Right Wing Nut House

The best article I’ve read to date on how we have become a bailout nation and why was published about 2 weeks ago in Rolling Stone. It was by the estimable Matt Taibbi and is entitled “Wall Street’s Bailout Hustle.”

I dare you to read it and not be grinding your teeth by the end of it.

Recognizing a certain class bias inherent in Taibbi’s explanations of what the Wall Street banks have wrought doesn’t diminish the impact of this horror story in the slightest. The bottom line, as Taibbi explains is that nothing has changed since September 2008. The same practices that got us into trouble then, have been resurrected and, if anything, are being used with even more gusto by the Wall Street Raiders who are now working hand and fist with the government to rob the taxpayers:

That’s why the biggest gift the bankers got in the bailout was not fiscal but psychological. “The most valuable part of the bailout,” says Rep. Sherman, “was the implicit guarantee that they’re Too Big to Fail.” Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures. And what should really freak everyone out is the fact that Wall Street immediately started skimming off its own rescue money. If the bailouts validated anew the crooked psychology of the bubble, the recent profit and bonus numbers show that the same psychology is back, thriving, and looking for new disasters to create. “It’s evidence,” says Rep. Kanjorski, “that they still don’t get it.”

More to the point, the fact that we haven’t done much of anything to change the rules and behavior of Wall Street shows that we still don’t get it. Instituting a bailout policy that stressed recapitalizing bad banks was like the addict coming back to the con man to get his lost money back. Ask yourself how well that ever works out. And then get ready for the reload.

Taibbi - sometimes to the detriment of his narrative - uses various plays by con-artists (a society of criminals unique in their vocabulary and history) and compares them to what J.P. Morgan and other Wall Street outfits did to get the trillions in Fed money that have made them so profitable today.

In essence:

A year and a half after they were minutes away from bankruptcy, how are these assholes not only back on their feet again, but hauling in bonuses at the same rate they were during the bubble?

The answer to that question is basically twofold: They raped the taxpayer, and they raped their clients.

Beyond that, either the big banks haven’t learned a thing, or more likely, know a good thing when they see it:

The bottom line is that banks like Goldman have learned absolutely nothing from the global economic meltdown. In fact, they’re back conniving and playing speculative long shots in force — only this time with the full financial support of the U.S. government. In the process, they’re rapidly re-creating the conditions for another crash, with the same actors once again playing the same crazy games of financial chicken with the same toxic assets as before.

That’s why this bonus business isn’t merely a matter of getting upset about whether or not Lloyd Blankfein buys himself one tropical island or two on his next birthday. The reality is that the post-bailout era in which Goldman thrived has turned out to be a chaotic frenzy of high-stakes con-artistry, with taxpayers and clients bilked out of billions using a dizzying array of old-school hustles that, but for their ponderous complexity, would have fit well in slick grifter movies like The Sting and Matchstick Men.

Why we have been sanguine in the face of what Taibbi describes as these “old school hustles” is the result of the extraordinarily arcane nature of the cons being visited on the Fed and Congress by the banks.

To appreciate how all of these (sometimes brilliant) schemes work is to understand the difference between earning money and taking scores, and to realize that the profits these banks are posting don’t so much represent national growth and recovery, but something closer to the losses one would report after a theft or a car crash. Many Americans instinctively understand this to be true — but, much like when your wife does it with your 300-pound plumber in the kids’ playroom, knowing it and actually watching the whole scene from start to finish are two very different things.

Taibbi lists 7 of these con games that the gamblers at J.P. Morgan and other big banks have been running at our expense. Here is a too brief description of a few of them:

* “The Swoop and Squat.” How counterparties - including a French bank - played both sides in the AIG meltdown and forced it into bankruptcy. The big banks had been using AIG to “insure” the toxic mortgage backed securities, for which AIG received a substantial cut, but was unprepared when hundreds of billions in bad paper drowned it.

The “swoop and squat” is the well known insurance scam where your car is boxed in by 2 or 3 other cars and a deliberate “accident” ensues so that the scammers can collect:

This may sound far-fetched, but the financial crisis of 2008 was very much caused by a perverse series of legal incentives that often made failed investments worth more than thriving ones. Our economy was like a town where everyone has juicy insurance policies on their neighbors’ cars and houses. In such a town, the driving will be suspiciously bad, and there will be a lot of fires.

When AIG was drowning, the banks hurried its collapse along:

So Goldman and other banks began demanding that AIG provide them with cash collateral. In the 15 months leading up to the collapse of AIG, Goldman received $5.9 billion in collateral. Société Générale, a bank holding lots of mortgage-backed crap originally underwritten by Goldman, received $5.5 billion. These collateral demands squeezing AIG from two sides were the “Swoop and Squat” that ultimately crashed the firm.

Of course, Goldman demanded the government reimburse them for the full “value” of the $5.9 billion in collateral they ripped from AIG. If the insurance giant had gone through bankruptcy, Goldman would have received virtually nothing. Just one way that Goldman gamed the government and the Fed in gorging itself to bursting.

* “The Dollar Store.” In grifter parlance, this refers to something like what we saw in the movie “The Sting” where a lot of con artists set up a fake front to fool the mark. Goldman and Morgan Stanley applied for, and received in record time, a charter that redefined the kind of bank they were just 5 days after the AIG bailout:

By law, a five-day waiting period was required for such a conversion — but the two banks got them overnight, with final approval actually coming only five days after the AIG bailout.

Why did they need those federal bank charters? This question is the key to understanding the entire bailout era — because this Dollar Store scam was the big one. Institutions that were, in reality, high-risk gambling houses were allowed to masquerade as conservative commercial banks. As a result of this new designation, they were given access to a virtually endless tap of “free money” by unsuspecting taxpayers. The $10 billion that Goldman received under the better-known TARP bailout was chump change in comparison to the smorgasbord of direct and indirect aid it qualified for as a commercial bank.

Before reading this next bit from Taibbi on what the banks did with that new charter, I suggest you remove all sharp objects from within reach plus anything that might be used as a missile to hurl through your monitor:

When Goldman Sachs and Morgan Stanley got their federal bank charters, they joined Bank of America, Citigroup, J.P. Morgan Chase and the other banking titans who could go to the Fed and borrow massive amounts of money at interest rates that, thanks to the aggressive rate-cutting policies of Fed chief Ben Bernanke during the crisis, soon sank to zero percent. The ability to go to the Fed and borrow big at next to no interest was what saved Goldman, Morgan Stanley and other banks from death in the fall of 2008.

[...]

In fact, the Fed became not just a source of emergency borrowing that enabled Goldman and Morgan Stanley to stave off disaster — it became a source of long-term guaranteed income. Borrowing at zero percent interest, banks like Goldman now had virtually infinite ways to make money. In one of the most common maneuvers, they simply took the money they borrowed from the government at zero percent and lent it back to the government by buying Treasury bills that paid interest of three or four percent. It was basically a license to print money — no different than attaching an ATM to the side of the Federal Reserve.

That’s right. They borrowed interest free money from the government and lent it back to us - with interest. This is one con game used by Taibbi that has a direct application to what occurred in the real world.

* The Rumanian Box. This is an age old scam invented by a guy named Lustig where the con man shows the mark a magical machine where you put a blank piece of paper in one end, turn a crank and out pops a $20 on the other end. Here’s how the banks used this concept and bilked the Fed:

The brilliant Lustig sold this Rumanian Box over and over again for vast sums — but he’s been outdone by the modern barons of Wall Street, who managed to get themselves a real Rumanian Box.

How they accomplished this is a story that by itself highlights the challenge of placing this era in any kind of historical context of known financial crime. What the banks did was something that was never — and never could have been — thought of before. They took so much money from the government, and then did so little with it, that the state was forced to start printing new cash to throw at them. Even the great Lustig in his wildest, horniest dreams could never have dreamed up this one.

The big banks threatened to freeze lending even more unless the Feds came up with more goodies. The government didn’t disappoint:

The ploy worked. In March of last year, the Fed sharply expanded a radical new program called quantitative easing, which effectively operated as a real-live Rumanian Box. The government put stacks of paper in one side, and out came $1.2 trillion “real” dollars.

