Wednesday, March 26, 2008

The McCain Speech

John McCain's recent speech on domestic and foreign policy -- and a pair of responses by the Hillary and Obama camps -- provide a foretaste of the choice of ideas that will be before the electorate in November. While personal politics will continue to play a major, even a dominant role, in the campaign itself, McCain's positions, which are starkly opposed to both Clinton's and Obama's mean that a clash of ideas will take place.

The main areas, as suggested by the speech, in which the Democrat and Republican sides will clash are the role of markets in the economy and the nature of US leadership in the current world crisis. According to Dan Balz at the Washington Post, McCain has indicated a preference for a continued reliance on markets to resolve problems.

"I have always been committed to the principle that it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers," [McCain] said. "Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy." ...

In policy terms, McCain is in a far different place than either Obama or Clinton, both of who have called on the federal government to provide billions in assistance to homeowners facing the threat of foreclosure. More broadly, his economic and domestic policies are rooted more deeply in market solutions than are either Clinton's or Obama's.

Obama characterized this approach as "just wanting to 'sit back' and watch what happens. 'In his entire speech yesterday he offered not one policy, not one idea, not one bit of relief for the nearly thirty five thousand North Carolinians who were forced to foreclose on their dream in the last few months. Not one single idea or a single policy prescription.'

McCain's war policy appeared to consist of two things. An attempt to rebuild international institutions and victory against the enemy wherever engaged. His program of alliance building contains an interesting reference to a "new global compact" a League of Democracies. The implications of this are significant. It implies a parallel structure to the UN, not in a legal sense, but in a political one. McCain is proposing the creation of a new source of political legitimacy independent from the United Nations.

"In such a world, where power of all kinds is more widely and evenly distributed, the United States cannot lead by virtue of its power alone," he said, according to a text sent out by his campaign. "We must be strong politically, economically, and militarily. But we must also lead by attracting others to our cause, by demonstrating once again the virtues of freedom and democracy, by defending the rules of international civilized society and by creating the new international institutions necessary to advance the peace and freedoms we cherish."

The most important responsibility of a great power, he said, is to be a good ally. "We cannot build an enduring peace based on freedom by ourselves, and we do not want to. We have to strengthen our global alliances as the core of a new global compact -- a League of Democracies -- that can harness the vast influence of the more than one hundred democratic nations around the world to advance our values and defend our shared interests," he said. ...

The other interesting thing in McCain's speech is the transformation of the campaign in Iraq into a test of how good an "ally" the United States is. While McCain's call to rebuild alliances will have liberals nodding, his conclusion from that premise is startling. Somewhere in the intervening five years Iraq has made the transformation from rogue state to US ally and therefore the first test of America's ability to be a reliable ally is in the Middle East.

He warned against "recklessly" retreating from Iraq, which is how he characterizes the proposals put forward by both the Democratic candidates, saying the United States has "incurred a moral responsibility" to help nurture stability and political reconciliation in Iraq.

"It would be an unconscionable act of betrayal, a stain on our character as a great nation, if we were to walk away from the Iraqi people and consign them to the horrendous violence, ethnic cleansing, and possibly genocide that would follow a reckless, irresponsible, and premature withdrawal," he said. "Our critics say America needs to repair its image in the world. How can they argue at the same time for the morally reprehensible abandonment of our responsibilities in Iraq?"

By focusing on these two items in his speech McCain pulls the spotlight away from our negative knowledge of the candidate: that is, what we don't know about where he stands. As Nassim Nicholas Taleb said in the Black Swan, it's what you don't know that can hurt you. But the problem is common to all candidates. With a direct philosophical clash set up between McCain and whoever is left standing after Denver there'll be at least some areas in which campaign platforms will be explicitly debated.




The Belmont Club is supported largely by donations from its readers.

55 Comments:

Blogger Doug said...

Import More Young Muslim Men! [John Derbyshire]
According to Fox News, according to Andy:

McCain said the United States' goal in fighting Islamic extremists should be "to win the hearts and minds of the vast majority of moderate Muslims who do not want their future controlled by a minority of violent extremists."In this struggle, scholarships will be far more important than smart bombs."

So–o–o–o, Senator, you favor bringing in even more students from Muslim Middle East nations — even more than the 15,000 extra Saudi students the President favors.
Is that right?
What a great idea, Senator. What a wonderful, visionary idea.
I just hope the flight schools can handle them all.
---
The elites still seem to believe that Universities are hotbeds of Patriotism.

------------------
Indictment: Hussein Funded Trip
Capitol Briefing Feds say nonprofit funneled funds to pay for '02 Iraq trip by three lawmakers.

Federal prosecutors on Wednesday accused a Michigan nonprofit executive of funnelling money from Saddam Hussein to pay for a 2002 trip to Iraq by three House Democratic lawmakers, according to the Associated Press.

The AP says the dates of the 2002 Iraq trip correspond to those of an infamous visit to the country by Reps. David Bonior (Mich.),
Jim McDermott (Wash.) and

Mike Thompson (Calif.).

