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Monday, February 18, 2008

Obama, Agent of Change; the Mortgage Bailout

I haven't been paying Obama the respect due him. In the Potomac primary last week, Obama's message resonated with liberal white voters and African Americans, giving him a huge spread over Hillary.

One reason I'd been less respectful of Obama's viability as a candidate is my belief that Hillary has been appointed as the Democratic candidate. Some of the widely held cynicism in the primary process can be traced to the murky role of superdelegates, politicos who carry disproportionate influence. Obama and his supporters have been quick to point out the unfairness of overturning the popular will which directly address this backdoor threat to his candidacy.

Back-room deals in the convention would favor Hillary, who is much more the party insider. Also, there are those delegates from Michigan and Florida, two states who'd been moved up in the primary season in exchange for some vague promise not to count, Democratic Party officials had explained.

My cynicism might be very well placed if convention insiders plan to release the previously inconsequential delegates to Hillary.

Posted on michaelmoore is this insightful article, "Democrats Look for Way to Avoid Convention Rift" from the New York Times. In it, authors Don van Natta and Jo Becker address the serious threat posed by convention politicking:
The issues party leaders are grappling with, they said, include how to avoid the perception of a back-room deal that thwarts the will of millions of voters who have cast ballots in primaries and caucuses. That perception could cripple the eventual Democratic nominee’s chances of winning the presidency in November, they said.

Obama: A Real Agent of Change?

Obama is content to package his candidacy in change, hope, and vision. How Obama plans to actually put those principles into action remains unclear.

Obama does have the problem with his campaign that he talks about change but doesn't provide direct methods to solve problems. On needlenose.com, Swopa said "it's important for Obama not to become so infatuated with his success that he's afraid to tie his high-flying rhetoric to specific policy goals..."

Clinton's repeated calls for solutions is an attack on the Illinois Senator's absence of resolutions to achieve specific goals and deal with specific problems. He has been taking heat for his health care plan's lack of universality.

After a tortuous period of divisiveness, coming together is sufficiently noble a purpose in itself to lend considerable momentum and credibility to the Obama campaign. Obama's charismatic style lends itself well to connecting people with his campaign, and has encouraged independents and the young to participate.

These intentions are great and Obama is showing himself to be a superior political leader, but will those talents translate into victory in the fall? Should he capture the nomination, Obama will likely be swift-boated, pilloried, and abused.

Presidential elections are determined in the Red states of the heartland, by largely conservative voters. Between the constant attacks likely to be directed towards him, and a message that might have little effect on less enthusiastic voters, Obama might be in trouble. Still, Obama's surprising support in Virginia and Kansas has led some political pundits to speculate that the Red/Blue divide is no more. I'm not so sure; then again I've misjudged Obama's popularity before.

I should make the point that at no point have I supported Hillary, although I have believed in the past that Barack might not be electable. The bulk of my reasoning is based on McCain's attack plan which will go after Obama using a stream of negative attack ads. Hillary says she's girded herself for that assault, as she considers herself a past victim of the vast right wing conspiracy that gutted her health plan back during her time as First Lady. Unfortunately for Hillary, she's looking beyond the nomination process, which is quite a leap considering she is likely trailing Obama in the delegate count.

Economic Whammy

Economics will likely have a major impact on the Elections if things are anywhere near as bad as they are thought to be. Like geopolitics, or limitations on the use of military force, economics are an arbitrary restraint on the exercise of political power. Political support for an administration is limited by the state of the economy, which often defines how effective the political leadership has been.

The sub-prime crisis has its origins in liquidity bubble created by years of expansionary monetary policy. Rather than be content to let the markets control themselves, our self-appointed protectors of the American economy have come to the rescue.

None of the administration's solutions solve the problem. In Counterpunch, Mike Whitney explains:

"So far, all of Paulson's solutions have been nothing more than 'business-friendly' band-aids which fail to address the core issues of rising foreclosures, falling home prices, skyrocketing inventory, and tumbling sales."

