Saturday, August 02, 2008


From the August 18th National Review (hyperlinks added):
San Francisco liberals are amusing themselves: they have a proposal to name a sewage plant after George W. Bush. Their proposal is on the November ballot. This is appropriate, because conservatives specialize in cleaning up the messes of liberals.


bobn said...

This is appropriate, because conservatives specialize in cleaning up the messes of liberals.

No, conservatives specialize in creating messes that nobody can clean up.

I give you:

1) The war in Iraq. It may be getting better, but it is still a clusterf**k, and one that was totally unneeded in the first place and then was waged in total incompetence for the first 4 or 5 years. Somebody other than this administration will have to do the wrap-up on this and it will not be easy to get right.

2) The economic crisis, caused by de-regulation led by the right (though abetted by the left) and made much worse by non-regulation of everything possible for the last 7 years. Every effort of this administration to "handle" this crisis has had 2 effects: a) attempt to delay the day of reckoning until the next administration, without addressing any actual issues and b) because of said delay, to ensure that the final crash will be worse IMO than it otherwise had to be.

Carl, I guess you and I see conservatism differently - see here for my quick take.

Carl said...


We do see things differently. I don't agree with everything W did, or conservatives favor, but your critique--including this--is too abstract for a detailed response. So, some questions.

1) The Bush Administration repeatedly articulated the rationale for invading Iraq. The reasons were fully consistent with long-standing American goals, as embodied even by revered Democrat presidents. What, precisely, do you class as "unneeded"? And would Bush critic, but invasion proponent, Kenneth Pollack agree?

2) You admit the surge worked, but fault the middle-game. So do I. But hindsight is 20/20. What, exactly, would you have done differently at the time, paying special attention to whether it was feasible and the reaction foreseeable?

3) I admit to a lack of expertise on finance. But meltdowns occurred while Glass-Steagall was still law and Bear-Stearns only an investment bank, so the repeal didn't contribute to its failure. Ever-more sophisticated securitization, including derivatives, helped supply much-needed capital for start-ups whose products we buy today.

Still more broadly, 28 years of working in regulated industry policy in Washington have convinced me that deregulation has been an enormous engine for economic growth and the introduction of new services and technologies. FCC regulation delayed licensing of Sirius Satellite Radio for seven years. Imagine if there were a "Federal Personal Stereo Commission"--we'd still be waiting on regulatory approval for iPods. And there's vastly more employment in the energy and telecom sectors since deregulation.

This is not to say that zero regulation is best. But, again: what, exactly, would you have done differently? Which regulations would you re-impose, and how strong is the causal case that it would have avoided the current crisis?

bobn said...


1) Bugliosi documents how Bush doctored the NIEs, which stated that Iraq was not an imminent threat, so that they would appear more ominous to Congress and the people. See here.

"According to the October 1, 2002 NIE, “Baghdad for now appears to be drawing a line short of conducting terrorist attacks with conventional or CBW [chemical and biological warfare] against the United States, fearing that exposure of Iraqi involvement would provide Washington a stronger case for making war.”" and

"Preparing its declassified version of the NIE for Congress, which became known as the White Paper, the Bush administration edited the classified NIE document in ways that significantly changed its inference and meaning, making the threat seem imminent and ominous. "

"On January 31, 2003, Bush met in the Oval Office with British Prime Minister Tony Blair. In a memo summarizing the meeting discussion, Blair’s chief foreign policy advisor David Manning wrote that Bush and Blair expressed their doubts that any chemical, biological, or nuclear weapons would ever be found in Iraq, and that there was tension between Bush and Blair over finding some justification for the war that would be acceptable to other nations."

"Hans Blix, the United Nation’s chief weapons inspector in Iraq, in his March 7, 2003, address to the UN Security Council, said that as of that date, less than 3 weeks before Bush invaded Iraq, that Iraq had capitulated to all demands for professional, no-notice weapons inspections all over Iraq and agreed to increased aerial surveillance by the U.S. over the “no-fly” zones."