The government used some of that freshly printed money to prop itself up by purchasing Treasury bonds — a desperation move, since Washington’s demand for cash was so great post-Clusterfuck ‘08 that even the Chinese couldn’t buy U.S. debt fast enough to keep America afloat. But the Fed used most of the new cash to buy mortgage-backed securities in an effort to spur home lending — instantly creating a massive market for major banks.

And what did the banks do with the proceeds? Among other things, they bought Treasury bonds, essentially lending the money back to the government, at interest. The money that came out of the magic Rumanian Box went from the government back to the government, with Wall Street stepping into the circle just long enough to get paid. And once quantitative easing ends, as it is scheduled to do in March, the flow of money for home loans will once again grind to a halt. The Mortgage Bankers Association expects the number of new residential mortgages to plunge by 40 percent this year.

The last con game Tabai uses to highlight what Wall Street has been up to is called “The Reload.” This refers to a mark who comes back for seconds.

It’s important to remember that the housing bubble itself was a classic confidence game — the Ponzi scheme. The Ponzi scheme is any scam in which old investors must be continually paid off with money from new investors to keep up what appear to be high rates of investment return. Residential housing was never as valuable as it seemed during the bubble; the soaring home values were instead a reflection of a continual upward rush of new investors in mortgage-backed securities, a rush that finally collapsed in 2008.

But by the end of 2009, the unimaginable was happening: The bubble was re-inflating. A bailout policy that was designed to help us get out from under the bursting of the largest asset bubble in history inadvertently produced exactly the opposite result, as all that government-fueled capital suddenly began flowing into the most dangerous and destructive investments all over again. Wall Street was going for the reload.

Why? Why haven’t we woken up to this outright robbery? Well for one thing, the financial services industry gives generously to both parties, thus allowing them virtual free reign to snooker the taxpayer. But even Obama’s new regulations - being watered down even further as I write this - will be inadequate. And the reason has to do with morals, not regulation:

Con artists have a word for the inability of their victims to accept that they’ve been scammed. They call it the “True Believer Syndrome.” That’s sort of where we are, in a state of nagging disbelief about the real problem on Wall Street. It isn’t so much that we have inadequate rules or incompetent regulators, although both of these things are certainly true. The real problem is that it doesn’t matter what regulations are in place if the people running the economy are rip-off artists. The system assumes a certain minimum level of ethical behavior and civic instinct over and above what is spelled out by the regulations. If those ethics are absent — well, this thing isn’t going to work, no matter what we do. Sure, mugging old ladies is against the law, but it’s also easy. To prevent it, we depend, for the most part, not on cops but on people making the conscious decision not to do it.

My concern about Democrats and liberals bashing bankers has always been that they fail to adequately differentiate between the robber barons on Wall Street, and the friendly, smiling face of a loan officer we have dealt with at our neighborhood suburban bank. Those are the guys who suffer because of the indiscriminate class card played by the left. They have as much in common with the crooks at Goldman Sachs as my pet cat Aramas has with a saber tooth lion.

But I think the key here has been misplaced conservative support for these rogues who we see as the ultimate success stories in the free market. The problem, as Taibbi points out and as we should have realized long ago, is that these guys operate on another level of the playing field altogether. They can’t be effectively regulated by the government because they are so powerful both politically and as economic entities that drive the macro economy, that they, in effect, hold most of the cards. They are partners with the government. Or perhaps it would be more accurate to say that the government is partners with them. There is no competition except among the extremely small group of bankers to which they sometimes conspire with to realize their enormous profits.

Maybe tar and feathers isn’t such a bad idea after all.

The simple minded Congressman who wondered out loud whether abortion in the black community was so rampant that it can be compared to the suffering of slaves inadvertently has done us a favor.

Rather, he would have if the left was willing to engage in a conversation about the efficacy of federal government policies that are specifically directed at poverty stricken black communities. This is a “no go” zone because it challenges the foundation of modern liberalism to ask questions that have no good answers when it comes to the state of the black family, the ravaged inner city black communities, and an African American culture that tolerates a shocking number of teenage mothers, absent fathers, and the social problems that arise from dependency.

“Racism” as an encompassing catch all to explain the above doesn’t cut it. But its all the race baiters like Jackson and Sharpton - and their liberal allies - have because the alternative would be actually examining the problems of black communities in a cold, rational manner, devoid of the kind of emotionalism so beloved of the left, in order to eliminate or adjust federal policies that may in some cases, be contributing to the holocaust.

By contrast, it is much easier to take the inelegant words of Trent Franks out of context, twist their meaning, and play the race card for all it’s worth.

This fellow is a rabid abortion foe - so much so that he hyperbolically tried to connect abortion in the black community to slavery:

We should look back on that with criticism. It is a crushing mark on America’s soul. And yet today, half of all black children are aborted. Half of all black children are aborted. Far more of the African-American community is being devastated by the policies of today than were being devastated by policies of slavery. And I think, What does it take to get us to wake up?

He’s 100% wrong, of course. The idea that “far more” of the African American community has been affected by abortion than slavery is, on its face, absurd. And Rep. Franks didn’t mention the other half of that equation; 70% of children delivered to African American mothers are born out of wedlock.

What makes Rep. Franks remarks offensive is not the hate, but the tone deafness. It brings to mind a defense of Jim Crow that was common in the south in the 1950’s; blacks were better off when they were slaves and had massah to take care of them. I don’t believe that was Frank’s intent in saying that abortion was more devastating than slavery but it is easy - if you’re simply trolling to score political points against your foe by taking context out of meaning - to promote the perception that he was.

It is tempting to take statistics from 1965 on the effects of poverty on the black family and compare them to today, drawing the easy conclusion that federal poverty programs are to blame for the radical decline in the viability of the black family.

But nothing is ever that simple or easy. The fact is, when Daniel Patrick Moynihan penned his famous “Moynihan Report” when he was Assistant Secretary of Labor in 1965 that eloquently and in devastating detail raised the alarm about the disintegrating black nuclear family, the crisis was already at code red. The litany of statistics used by Moynihan compared the status of the black family in the 1950’s to where it was in 1965. The divorce rate was twice that of whites at 25% (now 68%). Female headed households was at 22% in 1965 (45% today). And while 70% of black children today are born out of wedlock, that number was at 25% in 1965.

It would be wrong to blame all the problems of the black family today for policies promulgated in the 1960’s. But it is a valid question to ask have any or all of those policies made things worse than they would have been if care had been taken to mitigate the impact on black families?

Federal programs targeted the symptoms of poverty largely by granting in kind payments to the head of household. I recall some spirited debates at the time among liberals about whether a guaranteed annual income, or Basic Income, should be substituted for housing vouchers, food stamps, and other Great Society expansion of welfare payments.

What could never be imagined by Johnson, and his social engineers was the devastating impact that dependency would have on the black community, and specifically, the black family. Those policies emasculated the black male, encouraged female welfare recipients to keep having children so that her welfare payments would increase, and made it more profitable for black couples not to marry. In short, all the cultural nuclear bombs identified by Moynihan back in 1965 that were already detonating on the African American landscape were, at the very least, exacerbated by some federal programs. Clearly, the increased opportunities available to blacks in the education and employment spheres had a positive impact. But others engendered consequences we still can’t talk about today.

A guaranteed annual income might have altered that equation. We’ll never know. Along with forcing cities to address the crisis in inner city schools, and more effective job training programs, building self esteem and promoting independence might have gone at least some ways toward saving the black family.

Bobby Kennedy was eager to change the thrust of much of the welfare state from dependency to freedom. How he might have accomplished this if he had been elected president is another of those “What ifs” in history that prick at our conscience. Was there - is there - another way to assist those Americans in poverty that would lift them up rather than keep them down? As long as even discussing the problem brings false cries of “racist,” we’ll never know.

Abortion, drug use, gangs, illegitimacy - all of these are symptoms of the destruction of the black family. Rep. Franks was making an accusation - overripe, in my opinion - that federal policies are responsible for the abortion rate among blacks, and by extension, the other symptoms of decline as well. He is suffering for his inelegance and tone deafness.

Too bad his critics refuse to engage on the substance of his critique.

Was the Austin terrorist John Stack a right wing loon?

Sure - because as we all know, liberals love to pay taxes and never get mad at the IRS.

