Grey Matters

The House of Representatives just voted on, and failed to pass, the big financial market bailout bill.

Too bad that they are saying this is a “Wall Street” bailout bill. People forget that we own all those stocks. Our 401ks, our IRAs, our pension plans, our insurance companies, our church building funds. The market is not owned by just rich people. In saving “Wall Street,” we would be rescuing ourselves. But we’ve failed so far to do it because we have framed this as a rescue of Wall Street Fat Cats.

As I wrote over a decade ago, the vast middle class is where the money is. We’re the ones who own most of the wealth of this country (and pay the vast majority of the taxes). It is we who own most of the stocks and would be hurt most by a failure to “rescue” Wall Street.
Sure, some rich people will get saved right along with us but are we willing to cut off our collective nose to spite our collective face?

Opponents object that they don’t want to put $700 billion tax dollars in jeopardy. Understood. But those people apparently have no problem with putting much more of Americans’ money at risk — out stocks and bonds, IRAs, 401ks, our retirement nest eggs. Americans lost way more than $700 billion when the Dow Jones took a 777.68 point loss on the day the house voted down the rescue package. 

It seems to me that we just nationalized mortgage lending when FedGov took over Fannie Mae and Freddie Mac. The damage is done. C’mon, congress, hold your noses and vote to approve the “bailout” loan to get credit working again. 

By labeling this as a bill to save Wall Street, we may have doomed it to failure. And we’ll be the ones most hurt in the end.

I knew that the housing bubble bursting was a trigger for the later financial market failures but I was a bit unsure as to how much of the financial market failure was due to other causes. Then I heard yesterday that most of the $700 billion in bad debt that must be rescued is in fact mortgage debt. WOW! 

The fuse for this crisis was lit by the Clinton administration. (Ironically, it’s being blamed on Republican financial policies.) If we hadn’t gone crazy loaning mortgage money to people who could not afford to repay it, this whole mess could have been avoided. 

On Sept 25th, I read: “Had the politicians of both parties not coerced and pressured banks, S&Ls, Fannie Mae and Freddie Mac to make all those sub-prime mortgages, then to tie this rotten paper to good paper, convert it into securities and sell to banks all over the world, there would have been no global financial crisis.”  People smarter than me have linked the crisis to the housing debt. And the crisis in housing debt was created by … government — the very people who are now attempting to fix the mess with a massive bailout using tax dollars. (See the Sixth Law of Government, Second Corollary.)

This is a perfect example of the Sixth Law. Government tried to help but ended up hurting instead. Yes, individual recipients of government’s beneficence were helped, temporarily — until they lost their homes (corollary 1). The usual suspects (Wall Street, bankers) are being blamed (corollary 2) and The response to this government-created crisis is to get government more involved (corollary 3).

Unfortunately, a government bailout is the least harmful of the possible responses. Equally unfortunate is that this is being labeled a Wall Street bailout — as if we’re only going to be helping the Fat Cats. Sometimes we forget who owns all those corporations. That stock is in millions of portfolios owned by everything from insurance companies to pension plans and church building funds. Many a retirement nest egg is held in stocks. 

We all have a vested interest in seeing the bailout work. The economic consequences would otherwise be disastrous. With luck, the bailout bill can be made to protect taxpayers and not reward bad managers. But a bailout bill of some sort is a necessity, if we don’t want a huge economic downturn.

FedGov interference in the free market always has undesirable consequences. The mother of all financial disasters (well, before this one) is the Great Depression caused by FedGov by means of Smoot-Hawley.

The collapse of Fannie Mae and Freddie Mac have triggered a much wider financial crisis. As I pointed out previously, the housing collapse was brought on by FedGov (Democrat) economic policies — specifically, forcing lenders to loan to people who could not afford to repay the loans. This is by no means the first time that federal policies have wrought disaster.

Many people may have missed it or not understood it at the time but in the 1970s, FedGov very nearly destroyed the U.S. auto industry. At a time when much of the world was already paying the equivalent of $2.00 a gallon for gasoline, Americans enjoyed a much lower price due to federal price controls. We loved our cheap gas and we therefore loved our big cars.

Then in the mid 1970s, there came the OPEC oil embargo. Suddenly gasoline was in short supply and people had to wait in long lines to gas up their cars. Small cars suddenly started looking very good and there were few-to-none available from U.S. manufacturers.

Japanese auto makers made huge inroads into U.S. auto sales. U.S. manufacturers lost market share and had to quickly re-tool to manufacture smaller, fuel-efficient cars. Had Americans been paying market price for gasoline, like most of the rest of the world, demand for smaller cars would have been rising for many years prior to the OPEC embargo and U.S. auto makers would have already been producing smaller cars to meet that demand.

Fortunately, OPEC relented and — having taught us a lesson — turned on the spigot again. American auto makers had suffered a permanent loss of market share to foreign manufacturers. It could have been a lot worse, if OPEC had continued its embargo.

Of course we liked our cheap gas. But there is always a price to pay later when government interferes in the free market. That U.S. auto makers did not have the small cars that were suddenly in demand was blamed, of course, on the auto makers. The truth though, is that FedGov had “protected” Americans from high gas prices and it almost ruined the U.S. auto industry.