2) I suggest you get the DVD of "No End In Sight" - it documents how completely unprepared and uncaring Bush admin was of the need for any post-war action. The criminally wrong Bush and Rumsfeld military doctrine of "transformation" caused us to have too few troops on the ground in the aftermath of the fall of Sadam - the looting in the streets and the destruction of infrastructure was criminally negligent at best. Or else the Bush admin just didn't give shit, once the oil ministry was secured. Either way that was a debacle.

The complete disbanding of the Iraqi army also fed the insurgency: hundreds of thousands of guys with arms, training and nothing to lose was a recipe for disaster. Maybe many of them, as Baathists, needed to go, but there had to be a better way than the one that was used.

3) Glass-Steagal was repealed in 1999, through legislation rammed through by none other than Phil "the recession is all in your head" Gramm and signed by Bill Clinton. Your examples of the 1987 stock maerket "crash" and the 1998 LTCM debacle does not measure up well at all to the current crisis linked to nearly every type of credit conceivable. For example, the Dow had recovered within one yyear of the 87 crash, and neither that nor LTCM caused a recession, unlike the incredible cluster-f**k that is happening now.

All Federal Regulators in Bush administration sat on their hands. The SEC alone, by looking long and hard at the ratings methods on the ABS and CDOs, could have stopped much of this in its tracks. Various Bank regulators cou;ld have slowed it. Bush could have used the bully-pulpit and behind the scenes discussion to pound sense into some of the participants.

So, Glass-steagall in effect: no significant meltdowns for 60+ years. Glass-Steagal repealed: seeds of complete and utter disaster starting immmediately afterwards. Pretty amazing coincidence, no?

In addition, the Bush admin acted to pre-empt state action when the states saw how utterly out of control the mortgage industry was.

Bush has been the most complete disaster for this country. Don't even get me started about his assault on the constitution.

And re: the economy: if "tax and spend" is bad, how much worse and more irresponsible is "borrow and spend"? Bush all by himslef has nearly doubled the national debt. If you are really a conservative, whay are you not up in arms?

As for what I would do now - the horse is out of the barn and the barn is on fire. I'm not sure what to do now, but killing Hank Paulson would be the first step. Everything that guy says is a lie and everything he does is to funnel public money to private recipients and try and keep the fraud going. Closing the Fed's new "facilities" loans, which are shit-magnets for toxic crud securities as "collateral" would be second. My argument is that Bush caused this mess. I'm not sure how to fix it. I'm not sure it can be fixed, especially if fixed means not enduring lots of economic pain.

Carl said...


1) Bush never said Iraq was an imminent threat--and the outcome of the invasion remains positive.

2) The Administration didn't alter any intel for political purposes--though George Soros refuses to concede the point.

3) Regarding the Iraqi army, we faced two unpalatable choices: accepting a (bad) Baathist-dominated army or starting afresh. Each had downsides--and I doubt anyone can establish that the road not taken necessarily would have been superior. As Victor Davis Hanson observed:

"The post-war occupation was supposed to be difficult, but few envisioned a bloody four-year struggle. Instead, after the fall of Saddam, al Qaeda chose to escalate its war against the West by sending thousands of jihadists into the new battleground of Iraq. . .

It is sometimes said that someone must be culpable for not finding a David Petraeus and his team of brilliant colonels earlier in the conflict. I wish it were that easy.

But such a conjecture is like saying Lincoln should have known of a Grant or Sherman at the war’s outset; or that earlier Union generals, even in error and blunder, did not attrite the enemy and provide both experience (even if by negative example), and some military advantage when Grant and Sherman finally emerged to positions of real influence; or that a Grant and Sherman did not themselves learn the necessary, prerequisite skills for their prominent command in 1864-5, while in obscurity during 1861-2.

The emergence of a Patton, LeMay, or Ridgway is usually through a process of distillation, where a military learns only from its mistakes, and only slowly sorts out the right people for the right job at the right moment. We should also remember that we did not suddenly discover the proper strategy for Iraq. We learned it only through the heroic sacrifices of thousands of lost Americans who took a heavy toll on the enemy all through 2003-6, and, in four years of trial and error, provided the lethal experience of what would and what would not work."

Again, what would you have done at the time to make Iraq more of a success?

