In their negative campaign books on Barack Obama, Jerome Corsi and David Freddoso took an extended look at the democrat front runner’s long record of radical associations and virtually nonexistent record of legislative accomplishment, and observed that Obama’s record was really that of a faithful servant of the corrupt Chicago democrat party machine.

Yes, Obama faithfully voted for the agenda of the democrat party’s leftwing base when it was safe to do so, but he carefully avoided sticking his neck out or crusading for controversial leftwing positions which might conceivably compromise his viability as a candidate for higher office.

Despite all the associations and the rhetoric, both authors speculated that Obama as president might very well operate as he did previously, as a faithful servant of the interests of his party’s key special interest constituencies and contributors, making only the occasional safe, usually symbolic, gestures to the radical base.

Obama, during the campaign, took great care to convey the impression that he was not ultra-leftwing or radical but really pragmatist, and would govern as another responsible moderate democrat.

Well, it turns out we were all in for a surprise.

Obama has not attempted to govern moderately or responsibly in the least. He’s taken the combination of his own electoral victory, a congressional majority, and an economic crisis as a license to spend, regulate, and socialize without restraint. For a long generation, ever since the Carter debacle, politicians have treated the US economy as a third rail, recognizing that voters would promptly and decisively respond to economic pain by punishing any party seen to be responsible for an assault on their prosperity.

Uncharacteristically, even democrats like Bill Clinton moderated their populist impulses, restrained their urge to redistribute, and kept Alan Greenspan in charge of the Fed simply in order to preserve confidence. Ironically, the Bush Administration made the mistakes it did, in rushing to intervene and to supply bailouts on the basis of exactly the same belief in the necessity of maintaining economic confidence.

But not Barack Obama. Obama has moved rapidly to treble George W. Bush’s war-based deficit in a single month. He has turned the treasury’s printing press on full speed, virtually guaranteeing a reprise of 1970s style, if not Weimar Germany style, inflation. He plans of raising taxes, nationalizing health care, regulating everything that moves, and putting caps on financial industry salaries. He might as well send in a few drone aircraft to launch hellfire missiles into Wall Street.

Barack Obama is obviously not afraid of losing the confidence of the business sector. He feels empowered by the economic crisis, not intimidated by it. The deeper the hole he digs, he seems to think, the more basis he has to justify increasing federal power and a greater federal share of the economy.

Obama is treating government the way a 17 year old drives. The more out of control he gets, the harder he pushes on the accelerator.

Milton Friedman, 1912-2006

What a pity he’s not here to comment on the follies of the Bush and Obama administrations.

2:24 video

In an older essay (have we linked and quoted this one before?) clinical psychologist Gagdad Bob (frequently quoting his own book) explains that it is liberals’ atavism that keeps them from understanding economics, and remarks on the irony of the application of the term “progressive” to the left.

For millennia — until quite recently — human beings struggled to rise above subsistence because of a stubborn inability to recognize how wealth is created. Certainly into the late 18th century, people mistakenly believed that there was simply a fixed amount of wealth in the world, and that it was left to individuals and governments to fight over their share. Not until Adam Smith was it recognized that wealth can grow without limits, but obviously even now people have a hard time wrapping their minds around this idea.”

In my view, one of the central mechanisms that kept mankind in its rut of subsistence was the expression of constitutional envy. …

“One of the things that makes the creation of wealth possible is the accumulation of surplus capital to invest, but here again, for most of human history this was quite difficult to accomplish because of envious mind parasites that could not tolerate the idea of one person possessing more than another.” Thus, envy “was one of the psychological barriers to material development that humans have struggled to overcome.”…

Which brings up a fascinating irony about so-called progressives. Now, it is a truism that progressives are not just ignorant of economics, but that they confidently embrace and promulgate what can only be called economic innumeracy. Why is this? How can people be so confidently and yet demonstrably wrong? …

The problem — as I touched on in my book — is that the primitive progressive is operating under an economic theory that is not so much cognitive but genetic. In a way, it’s deeper than thought, since it was programmed into us for survival in small groups (obviously, natural selection did not anticipate a high tech, competitive, free market global economy). Thus, Fiske confirms my speculation that the logic of market pricing was a very late development which is not at all “hard wired” — and even goes against our genetic programming. …

For hunter-gatherers in small bands, sharing, matching and ranking were probably as fundamental to survival as eating and breeding. But market pricing involves complex choices based on mathematical ratios…. Commerce and global trade, of course, require a finely honed version of the market-pricing model. But if humans developed this model relatively late, it might well be less than universal, even today.”..

