The Elephant In The Fail Room

Posted on | January 1, 2012 | 35 Comments

by Smitty

From Has the conservative elite really failed?

Alan Greenspan, a free-market hero, blundered horribly in failing to regulate shadow banking, followed by another Republican appointee, Ben Bernanke. They forgot the old adage that the job of a central banker is to take away the punch-bowl just as the party is getting good. If they had acted to pop the housing price bubble earlier, they probably would have been lynched–it’s easy to beat them up with hindsight–but they still deserve a lot of blame.
These were mistakes, to be sure, but do they imply that America has suffered an “unprecedented failure” of its conservative elite? Just what sort of conservative elite did Ross Douthat have in mind? The victors of the Cold War and the authors of the Reagan economic boom set the tone for an enormous expansion of conservative intellectual life. How could we have done it better?
More disturbing, I think, is the extent to which America has suffered not a failure of the elites, but a failure of the people. Do we measure up to the founders of this country? The fact that Americans fought a revolution against Britain in the first place continues to astonish me. When in all of history have prosperous men with property–farms and businesses–risked their lives and fortunes to establish a better political order? Only a spiritual grandeur of a depth we barely can imagine today can explain it. When in all of history has a country gone to war and sacrificed a 5% of its total population to suppress slavery? The evangelical zeal that sent the North to war, singing of the grapes of wrath in the apocalyptic vision of Isaiah 63, surpasses our understanding today.
Some of that sense of American purpose awakened after 9/11, and the conservative elite misspent the spiritual energy of Americans in the Quixotic pursuit of nation-building in Iraq and Afghanistan. But Ron Paul is not the only candidate to state this plainly. Newt Gingrich has said the same thing.
What sets Mullah Ron Paul apart is something malicious, in my judgment: the assertion that a conspiracy of malefactors is responsible for the economic pain of the American people, and if these malefactors (for example the Federal Reserve) were to go away, the pain would disappear. That is demagoguery of the most insidious kind.
There is no truth-telling here: to absolve Americans of their greed, indolence, and cupidity in the great home price bubble of 2008-2006 is the biggest lie of all. Americans caught a ride on a $6 trillion wave of foreign capital inflows, and thought the free money would be there forever. The smartest kids got MBA’s and law degrees instead of learning engineering.

Why are we bashing Greenspan and Bernanke? The Federal Reserve is, to quote Thomas Sowell, “A cancer” The best those blokes can do is coax the tumor into growing more slowly. The unfortunate thing is that the ugliness of Ron Paul’s remarks is going to get blended with the idea of curbing the Federal Reserve, and thus it will be OK for our conservative elite to continue their failing ways, and protect the Fed.
The Federal Reserve is the crossroads of the Iron Law of Bureaucracy and moral hazard, he said, easing himself quantitatively. Ahhhh!

Do you have a reference for this claim? It would be very interesting to see where Ron Paul offered:

the assertion that a conspiracy of malefactors is responsible for the economic pain of the American people, and if these malefactors (for example the Federal Reserve) were to go away, the pain would disappear

Again, I’m no apologist for the fellow, but I don’t think he offered any magic wand in “End the Fed”. The conspiracy has been the tacit one of the Iron Law mentioned above. Significantly curbing the Federal Reserve isn’t going to reduce the net pain of fiscal policy, but, removing power from un-elected, opaque officials would at least be in keeping with the spirit of representative government for which we claim to clamor.

And what’s this noise?

There is no truth-telling here: to absolve Americans of their greed, indolence, and cupidity in the great home price bubble of 2008-2006 is the biggest lie of all.

Mister, I have not been late on my mortgage these 12.5 years. That a group of folks, along with Fannie/Freddie, Barney Frank, Chris Dodd, the Federal Reserve, and some bad banks, engineered a vast wealth transfer since the Community Reinvestment Act was signed is not an indictment of “Americans”. Conservatives who were in office and want to claim anything like the title “conservative” are not exactly at fault, either; but neither are they blameless, having been in office as the crime went down. The conservative elite is so afraid to scare the horses that you’re a kook if you talk about chopping a trillion out of the budget. Say Social Security is a Ponzi scheme? Yeah, you’re out of consideration.

