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Updated: 2018-01-19T00:00:00-05:00


Katrina in Kentucky


The ice storm that slammed the American mid-south in the last weekend of January and then moved onward to the East Coast has left an estimated 1.3 million people without power. And nowhere was hit harder than Kentucky, where some 700,000 people lost electricity and 24 deaths were attributed to the storm. Yet President Barack Obama only declared the state a major disaster area this week. What took so long? Where is the presidential compassion for the victims of this tremendous disaster? The answer is that nothing is wrong and President Obama surely feels for each and every person hurt or put out by the storm. The reality is that even after the emergency management reforms allegedly implemented after Hurricane Katrina, help from far-off Washington still does little in times of fast-moving crisis. This view may be heresy in the age of federal bailouts, but it is still true. To put the ice storm response in perspective, remember that it was not until the Clinton administration that the federal government was even expected to deal with winter storms. It took Clinton's shrewd Arkansas crowd to identify the political potential of turning states and localities into federal dependents via the Federal Emergency Management Agency (FEMA) and related federal disaster assets. Soon enough state and local officials were petitioning Washington for any and all weather-related expenses. The result has been millions of dollars flowing out of Washington. Of course it was Hurricane Katrina that truly redefined the scope of federal disaster response. Katrina quickly progressed from natural disaster to human tragedy to political hot potato, landing in the lap of the hapless Bush administration. The storyline quickly became not one of state and local disarray in the face of an oncoming storm, but federal incompetence, possibly—even probably—abetted by an ugly racial animosity against Katrina's victims. The great Beltway victimhood industry ate this version up, resulting in billions in "reconstruction" aid for the region and reform of FEMA. Problem solved. How then to explain the continued hardship in Kentucky? About 150,000 residents remain without power. No power means that gas stations and water pumping stations do no work. Needless to say, 21st century communications cease to function. Cooking and refrigeration become a struggle. To borrow a frequent post-Katrina refrain, these Americans have been reduced to Third World–style subsistence living. The state has now fully mobilized the National Guard and power line crews have poured in from neighboring states. But that has still not been enough. Local officials complain—in another echo of Katrina—that FEMA failed to even contact them in the days after the storm, let alone show up with help on the ground. FEMA responded that the same icy roads that put residents at peril slowed their emergency response crews. Just this week word came that some rural, overwhelmingly white parts of the state will not receive power for weeks, if not months. Natural disasters arbitrarily bring death and destruction. They act beyond the control of mortal man and his institutions, no matter how grand and well-intentioned those institutions may be. Furthermore, the iron law of all disasters is that it is nearly impossible to get aid quickly to people in need. Two corollaries flow from this reality. One, that it is always better to evacuate potential victims than to attempt to rescue certain victims. This, of course, is precisely what did not happen in New Orleans or in the path of the ice storm. Two, given that outside help will be unreliable at best, local ad hoc relief efforts are almost always more effective. Enter David Strange, the enterprising figure the Associated Press calls the "generator man." Strange drove the hills and hollows of backwoods Kentucky delivering and setting up generators to those without power—at a $50 to $100 mark-up over retail. Willing customers included a dialysis patient and a powerless 80-year-old woman dependent on an oxygen system. They called him a "godsen[...]

Why 2009 Will be Worse than 2008


Whew. Now that 2008 is in the history books, $8.5 trillion in federal bailout money is in the pipeline, and bold leadership is set to take command, Americans can all breathe a little easier, right? Uh, no. The unhappy fact is that 2009 is almost certain to feature more economic hardship than the year that preceded it. President-elect Barack Obama may think he has steeled himself and his administration for this outcome, but three major factors argue against Obama truly being prepared for what's to come. Insane expectations. It was no mistake that Vice President-elect Joe Biden was dispatched to try to dampen surging overseas expectations that the Obama presidency will quickly reverse American actions around the globe. But a similar threat lurks domestically, where the federal government under Obama will be expected to correct every dislocation from the confused Bush years—all while providing free health care and full employment. Most telling is the continued misunderstanding of the role that Obama's Treasury chief pick, Tim Geithner, has played in the Bush bailouts from his current perch at the New York Federal Reserve. Geithner has in every way possible functioned as a loyal member of Hank Paulson's Goldman Sachs army, seeking to reverse market judgements on bad investments with billions in federal cash. Why anyone would expect substantially different policy from an Obama administration with Geithner in place escapes me. The one exception to this is at the Federal Reserve, where Ben Bernanke might end up as the poster-child for economic malaise, giving Obama license to show Bernanke the door. If nothing else, this could buy Obama time and reset the clock on his honeymoon. But otherwise, without some sort of dramatic gesture to placate the public, by late spring the euphoria over Obama's inauguration could give way to a crushing let down. State and local implosions. The coming spring will also prove crucial as many states and localities write their budgets. These are the same entities that came hunting for roughly $200 billion in federal “stimulus” handouts via thousands of make-work projects. The real trouble, however, lies in the hundreds of general funds, enterprise funds, pensions, and health care plans which are skirting the edge of bankruptcy right now. The nearly $3 trillion market for state and local debt remains in flux with the certitude that borrowing costs will creep up by about 50 basis points for all but the most well-insulated jurisdictions. For many others, 2009 will bring a cruel ratcheting effect when reduced revenues from the slowing economy, coupled with increased investor and analyst wariness, combine to reduce debt ratings. This will further push up the cost of borrowing, which will then further strain revenues. Tax hikes might help, but only at the cost of further depressing business activity. For that reason, the federal government will once again be called on to bail out insolvent operations—but this time it will be cities, counties, and maybe even a state or two. Incidentally, this process may have a profound impact on winnowing the field of Republican statehouse superstars who might be in a position to challenge Obama in 2012. If Sarah Palin, Bobby Jindal, or Mark Sanford watches their state circle the drain in '09, you can pretty much write them off as a serious candidate in a time of economic strife. Conversely, should a governor truly rise to the occasion by shrinking the cost of their operations while maintaining services, they would jump to the front of the line. Addled economics. When otherwise smart people start talking about the positive effects of inflation, we've entered desperate times. Let's walk through the root cause of America's housing bubble, which is widely held to be at the epicenter of America's 2008 economic meltdown, to see why inflation can only compound our economic woes. Why did housing prices embark on a rocket-ride straight up in recent years? Because banks created an unlimited supply of ready buyers at every price poi[...]

