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The Beginning of White America

However despised it may be, the truth is never out of date and delusion can never supersede it.

By Ian Jobling • 1/19/09

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Can a country go into default on its debt? Can the US?

Can a country go into default on its debt? Can the US?

Investors are increasingly betting that the answer is ‘yes’.

I’ve mentioned the possibility that the US government will default on its debt many times. Countries like China and Japan have trillions of dollars worth of long-term Treasuries in their portfolios, and that number has been growing exponentially for years, and is currently at over $3 trillion.

It’s thus been clear that these long-term Treasuries would not be redeemed in the normal course of events, and that some kind of major international crisis, including a possible US default, would have to occur to resolve these debts. For that reason, for years I’ve recommended to web site readers to stay away from long-term Treasuries, but to maintain assets either in cash or in short-term (6-12 month) Treasuries, which can be obtained online with no fee from http://treasurydirect.gov .

I’ve received numerous e-mail criticisms for these recommendations, usually in the form of “You don’t know what you’re talking about. The Treasury can ‘print’ as much money as it wants to pay off debt, so the US Government cannot default, and will never default.”

I’ve always regarded such comments to be in the same airhead category as “There’s no such thing as a real estate bubble,” or “It’s impossible to have deflation since the government can prevent it just by ‘printing’ money” or “We can never have a new Great Depression.”

As I’ve been saying on this web site for six years that we’re headed for a new Great Depression, simply by applying to the Law of Mean Reversion to the ‘real value’ of the stock market. This is not rocket science, and every prediction I’ve made based on this observation has turned out to be true, or is trending true. There is no web site in the world with anything approaching the predictive success of this web site.

So now, the same people who believed that a real estate bubble was impossible, or that a new Great Depression is impossible, are telling us that the US Government can never default, because it can ‘print’ all the money it wants.

If the people who say this were capable of actual thought, then they would soon realize that if what they claim were true, then it would mean that the US Government would have an unlimited credit card with no need ever to pay off the debt. People who believe that are the same people who believed that no subprime mortgages would ever default. It’s the same kind of airhead thinking by Boomers and Gen-Xers who apparently never have been capable of any kind of thinking EXCEPT airhead thinking.

And if their claim were true, then why wouldn’t we just do it? Why don’t we just ‘print’ $3 trillion, and pay off all those long-term Treasuries, if only to shut people like me up?

When I put it that way, anyone can see how absurd those claims are. Today Washington is debating about a Christmas tree $800 billion fiscal stimulus bill. No one is even discussing using $100 billion of that to pay off Treasuries. Just the opposite — everyone realizes that the Treasury debt can only go up, continue its exponential climb to $4 trillion or $5 trillion. There’s never a “good time” to pay off debt, unless you’re forced to. (See “One, Two, Three … Infinity.”)

Stein’s Law: If something cannot go on forever, then it won’t.

So the question is not, “Can the US Government default?” The answer to that question is, “Of course it can.” The actual question is, “How long can America’s debt grow exponentially before it defaults?” And more importantly, “Are we now close to the point of default?” And, “What exactly does default of the US Government mean to the US and the world?”

Iceland and beyond

I’ve heard analysts, including economics “experts,” in the last couple of weeks say something like, “Who knew any of this could happen? Who knew that Iceland would have to be bailed out? Everyone was surprised.”

Well, I’m not a psychic, and I’m not a Rhodes scholar, but I can read the news. In February, 2006, there was a spate of news articles about the sudden collapse of Iceland króna, and I wrote an article about it, and that the government bond ratings for Iceland were revised from “stable” to “negative.”

So none of this surprised me at all. It was obvious to me, reading the news in February, 2006, that Iceland was on a trend to national default, and that the factors causing that trend would not change.

So, in March of last year, when Iceland’s banks were in trouble, and “experts” were saying, “Omigod! Who knew?”, I wrote “Country of Iceland may be close to financial default” as the next step in that trend.

The point I’m making here is that you have “experts” like Krugman or at the Wall Street Journal or on CNBC, and they keep getting caught by surprise because they don’t read the news about their own areas of expertise. Or else, they read the news, and they reject the news as just more crap written by Boomers.

Now, other European countries are traveling down the same road. On January 9, Standard & Poor’s lowered the outlook on Ireland’s bonds from “stable” to “negative,” the same rating change that occurred to Iceland in 2006. At the same time, the ratings of Spain, Portugal and Greece were lowered even further.

Defaults of several European countries is now considered a real possibility by analysts. I heard one TV pundit say, “The difference between Ireland and Iceland is one letter and six months.”

Credit default swaps on government bonds

Since last March, investors have become increasingly aware that a country’s bonds can default, and they’ve been increasingly “betting” on defaults.

The way that an investor “bets” on the default of a country’s or company’s bonds is to purchase a credit default swap (CDS) on those bonds. The CDS is a kind of insurance policy. Just as you can buy an insurance policy that will pay you when your house burns down, you can buy an insurance policy (a CDS) that will pay you when someone’s bonds default. There are companies (such as MBIA, Ambac, FGIC, ACA) that have been in the business for many years to sell these insurance policies, and these companies all faced financial disaster last year.

Anyway, you can still buy CDSs on pretty much any publicly available bond, including any country’s government bonds. According to an article by Bespoke Investment Group:

“As shown, Argentina and Venezuela have the highest default risk, followed by Iceland, Kazakhstan, Russia, and Egypt. While the UK and US have relatively low default risk compared to most other countries, their CDS prices are getting worrisomely high. At the start of 2008, it cost about $8 to insure $10,000 of UK and US debt. It now costs $135 to insure UK debt and $75 to insure US debt. Japan has the lowest default risk of all of the countries highlighted, followed by Germany and France.”

The following tables show the CDS prices for sovereign debt (country debt) for various countries. The the CDS prices represent the cost per year to insure $10,000 worth of sovereign debt for five years. These CDS prices are set in the open market, and so the represent the opinions of investors about the probability of default of these countries.

CDS prices for country debt for various countries, as of January 23, 2009 (Source: Bespoke Investment Group / Seeking Alpha)

The above charts show various interesting things:

• The leftmost “current” column shows the current CDS prices for various countries — the price to insure $10,000 in debt. The higher the price, the more that in “Normal” prices used to be less than $10 for the developed countries, but now the lowest is Japan – $45.
• According to investors, Argentina and Venezuela have extremely high chances of default — it costs around $3,000 to insure $10,000 of debt. Iceland is next, at just under $1000.
• The USA is still considered to be among the safest countries, with CDS prices at $75 per $10,000 worth of debt. However, if you look at the next three columns, you see a dramatic change: The cost was $67 just three weeks earlier (the end of 2008), and at the start of 2008 was just $8!
• If you look at the chart on the right, you see an extremely dramatic trend. This chart shows the trend — the changes in price of CDSs for different countries. The top countries are Ireland, Belgium, Spain, Portugal, Slovakia, Germany, UK, and France, with Greece close behind. What we’re seeing is the CDSs prices on almost all the European countries increasing rapidly, indicating that investors believe that one or mor major European defaults are near.

This has caused much alarm among some analysts:

“A sharp rise in sovereign spreads suggests [that default] could be an alarming possibility.On January 9, Standard & Poor’s announced that Greece, Spain and Ireland were on review for a possible downgrade, indicating that a Eurozone country could default. If financial crises have taught us one thing, it is to take such “black swan possibilities” (as Nicholas Nassim Taleb would describe it) seriously. A sovereign default by a small country could wreak havoc on the markets for credit default swaps (CDS) and might even destroy financial institutions in other Eurozone countries. It could trigger panic rise in bond yields and the threat of contagion could turn into a self-fulfilling prophecy. A far more serious threat would be a cascading series of defaults that would eventually include one or more of the Eurozone’s large countries. The 10th birthday of Eurozone seems to be holding out ominous portents.”

These widespread concerns have forced Jean-Claude Trichet, the President of the European Central Bank (ECB), to defend the euro on several occasions.

“I do not see the euro at stake, certainly not the solidity of the euro area. What is at stake is the judgement of the market at the moment on the sustainability of fiscal polices.”

One can only say that this is a boilerplate response that Trichet would give in any circumstance, and that one cannot assume that it provides you with any information whatsoever.

What is clear, though, is that trend is clearly in the direction of default. Economic trends have been just as dismal throughout Europe as they have been in America in recent months, and there’s no reason to believe that they’ll improve in the foreseeable future.

