The Rest of the Credit Story

Here in the US we are naturally concerned about the damage that the mortgage meltdown has done to the domestic US economy.

Just on cue, as the federal government announced a 0.3 percent decline in real GDP last quarter, the stock market this week seems to a have turned a corner, starting with a 900 point climb in the Dow in the aftermath of the short squeeze on Volkswagen stock.

Don’t look now, but when the US catches cold the rest of the world gets wiped out. The Asia Times columnist Spengler has the story.

The financial crash exposes the fragility of large swaths of the world. The political consequences will be terrible... Worst affected are the most populous Muslim countries, and Russia’s "near abroad".

In the US we have had a credit squeeze. But you can still get a mortgage to buy a house. In the rest of the world the credit faucet has been completely turned off, and many emerging countries are facing economic Armageddon as their currencies tank. Spengler uses the cost of five-year default protection as a gauge of just how bad things are going to get. For countries like Argentina and Venzuela, it’s not available.

The solution is pretty obvious. The US is going to have to use its credit to bail out not just the banks but a number of nations, especially including the countries that escaped recently from the old Soviet Empire. Already the Fed and the IMF are working to spread money out around the globe.

[Treasury Secretary] Paulson said he welcomes the Fed’s decision to create swap lines with four central banks as well as the IMF’s decision to establish a short-term liquidity facility to provide various countries with loans. The Fed Wednesday announced swap lines totaling up to $120 billion with Brazil, Mexico, South Korea and Singapore.

Let’s propose that the bank bailout is working, that the major credit markets in the US and Europe are returning to normal as LIBOR rates decline from the mid 4s to the mid 2s.

That is fine and dandy. But the rest of the world is still completely frozen. The next step is to help them.

Because it doesn’t do the US any good if the rest of the world suffocates on a total credit seize-up.

And it also looks like the gleeful reports of the end of the US hegemony were greatly exaggerated.

Poisoning the Chalice

For the past thirty years conservatives have been trying to reform the vast empire of government subsidy and patronage we call the welfare state. Conservatives have worked to ease the distortions built into the economy from a peverse tax system. They have worked to enable the forces of “creative destruction” through deregulation. They have tried to unwind the cruel and unjust system of welfare benefits. They have tried to introduce choice into the monolithic system of compulsory education. And they have tried to move away from the first dollar free-at-the-point-of-delivery model of health care.

Not surprisingly, our liberal friends have resisted the forces of change. A century ago they began their program of legislation to provide free education, free health care, generous assistance because they believed that it was the right thing to do. They enacted their program confident in the knowledge that every educated, progressive-minded person agreed with them.

But now, a century later, their rigid programs of education, health care, and welfare assistance are long past their sell date. Initiated with boundless hope they have slowly wound down, year by year, and how exist mainly as patronage programs by which our liberal friends maintain themselves in their sinecures and their clients in their pensions.

In the last decade, especially, our liberal friends have struck out with remarkable venom against those who would seek to reform their welfare state colossus, and in doing so they have poisoned the chalice of US democracy. By blocking all reform, especially in the subsidies for home mortgages, they have brought on a perfect financial storm, and true to the chapter and verse of their tactics manual, have ruthlessly blamed it all on the incumbent Republicans.

That means that Americans will likely elect Sen. Barack Obama (D-IL) next week to be president. And he has promised more of the same: more pensions for Democrats, more subsidies for liberal-favored constuencies and initiatives, and more government direction of the national life.

Conservatives believe that we are already long overdue for root-and-branch reform of the welfare state. We believe that Americans should be in charge of the efforts to enhance and improve their communities. We believe that government programs are the least effective way of adapting to the future. We think that the bureaucracy-and-subsidy model has be tried and has failed.

But our Democratic friends are determined to give it one more college try, and if they win they will have a mandate to do so. Unfortunately they will be handed a chalice that they have tarnished and poisoned. In their intransigence they refused, while in opposition, to allow it to be refreshed and renewed. We saw this intransigence before, in 1990, when Democrats led by Senate Majority Leader George Mitchell refused to allow a capital gains tax reduction to ease the pain of recession.

The American people are fed up with the poisoned chalice that politicians in Washington have been soiling for the last decade. They want sensible, practical reform. Next week, most probably, they will call for a change in the national executive branch. That is the one great power they possess.

But they will expect that change to lead to reform. If it doesn’t—and we believe here at Road to the Middle Class that they are unlikely to get it from President Obama, Speaker Pelosi, and Majority Leader Reid—they will be back in two years or four years with a firmer demand for change.

That is what democracy is all about.

Spread-the-Wealth

Conservatives have been pushing the Obama-is-a-socialist meme pretty heavily in the last few days.It’s probably the only thing that can pull the election out of the bag for John McCain. A recent Gallup Poll shows that, if you ask the right question, Americans oppose fixing the economy with spread-the-wealth programs by 84% to 13%. As Gallup report it:

When given a choice about how government should address the numerous economic difficulties facing today’s consumer, Americans overwhelmingly — by 84% to 13% — prefer that the government focus on improving overall economic conditions and the jobs situation in the United States as opposed to taking steps to distribute wealth more evenly among Americans.

