Why We Must Vote for McCain

The Paulson plan is not a bailout. Bailouts get criminals out of jail prior to trial. Neither is it a grab of taxpayer money to rescue Wall Street moguls. Rather, it is a means to reverse the perverse accounting rules which caused the originators of bad loans and face immediate bankruptcy by enticing entrepreneurs to participate in a restructuring of the credit behind these loans. A $700 billion cost to taxpayers is ridiculous.
A simple example: Bank A grants a $100,000 dollar mortgage to client B who has no capital and little income. Bank A books the mortgage as an asset on his balance sheet at fair market value held to maturity. Anticipating interest payments, this asset may be posted at more than $100,000. Suddenly, payments stop. The house stands. Accounting rules change. Bank A must mark this asset to market. There is no market. If the bank forecloses, The fair market value disappears. The value of houses in the neighborhood declines. Bank A’s credit rating is compromised. It is now in violation of equity rules.
Paulson intervenes. The government buys the house for $25,000, close to the fire sale price and sells it for $40,000 to an entrepreneur—establishing a new fair market value. Bank A now has $25,000 where it had nothing. Its balance sheet is marginally repaired. Entrepreneur B sells the house to new owner C for $60,000, who posts collateral and shows income capable of repaying the mortgage.
The government gets its money back. A new mortgagor has made a sound investment. Bank A has survived the credit crunch. The only losers may be the displaced borrowers who do not participate in the refinancing. These former residents must rent or become part of that small group of homeless. Society survives.
How did all this happen?
Wall Street in 1956 was ruled by Perry Hall at Morgan Stanley, Gus Levey at Goldman, and Bill Solomon at Solomon Brothers, who ran very tight ships. Their capital was private. They, with partners, took all the risks. By controlling this risk, they enjoyed handsome incomes.
Research boutiques and specialty underwriters invaded their turf. Merrill Lynch, envious and losing market share, inveighed negotiated commission rates.
Commissions paid by burgeoning mutual funds and asset management groups fell from 1% or more per transactions to one-tenth of a percent. The old partners retired and pulled their capital. Many firms failed. DuPont, Goodbody, Reynolds, Dean Witter, Glore Forgan merged. They were replaced by new publicly financed firms.
These firms raised capital from the newly popular mutual funds and investment advisors plus willing individual investors enjoying the rising markets of the seventies.
The old regulations worked when the few partnership owners feared loss of their capital. The new managers had no such capital at risk—they enjoyed free participation from public investors intoxicated by the rising value of the bull market.
A new political class—egalitarian, environmental, espousing private rights—abetted by courts legislating circumvention of the Constitution.
Rights were assured from abortion to home ownership. The more rights granted, the richer were the politicians. Earmarks for votes. Well intentioned Barney Frank, Dick Durbin, Nancy Pelosi, Boxer, Sanders, Kennedy, and Carey—the list goes on—all wanted goodies for their constituents. These excesses created deficits. Social Security was stuffed with IOUs. Government teetered. When excesses threatened home ownership, the economy hit the fan.
Mortgages are contracts. They generally require an up-front deposit, a stream of payments and evidence of collateral and income. These requirements eventually caught the attention of politicians. What could they do? Fannie Mae and Freddie Mac came to the rescue. The implied or explicit guarantee of government mortgages was granted. Everyone was entitled to a home, regardless of income or capital.
How to sell these mortgages became the art form of a new breed on Wall Street—the hedge funds, the syndicators, the bundlers. Bunching thousands of mortgages into debt packages and then splitting these packages into disparate parts—income, principal, front and back end and selling these parts worldwide, opacity was created sufficient to dumbfound the public, avoid the regulators and confuse the rating agencies. The Dutch tulip mania was reborn.
The public woke up as the ceiling fell in. Paulson and Bernanke got the job of clean-up.
The 2008 election pits the opponents of leveraging versus the advocates of cheap money. Here McCain and Obama are a perfect match.
For McCain, five and a half years tortured and imprisoned in the Hanoi Hilton may have broken his body but strengthened his spirit. He emerged not a politician, but a statesman—perhaps analogous to Winston Churchill who was anything but a popular conservative in the 1930s.
Native intelligence and sense of smell enabled him to see through the miasma of Washington. Home loans to those with little income to repay seemed improper—Barney Frank, Chris Dodd, Fannie Mae and Freddie Mac notwithstanding.
Loans of taxpayer money syndicated to make it impossible to trace ownership were unreal. Syndication meant obfuscation.
Add to this a media 10-to-1 supporting his opposition candidate using the modern internet to tag funds from the least informed of the populace while supported by the brightest of Ivy League intellectuals we realize what a long shot McCain became.
Read Don Luskin’s Trend Macrolytics, LLC from June 2088 to present and discover the lies the Obama machine propagates. We are not in recession or headed for depression! Unemployment is not threatening. Productivity is rising. Business has readjusted to globalism. Protectionism is a fear, not a solution.
Obama on the other hand, with an Ivy League education, is enticed to Chicago by Saul Alinsky, a far left reformer. There he allied with Bill Ayers, founder of the Weathermen and the avowed terrorists of the 1960s, and financed by the Annenberg Foundation. As chairman, he renounced private education, even public, favoring instead courses in social activism and revolt in place of math, English, and science. He recently stated he would save workers but not shareholders! What a disaster for 401K holders. As chairman of the CAC, he claimed education must stoke resistance to the American system!
Obama, the Pericles of the left, is not mid-stream. He’s on the left bank.
McCain will make a lot of mistakes. He was wrong about short selling. He was wrong about drilling for oil. He was wrong about Chris Cox. He should praise George Bush for winning in Iraq and thank Paulson for saving the economy. The list goes on. But, his selection of Sarah Palin trumps all of his mistakes.
Palin captures the soul of America at its best. Love of family. Faith in church. Patriotism without exception. Truth in law rather than ACLU relativism. Belief in the men on the street, not the mob of the street. Absence of coalitions of gender, race or nationality.
If McCain/Palin sometimes fails on specifics, they bond on integrity and common sense. Against the smug self-righteousness of Yale, Harvard, Princeton intellectualism, comes the straight-from-the-shoulder, no nonsense pragmatism of the Teddy Roosevelt era.
McCain/Palin stand for change not to a new and more sophisticated socialism, but back to the democracy of our forebearers.
Let the commentators be damned. Obama is the Huey Long of twenty-first century politics. John McCain is the George Washington.