LFTC - Letter From The Capitol

Time Travel Time

Time and Date is a comprehensive global time database.  For Americans, all save those living in Honolulu are to set their clocks ahead one hour as of 1 AM Sunday, November 2.  ("Spring forward; fall back.")  I fondly remember from my youth calling 637-1212 to hear the Time Lady give me the time, thinking she was speaking to me live.

Happy Halloween: Moscow Melts Down!!!!

Foreign policy maven George Wittman details Moscow's financial miseries, which are crimping Tsar Vlad the Bad's style, much to the West's benefit.  Plummeting petroleum prices, the investment fallout from the invasion of Georgia, its main financial market down 71 percent, its reserve fund injecting, on a GDP equivalent basis, nearly twice the money the US Treasury has been authorized to spend, the list of woes goes on and on.  Could not happen to nicer guys.

Halloween Horror: Democrats Unbound

Begin with the Sarah Pailn doll hanging display adorning the home of a West Hollywood moron's home; the morn, predictably, calls it fun, but acknowledges that had he hung an effigy of Barack Obama things would have been different.  LA officialdom invoked the First Amendment; were an Obama effigy the issue, a hate crime prosecution already would be underway.

Daily News columnist Michael Goodwin, a centrist columnist, fears that Democrats, in the euphoria of an epic electoral triumph, will indulge in liberal excess on a grand scale, and socialize the country will denuding its defenses.  He has good reason to so fear.  Talk-radio hostess Monica Crowley sees troubling harbingers in team Obama's campaign, that free speech will be in jeopardy in an Obama administration, noting Joe Biden's recent neuralgic reaction to a few non-softball questions:

More importantly, this episode points to a very troubling pattern. Whenever confronted by difficult questions posed by people who haven't succumbed to the creepy Obama Hypnosis, the Obama Team’s reaction is to silence them. They did it to a Chicago radio station that dared to interview someone critical of Obama's past. They did it to Joe the Plumber, seeking to destroy him for daring to ask Obama a question about taxes. They are threatening to do it nationwide with the Fairness Doctrine.

You aren't allowed to raise Obama's middle name, Hussein. You aren't allowed to say that half of his family is Muslim. You aren't allowed to say that he was born to a Muslim father, which, under Islam, automatically made him a Muslim. You aren't allowed to discuss Reverend Wright. Or Bill Ayers. Or Bernardine Dohrn. Or Louis Farrakhan. Or Father Phleger. Or Tony Rezko. You aren't allowed to point out that so far, the Iranians, the Russians, the Syrians, Hamas, parts of al Qaeda, Hugo Chavez, the Castro brothers, and Kim Jong Il have endorsed him. You aren't allowed to ask him about the vote fraud or illegal campaign contributions being done in his name. You aren't allowed to say he's lying about his tax plan. Or about his past associations. Or his past, period.

Do not count on Obama-appointed jurists to stop this.  Obama said in his newly uncovered 2001 radio interview that the Warren Supreme Court (1953 - 1969) "wasn't that radical; it didn't break free from the essential constraints that were placed by the Founding Fathers in the Constitution." Obama went on to say that the Warren Court respected the traditional "negative constraints" view of constitutionalism, whereby the charter specifies what the government cannot do to the people, as distinguished from specifying what government should do for the people.  Asked by a listener about whether the latter is a task for the courts or the legislature, Obama, to his credit, said that he was not optimistic as to the courts accomplishing redistribution, and that "the institution is just not structured that way."

Obama went on to say that "separation of powers" issues (legal parlance for issues concerning how powers are apportioned among the three branches of government--legislative, executive & judicial) complicated the "administrative: task of redistribution.  it was, he said "politically difficult": and "although you can craft theoretical justifications for it legally" and that "any three of us sitting here could come up with a rationale for bringing about economic change through the courts...."  The video clip fails to finish his sentence, but it seems that Obama views the task pragmatically, and thus not barred in constitutional principle, though not easy to justify in jurisprudential terms.

Obama thus shows a high grasp of the kind of issues judges will face, and will pick judges knowing the likely path they will follow, partly due to superior knowledge of the subtleties of law, but also because fewer liberal judges turn rightward, than conservative judges turn leftward.  Liberals, like the 18th century Bourbon kings, have "learned nothing and forgotten nothing."

Pat Buchanan presents a laundry list of what an Obama First 100 Days could look like--assuming he gets control of the Senate via supermajority.  Read it and weep.

Pension Ka-Boom: Thermonuclear Financial Time Bomb

The Wall Street Journal carried unwelcome tidings last Thursday.  CALPERs, the monster California State pension fund, saw its assets drop over $48B, or over 20 percent, from June - Oct. 10.  The WSJ reports:

Unless returns improve, Calpers is poised to impose an estimated increase in employer contributions of 2% to 4% of payroll starting in July 2010 for about two-thirds of its state-employer members, and in July 2011 for the remaining third. Any decision will be made after Calpers knows its returns for the fiscal year.

The average employer contribution rate for public agencies including cities and counties is 13% of payroll in the current fiscal year, Calpers said.

Public pension funds hold an average 58 percent of their assets in the stock market.  CALPERS, 102 percent funded (assets divided by liabilities) an the end of June 2007, would be 68 percent funded at end-June 2009 if market levels stay at Oct 10 prices; 60 percent funded is considered standard.  Most public sector unions nationwide, unlike CALPERS, cannot increase member contribution without approval from the state legislature.

Budget-strapped legislatures in states across the country--many o which are in worse financial straits--will find themselves between the rock of public sector union support and the hard place of angry taxpayers, most of whom do not belong to any union.

2008 & The Return of the Nation-State

The thoughtful essay below by policy ace George Friedman is reprinted with permission from Stratfor:

In 1989, the global system pivoted when the Soviet Union retreated from Eastern Europe and began the process of disintegration that culminated in its collapse. In 2001, the system pivoted again when al Qaeda attacked targets in the United States on Sept. 11, triggering a conflict that defined the international system until the summer of 2008. The pivot of 2008 turned on two dates, Aug. 7 and Oct. 11.

On Aug. 7, Georgian troops attacked the country’s breakaway region of South Ossetia. On Aug. 8, Russian troops responded by invading Georgia. The Western response was primarily rhetorical. On the weekend of Oct. 11, the G-7 met in Washington to plan a joint response to the global financial crisis. Rather than defining a joint plan, the decision — by default — was that each nation would act to save its own financial system with a series of broadly agreed upon guidelines.

The Aug. 7 and Oct. 11 events are connected only in their consequences. Each showed the weakness of international institutions and confirmed the primacy of the nation-state, or more precisely, the nation and the state. (A nation is a collection of people who share an ethnicity. A state is the entity that rules a piece of land. A nation-state — the foundation of the modern international order — is what is formed when the nation and state overlap.) Together, the two events posed challenges that overwhelmed the global significance of the Iraqi and Afghan wars.

The Conflict in Georgia

In and of itself, Russia’s attack on Georgia was not globally significant. Georgia is a small country in the Caucasus, and its fate ultimately does not affect the world. But Georgia was aligned with the United States and with Europe, and it had been seen by some as a candidate for membership in NATO. Thus, what was important about the Russian attack was that it occurred at all, and that the West did not respond to it beyond rhetoric.

Part of the problem was that the countries that could have intervened on Georgia’s behalf lacked the ability to do so. The Americans were bogged down in the Islamic world, and the Europeans had let their military forces atrophy. But even if military force had been available, it is clear that NATO, as the military expression of the Western alliance, was incapable of any unified action. There was no unified understanding of NATO’s obligation and, more importantly, no collective understanding of what a unified strategy might be.

The tension was not only between the United States and Europe, but also among the European countries. This was particularly pronounced in the different view of the situation Germany took compared to that of the United States and many other countries. Very soon after the Russo-Georgian war had ended, the Germans made clear that they opposed the expansion of NATO to Georgia and Ukraine. A major reason for this is Germany’s heavy dependence on Russian natural gas, which means Berlin cannot afford to alienate Moscow. But there was a deeper reason: Germany had been in the front line of the first Cold War and had no desire to participate in a second.

The range of European responses to Russia was fascinating. The British were livid. The French were livid but wanted to mediate. The Germans were cautious, and Chancellor Angela Merkel traveled to St. Petersburg to hold a joint press conference with Russian President Dmitri Medvedev, aligning Germany with Russia — for all practical purposes — on the Georgian and Ukrainian issues.

The single most important effect of Russia’s attack on Georgia was that it showed clearly how deeply divided — and for that matter, how weak — NATO is in general and the Europeans are in particular. Had they been united, they would not have been able to do much. But they avoided that challenge by being utterly fragmented. NATO can only work when there is a consensus, and the war revealed how far from consensus NATO was. It can’t be said that NATO collapsed after Georgia. It is still there, and NATO officials hold meetings and press conferences. But the alliance is devoid of both common purpose and resources, except in very specific and limited areas. Some Europeans are working through NATO in Afghanistan, for example, but not most, and not in a decisive fashion.

The Russo-Georgian war raised profound questions about the future of the multinational military alliance. Each member consulted its own national interest and conducted its own foreign policy. At this point, splits between the Europeans and Americans are taken for granted, but the splits among the Europeans are profound. If it was no longer possible to say that NATO functioned, it was also unclear after Aug. 8 in what sense the Europeans existed, except as individual nation-states.

The Global Financial Crisis

What was demonstrated in politico-military terms in Georgia was then demonstrated in economic terms in the financial crisis. All of the multinational systems created after World War II failed during the crisis — or more precisely, the crisis went well beyond their briefs and resources. None of the systems could cope, and many broke down. On Oct. 11, it became clear that the G-7 could cooperate, but not through unified action. On Oct. 12, when the Europeans held their eurozone summit, it became clear that they would only act as individual nations.

As with the aftermath of the Georgian war, the most significant developments after Oct. 11 happened in Europe. The European Union is first and foremost an arrangement for managing Europe’s economy. Its bureaucracy in Brussels has increased its authority and effectiveness throughout the last decade. The problem with the European Union is that it was an institution designed to manage prosperity. When it confronted serious adversity, however, it froze, devolving power to the component states.

