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By William J. Dodwell     November 27, 2012

Immigration policy has become front and center in the wake of the Republican loss in the 2012 presidential election that is significantly attributed to the Latino vote.  Many Republicans now call for accommodating illegal aliens and new immigrants, particularly Hispanics, in order to be politically viable in future national elections.  But such capitulation would exacerbate the electoral problem because the newly naturalized Latinos probably would follow precedent and vote largely Democratic, seriously diminishing Republican prospects, as well as constitutional government. 


On the whole, would not multiple millions of new Latino voters, sustained by a high birth rate, constitute an underclass approximating the characteristics of Mexico and Central America?  And would not such a significantly impoverished population be largely predisposed to government goodies proffered by liberal candidates?  For some time an unsecure border has permitted a deluge of new entrants that intensifies a culture clash that undermines the quality of life in border areas and elsewhere by compounding a history of poverty, crime, disease and overcrowding, despite their contributions to the labor force.  Do we want more of this?  Moreover, a porous border sets the stage for a political tsunami should new immigrants and existing illegals eventually acquire voting rights through immigration reform.  In that circumstance, the GOP would be permanently marginalized through sheer numbers in a cultural genocide, an eventuality that applies to any immigrant group entering in very large numbers.  Consider the now regretted multicultural polyglot in Europe and the ongoing Muslim infiltration.


For this reason conservatives seek to win over a good percentage of like-minded Latino citizens, but they also want to secure the border to limit new immigration, and prevent illegals from voting through amnesty or fraud.  Given a minimal shortfall in the latest popular vote largely because of the Latino electorate, these policies, combined with getting stay-at-home Republicans to vote, can enable us to turn the tide.


There is hope for persuading existing Hispanic voters, or at least not alienating them. But this is difficult not only because of the aforementioned entitlement mentality among them.  Indeed, even enterprising Hispanics, who may be a natural Republican constituency that embraces conservative values, first support candidates that favor liberalized immigration and naturalization, i.e., Democrats.  The reason is that most Latino voters want to maximize the legal Hispanic presence here to enhance their political clout through the ballot box, as well as augment their social solidarity.  Thus, 71% of Latinos voted for Obama, regardless of his overall liberal politics, to pave the way for their compatriots. (Ditto the fast growing Asian vote which went 73% for the president.)   This Democratic support, combined with newly capitulating Republicans, could pass dangerous immigration reform that might include blanket amnesty that would bestow voting rights.  The additional income redistribution that would result through expanded social programs would aggravate the already unsustainable debt, raise taxes, and choke economic growth severely lowering the quality of life in America indefinitely.


The government has to secure the southern border, adopt a strict general immigration policy, and ensure the integrity of the voting process.  If not, Republicans will be overwhelmed, especially considering the growth rate of the voting Latino and Asian populations.  And let's not forget all the anchor babies granted immediate citizenship with voting rights when they come of age.  We must not forsake our political and cultural sovereignty.  It is sacrosanct.


What about the estimated 12 million illegal aliens in the country now?  From an electoral standpoint, they cannot be allowed to vote as their numbers would relegate Republicans to permanent minority status.  As to the justification for denying them suffrage, they broke the law and undermined those seeking entry legitimately.  They would not all have been admitted legally according to established immigration policy quotas and criteria.  Therefore, those same well-reasoned considerations should apply now to those who came here illegally.  


Perhaps, the law-biding among them could be assigned a certain non-voting status that permits them to provisionally live and work here but without the benefits of citizenship.  Then they could pursue naturalization normally and be subject to much stricter immigration criteria that would apply to all new entrants, but accommodate highly skilled immigrants needed to correct critical labor shortages. This is a reasonable compromise between deportation and amnesty that would mitigate the political threat, if not the social and cultural disruption.


Amnesty is not the answer.  Republicans supported the 1986 Simpson-Mazzoli Act granting amnesty in exchange for fortified immigration control in the hope of garnering more Latino votes in future elections.  But Republicans won a smaller percentage of the Latino vote in most subsequent presidential elections and the border control commitment was ignored.  The government cannot be trusted now either, especially with the growing influence of the Latino vote supporting new immigration.  It’s like the historical precedent of legislation that raises taxes now in exchange for future spending cuts that never materialize.  We must not be overrun by new entrants, legal or otherwise.  This means vigorously challenging the opposition by enlightening the public about the dire consequences of liberalized immigration.


If we fail to overcome a large Democratic Latino vote, it is conceivable the white and Latino populations will separate geographically, isolating the latter and reducing their representation in the electoral college.  In a different scenario, some Texas leaders contemplate secession to pursue their own immigration policy rather than face the prospect of a doomed U.S. constitutional government.


Legally admitted law-biding immigrants are welcome, subject to an appropriately restrictive immigration policy for new entrants.  They must speak intelligible English to be naturalized, and if they embrace the American meritocracy, they will likely contribute and assimilate.  Then it is up to Republicans to win their vote without compromising core values.  As important, we must work on maximally growing our traditional base and turning it out on election day.

© 2012 William J. Dodwell

 The Real Reason Why Liberals Hate Sarah Palin


By William J. Dodwell    December 18, 2012


            There is no greater lightning rod in American politics than the abortion issue and the prospect of overturning Roe v. Wade.  The concern is particularly contentious regarding potential turnover in the Supreme Court, albeit less acute in view of President Obama’s re-election.  Of course, in the event of a pro life decision, the issue would revert to the states where presently only a few of them would likely vote against the status quo.  But since that consensus can change over time, Democrats continually use this issue as a red herring to demagogue against Republicans.


So, what’s at stake?  Liberals view unplanned pregnancy a threat to feminist advancement achieved through career accomplishment, new found power, and independence.  As such, liberal women rely on abortion as a form of birth control and an antidote to the lifestyle inconveniences of pregnancy and child rearing.  For men, abortion gets them off the hook with regard to possible marriage and child-raising, or at least child support payments.  Moreover, both women and men want the option of avoiding the birth of a seriously flawed fetus identified in advance through amniocentesis.  Some would abort even out of a preference for a particular gender.  For others, such as Planned Parenthood, abortion is a lucrative enterprise.  In addition, some believe that fetus stem cell research, which depends on abortions and has yet to live up to expectations at all, is a ruse that encourages abortion as a means to convenience women and fund researchers.  They might say, “Don’t be indisposed.  Don’t feel guilty. Abort your child in the name of science.”  Indeed, abortion has individual, cultural and institutional implications.


            This brings me to my theory about the intense hostility expressed by the Left toward Sarah Palin.  It’s not just about her conservatism per se as liberals pretend.  In fact, until not too long ago a vast majority of Americans embraced her opinions without provoking such animosity among pro choice advocates.  Rather, the real animus is entirely unspoken.  By bringing a down syndrome child to term, Ms. Palin put her money where her mouth is in respect of the pro life position that is so anathema to liberals.  According to the Left, she breached the third rail in walking the talk.  Indeed, she practiced what she preaches - in spades.  How many pro lifers would even do the same?  To be sure, some of them believe her circumstance is equivalent to pregnancy by rape or incest, for which an abortion exception is widely accepted. Her principled stance therefore infuriates liberals, and perhaps even some conservatives.  She not only rejects the professional and social expediency of abortion, but accepts the lifelong hardship of caring for a disabled son. 


Liberals think this sacrifice by one as prominent and influential as a former vice presidential candidate and now media icon symbolically threatens women empowerment.  Thus, liberals despise her like they disdain mothers who have many children as well as conservative blacks as these groups respectively undermine the power of women and the promotion of government dependency.  Sarah Palin’s foundational courage flies in the face of the Left’s trivialization of abortion as a means of convenience.  By contrast, she raises the profile and the standard of the pro life position becoming a highly visible exponent by her example, and therefore an object of vilification. 


Should Roe v. Wade be overturned by the Supreme Court, and in time a required quorum of states followed suit, liberal women in Ms. Palin’s circumstance would face the prospect of giving birth to a special needs child along with the onerous responsibilities.  Indeed, illegal abortion might raise the specter of the deformed thalidomide babies of the early 1960s.  And given the availability of amniocentesis now, women could identify with certitude a baby’s problem in advance without the option to escape the consequences.  Liberals shutter the mere thought of such a prospect.


Today, with career and independence at stake, some women would rather give up their unwanted babies for adoption or institutionalization.  Others who want to have children might avoid the possibility of an afflicted fetus by choosing adoption in lieu of childbirth in the absence of the abortion option.  In any case, the family dynamic would change radically for liberal women and their partners who might suffer the trauma of relinquishing a sick child or forgoing the possibility of having any children.  In addition, just an untimely pregnancy could end many a career and lifestyle with dire consequences for the entire family. 


According to liberals, unwanted or untimely births occasioned by the reversal of Roe v. Wade would undo forty years of progress for women.  Any catalyst to such an outcome as that reflected in the high profile model of Sarah Palin’s personal choice and the influence she might ultimately have on the abortion consensus is a death knell that liberals believe must be stopped in its tracks.  Hence, the vitriol for this woman.


                                                               © 2012 William J. Dodwell




 The Right Gives Cover to the Left by Disarming Itself in the Ideological Wars

By William J. Dodwell    December 27, 2012

            Why are conspiracy theories summarily dismissed in political debate?  In fact, they are so discredited that liberals suggest that only kooks contemplate them.  Thus, conservatives disassociate themselves from the theories lest they be ignored as delusional.  How often have we heard even conservative icons preface an opinion with “I’m not a conspiracy theorist, but …”?   I suppose this aversion has its origins in the McCarthyism of the early 1950s when suspicions of communist infiltration in government and Hollywood reached a fever’s pitch.  That inquest, coupled with the conservative admonitions of the John Birch Society about a commie under every bed, did expose actual subversion but unfortunately left many innocent victims in its wake.  As a consequence, any speculation today about one’s motives is out of bounds.  Too bad, because this proscription gives liberals enormous cover and undermines the quest for truth.


            But the Left didn’t seem to object to Hillary Clinton’s charge of a “vast right wing conspiracy” some years ago.  I hope she’s correct because liberal cabals certainly exist and have to be combated in kind.  To be sure, the Left conspires to transform America in the effort to redistribute income, expand government and propagandize its agenda.  Therefore, conservatives must treat fire with fire and not disarm unilaterally by succumbing to ridicule about conspiracies.


Since leftist conspiracy operatives employ illegal tactics in the attempt to impose reforms that have no chance of succeeding legislatively, or perhaps even pass constitutional muster in the courts, they must operate covertly.  Any probing by the opposition is a serious threat to their surreptitious activities.  An example of this sensitivity is evident in privacy concerns liberals have with respect to post 9/11 government surveillance, including the Patriot Act, George W. Bush’s wiretapping of incoming overseas calls, and cyber security.  Conniving liberals fear too much access to private information will blow their cover.


  As such, when one entertains a conspiracy theory, even a non-political one, the Left cries foul out of fear the assertion’s mere utterance might legitimize conspiracy mongering in general as an acceptable dialectic.  This wholesale dismissal of conspiracy theories is a ploy to defuse the opposition, akin to recoiling at “judgmental” opinions and assorted “offensive” references.  Meanwhile, conservatives disengage, as if called racist, lest they invoke the maligned ghosts of the McCarthy era.  


            The conspiracy theory is a legitimate form of argumentation in exercising vigilance against the highly organized and wily ways of the Left.  While the stuff of paranoia in the extreme, reasoned conjecture about perceived patterns of behavior can uncover nefarious forces in government, academia, labor and media that threaten our freedoms.  Conservatives must stand up to mocking and intimidation by the Left aimed at stifling inquiring minds, and pursue compelling suspicions.  If you smell a rat, don’t be cowed.  Follow your instincts and expose the culprits.
© 2012 William J. Dodwell

Shame On America – Taking the Electorate to the Woodshed

By William J. Dodwell    January 8, 2013

            America-bashing is traditionally the province of the Left.  But in view of the 2012 re-election of a failed Marxist president and the attendant threat to the republic, it is time to engage in a serious post-mortem from the Right, not about policy and representation, but of the electorate itself.  The election and re-election of Barak Obama truly mark a watershed in political attitudes that reflects an electoral vacuousness and growing entitlement mentality having grave implications for our future.  Conservatives have always celebrated U.S. exceptionalism, but now America has a problem – too many ignorant and languid voters that fall prey to the liberal agenda.  Of course, this is how democracy works but we have to manage it to our advantage.  As Winston Churchill said, democracy is the worst form of government but for all the others.  Let’s suspend the typically conservative self-congratulatory praise about our accomplishments and focus on how we have lost our way.  Despite America’s pre-eminence, it is not the great country it once was and the trajectory augurs worse.  The nation demonstrated economic resilience in the past, but today we need a political and ideological rebound.  With work we can get back on track.


Voters gone awry


            What’s wrong with an electorate that returned an incumbent who presided over four years of the worst economic growth and unemployment since the Great Depression; who refused to seriously secure the southern border and enforce immigration laws (except an election motivated push in 2012); whose attorney general will not prosecute black on white crime; and who circumvented Congress and flouted the Constitution through executive orders and agency overreach concerning naturalization and environmental mandates?  President Obama squandered hundreds of billions of economic stimulus dollars, including tens of billions lost in corrupt green energy projects, and billions more diverted on behalf of Big Labor, including the teachers’ unions which contributed handsomely to his campaign through kickbacks of stimulus funds.  Similarly, he was complicit in an unconstitutional restructuring of obligations to bondholders and other creditors to accommodate the United Auto Workers in the GM and Chrysler bankruptcies.  What’s more, he appointed union proxies to the National Labor Relations Board who are dedicated to aggressively expanding union representation by approving proposals that facilitate union organization while weakening the ability of employers to resist.  In addition, this president rejected the opportunity to significantly increase energy independence with its economic and geopolitical advantage in opposing the Keystone Pipeline and other promising energy projects while consumers paid $4 dollars a gallon for gasoline.  Furthermore, dedicated to expanding government, he displayed absolutely no interest in seriously abating the spending and debt problem that threatens our current and future growth.  And, of course, the administration’s handling of the Benghazi situation and the Fast and Furious program revealed the height of incompetence and dishonesty.  Moreover, let’s not forget the abomination that is Obamacare.


            Last November too many voters were oblivious or apathetic about these and other important issues, while fixated on trivial and bogus red herrings created by the Left.  Many figured the President did the best that could be expected in the wake of the financial crisis he inherited and which they wrongfully believe Republicans caused, and credit him for some improvement in the economy.  Others gave him a pass despite his failings and improprieties, not realizing or caring that he will double down and push the envelope further not having to face re-election again.  Some voted for him simply to validate the historical significance of the first black president.  In any case, the President’s support is grounded in too much democratic ignorance and naivete that undermine our freedom and quality of life.  This reality has to be recognized and rectified.


The “low information voter” as dupe


            Specifically, the problem largely rests on the so-called “low information voter” who probably now constitutes a larger share of the electorate than ever.  Indeed, this segment has crossed a critical threshold that subverts the long-term prospects of traditional Republican and conservative candidates.  The “low information voter”, formerly the political ignoramus, may be smart or stupid but overly embraces leisure and disengagement at the expense of civic duty and the country’s ultimate wellbeing.  Uninformed voters succumb to liberal demagoguery and propaganda that promote class warfare, dubious appeals for racial justice, and the laughable apocalyptic scenarios of climate change.  They fall for the fabricated war on women and feigned indignation about contraception, rape, and Romney’s reference to “binders of women”.  They are dupes for a disarming call to pacifism that asks, Can’t we all just get along?, without understanding the justified polarity of our divisions today.  They fail to consider the damaging impact of their vote with respect to presidential appointments, baseline budgeting and probably overzealous affirmative action in government that can entrench problems long after a presidential term expires.  And, “low information voters” are suckers for scurrilous media attacks that portray conservatives as pariahs.


            What created this state of affairs?  It has evolved for some time but reached a tipping point because of entrenched liberalism fostered by generational change that has rendered even past taboos acceptable.  This culture supplants the values of those molded by the experiences of the Great Depression and World War II who have either passed on or have lost influence in their dotage.  Liberalism, founded on the inevitable predominance of the permissive baby-boom cohort, has engulfed our institutions – media, courts, legislation, education, law enforcement, and the family.  Voter ignorance can be attributed to declining educational standards and an increasingly shallow and decadent culture that discourages scholarship, critical thinking and civic engagement.  In addition, a more aggressive and nefarious media wedded to the leftist agenda makes “low information voters” an inviting target for politically correct propaganda.  Their docility to liberal orthodoxy facilitates their captivation which contributes to eventual societal decline.  Corrupt media also protect liberal figures from critical scrutiny as they have President Obama regarding, for example, his questionable background, the Benghazi incident, and illegal fundraising from foreign sources. None of that was investigated by mainstream media.


            The anomaly of the Obama elections also centers on the racial dimension.  The liberal obsession with installing the first black president to create a “post-racial” America superseded all other considerations. This mission was met with abject media complicity and widespread public sympathy rendering substance almost irrelevant in the campaigns and ancillary throughout the first term.  Presidential affirmative action trumped economic and social policy in the minds of too many voters, including a majority of women who supported Obama by an eleven point margin.  Romney would have won against a white Obama.  In addition, we'll never know how much the Mormon factor might have hurt him.  Perhaps the role of race and religion mitigates the lament of the ideological lurch of the electorate to the left.  But the impact of that bias is also disturbing.


            One of the lessons emerging from the 2012 re-election is the degree of voter interest in larger government and the entitlement agenda.  Obama won despite four budget deficits in excess of $1 trillion and a $16 trillion national debt with all the negative implications for economic growth and job opportunities. As such, much of the electorate was indifferent or supported Obama’s redistributionist policy model and his narrative of individual security through government.  Was this a response to the Julia ads?  This socialist mindset contravenes traditional aspirations for upward mobility through meritocratic achievement in the private sector.  The question is whether a growing reliance on government is just a function of discouragement from the protracted economic malaise or a sea change in American attitudes.  Perhaps if the economy fails to recover in time voters will express discontent in Congressional elections that will force responsible fiscal change.  Or maybe new government beneficiaries will eventually tire of their limited prospects and vote for the opportunities of a vibrant economy again.  One wonders what that tipping point might be and how much damage will be done in the meantime.  One sign of a public check on government is the recent voter rejection of excessive labor contracts and associated debt in Wisconsin.  Also encouraging is voter support for right-to-work legislation in Michigan.  Changing public sentiment at the state level may take time to translate to the federal level but it is a welcome harbinger.


Unlike recent history in which voters rejected incumbent presidents during bad times and re-elected them during good times, the 2012 electorate supported a sitting president following four years of negative or slow growth and historically high unemployment.  Some believed that in view of the severity of the financial crisis, which occurred on a Republican’s watch, and the eventual decline in the unemployment rate, more time is needed to return to normalcy despite the fundamental folly of Obama’s fiscal policy.  This speaks to not only the consequence of too many “low information voters”, who would not be expected to know economic principles anyway, but it also calls into question the economic literacy of much of the general electorate.  A proposal to raise taxes in a marginally growing economy, a refusal to address the spending problem and its impact on the debt crisis, and a continued call for more regulation is a recipe for stagnation. Yet, too many voters accepted Obama’s nostrums.  Of course, smart liberal economists support Obama’s policy too, but they’re informed by a socialist philosophy that promotes the redistribution of national income.  They couldn’t care less about the incentive based dynamic of the private economy and its role in creating individual prosperity.  Apparently, not enough voters do either.  Therein lies the problem.


What to do?


What’s the solution?  Liberals steeped in ideology and hopeless “low information voters” are out of bounds in the Republican effort to win the vote.  Minority groups are not promising as they are largely dedicated to their own empowerment through government beneficence.  But in the future a presumably less galvanized and smaller black vote will help.  Moves to woo the Hispanic vote by compromising conservative principles in support of immigration reform are misguided.  Such policy violates our political, economic and cultural sovereignty.  And, effective amnesty will result in an enormous augmentation of the Democratic vote.  That will lead to formidable political pressure to further liberalize immigration policy to accommodate the beneficiaries’ relatives and compatriots seeking U.S. citizenship.  Also, considering the high Hispanic birth rate, in time the result would be an insurmountable Democratic voting block.  


Sadly, the women vote is also part of our problem in view of that eleven point margin in favor of the President in 2012.  However, we can recover some of it.  But, as borne out by the election, Republicans have to overcome a seeming predisposition among women with respect to social problems that often supports government intervention.  Perhaps the excellent conservative spokeswomen in the media can help in that regard.  In addition, we might focus on an alternative to the influential female media that are fraught with liberal messaging.  In particular, we can create an antidote to women’s magazines and TV talk shows that captivate a good number of uninformed voters.  Nevertheless, a Hillary Clinton candidacy in 2016 may render the distaff untouchable.


However, Republicans won an unexpected majority among white youth last November, Occupy Wall Street notwithstanding.  Recent college graduates doubtless expressed their disaffection with the status quo that keeps them unemployed.  And if they find jobs, their newfound prosperity and personal responsibilities might dispose them to shift to the right for good.  They’re worth pursuing to expand their turnout and voting margin.


We need to do more than preach to the choir.  Republicans and conservatives have to aim for persuadable rational voters on the other side and educate them without straying from traditional principles.  Candidates include certain “low information” types but also a number of single issue enthusiasts, and even some minorities who voted for Obama because of historical significance.  The objective is to garner enough new support to achieve victory at the polls.  We have to convince some of the gullible and inert to jettison their games and TV, reject inane liberal messages, resist peer pressure, and recognize the threat to our national prosperity and liberty    And, of course, the non-voting in our camp have to be mobilized.  


The education process requires new messaging techniques.  Delivery has to be simplified and extremely repetitive as the voters in question do not appreciate abstractions.  We have to demonstrate how today’s most important problems have become more serious without crying wolf.  Messages should be presented in an ongoing series of simple bullet points and graphics in a variety of contexts throughout traditional and social media.  We must supplement the great Fox News coverage aired throughout the last campaign with a lighter version aimed at the “low information voter”.


For example, somehow we have to sell the growth effect of supply-side stimulus through tax cuts that create jobs.  Even conservatives avoid mentioning this for fear of seeming to favor the rich.  Let’s defeat this class envy.  Operatives must play offense and employ some of the tactics of the Left where necessary.  But this does not include the Obama campaign’s efforts to expose and intimidate Republican donors or to engage in voter fraud.  We should shame and ridicule shallow liberals, especially where hypocrisy is evident.  Expose their vulnerabilities, such as boondoggle spending, with the zeal of the “swift boat” attacks on John Kerry in the 2004 election and deploy designated experts in the House and Senate to lead the charge in their respective areas.  Resist relenting to the opponent’s “likability factor”.  Learn to deal with red herrings such as the “war on women” because the Left will demagogue these absurdities at every opportunity having apparently succeeded in 2012.  This ploy makes us quite vulnerable to the legions of “low information voters”.  Our candidates must not pull punches like Romney did about Benghazi, or, more reprehensibly, like John McCain in 2008.  Address the growing entitlement mentality by rekindling the belief in the opportunities inherent in a meritocratic culture and free economy.  Play good defense too.  Respond immediately to all substantive attacks.


These tactics may risk a backlash in the 2014 Congressional elections but it is a chance we should take. If they don’t work, maybe we can encourage the problematic constituencies to stay home on election day.  After all, something surprisingly suppressed the Caucasian blue collar conservative vote last November.  But even in defeat, it is important to perfect our message and delivery to prepare for a more propitious time.  We must continue the fight and never forsake our principles.  America must wake up.
© 2013 William J. Dodwell      

Corrupt Liberal Media

By William J. Dodwell    February 4, 2013

            Mainstream media obsess about race, class warfare and other social issues in sympathy with the model of the egalitarian society dependent on ever larger government fostered by the redistribution of wealth, legislative and judicial pliancy, and executive fiat.  As such, liberal bias has rendered mainstream media corrupt as they systemically and insidiously distort or suppress hard news to advance that agenda, protecting those who espouse it and vilifying those who don’t.  Certain issues are almost entirely one-sided including climate change and gay rights, or are virtually ignored such as black crime.  Even a truly fair-minded liberal should object to this prejudice in the public discourse.


The examples of bias abound in the news.  Other than conservative outlets, the media grossly disregarded the irresponsibility and incompetence President Obama and Secretary of State Clinton displayed before, during and after the Benghazi attack that killed our ambassador and three others.  That same media refused to vet Barak Obama during the 2008 election cycle and continue to overlook his failures to enforce the law according to the Constitution.  The so-called birther issue is dismissed out of hand as racist.  The media kowtowed to the gay community for years in spreading AIDS propaganda about a spurious threat to the general population.  Black on white crime is under reported.  Naysayers in the climate change and same-sex marriage debates are vilified if they are heard at all.  Documentaries about the 2008 financial crisis focus only on the role of the banking sector while ignoring the larger impact of coercive government affordable housing policy which more seriously compromised mortgage underwriting standards that caused defaults and subsequent economic collapse. 




Big media is especially zealous about race coverage.  For example, the complete video of the Rodney King apprehension is never shown or acknowledged.  Even conservatives avoid referencing it for fear of appearing racist. In fact, the video viewed as a whole indicates mitigating or perhaps justifiable circumstance in the treatment of King by the police considering the personal threat he posed through his violent resistance induced by drugs he ingested.  Rather, the media focus only on the police beating itself and the opportunity to make King a sympathetic racial figure.  Similarly, the media tried to inject a racial motive to impugn the white Hispanic defendant in the Trayvon Martin/George Zimmerman case, to include doctoring an audio tape.  By the way, what is the status of the adjudication?  After weeks of hype the story completely died.  Could there have been a silent settlement with the black community to preclude a race riot (like that following the King verdict) triggered in reaction to Zimmerman’s exoneration in light of new evidence?   Is there a media cover up here?  Even if the media were not privy to a settlement or exculpatory findings favoring Zimmerman, why wouldn’t they question the apparent moratorium?  To be sure, any new information that were to favor Martin would be trumpeted throughout the media.


            The media has shoved Tiger Woods in our face for years because of the anomaly of his race in a lily white sport.  They seem to say, “Look, a black man dominating the white man at his own game!” (In fact, Mr. Woods doesn’t consider himself black, but never mind the media will use him anyway.)  Similarly, I recall the end of a televised baseball game some years ago that the Chicago White Sox won where the camera gratuitously and interminably showed a close up of the team’s new manager as he walked off the field.  It so happens that the manager, Ozzie Gillen, is Hispanic and the media no doubt wanted to make sure the viewers knew it. (This speaks to the liberal concern that there are too few minority managers in baseball.)  The public is politically manipulated  by the media and most don’t even realize it.


            I wonder how many notice an apparent racial skewing of military personnel appearing in videos and photos in both left and right media.  Considering white enlisted personnel are underrepresented in the Army, it’s strange that seemingly 90% of soldiers portrayed in TV, magazines and newspapers are Caucasian. Could this media distortion be a Defense Department recruiting tactic to attract more white candidates?  Or, could it be a way of assuaging public concern about national security that relies on an underrepresentation of whites in a volunteer force?  Maybe it’s to cultivate popular support among the white majority for military engagements overseas now and in the future.  Perhaps this seeming racial media ruse will end as the U.S. fully withdraws from Iraq and Afghanistan.  Or not.  Iran here we come?


Interestingly, Hollywood has been uncharacteristically ingratiating itself to the military for some time through its movies and celebrity appearances.  Quite a contrast to the utter vilification of American soldiers during the Vietnam War and its aftermath.  Is this pro military posture predicated on a looming Iranian nuclear threat with the implication of U.S. military intervention?  Might publicly stroking the military overcome otherwise reluctant support for that engagement?  Is this effort connected to the aforementioned public relations maneuver of the general media to improve the perception of the military through a racial lens?




            Particularly concerning is the media’s overt bias in covering election campaigns.  Indeed, media relish their role in forming the government that will implement the liberal agenda for years to come.  As such, the Republican candidate has to challenge not only the Democratic opponent but the mass media as well.  In the 2012 presidential race the media perpetrated meaningless red herrings such as the war on women, which conjured issues over contraception, rape, “binders of women”, and responsibility for a cancer death.  In addition, the media did nothing to discredit Harry Reid’s outrageous claim on the Senate floor that Romney did not pay taxes for ten years.  And, again, the media is quick to insert race into the presidential debate to sensationalize and defuse the Republican argument.  Notably, the Left pulled the race card with respect to criticism of Obama, and lambasted George H. W. Bush for his Willie Horton ads in the 1988 campaign.  The latter indignation stigmatized even the implication of race in campaigns ever since.


Unfortunately, Republicans do not effectively counteract media demagoguery and its influence on a gullible public including the legions of low information voters.  The uninformed electorate is a dangerous reality.  Republicans have to manage the public response to media lies and exaggerations rather than just try to convince voters to dismiss them out of hand as meritless.  Too often Republicans disengage when faced with unfounded charges of bigotry rather than fight for the truth.  Could Romney have handled the war on women attacks differently?  If a gambit that ridiculous can be effective, Republicans have their work cut out for them. Many voters are susceptible to identity politics and single-issue interests and the media capitalize on that opportunity.


The rules of the game


Indeed, the mass media often subvert truth.  Although they have the right to promote liberalism, they must clearly delineate fact from opinion.  When opining, anything goes provided it’s honest and potential conflicts of interest are fully disclosed.  Speculation that questions or challenges sacred cows or third-rails is legitimate and related accusations of bigotry should be resisted.  Serious news organizations that purport to deliver objective reporting should not distort or suppress reality by infusing a point of view.  Dismissive, selective or fallacious reporting to serve an agenda under the guise of objectivity is reprehensible on the left or the right.  Two prominent examples of that corruption lie in the coverage of the Obama birther issue, and of the AIDS epidemic in the 1980s and 1990s. 


The birther issue – media cover up and constitutional nonfeasance


The power of the mainstream media is such that even conservatives closed ranks to become universally mum on the matter of the President’s birthplace, in order to avoid charges of racism for simply raising the question.  Donald Trump did make hay with the issue for a while and the pursuit of truth gained some traction.  To be sure, the many red flags about compliance with a constitutional requirement make the inquiry legitimate.  The fact that the President waited so long to present the long-form birth certificate renders it suspect.  And as it happens, experts have challenged its authenticity.  There is certainly good reason to question Obama’s birthplace in view of his father’s origin and the peripatetic past of his mother but the media at large refuse to investigate.  And several unexplained discoveries arouse reasonable suspicion.  There is no record of Obama’s mother having been registered at the hospital of his supposed birth in Hawaii.  Reportedly, Obama’s social security number was issued in Connecticut where he never lived.  Some $4 million was spent to seal Obama’s college records allegedly to prevent identifying him as a foreign student.  A promotional pamphlet published in 1991 cites Obama’s birthplace as Kenya.  (His former literary agent claims a proofreading error but this suggests someone else recorded the information meaning at least two people overlooked the fact.) 


The media have been totally dismissive of the issue from the beginning vilifying those who question it lest they undermine the legitimacy of the first black president.  As a practical matter, why pursue it?  Republican pundits don’t want to lose their jobs, media appearances, speaking engagements and book deals so they go along with the program set by their media bosses.  And if it were established that Obama was born outside the U.S., the issue would trigger a divisive constitutional crisis with respect to legislation he signed as president, as well as his other executive actions.  A political war would ensue.  It appears presidential racial diversity, the fear of racist accusations, and political expediency trump the enforcement of the U.S. Constitution.  This is a shameful precedent.


AIDS propaganda – the height of media malfeasance


Happily, medical advances have significantly diminished the AIDS problem.  But the history of the reporting on the disease is instructive in understanding the dishonesty of the mass media.


            Throughout the 1980s and early 1990s AIDS activists and their liberal allies in the media were hellbent on convincing the public that the disease threatened the general population. The goal was to democratize the scourge to create universal fear, and thus solidarity with the victims.  This, despite the evidence that continues even today that infection is attributable almost entirely to two groups:  intravenous drug users; and male homosexuals.  Early on some also contracted the disease through blood transfusions but that stopped with rigorous ongoing screenings of the blood supply.  The propaganda that AIDS is a general threat served two ends:  1) To dispel the notion that it is a gay disease and thus defuse the opprobrium visited on that community; and 2) To promote sympathy to maximize fundraising for research.  Conveniently (for the activists), basketball star Magic Johnson’s revelation in 1991 that he was HIV positive lent celebrity cache to the cause, like Rock Hudson’s admission several years earlier.  Meanwhile, media distortions terrorized America as many feared contagion from ordinary relationships and almost anything else, including drinking from public fountains.


I take pride in smelling a rat about the AIDS hoax as early as 1984, one year before the Rock Hudson announcement.  I started questioning media reports when I noticed that blaring headlines warning that no one’s safe conflicted with the statistical tables and case profiles contained in the stories.  In fact, the media at large, and eventually some of the scientific community, perpetrated the biggest fraud on the public, save the ongoing propaganda about the threat of man-made climate change.  Absurd linear or even geometric extrapolations projected pandemic fatalities in contravention to the historical trajectories of disease in general which always tapered off over time. And manipulation of the official definition of AIDS created the impression that the disease was far more widespread than it was.  By my observation, only writers Norman Podhoretz and Michael Fumento counteracted the mass media propaganda in the 1980s.  And to my amazement, I encountered circa 1990 a refreshing contrarian article about the disease in a publication called “Street News” produced by homeless people and distributed by hand in the New York City subway cars.  Talk about alternative media to find the truth!


            After about ten years, the truth finally came out while even the gay community itself acknowledged the lies and propaganda.  And the Wall Street Journal led with the longest article in its history about untruthful AIDS reporting.  Michael Fumento and his highly explicit book “The Myth Of Heterosexual AIDS” were ignored for years, as dissenters were conspicuously absent from the countless TV programs about AIDS.  I remember that only well into the ‘90s, maybe later, Fumento was praised by conservative Dennis Prager on his TV show as “having done a service” for America.  Better late than never.


            The news anchors and innumerable network specials and cover stories avoided the evidence that AIDS emanated almost exclusively from male homosexuals and intravenous drug addicts.  Instead, the media forswore objectivity and truth to overzealously support the gay community.  In the process, the reporting created public angst which predictably translated into donations for research.  I think the false coverage of the AIDS crisis struck a serious blow to media credibility.  Some stories were outright lies while others lacked due diligence.  In any case, the media’s failed reporting should be a lesson to those who seek truth.  Today statistics show the original AIDS profile has not changed and the stark projections of the ‘80s never materialized, and not just because of new medicines.  But no apologies from the liberal media.  Eventually, the public realized it was duped. Some even question whether Magic Johnson is really HIV positive.


What’s the antidote?


            Conservatives can take solace in some remedies that combat corrupt liberal media involving communication and education.  Conservatives dominate talk radio, while certain C-Span programming provides in-depth contextual coverage that informs the arguments against the Left.  Although these tools are not new and not for everyone, substantially increased consumption of that media, in combination with an ongoing effort to improve conservative messaging and grassroots activism, would help the Right to better influence the electorate, even those pesky low information voters.  And beyond politics, a truly informed citizenry will more likely insist that the rule of law be upheld in defense of constitutional principles and a better quality of life in a meritocratic society.
©2013 William J. Dodwell

Racial Politics – Shrouding the Truth Exacerbates the Malaise

By William J. Dodwell    February 20, 2013

            On racial issues, the Left evokes a perverse altruism that ignores the real problems of the black community underlying its socio-economic experience.  To cover for a political constituency and major customer of big government, the body politic and liberal media eschew honest debate about racial conflict and genuine solutions while resorting to character assassination to discredit truthful analysis.  As such, reality is suppressed by intimidation, often in the form of express or implied charges of racism. Why not a candid discussion about racial strife and its societal impact, political correctness be damned?


The Problem


            While race by definition encompasses multiple groups, issues involving African Americans dominate this political debate as they have throughout much of our history.  For some time, the racial problem has centered primarily on disparities between blacks and non-blacks that flow from the following paradigm.  In a meritocratic society prosperity is largely predicated on intelligence, which enables education, which generally leads to employment and achievement relative to ability.  Other factors, such as upbringing, work ethic, personality, integrity, relationships, and even serendipity also come into play.  People succeed according to the degree to which they satisfy these criteria, although legitimate government provisions for the truly needy distinguish the meritocracy from the Darwinian model. (What constitutes “needy” is the eternal question.)  Successful economic life combines with adherence to a value system and individual moral compass that ensure social cohesion and assimilation.  Those who fail to meet the economic and social requisites lie outside the mainstream in an alienated and aggrieved state as society takes on a “have” vs. “have-not” dynamic.  The “have-not” group is disproportionately comprised of African Americans who as a whole constitute some 13% of the U.S. population.  Of course, countless individual exceptions fall within and without the deficit category as most blacks are fully assimilated and many non-blacks deviate from the norm.  And even some seemingly successful “haves” fail relative to their personal standards and aspirations.


            The question becomes “How do African Americans cope with their generally subordinated economic and social status, and how does the majority react to the often resultant aberrant activities and their impact on the general quality of life?”  To be sure, the marginalized minority succumbs to social pathologies to a degree that is highly incommensurate with the general population, thus complicating its relationship with the majority.  Crime, poverty, illiteracy, illegitimacy, chronic joblessness, drug abuse, fatherless homes and government subsistence conflict with the values of the larger society creating tensions that reinforce the relegation of the minority.  The institutional majority redresses crime through law enforcement and imprisonment.  But the pathologies also result in a social segregation founded on incompatibility with aberrational behavior and an achievement disparity, the analysis of which is almost politically verboten in public discourse.


Affirmative Action


The next question is “How do we resolve this dissonance between the minority and the majority?”  Liberals reject the traditional meritocratic model in favor of an egalitarian standard that largely advocates equality of outcome, not just equal opportunity, predicated on exaggerated claims of discrimination.  They ignore the realities of the problem and instead call for social programs and endless forbearance. They are quick to play the race card - anything to avoid the root causes of the alienation between the two groups.


Accordingly, liberals promote affirmative action and diversity as a solution inevitably resulting in reverse discrimination, other perversions of justice, and sometimes lower standards of performance.  Originally meant as a temporary palliative, affirmative action has become a permanent entitlement, although the Supreme Court is currently reviewing its constitutionality again in respect of college admissions.  So sacred is affirmative action that the various Congressional and other investigatory hearings about the financial crisis seemed to exempt it as a factor.  Panelists responding to their inquisitors refused to implicate the strengthened enforcement of the Community Reinvestment Act (CRA) of 1977 as contributory to the crisis for fear of invoking charges of racism.  CRA is the affirmative action legislation that undergirds federal affordable housing policy that justified and encouraged irresponsible subprime lending to largely minority communities resulting in the mortgage meltdown.  The subtext of the questioning directed to the predominately white panelists was, “You wouldn’t dare state for the record that the crisis was caused by loose lending to minorities and forever establish yourself as a racist would you?”  The inquisition was particularly intimidating when posed by participating black Congressmen peering down at them.  The fear on the respondents’ faces was palpable.  (See the C-Span archives.)  In fact, the official cause of the crisis established by the Financial Crisis Inquiry Commission (FCIC) downplayed the role of CRA in its final whitewashed report.  As a consequence, one member, Peter Wallison, was compelled to write his own separate dissenting opinion citing the failings of CRA in objection to both the majority and the minority opinions.


  Ironically, the specific language of the 1964 civil rights law does not support affirmative action.  But so inviolate is this policy politically that the courts uphold its legitimacy through expansive interpretations, including “disparate impact”.  This is the principle by which plaintiffs prosecute businesses merely for not hiring or lending to minorities in proportion to their representation in the immediate population.  Traditional credit criteria, such as credit history or the ability to repay, or the absence of any evidence of an intent to discriminate are not exculpatory.


Some liberals even promote diversity in a perfidious effort to balkanize America in retribution against the meritocracy.  Others support shakedown tactics predicated on bogus charges of racism that threaten to destroy reputations if demands are not met.  Affirmative action is implemented through government-influenced hiring and credit allocation.  For example, The Affordable Care Act (Obamacare) contains numerous diversity hiring provisions gratuitously inserted from the liberal redistributionist agenda.  One might speculate on how much affirmative action is forced on recipients of government bailout funds such as General Motors and AIG.  In fact, today GM sustains itself on subprime auto loans issued through its new captive finance company, GM Financial, at rates ranging from 15% to over 20%.  Like subprime mortgages of financial crisis fame, these loans are issued to low income, largely minority, buyers who are likely to default far in excess of average rates.  And speaking of subprime mortgages, today a nearly insolvent Federal Housing Authority (FHA) is picking up where Fannie and Freddie left off by insuring $1 trillion of mortgages largely to low income groups supported by only 3% down payments in continuation of discredited affordable housing policy.


To some extent affirmative action has identified highly talented minorities who might otherwise have been excluded.  That is to be applauded.  But it commonly accommodates deficiencies through lower standards and a “give away the store” attitude to bring the minority into the fold, particularly insulting to the qualified among them. This excess includes highly disproportionate, even exclusive, minority preference hiring for unskilled and low skilled jobs.  And, to be sure, affirmative action breeds some resentment among those in the majority who have to compete in the labor market to earn their keep.  


How’s this co-optation approach working out?  Despite over $10 trillion the federal government has spent on social welfare programs since the Great Society under President Johnson, the poverty rate among blacks is only marginally improved.  And, as mentioned, the overzealous government affordable housing policy aimed at expanding home ownership among minorities was the primary cause of the financial crisis.  What’s more, under the threat of regulatory and other reprisals in the enforcement of affirmative action, government has forced business to change the racial landscape such that entire low-skilled employment sectors constitute a minority underclass.  Witness retail clerks, bank tellers, hotel staff, train station clerks, security guards and corporate jobs not requiring a college degree.  Serious reverse discrimination results where seemingly non-blacks need not apply. (To some extent whites would not apply anyway until Caucasian representation reached a certain percentage of this population.)  Governments and businesses themselves extend the charade by requiring their suppliers, professional service providers, and others to comply with affirmative action benchmarks in order to secure contracts.  And in the process, everyone mindlessly touts the beauty of a “diverse workforce” dutifully reflected in racially contrived photos in corporate annual reports and websites.  In fact, corporations believe they have to play the diversity game to protect themselves from discrimination lawsuits.  Meanwhile, no one dares to demur as any overt resistance would result in firing individuals and ostracizing organizations.


 As a practical matter, one might argue that the majority has more employment options and therefore can afford to be shut out of lower level employment sectors through affirmative action policy.  And by reserving segments of the labor market for the otherwise unqualified, the minority is assimilated to the economic and social benefit of the whole.  The alternative would be massive unemployment among the underclass that could result in dangerous social unrest and costly government intervention.  Nevertheless, in the meantime, the seminal causes of the minority’s plight continue unabated and unmentionable.


But affirmative action can backfire, especially in a bad economy, as resentful white workers are shut out of acceptable jobs.  I witnessed a telling incident at a metropolitan train station during the Great Recession.  An angry white man (I think he said he was a college professor.), railed at the top of his lungs in the direction of the ticket windows all of which were occupied by black women and said, “My wife can’t get your job, and I’m a liberal Democrat!” 


            Isn’t it interesting that liberals have no problem with huge racial imbalances in the major college and professional sports?  This speaks to a separate agenda I’ll discuss in another commentary.


Excuses and Acquiescence


Liberals condone the anti-social behavior of the minority through a perverse tolerance founded on political correctness and institutionalized in government policy, court action and bias in media coverage.  To further assimilate the minority, the increasingly secular culture, perpetrated by liberal media, legitimizes aberrant behavior over disdained traditional values.  Liberals adopt an “If you can’t beat them, join them.” mentality, effectively defining deviance down rather than encouraging the majority standard.  Call it the Snoop Dog glorification syndrome. The relaxation of historical institutional restraint practiced in business, media, schools, courts, and even churches in respect of upholding traditional standards combines with declining individual discipline among affirmative action beneficiaries.  Thus, lower standards of performance, behavior and decency exacerbate the disparity reducing the quality of life for society at large.  Does lowering the bar help the minority join the majority?  The answer is met with deafening reticence among the majority and in the media.


Black leaders fail to condemn the seemingly increasing depravity of the gang bangers in the inner cities.  Instead, they fault poor relations with the police when they should support serious confrontation with the offenders.  The black community itself promotes an “anti-snitch” culture that undermines crime deterrence through law enforcement.  The Left blames poverty and discrimination imposed from without rather than personal failure to meet the majority standard.  It claims discrimination simply on the basis of color.  If that were true, why aren’t Asians a problematic population in America? 


The liberal establishment ignores pandemic inner city shootings, teenage “flash mobs”, and the racial profiles of police blotters and prison populations largely flowing from the chronic breakdown of the black family.  The press systematically minimizes this criminal activity by slyly juxtaposing offsetting photos and stories featuring white criminals, or black heroes to avoid a perception of bias.  Some media companies even require a certain percentage of photos in their publications to feature black people.  And media give too much attention to well known race hustlers, while mocking black conservative role models, such as Herman Cain, Allen West, Thomas Sowell, Clarence Thomas, and Dr. Benjamin Carson.  In addition, corporations dreadfully afraid of reputational damage are too quick to capitulate to extortion by shakedown artists like Jesse Jackson. 


The media also practice a double standard in under reporting black on white crime.  Witness the case of the Virginia Pilot newspaper failing to report up to thirty blacks accosting two of its own journalists.  Purportedly the mayor’s re-election bid, tourism and a pending community development project were restraining factors. But would those considerations have mattered if the assault were white on black?  Meanwhile, political correctness silences the majority.


            Likewise, Attorney General Eric Holder refuses to prosecute black on white crime as a matter of policy, according to J. Christian Adams, a former Department of Justice Attorney who worked for him.  A case in point is a seemingly open and shut voter intimidation case in Philadelphia against a New Black Panther caught in the act on video during the 2008 election.  Outrageous!  But it got precious little media coverage.  And Holder kept his job.


            In an apparent pragmatic nod to political correctness, Charles Murray, the prominent sociologist, decided to omit the African American population from analysis in his latest book, “Coming Apart”, for fear of fostering racial stereotypes.  The work depicts a statistical analysis of two divergent societal profiles predicated on the respective rejection and embracement of traditional civic values of family, education and hard work, but only in the white population.  Once burned, once shy, he was roundly criticized for conclusions expressed in his 1994 book, “The Bell Curve” which addressed racial differences in intelligence and their relative impact on life’s outcomes.  Similarly, Daniel Patrick Moynihan discontinued his well known 1965 lamentation of fatherless homes among blacks in the face of politically correct opprobrium.


