McCain: Replace Palin with Romney NOW

McCain has to ask Palin to resign. Before this week's debate with Biden. Given this time of financial crisis, Romney is the perfect choice, and this would be very acceptable with many conservatives. I have no doubt that the Democrats would love to slap at Romney's flip-flops and sound bites against McCain during the primary, but I think Biden with his paying-high-taxes-is-patriotic, FDR-on-TV-from-the-White-House-during-the-1929-crash, Hillary-would-have-been-the-better-choice,  not-clearing-his-AIG-position-with-Obama gaffes would open the Obama campaign for effective counterattack. 

Palin Could Use Troopergate As a Reason to Withdraw

It's important for Palin to fall on her own knife so as to minimize the political damage to McCain's perceived judgment in picking her. I would suggest the original reason why I thought McCain wouldn't pick her in a post weeks ago--"Troopergate". She has been stunningly inarticulate on explaining her rationale for dismissing the Commissioner for Public Safety. I had to read blogs out of Alaska to learn that he had tried to workaroud budget cuts to his department, even though several dozen trooper positions were unfilled, by going to the Alaska legislature. That's just blatant insubordination in a position which serves at the pleasure of the governor. She doesn't have to give reasons. I don't even know why she felt compelled to offer him a different post. The guy has chutzpah for even suggesting it was all about this rogue trooper, former brother-in-law to Palin, whom had threatened to take Palin down and shoot her dad. But when the findings on the trooper showed 4 material violations of policy or even the law against the trooper in question, I mean,  how many violations does it take to get an Alaskan trooper fired? Maybe the reason the CPS didn't take action is because he didn't like Palin and this was just a passive-aggressive tactic. I think I read for 4 material violations, he got 5 days suspension, and he appealed that and got it reduced to 3 days. Are you kidding me? Did they pad their hands with feathers before slapping his wrist? A law officer threatens the lives of his former in-laws? Tell me--if this guy came after them, and they called in, who would be assigned to defend them--his drinking buddies on the force?

I understand the Democrats going after Palin on Troopergate--it's just hardball politics. Do we need to remind America that Democratic Representative Jefferson of New Orleans was caught keeping dirty money in his freezer--and he's once again running for reelection after the original allegations were made? But all this drama over Todd Palin refusing the subpoena over phone calls to DPS over this trooper whom had made threats against his wife? So what if it's true? The former Commissioner has already said he was never ordered by Palin to fire the trooper or else. He just felt he was being pressured. (Maybe the trooper made subsequent threats to the Palins and Heaths in retaliation for their complaints?) Let me get in straight--the law saying the CPS serves at the pleasure of the government doesn't apply if the governor's family has ever filed a complaint? Do they lose their rights to protection because the governor has a right to fire and hire? I think the burden of proof clearly rests with the accuser, he's already admitted he can't substantiate a connection between his termination and complaints about the trooper.

What's seriously irregular is the Democratic head of the Alaskan legislature hinting an October surprise on Troopergate. He's an Obama supporter. What do you think he means by a surprise? An exoneration for Governor Palin? There's only one thing this could mean--the committee will rule in favor of the complainant. We know any such finding would be tainted. Now some people would argue--but the legislature is headed by Republicans: wouldn't it be against the best interests of the Republicans in the legislature to go up against an 80% approval rating GOP governor? Well, keep in mind Palin took no prisoners on her way to the top--she cast to the curbside the former state party chairman, the state attorney general, and the incumbent governor... She went up against the legacy GOP establishment, many of whom still serve in the legislature and resent , and I suspect a lot of them resent what this upstart reformer did to their friends and party and see this as a way to tarnish Palin's squeaky clean image.

The last thing the national campaign needs is this crisis hanging over the campaign. I think she should say, "Hey, guys. I thought this Troopergate thing is turning into a political crisis which the campaign doesn't need heading down the stretch, and there's a lot of stuff pending in Alaska, like finding a new CPS. I also find that the constant travel is taking more of a toll on my family than I originally realized. For these reasons, I wish to resign from the ticket and thank John McCain for offering me the opportunity to serve."

Why I Think Palin Must Go

-- Limited Access to the Press

First, I think the McCain campaign realized at some point Sarah Palin was not ready for prime time by limiting access. This didn't make sense to me, because she seemed remarkably articulate in her initial speech after his announced selection and in the Vice Presidential acceptance address. I know that the press would start playing gotcha type games, and the campaign knew it. But it seemed so clear that they were restricting access, it raised a red flag--not just with the liberal press. I thought at first they wanted to shield her from having to respond to all these personal attacks. In addition, I thought that the Hannity interview with Palin went fairly well, and I thought Hannity had conducted a far wider scope of questions and not particularly what I would consider a softball interview where liberal interviewers would let Hillary Clinton and Barack Obama spend half their time Bush-bashing instead of providing substantive, constructive criticism. 

But the problem with limiting access to Palin is that there's only one way for Palin to get more comfortable dealing with the press. Those allocated a rare interview will try to score a coup. I remember getting a couple of ABC News breaking alerts based on the first Charlie Gibson interview. 

What's important is "straight talk"--don't bluff or say something which contradicts what McCain is saying. Be informed but don't talk beyond your level of confidence.

-- Repeating a Debunked Line

"Thanks, but no thanks to that Bridge to Nowhere". In fact, the Alaska legislature spent most of the $233M on other projects, as per Congress' explicit waiver, and the Bridge cost estimate had risen to $400M. She did kill the bridge, but original earmark was spent on other Alaska infrastructure, not returned to the US taxpayer (which Congress never required). I believe that Sarah Palin was left with about $70M for the bridge.

The worst part, from my standpoint, is the fact that Palin, in fact, favored the Gravina Island Bridge while she was running for governor (although she did raise alternatives later in the campaign). For Sarah Palin to repeat the line after the press revealed she had originally supported the bridge just shows bad judgment.

-- Her "Miss South Carolina" Moment

The fact that Sarah Palin once participated in beauty pageants (primarily for scholarship money) is coincidental. I'm making reference here to the 2007 Miss Teen USA pageant where Miss South Carolina (Lauren Caitlin Upton), when asked to explain why 20% of Americans can't find the US on maps, she mentioned people in the US without maps and education in the US, South Africa should help Iraq and the Asian countries, i.e., a rambling, convoluted mess.

So during the Katie Couric interview, Katie asked about a key problem that, in fact, led McCain to put his campaign on freeze:

COURIC: Why isn't it better, Governor Palin, to spend $700 billion helping middle-class familieswho are struggling with health care, housing, gas and groceries; allow them to spend more and put more money into the economy instead of helping these big financial institutions that played a role in creating this mess?

PALIN: That's why I say I, like every American I'm speaking with, were ill about this position that we have been put in where it is the taxpayers looking to bail out. But ultimately, what the bailout does is help those who are concerned about the healthcare reform that is needed to help shore up our economy, helping the—it's got to be all about job creation, too, shoring up our economy and putting it back on the right track. So healthcare reform and reducing taxes and reining in spending has got to accompany tax reductions and tax relief for Americans. And trade, we've got

to see trade as opportunity, not as a competitive, scary thing. But one in five jobs being created in the trade sector today, we've got to look at that as more opportunity. All those things under the umbrella of job creation. This bailout is a part of that.

This is embarrassing. The bailout is part of job creation? Thousands of jobs have been lost on Wall Street--jobs that perhaps will never come back. It's possible that stabilizing the financial crisis may set the conditions for economic stabilization and growth.

Katie is suggesting a zero-sum game between the bailout and new government spending. We are spending money (according to Katie) to pick up the pieces of bad business decisions instead of spending them on government programs. Sarah is picking up on pieces of McCain's pro-growth strategy and economic policies, but she needed to acknowledge that liquidity in the market used to finance business operations (including payroll) and consumer purchases. This could lead to bank runs, massive layoffs, possibly resulting in a global depression... What Sarah needed to say is that the $700B is in illiquid mortgages which are assets, and we may be able in the long run to sell off these properties at a profit to the taxpayer. But banks need to recapitalize in order to lend money to businesses and individuals. The probable implications is that the Democrats would probably have to scale back new spending plans, given Obama's tax plan, and assuming a recession, we can probably expect that federal revenues may drop and we may need to cut interest rates and increase tax cuts.

But Palin is coming across as too close to those Saturday Night Live skits parodying Sarah Palin as an executive bimbo. I somewhat suspect if you said the word 'derivative' to her, she would say that's something in that math course she never took, and if you said 'swap', she would think you're talking about a flea market. I saw another sound bite where someone asked her about the bailout and she started talking about meeting a mother with a son overseas.

You have to be fully literate and engaged about current affairs; what's clear is that the McCain camp is not drilling her to ensure she's giving coherent responses. You have to know the policies of your opposition.

-- Other Examples

The most glaring example is Charlie Gibson's terse question asking her evaluation of the Bush Doctrine (i.e., right to preemptive/preventive action in fighting terrorism, including state sponsors of terrorism, or other threats to America). Now the Bush Doctrine has a number of nuances; e.g., at the beginning of his second term, he spoke about spreading democracy to defeat terrorism. But given vociferous attacks on America's isolation, lack of support in other countries, etc., by the Democrats, how could the McCain camp not prep her on the so-called Bush Doctrine, not to mention how McCain's foreign policy differs from Bush's. That was really what the question wanted to flesh out.

