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Sebastian Mallaby, no friend to free marketers, says blaming deregulation for the credit crisis is dangerous.

The financial turmoil has pushed the Obama campaign into the lead, and this is mostly justified. Barack Obama is more thoughtful on the economy than his opponent, and his bench of advisers is superior. But there’s a troubling side to the Democratic advance. The claim that the financial crisis reflects Bush-McCain deregulation is not only nonsense. It is the sort of nonsense that could matter.

The real roots of the crisis lie in a flawed response to China. Starting in the 1990s, the flood of cheap products from China kept global inflation low, allowing central banks to operate relatively loose monetary policies. But the flip side of China’s export surplus was that China had a capital surplus, too. Chinese savings sloshed into asset markets ’round the world, driving up the price of everything from Florida condos to Latin American stocks.

That gave central bankers a choice: Should they carry on targeting regular consumer inflation, which Chinese exports had pushed down, or should they restrain asset inflation, which Chinese savings had pushed upward? Alan Greenspan‘s Fed chose to stand aside as asset prices rose; it preferred to deal with bubbles after they popped by cutting interest rates rather than by preventing those bubbles from inflating. After the dot-com bubble, this clean-up-later policy worked fine. With the real estate bubble, it has proved disastrous.

So the first cause of the crisis lies with the Fed, not with deregulation. …

Continuing with WaPo columnists, Robert Samuelson writes on the differences between 1929 and today.

Watching the slipping economy and Congress’s epic debate over the unprecedented $700 billion financial bailout, it is impossible not to wonder whether this is 1929 all over again. Even sophisticated observers invoke the comparison. Martin Wolf, the chief economics commentator for the Financial Times, began a recent column: “It is just over three score years and ten since the [end of the] Great Depression.” What’s frightening is not any one event but the prospect that things are slipping out of control. Panic — political as well as economic — is the enemy.

There are parallels between then and now, but there are also big differences. Now as then, Americans borrowed heavily before the crisis — in the 1920s for cars, radios and appliances; in the past decade, for homes or against inflated home values. Now as then, the crisis caught people by surprise and is global in scope. But unlike then, the federal government is a huge part of the economy (20 percent vs. 3 percent in 1929), and its spending — for Social Security, defense, roads — provides greater stabilization. Unlike then, government officials have moved quickly, if clumsily, to contain the crisis.

We need to remind ourselves that economic slumps — though wrenching and disillusioning for millions — rarely become national tragedies. …

Gary Becker too.

In order to promote a much smoother functioning of the financial system, it is paramount to distinguish between the immediate steps needed to cope with the present crisis and the long-run reforms needed to reduce the likelihood of future crises. Let’s start with the short-run fixes.

First of all, the magnitude of this financial disturbance should be placed in perspective. Although it is the most severe financial crisis since the Great Depression of the 1930s, it is a far smaller crisis, especially in terms of the effects on output and employment. The United States had about 25% unemployment during most of the decade from 1931 until 1941, and sharp falls in GDP. Other countries experienced economic difficulties of a similar magnitude. So far, American GDP has not yet fallen, and unemployment has reached only a little over 6%. Both figures are likely to get quite a bit worse, but they will nowhere approach those of the 1930s.

The Treasury’s announced insurance of all money-market funds, and the full insurance of bank deposits, carry considerable moral hazard risks, but they have not aroused much controversy. The main thrust of the new banking law allows the Treasury secretary to purchase bank assets up to $700 billion in order to increase the liquidity of the banking system. These assets are of uncertain worth since there is essentially no market for many of them, and hence they have no market price. The government hopes to create this market partly through using auctions, where banks would offer their assets at particular prices, and the government would decide whether to buy them. I would have preferred starting with a smaller dollar value of purchases, and up the amount if the situation deteriorates further. …

NY Times does a long piece on a Fannie CEO.

“Almost no one expected what was coming. It’s not fair to blame us for not predicting the unthinkable.“— Daniel H. Mudd, former chief executive, Fannie Mae

When the mortgage giant Fannie Mae recruited Daniel H. Mudd, he told a friend he wanted to work for an altruistic business. Already a decorated marine and a successful executive, he wanted to be a role model to his four children — just as his father, the television journalist Roger Mudd, had been to him.

Fannie, a government-sponsored company, had long helped Americans get cheaper home loans by serving as a powerful middleman, buying mortgages from lenders and banks and then holding or reselling them to Wall Street investors. This allowed banks to make even more loans — expanding the pool of homeowners and permitting Fannie to ring up handsome profits along the way.

But by the time Mr. Mudd became Fannie’s chief executive in 2004, his company was under siege. Competitors were snatching lucrative parts of its business. Congress was demanding that Mr. Mudd help steer more loans to low-income borrowers. Lenders were threatening to sell directly to Wall Street unless Fannie bought a bigger chunk of their riskiest loans.

So Mr. Mudd made a fateful choice. Disregarding warnings from his managers that lenders were making too many loans that would never be repaid, he steered Fannie into more treacherous corners of the mortgage market, according to executives.

For a time, that decision proved profitable. In the end, it nearly destroyed the company and threatened to drag down the housing market and the economy.

Dozens of interviews, most from people who requested anonymity to avoid legal repercussions, offer an inside account of the critical juncture when Fannie Mae’s new chief executive, under pressure from Wall Street firms, Congress and company shareholders, took additional risks that pushed his company, and, in turn, a large part of the nation’s financial health, to the brink.

Between 2005 and 2008, Fannie purchased or guaranteed at least $270 billion in loans to risky borrowers — more than three times as much as in all its earlier years combined, according to company filings and industry data. …

Peter Wehner in Contentions has advice for the McCain campaign.

… The thing that McCain has in his favor is that Obama is in fact deeply liberal. That judgment is beyond dispute, at least if voting records have any relevance. In a center-right nation, that is a problem. The task for McCain has always been to do more than shout “liberal, liberal, liberal” in a crowded political theater; he has to show that Obama’s liberalism, especially combined with a Pelosi-and-Reid led Congress, will have real world consequences. He has to demonstrate, in a way that’s accessible and relevant, why one’s political philosophy serves as a reliable guide to one’s political actions.

Barack Obama will do what he has done from the outset: deny the charge and insist that such labels are passé, a political artifact from 1988, a page from the GOP’s book of “old politics.” In fact, in this election, as in all elections, ideas and political ideology ought to matter. Whether John McCain – a man who over the years has prided himself on being non-ideological, a “maverick,” and a deal-maker – can make that case at all, let alone in the current environment, is very much of an open question. But he really has no other choice than to try, starting tomorrow night in Nashville.

Along the same lines, a Corner post.

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Spengler on why Asian capital markets send their money to the U. S.

Why do Asian investors depend on American capital markets? Given the near breakdown of key sectors of the American market, one might expect Asians to bring their money home. Quite the opposite has happened: Asian currencies have fallen sharply against the American dollar.

On my desk is a draft paper by a prominent Asian politician, sent to me privately for comment. It calls on Asians to take charge of their own financial destiny and invest their money in Asian markets rather than into the maelstrom of American markets. Privately, I advised the leader in question not to publish it. It will do no good. Asian capital markets cannot absorb Asia’s savings.

What does America have that Asia doesn’t have? The answer is, Sarah Palin – not Sarah Palin the vice presidential candidate, but Sarah Palin the “hockey mom” turned small-town mayor and reforming Alaska governor. All the PhDs and MBAs in the world can’t make a capital market work, but ordinary people like Sarah Palin can. Laws depend on the will of the people to enforce them. It is the initiative of ordinary people that makes America’s political system the world’s most reliable.

America is the heir to a long tradition of Anglo-Saxon law that began with jury trial and the Magna Carta and continued through the English Revolution of the 17th century and the American Revolution of the 18th. Ordinary people like Palin are the bearers of this tradition.

Outside of the United States, the young governor of Alaska has become a figure of ridicule – someone who did not own a passport until last year and who quaintly believes that her state’s proximity to Russia gives her insights on foreign policy. How, my European friends ask, was it possible for such an an ignorant bumpkin to become a candidate for America’s second-highest office? They don’t understand America.

Provincial America depends on the initiative of ordinary people to get through the day. America has something like an Education Ministry, but it has little money to dispense. Americans pay for most of their school costs out of local taxes, and levy those taxes on themselves. In small towns, many public agencies, including fire protection and emergency medical assistance, depend almost entirely on volunteers. People who tax themselves, and give their own time and money for services on which communities depend, are not easily cowed by the federal government or by large corporations. …

Bill Kristol had a chance to ask Sarah Palin if she would challenge Biden to another debate. Pickerhead has a better idea; instead of the cranky GOP socialist debating Obama, let Sarah do the job. She’d be better at it.

