1907 Redux

I'm not the only one who thinks the 2008 Credit Crisis is comparable to the Panic of 1907. Gordon Crovitz writes in the Journal:

A key holdup to getting past this crisis is the continuing unknown of the remaining value of mortgage-based securities. In Morgan's day, price discovery resulted when he went around the room seeking details of balance sheets... Getting our arms around the scope of the bad debt would define the capital needs for banks, and there would be prices set that potential private-sector buyers of the debt could consider.

Wall Street doesn't need extra cash - they need a proper valuation of their own assets.

Dear Madame Representative

Dear Madame Representative,

Thank you for keeping the interests of the 99th District in mind in your consideration of the various Wall Street bailout proposals.

As a local taxpayer and economist by profession, I am concerned that Congress has been deceived by Wall Street. Wall Street and the finance industry claim that lending is crucial to American businesses everywhere. This is true enough. They also claim that an enormous bailout would solve the problem. This claim is not true.

If Congress gives $700 billion to Wall Street in exchange for worthless assets, where is the $700 billion going to come from? In the long run, from taxpayers like me. In the short run, it has to come from lenders. If the Federal Government is sucking $700 billion out of lending markets in the next year, lenders won't be able to loan that money to businesses that create jobs! What's more, the move will raise interest rates, making borrowing more expensive and dampening lending further.

Even if the government did not have to borrow the $700 billion in the short run, the bailout would probably not prevent a recession. Remember, what brought on this crisis was exuberant lending. No amount of bailing out is going to make bad loans look good to bankers now. An unsound business model is still going to be unsound, even if a government handout allows it to be solvent for a few extra weeks or months.

Suppose I am wrong. Suppose a $700 billion bailout really could prevent a recession. The most severe recession since World War II was the 1973-1975 recession. How much did the economy shrink? By about 5%. In today’s economy, a 5% contraction would be about $700 billion. Spending $700 billion to avoid a recession of less than $700 billion seems like a losing proposition to me – even if the bailout works.

Please vote against any resolutions that will use tax revenues or borrowing to bail out Wall Street.

Thank you for your time and your efforts.

Sincerely,

- S***** F*****
Department of Economics
***** University

$700,000,000,000.00

$700 billion is a lot of money, approximately equal to the annual output of the state of Florida, or of the six New England states. That's more than 5% of the total output of the United States. Only 16 countries worldwide produce that much in a year. And the Secretary of the Treasury has asked for that much in a one-shot attempt to stabilize U.S. financial markets.

As an economist, this seems to me a high-risk endeavor. The money will come from loans, which have to be paid back by future taxpayers regardless of the plan's success. As a taxpayer, I'm worried the proposal pursues a questionable goal: welfare for investment bankers?

Finance is not supposed to consume a large portion of a country's resources, but it's understood to enable growth. So when the financiers ask for their pound of flesh, do we pay up, or risk the consequences? Two countervailing credibility problems form the horns of this dilemma.

First, the prospect of a big bailout introduces a moral hazard. Investors at home and abroad should not be led to believe that Uncle Sam will cover losses once the cost gets high enough. Companies that become "too big to fail" are too big of a liability to us all.

Second, the prospect of a financial crash introduces a default problem that could become widespread. If insurers and loaners lack confidence in the ability of borrowers to repay - or to be backed up by the government - interest rates will rise, hurting the U.S. as a net debtor.

The recent history of this crisis is not encouraging. Remember the Fannie & Freddie bailout? The government made a commitment of up to $200 billion. That didn't save AIG or Lehman Brothers, and didn't turn the stock market around for more than a few days. Why should $700 billion now have any positive ripples when $200 billion a few weeks ago slid like a drop into the ocean?

Likewise, the oddest thing about the crisis is how limited it has remained in scope. Some economists say that financial markets are an important indicator of where the real economy is heading. Some economists say that consumer confidence is a vital indicator. Well, stocks have been falling steadily for a year, dwarfing the daily fluctuations. Consumer confidence is nearing all-time lows. But the real economy seems to be healthy! Unemployment is near long-run averages, labor productivity is rising, real wages are rising, and GDP growth is choppy but positive.