Consider the European Central Bank (ECB), an institution created for managing the euro. Its primary charge — and only real authority — is to work to limit inflation. But limiting inflation is a problem that needs to be addressed when economies are otherwise functioning well. The financial crisis is a case where the European system is malfunctioning. The ECB was not created to deal with that. It has managed, with the agreement of member governments, to expand its function beyond inflation control, but it ultimately lacks the staff or the mindset to do all the things that other central banks were doing. To be more precise, it is a central bank without a single finance ministry to work with. Unlike other central banks, whose authority coincides with the nations they serve, the ECB serves multiple nations with multiple interests and finance ministries. By its nature, its power is limited.

In the end, power did not reside with Europe, but rather with its individual countries. It wasn’t Brussels that was implementing decisions made in Strasbourg; the centers of power were in Paris, London, Rome, Berlin and the other capitals of Europe and the world. Power devolved back to the states that governed nations. Or, to be more precise, the twin crises revealed that power had never left there.

Between the events in Georgia and the financial crisis, what we saw was the breakdown of multinational entities. This was particularly marked in Europe, in large part because the Europeans were the most invested in multilateralism and because they were in the crosshairs of both crises. The Russian resurgence affected them the most, and the fallout of the U.S. financial crisis hit them the hardest. They had to improvise the most, being multilateral but imperfectly developed, to say the least. In a sense, the Europeans were the laboratory of multilateralism and its intersection with crisis.

But it was not a European problem in the end. What we saw was a global phenomenon in which individual nations struggled to cope with the effects of the financial crisis and of Russia. Since the fall of the Soviet Union, there has been a tendency to view the world in terms of global institutions, from the United Nations to the World Trade Organization. In the summer of 2008, none of these functioned. The only things that did function effectively were national institutions.

Since 2001, the assumption has been that subnational groups like al Qaeda would define the politico-military environment. In U.S. Defense Department jargon, the assumption was that peer-to-peer conflict was no longer an issue and that it was all about small terrorist groups. The summer of 2008 demonstrated that while terrorism by subnational groups is not insignificant by any means, the dynamics of nation-states have hardly become archaic.

The Importance of the State

Clearly, the world has pivoted toward the nation-state as the prime actor and away from transnational and subnational groups. The financial crisis could be solved by monetizing the net assets of societies to correct financial imbalances. The only institution that could do that was the state, which could use its sovereign power and credibility, based on its ability to tax the economy, to underwrite the financial system.

Around the world, states did just that. They did it in very national ways. Many European states did it primarily by guaranteeing interbank loans, thereby essentially nationalizing the heart of the financial system. If states guarantee loans, the risk declines to near zero. In that case, the rationing of money through market mechanisms collapses. The state must take over rationing. This massively increases the power of the state — and raises questions about how the Europeans back out of this position.

The Americans took a different approach, less focused on interbank guarantees than on reshaping the balance sheets of financial institutions by investing in them. It was a more indirect approach and less efficient in the short run, but the Americans were more interested than the Europeans in trying to create mechanisms that would allow the state to back out of control of the financial system.

But what is most important is to see the manner in which state power surged in the summer and fall of 2008. The balance of power between business and the state, always dynamic, underwent a profound change, with the power of the state surging and the power of business contracting. Power was not in the hands of Lehman Brothers or Barclays. It was in the hands of Washington and London. At the same time, the power of the nation surged as the importance of multilateral organizations and subnational groups declined. The nation-state roared back to life after it had seemed to be drifting into irrelevance.

The year 1989 did not quite end the Cold War, but it created a world that bypassed it. The year 2001 did not end the post-Cold War world, but it overlaid it with an additional and overwhelming dynamic: that of the U.S.-jihadist war. The year 2008 did not end the U.S.-jihadist war, but it overlaid it with far more immediate and urgent issues. The financial crisis, of course, was one. The future of Russian power was another. We should point out that the importance of Russian power is this: As soon as Russia dominates the center of the Eurasian land mass, its force intrudes on Europe. Russia united with the rest of Europe is an overwhelming global force. Europe resisting Russia defines the global system. Russia fragmented opens the door for other geopolitical issues. Russia united and powerful usurps the global stage.

The year 2008 has therefore seen two things. First, and probably most important, it resurrected the nation-state and shifted the global balance between the state and business. Second, it redefined the global geopolitical system, opening the door to a resurgence of Russian power and revealing the underlying fragmentation of Europe and weaknesses of NATO.

The most important manifestation of this is Europe. In the face of Russian power, there is no united European position. In the face of the financial crisis, the Europeans coordinate, but they do not act as one. After the summer of 2008, it is no longer fair to talk about Europe as a single entity, about NATO as a fully functioning alliance, or about a world in which the nation-state is obsolete. The nation-state was the only institution that worked.

This is far more important than either of the immediate issues. The fate of Georgia is of minor consequence to the world. The financial crisis will pass into history, joining Brady bonds, the Resolution Trust Corp. and the bailout of New York City as a historical oddity. What will remain is a new international system in which the Russian question — followed by the German question — is once again at the center of things, and in which states act with confidence in shaping the economic and business environment for better or worse.

The world is a very different place from what it was in the spring of 2008. Or, to be more precise, it is a much more traditional place than many thought. It is a world of nations pursuing their own interests and collaborating where they choose. Those interests are economic, political and military, and they are part of a single fabric. The illusion of multilateralism was not put to rest — it will never die — but it was certainly put to bed. It is a world we can readily recognize from history.

Index 10/30/08

4 posts: (1) Syrian Strike: 5 Years Too Late--Wobble Watch; (2) Card Check: Meet Your Friendly Local Union Boss-The Home Front; (3) Guess Whose Slowing the Rise of the Oceans?--"it's the Earth Stupid!"; (4) Finance: Sages Speak--"It's the Earth Stupid!"

Syrian Strike: 5 Years Too Late

A Wall Street Journal editorial explains why the Bush administration waited five years too strike into Syria, despite its support for anti-US insurgents in Iraq.  It seems that the Powell faction triumphed over the Rumsfeld faction, and convinced W that Syrian intelligence nuggets were worth the price of suicide combers entering Iraq from Damascus.  With Syrian bombers now sidelined, suicide attacks are down 80 percent.  Rumsfeld's reputation lies in ruins, blamed for Iraq and other sins; Powell's reputation remains sterling, despite his many strategic miscalculations.  Rumsfeld made serious mistakes, for which he paid dearly.  When will Powell, if ever, pay for his?  Probably never.  NRO's James Robbins echoes the WSJ, and surmises that follow-up strikes will be conducted elsewhere based on information gathered in the raid.  JR notes that UN Security Council Resolution 1373 (2001) expressly declares unlawful states harboring terrorists (even though the UN has never defined the term "terrorist").  UN-SC 1373 essentially restates Hague Convention III, Articles 1-5 (1907) on the same subject.

Oh yes, oo=ur policy of diplomatic engagement with Syria worked so well that on Sept. 6, 2007 Israel had to take out a North Korean nuclear reactor in the Syrian desert.  And speaking of the North Koreans, Dear Leader's regime threatened this week to turn the South, which along with the W administration has been eagerly appeasing the North--into "debris."  Another diplomatic success story.

And what of Obama and foreign policy expert Joe Biden?  They want more of the same: deeper diplomatic engagement with the likes of Syria and North Korea and Iran.  Fanaticism, in foreign policy as elsewhere, calls for redoubling efforts that manifestly have failed.  But never fear: The One is here.

Card Check: Meet Your Friendly Local Union Boss

The Chamber of Commerce has aired a "Meet Bill" ad (0:31) that shows what "card check" legislation, high on the Democratic Party wish list should they get a filibuster-proof Senate + the White House, means in real everyday life: a union thug physically intimidating workers who decline to sign a card in favor of unionizing their workplace,  Denied a secret ballot by card check, workers will be bullied into submission.  "Bill" is of a piece with Sonny Liston, the menacing heavyweight boxing champion (1962 - 1964) who began his working life busting heads as a union goon for mobster John Vitale in St. Louis.

Despite history's's lesson, with the Wagner Labor Relations Act having lengthened and deepened the Great Depression, Obama is intent on undermining workplace protections against union coercion.  The One will be known to many of his supporters, it seems, as The Union One.

Guess Who Is Slowing the Rise of the Oceans!

Extry!  Extry!!  Read ALL about it!!!  RISE OF OCEANS HALTED!!!!!!

So, whodunit?  Barack the One?  Nancy the Planet-Saver?  Greenpeace?  Barbra Streisand?

Nope.  Environmental scholar Dennis Avery informs us whodunit, in a piece I missed months ago (I had the story, in March & April, but missed this piece).  The SUN, via reduced sunspot activity, is cooling the oceans.  The warming of the oceans stopped 4 to 5 years ago.  Definitely read Avery's article in full for extra detail.

but the bottom line is: Though CO2 levels are rising, the Sun is cooling the oceans.  In football terms, the Sun leads CO2, 35 - 7, in the Great Global Warming Bowl.

Now, did Obama know this when he said if elected he would slow the rise of the oceans?  Is the Sun registered as a Democrat?  Or is The One also the Sun God?

Finance: Sages Speak

Nouriel Roubini, who predicted the financial meltdown, sees worse calamity ahead.  Economics mavens Arthur Laffer and Stephen Moore call the past two years a rerun of the Hoover administration.  They see worse ahead, with Barney Frank running the banks.  From the JFK DJIA high of 1,000 in 1966 mark (an intra-day high, the first 1,000 DJIA close was in 1972, just after Nixon won a landslide re-election), to August 1982, when the Reagan recovery began (one year after RR signed his tax cut bill), returns on equities averaged -6 percent (yes, it's a negative number).  Venture capitalist Ashby Foote compares Obama and McCain tax proposals, and finds Obama's wanting.

David Brooks divines in the financial meltdown the demise of the Rational Actor model of decision-making.  People, he writes, decide based upon perceptions.  Emerging behavioral economists will now try to capture what Adam Smith and others could not.  His analysis may be overdone, but he is on to one thing: When systems fall into states of chaos, equilibrium models no longer work.  We are in such a period.

Perhaps the dreaded Japan Disease awaits--a Lost Decade, or will it be a Lost Quarter Century?

