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.

Payroll Taxes

Senator McCain has a unique opportunity to defuse Obama’s tax policy by trading retention of the Bush tax cuts for an expansion of the payroll tax to all employers, subject to the caveat that all payroll tax revenues are trusteed and invested in BAA or better publicly traded bonds. No monies available for government spending. The public would see these monies for Social Security as a miracle.
If passed, a raft of options open up to reform the tax code. Note that Obama talks only about income taxes. Fairness versus inequity. Tax the rich, reward the middle class, spare the poor by tinkering with tax rates! In reality, the rich can avoid taxes, the poor are untaxed and the middle class exploits welfare intended for the poor. Confusing? Yes. Without separating income taxes, payroll taxes, and capital gains, tax avoidance plus offsets of mortgage interest deductions, special deductions for capital investments, corporate taxes and inheritance taxes—state and local taxes—combine to make talk about income taxes meaningless.
Senator McCain can trump all of Senator Obama’s tax proposals by:
1. Extending the Bush tax cuts
2. Expanding the payroll tax to include all income
3. All payroll taxes invested in non-government bonds, BAA rated or higher.
4. Eliminate the inheritance tax as double taxation
5. Eliminate business taxes passed through as a cost of goods (a sales tax).
The increase in payroll taxes on the so-called rich will be accepted if the monies cannot be grabbed and abused by the government.
Our Social Security system with this new funding will gain respectability. Stock options should have a mandatory holding period after which shareholders vote to affirm or deny execution based on the company’s performance.
Transparency should extend from Wall Street, to union elections, to funding of education, even charities. Colleges demonstrating an imbalance of 65% or more domination by any school of political thought should be grounds for re-examination of the institution’s status as a charity.
The tax code should liberate, not enslave.

Why Drill, Drill, Drill Has Not Succeeded

Is our objective self-sufficiency? Should not the United States be the world’s largest oil producer? Environmentalists aside, the greatest opposition comes from international oil companies whose primary interest is to protect the value of their reserves at $100 per barrel.
Everyone seems to agree on natural gas as a substitute for oil. Not mentioned is drilling for natural gas which again accounts for the reticence of big oil.
Only a national demand for increased oil production will succeed. Even disincentives like excess profits taxes—whatever works. The enemies are big oil and the environmentalists—a strange alliance. Only McCain and Palin can square this circle. Supply breaks cartels whether headed by corporate giants or environmentalists.
Who owns the oil at the continental shelf? Any answers? If leases are granted on lands not owned by the United States, who gets the oil? The drillers, the oil marketers, the refiners? Who slices the melon? How big are the slices? Who knows?
My confidence stems from a New York Times editorial written in 1921. It proclaimed that the world would run out of oil in ten years. I believe there are tens of millions of barrels of oil within our grasp. We need a government with a will to find it. Only United States technology can succeed but only with a supportive government.

The Conventions

The two national conventions profiled two totally opposite personalities. Obama’s skin was exposed as paper thin. His demeanor, while earnest, is totally without humor. Biden’s reaction to Palin was respectful and positive.
McCain’s profile in courage was examined and re-examined. There can be no doubt about his ability to lead. Palin proved she can handle big oil. Palin extended the debate over abortion from a matter of law to a matter of conscience.

