Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

30 September 2008

How the Dow’s Drop May Save Us

The bailout blowout and the Jewish Holidays have given us all a couple of days to think things over. One of the things we need to rethink is whether the sky is really falling and, if so, how fast.

If you look at some rough numbers, you can make yourself really afraid. The bailout plan that just fell through asked for $ 700 billion. That’s a lot of money. But I’ve read in two places that the total amount of credit default swaps now outstanding is $ 62 trillion. If only ten percent of them are irredeemably bad, then even the bailout plan that failed to pass may be too small by an order of magnitude.

On the other hand, our immediate problem is the freezing of credit. There’s not enough capital in sound enough financial institutions, we are told, to serve our economy’s needs for bank loans and “commercial paper”—the means by which business finances day-to-day operations.

But wait a minute. Isn’t commercial paper what money market funds buy and hold? Don’t they also hold huge bank certificates of deposit, which also provide money for loans? And didn’t Secretary Paulson stabilize the money-market-fund industry with a mere $ 50 billion and a new voluntary insurance scheme?

Now think a minute about yesterday’s 778-point Dow drop. According to two estimates (1 and 2), that drop reflected a loss of between $ 1.1 and 1.2 trillion in market value. But the Dow itself dropped only about 6 percent, so the people who sold out must have received about sixteen times that much in cash. (If a stock worth $ 100 drops six percent in value, and you sell it for $ 94, the cash you get is about sixteen times the drop.) So there now should be over $16 trillion of loose cash floating around the economy that, as of Sunday, had been tied up in stocks.

Where did all that money go? Stock sellers could have put it in gold bars, but they take time to purchase, are heavy and can be stolen. Sellers could have bought foreign currency or commodities, but they’re risky. A significant part of the proceeds of sale no doubt went into retirement and other tax-advantaged accounts. It takes days or weeks, and a lot of paperwork, to transfer those accounts into gold, commodities or foreign currency. So if I had to bet, I’d bet that nearly all of that $16 trillion is sitting in insured bank accounts, CDs, or money-market funds—the very things we thought we might have to rescue last week.

If this analysis is right, then the fall in the Dow might be our salvation. As frightened consumers and institutions sell stock and put the money in liquid financial instruments, banks will have more money to lend. They will also have more money to buy up weak institutions, just as Citigroup bought Wachovia yesterday. And the credit freeze will thaw.

One thing is certain. Yesterday’s drop in the Dow appears to have generated over twenty times as much free cash as Paulson is demanding from the Treasury for his entire bailout plan. Maybe markets really can help.

Both these numbers and common sense bid us all to take a deep breath. A graph of the 1929 crash shows that stocks took three years to hit bottom from their peak. As almost every expert has remarked, houses trade much more slowly than stocks. So it may take most of a decade for housing prices to hit bottom. Things may indeed get bad if nothing is done, but they probably won’t get that bad that fast, at least if infusions of new cash from a declining stock market continue.

Equally important, there are political reasons not to hurry. The bailout blowout sent a very clear message that every pollster and politician should heed: the American people do not trust their leaders.

And with good reason. We were told that we had to invade Iraq so quickly that we couldn’t wait for arms inspectors to finish their jobs, let alone for diplomacy. We were told that we had to let our Executive spy on us secretly by electronic means—that we didn’t even have time to get approval by a secret court. This Administration has lied to us at least twice, saying that the sky was falling when it was not. Now we won’t buy that line anymore, notwithstanding Secretary Paulson’s and Fed Chief Bernanke’s self-evident expertise.

Whatever public bailout plan we adopt will be risky. It will risk taxpayers losing money and adding substantially to the national debt. It will risk letting undeserving private financiers get rich. Worst of all, it will have nonzero risk of simply not working or of making things worse.

In any of these undesirable outcomes, public confidence in our government may utterly disappear. The nation may become ungovernable, as it was during the farm mortgage rebellions and labor unrest of the Great Depression. We may see real social upheaval of the type banished from our land for nearly a century.

Under these circumstances, doesn’t it make sense to wait? In 120 days, we will have a new administration and a new Congress. Fresh leaders always get a honeymoon. Unless and until they screw up as badly as this administration and this Congress has, they will enjoy the people’s confidence and hope. Doesn’t it make sense to temporize as long as possible and let the new team do the heavy lifting?

To be sure, this analysis relies heavily on where all that money from the sale of stock is going. But if it’s going where I think it is, we may have more time than we think. We at least ought to have enough time to get past the election, perhaps with some more matchmaking and individual bailouts by Paulson at Treasury.

The prospect that we now have before us is absurd. An utterly discredited and exhausted administration and an utterly discredited and exhausted Congress, in which the people have zero confidence, is trying to solve the greatest financial crisis in a century, in a few days, under the pressure of the highest-stakes election in decades. That is one of the most frightening political, social, and economic prospects that I have ever seen, and I’m in my sixties. The Dow’s drop and the free cash it produces may save us from that catastrophic managerial and political mistake, which now looks as if it might produce a catastrophic economic blunder.


There are two reasons why the Paulson bailout plan is a bad idea. First, it makes the wrong people bear the pain. The people who were stupid enough to have made loans that borrowers can’t repay, who were unscrupulous enough to package those loans as securities, who were dumb enough to buy those securities, and who were dumb enough to insure them against default should bear the pain. Second, in bearing the pain, those people—not the taxpayers or the government—should help resolve the crisis they created. If we pull their feet from the fire they will have no incentive to clean up the mess they made.

There is a just and proper solution to the mortgage crisis and the mortgage valuation dilemma. Redraw the bad loans as if they had been made prudently, and reduce the borrowers’ payments accordingly. In exchange for the lower payments, make borrowers share future home appreciation with their lenders. With payments that are then sustainable, put the borrowers back in their homes, saving people and their neighborhoods.

This plan will help stabilize home prices and real-estate values. It will also give the mortgages and the securities that bundle them the value that they should have had if their issuers had not been stupid, greedy, unscrupulous, or all three. That’s better than the value of a mortgage on an empty house in a decaying neighborhood, and it provides an upside to encourage market formation. The exposure of default insurers will be correspondingly valued.

The biggest problem with this solution is that it takes time. (Doing it all through bankruptcy court, as some Democrats have proposed, would take even more time.) But the stock-market decline and the enormous sums of free cash that it generates appear to have given us some time. If we take that time, we can do it right, force the bad loans to be redrawn according to prudent lending standards based on borrowers’ ability to pay, put people back in their homes, save our blasted neighborhoods, and, in the process, stop or retard our housing meltdown.

Paulson’s plan (and his panic) derive from the assumption that the bad paper is inextricably linked with our real economy. That may be true, but recent events suggest otherwise. Apart from AIG, which was rescued before it could sell its sound and valuable assets, the only failed firms are those on Wall Street that helped bring us this crisis. Strong financial institutions like Bank of America, JPMorgan Chase, and Citigroup have flourished by bottom fishing and are getting stronger by the minute.

It is unclear whether the financial system is nearing collapse or is simply undergoing a rapid restructuring and consolidation, albeit a somewhat chaotic one. Most of our trading partners have only a handful of great banks to serve their economies; maybe we don’t need any more. I see no evidence that financial collapse is imminent, especially with an injection of $ 16 trillion in cash from Monday’s sale of stock.


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28 September 2008

That Old Alpha Thing, or Why Obama Might Lose

This general election is a gigantic experiment, testing the theory of evolution. It is not about who is the better candidate, based on judgment and reason. It is not about who has the better character. It is not even about race, although race may be a factor.

Karl Rove’s disciples, who now work for John McCain, have bet his campaign on a single, simple premise. They believe that undecided voters, who control this election, will pick the alpha male.

They have lots of evidence to support their hypothesis. Take the election of 2000. How did a man whom everyone recognized as a “dim bulb” (Dubya) come close enough to a far more intelligent and experienced candidate (Al Gore) to let the Supreme Court decide the election? Dubya had had the least relevant experience of any postwar presidential candidate, but no one seemed to notice.

The 2004 election was similar. Saddam Hussein had been captured almost eleven months before. Iraq had not yet exploded into chaos. But anyone who followed the news and can reason could see what was coming. That Idiot Rumsfeld’s grotesque mismanagement of the war was self-evident at the time. John McCain saw it early, although he loyally kept his warnings secret until the current campaign. The collapses of Enron and Worldcom, and the culture of greed and irresponsibility that they reflected, were already well-publicized history.

The seeds of the military and economic destruction sowed by Dubya’s weak intellect, cartoonish ideology and inability to recognize, appoint or manage smarter people than himself were in the ground and growing visibly. So was Dick Cheney’s malign influence. It was clear to anyone with the slightest analytical and predictive ability that Dubya was already a catastrophic failure, and that the results of his failure would soon become apparent to the dimmest bulbs in the nation. Yet again Dubya won.

Today we have another puzzle. Dubya’s sorry reign has left failure on every front. Even his best initiative—No Child Left Behind—has foundered for lack of money, attention and the sort of intelligent adjustment that any competent leader would already have made. We are self-evidently at the end of an era of cartoonish right-wing ideology. Pundits and politicians of all stripes know it, and many say it.

Normally, when leaders of one party and one ideology create such colossal disasters, the voters “throw the bastards out.” The last instance of comparable misfeasance and malfeasance occurred at the onset of the Great Depression. FDR won decisively. Yet polls report John McCain and Barack Obama running nearly neck and neck. Why?

Many think it’s a matter of race. But that simply doesn’t compute. Barack Obama won the Democratic primaries despite his race. He won although his chief opponent deliberately played on racism and may have exacerbated it. His campaign attracted independent and non-aligned voters by the legion. His brilliant, inspiring words drowned out the discordant music of racism, even when played by the most politically skillful performing couple since John and Abigail Adams.

Neither Al Gore nor John Kerry faced issues of race. They didn’t even face an underground racist smear like the one leveled against John McCain in 2000: that he had fathered a black child out of wedlock. Yet they lost, too.

