If I wanted America to fail …

Simply magnificent.

(HT: Tim)

Update: Words by Ryan Houck

If I wanted America to fail …

To follow, not lead; to suffer, not prosper; to despair, not dream.

I would start with energy.

I’d cut off America’s supply of cheap, abundant energy. I couldn’t take it by force. So, I’d make Americans feel guilty for using the energy that heats their homes, fuels their cars, runs their businesses, and powers their economy.

I’d make cheap energy expensive, so that expensive energy would seem cheap.

I would empower unelected bureaucrats to all-but-outlaw America’s most abundant sources of energy. And after banning its use in America, I’d make it illegal for American companies to ship it overseas.

If I wanted America to fail …

I’d use our schools to teach one generation of Americans that our factories and our cars will cause a new Ice Age, and I’d muster a straight face so I could teach the next generation that they’re causing Global Warming.

And when it’s cold out, I’d call it Climate Change instead.

I’d imply that America’s cities and factories could run on wind power and wishes. I’d teach children how to ignore the hypocrisy of condemning logging, mining and farming — while having roofs over their heads, heat in their homes and food on their tables. I would never teach children that the free market is the only force in human history to uplift the poor, establish the middle class and create lasting prosperity.

Instead, I’d demonize prosperity itself, so that they will not miss what they will never have.

If I wanted America to fail …

I would create countless new regulations and seldom cancel old ones. They would be so complicated that only bureaucrats, lawyers and lobbyists could understand them. That way small businesses with big ideas wouldn’t stand a chance – and I would never have to worry about another Thomas Edison, Henry Ford or Steve Jobs.

I would ridicule as “Flat Earthers” those who urge us to lower energy costs by increasing supply. And when the evangelists of commonsense try to remind people about the law of supply and demand, I’d enlist a sympathetic media to drown them out.

If I wanted America to fail …

I would empower unaccountable bureaucracies seated in a distant capitol to bully Americans out of their dreams and their property rights. I’d send federal agents to raid guitar factories for using the wrong kind of wood; I’d force homeowners to tear down the homes they built on their own land.

I’d make it almost impossible for farmers to farm, miners to mine, loggers to log, and builders to build.

And because I don’t believe in free markets, I’d invent false ones. I’d devise fictitious products—like carbon credits—and trade them in imaginary markets. I’d convince people that this would create jobs and be good for the economy.

If I wanted America to fail …

For every concern, I’d invent a crisis; and for every crisis, I’d invent the cause; Like shutting down entire industries and killing tens of thousands of jobs in the name of saving spotted owls. And when everyone learned the stunning irony that the owls were victims of their larger cousins—and not people—it would already be decades too late.

If I wanted America to fail …

I’d make it easier to stop commerce than start it – easier to kill jobs than create them – more fashionable to resent success than to seek it.

When industries seek to create jobs, I’d file lawsuits to stop them. And then I’d make taxpayers pay for my lawyers.

If I wanted America to fail …

I would transform the environmental agenda from a document of conservation to an economic suicide pact. I would concede entire industries to our economic rivals by imposing regulations that cost trillions. I would celebrate those who preach environmental austerity in public while indulging a lavish lifestyle in private.

I’d convince Americans that Europe has it right, and America has it wrong.

If I wanted America to fail …

I would prey on the goodness and decency of ordinary Americans.

I would only need to convince them … that all of this is for the greater good.

If I wanted America to fail, I suppose I wouldn’t change a thing.

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119 Responses to If I wanted America to fail …

  1. Rafe

    Let’s have more of this as well.

    “The legal claim, over a bruised eye, has raised concerns that “litigation-crazy’’ parents could threaten the future of school sport by forcing up insurance costs…”

  2. C.L.

    Ace’s graphics of the day:

    http://reaganiterepublicanresistance.blogspot.com.au/2012/04/all-any-american-needs-to-know-about.html

    If Obama really was a Manchurian Candidate, would he do anything differently? He even eats dogs like a Korean.

  3. Myrrdin Seren

    Sounds like the mantra Paul Krugman must be humming to himself every time he sits at the keyboard.

  4. PSC

    If I wanted America to fail I’d get the country to engage in a war on physics.

    There’s a lovely argument here about why the energy consumption (and thus production) of America will stop increasing:

    http://physics.ucsd.edu/do-the-math/2012/04/economist-meets-physicist/

  5. JC

    If I wanted America to fail I’d get the country to engage in a war on physics.

    So the science is settled and the debate is over. Malthus was right?

  6. Helen Armstrong

    How good is this? Someone has put how I feel (frustrations and fears) into words and pictures.

  7. Sinclair Davidson

    So the physicist talks more about prices of a known technology more than the economist? Really? Wow.

  8. FDB

    If I wanted efforts at global agreement on the very real problem of global warming, I’d make up fairy tales about how it’s all a plot to deprive the developed world of their power.

  9. FDB

    “…global warming to fail

    yuk

  10. On your Marx

    magnificently untrue.

  11. Elizabeth (Lizzie) B.

    Awesome.

    Applies just as well to Australia.

  12. Gab

    I’d make up fairy tales about how it’s all a plot to deprive the developed world of their power.

    No plot. More the unintended consequences of their complete and utter stupidity and short-sightedness.

  13. JC

    If I wanted efforts at global agreement on the very real problem of global warming, I’d make up fairy tales about how it’s all a plot to deprive the developed world of their power.

    Make up what FDB, you muffin head? The Kenyan and his coterie of imbeciles have explicitly stated that they will attempt to move the US away from using fossil fuels to non-fossil fuel based energy sources with scant regard for nuclear. They have said they will either do it with the consent of Congress or regulatory fiat.

    Seeing the price of non fossil is perhaps 4 to 5 times over the cost of fossil fuels what plot is there and why would there be a need to make up anything the Kenyan has said?

