The Naked Emperors — John McCain

or, How a Populist Deals With Economic Difficulties

In discussing the financial crisis McCain starts off well. He says:

The financial crisis we're living through today started with the corruption and manipulation of our home mortgage system. At the center of the problem were the lobbyists, politicians, and bureaucrats who succeeded in persuading Congress and the administration to ignore the festering problems at Fannie Mae and Freddie Mac.

followed shortly by:

They institutionalized a system that rewarded forcing mortgages on people who couldn't afford them, while turning around and selling those bad mortgages to the banks that are now going bankrupt.

Note, one thing: no one was forced to borrow money to buy a home. They chose to do so because lenders were willing and they were able, and there was a rising market. That rise was artificially created by Federal policies and practices, and supported in part by the demand. Artificially low interest rates, arm-twisted lowering of credit-worthiness standards foisted on Freddie and Fannie, and — yes — the desire of some short-sighted people to make a lot of money on the situation are the roots of the problem.

Then, in now-standard McCain fashion, he goes off the rails and blames:

...the reckless conduct, corruption, and unbridled greed that have caused a crisis on Wall Street.

Granted, many on Wall Street are neither saints nor foresighted nor particularly interested in the long run, this is still a foolish statement. Washington creates a system that allows morally flexible men to take advantage of the situation — while they are being pressured to do so by politicians from both sides of the aisle — and they become the guilty party?

Fine, let's chastise according to their share of the blame. But keep your eye on the ball, where the root problem lies: government policies.

That, unfortunately, is something John McCain seems constitutionally unable to do. It would require too much long-term focus, an attribute he seems to lack.

His populism run amok attitude is on display here:

Our regulatory system must protect consumers and investors by punishing individuals who engage in fraud, break contracts, or lie to customers — like the predatory lenders who know you can't afford an adjustable rate mortgage, but mislead you into signing one.

There are no doubt instances where lenders, under pressure to meet CRA mandated goals, lied to potential borrowers. But individuals who borrow money are ultimately responsible for any contracts they sign. If they can't afford a loan, in the end they have the responsibility to decide.

If the signer doesn't understand the terms, he shouldn't sign until he does. They are always free to seek advice from the dozens of those around them who do understand. Even ill-educated people can read a table of figures. If it shows that an ARM interest rate may rise two years after taking out the loan, and increase the mortgage payment from $400 to $600 per month, they can always say no thanks. No one has a right to expect a guarantee that home prices will always necessarily rise, bailing him out by a sale two years later at a profit.

The Federal Government's attempt to relieve citizens from exercising their own judgment is another root cause of the fundamental problems in our society. It cuts both ways. They try to prevent some from acting on their judgment while 'protecting' others from suffering the consequences of their choices. That double-whammy violates rights and shifts the burden of bad choices to others. Immoral and impractical, times two.

Equally bad are McCain's proposed legislative solutions.

First, to deal with the immediate crisis, I will lead in the creation of the Mortgage and Financial Institutions trust — the MFI.

The underlying principle of the MFI or any approach considered by Congress should be to keep people in their homes and safe guard the life savings of all Americans by protecting our financial system and capital markets. This trust will work with the private sector and regulators to identify institutions that are weak and fix them before they become insolvent.

The MFI is an early intervention program to help financial institutions avoid bankruptcy, expensive bailouts and damage to their customers. This will get the Treasury and other financial regulatory authorities in a proactive position instead of reacting in a crisis mode to one situation after another.

The underlying principle of any government institution should definitely not be: "keep[ing] people in their homes." Whether or not a person should retain their home can only, morally and practically, be determined by the free market. If they can afford it, excellent. If not, that's bad luck but nothing the government should be involved with. That sort of involvement is exactly what led to the problem in the first place and you don't solve a problem by doing more of the same.

The danger is reinforced by touting "early intervention." It's hard to conceive of any riskier plan than having the Federal government anticipate what will succeed or fail, and by how much. Not only is their track record very bad in this regard but they are simply too remote, too slow, and, frankly, too stupid. As Ronald Reagan famously said, "The best minds are not in government. If any were, business would hire them away."

I agree, however, that the Treasury, the Fed, and everyone else in DC needs to get out of crisis mode. That would be a lot easier if they would stop creating them.

That won't happen so long as McCain and anyone else with influence believes this:

Finally, the Federal Reserve should get back to its core business of responsibly managing our money supply and inflation. It needs to get out of the business of bailouts. The Fed needs to return to protecting the purchasing power of the dollar. A strong dollar will reduce energy and food prices. It will stimulate sustainable economic growth and get this economy moving again.

Muddle-headed. They do need to get out of the bailout business. And a strong dollar is definitely a good thing. But, the Federal Reserve's practice of "managing our money supply" is one of the most serious elements in the whole debacle. Pushing up and down interest rates, inflating the money supply then contracting it, are exactly why we see these boom and bust cycles in the first place. This has been known since the 1930s. Writing in 1932, F.A. Hayek, Nobel Laureate in economics, said:

Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.
...
To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection — a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end.
...
It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression. We must not forget that, for the last six or eight years, monetary policy all over the world has followed the advice of the stabilizers. It is high time that their influence, which has already done harm enough, should be overthrown. [Hat tip, Not PC]

The Fed's policies, no matter how well directed will not and can not "...grow this economy, create millions of jobs and bring opportunity back to Americans," as McCain implies. Only American free enterprise, i.e. the private activity of millions of individuals left free to risk, to invest and create can do that.

Only after he and the other leaders in Washington — and more importantly, the American people — learn this will the problem finally get solved.

The Naked Emperors — Barack Obama

This post will be short, because there is little that needs saying about Barack Obama's response to the current financial situation. In his usual fashion, he says little of concrete value, just offering more of the standard bashing the rich and pandering to the rest.

"The second principle I would like to see in the emerging plan from the Treasury and the Fed is that our approach should be one of mutual responsibility and reciprocity. It must not be designed to reward particular companies or the irresponsible decisions of borrowers or lenders. It must not be designed to enhance the personal gain of CEOs and management.

The recklessness of some of these executives has helped cause this mess, even as they walk away with multi-million dollar golden parachutes while taxpayers are left holding the bag. As taxpayers are asked to take extraordinary steps to protect our financial system, it is only appropriate that those who benefit be expected to contribute to the protection of American homeowners and the American economy. Just as support is not designed to payoff egregious executive compensation, it should not reward those who are ruthlessly foreclosing on American families."

This is nothing but populist boilerplate.

All variations of the plan call for the government to buy debt that investors or borrowers no longer want or can't service. How that could be anything other than a reward for irresponsible decisions, it is impossible to say. All this caused through no one's fault (but the 'greedy' Wall Street crowd and those "ruthlessly foreclosing")? Ridiculous.

Observe whom he pointedly leaves out: the politicians themselves.

Thanks to the creation and favored treatment of Fannie and Freddie, the CRA, the Tax Act Reform of 1986, and a host of other legislation, the mortgage lending market was severely distorted. Self-limiting free-market mechanisms that constrain bad investment decisions was thus removed. The Fed greased the wheels, and put the whole train on a roller coaster, through a years-long policy of artificial manipulation of interest rates.