And, of course, the Obama program leans heavily on finding ways to spray money at its supporters through tax credits and the like. (Of course, elite liberals get a look in with a renewed tax credit for buying a hybrid car.)

It’s not so much the spread-the-wealth that annoys me. After all, Republicans spread the wealth to Republicans with tax rate cuts. It is merely an incidental factor that lower marginal tax rates benefits not just Republicans but all Americans.

It’s the subsidies that I don’t like, and the distortions they introduce into the economy. First dollar health coverage. Subsidies for alternative energy. Subsidies for low-income homebuyers. “Free” education.

Everyone wants to help poor people, but how? Subsidies? Welfare? Free this and free that? It all seemed so simple a century ago when social democracy really got started. Everyone agreed on the problem: the poor lacked material resources. Give them the resources, and justice would reign.

It didn’t turn out that way. The poor did not just lack material resources. They lacked “spiritual resources,” as Robert William Fogel put it in The Fourth Great Awakening and the Future of Egalitarianism.

The way that the poor build up their spiritual resources is with religion and with love and with hard work and intact families. The welfare state has been a stunning success in breaking up families and turning low-income young men into feral beasts.

That is why we here at The Road to the Middle Class have just two words for the welfare state: Cruel and Unjust.

Because there is another way.

From Smarts to Song

You can often tell someone by trying to understand their enemies. You ask what the folks attacking your favorite politician have in the game. And then you start to understand what’s going on.

There must be something really important about Gov. Sarah Palin (D-AK). Else she wouldn’t have so many enemies. But even an occasional enemy can see the good in her, like feminist Elaine Lafferty in The Daily Beast. Palin’s smart, writes Lafferty, but not in a crude street-smarts way.

I mean, instead, a mind that is thoughtful, curious, with a discernable pattern of associative thinking and insight. Palin asks questions, and probes linkages and logic that bring to mind a quirky law professor I once had. Palin is more than a "quick study"; I’d heard rumors around the campaign of her photographic memory and, frankly, I watched it in action. She sees. She processes. She questions, and only then, she acts. What is often called her "confidence" is actually a rarity in national politics: I saw a woman who knows exactly who she is.

That, of course, is exactly the sort of leader that anyone would want at the top of their political party or movement.

But this is just the intellectual and political side of things. What about the cultural question? What about casting around for a good campaign song for for Palin 2012. It would have to be based on a good old patriotic song so that everyone knows the tune. I have an idea:

O beautiful designer specs,

And amber waves of hair,

Reformer of the female sex

Who’s smart and tough and fair!

America! America!

Let’s end the liberal bile.

And crown thy good with brotherhood

And Sarah Palin’s smile!

It looks like America The Beautiful is out of copyright, so folks could sing it at rallies without having to pay for performance rights.

And it would drive our liberal friends crazy.

One Tough Politician

You can’t tell a dog when it’s out hunting. You can only tell how good it is when it’s being hunted.

That’s why we don’t have a clue what Sen. Barack Obama (D-IL) would be like as president.

A couple of months ago we had the same problem with Gov. Sarah Palin (R-AK). Yes she could give a boffo speech, but what would she be like when the going got tough? Would the tough get going? Would she have a future as a national Republican politician, or would she turn out to be a flash in the pan?

Now we are beginning to get her measure. After an unprecedented firestorm of invective and criticism, including ruthless gotcha interviews from Charlie Gibson and Katie Couric, she has not lost her nerve.

When criticized about her $150,000 wardrobe she didn’t miss a beat but came right back and played the sexism card on the liberals that criticized her.

And now we have the unsourced article from CNN. “Palin’s ’Going Rogue,’ McCain Aide Says.” If your liberal friend has caught onto the article, he’s probably sneered knowingly about it.

On the contrary, the news couldn’t be better. Palin has determined that the McCain campaign is mishandling her, so she is ignoring them and taking her own counsel. That may not be too good for anonymous McCain aides, but it portends well for the future.

It means that Palin is not out for a Sunday drive. She is an ambitious politician thinking of the long term, running for president in 2012, for starters.

So now we are beginning to take her measure. She is gutsy. She can take a punch. She won’t lie down meekly and allow people to drive her into the political wilderness.

What we have here, it seems, is a politician of remarkable courage and talent. She seems to have Bill Clinton’s talent to turn lemon into lemonade, and never, never, never, let anyone think that you are whipped.

Republicans aren’t used to this kind of leader. Even Ronald Reagan often reckoned that discretion was the better part of valor.

Fasten your seatbelts. It’s going to be a bumpy ride.

An Obama Market Panic?