Banking on Big Changes


Democrats in Denver are droning on about the harm done to the middle class by the current financial system pullback. The Federal Deposit Insurance Corporation (FDIC) is adding banks to its "watch list"—now at 117—and warning that it may not have enough money to insure all depositors. The FDIC seized another bank last week, the ninth such action this year. Given all this attention, not to mention hourly stock market gyrations based on home sale and price data, you might think the American banking system must be fairly well understood, especially what brought us to the present meltdown. But this doesn't seem to be the case. The present situation is portrayed overwhelmingly as an economic story when, in fact, it is primarily about regulation and public policy—the past 30 years of bipartisan, nearly universally-praised policy to be specific. And it is probably that universality of opinion that keeps misconstruing what is really happening. The history of the FDIC illustrates what has transpired. Born out of Great Depression economic turmoil, the FDIC was created to ensure the safety and soundness of bank deposits, hence the deposit insurance bit. In the face of bank runs, the feds stepped in to say, "Not to fear, your money is not going anywhere. Uncle Sam has you covered." Yet that is not what the FDIC is now doing. Its mission has changed. As it tries to clean up California's Indy Mac Bank, for example, its first order of business is avoiding foreclosure on bad loans the bank made to homeowners. An analyst with Barclays Capital called this approach "dangerous" because it gives investors in mortgage-backed securities a reason to run for the exits if the FDIC does not care about recovering their money. In effect, the policy shorthand has changed to read, "Not to fear, you are not going anywhere. Uncle Sam will pay your mortgage." This is very different from its original mission but perfectly consistent with the public policy trend which began in the 1970s and accelerated with the Community Reinvestment Act (CRA). The goal was to make banks agents of social change. The federal government, Democratic and Republican, wanted trillions of dollars of credit extended to private borrowers. This was primarily done via the active secondary mortgage market participation of government-backed Fannie Mae and Freddie Mac, but also through leverage the CRA provided by requiring expanding banks to explicitly promise to lend money to higher risk borrowers. And incidentally, the overwhelming beneficiaries of that flow of credit was America's supposedly beatdown middle class, which took the money and ran to buy not just homes, but cars, boats, college educations, diamonds, furs, boobs, computers, widescreens, flatscreens, and then second homes. So then, the policy worked? Yep, private investors created ever more complex ways of leveraging capital into ever more lendable money. They took the federal directive to spread the wealth around (quite literally) to the point where risk was no longer a negative aspect of the credit calculus. In fact, by the dawn of the 21st century, risk was courted by banks because it was more profitable in the short-term. Federal regulators, who in decades before might have been aghast at such practices, applauded because the larger goal of extending credit to every corner of the American landscape was advanced. But with risk out of the picture it was only a matter of time before the entire enterprise became over-extended. The oil shock of $4 gas, Fed missteps, wild speculation in condo markets, or maybe the moon cycle provided nudges over the past few quarters. No matter the short-term cause, the foundation was rotten and a great de-leveraging is underway. Capital is scarce and lending nonexistent in some sectors. Now what? How about a little honesty? Fannie and Freddie are in the process of being de facto nationalized by the Treasury. The implicit federal guarantee of their solvency is being made explicit and may hit $50 billion over time. But[...]

Penalty Strokes


Rumors that a certain athlete was cheating were flying thick earlier this month at the United States Olympic swimming trials. She was too fast, too good. She simply turned in much better times than anyone thought she was capable of. She might make the team for the trip to Beijing, commenters said, but her steak wouldn't last. Sure enough, last week a member of the U.S. women's swim team tested positive for a banned substance. When one test came back positive, Jessica Hardy stayed in California while the rest of team headed for Singapore to train. Hardy says she is innocent and has filed an appeal. Meanwhile, the rumors about Dara Torres continue unabated. The Dara Torres drama has been unfolding over the past year. Her bid for a fifth trip to the Olympics was jump-started with a win in the 100-meter freestyle at the U.S. nationals last August. Almost immediately began speculation that the 41-year-old recent mother had to be cheating. But then the sporting world's obsession with rooting out performance enhancing drugs took a weird turn. Taking and passing drug tests did not clear Torres of the allegations. Nor did her volunteering to participate in a pilot program which tests both blood and urine for signs of doping matter. Her performance was simply decreed too good not to have been the product of cheating. This is not even guilty until proven innocent; this is guilty with no hope of parole. ESPN columnist Pat Forde recently gave form and substance to the widespread belief in the sporting press that Torres just had to be cheating. Forde wrote that Torres' performance "made me wonder whether too good to be true is the same thing as too good to be clean." Incredibly, Forde said that baseball's various drug scandals make him suspicious of Torres's late-career boost. The next time a 40-year-old mom gets a strikeout in a MLB game, I'll perhaps see Forde's point. But there is a bigger fiction at work. There is much less certitude about how the human body works than those who are busy defining the limits of human potential assume. This is especially true at the relatively novel intersection of sports science, top female athletes, and pregnancy. The massive natural doses of hormones Torres received during pregnancy, ones intended to loosen the pelvic girdle and make the delivery of a child easier for every mother, may have also had the effect of leaving Torres more flexible in all of her joints. The advantages of motherhood might be all psychological, yet very real nonetheless. Certainly the sports comeback meme routinely features a mental and emotional component. Besides, the Official Feel Good Story of MLB this year has been the resurrection of Josh Hamilton. The former number one overall draft pick, who spent a couple years digging ditches after blowing almost $4 million on a cocaine addiction, was an All-Star just a couple weeks ago. Hamilton's sober status is confirmed with regular urine tests, the negative results of which are taken at face-value. At every opportunity, Hamilton credits his religious faith and his wife with turning his life and career around. With that, Hamilton joins former NFL and Super Bowl MVP Kurt Warner, who came from absolutely nowhere to guide the St. Louis Rams' Greatest Show on Turf to a title. His absurd fairy-tale story was not doubted as the likely product of cheating. Athletes like Hamilton and Warner routinely tout a change in personal outlook or relationships as having a profoundly positive impact on their performance. With these examples in mind, it seems totally plausible that Dara Torres, happy mother of a two-year-old girl, has found a focus and sense of well-being that she might not have previously. Here is where it becomes clear why Forde and other Torres doubters like to portray swimming as primarily a function of lung capacity. Admitting that the ability to focus and maintain a peace of mind might boost performance undermines the case against Torres. Fortunately for her, swimming is not[...]