I spoke on the phone Sunday with Sarah Palin, who was in Long Beach, Calif., preparing to take off on her next campaign trip. It was the first time I’d talked with her since I met her in far more relaxed circumstances in Alaska over a year ago. But even though she’s presumably now under some strain and stress, she seemed, as far as I could tell, confident and upbeat.

In terms of substance, some of what she had to say was unsurprising: She doesn’t have a very high opinion of the mainstream media, and she believes an Obama administration would kill jobs by raising taxes. But she said a couple of things that were, I thought, either personally touching or politically provocative.

At one point, noting that Palin had remarked ruefully almost a week ago that her son Track had been, since his recent deployment to Iraq, in touch with his girlfriend but not his mother, I asked whether she had subsequently heard from him.

Palin told me she had. “He called the day of the debate, and it was so wonderful because it was the first call since they were deployed over there, and it was like a burden lifted even when I heard his voice.” Palin said that she told him that she had a debate that night. “And he says, ‘Yeah, I heard, Mom,’ and he says, ‘Have you been studying?’ And I said, ‘Yeah, I have,’ and he goes, ‘O.K., well I’ll be praying.’ I’m like — total role reversal here, that’s what I’ve been telling him for 19 years.” …

In the current issue of Newsweek, Jon Meacham says Palin’s words are mindless populism. Karl Rove, in the same issue, differs.

With respect, Jon misses the principal arguments for Sarah Palin. She is the governor of a state with an $11 billion operating budget, a $1.7 billion capital budget and nearly 29,000 employees; she’s got more executive experience than any candidate for president or vice president this year. In Alaska she took on the state political establishment, the incumbent Republican governor and the oil companies. She’s a rising star who accentuates John McCain’s maverick strengths and a “hockey mom” who has developed a powerful tie to ordinary voters.

That link isn’t itself an argument for Palin. But being able to connect with, and inspire, the public is an asset —not a liability. As for Jon’s argument against “everyday Americans” as political leaders, many great presidents have been more average than elitist. Ronald Reagan, from Eureka College, was a far better leader than Woodrow Wilson, a former president of Princeton. Wilson would have given you 100 Supreme Court opinions he disagreed with, whether you wanted to listen or not. …

Looking over Barack’s record, Thomas Sowell wonders if facts matter.

Abraham Lincoln said, “You can fool all the people some of the time and some of the people all the time, but you can’t fool all the people all the time.”

Unfortunately, the future of this country, as well as the fate of the Western world, depends on how many people can be fooled on election day, just a few weeks from now.

Right now, the polls indicate that a whole lot of the people are being fooled a whole lot of the time.

The current financial bailout crisis has propelled Barack Obama back into a substantial lead over John McCain– which is astonishing in view of which man and which party has had the most to do with bringing on this crisis.

It raises the question: Do facts matter? Or is Obama’s rhetoric and the media’s spin enough to make facts irrelevant?

Fact Number One: It was liberal Democrats, led by Senator Christopher Dodd and Congressman Barney Frank, who for years– including the present year– denied that Fannie Mae and Freddie Mac were taking big risks that could lead to a financial crisis.

It was Senator Dodd, Congressman Frank and other liberal Democrats who for years refused requests from the Bush administration to set up an agency to regulate Fannie Mae and Freddie Mac. …

David Harsanyi wrote some on the bail-out.

… “We need 100 Republican votes to pass this,” Democratic House Majority Leader Steny Hoyer told reporters after the Senate vote. So to assist these hardheaded Republicans in making up their minds on the Economic Stabilization Act of 2008, the bill is also now loaded with tax cuts and other conservative goodies.

For instance, it will keep around 20 million Americans from paying the alternative minimum tax while offering $8 billion in tax relief to victims of natural disasters in Texas, Louisiana and other areas.

Those worthwhile issues should be taken up separately. This was about a Treasury bailout of the mortgage industry that will have lasting consequences.

The argument will be made that these goodies are only scraps, considering the big picture.

Perhaps. But then the vote also tells us that the Senate can be bought for scraps.

John Fund was in the NY Post writing on voter fraud.

“If you think of election problems as akin to forest fires, the woods are no drier than they were in 2000, but many more people have matches,” says Doug Chapin, editor of the nonpartisan Electionline.org.

The real battle that could decide this election may be fought by the squadrons of lawyers both sides have hired to prepare Florida-style challenges to the results in any close state. Once again, America’s sloppy, fraud-prone voting system could turn Election Day into an Election Month of court challenges. …

Swedish libertarian blooger, Johann Norberg, asks some good questions about the credit crisis in three different posts;  IF REGULATION IS THE ANSWER, WHY DIDN´T IT HELP?, HOW TO CREATE A CRISIS and WHY THE BAILOUT IS BAD

… Now most commentators demand more regulation. Before we accept that, let´s look at what the old regulations did. Why did independent investment banks evolve in the first place? Because American politicians outlawed universal banks as part of the New Deal, a ban that was in place for 66 years.

And why did the value of their assets collapse? Because American politicians responded to accounting fraud by implementing “fair value accounting”, which means that financial instruments must be evaluated at the price that they would get if they were sold right now. And in a market without liquidity, mortgage loans are not worth anything, even though they will be in the future. So suddenly banks and thrifts look insolvent and have to sell assets, which pushes the price further down, so that others have to mark down their assets even more, and so on. …

Borowitz reports O. J. Simpson requests bail-out since his incarceration will tank earnings for the cable networks.

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Lots of items today on the credit crisis and the probable origins of it in affirmative action mortgages. It is important to understand if these are problems of the market, or of government interference in the market.

David Warren comments on the efforts of our political class.

Talk about lipstick on a pig: the bailout measure, which began as a modest, $700-billion, three-page oink, reached the U.S. House of Representatives yesterday wearing about 450 pages of lipstick. Its maximum final cost was no longer calculable — after bipartisan negotiations to add “sweeteners” to the thing, to buy it support from various congressional factions.

Americans, and anyone else who happened to be watching (most of the world), got a good taste of what “Congressional oversight” means; to say nothing of the explanation of why, in opinion polls, the U.S. Congress enjoys even less popular esteem than President Bush.

It is not for a Canadian to lecture Americans on U.S. constitutional niceties, but I’m going to do it anyway. Money bills in that country are supposed to originate in the Lower House, as they do in all civilized national jurisdictions. This one effectively originated in the Upper House. In order to disguise this irregularity, the senators had to dress the thing up as a non-money bill. That is how the “Emergency Economic Stabilization Act” became the more aptly-named “Paul Wellstone Mental Health and Addiction Equity Act” — by taking a bill already on the floor of the Senate, stripping out its text, and substituting the text of the bailout bill.

“The letter killeth, but the spirit giveth life.” This decadent habit of cautiously observing the letter of the law, while purposely ignoring the spirit, is at the root of so many enormities in contemporary politics and society. …

Gerard Baker says Armageddon is not here.

There’s something curious about the human imagination. Confronted with unprecedented events of unfathomable scale, it seems to find the shocking reality insufficiently interesting and reaches instead for even grander, more cosmic explanations of what’s going on.

The financial crisis is precisely that sort of moment. It’s a vast drama, with consequences that will ripple steadily from immediate economic hardship to changes in short-term political fortune to a broad recasting of the way our economies and societies work.

But that’s not enough, apparently, for the drama queens and kings of our political and media establishments. Hastily, they’ve constructed a grand historical narrative in the last couple of weeks, composed largely of overarching myths that are in danger of hardening into conventional wisdom.

So at the risk of being accused of missing the historical boat, let me try to take a few of them on. …

We interrupt coverage of the plan with Mark Steyn’s VP debate review.