Summary

Sarah Palin is painfully unprepared and inarticulate on basic concepts. She should not be caught off-guard by discussion of basic concepts in global economic problems or McCain's policy differences with Bush and Obama. Is it just a matter of nerves? I agree that her drops in popularity are largely due to smears by the Dems. But now there's this concern if something would happen to McCain, a lot of people worry about whether she is up to the job. I think McCain should dump Palin for Romney, but McCain will probably stick with Palin, and we'll all be waiting to see what happens at her debate. Sometimes Biden has a habit of overplaying his hand. If she has another Couric moment, though, in front of a nationwide audience, it could cause McCain problems as they question his judgment in the Palin selection.

McCain vs. Obama Debate 1 Review

The bottom line is that, on substance, McCain clearly won the debate. From a strategic standpoint, I think he definitely showed a quick, alert mind and stamina in holding his own against Obama (I believe that he put to bed any lingering question people may have had about his age), McCain showed a dazzling mastery of scope and detail of global foreign policy. McCain was particularly effective at counterattacking Obama and putting him on the defensive, with Obama repeatedly fumbling for words with audible uh's, and I thought McCain had a very strong finish, in discussing his readiness to be President.

From a wholistic perspective, Lehrer, the moderator, allocated maybe a third of the debate on domestic issues related to the bailout. I think McCain's people should go to the Presidential debate commission and argue to get that time back during the remaining two debates. I don't think that McCain threw a knockout punch or that Obama drew a blank; I do think that Obama held his own, but I'm sure any substantive parsing of the debate will show that he was delivering more precanned responses, and he was evasive, which wasn't necessarily obvious. Lehrer seemed to realize it, but couldn't pin him down. 

A key example was the point about new spending given the financial bailout and its implication on future budgets. I thought McCain did a fairly good job indicating his protected areas (e.g., national security and veteran affairs) in terms of substantive cuts elsewhere, in particular, looking to streamline government and flat-bid vs. cost-plus contracts, but Obama kept evading coming up with specifics and in general where he would trip his nearly $1T in new spending programs.

From a stylistic standpoint, I think (and others noted as well) McCain kept answering to the moderator instead of at the camera and/or Obama. Obama kept on calling him 'John' (instead of senatorial courtesy, which McCain extended to Obama, repeatedly saying 'Senator Obama'). I think this was a deliberate strategy on Obama's part to try to portray himself as "equally qualified" to be President. McCain was little repetitive at times, especially on earmarks (plus, on things like flat-bid contracts, he should have some numbers to go along with the savings).

Some key points raised during the debate I think merit additional attention because I think that Lehrer or McCain didn't challenge enough some of Obama's disingenuous responses:

• McCain's Business Tax Cut (35 to 25%). Obama has been advertising them as a giveaway, in particular to Big Oil; I can't believe that McCain wasn't waiting to pounce on that one: he could point out that domestic reserves are actually shrinking, and Democratic and/or special interest group legal tieups against domestic energy exploration (offshore drilling, oil shale development, ANWR) and production (e.g., nuclear power plants) have the majors scrambling elsewhere for business investment. McCain specifically gave as an example that Ireland's rate of 11%.  Obama gave a flippant allegation/response that with tax loopholes, the corporate effective tax rate is at or below 25% already. McCain should have hit back hard. In fact, a typical Obama tagline is that he's going to stop giving tax breaks to companies investing (i.e., "shipping jobs") overseas. McCain should have anticipated Obama's demagoguery on this issue, point out American jobs lost because of Democratic protectionist opposition to allies like Colombia and South Korea. But to the point at hand, McCain should have directly put Obama on the spot by demanding to explain if tax policy is so accommodative, why are businesses looking elsewhere? The fact is that taxes are a business cost, and the way you attract businesses and the jobs they create is by addressing cost issues. Incidentally, this is also a good segue of bringing up the fact that despite Bush's tax cuts, federal revenues are up considerably over the Clinton years and higher taxes.
• Obama's Denial of his Youtube Debate Response on Ahmadinejad. I can't believe that Obama can lie about what he said in front of a nationwide audience in a Democratic candidate debate, available on Youtube. He's trying to argue he was really talking about lower-level contacts and then is implying that McCain doesn't believe in lower-level contacts? McCain should have called Obama a liar and suggested that America should watch the video and then ask themselves who they believe--the Obama talking to his fellow Democrats or the pandering Obama in front of them, trying to explain whatever it takes to steal the election.
• Obama's Disingenuous Attempt To Use Kissinger Against McCain. First of all, McCain should thank Obama for reminding everyone that former Secretaries of States under at least 4 former Presidents have endorsed him and his foreign policy expertise. Second, Obama is smearing Kissinger by saying that Kissinger advocates rewarding rogue nation leaders with a platform at the White House to use for their own propaganda objectives. It should be noted that Kissinger was extremely angry that Obama mischaracterized his views and reaffirmed McCain's position. However, he wasn't available to directly refute Obama in front of the national audience.

Suggestions for McCain

• Be prepared to nail Obama on the judgment against liberating Iraq not having intelligence data, including that from other countries. The real judgment is realizing when a mistake was being made and doing something about it. Note that Bush, like Obama, lacked military and foreign experience and was too slow to challenge the operations in Iraq, whereas you were on the record as early as 2003 arguing for a bigger footprint to stabilize the region. Note that not having the right strategy and tactics didn't help the Soviets in their invasion and occupation of Afghanistan. Point out that Al Qaeda chased out of Iraq have shown up elsewhere, and they are on our radar. Refute Obama's ludicrous allegation that Afghanistan and Iraq are zero-sum issues--that just like he (McCain) would work on the bailout and be at this debate, Barack Obama doesn't seem to be able to walk and chew gum at the same time, and this inflexible attitude about multi-front battles should really concern American citizens. Point out Obama's continued, stubborn reluctance to talk to Gen. Petraeus, whom has essentially wiped Al Qaeda out of Iraq and brought military and civilian casualties down 80% has implications for Obama's strategy in Afghanistan--it's not just enough to put more soldiers into a meat grinder--which was a lesson we learned from not using the right tactics in Iraq--we have to transform the area. Note that Pakistan itself took exception to Obama's statements about unilateral actions against targets in Pakistan, earning a rebuke from the assassinated leader Benazir Bhutto herself. Argue with Obama's retreat-at-any-cost has implications for our alliances, and remind fellow Americans what it means for terrorists in an unstable Iraq to have access to $150/barrel oil--and where would they put their priorities? Afghanistan doesn't have oil (however, it does have critical pipelines); it also has opium poppies. 
• Just slam Obama the next broken-record occasion Obama brings up the $79B Iraq oil surplus via August GAO report. Note that that's an artifact of higher oil production, record high oil prices (now, much lower), and that reconstruction efforts had been put on hold because of earlier violence; Iraq has announced a $79B budget for next year, a 58% increase over this year with about $19B in capital spending. In comparison, the US has spent about $42B since 2003 on Iraq stabilization and infrastructure. Given the fact that this information has been posted for about a week, Obama's using this sum, which reflects part accumulated oil earnings since 2005 (accounting about 94% of Iraqi income) and Obama fails to note that over $100B of the $181B revenues have been spent. This is an explicit example of Obama knowingly passing along misleading statistics and letting Americans draw invalid inferences. Maybe he learned how to mislead people during his Harvard Law School education, but the American people deserve better.
• Obama the reformer? The next time this "we are what we've been waiting for" demagogue opens up his mouth, claiming to be a government reformer at heart, ask America what it's going to believe: a man who not only wrote the book when it came to campaign reform, earmark reform and Senate ethics reform,  but he walks the walk, while Obama has taken hundreds of millions of earmarks, including one for his wife's employer, and who has reneged on his commitment to public financing, because he knows he can raise more money than McCain receives, which gives Barack a competitive advantage.
• Focus on the JOB-KILLING side effects of Obama's toxic brew of higher tax rates and globally uncompetitive business taxes. Point out that Obama favors tax giveaways to people whom pay no federal income taxes and suggest that any tax relief applied to payroll taxes should be applied consistently and fairly, across tax brackets.
• Obama the "Change Agent"? Even though he himself admits he did not bring "change" to the Chicago neighborhood where he was a "community organizer", he wants the American people to belief he can bring change to America where he failed bringing change to Chicago or typical Chicago machine politics during all the years he's been representing Chicago in the state and national legislatures? Give me a break! Put him on the spot! Point out he's all sizzle and no steak when it comes to change.... 
• Nail him the next time he trashes your record on deregulation. Explain you focused on deregulating unnecessary rules and regulations costing businesses and the federal government money. Note that the issue is not how many regulations but how smart the regulations. And point out when it really counted, in the case of Fannie Mae and Freddie Mac, Obama made the wrong call, to protect the accounting-scandal GSE's, holding too much of our nation's housing debt, but McCain was right in his attempts to reform its regulations.
• Point out how Obama/Dem efforts to expand Fannie Mae and Freddie Mac's share of the US mortgage crisis and political efforts to pressure mortgage lenders to get lower-income, higher-risk households into houses they couldn't afford was a big factor in the current mess, and to paraphrase Obama's spiritual mentor: "The chickens have come home to roost." Just another reason we can't afford 4 years of Obamanomics.