Our conservative elite is so interested in playing ball-control offense that it is in jeopardy of repeating 2008.

via Instapundit

Category: Instapundit, PJTV, Republicans, Ron Paul, Uncategorized

Comments

35 Responses to “The Elephant In The Fail Room”

Multimedia Group
January 1st, 2012 @ 7:59 pm

It’s maddening to see the total blindness to the precipitating factor in the collapse of the housing market. It was NOT the CRA, or the Fed, or even Fannie and Freddie. Are our memories so short that we don’t remember the first two years of the Pelosi/Reid Congress in 07, 08? The Dems caused HUGE mischief in the energy markets upon taking control of Congress forcing millions of Americans out of work as a result. They drove fuel prices to $4+/gal in early 2008. Businesses which relied upon customers with disposable income began to immediately fail as Americans diverted this income from taking vacations, buying airline tickets, purchasing items at local coffee shops, etc. to filling their tanks.

Don’t we remember the many truckers who had to park their rigs or return them to the bank as diesel prices skyrocketed making it impossible to stay in business? What about the airlines laying off hundreds of thousands of employees in late 07 and through early 08 as jet fuel prices went through the roof?

The efforts of Pelosi and Reid to run the price of fuel up occurred well before the housing bubble burst. Are we surprised then to find that the recently laid-off middle class employee stopped being able to pay their mortgage? A very good argument can be made that the Democrats purposefully broke the back of an already weak mortgage market with their energy policy.

Meanwhile, correct me if I’m wrong but did not the Republicans camp out on Capitol Hill to try to get pro-drilling legislation passed but Pelosi turned the lights off on them?

The Dems precipitated the housing crisis on multiple fronts but most especially with their energy idiocy. They first weakened the market through their banking and F&F misconduct and then doubled the price consumers had to pay for gas. Do the math.
EBL
January 1st, 2012 @ 8:33 pm

Yeah the conservative elite suck…

But the liberal elite are even worse.

And Andrew Sullivan is a liar. http://evilbloggerlady.blogspot.com/2011/12/andrew-sullivan-is-confused-on-economy.html
Adjoran
January 1st, 2012 @ 8:37 pm

George Bush attempted to get reforms of Freddie and Fannie done several times, once not long after he took office. As with the original CRA, congressional Democrats used the threat of the race card to stop close scrutiny of their mischief. Of course, it is easy to say congressional Republicans should have shown more courage in hindsight, but there was no conservative movement behind them then, either. There was no public sentiment to tighten up the go-go housing market, period.

The conservative elite is so afraid to scare the horses that you’re a
kook if you talk about chopping a trillion out of the budget.

Actually the House passed a budget with $5.4 trillion of cuts. Paul was a kook before, and a kook now.

And it is entirely fair to say Paul has held out the promise of bounty for his idiotic proposals, as he claims our economic troubles stem from things like the Fed and not being on the gold standard. Even if he never spelled it out, the implication is clear: stop doing these harmful things, start doing the great things I suggest, things will be better because of it. That his simplistic nostrums are ridiculous, or that he was bleating exactly the same things in times of growth and prosperity going back to Reagan, is lost upon the ignorant.
DaveO
January 1st, 2012 @ 8:44 pm

Spengler blames The People, which while accurate, only changes as the leading generation dies off. The Greatest Generation that won WWII has left the scene, with a very few exceptions. The Me Generation has the ball for the next 2 decades – and they are the most selfish generation since G-d saw fit to destroy Sodom and Gomorah.

Second point: so long as the Progressives control the conduits of knowledge (academia and media), The People not only don’t care what conservatives say, but get angry when presented with evidence that begets cognitive dissonence, e.g. Republicans working to get cheap oil, and Pelosi turning the lights off while blaming high gas prices on the GOP.