Don’t believe me? Here’s Paul Begala wanting to make April 15 “Patriot’s Day:”

Happy Patriots’ Day. April 15 is the one day a year when our country asks something of us — or at least the vast majority of us.

[...]

This country has showered me with the blessings of liberty. So what do I owe my country in return? Paying my fair share of taxes, it seems, is the least I can do. Thanks to President Obama and the Democratic Congress, 95 percent of Americans will get a tax cut this year. No one — not even the wealthiest 1 percent — will have to pay higher income taxes until 2011.

But no one kisses the ass of our IRS overlords with more nauseating obeisance than Matt Stoller:

I just paid my taxes, and I have to say, I always take pride when I do so. I don’t like having less money to spend, of course, and the complexity of the process is really upsetting. But I am proud to pay for democracy, and I feel when I do send money to the DC Treasurer and the US Treasury that that is what I am doing. The right-wing likes to pretend as if taxes are a burden instead of the price of democracy. And I suppose, if you hate democracy, as the right-wing does, then taxes are the price for paying for something you really don’t want. Personally, I find banking fees, high cable and internet charges, health care costs, and credit card hidden charges much more abrasive than taxes, because with those I’m just being ripped off to pay for someone’s summer home.

To which I responded:

When liberals like Stoller make noises of satisfaction like an infant who has just soiled their diaper just because they obeyed the law one wonders what lefties like our Matt do when they come to a complete stop at a stop sign. The celebrations must go on far into the night.

Obviously, liberals love it when they are racked and stretched by the IRS - even for honest, piddly-sh*t transgressions. They get off on a government agency that can make your life miserable - and, as Mr. Stack suggests - unlivable once caught up in the maw of IRS enforcement procedures. The trauma and torture wears one down, as forcefully and unrelentingly as tectonic plates grinding against each other.

Here’s Amanda Marcotte who suggests that Mr. Stack was indeed a left winger but that he was trying to goose right wing nuts into picking up on his IRS jihad:

Stack’s beef with the IRS seems to have developed from personal problems stemming from possible tax evasion on his part. But it appears to have turned into a full-blown ideological stance, and again, it’s clear that he hopes others who share his ideological stance—and believe me, there are a lot of crazy right wing nuts in the area who do, and I have no doubt Stack was aware of this—will act on his wishes. This is what I mean by a mish-mash. Most of his ranting seems very left wing, but if you’re living in central Texas and you do something like this, you’re sending a signal to right wing nuts, and you know it.

“Most of his ranting seems very left wing…” but ignore that, pay it no mind. It disturbs the narrative that this fellow was a tea party type.

What was that “left wing rant?”

And while they appear to make it look like it’s all about anti-government and anti-IRS, they fail to mention his anti-Catholicism, anti-Bushism, anti-capitalism and pro-communism.

I guess it doesn’t fit the preferred narrative

No, it doesn’t. But when has that ever stopped anyone on the left from jumping to conclusions? Recall that suicide of the federal worker in Kentucky that the left flayed conservatives over before it was discovered he took his own life and wasn’t murdered by “anti-government extremists.” Or Fort Hood shooter Nidal Hasan’s “PTSD transference” where he heard so many bad things about Iraq coming from his patients that he snapped. I wrote here about both right and left jumping to conclusions about Hasan but in the case of the Austin terrorist, there is a clear, and laughably ignorant attempt by many on the left to tie Mr. Stack to tea partyers.

Why can’t a nutcase just be a nutcase? Why does he have to be “motivated” by political views at all? I’m not a mental health professional, but I’ve read enough to know that trying to glean intent from a diseased mind is a ludicrous sport for amateurs. The reason someone commits suicide in the first place is that the natural, healthy, normally functioning mind breaks and the primal urge of self preservation is either short circuited or is prevented from working properly. This does not happen in minds that are in love with logic or reason.

The left is ascribing a rational thought process to an irrational man. If it weren’t so stupidly obvious that there’s is a political attack rather than a serious attempt to reach a conclusion based on observation, investigation, and a familiarity with how mental disease can lead to suicide, we might excuse liberals for simply being dumb. But tis the season for idiotic political bloviating so we’re stuck with nonsense like this:

Joseph Stack was angry at the Internal Revenue Service, and he took his rage out on it by slamming his single-engine plane into the Echelon Building in Austin, Texas. We now know this thanks to the rather clear (as rants go) suicide note Stack left behind. There’s no information yet on whether he was involved in any anti-government groups or whether he was a lone wolf. But after reading his 34-paragraph screed, I am struck by how his alienation is similar to that we’re hearing from the extreme elements of the Tea Party movement.

I was not struck by that at all. What struck me was this guy’s lack of a clear ideology - something that some of the less reason challenged liberals recognized and, to their credit, are writing about.

Or this:

5. He was mad at the IRS, and left what CNN reports was a suicide note on a local website, detailing his trials with the agency. In fact, a lot of his rhetoric could have been taken directly from a handwritten sign at a tea party rally.

The question of whether this guy was a terrorist is a no brainer; of course he was. Maybe the FBI and Homeland Security refuse to call incidents like this “terrorism” because of the increased paperwork involved in reporting it that way. Otherwise, the only explanation that makes sense is they don’t want to make a big deal out of the incident.

But in this case, we have a terrorist without portfolio. His motivation, given the building housed a regional IRS office, seemed to have been revenge more than anything. His ranting about wanting to inspire people is just that - the mouthings of a madman who wanted to give his death a twisted kind of meaning. It’s not logical or rational. It is delusional.

Maybe some day both sides will realize that the only people they are fooling with their politicization of the insane are themselves.

The earthquake that shook the world’s financial system in September of 2008 opened many eyes to the fact that the largest companies on Wall Street had become heavily engaged in the extremely profitable but wholly unregulated derivatives market without a clue as to understanding the extraordinary damage their gambling could do to the economies of the industrialized countries if a financial shock came along.

There were some - in government and out - who sensed the trouble we were in but whose voices were drowned out in the speculative frenzy, the drive for ever larger profits, and the mania for secrecy upon which these firms traded. And the enablers in the Clinton Administration - including Larry Summers, Tim Geithner, and Robert Rubin - along with the anti-regulatory Fed Chief Alan Greenspan, worked hard during the 1990’s (as did their successors in the Bush administration) to keep the regulators at bay, discrediting them with Congress, and trying to bully them to toe the party line on keeping the derivatives market free of scrutiny by the government.

We paid for this shortsightedness with a meltdown of the financial industry that we are still feeling today and are likely to feel for years to come.

Those who continue to believe that the collapse of Lehman Brothers and subsequent tsunami that led to our current economic problems was the result of a few hundred thousand poor people who got loans they shouldn’t have received through the Community Reinvestment Act need to wake up and smell the coffee. The still unregulated derivatives market is worth $600 trillion today. That is not a misspelling. An unknown tens of trillions of that market - nobody can possibly know exactly - are in “toxic assets” still being carried on the books of big banks just waiting for the next shock to hit Wall Street to bring these great houses of finance to their knees again.

Yes, mismanagement of risk by Fannie and Freddie had something to do with the crisis, and the CRA had its own small role to play. But this crisis virtually begins and ends with the mind boggling way in which the largest financial service companies in the world fought tooth and nail to keep the government from finding out just what they were up to with these credit swaps.

I suppose I should mention that my understanding of all this is a mile wide and an inch deep. But the political explanations offered by both sides never satisfied my curiosity. The crisis was more than 2 decades in the making, and the idea that one side is more or less to blame for it is nonsense. Both Clinton and Bush, Democrats and Republicans in Congress have a lot to answer for and trying to place relative blame on a scale and weigh out who should be designated as the winner of the blame game is an exercise in futility.

No transparency, no record keeping, and little understanding by either the companies or the government of the systemic risk of these derivatives and credit swaps led directly to the collapse. But we can’t get rid of derivatives even if we wanted to, as business writer for the NY Times Timothy O’Brien points out:

But it’s really important to remember that there are a lot of good, practical uses for derivatives. In fact, the average person who’s a homeowner owns a derivative. It’s the insurance policy on their house, and it’s essentially a contract that you enter into with an insurer that pays you a certain amount of money if some kind of damage or calamity happens to your home. And you pay a little bit of money, or a lot of money depending on the size of your home, each year for that policy.