(This is not to mention the ample funds Obama himself received from Fannie and Freddie. However, even at #2 on the list of recipients, $135,000 over three years isn't enough to make the case that he was bought, as is common currency on conservative blogs. It's chump change and a tiny percentage of the $150 million those two paid to politicians over the years.)

Granted, Barack Obama had nothing to do with any of that legislation, or with blocking more useful legislation that would have reined in Freddie and Fannie in 2003-2005. That's one of the reasons he is the least culpable of the major public figures in this debacle. As usual, he was just along for the ride.

He does get low marks however for more lying, such as this:

In recent years, I have outlined plans that would have helped prevent the problems we now face, and yesterday I proposed the outlines of a plan that would establish a more stable and permanent solution to strengthen our financial system.

"In recent years"? I read a lot of newspapers and blogs around the political compass daily. I haven't seen his plan. If he ever proposed any such thing, I'm guessing he outlined it to his kids over breakfast and it never went any farther.

Or, perhaps he is referring to the community organizing (translation: "leftist agitation") he did in concert with ACORN, one of the villains behind pushing politically correct lending of the sort that is part of the current problem.

No, I've yet to see any "outline of a plan that would establish" any kind of solution, much less one whose outcome would "strengthen our financial system." Given that he knows absolutely nothing about capitalist economics or how markets actually work, the very idea is inconceivable.

Maybe he thinks this is part of a plan:

Third, this plan must be temporary and coupled with tough new oversight and regulations of our financial institutions, and there must be a clear process to wind down this plan and restore private sector assets into private sector hands after restoring stability to the system.

Right. Now, I don't drink much, so maybe more of the hair of the dog that bit you will cure hangovers, I don't know. But more regulation, which created conditions that caused the problem in the first place, surely will not cure this financial hangover. Best just to let nature take its course. I will give him two cheers for at least recognizing that private property should be returned to private citizens, after the government is finished with it.

Saving the best for last, we have this doozy:

Fourth, this plan should be part of a globally coordinated effort with our partners in the G-20. This is a worldwide issue, and while the United States can and will lead in stabilizing the credit markets, we should ask other nations, who share in this crisis, to be part of the solution as well.

Typical of Obama. U.S. self-defense at risk? Go to the U.N. American financial markets threatened? Coordinate with a non-existent body (there is a G-8, but if there is a G-20 they must meet in secret) and get them to buy in. Since heavy-handed U.S. regulation set the stage for this debacle, adding the outright socialist ideas of Europe surely cannot help.

Finally, to excuse his lack of offering any ideas, he says this:

Finally, given the gravity of this situation, and based on conversations I have had with both Secretary Paulson and Chairman Bernanke, I will refrain from presenting a more detailed blue-print of how an immediate plan might be structured until I can fully review the details of the plan proposed by the Treasury and the Federal Reserve.

Congress is right now engaged in hashing out a plan with the Executive branch of government. Barack Obama is the senator from Illinois, a major center of U.S. finance. He is also running for an office that will have a new occupant in four months. Shouldn't he be doing exactly that, offering "detailed blueprints?"

Based on the ideas quoted above, the answer would have to be "No."

The Naked Emperors

Having reviewed some of the history of the current financial situation, I'll examine the responses of some of the major public figures, starting with Barack Obama.

A Brief History of the Financial Crisis

The history of today's financial crisis has its origins in mortgage lending. That is well known and accepted by everyone. But there is more, much more to the story.

Mortgage Lending

I worked for one of the major sub-prime lenders for four years in the late 1990s near the beginning of the rise in that market. I saw firsthand how eager they were to expand their business in that arena. They were looking at major competition from lenders of traditional home loans and wanted a way to increase revenues in areas where the competition was less and returns higher.

What generated that competition?

In part, it was the natural outcome of rising income as the economy expanded. Incomes had been rising since the end of WWII, though there were dips along the way, such as after the S & L debacle of the late 1980s, early 1990s. With that behind them, homeowners and lenders sought out one another in ever greater numbers, since private home ownership is hotly desired by most who can afford it.

But there was another element to that market, one more closely associated with lower incomes: the sub-prime market. "Sub-prime" loosely (but not too loosely) speaking is a section of home mortgage lending that concerns itself with borrowers with less than stellar credit. The "sub" doesn't mean "lower interest rates" but "lower credit ratings," chiefly anyone with a FICO score below 540.

[That number is calculated according to secret, proprietary algorithms by the major credit rating companies, TransUnion, Experian, and Equifax. Major elements include the number of late payments and how late they are, 30 days, 60 days, etc., and overall debt levels.]

In decades past, lenders would rarely touch anyone with a FICO under 540, unless they had ample collateral (for example, in the form of a large down payment). When they would, the borrower had to pay a premium rate.

Lending Practices Changed

In the 1990s, the rules and standards got relaxed.

Traditionally, 20% was the norm, but that gradually was reduced to 15%, or 10%, or even lower. Before long, even that 5-15% was often borrowed, in the form of a "second" (the lender would lend even the down payment at the same time as the "first," usually at interest rates several points higher).

Before long, down payments were considered optional. Many borrowers would pony up only to lower their rate and/or monthly mortgage payment. Those without the funds to do that, accepted a somewhat higher rate and higher monthly payment.

That shift alone is a recipe for disaster, since those who could less afford higher rates and higher payments came to be a larger percentage of home loans, almost guaranteeing a higher default rate on mortgage loans. But worse was yet to come.

Securitization

To offset the risk of those loans, lenders could securitize them. That is, they could pool loans together into a fund, that was then sold in the form of securities traded on the bond markets. Hence were born Mortgage Backed Securities in a dizzying array of forms. The practice had been going on since the 1970s, but expanded considerably in the 1980s.

Not long after the MBS became popular something was added to the mix: derivatives. [Derivative: A security, like an option or future, whose value is derived from another underlying security.]

That allowed further spreading of risk. Far from increasing the risk of sub-prime lending, securities and derivatives help reduce it — by spreading it to others. For taking a risk, investors receive a return when they guess right and suffer a loss when they guess wrong.

Bad Idea?

All that may or may not have been a bad business idea. But if it were, poor business practices in a free market are always self-limiting. Those who engage in them lose money. So, they either change their ways or they eventually go out of business. Only the employees and shareholders of that company would suffer a loss. Nothing in that scenario allows for a nationwide financial meltdown.

Something else was at work.

Government on the March

In 1977, a year when Democrats held a majority in both Houses, Congress passed the Community Reinvestment Act. President Carter signed it. According to the Federal Reserve website:

The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations.

It was modified in 1995, when Republicans held a majority, then signed by President Clinton, who had campaigned on the issue.

The CRA requires that each insured depository institution's record in helping meet the credit needs of its entire community be evaluated periodically. That record is taken into account in considering an institution's application for deposit facilities, including mergers and acquisitions.

CRA examinations (see Exam Schedules) are conducted by the federal agencies that are responsible for supervising depository institutions: the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS).

