Ignorant Electorate's Conservative Confusion

Ignorant men don't know what good they hold in their hands until they've flung it away ~ Sophocles (497 BCE to winter 406 BCE) the second of the three ancient Greek tragedians whose work has survived.

"Well Look at this news!" was the title of a post on a Conservative blog I visited awhile ago. The news trumpeted by the Right-wing blogger was that "Conservatives Now Outnumber Liberals in All 50 States" according to a 6/15/2009 Gallup Poll. Obviously the wingnut believed the poll means the Republican party is on a verge of a comeback. In a few short days they'll retake the Congress and in 2012 the White House.

"I can't wait to see the liberal spin on this" the aforementioned disingenuous wingnut blogger proclaimed. I say disingenuous because, after I commented on a few of her posts she enabled comment moderation and told me to take my bullshit elsewhere. Her profile said "I'm glad you've stopped by!", although this sentiment apparently only applied to people who agreed with her.

I didn't provide a link to Mary Mary Quite Contrary's blog because it has since been deleted. Or, I assume this to be the case, since Blogger says, "blog not found". It probably has something to do with the fact that I started writing this post back in September of 2009 and never finished it - something I often do. I have a dozen or so partially completed posts.

Last Tuesday (10/19/2010) I read a Yahoo News story that says "more than half of likely voters see themselves as conservative, compared with 42% in 2006, the last midterm election, according to a Gallup Poll in early October". That line reminded me of this commentary which I never completed.

What Mary's post - and what anyone else who hears about how the electorate is more "conservative" now than ever before probably doesn't understand - is these Gallop poll numbers include people identifying as conservative Democrats and conservative leaning Independents. Either group (Independents more so than Democrats) could conceivably vote Republican. I laid out my fears regarding Independents with my 11/09/2009 post "It's Everybody Else's Fault". Now, only a few days from the midterms, it appears as though my worst fears are about to be realized.

"The biggest cause of trouble in the world today is that the stupid people are so sure about things and the intelligent folks are so full of doubts" was the quote I opened my previously mentioned 2009 post with. According to the Yahoo News story "Tea party candidates vow to make a difference in Senate". The story also mentions 63-year-old "Louisville resident Sherry Gerst" who is voting for Rand Paul because "[she's] just absolutely sick of the Democrats". I believe this is comment represents the typical political ignorance of your average voter.

The Democrats who might vote Republican are of the same ilk as the morons we called "Reagan Democrats". These dummies betrayed their party by voting for the worst US president in history. It's easy to tell Sherry Gerst is one of the dummies who doesn't understand politics in the least - because she didn't say "I'm voting Republican because it's the party that best represents the political philosophies I hold". This is the ONLY question you should ask yourself when deciding who to vote for. You should NEVER vote for one party because you're sick of the other one!

This is why a total nut who says she has been mistaken for Asian and that she can't tell if illegal immigrants sneaking across our border in her recent campaign ad are of Hispanic heritage might actually defeat Harry Reid. I don't live in Nevada so I don't know why Nevadans (supposedly) hate Harry Reid so much - but, whatever the reason, electing a total wackjob like Sharron Angle will only make Nevada's problems worse.

So what we are faced with this midterm is a politically ignorant electorate voting for politically ignorant candidates. Christine O'Donnell, when "debating" her Democratic opponent Chris Coons on 10/19/2010 questioned whether the prohibition against Congress making any law respecting an "establishment of religion" was contained within the First Amendment. Later she says she high-fived her campaign advisors, believing she had nailed Coons in the debate because - get this - he (Chris Coons) didn't know what the First Amendment says!

These people believe that if one party isn't "getting the job done", then, perhaps we should give the other party a chance. Never mind the fact that the parties are diametrically opposed. Never mind the fact that the Republican's stated strategy has been to obstruct any and all legislation put forward by the Democrats - even if they previously voiced support (or even co-sponsored) said legislation. And, also never mind the fact that it was Conservative economic policies that caused the current recession.

How many times is the electorate going to be snookered into voting against their own best interests by snake-oil selling Right-wing con men? The "snake oil" I'm referring to being the fairy tale notions that supply side economics and outsourcing are sound economic policies, or that a belligerent foreign policy and wars of aggression make us safer. Or that we can solve the deficit problem by cutting non-military spending and taxes on the wealthy.