            Meanwhile, many Republicans disarm themselves in refusing to pursue certain issues for fear of appearing racist, be it welfare, food stamps, stop and frisk, voter ID, border security, or even Obama himself.  Just what the liberals want.  John McCain displayed this diffidence in the 2008 presidential campaign against Barak Obama.  And in the 2012 campaign Romney’s offensive was suspiciously lacking.  Self-muzzled Republicans expressed scant opposition to Obama flouting the Constitution through his many executive orders and agency mandates.  Where’s the outrage?  (But kudos to Mark Levin.)


Why mention these uncomfortable truths?  Because tolerance has gone too far, to the point where the minority diminishes the majority.  Rather than accommodate the aberrational by looking the other way, we need to break the silence and identify the problem squarely by repeatedly specifying in the media the empirical realities, i.e., disproportionate crime and other social pathologies among the minority. Those ills cause poverty, discrimination and alienation, not so much the other way around.  We must convince the minority, and society at large, that the maladies have to be redressed in order to achieve true assimilation.  Bill Cosby has spoken up in this regard.  The African American community itself should promote personal responsibility among its own and vociferously condemn deviant behavior.


The excuses must stop.  The majority must be judgmental, as dirty a word that is to liberals, in denouncing aberrant values and activities of the minority.  Reticence no more.  Government must establish solid deterrents through stronger, not weaker, law enforcement as accommodation discourages behavioral change.  The minority should be encouraged from within and without, with the help of the media, to curtail its excesses, to wean itself off government dependency, and embrace education as a pathway to prosperity, rather than celebrate only careers in sports and entertainment.  This collective effort will foster the assimilation process.  Of course, mainstreaming the minority is easier said than done, but effecting the solution starts with its universal recognition.  The more the liberals accommodate the problem, the more intractable it becomes to the resentful majority, exacerbating the polarity.  If we don’t face the real problem we can’t expect a real solution.


Racial Profiling


            But we’re going in the opposite direction.  For example, in New York City a successful police stop-and-frisk policy has been restricted because of charges of racial profiling, even though a study cited by police commissioner Ray Kelly establishes that 96% of shootings in New York involve blacks and Latinos.  Not surprisingly, within a week a young gun-carrying miscreant turned loose under the new standard committed murder with his weapon.  Racial profiling is necessary in the pursuit of criminals.  In the rational world of empirical evidence and the law of probability, we know terrorists are probably Muslims; we know southern border criminals are probably Mexicans; and we know inner city thugs are probably black.  As the old adage goes, if it looks like a duck, if it quacks like a duck, it’s a duck. 


We must not sacrifice reason at the alter of political correctness.  Why wouldn’t a non-black walk down 125th Street in Harlem at 3 am?  Because he thinks it’s a so-called “bad neighborhood”.  What does that mean?  Not enough museums?  Too many tourists?  Could there be a racial connotation to this popular euphemism?  Is this prejudice? Racism?  No, just common sense.  The liberal black journalist, Juan Williams, said as much when he confessed he is nervous when he sees a man dressed in Muslim attire on an airplane.  NPR fired him for his candor.


Racial profiling is grounded in legitimate patterns of experience.  As such, it is an eminently appropriate response to a potential threat.  In the process, some innocents might be inconvenienced until the minority assimilates with the majority with respect to crime.  If the black community wants to avoid profiling it should stop committing crime.  Ditto for Latinos along the southern border and elsewhere.


A Black Messiah Is No Substitute for Values


The media play a major role in compounding racial mistruths.  Who can ignore the fawning coverage of Barak Obama since he emerged as a presidential candidate and the utter refusal to expose his background and criticize his policies?  Consequently, he was elected and re-elected largely because of his race in the naïve hope of defusing racial division through a dubious role model and promoting the assimilation of African Americans in a “post-racial society”.  But electing Obama the first affirmative action president has not helped to resolve the real problem of race in America.  The solution starts at home in promoting the value system of the majority.


Generally, the “have nots” lack the qualities to compete in a meritocracy for their piece of the pie as they would define it.  Indeed, excepting provisions for the truly needy, it is not society’s responsibility to render it.  To assimilate they must earn it to the extent they can through talent, education and hard work, or settle for a smaller piece and perhaps a certain separation from the better off.  This principle applies at all levels of the socio-economic hierarchy.  Unfortunately, President Obama and his liberal allies do not believe this.  Rather, they are dedicated to perversely leveling the playing field by redistributing wealth through taxation, spending and executive mandate to the severe detriment of national prosperity and comity.
©2013    William J. Dodwell

Environmentalist Quackery  


By William J. Dodwell    April 4, 2013


The Left tries to convince the world that the earth and its inhabitants are threatened by the effects of man-made pollutants on climate.  The goal is to garner global support for bogus corrective programs aimed at diverting capital from rich nations to poor nations, and from individuals and businesses to government and special interests in typical Marxist fashion.  Regulation, taxation, intimidation, and propaganda perpetrated by the liberal media, and even corporate America, are the means by which government and its minions advance the hoax. 


Climate has changed throughout world history as part of an ongoing process of natural transformation.  But I believe very little, if any, climate change can be attributed to human activities.  In any case, there is nothing man can do to prevent it.  Efforts to substitute alternative energy for fossil fuels are shear fantasy that result in government  boondoggles and punitiveness that benefit researchers, certain manufacturers, politicians and, of course, lawyers.  Unfortunately, flagrant propaganda imbues the public consciousness with a steady drumbeat of environmentalist grievance that can easily influence unthinking minds in this age of the low information voter.  Meanwhile, critical opinion about climate change is largely ignored in the mass media.  The terms “settled science” and “accepted science” increasingly pervade the reporting as critics are dismissed as “climate deniers”.


New language


The language has evolved from global warming to climate change, to the absurd euphemism “sustainability”.  By my theory, the Left adopted the latter term in recent years to avoid overt environmental references which have become discredited as they increasingly induce public eye-rolling.  The bastardized word sustainability is used subliminally without ever defining it in order to promote unspoken environmental considerations by conflating them with parallel interests. 


For example, in 2011 I attended a national conference of senior financial executives at which the President of a Fortune 100 company spoke on sustainability.  One theme centered on recycling as a means to improve profit margins.  Advocates used to urge recycling to save the environment.  But in this presentation the environment was mentioned only in veiled references.  This way propagandists promote the desired outcome in association with a different motive.  Recycling for profit is more compelling than recycling to save the environment.  But the act of recycling, regardless of purpose, nevertheless lends credence to the environmentalist message traditionally linked to it.  But it didn’t stop there.  The speaker went on to say that he holds his many suppliers accountable for green practices, “or they won’t be suppliers for very long.”  Like the diversity game, corporations under pressure from government, large customers and shareholder activist regarding regulation or contracts impose environmentalism among themselves.  Interestingly, the executive said that just five years prior the company was an environmental adversary.  I wonder what carrot or stick was behind the conversion.


Today, advocates also seek support by invoking global warming or climate change irrespective of whether it derives from man-made causes.  Since few question global temperature fluctuation throughout history, environmentalists try to attract supporters simply on the basis of climate change itself.  But of course, the issue is whether current temperature extremes are attributable to human technological activities of the last couple of centuries. The tactic today is to remain silent regarding that premise while first luring those who agree on the basis of the first premise, i.e., that climate change occurs.  From there it’s just a matter of time before a good percentage of them will believe it flows from man-made agents as the media beat goes on.


The ploy is particularly transparent during an acute condition, such as extremely high or low temperatures.  For example, a scientist appeared on a cable news program during a period of record heat in some regions of the country.  His purpose was to attract support for investment in improving the electric grid and developing emergency energy reserves, including wind and solar sources, in order to be prepared for power outages that result from record heat.  (To be fair, he said he is also open to nuclear energy.)  Ironically, the EPA has imposed anti-pollutant mandates on coal-fired power plants that seriously threaten the reliability of the national grid.  


The propaganda is quite insidious.  After getting people’s attention on global warming when it’s 109 degrees, he segues, not to the traditional argument about controlling man-made causes, but to a government funding solution which happens to encompass alternative energy development.  Effectively, he says if we can’t sell global warming to get, say, cap and trade, we’ll accept it as a given and sell it as a justification for more government spending on traditional energy infrastructure, and by convenient extension, chimerical alternatives.  It’s an attempt to maximize support for the climate change agenda by appealing to both sides of the debate.


Government and industry pile on


Meanwhile, law, accounting and consulting firms establish sustainability practices to capitalize on litigation opportunities and demand for carbon footprint measurement and possible cap and trade management.  In addition, the SEC has enacted sustainability accounting called “natural capital accounting” requiring publicly traded corporations to consider natural assets in their decision making and disclose the environmental impact of operations in their financial statements.


            The EPA, especially under the Obama administration, issues imperious mandates to circumvent what cannot be achieved legislatively.  Its goal is to expand government power and restrict private sector interests that compete with that empowerment.   In 2012 a top EPA official, Al Armendariz, resigned when challenged in the conservative media about likening his enforcement tactics against corporations to “crucifixion”.  Individuals are targeted too.  For example, because of a trumped up wetland violation, a couple was fined $35,000 a day forcing them to sell their home and other assets and move into a trailer. This after having satisfied a citation from the Army Corps of Engineers for rectifying the problem.  EPA regulation is cited as a major obstacle to economic recovery, particularly in respect of the Keystone pipeline proposal and other oil and gas initiatives.  This fascist outfit has to be stopped. 


The “cash for clunkers” program designed to stimulate economic recovery by boosting new car sales was predicated on the environmental interest in eliminating fuel inefficient older cars.  Instead, the auto destruction created shortages that substantially elevated prices in the used car market, the mainstay of lower income car buyers.  The program simply accelerated new car purchases shifting them from future sales without any sustained economic benefit, while wasting a few billion taxpayer dollars.  I suppose the EPA takes dubious credit for lowering carbon emissions a few units.




The propaganda images abound: a stranded polar bear clinging to a melting ice cap; wildlife contaminated by oil spills; and Al Gore’s apocalyptic Oscar winning documentary.  In fact, polar bears can swim 150 miles.  And the sea replenishes itself from oil spills rather quickly.  To wit, not long after capping the leak from the Deepwater Horizon accident in the Gulf of Mexico scarcely a trace of spent petroleum could be found.  Moreover, the effects of the Kuwait oil fires ordered by Sadam Hussein in 1991 which burned almost 2 billion barrels of petroleum were relatively short lived.  In addition, Al Gore’s “Inconvenient Truth” was declared by experts to contain nine material misrepresentations.  In fact, the earth has endured infinitely more stress from volcanic eruptions alone over billions of years than any pollution man has produced since the advent of the industrial revolution some 200 years ago.  And by the way, the earth’s surface temperatures have not changed in the last 15 years.  A most inconvenient truth.


            But the tide is turning.  The environmentalists suffered a major blow to their credibility when intercepted e-mail exchanges of climate change academics at East Anglia University in the UK were exposed in November 2009.  These communications revealed deliberate efforts to fabricate research results and defame and banish scientists who challenged the orthodoxy.  The very next month a global environmental summit in Copenhagen failed to inspire any serious commitment to the agenda.  And cap and trade legislation failed to pass in the Senate in July 2010 rendering it a dead letter every since.


            We must speak up.  Environmental extremism calls for vociferous grass roots opposition and exposure in conservative media.  Most importantly, elected officials have to be held accountable at the ballot box.


                                                                    ©2013 William J. Dodwell


Symbiosis Among Government, Special Interests and Lawyers Promotes Self-Interest Over Public Interest

By William J. Dodwell     May 30, 2013

The latest abuse of power demonstrated by the Obama administration in the execution and stonewalling of the IRS, Benghazi and Associated Press scandals is a reminder of how intrusive and dishonest government can be. To be sure, the self-interest and arrogance displayed in those events extend to many other areas of the bureaucracy to the detriment of the public interest expected to be upheld in a democratic republic.

For example, institutionalized machinations have long tainted the policymaking process that can undermine constitutional freedoms and the quality of life. Specifically, government tries to constantly expand through a reprehensible quid pro quo with special interests and the plaintiff’s bar. Congress creates laws establishing tax preferences and budget expenditures that provide valuable savings and lucrative contracts for special interests and their lobbyists. Sometimes amendments are surreptitiously inserted in a bill in the dead of night to bypass any opposition. Then the executive branch exercises its discretion in favoring certain recipients in the disbursement of funds appropriated. The new law also engenders litigation opportunities for lawyers in the event of adjudication when violations are alleged. In addition, the law may raise extra revenue for government through surtaxes, fees, penalties and legal settlements. In return for the accommodations, special interests and lawyers raise campaign donations for their benefactors in Congress and the White House, further empowering themselves through reelection. What’s more, the new law over time may be reinforced by political correctness fostered by sympathetic media which silences opposition, setting the stage for more government control.

While hardly a new revelation, this self-serving legislative and spending dynamic is particularly poignant in view of today’s imperial leftist administration. Notable are Saul Alinsky tactics involving the flouting of the U.S. Constitution, unholy alliances with labor and environmentalists, and the packing the court with sympathetic appointees who thwart challenges to executive branch overreach. While Congress passes laws the President controls the rulemaking process for enforcing them through the power of his agencies. Indeed, the growth-stifling regulation of the Obama administration and the power of executive order and executive privilege allow ample opportunity to insidiously advance the liberal agenda at the expense of the rule of law, individual freedom and general prosperity.
Also of note is the coziness of state attorneys general and the plaintiff's bar. AGs pay outside law firms lucrative contingency fees to prosecute cases in exchange for direct and indirect campaign donations. The contingency fee motivates lawyers to engage in overly punitive prosecution that maximizes their compensation. This self-interest conflicts with the AG's ethical obligation to the public interest, as excessive damages can unduly threaten the very existence of corporate defendants that hire employees, support suppliers and serve market needs.

Two of many established examples of government self-interest exercised in concert with lawyers and special interests concern tobacco and animal rights legislation, enforcement and prosecution. Both issues seem benign on their face, but they clandestinely promote interventionist government and loom large in the public consciousness from having taken on politically correct status. As such, the Left’s Machiavellian methods applied today in health care, immigration, carbon emissions, financial services, energy development and other issues amid an imperious presidency call for intense vigilance and exposure from without. Herewith, two models designed to expand government and enrich lawyers that demonstrate the potential for widespread abuse in a corrupt ideologically driven government.

A particularly transparent hypocrisy of government is its prosecution of the tobacco industry while refusing to ban the product it so adamantly purports to threaten public health. A look at the evolution of the anti-tobacco movement to a near hysteria begs the question why it didn’t culminate in prohibition. The reason: government self-interest.

Government mandated the first Surgeon General’s warning on cigarette packs in 1964 once a suspected link to cancer was established. At that time, it acted seemingly out of genuine concern for public safety. But later, when that link was deemed definitively causative, government saw opportunities for enrichment through federal and state lawsuits against tobacco companies. This prosecution ultimately resulted in a 1998 Master Settlement Agreement between the tobacco industry and all 50 states that earned governments hundreds of billions of dollars in compensation over 25 years.

The settlement was founded on evidence that tobacco companies concealed the product’s addictive qualities (as if they weren’t obvious). The agreement sought to compensate governments for smoking-related health care costs incurred through Medicare, Medicaid and its employee claims. In addition, the tobacco companies agreed to restrict product advertising including a ban against cartoon characters, such as Joe Camel which, according to the prosecution, promoted an appeal for tobacco among children. (Were concurrent MetLife ads featuring Snoopy aimed at getting minors to buy insurance?) Companies also agreed to promote a public interest campaign about the health risks of tobacco, while paradoxically marketing product at the same time. The tobacco industry had to play ball with the governments to avoid countless and endless lawsuits that would create debilitating uncertainty to the ultimate detriment of tobacco stock prices.

The authoritarian posture of government in the prosecution of the tobacco industry invokes the image of Big Brother and the nanny state, just like the overabundance of handicapped parking spaces mandated by the Americans For Disabilities Act remind us of who is boss. And, of course, government enjoys continuous and increasing revenues from taxes collected on cigarette sales at the federal, state and local levels. (An unintended consequence has been the proliferation of tax-free bootleg sales that fund terrorist activities, as well as enrich tax-exempt Native American tribes.)

Today, through ongoing federal, state and local regulation, government further intrudes on individual freedoms in the effort to demonize smoking by banning it in most public places, and even in private homes in some areas, in the guise of protecting the public against the dubious threat of second hand smoke. In the process, government augments its control over the industry further positioning itself for yet more general regulation and taxation in the Big Brother image. Interestingly, Russia’s Vladimir Putin recently signed legislation banning smoking in public places and the advertisement of tobacco products. Perhaps he’s impressed with the totalitarian utility of such power in the U.S. In addition, the media denounce tobacco in their long contretemps with corporate America and in common cause with government. But the liberal plaintiffs’ bar is also behind the media attacks. Its aim is to brainwash potential jury pools that decide ongoing private tobacco cases involving class action lawsuits filed on behalf of individuals and families. The trial lawyers hope that many potential jurors witnessing extensive tobacco restrictions all around them and constant tobacco vilification in the media, perceive a menace that likely precludes sympathy for defendants. This, of course, sets the stage for large settlements payable to plaintiffs and their lawyers.

Yet, despite widespread denunciation of tobacco in its prosecution, taxation and regulation, government and its allies in the media have never suggested the product be banned. Might that restraint be a nod to smokers’ rights? Not likely. To relinquish the rich judicial awards and the ever increasing tax revenue by killing the golden goose contravenes the real interest – money and control through a symbiosis of government and lawyers. The health and economic considerations are ancillary. If tobacco were as serious a hazard as claimed, government would call for prohibition, which would of course doom the cash settlements as tobacco firms go out of business. But the trial lawyers will ensure that doesn’t happen. In fact, it is only a matter of time before government similarly litigates food companies citing the dangers of sugar, salt, fat and other diet components. No doubt, the lawyers are salivating.

New York City’s Mayor Bloomberg has started that ball in motion with his restrictions on soda and salt consumption in public eating establishments. On what grounds is government justified in dictating diet, regardless of the health and economic merits? And where does the slippery slope end as personal freedoms erode?

Ironically, liberals condemn tobacco but support marijuana use, so how much do they really care about public health? Perhaps marijuana gets a pass because it is not an organizational cash cow subject to fleecing through taxation and litigation. No doubt, some big government advocates hope to legalize marijuana so it can be corporatized and sued like the deep-pocket tobacco companies to the benefit of the almighty state and its lawyers.

Animal Rights

In recent decades legislation has elevated the stature of animals, seemingly likening them to humans in some quarters. At bottom is government’s desire to extend the existing body of human rights law to the animal kingdom to further empower itself through authoritarian dictate, and create new litigation opportunities for trial lawyers in exchange for campaign donations. Like the rest of the liberal agenda, government creates and enforces the legislation, while sympathetic courts levy harsh sentences and fines in the adjudication as the law unduly places citizens and businesses in legal jeopardy. Animal rights protections for pets and wildlife overlap environmental laws safeguarding endangered species purportedly integral to the ecosystem, such as the snail darter. In fact, animal rights may very well have derived from pre-existing environmental laws in an act of scope creep that contributes to the expansion of government and the enrichment of lawyers at the expense of individual freedom.

Meanwhile, the media, in sympathy with government, are all too willing to promote the cause. TV programs portray even potential transgressions against animals as an atrocity met with feigned indignation and exaggerated compassion. I recall one cable TV program in which an elephant in captivity went wild seriously threatening the lives of those in attendance. Failing to control the beast the lead handler decided to use gun fire to which the TV producer expressed in horror, “You’re going to kill the animal?” Whenever it appears human activity presented in documentaries and other features might threaten animals, the narrator assures the viewer that, God forbid, they are not harmed in any way. Such is the propaganda.

A TV reality show about survival in the wilderness featured a predictable lament over killing an elk for food where one starving adventurer refused to eat it on moral grounds. In the event of a colleague’s death, I suppose cannibalism is a better alternative. So much for the “reality” in reality shows. For a period, Hollywood seemed preoccupied with movies featuring animals that wreaked of animal rights promotion. And media coverage of the Michael Vick dog fighting story was nothing less than sensationalist proselytizing for animal rights. The media objective in all of this is to subliminally promote sensitivity to ultimately soften the public to political efforts to further legislate and adjudicate on behalf of the animal rights agenda, again, to the benefit of government and lawyers. In addition, the propaganda fosters a public mindset amenable to government control and the general liberal agenda.

Another anecdote illustrating the charade. A supermarket in my area harbored a bird’s nest in the store sign right over the entrance for well over a year. On inquiring, the manager told me he wanted to remove it but was rebuffed by local environmentalists and media coverage of the story. Meanwhile, who knows how much vermin from that nest might have contaminated food inside. I wonder if the health inspector had a say. In any case, it’s an offputting sight for customers entering to buy groceries. Someone eventually dislodged the nest but a piece still remains dangling overhead, suggesting the removal was not official.

Also supporting the madness are animal lovers in extremis who truly value God’s creatures more than their fellow man, especially their pets. This hypersentimentality seems to apply especially to women as perhaps an extension of the maternal instinct. These zealots constitute a liberal voting block when animal rights are in the forefront, so it pays to hype related stories. Consider the Democratic ploy during the 2012 election surrounding Romney having transported his dog on the top of his car on his way to vacation some years before. Furthermore, many donors to People for the Ethical Treatment of Animals (PETA) and the local Societies for the Prevention of Cruelty to Animals (SPCAs) are not aware of reports that a vast majority of rescued animals are killed rather than sheltered or adopted. The media do not seem to cover this politically inconvenient truth very aggressively.

At some level animals deserve protection. No reasonable person condones wanton abuse, and a certain ecological consideration sometimes may be valid on the environmental side. Nevertheless, animals serve at the pleasure of man, be it for food, utility, sport or sartorial luxury. After all, we are at the top of the food chain. What about insect rights? Where is the line drawn and why? Animals are not deserving of equal protection under the law where prosecution of citizens and businesses results in monetary damages or incarceration, sometimes more punitive than for crimes against humans. Nevertheless, for government and lawyers the band plays on.

Beware of government

Limited government powers as enumerated by the U.S. Constitution are benign and necessary. But tobacco and animal rights legislation, enforcement and prosecution exemplify a predisposition for expansive government through its symbiosis with special interests and lawyers facilitated by a sympathetic media. Indeed, overreaching government writ large poses a threat to individual freedom that can be difficult to reverse. Today, this longstanding institutional insider bias imbedded in the legislative process combines with a corrupt leftist presidency that compounds that menace.

Witness: the corporate green projects designed to generate kickbacks in the form of Obama campaign donations; the refusal to enforce immigration laws; the accommodations to labor unions through the economic stimulus; the illegal NLRB appointments and disenfranchisement of General Motors bondholders; environmental policy destroying small businesses while enriching lawyers; and, of course, the IRS actions against conservatives, among many other injustices. In addition, let's not forget government's role in causing the financial crisis by forcing banks to lend to unqualified minorities under the Community Reinvestment Act, an accommodation that continues today through Fannie Mae, Freddie Mac and the FHA. These abuses demand a wary citizenry because they show the general public interest is not always government's first priority, especially when the Left is in power. Growing government hegemony and its facilitation through incestuous special interest dealings, a disregard for the rule of law, and the promotion of the politically correct canon must be challenged in all quarters. Our liberty is at stake.

Unchecked by an animated and informed electorate, excessive government power, like spending baselines, could grow and entrench itself in perpetuity. Conservative activists have their work cut out for them.
©2013 William J. Dodwell 

Keeping Conservatives Honest


By William J. Dodwell    October 16, 2013


The Comprehensive Conservative demands intellectual honesty in public discourse.  This means objecting to disingenuous characterizations of liberals through hyperbole, distortion, and omission.  While the Left does this all the time, two wrongs don’t make a right.  Conservatives must uphold truth to ensure the credibility, indeed superiority, of their criticisms and trumpet the genuine failures of the liberal establishment.  As such, I present examples of conservative mistruths about liberal policies and utterances in the interest of objectivity and sound argumentation in the pursuit of truth and the defeat of liberalism.


The public debt


·         Carping about our dependence on foreigners, especially the Chinese, in financing our debt exaggerates reality since those investors have no better alternative, at least in the long term.  For years the sky was to fall regarding reliance on Japanese investment but doomsday never materialized.  Besides the backing of the inviolable full faith and credit of the U.S. government, U.S. treasuries have the advantage of being denominated in the world’s reserve currency, and also attract investors because they are the most liquid securities in the world.  As a consequence, they enjoy safe-haven status in times of turmoil, even after the 2011 downgrade.  But there is a limit.  The national debt is on an unsustainable trajectory that will eventually erase those benefits.


·         Many conservatives join liberals in raising the specter of default during debt ceiling negotiations.  Given monthly tax revenues, this cannot happen as long as debt service takes precedence over all other spending.  The same is true for Social Security, Medicare and Medicaid payments.  Only if President Obama refuses to assign priority could default become imminent.  This will not transpire because the world’s opprobrium would rest squarely on him, not Congress.  However, in the long run the actuarial reality of the current rate of debt growth does pose a threat to the nation’s solvency.


The Affordable Care Act


·         Criticism about the health care “subsidy” afforded members of Congress is not justified.  This government payment does not mean they are exempt from the Affordable Care Act as many conservatives claim.  (They say “Congress should live under the laws they pass.”)  Rather, the subsidy represents the 72% of their health care premium the federal government has always paid, just as private employers subsidize employee premiums.  In this case, the federal government is analogous to the private employer.  Now members of Congress are required to purchase insurance on the exchanges fully subject to the provisions of Obamacare but they continue to get a 72% employer premium subsidy.  This is not an exemption.  Without the allowance, they would unfairly incur a significant reduction in compensation.  Senator Dick Durban (D-IL) properly challenged Ted Cruz on this point during his filibuster as have other Democrats.


·         To a point, the initial difficulty in implementing the ACA is understandable in view of the scale and complexity of the project.  Criticizing the policy is one thing, but harping on the logistics is another.  And to be fair, the flawed execution is led by private contractors.  However, the failure to anticipate the problems in the three-year rollout process is a management failure for which government is ultimately responsible.  The Obama administration decided to go live knowing the system was not ready rather than allow a delay that would risk growing political resistance that could result in the program dying on the vine.  This is why the Democrats reject the Republican proposal for a one year delay of the individual mandate which funds the program.  Some critics suggest the implementation glitches are deliberate in order to postpone the public’s awareness of the growing unpopular realities of the law, including hugely higher premiums, deductibles, and co-pays.


·         Moaning about “death panels” should be tempered.  As long as government, i.e. taxpayers, finances public health care, triage involving economic judgments is inevitable.  For example, this means a 95 year old must be denied expensive cancer treatment, as is already understandably the case with Medicare.  People have to face natural death.  Private insurance or out-of-pocket funding are options for those who can afford to pay, but others in the circumstance have to rely on Obama’s proverbial pill and accept the end.  Public funds must be allocated efficiently in the national interest.  However, drawing the line at say, 60, is another matter that certainly argues against Obamacare.


Feigned indignation during the 2012 campaign


  • Few political candidates became so utterly isolated as conservative Senator Todd Aiken (R-MI) when he awkwardly explained in an interview his position about abortion vis a vis rape.  He referred to conception resulting from what he called “legitimate rape” that is experienced forcibly, versus that from uncontrollable spontaneous sex that may happen, say, during a one night stand.  He said that in legitimate rape the reproductive system shuts down from the duress rendering abortion moot, unlike the other case.  But notwithstanding the poor word selection which Aiken himself regrets, and the inaccuracy of his medical supposition, the media interpreted the distinction as legal vs. non-legal rape suggesting that some rape is tolerable.  Of course, this is not what Aiken meant at all but even fellow conservatives dissociated themselves from him for fear of appearing unsympathetic to women.  As a practical matter, perhaps they had to abandon him because the political backlash in the media amid the contrived “war on women” might have been insurmountable.  But the conservative reaction to his comments was phony as an $8 bill.  Really, how shocked are you?  Here’s a case where requisite faux outrage derails the prospect of a much needed conservative in the Senate who was way ahead in the polls.  Couldn’t this have been avoided?  We can be sure liberals will try to create more scenarios like this in the future.


  • Similarly, Republican Senate hopeful Richard Murdock in responding to a question about rape and abortion said that life even in rape is “God’s will”.  Well, isn’t it?  Nevertheless, the media reported the remark as demeaning to women and, again, even conservatives jumped on the bandwagon, forsaking another promising Senate prospect.  Even though the comment was true and inherently innocuous, conservatives ran for the hills in fear of the political fallout.  Conservatives have to learn to fight banalities advanced by the opposition with reason, effectively communicated.  To be sure, that’s pretty difficult in a nation of corrupt media and low information voters.


  • One of the most odious figures in the liberal pantheon, comedian Bill Maher, was actually right in his interpretation of journalist Hillary Rosen’s ambiguous comment about Ann Romney never having really worked, which Republicans and conservatives tried to exploit.  Rosen didn’t mean to dismiss Ms. Romney’s noble family and charitable activities.  She simply suggested that ordinary voters might not relate to her by pointing out an obviously privileged life with Mitt which factually did not include traditional employment.     


  • Republicans responded to the Democratic allegation that Romney forcibly cut a classmate’s hair in high school by citing Obama’s confession in his autobiography, “Dreams Of My Father”, that he pushed a girl while on the playground as a small child.  This is false equivalency.  Obama’s act does not impugn adult personal character as the charge against Romney might if it were true.  Obama’s behavior was typical for a child while Romney’s was not necessarily typical for an adolescent.


The 2008 financial crisis


  • In knee-jerk fashion, conservatives invoke a traditional non-intervention principle with respect to the government bailout of financial institutions during the 2008 crisis.  While pure conservatism rejects government interference in corporate affairs, this calamity was different.  The scale of the losses from impaired mortgage-backed securities held by financial institutions and the potential contagion inherent in the vast network of counterparty relationships among them would have collapsed the entire banking system like a house of cards without government assistance.  And the real economy would have suffered severely.  In fact, Treasury Secretary Paulson said unemployment would have been 30% or more.  There had to be an exception to the conservative rule.  Conservatives refuse to concede this because they, like almost everyone outside the financial field, do not understand the workings of financial institutions.  However, in keeping with conservative principle, the government should not have bailed out General Motors.


  • Conservatives wrongly exonerate Wall Street for its role in the 2008 financial crisis.  Certainly, the federal government was the primary culprit in the disaster as it forced banks to lower lending standards in the name of the Community Reinvestment Act in order to expand homeownership for minorities.  In addition, the Department of Housing and Urban Development (HUD), principally under President Clinton, coerced Fannie Mae and Freddie Mac to purchase from banks those lower quality mortgages which collateralized the government-guaranteed mortgage-backed securities the GSEs issued to investors.  Banks were incentivized to cooperate with the policy by the ongoing servicing fees they earned from the mortgages they sold to Fannie and Freddie.  This ultimately resulted in taxpayers bearing some $150 billion of losses from defaulted agency mortgage securities.  However, Wall Street was not blameless.  Banks capitalized on the dramatic rise in government mandated loan volume by also securitizing for profit the low quality mortgages they originated or purchased, thus transferring the default risk to investors throughout the world.  Those investors, including the banks themselves, readily bought the mortgage securities because they unwittingly relied on dishonest credit ratings assigned by the Wall Street rating agencies.  Those agencies were motivated to compromise standards by lucrative fees earned from the huge volume of new issuances predicated on the enforcement of liberalized government affordable housing policy.  Only banks originating the weak loans or pledging them as collateral for mortgage-backed securities they issued were aware of the real credit risk.  The other banks, like all investors, relied on the rating agencies when buying the mortgage securities.  To some extent, Wall Street was duping itself.


Embracing the military


  • Conservatives traditionally ingratiate themselves to the military, warts and all.  While a strong defense is one of their basic tenets, they seem too quick to gloss over apparent problems.  We saw that in a volunteer Army in which less than 1% of Americans participate, recruiting was difficult during the wars in Iraq and Afghanistan.  Many soldiers had to serve unprecedented multiple tours of combat duty, and some were even recruited from prisons. And I submit the questionably high representation of white soldiers appearing in media videos and photos seems like a possible racial contrivance to make the military more attractive to potential recruits and the public.  What’s more, the high rates of suicide and homelessness among returnees, even given the state of the economy, calls into question the stability of many recruits in the first place.  (This is similar to the priest problem in the Catholic Church.)  In addition, political correctness (which conservatives do denounce) in today’s military regarding gender and race is reprehensible.  Some of the instinctive support for the military by politicians is out of guilt, feigned or otherwise, over the ill treatment of returning Viet Nam veterans for many years.  This is especially true in light of today’s reliance on the military to protect more strategically important areas, i.e., Mideast oil supplies and the state of Israel.  We’ve been told we have the strongest military ever.  Do we really?  The sensitivity of revealing the vulnerability of the military is understandable but too much concealment could doom us.  Should compulsory conscription be revived?  Yes, many drafted Vietnam returnees faced turbulence, but that was because they were largely shunned on account of the unpopularity of the war, and an inordinate number had succumbed to drug abuse.  Full disclosure:  As a Viet Nam veteran, I did not personally experience the backlash that I know of, but many did.  Nevertheless, like conservatives in Hollywood, I was long apprehensive about potential surreptitious retribution, especially in the employment market.  Consequently, I removed the military reference from my resume early on and remained discreet about the experience ever since.  In any case, appropriate mental, emotional and behavioral standards for recruits must be upheld.  Conservatives should be at the ready to call the military on signs of weakness to ensure a strong national defense – if indeed there is a problem.


  • Conservatives promote for political advantage a public sentimentality about the military that renders it sacrosanct. This is particularly evident from the outcries during the current government shutdown over the World War II veterans memorial and the elimination of the death benefit for families of soldiers killed in action.  Suspending those services out of political motivation is unconscionable, but one gets a sense of doth protest too much.  To some extent fawning over the military is grandstanding as a substitute for not having served.  “Thank you for your service.”, although well-intentioned, has become hackneyed and almost embarrassing.  The pursuit of truth requires objectivity.  That can suffer if feelings and substance are out of balance.  As such, that sentiment can lead to a perverse tolerance that can undermine performance.  It’s like the weary fireman to the obsequious newsman at the World Trade Center in the immediate wake of the 9/11 attack, “It’s my job.”  But, of course, genuine recognition is always beneficial and that should not be denied.          




  • Needless to say, the teachers unions are deplorable.  But the conservative call for teacher accountability through performance evaluation, while eminently sensible in theory, overlooks a good reason for the opposition.  Student performance is a function of variables besides teacher effectiveness, including curricula, teaching methodologies, classroom discipline, student effort, and yes, student ability.  In fact, the best teacher in the world might not overcome the lesser learning capacities of certain student populations.  This unspeakable truth is the real reason for the disparity between affluent suburbs and inner cities, but it applies to classrooms within a given school as well unless student are wrongfully graded on a relativity curve. Combined with institutional politically correct restrictions on curricula, methods and discipline, teacher performance could be unfairly assessed on factors beyond their control.  Nevertheless, there are legitimate ways to isolate and extricate at least the very bad teachers   And charter schools have proven that unrestricted curricula, methodologies and discipline make an enormous difference.


Rush Limbaugh


  • Rush Limbaugh has been a true bulwark of conservatism for 25 years.  But sometimes he engages in hyperbole and weak analogies, missing important nuances that are less than intellectually honest.  While these flaws may be minor accidentals of larger substantive points, they can diminish conservative arguments if liberals make hay with them.  To be sure, spontaneously parsing complex issues in free-wheeling pontification three hours a day is more than challenging. But he has to remember, the enemy is listening.




  • Conservatives often cite President Obama’s “promise” to lower the unemployment rate to 8% in his first term as a result of his economic stimulus program.  Of course, no one can predict such an outcome.  The appropriate term is “projected” 8% unemployment by the end of the first term (which did not occur until later).  Holding the President to such a prognostication is like expecting a win when a coach “guarantees” victory.  It’s childish and reflects badly on the conservative dialectic.


  • Republicans capitalize on Senator Harry Reid’s (D-NV) “Why would you want to do that?” comment in response to a reporter’s question about a possible exemption for NIH cancer services during the government shutdown.  This was clearly a bad choice of words by an old man in a moment of extreme fatigue.  To suggest he doesn’t care about cancer victims dependent on treatment is absurd.  He went on to say, reasonably, that hundreds of airport workers in his state were suffering too.  There are countless worthy cases but all of them cannot be exempted.   Reid’s initial response was akin to Secretary John Kerry’s remark about “an unbelievably small” strike against Syria in his attempt to minimize the severity of his intentions.  This is not substantive debate; it’s nitpicking.  Give the guys a break.


Democratic distortions, red herrings and lies


Democrats and the Left distort truth constantly.  Here are some examples conservatives should avoid.


Currently, President Obama is crowing about the significant deficit reduction of the last year.  But that progress primarily resulted from sequestration cuts forced by the Budget Control Act that emerged from the failed 2011 debt ceiling negotiations.  Obama vehemently opposed sequestration when implemented after proposing it in 2011 in an effort to extract concessions in budget talks in the form of tax hikes or lower spending cuts.  He cites the fastest rate of deficit reduction in history.  Of course, that is because the percentage diminution is measured from a record $1.5 trillion baseline, triple the previously largest budget deficit of less than $500 million under George W. Bush. 


As previously mentioned about conservatives, Obama in debt ceiling deliberations tries to demagogue the American people into thinking default on Treasury securities and Social Security payments is a reasonable possibility.  He knows full well monthly tax collections are sufficient to fund these and many other obligations if he chooses to prioritize expenditures.  If he does not, should it come to that, the President will be held accountable.


The Obamacare sell was full of unfulfilled promises.  The President said one could keep his doctor and coverage if desired, or enroll in Obamacare to save an average $2,500 a year on premiums.  He said he would not sign the bill if it “adds one dime to the deficit”.  Of course, none of that is true.  In the implementation many people are losing their coverage, paying an average $10,000 a year more in premiums, paying higher deductibles and co-payments, and losing caps on out-of-pocket costs.  Advertised as insurance for everyone at a lower cost, Obamacare actually triples (and counting) the originally estimated cost to the government exacerbating the deficit while still leaving 30 million uninsured, according to the Congressional Budget Office (CBO).  Unintended consequences, or flat out lies?


And let’s not forget the absurd Democratic red herrings during the 2012 presidential campaign concerning the “war on women” with canards about contraception and Romney’s “binders of women”, as well as contrivances about how he treats his dog.  Here a gullible American electorate is an even greater problem than liberal politicians and their media allies.


The nostrum


Truth and politics make strange bedfellows and are sometimes antithetical.  But verity through intellectual honesty must carry the day, even in the face of disgraceful political gamesmanship by opponents. Miming Democratic distortion tactics demeans us.  Rather, we win by driving home facts and logic through effective communication and education methodologies suitably tailored to constituencies, including low information voters, while optimizing conservative voter turnout.  But it’s not just about winning elections.  A truly informed public founded on objective truth trumps the obfuscation of advocacy, and is ultimately the best antidote to the nefarious forces of the Left.


©2013 Willism J. Dodwell


Liberal Propaganda and Public Gullibility


By William J. Dodwell    May 7, 2014

            As the 2014 midterm elections approach and with the 2016 presidential campaign on the horizon, it is time to focus acutely on winning conservative strategies and tactics.  A major obstacle to Republicans and conservatives prevailing in public opinion and elections are liberal propaganda and the corresponding gullibility of an uninformed populace.  For some time the political right has faced a new reality far removed from the relatively homogeneous, more honest and moral body politic of yesteryear.  That was replaced by an atmosphere of eroded social institutions, a libertine culture, diluted education, and a sizable public amenable to government beneficence over meritocratic achievement in the private economy.  And new technology has changed everything.  This paradigm shift is buttressed by aggressive and decidedly left-leaning media that engulf a largely docile and inert population.  The public at large is rarely criticized because it constitutes inviolable constituencies of business, government, media and religion, i.e., needed consumers, voters, viewers and followers.  Thus, it is fitting to examine the problem of unthinking Americans vis a vis the liberal establishment in the effort to return the country to its traditional moorings through the ballot box.


The new reality


            Politics today may not have been more polarized.  Debate about the social order and the size and role of government has bred a fierce battle around identity politics culminating in the enshrinement of liberalism through political correctness that silences dissent in a rebuke to freedom of speech.  As such, the basic founding principles of limited government and individual freedom promulgated by the Constitution and embraced by today’s Tea Party are rejected as "extremist" by the left and excoriated in the mass media as incompatible with a diverse society.  Instead, liberals call for income redistribution and central government control that ministers lavish remedial spending which empowers themselves.  Even establishment Republicans have distanced themselves from their original values to improve election prospects supposedly diminished by the liberal leviathan.  Indeed, the progressives have instituted a perverse discourse founded on propaganda tactics executed through the mainstream media and Hollywood.  Traditional dialectic has yielded to character assassination, such as the gross vilification of Sarah Palin and the outrageous unsubstantiated suggestion by the senate majority leader, Harry Reid, on the floor of the Senate that Mitt Romney didn’t pay taxes for ten years.  What’s more, colleges have become leftist indoctrination camps.  And today, the President issues executive orders and declares legislative amendments that break the law he's sworn to uphold.


Government has lulled too many into dependence through liberalized standards for food stamps, disability, and other welfare, as well as nationalized health care, student loan deferment and forgiveness, and even FHA subsidized mortgages despite the lessons of the financial crisis.  Meanwhile, the huge debt that results hampers economic growth and consigns future generations to a diminished standard of living.   Affirmative action and diversity policies are de rigueur throughout business, government and academia.  Reliance on the nanny state has encouraged a significant segment of the population to opt for the security of government employment and largesse, jettisoning productive prospects in the private sector.  At the same time, government stifles companies with ever more regulation further empowering itself.  Indeed, big government pervades politics, culture, business, and education in a societal sea change that has culminated in the Obama administration with the help of a complicit media. 


The mainstream media and Hollywood constantly intrude the public consciousness promoting the liberal agenda in support of bigger government and income redistribution from the haves to the have nots.  In particular, they exploit racial issues to create mass sympathy for the plight of minorities through disingenuous appeals for social justice while dismissing any personal responsibility for their circumstance.  Call it tolerance to a fault.  Accommodating black America by invoking a national guilt is a predicate for ever-expanding government as it assures a large Democratic voting block and an ever-growing budget through which to dispense favors and amass power.  Liberal politicians and mainstream media strive to balkanize America by class, race, gender, sexuality and faith to set the stage for big government to intervene in a world of victimhood.  This leads to codifying the agenda through legislation mandating quota hiring, lending, renting and other accommodations promoted by a tyrannical media thought police that demonizes opposition.  Leftists then pervert the adjudication of alleged discrimination by imposing “disparate impact” criteria based on numerical outcomes without regard to discriminatory intent. 


The left and its allies in media also dishonestly promote climate change to vitiate capitalism by restricting and penalizing businesses into submission, thus accreting government control.  The climate change hoax is also about a global punitive Marxist shift of wealth from rich nations to poor ones.


Such is the environment we live in.  It’s not your father’s country.  It’s not your father’s Democratic Party either.


The incredible shrinking American


            The liberal juggernaut has engendered cultural deterioration marked by the decline of the family, watered down education, and a largely docile unthinking public overly preoccupied with leisure and recreation.  A national obsession with sports, video games, inane TV and movies, and the near demise of serious print media have diminished civic awareness and suggest a population ripe for the killing by the propagandists of the left.  No better example of this risk are the man-on-the street interviews formerly featured by Jay Leno and now Jesse Watters of the Bill O’Reilly show in which subjects display an astonishing ignorance of American politics and history, even on the campuses of some top universities.  A couple of samples:  The guess that George Washington was president during World War II; and the inability to name the current vice president of the United States or identify his picture.  This is just the tip of the iceberg.  And while awesome technological progress is to be celebrated, the ubiquity of hand-held devices assures a certain departure from reality that invites even more obliviousness for the left to exploit.


            Of course, the people of the 19th century were much less educated but they didn’t face the internal threat Americans do today in the pernicious advance of the liberal agenda and its implications for our freedoms in a highly secular society.  The apathy and acquiescence of a sizable segment of the public can doom the country to a leftist onslaught as it succumbs to a canon of political correctness that suppresses dissent.  Indeed, disengagement produces the non-voter, and the “low information voter” who merely focuses on style over substance, if that.


Left wing tactics


            Uninformed Americans are red meat to the left as they become susceptible to media red herrings about race, gender, class, sexuality and religion.  Democrats and their media allies blatantly lie about the simple mission of the Tea Party.  Distractions such as the war on women, income inequality, voter suppression, minimum wage, and climate change divert attention from real issues such as government spending, high taxes, regulation, and energy development.  And too much of the electorate falls for it.  During the 2012 election campaign the media, with some success, dramatized contraception, rape, Romney’s alleged dog abuse and lies about his tax compliance to distract from high unemployment and the woeful state of the economy.  And the left continually advances the notion that criticism of a black president is racist, that Republicans are anti-poor and mean-spirited, and that tax cuts only benefit the rich.


Media power cannot be underestimated.  Consider the mass reaction to the firestorms surrounding Don Sterling, Paula Deen, Clive Bundy, Phil Robertson, Todd Aiken and Richard Mourdock.  Most Americans probably don’t really care about the personal utterances at issue, but they feign outrage out of fear of ostracism founded in identity politics concerning blacks, gays and women.  That public diffidence and group think at the hand of the media often translate to Democratic voting.  Political sensationalism that suppresses freedom of expression has to be challenged.   The media also made hay with the questioning of Obama’s birth certificate by some on the right.  This challenge was legitimate in view of a constitutional requirement and the indication of non-compliance by certain facts and Obama’s refusal to provide the document.  The authenticity of the certificate eventually presented is questioned by some experts.  Nevertheless, the media played the race card summarily dismissing critics as kooks, scaring nearly all conservatives into silence about the issue.  The mainstream media have provided Obama cover since he emerged on the political scene because of his race.  So much for objective journalism.  Unfortunately, specious populist arguments and sensationalized racial appeals can win the day.  This has to change.


