Money Talk with The Fly and Gus

Note: It's tough to believe that this picture is five and a half years old, and it dates to just after my first trip to Europe in March/April of 2003 with Friar Dave. That was literally about sixty pounds ago, and before I could grow a goatee. For the record, though, this picture is the result of an unfortunate camera angle, as Gus is not appreciably taller than me. Anyway...

One of my best friends, Gus, left the following response to my Election Thursday post.

I'd like to point out two things. First, I was under the impression the Republican party and conservative governments were opposed to big federal government and more oversight. To say Democrats are largely responsible for keeping the Bush Administration from properly regulating Wall Street is comical. (Didn't we have a discussion the other day about the free market economy?) The Fed and Secretary of the Treasury (both positions headed men appointed by our current President) have direct influence over Wall Street with their ability to infuse cash and adjust lending rates. I watch economic analysts nearly come to blows about who is more to blame for our current position, teetering on the precipice of a 'recession'. (ssshhh, don't say that word too loud)

Secondly, the "bullshit welfare giveaway" (I hated it too) economic stimulus package was supported by Republicans in Congress and signed by the President. Just because the Congress is "controlled" by Democrats doesn't mean the checks and balances of our system of government fly out the window. Sec. Paulson was instrumental in the negotiations for that stimulus package. Are you sure you don't want to kick Paulson in the nuts for his involvement? Ore perhaps the President for appointing him? Democrats aren't the only ones trying to throw money at the problem. $700 billion dollars now sure seems like a lot of money compared to $152 billion.

Thirdly, corruption runs rampant in Washington and it doesn't distinguish between red and blue. I believe a corruption trial started this week for Senator Ted Stevens, R-Alaska. Of course, I can recall numerous allegations on both sides in recent years. Hell, the very recently signed spending package has thousands of earmarks for pet projects (including Ted Stevens). Frankly, that is pork you can't make kosher.

Don't point fingers at a political party for all the country's woes. This burden gets shared by everybody. I'm as unhappy as you are about the current state of economic and political affairs. But before you go trampling around, blustering and assigning blame, keep in mind your pile of GOP Elephant shit is just a big and rank as the Jackasses' on the other side of the aisle.

Have a fantastic day, Max!

The first point that I'd like to make is that Gus said he was going to point two things out, but he pointed to three. Way to go, Gus! Me being persnickety aside...

As I mentioned in my initial, brief response, I don't fundamentally disagree with any of this. I think that President Bush will eventually be seen as one of our greatest presidents, but I've criticized him on a number of occasions (possibly here on TSTF, I'm not sure) for one thing in particular: he spends too much of my money, and he allows Congress to do the same. One of the reasons why I'm so excited about the McCain candidacy is that, while his record isn't perfect, John McCain is offering everything I like in President Bush, plus a Congressional record of fiscal hawkishness* that's as old as I am. So, when you point out that Republicans are just as guilty of spending too much taxpayer money, I'm right there with you. As Senator McCain has pointed out on a number of occasions, the Republican party didn't lose control of Congress in 2006 over the Iraq War, they lost control of Congress because of corruption and unrestrained spending. When you're preaching fiscal conservative, it doesn't fly to be "not as bad" on spending issues as your political rivals. That's never been McCain's bag, and in his entire time in Congress he's never taken an earmark. (By contrast, Obama's earmarks during his brief stint in Congress have been numerous.)

I'm going to admit up front to being limited in my knowledge of the present crisis. Ask me about al Qaeda in North Africa and I could write you a book, but domestic economics isn't my area of expertise. That having been said, I know several things about the present crisis.

The catalyst for the crisis is that too many mortgage brokers milked the sub-prime mortgage market for too many high-risk loans, and too many people defaulted on those loans. My understanding is this crisis has been amplified in part by federal limitations on redlining, some of which resulted from the Federal Housing Enterprises Financial Safety and Soundness Act of 1992. Without stepping into territory that's too controversial for my tastes, my understanding is that while this law may not have completely caused the current problem, it certainly fueled it by preventing banks from putting certain limits on who they would loan money to, and how much money they would loan. The redlining practice, which was targeted in the 1992 legislation because it was seen as racist, could have prevented a number of recipients (without specific attention to race, I'm guessing) from getting the home loans that they were ultimately (foreseeably?) unable to pay off. Was it President Bush (43) who outlawed redlining? Was it the Republicans in Congress? No, the Democrats still controlled Congress in 1992, as they did during Reagan's entire tenure in office. No, it was Democrats and their legislation against "racist" lending practices that prevent banks from putting the kinds of restrictions on lending that could have softened or even prevented this problem.