That same anger stemming from cognitive dissonence is the only threat to Obama’s reelection. They hear and heard him say one thing, only to do another. They hear him burn down strawmen as he attempts to connect with The People, before he jets off to a $4 million vacation in Hawaii. If Obama loses, he’ll have only Bush-43 to blame – no just an incredibly clumsy media campaign – something the Dems don’t have even on their worst day.

True, First-Principles-Conservative elites aren’t a factor, and have only had an impact on a few elections. Those that our media and the GOP call the Conservative Elite isn’t conservative, and basically suck – no metric of elite that I can figure.
smitty
January 1st, 2012 @ 10:13 pm

It was NOT the CRA, or the Fed, or even Fannie and Freddie. Are our memories so short that we don’t remember the first two years of the Pelosi/Reid Congress in 07, 08?

You can trivially cherry pick any one organization out of the fail tree, and say “This organization is not solely responsible”.
Biden Flipping Deal.
What you can’t show is that all of the moral hazard across the system is somehow unrelated to the meltdown.
Own. The. Fact. That. DC. Has. No. Constitutional. Business. Fretting. Anyone’s. Housing.
smitty
January 1st, 2012 @ 10:17 pm

It’s a cancer. How are you going to tidy the tumor, exactly?
Cut. It. Out.
It is a State task. Whatever arguments you pose to try to fail the task up to a federal level are merely more arguments to kill the beast.

And it is entirely fair to say Paul has held out the promise of bounty for his idiotic proposals, as he claims our economic troubles stem from things like the Fed and not being on the gold standard.
Sweet non-sequitur you have there. Given that we were not dead on the gold standard, and our problems seem related to the arguments against the gold standard, what if it is the case that the gold standard would in fact be better?
Chris Hadrick
January 1st, 2012 @ 10:18 pm

I dont know that i would blame the people or even the real estate folks for the bubble. It was really the government and wall street that engineered it.The people played their role but there are millions of people and many less bankers and politicians and only one Fed chief. I think the author is a hardcore Friedman/ Chicago School guy who’s is bumping up against a hard core Mises/Austrian school guy in Ron Paul and doesn’t like it. The feeling is probably mutual, neither side likes being confused with the other though they are both ostensibly conservative. The problem he has though is that both the Chicago School and the neo conservatives flew high and fell hard. The neocons have gotten their butts kicked enough no need to go into that stuff but the Federal Reserve …rememeber when they called Greenspan “the Maestro”? well turns out he wasn’t a maestro. So the neos and the friedmanites did the icarus thing and adherents of those schools are going to get shabby treatment in the poltical sphere for a while yet.

This column and the one he linked about”mullah ron paul” are both labored somewhat aimless.
smitty
January 1st, 2012 @ 10:18 pm

I’m still not seeing the difference between The People in this argument, and Some Say, when BHO is doing his straw man-fu.
Multimedia Group
January 1st, 2012 @ 10:31 pm

I’m far from “cherry picking”. I’m saying that the idiotic energy policies of the Democrat party precipitated the meltdown. Yes, the Dems were also behind the systemic corruption that was eating away at the mortgage/banking industry but give me $1.50/gal gas from 2007-2009 and there would have never been a mortgage crisis.

If a barrel of oil is $35 then there is no housing meltdown.

I just grow tired of people trying to lay blame at the feet of the American people for their “greed” or “unwillingness to pay their mortgages”, as the reason for the housing crisis. The crisis had nothing to do with either.
smitty
January 1st, 2012 @ 11:25 pm

Thanks for the clarification.
Look, the Federal involvement in housing, as with education, breeds bubbles that collapse on a grand scale.
If you want to develop some argument that the proximal cause of the burst was Democrat energy policy, groovy.
But that falls far short of justifying the Federal overreach, in housing or elsewhere.
richard mcenroe
January 1st, 2012 @ 11:36 pm

Wasn’t there once a noted political figure who said, ” The *REDACTED* people have failed me. They do not deserve to exist.” ?
Adjoran
January 2nd, 2012 @ 12:19 am

Missed Sowell’s glib remark on the Fed the first time around. Snark notwithstanding, someone does have to place the currency order with the Mint, and if you say Congress can do it, you are in fact a moron. Even Congress understands it cannot possibly act with the speed and objectivity needed to ensure the currency supply is adequate, and has for over a century.

