The National Observer

For years and years a minority of savvy people would ask themselves, “Just how long can this go on?” The “this” was lending people money that they were not earning enough to repay. Now we know. Now the question is not how long can this go on but how come it went on so long.

Lending money to dubious risks is hardly something invented in the past 10 or 15 years. Until recently, however, the rule was that high risks paid high interest rates. The payday loan industry operates on that basis, as do the gangsters who lend to people gambling on sporting events. For that class of borrowers failure to pay may also entail knee-capping or finger-smashing.

Knee-capping, however, does not necessarily get a gangster/borrower his money back. Such lenders draw a line at proven deadbeats. They are denied loans.

Thus, in a crude way, the nether regions of the credit system have been self-regulating. It does not take government regulation for some people to figure out that if you cannot afford the interest, don’t borrow the money; or, conversely, if the applicant looks like a really bad risk, regardless of the interest, don’t make the loan. Proper assessment of risk ensures that the guys with the baseball bats, or the slightly more respectable payday lenders, do not suffer fatal financial bubbles.

In our case, the simple set of relationships obtaining in the netherworld of credit has been disrupted over the years. The first disruption, and least important, was setting price controls on money via the usury laws. Controls on the price of money—that is, interest—are easily evaded but they foster a climate of dishonesty, black marketeering and forms of bookkeeping that defeat transparency. It is surprising that Hillary Clinton, with her oft-boasted experience, did not understand what she was advocating when she came out in favor of putting a cap or price controls on mortgage interest rates.

The disruption of self-regulation in borrowing and lending in the upper world of finance begins with the government policy of promoting low interest rates. The rates were not forced down by promulgating price control rules but by making money cheap, by, in effect, printing a lot of it. The connection between high interest rates and high risk was broken. When self-regulation is working, only good risks get low rates; now everybody got them.

Both political parties were content. The business people backing the Republicans were having trouble counting the money, it was coming in so fast. The Democrats were seeing a jump in the standard of living of their lower-income constituents. In the past few years, low-interest, no-down-payment financing had come close to being a substitute for public or subsidized housing. The difference was, as few cared to say out loud, that sooner or later the new homeowners would have to pay for their nice new homes.

The old system of self-regulation roughly worked because of self-interest. Bankers did not want to get stung by making bad loans. The new system of low interest rates might have gone on working—sort of—if the self-regulatory arrangement had been buttressed or replaced by public regulation. But regulating is no fun and nobody wanted to do it, and so it did not get done.

Anyway, thanks to low interest and the Fed printing press, everybody was swimming in cheap money. In short order avarice coupled with idiotic optimism made businesspeople stop doing their job, which is to understand the risks of each and every transaction. Instead, they proceeded apace, believing that higher prices would cover any problems.

The higher prices depended on the Fed keeping the country awash with money so that mortgages could be kept current by refinancing houses adjudged to be worth more by the hour. The moderation that supply and demand normally imposes was vitiated in a gold rush frenzy.

What was happening in real estate was happening in cars and retail sales, thanks to the banks’ credit card divisions. There also interest rates were decoupled from risk and credit was extended to anybody with a pulse. College kids and doddering ancients living on Social Security were offered credit cards. Instead of the banks and the bond packagers who bought the credit card debt doing their job, which consisted of saying no to credit-unworthy applicants, the banks lobbied through Congress new, tough strictures in the borrower bankruptcy law. Next Page >

While cam-paigning, Barack Obama is often heard to quote his wife, Michelle, saying, “We are not that far away from being normal.” He then goes on to explain that it was only five years ago that he and his wife were still struggling to pay off their student loans and were wondering how they could get together enough money to move out of their condo, which wasn’t big enough to hold them and their two little girls.

That was normal, meaning that the Obama family was experiencing what tens of millions of American families experience: Two jobs and still feeling the financial pressure of not quite bringing in enough to make it. The Obamas got out of their financial bind when, as he says, he made big money on his book and was elected to the Senate. He knows that he is no longer normal. Nevertheless, his normal days are not so long ago that he has forgotten how the end of the month can be a family money crisis.

You may be sure that not a few of his auditors sit in meeting halls and gyms listening to him in near rapture while they count on their fingers how many years it must be since Hillary was normal. It was 32 years ago that her husband was elected governor of Arkansas and the Clinton family left off being normal to begin their crawl higher up on the hog and the social scale. It’s been 20 years or so since her friends were not billionaires or movie stars.

