MARKET SANITY
Re: Newt Gingrich’s Time for Real Accounting Change:

As much as I have always admired and respected Mr. Gingrich’s views on all things cultural and political, his public hostility toward “mark-to-market” accounting is as confounding as it is misguided. It is certainly the case that the solvency of our nation’s banking system has been deeply compromised, but the sad fact of the matter is that this has not been the result of FAS 157, as Mr. Gingrich would have us believe. It has occurred because of a systemic problem relating to the origination, structuring and pricing of securities, principally (but not exclusively) credit-linked securities that was intellectually flawed from inception. In order for Mr. Gingrich to assert that what we are now seeing is an irrational “breakdown” in credit markets, he must also assert that these securities were correctly priced to begin with. They weren’t.

As a professional participant in credit markets for over 20 years, I can most assuredly state that what we are now seeing with respect to the downward re-pricing of credit instruments, and its attendant negative impact on bank balance sheets, is a return of market sanity — not the other way around. Perhaps one of the most disturbing and dangerous assumptions being disseminated by opponents of “mark-to-market” accounting is that, given time, these massive pools of structured debt instruments will, somehow, return to their original “values” and that, voilà, the banking crisis will be solved. The plain fact of the matter is that it is highly unlikely due to the fact that the underlying cash flows of these securities has not only deteriorated dramatically over the past 12 months, they continue to deteriorate on a month-over-month basis. Those who are actively involved in the buying and selling of these instruments know this and are responding to these deteriorating fundamentals not with panic but rationality.

Just as with any investment, when the fundamentals change, so does the price. So, to suggest that we should just ignore the actual facts, ignore this very real and very measurable value impairment and continue to permit banks to just hold these investments at some fictitious price (or “mark”) will simply not lead to the outcome that Mr. Gingrich desires just because it will make bank balance sheets “look” better. In fact, it will lead to greater uncertainty and mistrust on the part of the marketplace.

No, Mr. Gingrich, in the case of asset carrying values, Pandora’s box has been opened and all of the assertions to the contrary about their “true” values (read: the values the banks, and presumably you would like them marked at) will not change that fact. In addition, contrary to the self-serving assertions of Messrs. Paulson, Bernanke, Kashkari, and Buffett, the American taxpayer will likely NOT receive any kind of return on their investment of these securities. We’ve gotten our first peak at that fact with the roughly $9 billion write-down the Federal Reserve has had to take with respect to the financial backstop provided to JP Morgan for its acquisition of Bear Stearns. Stand-by taxpayers…more write-downs will be forthcoming.

Unhappily, the dirty little secret that people will just have to accept (and in time they will) is that these securities were structurally flawed when they were first conjured together in the basement of the Wall St. Sausage factory. They were then shamefully mis-rated by the rating agencies. Finally, they were served up to a marketplace whose desire for a few more basis points of “return” clouded their better judgment. And the outcome was made that much worse because all of it was bought with obviously imprudent amounts of leverage. In this whole tawdry mess, every principle of sound banking and finance was “thrown out of the window.” By permitting our financial institutions to “price” their assets as they would prefer will not change that fact. Indeed, it would be like letting the fox guard the hen house.
— Thomas J. Donatelli

GORACLE VS. REALITY
Re: Paul Chesser’s Truth, Economics, and Politics:

If Al Gore is convinced that human-caused global warming is a threat to the planet, why does he still consume more electricity in one month than I do in a full year?
— David Shoup

Whatever in the world has happened to the principles of science?

Consider this: …the planet has increased in temperature by one degree in the past 100 years [or two degrees, or three degrees — whatever arbitrary number they’re using nowadays].

Have we not acquired more accurate temperature-measuring devices in 100 years? Is it not possible that our measurements are just more accurate now? By one or two degrees?

Are we not measuring and reporting temperatures around the world at many more locations than we did 100 years ago? Would that not tend to improve the accuracy of the “average” temperature? By one or two degrees?

Who measured temperatures 100 years ago? With what instruments? Who averaged the temperatures 100 years ago? From what scientific data? Where can we find that data?

