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Obama’s Folly: Putting Himself First

Friday, September 26, 2008  |  posted by Hugh Hewitt

John McCain is in D.C. working to bring his own party to a reasonable deal with the Democrats.

Obama is demanding tonight’s debate go forward and is not pushing his party to treat with House Republicans.

Which figure is more likely to be able to bring the base of his party to work with the responsible figures in the other party after November: The one who tried to do so before the election or the one who attempted to turn a national crisis to political advantage? Right now that is John McCain, and the comparison isn’t even close.

Obama’s Chicago roots are showing, as well as his disdain for the consequences of the crisis to the country. Below I posted on the House GOP’s responsibility to act. The best response I have received doesn’t disagree with the urgent need for the package but does ask why House Republicans should put aside politics when Obama, Reid and Pelosi are attempting to manipulate the situation for political advantage. (See, for example, this chronology of the many faces of Harry Reid.) My response to that is that the country will see through the maneuvers and will trust the party and the presidential candidate who show leadership while putting aside politics. Right now that’s John McCain. It remains to be seen who else joins him.

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“A Wall Street Rescue that Makes Every Player a Winner”

Friday, September 26, 2008  |  posted by Hugh Hewitt

A guest column on the financial crisis:

A Wall Street Rescue that Makes Every Player a Winner
By Clark S. Judge

With the Wall Street rescue talks on the ropes, there is a deal waiting to be done that fixes the Paulson Plan’s problems and gives each key player a win.[# More #]

The key objectives of the rescue are: 1) to restore stability and liquidity to a US financial system currently threatened by the collapse in value of a large class of assets, a collapse which has led to catastrophic shrinking of the balance sheet equity of many financial houses, 2) to do it without inappropriately favoring one firm over another, 3) while minimizing US taxpayer exposure, as well as 4) minimizing US government acquisition of privately held assets.

Here is what such a plan would look like:

* Build up good assets:

Everyone has focused on the bad assets that the financial houses hold. Start instead with the good assets, mainly corporate stocks, which are currently depressed, and build up their market value. Some have suggested zeroing out the capital gains tax to do this. It is true that pending expiration of the 2003 cuts of the capital gains and dividends taxes is regarded as a drag on the markets. But large classes of market players-pension funds and 401k investors-are not sensitive to tax considerations, so concentrating exclusively on capital gains and dividends would not do the trick.

Both presidential candidates have made statements that can be applied here.

Barack Obama has said that in a shaky economy letting the 2003 tax cuts expire (at least on capital gains and dividends) would not make sense. So, giving him credit, lock in those cut now.

John McCain has advocated cutting the corporate income tax, a move that would impact all market participants. Giving him credit, bring the corporate income tax rate down to a level competitive with the other major industrial countries now.

In other words, give both candidate claim to a win, while building up the value of good assets in the hands of the financial houses, thereby building up their balance sheet equity and reducing their need to turn to the government for help.

* Create a temporary lending facility for the securities industry:
Instead of making the government’s major role that of buyer, make it first that of lender. To financial houses holding instruments for which there is no current market, the Treasury’s first offer would be a loan, if necessary with the troubled paper or other assets as collateral. The interest rate should be an attractive one to the American taxpayers, assuring them that they were getting a good deal from the lending of their money. Lending first would also minimize the government’s problematic role as an acquirer of private assets and its extremely difficult role (according to those who worked on the S&L bailout) as a disposer of those assets. Equally important, it would give a win to House Republicans, who want to have the rescue program rely on loans rather than asset acquisition.

* Create an exchange for the troubled assets with the government as the market maker:
This is essentially what the Paulson Plan would do, but it would open the government to disposal of assets via on-going competitive bidding. Any firm that sold its troubled assets to the government would come under restrictions that have already been negotiated, including limits on executive pay, coming off of them only after all the paper it had sold was out of government hands. It would also give Congressional Democrats and the Administration a win, incorporating the proposal they have already hammered out and agreed to.

By expanding the value of good assets in the hands of financial institutions (and the rest of us), this package would minimize the demand for other government assistance. By relying primarily on loans, it would minimize the need for the government to get in the business of acquiring assets. By making the government’s asset acquisition role that of market maker, it would keep the markets functioning, even as it minimized the time any asset remained in government hands.

Both presidential candidates, both parties in Congress and the Administration could all claim wins-as could the global financial markets and the American people.

Clark S. Judge is managing director of the White House Writers Group. He was a special assistant and speechwriter to President Reagan.

Memo To House Republicans

Friday, September 26, 2008  |  posted by Hugh Hewitt

Here’s a shocker: No one likes the risks involved in Paulson 2.0 or the precedent of using so much public money to rescue reckless bankers, both private and semi-private..