Contrarian and stellar intellectual George Gilder waxes optimistic despite financial storms.  He touts the information economy advances to come, and believes they will spark rapid recovery.  I have great respect for GG, and hope he is right.  I am not convinced, but his piece, as all is work, merits a close look.  Oh, yes, pray that he is right.

Index 10/29/08

5 posts: (1) Welcome: Hudson New York--The Home Front; (2) The Fourth Democratic Tsunami--The Home Front; (3) Mortgages: Another Plan--The Home Front; (4) Energy Policy: Election Choice--The Home Front; (5) Government Intervention: Early Returns & Future Turns--Wobble Watch.

Welcome: Hudson New York Blog

Begin LFTC today with a warm welcome to the new Hudson New York weblog, featuring posts on free speech, the Palestinians, vote fraud, and Obama's one-worldism.  Not cheery subjects, but definitely essential reading.

The Fourth Democratic Tsunami

Mark Steyn, with his characteristic panache, sees an Obama administration + Senate super-majority has creating the fourth Democratic tidal wave, after FDR's New Deal, LBJ's Great Society, and the Baby Boomer takeover of academia's Culture War.  MS's column is a brilliant, if chilling, read.

Energy Policy: Election Choice

Here is a comparison of the McCain and Obama energy plans.  Worth a look.

Mortgages: Another Plan

Here is a mortgage relief plan that merits a look.

Government Intervention: Early Returns & Future Turns

Senator Chuck Schumer warned banks that they had better lend out the money they are given, or else Congress will step in.  I had counseled in earlier LFTC postings that if the taxpayers invests in shares the shares should be voting shares.  I was wrong.  Congress run the banking system?  Head for Neptune on the next rocket!

Meanwhile, the results of the federal government's bailout of Bear Stearns are in: Despite having paid a pittance for the firm's troubled assets, the government is already in the red on the deal.  Anyone still think the government will make money on its toxic asset portfolio?

Abroad is no better.  Jonathan Last's crisp four-pager fleshes out the grisly details of Iceland's financial implosion.

Index 10/28/08

4 posts: (1) Infrastructure: Obama Faces Racial Legacy--The Home Front; (2) Commodities Bubble Bursts; Deflation Looms--"It's the Earth Stupid!"; (3) America: A Sage Speaks--The Home Front; (4) SNL Does Barack & Other Dems!--The Home Front.

Index 10/31/08

5 posts: (1) Time Travel Time--Cyber-Serendip; (2) Happy Halloween: Moscow Melts Down!--Us v. Them; (3) Halloween Horror: Democrats Unbound--The Home Front; (4) Pension Ka-Boom: Thermonuclear Financial Time Bomb--The Home Front; (5) 2008 & The Return of the Nation-State--Us v. Them.

Infrastructure: Obama Faces Racial Legacy

I left one nugget out in yesterday's posting on infrastructure (Obama Invests, Taxpayers Divest): the Davis-Bacon Act of 1931 that is a Democratic Party sacred cow.  The law mandates paying the highest "prevailing wage" on all federal public works projects--effectively, the highest union wage.  When Richard Nixon suspended the law for 28 days in 1971 his own Labor Secretary, a New York union leader named Peter Brennan, openly opposed him.  The irony is that the law was passed, at least in part, to freeze southern blacks who had migrated north, out of construction jobs.  Yet Mr. Obama will keep it on the books.

Commodities Bubble Bursts; Deflation Looms

OPEC makes it official, ordering a production cut of 1.5M barrels per day, as the oil price fell Friday to $63, a 56 percent fall from its summer 2008 peak of $147; crude oil now costs 3/7 if its peak price.  The bad news is that part of the petroleum price plunge is due to deepening recession worldwide.  (Oil did uptick Tuesday AM in Asia, to $64.)

A Wall Street Journal editorial displays a telling pair of roller-coaster price fluctuation charts: oil and the dollar over the past 14 months.  Thus the consequences of the Fed's easy money policy--negative real interest rates for 2002 - 2005 and then the Bernanke cuts that drove the Fed funds rate from 5.25 percent to 2 percent in just seven months.  Thus the wages of monetary madness.

Last Thursday former Fed "Maestro" Alan Greenspan ate humble pie before Congressional Grand Inquisitors, confessing (some of )his own mistakes, and gave a sound bite to liberals about his failed free market ideology.  Fair enough.  But who gets to put Henry Waxman (D-CA), Barney Frank (D-MA), Chris Dodd (D-CT) and Chuck Schumer (D-NY) in the dock, pummel them with 5-minute speeches, hurl a question loaded with 6 "beat your wife" planted axioms, and demand a one-word answer under oath?

AEI scholar Desmond Lachman warns that the Fed is still fighting the last war.  The commodities bubble bursting, coupled with reccessionary contraction, signals that a deflationary spiral of the kind that crippled Japan for a decade is the biggest economic risk we face.

America: A Sage Speaks

FedEx founder-CEO Fred Smith offers his take on economic issues.  A must read.

SNL Does Barack & Other Dems!

Saturday Night Live nails Barack & Michelle, showing commendable "fair & balanced" coverage.  And here is a Biden - Murtha video fron SNL.  Enjoy!

Index 10/27/08

5 posts: (1) Financial Fire Spreads: Europe--"It's the Earth Stupid!"; (2) Obamanomics: A Waiter's Woe--The Home Front; (3) Rove's Election Map--The Home Front; (4) Obama Invests, Taxpayers Divest--The Home Front; (5) The GOP Took My Advice!--The Home Front.

Financial Fire Spreads: Europe

The UK Daily Telegraph reports that European banks face a problem not faced in comparable measure in the US: exposure to loans made in emerging markets,.  European banks are more highly leveraged than their US counterparts, and the European central banks must coordinate very well to match the Fed.  One Morgan Stanley trader called this “the second epicentre of the global financial crisis”.  Here are some numbers, as presented by the Telegraph:

Austria’s bank exposure to emerging markets is equal to 85pc of GDP – with a heavy concentration in Hungary, Ukraine, and Serbia – all now queuing up (with Belarus) for rescue packages from the International Monetary Fund.

Exposure is 50pc of GDP for Switzerland, 25pc for Sweden, 24pc for the UK, and 23pc for Spain. The US figure is just 4pc. America is the staid old lady in this drama.

Amazingly, Spanish banks alone have lent $316bn to Latin America, almost twice the lending by all US banks combined ($172bn) to what was once the US backyard. Hence the growing doubts about the health of Spain’s financial system – already under stress from its own property crash – as Argentina spirals towards another default, and Brazil’s currency, bonds and stocks all go into freefall.

All this will feed into intercconnected global stock and other financial markets, instantaneously interlinked with vast pools of trillions swirling around 24/7.

Obamanomics: A Waiter's Woe

Sent anonymously online, a story told by a restaurant customer, that illustrates what Joe the Plumber was talking about:

Today on my way to lunch I passed a homeless guy with a sign that read "Vote Obama, I need the money." I laughed.

Once in the restaurant my server had on a "Obama 08" tie, again I laughed--just imagine the coincidence.

When the bill came I decided not to tip the server and explained to him that I was exploring the Obama redistribution of wealth concept. He stood there in disbelief while I told him that I was going to redistribute his tip to someone who I deemed more in need--the homeless guy outside. The server angrily stormed from my sight.

I went outside, gave the homeless guy $10 and told him to thank the server inside as I decided he could use the money more. The homeless guy was grateful.

At the end of my rather unscientific redistribution experiment I realized the homeless guy was grateful for the money he did not earn, but the waiter was pre tty angry that I gave away the money he did earn, even though the actual recipient deserved money more.

I guess redistribution of wealth is an easier thing to swallow in concept than in practical application.

Rove's Election Map

Here is Karl Rove's Election 2008: State of the Race map showing the state by state breakdown.  McCain simply must "run the table" in about 10 states to win.  It would be a miracle, and the Media Democrats have outlawed miracles--by ignoring the one Biden Bombshell Blooper--Biden's Seattle Oct. 19 prediction that his young, inexperienced running mate will surely face a "generated" foreign policy crisis within 6 months of taking office--that could have shifted the campaign conversation from financial meltdown to leadership.  A competent and diligent Federal Communications Commission would revoke the broadcast licenses of the Big Four: CBS, NBC, ABC & CNN.  Count that another miracle that will not come to pass.

Obama Invests, Taxpayers Divest

Democrats now substitute "public investment" for "government spending" and ignore deficits that they cited for decades as the root of economic evil.  WSJ editors write:

On Tuesday Senator Obama said this spending would create millions of new jobs by closing a federal "investment deficit." Over the past eight years the federal budget has exploded by more than $1.1 trillion, much of it for the very programs that Democrats want to spend more on. Let's start with infrastructure. Three years ago Congress passed a transportation bill of more than $286 billion. The transportation budget is up 22% after inflation in the past eight years. Roads and bridges can help economic growth if they increase productivity by more than the amount they cost in higher taxes or borrowing. But not if they are bridges to nowhere as so many of these projects are.

How about aid to local communities? That spending has soared by 91% after inflation in eight years. The education budget is up 57%. Welfare programs are up 30%. Only two years ago Democrats were calling the Tom DeLay Republicans spendthrift. Now they say there's an "investment deficit."

Ace economist Alan Reynolds sifts through Obama World and finds that over the next decade, under plausible estimates (concededly subjective) there is $4.3TR uncovered.  It is hard to referee disputes over estimates, all subject to wide error, but campaign projections by the candidates are those I would trust least.  In the event, intuitively is is hard to believe that taxing the sliver of top earners can cover Obama's ambitious programmatic wet dreams.

The biggest deficit in Washington is a deficit of discipline: Build Bridges to Somewhere, but not Bridges to Nowhere.  Governor Palin took B-to-N money, but applied it elsewhere, to productive use.  The model for infrastructure investment is that of the first-ever US private toll road financing deal that Chicago made in 2005 with the Australian investment firm, Macquarie Securities, to build the city's Skyway project.  Private investors will decline to fund bridges to nowhere, and they are less likely to waste money like Boston did--over $10 billion in cost overruns--for its infamous "Big Dig" mega-project.  Manhattan Institute scholar Nicole Gelinas explains what went wrong and why.