Their trip, which came in the heated run-up to the war, sparked controversy and drew heated criticism from many war supporters who suggested that they were doing the public relations bidding of Hussein..

3/26/2008 04:20:00 PM  
Blogger Doug said...

Permanent link to
Indictment: Hussein Funded Trip

3/26/2008 05:28:00 PM  
Blogger Doug said...

I have it on good authority that Habu is in charge of seeing to it that everything is
Kosh ...er, Halal:

“We really want to make this special. We’re going to truck in halal food from Kansas City,” Holland said.

“The Saudi government is trying to place the students in a variety of institutions across the country, but where you get the competitive advantage is how you treat the students when they get here.”

3/26/2008 05:38:00 PM  
Blogger Clioman said...

Is it just me, or shouldn't we be just as worried about how much foreign money U.S. colleges and universities are taking in as we are about our politicians' funding sources?

3/26/2008 06:21:00 PM  
Blogger Doug said...

In general, that is probably true.
Keep in mind, however, the Saudis are tried and trusted allies in the Struggle against Global Wahhabism.

3/26/2008 07:07:00 PM  
Blogger Charles said...

McCain is self confessed as a guy who doesn't understand economics. So when he opens his mouth you have to look at what the man behind the curtain is pantomiming.

Beyond that, McCain married rich. His wife runs with the globalist crowd.

So when he wants to scent himself holy to the mrs he goes global.

3/26/2008 09:58:00 PM  
Blogger Doug said...

Night Landing

3/26/2008 10:08:00 PM  
Blogger Charles said...

Somewhere in the intervening five years Iraq has made the transformation from rogue state to US ally and therefore the first test of America's ability to be a reliable ally is in the Middle East.
////////////////

Here is an example of a primary problem with an atheist confronting a moslem. the atheist is on no better moral grounds than an african animist of the most primitive sort. the result is that the moslem will always have the high hand.

same problem inheres to european and anglo american secular elites from which McCain gets his marching orders.

3/26/2008 10:19:00 PM  
Blogger Charles said...

"Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy." .
/////////
I think this is a minimum. There are some regulatory rules that need to be instated--reinstated as the case may be. Banking was considerably deregulated back in the late 90s. We may be seeing the fruits of this in the current credit mess.

3/26/2008 10:22:00 PM  
Blogger Charles said...

We have to strengthen our global alliances as the core of a new global compact -- a League of Democracies -- that can harness the vast influence of the more than one hundred democratic nations around the world to advance our values and defend our shared interests,"
////////////////
this is not necessarily a bad idea. because the UN is loaded with undemocratic antiwestern nations. however, the devil is in the details. and you have to wonder about mccain whose formative experience with christianity is a north vietnamese prison guard drawing the sign of the cross on the ground,.

3/26/2008 10:32:00 PM  
Blogger Alexis said...

Pakistan will continue to be a headache for whomever becomes POTUS, especially considering how anti-American sentiment is strong there. Lately, Pakistani politicians are telling our emissaries off.

3/26/2008 11:06:00 PM  
Blogger Cedarford said...

McCain gave a bad speech.

He needs to get a good economic team together and ensure it isn't dominated by true-believer Reaganites applying 30-year old voodoo economic solutions to a changing world. In which the working class and middle class in America face extreme, new dangers Reagan's old team never anticipated.

A world in which it isn't enough to credit markets and the rich who own and run them, supply side, tax cuts for the rich as working in the citizenry's best interests. Nor the 30 year old crap about how well-educated Americans can out produce, out think, out-compete any other worker in the world now that some 3 billion mostly educated Commie Bloc and Indians and Muslim countries where pay can be as low as 20 cents an hour have arrived. And with our education system and health care system rated in the bottom 1/10 of most developed nations, those boasts aren't what they were when Reagan came in.
8 years of Bush's corporate whoring and bootlicking laissez faire Reagan worshippers has only worsened the mess.

Americans have little faith after all the Wall Street ripoffs starting in the 80s that markets are not rigged by the rich. That the "genius" of the markets does not always supply cheaper and better, unless it comes from China. Americans now know all those "exciting high tech jobs" are exportable. That Open Borders cause wage depression.
That tax cuts benefiting the wealthy do not trickle down, and do not generate more revenue that the debt incurred giving the rich huge tax cuts....and have launched an incredible concentration of America's wealth and wealth from productivity gains into the hands of a few.

McCain cannot take a "hands" off with markets run by people getting richer at the top from their outsourcing high-paying jobs to Europe and Asia, their taking most the profits from higher oil, gas, food prices and ethanol subsidies, and China imports to a small elite at the top.
He can't take hands off after the "market" has failed to resolve health care availability, training native workers instead of seeking millions of H-1B immigrants to do the computer, engineering, nursing jobs.

McCain needs to find modern Republicans who know the economy and know where government must fix what the private sector royally fucked up, what long-term strategies the government must impose on business to break their quarter-to-quarter short horizon, what education and what strategies America must have to prevent the bulk of the rest of our good-paying jobs from being gutted out of America.