“In other words, to have an intuitive grasp of economics, you might just need to take a step or two up the evolutionary ladder.”…

In short, to cure yourself of progressivism — or any other kind of atavistic primitivism — you will have to grow and evolve. This is exactly the problem we are facing in the Islamic world, for if we cannot even lift our own tragically backward progressives out of economic magic and superstition, imagine the difficulty of doing so with an explicitly tribal and authoritarian mindset. …

If the most progressive people are those with a concept of market economics, one of the great tragedies of the modern age has been their systematic destruction by less progressive people who call themselves the most progressive…. I’m wondering whether there might be a basic, persistent inability to distinguish forward from backward. I used to think that ‘progressives’ imagined themselves to be forward in their thinking, but I’m now thinking that ‘scientific Marxism’ might have been grounded in an unacknowledged need for primitivism.”

Would this explain how leftist economic theory functions as a sort of seductive door through which all sorts of other barbarisms rush in? To put the answer in the form of a bumper snicker, “Come for the egalitarianism, stay for the bestiality and tyranny.”

From Dr. Sanity via Bird Dog.

Kevin Hassett argues that Barack Obama couldn’t be doing a better job of destroying the American economy if he was trying to do just that.

Imagine that some hypothetical enemy state spent years preparing a “Manchurian Candidate” to destroy the U.S. economy once elected. What policies might that leader pursue?

He might discourage private capital from entering the financial sector by instructing his Treasury secretary to repeatedly promise a brilliant rescue plan, but never actually have one. Private firms, spooked by the thought of what government might do, would shy away from transactions altogether. If the secretary were smooth and played rope-a-dope long enough, the whole financial sector would be gone before voters could demand action.

Another diabolical idea would be to significantly increase taxes on whatever firms are still standing. That would require subterfuge, since increasing tax rates would be too obvious. Our Manchurian Candidate would have plenty of sophisticated ideas on changing the rules to get more revenue without increasing rates, such as auctioning off “permits.”

These steps would create near-term distress. If our Manchurian Candidate leader really wanted to knock the country down for good, he would have to provide insurance against any long-run recovery.

There are two steps to accomplish that.

Discourage Innovation

First, one way the economy might finally take off is for some entrepreneur to invent an amazing new product that launches something on the scale of the dot-com boom. If you want to destroy an economy, you have to persuade those innovators not even to try.

Second, you need to initiate entitlement programs that are difficult to change once enacted. These programs should transfer assets away from productive areas of the economy as efficiently as possible. Ideally, the government will have no choice but to increase taxes sharply in the future to pay for new entitlements.

A leader who pulled off all that might be able to finish off the country.

Day By Day Cartoonist Chris Muir comments on Obamanomics at Big Hollywood:

Hat tip to Karen L. Myers.

Australia’s former prime minister Paul Keating, as the Sydney Morning Herald explains, does not think much of Barack Obama’s choice of Treasury Secretary.

When Barack Obama announced his champion to rescue the world from economic ruin, it was the first time most Americans had ever heard the name Tim Geithner.

The initial impression was good. The stockmarket surged and the pundits swooned. “Exactly a decade ago, he was Uncle Sam’s golden-boy emissary sent into the stormy centre of what was then the world’s worst financial crisis [the Asian crisis],” reported The New York Post.

