What is a Mortgage Worth?

Enough of the partisan political rhetoric, already. Let’s think about the big problems.

And the biggest problem right now is to figure a correct value for the great big ugly mortgage assets on the balance sheets of our beloved financial institutions.

That’s the big problem because, until we all feel confidence in the value of the banks’ assets, we really don’t know whether the banks are solvent or not. And nobody wants to have exposure with an institution that might be insolvent.

In a sensible article in VOX, economist Daniel Gros takes a stab at answering this question.

The important fact to understand, Gros states, is that US mortages are “no recourse” loans and that homeowners in conseqeunce have a “virtual put option.”

With a “no recourse” mortgage, the debtor effectively receives a virtual put option to “sell” to the mortgage-issuer the house at the amount of the loan still outstanding. Mortgage lenders are “short” this option, but this is not recognised in the balance sheets. In most cases, the balance sheets of the banks report mortgages at face value -- at least for all those mortgages on which payments are still ongoing.

This fact is implicitly understood by modern homeowners. The understanding is communicated in the popular term “jingle mail.” If things turn south and you can’t make the payments on your home mortgage you can always pull up the moving truck and mail the keys to the bank, which gets a nice jingly package in the mail next morning.

The question for Gros is: what is the value of the jingle mail option? It turns out that it’s bigger than you think.

Applying the usual Black-Scholes formula to a typical subprime loan with an LTV ratio of 100% yields the result that the value of the put option embedded in the “no recourse” feature is 26.8% of the loan, even in the low volatility case. For a conforming loan (a loan that could be insured by Fannie or Freddie) with a loan to value ratio of 80%, the value of the put option would still be close to 14% (still in the low volatility case).

Oh goodie. The Black-Scholes formula. That last reared its ugly head in the tech-startup stock options meltdown.

So the moment that a bank issues a subprime loan it ought to book the loan on its balance sheet at 26.8 percent less than face value. And even with a conforming loan where the homeowner has put down a 20 percent down payment, the bank ought to book the loan at 14 percent less than the face value of the loan.

You can see that this would make a huge difference. We simply wouldn’t be in the current liquidity crisis if the rules that Gros proposes had been followed. Of course, we wouldn’t have had the massive credit bubble either, because if the bank has to book a loan at 20 percent off face value then the multiplier effect of high leverage doesn’t apply any more.

Well, ok Dems. OK Barney Frank. OK Sen. Chris Dodd and the Friends of Angelo. Here’s the answer!

Ahem. Of course, you realize that the lovely stealth social program of sluicing mortgage money at inner-city voters would get caught in the meat-grinder if this rule were enforced upon the banks and Fannie and Freddie. And that would never do.

Our Unserious Politicians

Today the unserious House of Representatives punted on the administration’s plan to empower the US Treasury to buy toxic mortgage debt, get it off the market, and get the financial system going again.

It doesn’t really matter how it’s done.

This is not that hard to understand. When you have a bunch of debt floating around that’s under water—where the assets that provide collateral for the debt are worth less than the face value of the debt—then you have a problem. It’s like the game of musical chairs. Nobody wants to be left with the toxic debt when the music stops, so nobody gets up of their chairs at all.

It doesn’t matter who’s to blame for all this. It seems that there’s plenty of blame to go around, although it is important to realize that the banks, even the investment banks, are all regulated by the government.

We’ve got to get the toxic debt off the market, and these days that means the government.

A hundred years ago, before the Federal Reserve System, it was up to banker J.P. Morgan to direct operations during the Panic of 1907. And he did it. The key moment, as we have written here, was when the brokerage house of Moore & Schley was about to fail. Morgan engineered an asset swap to save Moore & Schley, got President Roosevelt’s approval, and the crisis was over.

If only we could do the same today. But the problem today is that the government has distorted the credit system in countless ways to support its various political agendas. That’s what the flap over Fannie/Freddie is all about. Congress decided to use Fannie/Freddie to boost homeownership in the inner cities. Great idea, and all that, but they didn’t want to pay for it. They wanted the banks to pay for it.

Well, now we are finding out the true cost of this stealth social program, and it ain’t going to be chump change.

March towards the Sound of Guns. Not.

Back in the good old days, when armies marched on their feet rather than Humvees, they had a simple saying: “March towards the sound of the guns.”

The reason is pretty simple. Under normal conditions, armies are scattered across the countryside. The key skill for an army commander is to get all his units to the battlefield before the other chap.