    You moron.

  14. Token

    If I wanted efforts at global agreement on the very real problem of global warming to fail, I’d make up fairy tales about how it’s all a plot to deprive the developed world of their power.

    A global agreement is the fairy tale.

    The despots and totalitarians and rent seekers will ensure that fantasy never happens.

  15. JC

    magnificently untrue.

    Should be on your headstone eventually Homer as well as making note that you were biggest imbecile walking on two legs providing further proof public ed has a huge downside.

  16. On your Marx

    the expert on Basel l11 has spoken with as much accuracy.

  17. Tom

    I’d make up fairy tales about global warming.

    FIFY.

  18. Token

    Henry Ergas today laying out the facts and what would occur once more if the dream provided by western civilization would fail:

    Let me start at the beginning. For most of human history, birth rates and death rates were very high—in the order of 5 percent or more of the population per annum—and human life expectancy, even in early adulthood, was constant and relatively low. Moreover, body size was about 50 percent lower than today, reducing resistance to disease and ensuring most of the population was ill much of the time, with a high incidence of degenerative conditions. And with very low calorie consumption, even those who were not chronically ill had little energy, with perhaps 20 percent of the population so weak as to be reduced to being mendicants. In short, mortality and morbidity were both extremely high and life was truly “poor, nasty, brutish, and short”.

    Over the course of the last 300 years, that situation has changed dramatically.As improvements in agricultural productivity allowed the elimination of chronic malnutrition in the West, human body weight rose by over a third and human height increased by 15 to 20 centimetres. Greater body mass reduced vulnerability to disease while better nutrition increased human energy levels, not only directly but also through improved energy efficiency (as less energy was wasted combating illness). The result was a wave of increases in human longevity that began in the mid to late 18th century.

  19. C.L.

    If I wanted Australia to fail …

    - I’d set up a socialist in the Lodge.
    - I’d make this man Treasurer.
    - I’d introduce a carbon dioxide tax to save the planet.
    - I’d bash the sector of the economy making us rich.
    - I’d sign an alliance with the Greens.
    - I’d blow $50 billion on toilet blocks and home incineration.

  20. Full of absurd exaggerations and crap that shows why (much of) the Right in America and Australia is intellectual poison at the moment.

  21. Tal

    Unlike the brains trust running the joint

  22. JC

    the expert on Basel l11 has spoken with as much accuracy.

    Wrong again. I’m not an expert on the subject at all, however I understand the rudimentary of Basel 3 and know enough to say that it has nothing to do with the management of national budgets and deficit financing. You fucking clown Homer.

    Your stupidity and stubborn ignorance in this area in highly and widely indicative of the reasons you went from market economist to stacking lipton tea packets in Coles on the night shift.

    Bringing this up is also indicative of why you were banned the first time for derailing threads.

  23. Pingback: Sound familiar? | Climate Nonconformist

  24. JC

    Full of absurd exaggerations and crap that shows why (much of) the Right in America and Australia is intellectual poison at the moment.

    Examples please stepford.

    You know what is intellectual poison at the moment, Step. It’s believing that putting a pwice on carbin at 3 times the world average will impact the global thermostat and that it will not have any impact on on our industrial base.

  25. JC

    Oh and by the way….. great great video, Sinc and thanks for sharing it with you readership.

  26. Matt

    Full of absurd exaggerations and crap

    As opposed to the sober and astute opinions of the “Occupy” movement who speak only sweet reason.

    that shows why (much of) the Right in America and Australia is intellectual poison at the moment

    Yep, the left is the side with all the answers at the moment … Wait, hang on … Oh.

  27. JC

    Yep, the left is the side with all the answers at the moment … Wait, hang on … Oh.

    the lying slapper and tubbsie Milne…. the intellectual giants of our political class.

  28. Tiny Dancer

    Full of absurd exaggerations and crap that shows why (much of) the Right in America and Australia is intellectual poison at the moment.

    Unlike your beloved lying slapper, Swanny, Thommo and the rampaging speaker.

  29. RichardM

    “Full of absurd exaggerations and crap that shows why (much of) the Right in America and Australia is intellectual poison at the moment.”

    It’s almost amusing to hear this kind of thing from Leftards; worshippers at the alter of a moribund ideology that has failed so spectacularly and so desperately miserably.

    How many tens of millions have to literally die before the Left finally just pisses off and leaves humanity in peace?

  30. How amusing. Freemarket America started as Freemarket Florida, which will be the first State to start disappearing (almost entirely, if I recall correctly) due to sea level rises put in motion by the oil and coal they want you to burn now.

    What a joke.

  31. JamesK

    How amusing. Freemarket America started as Freemarket Florida, which will be the first State to start disappearing (almost entirely, if I recall correctly) due to sea level rises put in motion by the oil and coal they want you to burn now.

    The only joke is that a space cadet loon like liar-steve™ is permitted to run free in the community after posting yet more insane catastrophist fear-mongering drivel

  32. JC

    Huh! That possibly ranks with the stupidest comments ever read on this site, Stepford. It also includes all Homer infestations.

  33. Tom

    You really believe all that gibberish, Steve. You really would buy a used car from Jim Hansen, the chief zombie.

  34. RichardM

    “almost entirely, if I recall correctly”

    If you recall what correctly?

    The constant barrage of gibbering Leftist agitprop?

    Aren’t you required to learn those talking points by heart?

    Tsk, tsk.

  35. JamesK

    Sinc should elevate liar-steve™’s last comment as a seperate blog thread.

    Such insanity shouldn’t be hidden.

    Not that sunlight or anything else for that matter could disinfect liar-steve™ of his nutter leftism.