… When Regular Joe Six-Pack Bluecollar Biden tried to match her on the Main Street cred, it rang slightly wacky. “Look,” he said, “All you have to do is go down Union Street with me in Wilmington or go to Katie’s Restaurant or walk into Home Depot with me, where I spend a lot of time.” Why? Is he moonlighting as a checkout clerk on the evening shift? Or is he stalking that nice lady in Lighting Fixtures? As for Katie’s Restaurant, ah, I’m sure it was grand but apparently it closed in 1990. In the Diner of the Mind, the refills are endless and Senator Joe is sitting shootin’ the breeze over a cuppa joe with a couple other regular joes on adjoining stools while Betty-Jo, the sassy waitress who’s tough as nails but with a heart of gold, says Ol’ Joe, the short-order cook who’s doing his Sloppy Joes just the way the Senator likes ‘em, really appreciates the way that, despite 78 years in Washington, Joe Biden is still just the same regular Joe Six-Pack he was when he and Norman Rockwell first came in for a sarsaparilla all those years ago. But, alas, while he was jetting off for one-to-one talks with the Deputy Tourism Minister of Waziristan, the old neighborhood changed.

In a conventional presidential environment, Bidenesque fake authenticity would be enough. Up against Sarah Palin’s authentic authenticity, I’m not so sure. All I know is that the McCain campaign should have her out on the road and doing every interview she can over this final month. Oh, and send her snowmobiling hubby to Maine, which splits its electoral college votes. He’ll put their Second Congressional District back in the red camp, and the way things are looking that could be the 270th vote that saves McCain’s bacon.

IBD editors wanted the plan passed.

… All this could cascade into a deep economic downturn that will last years. The victims, however, won’t be gazillionaires on Wall Street. It’ll be you. That’s why, despite IBD’s impeccable free-market credentials, we support the rescue plan. Time for taking effective action is running short .

As the old saying goes, the perfect is often the enemy of the good. We agree that this rescue package is far from perfect. But with time of the essence, we’ll take the good and hope for the best.

It’s possible that once the Treasury has snapped up a good chunk of the damaged mortgage portfolios now on banks’ books, normal lending will resume and the economy will pick up. If so, the government will eventually be able to unload the bad mortgages at a small loss, limiting taxpayer cost.

This happened from 1988 to 1992, when the Resolution Trust Corp. unloaded a huge portfolio of real estate assets. Today as then, action is needed to prevent a meltdown.

Good post from Adam Smith.org lists 8 bullet points that help to understand the financial crisis

Good WSJ Op-Ed by George Mason’s Russell Roberts on the government’s hand in creating this crisis.

Many believe that wild greed and market failure led us into this sorry mess. According to that narrative, investors in search of higher yields bought novel securities that bundled loans made to high-risk borrowers. Banks issued these loans because they could sell them to hungry investors. It was a giant Ponzi scheme that only worked as long as housing prices were on the rise. But housing prices were the result of a speculative mania. Once the bubble burst, too many borrowers had negative equity, and the system collapsed.

Part of this story is true. The fall in housing prices did lead to a sudden increase in defaults that reduced the value of mortgage-backed securities. What’s missing is the role politicians and policy makers played in creating artificially high housing prices, and artificially reducing the danger of extremely risky assets. …

National Review’s cover story this issue is on the origins of the mortgage crisis.

Why did the mortgage market melt down so badly? Why were there so many defaults when the economy was not particularly weak? Why were the securities based upon these mortgages not considered anywhere near as risky as they actually turned out to be? Although there are many factors involved, the key and fundamental answer is that, in an attempt to increase homeownership — particularly among minorities and the less affluent — an attack on underwriting standards has been undertaken by virtually every branch of the government since the early 1990s. This weakening of underwriting standards had the intended impact of increasing home ownership and the unintended impact of increasing the price of housing, helping lead to a housing-price bubble that masked for many years the crucial (and predictable) problem of increased defaults.

After the government succeeded in weakening the underwriting standards, mortgages seemed to require virtually no down payment — which is the main key to the problem. There were also few restrictions on the size of monthly payments relative to income, little examination of credit scores, and little examination of employment history. This was the government’s goal and, as homeownership rates increased, there was self-congratulation all around. The community of regulators, academic specialists, and housing activists all reveled in the increase in homeownership and the increase in wealth that ensued. The decline in underwriting standards was universally praised as an “innovation” in mortgage lending.

The resulting bubble brought in a large number of speculators, in the form of individuals owning one or two houses in the hope of quickly reselling them at a profit. It is estimated that one-quarter of all home sales were speculative sales of this nature. The speculators wanted mortgages with the smallest down payment and the lowest interest rate: adjustable-rate mortgages, option ARMs, and so forth. Once housing prices stopped rising, these speculators tried to get out from under their investments made largely with other people’s money, which is why foreclosures increased mainly for adjustable-rate mortgages and not fixed-rate, regardless of whether the mortgages were prime or subprime. The rest, as they say, is history.

In good times, strict underwriting standards seem unnecessary. But like levees against a flood, they serve a useful purpose. When markets turn sour, these standards help ensure that homeowners will not bail out of homes at the first sign of price declines, that they will have the financial wherewithal to survive economic downturns, and that even if they can’t make their payments, mortgage owners will be covered by the equity remaining in the home. Removing these protections greatly increased the risk in this market when a storm did approach.

Unfortunately, it seems likely that our governing bodies have learned little or nothing from this series of events. If the proper lessons are not learned, it’s all likely to happen again. …

Geologists use stalagmites to track ancient earthquakes. The Economist has the story.

… Like trees, stalagmites are often composed of concentric layers that represent annual growth periods. Counting the layers is one way of assessing how old a stalagmite is. But radioactive dating provides a second, and sometimes more accurate, assessment. In this case the geologists drilled into the stalagmites and estimated their age from the way that uranium decays into an isotope of thorium. Many, they found, dated back to 1811, while others began life in 1917, the date of another nearby earthquake.

Subsequent investigation has confirmed a further seven big earthquakes previously suspected to have happened over the course of the past 18,000 years. An average interval between quakes of 2,500 years is a hopeful sign for New Madrid’s immediate future. But if the technique can be tried out in other places it might reveal areas now thought safe, precisely because there has not been a recent earthquake, that are actually under threat.

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Victor Davis Hanson says weakness in our economy will be translated abroad.

… We’ve seen the connection between American economic crisis and world upheaval before. In the 1930s, the United States and its democratic allies, in the midst of financial collapse, disarmed and largely withdrew from foreign affairs. That isolation allowed totalitarian regimes in Germany, Italy, Japan and Russia to swallow their smaller neighbors and replace the rule of law with that of the jungle. World War II followed.

During the stagflation and economic malaise of the Jimmy Carter years, the Russians invaded Afghanistan, the Iranians stormed our embassy in Tehran, the communists sought to spread influence in Central America and a holocaust raged unchecked in Cambodia.

It was no surprise that an emboldened Iranian President Mahmoud Ahmadinejad once again last week called for the elimination of Israel. He’s done that several times before. But rarely has he felt brazen enough to blame world financial problems on the Jews in general rather than on just Israelis. And he spouted his Hitlerian hatred in front of the United Nations General Assembly — in New York, just a few blocks away from the ground zero of the Wall Street meltdown. …

Debra Saunders says there’s blame to go around.

Who do I blame for this financial disaster? Let me count the villains.

Start with President Bush and Treasury Secretary Hank Paulson. By their own actions, they have shown that they believe that markets have become too vulnerable under their watch.

The Bushies have mishandled the $700 billion bailout at every juncture. They pulled a too-large number out of the hat, then asked Congress to write a blank check. Paulson even rejected limits on the compensation of the geniuses who bought bad mortgage paper with other people’s money. No way was Congress going to go along with that scheme.

Like many Americans, I am angry and have strong doubts as to whether the bailout is necessary. Having proposed it, however, Paulson probably made it necessary. If there is a 10 percent risk of an economic collapse without a bailout, Washington probably has to pass something.

I blame Democrats, who pushed to give government-supported mortgage giants Fannie Mae and Freddie Mac more flexibility to buy dicey home loans, despite their accounting irregularities. It was Senate Banking Committee Democrats who blocked GOP-backed reforms of Fannie and Freddie in 2003 and 2006 – but that doesn’t stop them from disowning any role in this fiasco now. …

David Ignatius says we don’t necessarily need Congress for a rescue.

… So the real question is how to unfreeze the credit markets. And here it’s not clear that the $700 billion bailout is the most effective response. A better approach may be to target the specific problems that are squeezing lenders.

One step in the right direction was Tuesday’s announcement by the Securities and Exchange Commission to clarify the “mark-to-market” accounting rules that have been forcing financial institutions to take huge write-downs on “illiquid” paper assets for which there’s no market today.

“When an active market for a security does not exist,” said the SEC clarification, companies can base their valuations on expected future cash flow. Many members of Congress have been urging the SEC to suspend the rule entirely — and allow easier valuation standards — thereby easing the pressure on the Treasury to buy up toxic securities. Accountants oppose the suspension, arguing that changing the rules now would further erode trust in corporate balance sheets.