Of course, in real life there are units marching around, or camped, who haven’t got the word. But if they got to the battlefield then they could help. Indeed, they might make the decisive difference between victory and defeat.

So when Sen. Barack Obama (D-IL) declined to go to Washington DC to help in the final stages of putting the Great Mortgage Bailout Act together, he was violating this fundamental principle of conflict. Whaddya mean, call me if you want me?

A guy who wants to be president should be feeling: “I just can’t wait!” He should be foaming with impatience to get to work and solve the nation’s problems, to get into the room where critial decisions are being made.

But no. Sen. Obama elected to stay in Florida preparing for the presidential debate on foreign policy. Foreign policy? How about acting like the leader of your party and corralling senators and representatives together to get a solution to the nation’s economic crisis?

It goes deeper than that. Back to the military metaphor. Suppose you were a young, untested formation commander. You hear the sound of guns. What do you do? You march towards the sound of the guns. Here, at last is your chance to show the old buffers what you are made of. Here is the chance to deploy your troops and smash into the tired enemy troops that have been fighting all day. Here is your chance to show that you are made for greatness—and there may never be another chance.

If I were an Obama supporter, I would have a nasty feeling in my stomach today.

Mr Potter is Buying!

Remember the run on the Bailey Brother Building and Loan in It’s a Wonderful Life? Just as the panicky depositors were demanding their money back from George Bailey, Mr. Potter the evil banker called George in for a chat. You don’t really want that broken-down old Building and Loan, do you, George, he said, and all the bother involved?

Mr. Potter would buy it, he said, and George could have a nice job at Potter’s bank.

Don’t you realize! George yelled at the panicky depositors. Don’t you realize that while you are selling, Potter is buying?

Today, as John McCain suspended his campaign to get back to Washington DC to work on the bank bailout plan, Warren Buffett signed up for $5 billion of stock in Goldman Sachs.

Mr. Potter is buying.

Close-coupled Character

I was commenting on the financial meltdown of 1907 at the American Thinker today. It’s all about sound collateral, I argued. An alert reader complained about the loose ends lying around.

Back in 1907, you see we, had a major credit crunch with trust companies failing all over the place. J.P.Morgan solved it with a bit of asset swapping, so that a shaky Wall Street broker could have collateral that everyone could trust.

In the aftermath of the crisis Congress hauled banker Morgan up to testify so that they could convict the innocent and let the guilty go free. He rather surprised them by saying that the key thing in business is character. Very good. But I then muddled things up by talking about the danger of close-coupled systems. They are bound to break, sooner of later, and then where are you?

You are right where we are today.

Morgan also flummoxed his congressional interrogator by failing to explain why he would buy a stock like Equitable Life, which only yielded one-eighth of a percent.

The answer, I think is character. We can’t just have people running flat out everywhere, trying to get the last ounce of profit out of the economy. That goes for politicians like Barney Frank who want Fannie and Freddie to squeeze the last ounce of credit into “affordable” homes for Democrats. And it goes for Wall Street Masters of the Universe leveraged up to the eyeballs squeezing the last ounce of profit out of the latest hot stock or derivative.

What is needed is some men of substance around like Morgan who, from painful experience, are willing to provide a factor of safety for the economy. They buy a stock not for its immediate potential but because it needs a good home. They unwind their leverage because they don’t want to be wiped—or wipe others out—if they bet wrong.

With chaps like Morgan around, you hope to avoid the risks of the close-coupled system which, when it fails, fails big.

It’s a tricky thing to implement, because we all want more efficiency in the economy, and more efficient use of resources. But how much should we risk for that?

Dead Cat Bounce?

After two days soaring, stocks turned lower again today, with the Dow down 372.75 or 3.25 percent at the close. They say that the third day after a bounce is the key to a sustained rally, so it looks like there is more to come on the bad news front.

When things turn south, we read in the books, the key is to find a scapegoat and sacrifice it. That's how primitive humans did it back in the day according to Rene Girard in Violence and the Sacred.  Since all this bad stuff happened on Bush’s watch it goes without saying that he is to blame.

But since Bush will soon be out of office, it seems hardly satisfying to give him the entire blame for the mortgage meltdown and the Fannie/Freddie meltdown and the Wall Street investment bank meltdom and doubtless more meltdowns to come.

I know, let’s blame the Democrats! Kevin Hassett from the American Enterprise Institute has the goods on them.