What Price Justice?


You want a happy ending. You want to say that everything eventually worked, that the system got it right in the end, that the latest twist in the seven-year long anthrax attack saga is a turn for the better. Except you can't. On June 27th former federal bioweapons researcher Steven Hatfill essentially won his dispute with a federal government that had suspected him of unleashing anthrax letters on America in the fall of 2001. While admitting no wrongdoing, the feds agreed to pay Hatfill $5.8 million. In other words, the feds admitted they screwed up. Big time. This sounds like a victory, and it surely is for Hatfill, who was hounded by the FBI and identified by hapless Attorney General John Ashcroft as a "person of interest" in the case. But the bigger picture remains bleak. Most striking is the fact that the masterminds behind bold acts of terrorism—Osama bin Laden and the anthrax killer—remain at large despite untold of amounts of blood and treasure spent to catch them. Moreover, the anthrax attacks, unlike the use of airliners as guided missiles, remains an eminently repeatable mode of mass mayhem. Authorities still do not know exactly how the deadly compound was formed, where, or by whom. The investigative missteps in the anthrax case were huge and there is no sign that procedures have changed in such a way as to avoid repeat. In fact, counter-terrorism measures have only become more hair-trigger and susceptible to political or panicked influence from outside the immediate investigation. Former FBI agent Brad Garrett, who was part of the original anthrax investigation, recently reflected on how top brass in D.C. tried to micromanage every step of the investigation. FBI Director Robert Mueller demanded and received daily briefings on the case, which predictably tried to convey "progress" even if the facts suggested otherwise. This, of course, is not investigation, but ass-covering. Any semi-complex problem requires getting smart people together and then leaving them alone to solve it. Trust, it turns out, is a key investigative tool. But the FBI didn't trust itself or others in 2002 and there is little reason to believe that anything has changed. Instead, the FBI turned from trust to fear, now the defining element in America's counter-terrorism toolkit—from shock-and-awe to waterboarding. Clumsy and obvious surveillance was maintained on Hatfill with hopes of cracking him. Then a wholly implausible circus of "anthrax alerting" bloodhounds was staged to further ratchet up the pressure. In all likelihood, the "results" of these dog sweeps were fabricated by the feds, then leaked to gullible reporters to further pressure Hatfill. This mind-set does not look for evidence or leads, let alone the truth. Such activity is not investigative, but prosecutorial. Guilt has been decided, the only question is how to make the case. It is no coincidence that a unitary executive branch that claims the power to imprison without the need for independent review or verifiable evidence produced and sanctioned this approach in the anthrax case. There are now several distinct possibilities in the anthrax mystery, all with backers on the Internet and elsewhere. One is that the feds have no clue who might have been responsible. This is possible, beyond depressing to consider. Disputes over whether the anthrax spores themselves were "weaponzied" took up an inordinate amount of investigative energy, perhaps allowing the killer to cover all tracks leading back to him or her. Then there is the case-making theory. This is the notion that the government has a suspect or suspects, but has yet to come up with enough evidence to merit an arrest. A close cousin of this view is the "Central New Jersey" theory; the idea that the anthrax used in the attacks was cooked up in the Garden State among a narrow range of possible circumstances. Finally, we have most tin foil-plated view, one that on my blacker days I can readily see. Na[...]

No Passion for McCain


Take a look at any early electoral map projection. You will see a solid chunk of red in most states of the Confederacy. Such projections are primarily grounded on historical performance—and as the small print always says—may not reflect future returns. Add in the wrinkle of the Bob Barr candidacy and the old rules might look archaic. The problem for John McCain starts with his lack of popularity among Southern conservatives. He is respected, but not beloved by supporters. This contrasts sharply with the frenzy Barack Obama generates, as evidenced by his resounding primary wins across the South, none more impressive than his May 6th victory in North Carolina, where Obama pulled in nearly 900,000 of almost 1.6 million Democratic votes. In November 2004, John Kerry, with a former North Carolina senator on his ticket, only totaled 1.5 million votes in the state, losing to Bush-Cheney's 1.9 million. There are two schools of thought on what these numbers mean. First, it is argued that Obama has basically maxed out his possible new voter total in North Carolina and across the South. Combined with moderate voters reassessing his candidacy and fatigue among his supporters, this would wash out any modest gains in new Obama votes between now and the general election. This view seems doubtful given the energy Obama generates, which puts me in the second camp; those who believe that Obama, as the official presidential nominee of Democratic Party, will touch off a massive get out the vote effort across the South. If the latter unfolds, the McCain campaign will then have to accelerate efforts to try to peel off white votes from Obama and woo former Hillary Clinton supporters, plus an agressive get out the vote effort among Republicans. The latter would be hard, and in part explains the downright loopy run on "one term pledge" ideas for McCain. Evangelical voters with their hearts set on, say, a Huckabee presidency/rapture would be free to vote McCain with a clear conscience in 2008. Think of it as political four-year ARM. Voters can remake the terms in 2012, guaranteed. In effect, this is an attempt to turn lack of enthusiasm for McCain into a strategic asset—lease him for four years, not eight. But even with this gimmick, the lack of enthusiasm for McCain remains. Former Mecklenburg County Commissioner Jim Puckett recently told me that his fellow Tar Heel Republicans are simply not moved by McCain. He pointed out that the perception that North Carolina is a lock for any GOP presidential candidate overlooks that for years it was Jesse Helms supporters who were supplying the underlying campaign energy—energy that is long gone. Into this vacuum strides freshly minted Libertarian Party banner carrier Bob Barr. The former Georgia congressman isn't exactly a household name in the region, but neither is he an unknown, owing in part to his TV appearences and frequent spots on talk radio in Atlanta and Charlotte. Might he provide someplace for disgruntled conservatives—particularly fiscal conservatives and opponents of federalizing every known public policy issue—to land in November? Perhaps. Particularly if McCain devolves into a single-issue "patriotism and torture" candidate, as presaged by the head of Georgia GOP the other day. Referring to McCain's stint as an abused prisoner of war in Vietnam, Georgia Republican Party chairwoman Sue Everhart declared, "John McCain is kind of like Jesus Christ on the cross." However, McCain's actual saving grace may be Obama. Conservative voters otherwise disgusted with the senator from Arizona on campaign finance, entitlements, taxes, or illegal immigration imagine a soft-on-terror Obama presidency and recoil from even casting a vote for Barr. "Any vote not for McCain is essentially a vote for Obama," says Clay Johanson, to the easily imagined sound of Barr's LP opponents hissing and groaning. Johanson, a 39-year old technical consultant fr[...]

