posted by Curt, on November 17, 2008 09:49 am

I'm not the only one who has noticed how Obama's recent actions seem to be mimicking Lincoln's (as described by Doris Kearns-Goodwin in her bestseller Team of Rivals: The Political Genius of Abraham Lincoln).

Jacob Heilbrunn: Obama's Team of Rivals

Obama's 'Team of Rivals' Approach Could Mirror That of Abraham Lincoln

Obama may keep rivals close -- chicagotribune.com

And so I doubt it is a coincidence that Team of Rivals has returned to the Amazon.com bestseller list, weighing in all the way up there at #12.

Let's hope Obama has read Kearns-Goodwin's book carefully. Because, if he has, he'll realize that assembling the Team of Rivals is the easiest part of such an approach. The key to the success of Lincoln's cabinet (and also the secret to his "political genius") was his ability to make it work. Can Obama do the same? It's obvious that he's trying.

And he should get credit for that.

posted by Curt, on November 7, 2008 08:09 pm

Apparently a thousand or so people gathered outside of Temple Square this evening to protest the LDS Church's involvement in Proposition 8 in California. For those who may not be familiar with it, Proposition 8 was the referendum to amend the California constitution and define marriage as the union between one man and one woman, in the wake of the California Supreme Court's invalidation of the state's Defense of Marriage Act. The LDS Church urged its members to support the amendment, and support it they did--to the tune of countless hours donated labor and $20 million dollars donations. Against all initial expectations, Proposition 8 passed; the gay community in California and the United States was stunned by its failure. And they were plenty angry at the LDS Church.

Now they are preparing another legal challenge (to invalidate the amendment on procedural grounds) and protesting outside of LDS Temples (so far in Los Angeles and Salt Lake City). Objections to the LDS Church's involvement run the gamut from pure disagreement on the merits to concerns about church-state relations, tax exempt status, and downright hypocrisy (given the Church's history of persecution and alternative marriage practice).

And now the Proposition 8 opponents are trying to . . . what, exactly? Make the Church pay with bad publicity for its support of Proposition 8? I really don't get the idea of these protests. And I don't get the reason they are targeted specifically at the LDS Church. What exactly is accomplished by standing outside with signs and yelling, besides interfering with people who want to go on with their normal lives. Perhaps it's therapeutic, but certainly no more so than a gay pride parade. In cases where the organization is likely to be swayed by a display of popular uprising against their position, a protest may also make sense as a means of persuasion on the merits--but clearly that not what these protesters are driving at here.

The only think I can think is that they are mad at the church and they are trying to shame or embarrass it in the eyes of everyone else--either that or trying to threaten it in an attempt to prevent it from "sticking its nose into other people's business" ever again.

The members of the church exercised their rights to vote and support a cause. Usually, when people do this, others on the losing side of a political issue don't line up outside their homes and protest. And that's a good thing. It shows respect for the opposing viewpoint and an acknowledgment that the democratic process has worked. I am almost certain, had Proposition 8 failed, that LDS Church members would not be protesting outside the offices of the ACLU or the "No on 8" campaign headquarters--despite the ridiculous so-called "Mormon Missionary" commercial. But, the issue came out the other way, and the LDS Church is being targeted for it.

Don't get me wrong. Everyone has the right to speak and protest. No person or organization who speaks out on an issue should expect to be immune from criticism of their position. But I'm calling this one as ridiculous. The opponents of Proposition 8 need to make their case to the California people not the LDS Church. And if the best way they can think of to do that is to trying and publicly shame the church, well . . . let's just say they that maybe they won't be as successful as soon as I thought they would.

posted by Curt, on November 4, 2008 10:41 am

Well, two years of posturing, cross-country campaigning, mudslinging, scandals, and shallow debate will finally all come to an end. The American Presidential election process is remarkable and unique in many ways, but perhaps in its length most of all. I'll be honest and say that I'm glad to see it go, no matter who is elected.

I voted this morning, and, though I won't tell you who for, it wasn't for either Obama or McCain. I refuse to vote for anyone who supports the government's ridiculous and harmful bailout proposals. And you can expect the government printing presses to continue unabated under either one of our two main candidates.

I suspect that Obama will win this election, so it will be a historic one in that America will finally elect an African-American President. Let me tell what I look forward to (and don't look forward to) in an Obama Presidency:

1. I look forward to the impact of a new and more powerful role model for African-American youth than rappers and sports stars. I predict the impact of President Obama the role model will be lasting, substantial, and very beneficial--much more so than Obama's policy accomplishments as President.
2. I look forward to having a President who's a good speaker again.
3. I look forward to having a President who is committed to at least trying to resolve this country's health care crisis.
4. I look forward to the Republican Party being humiliated at the polls and regrouping to reclaim its identity as the party (more) in favor of limited government and American values.
5. I look forward to an end to the Bush and Clinton dynasties in American politics.
6. I look forward to an end of the constant and rather whiny complaints about evil geniuses Dick Cheny and Karl Rove.
7. I do not look forward to the appointment of liberal law professors (e.g. Harold Honghju Koh) to the United States Supreme Court.
8. I do not look forward to New Deal II, complete with foreclosure moratoriums and continued government bailouts.
9. I do not look forward to Democratic control of the Presidency and both houses of Congress
10. I do not look forward to large amounts of high-flying rhetoric inconsistent with the ordinary, and very political, strategies being pursued on the ground.
11. I do not look forward to the fulfillment of Joe Biden's foreign policy test prophecy.

And there you have it, some of my take on the next four years. Best of luck, President Obama, you're going to need it.

And congratulations to President Bush. I bet there is no one happier than him that the election is now over and he can begin making permanent plans to get out of the White House . . . well, except perhaps for a large majority of the American people. But their minds will change (at least a little bit) in the coming years.

Remember, it hath been foretold . . .

posted by Curt, on October 17, 2008 07:48 am

The causes of our current financial crisis have been discussed ad naseum these days. Lots of the talking heads you see on T.V. or the opinion leaders you read online are now admitting what many of them ignored during the credit boom years: that these problems are all a result of years and years of ridiculously loose credit policies, practices, and irresponsible borrowing. In an even more remarkable acknowledgment of the failure of the credit and consumption creed, many are even admitting that the U.S. economy needs to wean itself off of credit. But, even with this acknowledgment, these individuals, almost to a man still support massive (and continued) government intervention. Why? Because, according to them, quick deleveraging (i.e. debt destruction) would be disastrous for the economy. We need government intervention, they say, to ensure orderly deleveraging of the debt--otherwise we'll be plunged into another Great Depression.

Putting aside the question of whether "orderly deleveraging" is just another phrase for prolonged economic pain, one might well ask himself whether it is moral, or even possible, to have manic, highly leveraged growth on the way up and orderly deleveraging on its way down? Latching on to the assumption that economics really is a "science," applicable laws would suggest that an equal and opposite reaction is required for recovery. I have my doubts that we can have a period of orderly deleveraging that lets us all down slowly from the highs of our 30-year credit binge. But our fearless economic leaders are certainly giving it the old college try. I just don't think they'll succeed. If the idea of skyrocket up and float softly down isn't clearly contrary to the laws of economics, it certainly seems contrary to the Law of the Harvest.

Since we're not willing to boom and bust, probably can't boom and deleverage orderly without pain, I suppose we're left with the choice to try and regulate bubbles out of existence. But, knowing the little I do about human nature, I'm pretty convinced that won't work either.

posted by Curt, on October 13, 2008 10:22 am

The world's governments have gotten together and somehow managed to guarantee everything. No bank or major company will be allowed to fail during the next year, and they'll hand out as much money as the world's banks want to take on. Nobody is really sure where all the money is going to come from in order to do this. But that's irrelevant at this point since the stock market is rising (for now).

The FASB now allows banks and other companies holding mortgage-backed securities to value those assets at whatever they think they are worth (they can "use their own judgment"), therefore making the problem balance sheets just disappear before our eyes.

Pelosi is angling for yet another stimulus package, proving that her leadership response to an economic crisis is to hand out $150 billion in "free" money once every four months until the economy improves. And only a couple of our representatives from either party will even try to oppose her.

Obama and McCain are falling over themselves to try and be the most generous with money that they don't have, both insisting that they can continue to increase spending while guaranteeing mortgages, keeping bankrupt Americans in "their" homes, and offering tax breaks to millions.

General Motors is on the brink of failure and is considering merging with one of two other American automakers that are also on the brink of failure. And boy oh boy is the market cheering it all.

The icing on the cake is that our leaders are actually patting themselves on the back??!!

As much as I say that nothing will surprise me anymore, I am surprised at the speed and joy with which we are sowing the final seeds of our own financial destruction (most of it has already been assured, but, believe it or not, this can make things much worse).