The strengthening US dollar

When any organization goes into debt, and can no longer borrow by ordinary means, it can hope that someone will bail it out; if not, the organization goes bankrupt. Bankruptcy means making some sort of agreement with its creditors; for example, they might agree that the bankrupt organization will pay 50 cents on every dollar it owes.

When a country goes bankrupt, it has pretty much the same choices. Iceland was able to arrange a bailout from the IMF last year, but if several European countries default, then IMF bailouts may not be an option.

A country does have one more option: It can ‘print’ new money, and pay off the debts with the new money. For most countries, this has the same effect as defaulting in the sense that the country now owes the same debts in an inflated currency, so its effective debt is a fraction of what it previously owed.

Among world currencies, the US dollar is unique for two reasons:

• The dollar is the world’s reserve currency, and many, many trillions of dollars are held by people, businesses and governments around the world. This effectively means that it’s politically impossible to inflate the currency to reduce the debt.
• There are hundreds of trillions of dollars in credit derivatives contracts and other structured finance securities (including mortgage-backed securities) in portfolios around the world. The values of the assets continue to be written down, reducing the amount of money (dollars) in the world.

What these factors indicate is that the US dollar is, in a sense, disconnected from the US government. The amount of dollars in the world can be influenced but not controlled by monetary and fiscal actions taken by the US government. In a sense, it can be said that the US dollar has become an international currency with a life of its own.

What does a US government default mean?

For several years it’s been apparent that the US government would eventually default on its long-term Treasury debt, and for that reason I’ve recommended that readers stay away from long-term Treasuries. However, I’ve never been able to form a strong opinion on what this would mean to the country and the world, and of any such opinion would be speculation anyway.

My view was influenced very strong in October, 2007, when I posted the article “The bubble that broke the world,” describing a book by that name written by Garet Garrett in 1931-32.

Garrett’s book is still the best I’ve seen for understanding today’s mood, since it captures the mood at the beginning of the Great Depression, before other writers provided descriptions of that mood distorted by later wars and ideologies. If you haven’t read “The bubble that broke the world,” now would be a good time to do it.

As I explain in the article I wrote describing the book, I expect the international community to try to find a way to “bail out” the US, just as the international community tried to bail out Germany in 1932. This is all speculative, of course, but what might be the nature of this bailout?

The Generational Dynamics forum has some of the smartest people on the internet as contributors, and one contributor has posted an analysis that references some recent statements by Russian Prime Minister Vladimar Putin blaming the international financial crisis on the United States.

Putin’s statements have been supported by a proposal by German Gref, a former Economics Minister who is now CEO of Russia’s largest bank, state-owned Sberbank. The proposal was that, in the absence of any serious competitors to the dollar, he advocated international control of U.S. monetary policy.

This proposal is being taken as a joke, and indeed it’s a move of desperation by the Russians, who are collapsing economically as the price of oil fell from $147 per barrel to $40 per barrel. In fact, if you look at the CDS charts near the beginning of this article, you’ll see that Russia is near the top of countries viewed as likely to default. Putin and Gref are just doing what all politicians do — finding someone else to blame for their problems.

But the proposal shows the way to a possible scenario. As the US government debt increases exponentially, the Russian proposal may gather steam, and it might turn into “Give the international community control of the dollar, and we’ll forgive you all your debts.” If the situation becomes sufficiently desperate, this may become a viable scenario.

The above is just speculation, so let’s return to what we know for sure. From the point of view of Generational Dynamics, the trends are clear and unstoppable. There will be an increasing financial crisis that will be worse than the Great Depression. This financial disaster will destabilize poor populations around the world, leading to the Clash of Civilizations world war. Beyond that, the exact scenario cannot be predicted.

(Comments: For reader comments, questions and discussion, as well as more frequent updates on this subject, see the Financial Topics thread of the Generational Dynamics forum. Read the entire thread for discussions on how to protect your money.) (1-Feb-2009)

Something Under the Business Model is Drooling

by Dymphna

Pajamas Media, the Left Coast “balanced” blog conglomerate, has slammed the door on all its associate bloggers. Roger Simon is the CEO and his charmless pink slip reads much like the nastygram we got back when they banned us for daring to be politically incorrect. Of course, since we were being banned rather than merely made redundant, we got a phone call, too, informing us of our sins.

This time, PJM is not just booting the bad little bloggers who color outside the lines, like Gates of Vienna. Now, as of April 1st, it’s shutting the doors on all those bloggers who signed on and stayed on with them through the past few years. One would think that they’d have enough courtesy to at least personalize their form letter a bit. But no, everyone got the identical heave-ho.

In case you weren’t around then, or have forgotten, our sin was in posting an essay which described possible scenarios if Europe continued in its downward spiral of lawlessness and demographic decline. We were careful to bracket the discussion as descriptive, not normative. Truth to tell, I don’t think the folks in charge out in Hollywood understand the difference between these two categories.

At the point we were canned, I realized we weren’t dealing with conservatives at all. Instead, this entity, PJM, consisted of some venture capitalists and a front man, all of them 9/11 converts – as in “Help! We gotta do something!” But their conservatism was barely skin-deep. They’ve been in Hollywood too long to even notice or care beyond whatever numbers they need to generate in order to consider themselves successful. Out there, appearance trumps everything.

Atlas Shrugs has a good description of what went wrong. She also suggests, in her inimitable way, that she could have done it better with one hand tied behind her back. I think she might be right.

Now, having one failed business plan under its fedora, PJM is turning its talents this time in the direction of a hybrid, something called PJ-TV…
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Our satellite hookup does not easily allow us to watch streaming video, so I haven’t experienced their new paradigm firsthand. But from what I’ve read – and that’s not much – their new model is a paid subscription to watch talking heads bloviate. Good heavens! Isn’t that what they do on television already, for free? Are there really enough people willing to fork over money to watch people they don’t know say predictable things on a computer screen? And just how are people who sneak their blog reading at work going to get away with having streaming video up and running during work time?

TV is easy to make fun of, but at least their front men are pretty enough and while what they say is mostly nonsense, they say it with a bit of verve.

In other words, I can’t imagine this new model succeeding. Have any of you ever had the experience of showing up to hear a beloved author talk at a book signing only to find that he or she is a bit lusterless in person? I am afraid that is the future of PJ-TV. People will wander away.

Tiger Hawk suggests some good reasons for the failure of the blogger side of PJM at this juncture. Among other points, he says:

There are probably a number of reasons, but the main one — the decline of conventional internet advertising — overwhelms the otherwise reasonable premise behind Pajamas Media.

Conventional internet advertising is generally down. Mainstream media sites have seen a huge surge in traffic in the last few years, but a decline in online revenue. Suffice it to say that this is very bad news for the big news organizations, which were hoping that online business would grow quickly enough to sustain their newsgathering operations. It is also bad news for people who want to sell ads on blogs, because it means that they are competing with a very hungry mainstream media

I’m glad we don’t have to sell ads to meet the expenses of running the blog. We never set out to try to make a living as bloggers; that would make it work and the Baron already has a job that supports us both. Yeah, I’d like to see him get paid for this, but then again, I’d love to be well enough to go to work myself. However, as we’ve all learned the hard way, man proposes…

When we first started, the expenses were few. But as we’ve grown, we’ve had to add a site to store images and an internet satellite connection, in addition to keeping our dial-up ISP for emergency use. Satellite connections don’t like bad weather.

Eventually, as Blogger becomes more restrictive and/or whimsical, we’ll have to migrate to another site. That gargantuan task will definitely be put off until it reaches the “HAVE TO” stage.

I feel sorry for all the about-to-be former PJM bloggers who have been shown the door. But at least they have two months’ notice to make other arrangements. That’s more than we outlaws got, though, as I said, being thrown into the outer darkness was indeed a liberation. Our readers was instantly generous in making up the short fall and then some. Notice we haven’t had to do a bleg since that first one. And still ad free!

Most of the bloggers who’ve been made redundant will also find this to be true. I wish them good luck in their transition back to the regular ol’ blogosphere.

Yes, it is indeed frowned upon to create your own versions of Calvin and Hobbes. Putting Calvin in Roger’s fedora and changing the title probably doesn’t make it, huh?

Sorry, Mr. Watterson. We simply couldn’t resist. Calvin is Everyman at one point or another (which is why your books continue to sell after all these years). In this episode and at this juncture, Calvin most resembles the hapless Roger Simon.