None of this guarantees that a recession is not "right around the corner." But it does cast doubt on financial and consumer confidence measures as indicators of economic activity. Do we really need to pull out all the stops to "save" an economy that's plugging along on the strength of export-driven activity? This is no boom, but the fundamentals of the economy are, ironically enough, strong.

These twin doubts - in the efficacy of a potential bailout and in the actual extent of the crisis - make me leery of any expensive bailout package. I offer a rare commendation to legislators from both parties who greeted the $700 billion Rube Goldberg machine with skepticism. Here's hoping they can't agree on anything, at least until we know more about the extent of the crisis and the likelihood of success.

This is cross-posted on Watchblog.

Rochester Marathon

I ran the Marathon in formal shoes and slacks! And at mile 25, I'm still looking chipper, while Mike (in that unstylish number) really looks beat-up. More pics here.

The Annenberg Records

Now that reporters have had time to pore over the records of the Chicago Annenberg Challenge (background here), its details are emerging - both of Barack Obama and terrorist William Ayers's involvement and of the CAC's operations and goals. Stanley Kurtz finds the CAC a disturbingly radical organization.

[T]he Daley archive contains additional board minutes, the Collaborative minutes, and documentation on the groups that CAC funded and rejected. The Daley archives show that Mr. Obama and Mr. Ayers worked as a team to advance the CAC agenda...

CAC translated Mr. Ayers's radicalism into practice. Instead of funding schools directly, it required schools to affiliate with "external partners," which actually got the money. Proposals from groups focused on math/science achievement were turned down. Instead CAC disbursed money through various far-left community organizers, such as the Association of Community Organizations for Reform Now (or Acorn)...

CAC records show that board member Arnold Weber was concerned that parents "organized" by community groups might be viewed by school principals "as a political threat." Mr. Obama arranged meetings with the Collaborative to smooth out Mr. Weber's objections.

Kurtz paints a picture of an ideologically centered organization, seeking not to improve the education of city students but to educate them in "political consciousness, Afrocentricity and bilingualism". These goals may or may not be invidious, but they are certainly not ones I would want promulgated across the land (at the expense, as noted above, of math and science). In a position to do good in his community, Mr. Obama chose instead to push a political agenda. Why would he do differently as president?

When in control of grant money, Mr. Obama chose not to give the money to public schools, but rather to private groups. But now as a politician he opposes school choice because money would be leaving public schools. Is this a principled position, or just leftodoxy?

The CAC history also provides further evidence that Mr. Ayers launched Barack Obama's rise from ineffectual community organizer.

One unsettled question is how Mr. Obama, a former community organizer fresh out of law school, could vault to the top of a new foundation? In response to my questions, the Obama campaign issued a statement saying that Mr. Ayers had nothing to do with Obama's "recruitment" to the board. The statement says Deborah Leff and Patricia Albjerg Graham (presidents of other foundations) recruited him. Yet the archives show that, along with Ms. Leff and Ms. Graham, Mr. Ayers was one of a working group of five who assembled the initial board in 1994. Mr. Ayers founded CAC and was its guiding spirit. No one would have been appointed the CAC chairman without his approval.

Mr. Obama has displayed a consistently leftist ideology in his decisions throughout life. It's only in his rhetoric that the "one America" emerges.

Not to brag, but...

I didn't take the photo - it was a candid shot by a D&C photographer. But still, I can brag about the subject, can't I?

Help for those in need

This is an interesting form of philanthropy:

NBA star Doug Christie and his wife, Jackie, announce that they will purchase 3,000 shares of corporate stock to help with the AIG financial crisis. The Christies, who are no strangers to helping people in need, have graciously used their star appeal to bring awareness to the issue...

"We encourage all our fellow men and woman to buy at least two stocks to help with the global economic crisis," said Jackie Christie. "We want everyone to step up and help in any way that they can. This is a huge crisis we face, but together we can make a difference. Do not just sit by and watch."

Save America's suffering investment bankers! Hat tip to BOTWT.

English-to-Pirate translation engines exist! Hat tip to Trina.

Summer Wanes

Yes, we did make homemade pretzels from scratch! No, I have no idea why blogger insists on flipping that picture on its side!

