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We All Make Mistakes Conservatism in an AQAL Context

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The Meltdown on Bush's Watch

by Christopher Chantrill
March 20, 2008 at 11:40 am


YOU CAN be a principled conservative and a loyal Republican and still be as angry as a Bush-derangement-syndrome Democrat over the mess in the financial markets.

You thought that the Republican Party was the safe-hands party, the party that you could rely on to manage the nation’s economic affairs in a competent and businesslike manner.

Yet here we are with the markets heading due south. At the beginning of last week they said that both Bear Stearns and Fannie Mae were having liquidity problems. A week later, Bear Stearns has been sold off to JPMorgan Chase at about 2 cents on the dollar.

It looks like a deal that would make mean old Mr. Potter’s offer for the broken-down Bailey Building and Loan generosity itself.

Now they are saying that Lehman Brothers is next. During Monday’s trading it was down almost 50 percent before closing at 31.75, down over 19 percent.

What price now for the fabled Republican reputation for managing the economy?

We have seen what happens to a conservative party that squanders its reputation for economic competence. Just ask the folks over at the British Conservative Party. Back in 1992 a big housing boom turned to bust just after a national election. Five years later the British voters were still mad as hell and the British Labour Party has now won three huge election victories in a row. The Tory Party still hasn’t recovered.

Of course there are plenty of excuses for the present mess. Let’s try out a few. Nobody thought that the securitization of mortgages would have been so slip-shod. Nobody could have foreseen what would happen when hedge funds started unraveling their highly leveraged positions in mortgage securities. Given the ludicrous subsidies for home ownership—tax deductions, the money factory at Fannie Mae, the 90 percent and higher mortgages—something bad was bound to happen sooner or later.

Here’s another excuse. Poor old Alan Greenspan couldn’t help himself. He had to crank up the printing press in 2001-02 to extract the economy from the tech crash and 9/11. You can’t blame the guy if he was a bit slow to crank up interest rates after the recovery started in earnest in 2003. After all, he had to help good old George get past the post in 2004.

Even if these excuses were worth a dime more than Bear Stearns, it doesn’t matter. Real-estate values are collapsing on Bush’s watch. Soon it will be jobs. Bush is a Republican, therefore Republicans are to blame.

Anyway, as Democrats have been telling us since 2000, Bush is a moron. Obviously Republicans are too stupid to recognize a moron even when he’s right in front of them. Why would you entrust the government of a nation to morons?

Nobody doubts that the Fed must now move aggressively to prevent meltdown of the banking system. That was the lesson of the Great Depression, when the 15 year-old Fed failed to fulfill its role of lender of last resort and let thousands of banks fail. In every credit crisis since, the Fed has printed enough money to prevent a meltdown. But the cost has been severe.

You can see the cost in the GDP numbers at MeasuringWorth.com. Back in 1900 the gross domestic product was $20.7 billion. But expressed in the dollars of the year 2000, the GDP back then was $378 billion. That means that the US dollar in 2000 had shrunk to about 5.4 cents on the 1900 dollar. Of course, if you prefer to figure the decline using the gold price, the dollar has declined from $20 an ounce in 1900 to $1000 an ounce today. That would leave us with about 2 cents on the gold-backed dollar of 1900, about the same as a stockholder in Bear Stearns is looking at today.

Don’t think this mess is just a US phenomenon. Housing prices are collapsing in Celtic tiger Ireland and in Spain. The European Central Bank has been bailing out Spanish banks, as in “ECB secretly rescues Spanish banking system.” There is still a fierce inverse yield curve on interest rates in Europe (i.e., short term rates are higher than mid-term rates), so we can expect that the blockbuster Mortgage Meltdown will shortly open in European theaters.

Barring miracles the US voter is going to blame Republicans for all this. So we conservatives are likely to get a good long opportunity to figure out what not to do next time.

Here’s a topic for early discussion. Explain why a bond is called a “bond” and most bond issues used to be covered by “bond covenants.”

Christopher Chantrill blogs at www.roadtothemiddleclass.com.

Buy his Road to the Middle Class.

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Faith & Purpose

“When we began first to preach these things, the people appeared as awakened from the sleep of ages—they seemed to see for the first time that they were responsible beings, and that a refusal to use the means appointed was a damning sin.”
Finke, Stark, The Churching of America, 1776-1990

Mutual Aid

In 1911... at least nine million of the 12 million covered by national insurance were already members of voluntary sick pay schemes. A similar proportion were also eligible for medical care.
Green, Reinventing Civil Society


“We have met with families in which for weeks together, not an article of sustenance but potatoes had been used; yet for every child the hard-earned sum was provided to send them to school.”
E. G. West, Education and the State

Living Under Law

Law being too tenuous to rely upon in [Ulster and the Scottish borderlands], people developed patterns of settling differences by personal fighting and family feuds.
Thomas Sowell, Conquests and Cultures

German Philosophy

The primary thing to keep in mind about German and Russian thought since 1800 is that it takes for granted that the Cartesian, Lockean or Humean scientific and philosophical conception of man and nature... has been shown by indisputable evidence to be inadequate. 
F.S.C. Northrop, The Meeting of East and West


Inquiry does not start unless there is a problem... It is the problem and its characteristics revealed by analysis which guides one first to the relevant facts and then, once the relevant facts are known, to the relevant hypotheses.
F.S.C. Northrop, The Logic of the Sciences and the Humanities


“But I saw a man yesterday who knows a fellow who had it from a chappie that said that Urquhart had been dipping himself a bit recklessly off the deep end.”  —Freddy Arbuthnot
Dorothy L. Sayers, Strong Poison

Democratic Capitalism

I mean three systems in one: a predominantly market economy; a polity respectful of the rights of the individual to life, liberty, and the pursuit of happiness; and a system of cultural institutions moved by ideals of liberty and justice for all. In short, three dynamic and converging systems functioning as one: a democratic polity, an economy based on markets and incentives, and a moral-cultural system which is plural and, in the largest sense, liberal.
Michael Novak, The Spirit of Democratic Capitalism


The incentive that impels a man to act is always some uneasiness... But to make a man act [he must have] the expectation that purposeful behavior has the power to remove or at least to alleviate the felt uneasiness.
Ludwig von Mises, Human Action


[In the] higher Christian churches... they saunter through the liturgy like Mohawks along a string of scaffolding who have long since forgotten their danger. If God were to blast such a service to bits, the congregation would be, I believe, genuinely shocked. But in the low churches you expect it every minute.
Annie Dillard, Holy the Firm


“When we received Christ,” Phil added, “all of a sudden we now had a rule book to go by, and when we had problems the preacher was right there to give us the answers.”
James M. Ault, Jr., Spirit and Flesh

Living Law

The recognition and integration of extralegal property rights [in the Homestead Act] was a key element in the United States becoming the most important market economy and producer of capital in the world.
Hernando de Soto, The Mystery of Capital

presented by Christopher Chantrill

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