Back in 2005 responsible Republicans introduced S.190 in the United States Senate. It would have curbed Fannie and Freddie and maybe averted the meltdown. But Democrats were united in opposition.

Of course it had nothing to do with the money that Democrats were getting from Fannie/Freddie. Oh no. Even though Hassett writes that Sen. Barack Obama (D-IL) was one of the prime beneficiaries of Fannie/Freddie money.

Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.

That’s right. Chairman Dodd. He was a mere ranking Democrat in 2005, but the Senate changed hands in 2006. Don’t expect much from Chairman Dodd on the Fannie/Freddie reform front, not unless Secretary Paulson puts a gun to his head. Especially since Dodd was a “Friend of Angelo” at Countrywide Financial.

But the larger issue is to think back over the years of Fannie/Freddie excess. Was it really doing their low-income homeowner constituents a favor for Democrats to sluice money at housing? Wouldn’t they be better off if there had been no subsidies and no big runup in home prices? Wouldn’t they be better off if house prices weren’t in free fall right now?

The tragedy is that Democrats still don’t seem to have learned their lesson. At least not Barney Frank, the counterpart to Dodd in the House, according to the Wall Street Journal.

Fan and Fred’s patrons on Capitol Hill didn’t care about the risks inherent in their combined trillion-dollar-plus mortgage portfolios, so long as they helped meet political goals on housing. Even after taxpayers have had to pick up a bailout tab that may grow as large as $200 billion, House Financial Services Chairman Barney Frank still won’t back a reduction in their mortgage portfolios.

It’s the trouble with the whole welfare state model. You think you are helping the poor by sluicing out subsidies. But you only end up wrecking their families, failing to educate their children, and enticing them into buying more house than they can afford.

But at least you get their votes.

It's the Debt Stupid

So here we are, we hope, at the selling climax of this bear market, with the big Wall Street investment firms going cap in hand to the Feds and to the banks for a handout. Last night there was talk that Morgan Stanley and Goldman Sachs might be the next to go.

As Robert Samuelson says, this is the end of Wall Street as we know it. It is the end of the Masters of the Universe and their leverage fueled “principal transactions.” In the old days, investment firms worked for their clients. But now they work for themselves.:

Now, most financial firms also invest for themselves. They use partners’ or shareholders’ money to place bets on stocks, bonds and other securities — so-called "principal transactions."

And most of this investing has been financed with a high level of borrowed money. Nothing wrong with that, of course, until things go south and the asset that is collateralizing the loan can no longer liquidate the loan.

The trouble with high-leverage investing is that it is taking money that is not really supposed to be risk capital—i.e., fixed-income debt—and then using it in high-risk transactions. The banks or individuals supplying the money for this activity are not hands-off investors. They are risk partners in the venture. Because if asset values go south, then they are out of the chips.

For too long, for far too long, government has allowed this high-octane, highly flammable business model to operate, when everyone should know the risks. People investing money in these high-risk ventures and people lending money to these high-risk ventures are, whether they like it or not, risk partners in the venture. They should be treated as such and rewarded as such.

When you are a partner in the risk, then you should be getting an equity stake in the venture, not you should not be lending money backed by collateral.

How hard is this? Well, I’ll tell you. If we enforced this rule, that risk=equity and should be capitalized as such, then the Masters of the Universe wouldn’t be making so much money in the good times. They would have to share the wealth with their equity partners.

But on the downside they wouldn’t be forcing fixed-income investors and taxpayers to pay for their stupid mistakes.

An Eight-point Economic Plan

With the distractions of Palin Power and the earthquake on Wall Street, some of us are losing the narrative. But the editors at National Review are not. They have an eight-point plan to remind us whose side they are on. Let’s review it.

1. No more bailouts. Actually, let’s make that a bit broader. No more subsidies. The trouble with subsidies, aside from the universal truth that subsidies are a waste of resources, always and everywhere, is that it teaches economic interests to look to the government for cheap answers to their problems—cheap for them anyway. Not good training for anyone.
   
2. Hard money. Yep. We got away that important conservative principle, and it’s hurt us. We got off it in the middle 1980s with the Plaza Accord and it ended in the ten year recession in Japan. Now we are battling through a similar meltdown in the global economy because Alan Greenspan got off the hard-money standard in the early 2000s.
   
3. Energy production. The Democrats are wrong on their policy to make energy more expensive to rush conversion to a post-carbon energy economy. Republicans want cheap energy, but as clean as sensible. This is a can’t lose position for Republicans.
   