Wall Street has all sorts of contracts like this. Derivatives, in essence, are insurance policies that various players on Wall Street and in the business world enter into to protect themselves from unforeseen calamities, whether it’s wild interest-rate swings, changes in the values of currencies, someone’s debt going bad. …

And that’s a good thing. When people have protection from things they can’t control, it enables them to take sensible risks, which allows them to grow their business and allows more money to get created and creates jobs. These are all good things, as long as that’s what these things are being used for.

As you might have guessed, it was the other things derivatives were used for that sealed our fate:

The problem is, no one really knows exactly what derivatives are being used for because it all exists in a black box. They’re unregulated; the contracts aren’t traded on exchanges; they’re entered into between private parties. No one knows whether or not one company, let’s, for example, call them AIG, a big insurance company, has entered into so many of these contracts that if an unforeseen financial hurricane comes and hits the house known as Wall Street and suddenly AIG is required to make good on … so many of these policies that they don’t have enough money to do this, and they run into danger of going belly up. Which is exactly what happened at AIG.

And the lingering question is, if these transactions - if the derivatives market - had been regulated adequately, could we have avoided the worst of the meltdown? Joe Nocera, also of the Times:

The technical term for the kind of derivatives that really got us into trouble is bespoke derivatives. Bespoke means one of a kind. And these were complicated contracts that covered a particular, you know, one deal only. It couldn’t be replicated. It wasn’t like buying a share of IBM that is exactly the same as every other share of IBM. You bought a credit default swap; it would be built around a particular series of deals. It would have a particular set of terms. It would be one of a kind.

This is, by the way, why this stuff became so untradable. How do you trade a one-of-a-kind? There is no real market for them. It has a utility as a contract on a one-on-one basis. But there is no trading function. And that has been part of the whole problem. They don’t mark to market, i.e., because there is nothing to compare it to. What’s out there that you can compare this one thing to? So they mark to model. They come up with fancy, financial models every quarter. And they mark this thing to the model.

And for many years the model said they were worth more, worth more, worth more, so you mark them up. And then finally the model said: “Uh, you know what? Foreclosures are up. Subprime is down. We have got to start marking them down.” You start to blow up. But even though they are blowing up, you are still stuck with them. There is nothing you can do with them. You can’t trade them.

Bottom line:

So one of the big problems with the rise of credit derivatives is that Wall Street was terribly resistant to the idea of standardizing contracts and allowing them to be traded on an exchange, because it would hurt their profits.

The question now before us is what should be done about it? And for me and for many conservatives, the question becomes is there any regulatory regime that would be consistent with conservative principles?

It is a false assumption that regulation of markets is inherently un-conservative. Libertarians might take that position but since conservatives should value order above almost all else, sensible regulation of markets is a requirement for promoting a just and orderly society.

The size of companies like JP Morgan and Citigroup gives them an enormous advantage in the market already. And as I demonstrated above, these credit swaps take place in a totally unregulated, secret environment. Add the potential for harm to the community - harm that could be avoided or mitigated with a regulatory regime - and I think a solid, general case can be made for conservatives to support some kind of minimal regulation.

The problem as I see it, is that as with everything else President Obama wishes to do, he takes a good idea and ruins it by overkill. The president wants to transform the financial services industry. Conservatives want to rein it in. Obama wants to drastically reduce risk. Conservatives recognize the value of risk (as explained above) and want to minimize it without destroying its many advantages. The president wants to create a federal agency - the Consumer Financial Protection Agency - that some analysts believe would make credit extremely difficult to get for ordinary Americans. Conservatives believe that laws already on the books to protect consumers in this regard could be strengthened, but that a whole new agency is dangerous and unnecessary.

The differences then, are a matter of degree. Clearly, where there is no regulation or transparency, government must be there to create it so that not only is the economy protected, but that the derivatives market itself becomes less prone to the kind of exploitation that secrecy encourages.

Being supportive of a free market most decidedly does not mean that conservatives should oppose all regulation, or support less than adequate regulation, due to an ideological belief that such “interference” is an anathema to the functioning of the market. If the derivatives crisis showed anything, it is that our modern financial system is so complex that ordinary market forces that are supposed to correct imbalances are actually a danger to the economy as a whole. There may have been steps short of trillions in bail outs for firms “too big to fail.” We will never know because they weren’t tried. But even solutions like forced mergers of teetering banks, managed liquidations, guided bankruptcies, and the like would have required massive government intervention in the markets to achieve. And since the problem was worldwide, such measures may still have not been enough to keep the crisis from imperiling the world’s banking system.

A free market is only free if all benefit from its workings. When big companies can skew the market to gain advantages not available to others, or when they can game the system - backed by taxpayers - to take wild risks and place our economy in peril, it behooves conservatives to support reasonable steps by the government to rectify the situation.

Some of what the president proposes makes sense. Preventing big banks from both taking deposits and trading securities that benefit their own house - a small move back toward Glass-Steagell - is a good idea. Other ideas, like making the Fed the overseer of “systemic risk” and the creation of the CFPA smack of overreach. What eventually emerges from negotiations with Congress, with Wall Street, and the White House we can only hope will be adequate to address the problems without being so burdensome that they stifle economic activity.

It would be easy to dismiss the deficit reduction plan offered by Representative Paul Ryan (R-WI) a couple of weeks ago as a non-starter politically. Indeed, ordinarily I would castigate either a Republican or Democrat for offering such a pie in the sky, politically unfeasible plan with regard to anything.

But what makes Ryan’s deficit reduction plan worthy of serious discussion is what it portends for the future; that the longer we go without addressing the underlying causes of the deficit, the harder it is going to be to save the US from bankruptcy.

Even liberals were impressed. Ezra Klein totally disagreed with it but called the plan “daring.” Ygelsias said of the plan that Ryan “has gone where I thought no Republican would dare to tread.” But the establishment Republicans tiptoed around Ryan and virtually disavowed his efforts at finding a way forward. Ryan himself said he wasn’t speaking for his fellow Republicans, thus letting them off the hook.

Ryan’s plan can be considered very stiff medicine indeed. He calls for the elimination of Medicare and Medicaid as we know it by substituting vouchers that seniors can purchase to buy their own insurance plans. The value of these vouchers will go up in succeeding years but - and here’s the kicker - they will not rise as fast as the cost of medical care. Basically, it is rationing health care through individual choices.

Bruce Bartlett writing in Forbes, gives us the barebones outline of Ryan’s bitter pill deficit reduction plan:

[I]t is really heroic that Rep. Ryan did not shrink away from confronting head-on the necessity of slashing entitlements for the elderly in order to achieve his goal of abolishing the federal debt without an increase in the tax-to-GDP ratio.

On Social Security Ryan would reduce initial benefits for retirees by changing the benefit formula. Private accounts would be established immediately for those under age 55 that would be partially funded by payroll taxes.

Ryan would also raise the age to qualify for Medicare from 65 to 69 years and 6 months for people born in the year 2022. After the year 2021, the Medicare program as we know it would cease to exist. Instead of receiving health benefits through Medicare, those over age 65 would instead receive government vouchers worth $5,900. These vouchers would be adjusted for age and health status, which would put the average voucher at $11,000. Medicare beneficiaries would buy private health insurance with the vouchers.

These amounts are considerably less than estimated Medicare spending per enrollee in 2022, so there is a sharp cut in spending right off the bat. Furthermore, these amounts would only be indexed to half the historical rate of price inflation for medical care. This means that the real, inflation-adjusted voucher amount would fall continuously. To cover the shortfall, Medicare beneficiaries would either have to pay out of their own pockets for medical care or buy private insurance over and above what could be purchased with the Medicare vouchers.

Ryan also calls for the elimination of the tax exclusion for employer health care plans. This would mean a huge tax increase for workers who would have to pay income tax on the cost to the employer of their insurance.

The plan is political poison - but illustrative of the kinds of draconian measures that will be necessary to get us out of this deficit mess. In this way, Ryan has done a huge service to the American people by having the political courage to present this plan with all its pain, and the political opening you can drive a Mack truck through if you were a Democrat seeking to make hay out of it.