It’s been a long time away from normal for John Edwards. He has made very many millions as a liability lawyer suing very large commercial enterprises on behalf of very small plaintiffs. In a time when there are no unions and most governmental entities are indifferent to our personal plights, Mr. Edwards and his ilk are often our only and last resort, but that does not make his occupation tasty.

Mr. Edwards says he has been battling against the T. rex corporations, but we remember that he got rich at it, and we wonder what his clients got. Then again, the candidate’s parents, South Carolina textile mill hands, appear at his rallies. They are the real McCoy, sitting there with labor-stained faces. The fact that he brings them and talks about their lives of low pay and hard work is an indicator that John Edwards has not, as they say in the South, “got above his raisin’.”

You do not get the impression that the Republican candidates, Mike Huckabee excepted, would have the wildest idea what Mr. Obama is talking about when he is discussing five years away from normal. John McCain, a fine and brave man deserving much respect, is the son of an admiral who was the son of an admiral. The McCains did good, but they are not normal and never were.

Fred Thompson comes from workaday beginnings, but he kissed normal goodbye many years ago. As for Rudy Giuliani, you have the impression that for him, those who live in Normal Land are potential marks, persons waiting to be taken by the clients he serves through the dubious medium of Giuliani Partners LLC, the enterprise through which he has pocketed millions. Mitt Romney is strictly a silver-spoon boy.

Ron Paul and Mike Huckabee would understand what Mr. Obama’s normal means. Mr. Paul grew up on the family dairy farm in Pennsylvania, the son of a man whose schooling stopped at the eighth grade. He worked to put himself through college and medical school, ultimately becoming an OB-GYN, but as a libertarian he has embraced a political philosophy that deifies government impotency, so his sympathies avail us nothing.

Mr. Huckabee’s father was a fireman and a mechanic and his mother was a clerk at the gas company, so he grew up in a two-income family, and you cannot do that without knowing exactly what normal means. If that were not enough, he graduated from Ouachita Baptist University, which fact tells you plenty about where Mr. Huckabee hails from.

But there is a difference between understanding and sympathizing with those who live normal lives, and figuring out what to do about it. Other than decrying the gradual impingement of ever harsher necessities on our families, what do we do?

The Republican answer is to cut taxes, but there comes a point when tax-cutting doesn’t cut it anymore. Next Page >

As the bromides and bunkum of primary season lurch into caucus-eve overdrive in Iowa, the rest of the world has upstaged the election-addled news cycle. A new Osama bin Laden video, a Colombian hostage crisis and—most of all—the assassination of former Pakistani Prime Minister Benazir Bhutto have made weary onlookers newly aware that there will be a long, grave to-do list awaiting whichever candidate prevails in the cartoonish 2008 presidential race.

Bhutto’s death marks the most sobering setback for the U.S. policy elite because it points up the absence of any coherent policy in the critical majority-Muslim nation, now the third-leading recipient of U.S. military aid, behind Israel and Egypt.

Ever since the terrorist attacks of Sept. 11, the Bush White House has let American policy chime in unison with the interests of Pakistan’s strongman leader Pervez Musharraf—whom candidate George W. Bush famously failed to name in a 2000 campaign pop quiz on world affairs shortly after Musharraf came to power in a bloodless coup. Indeed, the upcoming January Pakistan election—which may be delayed several weeks as Bhutto’s son and widower succeed her as joint leaders of the Pakistan Peoples Party—marked the first significant U.S. deviation from its no-strings-attached commitment to shoring up General Musharraf’s increasingly authoritarian regime. State Department representatives let General Musharraf know that he would be expected to minimize tampering with this month’s Pakistani presidential ballot—which even in the best of times falls significantly short of “free and fair” status—while also relinquishing his leadership position in the always influential Pakistani military.

These were modest policy departures. But even so, observers of the region note, it was a tough sell to White House hardliners.

“The decision to try to be the broker of a deal between Benazir and Pervez was a divisive question in the White House,” says Bruce Riedel, a 30-year C.I.A. veteran who served as a South Asian national security adviser to the administrations of George H.W. Bush, Bill Clinton and George W. Bush and now is a senior fellow at the Saban Center for Middle East Policy at the Brookings Institution. “The National Security Council and the vice president’s office had to be convinced under a lot of pressure to come around to this, and I suspect that their hearts were never fully in it.”