McCain has a lot of work to do. Like the DEmocrats and Bush, he ill-serves the nation by putting 90% of his attention on Iraq. We have huge domestic problems that have been ignored too long and they are now at crisis levels.

3/26/2008 11:44:00 PM  
Blogger John Hawkins said...

We're probably headed for a recession. We can pull out of that with a little pain (says the guy who just started his own business...). What I worry about is idiot politicians trying to "fix" the exonomy. That's what turns a recession into a depression.

Whether McCain's speech is what he believes or what his economic advisors tell him to say, he's at least got the right position. Obama and Clinton will put the exonomy in the tank for a decade if they get the chance.

A recession is nothing more than several years of bad business decisions coming due, and the resulting shake-out. A lot of money went into bad ideas, or even good ideas that just didn't work out. Boom times kept the marginal endeavors afloat, and now we're seeing them go under and have their assets reallocated.

That's painful for the folks caught in the reallocation, and there will be people with some sleepless nights. I'll probably be one of them. But at this point, nothing real is being destroyed. Real (as opposed to paper) assets still exist, and real people with real skills are still able to work. The recession will mark the period of time where those two types of assets (workers and things) are yanked away from bad ideas and are rallocated (or reallocate themselves) to new and hopefully better ones.

If no one screws it up, it'll take about nine months to work through, and we'll start growing again. But if politicians start trying to "stop the pain", they might very well extend the pain for several years. Programs designed to stop the pain usually try to stop the reallocation, because that's where the pain is felt. But it's that very reallocation that needs to happen. Trying to stop it just makes it go on longer.

3/26/2008 11:58:00 PM  
Blogger Gary Rosen said...

C-fudd once identified himself as a "conservative Republican". Not the first of his lies, now he's advocating the type of government-controlled economy that worked so well in Soviet Russia ("long term strategies the government must impose on busisness"). I guess the Joooish Bolsheviks got to him bwahaha. Or maybe he's a self-hating Jew himself. Anyway, regale us once more with stories about the "heart and courage" of Hezbollah savages who use civilians as human shields and brag about the body parts they're holding, Fudd.

3/27/2008 12:02:00 AM  
Blogger Pangloss said...

The current banking and borrowing problems did not spring from deregulation. They sprang from government regulations that required banks to make risky loans or else face prosecution for discriminating against minorities.

3/27/2008 12:05:00 AM  
Blogger Cedarford said...

I see Rosen is indulging in the time-tested Jewish way of alienating the people they seek to influence. Then professing shock when over time, again and again in history, the attitude of the natives or neighbors hardens against their machinations.

Then things come to a crisis, Jews get pounded on and all they can do is have a faux shock about why the native cattle they manipulate and exploit have for some strange reason shifted their beliefs, and developed such negative attitudes to the guests they once welcomed....

And twice, Hez routed Zionist invaders with superior bravery and tactics. Heart and courage. Something that stings ol' Rosen considerably.

America has lost one in five manufacturing jobs under George Bush. The median wage has lost ground, while prices in basics -- gas, home heating, health-care premiums, college tuitions -- have soared. One in 10 homes across the country are now "under water," worth less than their mortgages. Nationally, we have to borrow or sell off assets worth $2 billion a day to foreigners to cover our trade deficits. We have to borrow an additional 900 million a day to cover Bush's government operating deficits.

This can't go on, as Americans well understand. Pessimism is rising about their children's futures, and an increasing majority see globalization as negative.
Large majorities say Washington has been captured by the wealthy and entrenched corporate lobbies, crippled by partisan posturing and political bickering, and simply doesn't work for them.


The populism of Obama and Clinton doesn't speak just to the angry blue-collar workers of Youngstown and Toledo. It finds an audience across the country, one that will only grow as this economy gets worse, which it surely will.

John McCain had best wake up to the fact he cannot address our massive structural problems with "hands off" 30 year old Reaganism. If he does not offer modern solutions to America's gathering great economic dangers now scaring the crap out of working Americans? If he does not harshly repudiate the corporatism and sucking up tho the rich Bush did at the expense of the rest of America? Then all the crap he fixates on - 85% about foreign policy, even if he is 90% right on it and Hillary or Obama are 90% wrong won't matter in the slightest. He will lose the election as sure as Hoover did.

3/27/2008 12:54:00 AM  
Blogger Towering Barbarian said...

Cederford,
Nice display of bigotry in your last post. Thanks for reminding us that Adolf Hitler is the essence of all Socialist thought. Not without reason that David Duke is a Cindy Sheehan fanboy, is it? :P


"The populism of Obama and Clinton doesn't speak just to the angry blue-collar workers of Youngstown and Toledo. It finds an audience across the country,..."