Infrastructure projects are attractive ways to repatriate dollars sent abroad.  I would rather see Asian central bank reserves invested in highways than in America's technology firms; and I would rather see Mideast petrodollars recycled to build bridges than to gain equity voting power in America's financial firms.

Bottom Line.  As with taxation, the infrastructure devil often is in the details.

The GOP Took My Advice!

On March 3, 2008 I wrote in an LFTC posting: "So why not have Big Mac, age 72 and a white male, pick....a female on the Republican ticket, notably younger, prettier and, if you think Barack can pack stadiums...."  I was speaking in jest, as to Angelina Jolie, who had published an op-ed calling for help for displaced people inside Iraq, and noting that the surge was working.  Neither Barack Obama nor Joe Biden thought so then, or for months after,  Angelina showed a surer grip on Iraq policy than did they!

Sarah Palin fit the bill, so the GOP took my advice after all.  And she has been a net plus for the GOP ticket, despite ferociously negative mainstream press coverage that amplified her every error while brushing off as inconsequential a barrage of Biden Bloopers--most notably, the Oct. 19 Super-Blooper about how the young, inexperienced running mate would be tested within 6 months of taking office, as surely as was JFK.  Palin energized the base, intrigued independents and changed the conversation of the campaign, until the financial tsunami unleashed a fortnight after her selection swamped everything else.

I do not believe for one minute that Barack Obama could have survived a similar negative media assault.  Obama has, in fact, ridden--with one notable bump, thanks to his poisonous pastor--a 21-month media magic carpet ride without parallel in campaign history, a ride denied even the iconic Hillary Clinton, whose own master narrative as the first viable female candidate was displaced by the rise of the first viable African-American candidate, a tale that captivated media liberals.  The anti-Hillary slant got so steep that even Saturday Night Live satirized it.  Joe Biden got to tell Katie Couric that FDR watched TV in 1929, when Herbert Hoover was president and radio was the medium of the day.  Palin is marked down for not knowing in full a pundit's coinage as to Bush II foreign policy.  OK, Biden recently did get a few hardball questions (4:45) from WFTV Orlando, Florida Eyewitness News (an ABC affiliate) anchor Barbara West, but this is rare.  In the event, West either lacked the moxie or the inclination to follow up several questions where she made a point to which Biden gave perfunctory answers.

Governor Palin has in fact, by any reasonable standard, performed remarkably well.  She is a charismatic speaker, her speeches laden with common sense.  If she is not the intellectual shooting star that is Obama, she has a modesty that The One notably lacks; not for her the absurd conceit that we can slow the rise of the oceans.  Palin exudes a freshness that Joe Biden lacks after six terms in the Senate, and frames her thoughts with a clarity and intellectual discipline that fighter-jock Big Mac lacks.

Here's hoping that if, as appears likely, Team McCain loses, that Sarah Palin decides to remain a national GOP figure.  She would be one of the party's rising stars, along with such names as Louisiana Governor Bobby Jindal, who starred during Hurricane Gustav; Virginia Congressman Eric Cantor, who shone during the bailout debate, working to inject improvements into the rescue plan; Wisconsin Congressman Paul Ryan, who also shone during the bailout debate.

Sarah, we are just getting to know ye.  Stick around.  You gave the fall campaign season, in so many respects depressingly dismal, a much-needed touch of class.

Index 10/24/08

5 posts:  (1) Powell's Rabbit Punch; MSM Out to Lunch--MSM Murders; (2) Mortgage Mending: Bright Idea, Too Late?--"It's the Earth Stupid!"; (3) Campaign Finance: Obama's Whales, McCain's Moby Dick--The Home Front; (4) ACORN WATCH: Beltway Brass; Barack Bailout?--The Home Front; (5) PALIN WATCH: Gowns & Gotchas--The Home Front.

Powell's Rabbit Punch; MSM Out to Lunch

WSJ editor Bret Stephens offers questions that Mainstream Media (MSM) in pundit parlance) declined to ask Colin Powell, notably Tom Brokaw's Sunday puffball interview.  Ace journalist Claudia Rosett took time out from keeping UN bureaucrats quaking in fear to add more detail on Powell, as in his ignoring massive evidence of French & Russian collusion with Saddam re the oil-for-food mega-scam.  Jeffrey Lord adds a dash of real wit by lethally comparing Powell to a famous film character in a famous film.

I start by acknowledging that Powell served his country in Vietnam, for which he merits lasting respect.  Since that time, however, this most political of generals has burnished his own reputation with MSM and like-minded, even at the expense of former friends and administrations.  It is not a pretty sight.  The picture Stephens includes with his column explains it all: Powell gyrating with a couple of rap stars.   This "Colin Cool" byplay lends Powell's celebrity prestige to purveyors of cultural raw sewage.

Colin Powell is Washington's premier pre-Barack Capitol Celebrity, his brand protected in a way Bill Clinton, formerly holder of that title, can only envy.  His sterling silver reputation survives disloyal undermining of a President who hired him and whose policies he tried to sabotage repeatedly; cold-blooded silence by keeping to himself the truth that his pal leaked Valerie Plame's name, while a former colleague was wrongfully convicted of perjury arising out of a leak he did not commit, and the entire administration was turned upside down as lives were wrecked by a runaway prosecutor; and casual criticism on subjects--like who should sit on the Supreme Court--about which he knows far less than Obama does about national security.

Did race have anything to do with a retired general who strongly favors affirmative action, endorsing a candidate of his own race?  One poll of military voters suggests it does: While 76 percent of whites & 63 percent of Hispanics favor McCain, 60 percent of blacks favor Obama.  There is as well a gender divide, but the numbers--men 70-22 for McCain, women 53-36 for Obama--are far narrower.  Especially compelling in suggesting race as a factor is that McCain is not simply a GOP white candidate; McCain is a certified war hero whose courage is an inspiration to many people, in and outside the military.  It would be wrong to conclude that Powell's primary motive was race--politics probably dominates, plus the general's antipathy to the administration whose President rejected much of Powell's advice and declined to invite him to serve a second term as Secretary of State.

Indeed, the boost Powell gives Obama enhances Obama's aura emanating from what might be called the Powell Effect: A personable, attractive liberal African-American--either a Democrat or a RINO (Republican In Name Only)--whose public posture is post-racial gets a magic carpet ride from MSM.

Mortgage Mending: Bright Idea, Too Late?

Fund manager John Hussman floated a brilliant idea on addressing home mortgagee distress, one which avoids the moral hazard ingrained in Obama's bankruptcy relief and McCain's $300B mortgage bailout.  Obama's idea would inject judicial caprice into mortgage contracts, impairing the unlocking of residential mortgage credit.  McCain's bailout would induce future mortgagees to take on risky mortgages, secure in the probability of future bailout if things go wrong.

Hussman proposes that judges in foreclosure proceedings have discretion to issue a Property Appreciation Right (PAR) to mortgage lenders, in return for lenders reducing principal, and hence interest due, on mortgages in default.  The PAR would give the lender an equity ownership stake in capital appreciation of the mortgagee's home, and would even carry into future residences until the lender recovers the full value of the PAR.  The PAR vehicle gives current relief to the borrower for which the borrower surrenders future potential capital gain.  No one gets forced out, but no one gets a free ride.

PARs balance the need for social stability--allowing residents to keep their homes--with the need for economic stability--allowing the market to function without creating incentives for future problems (the twin terrors of easy or frozen mortgage credit).

But US News & WR mogul Mort Zuckerman tosses out duanting numbers: (1) financial world debt was 21 percent of 1980's $3TR GDP ($620B) and rose to 120 percent of 2007's $13TR GDP ($15.6TR--MZ's 2007 GDP figure is low, but close enough for government work)--in all, financial world debt skyrocketed $15TR in 27 years.  (2) AIG's managers guessed $40B would bail them out, the government guessed $85B and to date the tally is $120B.  (3) 12 million homes are already valued below their mortgage debt, a number that may rise within a few months to 15 million.  Zuckerman recommends injecting more capital into banks, extending bank regulation to shadow markets, better risk management standards, and a targeted infrastructure spending program, instead of tax cuts that may be saved instead of spent.

Campaign Finance: Obama's Whales, Mac's Moby Dick

The Washington Post captures in a nutshell how campaign finance has helped put Obama ahead, and explodes the myth of his "mostly small donors" facade:

Lost in the attention given to Obama's Internet surge is that only a quarter of the $600 million he has raised has come from donors who made contributions of $200 or less, according to a review of his FEC reports. That is actually slightly less, as a percentage, than President Bush raised in small donations during his 2004 race, although Obama has pulled from a far larger number of donors. In 2004, the Bush campaign claimed more than 2 million donors, while the Obama campaign claims to have collected its total from more than 3.1 million individuals.

As for McCain, he has been harpooned by his pompous piety on campaign finance, as noted by the Wall Street Journal.  After his "clean-up" (and the Supreme Court's rape of the First Amendment), the political money picture is still as ugly as ever.  You want beauty?  Visit the Sistine Chapel.

ACORN WATCH: Beltway Brass; Barack Bailout?

Here is more background context on ACORN's Ohio adventures; seems that in 2004 the Democrats filed a suit claiming "voter intimidation" by the GOP.  Democrats sued GOP Secretary of State Ken Blackwell, asserting an implied private right of action under the Help America Vote Act (HAVA), the very opposite of the position they took last week, when the Supremes held their was no clearly implied private right of action.  (To be fair, the GOP took the opposite position then as well, but this time they were fighting attempted vote fraud, not bogus intimidation charges.)

Ace legal eagle Andy McCarthy informs us that Democrats have taken a new tack, asking Attorney-General Michael Mukasey to appoint a special counsel to investigate the Bush administration and Team McCain for “unsupported, spurious allegations of vote fraud.”  McCarthy captures the essence of ACORN, which sends thugs to intimidate and harass targets, in addition to manufacturing votes:

Under the aforementioned heading of “direct action,” ACORN has made fraud, extortion, harassment, and menacing core parts of its modus operandi. As a matter of principle, ACORN believes that the established bourgeois American order is racist, materialist, imperialist and illegitimate. ACORN no more cares about election laws than about other laws it decides must be circumvented in the service of the higher purpose it reveres: “Change.”