As a fellow online commenter said, this has reached the point of complete madness. In years to come, people will look back at this crisis and just shake their heads at our response. It's more than ridiculous.

posted by Curt, on October 8, 2008 07:04 am

Wikipipedia defines The Law of Unintended Consequences as follows:

The "law of unintended consequences" (also called the "law of unforeseen consequences") states that any purposeful action will produce some unintended consequences. A classic example is a bypass — a road built to relieve traffic congestion on a congested road — that attracts new development and with it more traffic, resulting in two congested streets instead of one.

This maxim is not a scientific law; it is more in line with Murphy's law as a warning against the hubristic belief that humans can fully control the world around them. Stated in other words, each cause has more than one effect, and these effects will invariably include at least one unforeseen side effect. The unintended side effect can potentially be more significant than any of the intended effects.

The law seems to be in full operation regarding the U.S. government's recent efforts to stabilize the economy. In order to build support for the bailout, Bush, Paulson, Bernanke, and Congress all told people that the world was going to end if they didn't act immediately. We'll never know what would have happened without the bailout, though I believe that the consequences of not acting probably would have been severe.

But what it seems clear that the government's actions have done is caused an even greater general financial panic. When the bailout didn't work immediately, people panicked even more. And now, it seems that any further government action on the economy simply convinces people that their panic is justified. All this results in people pulling their money out of the stock market, and, perhaps more importantly, hunkering down and refusing to spend--maybe accelerating the move of the problems from "Wall Street" to "Main Street." At this point, you really have to wonder how much control the government retains over the whole situation. Ironically, it's numerous attempts to control the situation may have resulted in the economy being more out of control that it might otherwise be. How significant this potential unintended consequence is, in relation to the alternative, still remains to be seen.

Now, Bernanke and Paulson are smart guys. They know that their actions will have unintended consequences, and I think they weigh the potential benefits of each decision against its potential costs (e.g. growth potential v. inflation potential for a rate cut). But I wonder about the extent to which they fully considered the potential psychological impacts of their actions, and the resulting impact that mass fear mobilization could have on their ability to retain whatever level of control they had over the course of the U.S. economy.

Now no one can foresee all the consequences of their actions. It's obvious that just because your actions may result in something happening that you don't expect you shouldn't quit acting altogether. But the government response to this crisis may provide yet more evidence that it is not always better to "do something, anything now" as opposed to waiting to do something better later.

posted by Curt, on October 1, 2008 08:21 pm

Yes, the Senate passed the bailout bill today. Overwhelmingly. Both of Utah's Senators--Hatch and Bennett--voted in favor. Now it's up to the House.

But I thought I'd take a break from doom and gloom bailout analysis and ranting to have a chuckle and shake my head in disbelief at CNN's newest invention: Headline t-shirts, in your choice of many different colors.

Now you can go on CNN and off to the side of a headline (where you might ordinarily see a video icon, you may also see a t-shirt icon like this:

If you click on that t-shirt icon, you get taken to this page:

You can order your "CNN Headline T-shirt" in any color of your choice for only $15.00.

CNN apparently doesn't offer this service for every headline it displays on its site, apparently only for those they deem worthy of it. Here is a sample of offerings current as of October 1, 2008:

A conservative problem for Palin?

How financially afraid are Americans?

Football star plays drums at halftime.

Tripe, feet, offal back on grocer shelves.

Massive Facebook pillow fight erupts.

Pot-bellied dolphins put on diet.

McCain Palin decry 'gotcha' journalism.

Hollywood shows Palin fascination.

Haunted house faces $2500-a-day fine.

Pastors' politics may break IRS law.

Sax 'genius' stunned by $500,000 gift.

Skydiver proposes; rings falls out plane.

Rescuers free whale from shark net.

Ahh, America's capitalistic, innovative mentality at work. I just have a feeling this isn't going to last long folks. Either get your CNN t-shirts now or pick them up at DI in a couple months. If the badness of the idea doesn't kill this one, then the recession should. CNN t-shirts should be the first thing axed from your discretionary spending list.

posted by Curt, on September 30, 2008 06:02 am

Even though I suppose some might say it shows a lack of sophistication, I'm a big fan of the old T.V. series legal drama Perry Mason. I've seen just about every episode. In those shows there were always three things you could count on: (1) someone would die within the first 15 minutes; (2) Perry Mason's client was always innocent; and (3) the murder would inevitably be caused by an attempt to blackmail. Watching Wall Street and our illustrious political representatives (a good number of whom, for principled reasons or not, actually stood up and voted Wall Street down yesterday) I feel like I'm on the receiving end of a Mason-type blackmail attempt.

The American people, through the House of Representatives basically thumbed their noses at Wall Street yesterday. The Street's first response was disbelief. Their second response seems to say, "well, if you're not going to give us the money we want, we're going to show you just how bad things can get." I get this unsettling feeling that the banks supposedly at the heart of this crisis are trying to play chicken with the government and the people.

Don't you think that the banks have a vested interest in preventing the collapse of the financial system? If the system is in danger of collapsing because credit has dried up and banks refuse to lend to each other, then why won't they do some lending to prevent a collapse? As I ponder this question, the only conclusion I can reach is that they don't want to. They want the bad assets gone, and they want them gone at much, much more than the current market value. And they are going to bluster and threaten and refuse to lend until the government comes through with the money. I think they are convinced they have us over a barrel and they aren't going to budge until we do what they want. And I have a bad feeling that the government will come through later this week--although I was admittedly very surprised about what happened yesterday, so I'll speak in less certain terms than I have heretofore.

I'm not a conspiracy theorist, but I must admit this whole bailout has me very suspicious of motivations. Let me explain it to you as I now see it, two weeks down the line.

• Paulsen and Wall Street have known they had a really big problem on their hands for a while, probably at least since the government was forced to take over Fannie and Freddie.
• They devised the solution that basically died in the House yesterday, but were faced with the problem of how to drum up support for an ugly, expensive bailout. (And this is where the conspiracy part kicks in).
• So they let Lehman Brothers fail in order to create fear and urgency in policymakers and get support for the bailout.
• AIG was then not allowed to fail (although allowed to come close) because it would have too severely harmed the banks the plan was trying to save (but it was handled in a way that also created panic).
• When this was not quite enough, the powers that be decided that WaMu would have to fail (after hanging on for weeks), suddenly, overnight (and on a Thursday after all other banks had "failed," meaning been seized by the FDIC on a Friday evening or over the weekend) in order to create some more panic and more support for the bailout (I don't know if Wachovia was part of the same pattern or not).
• Now they are simply refusing to lend to each other, thus driving down markets throughout the world in an attempt to create sufficient fear to get the votes they need to seal the deal.

Maybe I'm completely off base, but until someone can give me a good reason why these banks can't lend right now, despite the apparent fact that their own fate and the fate of the world financial system depends on it, then I don't know what else to think.

And if we are in a giant game of "chicken" with Wall Street, it seems to me that we'd better make our stand now.

All this reminds me of a scene in Frank Capra's It's a Wonderful Life:

GEORGE BAILEY: Just remember this, Mr. Potter, that this rabble you're talking about . . . they do most of the working and paying and living and dying in this community.

Well, it is too much to have them work and pay and live and die in a couple of decent rooms and a bath?

Anyway, my father didn't think so. People were human beings to him, but to you, a warped, frustrated old man, they're cattle.

Well, in my book, he died a much richer man than you'll ever be.

. . .

I know very well what you're talking about. You're talking about something you can't get your fingers on, and it's galling you. That's what you're talking about, I know.

Well, I, I, I've said too much. I... You're, you're the Board here. You do what you want with this thing.

There's j-just one thing more though.

This town needs this measly one-horse institution if only to have some place where people can come without crawling to Potter.

Come on, Uncle Billy.

UNCLE BILLY: Oh boy, that was telling him, George, old boy. You shut his big mouth. You should have heard him.

BAILEY BUILDING & LOAN EMPLOYEE: What happened? We heard a lot of yelling.

UNCLE BILLY: Well, we're being voted out of business after twenty-five years.

Easy come, easy go.

Kind of fits in with McCain and Obama's populist rhetoric these days, though the part about providing loans for housing to indigent people is kind of ironic, given the current crisis. But I feel a little bit like Wall Street is playing the part of a modern-day Mr. Potter and trying to force this rescue right down our throats by threatening us with utter collapse if we don't go along with them.