Fighting back


Reconciling the new reality with traditional values is difficult.  But the political right can convince the public that particularly egregious policies and acts of the Obama administration and his sympathizers are inimical to the national interest and seriously call into question the trustworthiness of government.  In doing so, conservatives have to match the media drumbeat of the left to galvanize the public, and deliver clear messages.   The issues below warrant special attention.  Although they concern the Obama administration, culpability extends to Democrats throughout government who have explicitly or implicitly supported the President on these issues which reflect incompetence, corruption and wrongheadedness.

  • Obama’s failure to support a fiscal policy that would have certainly revived the economy by now, i.e., substantial tax cuts, spending cuts and regulatory relief, especially in oil and gas development.  The economic growth theme must be stressed.  A particular appeal might be aimed at chronically unemployed youth who have not been able to start careers or families.  In addition, Republicans and conservatives should remind the public that government affordable housing policy chiefly caused the financial crisis that precipitated the Great Recession and subsequent slow growth.  This will invite a class warfare response that must be confronted by exposing the government and media lies about how the crisis originated.
  • Lies about the Affordable Care Act.
  • The Benghazi cover-up.
  • The IRS targeting of conservative groups applying for tax-exempt status and the implications for reprisals against political opponents in general.
  • Obama’s refusal to enforce immigration laws and the likelihood that any concessions to the right in immigration reform legislation would not be implemented either.
  • Obama’s redistributionist agenda as evidenced in Obamacare subsidization, the refusal to cut federal spending, affirmative action hiring, the government takeover of student loans, the tripling of food stamp recipients, continued affordable housing policy through the FHA, disparate impact in lending and renting, and the cell phones for the poor program funded through a surreptitious charge to everyone’s telephone bill.  He certainly delivered on his “spread it around” plan divulged to Joe the Plumber in the 2008 campaign.  Again, a class warfare response is to be expected.
  • The allocation of substantial economic stimulus money to organized labor in return for campaign donations.  Also, the unlawful nullification of the rights of General Motors bondholders in favor of union ownership effected in the course of the government taking over the company.
  • Obama’s unlawful executive orders.  Unlike those of previous presidents, some of Obama’s violate the law in the absence of constitutionally required Congressional approval, such as Obamacare delays and exemptions, and fiat amnesty for illegal immigrants under 30 years old who arrived in the U.S. before the age of 16. Similarly, the Obama administration has exploited the rulemaking process in his agencies, especially regarding health care and the environment, to rewrite law that would not pass Congressional amendment as constitutionally required.
  • Obama’s opposition to building the Keystone Pipeline in obeisance to environmentalists, and most recently, to garner up to $100 million of donations to Democratic senate candidates promised by a billionaire environmentalist advocate.  Also, his opposition to permit new oil and gas development on federal lands.
  • Obama’s opposition to charter schools largely supported by the black community and in spite of their superior track record out of a quid pro quo with the teacher unions for their campaign contributions.
  • Attorney General Holder’s policy of not prosecuting black on white crime according to his former deputy J. Christian Adams, as evidenced by his dismissing the 2008 Philadelphia New Black Panther voter intimidation case.
  • Eric Holder’s contempt of Congress citation.  Holder was formally held in contempt of Congress for failing to submit documents to a Congressional committee investigating the disastrous “Fast and Furious” project involving the U.S. sanctioned distribution of guns to Mexican criminals.
  • The Gestapo-like acts of the EPA on private citizens, such as $35,000 a day fines for highly dubious infractions.


In the process of exposing the left, the right has to be prepared to quickly and aggressively challenge ad hominem attacks facilitated by the mass media, particularly charges of racism.  Timidity about criticizing a black president cannot be tolerated as it was in 2008 and 2012.  Rather than moderate in the quest for votes, as that approach has failed, the right should fight harder for conservative principles as they contrast to failed Democratic policies.  Challenging unpopular political correctness can mitigate the Democratic mass media advantage.  There is a huge groundswell of reticent Americans paralyzed by forced liberal orthodoxy who would cheer the courage of candidates that vociferously stand up against the flouting of the U.S. constitution and who expose the real reasons for the country’s social ills.  This includes the need to decry the demise of the black family, which affects everyone economically and socially, the extremes of the EPA, government’s role in causing the financial crisis, and the serious attenuation of public education.  Such an acute focus helps to defuse misguided empathy that sustains liberal appeals.  The honesty of facing these issues head on after years of suppression would be refreshing to many Americans and a motivation to vote accordingly.


The Obama administration’s messianic effort to redistribute income to the detriment of middle class America has to be exposed in detail for the socialist maneuver it is without fretting too much about alienating beneficiaries and their allies.  The excesses of preferences in hiring, lending and health care through affirmative action and subsidization can be succinctly highlighted and aggressively marketed in a repetitive message to good effect through conservative media and grass roots campaigning.  The right must summon the will and the courage.


Even bellicosity can work if significant repressed truth is allowed to emerge.  And this applies to women opponents too.  More of the same is not enough.  And liberal intimidation tactics to suppress the freedom to express personal values about traditional behavior must be fiercely resisted.  Fire with fire!  America wants to break the chains of political correctness and would largely support candidates who promote America as a whole in the context of its founding principles over accommodation to disparate groups.  This means standing firm for border control and against immigration reform in the name of sovereignty, security and quality of life, despite inevitable fallout.  Pandering to the Hispanic vote is not necessary.  Sure, even informed voters can be duped by the manufactured firestorms of the mainstream media, but a newly aggressive demeanor on the right can overcome them.  As such, conservatives have to prevail on establishment Republicans to stop drifting to the left and appeal to the alive and well silent majority.  It’s time to build on the Tea Party victories of 2010 while this is still a mainly conservative country.


To be sure, this bold approach has its risks as it will alienate certain groups and incite an intense media backlash of class warfare tactics.  Indeed, standing on principle and winning elections are not always compatible.  As such, fine tuning is in order.  But a certain unprecedented pluck and mettle can rouse considerable dormant support long silenced by intimidation from the left, especially in light of the many offenses of the Obama administration.


Getting through to the low information voter is easier than converting the diehard.  It’s a matter of getting the word out – effectively.  Maybe the right at least can convince the types who would vote Democratic simply because Obama killed Bin Laden, or because they’re grateful for their fraudulent disability payments.  After all, they’re legion.  Those votes could make a difference.  With the right methods the base can be expanded to encompass some of the apathetic set, as well as disaffected youth and other long-term unemployed.  In addition, more sympathetic women are probably in prospect for the 2014 elections, but will be somewhat reversed by the gender factor in 2016.  In any case, let’s not forget the all-important turnout deficit that cost the election in 2012.

©2014 William J. Dodwell


Time for Some Union Bashing


 By William J. Dodwell    December 1, 2014


Once an important ballast against exploitive corporate managements, organized labor has transformed into a nefarious economic and political force that destabilizes and even bankrupts municipal governments and companies.  Salary and benefits of government workers, which now far exceed that of their counterparts in the private sector, combine with generous pensions, outrageous work rules and bloated rosters.  This results in onerous debt and taxes imposed on the citizenry, and adverse consequences for economic growth and employment.  Indeed, unions have priced themselves out of the market as firms outsource production overseas en masse.  Although union membership has declined to 7% of the work force in the private sector, it still does its damage while public union representation has grown to 35% putting serious pressure on state and local government budgets.  Union compensation, benefits and work rules hamper productivity, efficiency and profitability and deter job creation.  Unionization also restricts general employment as it limits the supply of labor in cartel-like fashion shutting out possibly better and lower cost workers.  What’s more, unions have acquired a dangerous political power through their relationship with the Democrat Party that undermines the commonweal.  It’s time to speak up.


In the wake of organized labor


            Labor costs and resultant taxes on individuals and businesses have contributed to the bankruptcy of major cities, including Stockton, and notably Detroit which was also doomed by excessive social programs, street crime and utterly corrupt management. Organized labor has brought down companies too including General Motors and Chrysler forcing a federal bailout still to be repaid, as well as doom the iconic Hostess Brands and several airlines.  Major construction projects almost inevitably generate enormous cost overruns because of a built-in union graft factor.  The insolvency of the guarantor of private pensions, the Pension Benefit Guarantee Corporation (PBGC), partly due to exorbitant union contracts, renders more ominous the insecurity of unfunded corporate pension and post-retirement health care liabilities for current and retired employees.  But, like Fannie Mae and Freddie Mac, taxpayers ultimately come to the rescue.  In the public sector, time was when generous pensions compensated for low wages.  Now government employees get both in spades.


Union-sponsored multi-employer contracts that bind multiple companies of an industry ensure the continuity of membership and worker dues as employees move from one participating firm to another.  Pension funding is shared among participating firms in notorious mismanagement that results in significantly underfunded and failed plans that threaten company solvency.  This industry collective model carries extra political leverage in the call for federal bailout by the PBGC. 

And in common legerdemain, governments and companies often overstate the discount rate by which they measure the present value of future liabilities for pensions and post-retirement health care to justify underfunding the debt.  In the protracted extremely low interest-rate environment that has suppressed pension fund investment returns the outsized debt from union contracts is more difficult to fund.  This prompts pension managers to invest in riskier assets, including hedge funds and private equity, which create greater potential losses.  In the public sector a current funding shortfall requires higher taxes or more borrowing at the expense of the citizenry.  In companies  it weighs on consumer prices.


Years of unchallenged federal spending for the Veterans Administration funded a continually expanding unionized workforce that could not be fired.  The union’s self-serving practices resulted in eye-popping abuse, incompetence and death.


But perhaps most egregiously, entrenched teacher unions have wrought inviolable tenure, lower academic standards, and politicized curricula and culture that have largely vitiated public education to the detriment of generations of individuals and the preeminence of the nation.  These unions and their liberal allies staunchly oppose charter schools, most of which have performed dramatically better than their counterparts and are almost universally preferred by Democratic constituents in inner cities.  The problem with the status quo was borne out by the United Federation of Teachers (UFT) itself in New York City having recently ended its own charter school designed to prove it could prosper under the current teachers’ contract.  It was an abysmal failure.  Moreover, the National Education Association (NEA), the largest teachers’ union, spent member dues on large donations to the fraudulent Association of Community Organizations Now (ACORN) among many other left wing groups.  To be sure, union wellbeing trumps student learning.  


            And let’s not forget the long history of union violence and corruption.  Today the thuggery is directed against Tea Party advocates and other political dissenters.  Disturbingly, AFL-CIO president Richard Trumka has a history of condoning physical force, indeed violence, in union confrontations.


Undue political influence


            Because of its role in funding Democratic campaigns with member dues, encouraging voluntary member donations, and promoting candidates, Big Labor has garnered significant political power.  Indeed, its symbiotic relationship with the Democratic Party fosters the liberal agenda and undermines political opposition in exchange for labor friendly presidential appointments and favoritism in government actions.  In fact, unions now seem more interested in advancing the progressive movement than worker rights.  Unions capitalize on the inherent conflict of interest in negotiating with politicians who depend on their donations.  The political power of unions is especially evident in the Obama administration.  Much of the post-crisis economic stimulus rewarded the teachers unions for their campaign contributions.  The United Auto Workers (UAW) unlawfully benefited in the bankruptcy and government restructuring of General Motors at the expense of bondholders.  And the Democratic appeal for government infrastructure projects to stimulate the economy is a sop to the construction unions.


According to the House Committee on Oversight and Government Reform headed by Darrell Issa (R-CA), the Service Employees International Union (SEIU) collaborated with and later replaced the notorious ACORN.  Specifically, the union was complicit in misappropriating taxpayer and private funds to shake down banks by staging protests and threatening litigation.  The union also targeted government officials and political candidates in its self-described “muscle for the money” initiative, and engaged in voter fraud.  In addition, unions were involved actively in the Occupy Wall Street movement in 2011. 


President Obama packed the National Labor Relations Board (NLRB) with union- friendly appointees, including three recess appointments later invalidated by the Supreme Court.  And AFL-CIO President Richard Trumka had regular access to the Whitehouse leading up to the 2012 presidential election according to the visitor logs.  One result of the collaboration was President Obama’s unconstitutional union exemption from the fee imposed on insurers and self-insured organizations (including unions) meant to compensate insurance companies for losses incurred from complying with the Affordable Care Act.  And generally, union pensioners unfairly prevail over bondholders in municipal bankruptcies.


            Unions proactively fight for organizing advantages over management and contribute to Democratic candidates who acquiesce to union demands in the hope of continued campaign funding.  Unions also promote the liberal political agenda as a quid pro quo for more concessions by big government.  They push for “card check” legislation which removes the confidentiality of a worker’s vote in unionization elections inviting intimidation tactics against dissident workers.  Unions have won unfair advantages over management in organizing activities.  Currently, the Communications Workers of America (CWA) is appealing to the NLRB to revoke a rule prohibiting employees from using company e-mail for union related purposes.  Employers cite server congestion and productivity issues for their opposition.  


The unions led a recall effort to remove Wisconsin Governor Scott Walker in retaliation for his spending cuts that affected government workers.  During his recent re-election bid, the unions accused him of bogus campaign violations and tried to taint his collaborators through guilt by association tactics.  In the process, corrupt prosecutors and judges accommodated them.  Unions engage in shareholder activism, for example, lobbying for corporate disclosure of political contributions in order to ostracize firms in the media for supporting conservative political activities and candidates.  Unfortunately, most companies exposed to this tactic withdraw support to avoid possible reputational damage from liberal propagandists. 

Unions also pressure non-union companies to encourage their vendors to be sympathetic to unionization in exchange for “labor peace” in respect of strikes and protests.  In that vein, Target prevailed upon their store cleaning contractors to go along with the union.  Similarly, non-union contractors and investees become bound by the union agreements of union and non-union employers and owners because they succumbed to coercive labor tactics employed in organizing efforts.

Private unions direct pension money to liberal causes just as many state and local government pension funds do, notably, the California Public Employees’ Retirement System (Calpers).  And, of course, unions support raising the minimum wage as high as possible because union worker salaries are tied to it.


What’s more, a union sponsored organization called the Center for Popular Democracy lobbies to install politicians in the Federal Reserve Bank who support easy money and low interest rates in order to raise wages, regardless of what benefits the general economy.  Ironically, the near historically low interest rates produced by the accommodative monetary policy since the financial crisis have contributed to lower real wages.


            Traditionally, unionists have been portrayed as folk heroes as in the old Ted Kennedy blather:  “I support the working man!”  “I’d never cross a picket line!”  Blah, blah, blah.  What about the rest of the workforce and those shut out of the labor market by the unions?


Union comeuppance


            But managements have had their successes in slaying the dragon.  Of particular symbolic significance was President Reagan’s decertification of the air traffic controllers’ PATCO union in 1981.  Corporations have outsourced production overseas en masse to protect their profit margins from union impairment.  Boeing moved its headquarters from Washington State to South Carolina, a right-to-work state, to escape union excesses.  This year workers rejected unionization of a Volkswagen plant in Tennessee despite support for the union even from corporate management in Germany.  Many companies have eliminated  employer managed defined benefit pension plans in favor of employee directed defined contribution plans which lie beyond the reach of union involvement and the liability of the employer.  Some employers pay more than union wages just to avoid the burden of a closed shop.


And high-fives for the Wisconsin electorate in the 2014 November elections.  Governor Scott Walker won re-election following a successful recall election in 2012 orchestrated by the unions in retaliation for his collective bargaining reform.  With union dues becoming voluntary instead of mandatory as a result of Walker’s intervention, government union membership has plummeted.  That’s why unions desperately rely on automatic payroll deduction of dues.  Walker, re-elected Governor Rick Snyder of Michigan and others mustered the political resolve to reduce spending, taxes and regulation that engendered investment, competitiveness, jobs, and a chastened public union.  Snyder also thwarted certain union self-interest in the Detroit bankruptcy process.  In addition, he passed a right-to-work law in a historically labor friendly state.  A union advocate for mayor of San Diego lost resulting in work rule changes and pension reform, including increased employee benefit contributions, a higher retirement age, and a lower cost of living adjustment.


             The financial services industry has almost entirely avoided unionization throughout its history but new pressures keep arising.  Organized labor capitalizes on the vulnerability of banks in the wake of the financial crisis which triggered cutbacks of public union jobs and touched many union members affected by foreclosure.  In addition, union pensions are significantly invested in bank stocks and bonds resulting in heavy losses from the crisis.  Unions have homed in on the frequent rounds of layoffs in the industry, executive compensation and consumer protection issues, as well as the easing of restrictions on unionizing activity. Unions also engage in shareholder activism through their pension holdings.  In addition, according to a 2009 report by Griffin Financial Group in Pennsylvania, one unionized bank pays some 7 to 9 percent more on salaries and benefits than non-union banks.  Another suffers lower stock valuation as reflected in a price-earnings ratio of 7 versus 11, despite better regulatory capital ratios and net interest margin.  Happily, the bank unionization initiative has not gained traction.  The Employee Free Choice bill introduced in 2007 to facilitate the unionization process has gone nowhere.  And historically, bank tellers and office workers have been reluctant to support organizing efforts for fear of risking very comfortable jobs, especially relative to alternative blue collar work.


            Some court decisions have helped to retard union overreach.  In 1988 the Supreme Court ruled in Communications Workers v. Beck that union dues cannot be used for political purposes if a worker objects, in which case the political portion must be refunded.  Unfortunately, this decision is not well enforced because workers are either unaware of it or suffer reprisals for invoking it.  President George H.W. Bush issued an executive order to implement it but President Clinton later revoked it.


            As mentioned, in 2013 the D.C. Court invalidated President Obama’s labor sponsored recess appointments of the previous year.  Hundreds of cases decided in the interim may be revoked pending review by other appellate courts, and likely the Supreme Court.


On the other hand, the 2010 Citizen United v. Federal Election Commission Supreme Court decision, celebrated by conservatives, permits unlimited corporate political donations as a First Amendment right of free speech.  But the decision also applies to union donations as it now allows unions to pay members from their treasuries, not only from dues, to campaign in all neighborhoods, not just union homes.  This conservative demurs with the beloved right wing on this issue believing only people have the right to petition the government.  SCOTUS notwithstanding, corporations and unions are not people.  Rather, they are represented in the voting of shareholders, employees and members. 


Lo and behold a Los Angeles Superior Court struck down teacher tenure laws and other protections citing their unconstitutionality.  Judge Rolf Treu ruled that disadvantaged students are unfairly saddled with poor teachers.  The decision is subject to appeal. 


And, of course, a hoary institution of the left continues in the Davis Bacon Act.  It requires companies with federally subsidized construction contracts to pay “the prevailing wage”, effectively based on union scale rather than the lowest bid.  Employers therefore opt for the more skilled and experienced union worker since they have to pay his wage anyway, thus foreclosing opportunities for less experienced non-union workers.  This artificial wage inevitably inflates project costs borne by taxpayers and destroys jobs.  Ironically, this law was passed in 1931 to prevent lower wage black workers from competing against white unions.  The effect is similar today.  Nevertheless, over the years there have been many calls for its repeal, including that of 2012 Republican presidential nominee Mitt Romney.  Someday it will be if opponents press it.


            President Obama’s unconstitutional executive orders liberalizing immigration invite unwanted competition for unions as immigrants freely participate in the work force and depress wages.  On the other hand, unions see this influx as an opportunity to increase membership and gain leverage in the minimum wage debate.  Also thwarting the union juggernaut is the Affordable Care Act which impels many employers to skirt the employee health care insurance mandate by reducing jobs to less than 30 hours, laying off, or not hiring.


Organizing college student athletes


The latest frontier for union organization is college student athletes.  Big universities make billions from ticket sales, television rights and licensing while the athletes are compensated by free tuition, room and board that would otherwise be unaffordable for most players.  Plus, they get to showcase their talents for lucrative professional opportunities in the de facto minor leagues that is the college athletic system for football and basketball - at huge savings for the professional teams.  In the meantime, athletes risk serious injury that can dash their professional prospects.  Is this arrangement fair? 


Are college athletes entitled to a certain share of the revenue they generate?  Should they be paid a salary based on their value, like coaches, to supplement the free admission?  Should the professional sports organizations contribute to the college athlete’s compensation?  Is union representation in collective bargaining needed in the absence of leverage for the athletes? 


            To be sure, union representation would eventually breed excess in pay and work rules.  Alternatively, athlete compensation could be incorporated in the recruiting process in which colleges compete monetarily for a prospect like the pros do where each athlete has a personal agent to represent him in negotiation.  But women athletes would have to be compensated too under Title IX.  In any case, wouldn’t tuition rates soar such that the college business model would conflict with the (presumably) primary academic model of the university?  They sure would if unions are involved.


Rectifying the excess


            Organized labor is applauded for having brought about decent wages and working conditions to ensure a better standard of living vis a vis employer abuse, especially during the time of sweat shops.  But those days are long gone as basic worker rights now are codified in the law.  While unions still protect workers from certain mistreatment, the pendulum has swung too far where management is disadvantaged and union workers earn far more than the private market standards, especially in state and local government where taxpayers bear the burden.  As mentioned, unions wield too much power over the body politic where even Republicans balk at challenging them as they fear the well- funded retaliation.   Politicians are too beholden to unions for funding.  Unionization undermines the meritocratic model that established this country such that jobs open to all qualified candidates are likely to result in lower labor costs and better output because of market competition.  This benefits employers, consumers, and the general economy.  Global competition and more productive technology have decimated union membership in the private sector.  But union excess continues in industry and certainly pervades government employment.


            What’s the solution?  As in government policy, public backlash through the ballot box can do wonders to reign in public unions.  This was particularly evident in the recall and re-election of Governor Scott Walker and the success of Governor Rick Snyder, both of whom resisted union overreach.  Strong leadership that challenges union recalcitrance in strikes and protests, and promotes the right-to-work principle will rule the day, as displayed by Walker, Snyder, and Reagan with PATCO.  An example of that leadership is the political courage displayed by newly elected New Jersey Governor Chris Christie in 2010 when he cancelled a proposed rail tunnel to New York City because of bloated costs, no doubt union related.  Voters must reject tax and spend liberals and resist the enticement of government benefits directed their way.  What’s more, the right should push for enforcement of the Beck decision, as well as protections from union retaliation for invoking it.


And, a nice tax revolt would do the trick.  Although state and local governments are generally in good fiscal shape today, that’s largely because of tax increases and deferred pension contributions that accommodate excessive spending.  Much of it is in the form of outsized union employee salaries and benefits, as well as locked-in contractually bound pensions and post-retirement health care.  Pensions are significantly underfunded while post-retirement health care benefits, totaling $1.6 trillion nationally according to Eton Vance, are almost ignored, even by municipal bond investors.   Onerous tax rates on income, sales and property, as well as fees, tolls and other revenue enhancements, fetter economic growth at the expense of businesses, consumers and general employment.  In struggling cities revenue targets cannot be achieved because of a lack of business investment and population decline.  Voters must starve the beast and elect fiscally tenacious officials like Scott Walker.


In the private sector, some industries have adopted a two tier pay structure where new employees are paid significantly less.  Companies move to right-to-work or unencumbered tax friendly states.  Others cultivate an environment that encourages workers to reject unionization, such as the Volkswagen plant in Tennessee.


            The market for labor should be competitive like all other commodities.  Imagine how that would accommodate the legions of disaffected unemployed and underemployed. Many of them are recent college graduates who would be receptive to rank and file administrative work in view of the relative dearth of jobs caused by bad government policy.


            The problem lies with the union leadership, not necessarily the working members.  But the thug mentality does permeate to a degree.  A couple of years ago I was challenged to a fist fight at a cocktail party by an obnoxious (somewhat inebriated) former unionist when I spoke my mind to his face which he pushed to mine literally within one inch.  Let’s stop thinking of the union man as folk hero.  Employers and political officials have to stand up to union leaders while cultivating an alliance with workers.  This involves treating them well and capitalizing on their union grievances.  Many union members don’t think the dues are worth paying.  Recall how public union membership plunged in Wisconsin government when dues collection became voluntary under Scott Walker’s reform.

©2014 William J. Dodwell

Black Scholar Tells It Like It Is About the Race Problem


By William J. Dodwell    April 16, 2015

            Once again I find myself writing about race as it comes to the fore in the aftermath of the police actions in Ferguson, MO, North Charleston, South Carolina, and Tulsa, Oklahoma.  But this time the particular catalyst is a public discussion I attended featuring Jason L. Riley and his new book entitled “Please Stop Helping Us:  How Liberals Make It Harder for Blacks to Succeed” in which he impugns the liberal agenda that claims to hold the cure for racial malaise in America.  Happily, the book corroborates many of my past comments expressed in The Comprehensive Conservative based on mostly observational and anecdotal evidence.  Of course, Mr. Riley goes further speaking from personal experience and grounding his assertions on historical and statistical fact and analysis. 


Mr. Riley is a dark-skinned black who addresses the true nature of the black problem.  I cite his complexion because many in the black community dismiss the authenticity of lighter blacks as “not black enough” to represent their experience.  Indeed, the black population needs to heed the lessons of this work in the face of the misguided tolerance of self-serving liberal allies.  But sadly, I saw only one black in the audience of about 100.  Besides his race, Mr. Riley’s bona fides include serving on the editorial board of The Wall Street Journal for twenty years.  In addition, he is currently a senior fellow at the Manhattan Institute.


Mr. Riley’s view


The perceived threat of black behavior


            Mr. Riley dissects the origins of racial tensions and exposes the folly of liberal shibboleths.  In particular, he says the problem is about the perceived threat among whites of transgressive behavior by blacks mainly based on a long record of violent crime, the prime reason for highly disproportional incarceration rates.  And the negative image extends to white collar crime as well which studies show blacks also commit disproportionately.  Mr. Riley focuses squarely on the always ignored question of why whites are apprehensive of blacks.  It’s not simply because of skin color as the left proclaims.  The answer lies in the general association of blacks with historical behavioral deviance. 


Mr. Riley cited the example of blacks who are followed around in retail stores in anticipation of possible theft.  In fact, he himself was subject to such treatment recently while shopping at Brooks Brothers even dressed in a suit.  (Apropos of the economic stereotype of blacks, also based on perception, the anomaly of a black in an upscale store might also have been a factor.  Recall Oprah Winfrey’s experience in a European shop when a sales clerk not recognizing her rebuffed a request to see an expensive handbag displayed on a high shelf.)  And in college Mr. Riley was frequently stopped by campus security guards.  But he confessed he too was more wary of black shoppers when he worked in a retail establishment in his youth.  Even Jesse Jackson confessed his apprehension when encountering a black on a lonely street.   It’s a matter of the odds based on an empirical criminal record, not gratuitous racial profiling.


            Mr. Riley suggests a symptom of the social and economic plight that has alienated blacks lies in a different social mobility path from immigrant groups.  He identifies two historical tracks to assimilation:  political and economic.  Blacks have relied on representation in government while all others prospered through private enterprise.  One exception concerns the Irish, some of whom initially succeeded in politics, but only while the general Irish population lived in poverty.  This changed quickly when they began to engage in private sector employment as the interest in political life diminished.  Mr. Riley points out that Asians have demonstrated tremendous economic success without ever achieving even minor political clout.  He suggests the reason blacks have deferred to their own in government to elevate themselves is borne out by longitudinal studies that indicate that blacks have lacked the requisite work ethic to succeed in commerce.  This may speak to the black stereotype, but let truth ring.


            Mr. Riley also highlights the commonly mentioned decline of the black family as a major source of social ills that foster a negative perception among whites.  Accordingly, he cites the dramatic rise in the percentage of black single parent households since 1930.  Critics may be quick to point to his own upbringing by a single parent from the age of three after a divorce.  But Mr. Riley emphasizes that, rather than a victim of abandonment, he continued to have a close relationship with his father about whom he said has had a “significantly positive influence on my life”. One senses that influence enabled him to resist charges of “acting white”, a syndrome he says is still a big problem in the black community.


Government, media and black leaders compound the problem


            As for the failure of government social programs and the dependency they encourage, Mr. Riley effusively cites how blacks progressed economically far more from 1930 to 1960 than since the Great Society of President Lyndon Johnson (40 percentage points!).  So much for the role of discrimination which has declined dramatically since the 1960s.  Indeed, the overall poverty rate is virtually the same today as it was fifty years ago. He also says that, while affirmative action was initially a noble effort to identify and elevate qualified blacks, the policy has been corrupted such that today beneficiaries wonder about the real reason they have been hired, questioning their own legitimacy. 


With disgust, Mr. Riley stresses that black leaders and the media refuse to address deviant black behavior and culture, instead focusing only on what whites can do for blacks rather than on how they can help themselves and achieve self-determination as encouraged by Dr. Martin Luther King.  He says original civil rights legislation has been the greatest contribution to ameliorating the black malaise.  But liberal government and media, and the imposition of political correctness, have made conditions subsequently worse because they undermine the self-reliance and behavioral reform that is essential to normal assimilation.


My view


Mr. Riley does a service in exposing the reality of the black problem, and as a black man gives extra credence to the solutions.  It is hoped his honest version of the plight, supported by experience, research and scholarly insight, will raise awareness and contribute to the right answers amid an exploitive media and body politic.  But I will go further and address some aspects that may be too hot to handle even for him.  Here’s my take.


The self-interest of the left


            To be sure, the left has no interest in curing the black predicament that is its meal ticket.  It uses blacks as pawns as it encourages dependence on government largess which perpetuates the left’s political power and wealth through its influence over a nearly $4 trillion annual federal budget, plus state and local monies.  That honey pot, primarily funded by redistributionist tax policy and promoted by sympathetic media, redounds to special interest contractors and a gargantuan administrative infrastructure.  Through a myriad of quid quo pros involving legislation, regulation, executive action, employment and political contributions the left enriches itself in the guise of helping the poor. 


Inner city public schools deny blacks the quality education they covet from charter schools because of the selfish resistance of teacher unions, as well as administrators bent on imposing a leftist agenda on curricula and performance standards.  An ongoing malaise also creates opportunities for black leaders, such as Al Sharpton, who benefit in the administration of feckless social programs, and through extortion imposed on spineless corporations based on threats of reputational damage predicated on contrived charges of racism.  The organizations of these race hustlers are fraught with financial improprieties unchecked by the authorities.  An utter disgrace.


The media condone black pathologies by underreporting them, by distorting news, such as by promoting the “Hands up, don’t shoot” myth, and by promoting a violent antisocial black culture to the general population through movies, music and video games.  The media gratuitously infuse race in all areas of human interaction to suppress the reality, denying that people generally gravitate to their own.  Joy Behar, formerly of the television show, “The View”, said absurdly that the term “Black Friday”, referring to the shopping madness the day after Thanksgiving, is racist.  The egalitarian left is dedicated to excusing the failure of black assimilation in its own interest and will do anything to maintain the charade.  Without the black plight a lot of liberals would be out of work.


Political representation wins blacks preferential treatment


As Mr. Riley said, historically blacks have relied on political representation rather than economic participation for relief, which has culminated in the election and re-election of a black president.  Certainly blacks have benefited from it of late, notwithstanding extremely high unemployment in the black community.  The Obama administration has directed funds to lower income minorities beyond an appropriate safety net through accelerated income redistribution.  The largesse includes the Affordable Care Act subsidies, lower mortgage underwriting standards at Fannie and Freddie, a tripling of food stamp recipients, free cell phones, bank legal settlements, and surreptitious appropriations to leftist activist groups including former ACORN organizations.  And one wonders how much affirmative action has been implemented inside government and forced on regulatory subjects.  Granting what is not earned in order to level the playing field on the basis of retribution for perceived racial injustice, or a perverse notion of diversity, stifles incentive and self-reliance.   Giveaways fail to resolve the fundamental black behavioral problem while creating resentment among the majority that builds racial tensions.


            Government continues its affordable housing policy, the seminal cause of the 2008 financial crisis.  Largely an accommodation to blacks, President Obama has doubled down on this policy by appointing Mel Watt the new head of the Federal Housing Finance Association (FHFA) which now oversees Fannie Mae and Freddie Mac.  Mr. Watt, a black lawyer and former Congressman who admitted he knew nothing about mortgage finance before, has for starters lowered the required down payment to 3% and increased the percentage of subprime loans purchased by the government sponsored agencies (GSEs) from the banks.  He also has defied the Dodd-Frank mandate to increase the GSE guarantee fee charged borrowers to reflect actual credit risk.  Underpriced guarantee fees contributed significantly to the GSE losses that taxpayers had to absorb during the financial crisis.  The Congressional black caucus and other Democrats ensure legislation to support lower mortgage underwriting standards while too many Republicans go along in fear of being ostracized as racist by the media and their political opponents.  To be sure, ignoring the mistakes of the financial crisis to relieve racial tensions is folly.


The genetic question


            We know that government and the media perpetuate the black plight.  But what is the root cause?  As Joan Rivers used to say, “Can we talk?”  Blacks seem to have a genetic predisposition to violence borne out by chronic and pervasive crime, and perhaps even benignly illustrated by their dominance on the football field.  The inclination would seem to be founded largely on a characteristic black emotion and physicality that may be evident to some degree in blacks of mixed race as well.  During the Q&A part of the event a questioner asked Mr. Riley if he thought black performance on the football field is an exponent of the propensity for criminal violence which he acknowledged.  He said he did not analyze the link and seemed to consider the question off topic.  Fair enough.  But one senses Mr. Riley did not want to broach genetic implications.  However, I will.


            The obvious and unspeakable question becomes, “How is it that blacks have been unable to compete in a meritocratic America despite some $20 trillion of social programs since the Great Society, massive opportunities through affirmative action, and radical reduction in societal discrimination in the last fifty years?”  As Mr. Riley says, deviant behavior, especially violent crime, creates the perception of a threat that alienates blacks from the rest of the population.  This conduct is manifest in disproportionate dysfunctional single parent families, incarceration, poverty, illiteracy, illegitimacy, drug abuse, and encouraged by a black culture that largely celebrates the pathologies.  Are these behaviors simply alternative to productive pursuits in which they can’t compete?  The scale and long history of the problem in spite of so much corrective accommodation suggests an inherent factor at play.  Are the violence and lack of work ethic cited by Mr. Riley genetic?  Does the rap culture, for example, reveal their true nature?  Some would suggest this is racist.  But by definition, that term applies only to one who calls for discrimination or harm against a racial group.  Exploring differential truths among peoples is legitimate exegesis.  Indeed, the epithet has become a meaningless cudgel of the left to suppress the truth that threatens its power.  Unfortunately, most recoil at the charge resulting in a tacit tolerance of deviancy that exacerbates the problem.  This has to change.


            Genetic predisposition does not necessarily have to be fatalistic.  Consider alcoholism among the Irish.  The condition is congenital but it is controlled in the interest of a productive life.  Similarly, the Irish have to control their temper.  Their homeland is not called IREland for nothing.  The history of the Irish in America shows they generally have overcome or contained a propensity for alcohol that was once much more problematic.  As is said about fighting terror, a problem has to be identified for what it is, Islamic extremism.  As such, genetic based predilections have to be recognized where they exist.  The malady in the black or Irish gene may vary in degree, recede, and skip generations.  And some are more capable than others in managing the problem.  Blacks have to control their anti-social impulses.  The vast majority of blacks do, but too many don’t.  If they really want to end problematic encounters with the police and truly seek racial harmony, they have to stop committing highly disproportionate violent crime.  Then the perceived threat will diminish and the alienation will abate.


            But there are other factors.  The Reverend Jeremiah Wright, the black cleric whose church President Obama infamously attended for some twenty years, proudly invoked a study in a 2008 address to the NAACP that contrasts black cognitive orientation to that of non-blacks.  The study showed that blacks are aural-oriented learners as opposed to others who are object-oriented (as in book reading).  This might explain why blacks have not generally excelled academically or in business but have succeeded in music and other arts.  If true, this does not mean that blacks are doomed to marginalization.  But it does suggest, absent misguided affirmative action, their natural economic prospects are generally less than others in a society that increasingly places a premium on education.  Conversely, their demonstrated superior physical prowess assures disproportionate success in athletics on a meritocratic basis.  The late Jimmy the Greek, the Las Vegas odds maker, commented some years ago on superior black physiology in sports and was banished by the media as racist.  That political correctness suppresses the truth, impedes solutions, and exacerbates racial tensions.


It’s about behavior and cognition


            Overcoming the chronic black plight rests on correcting pathological behavior.  It also depends on compensating for historically demonstrated heritable cognitive constraints, where they apply, through appropriate educational and occupational direction consistent with individual aptitudes and proficiencies.  Proactively identifying and mentoring promising blacks according to their ability, including the brilliant, can set the stage for deliverance, as affirmative action was originally intended.  But ultimately, the remedy hinges on self-discipline, motivation and a culture that values education and productivity.  The more blacks take an initiative in changing course, and the political left stops effectively condoning and encouraging bad behavior, the closer the resolution.  A tall order indeed. 


Blacks as a class have historically displayed disproportionate social, economic and moral deficits that likely will continue to some degree because of certain seemingly intractable elements that heretofore have resisted change.  What’s more, pandering accommodation of those pathologies by the political and cultural left, especially the liberal media, increases that likelihood.  Perhaps through some newfound restraint among all malefactors, possibly inspired by Mr. Riley’s book, we can hope to minimize the malaise.  Unfortunately, in the meantime grim prospects befall many law-abiding and productive blacks who inevitably get caught in the undertow of the perceived threat.

©2015 William J. Dodwell


Personal Appearance and the Culture of Slobs

 By William J. Dodwell   November 27, 2012
Sloppy appearance abounds among liberals and conservatives alike as a universal symbol of the cultural malaise:  jeans (ragged and otherwise) as a virtual uniform, droopy baggy pants modeled on prison garb, shirt tails hanging out, pajamas worn in public, tee shirts in lieu of regular shirts, jeans with suit jackets (even on TV news anchors); also shaved heads, tattoos, sneakers with formal wear (and without socks), flip flops in place of shoes, shorts in 30 degree weather, unkempt choppy haircuts on men, women with crew cuts, and the ubiquitous baseball cap (turned askew no less). I could go on but I’ll have no support if I do.  


Comfort not only trumps appearance today, it supplants it.  Indeed, the herd instinct rules and criticism is verboten.  We have become a nation, in fact a world, of slobs now manifest even in the office as a capitulating casual Friday dress code inevitably deteriorated into a tolerance for virtual rags all week long in some places.  Tailors are agog.  The Hollywood poverty model also promotes this style where celebrities, probably under tacit orders, display the grungiest attire they can find.  It’s a liberal statement, don’t you know? It deflects attention from their wealth and privilege which belie their political liberalism and supposed egalitarian sympathies.  And careers are at stake for those who don’t comply with the hypocrisy.  Sadly, even women have adopted the standard, in contravention to the notion that an attractive appearance is an integral part of their sexuality.  But it is interesting to see couples where a woman that is dressed to the nines is escorted by a man festooned in tattoos looking like a derelict.  At one time we could look to elders to preserve the traditional dress standard.  But no more.  They follow like sheep.  That’s because of the carryover of the ‘60s hippy culture into the senior citizen ranks now.


Young parents, who of course never knew the traditional appearance standard, continue the travesty in passing it on to their children.  I recently witnessed a little girl about four shrieking at the sight of a man with hair dyed fire engine red flowing down his back.  Her mother in a most politically correct tone admonished her saying that people have many hair colors so be quiet.  In the absence of expressed parental outrage at such personal choices, can deviancy become the norm?  Actually, it already has – certainly with respect to tattoos.


I’m no Beau Brummell by any means, but it’s time to speak up.  How about pre-1960 form-fitting, color-coordinated clothing – clean and pressed?  Let’s see more women in dresses and ensembles, and men in slacks and suit with tie.  Consider the films of formally dressed ordinary fans filing out of baseball stadiums in the 1940s.  By contrast, today’s “fashion” reflects a certain degeneracy in a lack of discipline, substance and self-respect that undermines a civilization.  Yet, for some reason the suit and tie requirement in court, for example, challenges this reality by subordinating the right to be a slob.  It would be nice if that sartorial rationale took precedence again.  It might start with expressing disapproval.

© 2012 William J. Dodwell

By William J. Dodwell    December 18, 2012

Profanity and vulgarity have become largely acceptable. They now pervade office conversation, entertainment and all media, and are practiced even in the presence of the President and the first lady. Witness the annual White House Correspondence Dinner.  Samuel C. Jackson, the actor, was featured using profanity with a child in an Obama campaign ad.  And the New York Post, supposedly a family newspaper, screeched “Peace of Shit” on the front page referring to Iran’s Ahmadinejad delivering a speech at the United Nations.  Clearly, decency standards are sliding down the slippery slope.  Profanity is particularly ascendant among many women who think it helps to establish a certain gender equality heretofore denied them.  Others resort to vulgarity to intimidate or to overcome their own timidity. 


Why is foul language de rigueur in the movies and in comedy routines?  Some say it’s about art imitating life.  Perhaps in film it’s an application of “method acting” developed by Lee Strasburg in the 1940s and 1950s that stresses a realism expressed by lifelike characters.  But profanity was not heard in motion pictures until about 1970 when much of our culture was in decline.  Perhaps it was time for movies to follow suit.  Profanity is also a means for the Hollywood Left to degrade our culture to the least common denominator consistent with its professed philosophy of the everyman, thus rejecting what it considers an antithetical elitist model.  Or maybe vulgarity is simply a response to a coarser and more receptive population having important economic implications for the industry.  In any case, the cultural conservative holds that, while certain reality is appropriate in the arts, profanity is simply gratuitous - like too many explosions and flying body parts.

But one encouraging sign came out of Middleboro, MA which now levies a $20 civil fine for cursing in public.  This prohibition did not originate with government.  Rather, the citizenry demanded it out of exasperation from the ubiquity of foul language in their community.   In addition, I’m reminded of comedian Bill Cosby’s comment some years ago in a cable TV commercial for TBS classic movies.  He said what he likes about that genre is that there was “no cursing”.  Linguistic propriety requires discretion and precision in language borne of a certain intellectual engagement and respect for others’ sensibilities, as distinct from raw impulse and emotion. Indeed, there is something culturally conservative about such decorum.


And what ever happened to correct grammar regarding the past participle and subject/predicate agreement?  Utterances such as “I should have went …”, “I could have did …” and “He don’t …” are commonplace even among educated people today.  In addition, the present perfect tense is frequently mistaken for the simple past.  Furthermore, “It’s a good thing” is now acceptable even among journalists, the so-called guardians of the language.  As early as the fourth grade I remember learning that “good” in this instance should function as predicate adjective and that “thing” as a predicate noun is redundant.  I was taught, “thing” is an intellectually lazy substitute for an appropriate noun such as “policy”, “program”, etc.  Why has all this changed?  School children are taught “language arts” today.  It used to be called “English”.  The arts reference might suggest a freestyle, anything goes quality that precludes the precision of traditional grammar, word selection and thought construction.  We all lapse occasionally but broken rules seem to becoming standard.  


And there are consequences.  Reportedly, the literacy deficit has resulted in problems with internal and external business communications that embarrass management and alienate customers.  Also, Conan O’Brien, the TV talk show host, said in an interview with Piers Morgan, “No one can tell stories anymore.”, presumably referring to the inability of guests to assemble coherent sentences.  This does not bode well for the entertainment genre established by Jack Paar, Johhny Carson and Merv Griffin.  More importantly, the demise of the raconteur is symptomatic of a broader societal malaise with grave implications for verbal analysis, enrichment, and, yes, political discourse.


Weak vocabulary is commonplace now even among professional writers.  For example, consider the ghetto reference “dis” for disrespect.  Also, note extended metaphors, such as “take a whack at taxes” for tax cuts, and “weigh in” for expressing an opinion, substitute for precise wording.  How about getting the verb “try” right.  Isn’t it “He will try to fix the car, not he will try and fix the car?  I think a verb following the verb “to try” must be an infinitive. Yet I have never heard a single criticism of this grammatical flaw which is commonly used in professional business and journalism.  And, can we stop referring to independent films as “indies”?  Also, what is the problem when even erudite people say “eriudite”?  And of course, the repetitive and addictive “like” that punctuates the sentences of so many millenials is meaningless.  In addition, can we finally retire the sophomoric “cool”?  It started in the ‘50’s describing insouciance but degenerated to a vapid filler almost as bad as “like”.  Furthermore, many abandon reason when they say simply, “Sorry?” instead of, “Excuse me.  I didn’t hear you.”  Moreover, the term “sustainability” in reference to the environment has never been defined, just thrust upon us by the Left as a subterfuge for the discredited notion of controllable climate change.  It is truly a bastardized term. 


But these infractions pale in comparison to the now mainstream scatological and sexual references of “pissed off” and “suck”.  The latter came into acceptance in the 1980s when it morphed into a substitute for anything that “is bad or unpleasant”.  Today an entire generation is unaware of its etymology as it is commonly heard in social and professional settings.  Even my fiftyish doctor used the term seriously in conversation.  What’s more, I heard an elderly university president mention it before a public audience.


Why is profanity only minimally objectionable in a civil society and literacy so undervalued?  Perhaps because the malaise has reached critical mass in a highly secularized culture in which parents, teachers and even institutions are no longer inclined to counteract it.  In addition, as mentioned, the use of foul language by women who as part of their newfound liberation resort to it to be like “one of the boys”.  Gone is the custom of refraining from vulgarity in the presence of ladies.  We have reached the point in some circles where speaking in complete properly constructed sentences is considered elitist.  What’s next – ebonics?  All this may seem like the musings of a petty curmudgeon, but, again, where does it end?  Sloppy language leads to fuzzy thinking, diminished sensitivity, and less effective communication - a sure path to cultural demise.
© 2012 William J. Dodwell 
 By William J. Dodwell    December 27, 2012; Revised June 17, 2013

Of course, musical taste is subjective and cannot be dictated.  It is determined by exposure during adolescence, peer pressure, and/or formal study.  Additionally, musical preference probably has certain psychological and emotional underpinnings.  To be sure, it does not necessarily relate to intelligence inasmuch as countless brilliant people have mundane tastes. 


As a studied avocational pianist grounded in classical compositions and later practiced in the jazz/pop idiom with some professional experience, I am more serious about music than most.  Therefore, I especially lament the way music has changed in the last 50 years.  Consider me a post-war anachronism athwart the music of two generations: mine and the previous.  Because of my early and formal exposure to music, I prefer the works of The Great American Songbook, i.e., the so-called standards, largely associated with Frank Sinatra et al performed both traditionally and as jazz improvisations.  I also like similar more contemporary music including certain movie scores, some country music, and rhythm and blues.  Barbara Streisand and some Whitney Houston works are great.  This preference is founded on distinctive melody, harmony and rhythm supported by comprehensible lyrics and rich vocal and instrumental delivery.  My favorite instrumentation is the piano trio consisting of acoustic piano, acoustic bass, and drums, variously complemented by a crooner, a saxophone, trumpet, guitar, or strings.  How old fashioned!  I call it real music; I also call it conservative music.  Consider the comment of a co-host of a Time Life TV infomercial about this music.  “It is so nice to hear real instruments played by real musicians.”