In the sense that Berkeley, California and the Masschusetts that voted for George McGovern are indeed across the country from one another you are doubtless correct. But of what worth is the populism of a dimwit Chicago Wardheeler like Senator Obama when that "populism" consists of being the congregant of taking a trip to Hawaii without bothering to visit the ailing grandmother he had trashtalked in front of an entire nation? And of what worth is the "populism" of a bimbo who suddenly starts recalling herself as the heroine of a gunfight that never took place the way your Senator Clinton did? o_O

I'm afraid that your "populism" is going to find itself laughed into a well-deserved oblivion. ^_^

And isn't it interesting that you define Populism, a 19th century ideology as "modern" solutions? You might want to reflect upon the fact that the world has changed since the 1800s and that the Berlin Wall has fallen before you worry excessively about "great economic dangers" that Free Enterprise can handle quite nicely on its own without any help from the government. ^___^

3/27/2008 02:42:00 AM  
Blogger Doug said...

Calif Schools were top tier in 1960.
Today they rank 46th,
and nationwide, our schools rank
46th out of 48 surveyed, ahead of only Turkey and Mexico.

If McCain gets his beloved Amnesty, and the rest of the country begins to resemble California, as shown in the figures below, our nationwide figures will start to resemble CA's, and we will capture last place in education in the developed World by a wide margin.

---
Calif Student Makeup, 2006:

Racial/Ethnic Background
White: 31.0%1
Black: 8.0%1
Hispanic: 48.5%1
Asian/Pacific Islander: 11.7%
American Indian/Alaskan Native: 0.8%1

State Rankings

3/27/2008 03:23:00 AM  
Blogger ADE said...

My stream of consciousness:

Great post by W. He's pointed out where McCain is going with the UN - bypass the charade and mock them. Is mocking becoming a theme?

Now here's brother Doug. Oh no, he's fucked the thread again. Bear with him, his heart is in the right place.

Oh no, he's collected a useful idot, Charles.

Hey, C4 is back. Always interesting. Oh dear, thinks manufacturing is the soul of the economy. Hasn't he heard of Microsoft? Quote: The median wage has lost ground, while prices in basics -- gas, home heating, health-care premiums, college tuitions -- have soared. Strange we still have an immigration problem. A fortiori, hasn't he heard of the law of contract, and that if there is a certainty of repayment, people will give you things for negative interest rates, just for the certainty that they will get it back?

John Hawkins. Haven't read him before. Makes sense. Must read him in future.


Oh now Doug's fucked it again with the bit on education. Surely Doug knows that 'Education' is wasted on 95% OF ALL attendees of education on the planet, and is not a measure of anything?

I like McCain.

ADE

3/27/2008 04:45:00 AM  
Blogger Doug said...

"Oh now Doug's fucked it again with the bit on education. Surely Doug knows that 'Education' is wasted on 95% OF ALL attendees of education on the planet, and is not a measure of anything?"
---
No.
The facts remain the same:
Calif. Schools produced well educated students in the 60's, as did Los Angeles Schools.
Now, LAUSD has a graduation rate of less than 50%.
Not a measure of anything?

3/27/2008 05:04:00 AM  
Blogger Doug said...

Peter Grynch provides proof that Hillary did not lie.

3/27/2008 05:26:00 AM  
Blogger Doug said...

MCCAIN:
"We need to be good stewards of our planet and join with other nations to help preserve our common home. The risks of global warming, the risks of global warming have no borders. We and the other nations of the world must get serious about substantially reducing greenhouse gas emissions in the coming years, or we will hand off a much diminished world to our grandchildren.
We need a successor to the Kyoto treaty, a cap-in-trade system that delivers the necessary environmental impact in an economically responsible manner.
We Americans must lead by example and encourage the participation of the rest of the world.
"
---

Nothing like Policy based on Science Fiction.

3/27/2008 05:51:00 AM  
Blogger ADE said...

Ah Doug, have at you!

Time for my 1% theory: In any human activity, only 1% of the population matter.

Just as well there are lots of activities, but even so, I don't matter in any human activity.

Now to education: 99% of people over 16 are wasting their time in education. They'll never get it!

Worse, they'll never know they don't get it, but will nevertheless feel EMPOWERED! And so you get ACTIVISTS. God!

To your statistic from the 60s. Correct. However, now we have "students" into their mid 30s. It's the denomintor that's changed.

So it's the same 1% that matter divided by the great hairy mass of "students" now aged 30.

The problem is not "education", the "problem" is wealth - we can now afford wasters. In C4's world, the jobs done by the 99% have been 'exported' to China. He's right! Just that the 1% can afford to indulge them in "education".

The output of "education" is the same at the top end - has to be on my 1% theory.

None of this would matter if the denominator actually understood this. Sadly, they think their stupidity is caused by you. Not picking on you, or anything, just your taxes.

Now, have I f......d the thread?

Doug, you're a bad boy for making me do this.

ADE

3/27/2008 05:52:00 AM  
Blogger Mətušélaḥ said...

Some rough calculations from information gleamed off these 3 articles to put things in perspective:

http://thefraserdomain.typepad.com/energy/2006/11/solel_to_build_.html
http://www.jpost.com/servlet/Satellite?cid=1139395517655&pagename=JPost%2FJPArticle%2FShowFull
http://www.treehugger.com/files/2006/10/solel_solar_sys.php

"Solel is the successor company to Luz Industries, the builder of the nine SEGS systems operating successfully in California's Mojave Desert for the past 20 years, that produce 350 MW of electricity for 500,000 consumers and eliminate the need for two million barrels of oil annually."