Are the markets panicking at the prospect of an Obama presidency and his presciption of more spending and higher taxes? Or are they just panicked?

The New York Post advanced the Obama Panic meme a while back, but I think that the panic is more about the fact that we are heading into a pretty nasty patch of economic weather.

And the markets sense that the politicians really haven’t a clue what to do about it. Let’s be frank. If McCain wins in November he’ll want to lower tax rates. And if Obama wins he’ll want to send out tax rebates. How about something we can agree on: tax rate cuts for corporate taxes? How about a cut from 35 percent to 25 percent?

Just as big as the Obama uncertainty problem is the fact that nothing will get done until the new president and the new Congress take office in January.

Here’s an idea from good old J.P. Morgan in the 1907 Panic. He did triage on the companies asking for a bailout. If he figured that the company would survive anyway he refused to extend credits. If he figured that the company would fail anyway, he refused to extend credits. But if he figured that the company could survive if he gave them a loan then he did.

Do you imagine that the new president and the new Congress could rise to something so practical and sensible?

I have my doubts.

Stimulus, for Sure, But What Stimulus?

We’re at the point of the business cycle where governments enact bold stimulus programs.

Yes, but what stimulus? What package of economic measures will get us out of the present economic malaise most effectively?

We’ve already done the monetary thing, and how. The Federal Reserve System is pumping liquidity into the world like there was no tomorrow.

But what about fiscal stimulus? It is over fiscal stimulus that the two political parties disagree, as Michael J. Boskin, a McCain adviser, makes clear. The Democrats believe in helicopter money, and the Republicans believe in changing the rules, principally by manipulation of marginal tax rates.

The big risks are higher taxes, protectionism, regulatory micromanagement, vast new spending, subsidies and mandates. Recall that the stock market crash of 1929, and the ensuing recession, were turned into the Great Depression by tax increases and protectionism (and bad monetary policy).

It doesn’t take a genius to see that Democrats would find it very hard to resist a program of vast new spending, subsidies, and mandates. After all wasn’t that what FDR did to beat the Great Depression?

Yes, he did, and conservatives believe that it was the spending and the subsidies, and the new mandates in labor law that prolonged the Great Depression.

Capitalism, wrote Joseph Schumpeter, is a process of creative destruction. It is continually creating new businesses out of the ruins of old businesses. As such it is anathema to the politician, who creates new programs to last, he imagines, for all eternity, and to the homeowner, who builds a house to last for a lifetime.

We are going to see a lot of creative destruction in the next year or so. But it’s the only way. The malinvestments must be liquidated in a bonfire of the vanities, and out of the ashes will rise a new economy.

What the government can do is help people in the painful transition from today to tomorrow. It is human and compassionate to give people a hand as they pick their way over the rubble. But the heavy lifting will come from intrepid businessmen starting new businesses and expanding old ones in the teeth of the present panic. What does the government propose to help them?

Two Americas Updated

Sometimes you learn more from losing than from winning. Lessons learned, and all that.

And victory is oftern sown in the furrows of defeat. Ronald Reagan first emerged onto the national stage in the disastrous year of 1964.

So in a year that will probably go down as one of the worst Republican years ever, with a perfect storm of a financial crisis, war weariness, and 8 year fatigue, You can see the Republican future starting to take shape.

And yes, Virginia, there are Two Americas. There is Credentialed America and then there is Aspirational America.

Credentialed America is the world of our liberal friends. You get your credentials and that sets you up for life in tenuered work that can never be taken away. It may be that you get, on the top end, a Harvard law degree. Clearly you are marked out for the top jobs in everything, not excluding the presidency of the United States. Or you might be a dental technician. You go to school, get your credential, and work away in a safe job forever.

There’s an inverted credential culture too; it centers on the accredited victim. Yes, if you can be certified as a victim, from discrimination or disability, then you too can have an income for life.

Then there is Aspirational America.

The Republican Party has always been the party for aspiration, but recently it has forgotten this. Not any more. The explosion onto the national stage of Gov. Sarah Palin, (R-AK) has put paid to that. And if you didn’t get the message, Joe the Plumber makes it perfectly clear. There are millions of Americans out there who aspire to something. They want to live better, achieve more, and contribute more. They don’t just want to “get theirs.” They want to excel.

This type of American was profiled years ago in The Millionaire Next Door by Thomas J. Stanley and William D. Danko, two academicians who decided to write a best-seller. The millionaire of the book was a risk-taking businessman who maybe owned a couple of dry-cleaning establishments. He didn’t live high on the hog. Instead he saved his money, living in a modest part of town and driving a nothing automobile. He probably started out like Joe the Plumber.

What about the millionaire’s children? Good point. He sends his kids to college so that they’ll get credentials. The thing about a college degree is that it is is low-risk option. You pay your money, you go through the motions, get your credential, and you can get a well-paying job, a job without the downside risk of starting a business.