4. Cheaper health care. John McCain is trying to help us move from the administrative first-dollar approach to health care. The new model is the Wal-Mart plan. Inexpensive clinics in Wal-Mart stores and you pay with your own money.
   
5. An end to ethanol subsidies. Why hasn’t Congress passed this yesterday? Everyone now understands that ethanol subsidies add up to a cruel trick on the poor. See item #1 above.
   
6. Encourage growth. That means cutting marginal tax rates, not handing out money in complicated rebates like Obama.
   
7. Free trade. People should be allowed to buy in the cheapest market. Period. Anything else is economic imperialism.
   
8. Middle-class tax relief. Same as growth, above. Simplify the tax system and keep marginal rates low for everyone.
   

Come on chaps. This isn’t rocket science.

Market Failure: Government is the Problem

The candidates rushed out statements on the Wall Street meltdown yesterday. According to an Obama-friendly piece in the New York Times McCain blamed greed on Wall Street and Obama blamed lax regulation during the Bush years.

It’s a pity that both candidates seem to be clueless.

This meltdown has government failure all over it. Let us count the ways.

1. The first cause is the reckless expansion of credit during the early 2000s as the Federal Reserve worked to head off the threat of deflation. The Fed kept the spigots on too long, as usual, taking two years to raise interest rates from the low of 1 percent up to the middle fives.
   
2. Then there’s the sluicing of money into the housing market with Fannie and Freddie. Sensible people have been warning about Fannie and Freddie for years, but Congress, and mostly Democrats in Congress, have resisted reform.
   
3. There’s the specific distortion that the Clinton administration wrenched into the housing finance market. An Investors Business Daily editorial fingers the guilty parties. The Clintonoids used the Community Reinvestment Act to force banks to lend more money to low-income borrowers. That set up the sub-prime market, and set up the current meltdown.
   
4. Greed on Wall Street. Yes, there’s plenty of that. And unfortunately the easiest way to make money is to game government subsidies and market distortions for a quick buck.
   
5. Lax regulation. Well, the regulators always seem to be a day late and a dollar short. How about we reform the system to force more equity into it. It’s the highly leveraged setups that lead to trouble (think 90 percent mortgages on homes as well) because when you are highly leveraged you can find yourself underwater as soon as the market turns south.
   

The current mess is mostly the creation of government power and the natural instinct of politicians to sluice taxpayers and bondholders money to their favorite special interests.

The beautiful part about this system is that when the whole mess hits the fan, the authors of the mess are usually long gone, and the blame attached to the poor saps who inherited the mess.

The Arc of Celebrity

If you burst onto the scene, they say, your celebrity will last about 15 months unless you amount to more than a flash in the pan.

Let’s see. It’s about 15 months since Sen. Barack Obama (D-IL) burst onto the national scene as a breakout presidential candidate.

The trouble with celebrity, Charles Krauthammer warns, is that its currency is novelty. You can trump yesterday’s celebrity with today’s new phenomenon. It is becominig clear, with the Palin phenomenon, that the Obama phenomenon is becoming old and, well, yesterday.

It is clear, in retrospect, that the natural arc of Obama’s celebrity had started to decline by his Berlin speech earlier this summer. So his handlers decided to make his convention acceptance speech a more sober affair, full of facts and figures. Yet he had already committed to make this sober speech in a football stadium complete with faux-Greek temple.

The incongruity between text and context was apparent. Obama was trying to make himself ordinary — and serious — but could hardly remember how.



One star fades, another is born. The very next morning McCain picks Sarah Palin and a new celebrity is launched. And in the celebrity game, novelty is trump. With her narrative, her persona, her charisma carrying the McCain campaign to places it has never been and by all logic has no right to be, she’s pulling an Obama.

What we conservatives hope is that when Palin’s celebrity novelty cools off her real self will emerge and it will turn out to be the reality a gifted and serious politician.

Earlier this week she gave her first media interview, to Charlie Gibson of ABC News. “Mixed Reviews,” said the London Daily Telegraph. “[U]nfamiliar with the Bush Doctrine,” said the Wall Street Journal. On the other hand, the conservative blogosphere was full of comments about Charlie Gibson’s missteps.

Sooner or later, either before the election or after it, the American people are going to tumble to the fact that the Demcrats are not offering Change this year, but more of the same leavened with a new celebrity. How could they be offering change? Ninety percent of the government programs on the books today are their legacy, the legacy of a century of the welfare state.