America had a "George Bailey" moment yesterday. For George, the consequence of standing up to Potter was that he gave up his schooling to stay home and run the Bailey Building & Loan after his father's death. There will be consequences for not passing the bailout too. We'll see if we're willing to face them (though as I've always maintained the bailout will be worse than the cure).

posted by Curt, on September 25, 2008 12:44 pm

A while ago I posted the following quote from a satirical article in The Onion:

"Every American family deserves a false sense of security," said Chris Reppto, a risk analyst for Citigroup in New York. "Once we have a bubble to provide a fragile foundation, we can begin building pyramid scheme on top of pyramid scheme, and before we know it, the financial situation will return to normal."

Today, with the approval of this bailout bill, we are doing exactly that: we're trying to rebuild the credit economy on top of the collapsing credit bubble. The United States' excessive "prosperity" over the last 30 years has been nothing but a mirage; a mirage created by nearly unfettered access to easy credit. Finally, the credit largess in this country became so unsustainable that, as President Bush noted last night, the credit markets froze.

The credit markets did not freeze because, as President Bush implied, we all panicked. The credit markets are frozen because the money they loaned out isn't getting paid back. These credit markets should be frozen--or the money flowing out of them should be slowed to a trickle from a flood.

The market is trying to tell us something. And it's trying to tell us more than "the housing bubble and deregulation caused all of this mess."

This is the message that the market is trying to send to America: start living within your means now, or you will be forced to.

Our policymakers didn't listen. And you should vote every single one of them that votes for the bailout out of office at the first possible opportunity.

We have now added $700 billion more (at the very least) to the bubble that was already so big that it was too painful for us to let deflate. This money will be nominally borrowed from foreign investors who, for some strange reason, are still determined to finance US debt. But, in reality, the money will be taken, a few cents at a time, from the dollars in your wallet and savings account through inflation. The cost will be tremendous, and it will be born in a disproportionate amount by the prudent and responsible.

posted by Curt, on September 23, 2008 10:11 pm

I'm taking a break from bailout ranting today ;)

Harry Truman was poor all his life. He held state political positions that others got rich from, but he refused to take any money. He went to Washington, D.C. as a Senator and arrived there broke. He stayed broke as a Senator and didn't even have much extra money while he was President. And when he had served his second term he left Washington without money or a job, only a meager army pension from his service in WWI. He was direct, honest, and principled. And he was considerate and kind. We could sure use one like him now, and Washington probably hasn't seen another like him since he left. In many ways he was one of a kind. Of was he?

I happen to think there are, and always have been, quite a few Harry Trumans around this country and other places (and he would, too). But they rarely arrive in Washington, and that's what makes Truman's story so fascinating.

How in the world does a Truman get to Washington while remaining a Truman? Well, his story is written down for anyone to read, and it is really remarkable. But a story like it only happens rarely. People like Harry Truman are usually either weeded out by the political king-makers. Or, if they survive that gauntlet, they generally self-select themselves out of the political business. In order for a Truman to end up to where a Truman got to, it takes a happy historical accident and an unusual commitment to politics combined together in a man or woman of (otherwise?) sterling character.

And, ironically, that person's commitment to politics is probably significantly selfish. I doubt very much if it is completely altruistic, since it takes a tremendous ego to believe that you are the best qualified person to solve a state's or a nation's problems. I'm convinced that altruism is definitely a factor but I would guess that another primary motivating factor for most Truman-like politicians (and there aren't many) is a desire for influence and recognition. And, ultimately, this is a selfish motivation. Perhaps the reasons that the Trumans are as rare as they are is because, generally speaking, persons of that character are unwilling to impose the costs of high level politics on their families for what they suspect, deep down, to be a selfish desire. And the cost of political influence imposed on that person's family is often very real. When a person of that character is faced with a choice between country and home, fellow-citizens and family, I would think they would be most likely to keep close to home.

I'm not saying that a politician always has to choose between family and political influence; but that seems to be the reality in many cases. And I'm sure that the Trumans of the world are aware of the world's realities. I'm sure that, at the least, they realize they are faced with a choice between significant risk to family on the one hand, and one type, albeit a very influential one, of service to country on the other. That must be a hard choice to make for an honest, principled, and considerate person. And if the cost of another Truman in the White House is that man or woman's family, I'm not sure whether I want one there or not. Maybe they are best left back in Independence. It seems like we can get along--though not as well as we otherwise might--without them in Washington, but America might not be able to get along without them at home.

posted by Curt, on September 22, 2008 07:22 am

A reasonable question was posed to both candidates over the weekend: with $700 billion plus is "unforeseen" bailout expenditures, do you believe you can still pursue your financial plan as you promised earlier in the campaign. Here are some excerpts of their responses, courtesy of the New York Times:

First, from Senator McCain:

But Mr. McCain said in an interview here with CNBC and The New York Times that he would press on with his plan to extend the Bush tax cuts and to cut others. Contrary to the warnings of fiscal analysts, he said he believed he could do so and balance the federal budget, which was falling deeper into deficit even before the financial crisis, by the end of his first term.

"I believe we can still balance the budget," he said. "I think that it is restraint of spending, and I think it’s growth of government and the economy, and the recovery of our economy. And anything you do that would take more money from the American people who are hurting more now, I think, would be a serious mistake."

Mr. McCain also stuck by his support for allowing workers to invest a portion of their Social Security payroll taxes in stocks and bonds, an approach that Democrats call privatization and that Mr. Obama has used to suggest Mr. McCain would subject retirees to excessive market risk.

And now, from Senator Obama:

In a separate interview earlier in the day, Mr. Obama said that despite the huge new government obligation, he would press ahead with his plans to overhaul the health care system to insure more people, make college tuition more affordable, give a tax cut to the middle class and raise taxes on those making over $250,000 a year.

"The problem that we have," Mr. Obama said, "in part has to do with wages and incomes that have been flat. And so homeowners and ordinary families out there have been working very hard, but it’s tough for them to pay the bills and stay afloat with rising gas prices and health care.

"So if we don’t address our long-term competitiveness, if we don’t address some of the inequities in the tax code, if we’re not addressing some of the things that weakened the family budget, then we’re not, over the long term, going to solve these larger problems in the financial markets."

Are you kidding me? The total cost of this bailout is almost certain to go over $1 trillion (and could very possibly go to $2 trillion), and yet both candidates want to go on as normal? Either one of these guys could have gained some instant credibility with my by admitting that this throws a big wrench into things and that the government would have to cut back on its spending (or its tax reduction plans). But, to do so in an election year . . . I guess I was just hoping for a little too much.

And after all, is it really that much more absurd to say we'll do these things while we're $9 trillion in debt to say that we'll keep on keeping on when we're $11 or 12 trillion in the hole? Maybe not, but eventually you've got to have the trillion that breaks the camel's back . . . don't you? Even if the camel is a really big one?

posted by Curt, on September 20, 2008 08:48 am

I've recently been working my way through James McPherson's outstanding history of the Civil War, Battle Cry of Freedom. As you would expect a comprehensive treatment to do, the book begins by focusing on the years leading up to the Civil War, beginning with the end of the Mexican-American War in the 1840s. As part of his introductory history, McPherson discusses the elections in 1848, 1852, 1856, and 1860. Lincoln was, of course, elected in 1860 and was the first President elected from the newly-formed Republican Party. The Republican Party replaced the Whig party, which was, ultimately, destroyed by the crisis over slavery.

We've had no major party "births" or "deaths" in the last 150 years. There is always talk about forming a third party, of course. But, historically, that doesn't generally seem to be what happens. Instead, once in a blue moon, you get the death of one party and the emergence of a new one. Both of the current parties have survived through the Great Depression, World Wars 1 & II, Vietnam, and Iraq. They also survived the Great Inflation of the 1970s and early 1980s as well as the Cold and Korean Wars. All this makes me wonder, what is it that causes a party to die and be replaced by another one? And is there any possibility that a new party could be born out of the current financial crisis?

I'll have to do a lot more thinking about this. But I'd appreciate any thoughts (or directions on some reading I could do).

posted by Curt, on September 19, 2008 06:50 am

Up to now, I've been very outspoken, in an online sort of way, in saying that our own overconsumption is to blame for this credit crisis. I still maintain that. But we are not to blame for the government's irresponsible and unfair bailout response. That's all on the policymakers, who felt they had to "protect" the economy in an election year by putting everything on the back of the taxpayers without so much as even asking about it.

And now they've banned short-selling in the market, given a government guarantee to every Wall Street corporation and the market is surging--All on the back of the American taxpayer and his children. While it's generally an overused phrase, this is an outrage.