  36. Driftforge

    @PSC – Fascinating thought process. As always, most increasing curves that look exponential turn out to be logistic. The difficulty is in picking the limit / inflection point.

    The take away I got from that is that you will probably end up seeing and ongoing growth in energy per person and a reduction in the number of people.

    Asimov’s Aurora is probably a touch too far, but a head nod to our eventual direction.

    Assuming of course that we avoid his earth.

  37. Steve you should visit this site. The guy who runs it is from Kansas and is a climate skeptic and social conservative Santorum supporter. There are only a few people who comment there regularly and is in need of a resident leftie.

  38. Pingback: Obama’s America… | pindanpost

  39. Scott

    This is very, very good.

  40. Streetcred

    OMG ! How close to TOTAL FAILURE are we in Australia ? Once we root out the socialists they are never to let let near government again.

    Oh! and liar-Steve, put your head in a plastic bag and draw it tight … in doing this you will raise the average IQ in Australia quite considerably. Cretin.

  41. FDB

    A global agreement is the fairy tale.

    The despots and totalitarians and rent seekers will ensure that fantasy never happens.

    A strange admission Token, but a welcome one.

  42. twostix

    How amusing. Freemarket America started as Freemarket Florida, which will be the first State to start disappearing (almost entirely, if I recall correctly)

    Florida is going to “disappear entirely”.

    Do you realise how utterly ridiculous you sound saying things like that in 2012??

    2009 called, it wants it’s hysteria back.

    I am glad however that you given up the whole “Hi Alan, I’m a liberal voting conservative catholic, but…” schtick though and are being more true to yourself and everyone else as of late.

    Well done.

  43. Nick

    How is are any of these observations incorrect? Those who beleive these observations to incorrect are actually mindless and petty in their cares and worries.

    And, further, expect others to take responsibility for those mindless cares and worries by providing a solution for them.

    EEeerrr grow up! Look after yourself. We’re not your mother.

    This article paints the perfect “Big Picture”. Which as it turns out is headed for disaster.

  44. dover_beach

    Steve you should visit this site….There are only a few people who comment there regularly and is in need of a resident leftie.

    That’s just evil.

  45. john P

    If you think this great piece of writing and reasoning is crap – you are part of a very real and sinister problem.

  46. mags

    How comforting to know that we are not going it alone with crackpot ideas designed to beggar the country.How painful it is to know that there are still people like Steve from Brisbane who can’t face up to the reality of the global warming scam and is prepared to see Australia in massive debt for decades just because they won’t admit they’re wrong.

    America used to be the beacon of all that was the best and even its detractors broke their necks to get there. How things have changed. Their society, like ours, has been white anted from within and the damage to future generations is incalculable.

  47. On your Marx

    oh dear,

    The government too feedback from the market on it and hoe it would be affected.

    The Budget talked about how it would impact the bond market.

    Simply admit you have no idea on this and move on.

    you have been horribly caught out.

    It is no wonder you eat up this present gibberish

  48. Gab

    The government too feedback from the market on it and hoe it would be affected.

    What??

  49. RichardM

    “How painful it is to know that there are still people like Steve from Brisbane who can’t face up to the reality of the global warming scam…”

    They know full well it’s a scam.

    They persist for other reasons entirely.

  50. jtfsoon

    The government too feedback from the market on it and hoe it would be affected.

    This is the old Homer we know and love …

  51. Their society, like ours, has been white anted from within and the damage to future generations is incalculable.

    mags
    The US is a long way behind us just waiting for the reserve currency thing to catch up with them (more expensive money) then it will be apparent.

  52. Jc 

    The government too feedback from the market on it and hoe it would be affected.

    Whats the matter, homer. The english translation app ain’t working ?

  53. dover_beach

    DB
    What is evil?

    Suggesting that sfb become a regular commentator at that site. I would not wish that on anyone.

  54. DB
    I comment there fairly regularly.

  55. dover_beach

    The government too feedback from the market on it and hoe it would be affected.

    Memories……

  56. Gab

    It’s like trying to read the Chinese translated into English Ikea assembly instructions.

  57. brc

    which will be the first State to start disappearing (almost entirely, if I recall correctly) due to sea level rises put in motion by the oil and coal they want you to burn now.

    I’ll put any money on this not happening. Any. I’ll even sign a 150 year agreement so that my offspring and grand-offspring are bound to it.

    Any money you like, at all.

    You haven’t even read what is needed for this amount of sea level rise. If you have, you have failed to even understand how impossible it is.

    I wouldn’t even make my bet condition on ‘man’ being responsible, let alone oil or coal.

    If you seriously believe that Florida is going under as shown in the Gore Snuff Film, then you’re much more deluded than I thought possible for someone in 2012.

  58. Mk50 of Brisbane

    Effective, very, very effective.

    How can I tell?

    The cat’s leftards are all squealing like raped apes about it.

    When they squeal like that, you know the bullet hit bone.

  59. Jim

    The writer of this article is obviously so with it but I simply cant understand how he manages to mispell Australia so repititiusly ?.Then again if he meant he wanted America to fail instead of writing so many words he could have simply said Follow Australias Current Lead.

  60. The cat’s leftards are all squealing like raped apes about it.

    So now we know what Mk50 gets up to on weekends.

  61. Mk50 of Brisbane

    You obviously don’t watch 1940s film, kelly.

  62. Token
    A global agreement is the fairy tale.

    The despots and totalitarians and rent seekers will ensure that fantasy never happens.

    A strange admission Token, but a welcome one.

    I’m happy to make it.

    Leaving aside whether the “settle science” is valid, another flaw in the AGW approach is the fact the UN commitee system has been subverted by the despots and rent seekers – look at the UN commission on racism or women.

    China and other third world countries have a vested interest to see the process fail.