Major Point on Addressing the Financial Bailout

First of all, LEARN TO SUPPRESS YOUR INNER TEDDY ROOSEVELT. Listen, John McCain, you are NEVER going to out-demagogue Obama. People who believe in class warfare and socialism are NEVER going to vote for you however many times you've voted against Big Oil and Big Agriculture (i.e., ethanol subsidies). Stop griping about Wall Street greed, etc. Your initial response to the federal bailout was very similar to Obama's--you should be differentiating yourself.

Second, you need to come up with a rationalization for your involvement in the financial bailout issue. YOU NEED TO EXPLAIN THAT WHAT THE PRESIDENT PROPOSED IS YET ANOTHER MASSIVE INFUSION OF FEDERAL SPENDING. Say that you're sick and tired of a Republican President whom pays lip service to limited government and spending but will leave office leaving a bigger budget and higher cumulative national debt than Clinton.

Explicitly identify yourself with the House Republicans whom are trying to work out a way for the mortgage industry itself picking up most of the cost and risk, not the American taxpayer. Point out that Obama had bought into the President's original plan, which is backdoor socialism. Point out the reason you showed up at the meeting was to ensure the House Republicans were heard, and you agree with the principles they bringing to the table to resolve this liquidity crisis.

A Final Note

For the next debate, see if you can find and bring those goofy glasses you wore in the early 80's which the Obamacans used in that tasteless ad involving your use of a PC (always classy for someone like Obama, with no military service, making fun of your war-related disabilities). Also, bring along one of your bumper stickers. Then tell Obama you think he needs these glasses worse than you do, because everytime he sees your bumper sticker, he says "Bush". Tell him he must be confused; you do know some guy named George Bush, but he ran against me in 2000. That guy's experience was mostly in state government and lacked military and foreign experience; he claimed to have bipartisan experience with the Texas legislature and ran a change election. Does that sound familiar? And after 8 years of that, do you really think the American people want more of the same on-the-job training?

Did McCain Blow Up the Bailout?

Back during 1992-1993, new President Bill Clinton had two major initiatives: a tax cut and a national healthcare initiative. The tax cut carried with zero support from House Republicans, and the healthcare initiative fell under internal squabbles among Democrats, anti-initiative coalitions, and the pressure of powerful special interest groups. Although there were other reasons, including certain scandals (e.g., Rostenkowski) and an innovative Republican "Contract with America", the Democrats lost control of the House for the first time in decades and attributed their loss at having had to carry a tax hike where no blame could be assessed to their opponents.

The Democrats feel compelled to co-opt the Republicans, because (1) the bailout proposal is very unpopular, getting heat from both the left and the right; the left considers it as the American taxpayer being asked to pay off Wall Street losses and multi-million dollar "golden parachutes" for executives running their businesses into the ground, and the right basically sees as an overly expensive government intervention and (2) they don't want to get blamed for a recession or depression triggered by loan freezes as a cascading effect of this crisis.

My previous post dealt with McCain decision to suspend his campaign on Wednesday afternoon to try to find room for an agreement. I've seen one report that says Treasury Secretary Paulson only got a handful of House Republicans willing to show up at a bailout briefing and contacted Senator Lindsey Graham, McCain's closest friend, about getting McCain to rally the GOP Congressional members behind the plan. It also appears that Bush and Paulson had not really consulted with House Republicans, and the latter balked at what they saw as an unprecented massive government intervention into the economy, which they considered against conservative principles. The House Republicans are not happy with lame duck G.W. Bush, whom seemed to want them to take the lead on a highly unpopular bill without wanting or requesting their input. It does appear at some point Paulson was briefed on conservative alternative proposals, e.g., 2-year suspension of capital gains taxes, insurance or loans (vs. federal cash), etc. (cf. my last post's summary on the Gingrich suggestions).

Senate Majority Leader Reid begged for McCain's support on Tuesday--but things suddenly switched his tune when McCain suspended his campaign, and Obama, seemingly caught flatfooted despite McCain's request for Obama to join him in Washington, responded by refusing the courtesy to postpone the debate scheduled for Friday. McCain contacted Bush, whom basically requested both Presidential candidates show up for a Thursday afternoon meeting at the White House, along with Congressional party leaders, plus committee members.

The Democrats saw themselves in basically a no-lose situation: If the bailout worked, they put it through; if it didn't, they could blame Bush and/or the Republicans. However, when McCain announced he was coming, they were in a state of panic: They didn't want John McCain swooping in at the last moment  to claim another notch on his bipartisan belt, particularly at the expense of Obama, when they had done all the hard work over the past 2 days without him. They further impugned his motives, suggesting that John McCain was doing it because of sagging poll numbers and feared losing the upcoming debate with Obama. [First of all, McCain was signaling support for the basic framework of what was being discussed, which Reid himself acknowledged the prior day. Second, McCain asked Obama to join him, which clearly implies any credit, if the candidates claimed any credit, would be shared. Third, as the winner of the Saddleback Civic Forum and who is on the record for repeatedly asking Obama to join him at 10 joint townhall meetings and additional Presidential debates, McCain was hardly ducking a debate on foreign policy, one of his strong suits--he had asked for postponement until the bill was done.]

McCain was briefed on the House Republican key bailout alternatives before proceeding into the meeting. It appears that Reid and Pelosi were finalizing a bill largely negotiated among key Senate Banking Committee members, including chairman Democratic Senator Chris Dodd, and Congressman Barney Frank, ranking House chair. It appears that there was no effort whatsoever to reach out for the input of House Republicans, but when informal word reached them, the Democrats reacted angrily, suggesting this was a totally unexpected obstructionist development meant to unravel things just as they thought they were finalizing the bill. As John McCain would later point out, there was no consensus--apparently the Democrats thought that Bush and/or McCain would shove the bill down the House Republicans' throats, with Pelosi demanding at least 100 GOP votes. The Democrats were simply in a state of denial.

I have only read 2 or 3 accounts of what went on during the meeting at the White House and cannot validate them. But apparently Obama was given a sheet from Paulson summarizing the House Republican positions. McCain was supposedly silent for most of the meeting (which some Dems suggested was a "lack of leadership"; my take is that he was intently listening to all parties in the hopes of finding common ground with the House Republicans). At some point, it appears that McCain brought up the House Republican counter-proposal points, without indicating his own evaluation of their proposal. It seems like the Treasury Secretary immediately slammed the counter-proposal as nonviable, which probably did not go well with the House Republicans at the meeting. Apparently Bush's comments were to the effect that without a final bill, the economy was going down the tubes, and we didn't have time to do the bill over again. Obama assumed that he was in charge of the meeting and looked to isolate the House Republicans at the meeting by demanding to know where McCain stood on the House Republican proposals. Reportedly McCain indicated that on political principle, he preferred the implementation of House Republican approaches, because of the smaller federal footprint and exposure.

At some point, the Democrats felt they were at an impasse and decided to leave the meeting, with apparently the Treasury Secretary on bended knee pleading with them to stay the course. The Democrats seemed particularly eager to scapegoat McCain for the fact that the House Republicans were unwilling to roll over; they were heading down the home stretch and McCain's "stunt" did away with all their hard work. What a state of denial! McCain noted there never had been an agreement with the House Republicans. Pelosi, if she wanted, could get a bill passed without Republican support but that left the Democrats without political cover

Now McCain was stuck because he had pushed to get a bill passed, but the debate organization had refused his request for a postponement, and it seemed unlikely that a negotiating team (this time including an authorized House Republican) could reach an agreement in time for McCain to travel to Mississippi for the debate.

So now the Obama campaign was spreading the spin that the McCain campaign was in a downward spiral with McCain having an erratic week, having tried a desperation pass at the last minute to bolster his appeal to voters with a last-second bailout win and coming up empty.

My Take

There is no doubt in my mind that McCain was sincere. I think he should have done a better job setting expectations, and he clearly painted himself in the corner by not getting a buy-in on postponing the debate. First, getting a bill through a polarized Congress in a week's time isn't very realistic, and he had to know the Democrats had no intention of letting him use this crisis for ammunition to use against Obama. Second, being behind in the polls, he can't afford to miss the opportunity of a debate.

However, I would probably do something that McCain wouldn't. The Democrats' outrageous behavior this week, in my opinion, gives McCain a perfect out--he could announce the final result as Bush's bad bill that puts the burden on the American taxpayer, just like Bush's huge budget deficits, and he'll oppose it. The Democrats have to pass a bill. This puts McCain in a no-lose situation--if the Democrats pass the bill without his support, McCain points out the Dems passed "Bush's" bill, and Obama has spent months trying to paint McCain as Bush's third term--then the next time Obama starts up this "90% vote with Bush" nonsense, McCain can point out that Obama voted with Bush the two times it really mattered--on energy and the bailout; if the Dems negotiate with McCain, he can argue to the American taxpayer that he got them a better deal than the Dems with Bush.

Economic Crisis: Preview of Obama/Dem Leadership?

