House of cards built on faulty foundation

As the financial markets roil with the latest developments Democrats like Nancy Pelosi, Barney Frank and even Barack Obama are distancing themselves from the legacy of policies they have endorsed or proposed. They try to blame this mess on Bush’s last 8 years where in fact the roots of this dilemma go back to Clinton and earlier. As this article in Investor’s Business Daily says the main motive of the policies leading up to this was to provide people without good credit ratings to buy homes. So lenders were strong armed into lending to risks they normally wouldn’t have to avoid the wrath of the regulators.

The regulation grew to monstrous proportions during the Clinton administration, obsessed as it was with multiculturalism. Amendments to the CRA [Community Reinvestment Act] in the mid-1990s dramatically raised the amount of home loans to otherwise unqualified low-income borrowers.

The revisions also allowed for the first time the securitization of CRA-regulated loans containing subprime mortgages. The changes came as radical "housing rights" groups led by ACORN lobbied for such loans. ACORN at the time was represented by a young public-interest lawyer in Chicago by the name of Barack Obama.

HUD, in turn, pressured Fannie Mae and Freddie Mac to purchase more subprime mortgages, and Fannie and Freddie, in turn, donated to the campaigns of leading Democrats like Barney Frank and Pelosi who throttled investigations into fraud at the agencies.

The problem is that all of us will pay for the sins of these policies while the true perpetrators pontificate about the greed of Wall Street and the “failure” of the market. Most people don’t understand economics (like many politicians) so it’s appallingly easy to throw “bad guys” (i.e., Wall Street) as chum into the water. Meanwhile the true lesson will be lost in this feeding frenzy: when the government tries to force the market to behave in a certain way to achieve egalitarian goals this goal to make everyone equal indeed does becomes reality but not in the way that was intended. We’re all made equal – in terms of financial losses and the pain that goes with it. Instead of a rising tide of prosperity lifting all of our boats we’re drowning in the rising tide of tears and pain, the inevitable consequences of bad premises.

Financial Woes and Free Market Foes

In the aftermath of the most recent financial implosion McCain lays the blame for the recent financial woes on greed thus displaying a dismaying lack of understanding of economics. Meanwhile Obama pontificates about the "ownership society" advocated by Bush really means you're on your own. Well, he's right but not in the way Obama meant. We indeed are on our own .. or should be. As the article titled The Real Culprits In This Meltdown in the Investor's Business Daily notes the roots of this collapse traces back well before George Bush. It traces back even before Clinton but this article has some interesting things to say about the Clinton administration's role. Check it out.

Also recommended, http://www.gregransom.com/prestopundit/ for interesting commentary from a Hayekian viewpoint and for many posts on the Palin impaling by the media.

McCain and Obama: Do they both preach sacrifice?

Before I proceed I encourage visitors to check out Robert Bidinotto's posts on Sarah Palin at http://bidinotto.journalspace.com/. I posted something there that I'd like to put here as well.

I know we cringe when we hear Republicans like Giuliani and McCain make negative comments about self-interest. But I think we make the mistake of assuming that they have the same concept in mind as we do. We need to ask whether McCain and the others have ever read Rand and, if they have, do they really understand what she is saying? (The same question can be asked about some of her admirers.) I am just starting to read McCain’s Worth Fighting For to get a better feel. In the opening pages he makes a brief reference to individualism versus egotism without explaining the distinction he is making. Furthermore, if McCain and his colleagues were completely dead set again self-interest why do they appeal to ours? By that I mean their proposed programs and policies are aimed at our needs.

We ultimately will have a choice between McCain who believes we should serve our country in order to protect and improve it versus Obama who wants us to sacrifice ourselves to everyone else, both foreign and domestic. On the surface it appears there is no fundamental difference between the two. McCain asks us to serve our country while Obama wants us to serve others in general. I think buried in this is a key distinction. McCain is not denying that we have a right to be happy or to pursue happiness. (At least I haven’t found any quotes to that affect.) I think he believes we need to put the interests of the U.S. first because protecting this framework will ensure our freedom and our ability to pursue our values. I’ll admit that maybe this is wishful thinking and might be too generous but I think his voting record supports what I’m saying.

On the other hand I’m confident that deep down Obama does indeed want to change us … into another more consistent welfare-state with a heavily government regulated market that is more in line with the “enlightened” European-model where we can’t drive our SUVs, have to turn down our thermostats and can’t eat as much. (This is paraphrasing a quote from him.) Kind of intrusive, isn’t it? I think he is ultimately uncomfortable with and ashamed of the self-interest that drives us. It doesn’t take much digging to find the collectivist intellectual influences in Obama’s life that would explain his antipathy to self-interest.

McCain's V.P. Choice

In response to John McCain’s announcement of his choosing Alaskan governor Sarah Palin as his running mate, Robert Bidinotto posted on August 29 his (as-usual) excellent analysis. My apathy mixed with antipathy for the candidates on both sides prepared me to expect the worst and to be unimpressed with McCain's choice. However I heartily agree with Bidinotto’s assessment of Palin's demeanor and message. I think this is a clever choice on a number of fronts. It does hamper McCain's early criticisms on Obama's lack of experience but I don't think it's a fatal error. As Bidinotto said, Palin has the most experience actually running a government than any of the other candidates.

