: Thus far, Obama is more coherent and organized in his responses. I wonder how this plays to Joe Sixpack and Hockey Moms across America?

6:23pm: Just over 20 minutes into the debate and John McCain is doing himself no favors. Could we get Sarah Palin as a proxy debater for John McCain? The opening to hammer Barack Obama on Fannie Mae was clearly there, but John McCain let Barack Obama off the hook.

It's not looking good.

6:15pm PDT: Barack Obam, Master History Re-Writer. "I never promoted Fannie Mae."

Why then, pray tell, did Fannie Mae make you, in 3 short years, the 2nd highest recipient of their campaign donations?

6:12pm PDT: "Senator Obama and his cronies." There it is. The opening Fannie/Freddie salvo.

6:07pm PDT: McCain: On stabilizing home values.

Didn't see that one coming.

6:03pm PDT: Obama starts things with his tried and untrue blame of the 'economic policies of the last 8 years.' How will McCain respond? Me too populism or hard-hitting criticism of Obama's friendship-in-aid of Fannie Mae & Freddie Mac?

6:00pm PDT: Andy McCarthy on how McCain should greet Obama:

The initial greeting between the candidates is something people watch closely. If McCain treats Obama like he's a pal and then goes for the jugular, he will look terrible and be seen as phony. The idea is to shake hands in a way that conveys, "I'm polite but I'd rather be having a root canal than shaking hands with you."

5:57pm PDT: One reader tells me: 'I hope John McCain asks Barack Obama about Bill Ayers.'

Hopefully he does more than ask about Bill Ayers.

5:50pm PDT: Thanks to Glenn Reynolds at Instapundit for the link.

5:47pm PDT: What is Barack Obama's plan tonight? Drive home what everyone knows--this is a change environment. Everything is change. Look the questioner in the eye. If McCain wants to talk about the past, Obama wants to talk about your future (ed. note: unless it's George Bush & Iraq, of course).

5:37pm PDT: The reason the SNL sketch was taken down, supposedly. According to this report, Herb & Marion Sandler are real people and the SNL sketch said they should be shot.

5:22pm PDT: Beware Axelrod's astroturfing on the townhall attendees and the preselected questions. This is what he does. And he's good at it (creating an alternative reality, completely separate to the one people actually live in).

Welcome to the 3rd OL&L live blog of this election season and 2nd Presidential Debate live blog. I'm switching back and forth between MSNBC, Fox News, and CNN.

Like everyone else, I agree that John McCain needs to hit Barack Obama on his obstruction of Fannie Mae & Freddie Mac regulation. Here's how I think he should do it:

- Wait for Obama to try and pin the blame for the current economic crisis on the 'Bush/McCain philosophy of the last 8 years.'
- Once he raises the regulation specter, John McCain should specifically cite Bush's attempt to regulate Fannie/Freddie in 2003 and his own attempt in 2005.
- And then he needs to pound Obama and Congressional Democrats for opposing and stonewalling every attempt to reform Fannie Mae & Freddie Mac.

Waiting for Obama to take the first shot puts McCain in position to make the counterpunch. This way he doesn't appear to be the aggressor.

The facts are on John McCain's side. Thus far, Obama has successfully used the narrative of this nebulous 'philosophy' which he says is to blame for the crisis. It's simple, but wrong and unconvincing. McCain needs to make the case, backed by facts anyone can see on youtube, that Obama and his Democrat friends are responsible for the crisis.


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Mostly Democrats Talking About Fannie & Freddie

Who said what, when? The Wall Street Journal has at least a partial answer to the question.

House Financial Services Committee hearing, Sept. 10, 2003:

Rep. Barney Frank (D., Mass.): I worry, frankly, that there's a tension here. The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see. I think we see entities that are fundamentally sound financially and withstand some of the disaster scenarios. . . .

Rep. Maxine Waters (D., Calif.), speaking to Housing and Urban Development Secretary Mel Martinez:

Secretary Martinez, if it ain't broke, why do you want to fix it? Have the GSEs [government-sponsored enterprises] ever missed their housing goals?