A year ago, I heard warnings about the mark-to-market rules from Joe Robert, who runs a global real estate investment firm called J.E. Robert Cos. He argued that these rules were forcing financiers to sell into a declining market and assign rock-bottom valuations to assets that, if held to maturity, might be far more valuable. …

James Taranto spots some of the cult-like aspects of The One’s campaign.

Way back in February, we noted the cultish aspect of Barack Obama’s campaign, a quality that even creeped out as hardcore a Democrat as Time magazine’s Joe Klein. Eight months later–and with Obama the favorite to win the presidency in a scant 34 days–we can’t say we’re reassured. Last month the Sophian, Smith College’s student newspaper, published an op-ed titled “ ’I Will Follow Him’: Obama as My Personal Jesus,” by Maggie Mertens: …

Paul Johnson comments for Forbes on the unscientific nature of global warming claims.

… I wish the great philosopher Sir Karl Popper were alive to denounce the unscientific nature of global warming. He was a student when Albert Einstein’s General Theory of Relativity was first published and then successfully tested. Einstein said that for his theory to be valid it would have to pass three tests. “If,” Einstein wrote to British scientist Sir Arthur Eddington, “it were proved that this effect does not exist in nature, then the whole theory would have to be abandoned.”

To Popper, this was a true scientific approach. “What impressed me most,” he wrote, “was Einstein’s own clear statement that he would regard his theory as untenable if it should fail in certain tests.” In contrast, Popper pointed out, there were pseudo-scientists, such as Karl Marx and Sigmund Freud. Marx claimed to be constructing a theory of scientific materialism based on scientific history and economic science. “Science” and “scientific” were words Marx used constantly. Far from formulating his theory with a high degree of scientific content and encouraging empirical testing and refutation, Marx made it vague and general. When evidence turned up that appeared to refute his theory, the theory was modified to accommodate the new evidence. It’s no wonder that when communist regimes applied Marxism it proved a costly failure.

Freud’s theories were also nonspecific, and he, too, was willing to adjust them to take in new science. We now know that many of Freud’s central ideas have no basis in biology. They were formulated before Mendel’s Laws were widely known and accepted and before the chromosomal theory of inheritance, the recognition of inborn metabolic errors, the existence of hormones and the mechanism of nervous impulse were known. As the scientist Sir Peter Medawar put it, Freud’s psychoanalysis is akin to mesmerism and phrenology; it contains isolated nuggets of truth, but the general theory as a whole is false. …

Think the only pigs are in Washington and New York? Read the ESPN story of how baseball scouts were shaking down prospects in the Dominican.

LA CALETA, Dominican Republic — Kelvin De Leon, 17 years old and a millionaire for a day, rumbles over a dirt road in his silver Japanese SUV and stops in front of his grandmother’s house.

He doesn’t live around here anymore. Before it was torn down, the small house where he grew up — a cinder-block-and-concrete box with a corrugated metal roof just down another dirt road — was like the others in this town. Last year, he moved with his parents to Santo Domingo, the capital, about 30 minutes away. The family’s new home was made possible by the $1.1 million signing bonus the New York Yankees paid De Leon to wear pinstripes.

He signed a contract July 2, 2007, and everything about his life changed.

“Imagine,” De Leon says in Spanish. “I had reached another level; I was going to be a professional. I was about to play.”

Two years after he quit school to train with a buscon (Spanish for a “finder” and a kind of street agent), De Leon was sent to the Yankees’ Dominican academy not far from where he grew up. But before he left, he had one more transaction to complete — $100,000 of his signing bonus had to be delivered to two men: Carlos Rios, the Yankees’ director of Latin American scouting, and Ramon Valdivia, the team’s Dominican scouting director. …

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Spengler weighs in again on the credit mess.

To bankers and politicians who insist that the world will come to an end if the US Congress does not approve the proposed US$700 billion bailout package, I wish to say: “It is not the end of the world. It is just the end of you.” Sadly, it won’t be. America’s financier caste will live to fleece another day.

There are no atheists in the trenches, and no free-marketeers in Congress after a nearly 10% fall in stock prices. A chorus of erstwhile conservative voices led by the likes of Newt Gingrich, the Republican firebrand of the 1990s, now argues that the proposed $700 billion bailout package is flawed, but it is better to enact it than to do nothing. This simply is not true.

In the event of bank failures, the government will not “do nothing”. Two of America’s largest banks, Washington Mutual of Seattle, Washington, and Wachovia Bank of Charlotte, North Carolina, were forcibly merged or taken over by regulators during the past several days, without a ripple of disruption to depositors or borrowers. …

David Warren on the rescue.

The U.S. dollar is soaring (at least in relation to the British pound), the price of oil is plummeting, stock markets are calming in the eye of the storm, the big bad banks are going down like dominoes. At first sight, what’s not to like about the failure of the U.S. House of Representatives to rubberstamp the Bush-Paulson-Pelosi-Reid financial rescue package?

Better, from a strictly Democrat point of view, Nancy Pelosi and company are squeezing every drop of partisan advantage from the process itself, by which lame-duck Republicans are trying to fix a largely Democrat-created problem that Republicans like John McCain could see coming for at least the last three years, and actually tried to do something about, over Democrat objections.

(Most readers won’t know this because they are not being told by the mainstream media: but yes, McCain began pleading with the Senate Banking Committee to act on huge irregularities discovered in the accounts of Freddie Mac and Fannie Mae, back in May 2006, two years after a Bush administration initiative to improve their regulation died in Congress. McCain’s efforts were ridiculed, then stifled by ranking Democrats, including the committee chairman, Chris Dodd, the leading recipient of financial contributions from lobbyists for the very banks McCain said were “gaming the system.” Senator Barack Obama is incidentally the second-biggest recipient of political contributions from these sources.)

Nancy Pelosi to the U.S. Senate, Monday, on the figure of $700 billion: “It is a number that is staggering, but tells us only the costs of the Bush administration’s failed economic policies: policies built on budgetary recklessness, on an anything-goes mentality, with no regulation, no supervision, and no discipline in the system.”

This remark was as close to the opposite of the truth as it is humanly possible to get. Even by the standards of politicians, it was shameful. …

And David Harsanyi.

… Pelosi, the least effective Speaker in recent history, unleashes partisan tirades that peddle the tired myth that “unbridled” free markets (tell it to the more than 75,000 pages of regulations in the Federal Register) are the sole reason for our predicament.

Even she must understand that government meddling is, in part, at fault for this mess: From the Carter administration’s Community Reinvestment Act to the Clinton administration’s repeal of Glass-Steagall to George Bush’s Ownership Society, government has implicitly guaranteed loans while at the same time it has compelled lenders to hand out risky mortgages to low-income borrowers.

When the Bush administration tepidly recommended overhaul of the housing finance industry in 2003, Democrats balked. So it is with amazement we watched the very same folks — people like Congressman Barney Frank (who did not see any “possibility of serious financial losses to the Treasury” only a few years ago) and Sen. Chris Dodd (who has taken $31 million in contributions from the financial sector) — leading the mocking, cajoling and proselytizing of those who opposed the bailout. …

And George Will.

We are waist deep in evasions because one cannot talk sense about the cultural roots of the financial crisis without transgressing this cardinal principle of politics: Never shall be heard a discouraging word about the public.

Concerning which, a timeless political trope is: Government should budget the way households supposedly do, conforming outlays to income. But the crisis came partly because so many households decided that it would be jolly fun to budget the way government does, hitching outlays to appetites.

Beneath Americans’ perfunctory disapproval of government deficits lurks an inconvenient truth: They enjoy deficits, by which they are charged less than a dollar for a dollar’s worth of government. Conservatives participate in this, even though deficits fuel government’s growth by obscuring its cost. …

Twenty years ago we began to lose our freedom to speak. The Australian has the story.

TWENTY years ago today, Salman Rushdie published The Satanic Verses. Four years in the making and supported by a then almost unheard of advance of $850,000 from his publisher, Penguin, Rushdie had hoped the work would cement his reputation as the most important British novelist of his generation. The book certainly set the world alight, though not quite in the way it was meant to. …

Just over a year ago the I35W bridge collapsed in Minneapolis. It has been rebuilt already. Popular Mechanics has the story.