    The reason the Howard government pursued bilateral agreements on most topics is due to the frailty and dangers of the process of making universal agreements.

  63. Mk50 that is what I meant you watch 1940s films lol.

  64. Tom

    I’ll put any money on this not happening.

    Don’t be a fool, brc. Prime beachfront real estate prices in Florida have collapsed because the water is already rising. Terrified retirees are moving to high ground in Colorado to wait for the apocalypse. There are rumours Jim Hansen has bought up half of West Palm Beach, but these are scurrilous and unfounded.

  65. blogstrop

    I don’t recall any 1940s movies about shooting raped apes.

  66. Mk50 of Brisbane

    It’s 1940s US slang, kelly.

    The Australian translation is ‘squeal like a stuck pig’

  67. Samson Agonistes

    Your political psyche is completely fascistoid, Uziboy.

    The cat’s leftards are all squealing like raped apes about it.

  68. Mk50 of Brisbane

    And there’s another squeal from Sturmabteilung.

    I think that’s the full set of mouth-breathing window-lickering drooltards the Cat currently enjoys patronising.

  69. brc

    @tom – it’s fine. It was to be a hedged bet anyway. I was just going to buy up all the land at 10 metres elevation and make a killing when Florida floods to 8 metres deep, pay off the debt and have a charmed seaside life.

    Mind you, it’s hard to drive around Florida these days. When I was there last year, you can barely move for all the terrified residents fleeing the incoming sea – I mean, it’s rising at 1.5 mm a year or something. At that rate, it could get over their big toe in ten years.

  70. blogstrop

    But that picture that’s doing the rounds with the caption “If I had a dog, it would look like the dog Obama ate” is pretty funny.

  71. Tom

    ‘Strop, Spot the Dog has been much busier than that.

  72. Big Jim

    … I would elect Woodrow Wilson in 1912. This lunatic basically wrote the code such that American failure was programmed. At Versailles in 1918 he ensured that global degeneracy would be a ‘feature rather than a bug’ for the next century at least.

  73. JamesK

    So to summarise: liar-steve™ doesn’t merely want America to fail like any run-of-the-mill leftists he wants the part with all the oldies to submerge into the Atlantic.

    I implore Sinc to make steve’s comment a blog posting in its own right.

  74. John Comnenus

    MK50, a Sturmabtuilung is an organisation. I think Samson is a junior woodchuck in such an organisation. I am pretty sure he holds the rank of rottenfuhrer.

  75. Pedro the Ignorant

    “raped apes” are much beloved by Army Drill Instructors, i.e. “Disappear from here with the speed of a raped ape and reappear at (place) in X minutes”.

    Can be substituted with “startled gazelle” when females present.

  76. Quentin George

    The highest point in Florida is 106 m above sea level. Steve is predicting a 106 m rie in sea level! i believe that puts steve ahead of Flannery…

  77. Samson Agonistes

    If I wanted America to fail … I’d let them do what they’ve been doing for the last thirty two years.

  78. If I wanted America to fail … I’d let them do what they’ve been doing for the last thirty two years.

    You are wrong Sam that budget surplus under the Romney/Ryan plan is just 30 years away, nothing to worry about.

  79. shagger

    its frightening to see it all compressed into 4 and a 1/2 minutes. My head is throbbing.

  80. John Mc

    Florida, which will be the first State to start disappearing (almost entirely, if I recall correctly) due to sea level rises put in motion by the oil and coal they want you to burn now.

    I think we’ve just reached a new height of pathetic!

  81. JC

    Really good comment at Harry’s blog. Agree 100%. Harry of course goes into the 10 deg risk over 200 year mode.

    David Friedman
    April 20, 2012 at 5:31 pm

    You seem to be taking for granted the conventional view that putting CO2 into the air has substantial negative externalities. Why? Earth’s climate wasn’t designed for us, nor were we designed by evolution for the current climate. Humans currently live successfully across a wide range of climates. So why would one expect that a climate a few degrees warmer would be worse for us?

    It’s true that we are optimized against our present environment, and that creates a presumption against change in either direction. But the presumption is surely a weak one if the change is as slow as three degrees centigrade and a foot or two of sea level over a century. In a century, farmers will have changed crop varieties multiple times, most houses will have been replaced, and if the environment is slowly changing the new crops and houses will be optimized against the new environment.

    I’ve discussed this issue at some length on my blog, and have yet to see any convincing reason to expect that global warming, on the scale currently expected, would be a bad thing, let alone a catastrophically bad thing. It seems to me that that, and not the climate science, is the weak link the argument for carbon taxes and similar policies.

  82. Mk50 of Brisbane

    SA Rottenfuhrer

    :lol:

    That is so very apt when referring to this pathetic mouth-breathing window-licker.

    And it contains the point I was alluding to, that he’s a brainless racist socialist wannabe bully-boy.

    He is SA Rottenfuhrer indeed!

    Hey boy, you have a new handle.

  83. Winston Smith

    Hey boy, you have a new handle.

    Would that be because he’s polished the old one away to a nubbin, Mk50?

  84. Alice

    There is only one problem. America is failing on its own accord but its not due to global warming and its not due to regulation (its partially due to selective application of regulation – heavy on the middle and light on the financial sector who need it) and its not due to ideology as Sinclair would like to think.
    Its not due to so called left ideas above because it doesnt matter what side gets in – they all act the same way.

    America is failing and its due to to lousy economic management and ideas and corrupt paid off politicians.

    Its far simpler.

  85. entropy

    yes, JC, adaptation would be a more successful and cheaper strategy than bankrupting economies trying to stop the tide.

  86. Samson Agonistes

    Yes, someone forgot to put some checks and balances between Congress and corporate lobbyists. We call them ‘strict party systems’ and they work well.