I’ve never been much of a risk-taker, but I’ve always honored those who are. And I’d hate it if the Republican Party ever turned its face away from aspirational risk-takers like Sarah Palin and Joe the Plumber.

Good News on the Economy!

Yes, I know that it’s the end of civilization as we know it. But there are some portents out there telling us something different.

First of all there’s Libor. That’s the London Interbank Rate, the interest rate that banks charge each other on interbank loans. Remember, the big problem in the current crisis is that banks are afraid to loan money to each other. Well, here’s the trend in in Libor and longer term interbank rates in recent days from Bloomberg.

10/17/08 10/20/08 10/21/08 1-month 4.18% 3.75% 3.53% 3-month 4.42% 4.06% 3.83% 5-yr Bank 6.36% 6.35% 5.84%

So that’s all right. The Libor rates are dropping like a stone.

Then there’s the news from the housing market in Southern California. Home sales were up in September by a record 65 percent. Daniel Taub from Bloomberg reports.

Southern California home sales rose 65 percent in September, the biggest year-over-year increase in at least two decades, as buyers took advantage of foreclosures to purchase properties at discounted prices, MDA DataQuick said.

Why is this important? Let’s hear from Ludwig von Mises, conservative economist and RMC Chappie. He wrote that a recession is the period of liquidation of the malinvestments of the previous boom.

But when the liquidation ends, then it’s time to start a new economic expansion. So the quicker the liquidation proceeds the sooner we’ll get to the other side.

Things are really looking up. Why, the economy may turn around and start expanding by January 20, 2009 when President Obama takes office. And then he can take the credit for the improved economy. It will happen on his watch, right?

The Welfare State's Freeloader Problem

Here in Washington State we are voting this fall on Initiative 1029. It would require home-help workers looking after seniors to attend training and get certified.

You can see why. If the state kicks in money to pay for home-help workers then it wants the money to be a little more than pocket money for a patient’s relatives. So they have decided that it’s time to put up a few hoops and make home help workers jump through them before they get their hands on the government’s cash.

It’s the Freeloader problem, the bugaboo of every human community. How do you get people to contribute to society rather than game the system?

In Hawaii they are having to cancel their noble universal child health-care program because of the freeloaders.

"People who were already able to afford health care began to stop paying for it so they could get it for free," said Dr. Kenny Fink, the administrator for Med-QUEST at the Department of Human Services. "I don’t believe that was the intent of the program."

Well, of course they did. And that’s the problem with every government program that’s cranking out a nice little subsidy to some vote-heavy special interest. Why put out for health care, for housing, for savings, for anything if you can get it from the government for free?

No doubt it’s a wonderful thing to spend our tax dollars helping families look after their aged parents. But the problem is that when the government kicks in some cash a lot of people respond by taking the money and spending their own money on something else. Fast reverse to the SCHIP poster boy last year whose parents sent him to private school but couldn’t afford health insurance.

And, of course, because this is a government program we are not talking about a nice friendly community effort to help some needy seniors or needy families. We are talking about a compulsory government program that takes your money and spends it on stuff whether you like it or not.

Yes There is Room at the Inn

The post-WWII American conservative movement started out as an elite movement, with crusty old thinkers, neo-Tories, and the rich-bitch Bill Buckley fusing with European intellectuals pitched out of Europe by Nazism.

But then a funny thing happened. Ordinary people started asking to join. In the Seventies it was the pro-lifers. In the eighties it was the Reagan Democrats. Now it’s the aspirational working class. It’s the Alaska fisherman and the Ohio plumber at the door today.

Every time a new group has asked to join there has been something of a tussle in the conservative movement because conservatives, like any group, have people worried about lowering the tone of the neighborhood. In the Seventies and Eighties it was the conflict between the blue-blood Rockefeller Republicans and the blue-collar Reagan Republicans. In the early Nineties it was between Christian conservatives and more secular conservatives. Now that the Palins and Plumbers are joining, we are seeing once again the more sensitive sort, the Christopher Buckleys and the Peggy Noonans, getting nervous about conservative real-estate values.

We should all hope that the latest generation of Nervous Nellies stays within the big Republican tent to extend a friendly welcome to the newcomers. The record is that each new group that has knocked on the door of the conservative inn has been welcomed in. And each addition has revived and broadened the conservative family.

Let’s not be afraid of the new rough diamonds on the conservative table. We old-timers could do with a bit of the sparkle they bring, and they are doubtless eager to acquire a bit of polish.

There’s an article in the Wall Street Journal today that says that the rich are for McCain and the super-rich are for Obama. You’d expect that. The newly rich are still aspirational; the super-rich are worried about the challenge from below. And there’s nothing like a nice little tax increase to slow down the ascent of the nouveaux riches.

I’ll pitch my tent with aspirational Americans. They are the people that make the country work.