If the government is going to take this course, THESE MANIPULATED MARKETS SHOULD BE SHUT DOWN! No one should be trading now.

posted by Curt, on September 15, 2008 07:54 pm

Today's collapse of Lehman Brothers has me (and a lot of other people) thinking about "what went wrong." A lot of people are blaming President Bush for the current credit crisis. And I can't really blame them for wanting to. Bush has been a complete and total failure financially. He has been one of the most recklessly irresponsible money managers our country has ever had, and our children will pay for his massive deficit spending. But I'm not going to let people get away with blaming Bush for this one. With the little influence I have I'll speak out and tell anyone and everyone who can hear me that we are the ones to blame. Not Bush, not Clinton, not Reagan: us.

I think this is important to get the blame game right on this one because Bush will be gone in a few months, and if we don't place the blame were it belongs, things will never have a chance of changing. History-types like to use the phrase that goes something like this:

Those who don't learn their history are doomed to repeat it.

Allow me a little paraphrase:

Those who refuse to take responsibility for their mistakes are doomed to repeat them.

So, in the interests of trying to avoid this happening again (at least for a while), let me tell you why we're to blame.

This is not a Presidential economic crisis. It's not driven by tax policy, trade policy, ideology (in the conservative v. liberal sense), or even foreign policy. The current economic crisis is a credit crisis, driven by individual credit and purchase decisions. In other words, it's the end result of America's consumption-based value system of the last 30 years. And, though it was arguably facilitated by the loose-money policies of the Federal Reserve (only a quasi executive agency) since it's the result of individual money management (or mis-management, usually) decisions, it was certainly not caused by the Fed's policies.

No, the bubble, and its popping, resulted from that wonder of the economic world, the incredible American consumer, who spent at all costs and nearly singlehandedly brought the world's financial system to its knees. The credit bubble created by our financial overextension was so big and so fragile at the same time, that it only took a couple shocks (think declining asset prices and $4 gasoline) to its system for it to collapse. And the collapse is in process despite the government's best efforts to forestall it. Bush has done everything he legally could (and, arguably illegally) to prevent what has happened today. He's not the cause of it, we are.

All George Bush is guilty of, at least as far as this crisis is concerned, is the same thing that all of the other Presidents of the last 30 are guilty of: being unwilling to stand up, during a bubble and tell people that the prosperity is false and that the bubble's got to be popped before it gets any bigger. Of course, doing that today is equivalent to committing political suicide. We won't let any politician do that. The minute he tries, we exercise the franchise and strip him or her of power. Ultimately, the failure of our government to arrest the credit crisis before it reached epidemic proportions is all on us. The financial irresponsibility of the government is nothing more than a mirror image of our own bad fiscal habits, albeit on a much larger scale.

So, America, today we got the first installment of our bill for granite countertops, big SUVs, ridiculously expensive and inefficient trucks, four-wheelers, boats, designer clothing, and all the other forms of unnecessary, conspicuous consumption that you can think of. I predict that many of us will be shocked at the price tag. Eventually, this crisis will work itself out, as painful as it's going to be. But if we want to make sure it doesn't happen again, it's going to take more than switching parties in an election year. President Bush is the wrong target for our frustration. It needs to be turned around and focused straight on you and me. If we don't realize that, we're not going to solve anything, and we'll start building the next credit bubble as soon as this one is done popping.

posted by Curt, on September 9, 2008 12:44 am

The long anticipated bailout is now a reality. Most commentators now agree that the American taxpayer (really meaning the younger American taxpayer and his children) have now been saddled with some unknown billions in bad mortgage debt. A great number, especially here in Utah, are predicting the end of the United States as we know it. According to them, we're following Europe into the dark abyss of socialism (never mind that we've really been there for years already).

I just can't get too worked up about this one. Maybe it's because I'm worn out. Maybe it's because I'm happily settled in a nice, rented home in a good neighborhood and so I don't really feel a need to confront the housing market right now. Or maybe it's because, as repugnant as it seems, there's a lot of truth in the idea that the bailout was necessary in order to "save the economy." Trust me, I know that I'm affected. But, what can we do about it really? There is no candidate out there who will exercise anything remotely close to fiscal discipline. And most of us would try to string them up if they tried. It's not good for me to get worked up about it over and over again. I just can't feel continual passion and outrage over each continuous development once I have a good idea of the route we're going down. I'll write-in Ron Paul as my protest vote in this election and continue to advocate for fiscal restraint at the household level. That's about all I can do. But, even though I'm not worked up about the Mother of All Bailouts So Far, I remain an intensely interested bystander.

It seems to me that we have the US government putting all its resources into preventing a paradigm shift. What we have is a long line of credit excesses and the government is putting its full resources behind a broken system to try and keep it going as long as it can. I'm curious: how much longer can they prop it up? What we're seeing in the response to this economic crisis is the testing of the economic assumption of the last 30 years--we can always spend more because we're the USA; you're investments in us our safe, because the government will always make good. Now the government's trying to come through on its promise in a world that is remarkably different than the one in which the paradigm was developed. Can it do it? My own opinion is that it probably cannot. The real question for me is how long can it keep plugging holes in the dike? Everyone in Washington seems committed to doing it. So, we're in for the long haul, and the Fannie and Freddie bailout is just another step along what promises to be a most interesting road.

I suppose that all this sounds incredibly pessimistic. And I guess it is, generally. But I'm not a complete pessimist (although perhaps a bit over-realistic). I don't believe this economic crisis spells doom for America, so long as a significant number of people realize that the end-all be-all of life isn't new things. And I have confidence that they will, although it will be a painful proposition. As painful as it is all going to be, it should be a fascinating journey with many important lessons learned.

posted by Curt, on August 29, 2008 12:24 pm

I have all the admiration and respect in the world for my good friend, patriot, and concerned citizen John McCain, but [THEN PROCEED TO TRASH INTELLIGENCE, JUDGMENT, AND CHARACTER AT WILL].

With fronds like these, who need anemones!!!

posted by Curt, on July 27, 2008 06:40 pm

We're only part way through the drama yet, but watching the government response to the housing crisis has been an eyeopener for me. It's made me realize that you should be wary making predictions about the outcome of a "game" based on the current set of rules because the rules can be changed mid-stream. The housing bubble, its crash, and the political response provides a good example. I became interested in the whole thing starting in 2003, shortly after I got married and was getting ready to graduate. My wife and I had some savings in the bank, and I had a decent job for a kid in college--but there was no way I thought that I was secure enough to buy a home. However, a substantial number of my friends were--many with no income outside of student loans or a part-time job that paid less than mine. All the lending excesses that were going on then are now well documented.

At the time, I just didn't believe the people saying that I could afford a home; perhaps in part because my own parents had some bad experiences with their responsible real estate purchases. I didn't think too much of it. I chalked it up to my risk-averse nature more than anything else. However, as time went on, I became more concerned that something was really wrong while I watched prices go up at an astounding pace. I like many others, was first worried that I would be priced out of a home. After just some basic investigation, however, I quickly realized that the whole thing was ridiculous and unsustainable. I just decided that I would wait until everything collapsed, and hoped that by the time it did I would be ready to jump into the market. I became a part of the wait-for-the-housing-crash crowd. As a group, I suppose that we fancied ourselves more intelligent than the average buyer and congratulated ourselves on knowing that the whole real estate bubble would come crashing down on itself. We knew that people wouldn't be able to afford their loans and that prices wouldn't go up forever. We knew that people were spending beyond their ability to repay. We knew that when the bills came do and appreciation slowed down, they would be in big trouble. And we were right about that.

But perhaps we weren't as smart as we thought we were. What most of us, including myself, didn't anticipate was a huge, government-financed bailout. Apparently, the bubble was too big to let pop. Perhaps it was too big to even let it slowly deflate. The government response has been massive. And while it remains to be seen whether it's enough to make a huge difference, there have undoubtedly been some that have been bailed out, and more that will be when Bush signs the housing bailout bill tomorrow. In my mind, I can hear them taunting me:

You thought you were smarter than us. Did you ever think that we saw the bubble too, realized how big it would become, and got in knowing that it was almost certain we'd be bailed out? Who's the one who's laughing now? You're now financing my extravagance with your tax money. You'll be paying for this one way or the other . . . don't you wish that you'd jumped in when you had the chance so that you could be bailing out yourself, rather than me?

Now, I don't regret my decisions. I'm comfortable, and in absolutely no immediate danger of financial overextension. I don't live like a pauper (at least I don't think so). We have plenty of food, and the financial and personal peace of mind that comes from knowing I've made good on all my obligations. I'm not ashamed to have people come to my home because it's too extravagant and my kids can walk on the carpet with wet shoes and I don't worry too much. That's a nice life. I value it more than granite countertops and a two-sink master bathroom or home theater. What I am suggesting is that it seems like it's no longer good enough to understand the rules that govern a game. The rules change. How can you make sound financial decisions when you don't know the rules that will govern your choices? You can't predict outcomes based on on changing game. Under the current "moral hazard" type of framework, you've got to predict what will happen under the present system, and then predict how that is likely to precipitate midstream change within that system in order to try and get the likely outcome. This to me seems to be quite a difficult, if not impossible, undertaking.

