The gulf between then and now

Cleaning out my files, I ran across something I wrote 1998-ish that illustrates the gulf between the truly awful candidates for President we have today and those that once were. The story itself doesn't say much philosophically about the man, but simply offers insight into his character.

It came from a small book about Abraham Lincoln that I picked up for cheap while traveling through the airport in St. Louis... and I can't find the damn thing now to be sure the name, but I think it was "Wit and Wisdom of Abraham Lincoln". (The entire book was quite entertaining -- Lincoln was indeed a wit, and uncommonly wise, too.)

----------- original message from 1998 -----------

I don't fully understand the context of the negative quotes I have heard regarding Lincoln [ie, in 1998, criticism that he undermined the Constitution with various war acts], but after reading what little I have, I can unequivocally say: He was truly a great man, whatever his flaws. He reminds me of a character in a Hugo novel [ie, in particular, "Ninety Three" was on my mind -- because of Lincoln's utter devotion to saving the Union]. I offer you the following extended excerpt which reminded me of a certain scene in Atlas Shrugged. [Ie, the scene when Rearden tries to save the Wet Nurse (the young man sent to regulate Rearden's operations and who then betrayed the government to try to save Rearden) as he dies of a bullet wound, while a mob ransacks the plant of Rearden Steel.]

On a narrow cot, in the military hospital at City Point, Major Charles H. Houghton was dying. He had been in command of Fort Haskell, a strategic point in the rear of Grant's lines, being directed in an effort to break the Union lines. Against Major Houghton, a mere boy of twenty years, were pitted the science and strategic knowledge of Gen. John B. Gordon, of Georgia.

Help came at last. The long-haired gray men were beaten back, and Lee's desperate move was checked. Houghton's leg was amputated and he was taken to the hospital at City Point, so that he could die in comparative peace, on a clean white cot. But for days he lingered on the borderland of life.

Sometimes in the long stretches of the night, when life and resistance are at low ebb, it seemed to those who watched that he must be zigzagging back and forth across and across that mysterious line. Yet always in the morning, when friends inquired for news of him, the surgeons could say: "He is alive.
That's all."

At nine o'clock one morning, the door at the end of the ward was opened and Dr. MacDonald, chief surgeon, called:

"Attention! The President of the United States."

There, outside the door, the sunlight streaming into the room over square, gaunt shoulders, stood Abraham Lincoln. Into the room he stalked, bending his awkward form ungracefully -- for the doorway was low. At cot after cot he paused to speak some word of cheer, some message of comfort to a wounded soldier.

At Houghton's cot the two men paused. "This is the man," whispered MacDonald.

"So young!" questioned the President."This the man that held Fort Haskell?"

MacDonald nodded.

With a large, uncouth hand the President motioned for a chair. Silently a nurse placed one at the cot's head. Houghton did not know; he could not. As though he were afraid it would clatter and hurt the sufferer, Lincoln softly placed his stove-pipe hat of exaggerated fashion on the floor. Dust covered his clothes, which were not pressed. As he leaned over the cot a tawdry necktie, much awry, dangled near Houghton's head. Gently as a woman he took the wasted colorless hand in his own sinewy one of iron strength. Just the suspicion of a pressure was there, but Houghton opened his eyes.

A smile which had forgotten suffering answered the great President's sad smile. In tones soft, almost musical it seemed, the President spoke to the boy on the cot, told him how he had heard of his great deeds, how he was proud of his fellow
countryman.

A few feeble words Houghton spoke in reply. At the poor, toneless voice the President winced. The doctor had told him that Houghton would die. Then happened a strange thing. The President asked to see the wound which was taking so noble a life.

Surgeons and nurses tried to dissuade him, but Lincoln insisted. The horrors of war were for him to bear as well as others, he told them, and to him the wound was a thing holy.

Bandages long and stained were removed, and the President saw.

Straightening on his feet, he flung his long, lank arms upward. A groan such as Houghton had not given voice to escaped the lips of the President.

"Oh, this war! This awful, awful war!" he sobbed.

Down the deep-lined furrows of the homely, kindly face hot tears burned their way. Slowly, tenderly, the President leaned over the pillow. The dust of travel had not been washed from his face. Now the tears, of which he was not ashamed, cut furrows in the grime and stained the white sheets on which they fell.

While nurses and surgeons and men watched there in the little hospital, Abraham Lincoln took the pallid face of Houghton between his hands and kissed it just below the damp, tangled hair.

"My boy," he said, brokenly, swallowing, "you must live. You must live!"

The first gleam of real, warm, throbbing life came into the dull eyes. Houghton stiffened with a conscious, elastic tension on the cot. With a little wan smile he managed to drag a hand to his forehead. It was the nearest he could come to a salute. The awkward form of the President bent lower and lower to catch the faint, faint words.

"I intend to, sir," was what Houghton said.

And he did.

Treading Water with Concrete Galoshes

Just when you thought there weren't more colossally stupid things that could have exacerbated this financial crisis....

First, mortgage backed securities were created with phony ratings to underrate the risk of bad loans to somehow make it "disappear". Then credit default swaps (insurance on bad debt) were created to spread the underrated risk back and forth between all the banks carrying the bad securities, on the theory they wouldn't suffer so much exposure. But passing it between themselves, they didn't really accomplish much, and when the debt defaulted, they started dragging each other down.

It's like taking a group of people who can't swim and putting concrete overshoes on them as the latest fashion trend, then throwing them all in the ocean and tossing them a rope to tie themselves together with, on the theory that a group of bad swimmers is less likely to drown than individual bad swimmers. All for one and one for all, and all that rot, put into concrete practice.

Or, from another perspective, the story of the Twentieth Century Motor Company in Atlas Shrugged, practiced at the level of the entire world economy.

Actually, I wouldn't criticize the principle of insurance on bad debts so much as I would the way it was used here. The banks carrying all the bad debt were acting like credit card customers who pay off one credit card with another, trying forever to be ahead of the problem, similar to a ponzi scheme. In this case, derivatives, layered on derivatives.

Oh what a tangled web we weave...

It's kind of interesting that so much stuff bearing fruit after he left office started in Bill Clinton's tenure, isn't it? Dot-com bubble, CRA, MBS's, CDS's, etc. Probably can't blame the guy for everything, but it's interesting. More likely just a symptom of the cultural malaise that brought him to power.


http://www.nytimes.com/aponline/us/AP-Meltdown-101-Credit-Default-Swaps.html?pagewanted=all

Meltdown 101: What Are Credit Default Swaps?
By THE ASSOCIATED PRESS
Published: October 20, 2008
Filed at 6:16 p.m. ET

NEW YORK (AP) -- One festering problem that led to the financial meltdown hasn't been addressed yet: credit default swaps.

The swaps -- which were intended either as insurance on debt or side bets, depending on the buyer -- are completely unregulated, prone to sloppy documentation and traded without a central clearinghouse.

Sound bad? Here's worse: No one knows how big the market is. Estimates range as high as $62 trillion.

Here are some questions and answers about the swaps and the role they've played in the financial crisis.

Q: What are credit default swaps?

A: A credit default swap is a contract, usually between banks, that acts as insurance on debt. Under the contract, the seller, for a fee, agrees to make a payment to the buyer if something bad happens to the debt the buyer has insured with the swaps.