* * *

House Financial Services Committee hearing, Sept. 25, 2003:

Rep. Frank: I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing. . . .

* * *

House Financial Services Committee hearing, Sept. 25, 2003:

Rep. Gregory Meeks, (D., N.Y.): . . . I am just pissed off at Ofheo [Office of Federal Housing Enterprise Oversight] because if it wasn't for you I don't think that we would be here in the first place.

And Freddie Mac, who on its own, you know, came out front and indicated it is wrong, and now the problem that we have and that we are faced with is maybe some individuals who wanted to do away with GSEs in the first place, you have given them an excuse to try to have this forum so that we can talk about it and maybe change the direction and the mission of what the GSEs had, which they have done a tremendous job. . .

Ofheo Director Armando Falcon Jr.: Congressman, Ofheo did not improperly apply accounting rules; Freddie Mac did. Ofheo did not try to manage earnings improperly; Freddie Mac did. So this isn't about the agency's engagement in improper conduct, it is about Freddie Mac. Let me just correct the record on that. . . . I have been asking for these additional authorities for four years now. I have been asking for additional resources, the independent appropriations assessment powers.

This is not a matter of the agency engaging in any misconduct. . . .

Rep. Waters: However, I have sat through nearly a dozen hearings where, frankly, we were trying to fix something that wasn't broke. Housing is the economic engine of our economy, and in no community does this engine need to work more than in mine. With last week's hurricane and the drain on the economy from the war in Iraq, we should do no harm to these GSEs. We should be enhancing regulation, not making fundamental change.

Mr. Chairman, we do not have a crisis at Freddie Mac, and in particular at Fannie Mae, under the outstanding leadership of Mr. Frank Raines. Everything in the 1992 act has worked just fine. In fact, the GSEs have exceeded their housing goals. . . .

Rep. Frank: Let me ask [George] Gould and [Franklin] Raines on behalf of Freddie Mac and Fannie Mae, do you feel that over the past years you have been substantially under-regulated?

Mr. Raines?

Mr. Raines: No, sir.

Mr. Frank: Mr. Gould?

Mr. Gould: No, sir. . . .

Mr. Frank: OK. Then I am not entirely sure why we are here. . . .

Rep. Frank: I believe there has been more alarm raised about potential unsafety and unsoundness than, in fact, exists.

* * *

Senate Banking Committee, Oct. 16, 2003:

Sen. Charles Schumer (D., N.Y.): And my worry is that we're using the recent safety and soundness concerns, particularly with Freddie, and with a poor regulator, as a straw man to curtail Fannie and Freddie's mission. And I don't think there is any doubt that there are some in the administration who don't believe in Fannie and Freddie altogether, say let the private sector do it. That would be sort of an ideological position.

Mr. Raines: But more importantly, banks are in a far more risky business than we are.

* * *

Senate Banking Committee, Feb. 24-25, 2004:

Sen. Thomas Carper (D., Del.): What is the wrong that we're trying to right here? What is the potential harm that we're trying to avert?

Federal Reserve Chairman Alan Greenspan: Well, I think that that is a very good question, senator.

What we're trying to avert is we have in our financial system right now two very large and growing financial institutions which are very effective and are essentially capable of gaining market shares in a very major market to a large extent as a consequence of what is perceived to be a subsidy that prevents the markets from adjusting appropriately, prevents competition and the normal adjustment processes that we see on a day-by-day basis from functioning in a way that creates stability. . . . And so what we have is a structure here in which a very rapidly growing organization, holding assets and financing them by subsidized debt, is growing in a manner which really does not in and of itself contribute to either home ownership or necessarily liquidity or other aspects of the financial markets. . . .

Sen. Richard Shelby (R., Ala.): [T]he federal government has [an] ambiguous relationship with the GSEs. And how do we actually get rid of that ambiguity is a complicated, tricky thing. I don't know how we do it.

I mean, you've alluded to it a little bit, but how do we define the relationship? It's important, is it not?

Mr. Greenspan: Yes. Of all the issues that have been discussed today, I think that is the most difficult one. Because you cannot have, in a rational government or a rational society, two fundamentally different views as to what will happen under a certain event. Because it invites crisis, and it invites instability. . .