Hillary Rising


One month ago Sen. Hillary Clinton (D-N.Y.) faced an uphill climb in North Carolina. A few days from Tuesday's primary, Clinton has clearly closed in on Sen. Barack Obama (D-Ill.) and there are now whispers of a Clinton win among her state-wide supporters. The Clinton campaign continues to set the bar low, intending to spin even a close loss to Obama as proof that superdelegates cannot trust the party's nomination to such a weak candidate. However, keep in mind how Clinton managed to make up ground in a state where some polls had her trailing by as much as 20 points. The Clinton campaign has largely lucked into its recent momentum. Clinton must first thank the state's Republican Party. It's decision to put the most strident anti-Obama ad, one with a heavy dose of the Rev. Jeremiah Wright, into the mix two weeks ahead of the primary has rebounded to Clinton's advantage. The ad was ostensibly directed at the two Democratic contenders for the governor's race, both of whom have endorsed Obama. But a TV ad featuring Rev. Wright damning America from the pulpit presented rural white voters with an uncomfortable image of Obama while at the same time freeing Clinton from having to do that job herself. It was win-win for the Clinton team. Incidentally, state conservatives will not soon forget John McCain's sanctimonious heartburn over the NC GOP ad. They did not like the Republican nominee much on the issues before the flap, and now they find him pandering—and soft to boot. Better still for Clinton, Rev. Wright decided to drop by the National Press Club this week to reamplify his previous remarks. This kept the story fresh for another few days and led Obama—prodded along, rumor has it, by spot polling in NC showing the Wright issue sapping his support among well-educated white voters—to finally denounce his former pastor. Still, the potential for huge numbers of newly registered voters to turn out for Obama next week has clearly troubled the Clinton camp. They were not likely to be turned off by the 24/7 focus on Wright. They were on a mission to vote. But the Clinton network had an answer for that. The Institute for Southern Studies (ISS), a left-liberal outfit in Durham with a hair-trigger on all voting rights issues, claims that the answer was good ol' voter suppression courtesy of a group with connections to the Clinton campaign. A Beltway non-profit with the tongue-twisting name of Women's Voices Women Vote has made robo-calls around the state—as it did ahead of other primaries—telling potential voters that the "packet" they must sign to be eligible to vote will soon arrive in the mail. But no such "packet" exists, and the deadline for registration has long since passed. As such, ISS finds this calling effort "misleading"—and with good reason. Turns out one of the group's executives is a frequent contributor to the Clinton campaign, amid other interesting connections: Women's Voices Executive Director Joe Goode worked for Bill Clinton's election campaign in 1992 as a pollster; the group's website says he was intimately involved in "development and implementation of all polling and focus groups done for the presidential primary and general election campaigns" for Clinton. Women's Voices board member John Podesta, former Chief of Staff for President Bill Clinton, donated $2,300 to Hillary Clinton on April 19, 2007, according to What is a Clinton campaign without a little funny business? The size of the turnout among black voters remains the great unknown for Tuesday; anything which dampens that turnout will be to Clinton's advantage. One above-board factor the campaign can claim credit for is turning Bill Clinton loose to do his Bubba routine among small towns of displaced blue-collar workers. The former president remains popular with the NASCAR crowd and he never fails to skewer the Bush administration, noting, for exampl[...]

