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Re: Philip Klein’s The Fed Panics:

Hey, how bout cutting oil, cigarette, social security, etc., taxes AND gov’t spending in honor of the New Forgotten Man?
Scott Horn
Akron, Ohio

I sympathize with the theme of Philip Klein’s article, but the alternatives might be even worse. Britain just had a run on a mortgage bank called Northern Rock — now usually referred to as Northern Wreck. The Bank of England had an opportunity to provide temporary loans to keep the bank going while it was taken over by a competitor – exactly the same as the Federal Reserve has done with Bear Stearns. Unlike the Federal Reserve the Bank of England baulked at the idea, for the same reasons as Phillip Klein outlines. Northern Rock’s financial position became impossible, depositors were lining up for blocks to withdraw their funds, the British Government provided loan guarantees to persuade them to keep their accounts open and the Government ended up provided far more in loans than the original buyout would have required. The Government dithered appallingly and allowed the mess to drag on for six months until it took the only possible action left and nationalized the bank (after committing around $100 billion in loans and guarantees to keep it afloat). Now the Government owns a bank that is probably ruined for ever and has to try and sell it in a market that is far worse and will probably decline even further.

Unlike the Bank of England and the British government, the Federal Reserve acted with remarkable speed to get a possible financial catastrophe off their hands and into the arms of a firm that could manage it better. Comparing Bear Stearns and Northern Rock makes the Federal Reserve look a lot better than it might otherwise. The Bank of England and the British government look hopelessly incompetent compared to the Federal Reserve. The Bear Stearns business still leaves a lot to be desired, but it could have been far, far worse. If you have to choose two evils, it is always better to choose the lesser one and that is what the Federal Reserve did.
Christopher Holland

Once again, The Bush Administration rushes blindly into the private sector. Ever since “W” ran as a “compassionate conservative,” he and his administration have bent, twisted or mutilated the meaning of conservatism. In the book of Matthew, we are clearly told, “Ye shall know them [trees] by their fruits. Do men gather grapes of thorns, or figs of thistles?” Do true conservatives create the largest government bureaucracies known outside of Communist ruled countries? Do conservatives add multibillion dollar Medicare prescription programs to already existing government handout programs? Do even the most compassionate conservatives seek to interfere in essential family affairs (i.e., Terri Schiavo)? RiNOs yes, but not true conservatives.

Philip Klein is correct that the Fed helped bring on this crisis with its quick fix slash and burn programs. The Fed is not nearly as smart and responsive as the “invisible hand” of the public. The real estate markets were not suffering some imagined “irrational exuberance,” but were deeply under the influence of people keeping their eyes on the short term rates and gains and not the long term realities. While it is highly unlikely that the American tax payer will get stuck with the bill for Bear Stearns, the possibility of being stuck was never existed until the Fed stepped in and offered our money as collateral. Let those who sought to profit be also the very ones who pay for the risks. This government backed buy out, a graceless form of corporate welfare, sets a loathsome precedent and opens the GOP to class warfare attacks, as noted by Mr. Klein.

Many people bet low interest rates would last a lifetime. They were wrong. Bailing them out, while a feel good move in the short term, is destructive and immoral in the long term. If people are unwilling to invest their own capital, then they are best off investing not at all. But if the government removes the risk, it is removing reason and caution. It is allowing the public to play Russian roulette with someone else’s head pressed to the muzzle.

Chairman Ben Bernanke would be well served by hanging a plaque with the words of the brilliant warrior and U.S. General, G.S. Patton, “Take calculated risks. That is quite different from being rash.”
Ira M. Kessel
Rochester, New York

I think Mr. Klein is hyper-ventilating. Is there a practical difference between bankruptcy and selling for $2 per share? If this is a bailout, it is very niggardly as U. S. bailouts go.
Ty Knoy
Ann Arbor, Michigan

I agree that there is a growing tendency in this country not to hold individuals responsible for their actions. However, this state of affairs is primarily the result of the excessive litigiousness of a population teeming with accommodating lawyers, and blame should not be laid on highly competent public officials such as Ben Bernanke, who is just doing his job. Mr. Bernanke’s actions are about as far from panic as you can get: he is simply attempting to stabilize a financial system that is teetering out of control.