** 350 MW of solar power = 2 mil barrels of oil eliminated from imports

"Construction of the Negev power plant was expected to cost about $350 million. Within 10 years, Solel intends to expand the facility to produce 500 MW of power daily, at a total investment of about $1 billion."

"Israelis are planning to build a solar power station on 2,250 acres in Israel’s Negev desert. According to Arutz 7, the preparation for the station is expected to take a year and the actual construction another two years, at which point it will become operational. The station will begin supplying 100 megawatts of electricity – enough to supply power for 200,000 people - and eventually is expected to have have an annual output of 500 megawatts – enough to meet the needs of 1,000,000 Israelis."

** 500 MW of solar power = $1 billion in cost

So $1 billion invested in solar power will roughly eliminate the need to import 3 million barrels of oil annually. The US imports roughly about 3.7 billion barrels of oil annually. Thus, for about a trillion dollars plus, which is roughly what it seems the Iraq war will cost, all US oil imports could be replaced with clean solar energy. One trillion dollars is what the US spends in 2 years on oil imports.

3/27/2008 06:42:00 AM  
Blogger LarryD said...

Metuselah, there are a few flaws in your analysis.

1. Over half the oil consumed by the US goes into gasoline and other transportation fuels, solar power can't replace any of that.

2. You're ignoring the land area needed for solar collectors, it's not a trivial issue.

3. Compare the price tag with Shell's shale oil extraction (profitable down to $30/barrel).

And even if the US were magically energy independent, ME oil will still be bought by other countries, and the Islamic radicals will still be funded. We would still need to be engaged in the ME.

3/27/2008 07:28:00 AM  
Blogger Charles said...

John Hawkins said...

Programs designed to stop the pain usually try to stop the reallocation, because that's where the pain is felt. But it's that very reallocation that needs to happen. Trying to stop it just makes it go on longer.
///////////
Agreed. However, there's some very smart guys who say that derivatives pose serious systemic risk.

Why? In theory derivatives spread risk.

But what happens if all the risk piles up on one side of the ledger and that side breaks.


Further its very clear that a lot of companies that were extending mortgages, for example, didn't have any skin at risk when they were doing so. They were concentrating risk rather than spreading it.

Now clearly derivatives and mortgages are different animals when they begin life. But what you hear is that the problems of the mortgage companies is spreading to throughout the financial system.

McCain addressed the problem of systemic risk that things like flaky mortgages and freak derivatives posed. He said it was the government's job to mitigate systemic risk. No more.

I don't disagree with this.But I would think that it would be prudent to regulate mortgage companies --and any other company--in such a way as to prevent them from concentrating risk.

I am assuming that the idea of spreading risk is a good thing.

Any one out there who can opine intelligently on this are welcome.

3/27/2008 08:05:00 AM  
Blogger Charles said...

ADE said...
Now, have I f......d the thread?

Doug, you're a bad boy for making me do this.

ADE
///////
Very French.

Rousseau meet ADE

3/27/2008 08:09:00 AM  
Blogger Mətušélaḥ said...

LarryD,

1. "Over half the oil consumed by the US goes into gasoline and other transportation fuels, solar power can't replace any of that."

Use electric vehicles.

2. "You're ignoring the land area needed for solar collectors, it's not a trivial issue."

There's plenty of land. That's not even remotely an issue. Offshore wind plants are another a good option.

3. "Compare the price tag with Shell's shale oil extraction (profitable down to $30/barrel)."

Capital costs for Solar and wind are comparable with coal. (Which is another good option, IMO).

4. "And even if the US were magically energy independent, ME oil will still be bought by other countries.."

Once the capital costs are recouped, which is in no time given that the US spends 0.5 trillion dollars a year on oil imports, (this is excluding the military costs to safeguard that oil), the US will be getting that 0.5 trillion dollars/year oil energy equivalent essentially for free. Other competitors will be put out of business if they don't follow the US, since they will still be paying for that jihadist controlled oil thru the nose. That is, if the jihadist controlled oil facilities don't get all blown up to kingdom come. Which is a big if.

3/27/2008 08:19:00 AM  
Blogger John Hawkins said...

Further its very clear that a lot of companies that were extending mortgages, for example, didn't have any skin at risk when they were doing so. They were concentrating risk rather than spreading it.

Yes, I mostly agree. I'll borrow a trick from our host and tell a story about a former employer that ties into this.

I recently left a Fortune 100 company. It's a big company, you've all heard of it and used its products. It had been incredibly successful, and made many rank and file employees rich through stock options. Decision making at all levels struck a healthy balance wrt risk taking. Everyone had skin in the game with those stock options.

But that was all before the tech bubble burst. After that, the game changed. With a smaller reward pie, the company chose to concentrate rewards on only the "top performers" (subjective and often incorrect evaluation). The result was that just doing a solid but steady job didn't even get you a COLA raise. Everything went to the people who took the biggest gambles and won. Of course, this caused the highly observant, motivated, self-confident and aggressive (the traits we hired for) employees to change their behavior. After a few years, the result was nearly everyone at all levels taking stupid risks. It wasn't so much concentration of risk as it was a radical expansion of risk. The cash flowing in based on products built years before allowed people to ignore market feedback, and the "everyone's doing it" environment clouded people's better judgement.