One stark measure of this lassitude was the clear alarm sounded by a pair of suicide-bomb attacks on pro-Bhutto crowds greeting the opposition candidate as she headed to the Karachi airport after a major rally in support of her candidacy. After the attack—which claimed the lives of more than 140 Pakistanis—Texas Democratic Representative Shelia Jackson Lee, who co-chairs the House Pakistan caucus, wrote to Secretary of State Condoleezza Rice imploring the United States to pursue more active security measures in concert with the United Nations to ensure the safety of Bhutto, General Musharraf and other Pakistani political leaders. Senators Joseph Biden, Patrick Leahy and Joseph Lieberman sent a similar letter directly to General Musharraf—a legislative overture that wouldn’t be necessary if a more robust White House commitment to the security of Bhutto and other candidates were in place.

“Over the last two or three months, we’ve been crying ourselves hoarse to the United States and Musharraf to provide Madame Bhutto with more security,” says a U.S. representative of the P.P.P. who requested anonymity due to Pakistan’s volatile political state. “There were intimidation and harassment happening every night. In the middle of the night, I’d get an e-mail from one of her rallies saying there was full security on hand—and then, a few hours later, I’d hear that all the security was gone. These harassment tactics had been going on for months—and for God’s sake, this is a former prime minister we’re talking about.”

One can only hope that General Musharraf and his U.S. backers will step up security measures as Bhutto’s husband, Asif Ali Zardari, and son, Bilawal Zardari, succeed to the P.P.P. leadership for the coming elections. Next Page >

Gullible voters keen to treat the onset of the 2008 primary season as a hale sign of life in the American democratic system had best avert their gaze from Capitol Hill this week. For as Congress winds down the year’s business with earmark-laden appropriations bills and unsightly cave-ins to Bush prerogative after Bush prerogative, the governing metaphor is not the campaign scene’s notorious horse race—something that, for all its by-the-numbers familiarity, at least connotes forward motion. The most fitting template for Congress, rather, is the La Brea Tar Pits—a place where doomed life-forms absently topple into the sticky abyss, with only their outward frames preserved for puzzled generations centuries down the line.

The Democrats now masterminding the 110th Congress, after all, stunned observers last November by sweeping into majorities in both the House and Senate on vows to end the dismal U.S. engagement in Iraq and bring desperately needed honesty and transparency to government. Little more than a year later, Nancy Pelosi’s House and Harry Reid’s Senate have, after much righteous huffing and puffing, rolled over on all the White House’s war-funding measures, failing to approve any timeline for a troop withdrawal from Iraq. The latest Congressional timeline appeared under the magisterial title, “The Orderly and Responsible Iraq Redeployment Appropriations Act.” But after the House passed it, the Senate proved neither orderly nor responsible enough to defeat a cloture motion. So after entertaining more than a dozen legislative proposals for exit strategies and timelines, the Democratic 110th has functioned in exactly the same fashion as its Republican predecessors—the only difference being that the G.O.P. majorities moved war-funding measures with the alacrity of short-order cooks, whereas Ms. Pelosi’s Democrats seem to favor the slow food movement.

By her own admission, Ms. Pelosi underestimated how deeply her Republican colleagues were invested in the continued occupation of Iraq. At a recent press conference, the speaker marveled that they hadn’t “shared the view of so many of our people that we needed a new direction in Iraq”; that in fact Republicans “like” the war, politically speaking—and so she’s reluctantly concluded “that this is not just George Bush’s war. This is the war of Republicans in Congress.”
As is typical of Beltway news cycles, Ms. Pelosi’s comments sparked a meaningless furor over the idea of her loyal opposition liking the war. And so—fortunately for her—she had to issue a mild clarification, permitting the whole thing to blow over before anyone gave much thought to how dunderheaded the substance of this appraisal was. Surely no other recent speaker assumed, coming into power, that the majority party would automatically win consent from the new minority party solely on the grounds that “so many of our people” would nudge them that way. How had Ms. Pelosi been occupying herself in 2002, when Karl Rove’s campaign machine used the mythic threat of a WMD-armed Iraq to cruise to historic pickups in a midterm cycle? Had she napped through the gruesome 9/11 mournography of the G.O.P.’s 2004 New York convention?