Liberals and Joe the Plumber

My liberal friends like to put it this way: “Why is America anti-intellectual?” It’s true, America has always been a can-do nation, inclined to act first and think second.

But the question can be put the reverse way. Why do liberals sneer at ambitious ordinary people like Joe the Plumber? Why do they brush them off, as Sen. Barack Obama brushed off Joe the Plumber, and tell them to get with the program of sharing the wealth?

It’s not just Joe the Plumber who liberals sneer at. There’s Todd the fisherman, Sarah the small-town mayor, Ronnie the son of the town drunk, Margaret the grocer’s daughter.

What is wrong with people who have worked their way up from modest beginnings? Patronizing Joe the Plumber doesn’t make sense to a conservative or a Republican. But it makes a lot of sense to a liberal Democrat.

Liberals occupy the commanding heights of politics and education and culture. They have also co-opted many of the leading lights of busines. Think Bill Gates and Warren Buffett. When you are up, as liberals are up, there is only one way left, and that is down. When you and yours occupy comfortable sinecures in the academy, in journalism, in the non-profit sector—a sinecure earned usually by academic brilliance—you look upon the simple ambition of Joe the Plumber as a threat. If Joe builds himself a business and acquires a small fortune then he may come, one day, to challenge the comfortable liberals sitting in the warm afternoon sunshine on the commanding heights. The raw energy of the Joes is unsettling.

Much better to keep the Joes down and prevent them from rising and challenging the powers-that-be.

And that goes for the Todds and the Sarahs too.

Could Republicans Reverse the Ratchet?

Go ahead America, some Republicans argue. Vote for Obama. Then when you suffer buyer’s remorse we can reverse the lefty follies of an Obama administration.

But can we reverse the follies? Writes Mona Charen:

[T]here is a one-way ratchet in public policy. Liberal reforms are never undone. How hard have conservatives tried to eliminate the Department of Education or subsidies to public television? Would they have more success uncreating a new nationalized health care system?

Why is that? Why can’t we make Social Security into a genuine savings program? And why does Medicare keep growing and growing?

The short answer is: women. To women, you can’t have enough security. You can’t have enough health care. You can’t have enough education. That’s where the ratchet comes from.

This doesn’t just come from liberal politics. It comes from our nearest relative, the chimpanzee. In chimpanzee society, according to Nicholas Wade in Before the Dawn, the males engage in border wars and defense of territory. The females utilize the resources in the territory—principally food—to bear and raise the young. The more territory, the more food. The more food the more and healthier the young.

It doesn’t take a rocket scientist to see that the females would be instinctively programmed to use all the resources available in the care and feeding of their young.

So it must be in human society. And analysts have noted that big government really starts to take off once women get the vote.

We conservatives musts ask ourselves: When we advocate to reduce the size of government, are we helping or hurting women? So far, women have tended to vote for more government because they always vote for more resources for their families. Presumably they believe that government is a better guarantor of resources than husbands, and maybe they are right.

But that’s not the whole story.

We know, from observation of the effects of the welfare state, that it has problems. It is pretty clear that the more you sync your life up with the government the more that your family (probably reduced to the mammalian minimum of women and minor children) is likely to suffer from social pathologies.

The question that conservatives must start to ask is fairly straight forward. Is this what women want? Do women accept the rise in social pathology as a necessary cost of getting all the education, health care and welfare resources they need? Or do women want something better?

Until conservatives come up with an answer to this, there will be no chance of reversing the liberal ratchet.

You say that conservatives already have an answer? That the whole point of conservatism since Burke has been a celebration of the little platoons, the integration of resource provision into free and voluntary community? OK. Then let’s get the message out.

After the Rescue

It looks as though the US Cavalry made it on time, and that Americans and indeed the people of the world will be spared a total financial meltdown. The stock market (which is the present value of the future earning potential of the economy) rocketed up yesterday and looks like it is taking a breather today.

But that doesn’t mean that we’ll be spared the actual experience of Ludwig von Mises’ definition of a recession: the period of liquidation of the malinvestments of the previous boom. There was plenty of boom until last year and plenty of malinvestment. Now we have to sort through the wreckage.

The good thing is that we are well along in the liquidation of the mal-invested houses of the housing boom of the 2000s. But there is probably a lot more out there that we haven’t seen yet.

After months of stumbling and bumbling, it looks like the world geniuses have come up with a plan to refloat the hard-aground banks. But obviously people are going to need to be rebuilding their balance sheets. That’s a euphemism for cutting spending.

Going forward, it would be nice if we learned something from the current credit crisis. And that simple something is that too much leverage is poisonous.

The chap who’s borrowed too much is an anti-social person who aims to make a killing if things go right, and walk away from a gigantic mess if things go wrong. That is wrong, any way you look at it.

Debt is debt. It ought to be secured and it ought to be limited. If you want to take a risk with Other Peoples’ Money then there is another way to go. It is called equity. When you borrow money you promise to pay it back, principal and interest according to a contracted schedule. When you buy shares in a partnership or a corporation you agree to share the profits and share the losses.