Whitney discusses a potential solution being offered which involves "a reduction of the face value of the mortgages by the banks." The nasty truth is that the face values are based on peak prices that are unlikely to be reached in the forseeable future. Rather than ignore the mortgage-holder's obvious temptation to walk away, banks are considering write-downs.

Congress just increased Fannie Mae and Freddie Mac mortgage loan limits to $729,750 from $417,000. Migrating to the higher caps raises the issue of just whom the mortage bailout is meant to bail out. Extending a loan to a waiter for a $417,000 home is one thing; any mortgage lender who'd loan a waiter 3/4 of a million should not be helped by the taxpayer on account of the lender's sheer stupidity. To up the loan limits hints at subsidizing mortgage lender mistakes rather than helping out over-stressed families.

Writing in San Francisco Chronicle, Sean Olender predicts a massive bailout. Olender explains:
It's like some sort of upside-down communism where the poor pay the rich welfare. Why should taxes from families earning $48,000 a year be used to support expensive mortgages in New York, Los Angeles and San Francisco? Welfare for the hungry and homeless is evil, but welfare for million-dollar homeowners facing a tough refi ... well, that's called 'helping the economy.'

Now the far bigger impact on the economy is not from rising foreclosures but rather tightening lending standards. This is in large part due to the fact our economy is based not on assets but rather borrowing and debt. To grow, we must borrow.

Now there are limits to how much the Fed can do. Even if the Fed makes capital cheap and plentiful for money center banks, those banks have to answer to their shareholders who will look disfavorably upon rising defaults and bad loans. As lenders tighten standards, worthy borrowers are denied credit just like the bad, so the bad taints the good.

As Ron Paul notes, much of this recent economic mess is because our government has devalued our currency. Rather than represent an asset, our money is actually an IOU. While being owed is good, far better is to own more assets--which as the exotic derivatives trading shows--debt does not make. By trying to commoditize debt and piling debt on debt, we've created a house of cards that puts the stability of our financial systems at risk.

An economy cannot forever go on borrowing like we do. We are burning through $2 billion/day of mostly foreign money to finance our trade deficit and government spending drains us of another billion every day.

Historically, no fiat-based monetary system has ever avoided debasing itself. Inflation represents the theft of money from current holders, but it also allows governments to pay off their creditors with money they've essentially printed out of thin air.

Getting governments to control their spending is proving impossible. The 'starve the beast' hypothesis advanced several decades ago is based on the concept that governments will spend less only if they don't have the money. Now, traditionally the Fed has provided an alternative to a government control over the money supply--conceptually good but in practice Fed control has seen the purchasing power of the US decline by 96% since 1913, hardly a stable situation.

In short, if you want the money that you've worked for to maintain its value, you'd better be a good investor and beat inflation. Unfortunately, many of the working poor and elderly have limited capital and can't stay ahead of the inflation curve. It's only by working that many people can try to stay even; still, just how many working class people have seen their wages go up 4-5% a year? Bill Clinton said the other day that average family incomes have actually decreased by $1,000/year under Bush.

Stagnant wages combined with inflation mean people can afford less and less. With flattened incomes, people must divert more and more of their income into essentials like food and fuel that are rising in price.

Compassionate conservatism has never extended to matters of the economy. Instead we're told by our President that holding two jobs is an American thing, to be proud of. That coming from a man who'd failed miserably in the oil business, who rode his last name to capture millions in profit on a Texas Rangers ballpark subsidized by public funds. Of course Bush's millions were hard-earned and deserved to him.

It's hard to take seriously the economic advice of George Bush, who had neither the managerial skills need to help this economy nor the compassion to care about those affected by changes in the global economy. As Americans, we find ourselves in a YOYO world, where we are on our own. Don't expect pity or help from our government if a disaster should strike. Yes, you might get a formaldehyde-laced trailer for your efforts, or form the backdrop for the President's photo op should he visit your disaster-wrecked city, but the problems you have are yours alone. If you can't overcome them, or resolve them yourself, that's just tough.



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