What the Democrats have done thus far this week is nothing short of shameless, and I hope that American voters this fall will consider turning control of the House and Senate to a chastened GOP. Second, Barack Obama has shown us in real life his response to a 3AM call on an economic crisis, and it was incompetent, outrageous, and unconscionable.

Greed or An Accounting-Related Problem?

First, let us describe the context of the problem: bad mortgages in an illiquid environment. A lot of what's going on is an accounting rule called "mark-to-market". In essence, accounting requires a fair statement of financial assets. Suppose you bought, in the housing bubble, a house for the price of $300K. You had a real estate agent and a mortgage lender basically coaxing homebuyers to buy more house than they could afford with gimmicks like little or no money down and a teaser mortgage rate--which the homeowner could barely afford. Now the housing bubble pops. The homeowner is facing skyrocketing food and energy costs. All of a sudden the mortgage interest rate bumps up. The homeowner defaults on the mortgage. The bank now takes the possession of the house. At this point, the bank or mortgage owner has to book the current market value, likely well below list price, given ongoing weakness in the housing market.

If we look at some year-to-year average prices, we find a house price has gone down about 9%. Now when you look a bundle or pool of mortage-backed securities, you're looking at two things: how many homeowners will default on their loans (currently less than 10%), and what can you get for the property. Bill Gross of PIMCO says distressed loans/securities can run from 20 to 80 cents to the dollar. He recently paid 65 cents and expects a double-digit profit. Now Fed Reserve chairman Bernanke expects to pay above-market prices to help banks recapitalize. Obviously banks would not realize a loss at all if the federal government paid dollar-for-dollar. But technically it's possible for the taxpayer to gain, depending on the price the government pays and when the homes are sold (with the federal government able to wait out the period for the market to resume normal liquidity).

However, so long as the banks are forced to write down their assets and book losses under current rules, particularly under illiquid time periods, banks could find themselves undercapitalized and out of business. We need to find a viable method of valuing mortgages and securities that doesn't throw the majority of banks into crisis with over 90% of mortgages in good shape.

Other Conservative Objections

Newt Gingrich blasted the bailout plan because of the mark-to-market accounting rule (for long-term assets like mortages) [he talks about using a 3-month rolling average], suggests 2-year suspension of capital gains taxes (the House Republican Study Committee argues doing this to flesh out bad assets, offering loans to troubled companies at Treasury + 2% vs. the bailout, stabilize the dollar (e.g., offshore drilling) and argues Sarbanes-Oxley reforms (enacted in the aftermath of the Enron and other scandals) have been ineffective on detecting the current crisis and extremely expensive. He also argues that Democratic caps on management compensation would be counterproductive, since talented people can more than pay their way. Conservatives also are concerned of setting a bad precedent, and the government competing with or otherwise micromanaging the private sector.

McCain's Co-Sponsorship of Federal Housing Enterprise Regulatory Reform Act of 2005

Given the Obama's campaign attempt to argue McCain is a dogmatic deregulator and the whole question of Fannie Mae and Freddie Mac (including accusations about campaign chief Rick Davis' ties to a Fannie Mae contractor), John McCain's comments on May 25, 2006 are telling:

Mr. President, this week Fannie Mae's regulator reported that the company's quarterly reports of profit growth over the past few years were "illusions deliberately and systematically created" by the company's senior management, which resulted in a $10.6 billion accounting scandal....The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac. The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator's examination of the company's accounting problems...For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac--known as Government-sponsored entities or GSEs--and the sheer magnitude of these companies and the role they play in the housing market...I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

I wonder why the McCain campaign doesn't point out Obama's "economic expertise" and failure to support this regulatory reform? And then point out Obama was #2 overall target of contributions from the relevant PAC's and employees?

Review of the Week's Political Events

The Democrats know full well that as the party in power, they bear primary responsibility; if the bailout doesn't happen and it results in the stock market and economy tanking, throwing millions of people out of work, they are dead meat coming subsequent elections.

From a political standpoint, they are resorting to one of the oldest political techniques known: co-opt the opposition. Among other things, the "bailout" is probably the most volatile issue since immigration or Clinton's impeachment. The far left sees it as bailing out greedy Wall Street. The conservative right has long resented any branch of government essentially picking winners and losers in the private sector, feels that these half-measures may not work and may simply postpone the inevitable. They also dislike ceding power of the pursestring to the Treasury Secretary with limited or no oversight.

Senate Majority Leader Harry Reid, asked what actions Congress can take, said, bluntly, "No one knows what to do. We are in new territory here.  This is a different game. We're not here playing soccer, basketball or football, this is a new game and we're going to have to figure out ho to do it."...McCain holds the key to such a bipartisan vote, according to Reid, because Republicans are likely to defer to his position on a bill that holds political peril...According to a Democratic aide familiar with the discussions, Reid told Paulson this week that "if McCain didn't come out for this thing and come out for it quickly, it was going to begin bleeding Republican votes." Democrats "have a very real concern that opposition [from McCain] is going to drive away potential Republican votes," this aide said...Harry Reid said, "The Republican nominee for President needs to tell us on where he stands on what we should do."... Reid was celebrating when McCain indicated some support for a bailout: "I got some good news in the last hour or so . . . it appears that Sen. McCain is going to come out for this."

Republican Senator Coburn, a McCain supporter who has worked with Obama on a budget transparency bill, suggested Tuesday evening Obama and McCain come out with a joint statement for principles for the bailout. Obama unsuccessfully attempted the next morning to call McCain. In the meanwhile, McCain contacted Republican leadership in the House and Senate and got briefed on party opposition. He returned Obama's call and suggested that they both return to Congress and postpone the Friday debate. 

Shortly thereafter, McCain made a public statement announcing temporary suspension of his campaign, saying: "I do not believe that the plan on the table will pass as it currently stands, and we are running out of time." [This is based on Fed Reserve chairman Bernanke's assessment of dire consequences if action is not taken in the short term.]

And Obama's response? A refusal

"It is going to be part of the president's job to deal with more than one thing at once," Obama said at a news conference late yesterday afternoon called in response to McCain's appearance. "I think there's no reason why we can't be constructive in helping to solve this problem and also tell the American people what we believe, and where we stand, and where we want to take the country... It's my belief that this is exactly the time when the American people need to hear from the person who, in approximately 40 days, will be responsible for dealing with this mess." Obama said he was in touch daily with Pelosi, Reid and Paulson and said, "They can call me if they need me."

[Attention, Senator Reid! Obama votes "NOT PRESENT".  Attention, Mr. Empty Suit! Remember Mr. Warren Buffett, your favorite $40B supporter, whom you claim as an economic adviser? He says the bailout the right thing to do, the crisis being an economic Pearl Harbor. And YOUR response to a Pearl Harbor, you clever post-partisan leader, so boastful of your bipartisan leadership, the annointed leader of the Democratic Party, is to phone in to a couple of Congressional Democrats and recite verses from the song "Ain't No Mountain High Enough"? And you insult the one man,  John McCain, whom can kill the bill in 2 minutes with House Republicans,  of not being able to walk and chew gum at the same time? And after ducking 10 townhall meetings and additional debates wanted by McCain, and decisively loosing the Saddleback Civic Forum, you accuse him of wanting to duck a debate with you on foreign policy, one of his strengths? And let's get this straight--given an economic crisis, on supposedly a strong suit for Democrats and Obama (and we have already read Democratic Majority Leader Reid's expertise and confidence in dealing with this unprecedented problem), Obama decides, rather than working towards a solution with possibly the health of the global economy on the line and simply postponing the debate, it's more critical to hold the debate as scheduled. Is this showing leadership in a crisis and the kind of flexibility America needs from its leaders? Obama decides now is the time to play a political game of chicken with McCain? What is he, in fifth grade?]

And the response of Majority Leader Reid, whom had worried about McCain might do an about-face on the bill and use it as a wedge issue to bash Obama and the Congressional Democrats?

"It would not be helpful at this time to have them come back during these negotiations and risk injecting presidential politics into this process or distract important talks about the future of our nation’s economy. … We need leadership; not a campaign photo op.”

A publicity stunt? The only problem is--Harry Reid forgot all about House Republicans. 

O'Reilly: Immigration and Oil Prices

I feel a need to respond to two topics Bill O'Reilly has continued to comment on through yesterday's radio and television programs: the McCain/Obama immigration ad exchanges and oil prices.

I posted over the weekend an exhaustive review of the 2007 Immigration bill. O'Reilly, even yesterday, continued to treat both the McCain and Obama Spanish ads as false. The Obama ad, which I have not discussed in detail, actually includes an implied racist smear against the McCain campaign.

The 2007 Immigration Bill and the McCain Spanish Ad

But let's return to the McCain ad. O'Reilly once again lied that Obama voted for the bill. Get this straight, O'Reilly: there was never a vote on the bill. There's a procedure known as cloture, which allows Senate action on a bill. (Senators reserve a minority right of filibustering a bill. Passing a bill requires a simple majority of 51 votes (including the Vice President as a possible tie-breaking vote)). However, cloture requires 60 votes. There are a variety of reasons to oppose cloture, including a deal-breaking amendment. That's what's referred to as a "poison pill".