If you liquor—er, leverage—yourself up then you are likely to become financial impaired and unable to meet your obligations. If you confine your risky behavior to equity plays then you can always meet your obligations because you have just said that you agree to sharing in the risk of the enterprise.

This isn’t rocket science, is it?

Street Cred for ukpublicspending.co.uk

The newest member in the vast firmament of our far flung web empire is the helpful ukpublicspending.co.uk launched in June 2008.

It provides over a century of historical government spending data for the United Kingdom, starting in 1900.

Trend-spotting bloggers latched on to the benefits of ukpublicspending.co.uk immediately. But now the less fleet of foot have caught up.

• On September 29, 2008 a British Labour Party blog, Labour Matters, mentioned “independent websites, such as ukpublicspending.co.uk,” in taking a cudgel to Conservative Party economic policies.
  
• The UK Office for National Statistics footnoted ukpublicspending.co.uk in a paper entitled Measuring the Quality of Central Government Expenditure Data Used in the National Accounts: A 2008 Update. “Given that public sector expenditure constitutes over 41% of GDP, with central government spending at 30% of GDP in 2007.” And they naturally took the numbers from ukpublicspending.co.uk, sight unseen, knowing the site to be highly reliable.
  

Well, this is only to be expected. The availability of good historical data on government spending provided in a consistent format is abysmal in the United Kingdom.

So it’s not surprising that Labour activists and government bureaucrats are taking advantage of the reliable, consistent historical data on government spending in the United Kingdom published at ukpublicspending.co.uk.

Sunspot Provokes Big Market Runup

If anyone needed to know what drives the stock market, this last weekend should have sealed the deal.

Last weekend the first decent sunspot in Cycle 24 emerged. Here’s a breathless report from Watts Up With That. SolarCycle24 gives comprehensive data on all the sunspots thus far in Cycle 24.

As usual the traders got an early look at the data and Wall Street soared 7 percent in late trading on Friday to close down a mere 1.5 percent on the day.

The sunspot was waxing all weekend. What could it mean? The outcome was obvious. Today the Dow soared 11 percent in the largest point gain ever and the fourth largest percentage gain ever.

Are you convinced now? Come on now: what would it take?

Searching for the Answer

Everybody is searching for the reason for the meltdown and confidently trying to dig up the answer.

Here on Road to the Middle Class we’ve been as confident as anyone.

Jerry Bowyer has taken a look and his candidates for “the reason” include:

1. The Community Reinvestment Act which has forced the banks to make loans to deadbeats
   
2. Fair value accounting, which has wiped $500 billion in assets off the balance sheets of the banks.
   

You can point the finger at the crooks at the banks, and why not. There’s probably enough crookery in there to suit every taste. But the problem when you are searching for a reason is that, of course bankers start to cheat when things go south. They are embarrassed. They feel guilty. They try to hide their mistakes. Politicians like Sen. Christopher Dodd (D-CT) and Congressman Barney Frank (D-MA) do that too. It’s like people and sex. Remember? Everybody lies about sex.

But Bowyer wants to point out the effect of wiping $500 billion off the banks with fair-value or mark-to-market accounting. With fractional reserve banking, where one dollar in capital is needed to support 10 dollars in loans, the write-off has wiped out $5 trillion in credit.

$5 trillion in credit? That could make quite a difference.

It's the Solvency Stupid

Monday and Tuesday the stock market tanked, and today it’s been on a rollercoaster. It was down as much as 2.5 percent and up as much as 2.5 percent, finally ending down 189.01 points on the Dow. You could say that buyers and sellers are fighting over the future. Will the bank bailouts here in the United States and in the United Kingdom do the trick, or is the poison too strong for the present antidote.

Let’s not forget that this is not a liquidity crisis alone. It is a solvency crisis. What are those assets worth on the balance sheets of the banks? Nobody knows, and that’s why the Feds are going to buy the bad apples from the banks. Clean up the balance sheets and you clean up the crisis.

Should we really be frightened? Is this 1929 all over again (or more properly 1931, half way down)? Or is it worse than that? Tony Blankley helpfully suggested that it could be the Black Death when one third of the population of Europe perished.

We humans are hopelessly optimistic—except when we are hopelessly pessimistic. There’s always light at the end of the tunnel, except when we are trapped like rats in a maze.

It has to be that way. After all, we are all going to die. It’s one hundred percent guaranteed. So unless you are hopelessly optimistic you might be tempted to say: What’s the Point.

And what’s the point of that?

"The Great Moderation" Did It?

Is there no end in sight? Today the market nosedived in the final hour of trading on Wall Street with the Dow off 678.91 points.

David Strom thinks it was the Great Moderation that did it.