America learned about the sudden collapse of the I-35W bridge in Minneapolis in great detail when it buckled and fell last August. And with good reason: Thirteen people died. The cause of its failure remains undetermined despite faulty plates being cited as a major design flaw.

What’s been less closely watched is this story’s surprisingly happy ending—or at least its new beginning—some 13 months later. By 5 am on Sept. 18, cars and trucks had been lined up for hours on either side of the Mississippi River. When the St. Anthony Falls Bridge, with its next-gen design, officially opened this month, “it was a solid wall of traffic in both directions for over 8 minutes,” says Linda Figg, president of FIGG Engineering Group, which designed the structure based on smarter plans for modern engineering. “We heard stories of people trying to line up at midnight, to be part of the first car entourage to cross the new bridge.” …

Article in The Atlantic on Somali pirates.

Somali pirates hijacked a Ukrainian vessel carrying tanks and other military hardware in the Gulf of Aden. U.S. Navy warships have surrounded them.

This year alone, pirates have attacked 61 ships in the region. They have held 14 oil tankers, cargo vessels, and other ships with a total of over 300 crew members, and have demanded ransoms of over $1 million per ship. …

That strange hotel in North Korea gets some coverage.

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Robert Samuelson says it turns out our modern economics is bankrupt.

… A hallmark of the crisis has been the stark contrast between the “real economy” of production and jobs and the tumultuous financial markets of stocks, bonds, banks, money funds and the like. Even with the 60 percent drop in housing construction since early 2006, the real economy has so far suffered only modest setbacks. Yes, there are 605,000 fewer payroll jobs than there were in December; still, 137.5 million jobs remain. Meanwhile, financial markets verge on hysteria. The question is whether this hysteria will drive the real economy into a deep recession or worse — and what we can do to prevent that. …

And Supply and Demand Blog doubts financial problems will sink the rest of the economy.

… The weak correlation between asset prices and non-financial sector performance and the strong profitability of today’s non-financial capital are two good reasons to scoff at the idea that the non-financial sector will collapse because of the recent events on Wall Street, and even better reasons to scoff at the Bernanke-Paulson-Bush idea that a massive bailout of financial firms is the key to avoiding a non-financial collapse. Wall Street’s woes are and will be largely limited to Wall Street. The Bush administration should not use the power of the IRS to force the rest of us to board Wall Street’s sinking ship. …

Mark Steyn returns for interviews at Hugh Hewitt. Dean Barnett does the honors.

DB: Now Mark Steyn, what percentage of the United States Senate do you think knows what a credit default swap is?

MS: I would imagine it’s a very, very small number. One of the amusing things, well, it isn’t amusing, really, it’s tragic in a way, but one of the strange things about this is that whenever anything goes wrong in the economy, the fault is always blamed on capitalism, red in tooth and claw. And in this case, both candidates tend to blame greed, untrammeled greed. Well, greed is writ in the human heart and is embedded in our DNA, and has been since the beginning of time. So clearly, greed itself is not the factor, and in most cases, if you actually eliminate the lame-o class warfare thing, it turns out, as in this case, to derive from some previous round of government regulation and its unintended consequences. So now we’ll pile, we’ll have corrective government regulation to correct the last sort of government regulation, and that in turn will have another lot of unintended consequences. To be honest, I would rather take a flyer on a new depression. …

DB: Actually, now it’s old news, but since you bring up the sniffers at Sarah Palin, have you ever seen anything like that Charlie Gibson interview, who was seemingly channeling a metrosexual schoolmarm the way he was looking over his glasses with such fury at Sarah Palin?

MS: Yeah, I know, and I don’t, I just don’t get it. I mean, I don’t understand why he thinks he’s, that’s in his interest. You know, you and I make our living from talking and giving opinions, and very often, as in this whole sub-prime business, Lehman Brothers, on stuff we know nothing about. Let’s face it, that’s what we do. If it wasn’t Lehman Brothers in the news, and there was instead a coup in Azerbaijan, as professional commentators, we would be within three minutes instant experts on Azerbaijan and the coup situation. That’s what pundits do. They chatter about stuff all day long. And I think it behooves us to have a respect for people who actually run things and do things like the Governor of Alaska. And why Charlie Gibson thinks he would come out, some worthless twit who reads a teleprompter for a living, would come off looking good being condescending to a woman who runs a state, I’ve no idea. …

More on financial affirmative action from American Spectator.

When the history of the Great Economic Meltdown of 2008 is written, in-your-face shakedown groups like the Greenlining Institute will be held to account.

Greenlining, headquartered in Berkeley, California (where else?), is a left-wing pressure group that threatens nasty public relations campaigns against lenders that refuse to kneel before its radical economic agenda. Its principal goal is to push politicians and the business community to facilitate “community reinvestment” in low-income and minority neighborhoods.

The Greenlining name is a play on the unlawful practice of “redlining.” That’s when financial institutions designate areas, typically those with a high concentration of racial minorities, as bad risks for home and commercial loans. The Institute wants banks to give a green light to loans in these areas instead.

Recently profiled by John Gizzi, Greenlining uses carrot-and-stick tactics to blackmail public agencies, banks, and philanthropists to achieve its objectives. The Institute brags it has threatened banks into making more than $2.4 trillion in loans in low-income communities.

Was this a good idea? …

Peter Wehner has a good summary of the race.

… 5. The truth is that Senator McCain, facing a considerable uphill struggle, has made the race closer than it ought to be, given all the advantages Democrats have this year. And one thing this campaign has taught us is that a new dynamic can be injected in the blink of an eye. We still have five weeks before the election. But then again, we only have five weeks to go before the election. And the task Senator McCain faces is to alter, in some fundamental way, the trajectory of the race. Friday’s debate certainly didn’t do that; if anything, his job is now harder.

John McCain has faced far more difficult challenges in his life than he does now. But politically speaking, the race, never an easy one, looks considerably more difficult. Senator McCain can still prevail, but at this point, he may need an assist from outside events or from Barack Obama. And one thing Senator Obama has shown is that, for whatever flaws he has, he doesn’t make many glaring, stupid, and unforced errors. He’s hard to knock off stride. Obama and his team, while certainly not flawless, have run a very impressive campaign for 20 months. To hope they’ll badly slip up in the last five weeks is asking for a lot. As we’ve seen this year, a lot can happen, including in a short period of time. But for McCain it needs to happen, and soon. …

P.J. O’Rourke writes about coming down with cancer.

… I have, of all the inglorious things, a malignant hemorrhoid. What color bracelet does one wear for that? And where does one wear it? And what slogan is apropos? Perhaps that slogan can be sewn in needlepoint around the ruffle on a cover for my embarrassing little doughnut buttocks pillow.

Furthermore, I am a logical, sensible, pragmatic Republican, and my diagnosis came just weeks after Teddy Kennedy’s. That he should have cancer of the brain, and I should have cancer of the ass … well, I’ll say a rosary for him and hope he has a laugh at me. After all, what would I do, ask God for a more dignified cancer? Pancreatic? Liver? Lung? …

Pickerhead wonders if we are going to keep building bigger and bigger until one leans over too far, and fails to right itself.

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As we hit send, it appears the GOP has stopped the Bush/Dem bailout. That is a good thing. We will have some short term difficulties, but we’ll be over them faster if the government does not help us. Remember the scariest words in the language are; “I’m from the government and I’m here to help.”

Want to know where the Fannie/Freddie problems came from? Watch the video linked by Kathryn Jean Lopez at The Corner. It is pieces of C-Span tapes of a House committee hearing on problems discovered by federal regulators from The Office of Federal Housing Enterprise Oversight. Watch as committee Dems gang bang regulators who had the audacity to report on near criminal activity at Fannie.

Ralph Peters comments on the latest success in Iraq.

LAST week, Iraq passed another milestone on the difficult road to political maturity: Its parliament unanimously approved a new election law insuring broader participation than ever before.

In early winter, Iraqis will vote in regional elections in the country’s 14 Arab-majority provinces (the Kurds are ahead of the cycle – as they are in most things). Only the tricky status of Kirkuk must still be resolved.

Despite legions of international nay-sayers, democracy worked. After posturing for their own party bases, Iraqi politicians compromised on critically important issues. The result is the most enlightened electoral blueprint between Israel and India.

The systemic clout of religious blocks and parties has been reduced. A quarter of the contested seats are reserved for women. Safeguards promise the most honest balloting ever held in an Arab-majority state. …

Spengler continues his comments on the “bail out.”