Another major factor in this crisis is the dramatic rise in global energy costs, due in large part to rapid industrialization in China and India. The primary factor in this is the price of petroleum and, by extension, derivative products. Who has prevented us, even with a Republican Congress and a Republican administration from 2001 through 2006, from drilling offshore, even though the Chinese are drilling right off our own coasts? Democrats. Who has prevented us from drilling in the Alaska National Wildlife Refuge, even though a portion of the refuge was specifically set aside for drilling when the ANWR was established during the Carter Administration? Democrats. Which party has prevented us as a nation from building new refineries (another price bottleneck in the petroleum chain) due to prohibitively restrictive environmental legislation that was passed (again) during the Carter Administration? Democrats. Which party passed similar prohibitively restrictive regulations that have prevented the construction of a single nuclear energy station in the United States since (you guessed it) the Carter Administration, despite the fact that nuclear energy is safe, efficient, and emission-free? Democrats. If Republicans had enjoyed a two thirds majority in both houses of Congress and the Presidency during the last thirty years, we'd be able to drill for oil as needed, refine oil as needed, and power our homes with nuclear energy. Insofar as the dramatic rise in energy prices has impacted the economic crisis, I don't see how the blame rests anywhere but squarely on the shoulders of the Democrat party, which has been in the pocket of the radical environmentalist lobby for decades.

You mention Senator Stevens of Alaska, and you're absolutely right to do so. I understand your point, and I agree with it. I'm fairly sure that Democrats take more pork back to their home states than Republicans do, but I'm not excusing Republicans who do it. Stevens' conduct in this matter is a total disgrace (Bridge to Nowhere, anyone?), as were Congressman Cunningham and lobbyist Jack Abramoff. (Larry Craig didn't do us any favors, either.) It's no question that bogus Congressional earmarks have contributed to this crisis by ratcheting both debt and deficit up, resulting in the weakening of the American dollar in recent years. This, in turn, has fed a vicious dollar-to-barrel cycle, as oil is bought on a dollar rate: the declining dollar has pushed oil prices higher, which has led to further declines in the dollar, et cetera. Two weeks ago, this trend was going a long way toward reversing itself, but it's certainly not in great standing at the moment. At any rate, I'm not trying to make the pork kosher, and as I think I mentioned earlier, that's part of the reason why I've been excited about McCain's candidacy: because he doesn't take earmarks, and he's vowed to continue that record by vetoing bills containing pork. Further, since the Keating Five scandal, in which McCain was found to have exercised "poor judgment" (but not to have committed a crime or done anything unethical), he's been a rabid opponent and whistle-blower with respect to corruption on both sides of the aisle. Yes, I know that one of his campaign aides was allegedly a lobbyist for Freddie Mac, but Obama appears to have had far more shady dealings with the people who caused Freddie Mac's actual fall from solvency - as troubling as lobbyists may be, they're seldom involved with the inner workings of the interests they lobby for.

As far as Secretary Paulson goes, again, I'll admit to not knowing much about him. I think a lot of the blame for this mess ought to be pointed at Alan Greenspan, not Henry Paulson or Ben Bernanke. (I'm not letting them off the hook, I'm just saying that it was Greenspan who failed to raise rates prior to both this crisis and the Dot-com Bubble Burst of 2000/2001.

With respect to control of the markets, while I'm in favor of limited government oversight and regulation in most cases, this is not an anarchy, and our system is not purely libertarian capitalistic. Government has an appropriate role to serve with respect to oversight of the market, among other things. I'm not advocating a planned economy, or anything like it; but some oversight is appropriate. From what I understand, Senator McCain was talking at least two years ago about reforming the government's oversight of Wall Street in order to address areas in which Wall Street was operating without any decent restraint whatsoever; and from what I understand, President Bush and his team identified fraud and weaknesses in Fannie Mae and Freddie Mac as far back as 2002, but were prevented from doing anything about it by Democrats in Congress. So, as I said before, I'm not letting President Bush off the hook on this one, nor am I letting Congressional Republicans off the hook. They've certainly contributed to this mess. However, if you look at the primary causes of this crisis, and the people who are associated with those causes, President Bush has had little to do with causing this crisis (and tried to take steps that could have prevented it), Senator McCain has had virtually nothing to do with it (and tried to take steps that would have prevented it), and Senator Obama has involved several of the biggest instigators in his own presidential campaign. This brings me back to what ended up being the final point of my Election Thursday post: if Senator McCain loses the election because people are inaccurately blaming this crisis on President Bush, I'll be beyond furious.

These things having been said, I hope I've come off as both diplomatic and reasonable in my approach, I hope that you've noted that I substantially agree with the points that you made, and I hope (and am reasonably confident) that you understand that you're still my best friend, I still appreciate and value your opinion greatly (even on the rare occasions when we disagree), and I still believe that you should install a brass pole in your living room, for obvious reasons. You stay classy, Gus.

* I bet that's totally a word.