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Thursday, October 9, 2008
Accumulated Thoughts on the National Scene

Rays of hope for the McCain campaign. The bailout of which you may not have heard. Why it's fair that we all pay the piper. And more.

I was feeling rather pessimistic on Wednesday, even more so than I sounded in my notes on the second presidential debate,  Maybe I just needed a good night's sleep and a little less physical pain from a recent injury. (The latter is an entirely uninteresting story.) So I got my good night's sleep, and the pain receded, also. (Did you catch the deliberate Palinism?) I felt considerably more optimistic yesterday, despite the stock market tanking again and the Democrats starting to stage-whisper that they're on the verge of a landslide. I wouldn't want you to think I'm auditioning to be the next hyperperky Disney heroine -- I don't have the figure for it, and I sing bass, not soprano -- but today (Friday) featured Thursday's optimism, not Wednesday's pessimism.

I'm not sure why I think you might care about my mood, except that optimism right now seems to be an anomaly among folks who don't have their heads in the sand. If there are reasons for my optimism beyond the merely physical and personal, perhaps that is noteworthy.

Bad New Is Good News

The conventional wisdom is and long has been that bad economic news helps the Democrats, which may be why they work so hard to ensure that there will be bad economic news, and why the BMA historically report a bad economy every time there's a presidential election, even when the economy is okay (which it isn't now, I admit). The classic case was 1992, when there was a recession, but we were out of it several months before the election. The BMA delayed reporting it for a while, and when they finally did report it, still months before the election, they called it "the Clinton recovery." Never mind that Bill Clinton hadn't even been elected yet.

In any case, the Fannie-Freddie-Everything-Else trouble these last few weeks seems to have helped Senator Obama's poll numbers slightly, but not nearly as much as one might have expected. And the effect may be temporary. With time -- and there still is time -- word is getting out that the Democrats are implicated in this stuff up to their eyeballs, while the Republicans are only, say, hip-deep or so. And as word spreads that Barack Obama received $126,349 in campaign contributions from Fannie Mae and Freddie Mac -- more than any other official except Senate Banking Committee Chair Chris Dodd, who has been in the Senate for decades next to Obama's years -- people are going to start to connect Obama personally to the debacle. And when they start to make that connection, the Senate and House may be up for grabs, too. There is hope.

For what it's worth, Utah Senator Robert Bennett is fourth on the list at $107,999. A Republican, he is a senior member on the Senate Banking Committee. He will have some things to answer for in his next campaign.

In case it's not already clear why the Banking Committee is relevant, I note that its full name is the United States Senate Committee on Banking, Housing, and Urban Affairs.

A Spine

I note that someone sent Senator McCain a strap-on portaspine, and he started naming names yesterday in connection with the economic trouble. Senator Dodd was mentioned, as was his House counterpart Barney Frank. In this I saw a ray of hope for the McCain campaign. Meanwhile, the other side still thinks it's dirty campaigning to tell the truth about your opponent.


Maybe we should start calling Senator Obama "the senator from ACORN," since that's where he did his community organizing, and they're implicated in the Fannie/Freddie mess as deeply as he -- even before the Democrats tried to slip them $100 billion in the original bailout proposal. ACORN is famous for voter fraud, not just expensive affordable housing schemes. In the last presidential election, they were responsible for literally thousands of Democratic voter registrations in Washington State, six of which were legitimate. Tales of their fraud in this election are cropping up a lot sooner than usual, and in virtually every state which matters in the presidential election. Why should they not support their own candidate, after all? But if the voters begin to make the connection between ACORN and Obama, well . . .

Larry Miller

I listened to AM 1320 (KFAN) last evening while working in the yard. They were interviewing Larry Miller, the owner of the Utah Jazz, 43 auto dealerships, and many other things. He talked about basketball for a while, but then he turned to the economy. (If you want to hear just that part of the interview, start 17 minutes into the 40-minute interview.) 

He said that things seem scary and dangerous now, but downturns are normal and cyclical. He expects this one to last a year and a half. He said adjustable rate mortgages (ARMs) should be illegal. He said:

Believe it or not, america is still very strong, and we are a resilient people. And the way we solve our problems ultimately . . . is by working hard and working through it and creating wealth through creating goods and services.

I'm not saying Larry Miller is the leading American economist, but it was refreshing to hear someone calmly talk sense about it all. Both calmness and sense have seemed to be in short supply.


It's true that the current economic troubles are largely a government failure, not a failure of the free market, because they are the predictable consequences of government policies which forced the market to do things it would not otherwise have done, and which also removed the risk from the people and companies making risky decisions. It is also true that key government officials looked the other way while trouble arose, for reasons of their own, and ignored clear warnings. It is true, so far as I know, that the bailouts do not remedy the root causes, just the gross symptoms (we hope) -- but those symptoms have taken on a life of their own.

A lot of people think the bailouts are terribly unfair to the taxpayers who have lived within their means and borrowed sensibly; why should we pay for others' folly?

The short answer is, Fair or not, if we don't pay now, we'll have to pay later for even more severe consequences at a much higher price.

Suppose that a guest's folly has set fire to my sofa. I can either grab the fire extinguisher and put out the fire, after which I will have to pay either for a new fire extinguisher or to refill the old one, and also buy a new sofa, or I can try to persuade the fool that it's fair that he cover the costs (whether he can or not). If I choose the latter, the fire is likely --while I'm talking about fairness and negotiating a payment plan -- to grow and spread beyond the fire extinguisher's capacity. Then I'm in much bigger trouble.

At the moment, to be sure, it's not just the sofa that's on fire. It's the whole living room. But my foot-thick adobe walls are sound, the volunteer fire department is arriving, and we will hope they are competent enough to handle a house fire.

Commercial Paper

The bailout you're not hearing much about might be more important than the famous one. Commercial paper -- basically, unsecured promissory notes -- is how many trusted businesses businesses fund some of their day-to-day operations. It is cheaper than a line of credit, but the idea is somewhat similar. Things are so troubled right now in the banking world that the commercial paper market is collapsing, too. The Federal Reserve has emergency authority -- I don't know if the bailout legislation expanded this -- to inject massive quantities of cash to get commercial paper moving again. By massive I mean on the order of $900 billion.

People who wince at the better-known bailout will wince at this one, too, but in principle the government will be able to sell the commercial paper it buys at a slight profit, so the eventual cost of the $900 billion bailout should be a lot less than that number. And the cost of not doing it threatens to be much higher.

The Buck Stops Where?

Besides the simple necessity of averting a much larger economic collapse, there's a very good, very uncomfortable reason why it is fair that the American people -- even those who didn't borrow or invest unwisely -- should foot the bill here, since a bill there must be. Here it is: We earned it.

We bought bad leadership -- or you might say we let bad leaders buy our votes with foolish promises of unsound policies -- and we're now suffering the accumulated consequences of bad government dating back to about 1977. As voters we should have been wiser, both politically and economically. We should have been less greedy, less eager for handouts received at someone else's expense. As citizens we should have been more vigilant and vocal.

Now we have to pay the piper. So . . . while we wonder whether the legislative frenzy to answer the crisis has done anything to change the corrupt and foolish policies and institutions which brought us this debacle, perhaps we should wonder if we the people have learned anything which might help us correct our present troubles and prevent a recurrence.

So, Optimism?

You may see in these accumulated thoughts very little cause for my optimism. Let me see if I can boil it down to the basics.

First, with reference to the presidential election, the game is not over yet. Whichever candidate wins, there are some important things we need to do between November 4, 2008, and November 2, 2010, let alone November 6, 2012. They're not easy, but we can do them.

. . . Of which more later.

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