For instance, a bank that holds another bank's bonds could insure those bonds against loss by buying swaps. If a bond held by an investor lost so much value that it was worth only 8 cents on the dollar, the holder of that investor's credit default swap would owe him 92 cents for each dollar covered by the swaps.

A less charitable characterization is that they're side bets on how debt securities will perform, since you don't have to own a security to buy a credit default swap based on its performance. For instance, you can make a bet on the default rate on a subprime mortgages without buying a penny in mortgages. If those mortgages defaulted and were worth 8 cents on the dollar, you'd make 92 cents on each dollar of the mortgages -- the same money you'd collect if you were an actual holder of the debt who'd bought the swap as insurance.

It's not clear how much of the total market falls into each category, but it is widely estimated that far more swaps fall into the ''bet'' category than the ''insurance'' category.

Q: What are the risks posed by credit default swaps?

A: The first risk is their sheer size. Writing in Sunday's New York Times, Christopher Cox, chairman of the Securities and Exchange Commission, estimated there were $55 trillion in credit default swaps outstanding, which is larger than the combined gross domestic product of every country on Earth.

By comparison, as of the second half of this year, there was only $6 trillion in outstanding corporate debt and $7.5 trillion in mortgage-backed debt, according to data from New York state's insurance regulator.

Since the market for the swaps is so much larger than the initial loans they were meant to insure, credit default swaps have magnified risk exponentially, compounded every injury the financial markets have suffered.

A compounding risk is the murkiness of the market, thanks to the lack of a central clearinghouse or a regulator.

Think about what stock trading would look like if there were no stock exchanges, no company ever filed an annual report, most trading were done over the phone and each trader entered his trades in pencil in a notebook on his desk, which no one outside his firm ever saw.

''You would think that Wall Street would have computerized this when the market started taking off a few years ago,'' The Wall Street Journal wrote in a 2006 article, which detailed what Wall Street firms were doing to police their own credit-default trading.

''But deals were, and often still are, done by telephone and fax. Detailed confirmations, important in avoiding nettlesome disputes later, weren't completed. One firm confessed in June that it had 18,000 undocumented trades, several thousand of which had been languishing in the back office for more than 90 days.''

Q: What role did they play in the financial crisis?

A: They've played more than one role.

The swaps have magnified each crisis, because most of the largest players in finance have bought swaps to protect debt they hold, and have also sold swaps, meaning they could owe money if other banks default.

Also, credit default swaps are secured by the assets of the seller -- the business equivalent of using your home to back a fleet of car loans. So if Bank A sold a hefty amount of swaps on Bank B's debt and Bank B files for bankruptcy, Bank A is suddenly facing a monstrous series of payments -- enough to push it into bankruptcy, too.

''When we were dealing with finding a solution for AIG, we knew the company had written almost half a trillion dollars in swaps, but we had no idea how much swaps had been written on AIG itself or by whom,'' said Eric Dinallo, superintendent of the New York State Insurance Department, in Senate testimony last week. ''That meant we did not know what the broader effect of an AIG bankruptcy would be.''

That meant that if AIG -- more formally called American International Group Inc. -- filed for bankruptcy, it would set off tidal waves in financial markets whose size would be completely unpredictable. That's one of the reasons why the federal government lent AIG $85 billion.

After Lehman Brothers Holdings Inc. filed for bankruptcy in September, sellers demanded more collateral on existing swaps. That's sucked away cash that could have been offered up for loans or invested elsewhere -- one of the many factors that helped put credit markets into a coma.
Q: What's the history of credit default swaps?

A: Credit default swaps came into being in the late 1990s, when they were seen as a way to manage risk by transferring it to more than one institution. In 1996, the Office of the Comptroller of the Currency estimated the size of the market was ''tens of billions of dollars.''

It's grown over the last decade, especially the last two years, as mortgage defaults rose and investors soured on buying pools of mortgages called mortgage-backed securities. Because banks could no longer sell the mortgages, they held them, loading up on credit default swaps to protect themselves against loss. They bought those swaps from other banks, which held mortgages of their own.

This was ''a classic case of wrong-way risk because those firms already had significant exposures'' to the mortgages, said Delora Jee, a top regulator at the Office for the Comptroller of the Currency, in a speech last week.

Q: Is anyone saying we could just erase all these contracts?

A: Financial commentator Ben Stein has said that's just what the federal government and the New York State government should do. (Most U.S. credit-default swaps are sold in New York.)

''After all, there was no insurable interest in most cases, which tends to void insurance contracts, which is what a CDS (credit-default swap) is,'' he wrote in a column on Yahoo's financial web site.

Because of the murkiness of the market for credit default swaps, it's hard to know who would take a financial hit if the swaps were erased.

Groundhog Day

For anyone wanting information to defend private markets, the NYTimes story copied at bottom is an eloquent case in point into how the government corrupts private markets when it gets involved in the economy. The story softpedals the government's influence and never mentions the Community Reinvestment Act (which encouraged much of the bad lending), and tries to slant the blame towards a few individuals, but the evidence is so overwhelming that government was the prime cause, they can't help but discuss its role. For instance,

"Between 2005 and 2008, Fannie purchased or guaranteed $311 billion in loans to risky borrowers — more than five times as much as in all its earlier years combined, according to company filings and industry data. "

"When Mr. Mudd arrived at Fannie eight years ago, it was beginning a dramatic expansion that, at its peak, had it buying 40 percent of all domestic mortgages."

This was after former Fannie CEO Franklin Delano Raines (honest, that's his middle name) and henchman J. Timothy Howard were forced out for cooking the books.

...Between 2001 and 2004, the overall subprime mortgage market — loans to the riskiest borrowers — grew from $160 billion to $540 billion, ...

...Fannie’s stamp of approval made shunned borrowers and
complex loans more acceptable to other lenders, particularly small and less sophisticated banks.

I don't entirely buy that part about "less sophisticated". They knew, but Fannie gave them the means to not care -- and to be competitive with other banks, they had to play the same game. This is what government interference in the economy does.

“When homes are doubling in price in every six years and incomes are increasing by a mere one percent per year, Fannie’s mission is of paramount importance,” Senator Jack
Reed, a Rhode Island Democrat, lectured Mr. Mudd at a Congressional hearing in 2006. “In fact, Fannie and Freddie can do more, a lot more.”

But Fannie’s computer systems could not fully analyze many of the risky loans that customers, investors and lawmakers wanted Mr. Mudd to buy. Many of them — like balloon-rate mortgages or mortgages that did not require paperwork — were so new that dangerous bets could not be identified, according to company executives.

Even so, Fannie began buying huge numbers of riskier loans.
In one meeting, according to two people present, Mr. Mudd told employees to “get aggressive on risk-taking, or get out of the company...”

Mudd (you can't make this stuff up -- that's his name, alright) appears to be something of an idiot scapegoat, chosen by Raines and Howard to take the heat because he was a weak fool filled with altruistic ideals.

In the vernacular of Atlas Shrugged, he's Eugene Lawson. Read the passages relating to the demise of the Twentieth Century Motor Company. For instance, when Dagny Taggart and Hank Rearden are interviewing Mayor Bascom of Starnesville, Wisconsin, where the Twentieth Century resided before it collapsed:

"Whose bankruptcy sale was it, when you bought the factory?"