Democrats are not yet ready to consider that there might be ways other than the model of the centralized government program to deliver social services. Givern that the government program has served them so well—in political power, in fame, and in comfortable sinecures—why would they offer Change?

Why Palin Really Matters

Never mind the fun-and-games of the Palin candidacy. What started with the pure joy of watching a politician that likes to speak from the podium and who drives our liberal friends nuts has now gone nuclear.

With the pigs-and-lipstick incident we now have young women at rallies with gigantic lipsticked lips, “Read My Lipstick” signs, and Palin Is Great.

But enough of fun and frolic. Let’s get to a serious discussion of the issues from Jay Cost.

Republican Margin of Victory/Defeat: Selected Demographic Groups 1996-2004 1996 2000 2004 White Men +9 +24 +25 White Women -5 +1 +11 African Americans -72 -81 -77 Hispanics -51 -27 -9 Overall -8.5 -0.5 +2.4

You can see what it means. If McCain loses the comfortable majorities in white men and white women, he will lose to the overwhelming pro-Obama vote among African Americans. If won’t be -77% this time. How about -95%?

Then, of course, there is the interesting question of the Hispanic vote. We are hearing all the time that Hispanics and blacks don’t like each other. So what does that do to the Hispanic vote this time out? Because the fact is that, even when he won by overwhelming majorities in white men and white women, George W. Bush only just pulled out a win in 2004 by a thin 2.4%.

You can see that the key to a Republican win in 2008 is to keep, and even expand the majority of white women.

Larry Kudlow has an interesting take on the Palin “hockey mom” ad-lib at the convention.

Palin’s really saying: Don’t tread on me. Don’t try to intimidate me. I am a strong, tough mom who is determined to succeed in politics.

And it seems that Sen. Barack Obama, with his clumsy “lipstick on a pig” remark, has played right along with the Palin challenge.

And in the process, he is boosting Palin, getting more and more people to pay attention to her, and motivating more and more white women to come out and vote for her.

Is Abortion the 21st Century Equivalent of Slavery?

In the ancient world, we know, slavery was ubiquitous. In They Year 1000: What Life Was Like at the Turn of the First Millennium Robert Lacey and Danny Danziger write about people in England going to their lord and placing themselves in slavery when starvation threatened. And they write about the Vikings sailing up the rivers in the autumn, plundering the harvest, killing the men, and selling the women and children into slavery at the main slave market in northwest Europe: Dublin. That was in the year 1000 AD, or CE if that’s your preference.

The remarkable thing is not that slavery existed in 1800. The remarkable thing is that it seems to have died out in NW Europe. The remarkable thing is that there were people like William Wilberforce who had organized to stamp it out in the rest of the world.

And stamp it out they did, by ending the trans-Atlantic slave trade and ultimately provoking the great Civil War in the United States that ended slavery on these fruited plains.

The fierce opposition to VP candidate Sarah Palin raises the question as to whether abortion is the new slavery.

Because it is clear that the fact of Sarah Palin’s life, with its unrestained fecundity and its celebration of “special-needs” children, is an offense to our pro-choice liberal friends.

Sarah Palin’s life raises again the issue of abortion. And the fact is that the question of abortion must be decided by the people. It is not the job of the elite Supreme Court to issue a ukase, as it did in 1973. It is up to the people to determine, by political action in its largest sense, when the fetus carried by a woman becomes a life protected by the law.

When women emerged, in the 20th century, from lives completely circumscribed by child-rearing and domestic management, to lives lived more in the public square, a new era began.

This new era opened the question of What Women Want. What does a woman liberated from constant child-bearing want? Feminists like Simone de Beauvoir said that they wanted careers and creative originality and liberation from the domestic sphere. It was natural for upper-class women like her to think that way.

But Beauvoir’s feminism only appealed to an upper-class elite.

Women do want to work, usually with people, outside the home. But few women want male-type careers. And most women want lives fully integrated with children, marriage, family, and the community of women.

Modern western society has just begun to address this question.

If children are important then the issue of abortion is important as well. And it is not exhuasted by the notion that a woman should have absolute control of her body. Nobody in society has absolute control of their body, just as nobody in society has absolute control of their children.

Somehow, some way, in the coming decades, we will come to a resolution of the abortion question. But it won’t be pretty.