Ask An Economist

As an economist, I get asked about financial crises a lot. And I really don't know much more than the average informed citizen: my branch of economics is not concerned with firm-level finance. Stephen Levitt, of Freakonomic fame, sounds a similar note:

As an economist, I am supposed to have something intelligent to say about the current financial crisis. To be honest, however, I haven’t got the foggiest idea what this all means. So I did what I always do when something related to banking arises: I knocked on the doors of my colleagues Doug Diamond and Anil Kashyap, and asked them for the answers.

Diamond and Kashyap's response - lengthy but comprehensible - is on Levitt's blog.

Is Barack Obama Muslin?

Inquiring minds want to know! In fact, Obama has never denied being Muslin! For the answer, click here. For a little more on this, click here.

Hat tip to James Taranto at BOTWT.

No Taxation For Yankeedom!

If this is what my New York state taxes go to support, I might just go into (state) tax revolt. Woodstock museums and Bridges to nowhere are bad enough, but this is a bridge too far.

Assemblyman Richard Brodsky said the commitment of $550 million to $850 million in taxpayer money was based on an unsubstantiated threat that the Yankees would leave New York. He said in a new report that the team predicted the public investment would generate 1,000 new permanent jobs, but the actual total would be 15.

Comparably, Hillary's $1,000,000,000 earmark subsidy for "Destiny USA" - a mall in Syracuse, NY, is an equal abuse of taxpayer money by narrow local interests. Why is this not seen as flagrant corruption? OK, so that is how Rolling Stone sees it.

Hat tip to Drudge

Clinton in McCain's House

John McCain was asked recently in an interview whether he would offer Hillary Clinton a cabinet position in his administration. He replied with something diplomatic about how she wants to remain in the Senate where she will be an influential legislator together with whom the president will need to work. Still, I can see a place for a Clinton in a McCain administration - but not Hillary.

Last year, Bill Clinton was often floated as a possible Ambassador to the United Nations in a potential Hillary (or other Democratic) presidency. That position is probably the best one for him, and he is probably the best man for the job - Democratic or Republican. Like any ambassador, he would not be responsible for creating policy, so his presence would not give undue influence to the voters of 1992. He would, however, be responsible for diplomatic strategizing, confronting those enemies so recalcitrant they lack a Washington embassy, and being the face of the U.S.A. in Manhattan's global village.

These jobs would emphasize Bill Clinton's strengths, furthering his bipartisan disaster relief work, and letting him serve his country just a few miles from his Harlem office. It would rehabilitate his image as a statesman, tarnished in the Democratic primary (and leave him free to re-tarnish it in another bruising Hillary run in 2012).

The appointment of Clinton would let McCain emphasize his differences with the Bush administration on foreign policy - which are small, but significant. McCain agreed with Bush (and Hillary) on the need for a war in Iraq in 2003, a disastrous misjudgment in my view. He agreed with Bush (but not Hillary) on the need to win the war decisively, despite the setbacks of 2006, a vital long-term decision in my view. But McCain could show a different style in his prosecution of these policies: showing more respect for allies and working within rather than around international institutions.

Just as the Bush foreign policy style can be best characterized with the appointment of UN Ambassador John Bolton, McCain's could set the tone for a new era - and apologize to the world for defeating their darling, Barack Obama - by appointing Bill Clinton to this high-profile position.

Canada

Some pointers on the Great White North. It's really big. And it sucks.



(According to the Arrogant Worms).

Global Review Scoops Rove

Karl Rove offers essentially the same analysis in his article today as Global Review put forth last week. I wrote:

If Obama continues to be drawn into an open, candidate-to-candidate fracas about experience [versus Palin], then McCain clearly wins... Obama can win this battle and lose the war if the media will run with it.

Rove wrote, at greater length:

It's a matchup he'll lose. If Mr. Obama wants to win, he needs to remember he's running against John McCain for president, not Mrs. Palin for vice president... Mr. Obama has again started a debate he can't win.

People who say that the Palin choice stripped McCain of his best talking point against Obama miss the point: Palin was the bait, and the Obama campaign's esophagus is where the hook, line, and sinker are right now. Obama will have to extricate himself if he's going to get any traction and regain control of the dialogue. Comments about porcine makeup aren't helping.