Speed and insulation from political influence is required, as evidenced by the Panic of 1907, when the Dow Jones fell 50% in a recession and a failed attempt to take over the United Copper Company – by one of its founders, but that’s another tale. The failure resulted in cascading margin calls and ended with the nation’s third-largest bank, the Knickerbocker Trust, going under.

Panic ensued, and a true “liquidity crunch” as people rushed to withdraw their cash in case their banks followed suit. Banks don’t have that kind of cash lying around (see “It’s a Wonderful Life” and the Bailey Savings & Loan, that money is tied up in your mortgage, people!) and had only Congress to look to. Which means you’re pretty much doomed, right?

Congress, of course, had no idea what to do or how to do it, even though Republicans were pretty much in control. Enter a private citizen, John Pierpont Morgan, the world’s largest banker and perhaps its wealthiest man, who guaranteed the banks’ liquidity with his own money – personal and banks – and convinced other leading bankers to join him. A private citizen bails out America. A rich capitalist, no less! So Congress just let Morgan order the currency directly from then on, recognizing he knew what the heck he was doing, he was an honest and patriotic man, and Congress couldn’t begin to do it.

Unsurprisingly for those whose economic understanding is deeper than a jingle, all these upheavals, crises, and panics occurred under the gold standard. Imagine that!

Typical of the eeeevil capitalists, Morgan was unreliable in that he died in 1913, the rat bastard. And the FRB was assigned independent authority to regulate the currency. Compared to how our economy functioned before, and how most other countries’ monetary policies function today, while the FRB has made any number of mistakes over the years, they’ve done a better job than anyone else has. Except Morgan, of course.
Adjoran
January 2nd, 2012 @ 1:47 am

“Kill the beast?” You mean the economy? Even with a gold standard, currency must be regulated and Congress simply can’t do the job. PERIOD. When the Congress understands they can’t do something, why do you insist they can.

As to your gold standard nonsense, agin I axe you lady, Waat Street? Where do you plan to get the gold to back our currency in circulation?

Or are you proposing – gasp! – a “fractional standard”? I’ve argued with gold bugs for nearly 40 years, and the one thing they’ve been unanimously and adamant about is that a fractional standard is no standard at all.

But I see the FACT that we had more instability, recessions, panics, inflation, deflation, bank runs, and even the Great Depression under the gold standard hasn’t dampened your ardor for your Miracle Cure.
Adjoran
January 2nd, 2012 @ 1:52 am

Off topic: I note with pleasure that Cooch has listened to my argument, and changed his insane and unconstitutional position of revising the election laws of Virginia in medias res, although he didn’t mention me in his statement.
AngelaTC
January 2nd, 2012 @ 2:49 am

So your position is that if they hadn’t inflated a fuel bubble, the housing bubble would have been fine?
AngelaTC
January 2nd, 2012 @ 2:51 am

I already know that you suffer from Paul Derangement Syndrome, but….he doesn’t actually advocate going back to the gold standard. He would prefer competing currencies.

And it’s pretty common knowledge that the Federal Reserve caused the Great Depression, not the Gold standard.
AngelaTC
January 2nd, 2012 @ 2:57 am

And JP Morgan bailed America out because he had America’s best interests in mind?

I think it’s amazing that you insist that all our crises, panics and upheavals only happened on the gold standard. Unreal.
Currency Rate in Pakistan
January 2nd, 2012 @ 5:27 am

I agree to this post.
Quartermaster
January 2nd, 2012 @ 8:11 am

“That a group of folks, along with Fannie/Freddie, Barney Frank, Chris Dodd, the Federal Reserve, and some bad banks, engineered a vast wealth transfer since the Community Reinvestment Act was signed is not an indictment of ‘Americans’.”

Sorry, Smitty, but it is. The electorate has tolerated these shenanigans for years, even after they have been widely publicized. That so many think that Congress is a bunch of slugs (our only hereditary criminal class, according to Samuel Clemens), yet think their own congresscritter is just fine, shows just how bad the US electorate is.