A Open Letter to Sen. Obama

Here at Road to the Middle Class we are not exactly fans of Sen. Barack Obama (D-IL). He seems a nice enough chap, son of a liberal anthropologist who turned to raciial identity politics. But we hate to see his campaign imploding. Somebody do something! Best thing to do is to write a letter.

Honorable Barack Obama

United States Senate

Washington DC 20510

Dear Senator:

I’ve never been a supporter of yours, but I just can’t watch and do nothing while your campaign goes down the toilet.

By my reckoning, your campaign has been dead in the water for nearly two weeks. No it wasn’t the introduction of Gov. Palin that killed the motor; it was the speech from the silly sophomoric Greek Temple. Whose brilliant idea was that?

The problem is that the GOP team of McCain and Palin have stolen your issues of Hope and Change, stolen them fair and square.

The further problem is that they make a better argument for representing Hope and Change than you do. After all, what have you ever done to buck the system? What have you ever done?

And for goodness sake, stop with the attacks on Gov. Palin. First of all, she’s not the candidate, John McCain is. And secondly, we are getting to the point where many Americans actively like her and they are not going to put up with anyone criticizing her. And that goes in spades because she is a woman. Women hate it when another woman gets attacked by a man. It activates all their protective instincts and there is nothing you can do about it.

Forget the Swift Boat narrative. A lot of Democrats are running around saying that we must never let the Republicans Swiftboat us again like they did in 2004. They are missing the point. The point was that John Kerry decided to run as a war hero. But John Kerry didn’t really have a very good story on his war service, at least, not in the sense of “I’m John Kerry, and I’m reporting for duty.” John Kerry made his bones as an anti-war political activist. That’s who he was in the 1970s. By 2004 he was just another undistinguished liberal Democratic senator with many years of service in the Senate.

You must learn from Kerry’s mistake. Your narrative has to tell the voters who you are, not who you are pretending to be.

Focus on the issues. The three big issues right now are: energy, the economy, and the mortgage meltdown. The American people want to know what you are going to do about these issues. You do have a plan, don’t you? Of course it’s true that we have an energy crisis because Democrats have spent the last generation standing in front of the oil derrick plafform, standing at the nuclear plant gate, stopping all energy development, but the American people don’t mind that. They just want someone to get gas prices down.

On the economy, you ought to be sweeping the floor with the Republicans. What’s with you guys? Here you are proposing gigantic spending programs and tax increases when you should be proposing to cut wasteful special-interest spending and cut taxes to get the economy moving.

And the mortgage mess. Today it is reported that you don’t like it that the CEOs of Fannie and Freddie are walking away with big severance packages. Very deep that. How about a real plan to solve the problem of unaccountable government sponsored enterprises going belly up?

Frankly, Senator, I don’t know if there is time to turn your campaign around. I don’t think you have the experience of dealing with a crisis like this. But if you can pull it out and turn your campaign around you will deserve to be president.

sincerely,

Christopher Chantrill

Fannie and Freddie Hit the Buffers

It was Weekend at Henry’s again last weekend as Treasury Secretary Henry Paulson executed another credit system surgery operation. This time, as we all know, the surgery was on the failed Depression era program that began as the Federal National Mortgage Assocation back in 1938. Today it is two government-sponsored enterprises, Fannie Mae and Freddie Mac.

Fannie and Freddie operate a secondary market in home mortgages, buying up mortgages and securitizing them into mortgage-backed bonds for sale to the public.

But like all government programs, what began as a good idea to mitigate the mess of the Great Depression turned into a political slush fund, and a firehose that sluiced mortgage money at the housing market.

Now it’s all ended in tears, because losses due to the housing collapse have used up all Fannie and Freddies reserves. It’s all Bush’s fault, my Democratic friends will say, because it happened on his watch.

Well maybe that’s a small price to pay, if we can put a stop to this silly program which has jacked house prices into the stratosphere, and is now insolvent as prices fall back to earth.

The Federal Reserve Board has been warning for years about the risks inherent in the operations of Fannie and Freddie. Back in the early 2000s President Bush and some Republican senators tried to get Congress’s attention to reform them. But Congress wouldn’t listen.

Everyone is talking about how the taxpayers are now going to have to bail Fannie and Freddie out. Actually, more likely it is not the taxpayers but the bondholders of Treasury securities and the average American who will pay. The bailout will result down the road in higher prices and a lower value of the dollar when the government papers over its mistakes with higher inflation.