The GOP showed in the health care debate how easy it is to demagogue Medicare cuts; just pretend that you never supported the idea of cutting Medicare and lambaste the Democrats for wanting to cut $500 billion over 10 years. You instantly become a hero to seniors who go nuts if you even whisper about cutting Medicare. They don’t know that as recently as 2007, Republicans were calling for similar cuts in Medicare. And thus will be the fate of any politician or party who seeks to fiddle with Medicare reimbursements or costs.

This is a recipe for total disaster, as the former GAO chief David Walker has been trying to tell us for the last 4 years:

“History has shown that when America faces difficult challenges and when it rises to the occasion, anything is possible,” he said in an interview. Yet “a fiscal cancer,” he said, “is growing within us, that if we don’t treat, can have catastrophic consequences.”

For more than a year that’s been Walker’s message to Americans. It is part of what he calls a Fiscal Wakeup Tour, an itinerant, bi-partisan lecture panel known as the Concord Coalition, which is traveling to college campuses in advance of the 2008 presidential elections. Accompanying Walker are economists from the left-leaning Brookings Institution and the conservative Heritage Foundation (usually Isabel Sawhill from the former and Stuart Butler from the latter). They may disagree about the potential solution, but they are in accord that a problem exists.

The crux of the campaign: to spread the word that Americans and their government are living beyond their means and that fiscal fecklessness is imperiling the country’s living standards.

Here we are, 3 years after that column was written and the prescience of Walker and others who have been shouting in the wilderness for so long about how absolutely imperative it is to address our long term deficit problem becomes obvious. We are only at the beginning of our “unsustainable” deficits. With the debt ceiling primed to rise above our GDP for the first time, we will get a very close look at what Walker, Ryan, and others have been grousing about; less and less government spending devoted to items like defense, education, the environment, and aid to the poor with more and more of the budget being forced to fund social security and Medicare.

When I profiled Rep. Ryan here, I highlighted the kind of muscular conservatism he stands for; meaty, intellectually coherent, and now add politically courageous to that thumbnail.

Bartlett challenges the tea party movement to embrace Ryan:

I think it is irresponsible to say, as almost all tea party goers do, that they are unalterably opposed to tax increases without specifying spending cuts–large cuts in popular programs that go far beyond foreign aid, earmarks and even a budget freeze. And if they are serious they must admit that coming anywhere close to budget balance cannot be done without slashing Social Security and Medicare benefits. There’s no way around that and anyone who says so is either ignorant or a fool.

When I see people like Paul Ryan addressing large tea party conventions and receiving standing ovations for his budget plan, maybe I will begin to think it is possible to avoid a massive tax increase. But right now, I don’t see even the tiniest glimmer of understanding among the tea party crowd about the true nature of our budget problem and what it would take to avoid a major tax increase.

The next time I see pictures of a tea party crowd I will be looking carefully for signs that say “Abolish Medicare,” “Raise the Retirement Age” and “Support the Ryan Plan!” I won’t hold my breath waiting.

Indeed, those familiar with this site know that I have, on several occasions, called out conservatives for their lack of specificity in defining what they mean by “limited government.” Where would you cut? Whose ox would you gore? How would you be able to do it when the political winds blow so strongly against you? In response, I’ve gotten vague intimations of some kind of “Super-Federalism” that would transfer most of what the federal government does now to the states, or a “let them eat cake” attitude where many on the right wish to roll back not only LBJ’s Great Society, but also FDR’s New Deal. Some wish to go even further and set up what would amount to a pre-constitutional government where the states would be supreme - “an Articles of Confederation on steroids” I’ve called it.

Ryan’s plan shows it won’t be easy, that it won’t come by only cutting spending, and that not only our lawmakers, but voters as well must become responsible citizens of the republic in order to bite down - hard - and do what is necessary to save us from our own profligacy. A nation that defeated fascism, communism, and can rise above its own sordid past and elect a black man president can do anything it sets its mind to.

Just give us a couple of hundred more Paul Ryans, please.

Some might believe the idea of writing 1500 words about toilet paper to be a complete waste of time. Of course, that means that reading 1500 words about toilet paper would be an even bigger waste of time. But before you click away from what, on the surface, would seem to be a throwaway post, I want to engage your mind and stir your soul about the importance, the efficacy, and the sheer wonder of this absolutely essential household product.

Have you ever contemplated what our civilization would be like without toilet paper? We’d be stuck using old copies of the New York Times or Washington Post - sort of like spreading shi*t on sh*t, although if newspapers wish to survive, perhaps they could start a movement to ban bathroom tissue. Think of the extra millions of copies newspaper companies would sell. People might not read them, but in our modern society, products with more than one purpose have a better chance of surviving.

Still think I’m off my nut?Au contraire, bon ami. I believe there is a direct correlation between the economic health and spiritual well being of a society and the quality and selection of the bathroom tissue it offers.

It is unknown when humans even began to care about cleaning themselves after defecating. The fossil record is silent on the issue and archeological evidence from paleo-human campsites is lacking.

It was probably some Cro-Magnon woman who got tired of sleeping with a stinky man and pointed out the advantages of cleaning oneself after doing his business. Since we all know that women’s stools don’t smell, this is logical (neither do women stink when they sweat, or perhaps men don’t notice it because female perspiration is an aphrodisiac to most of us).

It was the Chinese who first figured out in the second century AD that their invention of paper had applications far beyond the ordinary purpose of being a surface upon which writing might be stored and shared. A fanatically clean society, the use of paper to wipe one’s bum must have seemed a much better option to the Chinese than bamboo grass which, unless you are careful, is capable of cutting the flesh like a Ginsu knife. (The Greeks apparently used a sea shell to scrape the area clean. Try that without letting out a yelp of pain.)

Paper was used in various forms and shapes by succeeding cultures. But it was a highly discriminatory product. Only the rich could afford paper while the middling classes and poor were stuck with other, decidedly less comfortable and efficient products.

It took American ingenuity to invent egalitarian toilet paper. Wikpedia says it was a fellow by the name of Joseph Gayetty who developed the first commercially available TP in the world in 1857. The product had a few drawbacks, however. It came in small sheets for one. Then there was the problem of splinters, since the process of manufacturing soft, smooth, quilted, or multi-ply paper was a few decades away. It doesn’t take much imagination to experience the pain that would be felt if one were to be unfortunate enough to have a splinter lodged in your anus. True love would be your wife assisting you in removing it.

It wasn’t until 1935 when Northern Tissue advertised “splinter-free” bathroom tissue that the modern technological age began and industrial society was poised to reach its peak of perfection. I shudder to think that I might have been born in an era without Charmin or other premium brands of TP.

It should be noted that there is still something of a stigma attached to the product. Why this is so relates to our shame regarding any discussion of the private parts of the body. That, and the indelicate nature of what the product is used for. But really, when you think about it, why should shame be attached to a wonderfully useful product for which everyone has need? There isn’t a soul alive or dead who could honestly say that they were indifferent about the necessity of utilizing this product. It as universally essential to daily life as Hellman’s Mayonaise or Plochman’s Yellow Mustard.

Hopefully, this attitude is changing thanks to a groundbreaking series of commercials for Charmin TP that features animated bears who are actually seen almost using the product. That, of course, is the final barrier that needs to be broken. Once the Charmin Bears are seen wiping, we will have a new normal for bathroom tissue commercials. There will be a scramble among Northern, Scott, and the other giants of the industry to show their product in use. I await this day with much anticipation for it will be then that toilet paper can come out of the water closet and breathe the fresh air of a deserved, respected notoriety.

We have few jokes about toilet paper in our culture. That’s because of its ubiquitousness, as well as the superb quality of the tissue that is generally available even to the poorest among us. I did find a rather funny Chuck Norris/Jack Bauer truism. Playing off the idea that some toilet paper has celebrities printed on the roll:

They once made a Chuck Norris toilet paper, but it wouldn’t take sh*t from anybody.

Socialist societies overflow with TP jokes. That’s because when such a basic necessity is part of a command economy, there will never be enough and its quality will be a joke. This brings to mind P.J. O’Rourke’s masterpiece Holidays in Hell where his visit to the Soviet Union in the early 80’s was painted as a nightmare of shortages, and standing in line for hours just to purchase a couple of rolls of toilet paper.

