»  Radio Derb — Transcript

        Friday, September 19, 2008

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[Music clip: Haydn's Derbyshire Marches.]

01 — Intro.     And Radio Derb is on the air. Welcome listeners old and new. That intro you heard was one of Haydn's Derbyshire marches, and this is your always-genial host John Derbyshire with the news of the hour. I'll start us off today with a quote from George Orwell. You can't go far wrong with an Orwell quote. Here is George in August 1940, with the Battle of Britain in full swing, bombs raining down on British cities, and a German invasion expected any day. Quote: "I wrote a long letter to the Income Tax people … Towards the government I feel no scruples and would dodge paying the tax if I could. Yet I would give my life for England readily enough, if I thought it necessary. No one is patriotic about taxes." End quote. I shall leave you, and Joe Biden, to mull on that for a while. I'll return to taxes later in the broadcast, but in the meantime let's take a look at what's been happening on Wall Street.

02 — Bailout.     You've read all about these big bailouts of financial firms — Fannie Mae, Freddie Mac, AIG — and the non-bailout of Lehman Brothers, which was judged not too big to fail. If you hadn't heard the expression "moral hazard" this time last week, you're pretty well familiar with it now. But what have been the root causes here? If you won't mind me borrowing a little stylistic influence from Stalin: What lessons do we learn from this, comrades? Well, the main lesson is an old and simple one: Politics is the enemy of economics. Usury — the business of lending and borrowing money at interest — has been around for several millennia, and the people who do it are pretty good at it, if left alone. I know what I'm talking about: I put in fifteen years working in Credit and Risk Management at big investment banks. Credit and Risk Management is pretty sophisticated, with a lot of heavy-duty math behind it. This is rocket science. And the expertise goes all the way down to small-town lenders judging loan applicants. They crunch the numbers and decide if this is a risk they want to take on, and at what price. They're pretty darn good at it — if, as I said, they're left alone. Left alone, unfortunately, is just what they haven't been by politicians, especially Democratic ones. Jimmy Carter got the ball rolling when he signed the Community Reinvestment Act in 1977. Lending was so tightly regulated at that point, the CRA didn't do much harm. Then Bill Clinton and his pals got their hands on it. The old joke about banks was that they'd only lend money to people who could prove they didn't need it. The Clintonites declared war on that principle, and by the end of the last decade banks were trembling in fear that they weren't lending enough to people who not only needed the money, but had dim prospects of meeting their loan payments. Deregulation helped, making it easier to cook up the kinds of loans politicians wanted made to their constituencies, and we were off to the races. As I have noted before, the business of politicians has always been to make people believe they are steadily getting better off. They will use any kind of stunt they can to make the illusion happen. In recent years, politicians have also felt an obligation to create a second illusion: That all segments of the population are benefiting equally from whatever the economy is doing. If you crunch the numbers, you will see that this can't be. Freddie Mac did a study back in 1999, for example, that uncovered the following scandalous fact: African-Americans with incomes of $65,000 to $75,000 a year had, on average of course, worse credit records than white people making under $25,000. The politicians' solution: Lend them more money!

03 — Corruption in DC.     There is also, of course, the little matter of lobbying. If you followed the bailout of Fannie and Freddie, your eyes will have been opened to the culture of favor-swapping and back-scratching that kept these entities alive. In finance, reality is what the market says it is. I used to spend a lot of my time on Wall Street trying to price things, so that I could calculate exposures for the credit managers, and numbers to put on the firm's balance sheet. Some of the pricing algorithms are really neat, especially for derivatives. Somewhere down below, however, there is some actual liquid object — something that someone somewhere is willing to buy or sell: a stock, a bond, a loan. What is its price? It's what the market says it is. You can crunch all the numbers you like, with the best algorithms your backroom guys can come up with: but if your answer is a hundred dollars, and nobody in the market is willing to pay more than twenty, then twenty is the price. Same with the status of Freddie and Fannie. In theory they were private companies: but no matter how many Treasury suits insisted that, no, no, we will not bail out these firms with taxpayer money, the market never believed it. To the market, these were political objects, not economic objects, and the market behaved accordingly, in the sure and certain hope that Uncle Sam would ride to the rescue if Freddie and Fannie got in trouble. Guess what: the market was right. These were political enterprises, just as the market always knew they were. They handed out money to community groups — you know, those groups that "community organizers" organize — and those groups returned the favor by jamming up the phone switchboard of any congresscritter who didn't toe the line. As an extra inducement to the congresscritters, Fannie and Freddie operated a revolving door, with well-paid jobs for congressional ex-staffers and ex-congresscritters. Could Congress have done something to prevent this catastrophe? Sure they could, but why would they, with all that money swilling around, all those jobs on offer, all those lobbyists banging on their doors? Freddie Mac had 42 lobbying firms on its payroll at one point — count 'em, 42. This was never much to do with business, with lending, with home ownership for the masses. This was politics — a high-stakes game played with other people's money — yours and mine.