Sen. Christopher Dodd (D., Conn.): I, just briefly will say, Mr. Chairman, obviously, like most of us here, this is one of the great success stories of all time. And we don't want to lose sight of that and [what] has been pointed out by all of our witnesses here, obviously, the 70% of Americans who own their own homes today, in no small measure, due because of the work that's been done here. And that shouldn't be lost in this debate and discussion. . . .

* * *

Senate Banking Committee, April 6, 2005:

Sen. Schumer: I'll lay my marker down right now, Mr. Chairman. I think Fannie and Freddie need some changes, but I don't think they need dramatic restructuring in terms of their mission, in terms of their role in the secondary mortgage market, et cetera. Change some of the accounting and regulatory issues, yes, but don't undo Fannie and Freddie.

* * *

Senate Banking Committee, June 15, 2006:

Sen. Robert Bennett (R., Utah): I think we do need a strong regulator. I think we do need a piece of legislation. But I think we do need also to be careful that we don't overreact.

I know the press, particularly, keeps saying this is another Enron, which it clearly is not. Fannie Mae has taken its lumps. Fannie Mae is paying a very large fine. Fannie Mae is under a very, very strong microscope, which it needs to be. . . . So let's not do nothing, and at the same time, let's not overreact. . .

Sen. Jack Reed (D., R.I.): I think a lot of people are being opportunistic, . . . throwing out the baby with the bathwater, saying, "Let's dramatically restructure Fannie and Freddie," when that is not what's called for as a result of what's happened here. . . .

Sen. Chuck Hagel (R., Neb.): Mr. Chairman, what we're dealing with is an astounding failure of management and board responsibility, driven clearly by self interest and greed. And when we reference this issue in the context of -- the best we can say is, "It's no Enron." Now, that's a hell of a high standard.

(h/t Ryan D.)


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John McCain Strikes Back

The conservative blogosphere has been pounding away at Democrats and Barack Obama on Fannie/Freddie since the start of the current crisis. For whatever reason (because he wanted to lose the election?), John McCain had refused to go there. Well, he finally joined the fight--pounding Barack Obama on exactly the types of things that should concern the middle class voter Obama claims to defend.

If John McCain had associates--close associates--in his past who were the conservative equivalent (is there one?) of Bill Ayers, Tony Rezko, & Jeremiah Wright, the MSM would have hounded him right out of the race. With friends like those, he wouldn't have made it past the Republican primary.

But with the MSM defending him at every turn or simply framing the story or avoiding other stories and carrying Obama's water by attacking McCain, they are doing everything they can to make sure he gets into the White House.

In 2004, when 80% of the press voted for John Kerry and he lost, they collectively said, "NEVER AGAIN." And vowed to do all they could to put a Democrat in the White House in 2008. The evidences are everwhere and daily. We chronicle as many has we have time for over at NewsBusters. But we don't get to all of them--and we can only highlight the most blatant anti-McCain abuses.

What about the pro-Obama lapses in coverage? How many times do they look the other way or refuse to run a story about Obama's Fannie-gate record or his association with terrorist Bill Ayers or convicted felon and all-around sleazeball, Tony Rezko, or America-hater Jeremiah Wright.

If you think the media is unbiased or, at worst, moderately biased, ask yourself one question: If the shoe were on the other foot and John McCain had these skeletons in his closet, do you honestly believe he would get the same coverage Barack Obama gets day after day?

If you're a Barack Obama supporter and just stumbled on this blog on the first time, ask yourself this question: How much do you really know about the real Barack Obama?


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O'Reilly Unloads On Barney Frank

If you missed it on Friday, here's the video of Bill O'Reilly lambasting barney Frank over his role in the Fannie Mae/Freddie Mac mess.



Also, Ace points out that Barney Frank's "partner" is an executive at Fannie Mae. Ah, hypocritical conflict of interest. (Caution: Language alert)


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Jeffrey Miron, Harvard, Blames Fannie/Freddie Too

That's why I'm posting his article here. Because he agrees with me. Because I make no secret of my biases. Because I don't try to pretend I'm not biased. Because I haven't duped myself into thinking don't have any biases. It's called confirmation bias and WE ALL DO IT.