For our European readers not familiar with Calvin and Hobbes, please see Something Under the Bed is Drooling. Two generations of American children have learned to read on their own by perusing the pages of Bill Watterson’s comic strips.

The Coming Crackdown

by Baron Bodissey

As most of you already know, Geert Wilders is about to be prosecuted for incitement due to his “hate speech” as expressed in Fitna and various statements concerning the Islamization of the Netherlands.

Mr. Wilders is far from the first Westerner to be slapped down for daring to speak out against Islam. The list of people investigated — or intimidated, or hauled out of bed by the police, or tried, convicted, and fined (and in the case of Susanne Winter, sentenced to jail time) — has grown so long that I can’t easily recapitulate it here.

So far the countries that have cracked down on racist Islamophobic speech include:

• Australia
• Austria
• Belgium
• Canada
• Finland
• France
• Sweden
• The United Kingdom

And these are the ones who have merely targeted speech. If you include assault on the freedom of assembly, Germany and other countries would have to be added to the list.

And these are among the exemplars of the “Free World”, countries in which human rights are paramount, and the right to free speech is written into their constitutions.

How could this happen? What is causing an iron curtain of repression to descend across the Western world?

A large part of the explanation lies in the soft totalitarianism of the European Union, but that can’t account for it all of it, since Canada and Australia are included in this roster of infamy.

The ultimate source of all this mischief is the UN, or to be more precise, the Organization of the Islamic Conference (OIC) working through its compliant mouthpiece, the United Nations.

And, now that Barack Hussein Obama has ascended the throne of The Country Formerly Known as the United States of America, the USA will rush to join its enlightened brethren in Europe and crack down on Islamophobia.

As I pointed out a couple of years ago, the move to act at the federal level against the criticism of Islam has already made an appearance in the United States Congress. Back in 2005 Rep. John Conyers introduced H.Res. 288, in which the House of Representatives:

1.		condemns bigotry, acts of violence, and intolerance against any religious group, including our friends, neighbors, and citizens of the Islamic faith;
2.		declares that the civil rights and civil liberties of all individuals, including those of the Islamic faith, should be protected;
3.		recognizes that the Quran, the holy book of Islam, as any other holy book of any religion, should be treated with dignity and respect; and
4.		calls upon local, State, and Federal authorities to work to prevent bias-motivated crimes and acts against all individuals, including those of the Islamic faith.

This special protection for Islam was proposed back when the Democrats were still in the minority in the House, and when there was a Republican president. Now all impediments to such meddling have been removed, and the Supreme Court has already displayed an alarming indifference to the First Amendment.

Hang onto your hats: we’re in for a wild ride.
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The playbook for all this is being written by the OIC using the United Nations Commission on Human Rights as its executive body. It’s no coincidence that Conyers’ proposal and similar initiatives strongly resemble the work of the UNCHR.

Last fall the General Assembly passed Resolution 62/154 (UNGA 62/154 [pdf], also accessible here via an embedded pdf viewer), the latest in a series of resolutions for “combating defamation of religions”. Like Conyers’ proposed resolution, the UN version singles out Islam for special consideration, and in fact mentions no other specific religion.

I’ve extracted the text of UNGA 62/154 and posted it in plain HTML here. I recommend that you drink a strong cup of coffee and stay awake long enough to read your way through all its provisions. This resolution is part of the preparation for the Durban II conference coming up this spring. If your country considers itself bound by UN declarations, then this is an outline of your future.

Let’s just go over some of the highlights of UNGA 62/154. The General Assembly “takes note, stresses, emphasizes, urges, underscores, deplores, strongly deplores, expresses its deep concern, notes with deep concern, and again expresses its deep concern” about certain trends and conditions, both good and bad, that prevail in the world today.

The UNGA wants to promote, among other things:

• Respect for cultural, ethnic, religious and linguistic diversity
• Greater harmony and tolerance in all societies
• Universal respect for and observance of all human rights
• Promote mutual respect and understanding among different cultures and societies
• Deepen dialogue and reinforce understanding among different cultures, religions, beliefs and civilizations

Nothing to argue with there so far, right? No one could be against any these things.

In contrast, the activities that are to be deplored and overcome include:
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• Discrimination on the grounds of religion or belief [which] constitutes a violation of human rights
• Negative stereotyping of religions
• The defamation of religions and incitement to religious hatred
• Manifestations of cultural prejudice, intolerance and xenophobia towards people belonging to different cultures, religions and beliefs
• [the fact that] Islam is frequently and wrongly associated with human rights violations and terrorism
• The ethnic and religious profiling of Muslim minorities

Now we get down to the nitty-gritty. There are many problematic aspects to what’s listed above, including the fact that some religions (ahem) include in their inerrant and inviolate holy scriptures specific “negative stereotyping” of other religions. Will the UNCHR appoint a task force to revise the scriptures of the offending faiths? Will Islam be among those censured?

Don’t hold your breath.

But worst of all is the assertion that “Islam is frequently and wrongly associated with human rights violations and terrorism”. When was it determined that such an association is “wrongly” asserted? Who determined it? Did all the member states agree to that determination?

We are compelled to accept this as an a priori argument, like Euclid’s Fifth Postulate, so that certain other important conclusions can be derived from it — namely, that any “religious profiling” on the basis of the Islamic faith is therefore wrong.

The General Assembly outlines a series of policies and actions that member states are obliged to undertake in order to rectify the grievous deficiencies outlined above. Signatories are admonished to:

• [eliminate] national policies and laws that stigmatize groups of people belonging to certain religions and faiths under a variety of pretexts relating to security and illegal immigration
• [counter the] negative projection of Islam in the media and the introduction and enforcement of laws that specifically discriminate against and target Muslims, particularly Muslim minorities following the events of 11 September 2001
• Effectively combat defamation of all religions and incitement to religious hatred, against Islam and Muslims in particular

Needless to say, accomplishing these tasks would require Soviet levels of government control. Member countries would be obligated to enforce on their media the requirement that Muslims be depicted in a certain way. All speech would have to be monitored to determine whether it was defamatory.

And what mechanisms would be set up to accomplish these tasks? Once again, they would be Soviet in their structure and scope:

• To take all possible measures to promote tolerance and respect for all religions and beliefs
• Important role of education
• The use of the print, audio-visual and electronic media, including the Internet, and any other means to incite acts of violence, xenophobia or related intolerance and discrimination against Islam
• To complement legal systems with intellectual and moral strategies to combat religious hatred and intolerance
• Take action to prohibit the advocacy of national, racial or religious hatred that constitutes incitement to discrimination, hostility or violence
• States, regional organizations, non-governmental organizations, religious bodies and the media have an important role to play in promoting tolerance, respect for and freedom of religion and belief

That’s a breathtaking list of organizations and political structures that would be required to enforce the edicts of the UN. And notice that it includes the nastiest Trojan horse of them all: “non-governmental organizations”. The NGOs are pernicious, well-funded, and act as boots-on-the-ground for the worst policies of the United Nations. The UN has very little accountability or transparency, but the NGOs have none.

Member states will be required to spend their taxpayers’ money on:

• Any necessary and appropriate education or training is provided
• Education and awareness-raising
• Urg[ing] States, non-governmental organizations, religious bodies and the print and electronic media to support and participate in such a dialogue

And the most telling provision of all:

• Everyone has the right to hold opinions without interference and the right to freedom of expression, and that the exercise of these rights carries with it special duties and responsibilities and may therefore be subject to limitations as are provided for by law and are necessary for respect of the rights or reputations of others

Notice the blatant contradiction: you have the “right to hold opinions without interference”, but they “may therefore be subject to limitations”. Well, which will it be? Which clause do you think is more significant to the mandarins of Turtle Bay?

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“This is all very well, Baron,” you say, “but what’s it got to do with the United States of America? After all, we have the First Amendment to protect us from this sort of pernicious nonsense.”

You’re right, we do have the First Amendment. And that’s how the nose of this particular camel will get under the American tent.

Let’s put aside the fact that recent Supreme Court decisions have been alarmingly flexible in their interpretation of the free speech clause of the First Amendment. Instead, let’s look at the implications of the freedom of religion clause:

1.		The First Amendment guarantees a right to the free exercise of religion.
2.		The UN, the OIC, and John Conyers are asserting, in effect, that Muslims are not free to exercise their religion while Islam is being defamed.
3.		Islam is defamed when it is criticized by non-Muslims.
4.		Therefore, a Muslim cannot exercise his fundamental freedom of religion unless criticism of Islam is suppressed.