  87. JC

    Bob

    FFS man, stick to the flow of the conversation instead of tweeting irrelevant stupid shit all the time.

    You’re not on twitter, you imbecile.

    STOP TWITTERING us to death you moron. Fuuuuck!

  88. Samson Agonistes

    Uziboy, your idol Marine Le Pen did weill in France,

  89. JC

    @bob. Stop the twits, you moron.

  90. Tal

    It’s only going to get worse Joe we need a repelent

  91. JC

    He’s freaking twittering the site to an early grave, Tal.

  92. Oh come on

    OK, Steve’s comment was priceless for its exquisite stupidity.

    Homer accusing someone else of gibberish was also a cracker.

  93. Tal

    Maybe we should try kero and matches

  94. JC

    Maybe we should try kero and matches

    That’s hammy. He still hasn’t bough the can of kero like he promised.

  95. blogstrop

    The media have assisted the sagonistic twitterer in putting it about that lack of checks and balances on the financial sector (and its greed) were to blame for the GFC. All of the usual suspects ignore the oversized donkeys in the room. The Community Reconstruction Act and the continual pressure, first by lobbyists and rent-a-crowd, on the banks to make loans they didn’t want to make (because they were just stupid loans) eventually became law. Fannie & Freddie were urged along by people like Barney Frank and Rahm Emmanuel, and became the bubble they had to have.

  96. JC

    Strop
    Charles Colomiris adds his own view of the GFC. It wass an interview in Barrons a few weeks back and really worth reading it.

    A financial historian warns that it’s done nothing to prevent the government subsidy of mortgage risk that fueled the financial crisis.

    Charles Calomiris is nothing if not intense — and tireless. The Henry Kaufman professor of financial institutions at Columbia Business School has published numerous scholarly papers in refereed journals on banking and finance, and is the author of the book U.S. Bank Deregulation in Historical Perspective. More recently, he has published pieces in the financial press, including The Wall Street Journal and Barron’s, about the causes of the 2008 financial crisis, and has delivered talks and given interviews on this topic. His latest project is the forthcoming Fragile by Design: Banking Crises, Scarce Credit, and Political Bargains, co-authored with Stanford University political science professor Stephen Haber; the book takes a fresh look at the connection between politics and banking in several countries, including a detailed analysis of the U.S. I recently recorded an interview with Calomiris in his office at Columbia, from which edited excerpts follow.

    Barrons: When President Obama signed the Dodd-Frank bill into law on July 21, 2010, he was photographed embracing former Federal Reserve Chairman Paul Volcker, who helped shape some of its provisions. Can Dodd-Frank prevent another financial crisis?

    Calomiris: I don’t know anyone who understands what happened who would say that Dodd-Frank solves the problems that created the financial crisis. The legislation runs 2300 pages, and so it would take some time to explain what Dodd Frank got wrong and what it should have done instead.

    Gives us some idea of what it got wrong.

    You mention Paul Volcker, so let’s discuss the part of Dodd-Frank called the Volcker Rule. The Volcker Rule tries to ban proprietary trading within banks. The first problem with that — which I foresaw along with many others — is that it would be hard to define proprietary trading, because obviously, an essential role of banks is to help make markets in various financial instruments and to execute trades for their clients.

    So the question is, how do you define the limits of proprietary trading? From the hundreds of questions that they asked people and the thousands of complicated responses that they have gotten, it’s become clear that there is no hope of being able to describe what it is they are trying to prohibit in a way that can be predictably identified, so that banks can know whether or not are they are in violation.

    Even if it can’t be done, might it still be helpful to get rid of proprietary trading by banks?

    I don’t think so. One thing for sure: there is no story about proprietary trading having anything at all to do with the crisis. Even Paul Volcker practically admits that.

    Then what do you think was motivating Volcker?

    We all have our laundry lists of what we would like to see done. Paul Volcker is somebody who has been around for a long time, and has a long laundry list. Proprietary trading by banks is just something he doesn’t like, and Barack Obama wanted to hear Volcker’s ideas. So basically he gets a free pass to bring his laundry list to the Dodd-Frank bill.

    Enlarge Image

    Gary Spector for Barron’s
    “There is a powerful political interest that wants real-estate lending to be sponsored by the government.” — Charles Calomiris

    You don’t let the crisis go to waste.

    You put it to a lot of different uses, except the ones that matter. Did the crisis have anything to do with women and minorities not being hired sufficiently by financial institutions? I could come up with a cockamamie theory that it might have, because women are more conservative than men. If we had more women running banks maybe we would have seen fewer imprudent risks. I haven’t heard anyone make this argument, so why has Dodd-Frank created new quotas for financial institutions to hire women and minorities? I don’t think any of us believe that was a crisis-mitigation policy. It was just politics.

    Do you think the partial repeal of Glass-Steagall had anything to do with the crisis?

    No, and the irony is that even the original of the Glass-Steagall Act, as passed in 1933, had nothing to do with the crisis it was supposed to address. Senator Carter Glass, who had been Chairman of the House Committee that drafted the Federal Reserve Act under President Woodrow Wilson in 1913, in 1933 played the same role as Volcker did some 75 years later.

    On Carter Glass’s laundry list was the notion that mixing investment banking with commercial banking was a bad idea. There was no evidence for that, and all subsequent research has rejected Glass’s view. It’s not even a close call. The Bank of United States’ failure here in New York in 1930 had nothing to do with securities markets; it was exposed to Manhattan real estate and suffered losses related to the New York real-estate crash in Manhattan in 1929. Most of the other U.S. banks that failed in the 1930s did so as a result of farm problems and especially farm real-estate problems.

    The Steagall part of the 1933 Act was federal deposit insurance, which was actually opposed at the time by Glass, the secretary of the treasury, the Federal Reserve, and President Franklin D. Roosevelt himself. But who did want it? Small banks in rural areas; Steagall was from Alabama. So we had ideology without evidence combined with special interests, and we got Glass-Steagall.