Jeffrey Miron in his own words:

The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.

This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.

Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.

Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources.

Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.

Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

The costs of the bailout, moreover, are almost certainly being understated. The administration's claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.

If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.

The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients.

Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets.

So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.

The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.

(emphasis added)


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Charles Calomiris & Peter Wallison On Fannie/Freddie & The Democrat Party

Add Calomiris and Wallison to the growing consensus on who is actually to blame for the current financial crisis--known in some parts as Modern Great Depression. Want the 'who's responsible' Spark Notes? Democrats (specifically Barney Frank) for enabling Fannie Mae and Freddie Mac--not Republicans and deregulation.

Here's the article:

Many monumental errors and misjudgments contributed to the acute financial turmoil in which we now find ourselves. Nevertheless, the vast accumulation of toxic mortgage debt that poisoned the global financial system was driven by the aggressive buying of subprime and Alt-A mortgages, and mortgage-backed securities, by Fannie Mae and Freddie Mac. The poor choices of these two government-sponsored enterprises (GSEs) -- and their sponsors in Washington -- are largely to blame for our current mess.

How did we get here? Let's review: In order to curry congressional support after their accounting scandals in 2003 and 2004, Fannie Mae and Freddie Mac committed to increased financing of "affordable housing." They became the largest buyers of subprime and Alt-A mortgages between 2004 and 2007, with total GSE exposure eventually exceeding $1 trillion. In doing so, they stimulated the growth of the subpar mortgage market and substantially magnified the costs of its collapse.

It is important to understand that, as GSEs, Fannie and Freddie were viewed in the capital markets as government-backed buyers (a belief that has now been reduced to fact). Thus they were able to borrow as much as they wanted for the purpose of buying mortgages and mortgage-backed securities. Their buying patterns and interests were followed closely in the markets. If Fannie and Freddie wanted subprime or Alt-A loans, the mortgage markets would produce them. By late 2004, Fannie and Freddie very much wanted subprime and Alt-A loans. Their accounting had just been revealed as fraudulent, and they were under pressure from Congress to demonstrate that they deserved their considerable privileges. Among other problems, economists at the Federal Reserve and Congressional Budget Office had begun to study them in detail, and found that -- despite their subsidized borrowing rates -- they did not significantly reduce mortgage interest rates. In the wake of Freddie's 2003 accounting scandal, Fed Chairman Alan Greenspan became a powerful opponent, and began to call for stricter regulation of the GSEs and limitations on the growth of their highly profitable, but risky, retained portfolios.

If they were not making mortgages cheaper and were creating risks for the taxpayers and the economy, what value were they providing? The answer was their affordable-housing mission. So it was that, beginning in 2004, their portfolios of subprime and Alt-A loans and securities began to grow. Subprime and Alt-A originations in the U.S. rose from less than 8% of all mortgages in 2003 to over 20% in 2006. During this period the quality of subprime loans also declined, going from fixed rate, long-term amortizing loans to loans with low down payments and low (but adjustable) initial rates, indicating that originators were scraping the bottom of the barrel to find product for buyers like the GSEs.

The strategy of presenting themselves to Congress as the champions of affordable housing appears to have worked. Fannie and Freddie retained the support of many in Congress, particularly Democrats, and they were allowed to continue unrestrained. Rep. Barney Frank (D., Mass), for example, now the chair of the House Financial Services Committee, openly described the "arrangement" with the GSEs at a committee hearing on GSE reform in 2003: "Fannie Mae and Freddie Mac have played a very useful role in helping to make housing more affordable . . . a mission that this Congress has given them in return for some of the arrangements which are of some benefit to them to focus on affordable housing." The hint to Fannie and Freddie was obvious: Concentrate on affordable housing and, despite your problems, your congressional support is secure.