This incredible report from a sociologist in Russia describes how the Stalinist state designed one kind of toilet paper:

My view is that the development and usage of toilet paper has a much neglected ‘cultural’, as opposed to crudely ‘economic’, aspect. I remember using something called ‘Izal’ - a sort of hard, crumply, medicated affair, prone to splitting under excessive pressure. It was clearly designed and manufactured by an anally retentive Methodist sworn to clean living, clean air and clean bums. It came in boxes especially designed to keep use of paper to a minimum. Each sheet had to be withdrawn singly and was usually the devil’s own job to extract. Sort of thing one found in the lower middle class household of Stalinist persuasion that I inhabited during my childhood years…. It never did me any harm, honest.

And Obama wants our government to have a big say in the design of cars?

If you read between the lines of this old Russian joke about toilet paper, you can catch the utter helplessness that people feel in a society that is incapable of addressing their most basic comforts:

A woman walking in the street is carrying a bag full of rolls of toilet paper.

A passer-by opens his mouth, “Hey, mother, where did you buy it?”

“Buy? Are you crazy? Where could I buy it nowadays? They are five years old. I am taking them back from the cleaners.”

And, of course, there are dozens of variations on the newspaper Pravda (Truth) being better utilized for duty in the water closet than actually finding out what was going on in the Soviet Union at the time. Those humorous anecdotes also say something profound about a society where attacking the state by smearing excrement over its propaganda organ is a way to fight back against the stultifying nature of Communism.

In contrast, the bidet - that most elegant and efficient of hygienic aids - would probably make the average Soviet citizen of the period contemplate bloody revolution. But frankly, I’ve never gotten the hang of the contraption and prefer the less ritzy, but more utilitarian paper alternative.

I hope you come away with a greater appreciation of bathroom tissue, and a more enlightened grasp of the spectacular successes of American society after reading this. If not, I’m sure you can find some shells somewhere.

In the midst of doing a lot of things wrong, the Obama administration appears to be about ready to take some steps in regulating the big banks on Wall Street that, if the details are carefully drawn, will make our financial system more secure while reining in institutions that were determined to be “too big to fail.”

The Wall Street Journal:

On Thursday, Mr. Obama proposed a plan that would prevent banks that receive a federal backstop from investing their own money in financial markets—what is known as proprietary trading. He also pushed for new limits on the size and concentration of financial institutions. Both moves echo the Glass-Steagall Act, the Depression-era banking curbs that was repealed in 1999.

The proposal marked the return of Mr. Volcker to center stage in the Obama White House. The 82-year-old chairman of the president’s Economic Recovery Advisory Board consulted closely with Democrats in the House and Senate as they drafted their proposals to address “too big to fail” entities, referring to financial behemoths whose collapse might bring down the economy. Mr. Volcker spoke frequently with Mr. Obama as well.

But he faced a philosophical divide with others on the economic team.

The Geithner-Summers axis in the White House has been opposing the virtual re-imposition of Glass-Steagall for months. This decision by the president makes me think that one or both of them is on their way out - and soon. Geithner is the logical choice to take a long walk off a short pier, having angered just about everybody but executives who benefited from his bank bonus policies.

My guess is the ax will fall right before the State of the Union speech, perhaps as soon as this weekend. Obama will use SOTU to probably ask for a fresh start from the American people and he’s not going to be able to do that without some heads rolling - especially among those who have been responsible for implementing his economic policies.

The experiment of having a financial system free of Glass Steagall constraints has failed. Jim Manzi at American Scene, in an excellent summary of the new regs, explains why:

Finance professionals, like members of all occupational categories, attempt to build barriers that maintain their own income. One of the techniques used is to shroud what are often pretty basic ideas in pseudo-technical jargon. The reason that it is dysfunctional to have an insured banking system that is free to engage in speculative investing is simple and fundamental. We (i.e., the government, which is to say, ultimately, the taxpayers) provide a guarantee to depositors that when they put their savings in a regulated bank, then the money will be there even if the bank fails, because we believe that the chaos and uncertainty of a banking system operating without this guarantee is too unstable to maintain political viability. But if you let the operators of these banks take the deposits and, in effect, put them on a long-shot bet at the horse track, and then pay themselves a billion dollars in bonuses if the horse comes in, but turn to taxpayers to pay off depositors if the horse doesn’t, guess what is going to happen? Exactly what we saw in 2008 happens.

If you want to have a safe, secure banking system for small depositors, but don’t want to make risky investing illegal (which would be very damaging to the economy), the obvious solution is to not allow any one company to both take guaranteed deposits and also make speculative investments. This was the solution developed and implemented in the New Deal. We need a modernized version of this basic construct, and as far as I can see, this is what President Obama has proposed.

Glass-Steagall put up a wall between commercial banks and those banking institutions that make their living on Main Street. What was seen as an antiquated, outdated notion in 1999 when it was repealed, makes a lot more sense in retrospect. The deregulators forgot one gigantic truth about human nature; we are a fallen species, and if an opportunity presents itself to aggrandize one’s own wealth and power at the expense of another, few will resist such temptation.

Manzi’s point about risk is also well taken. We cannot overregulate to the point that risk is discouraged - especially in the competitive global business environment we find ourselves today. Intelligent risk taking is the essence of entrepreneurship and the government will have to walk a fine line between mandating responsible behavior by big investors while still allowing the magic of the market to bring new products and new ideas to the fore.

While some of the administration’s rhetoric on this issue has bordered on anti-business, the political ramifications of slapping Wall Street with new regs that will force them to act more responsibly to the economy as a whole are profound. Manzi again:

The political aspects of such reform are compelling. People are disgusted at recent bank bonuses. I’m a right-of-center libertarian businessman, and I’m disgusted by them. Make no mistake, many banking executives right now are benefiting from taxpayer subsidies. Even if they pay back the TARP money, the government has demonstrated that it will intervene to protect large banks. This can’t be paid back. And this implicit, but very real, guarantee represents an enormous transfer of economic value from taxpayers to any bank executives and investors who are willing to take advantage of it. Unsurprisingly, pretty much all of them are.

The “populist” observation that the fact of a bunch of well-connected guys each pulling down $10 million per year while suckling on the government teat constitutes almost certain evidence of self-dealing is accurate, and all the fancy finance talk in the world can’t get around it. President Obama has a clear political incentive to pursue this proposal. I assume Republicans will see that they have a clear political incentive to go along, rather than standing up for such a situation. Hopefully, this will create the political dynamic that will allow real, positive reform.

If the result of these regs is that we never hear the words “too big to fail” again, that will be fine by me. I am a little more convinced a year later that the intervention by government at the time was at least partly necessary, although I ask would it have been possible for the government to have tried a little harder to effect mergers and controlled bankruptcies rather than shelling out such huge amounts of taxpayer dollars. We’ll never know, which is why creating a regulatory regime to make sure that we never - ever - put the taxpayer in that position again is of paramount importance.

Another in my series of puny attempts to dissect what’s wrong with modern conservatism. Part II will appear tomorrow.

I debated whether or not to make this a piece about “some conservatives” eschewing reality for an alternate universe or if I should make it about much of modern conservatism’s disconnect from the reality of 21st century America.

In the end, I think it is more important to look at how conservatism as a philosophy has closed itself off so thoroughly from uncomfortable and inconvenient truths about America. The fringe players in the movement with their litmus tests and dreams of going bear hunting with Sarah Palin are not really the problem as I see it.

Their worldview, shaped as it is by wallowing in the echo chamber of conservative media, and warped by a naive and ultimately uninformed ideological prism through which they spout nonsensical, paranoid conspiracies, may be relevant to the political health of the right but has little to do with the breakdown of conservatism as a governing philosophy itself.

In this case, it is conservatism losing its ability to question itself in a rigorous and punishing manner, preferring to maintain a comfort zone in which certain shibboleths of the past rest easily on the mind and prevent the kind of examination of underlying assumptions that any set of philosophical principles needs to maintain touch with the real world.

One might argue that the problem is really with people who hold to those philosophical principles and their refusal to challenge their beliefs. I don’t think this is necessarily true. You can’t sneeze these days without tripping over someone on the right indulging in the kind of “Woe is us” pontificating. I should know. I do it often enough. One would think with all this angst, some truths about why conservatism is where it is today and how it got there would emerge. So far, I have been unimpressed.