It's been suggested (mostly by Leftists) that the CRA is unrelated to the current financial crisis. Yet, looking at the language and the purpose of the CRA is alone enough to disprove that. Lending institutions are ranked, in part, on how substantially they lend to low and moderate income households (which are typically the same as low credit ranking, high risk households).

These revisions with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers for home loans.

More evidence is provided by the authors of the reform. As stated by Clinton's Asst. for Economic Policy, later Treasury Secretary (and current economic adviser to Barack Obama), Robert Rubin:

The President, as you know, has a broad, comprehensive strategy for dealing with the economic problems of the country for putting the country back on the right track for the long-term. A lot of the legislative and executive actions that have taken place in 1993 have been pursuant to that long-term economic strategy of the President's.

An important component of that strategy is to deal with the problems of the inner city and distressed rural communities — pursuant to his belief that we must make real progress in those areas if this country is going to be successful in the future for all of us. The reform of the Community Reinvestment Act is an essential building block in the efforts I've just mentioned.

The motive of the legislation was made crystal clear by Eugene Ludwig, Comptroller of the Currency, a major participant:

Fifteen years ago, Congress passed the Community Reinvestment Act. Passed it to ensure that banks and thrifts served the financial needs of their entire communities; and in particular economically empowered persons of low and moderate income. But the CRA has never achieved its full promise.

Among other things, the legislation introduced the CRA ranking, a score that helps determine which lenders are 'doing their part' to "serve the financial needs" and "empower persons of low and moderate income."

Those rankings influence, for example, whether those businesses are allowed to expand into certain geographical regions and business sectors. The determination, though, is essentially made by bureaucratic whim.

Neither the CRA nor its implementing regulation gives specific criteria for rating the performance of depository institutions. Rather, the law indicates that the evaluation process should accommodate an institution's individual circumstances.

It isn't difficult to see how this sort of vagueness can easily lead to, at best, subjective decisions and (as is so often the case) outright bribery of public officials (albeit in the 'polite' form of healthy campaign contributions).

There was, indeed, nothing coincidental about the increase in the size of the sub-prime market. Quoting again from Mr. Rubin:

[I]n conjunction with the President's Community Development Bank and financial institution legislation, which recently passed the House of Representatives, CRA reform will generate billions of dollars in new lending and extend basic banking services to the inner cities and to distressed rural communities around the country.

Echoing him, Ludwig declared,

It will channel billions of dollars a year in new credit into America's distressed communities...

Well, in that, they succeeded.

The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent.

What guided their efforts?

This reform package is the product of five long months of consultation and deliberation. Before we made a single decision on proposing reform, we turned to the people to ask what the people thought what the people needed. We walked through South Central Los Angeles, in a predominantly minority neighborhood in New York City to see with our own eyes and to listen with our own ears to what should be done. We talked with representatives of the Navajo Nation; to bankers, large and small banks, inclusive; to poor people in rural North Carolina and elsewhere. We saw and what we heard shaped this reform package.

By replacing paperwork requirements with performance tests, this package would stimulate bank lending, investment and service in low and moderate income communities. This proposal is not about formulas. Community groups and bankers both emphasized the need for flexibility. So this proposal recognizes the diversity of banks and the markets they serve. It reduces the examination burden, particularly on small banks without reducing their obligation to serve their communities; and it recognizes that regular public participation is critical if we are to achieve the goals of the law.

Government-engineered altruism raised its ugly head again. Lenders responded.

As recently as April, 2007, Bank of America was boasting:

McGee announced Bank of America was notified last week by the Office of the Comptroller of the Currency that for the sixth-consecutive period the bank has achieved an "outstanding" rating on its recently completed Community Reinvestment Act (CRA) exam.

Fannie Mae and Freddie Mac

Much of the security market described above was taken up by Fannie Mae (Federal National Mortgage Association) and, later, Freddie Mac (Federal Home Loan Mortgage Corporation.) Both were created by the Federal Government, as so-called GSE (Government Sponsored Entities).

Fannie was founded in 1938 as part of the New Deal, though it was made quasi-private in 1968. For a 32 year period, Fannie had a monopoly on the secondary mortgage paper market. Freddie was founded in 1970 to provide some quasi-competition. Freddie bought the mortgage loans, pooled them, and then sold MBSs to investors.

Among the many forms, Fannie Mae created CMOs (Collateralized Mortgage Obligations) in 1983. The government helped expand the market as part of the Tax Reform Act of 1986. The Act created REMICs (Real Estate Mortgage Investment Conduits, a security that allows investors to tailor the risk they want to take in exchange for different returns. Freddie and Fannie are the largest issuers.

Together, they had roughly half of the $12 trillion dollar mortgage-related secondary financial market by mid-2007.

The Rest of the Story

The penultimate chapter of this story is by now well-known to everyone.

After rising to unsustainable levels, housing prices fell. When the price of the collateral underlying a security falls, the price of the security tends to follow. Homeowners with adjustable rate mortgages saw their monthly payments rise. Roughly 5% of borrowers defaulted on their loans. Banks lost money. Investors lost money. Together, Freddie and Fannie lost $12 billion between the summer of 2007 and 2008. Credit got tight, even though interest rates were kept artificially low by the Federal Reserve.

Then, as is usually the case and to our never-ending regret, the Federal Government was called in to 'solve the problem.' Repeatedly.

[Note: Updated since first publication.]

[UPDATE: Mark Perry, Professor of Finance at U of Michigan, supplies some helpful details that support my basic - and admittedly very incomplete - history.]

7-Part Series Planned: Wall Street Woes

Over the next couple of weeks or so I'll be offering commentary on recent economic events, in particular the Treasury plan to temporarily (let's hope) nationalize large swaths of the finance industry. (Or, I should say, even larger swaths than it already has over the past few decades.)

For those who like to read the last page of a mystery novel first, I'll say this much now: I think the whole thing is probably necessary insanity. Insane, because it adds more government intrusion when that was the fundamental cause of the problem in the first place. Necessary, because when governments intrude in a mixed economy they always find it necessary to intrude more to fix the mess they created. And, this time, they created a whopper.

One caveat lector: I'm not a financial expert. (Though, I did work in the Bond Analysis subsidiary of the 7th largest U.S. bank for two years, before and just after the huge Wall Street crash of October, '87, so I'm only a semi-ignoramus. And, honest injun, I had nothing to do with causing that.)

Still, I know avoidable foolishness when I see it, and this instance is writ so large that anyone who doesn't see it, doesn't want to. Like, say, a few thousand politicians and pundits I could name from the past 20 (ok, really 100) years.

In particular, I'll be analyzing the statements made by five major figures in the drama: Sen. Obama, Sen. McCain, Pres. Bush, and Sec. Paulson, and The Mystery Guest. As a hint of what's to come, these are listed in degree of increasing guilt from zero to mucho. (How about that? For once, Barack Obama is not the biggest fool in the bunch.) Along the way, I'll talk about some of the history leading up 'the Crisis', then end with some suggestions for the future.

No doubt, events in the coming days will overtake the initial statements made by these four named. But each provides important clues about what is likely to come, to the extent they get their way. Beyond that, each represents a variant on the philosophy that got us where we are today. Understanding that philosophy, after all, is the most important lesson to learn — if we are to have any hope of a future better than the past.