Making It In Politics the Hard Way

Politics ain’t beanbag, right? But most prominent women get ahead the old-fashioned way, writes Victor David Hanson.

[Think of] successful contemporary female role-model politicians, such as a Diane Feinstein, Nancy Pelosi, Mary Landrieu, or Hillary Clinton — or pundits like Sally Quinn, Eleanor Clift, Andrea Mitchell, Campbell Brown, Gail Collins[.]

How did these women get started? They married well, or they were the children of established politicians.

Nothing wrong with that. Hey, you gotta play the hand you are dealt.

But it makes you realize that you wouldn’t want to start with these cards, not unless you are playing low-ball.

1. Grow up in small-town America.
   
2. Make it Alaska.
   
3. No Ivy League law school.
   
4. Marry a guy without money or influence.
   
5. No money, connections, or “name” in her family either.
   
6. Have lots of children.
   
7. Conservative: pro-life, pro-gun, pro-religion, pro-drilling. Republican.
   
8. Start career in all-male corrupt machine.
   
9. Get national attention in bad year for your party.
   
10. Corny photos with moose or party-hardy Alaskans, and more to come.
    

You gotta hand it to Gov. Palin; she did it her way.

Of course, you say, talent will out. No doubt. But it sure makes things easier when hubby or daddy can get you into the game.

Now It's Obama's Turn

My old Greek friend used to say that you can’t tell the worth of a dog when it’s out hunting. You can only tell when it’s being hunted.

That’s been the story of the McCain campaign. It came to near death a year ago, and they were measuring him for his political shroud. But John McCain never gave up. Now he’s the Republican Party’s nominee for president.

Two years ago, Sen. Barack Obama (D-IL) set out on Barry’s Excellent Adventure. Against all the odds he beat the favorite in the early primaries and managed to eke out a win against a surging Hillary Clinton. That was Barack Obama out hunting.

But now it’s clear that the Obama campaign is in trouble. Against all the odds, what with the war, the economy, the housing mess, the gas price explosion, John McCain is just behind in the polls, and we haven’t seen the full convention bounce yet.

Today, on the day after the Republican National Convention it is Barack Obama who is being hunted.

Obama supporters should be glad of this.

Up to now, Sen. Obama has been a candidate with a good organization and a great style on the stump. He has introduced the age-old themes of Hope and Change in a new vernacular to a new generation. So far so good. But we don’t elect organizations to office, and we want to know a bit more about what’s on offer than the gauzy vision of Hope and Change. We’d like to know if Obama can lead.

Now that the Obama campaign is in trouble, we are about to find out. How good a leader is Sen. Obama when the going gets rough? Can he revise his tactics? Can he retire broken formations without the tactical retreat turning into a rout? Can he deploy new units into the gaps and advance?

Stay tuned. We are about to find out.

If Obama demonstrates an ability to learn from mistakes and come back stronger than ever he will deserve to be elected president.

If not? Well John McCain and Sarah Palin just spent three days in St. Paul, MN demonstrating that they are ready to rule if Obama isn’t.

The Mom vs. The One

Alaska Governor Sarah Palin gave a polished speech last night in accepting the 2008 nomination for Vice President from the Republican Party. This morning conservatives are thrilled and lefties are a-feared.

Obviously Sarah Palin is a great natural political talent with real potential.

But right now I am trying to draw a line down the great cultural divide in this country. It is the divide between women like Sarah Palin and the lefty feminist women that despise her. It is the divide between Christian believers and the lefty secularists that despise them. It is the divide between loyal husbands and fathers that go to work every day to support their families and the Cultural Creatives that sneer at them.

What this adds up to, I believe, is the divide between the culture that celebrates ordinary life, and the culture that wants to escape it.

The life of Sarah Palin is an ordinary life. She went to school, she went to college, she got married and had kids. She supported her husband’s commercial fishing business. Then she got involved in the PTA and got into politics. One thing led to another, and now she is the Vice-presidential nominee of the Republican Party.

The life of Barack Obama is the life of the Chosen One. He was plucked out of a rather messy childhood and chosen. He was sent to elite universities, and became, like the Dalai Lama, or a Janissary, a creature of that special education and training. He has not, at any time in his life, lived or celebrated an ordinary life. He vaulted through temporary occupations: community organizer, part-time university lecturer, non-profit board member. And then he got helped into politics by the Daley machine.