I view this genre a cultural complement to political conservatism in the belief that politics underlies culture.  Indeed, beauty and cultivation are embodied in conservative principles.  I would bet there are legions of self-described, as well as latent, aficionados of this art form among all ages.  But to some extent leftist relativism holds sway promoting debasement while suppressing anything construed as conservative.  As a consequence, real music gets no exposure.  Time was this kind of music was heard all over radio and early television, as well as in every lounge, hotel, restaurant, elevator and dentist office.  Why couldn't it be popular today?  No exposure.  It was truly mainstream - until rock and roll hit the proverbial fan.  That change started innocuously in the ‘50s but later degenerated into head banging, heavy metal pounding and screaming, decadent theatre, and uncivilized rap and hip hop accompanied by violent videos.  Musical and vocal skill became largely optional.


That transformation increasingly degraded popular music, pushing the envelope to create change for its own sake amid a new societal permissiveness with its general decline in discipline and refinement.  In the extreme, the new “art form” became nihilistic noise marked by primal roaring and thrashing electric guitars fueled by pandemic drug abuse.  In intimate vocal settings today elegant piano accompaniment is supplanted by the barely audible simplistic strumming of an acoustic guitar.  In a similar vein, touch dancing which required a modicum of skill and coordination with the music, yielded to juvenile disconnected jumping and hopping in the early 1960s. (I suspect the popularity of today’s “Dancing With The Stars” reflects a certain yearning for the old standard, albeit modified, even among those too young to remember.  Could this retro model apply to old music too?)  


Vile rap music and associated videos became acceptable.  How ironic considering the racial commonality with the beauty and genius of jazz.  The ascendance of hard rock coincided with my baby boomer generation coming of age, seemingly suggesting that the larger numbers and the attendant critical mass beget diminished quality in the celebration of the lowest common denominator.  And in today’s relativist environment, denunciation is unheard of.  The upshot:  noisemakers like Mick Jagger and Bruce springsteen become icons of the masses while beautiful traditional music approaches extinction.  An utter tragedy.  Any truly cultural conservative would agree.


It is difficult to definitively draw the line between good music and bad as jazz, blues, and rhythm and blues may benignly fuse, but become degraded when they cross over into a certain form of rock.  But good music does not have to be high brow.  I love listening to Jerry Lee Lewis and playing piano blues.


To his credit Johnny Carson didn’t book hard rock acts by my observation, at least not through the ‘70s.  However, I do recall Paul Revere and the Raiders performing once perhaps as an experiment.  On a different show I remember Eydie Gorme starting a tirade about the deterioration of popular music on the order of this commentary.  Carson, an accomplished drummer and traditional music lover, was no doubt sympathetic but remained mum and shortly rushed to commercial.  As a practical matter he could not indulge Eydie.  He risked alienating too many younger viewers. 


Alas, most don’t know any better as they have never been exposed to real music through education, peerage or recordings.  Serious musical study and mastery of an instrument are no longer encouraged today, especially in view of budget cuts that eliminate school music programs.  The tragedy is that some of those rockers might have been another Frank Sinatra, Nat Cole, Oscar Peterson, Ella Fitzgerald, Julie London, Vic Damone, Steve and Eydie, et al.  From the vantage point of those who have dedicated a lifetime to becoming truly accomplished musicians, the trashing of popular music is most saddening.  Those folks are rightfully in thrall over the rich musicality of their instruments and performance.  It would be nice if it were more appreciated.  I’m talking primarily about jazz and classical artists, not rockers who thrash three basic chords on a guitar.  Yet, oddly, even some of those artists embrace the drek.  Go figure.


In the absence of broad musical training and exposure, musical taste is largely generational - locked in during adolescence and reinforced by the power of nostalgia.  I remember watching the Mitch Miller TV show with my grandfather and father in the early ‘60s.  My 40ish father jokingly mocked my 80ish grandfather’s enjoyment of what he considered corny turn-of-the-century tunes.  As an early teen pianist, my anomalist interest centered on Mozart and Irving Berlin, but I also succumbed to the generational pull of a Del Shannon on the radio.  Inter-generational musical tastes will always differ as each generation of composers strives for its own signature while the listenership follows, but with no parameters anymore.  Nevertheless, I stand by my lament.  In fact, it is not new.  I was the killjoy at the college dinner table in the late 1960s always complaining about musical decline.  Hey, I’m a man of conviction.


The cultural conservative as defined yearns for traditional music, and stridently decries its demise in the hope of arousing a certain curiosity among the uninitiated that might motivate consideration.  He/she has no regard for rock icons.  In fact, any “rock star” metaphor invoking extreme popularity or indulgence is distasteful.  Parents should introduce their children to the beauty of real music through private musical instruction.  However, this is problematic since they themselves were never exposed to it.  But the schools could help in this regard.  Traditional musical performance bestows discipline, refinement and satisfaction from exercising one’s creative powers that carry over to other areas of life.  A relatively small conversion to traditional music through education, mass suasion and a certain commercial impetus could restore its cache.  It might even become mainstream again, but I won't hold my breath.
 © 2013, 2012 William J. Dodwell

By William J. Dodwell    January 19, 2013
In bewailing the status quo of gender relations, conservatives always have invoked the days of yore when “men were men and women were women”.  But today that lament has never been starker.  Acknowledging the legitimate progress of women in recent decades, one cannot escape the irony of the American male’s image reaching a low ebb.  Some of that decline is a corollary of women’s new found equality, but much of it is a result of the liberal effort to degrade America through societal castration.  Consider the diminished role of males in the home, the school, and the workplace brought about by the attack on the traditional family, belittling portrayals of men in media, and affirmative action all emanating from the Left.


No less sociological authorities than Daniel Patrick Moynihan and Charles Murray have warned of the great risk of the fatherless home.  That danger, borne of today’s high rate of divorce, out of wedlock births, abandonment, nanny surrogates, in vitro fertilization, and lesbian unions, is especially evident among inner city youth whose lack of the unique nurturing, discipline and authority of a male parent is complicated by poverty.  And many financially independent women today even question the need for a father.  America has undergone a cultural sea change fostered by liberal politics that undermines the family and promotes government dependency.  For boys, this paradigm may impinge on their values, sensibilities, aspirations, accomplishments, and perhaps even their eventual manliness, with grave implications for our future.


The leftist media denigrate the traditional family to accommodate those to whom that model does not apply, such as single mothers and gays, or at least downplays it so not to offend them.  What’s more, the Left promotes the antithesis in the form of same-sex marriage and disparaging depictions of men and family in movies, TV and advertisements, while refusing to decry the huge percentage of fatherless black families.  One blatant example of the anit-family media bent is a television reality show called “All My Babies’ Mamas” featuring a black rap artist’s life with ten women and eleven children he fathered with them.  As it happened, the series was cancelled before the initial airing because of complaints about racial stereotyping.  Liberals sure don't want to alienate that voting block and undermine the government social programs that keep them in business.


In a different vein, the father has become more visible to children at home as Mr. Moms push strollers down the street en masse while their wives work.  In some cases the man has chosen to assume the traditional maternal role.  In others the phenomenon results from the government induced so-called “man-cession” in which companies disproportionately hire, promote and fire women (and minorities) in the workforce at the expense of white males.  Indeed, the workforce participation rate among men last year fell to the lowest in recorded history dating to 1948.  Yet another unspoken sign of America’s castration. (And the Left talks about a war on women?)  Although understandable in some circumstances, the emergence of Mr. Mom is nevertheless lamentable.


In the schools natural boyish behavior is suppressed because of diagnoses of ADHD and mandated medication.  While real in some cases, the condition is probably diagnosed and medicated far beyond its reality.  At some level it may even be a pretext for neutering males considering all the other efforts to do so.  Competiveness is discouraged as keeping score at games is prohibited and everyone gets a trophy.  Traditional character building sports for boys are eliminated in favor of legally required athletic programs for girls for which there is a fraction of the interest and benefit.  Some schools even promote genderless classrooms to foster the notion of absolute equality between boys and girls to avoid any bias in influencing a child’s later preferences academically, professionally, socially, athletically or sexually.  And there have been reports of teachers discouraging scholarship among boys to give girls an edge, perhaps reflected in the significant gender disparity in the percentage of college graduates today.


What’s going on in government hiring?  Employees in federal, state and municipal offices, libraries, railroad ticket booths, and departments of motor vehicles are overwhelmingly female.  This is affirmative action and reverse discrimination at work to create designated employment havens for women, like retail and security jobs for minorities.  The practice is particularly problematic in times of high unemployment as it breeds resentment among men seeking work.  And, as mentioned, in corporate America white males were disproportionately laid off during the Great Recession and its aftermath to bolster female representation.  I remember observing that some 70% of riders on the commuter train were women.  As a consequence, white males bore the brunt of unemployment along with emasculating disempowerment that destabilizes families - just what the liberals want.  Happily, a backlash seems to have ensued resulting in some correction.


In business I wonder about the relative effectiveness of today’s egalitarian, consensus-based, feminized management style brought about by the large scale elevation of women to the executive ranks.  While one can point to innumerable examples of superior female accomplishment, overall, the discipline, and indeed masculinity, of the former authoritarian, dictatorial, hierarchical model might produce better results. You be the judge.


A most galling manifestation of our castrated culture is seen in TV advertising.  For some time now it seems every ad portrays the man as a sniveling, weak, whining wimp contrasted against a mature, stable woman.  Why?  It can’t be to sell product, at least not in every case.  Rather, the ads promote the feminist Left by belittling men in order to elevate women.  Madison Avenue has long embraced the liberal agenda. Agencies figure they can influence audiences with subliminal political innuendo while independently promoting product.  It is time to prove them wrong.  Boycott their advertisers and products!


Of course, the battle of the sexes is not new.  It is largely predicated on the historical presupposition of man’s superiority chronicled in accounts of early man as hunter-gatherer vs. the woman’s passive domestic role, and in countless biblical references.  The old adage, “It’s a man’s world.”, and even the marriage term “husband”, corroborate the primacy of the male.  The fact is that from inception men have displayed their dominance in the arts, science, academics, commerce, technology and government.  They have conceived and produced virtually everything in sight: infrastructure, buildings, the professions, institutions, businesses, medicines, consumer products, durable goods, etc.  This wasn’t achieved simply by discriminating against women.  If women were truly equal they collectively would have overcome their ancillary status thousands of years ago.


Yes, throughout history women were suppressed until their emancipation over the last forty years, a change that could not have occurred without the cooperation of men.  This progress is certainly to be celebrated as a benefit to civilization.  It has allowed the realization of a previously dormant reservoir of talent that is superior to their male counterparts in incalculable individual cases.  But the feminist movement and its indispensible male liberal allies are dedicated to further closing the gender gap by nefariously trying to neutralize, indeed neuter, men to the detriment of the social order. 


Perhaps it is revenge for the suffering of so many women with children in the ‘60s and ‘70s sadly abandoned by spouses to face poverty when the traditional family began to break down before equal employment opportunity was achieved.  Or maybe feminists are pushing the envelope having acquired unprecedented leverage.  But for some leftists, cultural emasculation is yet another way of degrading America.  It must be challenged.  Of course, men will ultimately prevail because it is the natural order of things as proven by history, but in the meantime the damage can affect generations.
© 2013 William J. Dodwell

Culture Clash and Security Vulnerabilities Are Ignored in the Immigration Debate

By William J. Dodwell    February 12, 2013

To a great extent legal immigrants contribute to American life as they aspire to a better life in a mutually beneficial assimilation.  They learn English, satisfy the needs of businesses and individuals at all levels, and in many cases provide technical expertise not available domestically.  Most Americans welcome these new entrants.  Indeed, those immigrants who offer special education and skill that remedy critical resource shortages should be accommodated through a much expanded H-1B visa program. 


Culture clash and foreign transgression


Nevertheless, there are legitimate limits to immigration policy.  While political and economic considerations are prominent in the immigration debate, little is said about cultural consequences and quality of life issues. Liberals denounce them as nativist and racist and others reactively shrink in silence out of fear of that taint.  Security vulnerabilities are also given short shrift.


            For a long time illegal immigrants crossing the southern border in particular have violated American sensibilities.  Their significant presence strains resources and clashes with our language and culture undermining the quality of life, not only in the vicinity of the border but throughout the interior as the diaspora spreads.  In the extreme, our very sovereignty could be threatened as institutions are undermined in the effort to assimilate them.  Americans are not alone in this thinking.  France bars certain American movies and prohibits Muslim attire on women because they infringe on its culture. Other countries of Europe also grapple with malcontents fearful of Muslim influence.  Singapore, responding to citizens’ complaints, restricted the inflow of foreigners by raising the income requirement.  And, ironically, Mexico fiercely secures its border against illegal immigrants from Central America while it deplores U.S. efforts to defend its southern flank.


            Jobs and drug sale opportunities created by American businesses and recreation seeking individuals lure those immigrants.  At the same time, the quest for Latino votes by both political parties results in a relaxation of law enforcement.  As such, American demand for cheap labor and unlimited drugs, facilitated by relatively open borders, garners an endless supply of enterprising immigrants across the border to pursue economic opportunities not available at home.  But byproducts of their permeation, including violent crime, drug abuse, welfare dependence, disease, voter fraud, property damage, culture clash, and terrorist infiltration, undermine our quality of life and security.  Some even believe Mexico is intent on reclaiming U.S. territory they lost through war and annexation in the nineteenth century by promoting massive emigration and reproduction.  Understandably, these realities engender a certain xenophobia, especially in the border communities.  Yet public policy views the immigration issue only in political and economic terms.


Excuses for immigration disregard the cultural self-preservation instinct


            Liberals, and some conservatives, excuse foreign intransigence with platitudes about “they only want a better life”, or “they’re taking the jobs that no one else wants”, or “we’re a nation of immigrants”.  They disregard the downside, such as stresses on schools, hospitals, courts, government agencies, infrastructure, as well as higher unemployment among American citizens, and the spread of tuberculosis and leprosy.  And no one (not even conservatives) dares to mention the discomfiting incongruities of language and cultural differences when having to repeat oneself three times when ordering coffee or not being able to communicate at all, or having to endure cacophonous distractions that invade one’s surroundings, or having to bypass annoying Spanish translations in documents and automated telephone prompt menus.  There’s a reason why most Americans support English as the official language of the United States.  But liberals, and others, ignore why the U.S., like all countries, has immigration laws in the first place.  It’s about cultural sovereignty.


            A word about the aforementioned excuses in support of accommodating illegal immigrants.  Seeking a better life is an honorable goal and describes the motive of most immigrants to the U.S.  But it’s not our responsibility to provide the “American dream” to any foreigner desiring it considering the displacements and risks indiscriminant immigration poses.  Even too many good immigrants can undermine our sovereign institutions, culture and security, especially today.  As such, more than just economics and politics are at play.  Immigration is also about the quality of life that depends on the preservation of American language and culture.


Another argument commonly repeated by the Left is that Mexican immigrants fill jobs that Americans don’t want, such as picking lettuce, cleaning restrooms, and landscaping yards.  The issue here is not the nature of the jobs, as indigenous Americans held them for years in the past.  Yes, Caucasians shun the low pay today, but the main reason for the disinterest is the ethnic profile of the job.  Time was when one could easily find an enterprising youngster to mow the lawn.  But for some time now, that is no longer true.  Some years ago I approached a white teenager in the neighborhood about mowing my lawn for the season.  His response was “That’s a Mexican’s job.”  But I maintain that if all the Mexican landscapers who mow lawns today were to return to Mexico, Caucasian youth would be tripping over one another for the opportunity to do the work, albeit for a higher wage.  Ditto for cleaning hotels and any number of other mundane tasks now eschewed by whites.  In reality, the critical mass may be 50% or so.  That is, if half of the landscaping jobs were performed by whites, the stigma disappears and the interest emerges.  Those jobs would have plenty of takers (again) among Caucasians, especially in a slow economy, if they were not so racially disproportionate by design.  We don’t need immigrants to do our menial work.  Indigenous Americans might require higher compensation but that is a tradeoff for the economic, political and cultural tensions created by far too many illegal immigrants.  


This principle also applies to the many low-skilled sectors that affirmative action has designated for minorities, such as retail clerks, bank tellers and security guards.  More whites might apply for those jobs but for their racial stratification, unless they’re shut out by affirmative action.  Eliminate the ethnic characterization of occupations imposed by immigration policy and affirmative action, and there is no job Americans won’t do.


Motivation based on racial characterizations and perceptions is a reality.  Consider the depiction of the military in the media.  As I mentioned in a previous political commentary on corrupt media, it appears the percentage of white American soldiers featured in the visual media far exceeds their actual representation.  Is this portrayal designed to attract more white recruits by dispelling the notion that the voluntary military is a haven for minorities?  Is it to assuage public concern about national security that relies on a voluntary force disproportionately skewed toward non-whites?  Does whitewashing the face of the military garner more public support for the war effort now and later?  Call this racial identity phenomenon white elitism, but all races and ethnicities are naturally more comfortable with their own kind.  In the U.S. whites are still the majority and dominant demographic, hence the apparently contrived military appeal to the white population.  Of course, civilized people overcome blind tribal provincialism but it will always exist to some degree, especially with respect to class and cultural differences imposed from without.  Therefore, Government should recognize this social reality in its immigration policy and its effect on the established quality of life.  


Anti-bias may be legislated and institutionalized, but it cannot be entirely personalized.  Call it the “birds of a feather” syndrome.  Like it or not, people instinctively prefer a certain homogeneity even in a diverse integrated society.  It’s the nature of man, and government will not change it.  To resist it beyond a certain threshold invites societal tensions.  I have witnessed this natural propensity from my own experience.  New recruits on a Wall Street trading floor initially distinguish themselves on the basis of their college pedigree.  For example, an Ivy League employee wouldn’t readily sit next to say, a state university co-worker.   Also consider the zeal by which some elite parents try to get their children into exclusive Pre-K schools at great expense.  So, on a private level, such as employment and education, egalitarian altruism doesn’t always apply, even among liberals.


Everyone seeks a certain status professionally, socially and economically commensurate with their background.  It’s in the DNA.  Many medical specialists don’t talk to general practitioners, and psychiatrists don’t deal with psychologists.  In a similar vein, why do TV stations hire so many blond women in on-air roles?  I’ve seen this phenomenon also apply to the hiring of waitresses to improve business. Could there be a certain market affinity for the quintessential white person that characterizes the American majority?  Not to denigrate benign integration, but excessive immigration undermines this natural chauvinism to the detriment of the native population.  Although this provincialism is most impolitic and xenophobic in the extreme, it is healthy because it defines a national culture.  Its attenuation diminishes Americans as a people.  Too much diversity is not beneficial.  It is antithetical to the meritocratic standard that traditionally undergirds American life.  Of course, the Left seeks to destroy that model and celebrates liberal immigration as a means of doing so.


Another gambit of open border advocates invokes the “we’re a nation of immigrants” adage.  But this claim too is specious.  In the 19th century American industry and infrastructure were nascent such that each immigrant could contribute substantially at the margin to the birth of the nation.  They lived and worked in discrete ethnic communities in which native customs were contained.  But today, we are a mature diverse society in which incremental infiltration by outsiders generally tends to diminish American life on balance.  Unassimilated immigrant groups are less insular as they intermix more with the majority at home and at work thus clashing with the mainstream language and culture.  While immigrants benefit from their new opportunities, indigenous Americans generally suffer social incongruities, notwithstanding many rich individual relationships between the two populations.  And, as stated, the economic advantage of cheap labor does not fully compensate.  In addition, too many newly enfranchised immigrants would eventually acquire voting rights, government benefits and affirmative action protection that would undermine traditional America and exacerbate the conflicts. 


Most Americans, whether they admit it or not, want to preserve the language and culture that form the basis of their communication, work and diversion.  Certainly this is true in other countries where foreigners insert themselves.  They believe the old saw, “When in Rome do as the Romans do.”  However, many liberals prefer an amalgam under the guise of diversity because they really want to balkanize America to make society more amenable to big government and beholden to its largesse.


Border control is indispensable


Complicating prudent immigration policy is the refusal of the Obama administration to secure the border as required by law.  Alas, both political parties are utterly irresponsible about protecting the border with Mexico because enforcement conflicts with their quest for votes and undermines the availability of cheap labor to corporate constituencies.  There is also the concern of straining relations with the Mexican government which depends on Mexicans working in America sending remittances to families back home.  These interests supersede the concerns about crime and drug abuse associated with narcotics smuggling, as well as the discomforts of culture clash.   Government even rebuffs the efforts of civilian Minute Men who voluntarily spot and report immigration violations.  And reportedly, Immigration and Customs Enforcement (ICE) officials are effectively told not to enforce the law.  What an outrage!


We must secure the border.  Experts estimate a 2,000 mile wall along the Mexican boundary could be built in 2 – 3 years for only a few billion dollars.  In addition, a dedicated U.S. military presence would stop illegal crossings cold.  But it will probably take a major breach of security executed by Islamic terrorists capitalizing on the porous border for government to get serious. 


Sadly, the cultural and terrorist threats emanating from the southern border are ancillary to political considerations for most politicians.  They prefer to sing the praises of diversity in the effort to capture the almighty vote while culture clash, the quality of life and national security be damned.  Conservatives must stand their ground.  Vociferous opposition is especially needed in view of the new found conciliatory posture on immigration among Republicans in the wake of the lamentable Latino vote in the 2012 election.
© 2013 William J. Dodwell

Cultural Decline Through Leftist Media and Diluted Education

By William J. Dodwell    March 15, 2013

            A culture is defined by its mores, institutions, behavioral conventions, the role of faith, family and the rule of law, personal relationships, education, and commercial, technological and artistic achievement.  For some time much of American culture has been under siege by a politically driven media and the educational establishment aimed at promoting an egalitarian and secular standard that celebrates the least common denominator in contrast to individual merit andl excellence that established an exceptional nation.  What’s more, the media and education aggressively challenge individual and institutional opposition in the process.


Cultural dreck


The country is preoccupied more than ever with the frivolous, such as college and professional sports, at the expense of serious thought about civic life, especially in respect of the machinations of an intrusive government and its allies.  The dumbing down of America is in full force.  Mass media undermine traditional cultural values in promoting degeneracy, gratuitous violence and leftist propaganda in movies, sitcoms, reality shows, video games, and comedy.  Ratings supersede propriety.  Particularly repulsive is the assist from the advertising industry, a wholly-owned subsidiary of the Left.  It mocks traditional values, especially as it tries to emasculate America by almost universally portraying men in commercials as puerile buffoons that always defer to the mature, level-headed woman.


For example, certain cable TV programs, among many forms of degradation, show middle class youth consuming drugs, even intravenously, in a feature about one’s “drug of choice”.  The culture is given to embracing degenerate rockers, rappers, actors and professional athletes.  The media produce celebrities in reality shows based on their very perversions.  Major entertainment companies market, indeed promote, misogyny and extreme violence and lawlessness in music videos and video games.  Time was when commercial enterprises exercised restraint in the name of decency and at the expense of profit, especially in respect of impressionable youth.  Today ratings are sacrosanct.  And a proactive political component exists as well aimed at creating demand for perverse content that subverts the old order that contravenes the leftist agenda.  Indeed, some programming is foisted on the public in spite of demand.  Poisonous purveyors are driven by profit while consumers are prone to self-indulgence.  Self-imposed moral, ethical and healthy moderation used to temper both sides.  That mutual discipline is gone.


Liberals say media programs just reflect art imitating life.  But featuring ubiquitous decadence encourages it such that it becomes life.  The media hijack our youth by denigrating achievement in school, promoting vulgarity, encouraging girls to look and behave like sluts, and mocking authority figures such as parents, teachers and policemen, all to destroy tradition.  Liberals celebrate multiculturalism which promotes equality of cultures over assimilation to the detriment of the intended beneficiaries.  And, of course, the media obsess over racial relations, societal and otherwise.  The Kim Kardashian/Kanya West sham is an utter disgrace.  Media contrived racial comity helps to inure the general population into supporting government programs (and related taxation) largely serving minorities and to encourage sympathetic voting.  Racial co-optation is also designed to make the public ignore the social pathologies that traditionally separated them from the mainstream for good reason.  The Left seeks one big happy family under the auspices of an omnipotent government, with the race card at the ready for anyone who dares to object.


Education as a leftist change agent


Also lamentable is the decline in the quality of American education which is consistent with the goal of the Left to indoctrinate youth with its orthodoxy and obviate critical thinking that could challenge it later on.  The teacher unions, as an arm of the Left, have been the principal instrument for effecting this change (although not always with the sympathy of the teachers).  They dilute traditional academic standards, and suppress individualism, the pursuit of excellence and the spirit of competition – the keys to America’s greatness. 


For example, the educational cabal attempts to revise or even abolish the teaching of American history in favor of multicultural considerations and other forms of political propaganda.  Apropos of the Marxist egalitarian model, little league sport teams are not permitted to keep score, homework is minimized, high achievers are subordinated to lesser students, and everybody gets a trophy – all in the name of self-esteem.  What ever happened to the celebration and reporting of individual scholars, such as debate champions?  It doesn’t fit the model; it’s too exclusive, even elite.  In New York City it is even proposed that entrance exams to the handful of high schools for the gifted be discontinued to create racial diversity.  Overall, U.S. schools are now ranked only seventh in global competitiveness. 


In the colleges, leftist indoctrination is de rigueur while conservative thought is verboten.  In fact, government funding is contingent on adherence to the liberal agenda, be it racial studies, climate change, or same-sex marriage. As a result of declining education, in combination with the nefarious influence of the leftist media, the American electorate is susceptible to apathy, naivete, weak sentimentality and sheer ignorance.  Meet the low information voter.  This undermines the ability to elect effective representatives in government who support tradition and real solutions to America’s problems.  Yes, the enemy is within.


Taking action


The docility of the public grows with each generation making resistance increasingly difficult.  Culture always undergoes certain aesthetic and cyclical change, and generational clashes are inevitable.  But we face a cultural sea change that portends a debilitated and government dependent America characterized by group think, inferior achievement, public apathy, diminished integrity and ancillary world status.  Honesty and integrity have certainly deteriorated in the media, as well as in business and social relations where lying is acceptable in some quarters.  And many judicially activist decisions also call traditional uprightness into question.  This malaise sets the stage for a crisis of trust that seriously challenges the nation’s exceptionalism established at the founding.  In the extreme, imagine life amid the corruption of African countries and elsewhere.  Honor is antithetical to the tactics of the Left.  Indeed, individualism, the rule of law and personal responsibility undermine its collectivist agenda.


We must remain cognizant of steady cultural decline and its effect on our social, political and economic wellbeing and proactively defend appropriate standards.  One antidote is an ongoing expression of indignation.   Reticence out of political correctness is fatal.  Also, hit the enemy in the pocketbook.  Don’t buy sponsor product.  Don’t consume objectionable programming.  And complain vociferously.  We need more crusaders.  Support Brent Bozell’s Media Research Center that exposes liberal bias and culture rot in media.  Salutary change requires unrelenting resistance against the Leftist juggernaut as it pushes the envelope at every turn. We’re already well down the slippery slope.  We must promote meritocratic principles and exercise our civic duty to effect transformation through the electoral process.
                                                                        © 2013 William J. Dodwell

Racial Meritocracy and Affirmative Action in Professional and College Sports

By William J. Dodwell June 20, 2013

In keeping with my determination to pursue truth suppressed by political correctness perpetrated by liberal media and the body politic, I opine yet again about race in America.

The racial meritocracy

Why did the NFL and the NBA become so predominately African American in the last thirty years? Unlike other social settings, liberals do not object to racial imbalances in professional and college sports and any suggestion otherwise is a non-starter. Yes, in this case the meritocracy, a conservative hallmark, reigns supreme. Or does it? Might there be a political motive as well? To wit: Establish a pure meritocracy in sports to legitimately achieve racial integration by capturing a clear black majority at the college and professional levels based on superior ability. Then add an affirmative action component to further expand the black player population to create a virtual racial monopoly in the interest of advancing societal race relations. Merit + affirmative action = racial harmony.

Initially, African American players were banned by discrimination. But then even with integration the colleges, as the de facto farm system for professional football and basketball, still denied most qualified black athletes a pathway to the professional ranks because of economic and academic barriers to entry. Eventually, the schools, motivated by commercial and political interests, relaxed academic standards in order to admit and retain black athletes. They also made athletic scholarships available to them to overcome the economic impediment. As a result, universities enjoy greater revenue and prestige from more competitive teams that command greater public appeal and more lucrative TV contracts, ticket sales and alumni donations, while presumably promoting racial relations consistent with their liberal bent. In the process, academia created a new pool of recruits for the professional teams, setting the stage for black domination on the field.

Does superior talent alone account for the degree of disproportionate African American representation in football and basketball? The NFL and NBA are respectively about 70% and 80% black overall, and much higher among starting players. This contrasts with their approximately 13% composition in the general population. Are the leagues so racially lopsided solely on merit, or are the demographics somewhat contrived as well? Perhaps today’s black stars, while not necessarily better than yesterday’s whites, are simply more plentiful and therefore more represented. But many believe blacks are more in demand than whites because they are genetically more predisposed for these sports. Some years ago Las Vegas bookmaker Jimmy the Greek famously suggested blacks are physiologically equipped to perform better (and the media absurdly condemned him as a racist.) And even Hollywood says as much through the movie, “White Men Can’t Jump.” Whether black talent is more abundant or more skilful, teams have an economic incentive to capitalize on its availability. Fair enough.

The grand plan?

But is the liberal establishment duping the public by covertly imposing African Amercan supermajorities in the major professional and college sports based on more than just superior athleticism to create a near racial monopoly by design? Here’s a theory.

Since the 1980s a natural black majority in football and basektball based on merit has established a positive racial profile that projects an image of success, power and prosperity that becomes a model for the black community and an object of adulation to the general public. This visage fosters a certain societal assimilation for blacks that has been unattainable in the conventional workplace and through government programs. So, race-obsessed liberals might say, why not give more blacks the chance to achieve this unique form of recognition and respect by combining merit recruiting with affirmative action? Take something they do well and stack the deck with them. Designate football and basketball entirely the preserve of the black man, even extending it to the commentating role, to establish it like other reserved employment sectors, such as security guards, manual labor, retail clerks, and many administrative jobs not requiring a college degree. The strategy also applies to black musicians in jazz performance. Even sacrificing the economic benefits of a few better white players for lesser black players in the name of racial comity is worth it liberals would say. Is this not done in business? And the liberal media love it. (The model also comports with the predominance of black and Latino players in major league baseball although MLB cultivates its own farm system.)

Implementation is easy. Reserve starting lineups for the best African American athletes to assure their visibility through the performance quality of the brand while affording these players the more lucrative opportunities associated with resultant stardom. Let additional black players be stars on an affirmative action basis, even over more skilled whites. But recruit some good performing second and third string white players to demonstrate a modicum of diversity overall to dispel suspicions of discrimination, like the lone white guy at the commentators' table. So, the result might be 70% black on a performance basis, 20% black on an affirmative action basis, and 10% white on a performance basis. In the end, remaining competent white athletes are left in the lurch perhaps having to join the Canadian Football League or forgo a career – much like black athletes before the college proving ground was available to them. Voila, we’ve come full circle. Is payback at play here too? Do we need white organizations akin to the Negro leagues before integration?

The upshot

To be sure, meritocracy governs the professional ranks where winning and economics rule. But additional affirmative action consideration, if it exists, denies more qualified whites from becoming professional. Where the model applies to colleges and even high schools with large black populations, many talented white male athletes don’t get the character-building opportunity to play as they fail to make the teams unable to compete with blacks. How important is this? (Of course, like the pros, winning and profit are the first priority at the big time colleges.) Even other sport options may be limited as Title IX requires school athletic budgets to cover women programs equally. What’s left, video games? Nevertheless, I suspect affirmative action for white athletes exists to some extent below the professional level if for no other reason than to avoid a social backlash.

Do white athletes have a grievance against the NFL and NBA? Are discrimination suits in order? After all, blacks charge bias in claiming to be underrepresented as quarterbacks and coaches. But the model faces no opposition. Conservatives might object in principle to the affirmative action component of the grand plan, but not merit based selection. The fans don’t seem to care (at least not publicly), although some attribute slipping attendance in the NBA to the race factor. The media will never say a word. A mere hint of racial favoritism by a sports commentator would doom his career. And the general public, as well as politicians on the left and right, silenced by political correctness, would not dare to even broach the matter.

I could be wrong. Maybe African American dominance in professional and college sports does reflect a nearly universal superior prowess. Do not whites similarly dominate most areas of endeavor disproportionately to their population? But to progress from relatively little black representation to the levels seen in recent decades purely based on greater ability strains credulity, notwithstanding the removal of earlier barriers to entry. I can accept as genetically determined that, say, 70% of starting players are African American, but the seemingly actual 90% or more suggests black exclusivity by both merit and design as some degree of contrivance raises that natural representation at the expense of white players. Given the Left’s obsession with race and the extent of racial accommodations in other employment markets and throughout government, machinations are easily suspected.

Certainly, more serious issues command attention, but it is good to expose the shenanigans of the Left and violate the taboo. Such vigilance naturally extends to uncovering the nefarious clandestine activities that hurt most.
© 2013 William J. Dodwell

An Archconservative Addresses Racism, Anti-Semitism, Sexism and Homophobia


By William J. Dodwell    December 23, 2013


Bias defined


            Given the nature of man, societal conflict and division are inevitable.  Some disharmony originates in primordial forces that parallel the animal kingdom.  Other dissention flows from emotional, psychological, behavioral, and even biological factors that infuse the political and cultural environment.  But over time, the primacy of reason, as manifest in the rule of law and in widespread education, has tempered divisiveness making for a more tolerant and pluralistic civilization.  Yet humanity still struggles with grievances, real or imagined, related to fundamental differences among peoples.  Some of that discord results in supposed bigotry in the form of racism, anti-Semitism, sexism and homophobia.


            I examine these predispositions as a conservative, white, gentile, heterosexual male dedicated to brutal honesty, unlike politicians and media people who are beholden to voters, ratings and employers.  As such, I totally reject political correctness going where angels fear to tread, broaching third rails and citing seemingly unspeakable realities in the interest of truth, which most know but fear to express.  I explore the nature of bias and look at the perspectives of the aggrieved and the offender in the context of political and cultural conservatism with an eye toward identifying mitigating circumstances, as well as recognizing genuine bigotry.  Most importantly, I focus on the reasons behind prejudice, which are not raised by the media.


Generally, bias may be studied in the following framework in which racism, anti-Semitism, sexism and homophobia are grounded in a reaction to behavior while the latter two also concern inborn differences and proactive breaks from tradition:


Natural bias


Natural bias is rooted in an instinctive preference for one’s own kind.  This identity bias applies to affinity groups based on race, ethnicity, religion or pedigree.  It is evident in historical sectarian divisions, such as those found in Bosnia, Iraq, Afghanistan, Turkey, the Basque province of Spain, and southeastern Asia respecting the emigration of ethnic Chinese, all of which bridge many generations, possibly through genetic memory.  For example, ethnic nepotism common in American corporations through the 1970s reflected natural bias.  Additionally, racial differences parallel natural preferences found among horses which instinctively herd with their own on the basis of color, i.e., white, black and mixed.  Also, alien cultures can invoke natural bias in the reaction to a perceived threat, such as the increasing appearance of women in Muslim attire which might reasonably create a suspicion of malign infiltration.


Rationalized bias


Rationalized bias is found among those who have been personally violated, as through ancestral genocide or individual injury, that invokes the natural emotion of hate as a sort of palliative.  Examples include those affected by the Holocaust and victims of assault.  Individual transgressions are extrapolated to the race or ethnicity of the assailant.  Over time, patterns of such behavior have resulted in stereotypes which are usually grounded in some experiential truth unless maliciously fabricated.  Consider the perspective of one who falls victim to a drunk-driving Irishman, an Italian mafia hitman, or an assault by a black man.  This bias extends to less serious contempt as well, such as that jocularly directed to Howard Cosell, the late sportscaster, as “the voice you love to hate”, or expressed in Fox’s Greg Gutfeld’s satirical book “The Joy Of Hate”.  Rationalized bias raises the question of the right to hate and its problematic relationship to illegal discrimination and hate crimes.


Imagined bias


Imagined bias is an aversion for those who seem to have offended or for those who are presumed to be inimical.  This prejudice derives from a suspicious nature or downright paranoia.  For example, a professional colleague once told me, “I used to think people didn’t like me because I’m Italian.”  In addition, I witnessed the apprehensiveness of foreign born peoples toward natural born Americans in the workplace.  And many gentiles endure imagined anti-Semitism.  All this defensiveness suggests many perceived offenses may be attributed to just paranoia.  People react according to the imagined motives of others when in fact there is no basis for the transgression.  That unfounded reaction often precludes or destroys a relationship creating an enemy where one did not exist in the first place.  That said, humans probably are not capable of absolute objectivity because they’re not just rational but emotional and psychological beings too.  A certain paranoia is part of the human condition and therefore will always divide us to some extent.


Corrective prescriptions


In today’s political climate institutions, under pressure from media, coddle the aggrieved without regard for the legitimacy of their grievances, ultimately silencing almost any individual criticism of behavior.  At bottom, the left seeks to remedy bias through extreme accommodation of the aggrieved in the form of political correctness, diversity initiatives, and affirmative action involving overt reverse discrimination.  That conciliation operates in direct contravention to conservative principles of individual freedom of expression, and personal responsibility and meritocratic recognition regarding one’s actions resulting in a stark clash with traditionalists.  


Liberals thrive on a culture of victimhood promoting a grievance industry based on a world in which everyone is offended.  As such, the left capitalizes on targets of bigotry, real or fabricated, in a game of identity politics aimed at dividing and conquering.  Some liberals still cling to bogus hate crimes such as those involving Tawana Brawley, Matthew Shepherd, and the Duke lacrosse players.  And, of course, the media went orgasmic over the opportunity to inject race in the George Zimmerman/Trayvon Martin case involving Zimmerman desperately defending himself against a known thug in the process of murdering him.  And in recent years the media have rendered Muslims a protected class, not out of genuine respect, but fear of retaliation by militants bent on infiltrating the population.  Media managements are quite mindful of the murderous fate of the Dutch cartoonist who supposedly mocked Mohammad, as well as explosions outside newsrooms where offensive coverage originates.  


Liberal hypocrisy abounds.   Despite a prohibition of criticism against any group, the bashing of Christians is fair game, and “white trash” is uttered with impunity.  And as sacrosanct as blacks and women are in the liberal canon, conservatives among them are vilified in the media in terms that the left would viscerally condemn as racist or sexist if those conservatives were liberals similarly attacked by conservatives.  But most reprehensively, liberals never question (publicly) the reason biases arise in the first place; they just denounce them.  Indeed, a true understanding of bias, and perhaps some solutions, can be found in the answer to why bias exists.


In respecting differences among peoples, a balance ought to be struck between sensitivity for the aggrieved and freedom of expression for the critics.  That liberty permits reprobation of aberrant behavior, which may involve a personal judgment as to whether it applies to some individuals or an entire class.  Liberals side almost entirely with accommodating the aggrieved over the alleged offender.  But the critics must have their say, and in the case of imagined bias, the aggrieved have a responsibility to overcome what might be unjustified insecurity.  Sometimes the targets of discrimination need to adjust their behavior to diminish the backlash.


One-sided self-serving liberal pandering at the expense of truth that denies legitimate critical expression about a class breeds resentment against that class.  To be sure, genuine bigotry has to be challenged.  But it will always exist to some degree, and wax and wane over time.  It’s the nature of man.




Many have called for an honest discussion about race, but no media will allow that to happen   So, here’s my take that delves into the unspoken realities of race and the why’s underlying bigotry.  


Racism is a rationalized bias that involves animosity toward another race usually in the face of experiential evidence.  Most problematic in this country is racism against African Americans, but it also extends to Hispanics, Asians and Muslims.  Webster’s dictionary defines racism as, “1. The notion that one’s own ethnic stock is superior. 2. Prejudice or discrimination based on race.”  Let’s look at the verities behind interracial sentiment. 


Black transgression


Marginalized blacks, of which there are too many, have alienated themselves from the mainstream through their pathologies, primarily crime, poverty, illegitimacy and illiteracy.  Resentment among non-blacks arises from the social and economic costs of that aberrant behavior.  In particular, critics point to massive affirmative action in hiring and lending, and ineffective efforts to help disenfranchised blacks through over $10 trillion of government programs implemented since President Johnson’s War on Poverty.  That accommodation comes at the expense of the majority in the form of reverse discrimination and income redistribution through the tax code.  As a result, blacks are somewhat more assimilated through education and participation in economic life, but poverty among them has not changed, crime remains unabated, and the black family is obliterated what with nearly a 75% out-of-wedlock birth rate.


Blacks historically commit violent crime vastly disproportionate to the general population, often in wanton acts of depravity, as they dominate shootings, local police blotters, flash mobs, and of late, knock-out games.  Neighborhoods deteriorate when blacks supplant white populations, and they dominate the homeless population.  A disproportionately high percentage of corrupt elected officials have been black.  The decorum of professional athletes in the NFL and NBA has declined dramatically since blacks became dominant, what with the ranks filled with thugs and felons.  Non-blacks understandably recoil at these pervasive patterns which tend to typify blacks and taint perceptions resulting in sentiments some call racism.  Meanwhile, many blacks themselves shamelessly rely on continuous government concessions.  Some even justify transgressions against whites as payback and reparation for slavery and past discrimination.  These realities do not support good race relations.


Law-abiding productive citizens resist the assimilation of aberrant blacks for good reason, notwithstanding media pressure to do so.  But a problem arises when their behavior is ascribed to all blacks resulting in unfair prejudice and discrimination.  Nevertheless, given the pervasiveness and nature of social pathologies among blacks, general bias against them is largely inevitable as the majority exercises rational discretion to protect itself against their transgressions and infiltration.  Would a white person ordinarily stroll in Harlem at 3 am?  A reasoned prejudice prevents it.  Similarly, racial profiling in law enforcement is eminently sensible.  If blacks want to end it they should stop committing crime to the degree they do.  Until black behavior changes, some innocents will have to suffer from the ensuing banishment.  This conundrum faces Muslims today as they are universally associated with terrorism.  Time was when the Irish were blanketly characterized as drunks and hooligans and blocked from employment.  And mass attribution has applied to Italians regarding organized crime.


Racial differences


To be sure, blacks are inherently different in some respects and the legacy of slavery surely distinguishes their experience.  Socio-economic contrasts make them understandably wary of even well-meaning whites in shared settings making them more comfortable among their own.  On the other hand, African Americans evidence superior proficiencies founded on unique black emotion, aural instinct and physiology.  For example, while there are many excellent white jazz musicians, their output is generally different from their black counterparts.  Miles Davis, the late renowned black trumpeter, said he can distinguish a white player from a black one without looking because the white music doesn’t penetrate.  I recall overhearing a black jazz musician approvingly tell another at a club during a break that a white colleague was replaced by a “brother”.  To be sure, Black and white sensibilities are different.   For example, blacks would not be expected to embrace Barry Manilow music.  And, of course, superior black athletic prowess in the major sports is obvious.  In short, certain insoluble qualities based on different socio-economic backgrounds and natural characteristics can benignly separate blacks and whites.


The Reverend Jeremiah Wright, the black pastor whose church Barak Obama attended for 20 years, delivered an interesting address to the NAACP in 2008 about natural black and white differences.  He cited an old study resurrected and expanded circa 1970 by two sibling scholars, Dr. Janice Hale and Dr. Geneva Smitherman, specialized respectively in education and linguistics.  He talked about how blacks are right-brain, subject oriented rather than left-brain object oriented in their cognition and pedagogy, that is, oral, aural and intuitive rather than analytical or book oriented which are whites.  Perhaps this explains a general white facility for intellection in contrast to generally lesser black performance in academics.  But the study also highlights a certain black common sense, as well as memory and verbal ability, as one might attribute to some black oratory and even rap riffs.  Wright explained that one competence is not superior to the other, just a different medium through which to perceive reality.  That is, he said, “Different does not mean deficient.”  But one would argue that while the so-called black right-brain orientation may be celebrated in certain quarters, unless it combines with its counterpart which is the basis of human civilization manifest in science, the arts, commerce, the law, and ultimately prosperity, blacks will not fully relate to mainstream norms. 


A truly honest discussion of race cannot avoid broaching genetics, a subject verboten on both the left and the right.  So incendiary is the topic that liberals and conservatives alike automatically equate its mere mention to advocating Hitlerian eugenics.  So much for honest debate.  Some ascribe to blacks a genetic propensity for violence and a lack of traditional intellectual prowess that predestine many with dominant black genes for marginalization.  As such, some believe, blacks are greatly underrepresented in lucrative occupations, except sports and entertainment where they demonstrate superior abilities in certain athletics, music and comedy.  In 2006 The Wall Street Journal reported a study that revealed that a particular gene governing intelligence is largely absent in the peoples of sub-Saharan Africa.  What’s more, the featured scientist was forced by his university to recant his findings after the government threatened to withdraw the school’s funding.  Similarly, in Europe some worry about the alteration of the gene pool from massive Muslim immigration.  Charles Murray in his 1994 book, “The Bell Curve”, brought attention to the consistent 100 year record of substandard performance among blacks in cognitive tests.  In his private presidential tapes Richard Nixon suggested the plight of blacks in America is due to genetics.  Are genetic concerns a reason why black/white marriages have been relatively rare?  In fact, many blacks also oppose compromising their genetic heritage.  Nevertheless, most blacks today are mixed through illegitimate births and random breeding.