In light of the collapse of Fannie and Freddie, both John McCain and Barack Obama now criticize the risk-tolerant regulatory regime that produced the current crisis. But Sen. McCain's criticisms are at least credible, since he has been pointing to systemic risks in the mortgage market and trying to do something about them for years. In contrast, Sen. Obama's conversion as a financial reformer marks a reversal from his actions in previous years, when he did nothing to disturb the status quo. The first head of Mr. Obama's vice-presidential search committee, Jim Johnson, a former chairman of Fannie Mae, was the one who announced Fannie's original affordable-housing program in 1991 -- just as Congress was taking up the first GSE regulatory legislation.

In 2005, the Senate Banking Committee, then under Republican control, adopted a strong reform bill, introduced by Republican Sens. Elizabeth Dole, John Sununu and Chuck Hagel, and supported by then chairman Richard Shelby. The bill prohibited the GSEs from holding portfolios, and gave their regulator prudential authority (such as setting capital requirements) roughly equivalent to a bank regulator. In light of the current financial crisis, this bill was probably the most important piece of financial regulation before Congress in 2005 and 2006. All the Republicans on the Committee supported the bill, and all the Democrats voted against it. Mr. McCain endorsed the legislation in a speech on the Senate floor. Mr. Obama, like all other Democrats, remained silent.

Now the Democrats are blaming the financial crisis on "deregulation." This is a canard. There has indeed been deregulation in our economy -- in long-distance telephone rates, airline fares, securities brokerage and trucking, to name just a few -- and this has produced much innovation and lower consumer prices. But the primary "deregulation" in the financial world in the last 30 years permitted banks to diversify their risks geographically and across different products, which is one of the things that has kept banks relatively stable in this storm.

As a result, U.S. commercial banks have been able to attract more than $100 billion of new capital in the past year to replace most of their subprime-related write-downs. Deregulation of branching restrictions and limitations on bank product offerings also made possible bank acquisition of Bear Stearns and Merrill Lynch, saving billions in likely resolution costs for taxpayers.

If the Democrats had let the 2005 legislation come to a vote, the huge growth in the subprime and Alt-A loan portfolios of Fannie and Freddie could not have occurred, and the scale of the financial meltdown would have been substantially less. The same politicians who today decry the lack of intervention to stop excess risk taking in 2005-2006 were the ones who blocked the only legislative effort that could have stopped it.

(emphasis added)


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Economic Crisis: How We Got Here From There

Call this The Best Simple Explanation Of the Current Crisis I've Read Yet (And I've read a lot).

Chairman of the Blackstone Group, Stephen Schwarzman:

It's a perfect storm. It started with Congress encouraging lending to lower-income people. You went from subprime loans being 2% of total loans in 2002 to 30% of total loans in 2006. That kind of enormous increase swept into the net people who shouldn't have been borrowing.

Those loans were packaged into CDOs rated AAA, which led the investment-banking firms [buying them] to do little to no due diligence, and the securities were distributed throughout the world, where they started defaulting.

When they started defaulting, out of bad luck or bad judgment, we implemented fair-value accounting....You had wildly different marks for this kind of security, which led to massive write-offs by the commercial-banking and investment-banking system.

In the face of those losses...you needed to raise new equity...which came from sovereign-wealth funds, in part, which then caused political resistance to sovereign-wealth funds, who predictably have withdrawn from putting money into the system....It seemed pretty obvious that would happen. We now find ourselves with a liquidity crisis where fundamentally the cost of money for financial intermediaries [such as investment banks] is significantly in excess of their cost of lending it. So several institutions found themselves in a structurally impossible position. ...Goldman reverted to a banking charter for a lower cost of funds, which today is still not low enough for the business.

So that's the story of how we got there.

This pretty much underscores what I've been saying all along--take Fannie Mae & Freddie Mac out of the equation and the economic crisis pretty much goes away. In fact, it doesn't just "pretty much" go away, it literally goes away.

And, Fannie/Freddie are government created institutions, spurred on in their reckless mortgaging by government enablers, backed by the government (now confirmed by fact), subsidized by the government, ergo, the current crisis was government created.

After everything I've read, I can't find a compelling reason for their existence in the first place. They didn't actually provide cheaper mortgages to anybody. In the second place, if they were to have all of these implicit and explicit government guarantees, the government should have made darn sure that they weren't making bad loans and putting the rest of the financial system and therefore the economy at tremendous risk.