This difference, between The Mom and The One, is a symbol of the great divide in America. The beginning of the modern era saw a huge and influential affirmation of the value of ordinary life. The best life was not Aristotle’s life of the mind, or the warrior (and politician’s) life of honor. It was to work at ordinary life and value it. But in our era, the liberal elite celebrates a life that rises above and utterly transcends the ordinary life in the cult of creativity. Instead of creating a family and children, you create a philosophy, a creative and original work of art, a new vision of society.

Which is best? Which is truth, and which is lie? That is what the culture war is all about. That is what we are fighting about.

Newt ImPales MSM on Experience Issue

Yesterday at the Republican National Conventions it looks like good old Newt had his talking points on the Palin experience issue ready to go.

Confronted by CNN’s Ron Allen worrying that Gov. Palin’s resume is not something we’re familiar with in presidential candidates, Newt unloaded with both barrels.

I don’t know why you guys walk around saying this baloney. She has a stronger resume than Obama.


She’s been a real mayor; he hasn’t. She’s been a real governor; he hasn’t.


She’s been in charge of the Alaska National Guard; he hasn’t.


She is a whistleblower who has defeated an incumbent mayor; he has never once shown that kind of courage. She’s a whistleblower who turned in the chairman of her own party and got him fined $12,000. I’ve never seen Obama do one thing like that.



She took on the incumbent governor of her own party and beat him, and then she beat a former Democratic governor in the general election.


I don’t know of a thing that Obama has done except talk and write.

Hum. I’ts sad that Howard Cosell is no longer with us to celebrate this “telling it like it is.”

Another Camel's Nose Under the Conservative Tent

Some people reckon that the conservative movement is composed of three parts: the social conservatives, the economic conservatives, and the national-security conservatives. Others, like Ken Blackwell, have dvided it into six parts.

1. Social conservatives
2. Christian conservatives
3. Second Amendment conservatives
4. Economic conservatives
5. Philosophical conservatives
6. National Security conservatives

But my question is: Where do the Palin conservatives belong in our movement?

It’s a big question, and I think it is the determining question for the next phase of conservative expansion. We conservatives see a new camel’s nose appearing under the tent and we want the Palin conservatives in our coalition. I mean by “Palin conservative” people from unremarkable origins, people who maybe were in a hurry to get married. People who have Downs Syndrome babies, and pregnant teenage daughters. People who had a DUI in their twenties. People who want to get on with life, don’t have big expectations or big resentments. People who more or less take the world as they find it, but want to go to work, obey the law, play by the rules, and give back to the community.

Ross Douthout and Reihan Salam have addressed this issue in Grand New Party: How Republicans Can Win the Working Class and Save the American Dream. How can Republicans get their head out of the clouds and get their feet on the ground to welcome people like the Palins into the conservative movement?

I don’t like to call the Palin people “blue-collar” or “working-class” conservatives, because that’s demeaning. They aren’t, anyway. They are middle class and think of themselves that way. People who go to Bible church are no longer rank-and-file working class, because the whole point of Bible church is to leave the tribal world of identity politics and enter the great middle class where service and moving out replaces battling for a bare existence and defending the community against injustice and exploitation.

I think all this is very important. I think that, after a Democratic interregnum, Republicans will come back stronger than ever. But first we need to do some thinking. Well, maybe first of all we need to do some listening. What is the Palin candidacy telling us? What do the Palin people want for themselves and America? What can the rest of the conservative movement do to welcome them into the tent?

One thing is for sure. The current liberal sneer-in over the Palin pick is going to boomerang big time. The New York Times today, Tuesday September 2, 2008, had three front-page stories on the Palin daughter’s pregnancy. What is it about these liberals? Have they no decency? As attorney Robert Welch said at the Army McCarthy hearings:

"Let us not assassinate this lad further, Senator.... You’ve done enough. Have you no sense of decency, sir, at long last? Have you left no sense of decency?"

But, of course, our liberal friends don’t think that they have “done enough” on Palin’s daughter, or on Palin herself, or on McCain, or on any conservative or any Republican. Indeed, they have hardly begun!

UPDATE: In a blazing denunciation of the Drive-by Media (driving by the Palin family for the last three days and spraying media gunfire on them) Rush Limbaugh just used the notion of “heartland” conservative to describe the Palin conservatives.

UPDATE TWO: Or maybe “fly-over” conservative.

UPDATE THREE: How about “bedrock” conservative?