Yes, what is most important are the ideas driving these events, not these somewhat inconsequential and storm-tossed reactors to them. But every good story features characters, not disembodied events or themes. More germane, it is people who chose which ideas to act on. So I'll examine the events, at least in part, through the statements of these cardboard cutouts that pass for rational human beings.

We'll end by reaffirming what we know at the beginning: that all of this could have been avoided by a smidgen of foresight and a dollop of courage, i.e. a speck of wisdom. Sadly, those attributes have been in short supply in the leaders in Washington for decades, if not generations.

Stay tuned...

A Respite: The Sexy Chessmaster

I don't often post lightweight stuff. But this week it's a must.

As a partial antidote and brief respite to the endless flood of bad news from Wall Street and sheer insanity from Washington, I offer the following tidbit from the London Daily Mail,

She won the Women's World Chess Championship 2008 yesterday, beating the Chinese prodigy Hou Yifan in the final.

A Grandmaster at 14, she trained by playing games blindfold at the age of five.

Russian. Gorgeous. Brainy. What's not to like?


[Full story here.]

Wall Street and Transparency

The stream of foolish statements over how to cure 'the Wall Street crisis' is becoming a flood.

Senator McCain often says he is opposed to government control. Then he turns right around, when any problem arises, and advocates... wait for it... government controls.

"I do not believe in government intervention, I do not believe in government control, I do not believe that. But I do believe we should take steps to increase transparency and also shareholder input into the compensation of CEOs."

Who is we that the Senator here references? I'm thinking that would be "We, the Federal Government." The blatant contradiction does not — isn't the human mind a neverending miracle — occur to him.

He repeats his point here:

"So, first, it means that we have to require a heightened level of transparency and accountability by Wall Street firms."

And, worst of all, here.

"Too many people on Wall Street have been recklessly wagering instead of making the sound investments we expected of them,'' McCain told a crowd today in Tampa, Florida. "If I am president, we are not going to tolerate that anymore."

Mr. McCain's expectations aside, he is neither qualified, nor morally privileged to dictate what bets Wall Street investors should or should not take. He should be advocating instead that they be free to fail all on their own and not be bailed out by the taxpayers if they do.

We can only hope that after he becomes President in January, 2009 he invites some knowledgeable individuals into the Administration to give him better advice than he has been getting to date, and that he will listen to them. Slim hope, I admit. But, still...

The fact is that no one who works on Wall Street (or in any business elsewhere) is morally obligated to be "transparent." Nor do they have any obligation to invest how and where anyone but their shareholders wish. (And, if the shareholders don't like it — and can't persuade others to change the executives' decisions — they can sell their shares.)

• When you are playing poker do you inform the other players of the contents of your hand? Do you call the local police department before you bet?


• When you contemplate buying an item on eBay would you telegraph to the other bidders how high you will go before giving up? Should you call the mayor before you click the mouse?


• When you negotiate to buy a car do you tell the salesperson how low he must go to persuade you to buy? Should either ask the city controller?


• If you run a local coffee shop are you obligated to announce new grinds to the other shops in town before you advertise to your customers? Are you obligated to notify the town council?


• When you overextend yourself gambling at the track do you owe an accounting to anyone other than your spouse?

Examples could be multiplied a million-fold.

No business is required to tell anyone other than those to whom they have a fiduciary duty what they have in mind or how they are conducting business. Most particularly, they have no obligation whatever to tell Washington anything.

Anyone against whom there is evidence of fraud, and that includes the executives of Lehman, AIG, and who knows who tomorrow, should be tried on the basis of existing laws and sent to jail — if found guilty. But those executives are (a) innocent until proven guilty, (b) have a right not to be subjected to ex-post facto law, and above all (c) have a right to be left alone to deal with the impacts of their choices in cooperation with their shareholders unless they have committed a criminal act. Bad business judgment is not criminal.

None of it is any damn business of the Feds, no matter how big the problem unless — and no one has suggested this — there is fraud involved.

By the same token, the Federal government has no business giving them a dime. If Bear Stearns got themselves in trouble, it's not up to the taxpayer to make up for their mistaken judgments. It will only make the situation worse for everyone.

The numbers are adding up.

• For AIG, $85 billion in loans in exchange for an 80% stake in the company. (Since when is the U.S. Treasury supposed to be competing in the stock market by bidding for shares in a private company?)


• Soon, $25 billion in loans to U.S. automakers. (Since when is the U.S. taxpayer the lender of last resort to car manufacturers?)


• That doesn't even count the biggest boondoggle of all: $200 billion in guarantees to those quasi-private companies at the center of the storm, Fannie and Freddie. (Why is the taxpayer backstopping home loans for every Tom, Juanita, and Shondell?)

The taxpayer doesn't owe these companies a dollar and the companies don't owe the general public an electron of information. Until and unless — yes, I know I'm dreaming here — the Federal government gets out of the way and gets back to its proper job — the problem will not go away.

Those truths should be transparently obvious.

The Economy and Its Malcontents

"Malcontent: a person who is discontented, as toward authority."

I don't know enough about economics to tell you in detail why bad things are clustering just now or to make specific recommendations to combat them. But I do know more than Harry Reid, the current Senate Majority leader. That's not a boast (and it's a pretty low bar, anyway). Harry himself says so:

Senate Majority Leader Harry Reid, asked today what new regulatory actions Congress can take, said, bluntly, "No one knows what to do. We are in new territory here. This is a different game. We're not here playing soccer, basketball or football, this is a new game and we're going to have to figure out how to do it."

Well, he may not know what to do, but its not true that no one does. Hundreds of economists from Adam Smith to Thomas Sowell have pointed out the obvious for generations. Beneath all the complex talk of derivatives, leverage, and the like they all say pretty much the same thing: Politicians, get out of the way. Let the market deal with it.

Sound advice.

The opposite is taking place right now, among both Presidential candidates, many otherwise knowledgeable economists, and most journalists of the major news outlets.

According to McCain,

Under my reforms, the American people will be protected by comprehensive regulations that will apply the rules and enforce them to the full.”

Yet it was "the rules," specifically the rules that established Fannie Mae (and, later, Freddie Mac) as quasi-private businesses (backed by implicit government guarantees), that led to the current problem in the first place.

Fortunately, there is at least one politician — will wonders never cease — who understands this.

Sen. Jim DeMint, R-SC, an avowed free marketer, said the problems go back to the creation of public-private hybrids like Fannie Mae and Freddie Mac. He said the market is not under-regulated, but over-regulated.

"Many of the problems we're having today, particularly the problems with AIG, the failures on Wall Street, the mortgage industry, actually go back not to greed in the private market but political greed," Demint said.

I don't expect him to be heeded until the day a majority of the American people say they have had enough. Oh, they complain alright. But few are insisting that we reduce the power of the politicians to do harm by making it illegal for them to interfere in the financial markets, and the economy in general.

That will not happen until the general populace are helped to see what used to be common knowledge: that the government should be limited to the protection of property rights and providing protection from fraud.

What we need are more malcontents.