Of course “this is the war of Republicans in Congress”; it’s how many of them managed to hang on to their jobs. Expecting that dynamic to magically change based on the ’06 midterm results is tantamount to making the voters do the Democratic leadership’s job. Apparently, Ms. Pelosi thinks that the shiny ’06 mandate functions as a get-out-of-conference card that will spare them the hard work of arm-twisting and deal-brokering to win some progress toward a pullout—and facing up to the hard political consequences of getting an actual troop withdrawal on track. Even Dick Cheney, who for all his executive branch blood lust remains a close student of House power plays, recently told a trio of interviewers from the Politico that he’d been astonished at the failure of the Democrats to wield any “big stick” in the Iraq funding battles. “I’m frankly surprised at why, after all of the efforts they’ve made to try to hook up various provisions on Iraq to the spending bill, they’ve been unsuccessful.”

Meanwhile, as major party leaders have been professing all this surprise at each other, the all-too-familiar appropriations on the Hill grind on as they always have. Yes, Congress did enact ballyhooed new disclosure rules to bring more of the grisly practice of earmarking—i.e., the last-minute introduction of parochial spending projects likely to enhance an incumbent lawmaker’s reelection prospects into the parliamentary clusterfuck known as the appropriations process. But that’s done nothing to slow the brisk trade in earmarking—especially for appropriations subcommittee lords such as Pennsylvania Democrat Jack Murtha and Democrats who narrowly took seats from the G.O.P. side last cycle. As my CQ colleague Jonathan Allen has reported, the Appropriations Committee fielded more than 33,000 earmarks request from lawmakers this year. But even Congress can only sluice so much pork into awaiting home-district barrels; the Appropriations Committee only summoned the scratch for one-fifth of this year’s earmark requests. When the House Appropriations chairman made the impolitic suggestion of meeting the White House’s proposed discretionary spending cap of $933 billion by simply pulling the plug on all pending earmarks, he was all but hooted off the stage—by Congressional leaders of both parties. Indeed, just as the appropriations melee was heaving into its final phase, the Senate minority leader, Mitch McConnell—a lawmaker who’s never met an industry PAC or special-interest boondoggle he didn’t adore—was already airing campaign ads in his home state of Kentucky touting his prowess in pulling down some $200 million in earmarks.

Mr. McConnell’s chief enforcer, the outgoing minority whip, Trent Lott, tried a bit more subtly to depict Obey’s proposal as an affront to singing-senator-style chamber decorum. “All it would do is make people mad and delay everything,” Mr. Lott pouted. And Ms. Pelosi is falling incoherently into line as it seems only she can. As Congress prepared on Monday to hit most every item on the White House’s wish list—including a likely Senate amendment for $70 billion in unconditional war funding, the speaker burbled that the appropriations package “will meet the standards we talked about, which is the president’s number, our priorities.” In other words: Whatever, we got the system juiced for the next election cycle, and put off any real fiscal reckonings into the next fiscal year.
And they say that bipartisanship is dead? Next Page >

This is no time for trade union idiocy, but we’ve got it anyway. The International Alliance of Theatrical Stage Employees are back at work, but employers succeeded in making the case that this union struck for what used to be called featherbedding. Featherbedding is a union contract that includes paying workers for not working. In the overworked and perpetually exhausted society that is our current-day America, news of such goings-on confirms the idea in many a head that unions have little to offer.

The television and movie writers strike has not been much of a help either. Though the strikers may have good and sufficient reason to walk out on their jobs, the way they did it came through on television as some kind of celebrity lark being pulled off by overpaid people feeling indignant that their cushy life is not cushy enough. In fact, as just noted, the writers may have a real case, but they did not present it well, and as a result, unionism took it on the chops yet one more time.

As if that were not enough, the generous coverage of the French transportation strike has also reinforced the opinion that unions exist to defend the entrenched privilege of a few lucky workers. The issues in the French strike make it appear, perhaps correctly, that the striking unions are fighting to retain such bennies as full and permanent retirement at age 50. This is coming at a time when all of American automobile workers have just suffered cuts in their compensation of a third or more, and that is with a union.