Since ostensibly all races are not the same in terms of capabilities and accomplishments, some could be said to be superior and others inferior by definition.   To be sure, if the U.S. were established by Native Americans or Mexicans rather than white Europeans, it would not be nearly the same country.  To assert that Asians are generally smarter than whites and whites are generally smarter than blacks is racist according to liberals, but why should that claim be objectionable?  Of course, the relative quality of a race is determined by many factors including intelligence, morality and physical characteristics genetically and environmentally determined as in all of nature.  But the common denominator that is humanity is reason itself to respect general human rights.  One who cites specific racial differences scientifically established should not be derided as racist.  The charge is now used so loosely that it applies to anyone who simply alludes to any racial differentiation, silencing debate as a result.  In a civil society one must exercise discretion in referencing racial distinctions, but to deny them is fantasy.


If natural racial variation is real, it will tend to yield a certain separation between blacks and whites.  That was evident in the white flight from the cities to the suburbs after World War II.  Nevertheless, a democratic society learns to reconcile diversity to the extent dissimilarities do not engender antisocial behavior.  Racial progress since the civil rights movement of the 1960s would seem to corroborate that assertion to some degree.  Even conservatives might argue that some of the inequities of affirmative action and income redistribution were a reasonable price to pay for a certain racial harmony that did not previously exist.  But what about the ongoing accommodation that still results in a sizable dysfunctional black community?  Continued failed social policy founded on wasted government largesse will always engender a certain umbrage among non-blacks that strains racial relations.


Liberal accommodation


Liberals look the other way regarding black pathologies ignoring personal responsibility and blaming poverty, while encouraging African American dependency on government that selfishly empowers the left.  Liberals invoke the legacy of slavery as justification for economic and social recompense.  That history may be a subliminal deterministic factor in the black plight but it ended forever 150 years ago followed by massive social accommodation.  The leftist media capitalize on red herrings such as racial slurs but patently racist remarks against whites are overlooked by the left, including those of black celebrities.  Liberals pull the race card at every opportunity, even for merely criticizing President Obama.  The media vilification of TV personality Paula Deen for a racial epithet of 30 years ago was outrageous, as was her pathetic unwarranted apology. Indeed, the left exploits for political advantage the fear of being called a racist having rendered the word toxic.  What’s more, the liberal establishment, including black leaders, disregards the collapse of the black family, and the mass media underreport black on white, and even black on black, crime.    


Rather than denounce black crime, liberals protest deterrents, such as background checks and police stops, as discriminatory because of the disproportionately adverse impact on blacks who commit most of the crime.  The Obama administration encourages dependency by promoting massive food stamp enrollment.  Liberal prosecutors invoke the principle of “disparate impact” in discrimination cases whereby statistical racial imbalances in lending are ipso facto discriminatory regardless of credit criteria or any indication of intent to discriminate.  Through government fiat blacks get preferential treatment in lending and hiring.  In the work place, regulators impose racial diversity through reverse discrimination on a massive scale, and tacitly pressure financial institutions to cooperate with such operations as Jesse Jackson’s annual extortion campaign through which he shakes down CEOs for contributions to his dubious Operation PUSH organization.  Desperate for a black role model, the media on the left and the right canonize Nelson Mandela and never mention his complicity with terrorism in South Africa, including the “necklacing” of his political prisoners by igniting a tire placed around the neck.   Meanwhile, blacks and their leaders continually make excuses for their transgressions as they often blindly stand up for their own against the white man, like the racist jury in the O.J. Simpson trial.


In the effort to accommodate the poor, the federal government forced banks to lend to low income borrowers, largely black, with little regard for their ability to repay.   These so-called subprime loans eventually triggered the greatest financial crisis since the Great Depression.  Doubtless, the Federal Reserve Bank looked the other way regarding the credit abuse to avoid political fallout from having to challenge loans to minorities.  This accommodation in the name of affordable housing policy continues through the insolvent Federal Housing Authority (FHA), and was extended to subprime auto loans issued by government controlled General Motors.


Rather than address the black problem, media and Hollywood glorify the inner city thug culture in music and video games and infect the nation’s youth in the process.  In addition, they promote white guilt about the plight of blacks and try to neutralize racial discord by encouraging interracial propagation.  Witness the Kim Kardashian/Kanye West charade and innuendo in sitcoms and other entertainment.  Should this be of concern?  Conservative stalwart Pat Buchanan published a book about the threat of racial diversity in 2011 titled “Suicide of a Superpower:  Will America Survive to 2025?”.  He was fired from his job at MSNBC for it and summarily dismissed as a white supremacist by the mainstream media.  Clearly, an open debate about race is politically impossible in this country.  Meanwhile, some blacks and their liberal allies justify their transgressions as retribution for slavery, lynching, and discrimination.  Even law-abiding blacks commonly refuse to report black crime or prevail on their own to change.  Additionally, many bitter blacks reject normative standards and opt to default to anti-social behavior predicated on their own racism.


Black behavioral reform and non-black backlash


Liberals simplistically claim criticism of blacks is merely based on the color of their skin.  Actually, racial attitudes are shaped by a people’s conduct, achievement and contribution to comity.  As such, racial harmony depends on blacks minimizing their anti-social behavior largely through the restoration of the family unit, which could radically reduce crime and diminish the pervasive thug culture.  And that change must emanate from within, that is, the predominate black majority that does adhere to social norms.  But that prospect conflicts with government’s fostering a culture of dependency and the liberal establishment excusing bad behavior.  In the meantime, non-blacks are wary of blacks in the circumstances of their aberrations and practice a natural segregation predicated on economic and behavioral differences founded on the freedom of assembly promulgated in the U.S. Constitution. 


In deciding to ascribe aberrant acts to a race as a whole one asks, “Is the behavior typical?”  If so, one rightly holds the class accountable and acts accordingly within the law while exercising informed discretion to protect the many individual exceptions.  With the help of responsible blacks, that action involves exposing and condemning aberrant behavior in the effort to motivate change within the class.  No more politically correct silence.  And no more excuses.


Ignoring archetypal pathologies for fear of tainting innocent blacks is wrong when a relatively sizable segment of the group is socially anomalous.  That tolerance, as evidenced in mass media, tacitly condones the bad behavior and obviates the incentive to reform.  But non-blacks can reach out altruistically as mentors to those truly amenable to remediation to help resolve the malaise.  Continued large scale social transgression and economic dependency at the expense of the majority will assure a certain ongoing dissention and alienation, regardless of how media and politics suppress its expression, even in an increasingly egalitarian society.  And non-blacks have to challenge the intimidation tactics of the left and overcome the fear of bogus charges of racism and anti-poor aimed at stifling dissent.


Suppressing expressions of outrage over black transgressions not only exacerbates the problem, it creates a simmering antipathy that fuels racism.  The minimization of black aberrant behavior will result in greater black acceptance among non-blacks by removing their justified grievance.  That reform will help isolate and combat genuine bigotry that’s truly just based on the color of one’s skin.


The immigration issue


            Today the focus on immigration reform raises the specter of racism as it relates to Hispanics and Asians inasmuch as liberals readily pull the race card on those opposing their amnesty proposals.  But the overriding concern is sovereignty and the protection of American culture, language and security.  On that basis foreign peoples in overly large numbers are rightfully resisted as they are all over the world, notably in Mexico.


Ubiquitous enclaves of unassimilated, uneducated, unskilled, non-English speaking and perhaps criminal and diseased immigrants threaten the quality of life Americans earned over generations.  In addition, effective amnesty for illegal Mexicans and Central Americans would seriously displace black citizens from lower level jobs resulting in social upheaval.  The vast majority of these immigrants would vote Democratic if naturalized.  But true conservatives oppose their legalization even if they were Republican because of the priority of sovereignty over politics.  This principle also applies to the influx of Asians, although there are mitigating circumstances regarding the highly skilled because of the shortage of technical expertise needed in business and their consistency with America’s meritocratic tradition. 


Genuine conservatives denounce culture clash, which is more problematic today than it was a century or more ago because of what there is to lose in a fully established America.   This is not racist.  It’s self-preservation. 




            Anti-Semitism is a rationalized bias derived from perceived offenses or injustices by Jews.  It is also founded on the jealousy and resentment of its purveyors concerning Jewish economic, social and political influence and success. And for some, anti-Semitism is a reaction to vindictiveness, an alienating self-centeredness about being Jewish, and to Jewish aggressiveness in the effort to control.  Sometimes the sentiment is associated with Jews as a collective rather than individual Jews, and may be cloaked rather than overt.  Anti-Semitism may be directed at race based or faith based Judaism. 


Webster’s dictionary defines an anti-Semite as, “One who discriminates against or is hostile to or prejudiced against Jews.”  Jews themselves assign anti-Semitism to those who believe, among other things:  1) Jewish allegiance is primarily to their people at the expense of patriotism; 2) the Jews control the media; 3) Jews are conniving and relatedly secretive; and that 4) Jews are avaricious.  To some non-Jews anti-Semitism is sometimes an imagined bias that is rooted in paranoia and perhaps a historical and even genetic memory of oppression and persecution, notably the Holocaust.  Although a particular negative experience is real, a perceived bias is often overly internalized and unfairly generalized to the detriment of innocent people, sometimes creating an anti-Semite where one did not exist.  In fact, some Jews just assume all gentiles are anti-Semitic.  An interesting corollary of anti-Semitism might be the phenomenon of “Jewish guilt” which suggests a degree of justification for the underlying bias.  But generally the guilt is about the incongruity of their prosperity and self-indulgence with religious principles or the plight of the poor.  Today, genuine anti-Semitism is less prevalent than it was when, for example, shunned Jews commonly Anglicized their names for greater public acceptance.


            Here are some specific grievances that give rise to anti-Semitism:


Jewish predominance engenders fear, resentment and fawning


Many recoil at the predominance of Jews in society, established through their prominence in science, business, law, the arts, media, and academia, far out of proportion to their numbers.  The historical and pervasive civic engagement of Jews and their compulsion to succeed garners enormous respect and is probably motivated by self-preservation given their history.  But for some non-Jews their activism translates to a perverse power derived from superior wealth and influence.  Some gentiles believe that power enables Jews to advance their liberal political agenda through a stealth presence in government and media.  They also fear their power to retaliate socially or economically for perceived wrongs.  As a consequence, those gentiles at the individual and institutional levels feel they have to avoid any real or imagined indication of anti-Semitism to preclude that charge rendering them professionally or socially radioactive.  This is especially true considering how sensitive to bias Jews seem to be, which is understandable in view of the hostility they experienced throughout history.


Because of Jewish wealth, influence and the inclination for retribution, non-Jews think they always have to prove they’re not anti-Semitic.  For example, The American Spectator, a conservative publication, used to feature a gratuitous full page ad promoting Israel on the inside cover of every issue, no doubt to thwart presumed anti-Semitism commonly ascribed to conservatives.  Similarly, a certain Jewish representation seems assured at most professional levels to deflect any suspicion of anti-Semitism and its repercussions.  Additionally, radio talk show hosts, cable news commentators and newspapers seemingly try to ingratiate themselves to Jews by gratuitously referencing movies in the understanding that Hollywood is a proxy for Jews.  For example, after a feature on Benghazi one host disjointedly asked, “Have you seen Hunger Games?  Radio news breaks now routinely cite box office rankings.  Media people feel it necessary to project certain empathy for Jews to secure their careers and the reputation of their outlets.  Why do conservatives Bill O’Reilly and Laura Ingraham of Fox News fawn over Jon Steward, a vile, puerile ideological and cultural opposite?  Is it because he’s Jewish?  They could be cultivating his youth demo or displaying a political balance, but more likely they’re signaling, “Just because we’re right leaning, doesn’t mean we or Fox News are anti-Semitic. (This pandering applies to black subjects too.)


Jews are firmly engaged wherever power and money predominate.  For example, even though Jews do not excel in athletics they are highly represented in sports broadcasting, management and ownership to ensure prominent involvement and visibility in the powerful institution that is professional sports.  But paradoxically, Jews seem to avoid certain roles such as news anchors and presidential candidates, perhaps to preclude the dangerous perception of trying to control the country with its attendant anti-Semitic backlash.  This concern compares to the fear of a Catholic President having a Vatican connection.  Nevertheless, Jews always ensure they have the President’s ear. 


As such, the trepidation about Jewish power and the adjustments required to accommodate it gives rise to an antagonism that spawns anti-Semitism.  Jewish predominance in society will always ensure some anti-Semitism.  It goes with the territory.  In fact, certain contempt for those “in power” is inevitable for any group.  It’s why some dislike WASPs, and even the New York Yankees.  The phenomenon also extends to international resentment about the hegemony of the U.S. on the world stage. 


In any case, American society has come a long way since Jews were banned from Wall Street and other industries.  In reaction to that discrimination, Jews gravitated to small business and entertainment, i.e., shops, the stage and motion pictures, which led to a thriving entrepreneurial class and the creation of Hollywood.  Today, Jews are free to pursue any walk of life, and to some extent anti-Semitism has progressed to philo-Semitism.  Their industriousness led to assimilation that changed everything, in spite of discrimination.  This is a model for disaffected blacks.  But African Americans must first develop a value system around family, education and the rule of law which rank high among Jews.


Liberal politics


To some extent Jews and conservatives are naturally inimical because their politics are antithetical.  Jews are not only monolithically liberal but very politically active rendering themselves an ideological enemy in impassioned conservative circles. Sharing a background of oppression with blacks, and perhaps because of “Jewish guilt”, Jews espouse liberal social policies that conservatives excoriate. 


Jews also advocate ever larger and controlling government because, some non-Jews believe, it ultimately devolves to the Jewish interest.  For example, government programs for the poor translate to Democratic votes, and funds for the environmentalists and the unions convert to Democratic campaign contributions, both of which sustain the liberal establishment that benefits Jews in large measure as behind the scenes government operatives, as well as outside private contractors.  Meanwhile, Jewish money and influence assure a reasonably favorable policy towards Israel.  By contrast, smaller government diminishes Jewish influence through government, as well as through external contractor services, including extensive legal services.  But to be sure, Jewish sympathy for big government also stems from their liberal ideology which embraces the oppressed in diverse settings consistent with their own experience.


In addition, Jews dominate Hollywood, a major conservative adversary.   Of course, this is not a personal opposition but Jews often assume it to be.  Conservatives dislike liberals, not Jews, just as they denounce communists, not Cubans, Chinese, Russians, or Venezuelans.  Conservatives welcome like-minded Jews of which there are some prominent ones.  That said, Hollywood and other Jews were behind the communist infiltration of the federal government in the ‘30s, ‘40s and ‘50s culminating in the McCarthy hearings.  And Jews are believed in some circles to dominate the ranks of leftist subversives today consistent with the notion that a leopard doesn’t change its spots.  That alien political activism inspires an opprobrium that rises to the level of anti-Semitism.  In fact, that charge is summarily levied against anyone who suggests nefarious Jewish activities.  The accusation is a tool to snuff out any consideration of their truth whatsoever despite a history of such engagement.  The stealth modalities of those Jews are why any “conspiracy theory” is universally dismissed today, even by conservatives.  The very term is radioactive because it carries the dreaded implication of anti-Semitism as it harkens back to the clandestine subversive activities invoked by the McCarthy hearings and the John Birch Society.  Those sources have been rightfully discredited to some extent but vigilance is in order given the leftist and corrupt bent of the Obama Administration.


Hollywood secularism and gratuitous attacks on Christian values


In recent decades, Hollywood has attacked Christianity in the form of anti-Catholic portrayals, seen in the mockery of priests, for example, and through a war on Christmas (in conjunction with atheists, separation of church and state zealots, and other leftists).  Italians have also been routinely denigrated in motion pictures for some reason.  And the highly blasphemous (and paradoxically popular) Book Of Mormon on Broadway is produced by the creators of South Park, a degrading Hollywood product.  Indeed, these assaults would seem to be a masochistic invitation to anti-Semitism, especially since non-Jews know that similar portrayals depicting Jews would never see the light of day.  In addition, the extreme secularization and politicization of Hollywood output in movies, TV, stage and music overtly target traditional decency in promoting relativist amorality, degeneracy and gratuitous profanity and scatological reference while ridiculing personal achievement, especially among youth.  In fact, MTV has poisoned youth for three decades institutionalizing a culture of degradation that locks in generations.  Jewish conservative radio talk show host, Michael Savage, often refers to the Hollywood “sewer pipe” to American homes.  He has likened it to the risqué performances of Jews on stage in Nazi Germany that helped to provoke the atrocities that eventually ensued.  Similarly, he cites Hollywood dreck as provocation for Muslim jihad in America.  


This cultural offensive has resulted in an anti-Semitic backlash at some level as it is perceived as an effort to eradicate traditional values which threaten the left’s agenda.  Bill O’Reilly of Fox News expounds on this secularization theme in his book “Culture Warriors” and frequently refers to it in his nightly program.  As to Christmas, Christianity is and always has been the dominant faith in America by far.  Therefore, it warrants special recognition over other faiths without invoking charges of anti-Semitism or racism.  To be sure, objectionable Hollywood content is not demand driven.  Rather, it is politically motivated with a concomitant profit objective.  One might argue that the motivation is a perverse artistic license as Hollywood pushes the margins of propriety for its own sake.  But that ultimately leads to nihilism which already characterizes much of popular music. (To be fair, even the beauty of jazz can be subverted when abandoning certain structural boundaries of improvisation that render it unlistenable even to professional critics.  Taste is relative, but only to a point.)  Of course, Hollywood does not reflect all Jews as many decry the degrading trajectory from the great movie and music classics of the past, the creation of which Jews are largely associated.  Nevertheless, many non-Jews tacitly ascribe cultural contamination to Jews.  This instinctive generalization constitutes a root cause of anti-Semitism and will continue until Hollywood relents or traditionalists disappear.  Congress held hearings on indecency in TV and music but they don’t appear to have deterred the onslaught.  The fight is up to conservatives, including many like-minded Jews. 


Time was the words “pregnant” and “water closet” were not permitted on television.  Married couples had to appear in separate beds separated by a night table.  And sex scenes were limited to hanging a “Do not disturb” sign on the hotel room door while the rest was left to the imagination.  All this is extreme too.  But what is the impetus behind the dramatic change to date?  Hollywood has capitalized on the erosion of traditional values since the 1960s, as the culture deteriorated and the docile public acquiesced.  For some time, Hollywood has pushed the envelope to the extreme resulting in considerable consumer acceptance despite the absence of initial demand that has yielded civic coarseness and a culture of vulgarity.  To what end?   For some, the answer is one reason for anti-Semitism given the leadership in Hollywood.  Contrastly, the entertainment industry would not dare disparage Muslims for fear of fatwa.  In fact, now it produces TV shows fawningly promoting Islamic life.  Hollywood targets take note:  Retaliation works. (No violence intended.)


Israel, the Jewish lobby and the absence of dissent


Integral to any examination of anti-Semitism is American Jewry’s allegiance to the state of Israel and its impact on U.S. policy through powerful lobbyists.  Indeed, the nation’s formation in 1948 marks a watershed in Jewish history as it signifies a dramatic change from thousands of years of nomadic life.  But Israel’s continuous conflict with neighboring states about its legitimacy has created a lightning rod in American politics sparked by the wealthy influential Jewish population in this country.  Anti-Semitism with respect to Israel lies in the nature of U.S. relations with the country which often dominates political discourse and constitutes a litmus test for any politician running for office.  


One is hard pressed to identify a single U.S. government official, now or in the past, who does not unwaveringly support Israel.  It’s a rite of passage.  Michael Scheuer, a former CIA intelligence officer and current journalist, is the only Israel critic visible in the media and he is largely dismissed as anti-Semitic by Jews and those afraid of being thought of as anti-Semitic.  Some non-Jews view the knee jerk allegiance to Israel with disdain as if the fix is in with regard to U.S. policy, and substantive dissent is verboten.  Pat Buchanan referred to this loyalty as the “Amen corner”.  The problem is, that regardless of the justification of U.S. policy, the utter absence of opposing viewpoints breeds suspicion of undue Jewish influence that could supersede U.S. interest.  And expression of this wariness is often derided as anti-Semitic.  


Some think the war in Iraq might have been a pretext for securing Israel.  Officials clamored about Saddam Hussein harboring weapons of mass destruction, culminating in Colin Powell’s presentation to the United Nations to enlist support for U.S. military intervention.  But immediately upon laying boots on the ground the banner on the television screen read “Operation Iraqi Freedom”, a seemingly different call to arms that would not have garnered much support beforehand.  This possible bait and switch occurred before the chemical weapons claim was discovered to be wrong and publicly disavowed.  To be fair, one could suspect the same smoke screen for securing the U.S. oil interest in the Mideast, but that motive is less problematic because it is generally believed to be in the national interest. 


Similarly, U.S. intervention in Bosnia in the 1990s in reaction to genocide was suspect.  One might argue the action was aimed at setting a precedent to justify eventual parallel U.S. intervention on behalf of Israel, and thus mollify American opposition to such an action in the future.   To be sure, going to war for Israel is not a popular appeal.   That eventuality might have been the Iraq War.  Today, the acute concern about the nuclear capability of Iran and its threat to Israel raises the specter of U.S. military involvement at a time of war fatigue, the recent agreement with Iran notwithstanding.  Could the fulsome accolades about the U.S. military featured in the media, once reviled by Jewish liberals, be aimed at cultivating popular support for more intervention in the Mideast on behalf of Israel?  To be fair, one might ask whether the U.S. would act any differently for any other ally in similar circumstance.


But even though Israel is a major ally, it seems the media give inordinate coverage to events concerning that country.  The predominance of Israel in American politics and media predicated on the geopolitical interest of just 3% of the population creates an antipathy among many Americans that constitutes an element of anti-Semitism.


I’m Jewish, don’t you know


Many Jews gratuitously declare their Judaism in inappropriate contexts.  Is it out of a sense of ethnic pride, or perhaps superiority?  Why not?  Many whites think they’re superior to blacks on the basis of experiential evidence.  And the respective performance records of Jews, other whites and blacks would seem to corroborate a certain hierarchical relationship.  In any case, objecting to this trait as an annoyance should be distinguished from more serious bias motivated by hate.  But believing in one’s superiority doesn’t call for explicitly or implicitly trumpeting it any more than the class valedictorian should brag about his status.  It does not make for good human relations.  


Sometimes announcing one’s Judaism is aimed at reaching authorities who can provide preference, such as a Jewish comedian on stage telegraphing to entertainment bosses, many of whom are Jewish.  Maybe the practice is a concerted defensive exercise to ensure public awareness of Judaism as a distinctive force given the global history of attempts to eradicate it.  A gentile acquaintance once told me, “I have no problem with Jews, but just don’t tell me you’re Jewish.” On another occasion, a Jewish colleague on mentioning his wife added sheepishly that she’s not Jewish so he’s therefore in a mixed marriage.  I thought to myself, “Why are you telling me this?”  This is a common practice among Jews which, while only an annoyance, can contribute to anti-Semitism considering the implications and when combined with other grievances.


Some Jews think they’re the Chosen People.  While Jews may believe in the biblical significance of this designation, gentiles accord no special status on that basis.  Revered Israeli Rabbi Ovadia Yosef, recently deceased, was known for his belief that non-Jews exist to serve Jews.  Certainly, one can believe it, but should be private about it.  Perhaps his pronouncements were meant only for Israeli audiences.


Don’t mess with the Jews


Risqué comedienne Kathy Griffin on targeting subjects in her routines cited one exemption, “Don’t mess with the Jews.” Cable TV host and former Congressman, Joe Scarborough, mentioned the same caveat about political life.  That may be good advice in their professions, but the implied Jewish vindictiveness doesn’t rest well elsewhere.  One might ask, Why should gentiles have to walk on egg shells when around Jews?  To be fair, I recall the Smothers Brothers in the 1960s expressing the same concern about targeting Catholics and the Catholic Church.  “They’ll get ya.”, Tommy said.  How times have changed!  Nevertheless, the threat of overwrought retribution for a minor slight is off putting.


The Jewish third rail


Media people get fired for saying or doing something that Jews consider anti-Semitic.  For example, Arsenio Hall’s popular TV show of the early ‘90s was cancelled after he had the temerity to interview Louis Farrakhan, known for his unkind utterances about Jews.  Now, after a 20 year exile, he’s allowed to re-emerge with a new show.  The reason for his firing has never been mentioned publicly that I know of.  (What does that tell you?)  


Similarly, Rick Sanchez, a former TV host for CNN, was fired in 2010 for supposedly implying the Jews control the media in a radio interview on Sirius XM.  He has not worked in journalism since.  


Interestingly, when public figures are fired for racist, sexist or homophobic slurs there is a debate in the media about whether dismissal is justified.  But when a perceived anti-Semitic remark is at issue, silence ensues as no media personality would dare challenge the action. 


In 1991 Yankel Rosenbaum of Crown Heights, Brooklyn, NY, a black and Orthodox Jewish community, was stabbed to death by a black man.  The murder occurred when a riot broke out in reaction to Mr. Rosenbaum accidentally killing a black youth in a car mishap.  A few days later, as if by cue, the entire New York media rallied in solidarity to pressure the insufficiently responsive black Mayor David Dinkins to do justice.   All the radio talk shows focused exclusively on the incident around the clock for a couple of days.  The late Jack Newfield led the charge in the print media.  It was obvious the media orchestrated a campaign to right a wrong against the Jews and deny Dinkins re-election in 1993.  Notwithstanding the merit of the action, the incredibly lockstep coordination of the media evidenced overwhelming Jewish influence, some would say control.  Incidentally, the incident cost liberal Mayor Dinkins a second term and ushered in Mayor Rudy Giuliani whose transformation of New York City is visible to this day.


Jews are very sensitive about suggestions they control the media.  Such control might imply that the news is modified to suit the Jewish interest to the detriment of a fully informed public.  The taboo about the Jewish control of the media is meant to deflect attention from its reality, although the degree of distortion and self-interest is the key question.  It’s like when Mario Cuomo used to say the mafia doesn’t exist.  Denying an obvious fallacy lends credence to its significance.


Pretending that Jews don’t wield considerable power in media in the face of clear evidence to the contrary could undermine their general credibility about legitimate grievances.  To use their power vindictively out of sectarian interest, and at the same time deny its existence, provokes animosity, and maybe anti-Semitism.  Perhaps Jews think they have to demonstrate their power to prevent a resurgence of historical discrimination and persecution.


Some Jews would dismiss the aforementioned citations as anti-Semitic on their face.  But such criticism does not necessarily define a bigot.  In fact, to indiscriminately believe so and act on it could create one.  To act punitively on legitimate dissent provokes scorn.




Its evolution


Sexism refers to gender based discrimination, ridicule or hate.  It is not as clearly delineated as racism or anti-Semitism because of certain generally acknowledged natural differences between men and women which justify certain exclusions.  In a sense, sexism follows on the age-old “battle of the sexes”.  But the term has gained currency in recent decades as women have become liberated through feminist activism, which incidentally would not have succeeded without the proactive and acquiescent political cooperation of men.  Lesbians in particular have been instrumental in providing impetus to the women’s movement.  The modern liberation began with the Civil Right Act of 1964 which established gender as a protected class.  It grew with the advent of the birth control pill, and continued through legalized abortion, the sexual revolution, an increasingly more prominent presence in higher education, new opportunities in the work force by political fiat, financial equality with men, single motherhood, equal opportunity in organized sports as required by Title IX, and for some, the demise of traditional marital propagation in favor of in-vitro fertilization and surrogate motherhood.  The emancipation has culminated in cultural changes that largely blur distinctions in male/female roles and behavior.  Today, women are entrenched in corporate management, and 9 of the 100 largest corporations have a woman CEO while 20 women have had that status. 


The fallout


            Sexism as a grievance primarily arises from men’s resistance to the new found freedoms of women and the end of traditional roles.  But sexism also affects men through aggressive reverse discrimination to redress past gender imbalances.  This is particularly true in respect of the work place where government pressure forces disproportionate recognition of women through affirmative action, including permanent preference for women (and minority) owned businesses. 


In my nearly all-white community virtually every employee in my local pharmacy and bank has been female, and mostly minority, for some years.  No doubt, a sexist political agenda in microcosm is at work here imposed by regulators and upper management.  What’s more, the preference is ongoing, not just to correct an existing imbalance.  It appears entire segments of the workforce are becoming designated for women, like security guards and retail jobs for minorities. 


Women participation in the military has risen to one-sixth of the armed forces, including many in previously all male roles.  This causes serious readiness concerns for some senior officers.  Women are also hired for police and fire duty in contravention to physical standards to the consternation of male colleagues.  Recently, General Motors named its first woman CEO, which occurs at the same time as management’s much desired government liquidation of its remaining ownership interest arising from the bailout.  Coincidence?  Or quid pro quo?   


And consider the Obamacare implementation.  Judging by senior representatives appearing in Congressional hearings on the roll out problems and personnel in newspaper photos, it seems this project is largely reserved for female principals and black staff.  This profile is quite unusual considering the technology-intensive functions involved and the scale and complexity of the project.  In industry IT is a white and Asian male bastion.  That reality flows from natural technical aptitude and career choice that preclude much women representation.  Also, appointments close to Michele Obama and Valerie Jarrett suggest cronyism is at play as well.  This is to say that the implementation of the Affordable Care Act is predicated on blatantly political considerations rather than competence.  The disastrous results should not surprise.


Women’s equality has changed the culture.  For example, it seems that half the media coverage of the 2012 summer Olympic Games featured women events, regardless of the long tradition of celebrating male athletic prowess.  In fact, it seems that the powers that be have deemed track and field a woman’s niche since men performances are rarely covered in the media anymore at any level.  Similarly, perhaps half the athletics budget of schools and universities is committed to women teams as if male and female interest and benefit are equivalent.  And women sports commentators are ubiquitous, even in the locker room.  Women are encouraged to behave like men as celebrated in so-called “chick flicks” and other media. And, like men, they’re now less caring about their appearance and attractiveness; witness the demise of the dress.  Sitcoms and commercials constantly portray men as wimps in contrast to the strength and maturity of their spouses and female bosses in a malicious Hollywood and Madison Avenue inspired effort to degrade America.  Traditional romantic relationships among youth have been supplanted by a coarse hookup culture.  The touchy feely egalitarian sentiment in the office has replaced the disciplined dictatorial model of yore as women have filled the management ranks.  Beauty pageants are disparaged.  Holding the door for the woman is met with a sneer.  The question of whether women need men at all is seriously debated in view of their financial independence and new reproductive options.  Indeed, men have been substantially emasculated.  But ironically, the zeal for gender equality sometimes provokes charges of sexual harassment by men against women.


            One can debate the merits of these changes given that the freedoms and talents of women were unjustly suppressed for a long time.  Perhaps it’s poetic justice for so many homebound mothers abandoned by their spouses in the 1960s and 1970s when families began to deteriorate from the scourge of liberalism.  But so much has been ceded to the distaff in the face of tradition that a certain backlash ensues, especially in respect of the traditional family with its societal implications for stability and uprightness.  Some men are embittered by the change. 


Consider the politically driven decline of male performance in education.  In a female oriented grammar school culture, priority is given to the needs of girls to correct historical disadvantage rooted in the traditional homemaker wife model.  This initiative, applied in high school as well, is encouraged by government funding which is predicated on imposing traditionally male interests on females despite their expressed preference for conventionally female activities.  In fact, these federal grants continue even though female academic deficits have now transferred to boys.  At the same time, boys are made to adopt female interests in the effort to neutralize gender distinctions. 


What’s more, the emasculating grammar school culture overreacts to certain normative boyish behavior as pathological without distinguishing it from truly aberrant conduct, thus suppressing natural male development.  Recently, a grammar school charged a six year old boy with sexual misconduct for innocently kissing a female classmate’s hand.  The school said it acted in accordance with a prohibition against such behavior cited in the Department of Education’s rules.  Failing to report a rule violation risked a loss of federal funding, hence the sanction.  In the high schools Title IX gender equity legislation has seriously diminished male athletic participation, a traditional mainstay of male character building. 


As a consequence, male students perform significantly lower than girls academically and in some measure no longer aspire to traditional professional pursuits, or experience certain sports.  Today, more than 60% of college and graduate school graduates are women.  This scenario has grave implication for America’s future.  It must be challenged.  Sexism be damned.       


Men have to tread ever so lightly lest they invoke charges of sexism with all the fallout akin to racism or anti-Semitism.  In fact, the term has been institutionalized by the left as another political lever in capitalizing on a protected class.  Sexual harassment and the bogus war on women have conjured a “me against them” mentality that complicates gender relations.  Four star generals are grilled before Congress to expose a supposed epidemic of sexual harassment in the military.  Among liberals, opposition to taxpayer funded contraception is considered anti-women.  Overly aggressive male political candidates running against female opponents are called bullies.  That prohibition will loom large in the expected 2016 presidential campaign against Hillary Clinton. 


            Although most gender discrimination is reprehensible, some respective strengths and preferences of men and woman should be respected.  After all, men have dominated society from inception for a reason.  Indeed, scientists have found that the male and female brains are wired such that nerve fibers connect regions of the brain differently with possibly different effects on cognition and behavior.  Historically, traditionalists have cited women’s emotions and even the interference of menstruation as reasons for certain exclusion.  But other examples abound.  Liberal Larry Summers as president of Harvard controversially maintained in a public address that women are not as naturally inclined as men in such technical fields as mathematics and the sciences, hence their underrepresentation.   Training materials for auto salesmen cite specific methodologies for selling to women.  Paul McCartney in a recent interview said that Yoko Ono was not welcome in the studio with the Beatles because they considered their activities “a man thing”.  Similarly, women instrumentalists are rare in the jazz world (perhaps unfairly to some extent.).  Pay differentials exist because women generally choose lower paying occupations.  They also opt for shorter hours in order to balance work with family, resulting in less pay than men even for the same job.  In a more controversial vein regarding the disadvantage of women’s natural traits, an overly attractive woman banker was fired for projecting an incongruous market image.  Similarly, a female army colonel proposed that only unattractive military women be featured in public photos in order to appear more “competent”.


            Politically induced reverse discrimination and the destruction of traditional values lie in the wake of the fight for women’s rights, notwithstanding meritorious achievements.  The evolution of new found freedoms for women has culminated in another segment of the grievance industry that is exploited for political advantage at the expense of some social stability.  Nevertheless, a double standard reigns supreme in media in which conservative women, like blacks, are anathema.  Consider how the media at large excoriated Rush Limbaugh when he uttered an epithet about Sandra Fluk during the 2012 presidential campaign in which she was point person for the Democrats regarding the “war on women” and the contraception issue.  Limbaugh apologized in short order to the glee of the media.  Yet Martin Bashir’s long delayed resignation after his infinitely worse vulgarity about Sarah Palin in reaction to her reference to slavery in a speech got no coverage at all by the three major networks, according to Brent Bozell, founder of the Media Research Center.  Of course, the resignation was ignored because it affirmed wrongdoing which the mainstream media were loath to acknowledge.   Indeed, Liberal hypocrisy continues unchecked in big media.


            Despite beneficial advances for women, it’s still a man’s world and it will always be so, notwithstanding temporary setbacks.  Male dominance in every area of life throughout human history reflects a superiority bestowed by nature that women will not change.




The political juggernaut


            Homophobia is a natural bias based on a target’s homosexuality, an accident of birth affecting some 2% of the population.  In recent times gays have become a cause célèbre of the left that has fought for civil rights denied them through a history of discrimination.  In fact, for many years homosexual politicians and others in positions of power were considered a risk because of their susceptibility to blackmail given societal attitudes about homosexuality.  As such, homosexuals guarded their sexuality intensely to avoid professional or social opprobrium.        


            The perceived injustice of cultural and religious objections to homosexuality evolved into a vociferous political campaign of the left and the media that pit traditionalists against egalitarians.  The movement eventually expanded to encompass lesbians, gays, bisexuals and transgender (LGBT) individuals resulting in a larger protected class.  In recent years the crusade has succeeded in legalizing same-sex marriage in some states and advancing a proposal recently passed in the Senate establishing civil rights protections for the LGBT community.  Today, openly gay couples raise children.  In addition, the military repealed its “don’t ask, don’t tell” policy allowing gays to function with impunity.  These developments reflect a whirlwind change in public opinion about gay rights largely fostered by the support of a new libertine generation saturated by the leftist media.   Many heterosexuals today believe gays are at least entitled to all the civil rights accorded everyone else, except for legally sanctioned marriage which they consider the sole province of a man and woman.  But they support government recognized civil unions an acceptable alternative.


            Hollywood and the media have played a big role in advocating gay rights, no doubt prompted by the pervasiveness of homosexuals in the entertainment industry, and demanded by their liberal politics.  Today, gays are incorporated wherever couples are featured:  ads, sitcoms, love stories, and even financial advice columns.  Of course, this overkill is the propaganda created to garner greater public approval by blurring the line between gay and straight altogether.  Meantime, nary a word of dissent by traditionalists is covered in mass media except to condemn it.


In the effort to promote the gay agenda, the greatest fraud perpetrated by the media on the public was the bald faced lie in the 1980s and 1990s that the general population was vulnerable to AIDS.  In fact, only two risk groups ever existed to this day:  intravenous drug users and male homosexuals.  But the mass media disinformation campaign was bent on de-stigmatizing AIDS as a gay disease to dispel ill will toward homosexuals.  Fortunately, the public eventually got wise to the truth as the apocalypse failed to materialize, but not before a veritable reign of terror swept the nation. 


The traditionalist grievance


            Conservatives do not support discrimination against gays.  Rather, they resist the threat homosexual values pose against the primacy of traditional marriage as a predicate for propagation and social stability.  Homophobia lies in the incompatibility of homosexuality with the cultural and religious tradition of family.  Evangelicals object to gay unions on biblical grounds, and along with others, denounce homosexuality as a gratuitous alternative lifestyle among heterosexuals.  Others are repulsed by the homosexual way of life which they consider founded on unnatural relations, and they recoil at the possible social implications of associating with gays in certain circumstances. Some also decry the distraction gays might cause in the military given the unique circumstances of war. 


Complicating the issue is the gay political agenda involving full support of proselytizing media that wages retribution against those who do not sympathize.  The denigration of traditional values, the in your face portrayals of gay life in TV and movies, and the vilification of those who dissent foster a backlash that defines today’s homophobia.  Impugning corporations that do not support same-sex marriage by targeting their advertisers, while fair game generally, is not justified to stifle free speech.  Indeed, the backfiring of the gay boycott against the Chick-fil A franchise because of the CEO’s inimical moral values was most gratifying to true defenders of individual freedom.  Traditionalists must decry censure, such as A&E’s politically induced decision to suspend Duck Dynasty’s Phil Robertson for expressing his beliefs about homosexuality in an interview.  It’s time to treat fire with fire by exercising robust recalcitrance against militant politically correct protest.  That means boycott and vociferous objection privately and in conservative media.  Freedom of expression must be universal.  Indeed, it has distinguished America.


Traditionalists complain that the media intolerantly ridicule and denounce their values with impunity but vigorously demand tolerance as they defend gay life against any criticism.  The inconsistency might be explained by the distinction between the dominant culture as chosen behavior and homosexuality as inborn.  In short, gays face a dilemma reconciling traditional behavior and natural instinct.  Some, including evangelicals, believe gay behavior is wrong and even optional, while others acknowledge it as a private prerogative but reject the equivalency of same-sex marriage and traditional matrimony.  The Catholic Church recognizes homosexual orientation as benign but acting on it is sinful.  At the same time, homosexuals claim a right to behave naturally regardless of tradition or religious proscription imposed on them.  As a consequence, inevitable social conflict arises but it is tempered by legal protection against discrimination.


            Like racism against blacks based on believed inborn pathology, homophobia rests on a congenital chromosomal condition affecting a small segment of the population.  Most adopt the liberal view that homosexuality is innate rather than environmentally acquired.  But liberals consider black aberrations entirely social in origin rather than genetic.  (Suggestions about gays and blacks to the contrary are verboten in all media.)  Many public figures today are open about their own homosexuality or that of family members because public opinion has changed dramatically.  Indeed, public acceptance has rendered homophobia considerably diminished. 


Yet homophobia still exists on a visceral level.  Witness even ultra liberal Alex Baldwin whose recent anti-gay slur directed at a photographer landed him in the dog house.  This goes to the instinctive primacy of heterosexual relations as a requisite for the survival of the species and a defining element of manhood (and womanhood).  Even a theoretical threat to the practice can provoke an inherent reaction, notwithstanding a modern rationalization.  In addition, some homophobia continues in cultural adherence to the historical reprobation of gays as abnormal.


Real bigotry


            Bigotry should be understood from the perspectives of both the aggrieved and the offender to understand real bias as distinct from justifiable and imagined prejudice.  That is, bigotry should be distinguished from understandable dislike that does not affect civil rights.  Imagined bias perceived by the aggrieved must also be recognized for what it is.  Most of all, Americans must challenge faux bigotry contrived by the left that politicizes opinions about bias on ideological grounds in the effort to shut down debate and stifle individual freedoms.  Today, the left makes outrageous charges in the name of bigotry that are devoid of substance and purely for political advantage.  For example, many liberals blindly claim the Tea Party is racist while their speech police run amuck in the media such that racial and gay slurs and alleged anti-Semitic and sexist remarks get people fired. 


In today’s hyper-politicized society, almost any criticism about a legally protected class is considered bigotry.  But as problematic as it may be in a civil society, people do have a right to ill feelings about a class, particularly according to one’s own experience, unless that animosity is manifest in illegal acts.  Everyone is entitled to say what he or she believes without regard to who is offended, but should recognize the possible adverse social consequences.  As such, laws sanctioning hate speech are dangerous because interpretations are fraught with potential abuse.  Ideally, language is governed by social mores which can deter excess that incites violence or otherwise undermines social harmony.  Ironically, political correctness has tempered that excess, but it has overshot the mark suppressing criticism that might lead to constructive change and silencing the critics into alienation.


While certain sensitivity to others is essential in a diverse culture, it should not trump truth in understanding natural human relations and the nature of bias.  Political correctness must not be permitted to throttle controversial opinion, especially legitimate criticism of aberrant behavior.  Suppressing one’s freedom to believe or emote and ignoring the reasons for bias will create more bigotry.  What’s more, being American should supersede being black, Jewish, female, or gay.


That said, pure bigotry defined by blanket discrimination, ridicule, harassment or hostility directed toward a class irrespective of the innocence of many individuals in that category is reprehensible.  The basic obligation to respect and aid fellow man as a creature of God is universal.  Indeed, a resistance to change can deteriorate into a neophobia that impedes healthy progress.  Nevertheless, negative attitudes about a group might not result in exclusionary practices but only avoidance at worst.  For example, tolerant whites who acknowledge the civil rights of blacks might not abide intermarriage for reasons that would seem to constitute racism objectively.  Similarly, tolerant heterosexuals might not be inclined to socialize with homosexuals to the degree they would with their own because of their personal qualities or perhaps out of fear of being perceived as one of them. 


More collegiality that encompasses all minorities is good but it must not be coerced, and lack of compliance must not necessarily be socially punitive.  Indeed, a higher tolerance standard lowers the threshold for charges of bigotry which can be more readily misplaced with counterproductive consequences.  Certain human differences will always assure group separation to some extent.  Again, it’s the nature of man.  Ideally, tolerance maximizes conciliation between the aggrieved and the perceived offender while allowing individual freedom to express objection that could possibly motivate the aggrieved to correct their excesses.  Nevertheless, bona fide bigotry individually or institutionally expressed is rightfully denounced, challenged and remediated.

©2013 William J. Dodwell

Celebrity Idolatry – Media Love Fest Over Mariano Rivera and Derek Jeter Is Sickening

By William J. Dodwell    June 10, 2014

            Sports fanaticism is nothing new in this country but the endless encomiums to New York Yankees Mariano Rivera and Derek Jeter following their announced retirements strain tolerance.  In your face promotion with 40 page special inserts in general newspapers and repeated front page coverage is foisted on the public as if everyone is a sports nut.  Even the Wall Street Journal features a Jeter trivia question on its sports page about his having registered a regular-season hit in 42 stadiums - the ultimate “Who cares?”  And it’s not just a New York phenomenon.  Jeter is presented with gifts and awards by opposing teams at away games nearly a year in advance of his scheduled retirement.  How much of this hype is in response to authentic reverence for skills and persona, and how much is contrived in the self-interest of the league, media and politics?  While both men are decent men of distinction to be sure, enough is enough. It’s time for pushback.


            As a “closer”, Rivera, who retired at the end of last season, has the distinction of “saving” games by completing the eighth and/or ninth innings while his team is ahead without giving up the lead.  All teams coveted him for this ability which exceeds any pitcher in history.  But hypothetically, might any number of good starting or relief pitchers accomplish the same if put in the position of a closer?  Is the ability to get batters out consistently in the circumstance of protecting a lead in one or two innings a special skill, performing in the clutch, or just happenstance?  Is this akin to the sanctity, but meaningless, of Joe Di Maggio’s 56 game hitting streak in that a hitter theoretically could hit in all162 games and bat only .250.  So what?  Would the streak specialist be preferred over a .350 hitter with a normal distribution of hits over 140 games?  In any case, a byproduct of Rivera’s celebration and some indication of genuine interest is his current best-selling book titled, “The Closer”.


            Jeter’s accomplishments as a lifetime .311 hitter and first rate shortstop are more definitive, but so far in his last season he’s a shadow of his former self.   Would Lou Gehrig, Joe Di Maggio or Mickey Mantle, perhaps with better records, get the same media treatment if they were retiring today?


Profits and politics


            Indeed, the love fest serves the media, professional baseball and politics.  It sells tickets, advertising, newspapers and memorabilia.  And it promotes a sports primacy as a leftist diversion from public consciousness permitting government to impose itself with less electoral resistance at the expense of individual freedoms.  But the Rivera/Jeter hero worship also upholds a liberal racial agenda.  Since the media are hellbent on racializing almost every issue, one has to wonder whether there is such motivation to this hysteria.  Would the media have elevated Rivera and Jeter to deity status if they were white?  Has a comparably accomplished white figure been similarly venerated?   Cal Ripken Jr., the Baltimore Oriole, was feted lavishly for a distinguished 21 year career ending in 2001which included playing in a record 2,632 consecutive games.  And some hockey legends were lionized upon retirement.  But nothing like the ad nauseum tributes to Rivera and Jeter. 


