Monthly Archives: October 2008

Recommended reading: “The Closing of the American Border” by Edward Alden, which I reviewed in the newspaper earlier this week. I’ll paste the review after the jump.

It’s rarely a good idea to pick fights with one’s friends–especially the clever ones–but I’ll take issue with Gideon Rachman’s column, “Conservatism overshoots its limit“. Gideon writes:

The market for ideas – like the market for shares – always overshoots. Ideas become fashionable and get pushed to their logical conclusion and beyond, as their backers succumb to “irrational exuberance”. Then comes the crash.

What we are experiencing now is the bust that has followed the 30-year bull run in conservative ideas that began with the Thatcher-Reagan revolution of 1979-80.

You can get a sense of how quickly the intellectual atmosphere has changed by picking up a copy of Alan Greenspan’s The Age of Turbulence, which was published last year. Mr Greenspan, head of the Federal Reserve from 1987 until 2006, heaped praise on the magic of financial markets and decried the foolishness of those who called for more regulation: “Why do we wish to inhibit the pollinating bees of Wall Street?” he asked rhetorically. Why indeed?

Mr Greenspan was considered such a guru that last year Senator John McCain suggested putting him in charge of a committee on tax reform, adding: “If he’s alive or dead it doesn’t matter. If he’s dead, just prop him up and put some dark glasses on him.” But Mr Greenspan’s reputation is now on the slide and Mr McCain has reinvented himself as a champion of regulation – and is denouncing the “corruption and unbridled greed that has caused a crisis on Wall Street”.

This kind of ideological whiplash is what happens when an intellectual bull market crashes. The current financial crisis can be traced to three of the central ideas of the Reagan-Thatcher era: the promotion of home ownership, financial deregulation and a fervent faith in the market. Each of these ideas did sterling service for 30 years, increasing prosperity and freedom. But pushed too far – and combined – they have created a disaster.

This seems to me to conflate three quite separate points, one true, one false, and one questionable.

Here is a brave and very interesting piece by Larry Kotlikoff and Perry Mehrling. I wonder if it is correct.

Global markets have not been reassured by the coordinated interest rate cuts of several central banks or by recent congressional action, but they should be. Our bet is that financial markets will return to normal in short order and that the U.S. economy will squeak by with a moderate recession. Recapitalizing the banks and working out mortgages will take time, but the financial system will not collapse — the government won’t let it.

The markets, of course, seem to be factoring in some probability of collapse. Why is this wrong?

For starters, the biggest subprime mortgage gamblers have already failed, been nationalized or been married off, shotgun-style, to banks run by grown-ups. Yes, lots of small shoes may still drop, but the Paulson “buy-up” bill, and, ultimately, the Fed’s ability to print money, provides the Treasury and Federal Reserve all the tools they need. The media don’t seem to have noticed, but Section 113 of the bill authorizes government capital infusions into the banking system as necessary — something the British government is now doing and the Swedish government successfully did in the recent past. That means any bank with a viable business will not be allowed to fail simply because it is temporarily undercapitalized.

Second, Uncle Sam (a.k.a. Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke) is doing precisely what’s needed to avoid the mistakes of the 1930s. With credit markets drying up, he’s turning on the faucet by recycling our panic dollars back into the financial market.

The government is taking in our money (in exchange for Treasury bills) and using it to make mortgages and buy up the assets we’re too scared to hold. It’s doing this via the Treasury, the Fed, the Federal Deposit Insurance Corp., the Federal Housing Administration, the Federal Home Loan Bank, Fannie Mae, Freddie Mac and other appendages. It’s starting to lend directly to large and small businesses whose usual sources of credit have become unavailable.

In short, Uncle Sam is becoming our new bank.

Read the whole thing.

It dragged. Obama and McCain both concentrated on talking-points that are, by now, tiringly familiar. And the format encouraged them. Neither man was ever asked to develop or elaborate. Moderator Tom Brokaw’s chief concern was time-keeping, as if covering the ground and squeezing in a couple of extra lame questions from the audience was more important than subjecting any of the answers to examination. He might as well have said: “Please state your position on the economic crisis. Thank you. Please state your position on Pakistan. Thank you.” At least Jim Lehrer tried to get them talking to each other in their first debate. Brokaw actually seemed keen to prevent it: pressure of time.

Though both candidates spent a while (and it felt like longer) on the economic emergency, I didn’t feel that either’s comments advanced the discussion, or seemed equal to the gravity of the situation. Almost the first words out of McCain’s mouth were “energy independence”; almost the first words out of Obama’s were “blame deregulation”. We know, we know. Neither gave much indication that the crisis was leading them to think things through afresh; one wonders what it would take to do that. (Correction: both seemed keen to make Warren Buffett Treasury Secretary. He’s too smart to take the job.)

Neither helped viewers to understand the rescue package or how it might be improved; neither conveyed much sense of understanding it themselves. Perhaps McCain was on to something with his idea about doing more to prevent mortgage foreclosures. (The idea is not new, but the emphasis was.) He said so little about what this might mean in practical terms, though, that I’m guessing that the idea just drifted past most viewers.

The most lively clash was, again, one we have seen before. McCain attacked Obama for his rashness in saying he would attack inside Pakistan to get bin Laden if the Pakistani government was “unwilling or unable”. Obama reaffirmed the position, noting how odd it is for McCain to chastise him for such undiplomatic talk–as though “bomb bomb bomb, bomb bomb Iran” McCain was more given to gentle persuasion than he was. (a) Most Americans support Obama on this, and are right to. (b) Are we seriously asked to believe that McCain would not also go after bin Laden if the target presented himself? McCain wants to make his charge of “inexperience” stick. This is not the way. He loses this exchange every time he initiates it.

