The Meltdown On Bushs Watch - Road to the Middle Class

YOU CAN be a principled conservative and a loyal Republican and still be as angry as a Bush-derangement-syndrome Democrat over the mess in the financial markets.

You thought that the Republican Party was the safe-hands party, the party that you could rely on to manage the nation’s economic affairs in a competent and businesslike manner.

Yet here we are with the markets heading due south. At the beginning of last week they said that both Bear Stearns and Fannie Mae were having liquidity problems. A week later, Bear Stearns has been sold off to JPMorgan Chase at about 2 cents on the dollar.

It looks like a deal that would make mean old Mr. Potter’s offer for the broken-down Bailey Building and Loan generosity itself.

Now they are saying that Lehman Brothers is next. During Monday’s trading it was down almost 50 percent before closing at 31.75, down over 19 percent.

What price now for the fabled Republican reputation for managing the economy?

We have seen what happens to a conservative party that squanders its reputation for economic competence. Just ask the folks over at the British Conservative Party. Back in 1992 a big housing boom turned to bust just after a national election. Five years later the British voters were still mad as hell and the British Labour Party has now won three huge election victories in a row. The Tory Party still hasn’t recovered.

Of course there are plenty of excuses for the present mess. Let’s try out a few. Nobody thought that the securitization of mortgages would have been so slip-shod. Nobody could have foreseen what would happen when hedge funds started unraveling their highly leveraged positions in mortgage securities. Given the ludicrous subsidies for home ownership—tax deductions, the money factory at Fannie Mae, the 90 percent and higher mortgages—something bad was bound to happen sooner or later.

Here’s another excuse. Poor old Alan Greenspan couldn’t help himself. He had to crank up the printing press in 2001-02 to extract the economy from the tech crash and 9/11. You can’t blame the guy if he was a bit slow to crank up interest rates after the recovery started in earnest in 2003. After all, he had to help good old George get past the post in 2004.

Even if these excuses were worth a dime more than Bear Stearns, it doesn’t matter. Real-estate values are collapsing on Bush’s watch. Soon it will be jobs. Bush is a Republican, therefore Republicans are to blame.

Anyway, as Democrats have been telling us since 2000, Bush is a moron. Obviously Republicans are too stupid to recognize a moron even when he’s right in front of them. Why would you entrust the government of a nation to morons?

Nobody doubts that the Fed must now move aggressively to prevent meltdown of the banking system. That was the lesson of the Great Depression, when the 15 year-old Fed failed to fulfill its role of lender of last resort and let thousands of banks fail. In every credit crisis since, the Fed has printed enough money to prevent a meltdown. But the cost has been severe.

You can see the cost in the GDP numbers at MeasuringWorth.com. Back in 1900 the gross domestic product was $20.7 billion. But expressed in the dollars of the year 2000, the GDP back then was $378 billion. That means that the US dollar in 2000 had shrunk to about 5.4 cents on the 1900 dollar. Of course, if you prefer to figure the decline using the gold price, the dollar has declined from $20 an ounce in 1900 to $1000 an ounce today. That would leave us with about 2 cents on the gold-backed dollar of 1900, about the same as a stockholder in Bear Stearns is looking at today.

Don’t think this mess is just a US phenomenon. Housing prices are collapsing in Celtic tiger Ireland and in Spain. The European Central Bank has been bailing out Spanish banks, as in “ECB secretly rescues Spanish banking system.” There is still a fierce inverse yield curve on interest rates in Europe (i.e., short term rates are higher than mid-term rates), so we can expect that the blockbuster Mortgage Meltdown will shortly open in European theaters.

Barring miracles the US voter is going to blame Republicans for all this. So we conservatives are likely to get a good long opportunity to figure out what not to do next time.

Here’s a topic for early discussion. Explain why a bond is called a “bond” and most bond issues used to be covered by “bond covenants.”

Christopher Chantrill blogs at americanmanifestobook.blogspot.com.

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Action

The incentive that impels a man to act is always some uneasiness... But to make a man act [he must have] the expectation that purposeful behavior has the power to remove or at least to alleviate the felt uneasiness.
Ludwig von Mises, Human Action

Chappies

“But I saw a man yesterday who knows a fellow who had it from a chappie that said that Urquhart had been dipping himself a bit recklessly off the deep end.” —Freddy Arbuthnot
Dorothy L. Sayers, Strong Poison

China and Christianity

At first, we thought [the power of the West] was because you had more powerful guns than we had. Then we thought it was because you had the best political system. Next we focused on your economic system. But in the past twenty years, we have realized that the heart of your culture is your religion: Christianity.
David Aikman, Jesus in Beijing

Churches

[In the] higher Christian churches... they saunter through the liturgy like Mohawks along a string of scaffolding who have long since forgotten their danger. If God were to blast such a service to bits, the congregation would be, I believe, genuinely shocked. But in the low churches you expect it every minute.
Annie Dillard, Holy the Firm

Class War

In England there were always two sharply opposed middle classes, the academic middle class and the commercial middle class. In the nineteenth century, the academic middle class won the battle for power and status... Then came the triumph of Margaret Thatcher... The academics lost their power and prestige and... have been gloomy ever since.
Freeman Dyson, “The Scientist as Rebel”

Conservatism

Conservatism is the philosophy of society. Its ethic is fraternity and its characteristic is authority — the non-coercive social persuasion which operates in a family or a community. It says ‘we should...’.
Danny Kruger, On Fraternity

Conservatism's Holy Grail

What distinguishes true Conservatism from the rest, and from the Blair project, is the belief in more personal freedom and more market freedom, along with less state intervention... The true Third Way is the Holy Grail of Tory politics today - compassion and community without compulsion.
Minette Marrin, The Daily Telegraph

Conversion

“When we received Christ,” Phil added, “all of a sudden we now had a rule book to go by, and when we had problems the preacher was right there to give us the answers.”
James M. Ault, Jr., Spirit and Flesh

Democratic Capitalism

I mean three systems in one: a predominantly market economy; a polity respectful of the rights of the individual to life, liberty, and the pursuit of happiness; and a system of cultural institutions moved by ideals of liberty and justice for all. In short, three dynamic and converging systems functioning as one: a democratic polity, an economy based on markets and incentives, and a moral-cultural system which is plural and, in the largest sense, liberal.
Michael Novak, The Spirit of Democratic Capitalism

Drang nach Osten

There was nothing new about the Frankish drive to the east... [let] us recall that the continuance of their rule depended upon regular, successful, predatory warfare.
Richard Fletcher, The Barbarian Conversion

Education

“We have met with families in which for weeks together, not an article of sustenance but potatoes had been used; yet for every child the hard-earned sum was provided to send them to school.”
E. G. West, Education and the State

Faith & Purpose

“When we began first to preach these things, the people appeared as awakened from the sleep of ages—they seemed to see for the first time that they were responsible beings...”
Finke, Stark, The Churching of America, 1776-1990

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