There have been some valiant attempts, most notably after Sam Tannenhaus’s Death of Conservatism was published. Rejecting much of Tannenhaus’s critique (as most conservatives should), the author nevertheless wallops a couple of extra base hits while socking at least one, long home run in his analysis; that modern movement conservatism isn’t very conservative at all in that it seeks to overthrow the social order rather than conserve what is best about America while channeling change into productive venues consistent with tradition and the Constitution.

Tannenhaus refers to these right wingers as “revanchists.” Indeed, there is a strong impulse even among so called “reasonable conservatives” that FDR’s New Deal and Johnson’s Great Society need to be repealed or drastically curtailed. In it’s place? There things get kind of fuzzy but what emerges from many conservatives is some kind of “super federalism” where a souped up 10th Amendment would give us 50 different EPA’s or worse, where “market forces” would solve the problems of clean air and clean water.

That’s just one example, of course. And I should hasten to add that any good conservative supports a reasonable brand of federalism, not to mention a prudent regard for liberty and the taxpayer’s money that would force us to question the efficacy of hundreds if not thousands of federal programs. But, what many of the revanchists seek is not a “return” to first principles in the Constitution but rather a form of government more akin to an Articles of Confederation on steroids.

Another Tannenhaus point scored deals with the notion that movement conservatives positively hate government - government of any kind. It goes far beyond the healthy suspicion that all conservatives should possess of the positive impact government programs can have on society, and devolves into paranoia about any government program or effort to address stubborn national problems.

Here is where conservatism itself goes off the rails and feeds this paranoia, preventing conservative ideas from being brought to bear on national issues like health care, immigration, loss of industry, globalization, and adequate, sensible regulation of everything from financial institutions to the environment.

For it is not necessarily people who have become hostile to government but rather conservatism as a governing philosophy that has walled itself into a corner, refusing to confront a modern America that is less white, less agrarian, more urbanized, more technical, and developing a growing tolerance for government solutions to prickly, systemic problems experienced by ordinary Americans.

That last is the killer. Since the end of World War II and the rise of modern conservatism, it is been de rigueur for the right to promote the idea that government can be cut down to size, shrunk to an ill-defined outline that bears more of a resemblance to 19th century America than a modern society with all the miseries and challenges that reality entails.

The thrust of conservative critiques of the welfare state from Hayek to Kirk to Reagan has been that government is bigger than it should be as a result of it trying to do more than is necessary for the functioning of a constitutional republic. Indeed, a strict constructionist reading of the Constitution would cause anyone to question the manufactured justifications for everything from overly zealous government interference in commerce to the legislating of cultural issues from the bench. Conservatives rightly believe that “original intent” are not dirty words and that First Principles are in many ways as valid today as they were 220 years ago.

But over the decades, conservatism lost its flexibility in delineating a coarse ideology from this philosophy. By this I mean that conservatism has eschewed thoughtfulness for conformity. I’m not sure if you can actually pinpoint a moment where ideology trumped reason, although my personal line in the sand was the 1992 Republican convention and the rise of the culture warriors.

But that may have been the denouement to a decade or more of slow rot eating away at the foundations of a carefully nurtured worldview that fought for principle while recognizing that America was changing and that conservatism as a governing philosophy must change with it. The idea of reforming government - Reagan’s grand notion of a New Federalism, lower taxes, fewer regulations, and freer people - died in the fires of a cultural backlash that has come to define modern conservatism.

This is where conservatism lost touch with reality. The moment that the war itself became more important than the principles espoused, all semblance of rationality was tossed out the window and in its stead arose a mindless, knee jerk opposition to government and, of course, the left. As the living embodiment of Big Government, liberals became an enemy and not the political opposition. Rather than fighting to apply conservative principles to the art and artifice of government, the right chose to immolate reason, and turn its back on the reality of modern American in order to destroy their enemies.

As practiced by the most influential conservatives today, this is what passes for conservative thought. Tannenhaus correctly surmised that movement conservatism has won the battle against the pragmatists and now dominates the conservative discussion. I don’t agree with what he believes this fact necessarily portends for the future - a continued decline in influence and relevance of the right. In fact, as I will show tomorrow, there is cause for some hope that younger, more intellectually muscular conservatives who are questioning everything while searching for a new conservative paradigm that would re-integrate movement conservatives into a re-energized whole, may be the beginning of a conservative revival.

Tomorrow: Reports of the death of Culture 11 have been greatly exaggerated.

This article originally appears at Newsreal Blog, David Horowitz’s new media venture. It was published in two parts: Part 1 was posted yesterday; Part 2 went up today.

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The network formerly known as The History Channel has come a long way from its start up back in 1995. At that time, there were questions about how big an audience there would be for a network that dealt with a subject most Americans find irrelevant or boring.

They needn’t have worried. Now dubbed simply History, the Arts and Entertainment network offshoot regularly outperforms its flagship channel and is poised to improve upon its top ten ranking in the all important 25-54 age group this year with a mix of reality TV, first class documentaries, and audience grabbing psuedo-history programming on everything from UFO’s to the coming “Apocalypse” in 2012.

But the question in my mind, and one that should concern those of us who love history and revere the past, is how far afield the network can wander from its roots and still hold its base audience of history nuts?

Indeed, the channel that was once known as “The Hitler Network” because of its seemingly endless supply of World War II documentaries, now features several “working class hero” shows that don’t offer much in the way of history but are cheap to produce and garner large audience shares due to the personality driven story lines. Ax Men, a series that follows a group of loggers through a season of thrills, spills, and personality conflicts, is entering its third year of production, and along with the gritty reality hit Ice Road Truckers shows that History is perfectly willing to eschew the traditional, more linear and academic documentary format to give the audience what it wants; real- life danger and edgier programming.

The network’s newest reality hit, a takeoff on the PBS series Antiques Roadshow called Pawn Stars, at least has a tangential connection to “history” in that the Las Vegas pawn shop featured on the show takes in an eclectic mix of weird and wonderful objects that, at times, have surprising antecedents. But the drama comes from the conflicts between family members, including an overbearing father who runs the shop.

Couple these reality shows with the growing number of offerings dealing with pseudo-science and pure fantasy, and history buffs might wonder where their network has gone. UFO’s, Nostradamus, and especially the wacky notion that the world is going to end in 2012 might improve ratings, but you can get similar fare on the SyFy Channel. Looking for monsters, tracking the movements of Aliens, and the seriousness with which the predicted 2012 Apocalypse is examined make History unwatchable many nights. Even Hitler would be an improvement to speculation about the Yeti.

This is not to say there aren’t flashes of excellent programming for the history connoisseur. Two general interest science programs almost make up for the nonsense offered during the rest of the week. The Universe, with its high end production values and mix of commentary by enthusiastic astronomers augmented by beautiful animation sequences, is can’t miss TV even if astronomy isn’t your cup of tea.

The series features many younger scientists - including some very attractive female astronomers I’ve dubbed “Astro Babes” - who not only offer clear, easy to understand explanations for the enormously complex concepts being examined, but seem to connect well with the audience on their level. Treating the viewers like adults is a welcome change from some other science fare broadcast elsewhere.

Similar care is taken in producing How the Earth Was Made. The show is unique in that it treats each subject - how the Rockies were formed, or plate tectonics, for example - as a detective story. Tracing the history of discovery, the series shows how science is done; building on knowledge gleaned from the past and combined with information learned using the latest gee-whiz gadgetry to arrive at a satisfying answer. Before each commercial break, the narrator summarizes what has been learned so far, giving the viewer the opportunity to share in how the answers were puzzled out. It is a show that is visually stunning and intellectually satisfying - a rare combination indeed.

But it is the historical documentary that has drawn us to History over the years and the general excellence of these all too infrequent programs causes the buff to ask why more of this kind of intelligent, high quality fare can’t be produced. For instance, the recent World War II in HD transcended its documentary format and became history itself. Years in the making, the film makers lovingly crafted 10 hours of gripping, and entertaining full color home movies, archived military footage, and period stills from thousands of submissions into a not to be forgotten mix of pride, patriotism, and pathos - all in glorious HD.

It is unrealistic to expect such excellence on a nightly or even weekly basis. But History has shown in the past that the long form documentary not only makes for compelling TV but also is able to gather an audience. Film maker Ken Burns has been quite successful in weaving stories and pictures into a seamless tapestry that is both achingly beautiful and a treat for the mind.