I don't think this is anything new, but it's a macro rule of life that I didn't understand before. I see it as the hidden part of the moral hazard problem. Everyone talks about how bailouts encourage irresponsible behavior. But, in my situation, I'm left wonder what they do to the responsible--those who have no desire nor inclination to engage in reckless behavior. Sure, we know that we end up paying for the bailout. But we're also left in a state where we're smart enough to realize what's responsible under the current system but, at the same time, are left uncertain about how we can responsibly proceed when the seemingly inevitable changes come.

So where does this leave us? Well, I'm one that happens to believe that there is a bigger rule-maker than the government, and that there are some basic rules of the game of life that can't be changed, no matter how much influence, lobbying power, or importance that one has. The law of the harvest, i.e. you sow what you reap, is pretty darn immutable (at least in the long run). Same with the golden rule. I'll plan my life according to those rules. But, beyond paying for them, the lack of predictability engendered by bailouts is certainly a frustrating thing.

posted by Curt, on July 17, 2008 09:56 pm

I thought I would post this very amusing quote from a new article by The Onion: Recession-Plagued Nation Demands New Bubble To Invest In

"Every American family deserves a false sense of security," said Chris Reppto, a risk analyst for Citigroup in New York. "Once we have a bubble to provide a fragile foundation, we can begin building pyramid scheme on top of pyramid scheme, and before we know it, the financial situation will return to normal."

You can read the whole, and highly amusing, article here.

posted by Curt, on July 13, 2008 04:30 pm

It's been a long time since I've posted one of these "influences" posts. This one was prompted by a paper written by a law school friend on Patrick Henry, national power, and the War Powers Resolution. His paper wasn't focused on Henry's well-known speech (which follows below). Instead, it focused on his arguments about the danger of consolidation of power, and suggested that they remained a good guide for us today. Essentially, he argued that the Anti-Federalists and their arguments shouldn't be consigned to history simply because they lost the battle over the ratification of the Constitution. I agree. But, this post is more about Henry's speech than the Anti-Federalists, because it has influenced me ever since I was a kid and my mom read to us about Patrick Henry in a bedtime story. That's how I fell asleep for quite a few years--to biographies of famous historical figures, and I'll be ever grateful for it.

In any event here's Patrick Henry's speech. My commentary follows:

No man thinks more highly than I do of the patriotism, as well as abilities, of the very worthy gentlemen who have just addressed the House. But different men often see the same subject in different lights; and, therefore, I hope it will not be thought disrespectful to those gentlemen if, entertaining as I do opinions of a character very opposite to theirs, I shall speak forth my sentiments freely and without reserve. This is no time for ceremony. The questing before the House is one of awful moment to this country. For my own part, I consider it as nothing less than a question of freedom or slavery; and in proportion to the magnitude of the subject ought to be the freedom of the debate. It is only in this way that we can hope to arrive at truth, and fulfill the great responsibility which we hold to God and our country. Should I keep back my opinions at such a time, through fear of giving offense, I should consider myself as guilty of treason towards my country, and of an act of disloyalty toward the Majesty of Heaven, which I revere above all earthly kings.

Mr. President, it is natural to man to indulge in the illusions of hope. We are apt to shut our eyes against a painful truth, and listen to the song of that siren till she transforms us into beasts. Is this the part of wise men, engaged in a great and arduous struggle for liberty? Are we disposed to be of the number of those who, having eyes, see not, and, having ears, hear not, the things which so nearly concern their temporal salvation? For my part, whatever anguish of spirit it may cost, I am willing to know the whole truth; to know the worst, and to provide for it.

I have but one lamp by which my feet are guided, and that is the lamp of experience. I know of no way of judging of the future but by the past. And judging by the past, I wish to know what there has been in the conduct of the British ministry for the last ten years to justify those hopes with which gentlemen have been pleased to solace themselves and the House. Is it that insidious smile with which our petition has been lately received? Trust it not, sir; it will prove a snare to your feet. Suffer not yourselves to be betrayed with a kiss. Ask yourselves how this gracious reception of our petition comports with those warlike preparations which cover our waters and darken our land. Are fleets and armies necessary to a work of love and reconciliation? Have we shown ourselves so unwilling to be reconciled that force must be called in to win back our love? Let us not deceive ourselves, sir. These are the implements of war and subjugation; the last arguments to which kings resort. I ask gentlemen, sir, what means this martial array, if its purpose be not to force us to submission? Can gentlemen assign any other possible motive for it? Has Great Britain any enemy, in this quarter of the world, to call for all this accumulation of navies and armies? No, sir, she has none. They are meant for us: they can be meant for no other. They are sent over to bind and rivet upon us those chains which the British ministry have been so long forging. And what have we to oppose to them?

Shall we try argument? Sir, we have been trying that for the last ten years. Have we anything new to offer upon the subject? Nothing. We have held the subject up in every light of which it is capable; but it has been all in vain. Shall we resort to entreaty and humble supplication? What terms shall we find which have not been already exhausted? Let us not, I beseech you, sir, deceive ourselves. Sir, we have done everything that could be done to avert the storm which is now coming on. We have petitioned; we have remonstrated; we have supplicated; we have prostrated ourselves before the throne, and have implored its interposition to arrest the tyrannical hands of the ministry and Parliament. Our petitions have been slighted; our remonstrances have produced additional violence and insult; our supplications have been disregarded; and we have been spurned, with contempt, from the foot of the throne! In vain, after these things, may we indulge the fond hope of peace and reconciliation. There is no longer any room for hope. If we wish to be free--if we mean to preserve inviolate those inestimable privileges for which we have been so long contending--if we mean not basely to abandon the noble struggle in which we have been so long engaged, and which we have pledged ourselves never to abandon until the glorious object of our contest shall be obtained--we must fight! I repeat it, sir, we must fight! An appeal to arms and to the God of hosts is all that is left us!

They tell us, sir, that we are weak; unable to cope with so formidable an adversary. But when shall we be stronger? Will it be the next week, or the next year? Will it be when we are totally disarmed, and when a British guard shall be stationed in every house? Shall we gather strength by irresolution and inaction? Shall we acquire the means of effectual resistance by lying supinely on our backs and hugging the delusive phantom of hope, until our enemies shall have bound us hand and foot? Sir, we are not weak if we make a proper use of those means which the God of nature hath placed in our power. The millions of people, armed in the holy cause of liberty, and in such a country as that which we possess, are invincible by any force which our enemy can send against us. Besides, sir, we shall not fight our battles alone. There is a just God who presides over the destinies of nations, and who will raise up friends to fight our battles for us. The battle, sir, is not to the strong alone; it is to the vigilant, the active, the brave. Besides, sir, we have no election. If we were base enough to desire it, it is now too late to retire from the contest. There is no retreat but in submission and slavery! Our chains are forged! Their clanking may be heard on the plains of Boston! The war is inevitable -- and let it come! I repeat it, sir, let it come.

It is in vain, sir, to extenuate the matter. Gentlemen may cry, Peace, Peace--but there is no peace. The war is actually begun! The next gale that sweeps from the north will bring to our ears the clash of resounding arms! Our brethren are already in the field! Why stand we here idle? What is it that gentlemen wish? What would they have? Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take; but as for me, give me liberty or give me death!

With due respect to both Roosevelts, Kennedy, Reagan, and even Lincoln, I doubt there is any other piece of American political rhetoric more inspiring. And it's been adopted as part of the American psyche.

But what does it really mean for America and Americans? Many look at our country today and would say that we have chosen life and peace over freedom and liberty. Granite countertops, big trucks, walk-in closets, fast food, and conspicuous consumption seem much more the vision and goals of the American future than does liberty. Perhaps, then, the words of Patrick Henry have become yet one more part of the vast list of contradictions between the way Americans view themselves and the way they actually are. Maybe there is little spirit left in our country, especially as compared to 1776, 1861, or 1941.