This is no reflection on those who keep up with the payments on their debts. Christians, like ourselves, see such things as a basic duty and live up to it, unless some serious circumstances prevent it. The brush may seem broad, but doesn’t paint those who live according to righteous principles even when the rest refuse to do so.
smitty
January 2nd, 2012 @ 8:17 am

But I see the FACT that we had more instability, recessions, panics, inflation, deflation, bank runs, and even the Great Depression under the gold standard hasn’t dampened your ardor for your Miracle Cure.

How do you argue that we had less stability, overall, pre-Fed, without completely blowing by the FACT that we labor under unimaginable debt now.

The POTUS is requesting a $1.2 trillion dollar debt ceiling increase?

I’ve absolutely never contended that the net pain pre-Fed was any less; only that the ‘problem’ (if indeed the natural order of things is a problem) was substantially more manageable.

However, Federal Reserve aficionados would be much more interesting if they could somehow reconcile these massively powerful, opaque, un-elected bureaucrats with the spirit of the Constitution.
smitty
January 2nd, 2012 @ 8:19 am

The Federal Reserve has got to be substantially reformed, or, I daresay, the rest of the reforms we need are going nowhere. Congress is supposed to retain the power of the purse, and that power stands substantially abdicated.
smitty
January 2nd, 2012 @ 8:24 am

Even Congress understands it cannot possibly act with the speed and objectivity needed to ensure the currency supply is adequate, and has for over a century.

Sir, I sincerely and honestly do not understand what you mean by ‘adequate’. Money is not magical; rather, it’s another economic component.

If the supply is inadequate, inflating the supply through Quantitative Easing seems akin to avoiding a necessary reckoning. I’m avoiding metaphors here.

Are we behaving responsibly here, or do we keep on “pluckin’ that chicken”? Seriously.
smitty
January 2nd, 2012 @ 8:25 am

What I like is the way we’ve ceded control to bankers to save us from that bad, bad banker.

Why is the answer never to increase competition by having smaller banks at the state level, one wonders.
smitty
January 2nd, 2012 @ 8:29 am

Posted on that this morning.

“changed his insane and unconstitutional position of revising the election laws of Virginia in medias res”

Exactly where was proposing legislation, discovering that the VA Constitution for passing it very high, and admitting he put his foot in his mouth an “insane and unconstitutional position”?

I’d say it was a decent, if impetuous idea, and he admitted he was wrong. Not seeing the insanity or unconstitutionality of that.
smitty
January 2nd, 2012 @ 8:33 am

Sorry, Smitty, but it is. The electorate has tolerated these shenanigans for years, even after they have been widely publicized. That so many think that Congress is a bunch of slugs (our only hereditary criminal class, according to Samuel Clemens), yet think their own congresscritter is just fine, shows just how bad the US electorate is.

I see your point, but I’m no fan of group guilt. However, my presence on a blog and at Tea Party events really does count as atonement.

The bulk of Americans have played by the rules. They have also been under-involved in paying attention to Congress. Let’s work to keep increasing the involvement.
Multimedia Group
January 2nd, 2012 @ 9:52 am

Yes Angela, that’s [kinda] my position except for the phrase “inflated a fuel bubble” – there was never any “fuel bubble” to inflate, rather, the opposite.

If you look at the actual number of “people given mortgages they couldn’t afford” it is not that big of a number. These people were getting $75K-$150K mortgages since the days of the Carter admin. You could have ALL those people go upside down on their mortgages and it wouldn’t have caused the “bubble” to burst. Why? Because the total amount of all those mortgages minus the cost to resell the foreclosures was not that great relative to the overall size of the a mortgage market in an otherwise strong economy with 5% unemployment.

But when people who have good jobs paying on $250K- $500K mortgages lose their white collar or high-end blue collar jobs en masse due to a purposefully created energy “crisis”, THEN we have a problem.