This series of logical steps, or something similar, is the ticket to American Sharia. Watch for the freedom of religion clause to trump the freedom of speech clause.

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Pretty far-fetched, you say? Perhaps.

But two years ago the residency of Barack Hussein Obama in the White House was pretty far-fetched. The ascendancy of the ultra-leftist Democrats in Congress was pretty far-fetched. The nationalization of Wall Street, the banks, and the auto industry was pretty far-fetched.

Sometimes the far-fetched chickens come home to roost.

There is no political impediment now standing in the way of whatever far-fetched schemes Congress and the President decide to enact. It will be several years before significant inflation and the degradation of the currency set in to seriously reduce their scope of action.

In the meantime, there is every sign that “hate speech”, like carbon dioxide emissions and health care, will be a primary target of government meddling during the coming months. “Defamation of religion” is just a part of the bigger package.

Martyrs, Hand Grenades, and Austrian Religious Education

by Baron Bodissey

Last week we posted about the active failure of Turks in Germany to assimilate to their host culture. On Friday our Austrian correspondent ESW reported on an alarming opinion survey of teachers of Islam in Austrian public schools. It turns out that those charged with the religious education of Muslim children have a disquietingly high incidence of radical thinking.

The blowback from the teacher survey continues to ripple through Austria’s public discussion. A prominent figure in the current controversy is Anas Schakfeh, the head of Austria’s Islamic Faith Community.

ESW has translated some more German-language material on the topic, beginning with this op-ed by Michael Fleischhacker from Die Presse:

Schakfeh is acting like the FPÖ

From Mouhanad Khorchide’s study emerges that every fifth Islamic teacher in Austria one way or another has a problem with democracy, and that is alarming. Alarming not only for itself, but also for the Islamic Faith Community which is responsible for the hiring of these teachers. But most disconcerting of all is the reaction of the president of this faith community, Anas Schakfeh.

It is precisely this mixture of false or simulated awareness of the problem, a culture of blame, and a mentality of brushing off those problems, that has been shaping the relationship between the official Austria and the official Islam for years, while out there in real life many problems are continuously accumulating:

• Schakfeh admits, using a slight euphemism, that the results of the study are “definitely not pleasant”. But “similarly unpleasant” is the “scandal-mongering way some media are reacting to the study”, which “the majority of the public” knows about “only in small detail”. What does that mean? The data presented is clear, and it is alarming. Whoever denounces the news coverage as “scandal-mongering” argues that media are constructing a non-existent scandal. This allegation is absurd.
• Anas Schakfeh is also concerned about “the negative stereotyping and fears about Muslims” nourishing “serious ramifications for social problems in Austria”. Is the president of the Islamic Faith Community seriously claiming that it is not the insufficient identification of the Islamic teachers that is a problem for Austrian society, but rather the open discussion about this fact?
• Schakfeh’s comment about the “respect that we have for the freedom of science” and the resulting inability “to interfere in the way those questions were formulated” is almost scandalous. There were some “irritating phrases”, which called for “suggestive answers”, and that “cannot have been the purpose of a well-founded study”. Schakfeh would have asked the following question: “Are democracy and Islam compatible?”, and would have gotten the desired 100% agreement instead of 78%. However, asking a question like that is not representative as every freshman sociologist knows. The president of the Islamic Faith Community is saying that it was a mistake to respect the scientific approach because “well-founded” results can only be guaranteed if the institutional sponsor intervenes in the way questions are asked.

This is unacceptable. It also shows that the official Islam, even if it not legitimized its members, is playing a double game: In the official “Dialogue of Cultures and Religions” there are discussions about the compatibility of Islam and European-democratic culture. But in everyday political life these discussions, even if well-founded, are killed by accusing the bearer of the bad news of hate speech against Islam. The FPÖ reacts in a similar way regarding its proximity to right-wing extremism.

This doubly problematic: It confirms the existing preconception about Austrian Muslims officially professing allegiance to human rights, democracy and the rule of law, while on the inside waiting for the possibility to implement their own visions of Sharia. And it weakens those who have been working on a theological basis on something like a “European Islam”, like the Institute of Islamic Education at the University of Vienna.

- – - - – - – - -

Unfortunately, Schakfeh has congenial partners in official Austria for his strategy of actively doing nothing: Chancellor [Werner] Faymann leaves it at saying nothing by saying “We should not discuss new law paragraphs”, while the minister in charge, Claudia Schmied, wants “clear picture about the situation on the ground”. If she is saying that until now she has not had a clear picture of reality, it is perhaps not surprising, but also not very encouraging.

Next, an op-ed by Peter Rabl from Kurier:

Turks refusing integration

The critical discussion about Turkish immigrants is long overdue

It’s good news that integration is becoming a central political issue and that sweet-talking these obvious problems with immigrants has finally come to an end. The bad news is that the awareness gained from this objective approach is that many Turkish immigrants refuse integration and are living in questionable parallel societies.

This discussion about immigration problems, which should not be left to the xenophobic political right-wingers, is long overdue. Problems and facts remain problems and facts even if they are politically abused by people like Strache [FPÖ leader].

Last week a German study revealed that Turkish immigrants have the least interest in integration. The distressing results of this study are also valid for Turks in Austria, especially in Vienna.

In the best case, 75% of second and third-generation Turks are graduates of compulsory education; many leave school without proper language skills and reading abilities. Only 4% graduate from high school. Every third girl stays at home after finishing school. The career plan: Housewife and mother.

This results in an unemployment rate among Turkish immigrants of more than 12%, three times as high as that of indigenous Austrians. With the proportion of Turks who are seeking a full-time job versus those who have one, the situation is even worse.

Wrong immigration policies

What is today an almost unsolvable problem has its roots in the completely failed immigration policies of the past decades. Cheap laborers — illiterates from Anatolia — were hired for the worst and most menial jobs. And under the title of “family reunion” many women and children followed.

Because of their illiteracy, the first generation was unable to encourage its children to seek proper education. Instead, these families secluded themselves in their archaic patriarchal family structures and, increasingly, in Islamic religiosity and in Turkish nationalism.

There are tens of thousands of immigrant Turks who live in a parallel world between mosques and Turkish satellite TV programs in their homes. Their chances of integrating fail because of their own reluctance and their insufficient German language skills, which have been passed on to many small children. Their chances for low-paying jobs, jobs for which they alone are qualified, are sinking rapidly in the wake of the [economic] crisis. A sort of sub-proletariat is now being formed, dependent on welfare payments.

One must start considering whether those unwilling to integrate should be sent back to their home countries, perhaps with the help of financial incentives.

For their own good and that of the host country.

Finally, what may the death-knell for Anas Schakfeh’s public career, from Wien-Heute:

Scandal: Religious education book shows martyr with gun and hand grenade

[See the image at the top of this post]

The news magazine Profil reports in its latest issue about a book used in Islamic religious education. This book was edited by the president of the Islamic Faith Community, Anas Schakfeh. The book shows a “martyr” who is dying on the battlefield. The caption reads: “A Muslim who dies in Allah’s path and in defense of his home country is a martyr (shahid). He will be rewarded by Allah with entry into paradise, just as Allah promised in the Quran.” The picture shows a soldier holding a gun and a hand grenade.

This school book is used for third and fourth graders. Says Schakfeh: “I know this looks really bad, but I had simply forgotten about the existence of this picture. But we are currently working on changing these books.” He adds that this picture in no way wants to glorify martyrdom. Martyrs are part of Christian and Islamic culture, and the picture shows the siege of the city of Medina, the first Islamic community.

“A president of a religious faith group whose religion is determined by martyrs holding a gun and hand grenades must resign immediately. We don’t need Islamic religious warriors in Austria and in our schools and school books, “ says Martin Strutz, secretary general of BZÖ.

In addition, Schakfeh’s confession today about a well-known radical Islamist, member of a well-known Islamist party, who was not only a school coordinator, but now also works as a teacher, show that Schakfeh is not a moderate, but a wolf in sheep’s clothing.

Commentary from ESW:

Schakfeh is in real trouble. The Green party has now added its weight into the discussion calling for Schakfeh’s resignation. The Greens have always been vocal supporters of anything Muslim. This study, alongside the troubling German study about the lack of integration among Turkish immigrants, is causing the Muslims a lot of heartache. The pressure is increasing. It’s a pleasure watching these events unfold. Taqiyya is failing them!