Paglia on Feminism

Writer Camille Paglia, a liberal and libertarian, has one of the more compelling articles I've read recently in her Salon column. She makes her position on the upcoming election clear, but goes on to criticize her own side in clear, philosophical terms. Almost as a side note, she makes explicit an argument in favor of legal abortion that reveals its own structural underpinnings.

Oh, the sadomasochistic tedium of McCain's imprisonment in Hanoi being told over and over and over again at the Republican convention. Do McCain's credentials for the White House really consist only of that horrific ordeal? ...how do McCain's sufferings in a tiny, squalid cell 40 years ago logically translate into presidential aptitude in the 21st century? Cast him a statue or slap his name on a ship, and let's turn the damned page...

Conservative though she may be, I felt that Palin represented an explosion of a brand new style of muscular American feminism. At her startling debut on that day, she was combining male and female qualities in ways that I have never seen before. And she was somehow able to seem simultaneously reassuringly traditional and gung-ho futurist. In terms of redefining the persona for female authority and leadership, Palin has made the biggest step forward in feminism since Madonna channeled the dominatrix persona of high-glam Marlene Dietrich and rammed pro-sex, pro-beauty feminism down the throats of the prissy, victim-mongering, philistine feminist establishment.

As a dissident feminist, I have been arguing since my arrival on the scene nearly 20 years ago that young American women aspiring to political power should be studying military history rather than taking women's studies courses, with their rote agenda of never-ending grievances.... It is certainly premature to predict how the Palin saga will go. I may not agree a jot with her about basic principles, but I have immensely enjoyed Palin's boffo performances at her debut and at the Republican convention, where she astonishingly dealt with multiple technical malfunctions without missing a beat. A feminism that cannot admire the bravura under high pressure of the first woman governor of a frontier state isn't worth a warm bucket of spit.

Let's take the issue of abortion rights, of which I am a firm supporter. As an atheist and libertarian, I believe that government must stay completely out of the sphere of personal choice... But the pro-life position, whether or not it is based on religious orthodoxy, is more ethically highly evolved than my own tenet of unconstrained access to abortion on demand. My argument (as in my first book, "Sexual Personae,") has always been that nature has a master plan pushing every species toward procreation and that it is our right and even obligation as rational human beings to defy nature's fascism...

Hence I have always frankly admitted that abortion is murder, the extermination of the powerless by the powerful. Liberals for the most part have shrunk from facing the ethical consequences of their embrace of abortion, which results in the annihilation of concrete individuals and not just clumps of insensate tissue.

Read the whole article.

Gordon Brown Endorses Himself

There's a "row" over British Prime Minister Gordon Brown's endorsement of Barack Obama, breaking the honored convention of non-involvement in foreign elections. Brown, after all, will have to work with whomever is elected.

The Prime Minister's office and the British Embassy in Washington were last night involved in an embarrassing behind-the-scenes operation to try and limit the fallout from the incident. They were alerted after the highly influential Drudge Report website picked up the story, sparking a flurry of comment and analysis from election watchers in the US.

The Telegraph notes that Brown's endorsement is "of dubious value" - Brown is as unpopular in Great Britain as he is unknown in America. That suggests that the real target of the endorsement is Brown himself. He wants to sidle up to Obama - wildly popular in England and throughout Europe - in hopes that British voters will associate Labour with the Democrats.

This hope seems far-fetched as well: American politics hasn't been a decisive issue in London politics since Lord North's government fell.

Hat tip to Drudge

Sellouts

The Red Sox have a tasteful Thank You ad in the Globe today, appreciating the 16 million ticket buyers who helped the team set a record for consecutive sellouts. It offers some valuable statistical insight into the stupidity of proposing marriage in front of 37,000 of your closest friends.

648 Marriage proposals
359 Yesses and 89 Maybes

That's over 456 games. Not only are these guys so uncreative that there's more than one proposal per game, 31% of them get shot down flatly! Please, men, at the game you should be on your seat or on your feet, not on your knees.