If the purchase of Bear Stearns by JPMorgan Chase is completed as planned, the latter will get a bargain, but the shareholders of Bear Stearns, including employees who own thirty percent of the stock, will be out billions of dollars. Describing this event as a bailout is not accurate. It could be argued that the actions of the Federal Reserve Board are preventing a collapse of our financial system that could ultimately cost the public trillions of dollars and cause a depression.

Mr. Klein’s comments are more applicable to Alan Greenspan than to Mr. Bernanke. While it is not the responsibility of the Fed to create regulations that prevent these disasters, it is its duty to make suggestions to Congress when dark clouds are gathering on the horizon. Mr. Greenspan’s cavalier laissez-faire attitude practically ignored the development of the dot-com and housing bubbles and the current credit crunch. To the extent that these outcomes are predictable, the Fed should be raising flags. In the case of any bubble, that could take the form of stern warnings of the consequences to frenzied speculators and ignorant consumers. Clearly, in hindsight, some new regulations concerning mortgage lending practices would have been beneficial. An economic case can be made for the lowering of the federal funds rate to one percent in July, 2003, but I suspect that interest rates were kept too low for too long without much thought of the ensuing market excesses.
Paul Dorell
Evanston, Illinois

I am surprised by how much nominally conservative writers on economics and finance have forgotten their economic history. Perhaps the new generation of economists and free marketers only give lip service to the work of Milton Friedman instead actually reading his work. Those of us who came of age as monetary economists in the 1960s and ’70s religiously studied Professor Friedman’s works. In The Monetary History of the United States Milton and Rose Friedman describe how the Federal Reserve turned a deep recession and correction into the Great Depression by failing to support liquidity in the banking system and precipitating two waves of bank failures.

Today’s financial crisis bares a strong similarity to events in 1929-31. However, Mr. Bernanke seems to have read his history and is taking steps to ensure that the banking system remains liquid even it means bailing out an failing investment bank. He also seems to be trying to avoid the key mistake that led to the second wave of banking failures in 1931-33 that almost brought down the nation. The banking and financial system stabilized by 1931 but then European nations abandoned the Gold Standard. Instead of letting gold float, the Fed attempted to defend the dollar as gold reserves left the country. The result was a second liquidity crisis that resulted in a nationwide banking collapse. Had the Fed provided liquidity instead of defending the dollar there would have been no Great Depression.

The literature on exchange rates makes clear that floating a country’s international value decouples domestic monetary policy from international shocks. It allows the monetary authority to concentrate on either controlling inflation or providing necessary liquidity in a crisis. A weaker dollar will have negative repercussion but they will be far less then if a dollar defense wrecks our financial system.

The purpose of monetary policy is to ensure that the system remains liquid in crisis. The Federal Reserve should be applauded for its wisdom in fulfilling this role today.
Jerrold Goldblatt
Arlington, Virginia

As I read Philip Klein and Paul Krugman’s articles about the Fed’s recent actions viz Bear Stearns and the wider financial markets, I was impressed by how similar their assessments are, to a point. Both appear to agree on the following:

Bear Stearns deserved to be allowed to fail because of its economic practices and to teach Wall Street not to expect governmental bailouts.

Nevertheless, the Fed aggressively intruded into the market to save Bear from bankruptcy.

Consequently, taxpayers could be on the hook for millions of dollars because of the Fed’s actions.

And, J.P. Morgan is the primary beneficiary of this corporate welfare.

Furthermore, the Fed cut a key interest rate and is likely to do so again to shield the market from the consequences of costly mistakes.

What accounts for the Fed’s actions? According to Mr. Klein, “In the aftermath of the Sept. 11 attacks, then Fed Chairman Alan Greenspan was eager to avoid a recession. While at first it may have been prudent to cut interest rates, Greenspan went on one of the most aggressive rate-cutting campaigns in the history of the Fed, and mortgage rates tumbled to historic lows.” Mr. Krugman elaborates on this when he writes, “Between 2002 and 2007, false beliefs in the private sector — the belief that home prices only go up, that financial innovation had made risk go away, that a triple-A rating really meant that an investment was safe — led to an epidemic of bad lending.” TV commentator Larry Kudlow referred to this time as “the greatest story never told.”