The paper gushed: “Just 36 at the time, he’d been raised in Asia and knew the culture so intimately he scored successes and won confidences that other diplomats couldn’t match. Geithner earned widespread plaudits for pulling together quarrelling Asian finance ministers into a $US200 billion rescue of their economies.”

“A fantastic choice,” said a Bank of Tokyo-Mitsubishi analyst, Chris Rupkey, as the Dow rose by nearly 6 per cent. Even one of Obama’s political rivals, the hard-bitten Republican senator Richard Shelby, agreed Geithner was “up to the challenge”.

If anyone in the US media had thought to ask a former Australian prime minister for his assessment, they would have heard a different view. And they would not have been so surprised at Geithner’s performance since.

In a speech to a closed gathering at the Lowy Institute in Sydney on Thursday, Paul Keating gave a starkly different account of Geithner’s record in handling the Asian crisis: “Tim Geithner was the Treasury line officer who wrote the IMF [International Monetary Fund] program for Indonesia in 1997-98, which was to apply current account solutions to a capital account crisis.”

In other words, Geithner fundamentally misdiagnosed the problem. And his misdiagnosis led to a dreadfully wrong prescription.

Geithner thought Asia’s problem was the same as the ones that had shattered Latin America in the 1980s and Mexico in 1994, a classic current account crisis. In this kind of crisis, the central cause is that the government has run impossibly big debts.

The solution? The IMF, the Washington-based emergency lender of last resort, will make loans to keep the country solvent, but on condition the government hacks back its spending. The cure addresses the ailment.

But the Asian crisis was completely different. The Asian governments that went to the IMF for emergency loans – Thailand, South Korea and Indonesia – all had sound public finances.

The problem was not government debt. It was great tsunamis of hot money in the private capital markets. When the wave rushed out, it left a credit drought behind.

But Geithner, through his influence on the IMF, imposed the same cure the IMF had imposed on Latin America and Mexico. It was the wrong cure. Indeed, it only aggravated the problem.

Keating continued: “Soeharto’s government delivered 21 years of 7 per cent compound growth. It takes a gigantic fool to mess that up. But the IMF messed it up. The end result was the biggest fall in GDP in the 20th century. That dubious distinction went to Indonesia. And, of course, Soeharto lost power.”

Sent to my class list this morning in response to the contention that “government had to step in” because capitalism failed, because businessmen “made such a mess.”

Government created a credit crisis by arm-twisting lenders to make uncreditworthy loans while supplying securitization of the same. Government (at more than one level) additionally laid the groundwork for a housing bubble by forcing prices upward by making 30 year financing of home loans universal and easy to obtain and by creating regulatory environments that made building extremely expensive and nearly impossible in some of the housing markets featuring the greatest demand. Government lent people money to fuel bidding wars, while doing everything it could to keep new housing in short supply.

George W. Bush’s administration pursued simple-minded conventional policies attempting to placate the economy with characteristic timidity and inconsistency. Obama has taken the housing-bust induced recession as an excuse to throw funding at every democrat party special interest and constituency and to justify a power grab socializing large segments of the economy. Bush did not succeed in calming economic turmoil largely because he could not persuade the markets that he had not already lost the next election to a democrat party radical. Obama has, in a very short time in office, demonstrated that he isn’t simply a bloviating and benign big city machine crook, but is rather an extreme radical leftwing ideologue philosophically committed to every form of economic destruction. The economy is cratering as a result.

Former Senator Phil Gramm dispels with clarity and precision the liberal malarkey about deregulation being responsible for the credit crisis, and puts the blame where it belongs.

I believe that a strong case can be made that the financial crisis stemmed from a confluence of two factors. The first was the unintended consequences of a monetary policy, developed to combat inventory cycle recessions in the last half of the 20th century, that was not well suited to the speculative bubble recession of 2001. The second was the politicization of mortgage lending. …

In the inventory-cycle recessions experienced in the last half of the 20th century, involuntary build up of inventories produced retrenchment in the production chain. Workers were laid off and investment and consumption, including the housing sector, slumped.