4) On finance, post hoc ergo propter hoc won't do--you still haven't tied the current questions (particularly sub-prime loans) to Glass-Steagall repeal. Nor will condemning repeal without accounting for repeal's benefits (i.e., broadening the pool of those who could afford home ownership). Further, the repeal was not "rammed through" by Phil Gramm--it passed overwhelmingly in the House, where Senator Gramm did not sit.

5) I fault Congressional Republicans and the Administration for failing to cut government spending. But you can't deny the economy had been sound and growing--and fair--until recently. Conservatives never claimed to have repealed the business cycle.

6) I have no idea what you're saying on preemption. In fact, states fought Federal attempts to preempt banking oversight, an issue resolved by SCOTUS only last year.

Conclusion: While reserving the right to address other points, I think you overstate the current economic slowdown. But even accepting your panic, you're far short on causation--and nowhere near pinning the problem on conservatives.

Carl said...

btw, on imminence: by shifting to a policy of preemption in 2002, President Bush discarded the trigger of imminence. This means the Administration would have minimal incentives to inflate Iraq's imminence.

Carl said...


Here's a piece I posted elsewhere on the difference between preemption and imminence.

OBloodyhell said...

Bob, your economic arguments fail to grasp a lot of what has been said over on Carpe Diem, which adds a valuable "alternative voice" to the media hysteria that clearly has been your major source of info on the housing crisis.

Dr. Perry is a free-marketer and probably libertarian, but if you actually give a damned about having a valid basis for your arguments, you should be skimming his blog regularly. Pay some attention in the comments, too.

Anonymous said...

Bob, I have a question:

If your next door neighbor, known for talking about his large gun collection, was acting strangely... if he started talking about you as his enemy, claimed he was going to kill you before you killed him, said that some day he was going to come over and hurt you and your family to others, people heard about some neighborhood thugs who were trashing peoples' yards getting paid money by him specifically to trash YOUR yard (and it was trashed, and he openly gave them money for doing so).. in general acting like a clear and evident threat to you and your well-being.

Suppose you called the cops and they told you that, after looking into it, he had so far committed no crime sufficient for arrest, so that they could not do anything...

Would you feel good or bad about his presence? Would you choose to act when your cat was found nailed to your door? When he was seen staring quite angrily at your kids playing in your back yard ... while "cleaning his gun"?

At what point do you choose to act?

Your neighbors, though they, too, acknowledge concern, refuse to get together and back you on forcing some action by the police.

It turns out that he's given some of them money to look the other way. A lot of money, in fact.

He's also been giving money to the police (apparently, they are exceedingly corrupt) to not hassle him.

Ya doing anything YET, bob, or are you going to wait until one of your kids or your wife is dead and lying at your doorstep?

At what point do you figure out that it's time to act, that "talking it out" isn't going to work, nor can you get anyone else to support you in a useful manner.

Just curious.

OBloodyhell said...

That above was me. sorry.

Anonymous said...

Bobn, you are right.

Although it is clear that anything we do to dissolve the existence of Islamic terrorists is to be encouraged. Those Koranic cowards do not possess the courage that freedom requires.

I am grateful to live in the land of the "brave and free." Let's keep it that way.

I respect all of you who express your true thoughts here and elsewhere.

Truth will keep us strong and free.
Our different bits of knowledge and opinions strengthens us all.

bobn said...

Carl said:
4) On finance, post hoc ergo propter hoc won't do--you still haven't tied the current questions (particularly sub-prime loans) to Glass-Steagall repeal.

Carl, 60+ years w/ Glass-Steagall, no *huge* bubbles. Glass-Steagall Repealed, the most ginormous cluster-f**k ever.

I'll see your post hoc ergo propter hoc and raise you one Res ipsa loquitur.

I couldn't resist that.

As far as my view of the economy, it does not come from MSM. They are almost utterly clueless - just beginning to see the tunnel. See the Economic blogs I link to an my blog.

I'll be attempting to address your other points later after work.

bobn said...