Democrats Cave on Oil Drilling, Not Really

The Washington Post recently reported the Democrats allegedly caving on bringing freedom to drill for oil to a vote.

I say "allegedly" because, even without reading the entire proposal, we already know enough to see that it's just a feint. Pelosi, Reid, and their supporters do not want oil drilling to take place off the shores of America. That much, even they acknowledge. Consistent with that desire — but under extreme pressure to prevent a Republican blowout in the upcoming elections — they've devised a plan to make it appear that they're willing to compromise.

One way to create that illusion is to declare they are willing to bring the issue to a vote. But it's only an illusion because both the House and Senate bills contain several poison pills to nearly guarantee there will be no actual drilling.

They refuse to allow the states to share in any revenues from oil drilling, for example, making it unlikely any state will get onboard anytime soon. Any that did is much more likely, under this scheme, to have been bribed to sign up by oil companies. Thank you, Congressional leaders, for contributing to the corruption of both business and government in one fell swoop.

Further, they propose limiting offshore access to waters farther than 50 miles off the coast. According to the WaPo news story,

[F]ederal studies show that more than 80 percent of known oil reserves are inside the 50-mile limit and therefore unavailable. Very little is known about oil reserves beyond 100 miles. Waters off almost the entire Pacific coast — where all three governors oppose drilling at the 50-mile barrier — is considered too deep for drilling 100 miles offshore.

But neither the reporters nor Congress consider the most important question of all: why is the Federal Government deciding the issue at all?

Pelosi and Reid act as if they own the resources, and therefore have the right to set the terms under which it will be extracted. They don't. Nor do they represent anyone who does. When the Federal Government 'owns' land, all that means is that no one owns it, and therefore property rights have not been established in the resource one way or the other.

Nor are they acting to protect the property rights of anyone who might, in a downstream fashion, be adversely impacted by drilling activity. The environmentalists, who have put Pelosi and Reid in their back pockets by forking over money from their front ones, have never shown that contemporary oil drilling practices harm the environment. Nor could they, since it doesn't, beyond the normal risks associated with any resource extraction activity.

And the zero-tolerance-for-risk-of-spilling-a-drop policy is irrational and not legally enforceable, even with the viro-friendly judiciary. (If it were, there would be no drilling at all anywhere under Federal or State jurisdiction. Every resource-extraction activity carries some risk of harm to persons and property.)

But fear of oil spills is only a cover. The viros and their political puppets simply do not want humans to use oil to power civilization. Many don't want civilization at all. The Democrats' latest pseudo-bills are geared to ensure they get their wish.

What Does Gotcha Journalism Get?

Gotcha journalism is nothing new. The volume — and the degree of vitriol and reaching — is higher than usual, because of the targets they aim at this campaign season. But for decades the press has been a part of the group I call "the Anti(s)."

But just what are they against and why does this pit them against people like John McCain and Sarah Palin, and a great many Americans besides?

Look for an explanation among the 'liberal' press and their supporters and all you'll find are statements to the effect that the members of the Fourth Estate are simply doing their jobs. Their role, so these pundits say, is to ask tough questions. Review conservative newspapers and blogs and you will read that those questions are 'liberal' and 'biased'.

The conservatives are right, but they rarely explain what they mean.

It's true that a lot of people in this country are Christians and the press sometimes mocks them. But Barack Obama is a Christian and endures no such contempt from newspapermen. Many people own guns. But, the press rarely has anything to say about the subject unless some specific hand-gun control legislation is up for debate. And, being a patriot means different things to different people. Journalists and their Democratic brethren often cry they are as patriotic as the next guy.

Neither does calling reporters and so-called liberal intellectuals 'elitists' really tell us much.

Warren Buffett is among the elite, in that he is both extremely rich, and extremely skilled at his profession. Yet, he is admired by both contemporary liberals and conservatives, despite being a consistent supporter of Democratic candidates. Albert Einstein is one of the most elite humans ever to have lived and no one cared much during his lifetime or now that he was an all-but avowed socialist. He has always been regarded as a great genius, and rightly so.

Bias is only part of the explanation, too. It is hoped even when it isn't expected that journalists will be fair and objective. But when they are not there is little outrage when news reports are slanted the way their readership prefers. Only a small percentage of the American people demand that the press be unbiased. If they had, the major news outlets would already be out of business.

No, none of those are the fundamental reason so many people mistrust the major news outlets and their employees (their approval ratings are about equal to the current single-digit Congress). Nor do they explain why the press is so hostile to conservatives or Republicans.

The answer involves what lies within the meaning of the phrase I used earlier: the Anti(s). Just what is it that the overwhelming majority of the major news outlets' journalists are anti? American values. Independence of thought, individual freedom, a desire for material success.

The conservatives despise 'the media' because they know what the Anti(s) want: to do what they can to transform America into something other than what it has been, a free country. The media despise the conservatives because their plans are meeting determined opposition.

What are those plans?

They want an end to private property freely exercised in ways the Anti(s) disapprove. They want markets controlled because they want individual economic choices they dislike controlled. They want the money spent as they wish, rather than as those who earned it would otherwise spend it. They want a foreign policy, which however misguided still aims at American self-interest, run in a humbler fashion because American self-interest is anathema to them.

As a fundamental means to those ends, they want to control who speaks what, where, and how.

They favor the speech codes that infest so many American campuses. They look with favor on proposals to bring back the Fairness Doctrine, a disguised form of controlling speech in the name of making it 'fair' (similar to the way antitrust laws distort markets to make them 'fair'). They ridicule or shout down anyone with a contrary opinion and they do so with little regard to objectivity. They avoid a full display of the relevant facts. They give Obama a pass when he tries to use the DOJ to shut down investigation of his association with domestic terrorist William Ayers.

They are, to borrow a phrase from Ayn Rand's For The New Intellectual, the Witch Doctors to the politician's Attila. They want to say how things will be run, and they want them run according to their values, values which are much closer to those of Sweden today than to the U.S. of the 1890s.

They have succeeded beyond their wildest dreams. Speech codes are nearly universal on major campuses. It would be a trivial task to name a dozen major Anti news organizations off the top of ones head, with only one pathetically weak and often silly outlet on the other side. They nearly succeeded in getting the U.S. to lose the Iraq war against the jihadists by reporting only the bad news and ignoring the good. They have persuaded nearly everyone to accept an untenable theory about global warming and the virtues of the vicious environmental philosophy behind it.

But a determined minority is fighting back. Liberty-loving bloggers, conservative and libertarian newspapers, Objectivists, and speakers from a growing pro-freedom cadre are pushing back. Hard. The Anti(s) are on the run and they know it. That's why they are so angry right now. They see their domain and their plans threatened and they're not about to go down without a fight after so many years of fighting to transform America in their image.

They are going to lose. The Pro(s) are on the move.

The New Faces of Fascism

Yesterday I referenced comments made by such diverse figures as Sarah Palin and Nancy Pelosi suggesting that natural resources near or in American territory belong to the people as a whole, not private owners. I said that this was fascism. It's time to explain myself.

The place to begin is with a definition of the word. Unfortunately, it's useless to look to dictionaries in this case. They are all over the map on the subject.