Cowboy Up

Doug from Soxaholix has the best spin on the world-ending Brady injury:

C'mon, people. It's embarrassing. Cowboy the f*** up. Look at it as a challenge — Now you really get to see what a genius Belichick is as he works his magic without Brady.

We should at least allow Matt Cassell the dignity of losing a game before we all queue up on the Tobin Bridge.

Religious Oppression

Muslims in Western China are subject to a set of stringent rules reminiscent of the Book of Daniel or the depredations of Antiochus Epiphanes. NYTimes reports:

The rules include prohibiting women from wearing veils and men from growing beards, as well as barring government officials from observing Ramadan...

The limits on religious practices put in place by local governments appear to be part of the broader security crackdown. The areas affected by the new rules are near Kuqa, a town struck by multiple bombings on Aug. 10.

Is there any more effective way to turn a population against its government than by forbidding people from practicing their religion and traditions? If this doesn't create more militants and separatists, I don't know what will.

Meanwhile, in Cairo, oppressed Christian minority slum-dwellers in Muqattam are still waiting for the government to fully respond to a massive rock-slide Saturday. At least 31 are dead; those buried in the rubble have not yet been counted. The government seems to be treating this as a police operation: the victims are being treated as a security threat rather than cared for.

Hat tip to inos.

Objects in Mirror Are Closer than They Appear

Zapped Willow

On Craig's List today:

My brother had a willow tree taken down after it was hit by lightening a month ago. Because it was hit by lightening most of the sap was zapped out of it so is lighter than normal.

Best of CL!

Loaded for Moose

Sarah Palin showed last night (transcript, video) why John McCain selected her as running mate (besides the ethics-reformer, popular-governor, social-conservative reasons).

Mitchell of Chicago Sun-Times states, "Sarah Palin may come from the backwoods of Alaska, but she has the heart of a street fighter." Shanahan of The Sun writes, "Democrats and their Lefty media backers had been sneering that she was a small town nobody... You will not be hearing that again." Romano for Newsweek says, "The most powerful part, at least for the journalists in attendance, came about a quarter of the way in... I say 'powerful,' but mostly I mean 'terrifying.'" Marketwatch notes a significant uptick in voter perceptions of Palin's efficacy following the speech. WSJ asks, "Is there still an enthusiasm gap?" Kay of National Post writes, "Her pointed barbs at Obama's weaknesses were legitimate, and slyly, amiably expressed." The Trib opines, "And if you're a Democrat, don't be too swift to dismiss Sarah Palin as just a compelling and talented speaker."

The difference one evening can make!

Update: RedState breaks news that Palin's TelePrompter stopped functioning halfway through the speech:

Unfazed, Governor Palin continued, from memory, to deliver her speech without the teleprompter... Contrast this to Barack Obama who, when last his teleprompter malfunctioned, was left stuttering before a crowd unable to advance his speech until the problem was resolved.

Hat tip to Drudge

Anbar Awakening

OpJo notes an astounding event:

[O]n Monday, U.S. forces formally handed control of a now largely peaceful Anbar to the Iraqi military. "We are in the last 10 yards of this terrible fight. The goal is very near," said Major-General John Kelly, commander of U.S. forces in Anbar, in a ceremony with U.S., Iraqi and tribal officials. Very few in the American media even noticed this remarkable victory...

For Iraqi politics, the Anbar handover is especially meaningful because the Shiite-dominated Iraq military will now provide security in a largely Sunni province. Anbar is the 11th of 18 provinces that the coalition has turned over to Iraq control, but the first Sunni province. The government of Nouri al-Maliki now has a further chance to show its ability to represent the entire country, the way it did when the Iraqi military routed Shiite militias in Basra and Sadr City in the spring.

Wow. The U.S. is pulling out of Anbar on its own terms, with (some) Sunna and Shia in agreement. That was unthinkable two years ago.

Coup d'Etat

McCain's campaign may have scored a coup d'etat with the appointment of Palin. If Obama continues to be drawn into an open, candidate-to-candidate fracas about experience, then McCain clearly wins. Right now the top banners on Drudge Report are:

I'VE GOT MORE EXPERIENCE THAN HER!

MCCAIN: 'She's been in elected office longer'

Obama can win this battle and lose the war if the media will run with it.