The US Congress went into labor this weekend, and gave birth to a gnat. With some cosmetic adjustments, Treasury Secretary Henry Paulson’s US$700 billion bank bailout plan will be adopted this week. Markets barely budged on the news, which was punctuated by government bailouts of two giant banks – America’s Washington Mutual and Belgium’s giant Fortis group. A third rescue, of Britain’s Bradford and Bingley, sees it taken over by the government.

Paulson’s plan likely will provide temporary relief to the stockholders of some American banks, whose balance sheets do not look all that different from Washington Mutual’s. But this has nothing to do with the larger problem, namely the de-leveraging of the American household. …

ChiTrib editors on the credit crisis.

… When this crisis has settled down, Congress and the president are welcome to consider if the experience indicates the need for some precise and prudent changes in the law governing financial institutions. But it’s more likely a careful examination will prove that the biggest failures were ones of too much government, not too little.

Bill Kristol on how McCain can win.

John McCain is on course to lose the presidential election to Barack Obama. Can he turn it around, and surge to victory?

He has a chance. But only if he overrules those of his aides who are trapped by conventional wisdom, huddled in a defensive crouch and overcome by ideological timidity.

The conventional wisdom is that it was a mistake for McCain to go back to Washington last week to engage in the attempt to craft the financial rescue legislation, and that McCain has to move on to a new topic as quickly as possible. As one McCain adviser told The Washington Post, “you’ve got to get it [the financial crisis] over with and start having a normal campaign.”

Wrong. …

Zev Chafets wrote a profile of Rush Limbaugh which was in Pickings July 7, 2008. He is mining that vein again in an LA Times Op-Ed which reports on the value Rush has to the McCain campaign.

… A satisfied Limbaugh means an enthusiastic Limbaugh, and an enthusiastic Limbaugh could be the difference in a close race. Between 14 million and 20 million people listen to him every week, by far the largest audience in talk radio. His show energizes the Republican base, but, even more important, it appeals to a great many conservative Democrats and independents of the kind McCain needs to win swing states.

Senior Republican strategists have seen Limbaugh do this before, especially in the 1994 congressional races that gave the House to the GOP for the first time in decades. Limbaugh was so important to that victory that the GOP declared him an honorary member of the Republican House of Representatives’ freshman class.

Fourteen years later, Limbaugh’s influence is greater than ever. No single Republican — not Karl Rove or Roger Ailes, James Dobson or Sean Hannity — has his reach and clout. Certainly President Bush doesn’t. Limbaugh is, very simply, the single most influential conservative voice in America. …

The Economist’s bellwether state this week is Michigan.

ECONOMIC gloom is no stranger to Michigan’s cities. A house in Detroit was recently sold for one dollar. But now despair extends to the suburbs, too. Orchard Lake, a main drag of shops in Farmington Hills, has “for lease” signs planted like tombstones on the side of the road. The national unemployment rate reached a dismal 6.1% in August. Michigan’s rate is almost three points higher, at 8.9%.

It is not surprising then, that in the war over which candidate can revive America’s economy, Michigan is the front line. On a recent rainy night in Farmington Hills, Barack Obama tried to persuade voters that Michigan could be pulled out of the gloom. The crowd cheered wildly—“I’m absolutely positively sold on Obama!” gushed Ninevah Lowery. But not everyone is so convinced. Al Gore won Michigan by five points, John Kerry by just three. Mr Obama leads in the polls, but victory is by no means certain.

Much of Michigan’s bleak outlook is caused by the car industry, which remains at the heart of the state’s identity. Each August residents line Woodward Avenue, which runs north of Detroit, to watch the Dream Cruise, when vintage cars buzz by and conjure memories of glories past. The present is more of a nightmare. Since 2000 Michigan’s car industry has shed more than 300,000 jobs. Within the past year, Ford and GM have posted their worst quarterly losses ever, with dire effects for suppliers and small businesses. …

Part 2 of the National Geographic article on Neanderthals.

… But then things changed. When the coldest fingers of the Ice Age finally reached southern Iberia in a series of abrupt fluctuations between 30,000 and 23,000 years ago, the landscape was transformed into a semiarid steppe. On this more open playing field, perhaps the tall, gracile modern humans moving into the region with projectile spears gained the advantage over the stumpy, muscle-bound Neanderthals. But Finlayson argues that it was not so much the arrival of modern humans as the dramatic shifts in climate that pushed the Iberian Neanderthals to the brink. “A three-year period of intense cold, or a landslide, when you’re down to ten people, could be enough,” he said. “Once you reach a certain level, you’re the living dead.”

The larger point may be that the demise of the Neanderthals is not a sprawling yet coherent paleoanthropological novel; rather, it is a collection of related, but unique, short stories of extinction. “Why did the Neanderthals disappear in Mongolia?” Stringer asked. “Why did they disappear in Israel? Why did they disappear in Italy, in Gibraltar, in Britain? Well, the answer could be different in different places, because it probably happened at different times. So we’re talking about a large range, and a disappearance and retreat at different times, with pockets of Neanderthals no doubt surviving in different places at different times. Gibraltar is certainly one of their last outposts. It could be the last, but we don’t know for sure.”

Whatever happened, the denouement of all these stories had a signatory in Gorham’s Cave. In a deep recess of the cavern, not far from that last Neanderthal hearth, Finlayson’s team recently discovered several red handprints on the wall, a sign that modern humans had arrived in Gibraltar. Preliminary analysis of the pigments dates the handprints between 20,300 and 19,500 years ago. “It’s like they were saying, Hey, it’s a new world now,” said Finlayson.

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David Harsanyi writes on Iran and Ahmedinejad.

Iranian “President” Mahmoud Ahmadinejad rejects American ideas — all of our ideas, that is, but nuclear fusion.

When Ahmadinejad told a crowd at Columbia University in 2007 that the United States must investigate “who was truly involved” in 9/11, students may have confused the speech with ethnic studies class.

There should be no confusion.

It’s bad enough this bird-brained troglodyte was again walking the streets of America’s greatest city this week, a place teeming with women, Christians, Jews and gays. Ahmadinejad has something to offend all. Holocaust denier. Misogynist. Religious fanatic. Terrorist enabler. Homophobic inquisitor — though, Ahmadinejad does claim, “In Iran, we don’t have homosexuals, like in your country.” …

Foreign Editor of The Australian says Iran is a bigger problem than Wall Street.

IRAN is a problem from hell. The next US president, be it Barack Obama or John McCain, is going to have plenty to worry about: the Wall Street financial crisis, the war in Afghanistan, Pakistan’s internal crisis, the relentless military build-up of China and the temptation it will soon have of trying to retake Taiwan militarily. But you can be sure of this. At some stage during the next presidency, Iran will blow up into a full-scale crisis that will dominate global politics and that may indeed be more important even than the other problems listed above.

The new president will have one modestly useful extra resource, a bipartisan report commissioned by two former US senators and written primarily by Middle East expert Michael Rubin of the American Enterprise Institute. The Weekend Australian has obtained a copy of the report, to be released later this week. Before I got the report, I had a long discussion with Rubin.

Rubin is a Republican, but the report he wrote was the consensus work of a bipartisan taskforce that includes Dennis Ross, Obama’s key Middle East adviser.

The report is sobering and in some ways shocking reading. It begins baldly: “A nuclear weapons capable Islamic Republic of Iran is strategically untenable.”

It points to the disastrous consequences of an Iran with nuclear weapons: “Iran’s nuclear development may pose the most significant strategic threat to the US during the next administration. …

John Fund on how the crisis took hold in our economy.

We will look back on the failure of Congress to reform the government-sponsored enterprises at the heart of the mortgage meltdown as one of the most expensive derelictions of its duty ever. Fannie Mae and Freddie Mac used their lobbying clout, political contributions and even charitable largesse to charm or bully anyone demanding reform in their lending practices. …

Jeff Jacoby with similar details.

… Because while the mortgage crisis convulsing Wall Street has its share of private-sector culprits they weren’t the ones who “got us into this mess.” Barney Frank’s talking points notwithstanding, mortgage lenders didn’t wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers. It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so – or else.

The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and “redlining” because urban blacks were being denied mortgages at a higher rate than suburban whites.

The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to “meet the credit needs” of “low-income, minority, and distressed neighborhoods.” Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this “subprime” lending by authorizing ever more “flexible” criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued.

All this was justified as a means of increasing homeownership among minorities and the poor. …

IBD editors back the “rescue” plan.

