Cowboy Confessional

Mohan caught me by surprise.

Mohan is my taxi driver. He works the early mornings, taking hard travelers like myself to the airport. Every cab I’ve called for an o-dark-thirty departure resulted in Mohan arriving at my door.

Mohan is a Sikh, a member of a religious minority that had the bad sense of blending Hinduism and Islam and thus making enemies of both. Sikhs are common target practice in India, which helps to explain why they make up only 2% of that country’s population. It also explains why they always wear a smile in the United States — very few people are trying to kill them here. Well, there were a few dim witted folk who saw the Sikh’s customary turbans and in the post 9/11 paranoia beat a few Sikhs senseless.

I wanted Mohan’s opinion on the current financial crisis, fearing that the economic downturn might reduce air travel and thus his fares. Mohan said something that will likely stick in my mind until death (mine, not his).

“Everyone needs health, roof, food. After that money buys wants, not needs.”

That sentiment is dangerously close to Buddhist philosophy, which makes me wonder if the Sikh’s blended three religious disciplines and not just two.

“Health, roof, food.” Profound in simplicity and reminded me of a Jewish friend of mine named Andy. Andy had invested in home town real estate back in the 1980s, and then the local market bottomed out. He could not keep tenants, keep up on his mortgage payments, had properties repossessed and auctioned off, and ran into trouble with the IRS.

Yet he was always upbeat.

I asked him how in the hell he could be chipper given all that had and was happening to him. Andy shrugged and said “Nobody died. Nobody went hungry. Nobody is homeless. Can’t be too bad.”

Health, food, roof. I think I’ll introduce Andy to Mohan. They’d get along very well.

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As talking heads franticly attempt to lay blame on one political party or another for the current financial market meltdown, all have avoided asking what or who ignited the problem. They blame deregulation (wrong), Bush (wrong), the Democrat Congress (wrong, which may be a first).

The mark of Cain is on Alan Greenspan, former head witchdoctor of the Federal Reserve.

For whatever reasons Alan’s alleged mind concocted, Greenspan gathered the firewood, lit the kindling and blew on the flame that now engulfs the global financial markets. Feel free to reserve your place in the long line of people who will queue to piss on his grave.

Greenspan lowered the Federal Funds Rate to historic lows for an extended period of time. From 1954 through 2000, the average Federal Funds Rate was 6.1%. From 2001 to the time Greenspan left office, the average rate was 2.2%. In other words, Greenspan put money into the lending stream at 1/3rd the historic rate, and he did so for more than four years.

Every person and institution (and institutionalized persons including your Congressman) performs risk/reward analysis. Even muggers ponder the odds of being shot by an armed citizen before picking their target. Banks do the same thing. Before they lend money, they assess the risk. Part of the risk equation is “what is the cost of the money I’m lending?” If the cost of money is low, the risk is lowered and thus banks are willing to take bigger chances, including lending to people they otherwise would not.

This is the essence of the sub-prime “let’s lend money to anyone regardless of their credit worthiness” mortgage market. With plenty of cheap money available, lenders took increasingly larger risks. With each new home owner in the market, the housing supply shrank and thus home prices rose. This encouraged banks to lend to even riskier new home owners for even more inflated properties. This reinforcing cycle continued until the riskiest of loans started to default and a reverse chain reaction occurred.

In short, government caused the problem by creating a purely artificial situation. Money cost less than it would in a free market. Cheap money makes people stupid (look at any trust fund child). The Fed was stupid which made banks stupid enough to lend to people too stupid to otherwise risk lending money to.

There is no telling where this fiasco will end, but let history name it well: Greenspan’s Disaster.

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Being surprised is difficult. In San Francisco we are accustomed to what the outside world would considered oddities, and we elect many of them to office.

The fact that a pair of FDR mistakes have failed financially causes no surprise either.

Ignoring the imbecilic notion that any organization is “too large to fail” we witness this past week the bust of Fannie Mae and Freddie Mac. These ugly twins were sired by FDR as part of his infamous and borderline fascist Nuts Running America program. These agencies were originally federally owned and in one fell swoops replaced most of the secondary mortgage industry in America (strike one). After 30 years of screwing up and making most mortgages a government project, Congress (strike two) decided to semi-privatize the institutes. This created the worst of all models where profits were in the private sector and the risk was loaded onto the public (strike three).