"Oh, that was the big crash of the Community National Bank in Madison. Boy, was that a crash! It just about finished the whole state of Wisconsin--sure finished this part of it. Some say it was this motor factory that broke the bank, but others say it was only the last drop in a leaking bucket, because the Community National had bum investments all over three or four states. Eugene Lawson was the head of it. The banker with a heart, they called him. He was quite famous in these parts two-three years ago."

"Did Lawson operate the factory?"

"No. He merely lent an awful lot of money on it, more than he could ever hope to get back out of the old dump. When the factory busted, that was the last straw for Gene Lawson. The bank busted three months later." He sighed. "It hit the folks pretty hard around here. They all had their life savings in the Community National."

Mayor Bascom looked regretfully past his porch railing at his
town. He jerked his thumb at a figure across the street: it was a white-haired charwoman, moving painfully on her knees, scrubbing the steps of a house.

"See that woman, for instance? They used to be solid, respectable folks. Her husband owned the dry-goods store. He worked all his life to provide for her in her old age, and he did, too, by the time he died-- only the money was in the
Community National Bank."

"Who operated the factory when it failed?"

"Oh, that was some quicky corporation called Amalgamated Service, Inc. Just a puff-ball. Came up out of nothing and went back to it."

"Where are its members?"

"Where are the pieces of a puff-ball when it bursts? Try and trace them all over the United States. Try it."

"Where is Eugene Lawson?"

"Oh, him? He's done all right. He's got a job in Washington--in the Bureau of Economic Planning and National Resources."

This was written in the 1950's, remember. I'm torn between saying that Eugene Lawson is also Franklin Delano Raines -- but Raines bears more similarities to the looting thug of Atlas Shrugged, Cuffy Meigs. From Wikipedia (http://en.wikipedia.org/wiki/Franklin_Raines):

In 1969, Raines first worked in national politics, preparing a report for the Nixon administration on the causes and patterns of youth unrest around the country related to the Vietnam War.[2] He served in the Carter Administration as associate director for economics and government in the Office of Management and Budget and assistant director of the White House Domestic Policy Staff from 1977 to 1979.

Then he joined Lazard Freres and Co., where he worked for 11 years and became a general partner. In 1991 he became Fannie's Mae's Vice Chairman, a post he left in 1996 in order to join the Clinton Administration as the Director of the U.S. Office of Management and Budget, where he served until 1998. In 1999, he returned to Fannie Mae as CEO, "the first black man to head a Fortune 500 company."[3]

Some of you may remember the booming economic successes of the Carter Administration, where Raines cut his teeth on the economy. I only remember the mile-long lines at the gas pumps.

On December 21, 2004 Raines accepted what he called
"early retirement" [4] from his position as CEO while U.S.
Securities and Exchange Commission investigators continued to investigate alleged accounting irregularities. He is accused by The Office of Federal Housing Enterprise Oversight (OFHEO), the regulating body of Fannie Mae, of abetting widespread accounting errors, which included the shifting of losses so senior executives, such as himself, could earn large bonuses [5].

In 2006, the OFHEO announced a suit against Raines in order to recover some or all of the $90 million in payments made to Raines based on the overstated earnings [6] initially estimated to be $9 billion but have been announced as 6.3 billion.[7].
Civil charges were filed against Raines and two other former executives by the OFHEO in which the OFHEO sought $110 million in penalties and $115 million in returned bonuses from the three accused.[8]

On April 18, 2008, the government announced a settlement with Raines together with J. Timothy Howard, Fannie's former chief financial officer, and Leanne G. Spencer, Fannie's former controller. The three executives agreed to pay fines totaling about $3 million, which will be paid by Fannie's insurance policies. Raines also agreed to donate the proceeds from the sale of $1.8 million of his Fannie stock and to give up stock options. The stock options however have no value. Raines also gave up an estimated $5.3 million of "other benefits" said to be related to his pension and forgone bonuses.[9]

In other words, Raines made $90M looting the American economy, and paid a $3M fine for the privilege. You have to wonder who pulled the strings for him to get off so easy. And for those of you who don't know, the Washington Post editorial staff wrote that

"Two members of Mr. Obama's political circle, James A. Johnson and Franklin D. Raines, are former chief executives of Fannie Mae."[20] On September 18, 2008, John McCain's Campaign, published a campaign ad that quoted the Washington Post's claim that Franklin Raines advises Barack Obama on economic matters.

Obama and even the Post now deny this, but it's been widely reported elsewhere. Vultures of a feather. Back to the New York Times.

“Everybody understood that we were now buying loans that we would have previously rejected, and that the models were telling us that we were charging way too little,” said a former senior Fannie executive. “But our mandate was to stay relevant and to serve low-income borrowers. So that’s what we did.”

The mandate, of course, comes from the government.

Between 2005 and 2007, the company’s acquisitions of mortgages with down payments of less than 10 percent almost tripled. As the market for risky loans soared to $1 trillion, Fannie expanded in white-hot real estate areas like
California and Florida.

Now you know what was driving the real-estate prices in California through the roof. If you make it easy to get a loan with low rates and minimal qualifications, you expand the demand. If you expand the demand, the price has to go up. Supply and Demand theory wins again, but when the demand is artificially created...? The only balloons in the world are government inflated.

Mr. Mudd told Mr. Dallavecchia that the market, shareholders and Congress all thought the companies should be taking more risks, not fewer, according to a person who observed the conversation. “Who am I supposed to fight with first?” Mr. Mudd asked.

But this reverses the priority of causes -- it was Congress, in creating Fannie, that encouraged the private market to take more risks by encouraging (ie, demanding) that Fannie buy risky loans and undercharge for them. The private market just took advantage of the opportunity to essentially launder dirty loans in the sink of government policy:

Lawmakers, particularly Democrats, leaned on Fannie and Freddie to buy and hold those troubled debts, hoping that removing them from the system would help the economy recover. The companies, eager to regain market share and buy what they thought were undervalued loans, rushed to comply.

The White House also pitched in. James B. Lockhart, the chief regulator of Fannie and Freddie, adjusted the companies’ lending standards so they could purchase as much as $40 billion in new subprime loans. Some in Congress praised the move.

Note that even the New York Times can't absolve the Democrats. It's that bad.

In other words, government policy allowed private lenders to expand their business without having to worry about the consequences. You've heard that phrase somewhere?

Now it's our comeuppance. The bailout is solving a liquidity crisis with massive infusion of government capital into private markets, while preserving and even protecting the principle causes of that crisis, Fannie and Freddie, and preserving the principle engine of sub-prime loans, the Community Reinvestment Act, while expanding federally insured deposits from $125k to $250k, encouraging private banks to take on even *more* risk to overleverage their capital and make them more susceptible to a bank run when depositors want their money out -- and there are *even* now calls for Fannie and Freddie to reduce their fees during this time of "crisis", so that low-income borrowers aren't shut out of the mortgage market!

Truly, it doesn't get much worse than this. Some argue pragmatically that in a crisis such as this, we have to set idealistic principles aside -- that the "political reality" is that there's nothing we can do about it, we have to accept that a government bailout is needed to solve the liquidity crisis and accept the bad that comes along with it.