Re: Carpe Diem: Perry seems to think that it's just subprime, he's totally out of it, it's also Alt-A (aka "liar's loans" and nothing down loans) and Option ARM loans, and, due to the adverse feedback loops that subprime has put in place, every other form of credit as well.

Re: the "Deranged Neighbor Metaphor"

I'm afraid the metaphor is more deranged than the neighbor, as in:

Our neighbors are Mexico and Canada. Iraq is, oh, 10,000 miles away. Something like that - Mapquest refuses to give me driving directions - must be that ocean that's in between, too.

Although George Bush has enabled defacto invasion from Mexico, neither Mexico nor Canada is taking money from Sadam to trash us.

Sadam may have bribed the UN Oil-for-Food fumduckers, but our "police" are the US Military and various other Militia. Not bribed.

Also, as noted previously, Hans Blix stated before the invasion that Sadam had consented to surprise inspections - so the neighbor can clean his guns but he has no bullets.

Finally, the cat nailed to the door is something you stole from Stephen King, again putting yourself firmly in the fiction category, as is so often the case.

Carl said...


Glass-Steagall is no falling flour barrel and didn't drop on a workmen's head. Again, what is the connection between repeal and Bear Stearns or sub-prime mortgages?

bobn said...


Regarding Glass-Stegall, I may have confused the issues of it's repeal with other parts of the act that repealed it, Gramm-Leach-Bliley.

More info here:

In the year previous to the Financial Services Modernization Act, the thing that overruled Glass-Steagall, Citibank spent $100 million on lobbying and public relations, which is a good indication.

Yes. They spent a small fortune, a king’s ransom, if you will, getting rid of Glass-Steagall. In fact, when thrown in with other financial firms’ lobbying, it was closer to $200 million over the short period of time.

That doesn;t prove that mush, except in retrospect, anything Sandy Weill (then running Citigroup) wantred must be viewd with extreme suspicion.

Troubling Sections of GLB

The most troubling aspect of GLB is not only did it repeal Glass-Steagall but it did so in an especially aggressive way that purposely weakened many enforcement provisions, some of them so obscure most of the public is not aware of them. For example:

Governance of the Federal Home Loan Banks is decentralized from the Federal Housing Finance Board to the individual Federal Home Loan Banks. Changes include the election of chairperson and vice chairperson of each Federal Home Loan Bank by its directors rather than the Finance Board, and a statutory limit on Federal Home Loan Bank directors’ compensation.

This probably helped last year when the securitization machine froze up and the like of Counrtywide and WaMu and IndyMac got something like $500 Billion loans from FHLB. MoM has noted that one of the FHLBs inisited the loans be at a 50% haircut relative to the ABS (toxic sludge) collateral; we can only hope that 50% will be enough and that the other FHLB deals were done as cannily.

After GLB

After the passage of GLB, the subprime market took off as if someone had attached a booster rocket to it. If anyone has doubts about Sandy Weill’s connections between GLB and the subprime market, just a year after the passage of the bill repealing Glass-Steagall, Citigroup had become the number one subprime lender in the country. Its vehicle for this was the newly formed CitiFinancial.

The article spends a lot of time showing how heavily Weill lobbied/bribed for this bill.

Meanwhile a few voices began to openly wonder if the repeal of Glass-Steagall had fueled the crisis. Thomas Kostigen of Marketwatch wrote:

Glass-Steagall would have at least provided what the first of its names portends: transparency. And that is best accomplished when outsiders are peering in.

Glass-Steagall forced separation. Something like it, where conflicts and losses can be mitigated, should be considered again.

Financial Week headlined, “Glass-Steagall Wasn’t Such a Bad Idea After All.” The article stated:

The credit crisis now afflicting the corporate debt and stock markets suggests Congress should revisit the work it did in 1999 that is at the root of much of today’s troubles. That’s right: It’s time to rethink the Gramm-Leach-Bliley Act, otherwise known as “Sandy’s Law” (after then-Citigroup chief executive Sanford “Sandy” Weill), which nailed shut the coffin of the Glass-Steagall Act of 1933.

Former SEC Chair Arthur Levitt is another who worried about the repeal of Glass-Seagall:

The merger of investment bank and commercial bank interests has created conflicts of interest that clearly hurt the public investor. Only extraordinary activity by both the banking and security regulators can begin to address [the] issue.