Stanley Kurtz details Obama's deep ties to ACORN and other radical leftist groups, established during his activist days in Chicago.  Much of this is not national news.  To its credit, the New York Times ran an ACORN article Wednesday, though not as a front-pager.  A June 18 internal memo from an ACORN lawyer indicates that ACORN faces legal liability for engaging in improper use of charitable fund; ACORN also faces myriad tax investigations for non-payment, and the brother of the founder is being investigated for embezzlement of nearly $1 million from an ACORN pension fund.

TAS contributor Jeffrey Lord, ever alert, informs us that the chief of PA's election security is a supporter of, and works hand in glove with, ACORN.  He quotes the chief telling CORN members in 2005:

"And thank you kindly on behalf of the Department and on behalf of the Administration for all of the good work that ACORN, as well as Project Vote, has conducted through the years, particularly ACORN. I work very closely with some of your members on a national level, and appreciate your dedication and commitment to enfranchising all of the eligible voters."

Here is a superb online guide to ACORN vote fraud that shows the status and gives background for nationwide efforts by ACORN.  If the Justice Department does not appoint a special counsel to investigate ACORN, hiring staff outside the strongly Democratic legal staff at Justice, the GOP deserves to lose.

Prediction ONE: If elected, within Obama's first 100 days he will pardon ACORN for all election activities.  On top of bailing out Wall Street and Main Street, we will bail out Mean Streets.

History Too.  Peter Ferrara recounts how in 1980, working for the Reagan campaign in NYC, he was told that Team Gipper anticipated that Democratic voter fraud would add 2 to 3 percent for Carter in big cities.  Ferrara also details how a grand jury investigation that resulted in convicting 63 officials in Illinois, found that in 1982 ten percent--NOT a misprint, yes, 10 percent!--of votes cast in the IL gubernatorial election were fraudulent.  Precinct captains pass on time-honored techniques to their successors.  In Florida, according to John Fund, author of of Stealing Elections, in the Florida 2000 mess Democrats literally stole thousands of votes:

But Fund shows that only widespread Democrat vote fraud made the election as close as it was. The highly liberal Palm Beach Post conducted an investigation concluding that the county had illegally allowed 5,600 convicted felons to vote. Felons, of course, vote overwhelmingly for Democrats, apparently seeing them as soul mates. By contrast, Democrat lawyers won a motion to disqualify 1,420 military ballots because they didn't have a foreign postmark (which most likely resulted because the ballots were sent back through the U.S. military rather than foreign post offices). Those serving in the U.S. armed forces overwhelmingly vote Republican.
The national TV networks declared that Florida's polls were closed at 7 p.m. Eastern time, even though the polls in the heavily Republican Florida panhandle were still open for another hour because they are in Central time. Fund notes that CBS broadcast 33 erroneous statements between 7 p.m. and 8 p.m. that Florida's polls were closed. NBC followed almost immediately by other networks even called the state for Gore at 7:48 pm Eastern time. Fund cites Democrat and Republican pollsters, as well as academics, who concluded that this cost Bush a net loss of close to 10,000 votes.
Most importantly of all, Fund conducts a detailed analysis of Palm Beach County election return anomalies, buttressed by local interviews, to conclude that Bush was deprived of another 15,000 votes through a little scam known as double punching. After the polls closed, Democrat election officials appeared to have taken dozens of the punch hole ballots at a time, and punched through the little box for Gore on all of them, using a nail or pencil. For ballots that had been voted for Bush, this would have resulted in invalid ballots that appeared to have been punched for both Bush and Gore. For ballots that had been voted for Gore, this would have had no effect, because the nail or pencil would have just pushed through a box that had already been punched out for Gore.  (Boldface mine.)

Ferrara's narrative about how Democrats literally stole the 2004 Washington State gubernatorial election is another riveting read.  Do NOT miss his article.  Learn how your vote may be stolen.

Prediction TWO: If the election margin is less than 5 percent in key battleground states of IL, PA, OH, FL and Obama wins these states, consider the election possibly to have been stolen.  To be fair, one prominent election expert, not a lefty, says that most of the registrant shenanigans are caught, thanks to improved surveillance under HAVA.  But he concedes that while each state must check its voter registrant database against the federal Social Security database, there is no cross-check.  Thus, voters can register in more than one state and if they are in the Social Security record, will not be caught voting multiple times.

Anti-Vote Fraud Website.  At Defend My Vote you can learn more and help.

Good News & Bad News.  The director of Proejct Vote (a low-income & minority voter advocacy group) says that ACORN's claim to have registered 1.3 million new voters is triple the actual number of 450,000.  But as Project Vote is in the same line of work as is ACORN, it is best to apply The Gipper's famous maxim about the former Soviet Union: "Trust but verify."

PALIN WATCH: Gowns & Gotchas

A New York Times front-pager nails Sarah Palin for wearing $150k of "loaner" clothes the RNC bought for her to wear while campaigning.  It is, liberals scream, hypocrisy for America's "hockey mom with lipstick" to wear nice apparel while campaigning in front of TV cameras.  OK, Team Palin & Team McCain were careless, as nice clothes can be purchased at less exorbitant tabs.

Someone in the GOP besides me surely recalls how Nancy Reagan was pilloried for wearing Galanos gowns at the White House, while the country was in recession.  It got so bad that Nancy was forced to humble herself at the Gridiron Dinner (a Beltway annual ritual run by media and featuring top politicos, by tradition including the President) by dressing up as a maid and, with a mop as prop, singing "Secondhand Rose" to a roaring audience of media big-shots.  After that they left Nancy alone, and let her look like a First Lady.

Bob Tyrrell lists Biden mega-gaffes ignored by the liberal media while they chase Palin over mini-gaffes--most notably, the pass Joe Biden got on his Oct. 19 warning that Obama, as a young, inexperienced novice, would surely be tested by our enemies within six months of entering office, and would need his supporters' help to face it.

Dan Henninger blames Palin hatred on a presidential primary system that encourages lone-wolf egotists to preen and run, while competent governors are too often sidelined.  DH adds, wryly as to who is a plausible commander-in-chief:

If as Joe Biden suggests the U.S. is likely to be tested by a foreign enemy next year, who of the following would you rather have dealing with it in the Oval Office: Nancy (of Damascus) Pelosi, Harry Reid, John Edwards, Joe (the U.S. drove Hezbollah out of Lebanon) Biden, Mike Huckabee, Geraldine Ferraro, Tom DeLay, Jimmy Carter or Sarah Palin?

DH was merciful: He left Barney Frank off the list.

Index 10/23/08

6 posts: (1) Senate is Gateway to Obama's "Change"--The Home Front; (2) Pakistan Steps Up--Wobble Watch; (3) Bailouts & Bankruptcy: Moral Hazard & Law--"It's the Earth Stupid!"; (4) Financial Frankenstein: Lethal Liquidity--"It's the Earth Stupid!"; (5) EMP: Terror Dream Weapon--9/11, 3/11 & N/11; (6) America Turns Inward--The Home Front.

Senate is Gateway to Obama's "Change"

Today LFTC readers can read my article titled Senate is Gateway to Obama's "Change" at Human Events.

Pakistan Steps Up

Mort Kondracke hails the new Pakistani government, run by the late Benazir Bhutto's husband. The new President has begun cleaning out the mess in Pakistan's intelligence services, long playing a double game between America and its enemies.  He is promoting democracy.  And he has stepped up the war effort against the Islamist terror groups.  His Ambassador to the US is the strongly pro-US Hassan Haqqani.  Another reason to elect John McCain: He is more likely to pursue the kind of resolute foreign policy that stands the best chance of keeping Pakistan in the fight.

Bailouts & Bankruptcy: Moral Hazard & Law

Here is another form of moral hazard, explained in a Wall Street Journal editorial: Bankruptcy law under Chapter 11 leaves corporate directors and officers on the hook for lawsuits and legal fees, without director & officer (D&O) liability protection.  Getting bailed out by the government may offer more D&O protection.  Why not come to Uncle Sam?  One lawyer explains:

Boris Feldman, an attorney at Wilson, Sonsini, tells clients who serve on boards to avoid bankruptcy at almost any cost, because in such scenarios "you have everyone coming at you." Directors, suddenly responsible for their own legal bills, can face suits from trustees, shareholders and bondholders. The only other clear winners in the September 16 deal, besides AIG directors, are the undisclosed counterparties in derivative transactions that the government protected from loss.

Losers?  They are called "taxpayers."

Financial Frankenstein: Lethal Liquidity

The Economist reports that global lending markets are starting to thaw, if "glacially"--London's key inter-bank rate (LIBOR) fell for the first time below the pre-Lehman collapse mark.  Bloomberg News reports that the Fed is releasing $540B additional funds to shore up money market funds (MMFs); it will inject another $600B into the commercial paper market, making for $600B in new funds.  Since August $500B has flowed out of MMFs, which hold $3.45TR in assets.  MMF holdings include over 63 percent of unsecured commercial paper and 39 percent of secured (backed by assets as collateral) commercial paper.  But liquidity can be dangerous, too.

What economists call a "liquidity trap" is the nightmare haunting monetary authorities: central banks lose their ability to stimulate the economy by injecting more money, because with interest rates at zero there is no difference between central bank money and cash consumers and investors can hoard.  Coupled with a severe economic downturn, economies can go into a deflationary spiral, setting a vicious circle in motion: falling princes lead consumers and investors to hold money, anticipating lower prices yet to come; the economy slows further; and monetary policy cannot re-start things.  The Depression-era brainchild of economist John Maynard Keynes, it intersects with another Keynesian idea, the Paradox of Thrift: When individuals increase saving; the result is loss of consumer demand and less GDP.

Economist Milton Friedman suggested that "helicopter money"--funds dropped directly into households by central bankers--can enable escape from the liquidity trap.  Maybe.  Classical economist see savings being returned to the market as deflation brings prices down.  Maybe.  But what if fear is so pervasive that buyers and investors go on strike?  We may be approaching that cliff.  Given massive de-leveraging, still high energy prices that have lots of room to fall, weak currencies, non-existent short-term yields, and the public sidelined, we are in for a rough ride under the best of circumstances.  Under the worst, kiss the next decade goodbye.  It happened to Japan in the 1990s and the US in the 1930s.  Activist government did not end the Great Depression; World War II did.  One blogger offers reasons why today is not like the 1930s; the parallels are never exact, and troubling echoes remain.