    Federal deposit insurance has not been repealed.

    No, but repeal would not matter; it has been trumped by “too big to fail.” The government has made it clear that it will insure all deposits and bank debts without limit. So even if we got rid of the Federal Deposit Insurance Corporation, the difference would mainly be symbolic.

    But what about the Glass part of Glass-Steagall? Did the ability of commercial banks to merge with investment banks have anything to do with the crisis?

    Probably even less than the under-representation of women and minorities. Remember some of the illustrious names that got into deep trouble during the crisis — Bear Stearns, Lehman Brothers, Merrill Lynch. They were all stand-alone investment banks at the time, unaffected by the partial repeal of Glass-Steagall. And we can only wish that commercial banks had done more of the relatively low-risk underwriting of securities that the repeal of Glass-Steagall permitted them to do, instead of accumulating toxic mortgages, which Glass-Steagall had not prevented them from doing.

    And to make the whole argument about Glass-Steagall even more ludicrous, the repeal of the Act in 1999 made it possible for JPMorgan Chase [ticker: JPM] to acquire Bear Stearns and for Bank of America [BAC] to acquire Merrill Lynch, which helped stabilize the system.

    You mention toxic mortgages. How does Dodd-Frank address that problem?

    Not at all. There is no attempt in Dodd-Frank to address the key problem of government subsidization of mortgage risk, and the exposures of Fannie Mae [FNMA], Freddie Mac [FMCC], and the Federal Housing Administration are still growing.

    How do you explain the omission?

    There is a powerful political interest that wants real-estate lending to be sponsored by the government. Starting about 1830, an important influence on the politics of banking came from farming interests, which increasingly promoted bank exposure to farm real-estate risk. What has changed since World War II is the huge demographic shift toward the cities. And so the power of the agrarian populist movement has been replaced by the power of the urban populist movement, which has to do with subsidizing lending to housing in cities.

    Organizations like Acorn [the Association of Community Organizations for Reform Now] and other urban community activists led the fight to subsidize risky mortgage lending. Christopher Dodd and Barney Frank of Dodd-Frank, our supposed reformers, have been poster-politicians for this movement. Dodd was driven from the Senate in a mortgage scandal involving Countrywide Financial, the former mortgage giant that was long a favored client of Fannie Mae. And Frank has been a major Fannie and Freddie supporter, as well as one of the great deal makers in one of the most important waves of bank mergers in U.S. history. Housing and banking are Frank’s mutually supporting interests. But Democrats were not the only ones; President George W. Bush and Speaker Newt Gingrich were also prominent proponents of subsidizing mortgage risk and facilitating the political deals that made so many risky mortgages possible.

    Could you give an example of what you mean?

    Remember Washington Mutual, the bank that collapsed in 2008? WaMu has practically become a synonym for bad lending practices. The background on what happened is significant. When Washington Mutual signed a merger agreement in 1999, it was permitted to do so only after it also signed a written agreement to make loans to urban constituencies, especially poor and minority constituencies, under the Community Reinvestment Act. WaMu’s combined resources after the merger came to about $150 billion in total assets. It was required to make a 10-year CRA commitment of $120 billion, plus contributing 2% of its pretax earnings to not-for-profits, which eventually helped to bring about its collapse.

    That’s just part of the larger story. The experience of the 1980s alone should have taught us to limit government subsidies of real-estate lending risks. There was the savings and loan crisis, which was all about speculation in real estate. There was the commercial real-estate crisis in the east after the 1986 Tax Reform Act caused some problems in commercial real-estate values.

    So what did we do? In 1989 and 1991, we tinkered with capital ratios. But did we do anything to limit government subsidization of real estate risk? Quite the opposite — the government doubled down.

    Doubled down as in blackjack?

    Yes, except the blackjack player doubles down by just doubling his original stake. The government effectively multiplied the bets many-fold.

    How so?

    The government geared up Fannie Mae and Freddie Mac — “government sponsored enterprises” — by allowing them to operate on very thin capital and by imposing new mortgage-lending mandates through the Department of Housing and Urban Development beginning in 1995. These mandates set growing minimum proportions of Fannie Mae and Freddie Mac mortgage lending targeting inner cities, low-income borrowers, and minority groups. That was the major part of it. There were also CRA mandates for commercial banks, of which WaMu was a notorious example. And, as if to keep the action even harder to track, the 12 Federal Home Loan Banks started lending to any financial institution that agreed to make mortgages.

    And what did we see happening in the mortgage industry? We saw mortgage leverage ratios skyrocketing. The share of mortgages requiring a down payment of 3% or less went from about zero in the mid-1990s to about 40% just prior to the crisis, an unbelievable surge. We saw a boom in things called low-doc and no-doc mortgages, where “doc” stands for documentation. And guess what? When you don’t ask people for documentation, they lie, and if you a hang a sign out your window that says ,”I am not going to ask for any documentation,” you become a magnet for liars.

    The mortgage lenders knew that. They did some experimenting with faster mortgages on a low-documented basis in the 1980s, and once they found out it was a bad idea, they abandoned it. Fannie and Freddie crossed the Rubicon in 2004, when they decided to take the caps off all their lending involving no docs and low docs. Why did they do it? Their risk managers objected, but they were steamrolled. The HUD mandates told them that they had to give an increasing amount of their mortgages to targeted groups, and to meet those targets they kept relaxing their underwriting standards.

    With all this highly leveraged and undocumented borrowing, fueled by government policy, no wonder home prices assumed bubble proportions.

    Are you against any government subsidy of homeownership?