But what about Gramm-Leach-Bliley helped to fuel the crisis, for it is easy to say that if banks had not been involved in securities we would not be facing the mess we are in. Curiously one of those converts is none other than Robert Rubin who has stated:

If Wall Street companies can count on being rescued like banks, then they need to be regulated like banks.

In another source we find:

Here is a fascinating passage from a Frontline report published in 2003 regarding the repeal of Glass-Stegall [Though not repealed until 1999, various provisions of the act were "reinterpreted" or otherwise overridden in the 20 years leading up to its full repeal]:

In the spring of 1987, the Federal Reserve Board votes 3-2 in favor of easing regulations under Glass-Steagall Act, overriding the opposition of Chairman Paul Volcker....Thomas Theobald, then vice chairman of Citicorp, argues that three “outside checks” on corporate misbehavior had emerged since 1933: “a very effective” SEC; knowledgeable investors, and “very sophisticated” rating agencies.

Volcker is unconvinced, and expresses his fear that lenders will recklessly lower loan standards in pursuit of lucrative securities offerings and market bad loans to the public. For many critics, it boiled down to the issue of two different cultures - a culture of risk which was the securities business, and a culture of protection of deposits which was the culture of banking.

That very effective SEC would be the same one which just said that it will start enforcing it's long-standing ban on "naked shorting" - but only against those shoriting specific companies. It would be the same SEC that sat on it's hands while the very sophisticated ratings agencies accepted money to rate toxic sludge ABS and CDO tranches at AAA. Volcker was the last FRB chairman who didn't abet the blowing bubbles.

So we see several people that think that features of GLB, including it's repeal of glass-steagall, are quite involved in the mess in which we find ourselves.

Don't get too obsessed with Bear Sterns in particular - there's plenty more where that came from.

bobn said...


As far as the reasons we went to war in Iraq, if the new policy is pre-emption instead of imminence that makes it more important to get the facts right and present them fairly. Just yesterday we had yet another book documenting that such wasn't the case.

But in fact, it doesn't matter, because none of that - imminence, pre-emption, WMD, Al Qaeda - none of that is why we actually went to war.

There is plenty of evidence that Bush-43 came into office in 2001 bound and determined to bring down Sadam.

What we have here is history's first recorded case of inherited blue balls. Bush-41's unconsummated business in Iraq left Bush-43 with such a raging erection for Sadam that nothing was going to stop him until he found or manufactured an excuse to go in.

Now as to your other points:

The post-war occupation was supposed to be difficult, but few envisioned a bloody four-year struggle. Instead, after the fall of Saddam, al Qaeda chose to escalate its war against the West by sending thousands of jihadists into the new battleground of Iraq

Who would *ever* have expected such a thing? We tell them we're going to put a functioning democracy in the Middle East to undermine them, and we just expected them to say "OK"? Please!

Again, what would you have done at the time to make Iraq more of a success?

Well John McCain was screaming that we needed more men earlier - so that would have been a place to start. With that we possibly could have:

1) Preserved more than just the Oil Ministry when the looting began. Like maybe some hospitals and governement buildings. Who knows, had we shot a few looters instead of stupidly watching (as ordwered from on high, see "No End In Sight"), maybe the looters would heve had other ideas.

2) maybe we even could have watched the borders for some of those Jihadists pouring in. That would have been a good thing to do.

Carl said...


Of course Bush entered office intending to topple Saddam--that's why I voted for him! How does that support your point?

Carl said...

I've "Fisked" the Bugliosi article on which you rely. Also, the Baghdad museum looting was both vastly overstated by the media and thought in part to be an "inside job" started long before the invasion.

bobn said...

I've "Fisked" the Bugliosi article on which you rely.

Well Bugliosi testified under oath before Congress about the transforation of the NIEs into the White Papres given to Congress. Bush has previously declined to appear in such a forum for even the most vital of reasons. But I will take a look at your fisking.