Why did not highly educated, knowledgeable participants see this?  I think because as this pair of linked articles explains, the human tendency is to discount bad news if alternative interpretations that offer good tidings are on tap. They pretty much always do this.  So we miss Big Stuff when we need most to see it.

Economist Irwin Stelzer sees the international financial community establishing a new but informally restructured global financial system, as was formally done two generations ago, in 1944 at the Bretton Woods Conference.  A formal re-ordering is a step that one financial manager counsels is a bad idea to formalize.  He notes that the 1971 devaluation of the dollar effectively dismantled the system set up at Brettton Woods.  Today, he sees three flaws in our financial setup: (1) central bankers target consumer price inflation, while ignoring asset price inflation; (2) central banks use interest rate cuts to ward off or shorten recessions; (3) the conduct of monetary policy is split off from bank regulatory supervision.

Bond trader Sandy Lewis advocates creation of a government bond fund, with assets fully disclosed on the Internet, investing in healthy banks and letting weak ones--even mega-banks--fail.  Only with full financial transparency, he argues, will investor unease be assuaged.  Financial maven James Grant diagnoses the crisis of confidence as one not in capitalism but in Washington, due to perceived incompetence of central bankers, who printed money to goose the economy and generated asset bubbles.  He notes that since 1983 debt has risen 8.9 percent annually, versus 5.9 percent for nominal GDP (includes inflation).  The upshot is that total debt grew $45.1TR, versus $10.9TR for GDP growth, a 4-1/2 to 1 ratio of debt to growth; banks accounted for 15.8 percent of corporate profits, a share that has doubled in the past quarter century.  Last week the Fed's balance sheet increased by 11 percent, from $1.598TR to $1.770TR.  Signifying the change in credit climate is that triple-A rate mortgage bonds that recently fetched rates near that for T-bills now fetch 12 percent.

A prime culprit is the Full Employment and Balanced Growth Act of 1978 (known colloquially as Humphrey - Hawkins, after its late co-sponsors, liberal stalwart Senator Hubert Humphrey--once LBJ's vice-president--and Black Caucus Congressman Augustus Hawkins), that strengthened the hand of Congress is guiding Federal Reserve policy towards twin objectives: monetary price stability and full employment, goals that conflict, and that latter being one that no other central bank is saddled with.  The core financial problem is that easy money works only for a time, and when it stops working it takes a long time for the Fed to restore monetary policy credibility.

Monetary historian Anna Schwartz, spry and still working at age 92 and co-author with the late Milton Friedman of the classic work on monetary policy, published a generation ago, argues persuasively that Fed Chairman Ben Bernanke is "fighting the last war."  Put simply, his policy seeks to restore liquidity so that deposit guarantees can be maintained.  But, Schwartz writes, deposits are the problem if there is a bank run, as happened during the Great Depression; they are the liabilities side of the balance sheet--the fundamental accounting equation is ASSETS = LIABILITIES + CAPITAL.  But the deterioration of housing asset values that triggered the chain of events leading to asset value free-fall is an ASSET problem, on the OTHER SIDE of the balance sheet.  The asset side problem stems from the opacity of complex financial instruments; investors do not know how to value these assets, and will stay on the sidelines until they do.  Schwartz says that the Treasury should concentrate on shoring up healthy banks, and let insolvent ones--even mega-banks--fail.  She warns that investing manias always take root in asset inflation driven by expansive monetary policy.

All this has implications for domestic fiscal policy.  Infrastructure spending, a Keynesian remedy in the 1930s, may work, if not done to excess and if prudently financed; foreign investors might be attracted if opportunities for real investment return are offered, rather than treating the projects as pure domestic boondoggle.  The Paradox of Thrift suggests that an individual income tax cut may simply increase saving during a time of economic fear and loathing, rather than spur consumption and investment as it normally does.  But corporate and capital gains tax cuts are still vital boosters, because they make stock market investment more attractive.  Finally, in a recessionary environment teetering toward depression, the most dangerous idea in fiscal policy is to raise anyone's taxes.  Thus the Bush 2003 tax cuts, set to expire in 2010, should thus be extended.

One economics professor sees Obama flirting with a "tax tipping point" as he buys the votes of those who do not pay taxes:

Calculating how far society's top earners can be pushed before they stop (or cut back on) producing is difficult. But the incentives are easy to see. Voters who benefit from government programs will push for higher tax rates on higher earners -- at least until those who power the economy and create jobs and wealth stop working, stop investing, or move out of the country.

On the international front, China's growth slowed sharply in 3Q08; a Chinese slowdown would compound global economic woes--notably for America, China's largest trading partner.  A New York Times front-pager adds useful detail.  Most ominous is China's lack of transparency, at a time when market opacity is the prime reason investors are sitting on the sidelines.  An Asian financial writer suggests that Asian countries who weathered the 1998 financial crisis are ready to invest their huge financial reserves and Sovereign Wealth Fund money in the West, if adequate returns are offered.  Several trillion dollars can be repatriated to America this way, easing the burden on our Treasury.  Working to get Asian money back here is essential to assist stabilizing the global financial system.

Tom Friedman captures the essence of Iceland's financial meltdown: "Who knew that Iceland was just a hedge fund with glaciers?  Who knew?"  He details how Icelandic banks that invested in global finance, not directly in mortgage-backed assets, siphoned vast sums of refugee funds from Britain, and ultimately came to ruin.  Friedman laments that globalization draws everyone into its treacherous financial web, and there is no one in charge.

Worse, author Anne Applebaum sketches chilling scenarios where political instability in target countries can be generated via fomenting economic instability--a bank run based upon false but credible rumors.  The Independent adds more detail.  Put simply, key countries in Asia (Pakistan, South Korea), Eastern Europe (Ukraine, Poland, Hungary), Latin America (Argentina) are among the endangered nations list.  Argentina has already announced that it will nationalize the private pension system to reduce public debt; this comes on top of its 2001 decision to renege on sovereign debt, which has closed off its access to the global capital markets.  Argentine President Christina Kirchner needs legislative approval, which likely she will get.  Call it neo-Peronism, from a 21st century Evita.

Here is the sad reality: No one knows enough to be in charge.  And no one can be confident of stopping every attempt at country destabilization.

EMP: Terror Dream Weapon

A Heritage Foundation Backgrounder on how terrorists can detonate a single nuclear weapon at high altitude and devastate America's vital infrastructures via the resulting serial pulses of intense electromagnetic radiation (EMP) is a well worthwhile 7-pager, for review on this vital defense subject.

America Turns Inward

Two foreign affairs mavens reveal in the midst of a so-so article a telling statistic:

A recent survey by the Chicago Council on World Affairs found that 36% of respondents agreed that the U.S. should "stay out of world affairs," the highest number recorded since this question was first asked in 1947. The economic crisis could be the straw that breaks the camel's back.

David Brooks strikes a concordant note domestically, in the form of a "return to fundamentals" on the part of a voter type he dubs Patio Man:

But the shift in public opinion is not from right to left, or from anti-government to pro-government, it’s from risk to caution, from disorder to consolidation.

There is a deep current of bourgeois culture running through American suburbia. It is not right wing, but it is conservative: a distrust of those far away; a belief in convention and respectability; and a strong reaction against anything that threatens to undermine the stability of the established order.

America turning inward will not make global problems better.  More likely they will make things worse, much worse.  If stability is the goal of Americans, the malevolent forces given greater rein, should America pull back, are those that will undermine stability, abroad and at home.

Index 10/22/08

4 posts: (1) Testing Obama: Madeleine Albright Backs Joe Biden; Media Passes--MSM Murders; (2) Financial Regulation: Investment Is Not Banking--"It's the Earth Stupid!"; (3) Senate 60: More Evils to Come--The Home Front; (4) Militant Islam v. Free Speech: Yet Again--Us v. Them.

Testing Obama: Madeleine Albright Backs Joe Biden: Media Passes

Asked by a CNN interviewer if what Joe Biden said Sunday about Obama being certain to face a test in the form of an international crisis early in his term, Clinton era Secretary of State Madeleine Albright (whose father mentored Condi Rice) answered: "It's just a statement of fact, frankly."  Democratic pundit Kristen Powers, a truly intellectually honest voice, slams the media for "incredible bias" in not covering Biden's Bomb.  Powers nails the roots of media tilt for Democrats:

Part of the problem is their "Obama love," but we're also seeing the media elite's belief - prejudice - that anyone with an R behind their name is dumb. So, if they say something dumb, they must be dumb. A Democrat, like Biden, can make wildly inaccurate or outrageous comments and they are ignored because the TV and press insiders feel they "know who he really is."

On the stump recently, Sen. Biden declared he had "three words" for what the nation needs: "J-O-B-S."

Lucky for him, his name isn't Dan Quayle, or that would have followed him for the rest of his career.

MSM adoration boosts Barack globally.  Polls taken outside the US show Obama up nearly 4:1 over McCain, and up 64-4 in France.  The map at the poll website is great, with color coded country-specific numbers for two questions: preference and "makes a difference."  Checking page 2 of the site to look at the full 70-country breakdown, I found only 3 where McCain is favored: Cambodia, Philippines and Georgia.  Attribute the first two to America's Pacific wars, and the last one to August 2008, when McCain stood strong while Obama initially equivocated.

If Obama is elected, folks overseas may come to regret their rock-star infatuation with The One.

Financial Regulation: Investment Is Not Banking

Manhattan Institute accounting ace Nicole Gelinas examines the repeal of Glass-Steagall in 1999--the 1933 law separating commercial from investment banking--and finds the flaw not in what many critics say, that commercial banks should not have done investment banking, but rather that investment banks who created new assets outside their traditional lines of business needed the same protection and investor runs that banks got from FDR in the 1930s:

"The regulatory principle of protecting the money and credit supplies from panic hasn’t diminished in importance since the thirties. But the financial world has changed dramatically. Once upon a time, if your local bank imploded, it meant that you might have a hard time getting a loan. But you didn’t much care what happened at East Coast investment banks. Over the past quarter-century or so, though, with the modernization of the financial industry and the globalization of financial markets, the big investment banks became just as responsible as commercial banks for the creation of consumer and business credit. When you borrowed money on your credit card, it was often because an investment bank had found an international client to “invest” in your credit-card debt; the same thing held with mortgages.