I actually don't think that is the case. If Americans of the past were always willing to make the difficult choice of liberty over security, why was there a need for Patrick Henry and Thomas Paine? The reality of our history seems to be that we always need a bit of prodding to take on the difficult tasks that must be completed to secure the liberty and unity of our nation. In other words, we don't like to make the choice between liberty and security until we're really forced to. That to me, seems to be the reality of the American experience. In 1776, 1861, and 1941, no less than today, Americans needed some prodding before they were willing to stand up and save the Union and preserve their liberties. And, in significant ways, it was rhetoric that called to memory America's vision of itself that moved Americans to action. It strikes me that one of the things that Patrick Henry's speech stands for is Americans' susceptibility to ideas--big ideas about the fact that they are still engaged in the cause for which their forefathers immigrated, fought, and worked. And when there is a combination of exigency and a person with the passion and skill to call those ideas to the forefront of America's mind and heart, we still respond in largely the same way that we did back in 1776. At such times, when we are forced to see the whole picture, to "know the worst," as Henry put it, we respond with our best. I have hope that it will continue. Simply because we're not convinced that it will doesn't mean that it won't. Not even Henry knew how those listening to him would respond to the challenge he issued. He couldn't know, and neither can we. But he had faith, as do I, that, when the challenged is issued in a way that Americans respond to, it will be met by the best that America can give.

So, Henry's speech is moving to me, both as a statement of what I believe and a statement about my country--about its virtues and faults. So much for my patriotic posting. I'd appreciate your thoughts.

posted by Curt, on July 11, 2008 05:25 pm

A few months ago, people were debating about whether the US economy was really in recession. It looked like, perhaps, the Federal Reserve had staved off financial collapse and that, even with the demise of their "housing ATMs," the American consumer was still spending enough to get the economy through its rough patch with minimal or stagnant growth. In addition, increasing US exports (fueled by the weak dollar) were propping up American industry, inflation was moderate (so we were told), oil was rising, but not yet out of control, and the government was getting ready to hand out checks via its stimulus package. Even though the housing news was bad, the economic situation didn't look extremely dire--in fact, it looked better than it did in other recessions, which seemed to get much less press.

It seems as though the debate is now over. The lack of the "traditional" bad economic news (i.e. hundreds of thousands of job losses), instead of showing that the economy was withstanding the housing bubble, really just betrayed this as what it is--a different kind of economic crisis: one not based so much on the cyclical economic cycle, but one rooted in the continuous abuse of credit and debt leveraging by both American businesses and consumers. This is a collapse of a system, not a normal downturn within the system. These collapses build up slowly and occur with relatively little warning (at least to those who aren't paying attention). I think people have sensed that this is what is going on, and that this is why the economic news has gotten so much press, even though much of it has been fairly mild (outside of the housing price decline).

These types of systemic collapses are not all that rare. They've happened before, and more often that just in the Great Depression. And when they come, they're painful. The last time America had this type of collapse was 70 years ago. Yes, that's right, in the Depression. And I suspect that we may be headed for another one. Hopefully not as severe, but I'm becoming more and more certain that it's going to be more severe than anything we had since 1929.

So what does this all mean for housing prices? They've already declined significantly, but what's so interesting (and scary) is that thus far the decline has been entirely self-induced. The decline in home prices has not resulted from any weakness in the broader economy. People still have their jobs: unemployment remains low. No, the "losses" in home values so far as just the elimination of the bubble excess. The whole problem is that many Americans have relied on those excesses, and can't take their elimination. We haven't even hit the bottom of housing prices in a good economy, and it's scary to think how far they could fall if the economy turns bad, and it looks like it's starting to. If the economy turns bad, and people start to lose their jobs, they'll have to start putting their homes on the market. The increase in supply will drive prices lower, especially when combined with tight credit and high mortgage qualifying standards, which are rapidly becoming the norm rather than the exception. Things will get even worse for homeowners if the Federal Reserve raises interest rates. The run up in value was driven primarily by cheap credit, not wage increases. If credit becomes expensive, sellers will be forced to lower their prices because higher interest rates will make a $300,000 home much more expensive (monthly payment wise) than it was back in the heady days of 2005 and 2006. This will further shatter the construction industry, already reeling from the current home price declines and $4 per gallon gas.

It's not a pretty scenario, and I haven't even mentioned inflation and lack of savings. If even part of this unfolds (and I suspect that it will), I would not be surprised to see home prices fall another 30 percent.

Now, one thing I've learned from watching this whole thing is that government intervention can be a game changer, and that you can't just assume that things will unfold according to the status quo. But it appears that even the massive resources of the federal government might be unable to steer us away from this one--even as willing as they seem to be to try. But you need to be aware that they are going to try (probably unadvisedly) and plan accordingly.

Even though citizens in a democracy should get what they want good and hard (see prior post about H.L. Mencken), they don't very often. But, sometimes they do. It seems that years of government softening the consequences of easy consumer and business credit might be finally coming home to roost. I have a feeling that we're about to get it good and hard and that there's not much anyone, the government included, can do to prevent it.

posted by Curt Bentley, on June 26, 2008 06:22 am

I just had to post the comment that I found on Marketwatch.com. I thought it was one of the funniest things I have read in a while. People certainly seem scared about things . . . more so than I ever remember. I haven't been able to make up my mind as to whether this time is scarier than normal, or I just wasn't paying attention during any of the other recessions. In any event, enjoy the humor:

Ladies and Gentlemen:

This is your Captain Ben Bernake speaking. Welcome to the now-bankrupt U.S.A. Air, flight number 1929, non-stop service to Depressionville.

After reaching a cruising altitude of 5.25 percent, we'll steadily drop down to 2.0 percent and hold it there for a long time before crash landing at Depressionville.

For your safety, please bundle-up Treasury Bills and stay in dollars. Federal law prohibits speculating in commodities.

Our in-flight entertainment will feature two Market Watch films, "2 Dollar Gas," starring Rex Nutting as comedian, and "Bull Run," starring Mark Hulbert.

In the unlikely event we loose cabin pressure, there will be a ten dollar surcharge to use the Oxygen mask.

After reaching the cruising altitude, we will be serving you complimentary doses of Prozak and Maylox.

If there is anything we can do to reduce your inflation pain, please do not hesitate to contact one of our flight attendants to receive a low CPI number.

Thank you for choosing U.S.A. air for your final destination, sit back and rest in peace.

posted by Curt, on June 5, 2008 06:05 am

Here's a great quote on democracy from H.L. Mencken:

Democracy is the theory that the common people know what they want and deserve to get it good and hard!

And the practice is that, even though we deserve to get it good and hard, we rarely do. And, because we never "get it," we never learn, and the cycle of bad public decisions seems to go on ad infinitum. While I don't have a whole lot of good to say about Mencken, I must admit that he seems right on with this quote.

posted by Curt Bentley, on April 3, 2008 07:35 pm

It's been hard to miss the gloating over the economy--both by those who are convinced that we are about to enter into a major, major recession and those who criticize the doom and gloomers. My prior posts leave little doubt that I find myself more aligned with the former group. Both sides seems convinced that recent events have shown that they've been right all along. The doom and gloom crowd can point to Bear Stearns and bad economic data and the more optimistic group can point to . . . Bear Stearns and somewhat better economic data. So, is the sky falling or isn't it, and what will it take for this thing to be finally resolved?

Nobody doubts that we're going/have gone through a rough time. It appears that the doom and gloomers were right about that. If you take government officials seriously, apparently the entire financial system came close to collapse (whatever that means) with the run on Bear Stearns. However, the more optimistic group views that same news with optimism. The entire point, to them, is that there has bee no financial Armageddon; the government institutions set up to prevent that reality stepped in and did their job. While it's not going away, the liquidity crunch fears that were so palpable in the immediate aftermath of Bear Stearns seem somewhat diminished. So, are we out of the woods or not? That's what millions of Americans, including yours truly, want to know.

Let me weigh in with my two cents. One of the hard things here is that it is impossible, in my view, to know what's really going on. People thought we were coming out of the woods right before Bear Stearns collapsed. One of the problems here is a tremendous lack of reliable information. I suppose that's inevitable when so much of the functioning of the financial system depends on the maintenance of confidence. Now, it seems, many realize that the confidence we had might have not been well-placed. At one level, the credit crisis is a confidence crisis. Nobody knows the exact financial condition of the banks that drove the easy credit economy of the last five years--perhaps not even the banks themselves. That's a scary thought--and people are starting to confront it. Could there be another Bear Stearns around the corner? Perhaps, perhaps not. Whoever it might be certainly won't tell us about it beforehand. And, if there is, how many more can the Federal Reserve engineer a rescue for? These are big, unanswered questions . . . and it appears that nobody can answer them right now (or at least no one reliable is stepping up and claiming that they can, and that, should tell you something).

The second huge unanswered question out there is what the Fed's actions mean for our future. Article after article talks about the taxpayers being "on the hook" for Bear Stearns now. What exactly does that mean for the next couple years and what does it mean for our future? What does it mean for us if the Fed steps in to act in a second, third, or fourth Bear Stearns situation? The whole thing strikes me as a rather ominous precedent that (even though it is getting some significant media attention) is not really getting the attention that is deserves. In the collective sigh of relief that went up upon the saving of Bear Stearns, we may be evaluating the action a little bit uncritically. We're told it was necessary to save the Wall Street fat cats in order to protect John Doe middle class. The "we had to save the bad guy to protect the good guys" rationale is unconvincing at the best of times, yet it seems like it is being embraced a little too readily in this case.