Up From the Depths


The latest sign of trouble in America's stressed credit system can be found not in some arcane Wall Street hedge fund, but deep in Alabama. There the mundane civic chore of providing water and sewer service drove one county to the edge of bankruptcy and sent federal regulators into a tizzy. On Tuesday, creditors, led by JP Morgan and urged on by the feds, hammered out an agreement with Jefferson County, Alabama officials to avoid default on some $3.2 billion in public sewer bond obligations. For now, the county has another 30 days to come up with a $53 million payment. As financial mishaps go, it's perhaps not the sexiest storyline. But that is precisely what should scare anyone who has followed the way local governments have thrown debt around this decade. Much like home buyers seduced by the largest possible mortgage, local officials were wooed by bankers and bond underwriters to float the largest possible debt they could afford. Given historically low interest rates, on one level it was good advice. But it is also true that—exactly as in the mortgage making market—the bigger the debt, the bigger the commission for the banks and bond traders. However, unlike a home purchase with a borrower and lender, the ratepayers and taxpayers who ultimately have to stand behind and payoff any deals gone bad are left out of the loop. The finances are often complex and local media outlets seldom have reason to delve into the specifics. And local officials are typically most concerned with how much they can build with the money and what constituents they can "service" with the new debt. This is particularly true when water and sewer service, or an airport, or some other revenue-generating unit of government is set up as a separate enterprise fund. Too often this confuses lines of responsibility and obscures total public obligations to pay for things. Of course, bond sellers like the enterprise fund and dedicated revenue streams concept. They provide slightly lower interest rates in exchange for the perceived "sure thing" of dedicated revenue. And then localities often turn around and take the lower rate in order to increase the total amount they borrow. Just like house-hungry consumers who bit on low, low introductory rates. However, this local aspect of chasing big money was glossed over in many accounts of the Jefferson County trouble, with focus instead on the change in the debt rating brought on by the failure of bond insurers. This had the effect of jumping the interest payment on the debt to $250 million a year, swamping the $138 million in revenue the system collects. But bad luck, bad timing, or even incompetence on interest rates swaps it not the only way local utilities can come up short. A couple weeks ago my stomping ground of Charlotte, NC was confronted with a $30 million projected shortfall in water and sewer revenue. Debt payments would have to be restructured as a result—or more precisely, the local utility would be in violation of covenants made to bond holders. Such covenants or promises to maintain a certain capital position or cash flow are another way local governments have priced their debt loads for perfection in recent years. In exchange for the promises, the utility or fund receives a lower interest rate. And what do they do with the lower interest rate? Borrow more. And who gets bigger commissions? In Charlotte's case, the shortfall was resolved—one that was induced by mandatory water usage limits enforced by the city under threat of fine, a wonderfully top-down response to drought—by hiking water rates by 16 percent. Looking across the country, rates are also going up from Oregon to Vermont, often in response to a need to finance additional the construction of capacity. The great unknown is the extent to which these new debt issues—together with recurring obligations—are not ready for a new [...]

Hillary's Southern Crossroads


Even though its current focus is on the battle for Pennsylvania, the Democratic presidential race is certain to tilt on the results of North Carolina's May 6th primary. It is there that Hillary Clinton must show that working class, Southern, white voters will balk at supporting Barack Obama come November. Clinton is not so much trying to win the nomination outright—neither candidate will secure enough delegates to do that—as she is auditioning before the party's superdelegates to be cast as the nominee most likely to beat John McCain. This requires offering some kind of proof that Obama is—pick your focus group: too black, too scary, too liberal, or too scary-black-liberal—to win enough white votes to beat McCain. This is where North Carolina comes in. Ringed by three states that Obama won handily just weeks ago, a Clinton win would show that Obama's race relations talk didn't work, and that not even in a state with a significant black Democratic base can he overcome the suspicion that he is a crypto-Black Panther. Not only did Obama win South Carolina, Georgia, and Virginia, he crushed Clinton in those races, displaying the twin aspects of what has made his campaign so formidable. In South Carolina it was a huge black turnout with significant new voter participation, while in Virginia he pulled in huge numbers of white votes, finishing with 48 percent. A similar pattern prevailed in Georgia, where 43 percent of the white vote went for the Obama. Only Tennessee, which gave Clinton a 13 point win, has resisted Obama's march across the South, not counting Clinton's "home" state of Arkansas, of course. That was then, pre-Rev. Jeremiah Wright. Has the "landscape changed," as politicos like to say, after the electorate's introduction to Wright's fiery sermons? Maybe. The trouble for Clinton is she has considerable baggage of her own. In North Carolina, especially in small and mid-size towns denuded of 250,000 furniture and light manufacturing jobs, NAFTA might as well be the Hitler-Stalin Pact. If both Clinton and Obama had to run from the treaty in Ohio and the Rust Belt, they'll have to be in dead sprint across the Tar Heel State. And Clinton simply has more—much more—pro-NAFTA weight to carry. She tried to shed that burden in Winston-Salem the other day by calling for a "re-negotiation" of NAFTA, which just seems to be a fancy way of saying she was wrong for ever supporting the treaty. She also promised some $2.5 billion in workforce training programs to help make up for it all, one supposes. Meanwhile, Obama was in Greensboro patiently explaining for the umpteenth time that he is, in fact, a Christian while bashing Clinton for being too tied to special interests. Obama also beat Clinton to the state's TV airwaves, putting up 30-second spots promising not to ship jobs overseas like you-know-who. The early commitment of ad dollars shows that the Obama camp does not put much stock in one recent poll showing him with a 20-point lead in the state. The poll's methodology almost certainly overstates the pro-Obama turnout for the primary. The consensus view is that Obama now holds a lead, but of, at most, 10 points—and possibly little as five points among likely primary voters. Because the race is relatively close, Clinton will no doubt soon move to counter the Obama ads in the state's metro cores. When she does, it may well be with the most direct and forceful attacks on Obama the campaign season has yet seen. Hillary, in point of fact, has nothing to gain by holding back. She must, to borrow Bill's old phrase from the Ken Starr days, "just win." To that end, the political class in North Carolina is bracing for a heavy dose of Rev. Wright's oratory, offered up by pro-Hillary ads. It might not be pretty or artful, but the rough road is the only one left open to her. Jeff Taylor write[...]