The company is struggling now, not losing money yet, but certainly losing momentum. Growth has stalled, and the company has acquired a managerial class that doesn't know how to evaluate, manage or mitigate risk. Plus the HR bureaucracy grew out of control during the boom times.

A microcosm of the overall economy, where a bit too much of a Lotto mentality has set in. Plugging away at your middle class job no longer feels like a growth path. Soaring local taxes (property, gas, sales) and health care costs sap too much from slowly growing salaries, and every TV set is blaring pictures of absolute clowns living in massive luxury.

So, I don't think it was so much a matter of concentrating risk as it was of fostering a higher risk environment. I think we've given too many people the impression that taking moderate risk is a losing proposition and turned everyone into speculators.

That's the bad news. The good news is, like I said before, nothing real is being destroyed. It's all paper assets that are shrinking. If the market drops the price of a house 20%, it's still the same house. Its value of use remains the same, even if the value of exchange tanked.

If we efficiently reallocate them, we will escape with minimal long-term damage. However, if we hold up the reallocation, things start to go south. A house that sells for 20% less than the seller paid is still a good house for the new owners. But a house that sits vacant for 12 months after foreclosure starts to deteriorate.

Then again, we still have that bad managerial class and the oppressive bureaucracy to dismantle. Odd, you would expect risk and bureaucracy to be antagonists, but I'm begining to wonder if they aren't in a co-dependant relationship.

3/27/2008 09:50:00 AM  
Blogger NahnCee said...

Oooohhh, McCain is going after the UN? That's almost enough to make me forgive him his love of open borders and illegal immigrants.

Yurp's has waked up to the fact that if McCain is the next President, he probably won't be any kinder or gentler to them than our current Prez. And the Arabs are sneaking up to that realization, too.

Sometimes it's a joy reading the overseas newspapers and their little internal temper tantrums. Be fun to watch as their Lilliput version of Big Brother - the UN - is put out to pasture by the same Gulliver as they've been trying to strap down for the last decade or more. Yum.

3/27/2008 10:05:00 AM  
Blogger Alexis said...

The housing crisis is a problem and so is consumer debt. I think America needs better bankruptcy laws that allow people to write off their bad loans (and ruin their credit ratings). I think the federal government should call the mortgage banks into conference to find a private solution to the mess. But does Uncle Sam need to bail out homeowners who are in debt? No.

A bailout would only postpone and exacerbate the crisis we already have, which is too much consumer debt. When there are no negative consequences for bad money decisions, there is no incentive to stop making bad money decisions that have a cumulative effect on the overall economy. Read the fine print. When a parent consistently replaces toys a child has broken, the child has no reason to stop breaking toys.

Senator McCain has a large potential constituency in apartment dwellers, trailer park voters, and homeowners who are doing just fine. Most people who live in apartments and trailer parks won’t look kindly upon subsidizing the lavish lifestyles of people who are living beyond their means. What worries me is not that Senator McCain isn’t proposing a government boondoggle for indebted homeowners, but that he isn’t aggressively defending the interests of those who did not fall for the lies of confidence artists. Among these con artists are not only the predatory realtors who sell “the starter home”, the predatory lenders who offer “teaser rates”, and bankers who offer second mortgages on flimsy home equity to pay off a mountain of consumer debt, but politicians who act as though there must be something wrong with an American if he doesn’t own his own house.

Senator McCain has the moral credibility and honor to tell the dwellers of apartments and trailer parks that they are fully American, that they made the right decision when didn’t believe the lies of real estate developers. Let’s not assume that people who are responsible with their money don’t vote.

3/27/2008 11:44:00 AM  
Blogger Ash said...

Interesting economic arguments. There is a mortgage problem and a consumer debt problem as well as corporate debt problems. John Hawkins makes a good point about real assets, like houses, still having some value and the markets will work to place a price upon the assets. It isn't quite true that the real assets remain the same because a house foreclosed risk squatters degrading the asset and the neighborhoods value reflects similar changes.

The consumer debt problems lie at the foot of the larger problem which is the systemic risk that has been introduced through the financial markets taking these debts, bundling them into securities and selling them. They've been creating all kinds of derivative products and cycling the stuff through juicing their profits through the use of leverage. If I take a look at my own personal situation and I'm carrying debt equal to my equity (i.e. I've got a 400k house with a 400k mortgage) I'm not in a very secure financial position. However, these jokers at Bear Stearns and the like have leveraged the companies to the tune of 30 to 1. It certainly helped juice the profits when profits were around but once they stopped it also juices the losses. In addition you have all these securities floating about and nobody wants to buy them. They may have some value in that a lot of people are still paying their mortgages but nobody wants to actually buy the security itself. It is as if no one, and I mean no one, were to buy a house. There are no bids. If you are to mark your security to market when their are no bids its value is 0. Now there is talk of regulating some of this and still the free market wonks are railing about regulation killing business. Seems to me if they've managed to create systemic risk of failure they've earned the regulation...which still doesn't solve the financial problems we face...