Wordnet offers this:

Fascism: a political theory advocating an authoritarian hierarchical government, as opposed to democracy or liberalism

The Random House dictionary defines it as:

a governmental system led by a dictator having complete power, forcibly suppressing opposition and criticism, regimenting all industry, commerce, etc., and emphasizing an aggressive nationalism and often racism.

Neither definition distinguishes Fascism from communism, monarchy, or many other similar political ideologies, though the second quote is nearer the mark.

Looking to popular culture to discover how the word is actually used is even worse. It is always slung blindly at any political view with which the speaker disagrees strongly, as more or less a synonym of "very bad."

Wikipedia comes closest to what I have in mind when it states:

Fascism is a totalitarian nationalist political ideology and mass movement...

and then proceeds to add the non-defining silliness:

that is concerned with notions of cultural decline or decadence, and which seeks to achieve a millenarian national rebirth by exalting the nation or race, as well as promoting cults of unity, strength and purity.

But that same essay does include one key item:

Property rights and private initiative were contingent upon service to the state.

Why select this to complete the definition? Because, following Rand, one has to look at actual countries that had modern fascist movements — Nazi Germany and Italy, most particularly — to see that they were, indeed, nationalist and authoritarian, and that property rights were contingent on service to the State.

Unlike communism, which at least has the 'decency' to nationalize industry outright, Fascists maintain the illusion of private property while seeking to benefit from its advantages. They allow individuals to imagine they own their businesses, then proceed to heavily regulate and tax them for (as Pelosi put it) the alleged benefit of 'the people'.

But, 'the people' is always some specific people. There is no collective entity called 'the public'. There is only Jeff and Pekka and John and Sarah and... Some of those individuals are shareholders of British Petroleum or Royal Dutch Shell and some of them are not. Some are Americans, others are British, Japanese, Danish, and dozens more nationalities.

Those two oil companies were not chosen at random. They are (predominantly) private businesses, but they are not (entirely) American businesses, as a glance at the names will show. Still, since many of their shareholders are Americans, some individual citizens of this country do benefit when they make a profit. Those companies serve to illustrate that the idea of extracting and selling oil for "the benefit of Americans rather than the oil companies" is incoherent, when it isn't plain dictatorship.

But even if it we strived to guarantee that oil would be extracted only by Americans and sold only to Americans that goal still would be impractical and immoral.

It would be impractical because to try would require even greater control of the oil markets than we have now and those very controls — and even more so, the philosophy behind them — are the fundamental problem in the first place.

It would be immoral because it would represent an even greater violation of property rights than is the case now, which is already far past any forgivable gray area justified on the basis of "cleaning up corruption" or "keeping markets fair."

It is not the proper function of the Federal Government to dole out natural resources to whomever will promise (a promise backed by government force, as it always turns out) to use them for the benefit of the American voters. That may sound like a good campaign strategy, but it is suicidal economic policy.

The difference in the present campaign is that John McCain and Sarah Palin don't understand what they are talking about. They genuinely want people to be free to pursue their interests, less encumbered by heavy government regulations, taxes, and the penumbra of the Fascist State. At the same time, they want to end the culture of corruption that has found oil companies (and thousands of others) in bed with Alaska and Washington (figuratively and literally, as a just-released CBS investigative report shows).

Tragically, they also say that in order to solve that problem, individuals running large businesses must operate their enterprises for the "good of the nation." That contradiction makes them dangerous. It's tragic because it's mistaken, not a blatantly evil desire for control; fascism is what led to the problem in the first place, but they don't know that.

Far more dangerous is the candidacy of Barack Obama and Joe Biden, who do know what they are talking about. They know full well what fascism is and that they prefer it. Both are lawyers and Obama taught Constitutional law at the University of Chicago. They know what the words mean and how those ideas work in practice.

Apart from their background, their voting records and the fact that they are running on the Democratic ticket are more than enough to prove that. Politicians choose a party that most closely mirrors their own views and values, and the Democrats are now led by the far Left. It is no accident that Pelosi is the Speaker in a majority Democrat House of Representatives. It is not a coincidence that Harry Reid is the Majority Leader of the Senate.

None of those well-known figures would have the courage or decency to actually declare themselves as Fascists, of course. They would lose what they treasure most: their political power. They know that, if their views were baldly stated, they wouldn't attract more than 30% of the vote at best. They simply hide their real beliefs in order to get elected.

But they convict themselves out of their own mouths.

Harry Reid said:

"The American people do not like privatization."

Nancy Pelosi said:

Let's have a discussion and a change of the relationship between our oil, which is owned by the American people, the desire of Big Oil for us to subsidize their drilling, and us not to - the American people not getting the benefit of the profits."

Nationalist. Authoritarian. Dedicated to controlling private business to place it in servitude to the public. I.e. Fascist.

So, please Senator McCain and Governor Palin, let that be the position solely of the Democrats. Get back to capitalism and private individuals pursuing their own interests. Leave the "in service to the nation" stuff where it belongs, in the Fascist camp.

Sarah's Speech, and the Little-Noticed Problem

Even her detractors acknowledge that Vice Presidential nominee Sarah Palin gave a helluva speech at the Republican National Convention. I found much to like about it, too, even apart from her refreshing manner of delivery and clever jibes.

But there was one thing that bothered me, and that thing quite a lot. She said,

Starting in January, in a McCain-Palin administration, we're going to lay more pipelines... build more nuclear plants... create jobs with clean coal... and move forward on solar, wind, geothermal and other alternative sources.

She talks as if the natural resources in America – oil, coal, natural gas, and so on — belong to the American people as a whole. They don't. She talks as if the Federal Government is going to do something to get them out of the ground and to market. They won't. They can't.

Resources, when they are of any value to anyone and not just stuff lying in the Earth, are owned by someone or no one. If that someone isn't a private owner or lessee, they do no one any good whatever. The U.S. government agencies have no business structure for extracting oil. They don't operate wells; they don't build or own pipelines. (The Trans-Alaska pipeline, for example, is owned and operated by a consortium of BP, Phillips, Exxon-Mobil, and others.)

Regrettably, the view that the government is somehow central to the creation of wealth is horribly muddled at best, when it isn't downright vicious.

The Feds have only one useful role here: the protection of property rights, and they don't do that one very well. Witness, for example, how ready and willing they are to hobble the energy production industry even further on behalf of an unproven hypothesis, AGW, that is even now crumbling under the onslaught of new evidence.

'Americans' don't own the oil off the coast of Louisiana. Right now, it belongs to no one, made off-limits by Federal regulations. That is one of the reasons that hybrid government businesses of foreign countries are going after it. They are not bound by U.S. law and couldn't care less what Washington wants. So long as they remain outside of U.S. territorial waters — which modern oil drilling technology allows them to do and still get the oil — they don't have to care.

The same could be said about the extraction of coal, creation of nuclear power plants, manufacturing and erection of solar panel or windmill farms, or any other method of large-scale energy production. The Federal Government cannot produce any of these, nor sell the products. They are not in the energy production industry.

The belief that the government is a steward for property owned collectively by 'the people' is even worse from legal and philosophical perspectives.