Will the problem recur? In the words of Bill Murray, "What if there is no tomorrow? There wasn't one today!" It's Groundhog Day.

http://www.nytimes.com/2008/10/05/business/05fannie.html?hp

October 5, 2008
Pressured to Take on Risk, Fannie Hit a Tipping Point
By CHARLES DUHIGG

“Almost no one expected what was coming. It’s not fair to blame us for not predicting the unthinkable.“— Daniel H. Mudd, former chief executive, Fannie Mae

When the mortgage giant Fannie Mae recruited Daniel H. Mudd, he told a friend he wanted to work for an altruistic business. Already a decorated marine and a successful executive, he wanted to be a role model to his four children — just as his father, the television journalist Roger Mudd, had been to him.

Fannie, a government-sponsored company, had long helped Americans get cheaper home loans by serving as a powerful middleman, buying mortgages from lenders and banks and then holding or reselling them to Wall Street investors. This allowed banks to make even more loans — expanding the pool of homeowners and permitting Fannie to ring up handsome profits along the way.

But by the time Mr. Mudd became Fannie’s chief executive in 2004, his company was under siege. Competitors were snatching lucrative parts of its business. Congress was demanding that Mr. Mudd help steer more loans to low-income borrowers. Lenders were threatening to sell directly to Wall Street unless Fannie bought a bigger chunk of their riskiest loans.

So Mr. Mudd made a fateful choice. Disregarding warnings from his managers that lenders were making too many loans that would never be repaid, he steered Fannie into more treacherous corners of the mortgage market, according to executives.

For a time, that decision proved profitable. In the end, it nearly destroyed the company and threatened to drag down the housing market and the economy.

Dozens of interviews, most from people who requested anonymity to avoid legal repercussions, offer an inside account of the critical juncture when Fannie Mae’s new chief executive, under pressure from Wall Street firms, Congress and company shareholders, took additional risks that pushed his company, and, in turn, a large part of the nation’s financial health, to the brink.

Between 2005 and 2008, Fannie purchased or guaranteed $311 billion in loans to risky borrowers — more than five times as much as in all its earlier years combined, according to company filings and industry data.

“We didn’t really know what we were buying,” said Marc Gott, a former director in Fannie’s loan servicing department. “This system was designed for plain vanilla loans, and we were trying to push chocolate sundaes through the gears.”

Last month, the White House was forced to orchestrate a $200 billion rescue of Fannie and its corporate cousin, Freddie Mac. On Sept. 26, the companies disclosed that federal prosecutors and the Securities and Exchange Commission were investigating potential accounting and governance problems.

Mr. Mudd said in an interview that he responded as best he could given the company’s challenges, and worked to balance risks prudently.

“Fannie Mae faced the danger that the market would pass us by,” he said. “We were afraid that lenders would be selling products we weren’t buying and Congress would feel like we weren’t fulfilling our mission. The market was changing, and it’s our job to buy loans, so we had to change as well.”

Dealing With Risk

When Mr. Mudd arrived at Fannie eight years ago, it was beginning a dramatic expansion that, at its peak, had it buying 40 percent of all domestic mortgages.

Just two decades earlier, Fannie had been on the brink of bankruptcy. But chief executives like Franklin D. Raines and the chief financial officer J. Timothy Howard built it into a financial juggernaut by aiming at new markets.

Fannie never actually made loans. It was essentially a mortgage insurance company, buying mortgages, keeping some but reselling most to investors and, for a fee, promising to pay off a loan if the borrower defaulted. The only real danger was that the company might guarantee questionable mortgages and lose out when large numbers of borrowers walked away from their obligations.

So Fannie constructed a vast network of computer programs and mathematical formulas that analyzed its millions of daily transactions and ranked borrowers according to their risk.

Those computer programs seemingly turned Fannie into a divining rod, capable of separating pools of similar-seeming borrowers into safe and risky bets. The riskier the loan, the more Fannie charged to handle it. In theory, those high fees would offset any losses.

With that self-assurance, the company announced in 2000 that it would buy $2 trillion in loans from low-income, minority and risky borrowers by 2010.

All this helped supercharge Fannie’s stock price and rewarded top executives with tens of millions of dollars. Mr. Raines received about $90 million between 1998 and 2004, while Mr. Howard was paid about $30.8 million. Mr. Mudd had already collected more than $10 million during his four years at Fannie, according to regulators.

Whenever competitors asked Congress to rein in the companies, lawmakers were besieged with letters and phone calls from angry constituents, some orchestrated by Fannie itself. One automated phone call warned voters: “Your congressman is trying to make mortgages more expensive. Ask him why he opposes the American dream of home ownership.”

The ripple effect of Fannie’s plunge into riskier lending was profound. Fannie’s stamp of approval made shunned borrowers and complex loans more acceptable to other lenders, particularly small and less sophisticated banks.

Between 2001 and 2004, the overall subprime mortgage market — loans to the riskiest borrowers — grew from $160 billion to $540 billion, according to Inside Mortgage Finance, a trade publication. Communities were inundated with billboards and fliers from subprime companies offering to help almost anyone buy a home.

Within a few years of Mr. Mudd’s arrival, Fannie was the most powerful mortgage company on earth.

Then it began to crumble.

Regulators, spurred by the revelation of a wide-ranging accounting fraud at Freddie, began scrutinizing Fannie’s books. In 2004 they accused Fannie of fraudulently concealing expenses to make its profits look bigger.

Mr. Howard and Mr. Raines resigned. Mr. Mudd was quickly promoted to the top spot.

But the company he inherited was becoming a shadow of its former self.

‘You Need Us’

Shortly after he became chief executive, Mr. Mudd traveled to the California offices of Angelo R. Mozilo, the head of Countrywide Financial, then the nation’s largest mortgage lender. Fannie had a longstanding and lucrative relationship with Countrywide, which sold more loans to Fannie than anyone else.

But at that meeting, Mr. Mozilo, a butcher’s son who had almost single-handedly built Countrywide into a financial powerhouse, threatened to upend their partnership unless Fannie started buying Countrywide’s riskier loans.

Mr. Mozilo, who did not return telephone calls seeking comment, told Mr. Mudd that Countrywide had other options. For example, Wall Street had recently jumped into the market for risky mortgages. Firms like Bear Stearns, Lehman Brothers and Goldman Sachs had started bundling home loans and selling them to investors — bypassing Fannie and dealing with Countrywide directly.

“You’re becoming irrelevant,” Mr. Mozilo told Mr. Mudd, according to two people with knowledge of the meeting who requested anonymity because the talks were confidential. In the previous year, Fannie had already lost 56 percent of its loan-reselling business to Wall Street and other competitors.
“You need us more than we need you,” Mr. Mozilo said, “and if you don’t take these loans, you’ll find you can lose much more.”

Then Mr. Mozilo offered everyone a breath mint.

Investors were also pressuring Mr. Mudd to take greater risks.
On one occasion, a hedge fund manager telephoned a senior Fannie executive to complain that the company was not taking enough gambles in chasing profits.

“Are you stupid or blind?” the investor roared, according to someone who heard the call, but requested anonymity. “Your job is to make me money!”
Capitol Hill bore down on Mr. Mudd as well. The same year he took the top position, regulators sharply increased Fannie’s affordable-housing goals. Democratic lawmakers demanded that the company buy more loans that had been made to low-income and minority homebuyers.