The Era of American Leadership Is Over – a bankrupt and discredited country

a bankrupt and discredited country

The Era of American Leadership Is Over

By Paul Craig Roberts

Vast numbers of people in the United States and abroad are hoping that President Obama will end America’s illegal wars, halt America’s support for Israel’s massacre of Lebanese and Palestinians, and punish, instead of reward, the shyster banksters whose fraudulent financial instruments have destroyed economics and imposed massive sufferings on people all over the world.  If Obama’s appointments are an indication, all of these hopeful people are going to be disappointed.

James Petras examines Obama’s foreign policy appointments and finds the largest collection of Zionist militarists  outside of Avigdor Lieberman’s far right political party in Israel.

Petras concludes that Obama’s “diplomatic” team has Iran in its sights, an hostility that meshes with Israel’s own intent.  Not realizing that a member of the press had been mistakenly invited to a selected audience, the Israeli ambassador to Australia said that Israel’s attack on Gaza was a dress rehearsal for a major attack on Iran.  Netanyahu, the expected winner of Israel’s March elections, has again declared that Israel will not permit Iran to have a nuclear energy program as it would provide the basis for developing nuclear weapons.

It makes no sense for Israel to baldly state its intention to attack Iran if Israel does not mean it.  What if the Iranians believe the Israelis and decide to strike first with their long-range missiles?

Obama’s economic appointments are just as discouraging.  Obama chose as his Treasury Secretary Timothy Geithner, the man who helped Bush’s Treasury Secretary, Hank Paulson, engineer the $700 billion dollar rip off of the US taxpayer, money that was gifted to the crooked banksters who destroyed Americans’ pensions, jobs and health care coverage.

These banksters, and the negligent federal regulators that enabled them, should be put in prison, not handed hundreds of billions of dollars.

Instead, Obama has appointed one of the chief orchestrators of the rip off to the helm of the Treasury.  Obama’s National Economic Council is just as depressing.  Clinton’s Treasury Secretary, Larry Summers, is its head.  Summers recently declared that he had no inkling that a financial crisis was about to hit.  Why did Obama put a person without a clue in charge?

Summer’s colleagues are just as bad. Obama has appointed Diana Farrell, lead author of a phony study that claimed offshoring of American jobs is a win-win game for Americans, as deputy director of the National Economic Council.  Farrell is affiliated with McKinsey & Company, a firm that helps American corporations offshore their operations.  In his book,  Outsourcing America, economist Ron Hira tore Farrell’s McKinsey report to shreds.

Why not appoint Ron Hira and Nouriel Roubina, who predicted the crisis, to the National Economic Council?

With Israel’s most fervent American allies whispering in one ear and banksters and offshoring propagandists whispering in the other, how can President Obama fulfill any of the hopes that people have?

The discouraging fact is that even when faced with crisis in the economy and in foreign policy, the American political system is incapable of producing any leadership.  Here we are in the worst economic crisis in a lifetime, perhaps in our history, and on the brink of war in Pakistan and Iran while escalating the war in Afghanistan, and all we get is a government made up of the very people who have brought us to these crises.

Just as the Bushites could not admit the failure of their man, the Obamacons will not be able to admit the failure of their man.

The era of American leadership has passed.  America’s shyster financial system has brought economic crisis to the world.  America’s wars of aggression are seen as serving no purpose except the enrichment of the military industries associated with Dick Cheney.  The world is looking elsewhere for leadership.

Vladimir Putin made a play for this role at Davos, where his speech at the opening ceremony was the most intelligent speech of the event.

Putin reminded the World Economic Forum that “just a year ago, American delegates speaking from this rostrum emphasized the US economy’s fundamental stability and its cloudless prospects.  Today, investment banks, the pride of Wall Street, have virtually ceased to exist.  In just 12 months, they have posted losses exceeding the profits they made in the last 25 years.”

Putin made his case that the existing financial system based on the US dollar and American financial hegemony has failed.

Putin showed that his economic understanding was superior to that of the Obama team when he said that creating more debt on top of the “hopeless debts,” as Obama is doing, would “prolong the crisis.”

With another swipe at America’s failed economic leadership, Putin said it is time to get rid of virtual money, false financial reports, and dubious credit ratings.  Putin proposed a new reserve currency system to “replace the obsolete unipolar world concept.”

Putin said that a secure world requires cooperation which requires trust.  He made it clear that the Americans have proven that they cannot be trusted.

This was a powerful message.  It got a lot of applause.

The Oregonian’s Betsy Hammond Tries To Get A VDARE.COM Reader Fired For Challenging Her Enthusiasm For “Diversity”

Joe Guzzardi comments: To help you navigate today’s letters, I’ll provide you with an overview.

We’re posting four:

• The first is from transplanted Portland OR resident Stephen Garland, currently living in Atlanta, to Oregonian reporter Betsy Hammond. It challenged her story promoting more diversity in Portland, which it claimed is “demographically out of step with 2009 America”. [In a Changing World, Portland Remains Overwhelmingly White, by Betsy Hammond, The Oregonian, January 17, 2009]

• The second is Hammond’s letter to Garland’s employer, a none-too-subtle effort to get him fired for truthfully reporting crimes he’s been the victim of while living in diverse Atlanta. Garland expressed a longing to return to Portland.

• The third is Garland’s employer writing back to Hammond in defense of his employee.

• Our fourth letter is Garland’s reply to Hammond answering the questions she posed to his employer.

Note that Garland’s original letter was posted under the pseudonym of Art Fowler. But because of the significance of these subsequent exchanges, Garland has given us his permission to use his real name:

A Georgia Reader Offers His Place In Diverse Atlanta To Oregonian Reporter Betsy Hammond

From: Stephen Garland (e-mail him)

Re: Steve Sailer’s Blog: The Unbearable Whiteness Of Portland

I wrote to Oregonian reporter Betsy Hammond (e-mail her) expressing my displeasure at her offensive story about Portland being “demographically out of step with 2009 America” [ In a Changing World, Portland Remains Overwhelmingly White, by Betsy Hammond, The Oregonian, January 17, 2009]

In 2003, I moved from Portland to Atlanta, Georgia at the request of the major airline I work for.

If Hammond wants to live in a diverse metropolitan area, I suggest Atlanta.

Since arriving here, I’ve had my car stolen, my home broken into and have been robbed at gunpoint—all by the diverse people Hammond so admires.

Certain sections of Atlanta I dare venture into, even during the middle of the day. Because I fear for my children’s safety, I’ve bought a new house an area that requires me to commute almost eighty miles daily as opposed to the two miles I traveled in Portland.

As soon as it is remotely feasible for me to do so, I will be running back to the Great White Northwest.

If Hammond cares to replace me in Atlanta so she can better enjoy the diverse culture she so yearns for, I’ll eagerly to trade with her.

Oregonian reporter Hammond’s letter to Garland’s employer:

“I am a newspaper reporter in Portland, Oregon, and I received an email today from an employee of your firm.

“I would be surprised if a business such as yours could thrive in DeKalb County if the corporate image you project is that your employees wish they could flee to, quoting him, a ‘GREAT WHITE’ area to avoid diversity.

“Is this how you like your firm represented to the media?”

The employer’s reply back to Hammond:

“Ms. Hammond, Stephen is an excellent employee with a great attitude. He is here every day and works long hours. We would hate to lose him but he’s right about the safety issues in Atlanta. Feel free to call.”

And Garland’s response to Hammond after he received her e-mail forwarded to him by his employer:

“My employer forwarded me your emailed comments this morning.

“To more fully answer your question, this company is successful in this area (DeKalb), as it would be in any area, because of the owner’s excellent leadership, who has always made the hard decisions necessary to keep this company viable.

“Amazingly, unlike almost every other business these days, he does this without handouts from the governmen. His modest, conservative lifestyle contributes greatly by not putting pressure on the company to perform beyond its means.

“You will be pleased to know that, without being mandated by the government, our company has assembled an employee base of 38 people that consists almost equally of white and non-white employees. This has not been accomplished by going out and intentionally seeking people of color, but by simply trying to hire the best-qualified people to fill available positions.

“On a more personal note I must admit that I am a bit confused by your logic and actions. You apparently desired to paint me as a racist to my employer for intimating that I would prefer living with people of my own race. Yet in your article, I perceived you to be almost giddy when describing the wine and cheese gatherings where persons of color were so excited to be able to co-mingle with others of like culture and race.