Americans are bombarded by anti-union messages, explicit and implicit, about as often as we are hit with TV pizza ads. One of our two major political parties is openly dedicated to the destruction of all trade unionism, while the other sells out unions whenever the mob of K Street corruptionists passes out the bribes.

Unions are such public institutions that when they go wrong, which they did often enough in the past, everybody sees it. They are unlike the banks, hedge funds and Wall Street brokerage houses, which get away with murder and are exposed only when something like the subprime disaster threatens to destroy the finances of hundreds of thousands of ordinary working people.

John L. Lewis, who was to the labor movement of the 1930’s what Dr. Martin Luther King Jr, was to the civil rights movement of the 1960’s, is supposed to have said that a bad union is better than no union. For practical purposes, we have been living the past 40 years in a near-no-union society. During these past two generations, each year has seen more employees or workers of whatever stripe and occupation limp on with less and less representation.

One view of how that has worked out for us is provided by Elizabeth Warren, a professor of law at Harvard University. This is how Professor Warren describes the, ahem, progress of the past 40 years:

“In the second half of the 20th century, the single most important economic thing that happened is that millions of mothers poured back into the workforce, and that’s the only thing that kept family income rising. Starting in about 1970, a fully employed male’s wages completely flattened out, and in fact, a fully employed male today, on average, median, earns about $800 less than his dad earned a generation ago. … Wages flatten for men and the family does better only if they can put two people on the workforce, and the norm switches from a one-earner family to a two-earner family, for those who are lucky enough to have it. Now if that were the only thing that’s happened, you’d think we should be richer. We should have more savings; we should have very little debt. But expenses in the same 30-year period far outstripped what the families are spending, and I’m not talking about consumer price index.

“Here’s the division. I want to compare a mom, dad and two kids today with a mom, dad and two kids 30 years ago, when you started a family in 1971, as I did. What happens on spending? Start with the consumption. This is what everyone [supposes], again, in the popular media, why are people in trouble: too many GameBoys, too many iPods, too many $200 sneakers. In fact, families today, adjusted for inflation, spend less on clothing; less on food, including eating out; less on furniture; less on appliances, than they spent a generation ago. Where they spend more is for [a] three-bedroom, one-bath house. The median family is spending 80 percent more on mortgage payments, adjusted for inflation, than they spent a generation ago. They’re spending about 75 percent more for health insurance than they spent a generation ago. … They’re paying for child care, which of course, they didn’t a generation ago.”

Professor Warren also points out that when one paycheck supported a family, there was a built-in safety net in case of illness or unemployment or some other urgent domestic need: The stay-at-home parent could temporarily take a job. Now, if there is a sudden financial jolt, it is a disaster for the family. The changes that she describes occurred simultaneously with the enfeeblement of organized labor. With the near demise of organized labor, it was not as though the great number of employees had exchanged the old representation for something different and better. They exchanged the old representation for precisely nothing.

The churches and “faith-based” organizations that put up a perpetual wall of sound bemoaning the weakening of family life do not address these questions, which have a hell of a lot more to do with fracturing the nuclear family than gay marriage.

There are no end of others lamenting what’s happening to the middle classes, but they offer little beside sympathy. You have amiable news celebs like Lou Dobbs on the case, but he has no program that might be of real help. You also have your Hillary Clintons, and they, too, are good at indignation without purpose, unless it is to get reelected.

If a reversal of direction is to come, it must be started by the affected themselves. The only way to do that is through collective action, which, by any name you wish to call it, means organizing unions. Next Page >

It used to be such a simple thing for Republican candidates to position themselves as modern conservative leaders of the faith.

You’d make coy campaign overtures to religious denominations that couldn’t officially endorse you. Point at the lurid God-baiting work of a liberal pop culture, a liberal media and a liberal university scene. Hotly denounce the activist courts, and their bids to treat abortion and euthanasia as counterculture party favors, while de-Christianizing the schools and the public square. Introduce symbolic variations as needed: NEA-funded blasphemies in the museums, gay marriage as mortal threat to civilization, secular tolerance as coddling of “Islamofascists,” the special Congressional session on the Terri Schiavo case, the “war on Christmas,” etc.  read more » Next Page >

Mr. Russert has found a safe way to be a bully and to embarrass those who do not have the protection afforded by the role of journalist.  read more » Next Page >