"By 1999, Congress and President Clinton—along with armies of bank lobbyists—decided that the lines separating the financial worlds had blurred so much that Glass-Steagall was irrelevant. So they repealed it, though commercial banks would still operate under tight constraint. The Fed and other regulators require commercial-bank holding companies, for example, to keep on hand, in the form of quality capital and other reserves that investors can’t pull out in a crisis, about 10 percent of their total assets (that is, all the loans they’ve made to people and companies, as well as other investments). Such “capital requirements”—in effect, limits on borrowing—don’t guarantee that banks won’t fail, but they do give them more room for error and help cushion them against precipitous drops in confidence.

"The lesson that both political parties missed in the repeal of Glass-Steagall wasn’t that it was too dangerous to allow commercial banks and securities banks to commingle, as many critics charge now. It was that the securities side of the business had grown just as vital to the economy as the closely regulated banking system. What nobody realized was that the government needed to protect the economy against runs on investment banks and other lightly regulated financial institutions—a shadow banking industry—just as it had with commercial banks decades earlier."

Senate 60: More Evils to Come

The Wall Street Journal lists seven left-wing bug ideas that GOP senators deep-sixed using the filibuster; check them out, and expect them all to pass in 2009 if the Democrats get 60 Senate seats.  Incredibly, Al Franken, the latest buffoon Minnesotans may vote in, now leads estimable Senate freshman Norm Coleman, a first-rate, serious senator who bucked his constituents to vote his conscience on the bailout bill.

Top talk radio host Michael Medved offers his take: changes would be "permanent and devastating."  Obama would enact two new entitlements: pre-school education and universal health care, government-directed.  Medved notes that entitlements, once entrenched, are permanent.  Jimmy Carter managed to create to cabinet departments--education and energy--that are far less appealing than entitlements sent to taxpayers.  Ronald Reagan could not end their lives in eight years, despite vastly greater popularity than Jimmy Oil.  LBJ created the National Endowment for the Arts, and no GOP president has been able to kill it.  Judicial appointees will radically reshape American law.  And immigration reform will morph into de facto amnesty, bringing in millions of new government-dependent voters for the Democrats.

Militant Islam v. Free Speech: Yet Again

Stratfor published on Oct. 15 an essay entitled "Appraising 'The Jewel of Medina."  The title refers to a novel about Muhammad that has offended Islamists and led already to violence.  It is reprinted here with permission from Stratfor.

By Fred Burton and Scott Stewart

“The Jewel of Medina,” a controversial work of historical fiction by American author Sherry Jones, was supposed to have gone on sale Oct. 15 in the United Kingdom. A series of events, however, have delayed its British release indefinitely. The book, which went on sale in the United States on Oct. 6, describes the life of Aisha, the young girl who became the Prophet Mohammed’s third — and according to many sources, favorite — wife.

Some Muslims have labeled the book blasphemous and have branded the author an enemy of Islam. An associate professor of Islamic history at the University of Texas at Austin said Muslims would find the book very offensive and, in an August interview in The Wall Street Journal, likened it to soft-core pornography.

While the author and publisher have argued that the book respectfully portrays Mohammed and his relationship with Aisha — in stark contrast to the Danish cartoons that have sparked so much protest and violence — the tone of the book is not the real issue. To many Muslims, not only is it offensive to ridicule Mohammed but it is forbidden and considered a dire insult to portray the prophet in any way outside the context of Islamic writings. This insult is magnified when Mohammed is depicted having intimate relations with his wife, a revered figure in Islam who is referred to in many Islamic writings as “Um ul Mumineen” (Arabic for “Mother of the Believers”). Because of this, in all probability many Muslims — not just a few radicals — will find the book offensive.

“The Jewel of Medina” is scheduled to be released in 15 other countries in 2008, including major European markets, Russia and Brazil. There have been no known fatwas, or religious opinions, issued by Muslim leaders calling for action against Jones or any of the book’s publishers at this time. Likewise, a spokesman for the U.S. publisher notes that Jones has not personally received any threats related to the book. The book already has prompted one amateurish attack against the home of its British publisher, however, and we believe that as the issue percolates, we will see more violence in the United Kingdom and elsewhere in connection with the book.

Background

The controversy surrounding “The Jewel of Medina” first reached the public eye in August, when U.S. publisher Random House Inc. announced it had indefinitely postponed the book’s release. In delaying publication, Random House noted that some Muslims could find the book’s content offensive, which might spark protests and acts of violence against the company, its employees and booksellers. In public statements after the delay, Random House said it had not received any direct threats associated with the publication of the novel, though it did receive numerous letters calling on the company not to publish it.

On Sept. 8, Beaufort Books announced that it had signed a two-book deal with Jones to publish “The Jewel of Medina” in the United States in October, along with an unnamed sequel to be released in 2009.

Despite its delayed release in the United States, the novel was published in August in Serbia by Serbian publisher BeoBook. The release drew criticism from Muslim leaders in Serbia, who called for nonviolent protests against both the publisher and distributors of the book. Calls for protests were led by a nongovernmental organization known as the Islamic Community of Serbia, whose objections to the novel included its “pornographic” depiction of Mohammed, along with the broader issue of writing about Mohammed’s wives outside the context of the Koran. BeoBook chose to withdraw the book from stores before any demonstrations took place in Belgrade. BeoBook later re-released “The Jewel of Medina” in mid-September, saying pirated copies were circulating without any violent reaction. No protest activities or other threats have been noted in Serbia following the book’s re-release.

On Sept. 8, the day the Beaufort Books deal was announced in the United States, British publisher Gibson Square said it would release “The Jewel of Medina” in the United Kingdom in mid-October. On the morning of Sept. 27, three would-be arsonists attacked the residence of Gibson Square publisher Martin Rynja, reportedly forcing a small incendiary device through the front door mail slot of the home, which also serves as the headquarters for Gibson Square publishers. Three men were arrested shortly after the incident and have been charged in connection with the crime. The suspects reportedly have indicated that the attack was indeed related to the publication of “The Jewel of Medina.” Law enforcement officials have stated that they do not believe the men are connected to any transnational terrorist organizations, and the amateurish method of attack seems to support that assertion.

Radical Islamist leaders in the United Kingdom have praised the attack, saying they could not condemn the death of anyone who promotes “blasphemous” portrayals of Mohammed, and calling the book “an insult to the Prophet’s honor.” The leaders also noted that there are likely to be more attacks in the United Kingdom connected to the publication of “The Jewel of Medina.”

Case Studies

To better gauge the scope of potential threats and incidents that could result from distribution of “The Jewel of Medina,” it is useful to examine earlier incidents where large segments of Muslim society were angered by the publication of images or other portrayals of the Prophet Mohammed — and when that outrage caused radical Muslims to respond with violence.

As mentioned above, the publication of satirical cartoons of the Prophet Mohammed galvanized Muslims in many countries, and the cartoons sparked protests in a variety of locations. Danish cartoonist Kurt Westergaard drew the cartoons, and Danish newspaper Jyllands-Posten published them in September 2005. The cartoons’ initial release produced very little fallout. In fact, the majority of protest activity surrounding their publication did not begin until early 2006, when information about the cartoons was intentionally spread through Muslim communities worldwide by Muslim activists seeking to create an uproar over the cartoons and instigate violence. They even stacked the deck by adding some extremely inflammatory cartoons of the prophet not published in Jyllands-Posten.

In early 2006, protests began throughout the Muslim world and in areas with large Muslim populations, including Western Europe. The protests often turned violent, leaving at least 50 people dead and hundreds injured. The demonstrations frequently occurred outside Danish embassies, with protesters calling for the death of Westergaard or the downfall of the Danish government. Protesters claimed the Danish government had shown disregard for Islam by permitting the cartoons’ publication. Large-scale demonstrations took place most frequently in the Middle East, North Africa, Pakistan, Nigeria and Indonesia, though violent protests occurred in many other areas.

During these protests, Danish diplomatic and commercial facilities were often destroyed. Muslim leaders also called for a boycott of Danish goods, and these boycotts cost Danish companies millions of euros. The cartoon controversy came to prominence again in August 2007, when similar cartoons were republished in Swedish newspaper Nerikes Allehanda as part of an editorial regarding censorship.

In addition to the response from individuals, militant groups weighed in on the situation, threatening attacks against Denmark and persons involved in producing the cartoons. Among those to react was al Qaeda leader Osama bin Laden, who threatened attacks against European countries. In a March audiotape, bin Laden noted that the images were more provocative than killing Muslim civilians, saying al Qaeda’s actions would serve as punishment for the publications.

In June, a suicide bomber attacked the Danish Embassy in Islamabad, killing eight people and wounding 24. In a video statement delivered days after the attack, al Qaeda leader Abu Yahya al-Libi said the bombing was meant to fulfill bin Laden’s warnings to Denmark and the rest of Europe following the publication of the cartoons. The video also threatened more attacks against those who dared disrespect Mohammed.

In July 2006, two suspects placed two timed incendiary devices aboard two separate trains in Germany. The attack, which could have caused mass casualties, failed when the devices did not function as intended. German authorities arrested several suspects, one of whom reportedly told the authorities that the attack was a response to the cartoons’ publication in German newspapers.

The individuals responsible for the cartoons also received personal threats. A number of Muslim leaders issued fatwas against Westergaard. Fatwas are not legally or morally binding statements, though they often motivate Muslims to participate in certain actions to prove their faithfulness to Islam. In addition to fatwas issued against Westergaard, a Pakistani religious leader offered a reward of $1 million and a car to the person who murdered Westergaard. Law enforcement authorities in Denmark later uncovered several plots to assassinate him, though none of the plots was carried out.

Another recent example of Muslim wrath spurred by what many Westerners consider an exercise of free speech and artistic license was the November 2004 slaying by a militant Muslim of Dutch filmmaker Theo van Gogh. Van Gogh had directed a short documentary called “Submission” that discussed the issue of violence committed against Muslim women. The movie was considered especially inflammatory because it contained depictions of Koranic verses interposed on nude female bodies.