“When homes are doubling in price in every six years and incomes are increasing by a mere one percent per year, Fannie’s mission is of paramount importance,” Senator Jack Reed, a Rhode Island Democrat, lectured Mr. Mudd at a Congressional hearing in 2006. “In fact, Fannie and Freddie can do more, a lot more.”

But Fannie’s computer systems could not fully analyze many of the risky loans that customers, investors and lawmakers wanted Mr. Mudd to buy. Many of them — like balloon-rate mortgages or mortgages that did not require paperwork — were so new that dangerous bets could not be identified, according to company executives.

Even so, Fannie began buying huge numbers of riskier loans.
In one meeting, according to two people present, Mr. Mudd told employees to “get aggressive on risk-taking, or get out of the company.”
In the interview, Mr. Mudd said he did not recall that conversation and that he always stressed taking only prudent risks.

Employees, however, say they got a different message.

“Everybody understood that we were now buying loans that we would have previously rejected, and that the models were telling us that we were charging way too little,” said a former senior Fannie executive. “But our mandate was to stay relevant and to serve low-income borrowers. So that’s what we did.”

Between 2005 and 2007, the company’s acquisitions of mortgages with down payments of less than 10 percent almost tripled. As the market for risky loans soared to $1 trillion, Fannie expanded in white-hot real estate areas like California and Florida.

For two years, Mr. Mudd operated without a permanent chief risk officer to guard against unhealthy hazards. When Enrico Dallavecchia was hired for that position in 2006, he told Mr. Mudd that the company should be charging more to handle risky loans.

In the following months to come, Mr. Dallavecchia warned that some markets were becoming overheated and argued that a housing bubble had formed, according to a person with knowledge of the conversations. But many of the warnings were rebuffed.

Mr. Mudd told Mr. Dallavecchia that the market, shareholders and Congress all thought the companies should be taking more risks, not fewer, according to a person who observed the conversation. “Who am I supposed to fight with first?” Mr. Mudd asked.

In the interview, Mr. Mudd said he never made those comments. Mr. Dallavecchia was among those whom Mr. Mudd forced out of the company during a reorganization in August.

Mr. Mudd added that it was almost impossible during most of his tenure to see trouble on the horizon, because Fannie interacts with lenders rather than borrowers, which creates a delay in recognizing market conditions.
He said Fannie sought to balance market demands prudently against internal standards, that executives always sought to avoid unwise risks, and that Fannie bought far fewer troublesome loans than many other financial institutions. Mr. Mudd said he heeded many warnings from his executives and that Fannie refused to buy many risky loans, regardless of outside pressures .

“You’re dealing with massive amounts of information that flow in over months,” he said. “You almost never have an ‘Oh My God’ moment. Even now, most of the loans we bought are doing fine.”
But, of course, that moment of truth did arrive. In the middle of last year it became clear that millions of borrowers would stop paying their mortgages. For Fannie, this raised the terrifying prospect of paying billions of dollars to honor its guarantees.

Sustained by Government

Had Fannie been a private entity, its comeuppance might have happened a year ago. But the White House, Wall Street and Capitol Hill were more concerned about the trillions of dollars in other loans that were poisoning financial institutions and banks.

Lawmakers, particularly Democrats, leaned on Fannie and Freddie to buy and hold those troubled debts, hoping that removing them from the system would help the economy recover. The companies, eager to regain market share and buy what they thought were undervalued loans, rushed to comply.

The White House also pitched in. James B. Lockhart, the chief regulator of Fannie and Freddie, adjusted the companies’ lending standards so they could purchase as much as $40 billion in new subprime loans. Some in Congress praised the move.

“I’m not worried about Fannie and Freddie’s health, I’m worried that they won’t do enough to help out the economy,” the chairman of the House Financial Services Committee, Barney Frank, Democrat of Massachusetts, said at the time. “That’s why I’ve supported them all these years — so that they can help at a time like this.”

But earlier this year, Treasury Secretary Henry M. Paulson Jr. grew concerned about Fannie’s and Freddie’s stability. He sent a deputy, Robert K. Steel, a former colleague from his time at Goldman Sachs, to speak with Mr. Mudd and his counterpart at Freddie.

Mr. Steel’s orders, according to several people, were to get commitments from the companies to raise more money as a cushion against all the new loans. But when he met with the firms, Mr. Steel made few demands and seemed unfamiliar with Fannie’s and Freddie’s operations, according to someone who attended the discussions.

Rather than getting firm commitments, Mr. Steel struck handshake deals without deadlines.

That misstep would become obvious over the coming months. Although Fannie raised $7.4 billion, Freddie never raised any additional money.
Mr. Steel, who left the Treasury Department over the summer to head Wachovia bank, disputed that he had failed in his handling of the companies, and said he was proud of his work .

As the housing crisis worsened, Fannie and Freddie announced larger losses, and shares continued falling.

In July, Mr. Paulson asked Congress for authority to take over Fannie and Freddie, though he said he hoped never to use it. “If you’ve got a bazooka and people know you’ve got it, you may not have to take it out,” he told Congress.

Mr. Mudd called Treasury weekly. He offered to resign, to replace his board, to sell stock, and to raise debt. “We’ll sign in blood anything you want,” he told a Treasury official, according to someone with knowledge of the conversations.

But, according to that person, Mr. Mudd told Treasury that those options would work only if government officials publicly clarified whether they intended to take over Fannie. Otherwise, potential investors would refuse to buy the stock for fear of being wiped out.

“There were other options on the table short of a takeover,” Mr. Mudd said. But as long as Treasury refused to disclose its goals, it was impossible for the company to act, according to people close to Fannie.

Then, last month, Mr. Mudd was instructed to report to Mr. Lockhart’s office. Mr. Paulson told Mr. Mudd that he could either agree to a takeover or have one forced upon him.

“This is the right thing to do for the economy,” Mr. Paulson said, according to two people with knowledge of the talks. “We can’t take any more risks.”
Freddie was given the same message. Less than 48 hours later, Mr. Lockhart and Mr. Paulson ended Fannie and Freddie’s independence, with up to $200 billion in taxpayer money to replenish the companies’ coffers.
The move failed to stanch a spreading panic in the financial world. In fact, some analysts say, the takeover accelerated the hysteria by signaling that no company, no matter how large, was strong enough to withstand the losses stemming from troubled loans.

Within weeks, Lehman Brothers was forced to declare bankruptcy, Merrill Lynch was pushed into the arms of Bank of America, and the government stepped in to bail out the insurance giant American International Group.

Today, Mr. Paulson is scrambling to implement a $700 billion plan to bail out the financial sector, while Mr. Lockhart effectively runs Fannie and Freddie.

Mr. Raines and Mr. Howard, who kept most of their millions, are living well. Mr. Raines has improved his golf game. Mr. Howard divides his time between large homes outside Washington and Cancun, Mexico, where his staff is learning how to cook American meals.

But Mr. Mudd, who lost millions of dollars as the company’s stock declined and had his severance revoked after the company was seized, often travels to New York for job interviews. He recalled that one of his sons recently asked him why he had been fired.

“Sometimes things don’t work out, no matter how hard you try,” he replied.

Devils, Fools and the Bogeyman, Tres

Watching a TV re-run last night (La Femme Nikita, episode "Adrian's Garden", 1998), a character remarked,

"The Dark Ages were a thousand years of chaos and war and famine and disease.
You think we can't have another Dark Ages just because we have
computers, jet planes and cellular phones? Think again."