And Smitty, I’m simply making a point that the Dems have been inexorably taking steps to undermine our capitalist system by first weakening essential consumer markets like health care and housing (which don’t easily “burst” when they expand). The Dems then boldly strike at the core expense that Americans face everyday, energy; in order to force an implosion in those other markets that otherwise can weather poor government policy-making if the economy remains strong.

Bottom line: Average Americans with good paying jobs didn’t start losing their homes as a result of taking on mortgages “they couldn’t afford”. They lost them because Pelosi and Reid cut off the life-blood of our economy thereby putting millions of people in a situation whereby they couldn’t afford their mortgages (or even a rent payment).

Until we get rid of the totalitarians in Congress and the EPA who have their jackbooted heels on the flow of energy in this country, arguing about the Fed or Fannie and Freddie is simply nibbling around the edges of the real problem.
ThePaganTemple
January 2nd, 2012 @ 10:24 am

Competing currencies? They tried that under the Articles of Confederation and it was a big fucking mess. That’s why there was a nationalized currency under the Constitution. That’s just another symptom of Paul’s lunatic fringe kind of “thinking”.

And the point wasn’t that the Gold Standard caused the Great Depression, its that it didn’t do anything to prevent it.

And what caused it was people buying too much stock on credit. They didn’t have enough money to pay off what they owed when the value plummeted, which exacerbated what might have ordinarily been a brief recession.
dad29
January 2nd, 2012 @ 10:48 am

easing himself quantitatively

You forgot “hedonically”….
smitty
January 2nd, 2012 @ 10:53 am

I may or may not have any idea what you mean.
AngelaTC
January 2nd, 2012 @ 11:43 am

I am just so incredulous to find there are people who still believe that the system we have now is the best we can do. How bad does it have to get to wake people up>

The “competing currencies” they tried weren’t allowed to float against each other naturally. It’s like saying that the price of milk should be the same as the price of eggs because they both come from the farm.
Here’s the thing. If you believe as I do, that free markets handle everything more efficiently than mortal man, then it’s hard to argue against the concept that the Federal Reserve is nothing more than self-serving bureaucratic interference in the free markets.The Great Depression was indeed caused by the Federal Reserve, which is especially rtonic considering that they were created especially to keep that from happening. Their direct actions turned what should have been a brief natural downturn in the business cycle and turned it into a decade-long tragedy. But like any other failed government program, they only got bigger and more powerful as a result.
AngelaTC
January 2nd, 2012 @ 11:55 am

That’s exactly right. And it’s frustrating to note that every time the free market tries to produce alternatives (like Paypal’s original model and …. names escape me here, but…. the Person-To-Person lending sites that started to pop up a few years back), the government steps in and squashes them. To keep us safe, you know.
AngelaTC
January 2nd, 2012 @ 11:59 am

Yeah, I agree. People can be forgiven for immediate knee-jerk reactions when they come to the right conclusion after processing the data.
ThePaganTemple
January 2nd, 2012 @ 12:35 pm

I’m not an apologist for the Federal Reserve, but I’m not going to blame them for cancer and AIDS either. Smoot-Hawley caused the Great Depression after the market crashed, and Roosevelt’s New Deal policies prolonged it, stretched it out.

It was the longest lasting depression since the one initiated by Andrew Johnson’s Hard Specie Act. You might have heard of that one, that’s the one where Jackson demanded any business done with the federal government had to be through hard currency. In other words, gold. If it hadn’t been for the discovery of gold in California who knows how much longer it would have lasted.

Now be a good little girl and go polish your nails.
Quartermaster
January 2nd, 2012 @ 12:35 pm

Like it or not, people like Jeremiah, Ezekial, and Isaiah paid teh price of israel’s apostasy right along with the rest of the gang. We will as well.

All we can do is all we can do, however. And you and I may have done our duty, but so many others have not. But with a government such as we have, the entire American people will pay the price.
Chris Hadrick
January 2nd, 2012 @ 8:35 pm

so how would you explain the total collapse in oil prices after the boom then? it went from 150 to 30. the stock market dropped pretty much in half. all because we didn’t drill drill drill?