To understand these puzzling phenomena, you have to look beyond mere tribal identification, of which race is the most extreme example. Jack Kennedy, a Roman Catholic, broke a lesser tribal barrier as long ago as 1960. Mitt Romney, a Mormon, almost did it again in the Republican primaries, despite his utterly repugnant persona. To see what has been going on, you have to look at something much deeper, something hard-wired into our psychology over millions of years of evolution.

Rove and his disciples know what that something is. That’s how they won two elections for a moron. That’s how they still may win a third for an aged, deeply flawed candidate—an erratic fighter pilot with an explosive temper.

If you want to see precisely how, go back and look at the 2000 debates. There was Dubya, a man who can barely speak English, let alone calculate, accusing Al Gore of distortion using “fuzzy math.” Dubya’s tone was aggressive and self-righteous, on the edge of anger. He never made the simplest numerical comparison. He never even mentioned a number. He gave viewers nothing of analytical substance for their powers of Reason to act upon. But he made the accusation in the tone and with the mien and stance of a dominant male.

Dubya took the same approach throughout the debate. Al Gore sighed like an impatient teacher or a beaten man. So Dubya emerged the alpha male.

Now fast-forward eight years to Friday night’s debate. It’s hard for a 72-year-old man who can’t raise his hands above his head to maintain the same image of physical dominance that Dubya could in his mid-forties, in the prime of health. But McCain did his best. He never looked at his opponent. He called his opponent “naïve” and “dangerous” and accused him repeatedly of not understanding vital issues. He chided Obama with frat-boy chops. In one of them, he erroneously assumed that Obama, as president, would meet with President Ahmadinejad of Iran utterly alone, without preconditions, without preparatory lower-level meetings, and without aides.

Obama countered with substance. He repeatedly emphasized the nonsense of McCain’s position. He reasoned that meetings without preconditions do not mean meetings without preparation, without expert aides, and without thought. He was, of course, right on the substance. And he had tapped into a rich vein of disgust with Dubya’s and Cheney’s horrendously counterproductive unilateral foreign policies.

Obama’s response struck a chord in me. No doubt it did among other people who heard and understood the words. But what about those who only listen to the music?

Undecided voters rule this election. After well over a year of campaigning, in the most important election in half a century, what kind of voter is still undecided? The least well informed, least educated, least interested, and least decisive among us will pick our next president.

In order to understand this point’s electoral significance, you have to know about some obscure but vitally important psychological research. In his must-read book True Enough, reporter Farhad Manjoo describes an interesting experiment. A research project secretly hired an actor with no training, experience or expertise in psychology to speak before university experts in that field. The actor was instructed to make up the content of his talk out of whole cloth, in other words, to speak nonsense. But he was also told to impersonate a warm and engaging speaker, to fill his talk with jokes, homey references and plenty of smiles, and to make copious eye contact with his audience. At the end of his talk, the experts in his audience rated him a brilliant and effective speaker, although the substance of his talk was—and was intended to be—complete nonsense.

The subjects in this experiment were experts in the field. Yet in evaluating the speaker they let the pleasant music overwhelm the meaningless words. How much stronger might that effect be when the subjects are not experts, but people so uninterested and uninformed that they have no opinion after a year of well-publicized campaigning? And how much stronger might that effect be when the “music” is not just a pleasing style of delivery, but the struggle for dominance among alpha males that we see daily in our office or fraternity, and that appears more starkly in every TV show about Nature?

There is no question that playing that that sort of music is what the disciples of Rove who run McCain’s campaign have in mind. That old alpha thing is most—if not all—of what motivated choosing Sarah Palin as a running mate, despite the fact that she is self-evidently unqualified to be president. It was also highly prominent in John McCain’s performance in the debate just concluded. I noticed it, and so did David Broder, one of the most astute and cautious of political commentators. Apparently John McCain was carefully coached in playing the alpha male, down to head movements, tone of voice, and avoiding eye contact.

Barack Obama is ill equipped to play on this field. Despite his unusual peripatetic background, he is heir to the New England culture of John Adams and John Kerry. In that culture, you simply don’t talk about yourself, period. You never praise yourself. And you never, ever badmouth other people.

Folks raised in that culture are constitutionally incapable of calling an opponent “naïve,” “dangerous,” or weak in understanding, as McCain repeatedly did Obama in the debate just concluded. And as an African-American, Obama has the additional disadvantage of having trained himself from childhood to (as he put it in his autobiography) make “no sudden moves.”

So Obama is unlikely to yield to increasingly strident calls among his supporters for a more aggressive “alpha” stance. That’s simply not who he is or how he was raised. He can no more play the alpha male with frat-boy one liners and insult his opponent than John Kerry, smeared by the Swift Boaters, could stand up and say, “You lie. I am a real hero.” McCain and Rove’s disciples are counting on Obama staying true to form. Jujitsu-like, they are counting on using his own good character against him.

Thus the stage is set for a great experiment. Never in my lifetime has there been such a stark difference between candidates and parties. John McCain is impulsive, explosive and erratic. Obama is steady, calm, prudent and cool. He never loses perspective. Over and over again, he has demonstrated better analytical intelligence, judgment, and the ability to predict—on Iraq, Al Qaeda, Pakistan, and the economy. The only arguable counterexample is his belated recognition of the “success” of the “surge.” But that success in truth owed more to General Petraeus’ brilliant change in strategy and the Sunni Awakening than to any increase in troop levels.

Republicans today are the party of the past. Their simplistic ideology—which McCain followed religiously all his life until this general election campaign— is outmoded. Their policies have failed in every way. The vast majority of Americans, over 80%, say they want change; only the Democrats and Barack Obama really promise it.

If Obama loses despite all of this, it will mean only one thing. It will mean that primate dominance rituals matter more than substance, that evolution trumps Reason every time.

Already that phenomenon has occurred three times in my lifetime—five times if you include the 2000 and 2004 elections. More thoughtful, more intelligent men have met defeat at the hands of alpha males in 1952 (Adlai Stevenson by General Dwight D. (“Ike”) Eisenhower), 1968 (Hubert Humphrey by Richard Nixon), and 1984 (Walter Mondale by Ronald Reagan). It could happen again, despite unprecedented differences between the candidates in character, intelligence, judgment, party philosophy and recent record.

If it does happen again, it will have profound implications for American democracy. We won’t have good leadership again unless and until our candidates have not only superior intellect, judgment and character, but also the souls and mien of prize fighters (or the ability to simulate them with good acting).

Leaders of less democratic societies, such as Russia and China, have to show their mettle through a Darwinian struggle up the chain of command. The struggle usually takes decades. It involves every phase of governance: local, regional and national. The leaders that emerge must earn the respect or (in Stalin’s and Mao’s cases) the fear of their peers at every level. In contrast, leaders like Dubya, and perhaps McCain, can grab the reins of ultimate power by convincing indifferent, undecided voters—over the course of a few hours of stage acting on TV—that they are alpha males.

Which system do you think is more likely, in the long run and on the average, to produce better leaders? Is it any wonder that large democratic empires like ours are the exception, not the rule, in human history? We should ponder these questions long and deeply, before our democracy, the “last, best hope of Earth,” goes the way of ancient Rome, the British Empire and the dodo.


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27 September 2008

The Great Debate

1. We need more debates
2. Condescension is risky
3. McCain connected better emotionally
4. McCain’s experience hit home, but narrowly
5. Obama only partly exposed a vast gap in strategic vision


The long-awaited and recently uncertain first debate is over. Mark Shields and David Brooks, PBS’ respective liberal and conservative commentators, both agreed it was a draw. They also agreed that the draw was a loss for McCain because (1) he is behind (albeit marginally) and (2) foreign policy, the debate’s subject, is supposed to be his strong suit.

The debate was indeed a draw. Both McCain and Obama looked and sounded presidential. Each spiritedly refuted the other’s weakest charges. Neither made a serious gaffe, although McCain mispronounced the name of Pakistan’s current president (Asif Ali Zardari) as “Kadaria” and had trouble pronouncing “Ahmadinejad.” Obama showed his usual mastery of facts, nuance and detail and his commanding strategic vision.

I’m not so sure about Shields’ and Brooks’ second conclusion: that a draw is a win for Obama. That depends upon what undecided voters think. Only someone with Obama’s own superb political judgment could validate the pundits’ conclusion that a draw was a win for Obama.

Apart from the horse race, five points emerge from the debate:

1. We need more debates. After months of mutual frat-boy chop fests, distortions and lies, especially from McCain’s campaign, the debate was a great relief. It was serious, substantive and mostly factual. It showed two extraordinary men. One had a weak education but has wisdom born of long experience. The other has outstanding native wisdom, judgment and intelligence, sharpened by a superb education, but less experience in office.

Both are heavyweights who deserve to be where they are. Both showed they could be president of the United States. McCain made a good case that he would be better and smarter than Dubya as president—hardly a difficult task. To unbiased observers, Obama undoubtedly dispelled doubt about his ability to serve as commander in chief.

After months of cringing at irrelevant and dangerous nonsense, I was relieved that both men debated with the seriousness of purpose and demeanor that our national condition deserves. In the process, they underscored the need for more debates and less media-incited campaign trivia, lest the world and we lose faith in our democracy.

2. Condescension is risky. Condescension was a clear and consistent part of McCain’s debating strategy. He called Obama “naïve” at least twice and said Obama “doesn’t understand” several issues. As the debate ended, he baldly accused Obama of not being qualified for the presidency.

Perhaps McCain believes these charges. Reporters have consistently read him as seeing a young whippersnapper in Obama.

But calling your opponent names is at best a weak and risky debating strategy. It may energize those who have already made up their minds, particularly those who have turned their backs on Obama for reasons of race. But for genuinely uncertain voters, who will decide this election, it makes McCain look negative and weak.

At least that’s the consensus of almost everyone who studies the art of persuasion. Whether the theory works in practice in this instance only more time can tell.