04 — A.I.G.     And now here comes A.I.G., bailed out by the Federal Reserve with 85 billion dollars of your money and mine — that's around five hundred bucks per working American, so pony up, please — oh, never mind, you just did. Wait a minute, though. This is an insurance company. Why would the Fed need to bail them out? If an insurance company goes bust, doesn't that mean a lot of widows are going to be out of luck when the old man dies? How is that the government's business? How is it five hundred dollars worth of your business and mine? Ah, well, you see, it wasn't just lives, cars, houses, and movie starlets' legs that A.I.G. was insuring. They were also insuring a ton of the stuff that gets traded in financial markets. If you are holding a bond or a loan, you face some nonzero risk that the bond issuer or the borrower will default, leaving you with worthless paper. What do you do to cover yourself against that risk? You buy some insurance from A.I.G. A.I.G. was such a big player in this market, if they'd gone belly up, then banks and thrifts and brokerages all over the world would be looking at a lot of worthless paper, a lot. That would be bad, way bad. Can you spell "major world-wide recession"? Yes, there is moral hazard in the government making it known it will bail out big firms. The consequences of not doing so can be catastrophic, though — bad enough to justify the immoral. Though of course, once you've done it, everyone wonders how much more of it you are willing to do; and that wondering becomes a factor in market calculations. Watching these events, it's hard to resist the impression of dominoes knocking each other over in slow motion. Bear Stearns … Fannie and Freddie … A.I.G. … who's next? The government has made it plain, by not bailing out Lehman Brothers, that there are limits; but what are the limits? We're going to find out.

05 — Campaign implications.     Is there anything we can deduce from all this about how to vote in November? Well, let's see. Which of the two big political parties is more keen on government management, or part-management, or ownership, or part-ownership, of commercial enterprises? If I were to say the phrase "public-private partnerships," which of the two big parties would come to mind? And since, as I pointed out above, "community groups," organized by — what else? — "community organizers" — are a key link in the chain of protection that prevented Congress from doing what it ought to have done by way of reform, let's ask which big political party is the party of "community groups" and "community organizers"? And who is the more likely to have insights into these semi-government, semi-private lending rackets: (A) a guy with a head full of Marxist notions of rich people oppressing poor people, white people oppressing black people, right-handed people oppressing left-handed people, and all the rest of the postmodernist victimology stew, or (B) a guy who got his cuffs badly singed in the 1980s Savings & Loan scandal and has been trying to atone for the error ever since? One more question: Who said the following thing — it's in the Congressional Record — in May of 2006, quote: "For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac … and the sheer magnitude of these companies and the role they play in the housing market. OFHEO's report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO's report solidifies my view that the GSEs need to be reformed without delay." End quote. I'd better explain that "GSE" means government-sponsored entity, like Freddie and Fannie, and OFHEO was the Office of Federal Housing Enterprise Oversight, charged with supervising Freddie and Fannie. OK, who said that prescient thing two years ago? Was it (A) Ted Kennedy, (B) Hillary Clinton, (C) Barney Frank, (D) Barack Obama, or (E) John McCain?