“Also, one of the major premises of your article was that minorities do not settle in Portland because there aren’t enough existing minorities there to make them feel comfortable. Please–how is this different from what I expressed?

“Minorities in your article describe Portland as a great place to live where they are almost never ill-treated by the dominant white population, even in situations where they are a tiny minority.

“Having lived there, I know that to be true.

“Unfortunately, my personal life experience has been entirely different. Although I have never initiated a single misdeed against someone of color, members of other races, predominantly black and Hispanic, have repeatedly victimized me.

“I am by no means alone in this. Please research the crime statistics compiled over the past forty years by your own government and you will find that the rate of black on white crime is staggering and if you really wish to write something meaningful, why don’t you do what none of your fellow reporters will do and write an honest piece on this issue. It’s the dirty secret that no one in your business will talk about.

“Does it concern you that you are so full of hatred toward people who disagree with your point of view that you would attempt to get them discredited or fired? Liberals like yourself are always pointing fingers at others and calling them ‘haters’ yet most of the hate I encounter appears to be emanating from people like yourself and from those whose bad behavior you constantly defend.

“Am I a racist for wanting to live in a place where I am relatively safe from being victimized by those who live around me? I have simply pursued life and attempted to learn from the experiences that have come my way. If I live where I am being robbed and threatened and cannot change the problem, I move.

“In my case, having three children necessitates this more so than if I were living alone. If I am treated badly by persons of a particular ethnic background, I tend to avoid others of their ethnicity that I suspect might also wish to harm me. (You know, black or Hispanic males that lurk around wearing gang clothing and appear not to be engaged in something constructive.)

“If I hated, I would reciprocate by doing to others what has been done to me. I have the means and ability.

“For instance in your case, I could call or write Sam or Don Newhouse, the owners of your newspaper and the gentlemen I worked for when I lived in Oregon, and tell them one of their reporters tried to get me fired just because she was intolerant of my point of view.

“But you see Ms. Hammond, I have no desire to do this because unlike you, I AM tolerant. I have no problem with you having a different perspective than me or wanting to live in a diverse culture. Fortunately for you, there are multiple opportunities for you to do so.”

“Can you imagine what would happen to me if I attempted to live in Southwest Atlanta which you could say was the reverse of a black person living in Portland? How long do you think I would survive before the police found my dead and disfigured body? Be honest with me here, please.”

Joe Guzzardi summarizes: Garland told me that Hammond also e-mailed him separately relaying to him that she had lived in the Atlanta area for about 12 years and did not share his feelings.

During my twenty years as a California schoolteacher, several attempts were made to have me fired for my opinion columns about immigration. I can recognize Hammond’s thinly-veiled efforts to do the same to Garland. As Hammond conclusively proves, in today’s liberal media, Freedom of Speech doesn’t exist.

If you have comments about Hammond’s behavior, here is contact information:

At The Oregonian:

Reporter Betsy Hammond betsyhammond@news.oregonian.com
Fred A. Stickel, Publisher (503.221.8140)
Sandy Rowe, Editor srowe@news.oregonian.com
Peter Bhatia, Executive Editor pbhatia@news.oregonian.com
Therese Bottomly, Managing Editor theresebottomly@news.oregonian.com
Bob Caldwell, Editorial Page Editor bobcaldwell@news.oregonian.com

Advance Publications owns The Oregonian. Contact information is here.

RNC to White Men: —-Off

RNC to White Men: —-Off (3)

[Patrick Cleburne] @ 12:48 am [Email author]

Apparently Chairmanship of the Republican National Committee has become another of those positions, like being head of an Ivy League school or Governor of the Federal Reserve, to which white men of Christian heritage Need Not Apply.

The clique which controls the RNC has just ordained failed Maryland Senate candidate and professional Black Michael Steele: Michael Steele becomes first black RNC chairman By Liz Sidoti Associated Press January 31 2009-01-31

Steele was preceded by professional Hispanic Senator Mel Martinez (R-Cuba) who has apparently found masquerading as a Republican Senator – now the brilliant leadership supplied by his cronies has cost the GOP the House, Senate, and White House – too much like work. (Martinez dropped out of the RNC position in late 2007 and his assistant Mike Duncan served as stop-gap.) Martinez succeeded hereditary open borders fanatic Ken Mehlman.

There is an irony here. Steele was already being prepared for Coronation in 2006 when the Rove/Mehlman crowd realized that somebody has put some sensible immigration remarks on Steele’s Senate Campaign website. So he was dumped.

Some VDARE.com readers might hope that this means Steele will actually alter the RNC Establishment’s line on immigration. That is very dubious. He has spent the last two years licking boots in preparation for this role. As Marcus Epstein noted in his VDARE.com report on the event, Steele opposed Ward Connerly’s raising of Affirmative action at National Review’s so-called Conservative Summit in 2007

only Connerly, who has heroically led two successful state wide ballot initiatives against affirmative action, made opposing the policy a top priority. Michael Steele said affirmative action was a side issue—we needed to revitalize the black culture and it will go away.

And after the Paul/Guliani South Carolina confrontation, Pat Buchanan reported

…Michael Steele, GOP spokesman, was saying that Paul should probably be cut out of future
debates…

adding

By all means, throw out of the debate the only man who was right from the beginning on Iraq.

The childishly credulous AP report parrots Steele’s boasting

The choice marked no less than “the dawn of a new party,” declared the new GOP chairman, former Maryland Lt. Gov. Michael Steele

But notes

Steele, an attorney…was considered the most moderate of the five candidates running.

The truth is, Steele’s selection means no change. The RNC remains controlled by a faction which under the guise of “outreach” is determined to block any policy which could mobilize the GOP’s key constituency: White men of Christian heritage – and the women who love them. Their job is to contribute, vote – and shut up. The new Slave class!

In the post-Reconstruction South, there was the phenomenon of “Post Office Republicans”. These people maintained the local party machinery, did nothing, and every few years got to gobble federal patronage when the ebb and flow of national politics put the Republicans in the White House.

When politically serious white men started migrating into the Republican Party as the Democrat’s anti white bias became intolerable, their first task was to eliminate this group of parasites. It was quite difficult.

Now it needs to be done at the national level.

The Minority Mortgage Meltdown (contd.): How The Community Reinvestment Act Fits In

The Minority Mortgage Meltdown (contd.): How The

Community Reinvestment Act Fits In

By Steve Sailer

The mortgage fiasco devastating America’s big banks has many causes, but perhaps the least understood is the complex impact of the 1977 Community Reinvestment Act (CRA). There has been some hoopla over the CRA in recent months, but nobody seems to have noticed the subtle way the CRA actually exacerbated the disaster.

I’ll demonstrate using the meteoric rise and fall of Washington Mutual, Inc. (WaMu). Under CEO Kerry Killinger’s direction, WaMu went from being an obscure Seattle outfit to the sixth biggest bank in America.

So WaMu wasn’t quite the biggest bank—but it may well have been the silliest. When a mariachi singer in California claimed a six-figure income on his mortgage application, for example, WaMu accepted a picture of him in his mariachi outfit as the sole documentation of his income.

The bank’s slogan was “The Power of Yes”. You know, as in “Yes, We Can”.

Then, during last year’s 1930s-style bank run, the government seized WaMu last September 25 and sold its remnants to JP Morgan Chase for less than $2 billion. The Federal Reserve later outright gave $25 billion to the purchaser, in part for taking this stinker off the government’s hands.

Back in the summer of 2008, I pointed out that affirmative action likely had something to do with the horrific default rates on subprime mortgages. That became a modestly popular argument during the recent election campaign. Republicans would attempt to counter Democrats’ claim that the mortgage meltdown was caused by “greed” by pointing toward the Community Reinvestment Act.

After being strengthened under the elder Bush (n.b.!) and Clinton Administrations, the CRB was exploited by “community organizers”, like President Barack Obama’s old ally ACORN, to shake down banks wanting government permission to buy others banks. In return for not protesting the merger, the racial activists would demand promises of more loans to minorities with doubtful credit.

The National Community Reinvestment Coalition boasted about the early 1990s change in the CRA from toothless to lucrative:

“Lenders and community organizations have negotiated $1.09 trillion in CRA dollars from 1992 to 2000. [My emphasis!] In contrast, $8.8 billion was negotiated from 1977 through 1991.”