3. McCain connected better emotionally. McCain was effective in moments—and there were several—in which he described his experiences and expressed his convictions with intensity and passion. He did so on such issues as Iran, Russia, Kosovo and Israel.

McCain also produced the best single sound bite of the debate. After referring to Iran’s pretensions to nuclear weapons and attitude toward Israel, he said, “We cannot allow a second Holocaust.”

There was little, if any, daylight between McCain’s and Obama’s stated policies on Israel. But McCain had the affect while Obama was cool and thoughtful.

Obama appeals to Jews like me who—after eight years of misrule from a moron’s gut—prefer a more thoughtful approach. But McCain probably won the hearts and votes of Jews (and there are many!) who view Israel’s security as the paramount issue of American foreign policy. That ploy may eclipse Obama’s chances to win Florida.

To an Obama supporter like me, the difference in passion is worrisome. Michael Dukakis missed his shot at the presidency in part because he treated a hypothetical question about the rape and murder of his own wife as an academic exercise. I would like to see Obama pick a few issues—even if they are “safe” ones on which most voters will agree—to show a little passion.

4. McCain’s experience hit home, but narrowly. On substance, McCain performed best in discussing spending restraint and the War in Iraq. He made a credible case that his veto pen, his abhorrence of earmarks and his history of battling waste in military spending, among other things, would help him bring spending under control. He also made a credible case that he had exercised good judgment in opposing early mismanagement of the war in Iraq and in supporting the surge.

These are issues to which McCain is deeply committed, and his passion was obvious. The source of his concern for Iraq—his desire not to repeat the debacle of Vietnam, which led to his own capture and torture—was also obvious. But McCain failed to convey equal passion and experiential success on other issues, which may turn out to be equally or more important.

5. Obama only partly exposed a vast gap in strategic vision. Like the fighter pilot that he is, McCain has tunnel vision. In speaking so passionately about restraining spending, he neglected other issues. We are not going to restore our economy, repair our failing infrastructure, become energy independent, or win the war against Al Qaeda by making balancing the budget our top national priority.

Similarly, in devoting so much passion and energy to Iraq, McCain gave every evidence of neglecting equal or greater challenges in Afghanistan/Pakistan, Iran, North Korea, Russia and China. We’re just beginning to understand the disaster caused by Dubya’s monomaniacal focus on a single foreign challenge, and most of us don’t want to repeat the experience.

Obama made this point in rebuttal while discussing Iraq. He also made it more generally at the conclusion of the debate. But his brief statements did not have the impact, for example, of McCain constantly repeating charges of naïveté and lack of understanding.

Obama’s breadth of strategic vision is his key comparative advantage in foreign policy, especially as compared to McCain’s tunnel vision and inconstancy of focus. Whenever McCain speaks on any issue, he treats it as the most important thing in the universe. But he seldom ties issues together, puts them in perspective, or sets priorities. His failure or inability to do so would be a clear handicap in the Oval Office, which Obama and his campaign should relentlessly exploit.

Obama and his campaign need to get these points across in a clear, simple and forceful way. They should repeat them at least as often as McCain does his boasts of greater experience and his lies about being the real agent of change. Obama did some of that in last night’s debate, but he needs to do much more. Strategic vision is the essence of the presidency, and Obama should win any debate about it hands down.

Obama’s abilities to synthesize information and predict consequences are incomparably better than McCain’s. Voters tired of a weak-witted monomaniac in the White House need to understand that. If it takes oversimplification and constant repetition to make the point, so be it. Obama cannot afford to let his key comparative advantage go unnoticed or misunderstood.


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25 September 2008

Do We Look Stupid?

[For the solution without the background, click here.]

Our president and members of Congress think we’re stupid. They think we can’t do simple arithmetic. They haven’t said so in so many words, but actions speak louder than words.

Secretary of the Treasury Paulson and Fed Chief Bernanke, who are most definitely not stupid, say we have a $700 billion problem. Hardly anyone has questioned that number. Those few who do are just as uncertain as they are. No one with any expertise has estimated the size of the problem at anything less than several hundred billion dollars.

On Wall Street, our problems are a bad-asset logjam and a resulting credit crunch. No private party will buy securities backed by bad mortgages because the borrowers can’t pay and no one knows what the homes used as collateral are worth. So credit is tight because we’ve got hundreds of billions locked up in untradeable mortgages and mortgage-backed securities.

Main Street has related problems. Many of our towns and parts of our cities are dying because of foreclosures. Many people have lost their homes, and many more are about to lose them. Even now, the estimate is 2 million homes. Many of those homes are empty, or soon will be, bringing neglect, crime and blight into erstwhile good neighborhoods. Lower prices and lower home values follow, even for homeowners still making their payments.

New buyers aren’t interested in those homes because no one knows what they’re worth. Buyers think prices will drop if they just wait. Meanwhile, neighborhoods continue to decay.

All these problems have a single cause: the bursting of the housing bubble. With prices for homes in free fall, there are few buyers, so no one knows what homes are worth. Because homes are the only collateral for mortgages, and because borrowers are in default, no one is buying the mortgages and mortgage-backed securities either.

So how, pray tell, will cutting financial executives’ pay solve any part of these problems? There is no logical, arithmetic, or rational relationship between CEOs’ pay and any of them.

Even if there were, the numbers don’t work. Let’s make some wildly extravagant guesses about the aggregate amount of excess CEO pay. Let say there are 100 financial institutions holding bad mortgages or mortgage-backed securities in amounts big enough to matter. Now let’s say each CEO makes $250 million (most make, at the most, in the tens of millions) and that every penny of that pay is excessive. Multiply those numbers together, and you get $ 25 billion dollars—about 3.6 % of our problem.

How in the hell is saving that kind of money going to solve our $700 billion problem, even in our wild overestimate, and even if we save that much every year? (The crisis is only supposed to last two years at most; at least that’s how long Paulson has asked for Treasury to have extraordinary authority.)

The answer is: it’s not. What our political friends have done is what bad politicians always do. They distract us from the task at hand to push what they can sell; they shirk the hard work of selling a solution that might actually work.

The Republicans have practiced this trick for years with abortion, homosexual marriage, guns and religion. Now the Democrats are doing it, too. Both parties think we are so dumb, and so mad at overpaid CEOs, that if they just cut the CEOs’ pay, we’ll all go away and let them get back to destroying our democracy and economy with their blunders.

Besides the fact that Secretary Paulson wants absolute power for himself and his successors, there are two problems with the proposed bailout. The first problem is that Treasury is likely to overpay for the bad assets. If it overpays by just five percent—an amount easily lost through miscalculation in even normal transactions—the loss will exceed our wildly high estimate of CEOs’ excess pay.

The second problem is our neighborhoods. Even if Paulson performs the impossible feat of perfectly nailing the uncertain value of every bad mortgage and security he buys in our name, his scheme won’t do anything for Main Street. It won’t stop foreclosures. It won’t put people back in their homes. And it won’t stop the massive decay of our towns and cities, or the part of our housing-price free fall caused by foreclosures. It won’t even begin to address the root of all of our problems: the free fall in housing prices.

There is only one way to solve these problems for real. That’s to put a floor under home prices and stop the hemorrhaging on Main Street. If that happens, the problems on Wall Street will take care of themselves.

All it would take is three simple steps. First, impose a moratorium on foreclosures. Second, revise mortgages and loans in foreclosure (and those already foreclosed, for a reasonable period) to require payments that borrowers can actually make. Third, in exchange for the loss of agreed but impossible payments (which are not now being made), give lenders an interest in homes’ future appreciation, when sold. Finally, calculate the floor “value” of every mortgage based on the sustainable payments that the homeowner is now able to make.

Voila! The mortgage and security that bundles it has an easily calculable, precise floor value: the stream of the borrower’s now-sustainable payments, discounted to present value and further discounted by the usual risk of default. It also has an upside above the floor, measured by the lender’s interest in the home’s future appreciation.

Now the mortgages and securities can trade. In fact, a robust private market is likely to develop, as private parties speculate on the upside, i.e., the future of home prices and home sales in particular markets. [For a particular variant of this general solution, with more detail, click here.]

This solution won’t cure the part of the home-price free fall caused by the burst housing bubble alone. But it will give every home mortgage a calculable minimum value, allowing trading to begin. And it will stop the destruction of neighborhoods due to foreclosures and empty homes.

It may take some time for home prices to stabilize. But every mortgage will have a realistic minimum value, quite apart from the price or value of the home. Now it will represent an income stream from a borrower willing and able to pay, rather than a borrower in default, or a borrow who (in an anti-deficiency state) has walked away from the home and given the lender the keys to an empty home in a decaying neighborhood.

As mortgages go, so go the securities and credit-default swaps that depend on them. They will all have minimum values or maximum exposure, motivating private parties to trade in them again. The asset logjam and credit crunch will clear. And they will do so without massive expenditures of taxpayers’ money, maybe without any.

But the president’s men and Congress want none of that. They want taxpayers to bail out Wall Street, leaving carnage on Main Street. But worse than that, they want us to believe that you can solve the difficult problems on Wall Street (the asset logjam and credit crunch) without even addressing the underling problem: the uncertainty in home values on Main Street from which the uncertainty in all the other asset values springs.

Still worse, the president’s men and Congress think they can get us to give them absolute power to implement their non-solution by distracting us with the irrelevancy of cutting executives’ pay. They must really think we’re stupid.


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21 September 2008

The Bailout Act, Amended

The Wall Street Journal has published [subscription required] the text, as proposed by the Department of the Treasury, of a new law to implement the proposed $700 billion bailout of distressed mortgage assets.

As proposed, the law would give the Secretary of the Treasury absolute, unreviewable discretion to buy, hold, and sell those assets for our government for two years. It would make Henry M. “Hank” Paulson, Jr. and his successors at Treasury mortgage-meltdown “czars,” with absolute power to spend nearly three-quarters of a trillion dollars of the taxpayers’ money on mortgage-related instruments (including mortgages, mortgage loans, mortgage-backed securities, mortgage-related derivatives and credit-default swaps, etc.) as they see fit. The effect of this new law would extend far into the next presidential administration.