The best it can do is establish a more rational legal environment that defines and protects the rights and responsibilities of those who can. But that, so far as I can tell, is not being talked about on either of the two popular sides of the debate.

I don't think it's a mere misuse of language, either.

Both sides have come to believe in the fascist view that the public owns the resources, which the government (as its representative) allows private businesses to develop 'for the people'. Letting businesses carve off some profit is merely a way to incentivize them to do so, not something that is theirs by right for having done it.

Nancy Pelosi explicitly said recently,

"If [Republicans] want to drill offshore, we'll say, 'OK,' " said House Speaker Nancy Pelosi, California Democrat. "You want to drill in the outer continental shelf? Let's have a discussion and a change of the relationship between our oil, which is owned by the American people, the desire of Big Oil for us to subsidize their drilling, and us not to - the American people not getting the benefit of the profits."

Apart from the absurd way she puts it (Republicans aren't going to be drilling anything), there is again that view — here stated openly — that the oil "is owned by the American people."

That view is as dangerous as it is false... a discussion I take up tomorrow.

Reduce Oil 'Pollution' - Drill

To give everyone a break from campaign politics, this discussion on how drilling for oil actually reduces water 'pollution' might prove of some interest.

I put 'pollution' in scare quotes because to call anything that occurs without human intervention in the environment pollution is a bit silly. Even to call things that are artificially produced (like CO2) that are also produced naturally (in much larger quantity) pollution is questionable.

I make a point of it not to be pedantic about words. (Though, since I make my living with them I give myself some slack on that score.) No, it's because I find that people aren't paying nearly enough attention to what they mean these days.

That's why, to choose a recent and ongoing political example, it's wrong for conservatives to call their counterparts 'liberals'. There is nothing liberal about socialism, regardless of any of its contemporary disguises. If the label were correct we would have no idea how to classify men like Locke and Jefferson, and a host of others.

Darn, and I said we were going to get a break from talk about politics. On to the talk about oil and the environment.

Oil slicks in the ocean are a common occurrence. According to the NOAA:

One of the best-known areas where this happens is Coal Oil Point along the California Coast near Santa Barbara. An estimated 2,000 to 3,000 gallons of crude oil is released naturally from the ocean bottom every day just a few miles offshore from this beach.

I no longer have the reference, but this isn't a recent phenomenon, either. There are entries in Magellan's notebooks from 500 years ago noting oil slicks on the surface of the water in the Santa Barbara Channel. (The story may be apocryphal, based on this map. Nevertheless, there is no dispute that oil seeps have been there a long time.)

The US Geological Survey maintains a website referencing many other natural seeps, as they call them.

The amounts are not trivial, either. The National Research Council of the U.S. National Academy of Sciences states,

[N]atural oil seeps contribute the highest amount of oil to the marine environment, accounting for 46 per cent of the annual load to the world's oceans.

So, what to do? Drill. Drill for oil. Often, and everywhere it is profitable.

Earlier this year, University of California geophysics professor Bruce Luyendyk spoke to a citizens’ town hall forum at Santa Barbara . He told citizens that the oil mucking up Santa Barbara beaches was due to seeps, not spills. According to Luyendyk, the amount of oil escaping naturally from just one set of seeps in the Santa Barbara channel is equal to about 42 thousand gallons a day -- equal to an Exxon Valdez-size oil spill every 5 or 6 years.

Oil isn't the only thing seeping either. About 3 million cubic feet of natural gas escape each day from the ocean floor off the California Coast. By comparison, your average home uses between 200 and 300 cubic feet per day.

This is oil and gas we could be capturing and using. Instead, it's going to waste and polluting beaches in the process.

The sheer size of the seepage has led to the formation of a new environmental group, called SOS California — which stands for Stop Oil Seeps. The group wants to lift the offshore drilling ban not to generate oil, but to reduce oil pollution from seepage. They point to university studies which demonstrate that extracting oil through drilling reduces reservoir pressure. That, in turn, reduces seepage. SOS advocates lifting the drilling ban for just that reason — to reduce oil pollution on local beaches.

I question the author's description of the people referenced as an environmental group, but I suppose it is conceivable that one or two actually want to clean up the environment, rather than just coercively curtail productive activity.

Oops... there I go talking politics again.

The Palin Speech

I'll be slamming some of the things about Vice Presidential candidate Sarah Palin's speech that really bothered me in the days to come (and praising many more). But tonight, I want to offer just one word of high praise for an excellent speech:

Sarah'Cuda!

The Case Against the Case Against Palin

Following is an excerpt from a recent article published in The New Republic.

At the end of 2005, a close friend called to say that he begun writing speeches and talking points for a certain gubernatorial candidate.
"Remind me," I asked. "Who is Sarah Palin?"

I was dismayed at my friend’s choice of political entree. Why was he wasting his time on a relative nobody, trying to beat an incumbent governor (and former three term senator) in the Republican primary? It was utter folly. "Wait until the big money starts coming in for Murkowski," I said. "Wait until the party machinery goes to work on Palin. They will eat her for lunch."

Murkowski, for his part, expressed a similar view. "If I decide to," he said, "I will run and I will win. It's that simple."

The folly, of course, turned out to be my own (and Murkowski's), as Palin slaughtered the incumbent in the primary--posting a 30 point margin of victory--and went on to win the general (over a former Democratic governor) without seeming to break a sweat. She then quickly fulfilled an implicit campaign promise by slapping down ExxonMobil, BP, and ConocoPhillips in negotiations over a proposed Alaska natural gas pipeline, even though they, too, by all accounts, were well prepared to dine on her tender little frame. Not bad for a lightweight.

Listening to the Democratic leadership respond to John McCain’s selection of Sarah Palin as his vice presidential running mate, one hears echoes of the Alaska Republican leadership from just a few years ago. Barack Obama’s spokesman, Bill Burton, put it this way: "Today, John McCain put the former mayor of a town of 9,000 with zero foreign policy experience a heartbeat away from the presidency." Former mayor? If you're going to skip over her job as governor and, before that, her job heading the commission that oversees production of the largest petroleum reserves in America, why not "former high school student"? Bah, what does it matter: She's just a small town mayor, just a hockey mom, just a beauty pageant queen. Palin has never shunned these belittling monikers, in part, I imagine, because the camouflage has served her so well. Soothed by the litany, her opponents tend to sleep too late, sneer too much, and forget who it is that hires them.

I have to give The New Republic credit. It is surpassing rare to find a left-leaning publication publish a thoughtful, balanced view. I recommend the entire article.

The Fighter Pilot and the Moose Hunter

by Lisa Schiffren

[Reprinted in full by kind permission from City Journal. Note that Ms. Schiffren has not been queried and reprinting her article here implies no awareness or sanction of Shaving Leviathan on her part.]

By putting the relatively unknown governor of Alaska, Sarah Palin, on his presidential ticket, John McCain has demonstrated that rarest of all political qualities: willingness to take a real risk on a serious new venture with great potential. It’s a sign of confidence, not desperation.