Obamanomics vs. McCranky


Despite my best efforts, in the last few days I've caught snippets of strangely familiar language from John McCain. First, a clumsy attack on the Fed for failing to cut interest rates "faster" so as to stave off recession. Then, the sudden embrace of a repeatedly scorned "no new taxes" pledge. On Monday, it hit me while watching McCain accept the endorsement of another liver-spotted former naval aviator: McCain is turning into George Herbert Walker Bush before our very eyes. If that is true, the crucial question becomes: Is Barack Obama more Michael Dukakis or Bill Clinton? Don't laugh. The answer is far more salient to who becomes the next President than feverish declarations that Obama in the heir to JFK or that McCain is really Winston Churchill. Let's also stipulate that Hillary Clinton should not be forgot—not until the last spark of energy is wrung from her battle-chassis will she concede, and perhaps not then. Still in her playbook—the triple-whammy cry, where she and Bill and Chelsea all cut loose. Don't rule it out. But the GOP's electoral offering is locked in stone, and one half of the November equation is set. McCain has an absolute ceiling as a candidate above which he cannot rise. He cannot out-debate or out-speechify his opponent, and he is prickly and prone to outbursts. In short, voters absolutely must prefer him on substance, not style, for McCain to win. So, what about that substance? Here we find McCain in favor of perpetual war in Iraq, possibly a new war with Iran, an immigration reform process loathed by conservatives, and rewriting the First Amendment to protect incumbent federal office holders, plus hatred of earmark spending and support for tax cuts, then opposition to tax cuts, now morphed into a pledge against future tax hikes. Overlay this with a general suspicion of all motives not directly tied in to government "service" and you have a candidate with something to offend very many voting blocs. Now recall that in 1988 Bush I was a similar polyglot—East Coast blue blood, Texas oilman, Nixon Republican suspicious of "voodoo economics," loyal Veep to Hollywood shaman—but he had the considerable advantage of running for Ronald Reagan's third term. And that was enough to beat a Dukakis. Four years later a rudderless Poppy was helpless before Bill Clinton's mix of energy, outsider myth, and rope-a-hope symbolism. Whatever we can say today about Obama, surely one of the truest things is that stylistically he is no Dukakis. If so, McCain must find some substantial difference to hold up in front of voters or go the way of GHWB and the last aging senator/war hero the GOP coughed up for commander-in-chief, Bob Dole. McCain's backers find this vital difference in the Arizona senator's support of "the surge" in Iraq, equal parts community policing on full-autopilot and cash money for well-armed Sunni tribes. This reduces to positive outcomes for U.S. policy in the Middle East and perhaps more broadly to a stronger, more grounded foreign policy in general. Sure enough, this stance contrasts sharply with Obama's come-home-and-save-money message. The trouble with either camp counting on foreign policy differences to drive voters their way is the fact that neither McCain nor Obama can remotely control international events in the next few months. Another Abu Ghraib-type scandal and McCain is mortally wounded, while Obama must live in fear of another Live from a Cave tape featuring an endorsement from Osama bin Laden. Not content with these undependable foreign policy differences, the economic plan Obama spun out in Wisconsin last week provided a curiously large target to the former fighter pilot. It was more—much more—from the Dukakis playbook, with ramped up federal spending on social programs, at least $500 billion worth, perhaps as[...]

Those Who Can't, Endorse


Former New York City Mayor Rudy Giuliani withdraws from the presidential race and endorses Sen. John McCain. Former North Carolina Sen. John Edwards suspends his campaign and endorses no one. Is there a difference? Not really. The least surprising move of the season is Rudy's backing of McCain. Both ran as quirky, prickly "moderate" alternatives to lock-step conservatism. In fact, McCain is essentially advancing on the Giuliani strategy of watching the conservative base split itself among multiple candidates while locking down everyone else. But a vague strategic nod is all Rudy adds to the McCain effort—that and a brief momentum bump on the endorsement itself. Voters at this late date—both historically and in this election cycle—are not looking for top-down direction on where to take their support. Their minds are not blank slates or devoid of information on the remaining candidates. As George Bush's evil political genius Karl Rove put it in a recent Wall Street Journal column: Voters are discounting advertising. They may be blocking out ads, relying more on personal exposure, information from social networks, alternative information sources like talk radio and the Internet, and local media coverage. ... It is the age of the Internet, cable TV, YouTube, multiple news cycles in one day, and the need for really instantaneous response. In other words, an endorsement from a failing candidate might not even rate as a prominent news story, let alone linger in the public forebrain days later. Neither the testimonial—one of the oldest forms of politica advertising—nor the photo op will, by themselves, move votes. So if the endorsees don't gain from the failed candidate endorsement game, why do we still pay attention to it? Tradition, for one. The endorsers obviously can score a few brownie points for future use, like landing a federal job. In Giuliani's case, it is entirely plausible to imagine him as McCain's Homeland Security czar. But Rudy in the DC fishbowl seems a poor fit, especially considering that Giuliani is not looking to work that hard. It seems more likely that he will retire to Manhattan with his cadre of longtime yes-men to continue overcharging corporate America for speeches and advice. Meanwhile, Edwards has been floated as a possible attorney general in an Obama administration, quite likely the earliest and worst cabinet trial balloon in American history. Even disasters like Janet Reno and Alberto Gonzales looked to be better fits for the top job at Main Justice, with both having previously served as government lawyers before. Edwards might wind up trying to sue China for lead paint on toys or conducting FBI stings on businesses with wet floors. That's why a better place for Edwards' One America crusade might be the Labor Department, where he could team up with labor unions in working towards the $9.50 minimum wage he says America needs. This is not completely crazy. By suspending and not shuttering his campaign, Edwards can string along both the Obama and Clinton camps right through the convention. He keeps his delegates and superdelegates, and should that knee-buckling, full-body orgasm of the poli-junkie—the Brokered Convention—actually come to pass, Edwards could name his price. Motivation also figures into this scenario; Edwards needs somewhere to land. He cannot go back to North Carolina and run statewide again. Too many people are burned out on him and a newer, fresher crop of candidates is already active in the Tar Heel state. A once-duped University of North Carolina is not going to put him up in a "poverty center" for another four years, either. Electorally, Edwards best bet might be to hope that Rep. David Price (D) resigns soon, opening up a run in the liberal Research Triangle area. But voters [...]