The proposed act appears below. As proposed, it makes no provision for transparency, public information, renegotiation of predatory loans, or cleaning up any of the mess on Main Street. As one might expect from Paulson’s experience as former Chairman of Goldman Sachs, its aim is solely to clean up the mess on Wall Street.

I have taken the liberty of adding my own proposed language to correct these omissions, which appears in boldface. Other language that I have added (also in boldface) shortens the time for periodic reporting to Congress, requires re-authorization every six months, or if Secretary Paulson or Fed Chief Bernanke leave for any reason, and requires consultation with the Federal Reserve Chief and the Secretary of HUD. Deleted original language (mostly for the sake of conformity with my proposed amendments) appears in [bracketed italics]. My previous post explains the reasons for these changes.

I would hope that at least a few daring members of Congress would take the gravest financial crisis in nearly a century seriously enough to demand these or similar amendments.

The proposed amendments won’t force our czars to do anything. Most of them expand, not restrict, Treasury’s power to deal with the crisis. But they do require that our czars at least think about suffering neighborhoods and foreclosed homeowners. Maybe some good will come of that.

Section 1. Short Title.

This Act may be cited as The Government Trading in Mortgage-Related Assets Act of 2008.

Sec. 2. Purchases of Mortgage-Related Assets.

(a) Authority to Purchase.–The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

(b) Necessary Actions.–The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:

(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;

(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;

(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;

(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; [and]

(5) causing the terms and conditions of mortgage-related assets, including commercial and residential mortgages and related loans, to be renegotiated as the Secretary in his or her discretion may order, as a condition of the Government’s or its agents purchase, holding or sale thereof, or otherwise;

(6) demanding, collecting and receiving, from any person under the jurisdiction of the United States, under subpoena or otherwise, and holding, analyzing, providing to Congress and making public, such information relating to mortgage-related assets as the Secretary may require; and

[(5)] (7) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.

Sec. 3. Considerations.

In exercising the authorities granted in this Act, the Secretary shall consult with the Chairman of the Federal Reserve Board and the Secretary of Housing and Urban Development and shall take into consideration means for–

(1) providing stability or preventing disruption to the financial markets or banking system; [and]

(2) protecting mortgage-loan borrowers, including homeowners and former homeowners, and neighborhoods within the United States from the consequences of non-standard lending practices; and

[(2)] (3) protecting the taxpayer.

Sec. 4. Reports to Congress.

Within three months of the first exercise of the authority granted in section 2(a), and [semiannually] every 120 days thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3. The Secretary shall make such reports available to the public over the Internet, except for such portions as the Secretary may require to be kept confidential for the public welfare. The Secretary shall justify in writing keeping any such portions confidential and shall make public over the Internet the justification and the general nature of any information withheld from the public.

Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.

(a) Exercise of Rights.–The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act and may cause the terms and conditions of any mortgage-related asset to be renegotiated by the parties thereto, as a condition of the Government’s or its agents’ purchase, holding, or sale thereof, or otherwise.

(b) Management of Mortgage-Related Assets.–The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.

(c) Sale of Mortgage-Related Assets.–The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.

(d) Application of Sunset to Mortgage-Related Assets.–The authority of the Secretary, the Government or its agents to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time

Sec. 7. Funding.

For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Sec. 9. Termination of Authority.

The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate, subject to reauthorization by Congress: (a) [two years] six months from the date of enactment of this Act or from the date of any reauthorization by Congress; and (b) absent reauthorization by Congress, immediately upon any change, for any reason, in the identity of the individual holding the office of Secretary of the Treasury or Chairman of the Federal Reserve Board.

Sec. 10. Increase in Statutory Limit on the Public Debt.

Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.

Sec. 11. Credit Reform.

The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.

Sec. 12. Definitions.

For purposes of this section, the following definitions shall apply:

(1) Mortgage-Related Assets.–The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.

(2) Non-Standard Lending Practices. The term “non-standard lending practices” means practices in making, or terms or conditions in, residential or commercial mortgages or related loans that, in the Secretary’s judgment, were not generally accepted and in common use throughout the United States prior to January 1, 2004. The Secretary may by regulation declare any practice, term or condition not reflected in the regulations of, or in standard forms prepared, approved or accepted by, the Department of Housing and Urban Development to be a non-standard lending practice.

[(2)] (3) Secretary.–The term “Secretary” means the Secretary of the Treasury.

[(3)] (4) United States.–The term “United States” means the States, territories, and possessions of the United States and the District of Columbia.


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19 September 2008

A Real Solution to Our Mortgage Crisis

[For a more recent post on solutions to the foreclosure crisis, with attention to legal mechanisms, click here.]

How Big is Our Crisis?
Three Levels of Crisis
Three Domino Effects
Why a New RTC Won’t Work
A Real Solution
What this Solution Would Do
P.S. and Update (9/21/08)


Like generals, financial experts often want to fight the last war. That’s why many are recommending something like the Resolution Trust Corp. (RTC) of the 1980s.

The RTC was the killer solution to our last big financial crisis: the savings-and-loan meltdown. It was a government-funded entity charged with buying up bad paper from struggling S & Ls, saving those that could be saved, and stabilizing financial markets. It worked well for that crisis, although it cost the taxpayers lots of money.

We don’t yet know how much our mortgage-and-derivatives meltdown ultimately will cost. It’s likely to cost at least twice what the S & L crisis did. Yet if we were sure we could solve the problem, even that kind of money might be well spent.

The problem is we can’t be sure. Our current crisis affects three distinct levels of our financial system, while the S & L crisis affected only one. It also creates domino effects at all three levels. This essay explains why the two crises are different, why the RTC solution won’t work, and why a more people-friendly (and far less costly) solution probably will.

How Big is Our Crisis?

As it ultimately turned out, we solved the S & L crisis for what today would be a pittance. It cost us about $160 billion over a period of ten years. The taxpayers footed $124 billion. Today we spend more than that on foreign oil in five months.

Several months ago, I estimated the size of our mortgage crisis as about the same amount. My calculation was simple and transparent. I took the estimated number of homeowners facing possible foreclosure (2 million). Then I multiplied that number by a rough estimate of the mean home price ($200,000), and by the predicted maximum loss in value of a typical home, namely 30% (the worst-case depreciation that economists then predicted). The result was $120 billion.

My numbers were rough, and they may have been understated. About 2 million homes are in or under threat of foreclosure now. There may be more as the crisis continues. The current median home price is about $231,000, and the mean is higher. We may have to increase that value by as much as 50% because many homes in now foreclosure are in more expensive markets like California and Florida. And we might have to increase the estimated loss in value by 50% (for total depreciation of 45%, almost half!). But even if we do all that, the product rises to just $310.5 billion.

Our federal government’s bailouts so far total more than that [subscription required]. We taxpayers have pledged up to $200 billion investment in Fannie Mae and Freddie Mac. We’ve bought 80% of AIG for $85 billion. And our own Fed, together with foreign central banks, has given international money markets a transfusion of $180 billion. The total of these bailouts is $465 billion—about 50% more than my conservative (higher) estimate of the problem.

So we’ve thrown 50% more money at the problem than the problem is worth. And that’s even before today’s announcement by Treasury Secretary Paulson that our government intends to provide federal insurance for money-market accounts, at a cost now completely unknown. After throwing all this money and expensive insurance at the problem, we should have solved it, right?

Wrong, for two reasons. First, even my higher number may be an underestimate. The financial press has published estimates of the mortgage crisis’ magnitude as high as the mid-$600 billion range—about twice my estimate. Since it didn’t disclose unnamed experts’ reasoning, I have no idea how their calculations differed from my simple estimates. Likely they had better raw data than I. They also may have considered the ripple effect of foreclosures on the rest of the economy.

The second reason is much more important, and it relates to those ripple effects. We can’t solve our current crisis by throwing money at financial institutions because that’s not where the crisis starts. It starts at the homeowner level. As loans go bad and people lose their homes, home values plummet and neighborhoods fall apart. Then the loans become further devalued, and the cycle begins again. If we let this vicious cycle go on much longer, no one can tell where it might end. We have to act quickly.

After the 1929 stock market crash, stocks eventually fell to about ten percent of their peak values, for a loss of about 90%. They took three years to reach their lows. If anything like that happens to even a fraction of our national housing market, we can kiss our economy goodbye.

Few expect house prices to fall that low, but no one knows how far they might fall. The longer we temporize, the harder the problem gets to solve.

That’s why Secretary Paulson also announced plans today for the federal government to buy up distressed mortgages. Vague as they still are, those plans are a step forward. They recognize that the mortgage crisis is the root of all the others and that nothing will be solved until it is.

But having the government buy up bad mortgages is too expensive, unfair to taxpayers, and unnecessary. There’s an easier, better and cheaper solution. Read on.

Three Levels of Crisis

The S & L crisis of the 1980s was a very different animal. Deregulation had allowed commercial banks and other financial institutions to enter financial territory (home loans) on which S & Ls had previously had a monopoly. The S & Ls tried to compete by raising the interest rates they paid depositors (to attract more money to lend) and lowering the rates they charged for home loans (to attract more borrowers to lend it to).

When you pay out more and take in less, your profit goes down. Eventually you incur losses. Apparently many savings-and-loan executives had trouble figuring that out. Or, like lemmings, they all followed the first idiot over the cliff. Whatever the reason, their “spreads” (between interest received on loans and interest paid on deposits) became negative (after their operating costs were figured in), and a whole bunch of them went belly up.

That was the entire crisis. There was nothing wrong with the underlying loans. In fact, the homeowners had gotten bargain rates because the S & Ls had priced their loans too low. So the RTC simply closed down the insolvent S & Ls, bought up their good loans, sold the loans at appropriate prices (often at a writedown) to healthy institutions, and paid the difference out of us taxpayers’ pockets. Problem solved.