If the response from the conservative base is any indication, McCain has hit a home run with the Palin selection. A sullen GOP, set to vote reluctantly, if at all, for the “maverick” (some say unprincipled) senator from Arizona, has suddenly become electrified. In the first 36 hours after McCain announced his pick, $7 million in new contributions poured in online. This isn’t because Palin is making history as the first woman on a GOP ticket. It’s because of the type of woman and politician that she is.

She’s a normal person, a mother and wife, who entered politics in 1992 by running for city council in Wasilla, Alaska to oppose tax hikes. She became mayor and swept a bunch of cronies out of the bureaucracy. She ran for, and lost, a race for lieutenant governor. She served on the state’s Oil and Gas Commission, where she went after the corrupt state GOP chairman, who had taken money from oil companies. In 2006, she ran for governor and won, after first beating the Republican incumbent for the nomination.

Throughout, she hewed to a few clear principles. She championed fiscal responsibility, cutting pork in the form of capital projects as well as larger symbols of waste, such as the infamous “bridge to nowhere” sponsored by Republican senator Ted Stevens. In a state that has been awash in oil money and political corruption, she also demanded real ethical standards and sent people who didn’t meet them to jail, never hesitating to challenge Republicans who were corrupt or ineffective. And she was pro-development, supporting drilling in ANWR; for that matter, she has dealt extensively with the tricky energy issues that have become central to this year’s election, and she understands them better than anyone else on either ticket.

In summary, Palin worked her way up the political ladder, rising on talent (she’s likable and a good speaker) and incremental achievement. She didn’t marry into power, and no one handed her anything. This is what conservatives say they want in female and minority candidates for high office. Further, she’s a reformer and a Washington outsider in a year when, as Republicans know, their own party is part of the problem. She represents real “change,” to adopt a word of the moment, and for Reaganites who have been waiting for the first post-Reagan conservative generation to rise to power, Palin represents “hope” as well.

Now about that woman thing: some commentators object that Palin was chosen primarily as a sop to female voters, especially disaffected Hillary Clinton supporters. Well, of course the McCain campaign wants to entice those women to vote for the Republican ticket. Putting together coalitions is how elections are won. Women happen to be 52 percent of the electorate.

Ignoring them, let alone insulting them as Barack Obama is perceived to have done, is politically foolish. Some worried that McCain would pick a token woman, such as Senator Kay Bailey Hutchison of Texas—she of the long Washington tenure, liberal Republican views, and few accomplishments (though she does look the part). Instead, he surprised many by picking Palin.

Is it irresponsible to put a half-term governor in the vice presidential slot? It depends on her record. But surely for a Washington novice, the vice presidency is more appropriate than the presidency. A half-term governor has more claim to leadership and experience than does a one-third-term U.S. senator who has risen through a big-city political machine. Palin is a woman of action, moreover, who has used her political capital at every stage to fight corruption and bad policy. It’s hard to find anyone in politics who does that; pols “save” their capital instead, as Obama has done by voting “present” on numerous occasions, lest spending it cost them something somewhere down the road. Her personal profile—raising five children, hunting, fishing, and being a real NRA member—make an appealing contrast with the overly cerebral, political calculations of those who merely hold positions and whose lives have been led in the service of their résumés.

Add to all this that Palin was a brilliant choice compared with everyone else McCain was considering. Mitt Romney, who has much impressive experience, was another rich white guy, and he bombed in the primaries. Joe Lieberman is a liberal Democrat who is sound on Iraq but on little else, from a Republican perspective. Tom Ridge is terminally boring and didn’t really succeed at the Department of Homeland Security. True, Minnesota governor Tim Pawlenty is another young Reaganite conservative who should have a big future, with impressive “Sam’s Club” working-class credibility, but he lacks dazzle. Making the ticket attractive enough to pique interest is a reasonable political choice, considering that McCain can’t govern if he doesn’t get elected first.

On the Democratic side, Palin’s counterpart Joe Biden has a hard-core liberal voting record in 36 years in the Senate, during which he has helped radicalize the judiciary. True, he knows more than Palin does about foreign policy; but much of what Biden knows is wrong—he argued, for instance, that Iraq should be partitioned. As for his sounder impulses to send more troops to Iraq and to resist the temptation to withdraw prematurely, it’s important to note that the man at the top of the Democratic ticket, Obama, disagreed with both.

No vice-presidential pick is ever perfect. Presidential candidates perforce make tradeoffs among competing considerations of appeal to key constituencies, particular expertise, ability to muster electoral votes, and compensation for perceived weaknesses at the top. But Sarah Palin brings real reform credentials, authentic Reaganite conservatism, small-government values, and the pragmatic ethos of a middle-class mother of five. And she is a natural talent. It couldn’t get much better than that—not even if she were a man.

Lisa Schiffren was a speechwriter for Vice President Dan Quayle and contributes to The Corner at National Review Online.

Two Pieces on Palin

What follows this post are two intelligent pieces on Palin, one from 'the Right' (City Journal), another from 'the Left' (The New Republic, a partial).

[Note: given the diversity that falls under those labels, I think they're both virtually meaningless, except as very loose approximations. (See my "Are You a Socialist" test.) But we have to call them something.]

Both are judicious and fair minded. That is, after all, how political debate is supposed to be (but rarely is) carried on.

Sunspots and Climate Change, the Science

I don't know what causes climates to go through large-scale, long-term changes. On that score, I'm in good company; neither does anyone else. There are those, of course, who know many of the influential factors and infinitely better than I.

One of them is the Danish physicist Henrik Svenmark, who hypothesizes that solar activity plays a strong role (beyond the obvious one that the sun warms the Earth). In light of his highly educated guess, it's interesting to note a recent report that sunspots have, for the first time in 100 years, entirely disappeared for an entire month, after tapering off before that.

Perhaps coincidentally, perhaps not, we are currently going through a global cold snap that is predicted, even by the advocates of AGW*, to last for several more years.

In the past 1000 years, three previous such events -- the Dalton, Maunder, and Spörer Minimums, have all led to rapid cooling. On was large enough to be called a "mini ice age". [Daily Tech.]

But the relationship is a little less direct than that. According to Svenmark's theory, as I understand it, sunspot activity correlates with cosmic ray output. That it turn influences the average amount of cloud cover over the Earth, which in turn has an effect on the mean temperature. (Also, see this PDF.)

Whether ultimately correct or not, there is real evidence for it (unlike AGW, which is based chiefly on computer models, when it isn't driven purely by desired political outcomes).

For details on the evidence, there are literally thousands of sources. One relatively easy-to-follow one is contained at a blog called The Reference Frame, which references video and scientific papers on the subject.

Science, not politics, will ultimately provide the answer to what causes climate change. But for an easy-to-follow discussion of both, I highly recommend Nigel Lawson's An Appeal to Reason: A Cool Look at Global Warming.

I'll be writing a full review of the book soon, but in the interim I'll tip my hand a bit. It is the only book I know that takes the AGW crowd's views at face value (particularly the IPCC and strictly for the sake of argument), and still demolishes their conclusions and proposals.


[* AGW is an acronym standing for Anthropogenic Global Warming, the hypothesis that humans contribute the major factor (by outputting large amounts of CO2) that have caused average worldwide temperatures to increase, and will do even more so over the next 100 years.]