The Sure Thing


Even though the Democrats go to the polls a week later than the Republicans, who vote next Saturday, the Democratic race is somewhat easier to read. At least for now. John Edwards's return to his storied home of Seneca will not be a happy one. Edwards is almost certain to drop out of the race following a Palmetto state tilt in which he is an afterthought, despite winning the state in the 2004 primary. His "son-of-a-mill worker" spiel has fallen flat in state that is either solidly Republican where the mills once were and/or too prosperous for Edwards' brand of class warfare to find purchase. A disastrous trip to Clemson University, a fairly conservative campus where suburban and rural kids go to get degrees before landing in Atlanta, Columbia, Charleston, or Charlotte as architects and engineers—the oppressive hand of Edwards' evil oligarchy is fiendishly well-hidden in this process—told the tale. Edwards staffers were having trouble getting Clemson University students to hold up his placards for the traditional campaign stop backdrop. Charlotte Observer reporter Taylor Bright captured this exchange: "You guys want them?" "Hell, no." "I'll spit on it." With Edwards defanged, is it going to be full-steam ahead for the Comeback Gal, Hillary Clinton? Well, no. The other day Clinton, in trying to argue the need for experienced politicians to bring social movements into the realm of actual policy changes, seemed to suggest that Martin Luther King Jr. would have been nothing without LBJ to sign Great Society laws. Worse, Bill Clinton somehow managed to turn criticism of Barack Obama's dreamy personal narrative into an attack on "fairy tales." This caught the political antennae of Rep. Jim Clyburn, the dean of black pols in the state and one who had thus far stayed neutral in the presidential campaign. To him, this sounded like the Clintons were dissing the civil rights movement of the 1960s. This isn't semantics to pols like Clyburn or the network of black churches that continue to form the backbone of political life for blacks in South Carolina. The King Dream is not a distant rhetorical point for them, but a vital part of their own internal narrative and justification, one that is deployed weekly by these leaders. The Clintons have bumbled into attacking the legitimacy of the black leaders they carefully cultivated. Rumors are now afoot that Clyburn will endorse Obama as a result. It was that black leadership support, along with what nascent labor movement there exists in a right-to-work state like South Carolina, that Clinton was counting on to counter Barack Obama's popularity with younger blacks in a very, very large pool of black votes in the state. There is still time for Clinton to patch this rift up and the campaign is already moving to do so. And to paraphrase Robert Plant, crying won't help you but praying might do you so me good. Expect to see Hillary hit the black church circuit hard. As for Obama, South Carolina is put up or shut time. His rally with Oprah Winfrey in Columbia several weeks ago drew a delirious crowd of 30,000. The state with both its large black population and sustained economic growth and prosperity seem ready-made for his uplifting and inclusive message. Maybe a book club, too. Obama is believed to be in the lead among South Carolina voters at the moment, but we all know how his supposed lead fared in New Hampshire. In addition, Hillary is on the air with a TV spot that hits all the liberal hot-buttons on health care and entitlements. Did you know that the junior senator from New York single-handedly stopped George Bush from "handing Social Security over to Wall Street?" South Carolina voters do. On the GOP side, it is Fred Thompson playing the role of John Edwards. Thompson has[...]

2007: The Year in Videos


It's the first day of 2008, and outside of Iowa and Pakistan there's not much news and not much to worry about. Kick back and click the "play" button as reason editors and friends of the magazine remember the most striking, funny, historic, stupid, or impactful videos of 2007. Update on January 2: Due to an editing error, some video picks were not included in the original posting of the article. Submitted for your viewing pleasure are three new selections: Radley Balkoreason senior editor I'm nominating the lot of police brutality and taser videos. The most popular this year were probably the "Don't Tase Me, Bro" video from a John Kerry event in Florida (see below) and a Missouri teenager's recording of an abusive police officer who had pulled him over. The genre as a whole is the result of the mass democratization of technology, and represents an important shift toward transparency and accountability in law enforcement. More than a few abusive police officers have lost their jobs after a video went viral, which likely wouldn't have happened were we still in the pre-Internet age. Mass watching of the watchers is a good thing, and we ought to be encouraging more of it, both to weed out bad cops and to protect the good ones from frivolous claims of abuse. width="560" height="315" src="" frameborder="0"> Ronald Bailey reason science correspondent Venezuelan President Hugo Chavez' weekly television talk show, Alo Presidente, infamously runs on for hours. In September, 2007 viewers were treated to more than eight hours of presidential bloviation. Chavez' hero, the notoriously long-winded Fidel Castro, has never even gotten close to that record. In November at the Ibero-American Summit, Spain's King Juan Carlos told Chavez, "Why don't you just shut up!" Juan Carlos' words have been turned into a popular ring tone. I nominate it as the "best" video of 2007 because it was way past time that someone told Chavez to just zip it. width="560" height="315" src="" frameborder="0"> Nick Gillespie reason editor-in-chief I continue to laugh every time I watch the meeting of minds between singer-songwriter John Mayer and Justin Long (the Apple Computer guy) outside an L.A. nightclub. Mayer--drunk on booze or maybe just strict construction of the Constitution?--goes on a pro-Ron Paul rant that is magical not just for its intensity and heartfeltness but for its very existence in the first place. Years ago in reason, we excerpted Tyler Cowen's What Price Fame?, a study in how contemporary celebrities are impotent puppets we pay astronomical amounts to entertain us (Cowen's piece is not, alas, online). This is true, even when we agree with them. It's a great world where this sort of footage is widely available. width="560" height="315" src="" frameborder="0"> Katherine Mangu-Ward reason associate editor This mashup of the classic Apple 1984 ad and Hillary campaign footage ends with Obama's website address but wasn't approved by his campaign. When the maker's identity was feretted out by the Huffington Post, he said: "This ad was not the first citizen ad, and it will not be the last. The game has changed." Ne'er were truer words spoken in 2007. width="560" height="315" src="" frameborder="0"> Jeff Taylor reason online columnist A perfect creation of ad hoc media -- found it via, builds on a previous YouTube upload of Hubble telescope images set to the Tool song Lateralus -- and adds immense value, meaning, and insight, all because some guy -- philriehl -- decided to do it. The 9:24 vid -- that number is important -- illustrates and ex[...]