06 — Jeremiah Wright.     I'm missing a couple of people. I mean, I'm yearning for them to come and entertain me, as they have done in the past. A bit to my surprise, I'm missing Hillary Clinton. I'd got to the point with Hillary when I'd smile as she came on my TV screen. She was awful, but dependably awful; she was phoney, but so obviously and incompetently phoney, you knew she'd never get anywhere much outside New York State, which is populated by morons and gangsters. I miss her. I miss her pop eyes, that gave her the permanent look of having just been goosed by someone with very cold hands. I miss the glassy, unconvincing smile and the bogus politician's point — "Hey, wow! isn't that Elvis in the third row there?" I miss the pants suits in colors that have no name. And of course I miss the laugh. [Hillary laugh] There's another person I've been missing, though. I've been missing the Reverend Jeremiah Wright. Where's he been? Well, we could try asking 37-year-old Elizabeth Payne of Dallas, Texas. Mrs. Payne was secretary to a different Reverend, Frederick Haynes III, a disciple of Rev. Wright. When Rev. Wright came down to Texas for some preaching this Spring, Mrs. Payne was doing the organizing on Rev. Haynes' behalf. She was, says a source in her church, quote, "by Rev. Wright's side day and night." Oh dear. Now Mrs. Payne has been expelled from her church and dumped by her husband. Quote from that husband, whose name is Fred Payne, quote: "I was downright mad about this bull-[beep]. People wouldn't be happy to know that my wife was sleeping with a black man." End quote. Fred describes himself as being in the oil and gas business. He says he belongs to a hunting club and makes his own bullets in his garage. So while Fred was making bullets in the garage, the pious and godly Reverend Wright was making hot cakes with Fred's wife in the vestry. This comes on top of … so to speak … on top of earlier revelations that Rev. Wright got his current wife by seducing her away from her husband under cover of spiritual counseling sessions. What a good thing it is that Barack Obama spotted the flaws in Rev. Wright's character so quickly. What'd it take, twenty years, was it?

07 — Sharia in England.     [1st "Maria" clip] I hope nobody will mind if I cast one of my occasional glances across the Atlantic to the country of my birth. What do I see? Headline: "Sharia Courts Operating in Britain." News story, quote: "Five sharia courts have been set up in London, Birmingham, Bradford, Manchester, and Nuneaton. The government has quietly sanctioned that their rulings are enforceable with the full power of the judicial system." End quote. This follows on the statement, earlier this year, by the Archbishop of Canterbury that some aspects of Sharia law should be adopted in Britain, and then a statement of support from the Lord Chief Justice — that's like the Chief Justice of the Supreme Court — that Sharia law should be used in the settlement of disputes, if people wanted it. British Muslims are thrilled. Here's one of them, in a long quote from the Sun newspaper. This is community organizer Anjem Choudary, addressing a meeting of Muslims in East London on, yes, September 11th, quote: "Islam is superior and will never be surpassed. The flag of Islam will rise over Downing Street. [That's where the British Prime Minister has his residence.] About 500 people in Britain become Muslim every day. The Home Office say there are 1.5 million Muslims but there were 1.5 million ten years ago. Since then our brothers in Bethnal Green, Whitechapel and other places have had eight or nine children each. Eight children here, ten children, 15 children. There must be at least six million people. It may be by pure conversion that Britain will become an Islamic state. We may never need to conquer it from the outside." End of long quote. The crowd of young Muslim men bayed and cheered at Chaudury's speech. When I raise this kind of thing in conversation, someone usually says: "Oh, that's just a few fanatics. Most Muslims don't think like that. Most are moderate." Quite possibly true: but how many Bolsheviks were there in Russia in 1917? How many members did the Nazi Party start out with? (I know the answer to that one: six.) A few fanatics can make great things happen, especially when their opponents are as spineless and self-deluding as the British establishment. With Sharia law now operating, Muslims in Britain are now a country within a country; and as Mr. Chaudary points out, their numbers are increasing very fast. The British were fools to let Muslims settle in such numbers. They are fools now to tolerate these alien fanatics. Fools, fools, fools. How foolish can a nation be, to let in millions of people who have no liking or respect for its culture, no intent to assimilate, and a historical grudge against their hosts? [2nd "Maria" clip]