I recently came upon this old Washington Mutual press release on Eric Falkenstein’s Falkenblog dating back to WaMu’s $5.2 billion purchase of New York City’s Dime Bank:

“SEATTLE, Dec 21, 2001 … In connection with its merger with Dime [Bank], Washington Mutual recently established a ten-year, $375 billion community commitment which targets funding to low- and moderate-income borrowers, and minority borrowers … One of the largest community commitments of its kind, the ten-year pledge will be implemented with the assistance and support of a variety of non-profit community partners.”

On WaMu’s still-existent website, the bank explains that $375 billion pledge:

“These funds will provide loans and other financial support to communities consisting predominantly of people of color, to residents of low- to moderate-income (LMI) census tracts, and to people whose income is below 80 percent of median income. We will strive to create products and programs that increase our market share in low income and diverse communities, with a long-term goal of making our market share in these communities more closely mirror our market share overall. Using our Year 2000 production as a baseline, we have set our goal to double the number of loans made to borrowers of color by the end of the first year of this commitment. Thereafter, we will increase the number of loans made in these communities as quickly as possible.”

Not surprisingly, WaMu won the 2003 CRA Community Impact Award.

We now know that subprime foreclosures are centered among exactly the kind of people targeted in WaMu’s CRA agreement with racial activists. During the Housing Bubble of 2004-2007, minorities accounted for twice as many subprime dollars borrowed per capita than did whites. And the new report by the Boston Fed shows that, at least in Massachusetts, minorities defaulted on subprime loans at twice the white rate. All this suggests that minorities accounted for approaching two-thirds of subprime mortgage dollars lost.

For the GOP, the Community Reinvestment Act (CRA) was a more convenient example of government interference in the mortgage markets than, say, George W. Bush’s 2002-2004 holy war on down payments in his effort to boost minority home ownership. That’s because the CRA was passed by a Democratic Congress and signed by a Democratic President.

Of course, the GOP’s claims about the CRA’s centrality in the mortgage meltdown were obviously partisan. And more skepticism about the importance of the CRA seemed plausible, along these lines:

“How could the government hold a gun to the financial institutions’ heads and force them to make hundreds of billions in stupid loans? Sure, giving out $375 million in stupid loans to get the government off your back, that would make sense. $3.75 billion, maybe. $37.5 billion, conceivably. But $375 billion, no way. Nobody would promise to give away $375 billion to dubious borrowers unless they thought it was a great idea. They’d leave the industry before they’d promise to hand out $375 billion to people whom they doubted would pay it back.”

In general, the government and its associated racket-runners can extort mid-level amounts of affirmative action booty. But when the demands get too great, businesses exit in one way or another. (Often with bad effects on general welfare, of course).

Obviously, it’s a massive exaggeration to say the government and the ACORN clones forced WaMu to lend to likely deadbeats. Nobody promises to loan out $375 billion to low and moderate income and minority borrowers unless they actually want to lend out to low and moderate income and minority borrowers something approaching $375 billion.

Moreover, Washington Mutual sure didn’t act reluctant. They were positively exuberant about pouring money into the hands of minorities with weak histories of paying off debts. The relatively small number of big financial institutions that did a major fraction of subprime lending really seem to have drunk the same Kool-Aid as ACORN, Congress, Clinton, and Bush. They actually thought they were going to get rich off no-money-down, $400,000 loans to high school dropouts.

And they did, for a few years. CEO Killinger “earned” $88 million from 2001-2007.

WaMu’s strategy was lending to deadbeats—the more minority the better. For years, WaMu ran a series of TV commercials where one cool black guy in a blue WaMu shirt, an actor who looked like a cross between Barack Obama and Don Cheadle, would humiliate dozens of old white bankers in suits.

Most advertisers would have put one token minority banker in the crowd of pompous empty suits. But WaMu didn’t bother. They wanted to get their message across.

So it would seem that WaMu didn’t need the CRA to blows billions.

And yet … there’s a more subtle point that I, and seemingly everybody else, missed in thinking about the impact of the CRA’s veto over bank acquisitions: the selection effect on who gets to get big.

Before I explain that, let’s back up and think about the big bank-bad bank paradox more generally.

We naturally assume that big banks are safer storehouses for our money than flimsy little banks. It’s the basic probability theory of “gambler’s ruin”—the more money an institution has, the less likely the chance of running out of money. That’s why a casino would still win even if it gave gamblers a fair shake (e.g., no zeros on the roulette wheel): the gamblers would be more likely to run out of money before the casino did.

For this reason, banks have traditionally employed the wiles of architects to make them look as reassuringly massive as possible. When I moved to Chicago in 1982, for instance, I always enjoyed visiting my cousin at work because I had to pass through perhaps the most imposing interior space in the city: the stupendous second floor lobby of the Continental Illinois bank building on La Salle, next to the Board of Trade.

And yet, big banks aren’t always as trustworthy as they might look. An aggressive strategy had made Continental Illinois the largest commercial and industrial lender in America—until it went broke in May 1984, requiring the biggest FDIC bailout of depositors in American history…up to that point, of course.

Today, the old Continental Illinois building at 231 S. La Salle St. is owned by Bank of America, one of the new four Red Ink Supergiants of American banking along with Citigroup, JP Morgan Chase, and Wells Fargo. Nonetheless, B of A—and perhaps some of its colossal colleagues—may follow Continental Illinois into nonexistence if the federal government ever tires of bailouts. The problem, of course, is countless (at present, literally)bad mortgages made during the late Housing Bubble.

Why do big banks tend to be bad banks?

First, one obvious reason is the “too big to fail” theory that the feds applied to Continental Illinois. The government bailed out bondholders and kept the shell of Continental Illinois limping along for a decade until Bank of America bought it. So, managements and creditors assume there is safety in size, even though the law of diminishing marginal returns says the opposite: the more loans you make, the more likely you’ll make bad ones because you’ll be less selective.

Second, there’s a natural tendency during economic good times for the most recklessly optimistic managements to grow fastest. They borrow the most money and buy the most competitors. (At least until the bad times roll around again, when the skeptics can pick up the wreckage for a song.)

In many industries, however, skill puts a restraint on growth through confidence and luck. For example, Ford Motor Co. became the biggest car company in the world in the first quarter of the 20th Century not because Henry Ford was the biggest risk-taker, but because he was the best car-maker (e.g., he invented the moving assembly line). Similarly, Intel is the top chip maker largely because it’s good at making CPU chips.

In finance, in contrast, sheer boldness appears to play a relatively larger role.

Third, the high CEO compensation of recent decades has encouraged a get-rich-quick attitude.

Say a 45-year-old gets appointed CEO of a small bank, with a salary of $1 million per year. He could carefully steward his stockholders’ investments, and continue to make roughly $1 million per year until he enters a comfortable but not lavish retirement in 20 years.

Or, he could try to grow the bank fast via risky bets. If he could increase the size radically, he would show the Board that CEOs of banks that big usually get paid $10 million per year. Even if the bank blows up two years later, he’d still have earned $20 million in those two years, as much as he’d earn in 20 years of prudent management of his bank at its current size.

So why not gamble? What’s the worst that could happen to his net worth?

Finally, the executives of big banks are, by necessity, farther removed from what’s happening on the street. In 2006, WaMu moved into the 42-story WaMu Center skyscraper in downtown Seattle—a long way from Southern California, where Killinger’s minions were making so many fraudulent loans.

Knowing all the biases favoring risky business, you might expect the government to prudently lean against the tendency of ambitious mortgage lenders to hand out too much money to bad credit risks. Yet, in the name of increasing minority and low-income home ownership, the government did exactly the opposite: since the early 1990s, it has relentlessly pushed for more risky mortgage lending—with the catastrophic results we see all around us.

How did the Community Reinvestment Act worsen imprudent lending to minorities?

It’s not a popular question even to ask. “I want to give you my verdict on CRA: NOT guilty”, said FDIC Chairman Sheila Bair:

“And ‘Let me ask you. Where in the CRA does it say to make loans to people who can’t afford to repay? Nowhere.’ The facts are simple, Bair said. The lending practices that are causing problems today were driven by a desire for more market share and revenue growth, not because the government encouraged certain lending practices.” (FDIC’s Bair Sets to Shatter CRA “Myth”, by Kelly Curran, HousingWire.com, December 5, 2008.)