When asked specifically what spending they'll cut they usually have no answer. Carly Fiorina, who is running to unseat incumbent Democratic Senator Barbara Boxer, was recently asked by Chris Wallace of Faux News what spending cuts she would support. Despite being asked seven times, she never answered. Fiorina (who wants to extend all the bush tax cuts) says she wants to "rein in out-of-control government spending", but "has no idea how" (according to a 10/17/2010 Think Progress article).

I don't believe this to be the case. Fiorina - like all Republicans - wants to cut entitlements. The reason they won't say this is what they want to do is because they know it will cost them votes. People LIKE Medicare and Social Security, and will vote against candidates who support cutting or increasing the age of eligibility for these programs.

So why the hell are the Republicans posed to make big gains in the upcoming election? The Alaskan teabagger candidate Joe Miller thinks Medicare and Social Security are unconstitutional - as well as the minimum wage. Do people like the idea of working for slave wages while living in their cars?

An email I received in November of 2009 (when I originally started writing this article) from Newsmax declared "Reaganomics is dead". According to NewsMax, Reaganomics drove us deeply into debt is a proven method of building a healthy economy by "reducing the growth of government spending, reducing income and capital gains marginal tax rates, reducing government regulation of the economy and controlling the money supply to reduce inflation".

Reduce the growth of government spending? This is code for attacking entitlements. Referring to Social Security as a "ponzi scheme" or claiming that it is "bankrupt" are examples of this. Social security isn't a ponzi scheme, nor is it anywhere near being bankrupt. According to a press release issued by Vermont Senator Bernie Sanders "The Social Security Trust Fund has a $2.6 trillion surplus that is projected to grow to more than $4 trillion by the year 2023".

The recent health care reform legislation is also being attacked by Republicans for the same reason. Several Republican fliers I received in the mail recently all attacked the Democrats running in my state/district because they supported "ObamaCare" and it's "$1 Trillion" price tag. Actually the cost of health care reform will be, as reported by CBS news, "$940 billion over ten years". It will also "reduce the deficit by $130 billion over ten years [and] $1.2 trillion dollars in the second ten years". Obviously referring to a bill's (extremely high) "price tag" when the bill actually SAVES money is absurd in the extreme.

Reducing income and capital gains marginal tax rates is Republi-speak for "supply side economics" which is a scam designed to shift taxes onto the backs of the middle class and poor. Reducing regulation? Do they REALLY think they can run on this again? They really DO think they can run on this again, despite the fact that Reaganomics caused the 2008 financial meltdown which lead to the current recession.

As for "controlling the money supply to reduce inflation" - certainly this sounds like a good idea? But current Fed chairman Ben Bernanke (who is a carryover from the bush administration) is currently considering increasing the money supply (the policy is known as "quantitative easing"). According to talk radio host Thom Hartman, "the environment right now is so deflationary that it looks like, and it looks like the Fed has agreed on this, that they can do QE, they can do this quantitative easing.

They can print more money, basically, and it won't produce an inflationary result. Instead it will simply stimulate the economy", because it "makes our exports cheaper which helps industries in the United States that export things". This is why the Chinese government undervalues their currency (we call it "currency manipulation" when they do it). The website "Economics Help" explains that "keeping a weak currency helps to boost demand for Chinese exports and therefore Chinese jobs".

The Newsmax email also asked the questions "how did we get so far off track?", and, "how do we find our way back?". Find our way back? To Reganomics? To this I say "no thank you". Reganomics has been proven wrong on all counts and should be relegated to the trash heap of history. The election of Barack Obama signaled that the American people have had enough of the bubbles and busts caused by Conservative economic policies. Or, I had hoped that people are waking up to that fact. Indications are that this midterm election will prove otherwise.

Which brings me to the point I wanted to make regarding the Gallup Poll. I am convinced that when people indicate that they are "conservative" what they really mean is that they are concerned about the level of debt our nation is amassing. Heck, it worries me. What is doesn't mean is that they're eager to vote in favor of outlawing same sex marriage, overturning Roe v. Wade, tax cuts for the wealthy, corporate welfare, or declaring unemployment and social security unconstitutional - does it?