Unfortunately, I agree. That is where we are headed, driven by the false philosophies of altruism and pragmatism, in the hands of statists.

Many, in and out of government, including a lot of politicians and some pundits (can someone either get Bill O'Reilly an education in free-market economics or a one-way ticket to a Soviet Gulag?), are now calling for more regulation of the banking industry and want to go after the CEOs en masse. Devils and fools, going after the bogeymen -- while government gets a free pass. Remember: Smoot-Hawley deepened the Great Depression, it didn't relieve it.

Virtually everything the government is doing right now is the exact opposite of what is needed to solve the banking crisis, including the rescue of Fannie and Freddie, the two central culprits that brought us to this point, via the Community Re-investment Act, which "encouraged" banks to make bad loans to unqualified borrowers. (See Yaron Brook's excellent analysis in Forbes, "The Government Did It", http://www.forbes.com/opinions/2008/07/18/fannie-freddie-regulation-oped-cx_yb_0718brook.html)

Now we have the spectacle of the government printing massive amounts of money out of thin air to "stem" the crisis, like putting a welded steel plug on the exhaust vent of an out-of-control nuclear reactor.

As Ayn Rand used to say, "A is A" (see Atlas Shrugged). Down the road, we might be looking at a world-wide depression. I don't know if it will be 1, 5, or 20 years, but reality catches up with unreality, eventually. A is A.

On principle government is the beginning, middle and end of the problem, not the "greedy speculators", "greedy CEOs", "greedy oil companies" and "greedy bankers", as McBama are saying.

The only real solution is, in the words of the 17th century manufacturer Legendre, when asked what the government could do to help industry, "laissez nous faire!" Or, in the vernacular of Rand's hero John Galt, "Get the hell out of my way!"

Shrinks want to paint your brain Green

How far will Greens go to make you one of them? See the article copied at bottom:

"...the 148,000-member American Psychological Association is stepping up efforts
to foster a broader sense of eco-sensitivity that the group believes will
translate into more public action to protect the planet."

Well, let's not forget USAToday -- if you open the link, this story was completely SURROUNDED by Green propaganda that I cut because it was so nauseating. I must care for my readers' mental health. More than the APA does.

"American Psychological Association leaders say they want to launch a national
initiative specifically targeting behavior changes, including developing media
messages that will help people reduce their carbon footprint and pay more
attention to ways they can conserve. They want to work with other organizations
and enlist congressional support to help fund the effort."

Sounds like a Hollywood conspiracy flick ...a secret project to control the minds of an entire country... Ever see "Conspiracy Theory"? But on a bigger scale, with more nefarious objectives. More like "Invasion of the Body Snatchers meets the Stepford Wives". Or "Star Trek Next Generation -- Stalag 17 meets the Gulag Archipelago": Jean Luc Picard Takes on the Borg Collective who have overrun the headquarters of the American Psychological Association.

Seriously, how bad does it have to get that a quasi-medical organization believes it has right to "change the behavior" of the entire country to promote a political/religious agenda?

"Social psychologist Jessica Nolan studied the issue at the University of
Arkansas-Fayetteville ...[and] found that students are not particularly inclined
to disapprove of the non-sustainable behavior of others."

Read between the lines: what this really means is that psychologists have to change our "behavior" so that we *do* disapprove of the "non-sustainable" behavior others.

"News stories that provided a balanced view of climate change reduced people's
beliefs that humans are at fault and also reduced the number of people who
thought climate change would be bad, according to research by Stanford social
psychologist Jon Krosnick. "

... the sentence preceding had the reporter lead into this by saying "negative feedback for those more invested in the environment promotes more sustainable behavior" -- but that is *not* what it means -- what Stanford social psychologist Jon Krosnick means is, *stop criticism of climate change in news stories*.

"Paul Stern, a researcher at the National Academy of Sciences in Washington,
D.C., says people generally want to do the right thing but don't know what it
is. "

Again, the point is, people have to be brainwashed by the APA so they know what the right thing is.

"We are recognizing that environmental problems have a tremendous impact on many
aspects of our lives, but we need a lot more work," he says. "We can't afford to
let this increased environmental concern become just another fashionable trend."

You've got to concretize the meaning of all this -- if it isn't going to be just another fashionable trend, then they've got to force people to support it. They've got to brainwash people with Green propaganda in newsprint and elsewhere (aided and abetted by "news" orgs such as USAToday). They've got to institutionalize it -- in schools, above all, even more than it is now, in more government programs that "protect" the environment, in laws that will *make* you protect the environment -- like San Francisco's forced recycling program, where you face a $1000 fine if you don't "participate".

Give these goons time -- it will spread to the use of lightbulbs, the type and amount of gasoline you buy, the type of car you drive, the appearance of your yard (are you using eco-friendly vegetation?), monitering devices (like the cameras in Britain to moniter your re-cycling habits), to almost anything you can imagine -- fines, felony convictions, "Green Police" (like they have in Boulder, Colorado), busted-in doors, and other qualities of a fully eco-friendly nation.

I mean it. It's limited only by the imagination of these people. I'm reminded once again of a quote from "The Fountainhead" that I used in a recent LTE. It occurs to me often, because it captures the soul of the Left so well (not that the Right isn't occasionally guilty of this, but not as consistently -- for the Left, it's a raison d'etre).

As I said in the LTE, the quote comes when arch-Leftist/Marxist and cynically erudite newspaper columnist Ellsworth Toohey confesses to Peter Keating, the man who sold his soul, his motives for destroying the independent man represented by architect Howard Roark:

"I don't want to kill him. I want him in jail. You understand? In jail. In a
cell. Behind bars. Locked, stopped, strapped--and alive. He'll get up when they
tell him to. He'll eat what they give him. He'll move when he's told to move and
stop when he's told. He'll walk to the jute mill, when he's told, and he'll work
as he's told. They'll push him, if he doesn't move fast enough, and they'll slap
his face when they feel like it, and they'll beat him with rubber hose if he
doesn't obey. And he'll obey. He'll take orders. He'll take orders!""

The day the APA gets its way, I suspect they will discover another consequence or two of Ayn Rand's adage that "you can't force a mind" --


http://www.usatoday.com/news/nation/environment/2008-08-13-green-psychology_N.htm?csp=1

Psychologists determine what it means to think 'green'
By Sharon Jayson, USA TODAY
Those who make human behavior their business aim to make living "green" your business.
Armed with new research into what makes some people environmentally conscious and others less so, the 148,000-member American Psychological Association is stepping up efforts to foster a broader sense of eco-sensitivity that the group believes will translate into more public action to protect the planet.
"We know how to change behavior and attitudes. That is what we do," says Yale University psychologist Alan Kazdin, association president. "We know what messages will work and what will not."
During a four-day meeting that begins today in Boston, an expected 16,000 attendees will hear presentations, including studies that explore how people experience the environment, their attitudes about climate change and what social barriers prevent conservation of resources.
Among the yet-unpublished findings:
• Walking outside rather than inside — even for just 15 minutes — makes you feel happier, more energetic and more protective of the environment, found two studies involving 220 students conducted by psychologists at Carleton University in Ottawa. Researcher Elizabeth Nisbet suggests the findings have broader implications for well-being and mental health.