Okay–but how does a bank get more market share and revenue growth?

One major way: by buying other banks. And to do that, you have to pass through the CRA gauntlet. If you aren’t willing to lend to people the government wanted you to lend to, then you were out of luck at mergers and acquisitions game.

So, the CRA implicitly selected for Kool-Aid Drinkers, such as WaMu’s Killinger. They’re the ones whom the government allows to build empires. (Unfortunately, their houses turned out to be built on sand.)

I missed understanding the impact of the CRA because I kept asking myself: “How could the CRA force a banker who thinks lending more to minorities is a bad idea to lend more to minorities?” I kept trying to imagine the CRA’s effect on the already crazy-stupid WaMu, and how that couldn’t have been all that significant.

But I should have been thinking about the other side of the coin: all the sane-smart banks that didn’t get to get big like WaMu did because the government rigged the acquisition process so that crazy-stupid banks were more likely to get merger approval. WaMu got permission from the government to make 29 acquisitions from 1990 onward. A smart-sane bank wouldn’t.

That WaMu sincerely believed that it was going to make a fortune handing big mortgages to mariachi singers, illegal immigrants, and Department of Motor Vehicle clerks etc. etc. seems clear. After all, WaMu not only originated about one out of every eight mortgages in the U.S., but it also held on to a fair number of them instead of securitizing them and dumping them on Wall Street.

WaMu explained its minority-oriented strategy over and over again. Robert O’Connor wrote in Mortgage Banking, October 2003:

“Craig Davis, president of Washington Mutual’s Home Loans & Insurance Services Group, says that the high rate of homeownership in the United States–currently about 68 percent–can mask very low rates among immigrants and minorities. He argues that encouraging ownership among these groups is both good for Washington Mutual and good for the country. ‘Affordable housing and lending is front and center in terms of our strategy,’ Davis says.

“… Porter says that Washington Mutual takes the CRA very seriously. But he adds the bank regards the CRA as a floor rather than a ceiling. He says the company, and its employees, want to surpass the regulatory standard for institutions to meet the credit needs of their communities. Porter points out, for instance, that the bank’s $375-billion, 10-year lending commitment was not necessarily dictated by the CRA. ‘It was good from the company’s perspective,’ he says. ‘It was good from the community perspective, and it actually gives us a higher bar that we want to achieve.’ …

“Despite the strength of its portfolio operation, Washington Mutual is also committed to the secondary market. Early this year, it entered into a five-year strategic alliance with Fannie Mae Fannie Mae: to encourage home-buying among a number of groups, including immigrants, minorities, first-time buyers first-time buyer  first-time buyer and people with low and moderate incomes. The goal is to generate $85 billion in mortgage lending.”

And here’s a 2003 WaMu press release that sounds like Dave Barry wrote it:

“Helping to build strong, vibrant communities wherever Washington Mutual does business is integral to the company’s long-term strategy. The Community and External Affairs Division oversees all community investment and development activities to ensure that Washington Mutual fulfills its community goals in the most strategic way possible.”

Why was WaMu, with its derisible strategy, able to buy out so many big lenders? To understand it, think about it the other way around: why didn’t more prudent financial institutions outbid WaMu for acquisitions?

Say there are two banks, WaMu and Scrooge-Potter BanCorp. The latter is owned by Ebenezer Scrooge of Charles Dickens’ A Christmas Carol and Mister Potter of Frank Capra’s It’s a Wonderful Life. While WaMu is beloved for lending to anybody with a pulse, Scrooge-Potter BanCorp is widely loathed for taking a dim view of lending money to likely deadbeats.

They both would like to buy George Bailey’s Bailey Building and Loan Association. ACORN and the National Community Reinvestment Coalition announce they will protest vociferously against regulatory approval of the merger unless the winner pledges to make $50 billion in minority and low income loans.

Fearing a debacle of defaults, Scrooge-Potter BanCorp issues a two-word press release: “Bah, humbug”. And it drops out of the bidding.

WaMu announces: “Well, heck, we’ll promise to lend $55 billion.”

In fact, because Scrooge-Potter realized its quest was hopeless, WaMu got Bailey Building and Loan for less than it would have paid if the government wasn’t biased in favor of imprudent bankers. This gives WaMu more money to pursue more targets.

Lather, rinse, and repeat. The CRA means that WaMu gets big while Scrooge-Potter stays small.

Consider the indirect effects on Scrooge-Potter BanCorp. Who would want to go to work for a bank that can’t make acquisitions because it won’t play nice with the government on CRA? Scrooge-Potter can’t buy anybody, it can only be bought. So, how’s your job security at Scrooge-Potter looking? Wouldn’t it make more sense to go work for WaMu instead?

The CRA drives the climate of opinion in the entire mortgage industry. If you wanted to be able to buy other banks, you had to play ball.

Practically everybody did. Out of the thousands of banks with federal CRA Performance Evaluations, 496 got the highest rating of Outstanding, while only five dared to be in “Substantial Noncompliance”.

The biggest noncomplier: First Bank of Beverly Hills. It had the kind of business strategy that you’d expect from a bank with that name: take in deposits from rich people and make loans to big real estate developers outside Los Angeles. Sensing the popping of the Housing Bubble coming, it was pulling it its horns when the government evaluated it. The feds didn’t like that. (You can read the government’s report and see if you can find anything shameful about how FBBH did business. I can’t.)

Over time, the madness infects the entire culture of finance, as the government labels the prudent bankers automatic losers in the great game of acquisitions.

WaMu’s 2001 purchase of Dime Bank may have been its crowning excess. But in the history of the downfall of the American economy, it wasn’t as important as WaMu’s 1990s move into California. WaMu and California went together like a match and dynamite.

In 1997, WaMu was the second biggest thrift. When the biggest thrift, Home Savings of America (owned by H.F. Ahmanson and Co. of Irvine, CA), attempted a hostile takeover of its Southern California rival, the number three thrift, Great Western, WaMu entered as a white knight. This set off a CRA bidding war. The two competed to see who could promise the most lending to the politically favored.

The Seattle Times headline on April 10, 1997 read “Wamu Loan Plan Trumps Rival—$75 Billion Inner-City Proposal Eclipses Ahmanson Bid.” Reporter Don Lee wrote:

“In the largest inner-city loan program ever proposed by a U.S. banking institution, Washington Mutual said today it will lend $75 billion to mostly lower-income and minority borrowers over 10 years if it successfully acquires Great Western Financial. Washington Mutual said the majority of those mortgages, consumer and small-business loans would be made in California. The proposal eclipses a $70 billion community reinvestment commitment made three weeks ago by Home Savings of America.”

After winning Great Western, Washington Mutual then bid for Home Savings itself in 1998, upping its Community Reinvestment ante to $120 billion. Leftist thinktank PolicyLink reported:

“In the wake of its takeover of H.F. Ahmanson’s Home Savings of America, Washington Mutual signed a $120 billion CRA agreement with the California Reinvestment Committee (CRC), the Greenlining Institute, the Washington Reinvestment Alliance, and other community groups.”[Community Reinvestment Act—Tool in Action, no date]

Grabbing Home Savings made WaMu the nation’s number one lender of adjustable-rate mortgages. Even more ominous, WaMu was now heavily concentrated in California, a state where the combination of nice weather, environmental restrictions on housing development, and a huge influx of immigrants combined to make home prices absurdly volatile in the next decade.

Then, when WaMu bought Dime Bank in 2001, it made a binding promise to lend for Community Reinvestment Act credit $375 billion. Sure, why not?

The only problem is that $375 billion here, $375 billion there, pretty soon you are talking about real money.

The question is, how can Barack Obama, a former community organizer and a charter member of the socialist, interventionist, Big Government Left, get us out of this mess?

Answer—he can’t. He can only get us in deeper.

Bach Scares Away Hooligans

By Ian Jobling • 1/30/09

Theodore Dalrymple illuminates the magic and power of Western culture:

Staying recently in a South Yorkshire town called Rotherham—described in one guidebook as “murky,” an inadequate word for the place—I was interested to read in the local newspaper how the proprietors of some stores are preventing hooligans from gathering outside to intimidate and rob customers. They play Bach over loudspeakers, and this disperses the youths in short order; they flee the way Count Dracula fled before holy water, garlic flowers, and crucifixes… There is surely something deeply emblematic about the use of one of the great glories of Western civilization, the music of Bach, to prevent the young inheritors of that civilization from committing crimes.