The Rivera/Jeter coronation follows in the spirit of anointing Jackie Robinson and Tiger Woods in the last dozen years or so for breaking racial barriers in their sports.  The hype helps to establish sports, along with entertainment, as a preserve for minorities that produces role models in the absence of their significant representation elsewhere.  Excess sports promotion reinforces political correctness regarding race.  Rest assured, when Muhammad Ali dies the liberal media will go wild in eulogy mode.  He has always been a darling of the left for going to prison in defiance of the draft during the unpopular Vietnam War and liberals are eternally indebted to him for that.  All this adulation might sooth racial relations but it skirts truth as to what real greatness is.


The hero standard


            What is a real hero? They are men and women who have distinguished themselves in their fields as models who display extremely distinctive talent, especially to the benefit of the commonweal, be it in science, technology, business, the arts, politics, the military, religion, the academy, the humanitarian arena, and yes, sports.  But the degree of achievement is the elusive criterion.  Obviously, the standard is relative but some arbiter should uphold it against dilution by self-serving media which today try to create mass interest for their economic and political purposes where hype trumps truth.  Of course, there’s nothing wrong with celebrating achievement if the honor is commensurate with the deed and not based on ulterior motives. 


            We used to honor real heroes, such as Thomas Edison, Dr. Jonas Salk, and Albert Einstein who distinguished themselves for highly technical expertise acquired through innate ability and hard work that yielded achievement that benefited humanity.  Steve Jobs and Bill Gates are contemporary counterparts, who are additionally heroes of the masses celebrated by the media because of the universal utility of their innovative products. In addition, Warren Buffet is celebrated because of his longstanding acumen selecting investments, a trait with mass individual and institutional appeal.  (To be sure, Bill Gates and Warren Buffet are also embraced by the media because they support the liberal agenda in some of their opinions and philanthropic activities.)  Time was when distinctive individual achievement was honored too.  In 1958 Texan Van Cliburn was given a ticker tape parade in New York City after winning the Tchaikovsky Piano Competition in Moscow.  Historically, the untimely demise of the famous through assassination, accident, disease, suicide or self-abuse is particularly poignant eliciting public shock or sorrow that prompts extravagant media coverage.  Witness the deaths of President Kennedy, Martin Luther King, John Lennon, Princess Diana, Rock Hudson, Ernest Hemmingway, Judy Garland, and Philip Seymour Hoffman, to name a few.


            Today, the media aggressively exploit the masses in the economic and political interest where image takes precedence over truth and substance in creating, promoting and branding a celebrity culture.  This modus operandi might have been particularly encouraged by the baby boom demographic coming of age.  In the past, not even black baseball greats Hank Aaron and Willie Mays got the Rivera/Jeter treatment in sports coverage.  Now entertainment figures are more than ever lionized in life and death to bolster Hollywood as an institution with all its liberal bona fides.  Witness the overwrought reaction to actor Philip Seymour Hoffman’s recent death.  And consider the uber-tributes accorded Princess Diana when she died, a foreigner no less.  Coverage in the U.S. was grossly overdone as a reward for her liberal friendly activities embodied in grandstanding her supposed concern for Africa’s poor, and besmirching the royal crown through her extra marital relationships, particularly with Egyptian Dodi Fayed, a union verboten among the British elite for the prospect of tainting the royal blood line.  Perhaps the historical partnership between the U.S. and Great Britain also had something to do with the media fawning.  Additionally, the media deified Nelson Mandela for his political significance in the black community, ignoring his murderous background as a leader in South Africa given to “necklacing” opponents in horrific immolation.  To be fair, the mass media feted Ronald Reagan well for two weeks following his death.  But that tribute was probably an expedient sop to the political right to deflect charges of liberal bias.  Of course, the fact he was a former President compelled special attention.


            Today, genuine excellence founded on meritocratic achievement is largely suppressed as it undermines the egalitarian narrative of the liberal order.  Rather, media promote politically innocuous accomplishments in sports and entertainment, except that their racial significance is played to the hilt.  The media celebrate the lowest common denominator to promote mediocrity as an antidote to excellence that truly threatens the liberal establishment.  Unfortunately, the public responds with alacrity.  Utterly undistinguished figures become famous simply for being famous, such as the Kardashians and other reality stars.  Indeed, the masses are easily manipulated.  They’re persuaded to wear ragged clothing and embrace noise as music, even the better off and educated among them     


Public passivity and the nature of celebrity


            It takes two to tango in that the proactive media require a malleable public to succeed.  What is the nature of celebrity?  People respond to well accomplished practitioners of self-identified interests such as music, sports, business, etc., even embracing them as role models.  Many relate to their heroes vicariously or through peer pressure; some are attracted by personality traits; others might identify on the basis of gender, race or ethnicity.  Yes, pop culture is a legitimate way of momentarily escaping life’s rigors.  It also functions as a social equalizer.  But most participants are susceptible to media stimulus that creates and exploits receptivity to celebrities through repetitive ubiquitous presentation that etches the tabula rasa, transforms a casual interest into an obsession, sometimes irrespective of talent, or otherwise contrives public sentiment.


            Music heroes are especially revered.  Their popularity is rooted in a generational emotional and psychological attachment established in adolescence and collectively carried forward throughout life.  Regrettably, “rock star” has become a metaphor for having great status in any field, suggesting that those characters are universal models. Sports enthusiasts childishly don their favorite player’s jersey in admiration, and revel in solidarity with likeminded fans that gives them a certain identity, and perhaps even an escape from their isolation.  Fans project a personal desire for popularity through adulation, even obsession, for celebrities who have, of course, achieved the ultimate popularity.  This phenomenon extends to speaking fees, for example, which are directly proportional to popularity based on name recognition.   Today, quality of accomplishment is measured by popularity.


To be sure, commercially and politically motivated media largely dictate the culture and its heroes for the docile masses while promoting an agenda.  Money and power await those that garner the Everyman.  This dynamic produces the frivolity surrounding the retirements of Rivera and Jeter.  Indeed, growing sports fanaticism is an exponent of a dumbing down of America that plays into the hands of a politically predatory mass media.  That hysteria is even widespread among women now.  While many fans lead accomplished and engaged lives, too many substitute sports for personal achievement and civic interest, hence the low information voter.


It is hoped that society would become more grounded in the realities of life, including the political, to resist the allure of the herd instinct and its media enablers.  But that requires immunity founded in seriousness and knowledge that endows the ability to discern relative importance.  That education, which starts in the schools, is increasingly diminishing with grave economic, cultural and political implications as evidenced in the election and re-election of one Barak Hussein Obama.
©2014 William J. Dodwell


Lady Gaga With Tony Bennett:  The Chick Actually Sings


By William J. Dodwell    December 22, 2014


            I have long decried the decline of American popular music since the golden age of the 1920s, 30s, 40s and 50s embodied by such composers as Gershwin, Porter, Rodgers, and performers Frank Sinatra, Nat Cole, Ella Fitzgerald, et al.  A contemporary example of the decadence that followed are the heretofore stage antics of one Lady Gaga, nee, Stefani Germanotta, which are the musical equivalent of Attila the Hun thrust over that beautiful landscape known as the standards. 


But in July I happened upon the ticketholders line outside the auditorium in which she was to perform with Tony Bennett at Lincoln Center in a show called “Cheek to Cheek” that corresponds to an album release.  I was there to check out the jazz calendar at Dizzy’s Club Coca Cola in the same location.  Unable to believe even such a great exponent of that great musical genre as Bennett could be worth seeing when coupled with such a weirdo, I walked away.  But I was amazed by her performance when I saw a tape of the show on PBS two months later.


The lady has chops


            I have always considered the true test of a rock star’s talent to be the ability to credibly perform real music, i.e., the standards of the Great American Songbook.  Gaga passes in spades.  She displayed exquisite voice, phrasing, timing, delivery, aplomb and elegance.  Who knew?  She is 28 and Bennett was a month shy of 88 but they exhibited great rapport – two paisans having fun together beyond the generational divide.  It was clear Bennett was calling the shots but he did permit her usual sartorial extravagance featured in costume changes every few songs.  At one point he appeared a tad peeved by the awkward delays between wardrobes.  But such a concession was appropriate to preserve some remnant of her image that captures the uniqueness of their collaboration.


            The quality of Gaga’s performance suggests she has been practicing this music full time when not cavorting on stage.  In fact, she reportedly has sung jazz privately for 15 years.  She also has some background in legitimate music having studied musical theatre and art at New York University for a while.  Early on she played piano in a New York hotel. 


            In a New York Times interview Gaga said she welcomed the opportunity to perform this music because it allows her to sing complete sentences and use her instrument fully.  Normally, she is screaming and writhing in combination with pre-recorded audio inserts.  I suspect she would like to go legit, especially now that she has been validated.  But would she cross over to the jazz and cabaret world of Jane Monheit, Ann Hampton Callaway and Hillary Kole?  Not likely.  The weird glitz is where her riches lie, which probably takes precedence over true fulfillment.  She may perform or record in an occasional concert or album but a conversion is not in the cards.  Another show with Bennett is scheduled for next June at the Radio City Music Hall.  And, the two have performed together on late night TV shows since the concert.


            Relatedly, I’m reminded of a lounge on Long Island I frequented in the 1960s that featured standards of the ‘20s, ‘30s and ‘40s to a crowd in their 30s, 40s and 50s.  As an amateur pianist in my early twenties who played that music I related to the place, particularly when an accomplished young dance band my age played.  I went there as an evening prelude to the so-called “discotheques” afterwards where the young people hung (if I wasn’t waylaid by the cougars of the day).  One night I arrived at the lounge to discover the young band was no longer playing there after a long stint.  I was told they were working in a topless bar in New York City, a new craze. 


The point:  That’s where the money was.  The band’s formal musical training and presumed aspirations didn’t prevent them from “selling out”.  Gaga is no different, especially considering the huge commercial scale on which she operates.  Forsaking talent and fine art for riches is a no brainer for many.  But are there limits to how far one might go?  The answer speaks to the degree of cultural decline today, and the regular Gaga exemplifies that in merging music with theater.  Nevertheless, as mentioned, she must be indulging her real gift privately.  She probably has a 20 piece orchestra in her living room.  Maybe even Tony Bennett drops by now and then.


            Since I never saw her regular show or heard her recordings I Googled to find some samples.  Performances included simulated sex on stage and repeatedly commanding the guys in the audience to “Pull out your di--s.”  Does Bennett know about this?  How does she segue from that to Cole Porter tunes? (albeit his “Anything Goes” fits.)   In any case, according to Forbes Magazine, this act earned her $80 million from mid-2012 to mid-2013, even with an interlude for hospitalization.


What was Bennett thinking?


One wonders about Bennett’s motivation for this collaboration.  He first heard Gaga sing a standard at a benefit in 2011 prompting him to ask her to work with him.  Of course, the commercial novelty of such a pairing was no doubt a factor given her great popularity.  Does he have a penchant for anomalous juxtapositions?  He worked with the androgynous and talented k.d. lang some years ago.  Is Gaga’s rumored transgender and post-op status a factor where Bennett is one upping identity politics - accommodating the T in LGBT?  Is it ethnic comradery?  Or, is he simply ecumenical? 


But hey, Gaga sings Bennett’s music beautifully.  That’s reason enough to partner.  Besides, regardless of her image and past behavior, she entirely conformed to Bennett’s traditional presentation, even toning down her hairdos and outfits – a little.  So the reason for the seemingly incongruous coupling is that in that capacity she is not incompatible at all.


            Tony Bennett has long been (superficially) embraced by the rock culture but he has never reciprocated by compromising his standards or even acknowledging the rot the rockers perpetrate.  Rather, he smiles and pragmatically accepts the adulation while laughing all the way to the bank.  This is his much admired independence.  


            Another sign of that independence might be reflected in the demographic of the audience and the orchestra.  Indeed, it is a testament to the reality of race that flies in the face of the political nonsense propagated by the media.  Camera pans of the room revealed a stark absence of blacks consistent with Broadway theaters and opera houses.  Why the racial homogeneity, besides the ticket prices?  It’s not the music.  Blacks have been extremely instrumental in establishing and popularizing the genre since inception.  But Tony Bennett and Lady Gaga are not particularly big with black audiences.  What white artist is?  Accordingly, the orchestra was constructed to conform to the racial profile of the audience, including eventual television and video viewers.  Racist?  So what!  The same anomaly appears in black shows.  To his credit, Bennett did not cave to political correctness by insisting on racially contrived admissions or affirmative action hires – not that there aren’t qualified black musicians, of course.  To the politically correct crowd I say, while substantial racial harmony is encouraged, birds of a feather flock together.  Get over it! 


Is real music returning?


            Could Gaga’s performance with Bennett be a catalyst for a new interest in this music among young people?  There were many in the audience.  That would be nice but pop stars Linda Ronstadt and Rod Stewart produced several albums of standards without creating a groundswell that might have been hoped.  Stewart is not a pure practitioner but is to be applauded for giving youth exposure to real music.


Besides marketing difficulties, political obstacles interfere as well.  The standards are associated with political conservatism that the powers that be in the music industry do not want to encourage.  After all, one purpose of the cultural decadence they propagate is to degrade America.  Cultural beauty is anathema.  A sign of this mindset might be a video of a demur Gaga in a small studio, perhaps at home, dressed in normal attire playing the piano.  But oddly, the visuals alternately capture only her hands and only her face as if not to associate her image with such a patently conventional, indeed conservative, activity.  


But, of course, making money is the first priority in the business – no matter what.  So, if the market would ever respond to Gaga the songstress, the music executives will be there for the commercial benefit.  But don’t count on aesthetic support.  They’d find subtle ways of defiling the new image in the political interest.  They did that to Harry Connick, Jr., a pianist and singer of traditional music, by portraying him as a goofy character in some movie roles.  Currently, Diana Krall, a mother and great jazz pianist, is featured in a poster for an upcoming concert disheveled and dressed like a man.  Tony Bennett seemingly excepted, artists don’t get complete control over their public persona.  But Lady Gaga has already paid her dues to the left, so maybe she'd get a pass.

©2014 William J. Dodwell

The Plight of the Returning Veteran in the Employment Market


By William J. Dodwell    June 3, 2015


A recent study by the Veterans Affairs Department defines veterans

from 18 to 34 as a “vulnerable population” because their rate of

unemployment since 2005 has been 20 percent higher than that of

nonveterans of the same age.  After adjusting for demographic

differences, the unemployment rate of the youngest veterans,

those 18 to 24, has been 40 percent higher than that of peers

who never served.

Robert W. Goldfarb                                                           

New York Times May 10, 2015


            The ongoing saga of unemployment, homelessness and suicide (some 22 or more a day) among Iraq and Afghanistan military veterans is a societal tragedy.  The problem, founded on a diminished cultural empathy for the military, centers largely on employer apprehension about hiring them that is influenced in part by their own lack of military exposure.  Many harbor blanket suspicions about the stability of returning vets who might have suffered trauma in war.  And some question the relevance of their experience.  The skepticism arises from the all-voluntary Army that replaced the military draft in 1973 that by nature results in a smaller pool of qualified recruits.  As a consequence, employers may think they face generally less fitting candidates than in the general population and thus tend to overlook the veterans as a class at the expense of many good prospects.  Here I explore the elements and truths underlying the problem and the solution.


The draft during the Vietnam War


            For perspective, I relate my experience as a Vietnam veteran to compare and contrast it with Iraq and Afghanistan counterparts.  I detail the circumstances of the draft and war environment affecting my enlistment and post-discharge experience.  In particular, I highlight the public sentiment at the time, as well as employer resistance to prospective draftees and discharged veterans.  The uncertainty, anxiety and alleged discrimination associated with draft recruitment during a very unpopular war explain why politics eventually ended mandatory service.  But limitations of the subsequent all-voluntary Army expose some of the factors that contribute to the plight of today’s returning veterans seeking civilian employment.


My enlistment


I enlisted in the U.S. Army for three years, one month after graduating from college in June 1969.  Throughout 1970 I served a standard one year tour of duty in An Khe, South Vietnam as a member of the Signal Corps working in a Communications Center when the troop strength countrywide there was at a peak of 550,000.  I arrived shortly after President Nixon announced the first troop withdrawal of the war.  My motivation was quite pragmatic.  Upon graduation my draft eligibility status changed from college deferment to “1-A” meaning I was immediately available for the draft.  During my job search a young employment agent told me my 1-A status impedes my prospects since employers were reluctant to hire candidates they might lose at any time to the draft. 


So at his suggestion, I decided on a draft-induced three-year enlistment in the Army and thereby have an occupational choice by which to avoid a dangerous combat infantry role in Vietnam.  Alternatively, I could have waited to be drafted for a two-year term and presumably go right to the precarious front lines, given a draft rate required to support a peak level of infantry soldiers constantly turning over after one-year tours of duty.  Indeed, even the Marines were drafting at the time.  Unlike many others, longer stints in the Army Reserve and other services did not interest me.  I got an occupational option for which I had to qualify, but six months after induction following required training I went to Vietnam anyway.  


A month before leaving for Vietnam an unanticipated (for me) draft lottery system was adopted where potential draftees were selected by random lot, thus removing the uncertainty about having to serve at such a precarious time.  This was a universal concern plaguing young men and their families throughout the nation.  All selective service registrants picked a number.  A relatively high one meant conscription was unlikely.  But that procedural change came too late for me.  Adding insult to injury, the year following my honorable discharge in 1972, the draft ended in favor of the all-volunteer Army. 


While I’m proud of my service, in retrospect it probably was not necessary as  I might not have been drafted after all.  Although demand for recruits was at its peak, I did not consider the huge number of newly eligible draftees becoming available among the baby boom generation that reduced the chance of a call.  It appears most men graduating from college in the late 1960s: 1) Secured graduate school deferments;  2) Acquired medical or family hardship exemptions; 3) Joined other services in stateside or European assignments; 4) Waited out the draft not to be called; 5) Drew a high lottery number; 6) Obtained legal dispensation as conscientious objectors; or 7) Fled to Canada.  Few went to Vietnam.  In any case, the draft loomed for most males 18 – 26 upending many lives.  It created uncertainty about employment prospects, provoked concerns about future peril, forced a painful assessment of options, and compelled multi-year career detours.  Such was the angst of the draft eligible young man in the Vietnam era.


My transition to civilian employment


            Ten weeks after my discharge when unemployment was over 7% I secured my first professional job in a supervisory operations role at American International Group (AIG) that began a 40 year career on Wall Street.  I never entertained any expectation of transferring military skills to corporate employment.  I just relied on my bachelor degree and a noble military diversion.  Despite supposed contempt for Vietnam veterans generally and related discrimination in the employment market at the time, I am not aware of it personally affecting me.  In fact, I suspect the hiring managers at AIG considered my military service distinctive.  This was hardly a typical attitude but I lucked out in getting empathetic interviewers.  After a couple of months I was promoted to a department headed by a Vietnam veteran I did not know (a Bronze Star combat medic).  Nevertheless, concerned about unspoken distaste for Vietnam vets throughout my career, I dropped my military experience from my resume early on and rarely mentioned it in order to protect my employment prospects. 


I was most fortunate in my transition from the military and hardly unique, but many Vietnam veterans suffered severe hardship, some self-inflicted, unable to cope with public antipathy, employer resistance and their own demons.  In that respect, the parallel with today’s Iraq and Afghanistan veterans is not missed.  Similarly, the 40th anniversary of the fall of South Vietnam to the North Vietnamese last month brings to mind commonality with the current reversals in Iraq and their implications for waning public support and, by extension, employer identification with job seeking veterans.  During the draft period employers generally were empathetic to the military because of personal or family-member service.  However, in the Vietnam era some of that good will was offset by public scorn that extended to some employers.  In fact, the Vietnam Era Veterans’ Readjustment Act of 1974 (VEVRAA) was passed to address the discrimination against veterans.   


But contrasts between transition then and now lie in the differences between the draft and the all-volunteer models.  Today’s returning vets enjoy universal public support and are never criticized.  But employers, forty years removed from the draft, have little military exposure by which to appreciate the veteran experience.  Perhaps that is why, in part, employers tend to indiscriminately ascribe concerns about potential behavioral issues flowing from war trauma, rather than differentiate individual cases.  Compounding that apprehension is the somewhat diminished quality of job candidates associated with a necessary lowering of recruiting standards because of enlistee shortfalls in the all-volunteer Army.

Public attitudes about the military


            According to a 2011 Pew Research Center poll, less than 1% of the population served in the military in the previous ten years versus 9% during World War II.  What’s more, 77% of civilians over 50 had family members who have served vs. only 33% of those 18-29.  As such, less war time engagement has resulted in a greater cultural divide between the military and civilian populations that has changed the way the public relates to veterans.  In particular, far fewer employers have a military frame of reference through personal or family-member service by which to relate to job seeking veterans. 


In the draft years, recruits were drawn from the general population so employers generally recognized military service as a noble way station in life independent of career relevance.  During World War II soldiers returned home in large units to great fanfare.  But in subsequent wars, they returned as individuals, unnoticed except for family, according to prescribed tour of duty schedules.  Thus, those veterans earned less recognition.


In the absence of the draft, civilians too commonly consider military service a perverse diversion incongruous to private sector employment and might view voluntary recruits suspect for their choice.  There was almost universal public support for U.S. involvement in World War II.  Precipitous events such as Pearl Harbor and 9/11 do rally the public for military response.  But interest sours on prolonged engagement and mounting casualties as seen with Vietnam, Iraq after Saddam Hussein, and the extended war in Afghanistan.  While the country has moved from demonization of Vietnam vets to a somewhat paradoxical “Thank you for your service.”, where even critics of war policy always support the soldiers, returning vets today face daunting prospects in the employment market because of their cultural estrangement.


            Today, many suspect Iraq and Afghanistan vets have mental health and behavioral issues associated with war trauma, particularly post-traumatic stress syndrome (PTSD).  Consequently, employers call into question their ability to fit in.  Similarly, many Americans were wary of Vietnam vets but for different reasons.  As the personification of a very unpopular war, citizens commonly believed the propaganda driven by the left broadly depicting them as crazed “baby killers”.  In fact, discipline problems developed among some draftees in Viet Nam because of their vilification at home, which also hurt enlistments.  


The murderous image was infamously imbedded in the national consciousness by one John Kerry, now Secretary of State, when he testified before Congress in 1971 during the investigation of the abhorrent My Lai massacres of 1968.  There he recited a litany of atrocities committed by soldiers against the enemy largely taken by the public as standard practice.  Years later he mollified his statements as the expression of “an angry young man” and conceded that most served nobly. 


While isolated brutality did occur, wonton killing of the sort Kerry described was anomalous.  The stereotype to the contrary is absurd.  In fact, only infantryman engaged on the battlefield were even in a position to commit such acts, and they represented only about 10% of the troops there.  Most others worked in support roles behind the lines in secured camps:  cooks, supply clerks, motor pool mechanics, administrative personnel, communication equipment operators, etc.  They had no contact with the enemy except for possibly having to react to perimeter breaches while on guard duty, or to sapper attacks (ambushes) while riding a convoy or courier run on sinuous mountain roads between base locations.  Support troops also were subject to possible incoming mortars but some were protected by outlying artillery units.  Such contact with the enemy by non-combat soldiers was relatively uncommon and always defensive.


But propagandists have painted Vietnam vets with a broad brush.  As a consequence, for those vets it was spit in the face literally and figuratively in a political atmosphere in which purportedly some relished keeping them unemployed and in the streets.  For many soldiers, rampant drug abuse in Vietnam carried over to civilian life, where it was also widespread, often resulting in homelessness that further tarnished the vet’s image.  But interestingly, the public demonstrations ended abruptly as soon as the draft was abolished in 1973.


            Iraq and Afghanistan veterans also are painted with a broad brush.  They’re largely feared to be damaged goods because of the experience of a certain number.  But again, like all wars, probably only a small fraction of troops fought in the field engaging the enemy directly.  Therefore, most are not likely positioned to experience trauma, although the ubiquity of improvised explosive devices (IEDs) is a concern for all troops there.  Nevertheless, the public misconceptions about veterans extend to those who become employers resulting in difficulties for many job seeking veterans.


The employer perspective


            The divide between military and civilian work is somewhat analogous to the difference between other public sector work and private sector employment.  Corporate employers entertain preconceived notions about the culture clash when assessing candidates.  In the case of veterans, hiring resistance may be analyzed in terms of the reservations employers might have about soldiers before enlistment and the concerns they have about them after discharge.


Before enlistment


            Some employers might wonder why one would join the military post-draft with all its hardships, especially when subject to deployment to terrorist war zones.  Are inductees different from those during the draft?  During World War II and Vietnam most eligible men over 18 were subject to the draft and enlistment was popular in the big war.  In addition, the number of forces needed was much larger than for Iraq and Afghanistan.  As such, military service was not alien to employers since conscription was so common. 


In both the draft and the voluntary models, some join out of patriotism, others for careers or educational benefits, or because of financial distress from a dearth of job opportunities in a slow economy.  And fewer employment options for minorities might make them more inclined to choose military participation.  But the all-voluntary military population consists of fewer better qualified enlistees than entrants during the draft period, and the remaining are admitted under lower admission standards.  This suggests a disproportionate percentage that signs up with less education, a lack of ambition, or possibly because of a mental or emotional disorder that precludes civilian employment.  Thus the problematic employer perception.  Do the many veteran suicides today (50% higher than the civilian rate overall and 100% for women) reflect hopelessness about re-entering civilian life, or indicate a pre-existing psychological vulnerability?  As such, employers may be wary about enlistee circumstances going in as well as about trauma coming out.  


            During the draft a good number of well qualified and exceptional recruits were automatically captured from the general population since all those eligible without a deferment or exemption were on call.  However, in the all-voluntary Army recruiting has to be more difficult, given more palatable civilian options, and the sacrifices of the military in terms of lower compensation, numerous relocations and family instability.  Accordingly, the all-volunteer Army relies on a much smaller and less qualified pool which is particularly challenging during war. 


 To illustrate:  When the draft military needs 100 troops it can easily acquire qualified candidates from a population of, say,1,000 available.  But in the all-volunteer model perhaps only 200 recruits are available to choose from and a larger percentage of them is unqualified.  This suggests that traditional recruiting standards may have to be compromised, especially to meet war time troop requirements.  And indeed they were for the Iraq and Afghanistan campaigns.  Consider:  women in combat; three or more tours of duty in a war zone; deployment of the National Guard overseas; certain recruitment from prisons; waiving of age limits, less education, and lower cognitive test scores.  Were psychological criteria relaxed too?  


According to 2011 studies based on Defense Department data, the number of recruits with a high school diploma entering the Army reached a new low of 70%.  In addition, representations of enlistees from lower income households are significantly high relative to their numbers in the general population.  An army that rests excessively on subpar cognitive standards and a default motivation for joining would become apparent to civilian employers.


What’s more, while the military targets minorities as more receptive candidates, the public image seems quite different.   I have wondered whether media portrayals of military personnel are manipulated to suppress actual minority ratios in order to enhance recruitment of whites.  For some time the demographic mix appearing in videos and photographs of troops has seemed counterintuitive and has not comported with reported statistics.  The point is, the military went to unprecedented lengths to attract and qualify recruits for the wars in Iraq and Afghanistan because of the limitations of the all-voluntary Army.


As such, seeming desperation in meeting recruitment quotas during full engagement in Iraq and Afghanistan might suggest that too many bad apples have entered the military population.  Of course, there are countless upstanding individuals in the military; we’ve all seen them.  The question is whether they constitute a significantly smaller percentage than under the draft system in view of inevitably relaxed recruiting standards.  Are the risks higher for employers?  Should returnees be suspect for having joined and for reduced standards of admission?


After discharge


Because of their near exclusively civilian exposure, many employers have difficulty relating to military job functions.  They also view the authoritarian culture of the military to be incompatible with today’s egalitarian workplace.  Others seem to consider military service a red flag akin to a criminal record.  And the large number of female hiring managers in business today may add to the resistance as women do not have the tradition of empathy for the military that at least some men still have.


            Many employers seem to assume that Iraq and Afghanistan returning veterans suffered war impairments that prevent them from functioning normally.  To be sure, hiring a veteran who might erupt on fellow employees or customers because of PTSD or other disorders is a wholly legitimate concern.  But how many vets really pose a mental health risk to employers?  As mentioned, like all wars, many Iraq and Afghanistan soldiers work in support roles at little risk of harm.  And why would those who do not serve in war zones be behaviorally suspect?


Are the traumas experienced in Iraq and Afghanistan much different from previous wars, after which they were not the hiring concerns they are today?  During World War II PTSD was called “shell shock” and usually went untreated, often leading to incapacitating problems later in life.  But not always.  Generally, a soldier who experiences one exploding bomb is not as harmed by one who experiences ten.  Today, the PTSD label might be blithely assigned with all its implications without regard for proximity of danger, the degree of injury and the prospect for behavioral problems.  (On the other hand, constant vigilance against IEDs in Iraq and Afghanistan certainly takes an emotional toll.  Those IEDs seem to be much more common and sophisticated than the land mines of Vietnam and World War II.) 


Employers who impose blanket reservations comprise a latter day mindset born of sensitivity training, counseling for witnesses of the horrifying visuals of 9/11, and, dare I say, feminized touchy feely sensibilities that pervade managements today.  Should that mentality be the standard by which mental and emotional impairment is determined and livelihoods are permitted?  In such a sensitized atmosphere one can imagine unfounded fear of “episodes”.  The vets are not necessarily incapacitated by their experience.  In fact, some of them might be better prospects because of their toughness in overcoming it.  The question is, How does one identify the truly problem candidates from the others without throwing the baby out with the bathwater?


Hiring considerations


            Military apologists have to concede a certain percentage of unemployables among returning vets.  But employers must rid themselves of blanket stereotypes and assess candidates with honorable discharges as individuals the same as civilian prospects.  This means dropping preconceived notions developed in the absence of military exposure.  In short, end, or at least diminish, the stigma.  It’s ironic that, unlike Vietnam vets, Iraq and Afghanistan returnees are hailed as heroes by the public and the media – even by Hollywood (politics notwithstanding).  Yet in the employment market too many are radioactive.   Recognizing that the stereotypes are to some extent valid, employers have to find a way to ferret out the anomalies.  Perhaps special clinical PTSD diagnostic techniques can be applied to separate the truly disabled from the others.  And if, say, 20% of Army forces are admitted under lower standards, employers should not discount the 80%, some of whom meet high standards.  Once the many good vets assimilate and advance their lives, the public perception will improve to the benefit of future recruitment and subsequent civilian placement.


            Much is made about the mismatch of skills between military and business life.   But looking for the relevance of military experience to a particular job is misguided, except for some general qualities like character and leadership, and certain technical skills such as administrative work and particular machinery operation.  Construing business analogues for every military function is disingenuous and often sophistic.  Employers should debunk the myth of a required connection.  World War II vets were hired for their ability and willingness to learn irrespective of their military roles.  Liberal arts graduates get jobs on the basis of general critical thinking and communication skills (or they used to).  And most college graduates work in functions that are unrelated to their majors.  


But transition is not the same for all veterans.  Many younger veterans applying for entry level jobs are similar to high school graduates starting out, but with a maturity advantage.  Older vets are more problematic in that they may be sometimes viewed incongruous in an entry level population.  Officers with college education have better prospects than enlisted vets with only a high school diploma or less.  Indeed, prospects vary by age, education, years of service, specialties, etc.  Reports cite inadequate job search skills as a common obstacle to vets who are not familiar with the structure and vernacular of business.  Surely, that deficit can be overcome with assistance that is readily available.  Nevertheless, returning veterans do need guidance negotiating the commercial landscape.  Like civilians, not all veterans are self-starting, resourceful and persevering, especially in an entirely new working environment.


            Today, many companies conduct affirmative action programs aimed at hiring veterans (probably at the behest of government).  For example, the International Franchise Association sponsors an initiative to attract former military officers to franchising.  In addition, major banks are proactive in recruiting veterans.  This can be beneficial but the initiative can take on a political dimension where the goal can become satisfying quotas with little regard for qualifications.  As in racial affirmative action, blind preferences for veterans can backfire, especially in view of employer apprehension about possible behavioral anomalies in addition to qualifications and performance.  Nevertheless, affirmative action for veterans does foster a helpful leap of faith that might not otherwise occur.


            At some point employers can face discrimination liability under the aforementioned Vietnam Era Veterans’ Readjustment Act of 1974 which protects veteran status.  So, they have to protect themselves against unsubstantiated patterns of veteran rejections, just as they do with minority applicants.  That might prompt some hiring but potential liability for firing could discourage it.




            Since the end of the draft, it may be harder to transition from military to private sector employment because of a culture much less attuned to military life.  What’s more, public and employer attitudes flowing from the anomalies of the all-voluntary Army model compound the problem.  Such a force can be sustained in peace time.  But in times of large deployments for unpopular wars, enlistments can fall significantly short forcing recruitment adjustments that taint the veteran image in the job market.  Compared to the draft, today’s military population derives from a smaller pool of candidates, a percentage of which has been admitted under lower standards because of enlistment shortfalls.  Accordingly, blanket employer presumptions about the suitability of returning vets, coupled with concerns about their mental and emotional war time injuries, restrict civilian prospects. 


Adopting a more selective approach focused on individual veteran profiles avoids a wholesale rejection of a multitude of excellent prospects with great potential for success.  Better informed risk tolerance in hiring will go a long way toward integrating the estranged veteran.

©2015 William J. Dodwell

The Truth About the 2008 Financial Crisis

By William J. Dodwell    November 27, 2012

Cause and Effect


            A prominent example of liberalism seriously intruding on economic life is the 2008 subprime mortgage crisis primarily founded on overzealous government affordable housing policy.  Since 1977, with the enactment of the Community Reinvestment Act (CRA), government has tried to expand home ownership by making it affordable for low income communities in the name of achieving “the American dream”.  Regulators and liberals in Congress forced banks to lower mortgage underwriting standards figuring the greater aggregate credit risk would result only in a few extra basis points in the cost of the average loan which would compensate for the extra defaults.  Banks complied under the veiled threat of reprisals, such as denial of regulatory approval for mergers and additional branches.  In reaction to this coercion, for example, some banks offered heavily discounted teaser rates for the first year that tripled afterwards.  Some consider this practice predatory lending, but usually the lenders were desperately trying to satisfy government quotas.  In addition, the Department of Housing and Urban Development (HUD) pressured Fannie Mae and Freddie Mac to also lower their credit standards for mortgages they purchased from originating banks and subsequently guaranteed, thus exposing taxpayers to the risk.


Contrary to Democratic charges, President George W. Bush’s policies did not cause the financial crisis.  Although he initially promoted more affordable housing, he later warned of the excesses of Fannie and Freddie a few years before the bust.  But a Democratic Congress, led by Barney Frank, hellbent on increasing home ownership among minorities “rolled the dice” (his words) once too many.  And throughout the ‘90s President Clinton aggressively enforced an affordable housing policy through HUD pursuant to the CRA.


            This government-sanctioned accommodation to riskier borrowers through subprime mortgages culminated in the financial crisis of 2008.  Suddenly, in recognition of pervasive lending excesses in the market, the credit bubble burst as rising home prices plummeted in anticipation of eventual defaults.  This resulted in the onset of the Great Recession and ultimately some 25% of homes valued at less than the mortgage.  These so-called underwater mortgages prompted many homeowners to abandon their homes while others succumbed to foreclosure, unable to meet scheduled payments in the economic downturn.  In addition, the expectation of widespread defaults impaired the value of huge institutional mortgage-backed securities (MBS) portfolios secured by subprime credits.  This asset devaluation immediately depleted bank capital and raised the specter of ongoing write-downs threatening the banks’ ability to satisfy their obligations to other financial institutions, thus undermining the financial system as a whole.  Market participants perceived acute counterparty risk, particularly following the collapse of Lehman Brothers, that froze the financial markets where in some quarters no one could buy or sell and short-term borrowings could not be rolled over.


Not only did private MBS investors and originating banks that retained their subprime loans suffer, but also taxpayers in having to back guaranteed MBS issued by Fannie and Freddie to investors.  In addition, the de facto government guarantee against default on Fannie and Freddie corporate debt garnered lower market interest costs that encouraged them to greatly increase their purchase and securitization of subprime mortgages.  This is classic moral hazard.  Meanwhile, the agencies profited from the spread between interest income received on mortgages purchased and interest expense incurred to MBS investors, in addition to a fee charged borrowers for the investor guarantee.  Ultimately, loan losses overcame Fannie and Freddie causing them to be nationalized through conservatorship while their shareholders were wiped out in the process.  The government guarantee came home to roost as some $150 billion of covered losses is currently owed taxpayers with no limit on future federal subsidization.  


This taxpayer exposure combines with $1 trillion of mortgages currently insured by the Federal Housing Authority (FHA) that are secured by minimal down payments.  FHA mortgage risk expanded in the wake of the financial crisis to help support home prices amid market withdrawal by private banks and operational curtailment by Fannie and Freddie.  Currently, the FHA reports a negative capital reserve, despite a federally mandated minimum of 2%, and an estimated 17% default rate, that raise the specter of a taxpayer bailout.    Here we go again?


            However, the private banks also contributed significantly to the crisis.  Here I disagree with many conservatives who claim it was all government’s fault.  Following on the expansion of Fannie and Freddie, mortgage securitization became enormously popular among the larger private banks too.  The long secular trend of rising home prices, created by easier mortgage financing in the low interest-rate environment of the early and mid 2000s, enhanced the quality of mortgages because continuing price appreciation raised the value of the collateral.  As such, investor demand for MBS exploded as they became attractive on both a credit and yield basis resulting in highly leveraged purchases.  Large institutional MBS buyers were further encouraged by a too-big-to-fail mentality by which they presumed the government would bail them out if severe investment losses ensued because of their importance to the financial system as a whole. 


Accordingly, larger private banks expanded their MBS issuances by securitizing loans they originated or purchased, while smaller banks accelerated their mortgage origination in order to sell the loans at a nice profit to banks voraciously in need of them for their own lucrative securitizations.  In fact, private banks competed with Fannie and Freddie for the purchase of newly issued mortgages.  The problem was that the private originating banks, like the government sponsored agencies, apparently relaxed underwriting standards of their own volition, beyond CRA requirements when the MBS market took off.  The banks did this because most of the credit risk was transferred to MBS issuers that purchased the mortgages for their securitizations, and who in turn passed the risk to unsuspecting MBS investors. 


In fact, some originating banks financed million-dollar homes for no money down.  Also, many banks inflated home appraisals in order to qualify more and larger mortgages.  In addition, some investment banks participated in packaging low-quality mortgages and other debt instruments into collateralized debt obligations (CDOs) on behalf of issuers.  Those banks then sold them short in their own proprietary trading portfolios for a profit on the expectation of large collateral defaults.  Meanwhile, these investment banks recommended the same CDOs to clients for purchase.  Banks also profited by often forcing overpriced mortgage insurance on borrowers through their mortgage servicing units.  


But the large banks also fell victim to the massive credit dereliction as they suffered huge portfolio losses on securitized assets they purchased for their own portfolios.  Indeed, many investors neglected to adequately assess the quality of the MBS collateral in the due diligence process, relying too much on rating agencies, and therefore failed to detect misrepresentations of the issuers.  The write-downs ultimately prompted the government bailout and triggered shareholder lawsuits for failing to fully disclose the exposure.  In turn, banks, as well as Fannie and Freddie, are currently pursuing so-called “putback” lawsuits against loan originators seeking compensation for bad mortgages they issued.


And the “robo signing” mortgage processing and documentation debacle involving allegations of banks foreclosing on the wrong borrowers also wreaked havoc, although it was overblown by the populist press.  In fact, wrongful foreclosures were rare.  The mortgage registry problems that complicated the identification of the rightful holders of the mortgages and the alignment with corresponding borrowers, although reprehensible, mainly concerned document forgeries and falsifications, as well as administrative errors, commissioned by third-party contractors retained by lending banks.  Nevertheless, the problem caused angst for many non-delinquent borrowers and delayed banks from foreclosing on properties sooner, thus slowing the economic recovery, especially the housing sector. In addition, lawyers capitalized on the mess through rampant collection of inappropriate legal fees.  Ultimately, five major banks entered into a $25 billion settlement with the federal government and 49 states to end legal and reputational liability, the terms of which consisted of a $5 billion cash payment and $20 billion of loan modification and forgiveness.               


            Throughout the odyssey, serious MBS credit quality deterioration escaped the scrutiny of the SEC, the rating agencies, the auditors, as well as some third-party lawyers and consultants involved in oversight and due diligence.  Meanwhile, the Fed turned a blind eye, probably because of the sensitive politics associated with challenging large volumes of loans to low income borrowers.  Particularly remiss were Fannie, Freddie and the Fed concealing the degree to which the GSE’s purchased subprime loans for their guaranteed securitizations.  The real risk concentration at Fannie and Freddie and the aggregate supply of subprime loans at large had not been fully disclosed.  Had investors known the magnitude of subprime risk outstanding, they would have greatly curtailed further private-label MBS buying and averted the crisis.  Some worry even now that insufficient write-downs of impaired MBS tempt the fate of the Japanese experience in failing to write down bad loans in the wake of the real estate bust in 1990.  As a consequence, more than twenty years later the Japan economy has yet to recover.


            On balance, government was the prime culprit in the crisis inasmuch as some 70% of high-risk mortgages issued by mid-2008 were: 1) issued in compliance with CRA requirements; 2) held or guaranteed by Fannie and Freddie, or 3) insured by the Federal Housing Authority (FHA), according to Ed Pinto, former Chief Credit Officer at Fannie Mae, now at the American Enterprise Institute.  The remaining 30% were attributable to lowered private bank underwriting standards, which included some predatory lending, as well as borrower fraud or irresponsibility in reaching beyond one’s means.  However, it is ironic that, despite gross improprieties uncovered in numerous investigations, no individual in government or at the private banks has yet to be convicted of a criminal offense as the five year statute of limitations approaches.  Federal, state and private prosecutions are in progress.  But some cases failed because of the inability to prove intent to commit fraud, or individual fiduciary liability in intermediary roles not involving a direct client relationship.  Therefore, banks themselves, rather than employees, have become vulnerable to prosecutorial abuses in the zeal for high-stakes victories.


In any case, securitization as a funding and financing vehicle should not be indicted.  Until the financial crisis it was an economic boon as it provided needed liquidity to the markets, not only for mortgages but other credits including auto loans, student loans, credit card receivables and trade receivables.  Securitization enabled banks and industry to sell off loan risk from their balance sheets to make room for more lending or to raise cash.  But the sine qua non is the quality of the collateral (loans) based on the underwriting standards applied in creating it.  As such, securitization is an eminently sound concept, as long as the collateral is good.  What's more, a restored private mortgage securities market is essential to spread the credit risk now borne by taxpayers through Fannie, Freddie, and the FHA guaranteeing and insuring trillions of dollars of mortgages.  This is in addition to the interest-rate risk attached to hundreds of billions of dollars of agency MBS owned by the Federal Reserve Bank under its ongoing quantitative easing program.


The Government Bailout


            With the damage done the question became how to fix a financial system lacking enough capital to function.  Here again I part company with most conservatives.  Because of the global interconnectedness of so many wounded financial institutions through various types of counterparty lending arrangements, banks could not be left to their own devices to recapitalize themselves, or reorganize through bankruptcy while ceasing to operate.  If financial institutions defaulted en masse on their vast panoply of external counterparty obligations and undermined their internal networks of copious legal entities, Wall Street and Main Street would have likely suffered economic depression with probably 30% unemployment, according to former Treasury Secretary Henry Paulson.  The contagion would have seriously hampered repayment of inter-bank loans and deposits and the servicing of derivatives contracts throughout the banking system.  Indeed, the government bailout was about salvaging those creditors, as shareholders were left in the lurch losing most of their investments.  Not enough private capital could be raised to replenish the banks as investors themselves suffered huge portfolio losses from impaired MBS or lacked trust in the banks’ recovery prospects.  Thus, only the U.S. government was capable of recapitalizing the financial system, which it did through the Treasury and the Federal Reserve Bank in the form of loans, guarantees, bond purchases and investments.


            The sheer magnitude of asset impairment and leverage during the 2008 financial crisis invited perceived contagion throughout the global financial system that distinguishes the malaise from other disasters, thereby necessitating government intervention.  Other crises were founded on relatively contained price bubbles without systemic implications.  The Long-Term Capital Management debacle of 1998 posed a similar threat but was just a microcosm that the banks resolved without government intervention.  The dot com stock price boom and bust of the 1990s rested on expectations of market demand associated with internet technology developments.  While individual and institutional stock portfolios plummeted causing a recession, institutional impairment losses were discrete and smaller than 2008, thus not affecting far-reaching counterparty obligations. Also, the savings and loan crisis in the ‘80s and ‘90s centered on the inability to service rising interest rates on variable-rate deposits from lower yielding fixed-rate loans and illiquid depreciating real estate.  The problem of failed banks did not have a major macroeconomic impact.  It was resolved through private sales of banks bought by the government sanctioned Resolution Trust Corporation that ultimately cost taxpayers “only” $125 billion.  In addition, the derivatives debacle of 1994 was triggered by an unexpected rise in interest rates that wreaked havoc with institutional investment portfolios.  But losses were inconsequential on a macroeconomic basis and covered by company capital, although there were some well publicized bankruptcies.


            By contrast, the 2008 financial crisis     centered on unprecedented financial asset impairment in the trillions of dollars that exceeded regulatory bank capital adequacy cushions.  And declining home prices and widespread foreclosures from massive mortgage defaults had grave implications for Main Street as well.  The collapse of  Lehman Brothers in particular sparked a contagion that impeded or threatened the ability of institutions to meet counterparty obligations creating a credit freeze in a highly leveraged interconnected environment of short-term borrowings that wended throughout the financial system. This network linked financial institutions with each other, and with industrial and non-profit companies as well, through myriad secured and unsecured debt issuances.  They included repurchase agreements, securities lending, certificates of deposit, loans, commercial paper, corporate bonds, and derivatives such as futures, options, interest-rate swaps, forward rate agreements and credit default swaps.  While the Lehman Brothers collapse ultimately proved to be manageable, after triggering a temporary credit freeze, multiple bank failures of that magnitude would have precipitated a panic of historic proportions.  Conventional bankruptcies of many institutions at the same time would have been protracted and extremely disruptive.  Thus, government intervention was the only solution where failed institutions could not all be rescued by larger banks.