So, is the sky going to fall? I'm not entirely sure any more. At one time I was completely convinced that it was. So, I've moderated my views a bit at this point (and give Bernanke a little more credit for intelligence than I did before, although I still disagree with him on principle). But, despite my uncertainty about the short-term economic result, I am completely convinced that the landscape that we operate in is going to be significantly changed by our love affair with houses, big trucks, boats, and credit cards. It strikes me that, during the last few years, we made many promises that we're still going to have to keep and that there's a long way to go before we can sleep knowing exactly what type of bed it is that we've made for ourselves. Hang on for the ride, and, for once, America, live on the cautious side. We should all at least be able to agree on that.

posted by Curt, on March 21, 2008 05:47 pm

I've mentioned before that I am reading a book titled Devil Take the Hindmost: A History of Financial Speculation. I've even quoted from it in some of my other posts. This week I've been reading the chapter on the speculation leading up to the stock market crash in 1929 (and subsequent depression). Some of what I read was startling in the way it tracked almost exactly what we are seeing today. I'm not the only person who has noticed the parallels. People are writing about it all the time, wondering if we're headed for another Great Depression. Some say that we are, others say that the financial protective structures we've set up during the last 80 years make it almost impossible--in their minds the Great Deperssion was close to a once in history event that involved the coincidence of so many unusual factors that it will never be repeated. They may be right . . . I'm not sure. But what is remarkable is the extent that the last few years parallel the 1920s. Here's some history. Judge for yourself.

The first premise of the "new economics," as it was otherwise called, was that the busines cycle--the periodic undulations of trade first observed in Sir William Petty's successions of "dearth and plenty" back in the seventeenth century--had been effectively abolished by the establishment of the Federal Reserve System in 1913. Before this date, financial crises in the United States had been exacerbated by the absence of a central bank to provide funds to the banking sector durinf periods of instability. The Federal Reserve, with its ability to control itnerest rates and conduct "open market operations"--buying and selling government bonds in order to affect the supply of money available to banks--was hailed in the 1920s as "the remedyto the whole problems of booms, slumps, and panics." As a result, bankers and speculators alike were lulled into a false security which led them to operate irresponsibly, exacerbating the severity of the ensuing crisis (page 192).

Another:

Radios, fridges, cars, and clothes could all be purchased on credit. By the end of the decade, when outstanding installment debt had risen to $6 billion, it was estimated that around an eighth of all retail sales were made on credit. There was a decidedly speculative element in the growth of installment credit: present consumption was being financed with anticipated earnings. Put another way, in their appetite for immediate gratification, the consumers of the 1920s were devouring their future. When the future eventually arrived, they found the cupboard bare. At the time, however, installment purchases were seen as yet another beneficial new era development. Credit and consumption, it was argued, formed a virtuous circle since from the immediate increase in prosperity would come the ability to pay off debt. (page 198)

Some more:

The Federal Reserve in Washington--the institution that had supposedly abolished panics--had inadvertently ignited the stock market boom by lowering interest rates in 1925. This policy was intended to accommodate the Bank of England, which was suffering from an outflow of gold after a disastrous return to the gold standard at the prewar exchange rate. In the summer of 1927, the Fed bowed once more to British demands (backed by the French and Germans) and lowered the discount rate to a record low of 3 1/2 percent. Faced with the growth of speculation, the Fed changed tack and from February 1928 successively raised the discount rate until it reached 6 percent in August 1929. Yet the profits from buying shares on margin were simply too enticing. As long as the market continued rising, speculators were prepared to pay more for their margin loans. While interest rates remained too low to restrain speculation, they became too high for the economy as a whole (or what in the nineteenth century used to be called "legitimate commerce").

This sounds familiar to those of us who watched the market this last week:

In the face of minor stock market panics--in June and December 1928 and later in March 1929--the bull forces succeeded in regrouping. They came out stronger for their trials, until the point was reached when speculators became deaf to warnings they did not wish to hear and developed a belief in their own invincibility. Instead of reasoning, they thrived on countless rumors of fabulous wealth gained in the stock market by valets, chauffeurs, cattlemen, actresses, farmers' wives, and so on. In Only Yesterday, Frederick Lewis Allen described the trance into which the average American had fallen by the summer of 1929:

He visioned an America set free from poverty and toil. He saw a magical order built on the new science and the new prosperity: roads swarming with millions upon millions of automobiles, airplanes darkening the skies, lines of high-tension wire carrying from hilltop to hilltop the power to give life to a thousand labor-saving machines, skyscrapers thrusting above one-time villages, vast cities rising in great geometrical masses of stone and concrete and roaring with perfectly mechanized traffic--and smartly dressed men and women spending, spending with the money they had won by being far-sighted enough to foresee, way back in 1929, what was going to happen. (page 213)

And, finally, a long but good one:

Although stocks continued to slide until the middle of November, Hoover's administration acted promptly to mitigate the fallout from the Crash. The President's public pronouncements were consistently upbeat. He convened business leaders and urged them to maintain wages in order to sustain demand; private and public organizations were asked to bring forward their construction plans; and Treasury Secretary Mellon announced a small tax cut in November. The banking authorities also acted speedily. On 31 October, the Federal Reserve reduced the discount rate to 5 percent (followed by a further reduction of half a percent two weeks later). The New York Federal Reserve Bank oversaw a massive shift in the call loan market, as outstanding margin loans dropped by 50 percent between September and November. Foreign and corporate lenders continued to withdraw their funds from the call loan market, and were replaced by the New York banks which maintained low rates on loans and reduced margin requirements to 25 percent. There were no significant banking or brokerage failures in the immediate aftermath of the Crash, apart from the Industrial Bank of Flint, Michigan, which was forced to close its doors after it was discovered that a cabal of employees had stolen $3.5 million and lost it in the stock market. American corporations also did their best to steady nerves. The day after Black Tuesday, U.S. Steel and several other companies announced increased dividends. Samuel Rosenwald of Sears, Roebuck and Samuel Insull declared they would guarantee their employees' margin accounts. When General Motors announced an extra dividend on 14 November, the news was greeted jubilantly and the Dow Jones stepped off its low of 198 and rose by nearly 25 percent over the next few days.

Optimism was quick to resurface. On the day the market turned, Bernard Baruch cabled Churchill to inform him that the financial crisis was over; although this was of little comfort to the future prime minister, who lost more than L10,000--roughly L300,000 at today's values--in the Crash and was obliged to live frugally for the next few years. Baruch's was a conventional opinion shared by many of the smaller market players who believed the Crash presented them with yet another buying opportunity. The news was mostly positive. Turnover in the stock market was lively at five to six million shares a day; many corporations announced record profits for the previous year; and mergers in banking and utilities continued, as did the property boom. People took comfort in the fact that the major banks appeared well-capitalized. In New York, J.J. Raskob continued with his plans for the hundred-story Empire State Building, which he described as a symbol for "a land which reached for the sky with its feet on the ground." In his ambition to build the world's tallest building Raskob faced competition his fellow speculator, Walker Chrysler, who was building his own 1,146 foot high skyscraper. Meanwhile, William Crapo Durrant busied himself with new stock ppols. In March 1930, President HOover announced that "the worst effects of the crash upon employment will have passed during the next sixty days." The following month the Dow Jones broke through the 300 barrier, up nearly 50 percent from its post-Crash low.

Yet the "sucker's rally," as it was later called, came to an end in the spring of 1930 and the market resumed its downward course until the summer of 1932, when the Dow reached a low of 41.88 on a turnover of under 400,000 shares. In the intervening period, the country's gross national product had fallen by 60 percent from its 1929 level, and unemployment had risen to twelve and a half million. Over a third of the nonagricultural workforce was unemployed.

As the nation sank into depression, the apotheosis of the businessman came to an end (pages 217-219).

Some remarkable parallel's, huh? I'm not sure what will happen this time. I doubt it will be a 60 percent decline in GNP . . . but who knows? It's an uncertain time, and it seems to me as though it's time to go back to the basic, certain principles as much as possible (if you ever left them).

posted by Curt, on February 24, 2008 08:20 pm

I have been thinking about writing this post for a while now. The idea developed primarily as a result of a conversation that I had with my wife about Americans' general ignorance about the world around them. My wife was raised in Canada and during our conversation I explained to her my belief that Americans' ignorance of other places is just as much a product of cultural attitude as a failing school system. It is an historical relic of an isolationist history that seems absolutely astonishing given how much influence America exerts in a world that the majority of its citizens don't know or particularly care about.