3/27/2008 12:28:00 PM  
Blogger Doug said...

Pangloss is correct:

"The current banking and borrowing problems did not spring from deregulation.

They sprang from government regulations that required banks to make risky loans or else face prosecution for discriminating against minorities.
"

...and abuses blossomed, with and w/o minorities.

3/27/2008 01:01:00 PM  
Blogger Ash said...

ummm, Doug, wrong! Bear Stearns had no such regulatory requirement.

3/27/2008 01:13:00 PM  
Blogger Habu said...

Alexis hits the bell at the top of the slide with the statement that whoever POTUS is, his State Dept and thus the USA is going to continue to get hammered by Pakistan.

If we drill a wee bit deeper but with a way bigger bit we see that there is no way to contain over the next 20 years all of the ME from becoming nuclear. North Korea, Russia , and China will all be in there helping the reactors glow.

My solution as head of the Gen Curtis Lemay Club is to fry all Islamics but that's insane so we're gonna have a challenge going forward. We're all versed on Islamic philosophy now so as infidels just WTF are we going to do?
At least one of those ME countries will take out Israel, and Iraq and Iran already managed not too long ago to kill over a million of each other conventionally.

I fully believe W will bomb Iran's nuclear facilities after the election , but that is a palliative not a curative. Is there a curative or are we destine to truly live on the brink of MAD once again?

3/27/2008 01:38:00 PM  
Blogger Habu said...

Habu

yeah

What makes you think MAD will work against a philosophy that looks forward to death as the liv'n end?

You're right. MAD isn't a deterrent against Islam.

What is then?

Big Macs with bacon and cheese.

No really

I have no clue how to stop a maniac intent on blowing up the world.

Oh, OK.

3/27/2008 02:13:00 PM  
Blogger Habu said...

Habu

yeah?

You know blogging alone, like bowling alone isn't healthy.

Bite me.

Oh, OK

3/27/2008 02:16:00 PM  
Blogger Doug said...

Ash,
We're talking about the larger scale meltdown, not just Bear Stearns.
So, no, you are wrong, we are right, but what else is new?

3/27/2008 03:10:00 PM  
Blogger Dan said...

"And even if the US were magically energy independent, ME oil will still be bought by other countries.."

If the US were to drop out of the oil market tomorrow, it would tank. Oil that costs $100/bbl today would cost a fifth of that or less within a couple of weeks, I'd bet. If the US AND the EU both dropped out tomorrow, the oil probably wouldn't be worth pumping out of the ground.

3/27/2008 03:20:00 PM  
Blogger weswinger said...

Speculative bubbles are part of market economics. The bubble's bursting generally gets market participants back to the fundamentals: analyzing the borrower's credit and ascertaining the market value of the asset financed. When markets are moving fast, this is hard. But banks and investment banks are in business to take risk. At a time like this when mortgages that are backed by both real estate and borrowers' credit are selling at cents on the dollar there is enormous opportunity for the investors who will buy them and do the work-outs. But if the government will not allow bankers or borrowers to fail, you get the Japan phenomenon; a 10+ year recession.

Just to have a party and a candidate whose preference is to let markets work is a good thing. Whether they can get elected at this time in this place is another question.

The regulatory advocates who get the public's attention by promising that not only will they stop this bubble's splatter from getting all over them, but the next one too, are only selling the government's ability to inhibit market functions. If that gets them elected this cycle, so be it. But capital will go where risk taking is rewarded, and the US will find itself falling behind those countries. Maybe this is because Americans have been educated by those well-educated '60's graduates Doug mentioned. The ones that have filled this generation of students' minds with statist bullshit.

3/27/2008 03:30:00 PM  
Blogger Ash said...

Doug, the Fed and the Bush admin. both were very concerned about Bear Stearns being the first domino to fall. Once they fell the fear is that many more will come tumbling down and yes possibly some big major banks would crumble as well. There is still substantial systemic risk of massive failure. Your, or, well Pangloss, suggestion that it is regulation disallowing race based as opposed to financial based lending is preposterous.

weswinger, are you implying that the rescue/forced marriage of Bear Stearn and JP Morgan engineered by the Treasury department and the Fed was a mistake? It seems that most economists are supporting the bailout because of the systemic risk and that a lesson learned from the Depression was that monetary tightning made the problems worse. Another lesson learned from the Depression was how lack of regulation led to increased systemic risk. It seems we have a similar situation that has arisen over the last few decades.

I'm not convinced that the fed backstopping all this stuff will solve the problems in the end but it doesn't appear that there is much else they can do but try, and hope that, with time, these big financial players will be able to work out their captial problems. Since the unregulated investment banks have managed to create such systemic risk requiring Fed/governement bailout it demonstrates their need to be regulated.

3/27/2008 03:59:00 PM  
Blogger Doug said...