The Democratic primary field seems to operate under a hidden dictum of reverse momentum: Anytime the battle for early advantage in the race tightens, the actual content of the struggle goes slack.  read more » Next Page >

The underlying economic system that has brought us to this loan crisis grows crazier by the year.  read more » Next Page >

Mr. Obama is obviously up to mounting a much more content-driven appeal to voters—and has indeed been admirably direct in developing one in the “retail politics” forums of Iowa and New Hampshire.  read more » Next Page >

Since there is no rule requiring the United States to finish one war before starting the next, with each passing day the bookies are shortening the odds that Iran will be next.  read more » Next Page >

The White House has of late turned its attention to an unlikely candidate: the conflict between Israel and the Palestinians.  read more » Next Page >

“Now,” Alan Greenspan told The Wall Street Journal the other day, “it turns out politics is less important, domestically, than it was, because globalization is taking over an ever increasing part of the decision making process with the exception of national security.” What he says, many feel.  read more » Next Page >

It was like watching a mechanical rabbit spring onto the rail of a greyhound track: Over the weekend, the Des Moines Register reported the results of an October poll showing Democratic Senator Hillary Clinton pulling away from her two main competitors for the Hawkeye State’s January caucus vote.  read more » Next Page >

Now he tells us. Alan Greenspan has come out from behind the cloud of gas where he had hidden himself for the past couple of decades to say in public what he should have said years ago when it might have mattered.  read more » Next Page >

It’s certainly no news to New Yorkers that former Mayor Rudy Giuliani has a taste for the theatrical.  read more » Next Page >

Judging from recent reviews the world’s most efficient capital market has come a cropper.  read more » Next Page >

The most vital propaganda arm of the surge is largely the handiwork of former Republican National Committee Chairman Ed Gillespie.  read more » Next Page >

It took forever, but the government has announced that Medicare will no longer pay for hospital-caused diseases. The policy will cover hospital-caused injuries, preventable errors and infections.  read more » Next Page >

'Where's Ed Levi now that we need him?'  read more » Next Page >

The still-hypothetical Thompson candidacy is likely to prove a lot more vulnerable to attack than it seems on paper.  read more » Next Page >

As the subprime mortgage mess continues to play itself out, certain words that ought to pop up in the discussion are not to be heard. These are words like “fraud,” “conspiracy,” “misrepresentation” and “felony.”  read more » Next Page >

The court’s vacations are getting longer as, year after year, the justices take fewer cases. This may be just as well considering the damage they do on those occasions when they show up for work.  read more » Next Page >

All the conspicuous alarm over the first-ever YouTube presidential debate becoming terminally inane now seems quite overblown.  read more » Next Page >

Bruce Ackerman, a law professor at Yale, has come up with an idea that might possibly sell itself.  read more » Next Page >

Mr. Giuliani has won both the polls and the money sweepstakes by default.  read more » Next Page >

At the rate things are going, instead of wondering if he can win, many of us may be signing petitions begging Michael Bloomberg to run for president.  read more » Next Page >

Commutations come with quite explicit guidelines of their own – promulgated by the department of Justice back in the days before it became a Rove-branded house of patronage and prosecutions to solidify G.O.P. tactics of voter suppression.  read more » Next Page >

As if the new Fatah-appointed Palestinian prime minister doesn’t have enough to worry about, he had to put up with President George W. Bush describing him as “a good fellow” last week.  read more » Next Page >

When Washington has demonstrated that it has closed the borders, something which might, incidentally, discourage the rampant drug trade, it will be in a better position to bring forth some kind of program to legitimate the 12 million squatters or illegals or undocumenteds.  read more » Next Page >

On the basis of this track record, it would seem that the last thing in the world a society with its head screwed on tight would consider is establishing the beginnings of private militias within its own jurisdiction or territory. That, however, is what the United States appears to be doing.  read more » Next Page >

A move is underway to put Robert Moses back up on the pedestal where he stood in the 1930’s. If the people backing the rehabilitation of New York’s quondam transportation, housing and recreation czar succeed, they might consider Joseph Stalin for their next revisionist project.  read more » Next Page >

Poisoned pet-food ingredients are coming in from China. Are the Communists out to kill our pets, or is the mood in America beginning to shift?  read more » Next Page >

We have hit a wall. Congress will not close down the war. It is not going to happen.  read more » Next Page >