Also, the Baghdad museum looting was both vastly overstated

Neatly attempting to side-step the fact the the looting was widespread, hitting hospitals, universities, government offices, businesses and homes. And our troops did nothing, because they were told to stay out of it.

Carl said...


No--our troops couldn't do much because they were taking fire from the buildings.

Carl said...


You admit that repealing Glass-Steagall didn't cause the current crisis but shift your focus to other provisions of GLB and pre-1999 deregulation by other individual Federal banking agencies. But you never explain which acts caused what harm. Nor could you--allowing banks to sell, for example, insurance has no connection to any current issue. And subprime failures were just as common to state-chartered banks which--for the most part--were not subject to GLB and are not Federally regulated.

The articles you quote also fail to make such a connection: how did changes to the structure of Federal Housing Finance Board (which doesn't even exist anymore) affect the market? The article doesn't say, and you cite only an example where the Board seemingly did the right thing. Further, the article you cited and quoted says the "most troubling section" of GLB merely called for a study of the issue; it did not change Federal policy. Clearly, this article isn't reliable. And the other article upon which you rely cites a concern expressed by former Fed. Chairman Volcker in 1987--two decades before the current conditions. That's quite a tenuous cause-and-effect.

Please be more specific as to what deregulation--in GLB or elsewhere--contributed to today's issues. Otherwise you might be accused of merely ranting.

bobn said...


The 1987 reference was to in the spring of 1987, the Federal Reserve Board votes 3-2 in favor of easing regulations under Glass-Steagall Act, overriding the opposition of Chairman Paul Volcker....

Easing, not the complete repeal, and more, done by GLB. Yet Volcker's expressed fear:

Volcker is unconvinced, and expresses his fear that lenders will recklessly lower loan standards in pursuit of lucrative securities offerings and market bad loans to the public.

is absolutely exactly what happened after GLB passed. It states specifically the conflict of interest that brought us to the current state of affairs.

He could not possibly have been more prescient.

Carl said...


This week's Economist says that neither repeal nor any particular regulation caused the crisis:

"Yet, tempting as it is to believe that changing business models would solve UBS’s problems, or those of the wider industry, the evidence of the credit crisis suggests otherwise. No single model has emerged from the turmoil either wholly vindicated or entirely discredited. Credit Suisse shares a city square in Zurich and a business strategy with UBS, but has come through the past 12 months in much better shape and continues to attract money into its wealth-management division. Citigroup’s version of the universal-banking model is one where it walks into every punch going; Britain’s HSBC has been more successful in blunting the impact of its American misadventures through decent earnings in emerging markets. Of the Wall Street investment banks, Goldman Sachs has survived with its reputation enhanced. Bear Stearns did not survive at all. Pure retail banks can blow up too: Northern Rock, which was nationalised by the British government after a humiliating run on it, had a simple enough product line.

What separates the winners from the losers is not models, but management. One aim of the reorganisation at UBS is to stop its investment-banking arm from funding itself with inexpensive capital thrown off by the wealth-management arm. That should not have been happening anyway. The model may have enabled traders to fund themselves too cheaply, but the bank’s managers set the internal cost of capital too low. That Credit Suisse’s boss, Brady Dougan, has an investment-banking background may help to explain why it has done a better job. And imagine if Jamie Dimon, the fĂȘted boss of JPMorgan Chase, rather than Chuck Prince, a dancing lawyer, had been running Citigroup. The outcome would surely have been quite different.

Regulators, too, should remember that no one bank model offers a clean solution to the problem of systemic risk. Simpler, slimmer institutions may be easier to police, but they are more liable to go under when the environment sours. Even smallish banks can pose systemic dangers: Bear Stearns was not big, but it still warranted a rescue. Bigger, diversified institutions may be more resilient, and they also come in handy when a buyer is needed for an ailing competitor. But they are harder to supervise, impose greater costs if they get into difficulty themselves, and can constrain competition and innovation."

Carl said...


Would you answer the question?: what regulatory policy, precisely, do you say caused the current situation? You first say repeal, then back away from it; then say GLB in general, but cite two provisions you can't explain; then cite actions dating two decades before the crisis. Which was it? And how, exactly, did that fail in 2007?