Klein and Krugman differ on one important point. Mr. Klein believes the government should have let the chips fall where they may. Of course, he has no way of knowing what the consequences of that inaction would be. Neither did the Fed and they were unwilling to take the risk. Mr. Krugman writes: “Meanwhile, false beliefs in the political arena — the belief of Alan Greenspan and his friends in the Bush administration that the market is always right and regulation always a bad thing — led Washington to ignore the warning signs.” Far too late, in my estimation, Ben Bernanke and Secretary Henry Paulson admitted that with proper government regulations and oversight we could have avoided this crisis.
Mike Roush
North Carolina

Granted, I am not an economist nor do I play one on TV; but I just don’t see this as a bailout of Bear Stearns. After last weekend Bear Stearns is no more. Its stock is worthless and its shareholders have lost everything they invested in the bank. Seven thousand employees of Bear Stearns will be without jobs.

Now, can you please tell me again how this was a bailout? Didn’t the Federal Reserve assist in a buyout by helping JP Morgan Chase buy Bear Stearns at $2.36/share? That’s a bargain basement price for a company whose stock sold for more than $170/per share a couple years ago.

I think Mr. Klein may be pulling his shirt over his head and running in circles at this moment. Our national financial situation is precarious and not great, but we are not going over the falls in a barrel. Please calm down.
Judy Beumler
Louisville, Kentucky

For an observer to understand Fed actions regarding Bear Stearns (BS), one must distinguish between whether BS was experiencing a liquidity crisis or a solvency crisis. A liquidity crisis could have been averted by a temporary extension of credit from the Fed until BS could achieve an orderly liquidation of its assets to satisfy creditor demands. BS must demonstrate that it has sufficient assets (collateral) and it is in basically sound financial condition to be eligible for a temporary injection of liquidity. Obviously these conditions could not be met and creditors determined that BS was technically insolvent if its assets were discounted to current market values. This determination of solvency is not readily apparent to the casual observer, but rather must be arrived at by means of a critical evaluation of the kind and quality of the assets held by BS.

While this situation would normally be a private transaction between BS and its creditors, Fed intervention was apparently necessitated because of the potentially deleterious ramifications of a BS default on its vast liabilities and counterparty obligations throughout our entire financial system. Therefore the Fed arranged what is called a “Purchase and Assumption” transaction whereby financially responsible parties are invited to make a bid on what is left of the BS business franchise. In return the successful bidder must assume all the liabilities and counterparty obligations owed by BS.

It is my understanding the there were five or six potential acquirers of the BS franchise and JP Morgan was the successful bidder at $2 per share which will be paid to BS stockholders in the form of a fractional share of JP Morgan stock. Morgan will now stand behind all the former BS obligations including Fed advances, if any. There should be no loss to the government or taxpayers, however, BS shareholders will take a bath estimated in the billions.

The moral of the story is that Wall Street has created so many exotic financial instruments of dubious quality (otherwise known as financial weapons of mass financial destruction by Warren Buffet), that a large segment of our financial system is now linked together like a daisy chain. A weak link of a major player threatens to reverberate throughout the entire system and the Fed must ride to the rescue.
Jerome Brick
Beaver Dam, Arizona

Philip Klein, on the nationalization of Bear Stearns: “Eventually, something has got to give.”

Oh, but it already has, hasn’t it? It’s the taxpaying public that’s got to give. Our next installment is due April 15.
Paul Kotik
Plantation, Florida

Re: Jeffrey Lord’s Obama and the Bombmaker’s Church:

With “clergymen” like these, who needs terrorists?

Now we know where al Qaeda came from — outsourcing.
Martin Owens
Sacramento, California

Great Scott! This article reads like a Who’s Who. No wonder both Obama and Hillary urge the public to “look to the future.” There’s far too many skeletons in the past. Did I say “Great Scott?” Perhaps “Good, Lord” would be more appropriate.
Stan Welli
Aurora, Illinois

Mr. Lord’s column is very revealing (and disturbing) — so revealing (and disturbing) that the question has to be asked: Why is Mr. Lord still a member of such a hateful, violent and anti-American church?
Robert Martini

Re: Robert VerBruggen’s A Clean Shot:

While the questions and comments made by Justices of the Supreme Court during oral arguments in Washington D.C. vs. Heller are not necessarily conclusive as to how they will vote, the lasting impression that any fair minded — and reasonably alert — observer would draw from today’s pageant, is that under the 2nd Amendment, the right to keep arms is constitutionally protected. That would also be my conclusion, and, after all, in addition to being fair, and reasonably alert, I was also present in the Court.