The S & L crisis was simple because it had only one level: bad business decisions at the S & Ls themselves. What’s different about the current crisis is the underlying loans. They are bad because unscrupulous, unregulated mortgage lenders sold overpriced loans to people who couldn’t afford to pay them back. Worse yet, the lenders made so many of these bad loans that they helped create a housing “bubble,” inflating the prices of homes far beyond anything that economic fundamentals could justify.

As the housing bubble inflated, the principal amounts of mortgage loans rose with the prices of houses. When the bubble burst and the whole system collapsed, the lenders couldn’t recover the principal amount of their loans because the borrowers couldn’t pay, and the collateral (the homes) had fallen in value. Many lenders also had required no or only a small down payment, so they had no “cushion” against market-value declines.

The lenders (mostly unregulated mortgage brokers) didn’t care about any of this because they had already sold the loans to Wall Street, which packaged them in bundles known as “mortgage-backed securities.” Investors in those securities didn’t care about the risk of lending to people with little or no ability to repay because they insured against that risk by buying a “financial derivative” known as a “credit-default swap.” The ones left holding the bag were the issuers of these credit-default swaps, one of which was a subsidiary of AIG.

Why didn’t these insurance geniuses analyze the risk involved in the paper they were insuring (the mortgage-backed securities and their underlying mortgages)? Remember the S & L lemmings? When something sounds to good to be true, but enough people in a particular business believe it—and when they all talk to each other in a big echo chamber—the temptation to get something for nothing becomes too hard to resist. Even AIG, once one of the best-run insurance companies on the planet, bit hard and got sick.

So now, instead of one level of crisis (the S & Ls), we have three. We’ve got millions of homeowners who can’t afford to pay their loans and stay in their homes. We’ve got an unknown number of big firms on Wall Street left holding bags full of bad mortgage-backed securities based on bad loans. And we’ve got issuers of credit-default swaps like AIG’s subsidiary, left holding the ultimate bag of obligations to make good on all the losses, but without the capital to do so.

Three Domino Effects

Not only do we have three levels of crisis. We also have three domino effects.

The first domino effect occurs in Main Street, in neighborhoods with lots of bad home loans. As homes in the neighborhood go into foreclosure, the market value of all the homes there drops, including ones not in foreclosure. If foreclosed homes stay empty—as they often do in hard-hit neighborhoods—home values drop even faster. Ditto if so many homes become empty that crime, neglect and blight further tarnish the neighborhood.

The second domino effect occurs on Wall Street and in international financial markets, where the mortgage-backed securities come to roost. Buying and selling bad assets is not rocket science. It happens every day. Our marvelously diverse business community has people who specialize in buying and selling virtually every kind of bad asset.

But no one can buy or sell something whose value is utterly uncertain. That’s the case with the mortgage-backed securities. No one knows they’re worth because their worth depends on the value of the underlying loans. That value in turn depends upon the value of the collateral—the homes—because the borrowers can’t repay the loans (otherwise they wouldn’t be in foreclosure). But no one knows how much the homes are worth because their values are still falling, due both to declining general economic conditions and to the first domino effect—the chain reactions of foreclosures in many neighborhoods.

The final domino effect begins with the credit-default swaps. Because these financial instruments were completely unregulated, no one knows how many there are, what their aggregate value is, and who issued them. If companies like AIG issued them, then forcing them to pay up could hurt businesses as far afield from mortgage lending as car and life insurance. Who knows? A payup might even affect manufacturing firms, which may have used the swaps for hedging or other sophisticated financial strategies. This is the third and final potential domino effect, whose nature and magnitude are totally unknown.

Why a New RTC Won’t Work

At this point, it should be clear why a new RTC won’t work. The old RTC could collect and sell the loans held by insolvent S & L’s because those loans were good loans, and there was no crisis in the housing market. The interest rates were known and fixed, and virtually all of the borrowers could pay the loans. Even if they couldn’t, the prudent lending practices of that time required large enough down payments to protect lenders: the value of the home, plus the homeowner’s down payment, was almost always more than the outstanding balance on the loan.

This crisis is different in two respects. First, the loans at issue are not good; they’re bad. Most of them are “under water,” i.e., the value of the home used as collateral is less than the outstanding balance on the loan, and there is no or just a small down payment—too small to make up the difference. Second, since home values are in free fall, lenders and mortgage securitizers can’t even guess what the loans and the securities that bundle them are worth. Everything is uncertain, so nothing can be bought or sold.

Under these circumstances, neither the government nor anyone else can solve the problem by buying bad assets and selling them to willing buyers. There are no willing buyers because no one knows what the assets are worth until the values of the homes ultimately securing them stop falling. You can build an RTC-like entity; but if you build it, they won’t come.

A Real Solution

Any real solution to this crisis requires understanding and dealing with the housing bubble and its bursting. That’s the origin of the crisis. That’s where all the domino effects begin.

The housing bubble had two sources. The first was increasing general affluence and general irrational exuberance. No one should be held responsible for those general economic effects because no one’s identifiably bad business decisions caused them.

But bad business decisions by people who should have known better—mortgage lenders, mortgage securities bundlers, and credit-default swap issuers—contributed to the bubble. They probably caused the lion’s share of the problem. Suppose we could retroactively reverse those bad decisions and correct at least that part of the mortgage meltdown. Here’s how we might do just that:

Step 1. Declare a moratorium on foreclosures, including ones now in progress, for as long as the following steps take (rough estimate: six months to a year). Allow every homeowner (single or couple) who still holds the same jobs they held on taking their home loan to participate in the moratorium. Give already-evicted homeowners the option of returning to their homes, if still unsold and empty. (Those who lost or will lose their jobs due to general economic conditions would be out of luck. We don’t want to put people back in homes who can’t pay anything at all.)

Step 2. Forget about the home’s value, as no one knows what it is. Allow the homeowners to resume residence—and payments—as if the lender had made a prudent loan to begin with. Before the subprime madness began, standard lending practice limited monthly mortgage payments to one-third of the borrower’s take-home pay. It also required a 10% down payment. So allow homeowners subject to foreclosure to get back in theirs homes by agreeing to make payments of one-third of their take-home pay from the same jobs that they held when they took the loans.

Step 3. Calculate the home’s present value based on the discounted sum of thirty years of those payments using the current interest rate for thirty-year loans in the private market. Then increase that value by ten percent (for the presumed down payment that a prudent lender would have required). If the homeowner sells the home at a price higher than this calculated value, let the lender keep the excess (up to the down payment) off the top. Then let borrower and lender split any additional appreciation fifty-fifty.

Step 4. Continue with Steps 1 through 3 until the foreclosure rate subsides to the “background” rate in effect before the mortgage meltdown, say in 2005.

Step 5. Set up a temporary, emergency system of local federal courts to resolve disputes over the only two variables that might be in dispute: (1) whether the borrowers still hold the same jobs as they did when the loan was made and (2) the current salaries in those jobs.

What this Solution Would Do

This solution would do a number of things. First, it would immediately halt further deterioration of neighborhoods resulting from the mortgage crisis (although not decay resulting from a general economic downturn). Second, it would keep people now under (or threatened with) foreclosure in their homes. Third, it would allow some people evicted after foreclosure to return to their homes (if still empty) and to help restore their neighborhoods and the values of homes in them. Fourth, it would give lenders the very same income stream from the loan that they would have if they had lent prudently, updated to reflect borrowers’ current income. Fifth, upon sale of the home at a profit, it would give the lender the benefit of a presumed ten percent down payment, even though the lender had been too imprudent to require it. Finally, it would help reduce the lender’s ultimate loss by giving the lender an additional 50% share of any profit on sale above this presumed down payment.

Most of all, this sort of solution would solve the present financial crisis by removing the uncertainty in asset values. By prescribing a precise level of payments and terms, it would give each loan a precise economic value, depending only on the prevailing mortgage interest rate and the borrowers’ current income. By giving each loan a precise value, it would give each mortgage-backed security a precise value. Holders of those securities could calculate what they’re worth, with no more uncertainty than mortgage lenders face every day (e.g., the risk that a borrower would lose a job or suffer some other unforeseen setback).

Lenders would know what their loans are worth. Holders of mortgage-backed securities would know what their securities are worth. And issuers of credit-default swaps would know precisely what their obligations are. Financial markets could function again. The logjam of mortgage-backed securities and derivatives could clear without further federal intervention. Best of all, this solution would require no further taxpayer subsidies at all.


This solution works because it recognizes the origin and essential nature of our crisis. It is first and foremost a mortgage crisis. It begins and has its worst effects in our consumer housing market.

As the last few weeks have shown, we can get along without the likes of Bear, Stearns and Lehman Brothers. We can’t get along without a robust and smoothly functioning housing market, let alone if housing prices drop 90%, as stocks did in the Great Depression. Fixing Main Street is far more important to our people and our economy than fixing Wall Street. We’ve got to do it as quickly as possible, before we risk further unintended consequences like the untimely demise of another AIG.

With his superb understanding of economics, Barack Obama recognizes these points. Already he has proposed a solution similar to this one, in which stressed homeowners could modify their bad loans by filing for bankruptcy and putting judges to work. Obama knows that saving Main Street is the best, fairest and least expensive way to save Wall Street.

But the plan proposed here has decisive advantages over the bankruptcy-based plan. The first and most important is speed. If we are to save Main Street and our economy, we have to stop the financial destruction of our neighborhoods and stabilize home prices as quickly as possible. Individual bankruptcy is a slow process that can take years. By the time millions of bankruptcy proceedings have run their course, it may be too late.

The simple principle proposed here—giving defaulting homeowners the loans they would have had had their lenders been prudent—provides that speed. It involves only two variables for a court or anyone else to determine: the homeowners’ income when the loan is reconfigured and whether the homeowners still have the same jobs. In nearly all cases, the homeowners will have the best evidence: pay stubs or letters from employers. The lender or loan servicer will have to accept that evidence unless it has contrary evidence available in its files or on the Internet. Hiring a private detective for each loan simply won’t be cost effective. So even if these issues go to court, a good, well-trained temporary emergency judge ought to be able to resolve them in minutes or hours, not even days.

