Conrad Black: Ignorance and upheaval


Shocked by an ill-understood financial crisis, panicky American voters are poised to elect a staunch leftist on Tuesday to serve as their 44th president

The U.S. presidential election campaign that is now finally ending (the 2012 campaign will begin on Thursday, and will probably cost $2-billion) has been so entangled with economic, racial and ethical questions, that it has obscured the most stark ideological differences between candidates since Ronald Reagan and Jimmy Carter in 1980.

Senator Barack Obama, who has the most liberal voting record of any current U.S. senator, is well to the left, according to all polls, of most Americans. He is surging toward the feat recently achieved by Stephen Harper in Canada: Being elected although most of his countrymen are ideologically closer to his chief opponent.

The voters have been heavily distracted by the financial crisis. Mr. Obama has displayed an almost sphinx-like discretion on the subject — while John McCain has produced a daily kaleidoscope of hip-shooting responses and King Lear-like promises of vengeance on the greedy financiers and sloppy regulators.

Yet, during it all, there has not, as far as I have observed, been a single plausible explanation of what has happened to the financial system. Congress
required that mortgage giants Fannie Mae and Freddie Mac direct 52% of their backing to the homes of low-income, higher-risk, mortgagees. It did the same, though not to the same extent, with the commercial banking system. Alan Greenspan co-operated with Congress by holding the prime rate at 1% for almost a year, facilitating the issuance of trillions of dollars of low-yield, high-risk mortgages.

The financial industry bundled these together in consolidated debt obligations (CDOs), whereby investors could buy in at different rates and risk levels. The CDOs were in turn backed by default swaps, insurance policies that gave the securities a (false as it turned out) semblance of reliability. Meanwhile, investment banks were permitted to borrow up to 30 times their asset bases, three times the leverage permitted to lending banks. It was a house of cards on an open terrace on a summer day.

Early signs of a slight business downturn shook loose some of the most vulnerable mortgages, and the effects rolled through to the insurance companies. Banks marked down their asset values, and to avoid being afoul of Federal Reserve-imposed ratios (which are based on market prices), had to seek more capital at declining issue prices, diluting existing shareholders. Market shapers and astute analysts short-sold the CDOs and bank shares, (i.e., sold them without first buying them, forcing down the market price, and then covering their sales by buying at a lower price).

The process broadened and accelerated, as this kind of crash always does. Secretary of the Treasury Henry Paulson and the Federal Reserve chairman, Ben Bernanke, scrambled around like one-armed paper-hangers, saving some companies (Bear Stearns) and not others (Lehman).

Very late, they improvised an impractical plan for buying up to $700-billion of the defaulted real estate-related debt, but the CDOs are not easily divided and the federal government had no capability for negotiating such transactions. And so it was agreed that the government would, as it did in the 1930’s, buy preferred shares in the encumbered institutions at discounted prices, and let the banks work it out with their clients and debtors.

The foregoing analysis makes no pretense to economic sophistication, but I saw no evidence that either candidate is capable of giving even this minimalist description of what has panicked the country, discomfited the whole financial world and caused foreigners to resume the habit that began with the U.S. rejection of the Treaty of Versailles, and blame everything bad on America. The collapse of the United States was jubilantly announced by the international left, probably at least two centuries prematurely. As McCain flailed wildly, Obama sagely allowed the crisis to reflect badly on Republicans generally, though the Clinton
administration was certainly not blameless.

Obama is essentially offering the white population of the United States, in exchange for his residency in the White House, an end to the racial guilt complex that’s formed over 145 years of quasi-segregation of African- Americans, following what Lincoln called “the bondman’s 250 years of unrequited toil.” And as a bonus, this will also be the end of the hackneyed and checkered spokesmanship for the black community of scoundrels such as Jesse Jackson, Al Sharpton, Charlie Rangel and the Obama family’s recently discharged pastor, Jeremiah Wright.

Over the last 60 years in the United States, the governing party has usually changed after two terms. The stylistic shortcomings of the second Bush administration, McCain’s blunderbuss campaign and the financial crisis have all reinforced that likelihood. Under the Mephistophelean influence of the most biased media coverage of a U.S. election since Barry Goldwater in 1964, Obama’s peculiar associations have been downplayed and McCain has been portrayed as serving up a smear-job for raising them at all.

Twenty years of listening, each Sunday, to the demented ravings of Father Jeremiah; the relationship with unrepentant former terrorist Bill Ayers, as they squandered $100-million of the late Walter Annenberg’s money teaching Marxism but not raising test scores in Chicago; Obama’s relations with the Association of Community Organizations for Reform Now (Acorn), now being investigated for extensive voter-registration fraud in 14 states; and Obama’s provenance from the roughest, crudest, political machine in the country, the Democratic Party that has ruled Chicago and its suburbs for 80 years; all have been ignored or glossed over, and have received less investigative attention than Joe the Plumber’s tax returns or Sarah Palin’s wardrobe.

In policy terms, McCain would lower taxes and spending and retain individual choice in medical care. Obama would “cut the taxes of 95% of Americans,” by which he means that the 40% of Americans who do not pay income taxes would receive “refundable tax credits” from the 60% who do, most of whom would receive tax increases. He has tried to sugar the pill of simply taking money from people who have earned it and giving it to people who haven’t by clothing it in the jolly and progressive phrase: “spreading the wealth around.” A tax increase at the start of a recession is playing Russian roulette with all chambers loaded.

Obama will also promote unionization of the work force, thus advancing that retrograde and declining cause of the departure of much of U.S. manufacturing to cheap-labour countries in the first place. If Obama takes his economic advice from Warren Buffett and Paul Volcker, catastrophe will be avoided. If he actually carries out his program, he will be the worst president since Warren Harding, and the most (inadvertently) destructive since James Buchanan brought on the Civil War.

It has been such a complicated election: A centre-right country is running some risk of a quirky and ill-starred lurch to the left under its first non-white president. Whatever else it may have become, the United States is a land of surprises.

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