            As it happened, the bailout succeeded as most large institutions repaid government loans.  In addition, impaired asset values of MBS holdings on bank balance sheets have recovered significantly and will continue to appreciate.  Other MBS were sold off at a profit.  The government also recorded profits on some of its loans and investments, although a sizable equity investment in AIG remains and many small banks struggle to repay rescue loans.  In addition, government owns all of Fannie and Freddie as they continue to bleed from defaulted mortgages that taxpayers guarantee without any cap on subsidization. Those who complain about government largesse to Wall Street during the financial crisis should note that several of the largest banks, notably Bank Of America, were forced to accept bailouts to avoid affixing a stigma to the banks that needed them.  The proof of the pudding was that those self-reliant banks repaid the government very quickly.  In addition, J.P. Morgan Chase, which did not need a bailout, agreed to acquire failed Bear Stearns at the behest of the Federal Reserve Bank, thus lending tremendous support to the precarious financial system.  Ironically, Chase now faces legal liabilities for alleged prior improprieties of the firm it bought.


Nevertheless, the General Motors bailout was not necessary as the company did not pose a systemic financial risk like the banks did. GM could have recovered through a normal bankruptcy that would have eventually preserved most of their workers and suppliers.  Much is said about GM as a turnaround success, but government still owns a 26% equity stake that is currently in about a $15 billion loss position as the stock has plunged 50% from its issue price.  And GM continues to falter in Europe while in the U.S., the company stays afloat from lucrative subprime auto loans through its new captive finance arm, GM Financial. (Here we go again.)  Presently, a frustrated management is begging government to relinquish its stifling control so it can do what is necessary to operate effectively.  But most reprehensibly, the government bailout and restructuring of GM transferred sizable ownership to the United Auto Workers at the expense of bondholders who were forced to largely surrender their investment.  Non-union employees also were unprotected.  That equity stake was some $27 billion more than the UAW would have recovered in a conventional bankruptcy, according to the Heritage Foundation.  In return, the union remitted substantial contributions to the Obama reelection campaign.  The disenfranchisement of the GM bondholders was a patently illegal and corrupt act of government that has gone unchallenged and under reported.  It will remain a scar in the annals of American business history.


While the bailout successfully stabilized the financial system, the Obama administration and the Democratic Congress refused to support fiscal reform necessary to cure the ensuing recession, primarily much needed tax cuts and regulatory relief.  As such, government was not only prominent in creating the problem, but also responsible for blocking the real solution in dedication to the class warfare mindset.


Dodd-Frank Financial Reform


            Dodd-Frank legislation passed in 2010 in the hope of preventing a recurrence of the 2008 financial crisis.  Some provisions are helpful, but some are extraneous as they do not relate to the real causes of the crisis while imposing onerous compliance costs that restrict credit availability.  Others are problematic in their enforcement as theory conflicts with practice.  Consequently, the courts are upholding some industry challenges to new Dodd-Rank rules. To date, only about a third of the new rules are written in the more than two years since the new law’s enactment. 


Particularly troublesome is the new Consumer Financial Protection Bureau (CFPB) established to regulate loans.  Although useful to redress bank credit card violations, this agency wields too much power operating beyond the oversight of the Congress, the President, and the courts.  It also anomalously functions under the budget of the Federal Reserve rather than Congress.  As such, it is unconstitutional and a lawsuit is pending.   Current uncertainty about the ultimate impact of Dodd-Frank deters business investment, thus hampering economic recovery, especially in combination with the wonderment about the new healthcare law.  Certain financial regulation is absolutely necessary as a short institutional memory of past debacles and a predilection for scandals in the youthful Wall Street culture preclude sufficient self-restraint.  Indeed, institutions must protect against rogue traders, improprieties concerning securities valuation and accounting obfuscation, and internal control lapses.  But the eternal quest is finding the right balance between safety and risk-taking, that may change over time.  Dodd-Frank gives government too much control over the allocation of credit.  And it comes on the heels of its takeover of the trillion-dollar student loan market buried extraneously in the Obamacare legislation.


The new Affordable Care Act eliminates government guaranteed direct lending by banks in favor of loan origination by the Small Business Administration (SBA).  This stealth maneuver is no doubt designed to enable the government to direct more student loans (and other things) to low income groups in typically liberal redistributionist fashion.  This policy, like government affordable housing policy, will inevitably result in greater credit losses for taxpayers to bear.


            New stricter capital, leverage and liquidity requirements, as well as annual stress tests, are beneficial to large banks in tempering risk-taking activities, such as securities trading.  But proprietary trading is wrongly cited as a causative factor in the crisis.  In fact, the lowering of mortgage underwriting standards caused the pandemic credit losses on individual loans and mortgage-backed securities that decimated regulatory capital throughout the banking system posing systemic counterparty risk.  True, if banks were not as highly leveraged in the trading of MBS many might have borne the impairment without serious consequence.  But now new leverage limits safeguard against that excess.


Financial reform under the so-called Volcker Rule restricts proprietary trading according to a definition (yet to be fully determined) that distinguishes risky trading for profit from benign hedging to manage risk, and essential market-making to accommodate corporate bond and stock issuances.  In particular, the rule limits bank investment in hedge funds and private-equity stakes.  Indeed, trading positions are inherently vulnerable to interest-rate risk, prepayment risk, operational risk, and overlaying derivatives risk, but that is not what triggered the crisis.  Again, asset impairment from poor mortgage underwriting standards did.  Therefore, should regulation proscribe proprietary speculative trading because of those other extraneous risk factors?  I think not.  Proprietary trading is a legitimate risk/reward proposition whose many risks can be better managed through more stringent capital and liquidity requirements, tighter internal controls and revamped regulatory oversight.  Dodd-Frank enacts certain reforms that should do just that by narrowing permissible parameters.  As such, financial institutions should be permitted to seize profit opportunities in arbitraging market differentials arising from fluctuating stock, bond, currency, and commodity prices that are facilitated by technological advances that erase global boundaries and temporal limitations. With sufficiently limited regulatory controls in place, firms, traders and shareholders should be allowed to profit from proprietary trading while markets enjoy added liquidity and more efficient capital allocation as a result.


Regulatory reform comes down to needed regulation as distinct from superfluous and overly costly requirements.  But Dodd-Frank encompasses both.  Before the crisis, some existing regulation already sufficed but was not effectively enforced.  In addition, some areas lacked federal oversight including the so-called shadow banking system including investment banks, insurance companies, money market funds and mortgage brokers.  Derivatives in particular were left in regulatory limbo (although only the AIG concentration in credit default swaps contributed significantly to the crisis).  And most importantly, loan underwriting standards were not defined.  Dodd-Frank calls for prudent lending, transparency, stress tests, effective integrated oversight over the entire financial system, and an adequate capital buffer, coupled with an orderly liquidation process to implement in the event of calamitous bank failures that should safeguard against another financial crisis if properly enforced.  And the new Basel III rules will improve the odds by bolstering the international financial framework.


To help assure safety, Dodd-Frank calls for more disclosure, overlapping regulatory coverage encompassing both bank and non-bank financial institutions, and stricter capital requirements.  It is hoped structural reforms at the SEC, CFTC, FDIC and Federal Reserve Bank will improve supervisory enforcement.  Again, Dodd-Frank established the Orderly Liquidation Authority to prevent a credit crisis in the event of large institutional failures. One provision requires “living wills” for banks with over $250 billion of assets that stipulate how a failed institution would be wound down. But another safeguard calls for a taxpayer funded facility which effectively perpetuates the too-big-to-fail concern.  


Neither contingency necessarily averts contagion from the simultaneous termination of several large interconnected institutions.  Therefore, future bank failure should be resolved by either an adequate industry pre-funded reserve or conventional bankruptcy, not by taxpayers.  As mentioned, in the recent financial crisis there was no viable alternative to government assistance because of the systemic risk posed by so many institutions at once.  In the future, the financial system must be prepared to act without reliance on government funds in the event of one or several contemporaneous bank failures.


To be sure, regulation must minimize the probability of catastrophe and then ensure a mechanism to resolve it should it occur.  Certain provisions of Dodd-Frank accomplish this.  However, others such as derivative exchanges and certain consumer protection regulation stifle innovation and competitiveness and impose extremely costly compliance requirements that exceed benefits.  For example, new capital requirements restrict community bank lending that results in less capital available to small businesses. And, again, the role of derivatives in the financial crisis primarily centered on the undue concentration of unhedged credit default swaps at AIG alone.  That’s not a reason to throw out the baby with the bath water.  On the other hand, if institutions flout consumer banking rules, as in credit card abuses, hang ‘em high.  Successful reform will depend on competent and honest implementation and enforcement of the particular regulations that address the real problems.  Overkill will not help.


Breaking Up the Banks


I am not opposed to breaking up the largest banks to mitigate aggregate risk by limiting assets to, say, $500 billion.  This way each institution may function more manageably in all areas as desired within appropriate capital, leverage and liquidity parameters.  Smaller scale and complexity, and reduced market concentration disperse potential risk.  As such, diversified services involving both deposit taking commercial banking and risk taking investment banking can co-exist to the benefit of customers, shareholders, the economy, and the banks themselves.  Smaller size also subjects the bank to less onerous regulation including capital requirements which permits more lending.  In addition, asset and liability shedding mitigates the too-big-to-fail problem by defusing far-reaching organizational and external systemic risk.  This makes taxpayer rescues of insured depositors and indispensable commercial counterparties less likely.


Alternatively, banks could split up functionally to achieve both smaller scale and less complexity.  In addition, such disaggregation could result in greater industry value to the extent that the sum of the parts is greater than the whole.  Discrete homogeneous businesses in retail banking, commercial banking, investment banking, asset-management and private equity might be more manageable than the full-service firm.  But complexity is not only a function of size and diversity.  Singular units specializing in trading and hedging strategies, for example, also can be structurally complex by design.  Witness the debacle at J.P. Morgan Chase in May 2012 with its layers of countervailing derivative positions.  But notwithstanding all the media noise, a loss of a few billion dollars relative to its $2 trillion diversified balance sheet is immaterial, thus showing size can be an advantage.  However, political fallout and reputational risk are another matter.


Ironically, the size issue becomes more acute in view of the extremely high industry concentration that has resulted from large bank consolidation prompted by the financial crisis.  In fact, the five largest banks account for more than 50% of U.S. bank assets today vs. 25% in 2001.  These banks may resist asset curtailment since they benefit from the too-big-to-fail perception that lowers their borrowing costs, thus encouraging more leverage, and implicitly diminishes management accountability.  Downsizing also flies in the face of big government advocates who see greater size fostering federal control that facilitates implementing liberal programs, such as credit allocation and affirmative action.  This poses a formidable resistance to large scale de-consolidation. In fact, some critics maintain that the government protected the large banks in the aftermath of the crisis by not requiring major restructuring and new top management.


In addition, stricter capital requirements, imposed by the Federal Reserve Bank, the Basel III accord, and the more stringent Financial Stability Board of the G-20 nations, to be phased in through 2019, will force some of the 7,000 smaller banks to merge in order to maintain profitability.  Established in reaction to the financial crisis, these larger capital cushions call for reducing risk-weighted assets through more restrictive lending and more investments in government securities.  Applying the new rules to the smaller banks, that had nothing to do with the reckless mortgage issuance that caused the financial crisis, does not bode well for the economic recovery.  But recognizing this concern U.S. regulators have postponed the January 2013 implementation of the new Basel III capital rules.

© 2012 William J. Dodwell


The LIBOR Flap – A Tempest in a Teacup, but Another Payday for Government and Lawyers

By William J. Dodwell    December 19, 2012
            Much is made of the revelation that the London Interbank Offering Rate (LIBOR) data submission process was manipulated by certain reporting banks during the financial crisis to avoid a perception of vulnerability in the credit markets and to enhance trade pricing.  By reporting an artificially lower average cost of funds those banks unfairly profited from perceived stability that resulted in lower borrowing costs to the detriment of their lenders.  That lower cost inflates lending spreads, as well as trading profits on portfolios that might be priced at a lower discount rate derived from a yield curve based on those costs.  Also at issue is trader speculation on the direction of interest rates by arbitraging LIBOR rates and maturities against other indexes.  Moreover, to the extent the rigging impacted the published LIBOR rate, and that is not established, it is alleged borrowers, lenders and traders throughout the financial markets may have been adversely affected.  
            Regulatory investigations in several countries, U.S. congressional hearings, as well as private lawsuits, are underway or planned to identify liability and assess damages.  In addition, the Euro Interbank Offering Rate, called EUROBOR, is also under examination in Europe for false data submissions and collaboration among banks.  To be sure, some firms benefited  from lower borrowing costs and inflated trading profits attributed to improprieties in the data submission process.  But the aggregate effect of manipulation on published rates applied in the market at large is probably immaterial, and proving damages on that basis could be difficult.


            Established in 1986, LIBOR is a broad unregulated reference index, or benchmark interest rate, by which many short-term credit instruments are priced, including variable-rate mortgages, retail, commercial and interbank loans, credit cards and derivatives. Such instruments are typically expressed in terms of so many basis points above LIBOR based on perceived credit risk.  The index derives from an unverified estimate of global borrowing costs reported by 16 U.S. and European banks to the British Bankers’ Association which controls the measure.  But oftentimes LIBOR submissions were not updated for some time to reflect current market conditions regarding credit and interest-rate risk.  What's more, LIBOR did not track prices in the market for credit default swaps.


            Understated LIBOR universally benefits borrowers with lower interest cost while penalizing lenders with lower interest income.  Therefore, financial institutions which borrow and lend would both win and lose.  The impact would depend on the net lending or borrowing position, and whether lower borrowing costs are passed on as lower lending rates to customers, effectively neutralizing the distortion.  For example, consumers and non-financial businesses which only borrow would benefit the most.  But LIBOR loans not linked to LIBOR funding, and vice versa, would pose a different calculus.  Municipalities and pension funds claim to have lost money on interest-rate swaps. However, in these transactions where a fixed-rate cash flow is simultaneously  exchanged for a variable-rate cash flow, both based on the same LIBOR, any distortion is initially shared by both counterparties as each is underpaying and overpaying equally.  But thereafter the variable leg is potentially exposed to additional distortion, favorable or unfavorable, with each rate reset.  All these scenarios make assessing damages and establishing class action status difficult.


Everyone is subject to the same published rate, manipulated or not, as transactions are still settled between a willing lender and borrower, or buyer and seller.  If the real interest rate in the macro environment is higher than the LIBOR proxy, a lender relying on LIBOR might be theoretically undercompensated for risk if not offset by lower LIBOR funding costs.  This would be the case where a LIBOR loan is funded from capital rather than by borrowings, or funded by non-LIBOR borrowings, such as those based on U.S. treasury spreads or a markup on average customer deposit rates.  Also problematic are artificial LIBOR rates that might affect trading profit and loss.  This applies to a buyer and seller where a portfolio of loans, bonds or derivatives is priced on a yield basis according to a manipulated LIBOR based discount rate taken from the swap curve.


LIBOR is not a scientific measure. It’s an estimate of borrowing costs that serves as an economic basis for pricing lending transactions.  Therefore, the rate is inherently imprecise as it deviates from reality anyway.  Is the effect of rate manipulation on the published rate much greater than this natural deviation if at all?  Can distortion be quantified in all its forms?  If LIBOR is so critical, why wasn’t it ever subject to regulation and verification and formally investigated when manipulation was first reported several years ago?  LIBOR is analogous to the consumer price index (CPI) that governs the calculation of inflation rates, including the inflation adjustment for Treasury Inflation Protection Securities (TIPS). As such, a misstated CPI can affect securities valuation, cost of living adjustments, as well as financial and economic forecasts.  Like LIBOR, the CPI is a soft number the distortion of which creates winners and losers.  The issue is also similar to shareholder lawsuits that try to quantify the effect of earnings misstatements on share prices and the resulting damage to investors.  (Conceivably this calculation is more straightforward than the LIBOR issue, albeit potentially more damaging.  It would seem indemnification is relative to two external variables affecting equity investors, that is, the earnings error and the putative pro forma price/earnings ratio that would have been assigned by the market.) 


Is redress practicable?  To be sure, the lawyers involved in private lawsuits will try to make it so and banks are already reserving for those anticipated litigation costs. But the private litigators had better hurry because the five year statute of limitations looms.  Most of the LIBOR reporting banks are under investigation for misrepresentations in 2008.  Regulators also see a big payday.  Barclays agreed to a $450 million settlement with U.S. and British authorities and UBS settled with multiple countries for $1.5 billion. Proposed new benchmarks based on actual transactions, rather than judgments, would alleviate the wiggle room and restore confidence in an even playing field.  In addition, planned regulation will subject reported funding costs to audit under the aegis of a newly appointed oversight body.
                                                        © 2012 William J. Dodwell

The National Debt – Real Solutions Could Be Doomed by a Lack of Political Will and Public Outcry

By William J. Dodwell    January 27, 2013

        As serious as the deficit and debt problem is, the President, congressional Democrats and much of the electorate lack the understanding or resolve to cure it.  Barak Obama is dedicated to expanding federal government at any cost to fulfill his Marxist redistributionist vision.  Too many Democrats share his philosophy while others go along to satisfy special interests that fund their re-election.  Indeed, nearly $4 trillion of annual spending enriches the Washington establishment of lobbyists and vendors whose symbiotic relationship with government officials ensures an ever growing bureaucracy.  And the electorate is clueless as evidenced by the 2012 election, which also reflects a significant public preference for government benefits over the fruits of labor.  All the wrangling over the fiscal cliff, the budget and the debt ceiling does not produce serious progress, despite obvious solutions.  Will it take a catastrophe to motivate government to fix itself and for voters to hold their representatives accountable?


The Problem


            An economy beset by a financial crisis and subsequent recession necessitated borrowing at record levels to fund more than 40% of spending that approaches $4 trillion annually. The fiscal condition was so severe that Standard & Poor’s lowered the debt rating for U.S. treasuries for the first time in 2011 and may do so again soon.  Much of the spending is rooted in government programs that unduly burden businesses and individuals via taxation, regulation, litigation, and a reduced quality of life.  Even cultural decline, abetted by liberal media, can strain the public coffers by diminishing productivity and economic growth through an erosion in education and the work ethic, and a rise in social pathologies.  In the last 4 years, an expansive and intrusive government has required over $6 trillion of borrowing that brings the national debt to $16.4 trillion, or about 100% of GDP.  (The debt is some $86 trillion counting the present discounted value of unfunded future liabilities for entitlement programs, i.e., Social Security, Medicare and government pension and post-retirement healthcare benefits.)  This debt diverts capital and demand from the private economy, slowing growth and devaluing the dollar.  In addition, the Federal Reserve Bank, as the buyer of most new Treasury debt in the last couple years, facilitates the borrowing and spending at the risk of inflation when the economy recovers.


Eventually, interest rates will rise to normal levels and maybe beyond when economic growth returns, along with attendant inflation pent up from several years of accommodative monetary policy in the aftermath of the financial crisis.  (Fed Chairman Bernanke insists he has the tools and sense of timing to control this inflation.)  Economic recovery could result in significantly higher interest costs on the debt that will exacerbate the deficit and raise the debt further.  Failing to contain the vicious cycle of spending, borrowing and paying interest will stifle economic growth and bankrupt the nation.  Europe here we come.        


            Excessive spending by government at the state and local level is also foreboding as it will compound the federal deficit and debt when declining local economies result in lower tax receipts.  This is especially evident with respect to excessive capital expenditures, as well as public union contracts that have created unsustainable employee salary and benefits expense and unfunded pension liabilities that threaten governments’ very solvency.  Indeed, many sizable cities face bankruptcy from bond and pension debt.  Happily, failed recall elections last year in Wisconsin aimed at the governor and state representatives who supported spending mitigation suggest a watershed in public recognition of the problem.  Will this translate into federal elections?


To be sure, President Obama and the Left have no real interest in cutting spending.  Any proposed austerity contravenes their fundamental philosophic commitment to income redistribution effected by tax and spend policy to narrow class differences.  Recall Obama’s “spreading the wealth around” comment to Joe the Plumber during the 2008 campaign.  Another sign of his fiscal indifference is the dramatic rise of spending on food stamps and Social Security disability as the Obama administration actively promoted eligibility to expand the programs.  Especially telling was his fiscal 2012 budget proposal that called for a mere $2 billion of spending cuts from a $3.7 trillion expense budget.  The offer was summarily rejected by even the Democrats in Congress including a 99 – 0 vote in the Senate.  Indeed, President Obama has no compunction about permanently raising federal spending to the current 25% of GDP from the historical 20% level before his presidency.  In addition, the Senate has refused to pass a constitutionally required annual budget in four years in order to avoid a constraint on maximizing spending and to conceal its expansionist intentions from public view.


During the fiscal cliff negotiations the President once agreed to unspecified long-term spending cuts in exchange for substantial tax increases on upper income earners including a million small businesses which create most jobs.  Historically, these grand bargains prove unreliable since the spending cuts rarely materialize because an agreement cannot bind future Congresses, while the new taxes take effect right away.  And raising the tax rate on the so-called rich only funds federal operations for several days.  As it happened, spending discussions were deferred in favor of passing a tax rate increase for those earning over $450,000.  This Republican concession set the stage for additional tax hikes while losing leverage for spending cuts.


In addition, the budget process is flawed as Congress never considers absolute spending cuts.  Rather, it calls for reductions only in the rate of spending growth.  Moreover, entitlement programs have a 7% automatic annual increase built into the budget baseline. 


Also imbedded in that annual budget baseline is the President’s $830 billion economic stimulus program of 2009 that utterly failed to aid the recovery.  Instead, it circuitously directed capital to special interests, notably the teachers’ unions and energy projects, through stealth slush funds in shell game fashion.  Additional funds were dedicated, for example, to an unneeded bullet train in California and to overseas destinations.  One-third of the stimulus was assigned to tax cuts, but they were only temporary tax credits and payroll tax relief rather than substantive broad based marginal rate reductions.  The Left claims this boondoggle fell short because it was not enough.  So, liberals want more of the same.  Inevitably, Democrats call for tax increases to fund more spending, including the new costs of Obamacare.


            Now the debt ceiling has been extended to May to allow the Senate to finally submit a budget to use as a basis for spending cut negotiations to replace sequestration.  That becomes effective in March according to the Budget Control Act that arose from the 2011 debt ceiling debate.  Sequestration automatically imposes $1.2 trillion of across-the-board cuts, half of which impact military spending.  The President said that a freeze on the debt ceiling in exchange for spending cuts is non-negotiable but Republicans should call his bluff and use it as leverage.  Democrats will demagogue the default issue but Republicans must challenge the lies and threats about the inability to pay bond interest and Social Security. 


Emil W. Henry, Jr., a former assistant secretary of the Treasury in the George W. Bush administration explained the myth of the default scenario in a recent Wall Street Journal op ed.  He said monthly tax receipts are quite sufficient to pay interest on the debt and other major obligations.  Maturing bond principal also may be rolled over by momentarily raising the debt and immediately paying it down with the new bond proceeds.  Similarly, timing differences between Social Security receipts and disbursements can also be funded through a small temporary debt ceiling increase.  Remaining debt can be prioritized for payment like any cash strapped business or household would do.  And as a last resort the Federal Reserve could provide liquidity through security sales.   I say that with these options to stave off default, the debt ceiling can be held hostage for substantial spending cuts and damn the political torpedoes.  Of course, contrary to President Obama’s lie, a debt cap would restrict only future spending as bills already incurred would be paid.  The debt ceiling is more important than ever as a fiscal discipline given the magnitude of the borrowing with all its implications, and the irresponsibility of government to control it.  The Republicans should seize the opportunity.


The Solution


            The solution to the debt crisis is to slash spending, taxes, and regulation to stimulate long-term economic growth that will generate jobs and tax revenue to reduce deficits and pay down debt.  Currently, however, a restrictive energy policy, uncertainty about more tax increases, and financial and healthcare regulation, stifle business investment needed to achieve that growth.  That must change by electing the right people.  Some argue spending cuts would exacerbate economic sluggishness because it constitutes stimulus withdrawal.  But that was not the case when government spending plummeted after World War II.  Rather, resources redirected back to private production triggered a 25 year economic boom that was strong enough to initially accommodate millions of returning veterans while maintaining low unemployment.  As taxes and regulation abate, government spending and employment cuts eventually shift to the private sector and translate to productivity and prosperity.


As to tax cuts, Ronald Reagan’s reduction of marginal rates, including a lowering of the top rate from 70% to 28%, precipitated a long period of robust growth.  We need to free the private economy through broad based marginal rate cuts, beyond the Bush relief, to stimulate long-term economic growth, even in exchange for eliminating most tax preferences.  Yes, supply-side economics works.  Continuing the eleven year old Bush cuts for those earning under $450,000 is not additional tax reduction as liberals claim and therefore will not provide the added stimulus needed.  Yet Republicans are afraid to mention tax cuts directly.  Instead, they use terms such as tax reform and growth policy which imply the same thing.  Republicans are loathe to invoke the notion of supply-side stimulus because it invites the “trickle down economics” mockery of the Democrats during the Reagan era.  (Actually, it was Reagan’s own budget director, David Stockman, who popularized the term after recanting Reaganomics.) 


Taxation beyond a point is counterproductive, especially in a slow economy.  According to money manager and financial pundit Peter Schiff, critics who point to robust economic growth in the 1950s when the top rate was 90% are misguided.  They fail to realize that only 236 people paid that rate while the other rates applied broadly across all income groups.  This contrasts with today’s federal tax code which is highly skewed against upper income brackets such that 1% of earners pay 40% of all federal taxes and nearly half of workers do not pay that tax at all.  In addition, in the 1950s the wealthy were heavily invested in unproductive tax shelters as they are today, significantly diminishing the collection of the relatively small percentage of total tax revenues captured in the high rates.  In any case, Democrats supporting higher taxes as a deficit solution entertain a fool’s errand as government would spend most new tax revenue anyway; effectively “feeding the beast”. 


Comprehensive tax reform that appreciably lowers all marginal rates, corporate rates, dividend income and capital gains is a panacea.  This will return earnings to the private sector to stimulate consumption and investment that will produce the aforementioned jobs and long-term growth that generate tax revenue to enable reduced borrowing and debt retirement.  Additionally, a significant corporate tax cut would repatriate over $1 trillion of profits held overseas to avoid the uncompetitive U.S. tax rate.


And let’s not forget the windfall accruing to the Treasury as retiring baby boomers pay trillions in heretofore deferred taxes on IRAs and 401(k) retirement funds that have to be withdrawn starting at age 701/2.  This is rarely mentioned.  Could it be that the Left wants to downplay this revenue source so not to undermine the call for more taxes, or not promote the call for tax cuts?


But starving the spending beast through tax cuts is not enough.  Government must make absolute spending cuts across the board, and not just reduce the rate of growth.  Ferreting out waste and fraud, especially in Medicare and Medicaid, is an important part of this exercise.  And why are spending cuts considered tantamount to eliminating programs?  Certainly, government beneficiaries can make do at past budget levels.  Consider nursing home care for the elderly under Medicaid.  Hospitals and geriatric facilities charge up to $15,000 a month to warehouse a patient drugged to the gills who stares at a curtain all day sometimes for years until they expire.  Of course, the bill probably has no relation to actual costs and reasonable compensation whatsoever.  But Congress will not challenge the outrage for fear of appearing insensitive to the poor and feeble.  How about looking at welfare payments that increased more than a third since Obama entered office, including a more than a doubling of food stamp benefits?  Disability payments also have more the doubled in that period.  Could there be some excess here?  These beneficiaries are the part of Romney’s 47% who don’t pay taxes.  The able bodied on the dole should be induced to work and pay their fair share.


 Former Senator Connie Mack’s “Penny Plan” is a good spending reduction model.  It proposes reducing the spending baseline 1% per year for six years and then capping it at 18% of GDP.  Also, freezing spending at say, 2008 levels, would not cause much pain, especially in a low inflation environment.


But too many government officials lack the political will to support real solutions. They cannot overcome an ideological dedication to class equality, a preoccupation with re-election, and an obsession with power.  And the lucre extracted from government by contractors and lobbyists in the form of fees and legislative fixes is reciprocated to congressmen and senators in the form of political contributions, as well as post-government employment via the proverbial “revolving door”.  This congressional self-interest inherently prohibits an appetite for spending curtailment.  The recalcitrance calls for serious electoral pressure, but so many voters are oblivious to the problem or simply in denial.


The Electorate


The solution is all about sending the right people to Washington and holding them accountable.  But where’s the outrage?  The ballot box rules but, unfortunately, low information voters hold sway today.  Indeed, the debt problem is too abstract and futuristic to foster a sense of urgency among the electorate.  Throughout history the economic pendulum swung with the vicissitudes of the business cycle.  But today the prohibitive debt reflects a structural change in government and a more apathetic voting public that resist traditional remedies.  Republicans have to highlight the seriousness of this transformation in selling the solution.


The President is content with kicking the can down the road as he exacerbates the problem through his socialist agenda, effectively affirmed by a misguided electorate that re-elected him.  Obama figures four more years won’t break the bank and thereafter his successors can bear the burden of his excess.   The economy is approaching a tipping point and even the Government Accountability Office (GAO) reported last week the debt is unsustainable.  As such, more rating downgrades loom.  Many in government and among the citizenry take solace in having come back from the abyss that was the financial crisis, notwithstanding a continued economic sluggishness.  They figure we survived so how bad is it?  So, perhaps it will take national bankruptcy and an ensuing dollar collapse, skyrocketing interest rates and unfathomable unemployment to crystallize the predicament and forge a consensus for meaningful government streamlining.  But with so many dependent on the public fisc, rectification may still meet resistance at the ballot box. 


Conservatives must win the media wars by persuading, indeed educating, the electorate regarding the real fiscal and regulatory solutions in the face of considerable indifference and a growing entitlement mentality.  Otherwise, the country risks becoming like Europe.  The Right has to galvanize and convince voters it is not crying wolf.  In doing so, every offensive and defensive tool in the arsenal must be utilized and political risks taken.  Pulling punches in 2008 and 2012 was probably determinative.  It should not happen again.  Compromise is fruitless in this most polarized debate with its stark implications for today and future generations.


© 2013 William J. Dodwell



Too Much Global Liquidity from Central Banks Distorts Financial Markets and Undermines Economic Growth

By William J. Dodwell April 25, 2013
In the throws of the 2008 financial crisis credit markets froze because of wariness among institutions about counterparty solvency threatened by exposure to tainted mortgage securities. In response, the Federal Reserve Bank properly infused corrective liquidity into the financial system through asset purchases, loans and guarantees which also helped recapitalize damaged banks. In the process, the Fed expanded its balance sheet from about $1 trillion to $3 trillion. But nearly five years later its balance sheet remains at that peak and continues to grow. That is because the Fed has expanded its rescue mission to stimulate economic recovery through monetary policy.

Awash in liquidity

Three rounds of quantitative easing involving the purchase of Treasury and agency mortgage-backed securities were executed by the Fed to keep interest rates low in order to stimulate economic growth, especially in the moribund housing sector. Currently, the Fed is committed to purchasing $85 billion of bonds a month until sustained growth and inflation are evident, two stated benchmarks being 6.5% unemployment and 2.5% inflation. What’s more, the central banks of the European Union, the UK, China and Japan have followed suit to support debt markets and overcome inadequate growth. As a consequence, international monetary policies have injected enormous liquidity into the global economy distorting financial markets with effects on currencies, stocks, bonds and commodities while failing to achieve GDP growth goals.

The process of central banks creating money from nothing to purchase bonds from banks is euphemistically referred to as “printing money”. But actually, the central banks just credit member bank reserve accounts, effectively adding cash to their balance sheets. Of late, interest paid on the bank reserves provides added liquidity. Banks use the new cash to make loans or buy bonds which only results in the printing of paper money to the extent the borrower or bond seller converts proceeds to hard cash, such as through a teller or ATM machine. Of course, this currency in circulation is a very small percentage of the money supply, so little of it is really “printed” in the money creation process. Rather, banks transact business with their customers and counterparties through electronic book entry between debtors and creditors. The newly created credit transfers purchasing power to individuals, businesses and institutions throughout the banking system and the economy ultimately funding spending and investment.

In the U.S., Fed policy keeping interest rates artificially low undermines the call for public debt reduction by encouraging more deficit spending because of cheap financing. The low rates also foster a chase for yield in the financial markets that can distort real risk. Similarly, the accommodative monetary policy of the European Central Bank effectively papers over the debt crisis by lending to banks so they can purchase sovereign debt and hold down yields in a promise “to do whatever it takes” to save the euro. This ECB money creation enables EU governments to temper politically volatile spending cuts to avoid further stifling short-term economic growth. Although the financial sector is awash in liquidity, the rest of the European economy is dying of thirst, to the detriment of U.S. exports and foreign operations there. To wit: unemployment is 12% throughout the eurozone and 27% in Spain. In China, after tightening lending to moderate an overheated real estate market, the central bank now eases money to stimulate domestic demand amid the slowest economic growth in 13 years. The Bank Of Japan recently adopted an aggressive quantitative easing program in the hope of combating chronic deflation by inducing eventual 2% inflation. This policy substantially devalued the yen causing a race to the bottom in global currency markets. (Might disillusionment about excessive money creation have spawned recent interest in the Bitcoin?) Too much liquidity risks the creation of asset bubbles, like in housing before the financial crisis and farm land afterwards, and distorts financial markets. Throughout the world, ongoing central bank liquidity has bolstered financial assets rather than goods and services that produce growth in the real economy.

Dislocations in the financial markets


Today’s lofty stock prices create a certain wealth effect that encourages growth but their underpinnings are illusory. While low interest rates and corporate profits have supported stocks, much of the latter derives from cost cutting and unrepatriated overseas earnings which do not contribute to employment and production in the U.S. Also, revenues are commonly below estimates because of slow growth overseas and the reluctance to expand in an uncertain domestic economy. In addition, many stock buybacks prop up prices by reducing the number of outstanding shares. In fact, most of the support for equities reflects the actual and anticipated liquidity infused into the economy through the Fed’s ongoing purchases of Treasurys and agency mortgage-backed securities rather than fundamental demand in the private economy. Money the Fed creates to purchase these securities from financial institutions flows to riskier higher-return assets including high-yielding dividend stocks as an alternative to lower yielding fixed-income instruments. This is particularly prevalent during periods of “risk-on” sentiment as investors seek greater returns amid perceived improvement in global economic growth prospects. As such, some market participants believe stocks are overvalued from excessive liquidity in the markets and due for a serious correction in the absence of robust consumer and business demand in the U.S. and around the globe that is especially dependent on low unemployment.


In the bond market, artificially low interest rates and rising prices from monetary easing, as well as moral hazard from central bank purchases of newly issued sovereign debt, misallocate capital and encourage more government borrowing at the expense of the private economy. Driven by the quest for yield, investors scramble to unusual asset classes sometimes without recognizing true credit risk in the absence of a pure market-clearing interest rate. For example, investors currently are attracted to junk bonds, emerging market debt including South African government bonds and corporate issues of companies in Turkey and Eastern Europe, as well as European sovereign debt, not only to capture higher yields, but also possible capital gains and currency appreciation. Low rates also have prompted a rotation from fixed-income securities to stocks with higher yielding dividends. In addition, low yielding loans suppress bank margins discouraging lending at the expense of many small businesses hungry for capital, and compounding the impact of new regulatory bank capital and stress test requirements. In addition near-zero interest rates punish savers, especially retirees heavily reliant on interest income. Much trepidation concerns the management of fixed-income investments when the economy recovers amid higher interest rates and falling bond prices that will result from Fed tightening aimed at controlling inflationary pressures sown by several years of aggressive money creation. Bonds, especially those of longer duration, will generate enormous capital losses in this scenario for investors not nimble enough to sell early enough. Short-term portfolio financing also exposed to rising interest rates will compound the problem. Falling bond prices particularly concerns the Fed with its multitrillion-dollar portfolio that depends on its ability to deftly withdraw liquidity from the financial system as it commandeers rising interest rates through security sales. Chairman Bernanke has long expressed confidence in controlling this process when necessary. Normalized rates also will significantly exacerbate the deficit as government borrowing costs on newly issued bonds rise, offsetting budget reductions to date.


In the foreign-exchange market, central bank monetary easing depresses short-term interest rates thereby devaluing financial assets denominated in its currency because it is less attractive to investors. This devaluation sets off a beggar thy neighbor cycle among countries competing in export markets on an exchange rate basis. Investors wanting to avoid low yielding, declining currencies gravitate to higher yielding stable currencies, such as the Swiss franc and Brazilian real, forcing up those exchange rates. In reaction, the corresponding central banks intervene in the foreign-exchange markets to cheapen their currencies to keep their products competitive in export markets. Devaluation also invites inflation at home because imports become more expensive giving leeway for competing domestic prices to rise. This is particularly problematic globally with respect to the price of oil which is pegged to the dollar. A falling dollar means higher oil prices everywhere. Ideally, the supply of money provided by the central bank equals the demand for money needed for domestic transactions, and together they establish the market interest rate. Internationally, the exchange rate is determined by interest-rate differentials with other currencies, as well as comparative economic growth, portfolio flows, trade flows and foreign direct investment. Excessive liquidity in the global economy distorts interest rates and exchange rates upsetting the efficient flow of capital and goods. As such, foreign investors and exporters may benefit at the expense of domestic businesses and consumers in need of the capital and goods. For example, a low exchange rate might motivate a country to export production much needed at home. Or, a low interest rate might motivate investors to invest in Brazil, overheating that economy while capital is needed in their domestic economies or elsewhere. And again, resulting inflation from devaluation harms the domestic economy. This paradigm is never perfect as exact monetary equilibrium is only theoretical. But in the extreme, easy monetary policy of central banks can create serious dislocations in the interdependent global economy that impair overall growth and prosperity.


Commodity prices are also affected by overzealous monetary policy. Excess liquidity generally creates expectations of growth and inflation and therefore demand for metals, agricultural goods, and energy products that reward producers but punish consumers. As such, commodities are a benchmark for economic demand and inflation. While rising commodity prices prevailed for some time because of central bank liquidity and demand in China, recently prices have fallen causing a concern about disinflation. This is because expectations of growth in the real economy have abated causing lower U.S. inflation which in March 2013 stood at 1.5% year-over-year, less than the Fed’s 2% target. In fact the current spread of Treasury Inflation Protection Securities (TIPS) versus regular bonds augurs only 2% inflation for the next 10 years, prompting in some quarters a call for even more dubious monetary easing to stimulate growth. Low inflation, despite massive central bank money creation over several years, proves the ineffectiveness of monetary stimulus in this economy.

Whether market expectations entertain robust growth and attendant inflation from aggressive monetary accommodation, or slow growth with disinflation because of the perceived failure of monetary policy, capital flows to financial assets instead of goods and services as the real economy suffers in the absence of consumer and business demand. Expectations of healthy growth during periods of “risk-on” investment sentiment encourage risky investing. And expectations of slow growth in global markets leads to a “risk-off” posture where investors flock to safe havens such as Treasurys, gold or diversification. But even when economic demand does return to Main Street and financial assets are reinvested in inventory, plant, equipment and staff, the Fed will face a major management challenge as the liquidity from a longstanding accommodative monetary policy will yield inflationary pressures throughout the economy.

Expansionary monetary policy is no substitute for appropriate fiscal stimulus

Despite several years of historically low interest rates, borrowing and lending have been at a low ebb, money velocity sclerotic, and economic demand dead in the water. This is reflected in an average annual U.S. economic growth rate of only 2% in the nearly 4 1/2 years since the end of the Great Recession, and an unemployment rate only down to 7.8%. Low rates have helped home prices appreciate as the Fed intended, but that is not enough. It is likely greater interest income from normal interest rates would have been more stimulative for consumption and business investment by producing private capital that rewards savers rather than fabricated liquidity that benefits borrowers and high-risk investors. Could the Fed be engineering rock bottom interest rates in part to minimize government borrowing costs to facilitate greater spending? Some speculate the cheap money is to help the banks shore up capital through low funding costs in the aftermath of the financial crisis.

The private economy needs a genuine jump start to unleash animal spirits that produce growth, jobs and prosperity while generating tax revenue to reduce the federal deficit and pay down debt. That means substantial tax cuts, major government spending cuts, and deregulation that generate economic growth as individuals and businesses keep more of what they earn to spend and invest freely. A low corporate tax rate would induce companies to repatriate for domestic investment some $2 trillion now locked up overseas subject to substantially lower foreign tax rates. Tax cuts might initially strain the deficit, and spending cuts may create some immediate stimulus withdrawal, but in the longer term the private economy would adjust as supply-side incentives and new capital formation materialize, just as painful cancer treatments eventually produce a cure.

While a different scenario, consider the discomfort experienced when Fed Chairman Paul Volcker tightened the money supply culminating in a 21.5% prime rate in December 1980 that ended chronic hyperinflation. That remedy resulted in a brief but severe recession that doomed many small businesses, but combined with Reagan’s tax cuts, ushered in 20 years of prosperity and stability. In the 1970s the goods and services economy was plagued by high demand-pull inflation and slow growth, a malaise called “stagflation”. Volcker’s extremely tight monetary policy proved to be an effective solution. But today, we face low inflation and slow growth marked by slack demand in the real economy, coupled with inflation in the financial sector as a result of liquidity infusions from central banks. The solution is tax and regulatory incentives to produce and consume goods and services that will shift capital from the inflated financial sector to Main Street. Internationally, exporting countries should adopt tax, spending and regulatory reduction to stimulate more demand for domestic production, which would extend to imports to the benefit of an interdependent global economy.

Of course, fiscal policy is more politically problematic than its monetary counterpart. In Europe austerity programs are met with extreme public resistance and the IMF and some European officials have called for limiting spending cuts so not to throttle current growth. Germany and the UK take a harder line while others are now resigned to slow growth for years to come. In the U.S. a counterproductive tax hike and miniscule sequestration cuts are all that transpired in the year and a half following the impasse reached by the “super committee” commissioned by the Budget Control Act. What’s more, the 2014 budgets presented by the President and the Senate show that Democrats are not at all serious about doing what is right for the economy calling for tax increases and virtually no spending cuts. And the Republican House calls for only modestly reducing the rate of spending and assumes savings from the unlikely repeal of Obamacare. To be sure, Obama and the Left are dedicated to government expansion and remain content to let successors bite the bullet. Much of the Right feels it can veer only so far from that standard to be relevant. Unfortunately, the electorate allowed this scenario to unfold.
Meanwhile, uncertainty fostered by fiscal, monetary, regulatory and foreign policies paralyzes economic recovery. The national debt looms; tax reform awaits; Obamacare stymies businesses; Dodd-Frank hamstrings banks; and promising energy development is thwarted. In addition, moral hazard from ongoing Fed bond purchases and government housing subsidies continues to undermine economic efficiency.

While monetary stimulus may be an effective antidote in emergencies and ordinary recessions, only aggressive fiscal policy can engender the substantial economic growth that creates the jobs and market confidence needed to spark aggregate demand in this anomalous economy. Clearly monetary policy is not enough and has exhausted its usefulness. Already the job market seems to have undergone structural changes that have marginalized the long-term unemployed and underemployed. Of particular note are inexperienced college graduates of recent years who must compete with preferred current graduates for entry level jobs. A very strong recovery could resolve this anomaly, especially considering labor shortages arising from the baby boomers retiring, but that impetus is not in sight given monetary and fiscal policy of the last few years and the foreseeable future. Without substantially improved employment from strong economic growth the malaise will continue and no amount of artificial liquidity will help.
                                                                ©2013 William J. Dodwell 

Mortgage Finance in the Aftermath of the Financial Crisis

By William J. Dodwell August 31, 2013

In 2008 the proliferation of subprime mortgages over the previous several years culminated in the worst economic crisis since the Great Depression. The actual and anticipated default by homeowners with unaffordable mortgages, accommodated by government affordable housing policy and abetted by the economic interest of private banks and security rating agencies, seriously threatened the financial system. Home prices plummeted and financial institutions suffered enormous investment losses from impaired mortgage-backed securities (MBS). This precipitated a liquidity crisis and depleted capital resulting in numerous bank failures and mergers, as well as a massive government bailout. 


Post-crisis developments


During the crisis, the government placed Fannie Mae and Freddie Mac into conservatorship while private banks pulled in their reins limiting mortgages to only the most qualified borrowers. Since then, Fannie, Freddie, the FHA and the VA have guaranteed or insured around 90% of new mortgage originations and owned half of the $10 trillion of mortgages outstanding, as the once buoyant private mortgage securitization market became moribund. Although banks have recovered some MBS impairment losses, they have paid tens of billions of dollars in legal settlements for misrepresentation of mortgage credit risk and foreclosure and servicing abuses, paid tens of billions more in legal fees, in addition to loan modification losses. After a deep two-year recession and subsequent slow growth the malaise continues. High unemployment and underemployment persist, large scale foreclosures and underwater mortgages still loom, and business investment languishes amid uncertainty about Obamacare, taxes, energy policy, and regulation, especially among small businesses, the prime creators of jobs.


The housing sector 


The housing sector continues to weigh on economic recovery because of its far-reaching influence on construction jobs and the industry aftermarket encompassing materials, furnishings and services. In addition, the diminution of the home equity “wealth-effect” caused by falling home prices and underwater mortgages removed an important impetus to consumer demand. To revive the housing sector, and to stimulate the general economy, the Federal Reserve Bank adopted three successive rounds of quantitative easing since 2009, which coincidentally restored another “wealth-effect” through the recovery of stock prices to new highs. This policy entailed the purchase of longer term U.S. treasuries and agency mortgage-backed securities which infused the economy with enormous liquidity holding down interest rates to record lows, including mortgage rates. But today, financial markets skittishly anticipate the impending curtailment of the Fed’s $85 billion of monthly bond purchases which eventually will result in higher yields and capital losses in bond portfolios. In fact, mortgage rates already have increased some 125 basis points in less than four months. Stocks also have shown to be vulnerable to the expected rise in interest rates and to an accompanying liquidity withdrawal, both of which suppress risk appetite.


The housing market, if not the general economy, responded positively to the Fed’s policy. According to S&P/Case Shiller, home prices have appreciated 19% from their crisis lows through June 2013 because of lower mortgage rates, fewer foreclosures and a slowly recovering economy. This appreciation contributes to enhanced loan collateral which results in lower loan loss provisions for lenders and higher bond prices for MBS investors. Also supporting the appreciation are the “buy-to-rent” purchases of foreclosed homes by banks and private-equity firms which subsequently securitize rental income flows.