As for moral hazard, you can argue that the homeowner will suffer less. He or she will get the loan that should have been made by a prudent lender and will pay less. In some cases the calculated value of the loan, based on the new level payments, will be less than the market value of the house, so this plan will miraculously pull the homeowner out from under water, leaving the lender short.

But none of this will happen unless and until the plan achieves its larger economic goal of stabilizing the housing market. And on sale the homeowner will have to share any appreciation above the loan value with the lender, to the tune of a presumed (fictitious) 10% down payment and half of any excess. The lender or servicer would also gain by avoiding the expense of carrying costs (for an unknown period) and the legal and administrative expenses of foreclosure.

So borrower and lender both would gain a lot, perhaps more than each deserves. As between the two, who deserves more indulgence, a borrower who didn’t understand what he or she was signing, or a lender who should have? And if anyone is worried about speculation and a quick turnaround of properties financed by these new loans, they could be written to impose a steep financial penalty on the borrower for any quick sale (such as one in less than five years), except in hardship cases.

We are on the brink of a financial and social precipice. The only way to fix our crisis is to stabilize the housing market as quickly as possible. The best way to do that is to put people who still have their jobs back in their homes, with mortgages they can pay, as quickly as possible. This plan can do that.

Our labor movement saved our nation from Communism by putting workers first. FDR’s public-works programs fought the Great Depression by giving ordinary people honest work. Lest we forget, a “bank holiday” was part of the way he avoided another crash in 1933. That’s not much different than a foreclosure moratorium.

Just so, we can solve our mortgage meltdown cum financial crisis by putting people first. All it takes is understanding the real secret of America: take care of Main Street, and Wall Street will take care of itself.

P.S. and Update (9/21/08)

Yesterday Treasury Secretary Paulson and Fed Chief Bernanke announced a plan for a $700 billion fund to buy up distressed mortgage loans. Congress and the rest of the executive branch undoubtedly will approve it, and quickly, because they have no other ideas and know how dangerous temporizing would be. When ideology and all else fails, and just before the train wreck, we rely on the experts.

The proposed $700 billion bailout fund could dovetail nicely with the more specific proposal made above. The secret is price.

Bad mortgage loans have clogged up our financial system because they have utterly uncertain value. As yet, no one has determined at what price the bailout fund will buy them. But suppose the fund publicly set its buyup price at the value the bad loans would have had if lenders had observed prudent lending practices, as suggested above.

Then the Calculated Value of each loan, as proposed above, would be thirty years of level payments equal to one-third the borrower’s take-home pay (at the time the bailout fund purchased the loan), computed at the prevailing free-market mortgage interest rate at the time of the loan buyup. That Calculated Value would be a floor for the actual value, because there would be some chance of recouping, on any future sale of the home, the additional 10% presumed down payment, as well as sharing any additional appreciation.

Here’s how this plan might work. The bailout fund would require, as a condition of purchase, that the loan’s holder or servicer renegotiate it with the borrower under the suggested terms. The fund would then promise to buy the loan at the Calculated Value as soon as renegotiated. The bailout fund could draft and provide standard forms to speed renegotiation. The only variables would be the level payment, based on the borrower’s current take-home pay, and the current free-market mortgage interest rate.

Once the loan had been renegotiated and the borrower was living in the home and making sustainable payments, the loan would be worth more than the bailout fund’s offered price. So likely private buyers would step in and buy it, seeking to capture the additional value. In this way, the fund might start a robust private market without spending much money, while encouraging (but not coercing) loan holders and servicers to renegotiate the loans under sustainable terms and stop the destruction of Main Street.

The details suggested above are just one possible variant. They are not particularly important. The important points are to establish floor prices for loans based on rough justice: a calculated buyup price that the loan would have had if prudently made. Then that value can serve as the basis for actual renegotiation of the loan, giving the loan a real floor value. If the renegotiated loan includes a potential upside for the lender, such as the presumed down payment or appreciation-sharing proposed, the chance of capturing that upside would motivate an independent private market to form.


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18 September 2008


Humanity and Humility
The Issue of “Life”


I had hoped to avoid discussing the issue of abortion. It has generated so much heat and so little light. It is partly responsible for electing the worst president in our nation’s history. I had hoped that this election would squeak by focusing instead on issues that that directly affect everyone’s life and that a president can manage directly, not just indirectly through occasional appointments to the Supreme Court.

But I appear to have hoped in vain. Two recent commenters forced me to reassess my reticence. Both raised abortion, with some degree of passion, in comments to posts that had nothing to do with abortion.

That’s typical of the issue: it arises unbidden in the oddest places. For many voters and for many years, it has overwhelmed rational thought on everything else.

So I feel I have no choice but to address it. The two comments that inspired this essay are reproduced verbatim below, with the unrelated posts to which they were made linked.


The first thing that strikes me about abortion as a political issue is oversimplification. The language we use to discuss abortion has become inherently deceptive, as each side of the debate seeks every unfair linguistic advantage, using all the formidable political tools of modern advertising, public relations and “communications.” In an earlier, more innocent age, we used to refer to these techniques as propaganda.

Insofar as it has any impact on politics, the current abortion debate is a debate about criminal law. Should abortion be a criminal offense for the doctors and nurses who perform it, and possibly for the patients (mothers) who undergo it as well? And, if so, under what circumstances? That has been the debate since Roe v. Wade in 1973, and that is why the courts play such an important role. In Roe the Supreme Court announced a women’s constitutional right to abortion, in effect precluding Congress and the state legislatures from criminalizing abortion within the limited scope of that right.

Yet you would never know this from the language used in the debate. Opponents of criminalizing abortion speak of “choice,” as if a woman seeking an abortion were making just another selection of consumer products in the supermarket. Of course that’s a lie: the woman’s decision affects the father, the rest of her family, the community, and the possibility or actuality of a new life.

Proponents of criminalizing abortion speak of “life” as if their opponents were advocating death. They ignore the fact that there is no consensus in politics, religion, science or folk wisdom about when life begins. They also ignore the fact that often the abortion decision is not one of life versus nonlife, but of life versus life: the mother’s mature life versus a potential new one. It’s so easy to see an issue as black and white if you ignore all its complexities.

But the most abominable oversimplification is the word “abortion” itself. We use the same term to describe entirely different procedures with entirely different practical, medical, family, social, economic and scientific risks and consequences. They range from the “morning-after” pill, which works by preventing a fertilized egg from attaching to the uterus, through “dilation and curettage,” in which a collection of insentient cells is scraped from the uterus, to late-term procedures in which a recognizable fetus is dissected and extracted.

To describe these wildly disparate events using the same term is a best inaccurate, at worst dishonest. It’s like having a debate about medical care that lumps tonsillectomy together with heart and bone-marrow transplants under the heading “surgery.” Whenever anyone uses language so fuzzy and all encompassing, you can be sure they have a political agenda and are bent on propaganda, not understanding.

Humanity and Humility

The second thing that strikes me about the abortion debate is the lack of humanity and humility on the part of zealous advocates for both sides. Both sides often fail to understand how wrenching for all concerned an abortion or unwanted childbirth can be. Few recognize how enormously varied are the circumstances in which women consider abortion, and how tough the realities with which they have to deal.

Proponents of criminalization set up a “straw woman.” She’s an affluent scatterbrain who dallies with various men, gets pregnant, doesn’t know who the father is, can’t make up her mind, and ends up considering abortion late in her term, when the fetus has a beating heart and kicking feet.

We’ll leave aside the factual question of how common this scenario really is. But isn’t this hypothetical “scatterbrain” a human being, too? Doesn’t she feel the baby’s kicks, feel the weight in her belly, wonder how the man (if any) she really loves will react, and fear that she’ll be left to raise a new life all alone? Doesn’t she, at times, curse her ignorant and helpless fate?

If she is really affluent, can’t she just go to Canada or elsewhere abroad to have her abortion? Does that possibility make the decision any less wrenching for her? Yet both sides treat her not as a human female caught in a terrible dilemma, worthy of sympathy and understanding, but as cannon fodder in an abstract argument or quest for political power. How human is that?

As we move farther from the “straw woman” scenario, the woman’s human dilemma becomes steadily more acute. There is the young illegal immigrant, impregnated by her husband shortly before an immigration raid, now being held in detention and awaiting deportation at a time unknown to her. Her husband was not swept up in the same raid, and she doesn’t know whether she will ever see him again. Does she want to carry her child in a holding pen and give birth in prison, under conditions that she imagines to be the same as those in squalid Mexican jails? If she decides not to bring the child into a holding pen full of tubercular illegals awaiting deportation, can you blame her?

Then there is the religiously pious honor student, raped on her way home from class. Should she be forced to carry and bear a rapist’s child, putting her schooling, her upcoming college career and her entire future on hold for at least nine months (or more if she choose to raise the child or if the adoption process is slow) because someone raped her? Doesn’t anyone remember how long nine months are in the life of a seventeen-year-old?

At the end of the spectrum are the late-term abortions. Proponents of criminalization speak of “partial-birth abortions” and describe them in horrendously bloody terms, as did commenter Sam below. But they neglect to mention that medical ethics and standard medical practice reserve these difficult and dangerous procedures for cases where the mother’s life or health is seriously at risk.

Risks to life and health of course are never certain. They are always matters of probabilities. But suppose the doctors say the chances of the mother or child surviving are both “fifty-fifty.” Suppose the mother—the woman you have loved for ten years—squeezes your hand, looks deep into your eyes, and says,
Honey, I’m 44 years old. I’ve been sickly all my life, and I’m tired. I’ll never be able to have another child. I want to bear this child, and I’m willing to take the risk.”
Or suppose she says,
“Honey, I’m only 23. I’m too young to die, and we can try again later. The doctor says my next birth might be a lot easier, or we can adopt. But I want to be here to raise my children.”
Shouldn’t the circumstances and the mother’s wishes make a difference? It seems to me that those who claim one abstract rule fits all lack both humanity and humility.