Even the shorter series-type documentaries like Patton 360 , which features jaw dropping 3-D views of the general’s battlefield, as well as the less serious, but still interesting Cities of the Underworld give nuance and context to previously hidden history.

In the end, it’s all about what draws the largest audience. History is not public TV and the consortium that owns the network are not in the charity business. Still, as this big write up in the Los Angeles Times on the network reveals, the corporation must walk a fine line in their programming between programming for profit and giving their core viewership what they crave.

History’s 41 year old president Nancy Duboc may have found a way to thread the needle:

Dubuc hopes to banish any questions about the network’s commitment to serious fare in April, when History makes its biggest and most expensive play yet: a 12-part series that will tackle the history of the United States from Jamestown to present day.

“America: The Story of Us” is being produced by Jane Root, a veteran British television executive who knows how to do epic television: She oversaw the launch of Discovery Channel’s “Planet Earth” when she ran that network. History is casting the project, inspired by the sense of momentousness that followed President Obama’s election, as the first comprehensive television history of the country since Alistair Cooke’s 1972 series “America: A Personal History of the United States.”

Cooke’s love letter to his British cousins about America is considered one of the finest documentaries ever made - a grand, sweeping paean to this country and her people. What can we expect from History’s ambitious effort to tell America’s story?

The recent History program The People Speak, based on far left professor Howard Zinn’s execrable one volume Peoples History of the United States portrayed America in a most unflattering light. It highlighted our sins, condemned the people as racist, sexist homophobes, and glorified some fairly unsavory characters.

Given the fact that this project was greenlighted by Duboc, I am not very confident that America: The Story of Us will rise above the kind of revisionist history popular on the left and give our whole, remarkable narrative the treatment it deserves.

Regardless of how that program plays out, the network still features enough quality historical programming to make it a worthwhile stop several times a week. Perhaps in the future, a television network devoted exclusively to the kind of historical programming many of us would love to see will come into existence. With a constantly fragmenting audience on cable and satellite TV, that possibility may become reality sooner than we think.

But for now, we’ll have to settle for History and its uneven mix of the serious, the sublime, and the silly.

I apologize for the absence of posts these past few days but I have been locked in a titanic struggle with a nasty bug that has sought to lay me low. I was able to perform limited duties at PJM and AT but never found the strength to address some of the more interesting stories that have popped up during the last 10 days or so on my own blog.

A pity, that. There is much I wanted to say about the administration’s approach to the…whatever we’re calling what used to be known as “The War on Terror” these days. While their attitude and strategy may be intellectually satisfying - downplaying the nature of the threat while frantically trying to bolster our counterterror capabilities at home and abroad - I think it is wrong on a psychological and political level.

Obama failed in appreciating the nature of the attack on Christmas day. He miscalculated the mood of the American people and came off looking weak and disengaged when he strolled to the podium more than 48 hours after the attack and read a rote statement that could have been delivered by a press flunkie. He compounded the error the next day by issuing a stronger, more realistic statement while idiotically backing his DHS Secretary’s nonsense about the “system” working, parsing her words like a Clinton.

This is old news now - water under the bridge so I won’t belabor the point. But in their eagerness to show that they are not “chest thumping” and “fear mongering” the administration and the president failed in their primary duty of simply reassuring the American people that someone was in charge and doing something about the problem.

Not their finest hour.

The other story that piqued my interest was Rush Limbaugh’s health scare and his weird, out of touch contention that the health care system is working just fine.

I am glad that Rush is OK and will continue to entertain us on the radio. But if there was ever an example of why conservatism has become irrelevant it was Limbaugh’s monumentally stupid remarks about the American health care system:

“The treatment I received here was the best that the world has to offer,” Limbaugh said. “Based on what happened here to me, I don’t think there’s one thing wrong with the American health care system. It is working just fine, just dandy.”

Limbaugh said that despite his celebrity he received the same treatment as anyone else who would have called 911 and been taken to the hospital in his condition.

“I got no special treatment,” he said, adding that the care he received was nonetheless “confidence inspiring.”

“I just feel very grateful and thankful be an American and have this happen to me,” he said.

Anyone who isn’t worth $100 million and becomes seriously ill in this country probably looked at Limbaugh as if he was from another planet. The American people may hate many aspects of Obamacare, but they aren’t stupid. They fully realize there are severe problems with our health care system and just because rich jamokes like Limbaugh and rich foreigners can get the best care in the world doesn’t mean that the average - or even above average - American gets the same treatment as the radio star.

Put simply, Limbaugh and many of his listeners are out of touch. The alternate universe they inhabit posits an America inhabited by crusty individualists, self-reliant citizens, a Darwinian free market, and a culture informed by “Judeo-Christian” morals and principles. That’s a pretty good description of America, alright - 19th century America. Today, we no longer have to build our own house, or shoot our own meat, or churn our own butter, or even make our own clothes unless we choose to do so. America in the 21st century is a great, big, raucous, tumbling, jumbling place that has moved far beyond what these self-described conservatives believe her to be - or think she should be. In their America, the health care system is “just fine” and there’s nothing wrong with the economy that a few hundred billion in tax cuts couldn’t fix.

The clashing interests of 300 million people coupled with the enormous complexity of governing such a diverse, multi-racial, mutli-cultural society makes the kind of simple minded conservatism promoted by Limbaugh and his admirers a shadow reality, existing outside of time and out of sync with the cares and concerns of ordinary people. They are for regression, not conserving anything. And their failure to accept America as it is rather than how they wish it to be makes them worse than irrelevant in promoting conservatism; they are a hindrance.

I believe these two currents of history - the coming primal thrust of jihad and the battle to wrest conservatism from fakirs like Limbaugh, Hannity, Palin, and others will test us in ways not experienced since the late 1970’s when there was the perception that the world was closing in around us and the Soviets were on the road to victory. That time also saw the final ascendancy of “movement” conservatism as a revolutionary political force.

It will not be a year of decision. But the potential is there for global jihad to wreak havoc on the US and the west as the clock approaches midnight in Tel Aviv and the countdown for an Israeli strike on Iran approaches its final stages.

I have blown hot and cold over the years about whether Israel would attack Iran without US permission or support. But with Obama in office, I think the Israelis believe they have little choice. Our relations with the Jewish state are in shambles - the worst since Eisenhower. Quite simply, Israel does not trust the Obama administration. And with the rise of the J-Street crowd in power and influence in Washington, the prospects for US support of Israel in any strike on Iranian nuclear facilities are very bad.

A year ago I would have bet that the Israelis would have deferred to Washington on the question of attacking Iran. Now, I’m not so sure. The only question left for the Israelis is are they prepared for the consequences? The scenarios of the aftermath of such an attack are all bad. And they all include the certainty that terrorism would be unleashed against Israel, the US, and the west on a scale never before seen. There are Hezbollah cells all over the world, and it is generally believed that they can be activated by Iran. What they could accomplish as far as death and destruction can only be guessed at.

In addition, al-Qaeda is showing it’s not dead yet and may keep up its efforts to attack us. Odds are in their favor that they will breakthrough and succeed. Whether they have the capability for mass casualty attacks isn’t known but many experts believe it to be just a matter of time before WMD is used in a terror attack. What then? Where does that leave the Obama administration’s downplaying the terrorist threat? It’s not necessarily a bad policy but a couple of thousand dead Americans would make it seem faintly ridiculous. Al-Qaeda, Hezbollah and their imitators may not represent an existential threat to America but I daresay the American people will have problems with the nuanced view that we shouldn’t get all bent out of shape over terrorism.

Of conservatism’s test I will say this; the farther conservatism retreats into the past, eschewing reason for emotionalism while welcoming groups like the John Birch Society back into the fold, the more irrelevant conservatism will become as a political force. Electoral gains in 2010 may indeed come to Republicans but it won’t be because of anything conservatism is offering but because the Democrats have royally screwed up. Until the voices of reason and pragmatism emerge to espouse a philosophy that resonates with ordinary people and addresses their real life concerns and problems, the right will continue to wander in the wilderness of political ideas wondering why no one takes their 19th century worldview seriously.

It should be an interesting year.