In the 2001 recession, however, consumption and home building remained strong as investment collapsed. The Fed’s sharp, prolonged reduction in interest rates stimulated a housing market that was already booming — triggering six years of double-digit increases in housing prices during a period when the general inflation rate was low.

Buyers bought houses they couldn’t afford, believing they could refinance in the future and benefit from the ongoing appreciation. Lenders assumed that even if everything else went wrong, properties could still be sold for more than they cost and the loan could be repaid. This mentality permeated the market from the originator to the holder of securitized mortgages, from the rating agency to the financial regulator.

Meanwhile, mortgage lending was becoming increasingly politicized. Community Reinvestment Act (CRA) requirements led regulators to foster looser underwriting and encouraged the making of more and more marginal loans. Looser underwriting standards spread beyond subprime to the whole housing market. …

The 1992 Housing Bill set quotas or “targets” that Fannie and Freddie were to achieve in meeting the housing needs of low- and moderate-income Americans. In 1995 HUD raised the primary quota for low- and moderate-income housing loans from the 30% set by Congress in 1992 to 40% in 1996 and to 42% in 1997.

By the time the housing market collapsed, Fannie and Freddie faced three quotas. The first was for mortgages to individuals with below-average income, set at 56% of their overall mortgage holdings. The second targeted families with incomes at or below 60% of area median income, set at 27% of their holdings. The third targeted geographic areas deemed to be underserved, set at 35%.

The results? In 1994, 4.5% of the mortgage market was subprime and 31% of those subprime loans were securitized. By 2006, 20.1% of the entire mortgage market was subprime and 81% of those loans were securitized. The Congressional Budget Office now estimates that GSE losses will cost $240 billion in fiscal year 2009. If this crisis proves nothing else, it proves you cannot help people by lending them more money than they can pay back.

Blinded by the experience of the postwar period, where aggregate housing prices had never declined on an annual basis, and using the last 20 years as a measure of the norm, rating agencies and regulators viewed securitized mortgages, even subprime and undocumented Alt-A mortgages, as embodying little risk. It was not that regulators were not empowered; it was that they were not alarmed.

With near universal approval of regulators world-wide, these securities were injected into the arteries of the world’s financial system. When the bubble burst, the financial system lost the indispensable ingredients of confidence and trust. We all know the rest of the story.

The principal alternative to the politicization of mortgage lending and bad monetary policy as causes of the financial crisis is deregulation. How deregulation caused the crisis has never been specifically explained. Nevertheless, two laws are most often blamed: the Gramm-Leach-Bliley (GLB) Act of 1999 and the Commodity Futures Modernization Act of 2000.

GLB repealed part of the Great Depression era Glass-Steagall Act, and allowed banks, securities companies and insurance companies to affiliate under a Financial Services Holding Company. It seems clear that if GLB was the problem, the crisis would have been expected to have originated in Europe where they never had Glass-Steagall requirements to begin with. Also, the financial firms that failed in this crisis, like Lehman, were the least diversified and the ones that survived, like J.P. Morgan, were the most diversified.

Moreover, GLB didn’t deregulate anything. It established the Federal Reserve as a superregulator, overseeing all Financial Services Holding Companies. All activities of financial institutions continued to be regulated on a functional basis by the regulators that had regulated those activities prior to GLB.

When no evidence was ever presented to link GLB to the financial crisis — and when former President Bill Clinton gave a spirited defense of this law, which he signed — proponents of the deregulation thesis turned to the Commodity Futures Modernization Act (CFMA), and specifically to credit default swaps.

Yet it is amazing how well the market for credit default swaps has functioned during the financial crisis. That market has never lost liquidity and the default rate has been low, given the general state of the underlying assets. In any case, the CFMA did not deregulate credit default swaps. All swaps were given legal certainty by clarifying that swaps were not futures, but remained subject to regulation just as before based on who issued the swap and the nature of the underlying contracts.