But, this is not the main focus of this posting. As part of this conversation I expressed my belief that foreign language education in high school is an absolute waste of time and resources that could be better spent in geographic education. While I'm sure there are those who have gotten a great deal out of their high school Spanish class, I have never known one. I myself took three years of high school Japanese, and cannot remember any more than my father taught me on his own (and I knew prior to beginning the class). Now, this failure may not be unique to foreign languages. I strikes me as entirely probable that most people can say the same for their high school trig or algebra classes, and probably most social studies as well. However, even though ineffectiveness in outcomes is not necessarily a reason to abandon attempts at education in a particular subject (otherwise we'd pretty much abandon most, if not all, of the current high school curriculum), I am still convinced that foreign language education, at least in high school, is close to useless and should be abandoned. Let me set out my reasons and invite responses :)

Again, since I refuse to use ineffectiveness in teaching/learning as my criteria for which courses of study should be offered/discontinued, I'll begin by looking at purposes. What is it that schools are attempting to accomplish with foreign language education? At a broad level, we are told that it is necessary to prepare our students for a culturally integrated society and economically integrated world. In other words, society and the students themselves will be benefited by a student's ability to speak with others of different backgrounds in their own language. It seems obvious to me that high school foreign language courses have failed in successfully teaching the ability to communicate in another language. But, perhaps they have not entirely failed in preparing students to interact with others who speak different languages. In that sense, they may be somewhat effective in what we are told is the broader goal of such programs: preparing students to interact in an integrated society and world.

A second possible purpose of high school foreign language programs might be to serve as a introductory course that introduces students to various languages and stimulates interest in those who might want to pursue those courses in college. In all actuality, this is probably the purpose (at least in the current public educational system) of many high school courses. It certainly seems that high school courses serve this function for a number of people.

I think these are legitimate and even important purposes. Even assuming that high school foreign language programs serve these purposes, however, there are, I believe, more effective ways. Geographic education, which is largely ignored in today's America, would introduce people to cultures and places in a way that creates interest (at least in some) in future interaction and learning. It also has the benefit of exposing students to a larger array of places and cultures than does a single foreign language course. Geographic education also need not be limited to language education (which, in order to be effectively done, requires a level of concentration and classroom focus that simply cannot be found in an average high school classroom), but can be broader, encompassing other aspects of environmental, ethnic, cultural, and state relations as well. This broadness would, I think, stimulate more interest in a broader number of people than would a course targeted solely at language (and the necessary culture that accompanies it). While there is undoubtedly some overlap with the current "social studies" program, I envision geographic education as being much more place-focused; perhaps involving a mandatory course on American geography (discussing cultural, ethnic, and physical spatial patterns) as well as an elective regional course.

Admittedly, my views about what an effective geographic education would be are ill-defined at this point. But I am pretty sure that foreign language education is ineffective at accomplishing any of the purposes it could be plausibly be directed at and that geographic education would be more effective at, not only accomplishing those goals, but also at mitigating the average American's astounding ignorance about the world in which his country has become so involved.

And finally, let me offer my thought on why high school foreign language education--despite its obvious ineffectiveness--is praised, championed, and even accelerated. I think that there are two reasons. First, it's politically correct in today's America to be internationalist and inclusive; and second, foreign language education is viewed as an avenue for not only teaching cultural awareness but also teaching a practical skill (the ability to speak another language). In that sense, I think its champions view it as being able to accomplish the same goals as social studies/geographic education but with the added benefit of practicality. My own life experience (and that of those I know) refutes that idea, but anyone who has had a contrary experience, please let me know.

posted by Curt, on February 21, 2008 07:52 pm

This is a day late and probably covered at length by many others, but I thought I'd weigh in. I woke up yesterday and loaded up my news sites as usual. Lo and behold, there, as a secondary/tertiary headline was the news that Castro had stepped down (or chosen not to seek reelection or whatever) as President of Cuba. I thought to myself how times had changed over the last ten and twenty years. This would have been major, week-long news back when I was still in public schools. Even before 9-11 it would have been major news. But yesterday, it was second-tier news.

It all just reinforced to me how the times have changed. This is a much different world than I grew up in, for better and for worse. I actually feel a bit of nostalgia for the days when the end of Castro's rule would have been a major milestone. There's something familiar about that kind of world to me and something non-familiar about the world as it actually was yesterday, when nobody but people in some areas of Miami really cared.

But at the same time this makes me a little nostalgic, it also makes me hopeful. If we can come to a point in this country where the ending of Castro's rule doesn't even make headlines, we can reach a point where even what happens to Osama bin Laden isn't that big of news. Just as the Cold War didn't last forever, neither will the War on Terror. I firmly believe that I will not feel afraid to fly on planes every time I travel for the rest of my life. I have hope that we'll pass the "Clash of Civilizations" just like we passed the great "Clash of Ideology" that many thought would never end.

This second thing this headline reinforced to me was my tendency to always want to live in the past. I hope to have at least 60 more good years of life ahead of me. I suppose that, as time goes by, I'll become more nostalgic and even less excited about the changes. Can you imagine me when I'm 90? I'm not sure I want to. But, as I think about it a little more, perhaps all this has something to do with the gradual turning of hearts of children to fathers. I've thought about that a little lately, and am pretty sure that's the case. Maybe I'll be able to get excited about genealogy work after all!

posted by Curt, on February 20, 2008 02:32 pm

I've decided to weigh in on the biggest US craze since subprime lending--Obamamania. The news reports are full of reports of fainting women and rock-star crowds at Obama's political rallies. Even the mighty Clintons appear to have been swept aside by the tide. The real question everyone has is what is driving this movement? Searching inquiries by smart people haven't really found a satisfactory answer. So, I thought I'd weigh in with my thoughts.

And I'm just not sure.

Newsweek put out an interesting article today about Obama's changes. After a searching analysis of the crumbs of policy that he's accidentally let drip from his mouth over the last few months, they have reached this conclusion: he has no new policies.

Ladies and gentlemen, Elvis, has left the building! Obama's not about change any more than Hillary Clinton is about change. The change Obama is promising is the change from a Republican to a Democratic administration. Obama's policies aren't about change or non-partisanship, they're normal liberal policies that Republicans are going to oppose. That's something that happens every few years, and usually, people don't get so excited about it that they faint. Maybe Obama will try and be really nice with the Republicans, but you can guess how long that will last. So, ultimately, Obama's campaign holds no hope of change in partisan politics or in policies. Substantive change can't be the reason for the hype, because there isn't any.

Perhaps everything is explained by the fact that Obama is a good speaker. Maybe people are so starved for decent oratory after 8 years of President Bush that they want to elect the best speaker possible. At least we would have no more bad State of the Union Addresses or embarrassing speeches abroad. On that score, I think that Obama is the clear winner. When Obama speaks he sounds just like a southern preacher able to stir up a crowd. In some ways, it reminds me of Burt Lancaster in Elmer Gantry. If this is really the case, isn't it ironic that many of my intellectual liberal friends fall under the spell of a political preacher just as easily as some of the ignorant, easily-deceived members of the religious right who listened to Jimmy Swaggart. Obama's speeches have no substance in them, but crowd members sway back and forth together chanting "yes we can" just like they were at a southern revival meeting.

The final possibility is that the mania exists because Obama is the first major African-America candidate. There may be something to this one, especially for African-Americans and other minorities. But, we also have the first major female candidate, and we none of the mania there. This certainly does not explain it all.

Here we come to the last possible explanation: maybe this is all about procedural change. Maybe it's simply the way Obama has chosen to run his campaign appeals to people so much they are willing to overlook everything else--especially when there is no real alternative except more of Clinton/Bush and a rather unexciting old white man with quite a temper. I think this may actually be the most likely explanation at all. Obama has run the type of campaign that people were hungry for, and they have put aside any concerns about his substance and policies because they are just not excited about any alternatives.

So, here's my tentative conclusion: Obamamania is a product of: (1) America's history of slavery; (2) 17 straight years of Clinton-Bush; and (3) an extremely weak candidate pool in 2008. Without the combination of these three at this time, there would be no Obamamania. I'm not saying that Obama wouldn't be elected under other circumstances, but he'd be forced to run a different campaign--one on substance--and there would be no fainting women or rock concert rallies. But, times are what they are, and it makes Obama seem destined for the Presidency. I think he'll probably get it (although there is a long time to go). I feel sorry for the person elected, though. I predict that the economy will tank and they'll have a rough time of things. We'll see how long America will be able to forgive President Obama.