… Watching the same politicians who created this mess grill Mssrs. Paulson and Bernanke yesterday about what they intend to do about it was almost surreal.

Where, for example, does Chris Dodd, chairman of the Senate Banking Committee and the leading recipient of Fannie Mae campaign cash, get off acting so self-righteously when he and his panel were asked to move quickly on the administration’s $700 billion rescue plan?

“I understand speed is important,” Dodd huffed, “but I’m far more interested in whether we get this right.”

Get this right? Who is he kidding? …

Richard Epstein does not.

… It had been my devout wish to write a set of disinterested columns about labor markets to illustrate the power of the presumption against state regulation of voluntary agreements. But the financial meltdown of the past week has rudely interrupted my plan to pillory the minimum wage.

Instead, I shall turn on a dime to address two connected questions: How did we get to that sorry state where great institutions topple, and what should be done?

On both questions, our bipartisan consensus is holding true to form. In a system that is chock-full of heavy regulation, they instantly blame the current collapse on the excesses of the free market, for which a still heavier dose of regulation supplies some supposed cure. That indictment contains few particulars. It typically rests on a populist broadside whose centerpiece is greed on Wall Street, but never on Main Street–where there are more voters. …

Same with David Warren.

… President Bush might as well be a Democrat in this pantomime. The package he commissioned from Mr. Paulson was, naturally, designed to pass quickly through a Democrat-controlled Congress. It was arguably the only responsible thing for him to do, given the pressure of time.

I may be in a minority of one, however, by further suggesting that John McCain was in fact showing real leadership by dropping everything and rushing to Washington — for the express purpose of contributing to an agreement between the “hard knob” and “the rest.” We’ll see how badly this blows up in his face — while Barack Obama stands by doing, as usual, nothing of consequence, but “looking presidential.”

National Geographic with the latest efforts to solve the Neanderthal mystery. This is Part 1 of 2. Since we were earlier speaking of the troglodyte Ahmedinejad, it seemed appropriate to include this interesting piece from NatGeo.

In March of 1994 some spelunkers exploring an extensive cave system in northern Spain poked their lights into a small side gallery and noticed two human mandibles jutting out of the sandy soil. The cave, called El Sidrón, lay in the midst of a remote upland forest of chestnut and oak trees in the province of Asturias, just south of the Bay of Biscay. Suspecting that the jawbones might date back as far as the Spanish Civil War, when Republican partisans used El Sidrón to hide from Franco’s soldiers, the cavers immediately notified the local Guardia Civil.

But when police investigators inspected the gallery, they discovered the remains of a much larger—and, it would turn out, much older—tragedy.

Within days, law enforcement officials had shoveled out some 140 bones, and a local judge ordered the remains sent to the national forensic pathology institute in Madrid. By the time scientists finished their analysis (it took the better part of six years), Spain had its earliest cold case. The bones from El Sidrón were not Republican soldiers, but the fossilized remains of a group of Neanderthals who lived, and perhaps died violently, approximately 43,000 years ago. The locale places them at one of the most important geographical intersections of prehistory, and the date puts them squarely at the center of one of the most enduring mysteries in all of human evolution. …

Division of Labour post shows petty officious government bastards are always with us.

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WSJ Op-Ed builds on the Woodward book to point to the generals who led us astray in Iraq.

… According to Mr. Woodward’s account, the uniformed military not only opposed the surge, insisting that their advice be followed; it then subsequently worked to undermine the president once he decided on another strategy.

In one respect, the actions taken by military opponents of the surge, e.g. “foot-dragging,” “slow-rolling” and selective leaking are, unfortunately, all-too-characteristic of U.S. civil-military relations during the last decade and a half. But the picture Mr. Woodward draws is far more troubling. Even after the policy had been laid down, the bulk of the senior U.S. military leadership — the chairman of the Joint Chiefs of Staff, Adm. Mike Mullen, the rest of the Joint Chiefs, and Gen. Abizaid’s successor, Adm. William Fallon, actively worked against the implementation of the president’s policy.

If Mr. Woodward’s account is true, it means that not since Gen. McClellan attempted to sabotage Lincoln’s war policy in 1862 has the leadership of the U.S. military so blatantly attempted to undermine a president in the pursuit of his constitutional authority. It should be obvious that such active opposition to a president’s policy poses a threat to the health of the civil-military balance in a republic.

John Stossel wants to know what happened to market discipline.

Barack Obama says, “[Today's economic problems are] a stark reminder of the failures of … an economic philosophy that sees any regulation at all as unwise and unnecessary” .

What? Does that mean that until last week the Bush administration embraced the free market? Nonsense. Governments at all levels have regulated and subsidized the housing and financial industries for years. Nothing changed under President Bush.

The government-backed Fannie Mae and Freddie Mac were created precisely to interfere with the housing and mortgage markets. In effect, Freddie and Fannie diverted money to people who wouldn’t have qualified for mortgages in a real private market.

Had actual private companies performed these activities, they would have been subject to market checks. But they were not. The results were predictable.

Now that it’s all tumbling down, the politicians and pundits blame the free market.

It’s not simply misunderstanding. It’s demagoguery by people who will never admit that their “progressive” social policies have spawned a taxpayer bill that boggles the mind.

This is a story not of private enterprise but of cynical political opportunism. Moral hazard — the poisonous mix of private profits and taxpayer-covered losses — is what you get when politicians indulge their hubris to redesign society. The bailout of those companies holding bad mortgages — big-business socialism — sets us up for the next crisis.

David Warren has similar thoughts.

… Any reader who has followed me for some time will guess that I am appalled by the (purported) $700 billion bailout that U.S. President George W. Bush and Treasury Secretary Henry Paulson have organized, yet cannot reasonably oppose it at a moment when the markets are close to a true meltdown. I am further appalled by the spectacle of the Democrats in the U.S. Congress, exploiting the emergency to affix massive quantities of poorly disguised pork to the blunderbuss bill.

And finally, appalled by the media and chattering heads calling the whole mess a “crisis of capitalism” when the plain facts show the opposite. The whole “subprime mortgage” instrument was invented by bankers specifically to assuage heavy-handed Congressional demands to swell the number of minority and low-income homeowners, 20 years ago. Fannie Mae and Freddie Mac were already bloated quasi-government bureaucracies, dangerously freed from many conventional market disciplines. And among the chief beneficiaries of the current bailout are the most extravagant contributors to the Democrat Party.

As one of my more knowing correspondents put it: “Wall Street loves money but hates free markets, because free markets distribute economic benefits to those who earn them, rather than to those best able to seize them.”

The capitalist investment bankers stand accused, rightly, of having invented brilliant kiting schemes — ultimately to deliver credit to customers who hadn’t earned it. Their “greed” is irrelevant — everyone is trying to make money. The point is that the schemes themselves were basically unsound. The lesson is that when home ownership is considered a “right” instead of a privilege, it is not only the housing market that goes bottom up. …

Power Line spots a 2003 NY Times article on Fannie/Freddie.

… ”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.” …

As usual, David Harsanyi has interesting thoughts.

Politicians expend a considerable amount of energy trying to prove they are just like you or me. Well, it turns out, they aren’t lying. Just like you and me, they have absolutely no clue what’s going on.

And watching these people endeavor to “rescue” us from financial apocalypse only crystallizes, once again, that Washington is the preferred destination of the ethically disabled.

Take John McCain’s reaction to the recent financial emergency. It was a progression of platitudinous canards brimming with crowd-pleasing words like “greed,” “speculators” and other assorted bogeymen.

McCain claimed that he would have fired Christopher Cox, the chairman of the Securities and Exchange Commission, for having “betrayed the public’s trust.” The fact that Cox didn’t actually break any laws or write any regulations is immaterial when a presidential candidate is stalking a scapegoat.

Then, in a bizarre moment during a “60 Minutes” interview, McCain the Maverick raised the possibility of tapping New York Democrat Andrew Cuomo to whip Wall Street into shape. “This may sound a little unusual,” McCain said. “I think he is somebody who could restore some credibility, lend some bipartisanship to this effort.”

Unusual, indeed. It did not go unnoticed by many onlookers that as the secretary of Housing and Urban Development under President Bill Clinton, Cuomo was one of the people who supported lending practices that allowed Fannie and Freddie to monopolize the sub-prime markets with risky loans and precious little oversight.

Ready to fire. Ready to hire. Ready to lead? …

The Economist reports on the privatization of Alaska halibut fisheries.