And now that Fannie and Freddie and flopping, guess who is getting stuck with the bill?

The current mortgage market meltdown is almost completely the responsibility of the government and by proxy Fannie and Freddie. FDR thought it a grand idea to pump inflated currency into housing so people without jobs could own homes. During the past few decades they continued to push money into mortgage markets. Since FDR created these near-monopolies there was little distribution of risk and together Fannie and Freddie assumed nearly half of all mortgages.

Thus, the companies “too big to fail” are failing in a spectacular way.

This logic failure was accelerated during the recent housing bubble. To finance various wars, the government was out of necessity going into (more) debt. To balance the negative effect on the economy the Federal Reserve kept interest rates artificially low. Cheap government money was all Freddie and Fannie needed to indirectly loan money to a lot of people who lacked credit worthiness in order to buy properties with inflated values.

And yet nobody in government — including the quasi-governmental Freddie and Fannie — saw a problem with this.

Life is a risk vs. reward proposition. The lower the risk, the better any reward looks (this explains most petty street crime which today carries very little risk). Government lowered the risk in backing mortgages which in turn caused lenders to take ever bigger gambles. Had lenders been playing with purely private equity, the latest housing run-up would not have happened … and neither would have the current meltdown.

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An enduring and accurate accusation of the Bush administration is a reluctance to admit to mistakes. Bush and/or his operative eventually confess when it becomes painfully obvious that they screwed one or more pooches.

Obama is made from the same unsavory cloth. Two instances come immediately to mind.

Most recent was his now (in)famous punch line concerning putting lipstick on pigs. I have many years of experience in public speaking and recognize the common tactics used to communicate to and elicit responses from an audience. Obama’s use of well placed pauses before and after his punch line were employed to build anticipation of a memorable comment, and then to wait for the audience to get and respond to his reference.

The audience’s reaction shows they understood Obama’s veiled referral to Sarah Palin, McCain’s “lipstick pit-bull” running mate. The audience certainly was not amused by any novelty in the idea of pigs wearing lipstick — that line was in common circulation before I was born and is a staple of American business, engineering and politics. Everyone present had heard it before.

The problem is not so much that Obama did a dumb, dumb thing. We all do, and I for one have scars to prove many of my mistakes (and, no I cannot reveal the names of those mistakes but will leave it to say that I did have fun earning those particular scars). But Obama refused to admit he had made one. When flack flew after his remark, instead of confessing that his comment was unkind and unwarranted, Obama instead tried to bake the brouhaha as McCain pie.

“They seize on an innocent remark, try to take it out of context, throw up an outrageous ad, because they know that it’s catnip to the news media,”

It is George Bush all over again. Soon enough we’ll hear Obama tell Biden “You’re doing a heck of a job, Joey.”

The other instance Obama’s intellectual infidelity concerned some flags — and by “some” I mean several thousand — left behind as trash at the Democrat convention. It is impossible to mistake flags sharing rubbish bags with empty snack sacks, water bottles and ripped campaign signs. Stadium workers would not have bagged them as trash had they not been left as such. At very worst the Democrats National Committee made a bad assumption that their delegates possessed the modicum of patriotic pride required to take their flags home. After all with Flag Day, Memorial Day, and the 4th of July they could easily and effectively be reused. Worse perhaps is that the DNC had no plan for recovering and reusing these symbols of the Republic. One might think that the allegedly greener party would have such a recycling program in place. But the extravagant waste of money involved is more symbolic still.

When caught, Obama and his surrogates tried once again to dodge responsibility and make their lack of oversight a McCain issue. Karen Finney, the Democratic National Committee chief cretin claimed “John McCain … wrongfully took leftover bundles of our flags from the stadium to play out a cheap political stunt calling into question our patriotism.” As evidenced by photography, the DNC has an odd notion of how flags should be “bundled”. Also as evidenced by Ms. Finney, Obama’s party simply doesn’t give a damn.

Obama and the DNC’s desire to evade responsibility are too Bush-like for any man’s comfort. It is odd that the primary Obama campaign theme is that McCain is another Bush term when Obama himself shows the worst recurring trait of this administration.

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After reviewing Obama’s positions and his planned expansion of the Federal government (even beyond that of Georgie Boy) we can only equate Obama with a new form of slavery.

I don’t tolerate slave masters. Hence these bumper stickers which you can buy individually or in packs at http://www.cafepress.com/guysmith/5955321.

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