No, when people say they are "conservative" what they mean is they are fiscally conservative. It stands to reason that when people have to watch their own pocketbook more closely they believe the government should do the same. Unfortunately most voters don't realize that the rules which apply to their own personal finances don't apply to those of the government. Conservatives mock Democrats who they say believe we can "spend our way out" of a recession. What they fail to realize is that if the government "tightens it's belt" (as they must) there is absolutely nothing to stop a downward spiral from pulling the economy deeper into recession.

If you think tax cuts are the answer you couldn't be more wrong. Businesses aren't going to start hiring people because they got a tax cut. Businesses hire workers when there is demand for what they are selling. Supply side economics has cause and effect reversed - it says that if a business produces a product demand will magically materialize. The answer to this conundrum is deficit spending to stimulate the economy. The economic theory is known as Keynesian economics, and it was the Keynesian polices employed by the Roosevelt administration that pulled us out of the Great Depression (regardless of the Republican effort to rewrite history to deny Roosevelt and Keynes the credit they deserve).

Republicans claim the American Recovery and Reinvestment Act of 2009 failed because unemployed rose above the eight percent the Obama Administration assured us it wouldn't. Obviously the forecast was incorrect, but that hardly means the stimulus failed! For some reason Republicans they think the American people will buy their claim that spending over 500 billion (the portion of the cost of the bill that wasn't tax cuts) created zero jobs.

The White House Council of Economic Advisers says the stimulus saved or created 3.6 million jobs. The main problem with the stimulus, according to economist Paul Krugman, was that it contained not enough direct spending (but the tax cut portion was to large).

The conclusion which can be drawn from the preceding facts is that Republican economic policies (AKA Reaganomics or "supply side economics") don't have anything to do with fiscal conservatism - they are all about redistributing wealth upwards. And to suggest that the Tea Party candidates are populists is a sick joke. They represent the interests of the wealthy elite the same as the Republicans. George W. bush certainly didn't practice fiscal conservatism, nor did his father, or the president before him, Ronald Reagan. They all grew the deficit by unprecedented amounts. Cons now say GWB was a "big government conservative" and after this election they'll be different.

A campaign commercial from the Right-wing advocacy group "Let Freedom Ring" asserts "it's time for fiscal sanity", and claims the way to achieve that goal is to "vote for candidates who will save us from national bankruptcy". Obviously they believe you should vote Republican tomorrow. But House Minority Leader John Boehner recently pledged that Republicans "are not going to be any different than we have been".

In other words, if placed back in power we can expect more of the same fiscal policies that crashed our economy (most likely starting with an extension of the bush tax cuts for the wealthy that will add 36 Billion to the deficit). Given that fact, why would anyone - including voters concerned about the level of debt - even consider voting the "party of no" back into power?

SWTD #54

The Ideology That Screwed The World, Part 2

There was no record keeping requirement imposed on participants in the market. There was no reporting. We had no information ~ Brooksley Born, chairperson of the Commodity Futures Trading Commission (8/26/1996 to 6/1/1999) referring to the over the counter derivatives market, as quoted from the 10/20/2009 Frontline Documentary, "The Warning".

In my previous article I examined the Financial Services Modernization Act of 1999, a piece of deregulatory legislation which contributed to the housing bubble, which lead to the collapse of our financial system. That, however was the only the first of two free market anti-regulation bills that we can blame for the crisis.

To recap: The first bill was The Financial Services Modernization Act of 1999 (also known as the Gramm-Leach-Bliley Act or GLBA) repealed the portion of the Glass-Steagall Act which prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and/or an insurance company. Bill Clinton signed GLBA, even though every Senate Democrat (save one) voted against it.

The second piece of anti-regulatory legislation was the Commodity Futures Modernization Act of 2000 (CFMA). It continued an exemption of OTC derivatives from regulation that began with the passage of the Futures Trading Practices Act of 1992 (signed by George H.W. Bush).

Additionally, CFMA settled a 1998-1999 dispute wherein the Commodity Futures Trading Commission (or CFTC; then chaired by Brooksley Born) attempted to regulate the OTC derivatives market - and was thwarted by Alan Greenspan and Robert Rubin (see Frontline's excellent Documentary, "The Warning" for more information regarding the dispute). The act also exempted credit default swaps from regulation.