Van Gogh received several threats following the August 2004 release of “Submission,” but he seemed to disregard them and refused to accept protection. Van Gogh was attacked while riding his bicycle to work. His assassin, Mohammed Boyeri, shot van Gogh eight times and then attempted to behead him with a knife before leaving a threatening note pinned to van Gogh’s body with a second knife.

The 1988 publication of Salman Rushdie’s “The Satanic Verses” also offers valuable insights about the potential reception of “The Jewel of Medina.” Many Muslims condemned Rushdie’s novel for depicting a false prophet named “Mahound” (a derogatory moniker for the Prophet Mohammed), creating characters that questioned the validity of Islam, and suggesting that Mahound might have received words in the Koran from the devil. Despite critical acclaim, the book was banned in more than 10 countries prior to publication. Another 11 countries banned the book after outbreaks of violence in the United Kingdom and the United States.

Protests against “The Satanic Verses” erupted throughout Muslim communities in early 1989. At least 25 people died in demonstrations in India, Pakistan and Iran, while others were seriously injured. The demonstrations drew large crowds, with more than 10,000 protesters reported at one event that turned deadly in Islamabad, Pakistan. Demonstrations against the book also occurred in several European countries, including the United Kingdom, France, Belgium and Poland.

The problems surrounding “The Satanic Verses” intensified in February 1989 when Iranian Supreme Leader Ayatollah Ruhollah Khomeini issued a fatwa against Rushdie and the novel’s publishers, sentencing them all to death because of the “blasphemous” content of the book. Rushdie, an Indian-born citizen of the United Kingdom, was placed under official protection under an assumed name for several years following the fatwa, amid concerns that faithful Muslims would attempt to carry out Khomeini’s death sentence.

In the United States, several bookstores carrying the “The Satanic Verses” reported threats against their managers or against the stores themselves. B. Dalton Bookseller, the second-largest book distributor at the time, told reporters that while it had not experienced any violence surrounding the novel, four store managers had received threatening phone calls related to the title. Rushdie’s U.S. publisher, Viking Penguin, received a number of bomb threats, though none of the threats materialized into actual attacks. The publisher also received hundreds of calls from Muslims requesting that “The Satanic Verses” be removed from distribution.

Press reports indicate that several hundred threats to bookstores were reported to the FBI in the first four months of 1989. In March 1989, two bookstores in Berkeley, Calif., were bombed, causing minor property damage. Most U.S. bookstores eventually removed the book from distribution. In addition to protest activities in the United Kingdom, at least five London bookstores were firebombed following the release of the novel. Each of the five shops carried “The Satanic Verses” at the time of the attacks. Nearly all British bookstores removed the book from their shelves in the spring of 1989.

Though Khomeini’s fatwa has not led to Rushdie’s death, a number of other individuals associated with the book’s publication were attacked, and some were murdered. Ettore Capriolo, who translated the book into Italian, was beaten and stabbed in July 1991. Hitoshi Igarashi, the Japanese translator, was stabbed to death in an attack the same month. Turkish translator Aziz Nesin was attacked in October 1993 but survived critical injuries.

A Long-Term Problem

As seen in the examples noted above, “The Jewel of Medina” has the potential to cause problems for many years. Though this issue might fade quickly from public consciousness in the West, the subject matter of the book has the potential to inflame Muslim activists again in the future. In the case of the Prophet Mohammed cartoons, Pakistani religious leaders admitted that they intentionally stirred up emotions connected with the publication of Mohammed’s images after the initial furor died down. It is thus quite possible that “The Jewel of Medina” will be used in the same way. This time frame could span decades. In the case of “The Satanic Verses,” large-scale protests condemning the book and Rushdie occurred as recently as fall 2007, 19 years after the novel’s publication.

If “The Jewel of Medina” becomes a prominent issue in Muslim communities, it is likely that militant organizations will issue fatwas and other statements related to the book. They might even call for protests or attacks to correct the alleged damage caused by the novel. If such calls occur, demonstrators and perpetrators of violence might not necessarily belong to an organized group. Instead, it is very likely that Muslims who are unaffiliated with such groups but nevertheless feel called to make a stand in favor of Islam could choose to participate in these activities. Such actions probably will not be limited to areas that experience frequent militant activity, such as Pakistan. Instead, these actions could occur in any area with a significant Muslim population, especially Western Europe. While these activities are less likely to occur inside the United States, such issues should not be entirely discounted.

We are not necessarily predicting an immediate open season on Sherry Jones or the publishers of the book, but precautions should obviously be taken to prevent them from becoming the next Theo van Goghs. And as the ancillary attacks in the Rushdie case (among others) have shown, other people also can become victims, and violence can be channeled in unexpected ways and appear in unexpected places. When it comes to perceptions of blasphemy and other affronts that some see as warranting death, fatwas often are carried out with extreme brutality — and those targeted have not always been directly associated with the initial offense. Considering past examples and the probable emotions “The Jewel of Medina” will raise in the Islamic world, revenge for offended religious sensibilities might be brutal, and it might be a long time coming.

On a contrary notes, the New York Times reports that in the Xinjiang region of China (the westernmost area), the 46 percent of the province's 19 million residents that are Muslim Uighurs (Sunni since the 10th century) find their voices silenced by the Han Chinese ruling majority.

Index 10/21/08

3 posts: (1) Joe Biden's Inconvenient Truth: Enemies Await Obama--The Home Front; (2) Net Capital Rule: The Basel Connection to Bank Leveraging--"It's the Earth Stupid!"; (3) ACORN WATCH: William Penn, Call Your Sylvan Office--The Home Front.

Joe Biden's Inconvenient Truth: Enemies Await Obama

Joe Biden committed the worst possible campaign gaffe: He told the inconvenient truth about the foreign policy future of an Obama Presidency.  What follows is the ABC Blog account, woven into Biden's seriatim remarks:

"Mark my words," the Democratic vice presidential nominee warned at the second of his two Seattle fundraisers Sunday. "It will not be six months before the world tests Barack Obama like they did John Kennedy. The world is looking. We're about to elect a brilliant 47-year-old senator president of the United States of America. Remember I said it standing here if you don't remember anything else I said. Watch, we're gonna have an international crisis, a generated crisis, to test the mettle of this guy."

"I can give you at least four or five scenarios from where it might originate," Biden said to Emerald City supporters, mentioning the Middle East and Russia as possibilities. "And he's gonna need help. And the kind of help he's gonna need is, he's gonna need you - not financially to help him - we're gonna need you to use your influence, your influence within the community, to stand with him. Because it's not gonna be apparent initially, it's not gonna be apparent that we're right."

Not only will the next administration have to deal with foreign affairs issues, Biden warned, but also with the current economic crisis.

"Gird your loins," Biden told the crowd. "We're gonna win with your help, God willing, we're gonna win, but this is not gonna be an easy ride. This president, the next president, is gonna be left with the most significant task. It's like cleaning the Augean stables, man. This is more than just, this is more than – think about it, literally, think about it – this is more than just a capital crisis, this is more than just markets. This is a systemic problem we have with this economy."

Ralph Peters spins several scenarios as to how America's enemies might test Obama.  Obama will, I think, have an “Ehud Olmert problem”: Just as Hezbollah tested Olmert in 2006, but would not have risked war with Ariel Sharon, so is a community organizer more likely to be tested than a fighter pilot who withstood five years of torture.  Iran going nuclear, Russia retaking former possessions, are tests a novice may expect.  Mullahs think little of lawyers, and Russian leaders with KGB pedigree (the Soviet Union secret police and spy service) think they can handle community organizers quite well.  For his part, ace diplomat John Bolton warns that the next President must eschew the romanticism and appeasement that has too often marked America's Russia policy.

Was Joe just trying to push Joe the Plumber off Campaign 2008 center stage?  Instead, Biden may have said just the right thing to push John McCain back on Campaign 2008 center stage.  Politics maven Jay Cost sees 7 percent of voters still undecided, and thinks they will hang until the final days before November 4.  At the end of his short piece is a video Team McCain aired in August, after Russia invaded Georgia, with Democratic aspirants hitting Obama on national security qualifications.  Cost speculates that we may see this ad again in the closing days.  Joe Biden has made it easy to use that ad again.

Net Capital Rule: The Basel Connection to Bank Leveraging

An alternate view of the origin and impact of the Securities and Exchange Commission's 2004 lifting of the "net capital rule" suggests that the rule was a form of bad regulation, not deregulation.  The SEC, in allowing vastly greater leverage for novel financial instruments, was merely following the lead of the traditionally ultra-conservative Trolls of Basel (first cousins of the Gnomes of Zurich).

SEC Chairman William Donaldson was following the capital valuation standards set by the Bank for International Settlements, named Basel II (after the Swiss city in which BIS is located).  Herewith paragraph 18 from the Basel II Introduction:

18. The Committee also seeks to continue to engage the banking industry in a discussion of prevailing risk management practices, including those practices aiming to produce quantified measures of risk and economic capital. Over the last decade, a number of banking organisations have invested resources in modelling the credit risk arising from their significant business operations. Such models are intended to assist banks in quantifying, aggregating and managing credit risk across geographic and product lines. While the Framework presented in this document stops short of allowing the results of such credit risk models to be used for regulatory capital purposes, the Committee recognises the importance of continued active dialogue regarding both the performance of such models and their comparability across banks. Moreover, the Committee believes that a successful implementation of the revised Framework will provide banks and supervisors with critical experience necessary to address such challenges. The Committee understands that the IRB approach represents a point on the continuum between purely regulatory measures of credit risk and an approach that builds more fully on internal credit risk models. In principle, further movements along that continuum are foreseeable, subject to an ability to address adequately concerns about reliability, comparability, validation, and competitive equity. In the meantime, the Committee believes that additional attention to the results of internal credit risk models in the supervisory review process and in banks’ disclosures will be highly beneficial for the accumulation of information on the relevant issues.

The Basel II website provides the full text--about 200 pages of financial-speak.  You are on your own.

ACORN WATCH: William Penn, Call Your Sylvan Office

Here is the latest flash from Pennsylvania, where ACORN has been engaging in "voter registration" to the point where authorities have much to look at, should they wish to pursue.  They don't wish to, so the GOP is suing.