Obama, who had been marginally involved in the bipartisan immigration compromise, was expected to protect key concessions made by Democrats. One was an end to chain migration, limiting the automatic granting of green card status only to nuclear (immediate) family members, in favor of a merit-based system, where extended family status would be one of several factors in a point-based system. (There is no doubt many new immigrants, hoping to bring over other extended family members, resist this change.) Another was a Y Visa system which provides an orderly supply of up to 400,000 legal non-immigrants. Finally, there are certain law enforcement aspects for things like worker verification/tracking and touchback (returning to the home country to submit paperwork).

Obama wrote a failed amendment which attempted to strip the merit-based immigration process. Obama supported the ultimately passing Dorgan amendment, a pro-union initiative, that gutted the Y Visa program. The latter killed the bill from a Republican perspective. Reid then resubmitted the bill about 3 weeks later under a so-called clay pigeon process, where a number of amendments were presented with limited debates and votes to table the amendments. Obama joined Baucus in an amendment to basically strip the REAL ID employer verification process, a deal-breaker from the Republican perspective; some conservative Republicans, opposing the Z Visa (amnesty portion of the bill), joined liberal Democrats in refusing to table the amendment, basically ending the clay pigeon, and the ensuing cloture vote failed.

A vote for cloture is NOT a vote for the bill; for example, a Senator may feel that a bill deserves an up-or-down vote even though he or she doesn't intend to vote for the bill. John McCain and other Republican supporters took heavy hits for their support of "amnesty"; Obama took credit for two minor concessions he won in the compromise and then voted for key amendments, popular with his political base, that knocked out concessions to the Republicans. This was not the first time that Obama has not negotiated in good faith with the Republicans (he had pulled out of a bipartisan group headed by McCain dealing with Senate ethics reform a year earlier); in essence he was trying to convert the bill into a partisan one. O'Reilly's inability to see the big picture and call the McCain ad a lie is absurd: the Dorgan and Baucus amendments are public records.

On the other hand, the Obama ad was a deliberate smear. Now the Obama campaign is going to claim it's only fair in the sense that McCain has run campaign ads they claim are guilt by association, e.g., William Ayers. But their ad quotes media conservative Rush Limbaugh saying " . . . stupid and unskilled Mexicans" and "You shut your mouth or you get out!" Rush Limbaugh is absolutely livid, writing in a Wall Street Journal article that the first soundbite was lifted out of context from a discussion mocking anti-NAFTA arguments about losing "stupid and unskilled jobs" to south of the border and the second soundbite was from a parody about the Mexican government's hypocritical attitude regarding their own tolerance of foreign visitors or illegal aliens. I think Rush's sense of humor is an acquired taste, but it's fairly clear from context he was not slurring Hispanics. 

However, there's a big difference between associating Obama with Wright, Ayers, and Rezko, with whom he has had direct relationships, versus associating McCain and his "friend" Rush Limbaugh. Rush Limbaugh vehemently objected to the 2007 Immigration Act and fought McCain every step of the way to the nomination. The ad basically accuses McCain of trying to deceive Hispanics, saying whatever it takes to get their votes. This is really patently absurd; McCain represents a border state which has enacted some of the strongest anti-immigrant legislation in the country, signed by a Democratic governor; McCain almost lost his last chance at the Republican nomination because of his positions on Iraq and immigration. When the bill finally burned and crashed over June 26 through 28, there was virtually no vocal support for the immigation bill while anti-immigrant crusaders all but crashed the Capitol switchboard trying to call all 100 senators in opposition. McCain has legitimate grounds on immigration and his strong pro-life stand to ask largely Catholic Hispanics for their votes.

The Oil Speculator Conspiracy

There O'Reilly goes again... There are a variety of factors influencing the price of oil--supply and demand, foreign currency, the global economy, specific economic events (i.e., the American financial services sector collapse), and weather conditions (e.g., hurricanes affecting Gulf of Mexico platforms and Texas and Louisiana refineries, etc.). O'Reilly sees ominous evidence of conspiracies in every oil price spike--but oddly, no conspiracy when the price falls. Well, except he does see the slower drop in gasoline as suspicious (although when gas prices rise more slowly than the price of oil, he sees no problem there).

Bill O'Reilly really doesn't have a conceptual understanding of what's going on. When the Saudi oil ministers said that they are going to take care of their customers and wouldn't agree to cut production, I'm sure Bill O'Reilly didn't pick up on that. Now when the Saudis refuse to cut back on supply, doesn't it mean cheaper price for oil, other factors being equal? Yes. Why would they do that? Why would they want to make less money? You have to look at the big picture--the Saudis know if the price stabilizes at too high of a price, it makes alternative energy more economically viable. This could be bearish on long-term oil prices.

"Supply and demand? Bull!", thunders O'Reilly. Let's think about this. Suppose I'm an American selling a $100 TV, and let's say I'm selling to another country whose currency has just dropped 50% vs. the dollar. From that person's perspective, I'm selling a $200 TV. I'm not speculating or taking advantage of him. 

From our standpoint, the dollar has been in a decline against other major currencies, principally the euro, for quite some time, until a rebound in the dollar this past summer. It has had some confounding effect on the costs of the 60% of oil that we import. All other things remaining constant, we should pay more for oil as the dollar weakens, and less as the dollar strengthens.

Despite O'Reilly's state of denial, the law of supply and demand does still hold true. There is no doubt that even if part of the reason for the rise in price is due to a currency effect, that has a critical impact in terms of the prices for refined products, including gasoline. As gasoline grows more expensive, car owners try to cut down unnecessary driving, consider carpooling, engage in park-and-ride, etc., inventory stays in the channel, and there is less demand for new product.

As Americans deal with higher prices for food and energy, they cut back on other forms of spending, including lower demand for foreign goods and services.  Many European countries are recessionary, further dampening demand for Asian exports of goods and services. These economies may not be able to absorb drops in demand without layoffs, etc. In total, a slowing global economy softens demand for oil imports, meaning lower prices.

Increasing global economic uncertainty also facilitates any long-awaited bear market recovery for the greenback, which combined with softness in global oil demand, dropped prices from nearly $150 to about $90/barrel. To a certain extent, Hurricane Ike has affected Gulf-related energy production and/or pipelines, and so we have certain supply disruptions and/or temporary price hikes. 

But the current spike in oil most likely has to do with the implications of the proposed federal bailout of illiquid mortgages which is expected to cost about $700B, adding to the federal debt--plus the uncertainty of whether the federal bailout will happen and if so, will the situation stabilize? Will we totter into recession? The increased federal debt is bearish on the dollar from a currency standpoint. From an investor perspective, this increases demand for other currencies and hard assets, including commodities such as oil and gold.

Now O'Reilly KNOWS that the mortgage-related bailout is a recent development, but he needs to invent a boogieman like an oil speculator to explain higher oil prices. Ockham's razor!

It's likely we'll see oil give back most of Monday's gain in the sense we don't see an ongoing recovery in economic demand for commodities, beyond being a hedge for the dollar. If we do see an agreement of a bailout plan by the end of the week, this should reduce uncertainty in the market, and we should see further improvements in the dollar and the commodities.

Real Change For America Is More Than Words

"Real Change For America Delivers Real Results".

"Real Change For America Means Getting Things Done".

Is anyone from the McCain-Palin campaign listening? I would like to see a little more creativity out there. The first time I heard McCain say, "Change is coming! Change is coming!", I immediately thought of Paul Revere's famous ride. I can just see Sheriff McCain and Deputy Palin riding into Washington town, noticing the sniping, fighting, and yelling going on between the Left and Right sides of the street, stopping it and telling the gathering townspeople that there's a new sheriff in town and things are going to be run a lot more differently around here. It won't be easy, but we promise to lead with hard work, thriftiness, sacrifice, determination, and a positive attitude, and with your help, we're going to achieve real progress towards a safer, more prosperous future for our families and our country.

Financial Tsunami: McCain's Bad Week

There are only two good things about the past week's financial tsunami for McCain: (1) it didn't occur the week before the election, and (2) his opponent is a far-left liberal with almost zero experience of any merit, Barack Obama, whose hypnotic trance and vacuous rhetoric have been burned off to reveal a highly defensive, condescending same old same old liberal. 

Who would have been much tougher opponent for McCain? A pro-military, pro-growth JFK-style Democrat. There aren't any today in the Senate. Even Ted Kennedy isn't a JFK Democrat. I would say probably the toughest competition would have Senator Ben Nelson or Governor Bill Richardson (with a more constructive Iraq perspective). They've both had gubernatorial experience with more moderate, fiscally conservative records. The problem is that someone like Bill Clinton, a centrist governor, could not make it past today's Dem liberal bloggers and activists. Not one national Democratic candidate took a more centrist position on Iraq, e.g., we'll give the surge 6 to 9 months to work, and the Administration is not going to have a blank check. Instead the Democrats went for "all-or-nothing". Not one of them--certainly neither Obama nor Clinton--seemed to hedge their bets in the event the surge turned out to work. They argued that the surge wouldn't work--and now Obama has permanently lost credibility as a potential Commander in Chief.

McCain's vacillating positions last week (e.g., his position on AIG  and his populist rhetoric on the strength of the American economy and workers)  and his scapegoating of Big Business and SEC Commissioner Christopher Cox were incoherent and lacked the sureness of his earlier deft reaction to the Georgian invasion crisis. However, I thought he recovered somewhat by outmaneuvering the Obama campaign late last week, which I think was content with letting McCain overplay his hand, only to be caught empty-handed as Obama continued to study the matter--and then scream that McCain had stolen some of their best ideas!