Who measured it last year? With what instruments? Who averaged the temperatures last year? From what scientific data?

And whatever has happened to the margin of error? A margin of error of less than 1 percent? If the media took a poll of 897 not-so-randomly-selected persons on which candidate 302,561,550.5 Americans believe will be our next President, a margin of error of 1 percent would be considered a dream come true.

I continue to hope the principles of science still hold that a measurement is accurate only to the second-last digit.

Nah. The principles of science in this case are inconvenient, so they’ve been masticated and evacuated by agenda-driven mind-controllers. Just a non-scientific guess on my part. Much like the “one degree in the past 100 years.” (This letter was slightly revised from one I sent to TAS a year ago, so things around here haven’t changed as much as the average world temperature has over a hundred years.)
— A. C. Santore

Global warming is the biggest hoax since “The War of The Worlds” radio broadcast convinced a significant portion of America that we were being invaded from outer space. One only needs to do exactly what the US Attorney in Illinois is doing with the governor: follow the money.

If we follow the money we find two truths. Number one is that Al Gore got richer and even more famous as the mincing, carping spokesman for the end of the world scare tactics. Number two, his little film, though thoroughly discredited by the scientific community, garnered him wealth and fame and the scare tactics it embraced enabled the democrats to raise hitherto unknown sums of money for their progress on the road to totalitarian socialism.

Now as the world actually seems to be cooling, we see what we have wrought. A collapsed economy; a way of life under attack from the resurgent radicals who now control every aspect of our life and will soon shut down the only counter-programming there is: conservative radio shows; and the conquest of our medical system to make it into another failed government program that will be more expensive and work not at all.

No wonder we’re all so happy.
— Jay Molyneaux
North Carolina

MINUTEMEN SPINNING IN THEIR GRAVES
Re: George H. Wittman’s Defense According to Robert Gates:

The Democrats are true to their word and Gates is being like a lamb being led to slaughter. They want this country to scrap the Constitution and become a world leader in socialism. Really I should say a “representative” fascist form of government.

How sad that we forget how unprepared our military was in the 1920s and 1930s. How sad that they forgot how terrorism has caused harm to this country since the 70s.

They will reduce our military to below third world countries while bowing to the terrorist. We will have more terrorist strikes and will be a lot worse than 9/11. The incoming administration will have a lot more innocent blood on their hands than Bush does.
— Tom

“Gates bases his military intelligence forecast on the thesis that the U.S. would not have to fight “on short notice” another major conventional war in the near or predictable future.” The mindset behind this kind of statement got our hat handed to us on 12/7/1941, which was two years after the Germans invaded Poland and almost 6 years after Japan started its military expansionist moves in East Asia. We spent a couple more years after that just trying to catch up to the German ground capability on the extremes of the ETO and matching the Japanese naval power in the Pacific. We lost a lot of unnecessary lives because of our blindness to the threats that were right in front of us and spent years making themselves felt. We weren’t prepared for WWII, Korea or even Vietnam which we had to draft a military force for.  

What gets overlooked consistently in this equation is that our total defense spending as a percentage of the Federal budget and GDP is hardly more than those peace time budgets mentioned above where we got caught with our pants down around our ankles. Clinton’s last budget year wouldn’t even maintain what we had in inventory then. We threw away three quarters of a million trained military and defense workers and forces in order to create the illusion of a balanced budget and spend the Peace Dividend on more pressing matters. We have paid dearly and are paying for that short sightedness every day in a world where there are only two kinds of power, perceived and actual. Our actual power is less than our perceived in the eyes of those that it matters with. Political power absent the actual military power to back it up is worthless. Ask Neville Chamberlain and Thomas Jefferson, “the dove,” about that. Jefferson found out the hard way that cold hard force via the Navy and Marines was required to make his words have meaning with the Pirates of his time. Chamberlain never leaned anything from his one trick pony.