In reality the financial “deregulation” of the last two decades has been greatly exaggerated. As the housing crisis mounted, financial regulators had more power, larger budgets and more personnel than ever. And yet, with the notable exception of Mr. Greenspan’s warning about the risk posed by the massive mortgage holdings of Fannie and Freddie, regulators seemed unalarmed as the crisis grew. There is absolutely no evidence that if financial regulators had had more resources or more authority that anything would have been different.

A must read analysis.

Caroline Baum, at Bloomberg, expresses skepticism that treating printed dollars as pixie dust and sprinkling them on democrat pet projects and constituencies will really make the faltering economy fly.

Whoops! Somewhere a fairy just died.

It’s a jobs-creation program. No, it’s investment in our future.

It’s a tax-relief plan. Wait, it provides assistance to consumers hardest hit by the economic recession.

It’s legislation to jump-start the economy. No, it’s a recovery program. It’s a life raft for state and local governments. It’s a spending bill.

Which is it? Fiscal stimulus is all things to all people. In other words, it represents the triumph of faith over reason.

Read the whole thing.

Scott S. Powell, writing in Barron’s, exonerates George W. Bush for the mortgage crisis and blames instead a long-term trend featuring the intrusion of politics into the US economy.

Well, electing Obama will certainly fix that, won’t it?

The Bush administration made many mistakes, but deregulation was not one of them.

Not only was there no major deregulation passed during the past eight years, but the Bush administration and a Republican Congress approved the most sweeping financial-market regulation in decades.

The bipartisan Sarbanes-Oxley Act was enacted in 2002 to prevent corporate fraud and restore investor confidence after the collapse of Enron and WorldCom. It failed to prevent the accounting fraud and influence-peddling scandals at Fannie Mae and Freddie Mac. And even after those scandals were widely understood, regulators sent Fannie and Freddie back into the market to continue buying subprime loans, lending and borrowing with implied taxpayer backing.

Across the government, the Bush administration supported new regulations that added almost 1,000 pages a year to the Federal Register, nearly a record. If this is insufficient regulation, it’s hard to imagine a scope that would be effective.

We are in this mess largely because critical thought and moral judgment have been subordinated to the politicization of our economy, resulting in regulatory gaps and excessive controls of the wrong kind.

Government regulations should be limited to those that increase and protect transparency and competition, protect public and private property, promote individual responsibility and enforce equal opportunity under the law. Even if the right laws and regulations could be found, they would prove insufficient to protect freedom and prosperity.

In his farewell address, George Washington said that religion and morality are essential to sustain democracy in America. He might well have added that virtue is just as indispensable to its economy. When the captains of banking and finance and their congressional overseers fail in moral judgment, the results are disastrous for everyone. As we are now witnessing in the real-estate, stock- and bond-market dislocations, once trust is lost, markets freeze and long-standing relationships break down, resulting in illiquidity, irrational pricing and severe losses.

Today’s problems have their roots in programs and financial instruments that shifted the locus of moral responsibility away from private individuals and institutions to wider circles that were understood to end with a government guarantee. Heads of the top banks and financial institutions could approve substandard home-mortgage underwriting — prone to increased default — because those loans could be securitized by Wall Street and sold off to investors or to government-sponsored enterprises (GSEs), with no likely recourse to the financial institution of origin.

Our present crisis began in the 1970s, during the Carter administration, with passage of the Community Reinvestment Act to stem bank redlining and liberalize lending in order to extend home ownership in lower-income communities. Then in the 1990s, the Department of Housing and Urban Development took a fateful step by getting the GSEs to accept subprime mortgages. With Fannie and Freddie easing credit requirements on loans they would purchase from lenders, banks could greatly increase lending to borrowers unqualified for conventional loans. In the name of extending affordable housing, this broadened the acceptability of risky loans throughout the financial system.

The risk lurking in the GSE portfolios was acknowledged in the Bush administration’s first fiscal-year budget, released in April 2001. It stated that Fannie and Freddie were “a potential problem” because “financial trouble of a large GSE could cause strong repercussions in the financial markets, affecting federally insured entities and economic activity.” Fed Chairman Alan Greenspan issued repeated warnings that the GSEs “placed the total financial system of the future at substantial risk.” Such warnings went unheeded even after accounting scandals rocked Fannie and Freddie.