Bashing Wall Street Greed? 

First of all, ENOUGH of McCain and/or Obama bashing "greedy" Wall Street. Personally, I see the whole thing of CEO compensation as little more than than a "good old boy" network. I do not like golden parachutes, mostly from the perspective it's unfair to shareholders. I think most people with a million dollars in T-bills and blue chip dividend-paying stocks are probably set for life. I mean, really: how many houses do you need to live in? How many cars can you drive? Warren Buffett, one of the richest men in the world, reportedly still lives in the same simple house he bought years ago and drives an older, unassuming vehicle. I think, perhaps, the accumulation of wealth is a way of keeping score. But I don't think you should blame "greed"; it's more likely these companies were selling increasingly complex financial instruments (derivatives, etc.) where it was difficult to get at the underlying asset and to properly valuate the risk.

I remember around 3 years back hearing reports of people flipping Florida condos before the condos were even completed. I've lived in Silicon Valley, the better suburbs in the Chicago area and in the Baltimore/DC area with houses starting near the $450K level--almost 10 years ago. If you take into account the median household income last year was just over $50K, and income growing slower than housing prices at the time, a lot of us were talking about a housing bubble, just like sky-high Nasdaq prices and unprofitable Internet companies were claiming a new stock market paradigm as we heralded the new century.

I think it's more of a mixed message here. Clearly, there is some business culpability here. People like myself have been saying for years this is a crisis waiting to happen. Anyone who has ever taken a management finance course understands the concept of diversification of risk. But risk goes beyond spreading across, say, a basket of mortgages. The reason is because mortgages themselves share a systematic risk, namely the housing market. The housing market, like any market, goes through corrections. You can possibly gain additional return, but only at greater risk.

I have not worked in the financial services sector, so I cannot speak to what kind of simulation modeling went into instruments like derivatives. Presumably they had priced products in part based on simulations through, say, the early 1990's correction in the California housing market and/or elsewhere. And I don't doubt, in a falling market, these instruments could be difficult to unwind with no buyer willing to catch a falling knife. Did CEO's of these firms knowingly take on greater risk at the top of the housing market? I don't think so. For one thing, it's always tough to  call market tops, and I don't think they want their legacy to be having presided over the sudden collapse of a prestigious Wall Street firm. 

I do not disagree that Wall Street should pay a price for taking on undue risk, and company officers should man up and accept responsibility for what has happened to their company and their part of it.

Other Villains

• Homebuyers. Buying homes beyond one's means and accepting "too-good-to-be-true" terms like no money down or variable interest rates, with teaser rates below historical norms. If you can't afford the upper-limit mortgage payment, you don't buy the house, but wait until you've saved enough to afford a fixed-rate mortgage and terms that you can afford. This is not an investment--it's your home. I do not buy into the Obama rhetoric that consumers  need a nanny state to keep them from making a bad decision. A foreclosure is a terrible personal tragedy. 
• Primary Mortgage Lenders. Resorting to sales gimmicks to sell loans that the homebuyer really can't afford with no collateral, no deposit, no emergency funds in the event, say, of a job loss? What happens if the new owners end up with negative equity and talk away from the loan?
• Secondary Market: Fannie Mae/Freddie Mac. These GSE's are rightly criticized by John McCain for being undercapitalized and owning too big a chunk of the $12T US market. Their implicit government guarantees are really what put the government on the hook for a bailout.
• The Congress. Clearly there had been political pressure for the mortgage lenders to extend loans to lower-income Americans whom really couldn't afford to buy a home. Also, despite warnings by McCain and the Administration, the GSE's were allowed to get too big and basically took away business from the private sector by using access to cheaper government money.
• The Federal Reserve. Did easy money from the Fed Reserve goose up the housing bubble like it did the overheated Nasdaq during the over-hyped Y2K process?
• Regulation. I do not mean this in the demagogic sense of Democrats, that somehow in allowing new businesses/models to emerge, the GOP opened Pandora's box. I haven't read the audited financial statements of the companies in question, e.g., Bear Stearns, Lehman Brothers, and others, but before the sudden collapse, only 1 of 19 analysts following Lehman rated it an underperform or sell. Was there a problem with underlying financial statements? Was this an unanticipated liquidity issue for which the government had no contingency plan, e.g., like a bank run? Are accounting methods and/or financial reporting requirements aggravating the problem?

McCain's Missteps

• The Mixed Messages About the State of the Economy.  "Fundamentals of the economy are strong." "I believe in the American worker." This was so muddled, I have no idea what it means. What does the American worker have do with the general state of the economy? Is he saying that recessions come about when the American worker slacks off? McCain needs to realize he cannot out-demagogue a Democrat. McCain also needs to give credit to American entrepreneurs, businesses, investors, and consumers of goods and services. I'm not a politician, but here's what I would have said, "There Obama goes again, ladies and gentleman. Running down the economy-AGAIN. Is that what America wants in a leader? Someone who knows how to criticize the economy without any constructive solutions? Where's the hope? Where was this guy when I told the country Fannie Mae and Freddie Mac were too big and inadequately capitalized? Could it be because he got a sweetheart mortgage rate on the jumbo loan for his $1.6M mansion? Did he jawbone Senate Banking Committee Chris Dodd over his sweet mortgage deal with Countrywide? When did he decide Lehman Brothers and Fannie Mae and Freddie Mac needed more regulation? After he cashed their campaign checks and considered their advice in picking Joe Biden? But to the point at hand, look: in the last quarter, we experienced a 3.3% growth rate, which is better than many of our European allies. We are facing a serious challenge to our financial services industry, fundamentally based on liquidity problems in the mortgage market. We've faced challenges before; the Administration is proposing a solution. What we need to do is be careful that we don't make a habit of bailing out industries and companies. A meltdown in the financial sector affects more than just a few Wall Street firms but could cause mayhem in the overall economy. We have to worry about these problems spreading to other areas of the economy."
• Against the AIG Bailout, For the AIG Bailout. This is awkward. It makes McCain look impulsive and indecisive, the exact opposite of what we got from McCain's sure-footed response to the Russian invasion of Georgia. I think if AIG was just one of a bunch of blackberries, and the other blackberries were healthy, you could justify letting AIG die as the result of bad management decisions. However, when you see AIG and the financial services industry all sinking at roughly the same time, I just don't believe it's the disease, but a symptom, the symptom being due to a crisis in mortgage liquidity. I mean, were these players responsible for writing and approving subprime mortgages?
• For the Termination of SEC Commissioner Cox? This looks like McCain is making Christopher Cox a scapegoat for the sins of a housing bubble that he himself did not preside over. Is McCain saying Cox fell asleep at the switch, that the SEC was not conducting its work with respect to the financial services industry with due professional care? I think I share Rush Limbaugh's opinion here that McCain threw Cox under the bus. 
• Deregulator or Regulator? I don't think that McCain has responded effectively to Obama's implicit allegation that this crisis was due to deregulation and McCain likes to be known for deregulation. I think McCain should have responded by noting he was not talking about necessary regulation but market-interfering regulation. He should then have counterattacked that the solution to the current crisis was not to micromanage the financial services industry, which reflects the counterproductive approach of Democrats in general, obstructing the globally competitive rebuilding of the financial services sector. Similarly, McCain by insisting on low taxes does not argue for the elimination of taxes but just enough taxes to effectively meet necessary government goods and services.

Conclusion

I thought that given McCain's nomination acceptance speech  openly talked about tough times for families, he would be given more of a break by Obama and the media, and his talk about the fundamentals of the economy being strong was more of a general expression of confidence in the resilience of the economy to prevail over difficult challenges. Instead, it seemed like Obama used the quote to attempt to suggest, once again, that McCain was "out of touch".

It looks as though there's been about a 7-point swing in the national polls since the financial services meltdown, with Obama holding about a 4-point lead nationally. This is not bad given the circumstances. 

I am encouraged the framework McCain outlined last Friday: (1) the MFI, a proactive financial services and mortgage authority; (2) improved transparency for financial services firms; (3) an integrated regulatory structure, free of bureaucratic turf battles; (4) regulation against misleading investment and mortgage lending contracts, pressure sales tactics,  and promotional gimmicks; (5) a standarized approach to government assistance and bailouts; (6) limit the scope of the Federal Reserve to its traditional role, not taking the lead in bailouts.

On McCain Spanish Ad, O'Reilly is a Pinhead

Last night Bill O'Reilly started off his program, blasting both McCain and Obama for Spanish language ads attacking each other on immigration. Unfortunately, he glossed over the details of the ads and then steamrolled some inarticulate Republican spokeswoman whom obviously was not knowledgeable about the topic; O'Reilly then pompously dismissed the exchange as stupid, noting both of them had supported comprehensive immigration reform last year.