The Mortgage Mess

Memo to Ric Davis:
The winning economic strategy for John McCain is to emphasize the first Bush administration and Bush 2 including the two terms of Clinton. For twenty years the government pursued a soft money policy. It was dictated by Alan Greenspan. Wall Street was seduced and abetted by dozens of money managers. They borrowed from the Federal Reserve at 2% in order to lend at 6% or higher amid guarantees by the government. The mortgage collapse was only the outward sign of a deep-seated sickness supported by Fed Chair and Treasury go-alongs. Both rejected tough lending standards and tight money in favor of export markets which cost jobs in the United States.
All of Wall Street, most of the banks, and intermediaries benefited from this policy until someone asked, "where are the customer's yachts?" There weren't any! Jack Bogle has been the lonely expert asking this question on behalf of Vanguard investors. But, not even dollar averaging can stem a credit crisis.
Foreclosures will not wipe out our financial markets. The awakening of credit-worthy borrowers repaying their loans might! If money flows into the banking system, cashing out deadbeat loans, it will not create net cash, but shrink capital availability. It makes banks wary of lending--and increases the cost of borrowing. Only the fortitude of John McCain can withstand the pressure of special interests trying to protect their hindquarters. Only a dose of castor oil will solve the problem. Only John McCain and Sarah Palin have the stomaches to administer the remedy.
Give a three-year tax holiday to all credit worthy borrowers who repay their home equity loans which supported a lavish lifestyle unsupported by income. Let’s have a Reagan-like dose of reality. Mistakes: 1. Equitization of mortgages for the elderly. Robs capital from their progeny. 2. Equitization of homes--making non-tax deductible personal debt tax deductible. Credit card debt becomes riskier. Who is responsible?--the government. A disgraceful example of hypocrisy.

Catch-up versus Leadership

Why drill for oil? To catch up with imports? But suppose Anwar, offshore California and the Gulf—plus the continental shelf could make us the world’s largest producer of oil? What would be the effect on our dollar or our deficit? Shouldn’t this be our goal? Supply would drive the price of oil downward. Is this any less important a goal than the Manhattan project?

When T. Boone Pickens points out that we give $400 billion per year to friends and enemies alike for oil we can’t produce—reverse the equation! What if with Anwar, offshore and the continental shelf, we were exporting $400 billion of oil to China, India, and other emerging economies? Would we not be once again the economic leader of the free world? Why do environmentalists have a hate of carbon at the expense of our national interests? Hasn’t global warming been disproved?

Regardless, how do we stop India, China and other developing nations in their pursuit of carbon? All our failures—banks, autos, and energy--can be traced to our loss in leadership in oil production starting in the 1940s. The Saudi sands were easy to drill. The continental shelf was unthinkable. But, technology changed—led by the United States. How did Al Gore’s greenies steal the march?

It is our technology propelling Petrobras, Russia, and even countries sympathetic to Chavez. Technology moves market to market. Oil in the ground is static. We must control crude oil in the ground in order to control the market.

Character

What a Saturday! Watching the Democratic Party's handling of the Florida and Michigan primary votes, I found myself admiring Ione Herman, a hated enemy in the Clinton years. She was sad-faced but uncompromisingly open-minded and fair. Then Barack Obama delivered the most brilliant speech of this political season. Then came Harold Ickes, showing his deep hatreds. This election is not about Iraq, oil, the economy, or the environment. It's about character. On that basis, Senator McCain has no opposition.

TAXES-Let's Soak the Rich!

Phooey. The rich are too smart. They pay taxes based on their confidence in Congress. Rated at 20%, they don't risk much. Only John McCain can restore confidence. Then the rich will pay. Go out into the cornfields. In good times the farmer plants to the edge of the road; in bad times he buys tires and tractors. In good times the small oil operator uncaps his wells. Money is portable - the retired person can move his money. He can send it abroad, buy assets, voluntarily defer compensation. Millions of free entrepreneurs versus understaffed IRS - no contest! Only the rich are free from the IRS because they have legal options. Taxes inevitably fall on the middle class and the poor. Inflation affects the rich by reducing the purchasing power of their dollars. This is also a real tax on the rich. A wiser old owl once said, "if you want to catch buzzards, you have to learn their game!" McCain has fired many of those buzzards. Nobody cleans house faster. Drillers from Asia to South America are showing us that the supply of oil is not finite. We have no idea how big the supply is. But, it means we have time, with nuclear, coal, and natural gas backing us up. Then I can drive my SUV, eat steak, travel, and raise my standard of living. The goal of the left is to stunt growth, reduce our standard of living and make us accept a government-run police state.
Senator McCain can preserve our freedom.
Send him money!! VOTE McCAIN