Teaser Freezer Burn


Given the amazingly complex world of high finance—full of derivatives, hedges, and tranches—Treasury Secretary Henry Paulson last week hit upon a stunningly simple plan to fix the nation's subprime mortgage mess: Lie. And don't just lie, but get everybody together and agree to lie, thereby making the lie become truth. The fiction Paulson and the major banks are promoting is that extending the low "teaser rates" initially offered to many subprime borrowers fundamentally will help them and—here is a big lie—transform them from bad loans to good. Put another way, if the problem of bad subprime mortgages was caused by delusion over lending risk, this latest solution enshrines delusion as the defining characteristic of the American banker—backed by a facile enabler in Uncle Sam and his trillions, of course. Financial risk analyst Chris Whalen calls Paulson's plan "appalling." Whalen's Institutional Risk Analytics zeroed in on the banks' unwillingness to acknowledge risk in their lending portfolios back in 2005. Now he sees the so-called "teaser freezer" plan as an attempt to put Humpty Dumpty back together again and build a floor underneath uncertainty in the financial sector. Except that he estimates around one-third of teaser borrowers will default anyway, a measure of just how dumb lenders are in handing out loans to people with bad credit. "It is probably in their best interest to walk away. They have no equity," Whalen says of the hapless borrowers. The possibility of their underwater borrowers actually taking a walk terrifies the banks, however. Banks would have no choice but to write down and make real phantom losses lurking just off their books. What to do? How about pretending that the loans aren't actually bad. How do you do that? Pretend that the borrowers can pay them back. How do you do that? Pretend the teaser rate is the real rate. Presto, problem solved. At this point, some adult would ideally step in and say, "no, that's fraud." But clearly Treasury is not that mature. And it appears the Fed has resigned itself to some form of greater idiocy coming out of Congress on the subprime front that maybe, just maybe, the teaser freezer can head off. However, the stubborn fact remains that banks will lose money on teaser rates. Regulators and investors both know this. Who exactly are we trying to fool? Besides inattentive voters. Meanwhile, by allowing big banks to keep their rot off the books, the potential exists for it to continue to spread. Whalen and other experts have wondered for months about losing the ability to price risk, or even recognize it given the complexity of the constructs floating around financial markets. The Paulson fix only exacerbates the problem by continuing to assert that real world constraints do not matter. And the stakes are already high. "We could lose a money center bank next year," Whalen warns. Should you duck your head out of Treasury's "let's pretend" camp for a second, one notices that there are major legal obstructions to rewriting millions of loan contracts by federal fiat. Contrary to the wish of some in Congress, mortgage lending is still largely an activity engaged in by two private entities, each of whom assume very specific obligations. This is not a federal program to be tweaked at the margins. Real estate lending contracts are a dozen pages long for a reason. And each contract is different yet just as legally binding, depending on a given state's law. That's right, state law. It is unclear how federal action to extend low-low teaser rates can square with state lending laws which may require an actual change in the underlying contract. Unless the idea is just to do this all informally, with a notifi[...]

Rant: Unconnected Dots


For years federal authorities have argued that antiquated laws kept the cops from stopping 9/11. They said the failure to prevent the terrorist attacks demonstrated the need for the PATRIOT Act and every other proposed expansion of the government’s surveillance powers. But in testimony before Congress in September, Director of National Intelligence Michael McConnell changed tack, saying “9/11 should have and could have been prevented” after all; the authorities simply “didn’t connect the dots.” McConnell did not draw the obvious conclusion: If greater federal power was not needed pre-9/11 to stop terrorists, then even more federal authority is not needed now. Instead, McConnell argued that the Protect America Act—which allows the attorney general and the director of national intelligence, without judicial oversight, to authorize surveillance of international phone calls and email involving people in the U.S.—made vitally needed changes to the Foreign Intelligence Surveillance Act. How does the supposed need for greater surveillance power square with McConnell’s declaration that 9/11 was preventable and his lament that “we didn’t connect the dots”? How did we get the dots without the Protect America Act? Via good old-fashioned police work that top officials in the Federal Bureau of Investigation ignored. Federal agents on the ground knew that hijackers Khalid al Mihdhar and Nawaf al Hazmi had sought pilot training. They knew Zacarias Mous­saoui had sought the same sort of training; he was carrying 747 manuals when he was picked up on immigration charges. In the days leading up to 9/11, Minneapolis FBI agent Harry Samit repeatedly tried to obtain permission to search Moussaoui’s laptop computer and belongings. Headquarters refused to seek a warrant. New details on just how costly that denial proved to be were first published in a widely overlooked September 10 story by Greg Gordon, McClatchy Newspapers’ Washington reporter. Gordon discovered that the FBI had enough information to arrest part of Al Qaeda’s financing network in the days before 9/11—information that could have stopped the hijackings. Cue McConnell’s dots. Moussaoui’s fellow jihadists considered him a loose cannon and security risk. They were right: The key to the whole network was right there in his notebooks. Al Qaeda operative Ramzi Binalshibh wired $14,000 to Moussaoui in August 2001, and Moussaoui sloppily recorded the routing number. But authorities never looked at that notebook. Instead, FBI brass rejected Agent Samit’s attempts to search Moussaoui’s belongings, citing lack of information that Moussaoui was a known terrorist or foreign agent. The notebooks were not searched until after the attacks. Gordon notes that investigators almost certainly could have traced Moussaoui’s money back to an Al Qaeda moneyman in Dubai; Binalshibh’s transactions would have led them there. The Dubai contact used one of his Western Union receipts to jot down a phone number in the United Arab Emirates. That number received calls from 9/11 hijackers while they were living in Florida prior to their attack. As Gordon reports, FBI agents at Moussaoui’s trial testified that had he confessed to the plot after his August 16 arrest on immigration charges, thus giving them access to his notebooks pre-9/11, they could have moved on 11 of the 19 hijackers. But Washington steadfastly refused to move on information developed from the field offices. Rather than endlessly tweaking the intelligence-gathering statutes, the White House should have spent the past six years addressing the “obstructionism, criminal negligence and careerism” that Samit cite[...]