Obama as always was calm, collected, reassuringly intelligent, and vague. McCain seemed less confident intellectually, and a bit more given to bluster in compensation; he also looked old. What else is new? Neither seemed to me to score a decisive hit or make a big mistake. Few if any voters will have switched allegiance–which makes it Obama’s night, given his recently widened lead in the polls. McCain needed a clear win. He got a draw, at best.

Bromley illustration

Time is running out for John McCain’s campaign. He is behind in the polls and the gap is widening. His campaign has decided to shut up shop in Michigan, a state it recently believed it could win. Tuesday’s televised debate with Barack Obama – just one more encounter is scheduled, on October 15 – has therefore assumed an even greater significance. Mr McCain must stop the rot. His disadvantages in the race are such that it is difficult now to see how.

Mr McCain finds himself in a curious position. He entered the race as an experienced and well-known candidate, much-liked, with years in the Senate behind him. He was running against a virtually unknown novice, with barely any legislative achievements to boast of – and a black man with a funny name, to boot. Mr McCain was the known quantity, the safer choice, literally the elder statesman and Mr Obama had everything to prove. Yet with four weeks to go, the election is being run by both sides as though the opposite were true.

Mr Obama looks unhurried and presidential, exuding natural authority. He is running as though he were the popular incumbent. Meanwhile, the eager Mr McCain dashes to and fro, hoping to shake things up, striving for attention with one daring stroke after another.

The remainder of this column can be read here. Please post comments below. 

Curiouser and curiouser. This was the Palin of earlier in the campaign – if not quite the Palin of the convention speech, at least the adequate though unspectacular Palin of the Gibson interview.

Weirdly, she seems to do better under pressure. From the vast heights of St Paul, she sank to the subterranean lows of the Couric interviews of recent days. Facing soft questions in an unintimidating setting, her performance in those clips was not just poor but pitiful. She looked terrified; she was faking it, and in a painfully obvious way. I literally cringed to listen to her talk about her foreign policy experience (Russia is just next door), her views on the Supreme Court (none that she knew of), and much else besides. Not merely unprepared for the vice-presidency, she seemed unprepared for conversation with anyone who picks up a newspaper now and then.

Tuning in this evening, every Republican I know was dismayed, and every Democrat jubilant, thinking the election would be as good as decided by 10.30 EST. But no. Back in the pressure cooker, with tens of millions watching, she again seemed relaxed and confident. She lost, by the way – Biden gave better answers, I thought – but she was not crushed by any means. It almost felt like victory, and McCain-Palin lives to fight on.

I long to read the inside story of preparing Palin for prime-time. What on earth did the campaign do to her between St Paul and Couric, to drain her confidence so and leave her looking like a gibbering idiot? Somebody must have decided that she had to turn herself into Biden within the space of a few days – a tall order, even supposing that the campaign needed a Biden rather than an anti-Biden, which she was ready, out of the box, to be.

She needed to cram, of course, but not in order to spew it out by rote in answer to any random question. The main thing – and perhaps, by tonight, this lesson had been learned – was not to pretend to be something she isn’t, and not to claim knowledge or experience she plainly does not have. Living near an international border is not a grounding in geopolitics. Imperfectly memorising the names of a few foreign leaders does not cut it. The crucial thing was to seem steady, a quick learner, modest about her current breadth of knowledge, but of sound judgment and firm on certain basic principles. In striving to do well in the pop-quiz style of interview so beloved of the US media – any winner of Jeopardy, by this standard, would make a fine president – she surrendered her greatest advantage: authenticity. She had to refuse to play by those rules.

Whatever the reason – her sense of occasion, a change of coaching staff, who knows? – she did well enough tonight to lift the campaign’s head back above water. She defaulted frequently to rehearsed talking points, and to topics she feels most comfortable with – notably energy. But what mattered most was that she never really floundered, and above all she never looked scared. She was herself. Some, certainly not all, of the damage of the past week is erased.

No light whatever was shed on policy issues. There were the obligatory pointless tussles about what Obama and McCain have or have not said about taxes, funding troops, and so forth. Biden pressed the linkage between Bush and McCain, and quite effectively, challenging Palin to point to differences. But her main riposte – this election must look forward not back, enough with the finger-pointing – will have struck many viewers as fair.

There was one real breakthrough. Did you notice? Asked which of their campaign promises might need to be delayed because of the financial crisis – a question put three times to Obama and McCain in their debate, without effect – Biden came up with an answer: “Well, the one thing we might have to slow down is a commitment we made to double foreign assistance. We’ll probably have to slow that down.” There’s brave! That laughing you could hear was me.

Could Biden have been more effective? Maybe. I’m sure many Democrats will criticise him for failing to go for the kill. But I think he judged it just right. He was friendly and courteous, laughed at himself once or twice, and displayed a superior mastery of the issues without ever seeming overbearing. He was much more critical of McCain than of her. Altogether he seemed as likeable as Palin, and much more qualified. Perhaps he could have destroyed her by being more aggressive, but it would have been a risk. Palin in this confident mood would be no pushover. More aggression might have backfired, and could have aroused sympathy for his opponent. A clear win on points was all he needed, and that is what he got. Settling for this was wise. Obama and McCain go into the last round with the Democrat comfortably ahead.

Clive Crook’s blog

This blog is no longer updated but it remains open as an archive.

I have been the FT's Washington columnist since April 2007. I moved from Britain to the US in 2005 to write for the Atlantic Monthly and the National Journal after 20 years working at the Economist, most recently as deputy editor. I write mainly about the intersection of politics and economics.

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