The collapse and government seizure of Fannie and Freddie in September 2008 ended the experiment in partial socialization of the U.S. housing sector. Before we try complete concentration of federal financial power, we should understand that power and political corruption abrogated moral judgment on every level.

The poor and middle class were encouraged to live beyond their means and buy houses they couldn’t afford; speculators were lured into excessive risk-taking; banks were rewarded for lowering their loan standards; and Wall Street found new windfall profits from securitizing and reselling bad loans in bulk. With the support of regulators, credit-rating agencies provided cover for the whole charade.

There is plenty of blame to go around on both sides of the political aisle. But the lesson should be clear that socializing failed businesses — whether in housing, health care or in Detroit — is not a long-term solution. Expanding government’s intrusion into the private sector doesn’t come without great risk. The renewing and self-correcting nature of the private sector is largely lost in the public sector, where accountability is impaired by obfuscation of responsibility, and where special interests benefit even when the public good is ill-served.

Barack Obama’s political career began with the winning of an Illinois State Senate seat by taking control of the process and getting all his democrat party opponents (in a one party race) kicked off the ballot. Barack Obama’s career reached its present zenith, at least in part, through other process short cuts like the democrat party’s rules committee awarding him primary delegates from Michigan where he did not run and duplicate registrations and votes courtesy of ACORN.

Newsmax:

The Obama administration is ending the Census Bureau’s traditional autonomy – a move that has Republicans outraged over the White House’s politicization of counting Americans.

Last week, an administration official revealed that the yet-to-be-named director of the Census Bureau will report to the White House rather than Commerce Secretary nominee Judd Gregg, a Republican.

What this move undoubtedly signifies is the Obama Administration’s intention to make an end run around the Constitution’s specification of an “actual enumeration” every decade to permit statistical estimates of non-actually-enumerated democrat constituencies in order to enlarge the congressional representation and budgetary apportionment for inner-city, one-party democrat-controlled districts. The estimating would be done by hardcore democrat party partisans, of course, who can estimate with the best.

Mr. Gregg should never have agreed to accept the Secretary of Commerce appointment in the context of such a cynical and opportunistic partisan manuever.

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UPDATE 2/13:

Senator Judd Gregg announced, very politely, that he was declining the appointment due to “irresolvable conflicts.” Good for him.

Ben Stein voices outrage at the feckless irresponsibility of Congress and the newly-hatched Obama administration.

The new kind of politics of hope. Eight hours of debate in the HR to pass a bill spending $820 billion, or roughly $102 billion per hour of debate.

Only ten per cent of the “stimulus” to be spent on 2009.

Close to half goes to entities that sponsor or employ or both members of the Service Employees International Union, federal, state, and municipal employee unions, or other Democrat-controlled unions.

This bill is sent to Congress after Obama has been in office for seven days. It is 680 pages long. According to my calculations, not one member of Congress read the entire bill before this vote. Obviously, it would have been impossible, given his schedule, for President Obama to have read the entire bill.

For the amount spent we could have given every unemployed person in the United States roughly $75,000.

We could give every person who had lost a job and is now passing through long-term unemployment of six months or longer roughly $300,000.

There has been pork barrel politics since there has been politics. The scale of this pork is beyond what had ever been imagined before — and no one can be sure it will actually do much stimulation.

How do you improve the economy? You restore confidence by reducing taxes and government expenditure and by adopting policies calculated to assure a sound currency.

Under Bush, and far more under Obama already, even in his first week in office, the policy of the US Government has been to throw money out the window, assuring higher taxes, significant inflation sooner or later, and demolishing confidence. The only difference between the administrations is that the Bush administration gave federal money to the financial industry, and Obama is giving away a lot more money, primarily as a democrat dream-fulfilling shopping spree.