There's a big difference between the arguments, and a lot of it has to do with a point that McCain has repeated on a number of occasions: the fact that McCain, in pursuing bipartisan legislation (not to mention his crusade against earmarks), has sometimes been attacked by members of his own party and the media conservatives, led by Limbaugh, Coulter, Hannity and others, whom openly opposed McCain. I wrote a post a while back where I noted whereas Obama had pointed out that when Bush takes a position on legislation, McCain votes with Bush 90% of the time. (Obama does 40% of the time.) But the more critical test is the times one votes with the majority of one's party; on that score, McCain votes about 80% of the time and Obama about 96% of the time. By that measure, Obama is far more partisan than McCain is. Does O'Reilly remember Obama's pretentious claims of a post-partisan atmosphere in Washington? Does O'Reilly remember Obama's claims of being a political reformer but then reneging on a joint promise with McCain on public financing of the campaign, because he discovered he could outraise and hence outspend McCain? Does O'Reilly remember that McCain has, from the get-go, offered more debates and a number of townhalls, and Obama rejected them all?

The Backdrop for 2007 Immigration Reform

The seeds of the current controversy deals with the differing aims of the parties on immigration. Many businesses operate with shortages of available qualified American workers to staff positions in operations or for projected growth.  The pro-business Republicans have focused on merit-based immigration, an above-board, low-skilled open guest worker program,  and against family-oriented chain immigration. In terms of merit-based immigration, we are looking for highly-educated/skilled professionals whom fill vacancies (e.g., in high tech and nursing) which organizations can't staff with available credentialed Americans. Similarly there are low-skilled, low-paying positions which most Americans don't want (e.g., migrant farm work, hotel and restaurant services, etc.)

There is another group of Republicans whom view undocumented workers as working outside the existing guest worker and immigration system, with Presidential administrations since the last 1986 agreement basically paying lip service to controlling the Southern border. They view it as primarily a law-and-order issue with undocumented workers getting rewarded with possible citizenship for working outside the system and being net beneficiaries of state and local services.

On the Democratic side,  Hispanics and other ethnic minorities are considered natural constituencies and regard anti-immigrant attitudes as racially-motivated. Undocumented workers, in fear of being exposed, are often seen as being exploited by employers. Amnesty is seen as a matter of fairness and compassion, with many families having children whom were born in the US, i.e., citizens by birth. 

There is another group of (pro-union) Democrats whom regard undocumented workers as a permanent underclass, basically driving down wages for low-skilled occupations. By reducing the number of undocumented workers, they figure that business owners will have no choice but to bid up wages to staff their businesses.

The 2007 Immigration Bill

There were the following major elements:

1. Z Visa (Republican concession): Each undocumented worker at the beginning of the year 2007 would be eligible for a Z Visa to work in the country indefinitely (amnesty). After 8 years, the worker could apply for a green card after paying a fine, some back taxes and returning to their home country (Democratic concession). The green card would allow the worker to apply for citizenship after another 5 years.
2. Y Visa (Democratic concession): 400,000 low-skilled guest workers, up to 2 years before returning home for minimum 1-year wait
3. Merit-based immigration (Democratic concession). End unrestricted chain immigration except for the nuclear family. Do away with current work sponsorship program; replace with a formula for employment, education, English, civics, and extended family connections.

In addition, there was an agreement to increase the number of Border Patrol agents and construct a fence along the open US-Mexico border.

Obama on an intermittent basis was involved in the immigration bill bipartisan effort. There is a filter during the Z Visa process whereby those undocumented workers found to have criminal records are to be deported; I believe Obama won a concession, opposed by Republicans, for the worker to be allowed to stay in the country during the appeal process.

The Senate then moved on to consider a number of amendments, most notable of which are regarded "poison pill" amendments to the legislation. In the drafting of bipartisan legislation, a sponsor/participant is expected to protect the compromises his or her side has made. For example, McCain was expected to support the Republican concessions, i.e., support for the Z Visa "amnesty", even though those votes would be denounced by partisan purists. Similarly, Kennedy, as lead negotiator/sponsor for the Democrats, would be expected to support the compromises he made, which would be opposed by unions and many immigrants unhappy with the end to chain immigration.

McCain has summarized a number of the poison-pill amendments Barack Obama voted for, including Obama's own:

• SA 1169 /Bingaman: halve the number of Y Visa workers PASSED
  
• SA  1181/Dorgan: kill Y Visa program in 5 years                 REJECTED
• SA  1202/Obama: kill merit-based preference in 5 years  REJECTED
• SA  1267/Bingaman: eliminate Y Visa return home            REJECTED
• SA  1316/Dorgan: kill  Y Visa program in 5 years               PASSED

Notably, Kennedy voted against all 5 Democratic poison pill amendments. The Dorgan amendment was essentially drafted by unions opposed to temporary guest workers. There is a notorious Youtube clip where McCain ally Graham blasted Obama over SA 1202, noting that McCain, he and other Republicans were taking heat from their base; Obama dismissed Graham's rant with a condescending "spare-me-the-histrionics" response.

The final poison pill finally killed the compromise. Technically the bill never got a vote; attempts to bring cloture failed (June 7), and Reid withdrew the bill. 

On June 13, there was an agreement to revive the bill with each side allowed to present 11 amendments. On June 18, substitute bill (S. 1639) was introduced and passed cloture 64-35 on June 26 (certain senators agreed to cloture in response to their amendments being presented). Majority Leader Harry Reid pulled a rare Senate procedure, often used by the minority party as a stalling tactic and/or when the number of amendments has been restricted,  known as a "clay pigeon" ; this basically is a super-amendment with component divisions (amendments), each of which must be voted upon, with debate limited on any one division. Cloture was used to bar any non-approved amendment.

CQ Today identified two principal poison pills: (1) Republicans Hutchison and Graham wanted a "touchback" provision which required all or head of households of Z Visas to return to their home country, not just those whom wanted green cards  (Democrats thought this put an undue burden on undocumented workers; the Republicans wanted this to strengthen the enforcement part of the bill); (2) Democrats Baucus and Obama and Republican Grassley wanted to weaken employer verification requirements for Z Visas.

The following amendments were voted on June 27:

• DIV I/Hutchison: toughened touchback for Z Visas                  TABLED
• DIV II/Webb: limited eligibility for Z Visa                                  TABLED
• DIV III/Bond: stripped green card eligibility for Z Visas         TABLED
• DIV IV/Dodd: loosened family restrictions on green cards      TABLED
• DIV VI/Menendez: additional extended family points              TABLED
• DIV VII/Baucus: delete REAL ID in employment verification  NOT TABLED

(DIV V was a side-by-side with the Dodd amendment and did not receive a separate vote.)  The Baucus amendment basically scotched Reid's strategy by returning control to the Senate floor for debate. The anti-immigration Republicans were furious with Reid's tactics to restrict debate, which they considered to be unprecedented and a majoritarian abuse of power, and at least three of them (DeMint, Shelby, and Vitter) voted not to table the Baucus amendment. These senators, of course, given their law-and-order perspective on undocumented workers, clearly would have opposed the Baucus amendment on its merits; their votes were intended to frustrate Reid's maneuvers.

In the meanwhile, late June 26, the House Republicans passed a caucus resolution against the proposed Senate bill 114-23.  Speaker Pelosi had indicated that she needed at least 70 Republican votes to pass an immigration bill in the House. House Minority Leader Boehner mentioned after the vote, "House Republicans have been very clear about our priorities. First things first: we must secure our border and enforce our laws."

On June 28, Reid proceeded to a final vote on closure, which lost 46-53 (60 needed), losing almost all Republicans not involved as a bill sponsor.

The Battle of the Ads

By any objective analysis, O'Reilly is wrong in his shallow analysis of the immigration debate. It is true that Obama voted for cloture on the bills, which, if successful, would have kept the bill alive. But he actively worked against each and every Democratic concession to Republicans, including Y Visas (opposed by unions), law enforcement aspects (employer verification, touchback, etc.), and pro-growth merit/skill-based immigration (in favor of continued chain immigration).

For the Republicans, this was a non-starter. If what you have is a perpetuation of low-skilled immigration (where, according to one figure, the average immigrant pays in $1 and gets $3 in benefits), and say, you don't have an improved border protection system and employment verification system, and you don't have an orderly process of non-immigrant low-skilled labor to accommodate business needed, you are perpetuating the same old same old. We'll be revisiting the same issue in 20 years with yet another 12 million or more undocumented workers, another amnesty, etc. 

So John McCain essentially had to read the writing on the wall: we can't perpetuate this problem. In essence, he got the message: "borders first and law enforcement". That's basically what he needs to get a critical mass of Republicans to agree with immigration reform.

McCain's ad against Obama on immigration is faithful to the reality of what happened last year: in particular, the Dorgan amendment killed the bill. It would have maintained a de facto black market in unskilled foreign labor.

Obama really doesn't want reform--for all practical purposes, he wants amnesty for undocumented workers plus basically more of the same: chain immigration, no orderly flow of unskilled non-immigrant workers, the burden of proof staying with the government, not the undocumented worker or the employer.

Now as to Obama's demagoguery about McCain backing off on immigration reform and kowtowing to the anti-immigrant media conservatives: You'll find the same basic framework for 2007 Immigration Reform under "border security [and immigration]", but McCain makes it very clear that people whom have worked through the system get priority for the path of citizenship and we can't maintain an indefinite status quo of unprotected borders and a black market of unskilled foreign workers.

Obama and Sex Ed for Kids?