"People know outside is going to feel much better for them but underpredict how happy they're going to feel after being outside in nature even 15 minutes," she says. "The people inside overestimate their happiness about being inside. It's this error in judgment people have about how happy they are in a different environment that may explain why people don't spend more time in nature."
Behind the research
• Negative feedback can backfire. In two studies, psychologist Amara Brook of California's Santa Clara University and colleague Jennifer Crocker of the University of Michigan asked 212 undergraduates about their ecological footprint. For those not heavily invested in the environment, negative feedback about their ecological footprint actually undermines their environmental behavior, they found.
"Rather than changing their ways to protect the environment, the results of this study suggest that these (people) may give up on their efforts to protect the environment," they report.
But negative feedback for those more invested in the environment promotes more sustainable behavior, they found.
• News stories that provided a balanced view of climate change reduced people's beliefs that humans are at fault and also reduced the number of people who thought climate change would be bad, according to research by Stanford social psychologist Jon Krosnick.
His presentation will detail a decade of American attitudes about climate change. His new experiment, conducted in May, illustrates what he says is a public misperception about global warming. He says there is scientific consensus among experts that climate change is occurring, but the nationwide online poll of 2,600 adults asked whether they believe scientists agree or disagree about it.
By editing CNN and PBS news stories so that some saw a skeptic included in the report, others saw a story in which the skeptic was edited out and another group saw no video, Krosnick found that adding 45 seconds of a skeptic to one news story caused 11% of Americans to shift their opinions about the scientific consensus. Rather than 58% believing a perceived scientific agreement, inclusion of the skeptic caused the perceived amount of agreement to drop to 47%.
American Psychological Association leaders say they want to launch a national initiative specifically targeting behavior changes, including developing media messages that will help people reduce their carbon footprint and pay more attention to ways they can conserve. They want to work with other organizations and enlist congressional support to help fund the effort.
A USA TODAY/Gallup Poll last year found that people know they could do more. Of 1,007 adults surveyed, only about half thought they personally did a good job of protecting the environment; less than 10% said their efforts were "excellent."
Messages that tell people to "be green" or encourage them to follow a more ecologically aware way of living aren't necessarily having the desired effect, psychologists say. Although people know the buzzwords — "sustainability," "carbon footprint" and "global warming" — they aren't really sure what they mean or what they personally can do.
Confusion abounds
"I think most people recognize we face a severe environmental crisis, but it's hard to deal with that head-on because most people feel helpless to do anything about it," says Douglas Vakoch, a clinical psychologist at the California Institute of Integral Studies in San Francisco.
"If we look at the nature of the problem, it is so big it's hard to know what any individual can do in their own life to make a difference," he says. "The tendency when people are confronted with an overwhelming problem is to run away from it, so psychologists are very experienced in dealing with that."
Paul Stern, a researcher at the National Academy of Sciences in Washington, D.C., says people generally want to do the right thing but don't know what it is. And he says they have "mistaken impressions" about what will actually affect energy use.
At the meeting, Stern will present a preview of a report he co-authored that outlines the behaviors that matter most in terms of energy consumption. The report, which will appear in the September/October issue of Environment magazine, is the latest update of a list initially analyzed in 1981.
"One of the first things you think of is turning off lights when you leave a room or changing the thermostat settings in the house. They don't think first of caulking windows or upgrading your furnace," Stern says. "More insulation in the attic and tight windows make more difference than changing the thermostat setting. Having a more fuel-efficient car makes more difference than any amount you're likely to decrease driving."
Because Stern's research was on energy use, he didn't look at recycling. Social psychologist Jessica Nolan studied the issue at the University of Arkansas-Fayetteville.
Nolan, who this fall will be an assistant professor of psychology at the University of Scranton in Pennsylvania, examined global warming, recycling and improper disposal of used motor oil with three studies involving a total of 289 students.
She found that students are not particularly inclined to disapprove of the non-sustainable behavior of others.
"People showed strong approval for other students who recycled. You would hope to see people disapprove of people who don't recycle, but they didn't disapprove," she says.
But, she says, the response was stronger if the activity was perceived as more harmful: More students said they would scold someone if they saw that person improperly disposing of motor oil.
Vakoch says more research is needed to encourage greater sensitivity to the natural world.
"We are recognizing that environmental problems have a tremendous impact on many aspects of our lives, but we need a lot more work," he says. "We can't afford to let this increased environmental concern become just another fashionable trend."

READERS: What has inspired you to adopt more eco-friendly practices? What turns you off to going green? Share your views below:

WWIII ? You decide.

From the NY Times this morning:

"The Russian defense ministry said 100 planeloads of airborne troops will be
brought to northern Russia and marched into the “zone of hostilities.” Georgian
officials said at least 2,500 Russian troops were already in the country. "

From the story copied below from a friend:

"In the summer of 1914, a Serbian terrorist shot and killed Archduke Franz
Ferdinand of Austria in Sarajevo. A series of interlocking alliances were
activated, resulting in an invasion of Western Europe by German and Austrian
armies, resulting in World War I, which resulted in 20 million deaths."

This was on my mind when I read reports this morning. I don't know enough to say if the parallel is a good one -- but Georgia (former Soviet state) presents an interesting confluence of factors:

• Iran to southeast. Are we staging for an attack? Some evidence for it. A Russian attack would make a good distraction, and difficult for us to use Georgia as a base (if we are at all -- we have some military advisors there).
• Iran to the southeast. How might they take advantage of the situation if we are drawn in?
• Turkey to south. NATO ally, Devout muslim president who doesn't view the West so charitably. If NATO intevenes, does he allow use of Turkey for staging forces?
• Oil. Not much in Georgia, but Russians are threatening a pipeline transiting Georgia. Press talks about it, but CIA Factbook description sounds minor.
• NATO. Georgia seeks membership. Putin and his cronies hate the idea.
• Ambition. Putin longs for the good old days of the Soviet empire.
• Psychology: How much is Putin willing to risk to get it? My sense is a lot -- he wants power more than trade for profit.
• Brinksmanship. If we blink, Putin will know what he can get away with. (Certainly he's encouraged in that view by Bush's flacid response to 9/11 and Iran)
• Drama. The timing can't be ignored. While holding hands at the Beijing Olympics, Putin gooses Bush. It's like responding to a rude guest a large party: no one wants to say anything, or in this case, do anything to disrupt the festivities. Deer in the headlights syndrome.
• China. If we helped Georgia and war escalated rapidly and moved beyond, drawing in Nato, etc, would China seize the opportunity to seize Taiwan? I wouldn't put it beyond them. Opporknockity tunes but once. Carpe diem. Or Taiwan.
• Russian military. How good are they today? How good are their nukes and their ICBMs? (How many are still functioning?)

As Cyrano de Bergerac might say, "Then, as I end the refrain, thrust home!"

Reports this morning say the Russians are attacking deep within Georgia, including the Black Sea port of Poti. I think their intentions go beyond seizing South Ossetia (a small northern province of Georgia). I think Putin wants the entire state of the strongly pro-Western Georgia. The question is, will we stop him? Georgia has a small population of about 4 million -- there's no way they can hold off the Russians themselves, if they really want the place. But if we intervene, it becomes a big deal.