Fiddling (legislatively) with prices is a sure way to create crises. FedGov found that affordable hurricane insurance just was not available on the Gulf Coast and decided to “fix” this “failing” of the free market. So, acting as an insurer, FedGov insures homes in hurricane-prone areas and, naturally, loses money in the process.

Real insurance companies know that their payouts will be higher in some areas and charge higher premiums accordingly. But with below-market insurance available from FedGov, people are encouraged to build in disaster-prone areas — places where they might not build, if not for this taxpayer subsidized insurance. When the inevitable hurricane hits, the damage is thus higher because homes that otherwise would not even be there otherwise, are added to the toll.

It is FedGov too that builds levees and thus encourages people to build on flood plains. (Hint: there’s a reason they’re called “flood” plains.) Likewise building levees so that people can build below sea level in hurricane-prone areas just sets the stage for future disaster.

Just as the lack of “affordable hurricane insurance” and the lack of mortgages for poor people led to FedGov interference in the free market and inevitable future disasters — both physical and financial — now FedGov intends to do something about the lack of “affordable health care.”  Do we really want to go there?

As P. J. O’Rourke once wrote: “If you think health care is expensive now, wait ’til you see what it costs when it’s free.”

Yes, we all like cheap or free stuff, but I encourage everyone to review the Sixth Law of Government before jumping on the National Health Insurance band-wagon. We may get our cheap health insurance for a while, but we simply cannot afford the kind of meltdown in the health care industry that we have witnessed in the mortgage and financial sectors.

As I wrote on September 13th, for many people, this presidential election is more about race than politics. This morning I was watching the news and the Big Question was: Why isn’t Obama way ahead of McCain in the polls? The statement was made: If Obama were white, he’d be way ahead of McCain in the polls. (If Obama were white, I think this inexperienced, first-term senator, lacking even a single significant legislative achievement would never have gotten the nomination.) 

Next, from Pennsylvania, came the report that some people, who did not wish to appear on camera or be quoted, said that although they themselves were not affected by Obama’s race, they knew people who “… probably would not vote for Obama because he’s black.” A perfect answer to the previous question. 

It was Obama supporters who posed the question (and the implied answer) as to why Obama is not ahead of McCain by a larger margin. I believe these people are making a mistake similar to those who supported Al Gore for president: The American people may not have liked George Bush very much, but that doesn’t mean Al Gore was the more desirable of the two candidates. 

Democrats have been running Obama against George Bush. They’ve been trying mightily to equate McCain with George Bush and saying we can’t afford four more years of the same thing. I’m not sure it’s working. I think voters are judging McCain as McCain and not considering him another George Bush. 

There are many reasons (which are not racial) to reject Obama as president. As I pointed out previously, both Obama and McCain are, historically, too “liberal” to be elected president. 

Many Obama supporters, unfortunately, cannot see beyond race. They believe that it’s time America elected a black president to prove to the world that we’ve put racism behind us. The only reason, therefore, for not supporting Obama must be racism, in their view.

Look for more playing of the race card as the campaign continues. Look for more efforts to “guilt” the American people into electing Obama. Stay tuned.

This presidential election will be history-making in that we will either elect our first “black” president or our first female vice-president. I happen to consider Barack Obama to be white, not black. Not that race matters to me personally. Race is such a superficial criterion. Culture, character and, of course, political leanings are much more important when electing a president. 

If he were a white senator, Barack Obama would be considered ill-prepared to be president. Unqualified, actually. But this election is not about Obama’s qualifications; it’s being made about his race. To many people, his race is more important that his politics, qualifications experience, character or anything else. They very much want to demonstrate that America has put racism behind it and moved on to a more enlightened time. They very much want Barack Obama to be America’s First Black President and will vote for him for just that reason.  

Of course, voting for Obama because he is black is racist, but it’s the “good” racism, like Affirmative Action, not bad racism, like voting for McCain because he’s white.  Blacks will overwhelmingly vote for Obama and no one will raise an eyebrow, much less a stink, racist as their voting motivation may be. 

So, Obama has the black vote locked up. He also has the vote of everyone who thinks that voting in a black president is more important than voting in a good one. And he has the votes of those who really, truly believe he will be a good president. But what if that’s not enough? 

What will happen if people reject Obama’s socialist politics? What if people don’t vote for him because they judge him too inexperienced? What if voters deem him too radical because of his long association with Reverend Wright? What will happen if Barack Obama is not America’s First Black President?

I know what will happen because it’s happened before on a smaller scale. The people of Arizona, given a chance to vote on creating a paid state holiday to honor Dr. Martin Luther King Jr., voted it down. It would have cost taxpayers $20,000,000 and reduced state services by one day a year. So it was defeated at the polls. 

Arizona — the entire state — was promptly declared racist by state and national news media. There could be only one explanation for not approving the MLK state holiday — Racism. 

That was nothing compared to what we’ll see if Barack Obama is not elected president. I would not be the least bit surpriseed to see race riots, looting, mayhem — the whole Rodney King thing — but on a larger scale. Much larger. I hope I’m wrong. I’d really like to be wrong, but I’m afraid I’m not. 

Will women riot if Sarah Palin is not America’s First Female Vice-president? Unlikely. Will women blame the Glass Ceiling? Nope, they’ll probably blame McCain’s age or some such. 

But you can bet that folks will blame Racism if Obama is not elected, and there will be Hell to pay. It will make history.