But there is a very good chance that (1) it will actually make money for the Treasury and (2) without it the financial crisis will spread and the small businesses of America and the people who own and staff them will be deeply injured. These businesses are the backbone of the economy, and they are in danger. This isn’t just a bailout of Wall Street; it is a breakwall for Main Street.

The GOP lost the majority and therefore doesn’t get to shape the bailout except on the margins. That’s the cost of past fecklessness, and intransigence in the minority during a crisis is nothing except a suicidal indifference to both the economic emergency and the reality of the possibility of panic. Gather with John McCain this morning –he is the leader of the party— and invest him with the authority to conclude or walk from the deal. And then work to get the majority back that will allow a greater role in the future by going to the country with a persuasive case on the origins of the crisis and the reality of future crises unless serious fiscal conservatives replace Nancy Pelosi and her gang.

Some of you will say you cannot make such a case on the heels of a bailout. Wrong. You are at a fork in the road, and the public can be trusted to understand exactly how this crises evolved and why Paulson 2.0 was the best of the options available to you and why urgent action is needed to both use tax cuts and energy exploration to recharge the prosperity of the past twenty years.

But you cannot stand by and watch people’s business and savings hemorrhage and expect them to reward you for your purity of purpose and incompetence of execution.

Obama’s Revealing Disconnect

Thursday, September 25, 2008  |  posted by Hugh Hewitt

Obama’s halting response to yesterday’s dramatic announcement`by John McCain followed by his about-face and agreement to attend the meeting convened by President Bush even as he insists that tomorrow’s debate go forward reveals much more than standard operating bumbling by Obama when the script he’s been reading from unexpectedly changes.

Obama appears to genuinely not grasp the stakes here. He is not acting like a leader who understands the risks the country faces. And this is not surprising giving his experience gap when it comes to money, work, and savings much less finance.

Hank Adler has written on the Obama’s 2004 tax returns and what they reveal about his economic life. In a nutshell, the Obamas were like many classic Yuppies that rose quickly from very modest means and saved little along the way, an analysis that tracks closely Michelle Obama’s frequent campaign trail references to how strapped the young couple was by student loans and the costs associated with a young family until the big book deals came along after Barack Obama’s 2004 keynote address. It appears, in fact, that the Obamas had little in the way of savings or investments prior to his big publishing scores, though their combined incomes were quite high. Nor does it appear that either had inherited anything from their families as their tax returns show no interest or dividend income or distributions from inherited IRAs.

Combine this inability to save prior to the windfall years with the well known accounts of Obama’s rather modest circumstances growing up and the picture emerges of a young professional who is essentially clueless about savings and investment growth. Of course he has never started much less grown a business, and there is nothing in his background to indicate he grasps what it means to need and responsibly use business credit, or to spend decades patiently accumulating mutual fund assets through regular payroll deduction.

In short, Obama does not appear to know the enormous risk millions of Americans are facing right now. He certainly doesn’t communicate any of the sense of urgency that millions of Americans feel as they watch the value of their hard-won investments drop precipitously and read of even greater risks ahead. Obama is tone deaf to the warnings of the consequences to small and medium-sized businesses of an extended liquidity crisis. He clearly does not grasp what the threats to money market accounts mean to ordinary middle class Americans. As one caller put it yesterday: “What about my son’s college fund!”

What about it indeed. What some people call the “the investment class” should really be known as the “savings culture,” and these tens of millions of savers could care less about speeches or Jim Lehrer’s questions tomorrow night.

They are, however, deeply worried that everything they have worked for and saved for is imperiled by a financial crisis that has nothing to do with their behavior and everything to do with their futures and the futures of their children and grandchildren. Obama reacted like a tycoon yesterday, one of the elite who knows no matter how the chips fall, he and his family will be fine. He’s personally not sweating it, and he doesn’t have to. Few people are as set as the Obamas right now.

Obama’s inability to understand the genuine fear in the middle class and to respond appropriately and with a priority on protecting the long-and-painfully accumulated assets of the savings culture should be a huge warning flare to the electorate.

Obama just doesn’t get it, and really cannot be expected to get it. He comes out of a career in the professional liberal-to-leftist political class spent tending to the needs and crises of the urban poor and the academic elites and special interest groups of the Chicago machine. His life growing up was not spent among the small business owners and white collar savers that mark so much of suburban, small town and rural America. He has zero experience with real business, and he’s not worried about the college funds of his girls.

Obama revealed a great deal yesterday beyond his obvious inability to react quickly to unanticipated events. He showed us a profound ignorance not just of the financial crisis but of the people it threatens to injure and injure deeply.

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