As you know Ash, since I was reporting on New Century more than a year ago, this did not start with Bear, nor did it stop @ New Century, the Dominos began to fall long long ago with subprimes and New Instruments have networked the failing loans throughout the system.
The amount of liquidation that has already taken place renders Bear a drop in the bucket.

3/27/2008 04:06:00 PM  
Blogger Doug said...

CNBC: Obama might double cap-gains tax...
Brilliant!

And Hill will regulate mortgages ala Stalin,

and drain the Strategic Reserve that Bush has spent the last 7 years building up after Bubba's drawdown.

3/27/2008 04:07:00 PM  
Blogger Doug said...

Weswinger said:
"there is enormous opportunity for the investors who will buy them and do the work-outs."
---
An extreme example was the buyback of Rockefeller Center from the Japanese.
This was replicated time and time again in Hawaii, as US Firms repurchased properties for 50 cents on the dollar or more below what the Japanese paid at the height of the bubble.

3/27/2008 04:12:00 PM  
Blogger Charles said...

weswinger said...

But if the government will not allow bankers or borrowers to fail, you get the Japan phenomenon; a 10+ year recession.
//////////////
I saw an interview with the Japanese official responsible for the 10+ year long recession in Japan back in the 90's. He said that like the USA the Japanese recession started in real estate and migrated to other sectors of the financial community and then into the real economy. He said that the big mistake there made by finance ministers was that they didn't get out in front of the meltdown more aggressively. Rather they followed along behind rolling collapses trying to pick up the pieces.

He said looking at the US response so far that the US was not acting decisively enough to get in front the financial problems,.

He said this before the bear stearns collapse.

3/27/2008 04:17:00 PM  
Blogger Doug said...

Nahncee:
re: Going after the UN.

Big John makes it clear that the approval of others will always be front and center in his decision making.
A restatement of the Global Test.
Kyoto a great example of dealing away even more of our sovereignty.

3/27/2008 04:18:00 PM  
Blogger Ash said...

This comment has been removed by the author.

3/27/2008 04:31:00 PM  
Blogger Ash said...

Doug, you are absolutely correct that the financial problems did not start nor end with Bear. It is just one piece in the puzzle and you saw the panic in the reaction of the Fed and Treasury to just that one institutions possible failure. The rescue seems to have kicked the can down the road for another day but it sure hasn't solved the problem.

I'd be interested to read more on the similarities and differences between the Japanese long recession and our current situation. Theirs started with a collapse in real estate but it wasn't the residential market but rather the business real estate market. They ran a virtually zero percent interest rates for years but it still didn't get them going. The business structure is quite different there in how much cronyism there is but one might seem some interesting parallels between how the elite's move back and forth from government to business...it certainly occurs in the US as well.

3/27/2008 04:33:00 PM  
Blogger weswinger said...

I think that the Fed has been creative and correct in keeping the credit system afloat. The Japanese would have propped Bear up during their meltdown.

Don't forget the best example of overweening regulation - FDR didn't cause the Depression - he just institutionalized it.

3/27/2008 04:40:00 PM  
Blogger Doug said...

Ash,
Another difference might be the Japanese tendency to save, vs our tendency to spend.
Would render "solutions" that would work here, nonstarters there.

3/27/2008 06:25:00 PM  
Blogger slimslowslider said...

"indulging in the time-tested Jewish way of alienating the people they seek to influence"

why is this douche allowed to soil this site with his stormfront bullsh*t?

3/27/2008 11:08:00 PM  
Blogger Gary Rosen said...

"why is this douche allowed to soil this site with his stormfront bullsh*t?"

Because Wretchard is a very tolerant fellow. I kind of enjoy it myself, actually, especially when he proceeds to "alienate" way more people than I ever could.

3/27/2008 11:18:00 PM  
Blogger slimslowslider said...

obviously this a tolerant public domain and carrying the torch for jewish people is not something i'd like to do but... have you ever seen some public bathrooms? i mean come on, some of these people that use them have serious hygiene problems and i would not use them unless it was an absolute emergency. so the question is, do you bother maintaining it or just let the excrement float on top and don't flush.

"Hez routed Zionist invaders with superior bravery and tactics. Heart and courage"

ever notice how the stormfront type in America are pro Islam and the ones sufacing in Europe are extremely anti-islam. I wonder where the convergence will meet.

3/28/2008 04:50:00 AM  
Blogger Kirk Parker said...

Gary,

I still haven't seen any convincing refutation of my (half-serious) hypothesis that C4 is a leftist mole, doing his best to discredit the right by associating it with his antisemitic rants.

3/28/2008 10:50:00 AM  
Blogger John Hawkins said...

I still haven't seen any convincing refutation of my (half-serious) hypothesis that C4 is a leftist mole, doing his best to discredit the right by associating it with his antisemitic rants.

I've never thougth C4 was anything but a leftist. There's a certain philosophical undercurrent that comes through. Leftism is a very corrupting influence, and it leaves identifiable traces in any thoughts that pass through a mind it infects. No matter how carefully someone may try to hide their leftist views, they eventually reveal themselves.

3/28/2008 01:40:00 PM  

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