Initially CFMA passed in the House, but later died in the Senate, which did not vote on the measure. Later, then-Senator Phil Gramm took the bill, cosponsored by Senator Richard Lugar (R-IN) and written with the help of financial industry lobbyists, and slipped it into a $384-billion omnibus spending bill, which passed the Senate and was signed into law by President Clinton on 12/21/2000.

The July/August issue of Mother Jones reveals that "few lawmakers had either the opportunity or inclination to read [Gramm's] version of the bill", and that "nobody in either chamber had any knowledge of what was going on or what was in it".

In addition to exempting them from regulation by the CFTC, CFMA overrode any state legislature from treating OTC derivative transactions as gambling or otherwise illegal, even though they are and should be.

Definition, Derivative: A derivative is a financial instrument that is derived from some other asset, index, event, value or condition (known as the underlying asset). Rather than trade or exchange the underlying asset itself, derivative traders enter into an agreement to exchange cash or assets over time based on the underlying asset.

Definition, Over-the-counter: OTC, or off-exchange trading is to trade financial instruments such as stocks, bonds, commodities or derivatives directly between two parties. It is contrasted with exchange trading, which occurs via facilities constructed for the purpose of trading (i.e., exchanges).

University of Maryland Law School Professor Michael Greenberger explains the role OTC derivatives played in the financial crisis...

MG: ...discipline in the market has disappeared because what banks do with their loans now is they make the loan, and then they sell the loan to third parties. Third parties essentially buy stock in the loan. The loans are bundled into a basket, offered to the world, they buy stock in it. Owning that stock is not a derivative because you're an actual owner of the loan. What happened in our situation, especially when the mortgage lenders wanted to take risks with subprime loans - that is, people who did not have the likelihood to pay them off - is that people were so excited about the possibility of making money off this, that they ran out of the actual mortgages and securities in the mortgages. So what the banks decided to do was to create bets on whether or not the mortgages would be paid off. They were synthetic securities. That is to say, you didn't own anything, but you were betting that the borrower would pay the mortgage off".

(Mr. Greenberg teaches a course at UMD entitled "Futures, Options and Derivatives". This quote is excerpted from a 9 minute You-Tube video which can be viewed here).

If you purchase a Mortgage Backed Security you have a actual asset backing up your investment. The value of the asset may go down and you may end up losing a lot of money, but you won't lose all your money. If, on the other hand, you purchase a "synthetic" security and the mortgage isn't paid off, the security you purchased is worth absolutely nothing (a "toxic asset" valued at zero).

Wall Street was betting big that the subprime mortgage holders would pay off their loans, which they knew was a risky proposition. In order to hedge their bets Goldman Sachs (and the other financial houses that wanted to buy these things) purchased credit default swaps from AIG (and other large insurers).

A credit default swap (CDS) can be thought of as a kind of insurance because it is a "contract in which the buyer of the CDS makes a series of payments to the seller and, in exchange, receives a payoff if the credit instrument (typically a bond or loan) goes into default (fails to pay)". Although, unlike with ordinary insurance, the "buyer of a CDS does not need to own the underlying security or other form of credit exposure".

According to Wikipedia "the modern Credit Default Swaps were invented in 1997 by a team working for JPMorgan Chase", and they "became largely exempt from regulation by the U.S. Securities and Exchange Commission (SEC) with the Commodity Futures Modernization Act of 2000".

AIG agreed to issue the swaps, viewing the proposition as a license to print money. The securities Goldman wanted to "insure" were rated AAA, which means they were as safe as US government bonds (Wikipedia says "In practice, government bonds are treated as risk-free bonds, as governments can raise taxes or print money to repay their domestic currency debt").

Only after the crash did the SEC say something about the conflict of interest which arises when the issuer of the security pays to have it rated (The "issuer pays" model). An 8/27/2009 article from Law.com explains, "rating agencies have a financial interest in generating business from the firms that seek the rating. A low rating might affect future business". I guess that never occurred to AIG. Whether or not it occurred to Goldman Sachs they had succeeded in eliminating most of their risk.

