Hard core party loyalists who damned Bush for his record deficit spending seem quiet about the multiples of prior deficits the Obama Administration has accumulated .  Rather than apply the same standards to their president, they question where the Republicans fiscal conservatives were when Bush was president.

A quick Google search reveals many conservatives who warned of Bush reckless deficits.

Among them was Jonah Goldberg in the National Review in 2004, George W. Bush, Preservative, Has government become the answer?

Excerpt:

But what troubles me is that we are replacing a dogma that says “government is the problem” with a new dogma, which says that government is the answer. When conservatives violated the old dogma, it was usually when the need was fairly obvious and pressing – and even then we got it wrong more often than right. Nixon created the EPA, implemented price controls, and imposed quota-style affirmative action all because “people were hurting.”

With this new “too-sweet” “compassionate conservative” ideology, the danger is we will fix things when they aren’t broken. George Bush is making this the new reflex position of the GOP, and that worries me. My guess is the president’s state of the union will elicit a Deanesque YEAARGH (or whatever it was). The liberals will no doubt say Bush’s ideas are too hot, but conservatives will recognize they are really too sweet. But we’ll both agree on the locus horribilis of the pain he’s giving us.

And Peggy Noonan in the Wall Street Journal in 2005, ‘Whatever It Takes’ Is Bush’s big spending a bridge to nowhere?

Excerpt:

Mr. Bush started spending after 9/11. Again, anything to avoid a second level fight that distracts from the primary fight, the war on terror. That is, Mr. Bush had his reasons. They were not foolish. At the time they seemed smart. But four years later it is hard for a conservative not to protest. Some big mistakes have been made.

First and foremost Mr. Bush has abandoned all rhetorical ground. He never even speaks of high spending. He doesn’t argue against it, and he doesn’t make the moral case against it. When forced to spend, Reagan didn’t like it, and he said so. He also tried to cut. Mr. Bush seems to like it and doesn’t try to cut. He doesn’t warn that endless high spending can leave a nation tapped out and future generations hemmed in. In abandoning this ground Bush has abandoned a great deal–including a primary argument of conservatism and a primary reason for voting Republican. And who will fill this rhetorical vacuum? Hillary Clinton. She knows an opening when she sees one, and knows her base won’t believe her when she decries waste.

Second, Mr. Bush seems not to be noticing that once government spending reaches a new high level it is very hard to get it down, even a little, ever. So a decision to raise spending now is in effect a decision to raise spending forever

I contended that the spending was justified to overcome the possible unknown effects from 9/11 but that it soon needed to be reversed, and Bush never did.  Government can solve any problem, it must only decide how to pay for it- taxes, debt or inflation. We are way past any ability to grow out of this deficit as we have done in the past. We have placed so many people on the dole that any serious cut in federal spending will cause severe civil unrest.

Comparing Bush’s deficits, which were extreme,  to this regime is like comparing assault and battery to genocide.

(this was published previously in the Macon Telegraph)

Being in the middle of a record economic crisis presents a rare learning opportunity.  Several books are worthwhile for those seeking to understand what just happened.

Too Big to Fail by Andrew Ross Sorkin details the action of the Fed under Benanke and Treasury under Paulson during the crisis period between August and December.  While Geitner as head of the New York Fed was also featured the central player of this crisis was Hank Paulson.

Monumental decisions involving billions of dollars of assets were made in days, sometimes hours.  Both Paulson and Geitner had a sense that the market was due for a correction long before the crisis hit, but they probably did not see it coming as fast and as broad as it did. Bernanke noted that just as there are no atheists in foxholes there are no ideologues in economic crisis either. Neither Republicans or Democrats wanted to bail out Wall Street , but the crisis dictated actions that were against the grain of capitalists of both parties.

Paulson worked tirelessly to find appropriate merger partners for weak players like Merrill Lynch, Wachovia, and Lehman.  He almost had Barclays ready to buy Lehman when the British Financial Services Authority ( FSA) refused to approve the acquisition/merger because of the risk it brought to the British financial system.

Lehman was singular in the fact that it was not acquired or bailed out and thus had to go bankrupt.  Part of this was timing; Congress was just in no mood to bail out a Wall Street player.  Part of the reason was George Bush’s cousin who worked for Lehman and his brother Jeb’s association with the firm. Such close political relations probably worked against the interests of the firm.