Part of my premise is based on the good lawyering skills of Alan Gura, a young, and hitherto untried attorney, who was arguing his first case before the Supremes, although he has worked on this case for five years as it worked its way through the lower Federal courts. Peppered with questions, in particular by Justices Stevens, Breyer and Ginsburg, Gura more than held his own, and repeatedly demonstrated that the right of an individual to keep arms, and the right to bear arms in a state militia, were not coupled, something that the judicial triumvirate sought to establish.

But from the opening question by Chief Justice Roberts, and the follow up inquiries by Justices Kennedy and Scalia, and, occasionally, Justice Alito, to the Washington D.C. government’s advocate, former Acting Solicitor General, Walter E. Dellinger, it became evident that the D.C. law that banned, not as Mr. VerBruggen incorrectly states, “virtually banned,” all handguns, would be examined under the “strict scrutiny,” something Dellinger and his bidders knew would not allow the total ban to stand.

Another impressive advocate was the current Solicitor General, Paul Clement, a former law clerk of Justice Scalia, who was in the unenviable position of asking the Justices to rule against the Circuit Court’s decision that the D.C. ban was totally unconstitutional because it was too broad a judgment. Obviously, the Bush team was not reading from the same script on this matter: Vice President Cheney, in a gesture that I’ve never heard of before, filed a separate amicus curiae (friend of the Court) petition saying that the D.C. ban should be struck down… period!

Clearly, there is more to be said on this matter, but in the last analysis I believe that there may be more of a consensus on the 2nd Amendment constitutionally protected right to keep arms than was previously thought possible. As Justice Scalia pointed out, even the right of free speech is limited, by libel laws, for example, and so may be gun possession, such as licensing, but, in my opinion, the overarching question of the inherent right of an individual, under the U.S. Constitution too keep firearms, was affirmed. Allow me one more observation: today was a good day for the conservative cause.
Vincent Chiarello
Reston, Virginia

The language that is both frightening and foreboding is this: “the Second Amendment rights of individuals who are not affiliated with any state regulated militia.”

The words of the issue usually foreshadow the result, or at the very least, the language of the result. The issue as stated can easily limit the decision around “state regulated” militia. Not a good result.

The very meaning of “militia” refers to persons who are not “affiliated” at all. By its definition, a militia comes into being only when it is called to service, with no-one “affiliated” with it until then. They used to call the militia “Minute Men” because in a minute they turned from farmer/laborer/merchant to soldier. They were not in the National Guard or Army Reserve or any other such already-formed unit, as there were no such things — just ordinary citizens, ready to defend and armed to do so.

I can see the result being that Second Amendment rights belong only to persons who are affiliated with a state-regulated militia [even though such a notion was not contemplated by the Framers] and a militia does not exist until a state forms one. No state-regulated militia, no right to keep and bear arms.

If that’s the result, we can toll the bell the Liberty Bell [for this purpose appropriately cracked] for a precious right dead and buried.
A. C. Santore

Re: George Neumayr’s Wrighting Dirty:

George Neumayr is correct to be concerned about Barack Obama’s attendance for 20 years in Jeremiah Wright’s church. But conservatives should all be equally concerned about Hillary Clinton too. Neumayr asks, “And why would Americans want to turn their country over to a candidate who attends a straightforwardly separatist church that views America with suspicion if not contempt?”

It is a valid question but it is also somewhat rhetorical. Conservatives are reacting as if the revelation of Wright’s preachings are new. We’ve all known for some time that many in the Democrat Party leadership and mainstream media and Hollywood believe in and espouse pretty much the same thing as Wright. The only difference is that they layer on more polish than Wright does. Wright seems actually more straightforward and honest in his thoughts and preachings, troubling though they may be.

And, in her own way, Hillary Clinton is just as far out as Wright or Obama or many of the other leaders on the left. So, why get tied up in knots over Obama and Wright? We will get the same whether he wins or she wins.
Steve Cade
Astoria, Oregon

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