And, because the Mortgage Backed Securities and the derivatives based on those securities paid a return of five to nine percent while Governmental bonds were currently at a worldwide historical low of one percent or less, the banksters decided to purchase as many as they could as fast as possible. Whether the securities were real or synthetic, it didn't matter because all they had to is pay an "insurance premium" and some other dupe assumed all the risk.

Michael Greenberger: It's one thing for us to have an economic problem because people can't pay their mortgages, and money is lost to the lenders or the whole economy for real problems here, but, I believe three times as much money is being lost not because people really lost their mortgages. Because three times the value of the loss of the mortgage is a bet that's been placed by wealthy institutions or wealthy individuals.

In other words, three times as many synthetic securities were created as real asset backed securities. Goldman Sachs didn't see the problem though, it wasn't as if they were operating without a safety net - all their securities were insured! However, when it came time for AIG to pay up - they didn't have the money. AIG's equity at the time of the collapse was 200 billion, but they owed 400 billion! (The quote from the preceding paragraph and this figure are both excerpted from the same YouTube video I linked to earlier.)

Goldman Sachs was not, however, that worried about not getting paid. Because they were "to big to fail", and because their ex CEO (and current Fed chairman) was in position to ensure they were "bailed out". Ben Bernanke let Goldman Sachs competitor Lehman Brothers go under, while he deigned to save AIG who just happened to owe Goldman 14 billion dollars.

Treasury Secretary Timothy Geithner claims that the bailouts weren't designed to to help Goldman Sachs, but I'm not buying it. It was because of Tim Geithner that Goldman Sachs received the full amount they were owed, instead of the 40 cents on the dollar that had been previously negotiated.

I think what this shows is that it wasn't the collapse of the housing market that that crashed the financial sector so much as all the unregulated gambling the banksters were engaging in, made possible by two major pieces of "free market" deregulation legislation. Near the height of the market the value of all the subprime mortgages in the US was estimated to be 1.3 trillion (and obviously not everyone with a subprime mortgage defaulted), so why has our government committed us to forking over 12.2 trillion of our (or our grandchildren's) dollars to the banksters?

The Community Reinvestment Act, which is a federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities (by discouraging a discriminatory practice known as "redlining"), played no part in the financial crisis. Conservatives like to point to this act and assign it (and it's Democratic sponsors) some, or even all the blame for the housing bubble, but that is a myth - and exemplifies the blame-the-victim class warfare that the Cons love to engage in.

The crisis was caused by the anti-regulation ideology championed by greedy free market a-holes like Alan Greenspan, Robert Rubin, Lawrence Summers, Congressional Republicans and large financial institutions like Goldman Sachs. Although Bill Clinton signed these acts, they are both Conservative in nature, and completely antithetical to what progressives stand for. Progressives don't subscribe to Ayn Rand's laissez-faire free market tall tale, we believe in rules and regulations that protect "we the people" from the greedy a-holes who only operate in their own self-interest.

Further Reading
[1] Thom talks to Michael Kirk about "The Warning". Will the markets crash again? (Transcript), The Thom Hartman Radio Program 10/19/2009.
[2] Inside The Great American Bubble Machine: How Goldman Sachs has engineered every major market manipulation since the Great Depression by Matt Taibbi. Rolling Stone, 7/2/2009.
[3] The Giant Pool of Money (Transcript), Hosted by Ira Glass. This American Life, 5/9/2008 (download mp3).
[4] Testimony of Brooksley Born, Chairperson Commodity Futures Trading Commission Concerning The Over-The-Counter Derivatives Market Before the US House of Representatives Committee on Banking and Financial Services. 7/24/1998.

9/8/2010 Update: Initially I reported that George W. Bush signed the CFMA into law. I was wrong. President Clinton signed the bill that included the CFMA (the $384-billion omnibus spending bill previously mentioned) on 12/21/2000. I apologize for the error, however, the fact that Clinton, a New Democrat, signed both bills does not change my conclusion - which is that the 2008 financial crisis was caused by the Conservative ideology of deregulation (or "neoliberal fiscal values"... whatever the hell you call them deregulatory economic policies spell economic disaster).

SWTD #37