Ever since the nail-biting recession of 1980-82 the world economy has been remarkably crisis free. There have been all kinds of things thrown at it: “the Savings and Loan Crisis, the ‘Asian Flu,’ the Russian default on their debt, the bursting of the dot com bubble and even the September 11th attacks.” But nothing was disruptive enough to cause a major recession. The global economy just sailed through.

Well maybe that golden age is over. People got used to moderation and in response took on bigger risks. We’ve all cashed in by taking out bigger mortgages and the folks of Wall Street have indulged in a veritable orgy of debt and leverage.

Not to be outdone the politicians geared up Fannie Mae and Freddie Mac to loan money on sub-prime mortgages in what you might call the granddaddy of all bigger risks.

Well, now it looks like the chickens are coming home to roost, with the Paulson bailout unable to arrest the downdraft in the stock market. Only, of course, the chickens are going to be roosting on you and me, not on the politicians and bankers that took the risks and awarded themselves the bonuses.

I suppose it’s too much to ask, but when we get out on the other side of this, could we try to reduce the amount of debt in the economy and try a little equity? It seems to me that it’s more neighborly, as it shares the gains and the losses, rather than grabbing all the wins for me and socializing all the losses for thee, as occurs under the current system.

Obama, ACORN, and the Smoking Gun

Here’s the story so far on the mortgage crisis.

In the 1970s the Carter Administration passed the Community Reinvestment Act that encouraged banks to lend in low-income areas. In the 1990s the Clinton Administration pressured banks to make sub-prime loans by holding up bank mergers for banks that didn’t pour enough money into low-income areas. In the 2000s Republicans tried to reform all this by reducing the exposure of Fannie Mae and Freddie Mac to sub-prime mortgages but Democrats cold-cocked every attempt at reform.

Now comes the smoking gun. It was ACORN, the left-wing group, through an inside/outside strategy of street pressure and lobbying pressure that was the driving force behind the mortgage mess. And Barack Obama was right in the middle of it in the mid-1990s, according to Stanley Kurtz in National Review.

“You’ve got only a couple thousand bucks in the bank. Your job pays you dog-food wages. Your credit history has been bent, stapled, and mutilated. You declared bankruptcy in 1989. Don’t despair: You can still buy a house.”

That’s what the Chicago Sun-Times wrote in April 1995. And how could it be that a dead-beat could get a loan? ACORN would help you batter down the doors of that evil bank.

That same year, as a director at Chicago’s Woods Fund, Obama was successfully pushing for a major expansion of assistance to ACORN, and sending still more money ACORN’s way from his post as board chair of the Chicago Annenberg Challenge. Through both funding and personal-leadership training, Obama supported ACORN. And ACORN, far more than we’ve recognized up to now, had a major role in precipitating the subprime crisis.

So we understand this. Back in the 1990s the celebrated moderate and post-partisan Barack Obama was sluicing money at ACORN’s far-left projects on housing and Bill Ayers far-left projects on education. Ayers, remember, was just someone Obama knew in the neighborhood.

Kurtz tells the whole story. It began with ACORN pressuring the local banks in Chicago. But pretty soon it came up against the reluctance of the banks to hold sub-prime mortgages; they couldn’t get them off their books because Fannie and Freddie wouldn’t buy them.

So ACORN went to Washington to pressure the adminstration and Congress to change the rules on Fannie and Freddie to make them accept sub-prime mortgages. They had modest success with the Bush 41 administration and major success with the Clinton administration. Bigger and bigger the balloon got, until one day, it popped. Oh dear. Must be those evil Republicans, eh, Speaker Pelosi?

So now we know.

Up to now, conventional wisdom on the financial meltdown has relegated ACORN and the CRA to bit parts. The real problem, we’ve been told, lay with Fannie Mae and Freddie Mac. In fact, however, ACORN is at the base of the whole mess. ACORN used CRA and Democratic sympathizers to entangle Fannie and Freddie and the entire financial system in a disastrous disregard of the most basic financial standards. And Barack Obama cut his teeth as an organizer and politician backing up ACORN’s economic madness every step of the way.

No doubt Sen. John McCain (R-AZ) will be mentioning this at the debate tonight in a mild and avuncular way.

At the End of the World...

With stocks down seven percent in Europe and the United States today, it looks like the end of the world, and maybe it is.

But maybe it is just a problem of too many people borrowing too much against too little in assets. Or setting up their lives without any thought for the downside.

There’s a simple fact about borrowing a ton of money. Things better work out for you, otherwise you’ll be wiped out.

From time immemorial financial intermediaries like banks have operated in a highly leveraged way, borrowing and lending a lot of money. Problem is that when the assets securing the loans start to go south then so does the bank. And that is what we are seeing now.

The problem right now is that market participants lack confidence that the other party to their transaction is going to be there next week. So they are reluctant to lend to them. The central banks are running around hosing everyone with money but so far this hasn’t solved the problem. There are still a lot of people with assets securing loans that are worth a lot less than they were last week, last month, or last year.