    Well, we could debate whether it is a good idea. But let’s suppose it is a good idea. There are lots of ways to do it that are better than subsidizing risk, especially since subsidizing risk does no favor to people when they lose their homes through foreclosure.

    One way to promote homeownership would be through matching down payments. This is along the lines of what the Australians do to help first-time homeowners. On a means-tested basis, we could help first-time buyers make their down payment. That would be rewarding thrift. We could also give special tax deductions for people who put money aside for their house. These measures would subsidize housing without subsidizing leverage.

    But what do we do instead? All of our housing assistance subsidizes people only to the extent to which they borrow.

    You would abolish that kind of subsidy altogether?

    I would phase it all out over time, including the tax deduction for mortgage interest. By subsidizing the down payment on a means-tested basis for the purchase of the first home, we would reduce leverage and risk. And we’d make a bigger difference in encouraging homeownership, since the down payment, in a mortgage industry that has been taught to care about risk, is often the biggest hurdle.

    And we would no longer subsidize credit risk. We would not encourage any institutions — banks, Fannie, Freddie, the FHA, or the Federal Home Loan Banks — to make or guarantee bad loans.

    Do you think that idea would fly?

    To begin with, the American taxpayer might vote thumbs down and say we can’t afford it. But I would point out that subsidies already are happening through the back door. Fannie’s and Freddie’s losses together might ultimately cost the taxpayer $300 or $400 billion, but nobody knew they were spending that. Not only are we subsidizing housing, we aren’t subsidizing it in a very smart way. We are subsidizing it in a way that creates financial instability and that hides from the taxpayers what they are spending.

    And that greater transparency ultimately explains why my proposal has such a hard time finding support in Washington — and perhaps why Dodd-Frank does not even address the problem.

    The opposition would be too formidable?

    You know who are the constituents that aren’t going to like it? If you are Acorn, you won’t like it, because that means you lose your hefty broker fees and political power. Acorn is a major intermediary for this whole racket. Members of Congress aren’t going to like it because they get fees, too, called campaign contributions, from those who benefit from the subsidies, and lots of favorable press from attending ribbon-cutting ceremonies.

    We are basically talking about undoing the deal between the urban populists and the too-big-to-fail financial institutions (banks and “government-sponsored entities”), who are given enormous market power and protection that boost their profits in exchange for agreeing to distribute some of those profits to favored constituencies. That is the deal Washington has brokered over the past 30 years, and it was done on a bipartisan basis.

    I guess we can read more about that in the book you’re completing with Stephen Haber. But let’s try a counter-factual. Say that your radical proposal had been in place since 1995, and that the government’s aggressive encouragement of high-risk mortgage lending had not occurred. Would that have been enough to prevent the 2008 financial crisis from happening?

    Yes, it would have been enough. We would not have had the crisis. But I hasten to add that even if you’d had these government housing subsidies, they alone were not enough to cause the crisis. Had prudential regulation functioned properly for Fannie and Freddie and for the banks, you wouldn’t have had this crisis, even with the mortgage risk subsidies. Even though risky mortgages would have been made, financial intermediaries would have been maintaining more capital against that risk. So the government created this concentration of risky mortgages and then the institutions who were intermediating those mortgages were highly levered. So we got leveraged banks on top of leveraged mortgages. The combination is what gave us the crisis.

    So we have to find ways to make our regulatory system avoid the incentives to under-capitalize and to pretend, when losses start to mount up, that you don’t have losses.

    And in your view, we have to give up on the idea of imposing discipline on banks by taking measures like denying them the protection of federal deposit insurance?

    Yes, I’m afraid I think proposals like that are lost causes, although I certainly agree that in a rational world, the abolition of federal deposit insurance would be a huge improvement.

    Franklin D. Roosevelt himself made the prescient forecast in October 1932 that deposit insurance would “lead to laxity in bank management and carelessness on the part of both banker and depositor.” At the time, postal savings accounts offered small depositors protection against loss. Today, depositors who want protection can be encouraged by banks to keep their funds in short-term Treasury bills, and rich depositors can buy their own insurance, if that’s what they prefer. We don’t need the FDIC for any of this.

    Before federal deposit insurance, we find abundant examples of banks accumulating cash through times of stress in order to assure depositors that they were solvent and were prudently managing risk. The banks’ incentive was simple; like any business, they didn’t want to lose customers. But now that all deposits of any size are effectively insured by the federal government, along with the overriding ethos of “too big to fail,” the laxity and carelessness which FDR warned against has become an ongoing nightmare.

    There is no need for prudential regulation to tell our neighborhood deli how to manage risk; we can count on the market system to do that. But because the market system has been abrogated in crucial ways for our financial institutions, we need prudential regulation of finance.

    But hasn’t your own analysis put us between a rock and a hard place? You indict the government for subsidizing risk in mortgage lending. But who else except government will be imposing prudence on our financial institutions? Isn’t that the fox guarding the chicken-coop?

    Quite right. The regulators are willing accomplices. That’s why you shouldn’t even be allowed to talk about regulatory reform unless you can answer two important questions. First, how will the regulated banks not be able to get around it? And second, why will the regulator have an incentive to enforce it?

    It turns out that it is not that difficult to think of rules that are so simple and transparent — so automatic and nondiscretionary — that the regulator would go to prison if they weren’t enforced. For example, I would impose a rule requiring that banks hold cash at the central bank equal to 20% of their assets. They would earn the Treasury bill interest rate on those cash reserves. That would not cost banks very much because they are in normal circumstances holding Treasuries not far from that amount. So they would reduce their Treasury holdings commensurately and hold this cash.

    Why at the central bank?

    Because if they are holding them at the central bank, the regulator will know they are holding them continuously — not just on the day that coincides with each accounting quarter.

    Any other ideas?