But they didn't. Because Barney Frank, the same Barney Frank supposedly leading House Democrats in their efforts to resolve the crisis, stonewalled every attempt to actually, you know, provide some sort of oversight and regulation of Fannie & Freddie so that the crisis didn't occur in the first place.


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Jeff Frankel Grudgingly Supports The Modified Paulson Plan

Frankels is at Harvard (for those of you who care about such things).

Here's his analysis of the plan:

When the Treasury came out with its $750 bailout plan on September 22, I thought it lacked so many necessary ingredients that it deserved a thumbs down.

But in the negotiations between the Treasury and Congressional leaders over the course of last week, most of the missing ingredients were inserted. Starting with the additions that were most necessary on the merits, and moving toward the ones where the necessity was more political, they were:

· Institutionalized oversight of the Treasury, which had previously been startlingly absent.

· Provisions so that the taxpayer would share in the upside potential of banks and other financial institutions, rather than just socializing the losses. These provisions should allow the possibility that the government could recoup most or all of its short-term losses as has often ultimately been true in past unpopular bailouts.

o First, by giving the government equity stakes in the banks that sell their bad loans to the Treasury.

o Second, by having the president in five years submit legislation to recoup the cost from the financial sector if the taxpayer is still in the red at that point.

· Limits on executive compensation, especially golden parachutes, at banks taking advantage of the opportunity to dump their bad loans on the Treasury.

· Dividing the $750 billion into three slices over time, which at least offers the congressional negotiators a little bit of cover.

· A provision for possible government insurance of mortgages instead of acquisition of them. This was a bone thrown to the Congressional Republicans who had blocked the plan several days ago; I don’t know why they would want this provision, but at least it can’t do much harm.

Some other proposed provisions, from both the right and left, were left out, and for good reason in most cases.

(h/t Ryan D.)


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Economic Crisis: Enemy Of The Good

Ace, of Ace of Spades HQ, one of the few blogs I read on everything, thinks conservatives are wrong to oppose the bailout. He is afraid of a New Deal in the aftermath of a modern Great Depression.

Steve Forbes on Michael Medved: "I’ve never been an alarmist…I’ve never seen a situation as dark as it is today...people genuinely don't understand the magnitude of what is before us."

Like I said in the comments: I am not an economic alarmist myself and I get my take from people who aren't economic alarmists.

So when they suddenly become economic alarmists, I'm alarmed.

Incidentally, don't mislead yourselves into thinking I'm unaware that I'm taking an unpopular position and it could cost me traffic, and readers, and therefore salary.

100-1 against. I know this. I know this is a Schiavo-level split, the same sort of split that caused readers to abandon some blogs.

So I do know that I could actually gain traffic and readers by rah-rahing the KILL THE BILL position.

But I can't. Because I honestly think most conservatives are very wrong on this.

And not only are they very wrong, they're very wrong with possibly dire consequences. And not only that, there's the possibility that all faith in capitalism will crater and we'll have three generations of real socialism.

I have to be honest. I cannot be 100% sure, but I'm sure enough that I'll risk losing a lot of readers: We are in trouble. There is a chance that a crisis will not lead to a vicious-circle deleveraging and halt to a lot of economic activity, but the odds that it will seem much greater.

So I'm not taking this position to annoy people. Or because I have money in stocks. I don't own a single stock. And my credit's bad, so, honestly, this kind of doesn't really affect me. I've been on a pure cash personal economy for years.

I'm taking this position because I think it's right.

I can be persuaded that we must do something in order to forestall a far greater socialization of the market in the aftermath of a Modern Great Depression. That's just pragmatic politics.

Whatever plan eventually passes, I maintain my insistence that it be two things: Simple & Targeted. In these instances, where government programs, plans, & policy fits this criterion, government intervention can be effective and, in fact, very successful.

This necessitates that the legislation be simple with a simple mandate.

As the scope of the legislation grows and individual members tack on additional spending initiatives, simple and targeted becomes complex and scattered. It is this type of scenario that will bring the type of unintended consequences to which I have referred in the past.


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