Was the Sex Ed Ad a Good Idea?

I have to confess, in discussing this issue, that I don't quite understand why the McCain campaign wanted to reprise an argument Senator Obama's 2004 carpetbagger opponent, Alan Keyes, made, especially given the fact that Keyes managed to win only 27% of the vote. Also, given the fact that Sarah Palin's 17-year-old daughter Bristol is unmarried and pregnant, it doesn't seem to make a lot of sense to raise the topic of sex education. It may be that the McCain campaign is trying to reignite the culture wars. I'm not sure that this is a winning strategy in a change election from the Clinton-Bush era. For example, a California proposition to strike gay marriage recognition (in the aftermath of the California Supreme Court's controversial activist decision) is currently trailing by 17%.

Was the Sex Ed Ad Fair?

National Review Online writer Byron York posted his findings in a Sept. 16 column on relevant Illinois Senate bill 99 in the aftermath of many liberal "fact check" organizations and newspapers slamming the McCain ad. Obama's response to Alan Keyes, whom raised the issue in 2004, was:  "We have a existing law that mandates sex education in the schools. We want to make sure that it’s medically accurate and age-appropriate." He then expounded about the need to teach about inappropriate touching for younger children, like he and his wife did for their two young daughters. (Apparently Obama believes that other parents are failing short on their responsibilities for teaching their children about the unacceptability of others touching their private parts; I don't doubt child predators exist and should be prosecuted. However, I believe that the presumption should be that parents are aware of the issue and are acting in the best interests of their child.)

Barack Obama's response was to Keyes was deliberately misleading. [I'm going to analyze the sources somewhat differently than Byron York, whom goes on to explain, with mixed success, his attempts to contact the bill's sponsors.] On the surface, Obama seems to be covered in that the bill's authors say the purpose of the bill is to "medically and factually accurate" sex education, something they claim is "currently not part of Illinois law" and there is some change language which reflects age-appropriateness of instruction and materials.

However, the original sex education law language ALREADY maintains that courses and instruction should be age-appropriate for grades 6-12.  The bill's authors instead add the language adds "and developmentally".  The most intuitively obvious explanation for adding this language is to cover classes of kids where there is a critical mass of physically maturing children in grades earlier than the sixth. 

It's not really obvious what the authors mean by "medically and factually accurate", in the sense one would expect any teacher or textbook in any subject to provide reliable information. However, if you look at where the terms are used in the changes, they are used in the discussion of contraceptive methods.

My inference is that the bill's sponsors and Obama were really saying is that the current sex education in Illinois, with its focus on abstinence, is inadequate for the 21st century. Illinois Democratic Senator Ronen claimed that half of all Illinois high school students are sexually active and a quarter of those contract some STD/ infection.  "Comprehensive, medically accurate sexuality education gives young people the information they need to make responsible choices about their health, ...the realistic information they need about the prevention of an unintended pregnancy and sexually transmitted infections."

If you read the changes in the bill, you see a series of edits, which attempt to broaden the scope of various terms, e.g., changes from "sexual intercourse" to "sexual activity/behavior" (i.e., oral sex), "AIDS" to "HIV",  "diseases" to "infections", and "condoms" to "all contraceptive methods" (presumably the pill, diaphragms, etc.)

You see a stripping of any language reflecting traditional values: "honor and respect for monogamous heterogenous marriage"; "abstain from sexual intercourse until they are ready for marriage"; "abstinence from sexual interface is the only 100% effective method [against pregnancy and STD's]"; "emotional and psychological consequences of  [premarital sex] and [unexpected teen pregnancy]"; "alternatives to abortion"; "until marriage".

But this does NOT mean that these changes are without a value system of some kind, of course: namely, socially liberal values, focusing on typical victimization rhetoric. For example, you have the following new language: "resources available to survivors of sexual abuse and sexual assault, including...escaping violent relationships"; "free of ...sexual orientation [gay] biases"; "wrong to take [sexual] advantage of or exploit another person"; "shall teach male pupils about male accountability for sexual violence [and ways for females to protect themselves]".

There is a lot of boilerplate that basically focuses on the recognition of  unwanted sexual advances, assault, contact, and rape,  particularly by an acquaintance, with emphasis on the touching of an intimate part, as well as peer pressure for sex and statutory rape. The change text also addresses resources for counseling, medical assistance, and filing charges with law enforcement officials

SB99 changes language from the status quo sex education law:

Section 5. The School Code Sections 27-9.1 and 27-9.2

(1) The Sec. 27-9.1 (a) changes wording FROM "each class or course in comprehensive sex education offered in any of grades 6 through 12..." TO "each class or course in comprehensive sex education offered in any of grades K through 12..."  This, without any further discussion, immediately validates the McCain commercial, which simply questions the description of 'comprehensive sex education' in the context of kindergarteners. 

I'm not a lawyer, but logically I would have distinguished between LIMITED and COMPREHENSIVE sex education. I would have probably said something like LIMITED sex education for grades K-5 and COMPREHENSIVE sex education for grades 6-12, where LIMITED sex education is restricted to the age-appropriate topic of indecent touching by others. Barack Obama, a Harvard-trained lawyer, did support the language change associating grades K-5 with comprehensive sex education.

(2) Sec. 27-9.1(c) changes "1. course and instruction shall be age appropriate" to "2. All course and instruction shall be age and developmentally appropriate"

(3) The wording of Sec. 27-9.2(a) is more difficult for the liberals to explain away. It changes FROM  "...whenever such courses of instruction are provided in any of grades 6 through 12, then such courses also shall include instruction on the prevention, transmission and spread of AIDS." TO: "...whenever such courses of instruction are provided in any of the grades K through 12, then such courses also shall include age appropriate instruction on the prevention of sexually transmitted infections, including the prevention, transmission and spread of HIV." Why are we including kindergarteners in an age group appropriate for discussing STD's/infections?

(4) Sec. 27-9.1(c) changes criterion 8 to criterion 11 and includes this additional language: "The course material and instruction shall inform pupils of  the potential legal consequences of sexual assault by an acquaintance. Specifically, pupils shall be advised that it is unlawful to touch an intimate part of another person as  specified in the Criminal Code of 1961." The same language appears in the proposed Sec. 27-9.2(c) criterion 9.

Section 10. The Critical Health Problems and Comprehensive Health Education Act

(5) Sec. 3. Comprehensive Health Education Act. FROM:  "...including instruction in grades 6 through 12 on the prevention, transmission and spread of AIDS..." TO: "...including age-appropriate instruction in grades K through 12 on the prevention of sexually transmitted infections..." 

Byron York's Discussions with Bill Sponsors

The gist of Byron York's discussion with the bill's sponsors yielded a couple of important insights with respect to the reclassification of class limits from grade 6 to kindergarten. First, there was a suggestion that a "one-size-fits-all" approach tied local school officials' hands. My example is that if an urban school district found that a number of fifth graders were sexually active, they would be empowered to address that in their curriculum. [In essence, changing to "kindergarten" gives local school authorities maximum flexibility.] Second, there were claims by Cook County and Planned Parenthood that there were known instances of inappropriate touching among younger students.

In addition, Byron York also found the liberal social value changes in text were allegedly promoted by Planned Parenthood. But the general gist was that Barack Obama was exaggerating the relative significance of inappropriate touching in the context of  the bill as a whole.

Conclusion

I do not believe that the bill's sponsors intended to suggest comprehensive sex education for kindergarteners, although any objective, fair reading of the bill's language justifies the McCain ad. Even a rationalization of  protecting children from inappropriate touching of intimate parts does not explain what you teach a kindergartener about the spreading of sexually-transmitted infections. I would suggest that the changes in grade limits were the result of careless or arbitrary edits. I guess we shouldn't expect a Harvard-trained lawyer like Obama of understanding the language of bills he supports or for him to be articulate and direct about why he's supporting a bill. (He's engaging in liberal political spin, hoping that conservatives like me won't go through the trouble of actually reading the bill.)

I would submit that Barack Obama's defense of his support for the bill is disingenuous; "medically accurate" sex education means promoting the use of contraceptives, primarily for their use in premarital sex.  Conservatives, in the eyes of people like Obama, refuse to acknowledge the reality of widespread premarital sex; existing discussions of condoms under Illinois state law aren't enough.

The language de facto establishes a morally neutral stance between abstinence and premarital sex using effective conceptives. In addition, it promotes a socially liberal agenda of gay rights, radical feminism, victimization and political correctness and attempts to restrict discussions of adoption as an alternative to abortion or of traditional social norms of responsible sex, family and marriage.

I do believe there were legitimate conservative reasons for rejecting the proposed law changes, including the de facto censorship of traditional moral values, but I do question how and why the McCain campaign approached this issue (they picked on an issue that certainly didn't help Alan Keyes). The burden of proof of radical changes rested on the burden of the bill's sponsors, e.g., the need to expand sex education throughout primary grades, the empirical link between the current sex education process and the rate of sexually-transmitted infections among teens (my personal opinion is that a lot of guys, for instance, know that condoms protect against STD's and pregnancy, but dislike the reduced sensation in wearing a condom), and the evidence that instructors and/or current materials available to Illinois teachers do not or cannot discuss more effective contraceptive methods.