Men do not bear the awkwardness, vulnerability, hardship and pain of pregnancy, childbirth, or lactation. Despite women’s liberation, most men perform only a small fraction of the chores required to rear children. Many men—such as celibate priests—know of these things only through reading and their imagination. They never experience them, even vicariously.

Neither our law nor our politics accounts for these undeniable realities. I have often thought that only women should vote on matters of childbirth and abortion. Yet it seems to be men—especially priests—who have the strongest and most inflexible opinions on those subjects. If that doesn’t show a lack of humanity or humility, at very least it is surpassingly odd.

The subjects of humanity and humility require one last point to be made. Much of the passion on the anti-criminalization side comes from women. The source of that passion is easy to understand. Even women who wouldn’t think of aborting their own offspring see attempts to control their options by criminalizing abortion as a continuation of the male dominance, heedless of their wishes, that has existed for most of human history. They also see criminalization as a failure to recognize and respect their greater contributions to having and rearing children, and therefore their right to help make child-related decisions.

There is some justification for this perception. The modern sociology and economics of pregnancy and childbirth are incredibly complex, especially in a nation that (depending on demographic group) has absent fathers in up to half its families, has neglected the safety net for the poor for over a decade, and has tried to replace proper education on sex with ideological wishful thinking based on abstinence and piety. Yet some believe the answer to these deep and complex problems is to tell women—whom men have controlled for most of human history—“Do what we tell you, or we’ll put you or your doctor in jail!”

To me, that approach has always seemed more appropriate to a totalitarian state than an enlightened, democratic society. Now that women have had the vote for nearly a century, is it any wonder that many of them are expressing emotions ranging from distaste to outrage at the ballot box?

A politically skilled society, let alone an enlightened one, would solve the problem of too many abortions differently. Rather than threatening free people with criminal sanctions, it would provide support, care and concern. It would encourage women to give live birth, even when they don’t want children, by providing neutral, non-religious counseling, high-quality pre- and post-natal care, and financial support to those who need it during pregnancy, all at no or reduced cost. That society would work much harder to get absent fathers to contribute to fixing the mess they created by depositing sperm and leaving. In short, it would recognize the fact that economic factors often compel women to abort and would work on those factors, rather than add the threat of criminal prosecution to the long list of an already overburdened woman’s concerns.

That sort of approach would reflect not just humanity, but what we used to call good politics. Throwing people in jail to achieve social and economic ends recalls debtor’s prison, which civilized democracies abandoned centuries ago. Throwing people in jail to achieve religious ends recalls medieval tyranny that Western culture would like to forget.

The Issue of “Life”

Like the term “choice,” the term “life” is fundamentally dishonest, at least as used in the abortion debate. It avoids the two most central questions in the debate. First, when does life begin? Second, what happens when the mother’s life is at stake, so the issue is not just life versus nonlife but life versus life? To avoid these issues is dishonest oversimplifying, quite apart from forsaking humanity in favor of abstractions.

Even on an abstract level, abortion is “murder” only if performed after fertilization, and only if life begins at fertilization. That’s what orthodox Roman Catholics believe, and that’s why the Pope opposes abortion in any form. It’s a simple syllogism: life begins at fertilization, so any interference with life thereafter is murder.

There are two problems with that syllogism. Over the last four centuries, the Catholic Church has lost credibility on issues of science and public policy. About 400 years ago it threatened to excommunicate Galileo for believing and teaching that the Earth revolves around the Sun. Now every educated person knows the Church was wrong and Galileo right. If the Church had had its way and had suppressed Galileo’s research, all of our artificial satellites and much of our global communication system would be figments of outlaws’ imaginations.

The Church once forbade anatomical research on cadavers as desecration. Today, medical students everywhere dissect cadavers as part of their education. But the change came late in many countries. In the interim, medical research migrated to the Protestant countries of Northern Europe. The result: even today, no one with a serious illness goes to Italy, Spain or Latin America for treatment if treatment in England, the United States or Germany is available.

The second and most important problem with the Church’s syllogism is our form of government. Our Founders decreed unequivocally that religion would not dictate our public policy. Our First Amendment prohibits laws “respecting an establishment of religion, or prohibiting the free exercise thereof.”

With that simple prohibition, we Americans ducked all the terrible religious wars and pogroms that plagued Europe for the last millennium. In our country, it is “we, the people,” not priests, ministers, rabbis or imams, who set public policy. If we have any national belief in common at all, it is in science, not religion.

But there is no public, medical, scientific or social consensus as to when life begins. There is not even any broad religious consensus. Many people believe life begins at birth. Strict Catholics and some evangelicals believe it begins at fertilization. Most doctors and scientists admit with some humility that they just don’t know.

As science has advanced, thinking people who trust evidence, not faith, have come to see life, its development and evolution as continuous processes. They are skeptical of any insistence on discrete, abstract beginnings and ends.

We’ve found life in superheated vents deep under the sea and where there is little or no free oxygen. Our space scientists expect to find life, any day now, far from our world on Mars, Europa or Ganymede. The more we learn about life, the more humble we become, and the more we recognize that simple, abstract propositions (such as “life begins at fertilization”) are inaccurate and useless for practical purposes, except in fomenting religious and political discord.


So how do we solve this knotty problem if we have no consensus on when life begins and if our Constitution and way of life forbid one religion or faith from dictating to the rest of us? We solve it the same way we Americans have always solved difficult legal and social problems: practically.

If we had evolved directly from birds or reptiles, the issue of when life begins would be a lot simpler. We would probably all agree that life begins when the mother lays an egg, because the egg can be incubated and give rise to new life without the mother’s further contribution or help.

But we are mammals. Our own eggs appear, are fertilized and grow inside the mother. The growing offspring stays there for nine months—the longest gestation period in the animal kingdom. From a practical perspective, this makes our unborn offspring utterly dependent upon the mother for sustenance, protection, and life itself. Until very recently, if a mother died, the offspring inside her died, too.

The Supreme Court recognized these practical features of human biology in Roe v. Wade. It recognized the mother’s practical control over the new life until the stage of viability, i.e., until the offspring could survive on its own without the mother’s participation or help. Until that time, the Court reasoned, the mother could abort, but not later.

The Roe Court’s decision did not pretend to be moral or religious. It just recognized the mother’s practical control and indispensability, and the unborn offspring’s utter dependence on her body, mind and will.

Yet Roe, too, had a practical problem. With the rapid advance of medical science, the line of “viability” kept shifting. It is now possible, at least in theory, to keep a fertilized egg viable outside the mother, either by implanting it in someone else’s uterus or perhaps even by raising it in a test tube. It is even possible to fertilize an egg artificially, without any father’s natural sperm. So subsequent court decisions on the issue have moved away from the viability test.

Not only is viability a moving target as science advances. The cost of achieving viability outside the womb grows exponentially the shorter the time after fertilization. While it’s now possible in theory to keep virtually every fertilized egg viable by artificial means, the cost of doing so would be prohibitive.

So insofar as abstract bright lines are concerned, we are now completely at sea. There is no consensus among scientists or the general population on when life begins. And viability outside the mother has become useless as a practical test, because the onset of viability depends on how much you want to spend. As we are rapidly discovering in the fields of war, energy, health care and infrastructure, our financial resources are not unlimited.

So the best we can do, it seems to me, is cobble together a rough practical consensus, which we have already done. No one “likes” abortion. Joe Biden says he “hates” it. But we recognize a woman’s right, in consultation with the father (if known) and her doctor, to make that difficult choice. We encourage any exercise of that right to come as early in the term of pregnancy as possible. We hope it will come with the “morning-after pill” or a quick and relatively riskless dilation and curettage, when the fetus is nothing more than a mass of undifferentiated cells, without a heart to beat or a brain to think.

As the term proceeds, the right to abort becomes weaker and more subject to legal and practical restraint. No ethical and properly trained doctor recommends (or wants to perform) an abortion later rather than earlier. Later procedures are more expensive, difficult, complex and risky to the mother’s health. Every doctor who performs an abortion tries to schedule it as early as the mother’s mental and physical health allows.

As for late-term abortions, both medical ethics and standard practice limit them to cases in which abortion reduces or eliminates a grave risk to the mother’s life or health. In those cases, the issue in not a matter of life versus nonlife, but life versus life—the offspring’s versus the mother’s. At the same time, we try (albeit not now hard enough!) to minimize abortion by requiring counseling, making adoption easier, and giving poor people help in prenatal advising and care.

That, it seems to me, is about the best we can do. We Americans are a practical people. When we differ on abstractions, we try to agree on practical solutions to our problems. At least we have in the past.


In matters of public policy, it’s always helpful to analyze the consequences of alternatives. What would happen if proponents of criminalizing abortion got their way? What would happen if they found their “holy grail” and overturned Roe v. Wade?

The immediate effect would be the demise of a woman’s constitutional right to an abortion. Each state and the federal government would be free to criminalize abortion fully, partially or not at all.

The lack of anything remotely resembling a national consensus today would make outlawing abortion nationwide extremely unlikely. As time went on, however, some states would probably outlaw abortion within their own borders. Then a patchwork of state laws would arise, with different restrictions in every state.

Undoubtedly states like California, Illinois, Oregon, New York and Washington would still permit abortions. Some states in our nation’s interior would not. Canada and Mexico City still would. So women wanting abortions and having the means to travel would still be able to get them—the more easily the closer they lived to our permissive states or to our borders. Poor, ill informed and immobile women in restrictive states would be the ones affected by the prohibition.

Some poor women unable to travel would forsake abortion and give live birth. Others would try illegal channels or “self help,” often injuring or killing themselves in the process. A small but nonnegligible portion of health-care income would migrate from no-abortion states to legal-abortion states. Some “pro-choice” doctors might relocate to legal-abortion states, and some “pro-life” doctors might relocate to stricter states. As international statistics have shown, the rate of abortion in general would be unlikely to change significantly.