    Yes, about nine more. Here is just one: I would establish a minimum uninsured debt requirement for large banks in the form of subordinated debt, known as contingent capital certificates, or “CoCos.” The CoCos would automatically convert to equity based on predetermined market triggers, which would be very dilutive to pre-existing shareholders. One banker who understood my proposal for CoCo’s said, “You are putting an electric fence behind me. ”

    He was exactly right. Since the bank managers would have every incentive to prevent the triggering of a CoCo conversion, it would force them to act prudently. It would be saying to the bank CEO, “If you don’t manage your risk properly, it is not the taxpayer who is going to be subsidizing you. You’re either going to have to go out into the marketplace repeatedly to raise equity, and that is going to be dilutive because you are going at the worst possible time. Or you are going to end up doing so badly that you trigger the CoCo conversion, which is even more dilutive, and in which case you are going to get fired immediately.

    What all these ideas have in common is that they are incentive-robust, which mean they take into account the incentives of regulators and bankers.

    Sounds feasible.

    But it may not be feasible politically because anything that would work undermines the political coalition that is in charge of our financial system. They see types like me coming a mile away.

    Did Dodd-Frank do any of this? Dodd-Frank said that we should study CoCos. Over 2300 pages, that’s all we read on the subject. Remember the regulators are appointed by politicians. In Fragile by Design our first chapter on the U.S. is called “Crippled by Populism.”

    I look forward to reading it. Thanks, Charles.

  97. blogstrop

    Marine Le Pen did even better than her dad, who put the frighteners on when he got a much lower figure. Her 19% is interesting not just because it reflects that a lot of people are fed up with the situation Europe faces, but for where it might go next. The run-off election is a two-horse race, and the big turnout means people are more engaged. They want their votes to register, and Le Pen’s voters are not going to go to Hollande.

  98. James in Melbourne

    Whatever the new president will have promised before the election, reality will intrude. France will wake up to austerity again: After all, it needs to borrow $233 billion by the end of the year.

    Olivier Guez in the New York Times

  99. blogstrop

    Thanks JC. That’s the short version. Everyone should read at least that.
    On another subject, I’m still not clear on why short selling of shares you don’t own can be done.

  100. You know the rot had long set in when the 2008 election went the way it did. Obama was a media-boosted populist who came out of nowhere, riding in on the back of an angsty autobiography which ought to have been the key to his presidential character.

    “Dreams from my father” indeed – how to abandon responsibility for something you ought to have nurtured and protected, just like Daddy did to you.

  101. JC

    On another subject, I’m still not clear on why short selling of shares you don’t own can be done.

    You borrow the stock or in the US you can sell naked, which means you can sell without borrowing the stock but the assumption is that you will buy them back and square the trade later on.

  102. AndrewL

    If I wanted America to fail I would invade Iraq and Afghanistan, then contemplate war with Iran.

  103. Blogstrop

    Either way it is an attempt to bend the market (and it must work or it wouldn’t happen so much) which should have a constraint on it, otherwise you givel larger players, hedge funds or even loose groups of fairly cashed up guys the ability to manipulate the market purely to make their margin. It looks corrupt.

  104. Abu Chowdah

    If I wanted America to fail I would invade Iraq and Afghanistan, then contemplate war with Iran.

    Lame.

  105. I’m not entirely sure what it is that the dimwits here don’t know: that Florida is (especially at its southern end) extremely flat and low; that sea level rises are still occurring and no one’s ruling out a meter within a century; that permanent increase of global temperature sets a long term course for several meters of sea level rise.

    You’ll have to help me out here. The precise details of ignorance are hard to decipher.

  106. Matt

    no one’s ruling out a meter within a century

    Yankee imperialist

  107. Mk50 of Brisbane

    Winston:

    Would that be because he’s polished the old one away to a nubbin, Mk50?

    Classic!

    Hey Winston, you’ve said you are in Winton. Might just be driving the Landsborough to the Isa this winter (got a Charleville-Isa run on with various intermediate stops). If so, might overnight in Winton for beer, steak and politically incorrect misbehaviour.

  108. Winston SMITH

    Steve, I’d suggest you read the new post, “The Rats Are On The Run.” before you start sneering.

  109. Winston SMITH

    Mk50, I’m in McKinlay, next to the Walkabout Creek Hotel. Certainly I’m ready for a piss up.
    Steaks are fine here.

    Just drop by the Bush Nursing Clinic.

  110. Winston – Lovelock’s former views on climate change were extreme by anyone’s standards. AFAIK, you won’t find his take on it referred to by the IPCC at all.

    It may be that he would now align himself with the mainstream view of the IPCC – it’s a little hard to tell from the interview.

    People who hold extreme views on matters who swing over to the other extreme I generally find are not the best guide to where the truth probably lies. I’m not saying Lovelock exactly into that category, but he was never one in which to place complete faith in his assessment.

  111. Mk50 of Brisbane

    Winston, you are on. What the accommodation in town? Might try to hit Longreach on a Friday… bit of planning to do. probably flying back from the Isa else I’d be awfully tempted to bring my .303.

    I was flaming amazed how green a good year made the district around Charleville. Guess it’s the same out your way?

  112. Winston – Lovelock’s former views on climate change were extreme by anyone’s standards.

    Says the guy who only yesterday said Florida was about to go under.

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  115. JamesK

    Ur hoist by your own petard Socrates:

    Also, I find it funny how easy it is to get mixed up about religeon when you espouse as radical a leftist doctrine as “small-l liberalism”.

    As for left vs right economics I have no idea how anybody with eyes to see could imagine that for every $1 the gov spends, $1.30 to $2 is created in the economy.

    Unless it’s a leftist ideologue’s mind’s eye.

    What is known is that significant debt drags the GDP down.

    Let alone lost opportunity costs of money hurriedly spent.

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