The solution is fairly simple. All these folks who are leveraged up to the gills and beyond are going to have to be rescued by companies that aren’t leveraged up to the gills. That’s what J.P. Morgan did in 1907. He took the questionable assets of a highly leveraged broker and swapped them with the gold bonds of much-less-leveraged US Steel. All of a sudden the broker’s loans were secured by an asset that everyone could trust, and US Steel had an asset that turned out to be worth a lot more that people feared.

Unfortunately this time around our genius leaders haven’t yet decided how to do this. We must hope that they hurry up and figure it out. It’s their job to do stuff like this, after all.

Hey Katie, May I Call You Joe? (Wink, Wink)

My boxing days are over, but after the Vice-Presidential Debate last night I allowed myself a couple of upper-cuts—right to the solar plexus.

Because. Because it is so delicious when one of ours, reviled and ridiculed by the Drive-by Media, just socks it to them.

“The next person that winks at me, I’m not sure I’m going to be able to take it after tonight,” said MSNBC’s Rachel Maddow.

That’s according to Byron York at NRO. Yes, Bob Barnett was counting and Sarah Palin did six winks. As Rosalind said: Not to be endured! (That’s another sophisticated literary allusion.)

Yes, but what about a serious discussion of The Issues?

Good idea. And to do that we cannot do better than quote Good Ole Boy Fred Thompson.

“One of the reasons I feel so good for her, just as a human being,” said former Sen. Fred Thompson, “is I have never seen anybody undergo the ridicule, the slanders and the lies, and the blogosphere and what they’re doing, and breaking into her private email, rumors and things about her, and now, most recently, belittling her, taking little snippets of interviews and laughing at her and satirizing her. Those people ought to be ashamed of themselves[.]

You know, if Sarah Palin were a liberal, say an important professor of Womens Studies, and Republicans did to her what Democrats just did, our liberal friends would be tearing up the pavement. They would be bellowing “McCarthyism” from every TV set, and Katie Couric... Well enough about her.

The delicious thing about the whole business is that Sarah Palin’s folksiness drives our liberal friends absolutely nuts.

And there’s a deep philsophical reason for that. Oh yes. This is not just about an excess of colloquialisms. Sarah Palin’s folksiness changes the subject. All of a sudden we are not talking about liberal things, about racism, sexism, classism, and homophobia, or about the endless parade of victims. All of a sudden we are in middle-class land, where people are assumed to have a basic competence about life. It’s assumed that they follow the rules, go to work, pay their taxes, and look after their families.

The whole point of liberalism is that some expert has to do all that for you.

David Cameron's Greatest Speech

That’s what they are saying at conservativehome.com. British Conservative Party leader David Cameron outlined his agenda for change in Britain earalier today at the annual Conservative Party conference in Birmingham, England.

And yes, the speech really was about change. Cameron declared that he would declare war on the underperforming state education sector. Those focus groups must have had some pretty salty things to say about the schools if a national politician felt emboldened to say this:

The election of a Conservative government will bring - and I mean this almost literally - a declaration of war against those parts of the educational establishment who still cling to the cruelty of the "all must win prizes" philosophy and the dangerous practice of dumbing down.

In fact, the Tories propose to introduce schools that will be independent of the state monopoly that operates through Local Education Authorities.

But the biggest line for me was Cameron’s amplification of his core philosophy: “There is such a thing as society. It’s just not the same thing as the state.” He quoted the words of Labour spokesman. “David Miliband said that ‘unless government is on your side you end up on your own.’” We’ve heard that one before, of course. Both Hillary Clinton and Barack Obama have used it. Cameron exploits the opening offered by Miliband.

For Labour there is only the state and the individual, nothing in between. No family to rely on, no friend to depend on, no community to call on. No neighbourhood to grow in, no faith to share in, no charities to work in. No-one but the Minister, nowhere but Whitehall, no such thing as society - just them, and their laws, and their rules, and their arrogance. You cannot run our country like this.

This is a big deal for me, because it anchors Cameron in the broad church of conservatism that begins with Edmund Burke and the “little platoons.” A free society cannot just be the government and the free individual. Instead, as Cameron says, it must be the whole panoply of free institutions, anchored by responsibility:

For me, the most important word is responsibility. Personal responsibility. Professional responsibility. Civic responsibility. Corporate responsibility. Our responsibility to our family, to our neighbourhood, our country. Our responsibility to behave in a decent and civilised way. To help others. That is what this Party is all about. Every big decision; every big judgment I make: I ask myself some simple questions. Does this encourage responsibility and discourage irresponsibility? Does this make us a more or less responsible society? Social responsibility, not state control. Because we know that we will only be a strong society if we are a responsible society.

In all Cameron used the word “responsible” or “responsibility” 28 times in his speech. And that is right, of course. A conservative society is a responsible society.