In retrospect bailing our Lehman’s may have forestalled the panic that engulfed the rest of the system. With Bear Sterns gone and now Lehman’s gone, depositors wondered who was next and there began a run of the other banks like J.P Morgan and Morgan Stanley.

While Paulson’s association with Goldman was suspect the fact was he had to severe his tie and sell his stock ($485 million worth) in order to take his job at Treasury. Since his actions were so scrutinized he was careful to avoid even conversations that would indicate favoritism toward his old firm.

The most difficult decision was to bail out AIG whose credit default swaps acted as insurance against many of the cdo’s (collateralized debt obligations) that infected the financial markets. As the underlying assets plummeted in value AIG was downgraded and had to put up more capital that it could not provide.

Having to make such massive changes and decision in such short time meant that perfection was not obtainable. Barney Frank justifiably wanted some assurance that compensation to the executives would suffer from their misdeeds, but there simply was not enough time to rule of thousands of contracts during the time period that decisions had to be made.

Wall Street clearly engaged in risks it did not understand, but neither did the regulators such as Greenspan and his successor Bernanke. Complicated risk models gave the CEO’s delusional certainty, but eventually the party came crashing down for the same reason all bubbles burst;  lack of trust and confidence.

But Sorkin spends little space getting into the detail of the causes of the crash and suitably stays focused on the urgency and the actions required in response. 

For more information on the background that caused the crisis I recommend The Housing Boom and Bust by Thomas Sowell,  Financial Fiasco by Johan Norberg, most of all After the Fall: saving Capitalism from Wall Street – and Washington by Nicole Gelinas.

Sowell and Norberg focus more on the misguided Government fiscal and monetary policies that inflated the housing bubble, but Nicole Gelinas also analyzes which good regulations were unfortunately removed (and by who) and which bad ones were inappropriately applied.

A crisis of this nature required the perfect storm of many great errors to all focus their retribution at the same time. Unfortunately the media large engages in partisanship and demonization and few people will take the time to understand what happened and why.  It is complicated but engaging the problem reveals basic principles of sound policy that were violated as they were in previous bubbles.

History repeats itself but never the same way.

The Senate election in Massachusetts may signal much more that dissatisfaction with the current administration; it may signal and end to partisan politics as we have known it.

Given the euphoria and high expectations at Obama’s election in the midst of the worst financial crisis in half a century, it was already difficult not to disappoint. Given the generalities that accompany a campaign and the utter lack of experience he was elected more as an act of faith and hope than for noted qualifications and solutions. Wedding pictures fade.

The first year is often a learning year for a president. Many errors in judgment can be corrected and lead to a successful term and re-election. But this first year has been a year of firsts. The tea party movement should not have been taken lightly. This was a bottom up political movement. Protesters were neither praising or condemning parties; they were condemning their actions.

Independents have been critical  to election outcomes in our last 50 years.  Independents offer an accountability that party loyalists do not.  Unfortunately they also have fewer clear principles that accompany party affiliation. They can be swayed by charisma; they elected Obama.  And on January 19, just more than year later, they rejected him.

The rise of the independents may be heralding a new age that renders both political parties irrelevant. The reaction to Ben Nelson’s capitulation on health care from his own state was a note on the change coming. Anti incumbent attitudes are nothing new. But when the opportunity came to turn them out we usually found that unpopular incumbents were always those in other states and districts; we tended to tolerate our own as long as they ‘brought home the bacon’.

Nebraska ended that. They soundingly thrashed Nelson in spite of the lucrative special deal he made for his constituents. This should have alarmed the administration more than Brown’s victory.

Brown’s victory was a vote against the style as well as the substance.   When George H. Bush broke his clear pledge (“Read my lips”) and raised taxes he lost the independents and many of his own party. The independents do not like blatant lies and promises broken.  Obama promised bipartisanship and tried to force through one of the biggest changes in a decade with no Republican support.  He promised transparency yet closed door meetings with no press were common. He promised a five day posting period to review all legislation yet thousand page bills were voted on with little to no time to read them.

He was going to shun special interests yet cut special deals with unions.  Did he think nobody would notice?

If a bill has merit, it doesn’t need bribes and closed doors to pass. The more they bribed and gave into special interests the more it was rejected.  All the speeches and interviews only made it worse.

The voters have a sense of fairness and truth.  They expected more of it and get less. That a party with bigger majorities in both houses than their opponents have had in a century could not get a major bill through signals that either that their bills stink or that they are politically incompetent.