BEFORE 1995 the annual fishing season for Alaskan halibut lasted all of three days. Whatever the weather, come hell or—literally—high water, fishermen would be out on those few days trying to catch as much halibut as they could. Those that were lucky enough to make it home alive, or without serious injury, found that the price of halibut had collapsed because the market was flooded.

Like most other fisheries in the world, Alaska’s halibut fishery was overexploited—despite the efforts of managers. Across the oceans, fishermen are caught up in a “race to fish” their quotas, a race that has had tragic, and environmentally disastrous, consequences over many decades. But in 1995 Alaska’s halibut fishermen decided to privatise their fishery by dividing up the annual quota into “catch shares” that were owned, in perpetuity, by each fisherman. It changed everything. …

BBC News covers fishing privatization in other parts of the world.

Giving fishermen long-term rights to catch fish is key to keeping stocks healthy, scientists conclude.

A global survey found that fisheries managed using individual transferable quotas (ITQs) were half as likely to collapse as others. Long-term quotas give fishermen a stake in conserving fish stocks. The study was published in the journal Science just a day after the European Commission announced a major review of EU fisheries policy.

“Under open access, you have a free-for-all race to fish, which ultimately leads to collapse,” said research leader Christopher Costello from the University of California at Santa Barbara (UCSB). “But when you allocate shares of the catch, then there is an incentive to protect it.”

The principle of ITQs is straightforward. A safe level of catch is set for a given species or group of species in a prescribed area, and that catch is shared out between individual boats or fleets. The total allowable catch can rise or fall from year to year according to what scientists judge to be sustainable. But the shares are guaranteed for a set number of years. They can be traded or transferred, but no new shares are allowed. …

WSJ reports on study of regional personality traits.

Certain regional stereotypes have long since become clichés: The stressed-out New Yorker. The laid-back Californian.

But the conscientious Floridian? The neurotic Kentuckian?

You bet — at least, according to new research on the geography of personality. Based on more than 600,000 questionnaires and published in the journal Perspectives on Psychological Science, the study maps regional clusters of personality traits, then overlays state-by-state data on crime, health and economic development in search of correlations.

Even after controlling for variables such as race, income and education levels, a state’s dominant personality turns out to be strongly linked to certain outcomes. Amiable states, like Minnesota, tend to be lower in crime. Dutiful states — an eclectic bunch that includes New Mexico, North Carolina and Utah — produce a disproportionate share of mathematicians. States that rank high in openness to new ideas are quite creative, as measured by per-capita patent production. But they’re also high-crime and a bit aloof. Apparently, Californians don’t much like socializing, the research suggests. …

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There’s a good picture here of Pickerhead on the job. It’s at the start of the humor section in back.

Max Boot says don’t sell America short.

… What the pessimists ignore is that the fundamentals of the U.S. economy remain strong. Indeed, the World Economic Forum has ranked the United States as the world’s most competitive economy for the last two years. (The new survey comes out next month.) Its statistics show that per-capita gross domestic product in the U.S. consistently has grown faster than in other developed economies since 1980.

Looking deeper at the causes of American competitiveness shows that we score especially strongly not only in domestic market size (No. 1 in the world) but also in such areas as time required to start a business (No. 3), venture capital availability (No. 1), the cost of firing an employee (No. 1), ownership of personal computers (No. 2), university/industry research collaboration (No. 1) and quality of scientific research institutions (No. 2). The availability of venture capital might be affected temporarily by the market turmoil, and we should worry if Democrats gain control of both ends of Pennsylvania Avenue in November because they might exacerbate what the survey found to be the two most “problematic” issues for doing business in the U.S. — high tax rates and cumbersome tax regulations.

But whatever happens in the next few months, most of the other advantages that have been powering the U.S. economy forward for decades will remain unchanged.

So too will another vital statistic: population growth. According to federal statistics, the fertility rate in the U.S., where each woman has on average 2.1 children, is now the highest among major industrialized economies. We are above replacement level while Europe, Japan and other industrialized economies have long been beneath it. That means that, even as our major competitors have to cope with graying populations, declining productivity and increasing pension costs, our population will remain relatively youthful and vibrant, notwithstanding the retirement of the baby boomers. This advantage is enhanced by our ability to attract and integrate hardworking immigrants from around the world. …

Tony Blankley writes on the media’s Obama cheering sections.

The mainstream media have gone over the line and are now straight-out propagandists for the Obama campaign.

While they have been liberal and blinkered in their worldview for decades, in 2007-08, for the first time, the major media consciously are covering for one candidate for president and consciously are knifing the other. This is no longer journalism; it is simply propaganda. (The American left-wing version of the Volkischer Beobachter cannot be far behind.)

And as a result, we are less than seven weeks away from possibly electing a president who has not been thoroughly or even halfway honestly presented to the country by our watchdogs — the press. The image of Obama that the press has presented to the public is not a fair approximation of the real man. They consciously have ignored whole years of his life and have shown a lack of curiosity about such gaps, which bespeaks a lack of journalistic instinct. …

Power Line posts on the latest poll showing 9 points up for Obama. Here’s some old wisdom from Pickerhead; figures don’t lie, but liars figure.

In 2005 there was an opportunity to attack the problems at Fannie/Freddie. Kevin Hassett at Bloomberg News has the story.

The financial crisis of the past year has provided a number of surprising twists and turns, and from Bear Stearns Cos. to American International Group Inc., ambiguity has been a big part of the story.

Why did Bear Stearns fail, and how does that relate to AIG? It all seems so complex.

But really, it isn’t. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally.

Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. …

Christopher Hitchens wants to know if Obama’s another Dukakis.

… The Dukakis comparison is, of course, a cruel one, but it raises a couple more questions that must be faced. We are told by outraged Democrats that many voters still believe, thanks to some smear job, that Sen. Obama is a Muslim. Yet who is the most famous source of this supposedly appalling libel (as if an American candidate cannot be of any religion or none)? Absent any anonymous whispering campaign, the person who did most to insinuate the idea in public—”There is nothing to base that on. As far as I know“—was Obama’s fellow Democrat and the junior senator from New York. It was much the same in 1988, when Al Gore brought up the Dukakis furlough program, later to be made infamous by the name Willie Horton, against the hapless governor of Massachusetts who was then his rival for the nomination.

By the end of that grueling campaign season, a lot of us had got the idea that Dukakis actually wanted to lose—or was at the very least scared of winning. Why do I sometimes get the same idea about Obama? To put it a touch more precisely, what I suspect in his case is that he had no idea of winning this time around. He was running in Iowa and New Hampshire to seed the ground for 2012, not 2008, and then the enthusiasm of his supporters (and the weird coincidence of a strong John Edwards showing in Iowa) put him at the front of the pack. Yet, having suddenly got the leadership position, he hadn’t the faintest idea what to do with it or what to do about it.

Look at the record, and at Obama’s replies to essential and pressing questions. The surge in Iraq? I’ll answer that only if you insist. The credit crunch? Please may I be photographed with Bill Clinton’s economic team? Georgia? After you, please, Sen. McCain. A vice-presidential nominee? What about a guy who, despite his various qualities, is picked because he has almost no enemies among Democratic interest groups? …

Steve Malanga in City Journal with report on the new crop of urban pan-handlers.

Barbara Bradley, an editor with the Memphis Commercial Appeal, moved into the River City’s reviving downtown about a year and a half ago, loving its “energy and enthusiasm.” But a horde of invading panhandlers has cooled her enjoyment of city life. Earlier this year, she recalled in a recent column, as she showed some visitors around the neighborhood, “a big panhandler blocked the entrance to our parking area and demanded his toll.” Now a nervous Bradley avoids certain downtown areas, locks her car when fueling up at local gas stations, and parks strategically, so that she can see beggars coming before getting out of her car. “When I hear someone call out ‘ma’am, ma’am’ anywhere in downtown or midtown, I run.”

She’s not alone. Cities have overcome myriad obstacles in revitalizing their downtowns, from lousy transportation systems to tough competition from suburban shopping malls. But nearly 15 years after New York City mayor Rudolph Giuliani and his police chief, William Bratton, vanquished Gotham’s notorious squeegee men and brought aggressive panhandling under control, other cities are facing a new wave of “spangers” (that is, spare-change artists) who threaten their newfound prosperity by harassing residents, tourists, and businesses. Unlike their predecessors in the seventies and eighties, many of these new beggars aren’t helpless victims or even homeless. Rather, they belong to a diverse and swelling community of street people who have made panhandling their calling. …