Below I have provided some snippets from Robert’s excellent analysis. I particularly agree with his comment on Obama as a self-proclaimed agent of “change.” When I read Obama’s Blueprint for Change there is precious little deviation from the traditional liberal mantra that the government is the cure-all for all ills.

Politically, this is a brilliant move. Absolutely brilliant. I say that with the caveat of my abiding philosophical disagreements with both McCain and Palin on certain issues. But the overarching issues of this campaign for me are national security and energy policy, and on these, the GOP wins over the Dems, hands down.

…

If a candidate for president is trying to brand himself as a force for political "change," he shouldn't pick as his running mate an aging liberal fossil who's sat in the Senate for 36 years -- an old-boy-network Washington insider. That completely undercuts his "change" message, communicating instead a desire to pander to the Establishment and a clinging to "business as usual." It informs voters that the "change" message is utterly phony.

By contrast, if you are campaigning as an independent-minded maverick, you'd lose credibility by selecting a standard old-school politician as your running mate. You'd want somebody who underscores your outsider, maverick image and message. And if you select such a person, it communicates to voters: I'm the real deal; I mean what I say; you can trust that my actions will match my words.

Ask yourself, strictly from a branding and marketing standpoint, which candidate now comes across as the authentic and genuine agent of "change" -- McCain or Obama.

…

Obama is increasingly coming across as an empty suit, an ambitious phony with a dubious background; Biden is just another stock liberal. By contrast, McCain is showing independence and daring; his biography backs it up; and so does his running mate.

I’d say McCain’s choice was courageous. We’ll see if it was a brilliant decision after the election.

McCain's Choice of Palin - The Right Move?

Robert Bidinotto has posted some comments on McCain's choice of running mate which I think are worth checking out. In response I posted this comment.

Robert,

I heartily agree with your assessment of Palin's demeanor and message. My ongoing apathy mixed with antipathy for the candidates on both sides prepared me to expect the worst and to be unimpressed with McCain's choice. I think this is a clever choice on a number of fronts. It does hamper McCain's early knocks on Obama's lack of experience but I don't think it's a knock out blow. As you said, Palin has the most experience actually running a government than any of the other candidates. I hope this strategy works!

Obama: Our Savior?

I recall earlier this year Michelle Obama took some heat because she said Obama was going to save our soul (or something to that effect). At the time I figured her comment was just election-year hyperbole, magnified by talk-show hosts who like to create controversy. Well, looks like I was wrong. To see what I mean please check out Robert Bidinotto's excellent analysis of Obama's recent behavior and statements, "Obama the Presumptious continues his premature victory lap" (dated July 31), complete with humorous animation.

Freddie Mac and Fannie Mae: The New Deal Legacy Coming Home to Roost

With the Fed pondering what to do to stave off credit collapse of Freddie Mac and Fannie Mae it’s only a matter of time before the pundits start intoning about yet another alleged failure of the market. The Von Mises Foundation has posted several good articles explaining the history of these institutions and their impact on the financial markets.

Freddie, Fannie, and Curses on FDR

Ludwig von Mises had a theory about interventionism:

It doesn't accomplish its stated ends. Instead it distorts the market. That distortion cries out for a fix. The fix can consist in pulling back and freeing the market or taking further steps toward intervention. The State nearly always chooses the latter course, unless forced to do otherwise. The result is more distortion, leading eventually, by small steps, toward ever more nationalization and its attendant stagnation and bankruptcy.

Government intervention is like a vial of mutating poison in the water supply. We can get by for a long time and no one seems really worse off. One day we wake up and everyone is desperately ill, and blaming not the poison but the water itself. So it is with the housing crisis. Lenders are being blamed for the entire fiasco, and capitalism is going to be subjected to a beating as usual, since Freddie and Fannie are traded in public markets. But the fact remains that there is only one reason that this went on as long as it did and became as bad as it is. It was that vial of government poison.

Freddie Mac: A Mercantilist Enterprise

While these institutions have been privatized to a degree, they still remain tied to the federal government in some important respects. In fact, Fannie Mae and Freddie Mac have access to a guaranteed line of credit of $2.25 billion with the U.S. treasury. This guarantee, coupled by the perception that federal money would be used beyond the extent of the credit limit, allows both companies to maintain lower borrowing costs than would otherwise be the case. In many cases, the companies are able to sell bonds yielding only a few dozen basis points above U.S. treasury benchmarks. If the government's guarantee disappeared, the borrowing spreads for both companies would widen. Beyond the government's line of credit, these companies are also exempt from state and local income taxation and are exempt from SEC filings. Moreover, their securities are listed as government securities and can be held by banks and thrifts as low-risk bonds. These benefits provide a significant advantage since such privileges are not offered to other financial institutions.

Fannie Mae: Another New Deal Monstrosity

Fannie Mae is not a free-market entity, nor is it a private body that must compete on the same playing field as its competitors. Fannie Mae is representative of all that's wrong with central planning institutions: it is a government-created conduit for carefully crafted financial and market socialism that the bureaucrats uphold for the purpose of propping up their fantasies for pandemic social engineering.

There's nothing "American" about this dream. In the eyes of the Republic's visionaries, this particular dream has turned into a nightmare.