The bulk of the voting public does not grasp that the overwhelming majority of our weapon systems and conventional forces in general are based on 1970’s technology. If we started today to recapitalize our existing defense forces it would take over a decade to accomplish.

Add to all this that our existing conventional forces are too small to accomplish exactly what Gates seems to think can be accomplished by other means. Special Forces alone couldn’t hold the line in Southeast Asia back in the mid 60s and to the “best and brightest” back then that was the answer to large conventional forces then. Either way we end up spending the money. The difference is usually the amount of blood we shed proving the miracle cure isn’t worth the paper it was written on.

We’ve paid a pretty dear price in the past for trying to fit our illusions of security to our wishful thinking policies. No one has ever had a crystal ball on future conflicts and anything less than a full tool box of capabilities invites the same kinds of disasters we’ve seen in the past. Symbolism over substance is not a defense policy.  Far too many people high up in the federal government and Pentagon think they are smarter than all those that have come before.  If Gates doesn’t understand we don’t have the forces for what he thinks will not happen in the near term then he certainly isn’t going to have the forces for what happens that he doesn’t plan for. Kind of works that way in the real world when your adversary doesn’t buy into your wishful thinking. 
— Thom Bateman
Newport News, Virginia

BEST NOT TO PROBE LIBERAL DREAM-PASSIONS
Re: Brian Wesbury’s Rules Have Consequences:

“Rules! What rules? There are no rules in a knife fight.”

Or in a liberal dream-passion, it appears.
— A. C. Santore

PROPS FOR JEFFREY LORD
Re: Jeffrey Lord’s Reagan’s Crocodile Eats a Riverboat:

Here’s a writer who gets it! Here’s a person who sees what is, not what one dreams!

Is this “truth to power?” Or is that passe?

Chairman Mao comes forward with his work plan for us peasants! Hot damn Obama!

You da man!
— R. Philips
New Mexico

TWO-STATE SOLUTION FOR ILLINOIS
Re: Kenneth Miller’s letter (under “Hatin’ on the Illini”) in Reader Mail’s For the Thrill of It:

Kenneth Miller writes of the Blagojevich episode: “What I really finding disgusting, though, are the majority of Illinois voters who keep putting the Daley Capone gang back in office decade after decade.”

Blagojevich is just another in a long list of prairie state politicians caught picking the lock. There is little doubt that there are far more who manage to cover their footsteps a bit better than the current hapless Governor.  Illinois politics is rife with corruption and few but the gullible in the state deny it.  Some despair over it. Others embrace it.

I would take exception to Mr. Miller’s sweeping indictment, however. There are two places in Illinois: Chicago and “down state” (everything else).  At least since the time of Lincoln, the southern part of Illinois has resented and felt put upon by the Windy City. Chicago is the big black hole for tax dollars—dollars it could use and dollars the rest of the state could do without. In this state of affairs, Chicago thinks the rest of the state should be grateful because…well…Hell!! it’s Chicago. Think of all the chewing gum and beef jerky we get to sell (taxed, of course) when all those people to stop for gas on their way to the Second City. Recently, there had been some rumblings about moving the state’s capital from Springfield to Chicago—I suppose to save the Chicago pols the drive.

There is a sort of joke and thinly disguised yearning among those in the southern part of Illinois that Chicago would be declared a state all to itself –leaving the rest of Illinois free to manage its own business.  That’s probably nothing more than a pipedream. One thing’s for sure: As television moves closer and closer toward High Definition, like a lot of Hollywood actors and actresses, Chicago politics will get less handsome and less pretty.
— Mike Dooley

NO SUCH THING AS A FREE BANQUET
Re: Philip Klein’s Daschle’s Long March:

One of the Top Ten Rules of Life is: when you host a free banquet, you must limit who gets to dine. If America intends on providing “free” health care to all, don’t you think we should close our borders to illegal immigrants first? The same people who demand free health care will also claim that illegals have the same rights to the freebies as American citizens and legal immigrants. They will sue to make it so.

Hold on to your wallets, Americans! Land of the free? Atlas shrugged.
— David Shoup
Dublin, Georgia