As I said, I'm no expert on this region, or even on a lot of the nuances of the geopolitics of who will support whom with what. It may be the West will rollover dead and let Putin take Georgia to avoid a bigger crisis. Maybe it's even likely. But I will make a general observation: years of U.S. foreign policy that has forestalled or needlessly diluted necessary military action to eliminate threats decisively and early around the world, or foreign policy that encourages the emergence of those threats in the first place, has encouraged no end of tin-pot dictators and irrational ideologies and religions of their opportunities for ascendency, and created a pressure-cooker situation belied by the cheery facade of the Beijing Olympics.

Whether it's Georgia or some other place, the cooker has got to eventually blow, unless something is done ASAP to shoot holes in the illusion these people have that they can achieve their agendas. I worry it may already be too late to prevent -- now in Georgia, or 5 to10 years from now, elsewhere. Where will an Obama presidency lead us? Surely more quickly down that road. Personally, I'd buy a helmet and prepare to duck.

https://www.cia.gov/library/publications/the-world-factbook/geos/gg.html (CIA statistics on Georgia)
http://www.nytimes.com/2008/08/10/world/europe/10georgia.html?hp ("1,500 Reported Killed in Georgia Battle")

-----Original Message-----
http://www.pennwellblogs.com/mae/2008/08/russia-invades-georgia-archduke.html

Russia invades Georgia: an Archduke Ferdinand moment?

Friday, August 8, 2008

Posted by John Keller

Russian tanks and armored personnel carriers rolled across the Georgian border yesterday in a fast-moving armored blitzkrieg in support of Georgian separatist rebels fighting in opposition to the democratic and Western-leaning established government of Georgia.

CNN is reporting that upwards of 1,000 Georgian civilians have been killed so far, and Russian warplanes have dropped bombs on at least one Georgian military air base.

This isn't a little border clash; these two countries are in an all-out war. No one has seen this kind of Russian incursion since the Soviet Union's invasions of Afghanistan in 1979, of Czechoslovakia in 1968, and of Hungary in 1956. Is this the beginning of a return to the bad old days?

Interesting that this comes the day before the Olympics open in Beijing, and the U.S. is in the heat of a presidential election. What better timing to ensure that nobody in the U.S. or the West cares much about this military invasion. Georgian President Mikhail Saakashvili says the Russian timing is no accident. I don't think it's any accident either.

Saakashvili made clear in an interview today that this incident represents a test of Western support for democratic governments, especially those established in the sphere of influence of the old Soviet Union, as Georgia certainly is.

Georgia has voiced its wish to join the North Atlantic Treaty Organization, better-known as NATO. Russia has said this would be unacceptable.

Russia has put its money and military might where its mouth is. The most fundamental geopolitical question in the world today is will the West do the same? Would it make sense for the U.S. to get involved in the Russian-Georgia War, which Russia will claim is an internal conflict and Georgia will claim is naked armed aggression against an independent democratic country?

The only thing between U.S. air bases in Iraq and the Georgian capital of T'bilisi is the country of Turkey. Would the Turks grant permission to U.S. planes to overfly its territory in support of Georgia? That's not clear. Would U.S. aircraft carriers -- they're not there already -- move into the Eastern Mediterranean -- or even into the Black Sea -- within striking distance of Georgia? We'll have to see.

The bigger question is would we want to do this? The answer is, we would if we would like the world to take the U.S. and its rhetoric supporting democratic movements and governments seriously.

Next question: COULD we get involved while U.S. forces are already stretched thin in Iraq and Afghanistan, and on the opening day of the Olympics? That would be ugly. We'll see if the Bush Administration has the stomach for it.

In the meantime, I'm reflecting on the history of the early 20th century. In the summer of 1914, a Serbian terrorist shot and killed Archduke Franz Ferdinand of Austria in Sarajevo. A series of interlocking alliances were activated, resulting in an invasion of Western Europe by German and Austrian armies, resulting in World War I, which resulted in 20 million deaths.

I wonder if the Russian invasion of Georgia is an Archduke Ferdinand moment. I hope it's not, but smaller things have resulted in global conflagrations. The risks and threats posed by the Russian invasion throughout the world are huge.

I'll be keeping a close eye.

Defacto Censorship strikes again

"In this instance we decided, after much deliberation, to postpone publication
for the safety of the author, employees of Random House, booksellers and anyone
else who would be involved in distribution and sale of the novel," Perry said.

Well, Mohammed's child bride was 6, after all, when they were betrothed, and 9-ish when they married. Someone ought to be offended. Wait. I'm the one. For the muslims -- it's just the truth. I guess they just don't want the rest of us to know the real nature of the ol' Prophet, besides being a psychopath.

This is what happens when the U.S. (or British) government fails to protect even a hack like Salmon Rushdie, or when it fails to decisively win a "war on terror" in a timely way (~three weeks, let's say) or when it embraces a foreign policy of appeasement of radical muslim countries to secure their oil or their "cooperation" in a "war on terror", or when it promotes a domestic policy of "outreach" to muslim organizations with ties to terrorists who intimidate anyone who criticize muslims, or when it fails to protect publishers because it fails to do all that other stuff, or... etc.

I know nothing of what's in the book besides this story; it's irrelevant. Freedom of speech is slipping away when this can go on.

http://www.iht.com/articles/reuters/2008/08/07/america/OUKWD-UK-BOOK-ISLAM.php
Random House pulls novel on Islam, fears violence
Thu Aug 7, 2008 6:39pm EDT
By Edith Honan

NEW YORK (Reuters) - Publisher Random House has pulled a novel about the Prophet Mohammed's child bride, fearing it could "incite acts of violence."

"The Jewel of Medina," a debut novel by journalist Sherry Jones, 46, was due to be published on August 12 by Random House, a unit of Bertelsmann AG, and an eight-city publicity tour had been scheduled, Jones told Reuters on Thursday.

The novel traces the life of A'isha from her engagement to Mohammed, when she was six, until the prophet's death. Jones said that she was shocked to learn in May, that publication would be postponed indefinitely.
"I have deliberately and consciously written respectfully about Islam and Mohammed ... I envisioned that my book would be a bridge-builder," said Jones.

Random House deputy publisher Thomas Perry said in a statement the company received "cautionary advice not only that the publication of this book might be offensive to some in the Muslim community, but also that it could incite acts of violence by a small, radical segment."

"In this instance we decided, after much deliberation, to postpone publication for the safety of the author, employees of Random House, booksellers and anyone else who would be involved in distribution and sale of the novel," Perry said.

Jones, who has just completed a sequel to the novel examining her heroine's later life, is free to sell her book to other publishers, Perry said.
The decision has sparked controversy on Internet blogs and in academic circles. Some compared the controversy to previous cases where portrayals of Islam were met with violence.

Protests and riots erupted in many Muslim countries in 2006 when cartoons, one showing the Prophet Mohammed wearing a turban resembling a bomb, appeared in a Danish newspaper. At least 50 people were killed and Danish embassies attacked.

British author Salman Rushdie's 1988 book "The Satanic Verses" was met with riots across the Muslim world. Rushdie was forced into hiding for several years after Iran's then supreme religious leader, Ayatollah Ruhollah Khomeini, proclaimed a death edict, or fatwa, against him.

Jones, who has never visited the Middle East, spent several years studying Arab history and said the novel was a synthesis of all she had learned.
"They did have a great love story," Jones said of Mohammed and A'isha, who is often referred to as Mohammed's favorite wife. "He died with his head on her breast."