08 — Palin emails.     Would someone give me a compass direction, please? [Clip of "North to Alaska"] There you go — north to Alaska, home state of Republican Vice Presidential nominee Sarah Palin. I know I said it last week, but it bears saying again: This campaign, more than any other we've had for a long time, is bringing out the sheer intolerant nastiness of the political Left. Look at how they're behaving, all those gentle bearded pacifists with their Birkenstocks and mountain bikes, their kittens and adopted kids from Africa, their plaintive pleas for civility and diversity. Once their candidate is under threat, they leave off hugging trees and saving whales to don their steel-capped boots and brass knuckle-dusters, pick up their loaded pool cues and stilettos, and charge into battle howling like banshees. The veneer of civilization is thin indeed. See how easily these soft-spoken defenders of humane values against the forces of "hate," see how easily Sarah Palin has driven these Lord of the Flies extras into paroxysms of fury, loathing, and, well, hate. Now they've hacked into Sarah's email, no doubt hoping to find that email application for membership in the Wasilla branch of the KKK, or those registration confirms to Moldovan porn web sites. Not much harm done, but a very useful reminder that behind the soothing tones of NPR, behind the lofty aspirations to "bring us together," behind all the gassy flapdoodle about "healing" and "reconciliation." — behind it all it the boot and the stiletto, the interrogation room and the Gulag. Not far behind, either. Look at the pure Chicago gangsterism of the Obama campaign, mobilizing thousands of volunteers to shut down any radio station that dares allow discussion of Obama's past associations. This two-bit manipulator from out of the Chicago race-hustling rackets is being presented to us as a saintly unifier, a meditative philosopher-king. If you don't agree, his hired bully-boys will come round on their mountain bikes and break your windows. The political Left has always been an ugly thing to look at, but not often uglier than it is now.

09 — Charlie Rangel.     All right, let's pick up the theme I opened this broadcast with: taxes. Now that we're all familiar with the phrase "too big to fail," let's turn our attention to a related phenomenon:  "too big to audit." That would apply to political figures whose stature, for one reason or another, is so great that the public would consider it an outrageous impertinence for the IRS to look too closely at their personal finances. Under an ideal government, of course — the government Ron Paul would have given us, if you fools had had enough sense to support him — agencies of the federal government would have no right to ask about our personal financial affairs. In the actual world we live in, however, any time you buy yourself a new toothbrush, you'd better make sure you let Uncle Sam know about it, otherwise you could go to jail. Unless, that is, you are "too big to audit." The outstanding example of a person who's "too big to audit" would be Jesse Jackson. Jesse — I beg his pardon, the Reverend Jesse — lives large, anyone can see that. How he manages to live so large on the modest earnings of a humble man of the cloth, is a mystery, one that the IRS has proved extremely unwilling to penetrate. "Too big to audit," see? Now here's another guy who's "too big to audit": Congressman Charlie Rangel. Tax-wise, they don't come much bigger than Charlie. He's Chairman of the House Ways and Means Committee, which actually makes our tax laws. While Charlie can dish it out, though, he's not very keen on taking it. Turns out Charlie owns a beach house in the Dominican Republic and has got at least $75,000 in rental income from it. Did he declare that income on his 1040? No he didn't. Not did he declare imputed income of $5,000 for use of Congressional parking privileges — he'd stored a luxury vintage car in the House parking lot for years. Now we're learning about four rent-controlled apartments in Harlem Charlie owns, at least one of which he's used as an office. And there's $60,000 profit from sale of a condo in Florida, and more undisclosed profit from sale of a house in Washington DC. Once again, citizens, this is the guy who controls what tax laws get written in Congress. And he belongs to the political party that thinks we don't pay enough tax. That's how things are in our nation's capital. The presidential candidates are both boasting that they'll "clean up Washington." Guys, it's going to take steam hoses. It might be easier to just plow the whole place under, sow the ground with salt, and start up a new capital somewhere else. Alaska, maybe.

10 — Signoff.     That's how things are today, campers. Things are in a bad way here in the Republic. We might console ourselves by noting that they are even worse over in North Korea, where Dear Leader Kim Jong Il has not been seen in public for several weeks, and it's being whispered that he has suffered an incapacitating stroke. The Dear Leader must be feeling pretty ronery just now, so I suggest Radio Derb listeners send him get well cards. The address is: number 6, Death to the Bloodsucking American Imperialsts and Their Filthy Subhuman Japanese Lackeys Street, Pyongyang, Democratic people's Republic of Korea. Think what a smile you will bring to the Dear Leader's face! Go on, spread a little sunshine …

[Music clip: More Haydn.]