What strikes me most about this scenario is how puny are the results. After four decades of passionate struggle and activism, this is the very most the pro-criminalization (“pro-life”) movement could be expected to achieve: a pyrrhic legal victory, a small decrease in the abortion rate and a balkanization of American abortion rules and medical practice.

If I were adamantly against abortion, I would not spend my energy, let alone much of my life, in so futile an endeavor. Rather than work hard to criminalize abortions and control others’ behavior through criminal law, I would write, speak and set up institutions to support women bearing unwanted children and to promote adoption, so as to influence others’ behavior and encourage young girls with unwanted pregnancies to give birth. I would create far less heat and do far more good.

Similar considerations apply on the other side. Those who adamantly support women’s freedom fail to recognize that the worst outcome for them (a uniform federal prohibition) is extremely unlikely. Realistically speaking, the worst (from their perspective) that can happen is a national balkanization, in which most of the big, industrial states still permit abortion and some of the small, rural, religions ones do not. That’s the greatest restriction that our form of government and present demographics would allow. The zealous advocates of abortion rights should ask themselves whether avoiding this sort of inconclusive, partial restraint is worth so much political energy and social discord.

And therein lies the greatest tragedy of our abortion mess. It is not just the effort wasted in seeking to control others’ behavior through criminal law, or in seeking to avoid criminal sanctions that would never be more than limited, partial and localized. It is the utter neglect of problems far more important to our nation’s welfare, our own lives, our childrens’ future, and perhaps our nation’s very survival.

While we were passionately debating abortion, our nation began sliding down the slippery slope of decline. We are waging two wars, both badly. One we never should have started. The other, if it runs on too long, may ultimately determine whether one of our own cities goes up in nuclear fire. Our infrastructure is falling apart, bridges are literally falling down, and our air-traffic-control system is obsolete. We are spending over a billion dollars a day on foreign oil, and we are borrowing money to buy it. Our system of secondary education is falling behinds our competitors’, and our lead in college education is falling. We have the most inefficient and least fair health care system in the industrialized world. Our military-industrial complex is so bloated, inefficient and corrupt that it will have taken four years to write a contract for a new tanker plane. And, if you haven’t noticed, our economy is stalling, unemployment is rising, and our entire financial system is in jeopardy.

These are real problems. They affect each of us directly and personally, in our pocketbooks, our careers, our homes and our collective future. We expect our presidents and members of Congress to help solve these problems, and a few presidents have done just that.

In contrast, abortion affects only a small fraction of us: those who have or will have unwanted pregnancies and their loved ones. Furthermore, presidents have little power to control abortion; they best they can do is appoint people to the Supreme Court whom they hope will follow their political agendas. Members of Congress have virtually no influence on criminalizing abortion, precisely because there is no national consensus.

Yet as the comments below suggest, there are people who consider abortion an overarching issue and select candidates for president and Congress solely or primarily on that basis.

Under present circumstances, that sort of electoral decision is irrational. I find its lack of perspective breathtaking. It is something I have never been able to understand.

If you lived in a community with dilapidated streets, unreliable electric power, increasing crime, failing schools, a corrupt and lazy police force, and dishonest and nasty neighbors, would you stay there just because you agreed with your pastor’s religious views? Would you refuse to move to another, community—one vastly superior on all these measures—just because the pastor there didn’t share your views? That’s how irrelevant to practical issues of real life I find the political side of the abortion debate.


In his recent must-read book, True Enough, reporter Farhad Manjoo describes how ordinary people make decisions on complex matters of expertise. As numerous studies have shown, they evaluate opposing positions based on style, not substance. They assess the likeability, attractiveness and credibility of the messengers and may consider their credentials or expertise. Seldom, if ever, do they try to analyze what the messenger says or apply their own reasoning or common sense. Sometimes that’s the only realistic approach, for detailed understanding of experts’ positions often requires years of specialized training and study.

It seems to me that this phenomenon explains some, if not most, of the political importance of our abortion debate. The things that really matter in people’s lives—war, terrorism, energy, health care, schools, infrastructure, and the economy—have become too complex for most people to follow. They aren’t interested in and don’t have time for the details, and the experts’ constantly conflicting opinions confuse and trouble them. So they tune out and focus on things that seems “simple” to them, like a preference for “life” over “death” or women’s long struggle for equal opportunity and political power.

But unfortunately nothing in our modern world is simple. As I’ve tried to show in this essay, even the supposed biblical simplicity of the sanctity of life becomes complex when you look unflinchingly at the details, the unthinkable variety of circumstances in which the issue may arise, and the complicating effect of rapidly advancing medical technology. Simple abstract ideas no longer seem so pure and self-evident once you probe beneath their surface and gaze on truth full blown.

Yet so many people in our great land still spend so much time obsessing about abortion in the abstract, as if it were an issue divorced from the rest of human life. They read religious and political tracts. They try to gather statistics and facts to support their preconceived views, as commenter Sam apparently has done below. They argue and debate.

At the end of the day they have spent enormous energy on a subject that affects only a fraction of our population, only part of the time, and that politicians can do little about. If they spent as much time thinking and arguing about things that matter to all of us most of the time, and that political leaders can control, then we might be able to pull our nation out of its precipitous decline.


Here are the two comments that inspired this piece:

Comment 1: (posted 9/5/08 to my post Barack Obama’s “Inexperience”)

I just want to make sure everyone understands that John McCain has publically declared that he wants Roe vs. Wade overturned. With the likely new judge appointments this term he has a real shot at making this happen. He disguises this radical move by claiming he simply wants it to be a “states issue”.

This whole concept that clearly constitutional issues should somehow be resolved at the state level is ridiculous. It’s just smoke and mirrors to confuse you and make it seem like overturning very important decisions is “ok”. Don’t buy into the lies and deception. . . they KNOW these issues will end up right back in the highest court almost the second they are overturned. And guess what happens then, the court will HAVE to make a new decision. . . scary stuff when you know it’s being done for political reasons and not for the reasons of truely trying to intepret the consitution in the most intellectual way. There is a lot at stake in this election!!!

BTW, Obama got good experience :)


Comment 2: (Posted 9/6/08, to my post on Joe Biden)

I hope you will permit me to respond to your response, either here or through email. Time-wise I will take each topic separately from your reply.

In reference to your policy statement of women’s rights, You state, “I find other’s passionate intensity on the subject, pro and con, terrifying.” So do I.

Obama’s open advocacy for unrestricted abortion goes beyond any traditional discussion, as the facts detract considerably from what you portray to me and your reading audience.

Barack earned the highest rank of A+ from the National Abortion Rights Action League and Planned Parenthood. Your man supports partial-birth abortion when the butcher punctures the skull and Hoovers (sucks) out the infants brain to ease the rest of the infant through the birth canal, only to be flushed away as waste.

Well, well, how does one counter the emphatic words of Mrs. Michelle Obama? She vowed her husband would fight the “tireless” fight to keep partial-birth abortion a “legitimate medical procedure!” True to form, Obama demonized the court for its attempts to deny women their equal rights on partial-birth death.

You say, “Barack Obama does not support infanticide and any form of abortion.” the facts explicitly contradict! During his time spent in the Ill. Senate he helped block, three times, bills that would protect an infant”s life, born-alive outside of the womb. Wow! A live breathing human being survivor should be thrown out with the waste and detrital simply to protect the mother’s mental health and abortion rights. Once the infant is in a cold pan, where is its right to live?

Should he treat the most susceptible as a mineral, a vegetable, but not as a species homo-sapien… human animal? This individual has no human rights? This individual whom cannot forage for nutrients nor protect itself from environmental insonsistencies, nor the wrath of like-mind Obamas. So much for individual rights after birth.

This is the same ‘audacity of hope’ who stated, “Oh, I have supported restrictions on Late Term Abortions many times.” No one has been able to locate those opinions, arguments, or votes!

I think that whether you are looking at it from a theological perspective or a scientific perspective, answering that question with specificity, you know, is above my pay grade.” Barack’s answer was given in response to. “At what point does a baby get human rights in your view?”

A human being has the ultimate right NOT to have an instrument shoved into its skull is beyond Barack Obama’s pay grade? Then what is it based on?

Obama was Chair of the Illinois Senate Health and Human Services Comm. The Born-Alive Infants Protection Act was up for a vote and it defined a baby born-alive as a result of an abortion to be a human being deserving legal protection. Although the bill was written to guarantee a women’s right to choose was protected. So much for his knowledge of constitutional law - Barack Obama voted against the bill!

In 2001 Obama was the lone senator to speak out against SB 1095, that applied only against already born-alive premature infants. The fact remains there was NO conflict between right to legal abortion and the bill. The exact same bill went before the U.S. Senate and was passed 98 - 0!

Sen. Barbara Boxer, the highest ranking pro-choice advocate, stated the bill did not pose any threat to Roe v. Wade.

It is a shame of the man himself that history has dictated Barack Obama to be an extremist in support of ALL forms of abortion. To infirm and conclude history’s facts, Obama has gone to the extreme rationale of promising to a Planned Parenthood group in July, 2007, “the first thing” he will do as president - the utmost top priority - is to sign into law, the Freedom of Choice Act!!! (to restrict every & all federal and state laws on abortion - abolish all laws of informed consent to include parental consent - taxpayer funding of abortion - relegalize partial-birth abortion). And that’s his top priority as President of the United States? Gimme a break!

“...so he can concentrate on problems that the federal government can help solve, like Osama bin Laden, health care, our decaying infrastructure...” Sure looks like, talks like, walks like abortion on demand as his priority.

Instead of just explaining intelligently, you had to lower yourself to a childish priority of belittling and demeaning, using superlatives such as, “your ignorance”, “your self-righteousness and deminization”, “its absurd characterization”, “utter irrelevancy”, “evident lust”, “lack of humanity”, “factual ignorance”.

And last, why in the Sate of Illinois, and while Obama was a senator there, did “fetal tissue” need a birth certificate and then a death certificate?

Thank you for the opportunity to respond Mr Jay. I’ll clarify “despicable heathen enemies” in a few days.


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