Other rescue efforts aimed at the housing market were not effective. Although certain loan modification involving interest and principal reduction was helpful, the Treasury’s Home Affordable Housing Program (HAMP) is universally deemed a failure because of low participation and high re-default rates. Private loan modifications initiated by banks were more successful.


Eminent domain


A new idea for helping distressed homeowners involves the power of local government founded on the law of eminent domain. Some cities propose invoking eminent domain to seize underwater mortgages and refinance them through a new security. This MBS carries a government guarantee which reduces principal for the homeowner as the investors in the original mortgage-backed securities, or their bond insurers, bear the losses. It is argued this innovation will support home prices and the property tax base while keeping owners in their homes, all to the benefit of the community. However, critics claim the practice will reduce loan availability, increase mortgage rates and result in mortgage security writedowns. This is because of the added risk to lenders and investors if government seizure becomes a convenient solution to serious credit problems in the future. In fact, investor lawsuits, including those filed by Fannies Mae and Freddie Mac, are pending against Richmond, California under the Fifth Amendment of the U.S. Constitution protecting against unlawful seizures.


The Dodd-Frank Act


New regulation emerged in the effort to prevent another financial crisis. That extra precaution is embodied in the 2010 Dodd-Frank Act, named after two principal culprits of the crisis who championed looser mortgage underwriting standards at Fannie and Freddie and the private banks in a more aggressive invocation of the Community Reinvestment Act. The irony is not lost in this eponymous legislation sponsored by Congressman Barney Frank (D-MA) and Senator Chris Dodd (D-CT). Safeguarding against “too big to fail” banks is a dubious theme of the legislation as it codifies stricter capital and liquidity requirements, minimum long-term debt, regular stress tests, living wills, designation of systemically important financial institutions (SIFIs), minimum retention requirements for bank securitizations, and a new Office of Credit Ratings to oversee the rating agencies.


Dodd-Frank also created the Consumer Protection Financial Board (CPFB) under the jurisdiction of the Federal Reserve Bank to rectify lending abuses. Specific to mortgage finance, it established the “Qualified Mortgage (QM)” and the “Ability to Repay (ATR)” requirements to ensure consumer affordability and to deter predatory lending by enforcing appropriate underwriting standards. These provisions require: a 43% debt-to-income ratio; a prohibition of exotic loan types, such as interest-only mortgages; fee disclosures; full documentation of borrower affordability; and better loan servicing and default management standards. These restrictions, to be effective January 2014, will result in higher compliance costs for banks and less credit available for non-QM loans, which are permitted but subject to greater regulatory capital and retention requirements.


Recognizing their contribution to the financial crisis, Dodd-Frank removed all document references requiring review by the major rating agencies, the so-called Nationally Recognized Statistical Rating Organizations (NRSROs). But replacing them would be problematic as complex securities analysis expertise is scarce and investment managers are not inclined to do the costly due diligence themselves. In any case, the Department of Justice is investigating Standard & Poor’s for its failed credit ratings during the crisis. (Could this be in retaliation for the 2011 downgrade of U.S. debt inasmuch as Moody’s is exempted from similar scrutiny?)


In the interest of a misguided comprehensiveness, Dodd-Frank also restricts proprietary trading and requires derivative trades to be transacted on exchanges, neither of which were instrumental in the recent crisis (except for credit default swaps). So far-reaching is the new law that three years after enactment, most of the nearly 400 new rules are still being written.


Re-evaluating Fannie Mae and Freddie Mac


The problem


There is no denying that Fannie and Freddie and their federal enablers were most instrumental in causing the financial crisis, political correctness notwithstanding. They lowered underwriting standards to achieve securitization market share in competition with private banks. They grossly understated their exposure to subprime loans defrauding MBS investors who would not have purchased as many MBS if they knew how plentiful these bad credits were. These GSEs provided continual liquidity to originating banks through the ongoing purchase of their subprime loans. Those loans would not otherwise have been originated to the extent they were if the banks had to retain them and bear the credit losses. And without lucrative servicing fee income from selling loans to Fannie and Freddie, the banks would not have had the incentive to issue nearly as many subprime loans, despite government pressure to do so.


Unfortunately, the banks are mum about being forced by the government to lower mortgage underwriting standards because they fear the political backlash from appearing to be at loggerheads with the minority community by denying them the “American Dream”. Rather, the banks fell on their sword and paid tens of billions in restitution and legal fees. To be fair, the banks are culpable for some underwriting abuses of their own in their private securitizations that transferred risk to RMBS investors. But they were encouraged by the example of Fannie and Freddie adopting a new overzealous application of the Community Reinvestment Act promoted by liberals in government.


The mission of Fannie and Freddie is predicated on moral hazard involving credit accommodation to low and middle income families seeking home ownership. In addition, they themselves have access to cheaper financing through the implied backing of the federal government of its corporate and guaranteed securitized debt which became explicit with the 2008 taxpayer bailout. The two institutions were fraught with politics as they and their lobbyists representing developers, realtors and social activists dispensed campaign donations to members of the House and Senate in exchange for favorable legislation. In addition, these GSEs orchestrated well-paid politically influenced appointments to their Boards. And let’s not forget the accounting scandals of the 2000s resulting in restated financial statements for several years to correct “managed earnings” aimed at artificially smoothing profits and losses over time, and manipulating bonus calculations.


But most reprehensibly, Fannie and Freddie presided over a pervasive deterioration of lending standards in a more aggressive application of the Community Reinvestment Act at the behest of Housing and Urban Development (HUD) and congressional leaders, chiefly Barney Frank (D-MA), former Chairman of the House Financial Services Committee. This loan liberalization campaign began in earnest under Bill Clinton and continued unabated to the financial crisis despite eventual protestations of the George W. Bush administration. The Financial Crisis Inquiry Commission (FCIC) which investigated the causes of the financial crisis effectively exonerated Fannie and Freddie, except for an individual dissenting opinion by Peter Wallison. In fact, GSE abuses continue today, much of it shifted to the Federal Housing Authority (FHA) which is technically insolvent insuring $1 trillion of mortgages to first-time lower income borrowers making a mere 3% down payment. As such, another government bailout could be in the offing.




In 2008 the federal government under the auspices of the Federal Housing Finance Administration (FHFA) seized Fannie and Freddie in conservatorship. The GSEs issued preferred shares to the Treasury paying a 10% dividend and warrants to acquire 80% of the common shares for a $187 billion cash infusion.  In 2012 the bailout terms were revised to eliminate the dividend in exchange for most of the profits.  Publicly held 8.25% preferred shares remain outstanding but have not paid dividends since the takeover.  The bailout agreement does not allow any preferred shares to be redeemed, but the publicly held preferred shares have appreciated substantially from nearly zero upon seizure to about 20% of the $25 issuance price.  That's because some investors who bought heavily depressed preferred shares are betting that eventually the shares will be reactivated at great profit to them, or be repaid at par through restructuring.  Accordingly, they have sued to challenge the altered bailout agreement and allow the entities to retain profits so they may resme dividends.  Fannie and Freddie have returned to the Treasury $131 billion of the $187 billion government infusion and expect to pay the remainder, but again, the revised bailout agreement precludes liquidating the preferred shares.  The value of the common stock will depend on the decision of the Supreme Court to allow the GSEs to retain profits, whether they exit conservatorship to operate independently again, whether the Treasury exercises the warrants to buy an 80% equity interest, or whether the shares will become worthless in liquidation.


At present, the government retains record Fannie and Freddie profits applying them to the deficit thus avoiding further borrowing. Some investors holding preferred shares have sued to challenge this return of profits to taxpayers, allowed by the government bailout terms, in order to permit redemption of the shares. In particular, certain hedge funds holding heavily devalued preferred shares anticipate big profits from their eventual redemption at par. But for that to happen, the President and Congress would have to agree to restructure or dissolve the GSEs. In addition, their new profitability reduces the urgency to effect change, at least until after the 2014 midterm elections. Putting it off allows the Democrats to capitalize on the deficit reduction contributed by the new-found Fannie and Freddie profits.


Profitability has returned under the management of FHFA’s Acting Director, Ed De Marco, as a result of stricter underwriting standards, higher guarantee fees, fewer foreclosures, appreciated foreclosed properties, and lower credit loss provisions from rising home prices. New earnings might enable the writing up and eventual realization of the deferred tax benefit built from ongoing losses as loss carryforwards are recognized in future periods. In addition, De Marco has presided over steadily declining loan and securities portfolios.


Restructure or dissolve

Because of their problematic past, Congress, with some support of the President, proposes to restructure or eliminate Fannie and Freddie. The President and the Senate call for retaining a government mortgage guarantee to attract MBS investors and ensure credit access to middle income borrowers, while sharing risk with private banks. The House recommends eliminating the GSEs and the government guarantee protecting MBS investors while imposing strict lending standards on private banks. At bottom, the debate centers on a tradeoff between borrower access to long-term financing and taxpayer exposure.

President Obama recommends maintaining a government guarantee in some form to attract institutional investors and thus ensure middle class borrowers access to long-term mortgages. (He does not mention low-income applicants in view of the subprime crisis but probably wants to include them absent the politics.) Publicly, he supports sharing risk with private banks but opposes too much risk-taking by the banks or the GSEs.


Senator Bob Corker (R-Tenn) and Senator Mark Warner (D-VA) introduced a bill that replaces Fannie and Freddie with a new entity called the Federal Mortgage Insurance Corporation (FMIC) that shares losses with the private banks that originate loans. A government guarantee protecting MBS investors would be invoked only after private banks absorb the first 10% of losses. In addition, banks would pay an actuarially sound guarantee fee akin to the FDIC stipend to cover the government’s share of losses. MBS investors effectively would hold an agency/private-label hybrid security with credit risk shared by the banks and the government. Critics argue that this arrangement is largely Fannie and Freddie redux designed to continue affordable housing policy, albeit more prudently. Peter Wallison, former FCIC commissioner and principal at The American Enterprise Institute, suggests the new agency eventually would be influenced by lobbyists for developers, realtors and community activists to maximize mortgage issuance (to their benefit) by lowering credit standards and down payments. The resulting moral hazard could invite another crisis, given continued political pressure to accommodate low-income families. Indeed, the FMIC might have an incentive to lower underwriting standards in the interest of affordable housing policy since it does not have to bear any cost through the first 10% of losses and until the bank funded guarantee reserve is depleted. Will the new QM mortgage criteria prevent this? In addition, the banks will pass on the first 10% of losses to future mortgagees in the form of higher rates, effectively subsidizing politically served marginal borrowers. At least the taxpayers are out of the mix -for now.


In the House, Financial Services Committee Chairman Jeb Hensarling (R-TX) introduced a bill called Protecting America’s Taxpayers and Homeowners (PATH) aimed at avoiding another mortgage crisis. The plan gradually winds down and eventually dissolves Fannie and Freddie while requiring prudent private bank lending standards with no guarantee protection for MBS investors. This effectively removes the government from home finance eliminating risk to taxpayers. But who can believe that politically motivated government accommodation will not be inserted at some point? In any case, absent credit protection and given current low interest rates, mortgage origination and RMBS investment might be quite limited under this proposal flying in the face of traditional affordable housing policy.


The need to revitalize the private securitization market


The demise of private-label securitization


In order to reduce or eliminate government subsidization in housing the private securitization markets must be revitalized. Non-guaranteed private-label residential mortgage-backed securities (RMBS) were a hallmark of the financial crisis as individual and institutional investors bore portfolio losses that tanked the economy. Those private losses far exceeded government bailout costs, while agency MBS investors were protected by a government backed guarantee. Ever since the crisis, it’s been once burned, twice shy evidenced by only $8 billion of private-label RMBS having been issued in the first half of 2013 vs. $1.1 trillion in the peak year of 2005.


Before the crisis, private securitization provided enormous market liquidity by enabling originating banks to readily sell their loans at a profit to other banks for their securitization issuances in competition with Fannie and Freddie. Or, banks sold their loans directly to RMBS investors through their own securitizations. Alternatively, banks sold their loans to Fannie or Freddie who in turn sold them to agency MBS investors with a government guarantee while the selling banks earned an ongoing servicing fee. To some extent banks retained loans in their own portfolios. Selling loans into securitization allowed the banks to transfer credit and interest-rate risk and free room on their balance sheets to make more loans, ensuring widespread credit availability to the housing market.


But in light of the abuses that precipitated the subprime mortgage crisis, unprotected private-label RMBS investors lost faith in the product causing new issuance to evaporate. Issuers also lost interest because of the litigation in the aftermath. Instead, now banks sell their loans to the GSEs and enjoy the servicing fee income. As a consequence, around 90% of new originations since the crisis has been held by GSEs, 60% of them by Fannie and Freddie which have no problem securitizing because agency MBS investors are guaranteed against credit loss. If the role of Fannie and Freddie were curtailed or eliminated, private RMBS investors must return to fill the void by sufficiently financing ongoing loan origination. In large part, the banks are just loan production facilities that place orders for the investors. Even in a healthy economy banks cannot bear risk alone, especially in view of more stringent capital requirements. They need RMBS investors.


Impediments to revival


But there are impediments to reviving an appetite for private RMBS issuance and investment. New accounting rules enacted in the wake of the crisis restrict the ability of issuers to treat securitized assets as outright “sales” to other banks while recording a selling profit. Rather, many more private securitizations today have to be treated as “secured financings” involving collateral assets of issuers remaining on the balance sheet subject to credit losses and regulatory capital charges. And the banks need an incentive to securitize over simply relying on steady servicing fee income after selling loans to Fannie and Freddie. Also weighing on issuers is the new Dodd-Frank loan securitization risk retention requirement that is pegged to the quality of the mortgages. And, of course, a slow growing economy makes banks reluctant to lend in the first place. In the aftermath of the financial crisis, these deterrents, along with costly put-back and loan servicing legal liabilities, as well as new capital and underwriting requirements, cause some banks today to outsource mortgage banking altogether to independent specialized companies.


In addition, politics continues to rear its ugly head. Currently, HUD seeks to impose through its rulemaking process the principle of “disparate impact” on lenders to make more credit available to low-income borrowers. This is the notion that banks are vulnerable to discrimination charges based on racial proportionality in a community rather than on evidence of an actual intent to discriminate or on credit history. Some banks settle to avoid litigation costs and reputational damage which results in rich revenue streams for prosecutors. But fear of prosecution could eventually suppress loan origination in general, not just for minorities. “Disparate impact” is widely believed to be unconstitutional and the Supreme Court is now considering a request to hear a New Jersey case. In the meantime, the Obama administration tries to enforce the practice through executive regulatory authority.


As for RMBS investors, they fell victim to misrepresentations of banks and rating agencies as to the credit quality of collateral mortgages underlying their mortgage-backed securities. Indeed, lower underwriting standards encouraged in advocacy of the Community Reinvestment Act were in large measure, but not entirely, forced on the banks by the government and ignored by regulators for political reasons. And in the adjudication of put-back lawsuits investors found that the Trusts that represented their interest harbored more allegiance to the issuing banks that hired them than to the investors they served. This conflict of interest engendered an incentive for the Trusts not to aggressively pursue investor put-backs of questionable loans to originating banks. Investors also learned that banks did not provide access to sufficient loan detail, and disclosures were limited. Also discouraging investment in private securitizations is the state of the mortgage insurance industry still hobbled by crisis losses. In addition, protection from newly regulated credit default swaps may not be as plentiful. And, as mentioned, the threat of local eminent domain seizures of underwater mortgages and their refinancing at the expense of RMBS investors doesn’t help. On the other hand, the restoration of new QM underwriting standards will assure the quality of mortgages underlying RMBS – as long as politics doesn’t intervene.


Since the crisis, credit risk has been the focus respecting RMBS, but now interest-rate risk also looms. Like bonds in general, newly issued RMBS will be subject to capital losses when interest rates rise further as the Fed relaxes its bond-buying policy. This eventuality is not an incentive for RMBS investors. To wit: mortgage REITS have already suffered a double whammy in recent months as rising interest rates reduced MBS portfolio valuations and increased the cost of short-term financing.


Commercial real estate encompassing apartments, hotels and office buildings is also an economic mainstay. Apartments have been the best performing sector because of so many unqualified home buyers amid more stringent mortgage lending standards, despite low mortgage rates. Consequently, renting grows apace fostering significant new construction that relies heavily on bank loans sold to Fannie and Freddie and raises concern about inflation as rents rise. According to Trepp LLC, $1.7 trillion of commercial real estate debt comes due between 2012 and 2016, 29% of which is underwater. This has grave implications for commercial mortgage-backed securities (CMBS). Private CMBS issuance is a small fraction of pre-crisis levels because of overbuilding that came home to roost during the Great Recession, but it has recovered better than RMBS.


The sine qua non


Renewed private securitization depends on economic recovery and ensuing loan supply and demand. But first, home prices must recover from the average 33% peak-to-trough plummet to motivate selling, especially the 20% of homes with mortgages that are still underwater even after considerable price appreciation. As mentioned, housing data have improved, with an assist from the institutional buy-to-rent purchasers, but become less encouraging as home prices and mortgage rates rise. S&P/Case Shiller reports median home prices rose 19% from March 2012 lows through June 2013, leaving them still at 23% below their 2006 peaks. In July 2013 prices rose 14% year-over-year, marking 25 straight months of appreciation. Existing home sales increased 6.5% July 2013 year-over-year at a more than expected annual rate of 5.4 million units, the highest in nearly four years. In addition, total housing starts increased 27% in 2012 and 24% in July 2013 year-over-year while foreclosures abate. Economic recovery is also necessary to enable many borrowers to qualify for mortgages under the new QM lending standards. Meanwhile, rising home prices and interest rates tend to temper sales growth. (See my 2010 white paper speculating on the return of private-label securitization at


The sacred mortgage interest deduction


The debate about tax reform has broached the elimination of the mortgage interest tax deduction among other preferences as a means to help reduce the deficit and debt. Historically, this benefit has been an inviolable sacred cow and probably will continue to be because of its political sensitivity. But does it have to be sacrosanct?


Consider a mortgage for which the bank charges 4% while the borrower pays 3 1/2% net of the deduction, and the government pays a 1/2% benefit through the deduction. If the deduction were eliminated, the 3 1/2% effective interest rate would increase commensurately with the borrower’s marginal tax rate towards 4%. This higher rate could result in less loan demand and therefore a lower rate of home ownership. But the curtailed demand could force the market clearing rate back toward 3 1/2% resulting in little or no change for borrowers if lenders can reconcile the lower rate with their cost of funds. Or, the cost of the lost deduction might translate to commensurately lower home prices as sellers adjust to buyer resistance, again, with no necessary net effect for the buyer/borrower. (This is comparable to college tuition declining if student loans were cut back.) At the same time, the government picks up tax revenue from the forgone deduction, especially when the mortgage interest rate is relatively high, alleviating the budget deficit burden on the taxpayer. As such, this scenario shifts the ½% concession from the government to the lender and/or home seller while borrowers remain possibly unaffected with no economic or social burden regarding home ownership. The precise calculus is subject to an examination of loan supply and demand elasticity, but phasing out the mortgage deduction might not be the third rail many think it is.


Looking ahead


The new more costly, and some say overly restrictive, QM lending standards will limit mortgage availability and thus weigh on home sales and home price recovery. But quality loan assurance will support the revitalization of private securitization essential for market liquidity, especially in view of a smaller role for Fannie and Freddie. Newly required quality mortgages and sound loan servicing operations might help to encourage RMBS issuers and will inspire confidence in investors, both alienated by the tremendous cost of the financial crisis. But more onerous post-crisis securitization rules regarding risk-retention, accounting, and regulatory capital may discourage RMBS issuance. Meanwhile, investors have to overcome their distrust for rating agencies and bond trustees, and rely on limited protection from bond insurers and the credit default swap market.


Five years after the onset of the financial crisis the true panacea for private securitization remains general economic recovery. It will produce jobs that qualify more borrowers under the new mortgage underwriting standards which in turn will stimulate home sales and raise home prices, restore home equity values and further stimulate consumption and business investment. Robust GDP growth will assuage reluctant lenders and skeptical RMBS investors to revive the flow of mortgage capital. The untried solution is private sector incentives. This means substantial tax reduction for all individuals, corporations and investors, meaningful federal budget cuts, and regulatory curtailment, especially respecting energy development and other environmental restrictions. To be sure, the fiscal and monetary stimulus to date has been ineffectual.

But government intervention in housing and the role of moral hazard remain a wild card. Certainly, serious talk in Congress about finally downsizing or eliminating Fannie and Freddie is encouraging. But continuing subprime loans with 3% down payments through the quasi-solvent FHA with its trillion-dollar insured loan portfolio calls into question how really serious elected officials are. How long would it take for them to intrude in a restructured Fannie and Freddie in the name of affordable housing policy resulting in losses that exceed the prescribed funding from the banks? In addition, declaring eminent domain to refinance underwater mortgages at the expense of RMBS investors, and forcing racial quotas on lenders according to “disparate impact” criteria, suggest a potential for another financial crisis regardless of new regulation and economic recovery. Watch those politicians!
©2013 William J. Dodwell



Five Years Later, Obfuscation and Wrongheadedness about the Financial Crisis Persist


By William J. Dodwell    September 22, 2013


The fifth anniversary of the 2008 subprime financial crisis triggered by the collapse of Lehman’s Brothers inevitably revives many myths about causes and solutions.  Notably, the mainstream media still refuse to even mention the main culprit:  government affordable housing policy which forced lower underwriting standards on banks.  What’s more, HUD ordered Fannie and Freddie to lower the quality of mortgages they purchased and securitized, thus fueling the preponderance of the subprime market.  Herewith some thoughts about common misconceptions prevailing in the regulatory aftermath.


Mortgages and securitization


The root cause of the financial crisis was the gross relaxation of mortgage underwriting standards, primarily in conformance with government affordable housing policy.  To be sure, the calamity would not have occurred otherwise.  The new Qualified Mortgage standard promulgated by Dodd-Frank resolves that problem (barring political interference) by establishing strict lending criteria that help to ensure an ability to repay.  But the proposed retention requirement for originating banks and the issuers of mortgage-backed securities secured by qualified loans is superfluous.  However, non-qualified mortgages, which are permitted, are now properly subject to a risk-weighted retention requirement.  Regulators must strike a balance between default risk and appropriate credit availability in loan origination needed for economic growth.  They also should be wary of discouraging the revival of private MBS issuance at the expense of much needed liquidity, especially in view of possibly winding down Fannie Mae and Freddie Mac.




These instruments have been a convenient whipping boy in the discussion of the financial crisis.  But in fact, only credit default swaps were instrumental, and most of that problem concerned the concentrated unhedged exposure of AIG alone.  Over-the-counter markets for futures, options and interest-rate swaps were not disrupted but could be adversely affected when replaced by the new more costly and less globally competitive exchanges.


Rating agencies


The government-mandated imprimatur of the ratings triopoly for private MBS issuances backfired.  But who can replace them competently?  Investment managers are loath to hire specialists for costly time-consuming internal due diligence.  Ironically, the very victims of failed ratings during the crisis probably prefer to rely on the traditional majors.  Meanwhile, Dodd-Frank repealed the major agency rating requirement.  It is hoped the new Office of Credit Ratings will improve oversight.  After all, until 2006 these agencies were unregulated.  And perhaps pending studies will mitigate the agency/issuer independence issue and prevent abuses in a much chastened business.  At least a new scrutiny has been placed on the industry.  Its effectiveness remains to be seen.


Proprietary trading


Perhaps, the greatest overkill coming out of the crisis is the Volcker Rule, the prohibition of firms trading for their own accounts.  To be sure, reckless mortgage and mortgage security underwriting and the pandemic investment impairment that ensued were the problem, not trading.  Proprietary MBS and other trading assets founded on sound security underwriting standards and cushioned by the new capital and liquidity requirements, will not likely threaten a firm’s existence, much less the entire financial system.  What’s more, firm trading provides healthy market liquidity, as well as profit opportunities that bolster capital.  Some critics suggest FDIC deposits financed MBS trading.  In fact, even after the repeal of Glass-Steagall, MBS positions were funded by short-term secured borrowings from other financial institutions, mostly repurchase agreements, secured by proprietary mortgage-backed securities as collateral.  Deposits were at risk only when trading losses fatally depleted equity capital.  That said, the interconnectedness of the vast panoply of institutional counterparties through repurchase agreements that finance trading positions remains potentially problematic.


Institutional interconnectedness


To understand the financial crisis and the role of interconnectedness among financial institutions one has to distinguish between the cause of the crisis and the ensuing credit freeze in the immediate aftermath.  As mentioned, the widespread credit impairment of proprietary mortgage-backed securities holdings precipitated the crisis, not the interconnectedness of financial institutions.  However, those losses did pose problems repaying maturing repurchase agreements secured by the devalued securities.  While repos provide beneficial liquidity to the entire bond market, this short-term financing of long-term assets became risky when newly wary lenders chose not to roll over repos at maturity.  This can happen even with conservative matched books in which repos finance reverse repos of the same maturity.  What’s more, this cheap easily accessible financing encouraged firms to highly leverage their investments.  As such, liquidity caveats are in order.


Indeed, the mere perception of risk among lenders with direct counterparty exposure to firms that incurred serious portfolio losses precipitated a credit crunch that did pose a systemic threat.  This circumstance was compounded by firms having even indirect exposure through secondary counterparty relationships.  Especially dangerous was exposure to a counterparty’s undue concentration in particular investments, such as AIG’s in credit default swaps and the Reserve Fund’s in Lehman commercial paper.  Institutions holding loans, reverse repurchase agreements, auction rate securities, derivative contracts and bond insurance protection directly or indirectly with impaired institutions worried that those counterparties would not have the capital to honor their obligations.  Thus, perceived contagion in a domino environment was tantamount to actual default for a while.  Consequently, buying, selling, lending, borrowing and insuring almost ceased, even among firms without significant impaired assets of their own.


Actual systemic financial failure from interconnectedness was averted during the crisis, notwithstanding the misfortunes of Fannie and Freddie, AIG, Lehman Brothers, the Reserve Fund, some bond insurers, and many banks.  In fact, mergers, TARP assistance, government guarantees and impaired securities purchases by the Fed prevented a systemic collapse.  Nevertheless, the near panic manifest in the credit crunch following the Lehman bankruptcy constituted a de facto systemic failure that could have endangered the global economy absent subsequent government intervention.  In fact, the initial fear of other impaired institutions being hung out to dry like Lehman promted the liquidity crisis, not interconnectedness itself.  None of the rescued firms were weakened by lending or investment exposure to Lehman as counterparty balances were eventually liquidated fairly orderly through the bankruptcy process.  But if the equivalent of ten Lehmans were not rescued, contagion born of interconnectedness in a highly leveraged market might have sunk the financial system. 


Therefore, aggregate counterparty exposure that creates even the perception of systemic failure should be contained.  Indeed, in 2011 inordinate counterparty risk caused U.S. money market funds to stop placing funds with European banks because of their precarious sovereign debt exposure.  And consider the quip among traders following the collapse of highly leveraged Drysdale Government Securities in 1982 regarding its matched repo book amid concern about market fallout:  “It’s 10 pm.  Do you know where your collateral is?”  Market participants speculated then that the failure to make an interest payment would have caused a crisis of confidence in the repo market had Drysdale’s clearing agent, Chase Manhattan Bank, not intervened.  Historically, contagion is real.


As such, excessive interconnectedness through counterparty transactions with systemically important institutions is a serious consideration for preventing contagion caused by defaults flowing from depleted capital.  Dodd-Frank called for identifying the large global banks and non-banks that are potentially too big to fail (and interconnected), the so-called systemically important financial institutions (SIFIs).  And the Fed proposed limits on exposure to any particular counterparty.  Today, new capital, leverage and liquidity requirements further restrict monetary interconnectedness, better safeguarding against potential asset impairment that undermines counterparty relationships.  (However, sovereign debt is still exempt from Basel capital standards despite the crisis in Europe.)


Some suggest institutions should be subject to a size limit to avoid a too-big-to-fail rescue scenario, that could be predicated on the interconnectedness of a house of cards.  The goal is to ensure institutions have sufficient capital to absorb potential losses, and to preclude pandemic default founded on actual or perceived counterparty risk.  So, even though interconnectedness did not cause the financial crisis, when excessive it can invite dangerous contagion that must be averted, even at the cost of some valued liquidity, lending and trading.  Such is the price of financial stability in a volatile world. 


Appropriate lending standards and capital requirements are enough


Quality loan and securitization underwriting, coupled with newly bolstered capital and liquidity requirements, will secure global financial interconnectedness and likely prevent a similar financial crisis.  This particular protection renders many other remedies unnecessary.  Throwing out the baby with the bathwater, which Dodd-Frank does in some respects, undermines efficient markets and economic growth.  But failing to acknowledge the role of government in causing the crisis is the greatest risk, and sets the stage for history to repeat itself.  In fact, since the crisis new subprime mortgages have shifted from Fannie Mae and Freddie Mac to the exclusive province of the Federal Housing Administration.  The FHA maintains a $1 trillion dollar portfolio that fails to comply with its statutory capital requirement making it technically insolvent and poised for taxpayer bailout.  In the future, the risk to the financial system will lie in misguided government involvement in credit allocation as it did in the past.


© 2013 William J. Dodwell


The European Debt Crisis Has Not Gone Away


By William J. Dodwell    February 21, 2014


  In late 2009 the European debt crisis emerged in reaction to what would be Europe’s longest post-war recession caused by the effects of the 2008 U.S. subprime loan crisis, as well as a European real estate lending bust.  As a consequence, certain European governments had difficulty servicing their bonds.  The business downturn, which resulted in falling tax revenue and growing budget deficits throughout Europe, exposed unsustainable levels of sovereign debt amassed from years of exorbitant spending on pensions, health care benefits and other costs.  The additional debt incurred to cover the budget shortfalls from the recession compounded the problem.  So far, only Greece has defaulted and restructured its debt, to much market consternation. But the world seems to have forgotten the crisis as if it has been resolved.  Herewith, an analysis of the continued problem and the true solution.


Looking back


A particular catalyst to the debt crisis was the discovery in 2010 that Greece had been underreporting its debt levels over the past decade.  This was accomplished through derivative transactions with Goldman Sachs and other Wall Street banks that allowed the country to skirt EU debt limits and spend beyond its means.  Specifically, Greece received funds from the banks that were not recognized as borrowings in its debt reporting.  Rather, they were recorded as off-balance sheet interest-rate and currency swaps involving upfront money in exchange for long-term future payments funded by revenues from airports, highways, lotteries, etc.  Such transactions were found to be conducted throughout Europe calling into question the scale of the sovereign debt problem and the true value of sovereign debt.


 Suddenly, Portugal, Italy, Ireland and Spain became financial pariahs along with Greece comprising the so-called PIIGS nations, as the future of the monetary union under the euro became suspect.  Amid the crisis the EU abandoned the fiscal requirements established by the 1992 Maastricht Treaty which limited annual deficits to 3% of GDP and debt to 60% of GDP.  Private debt also became problematic as banks, corporations and individuals struggled to make debt payments in the wake of budget austerity cuts and a credit crunch that precipitated massive unemployment, as well as commercial and household mortgage defaults.  Today, the specter of Japan-like deflation engulfs the continent.


The table below compares the growing government debt-to-GDP ratios of the PIIGS nations, the 17 nation common currency eurozone as a whole, and the U.S. for 2012, 2010 and 2007 reflecting rising deficits/debt and falling GDP during recession.  The GDP ratios portray combined federal, state, local and social security debt, or so-called “general government gross debt,” the category compiled by Eurostat.   Also presented for comparison are traditional U.S. ratios based on only federal publicly held debt and total federal debt including intra-government liabilities, such as social security.    


Gross Debt as a Percent of GDP

    (Combined federal, state and local debt)






































U.S. (federal debt publicly held-to-GDP)




U.S. (total federal debt-to-GDP)




Source:  Eurostat, U.S. Treasury



Europe’s debt problem compares and contrasts with the U.S. financial crisis.  Excessive European public and private debt had been accumulating for many years and became unmanageable only when severe economic recession brought it to a head.  But the more acute U.S subprime mortgage debacle was marked by a pervasive financial asset devaluation and credit crunch that created a deep global recession.  Nevertheless, bond write-downs and rising yields ultimately ensued from the European debt crisis too.  In a word, mortgage-backed securities decimated portfolios in the U.S. while sovereign debt contaminated portfolios in Europe.  In the aftermath, both Europe and the U.S. relied on government bailouts, central bank commitment to low interest rates and quantitative easing, and new financial regulation, including stronger capital, leverage and liquidity requirements and stress tests amid huge successive budget deficits.  Today, the U.S. financial crisis is over but the European debt crisis is not. 


Unlike Europe, excessive U.S. sovereign debt has not yet raised default concerns, notwithstanding the 2011 budget and debt ceiling imbroglio in Congress and the subsequent rating downgrade.  As ominous as the current $17 trillion U.S. federal debt is, European debt levels augur less growth than the U.S.  That’s because of more entrenched social programs in Europe that challenge the ability to meet scheduled payments, that threaten bond rating downgrades, and that elevate yields, all of which complicates the issuance of new debt.  By contrast, U.S. treasuries have universal safe haven status that enables ongoing borrowing and at lower costs.  At least the U.S. has begun to reduce its deficit through sequestration in the face of formidable political resistance, started tapering monetary stimulus, and brought down nominal unemployment to 6.6%, while achieving a modicum of economic growth.  Not nearly good enough, but better than Europe. 


Turning the tide


 To the rescue came the European Central Bank (ECB), the European Financial Stability Facility (EFSF), The European Financial Stability Mechanism (EFSM), and the International Monetary Fund (IMF).  Then in 2012 ECB President Mario Draghi calmed the world markets pledging to do “whatever it takes” to protect the integrity of the eurozone.  Accordingly, the ECB issued $1 trillion of cheap three-year loans to some 800 banks to enable them in turn to purchase sovereign debt issuances, as well as prop their own finances.  Law prohibits the ECB from buying EU sovereign bonds directly because such action constitutes involvement in the fiscal policies of EU members.  As an antidote to economic stagnation, the ECB in coordination with eurozone member national central banks (NCBs) has maintained a near-zero short-term interest-rate benchmark and engages in quantitative easing to hold down long-term rates while maintaining a steady euro bolstered by trade and current account surpluses.  Thus far, diminished concern about the debt crisis rests predominately on this commitment.


The EFSF provided relief through loans to distressed EU nations funded by bonds guaranteed by EU member states but disproportionately by Germany and France. The EFSM provided additional loans guaranteed by the EU itself.  The IMF also provided financial aid (40% of which is financed by the U.S.).  In addition, the European Commission relaxed carbon emission standards to relieve the strain on member economies, particularly southern tier, or so-called “periphery” countries.  And European governments imposed austerity programs and tax increases that precipitated social protests, especially in Greece.  Greece restructured debt forcing writedowns on investors, while Cyprus infamously discounted certain bank deposits.


In reaction to the U.S. financial crisis underlying the European debt crisis, the U.S. Federal Reserve Bank engaged in currency swaps with European banks to provide U.S. dollars needed to fund dollar-denominated loans to European firms operating in the U.S.  This was necessary because American financial institutions had drastically reduced investments in European bank paper because of the debt crisis.  The program involved the Fed buying European debt holdings in exchange for U.S. treasuries, a process that helped stabilize the falling euro.   


   Some progress has been accomplished.  Sovereign debt yields have declined significantly and some formerly shuttered members have returned to the bond market.  Ireland, Spain, Italy and Portugal recently issued new debt at a fraction of the yield a few years ago.  For example, Ireland sold 10-year bonds at 3.5%, down from a 14% market yield in 2011.  Greece has not issued new debt yet but its 10-year bond yield has dropped below 8% in the secondary market in stark contrast to the 2-year note having yielded 46% at the peak of the crisis.  Some investors are switching to European sovereign debt from troubled emerging markets.  Both the ECB’s commitment to low interest rates and the bailout aid have substantially restored bond prices, at least for the time being.


  In addition, the banks have streamlined their balance sheets in preparation for ongoing regulatory stress tests.  They also have raised new capital, written down bond investments, restructured their own debt, and repaid about half of their ECB loans.  In addition, the banks have resumed lending after inducing a protracted credit crunch and later paring loan portfolios in preparation for those regulatory stress tests.  Lending is important because European companies rely on bank loans much more than bond issuance.  Ireland ended its bailout in 2013 and appreciating real estate prices there have permitted profitable liquidations.  The UK has shown fiscal improvement, and manufacturing throughout the EU is picking up. 


The malaise persists


But despite some improvement, Europe struggles with flat growth, high unemployment, and the fear of deflation after having endured economic contraction for the last two years.  Economic conditions have been so phlegmatic that current reports are cheery about GDP growth rising to a .3% annual rate in Q4 2013. Unemployment still averages 12% throughout Europe and reaches 25% in Spain and other parts of the periphery. Deflation looms invoking the Japanese experience since the 1990s and Germany’s in the 1930s.  This condition can be worse than hyperinflation inasmuch as it makes debt repayment more difficult and reduces profit margins.  It also fosters deferred consumer purchasing, higher unemployment, lower incomes, and greater bank loan losses, all of which suppress demand in the economy.  At present, European inflation is 1% but the ECB strives for 2%.  Some propose government mandated bank lending to stimulate consumer spending and business investment but that artificial stimulus would just throw good money after bad in the absence of higher employment and income levels.  In addition, European officials worry that the impact of trade and current account deficits, political turmoil and attendant currency devaluation in Turkey and other emerging markets may overflow onto the continent.  Nevertheless, the ECB continues to issue rosy forecasts based on seemingly imminent global recovery.


  Aggressive monetary policy papers over the fiscal flaws of European governments as the ECB accommodates purchases of sovereign debt through the banking system and infuses the economy with abundant liquidity.  The conventional wisdom calls for sustaining these palliatives along with continued bailouts and attendant moral hazard, while protecting the euro until the EU grows out of the problem when the global economy fully recovers.  (Official euro devaluation is prohibited by law.)  But, while economic growth is the panacea, excessive debt will divert much of its benefit to repayment of ever-growing obligations, muting new investment and spending.  In addition, continued bank purchases of government debt will compete with private lending, thus thwarting recovery. And when robust economic demand does resume, the uber liquidity produced by the ECB could spawn harmful inflation.  That undermines the euro to discourage foreign investment and force higher interest rates further throttling the economy.  And when the business cycle turns down again onerous debt still looms amid diminished investor confidence and higher yields.  Current policy just buys time by kicking the can down the road.


The solution


 Europe needs a permanent fix but, like the U.S., it faces formidable political and cultural resistance.  Unfortunately, Mario Draghi’s unrestricted monetary commitment has stifled the incentive to reform. As such, debt reduction has not been a priority.  In fact, attention has focused on working around it.  As in the U.S., monetary policy has no more leverage inasmuch as near-zero short-term interest rates and quantitative easing have not sufficiently revived demand in the economy.  The ECB also struggles with appropriately balancing stimulation between the large and small countries of the eurozone.  Fiscal policy faces a dilemma between budget austerity and economic stimulus where spending cuts have been inadequate to spur growth and have caused public uprisings, while more spending exacerbates the debt.  What’s more, bailouts have disproportionately burdened Germany amid waning public support in that country and growing tensions with subsidized nations.


Sovereign debt has to decline through radical spending cuts that transform the entrenched entitlement culture forged by generations of government largesse founded on socialist redistributionist policies.  Public benefits include universal health care, liberal welfare, and overgenerous unemployment assistance compounded by outsized retirement and other benefits for too many government employees, all of which has reached critical mass. Sustained spending cuts that reduce the claim of government on the private economy are essential.  In the process, Europe has to resist complacency born of temporary upswings in the business cycle, rising stock prices and falling bond yields due to monetary easing that mask the seriousness of a structural spending and debt problem.


The public debt can also be relieved through massive restructuring that extracts substantial concessions from creditors.  After all, bond investors bear risk which in this case should have been recognized at least potentially given the dangerous level of indebtedness.  Portfolio write-downs by institutions and individuals are a necessary measure in a serious plan to permanently control the debt.  This principle applies to bank debt as well where even depositors could take a haircut.  But only Greece has restructured its public debt so far despite extraordinary excesses in other eurozone countries.  On the other hand, some banks have restructured debt to their benefit.


Additionally, tax cuts would stimulate business investment and consumer spending that foster economic growth.  Like spending cuts with their temporary stimulus withdrawal, tax cuts may worsen deficits initially but eventually restore the private economy. Supply-side economics works.


In the private sector, costly mandated labor rules imposed on businesses that govern work hours, pensions, retirement age and termination restrict productivity and profits needed to liquidate corporate debt and generate growth.  


Critics would argue that debt reduction through spending cuts and creditor concessions would fulfill the deflation fears now on the horizon.  But some very bitter medicine in the short-term can cure a long-standing structural problem, even if it temporarily exacerbates the debt and withdraws spending stimulus.


The fiscal policy of individual EU members must adopt sustained tax and spending cuts along with regulatory relief that promote competiveness and attract foreign capital.  Assisted by global recovery that creates demand for European exports, serious fiscal and regulatory action will generate European economic growth that produces jobs and enables debt repayment.  To that end, enacting the pending U.S. – Europe trade agreement would promote a genuine spur to substitute for artificial government stimulus dependent on borrowing.  


 The more European governments spend, tax and borrow, the less production, consumption and disposable income to support the real economy.  The result is a lower standard of living with global consequences, including diminished U.S. export markets.  The borrowing game can continue as long as the faith and credit of indebted governments last.  We have already seen the vulnerability of those bulwarks when investors first realized the true degree of debt exposure in 2010 as bond yields soared and the integrity of the EU and the euro were questioned.  In Europe excessive borrowing is more than the abstraction it is in America as dire consequences have been felt.  There is a limit to the confidence fiat money and German forbearance can buy.  Ultimately, someone has to pay the piper.  Ask the Greeks.  If allowed to continue, the sovereign debt problem could loom on a much larger scale as it brings down larger eurozone countries along with the common currency amid global contagion.


But neither the public nor the political class has the appetite required to bring down the debt.  Rather, they believe Europe will eventually grow sufficiently to service its huge indebtedness when global recovery resumes, while still accommodating an intractable culture of dependency.  Even bond investors seem lulled into the fantasy, perhaps confident they’re nimble enough to sell before the deluge.  European sovereign bond yields are not justified by fundamentals.  Rather, investors, politicians and the public rest on Mr. Draghi’s “whatever it takes” assurance manifest in illusory ECB monetary accommodation, NCB bond purchases, and institutional subsidization as substitutes for political will needed to effect true fiscal reform.  Meanwhile, Nero fiddles.  Like the U.S., Europe must slay the beast.  But don’t hold your breath.


©2014 William J. Dodwell


Feckless Monetary Policy, Fiscal Inaction, and Regulation Stymie Economic Recovery


By William J. Dodwell    July 16, 2014


            Wall Street has long recovered from the 2008 financial crisis but Main Street has struggled in fully rebounding from the ensuing recession that ended five years ago.  While the Federal Reserve Bank and the federal government saved the financial system from near collapse, both refuse to foster the true forces of economic growth essential for job creation and renewed prosperity.  Rather, artificially low interest rates, excessive government spending, onerous taxation, and regulatory overreach continue to stifle the proverbial animal spirits that drive supply and demand in a free market economy.


Wall Street


Inflated financial assets


            The Federal Reserve infused copious liquidity through the purchase of treasury and agency mortgage securities in successive phases of quantitative easing that quintupled its pre-crisis balance sheet to $4.4 trillion.  This support initially unlocked the credit freeze among financial institutions and restored confidence in the financial system.  It also reduced interest rates to near-historic lows, including near zero short-term rates well below the level of inflation, in an effort to stimulate economic recovery, especially in the predominant housing sector.  But instead, the low interest rates distorted capital flows creating financial asset inflation evidenced in record high stock prices as investors desperately chased higher yields and returns in riskier alternative assets of hedge funds, REITs, private-equity, and so-called frontier markets, such as Ecuador, Kenya, and Nigeria, often with little regard for risk.  Meanwhile, the real economy sputters as banks have resisted lending in favor of more lucrative investments.


In fact, the ineffectiveness of protracted highly accommodative global monetary policy was recently acknowledged by the Bank for International Settlements, itself an organization of central banks, but without concurrence of the U.S. Federal Reserve.  That body is loath to raise the benchmark federal funds rate before very clear signs of sustained growth and rising inflation appear for fear of throttling the recovery and spooking the stock and bond markets.  In the spring of 2013 financial markets sold off on almost universal expectations of renewed growth and rising interest rates in 2014 based on a Fed meeting in which Ben Bernanke suggested upcoming monetary tightening.  But when that scenario did not materialize in a major market surprise, investors scrambled to adjust their portfolios.  The Fed is careful not to alarm the markets like that again.  Meanwhile, looming asset bubbles do not concern the Fed as it has often expressed confidence in its methodologies for precluding a bust.  


In time, the large banks replenished capital lost chiefly from impaired mortgage-backed securities through government bailouts, private capital raising, and profitable operations.  One might speculate whether a Washington-Wall Street collaboration arranged the rock-bottom interest rates to minimize financing costs to help recapitalize banks, as well as accommodate greater federal spending.  In any case, a financial system awash in liquidity has produced a $17.6 trillion federal debt and sent stocks to record highs.  Today some worry the seeds of future inflation have been sown and that therefore interest rates should start to rise amid signs of better growth.  In response, with a particular eye on the employment picture, the Federal Reserve Bank has curtailed its monthly bond purchases aimed at lowering long-term rates, and decided to end that intervention altogether in October this year.  But the Fed still faces the delicate task of managing its huge portfolio in a rising rate environment without interfering with growth normalization.


            Interest rate cuts to historical lows have lost their effectiveness in stimulating the economy as evidenced by chronically low money velocity.  Also, low rates have punished savers, much of whose foregone income in a normal rate environment would have significantly contributed to new consumption.  The low rates also have prompted heavy corporate bond issuance allowing larger companies to replace more expensive debt.  Also to their benefit, low rates have fueled strong M&A volume through cheap financing, as well as high exchange ratios inherent in stock based acquisitions elevated by lofty share prices.  


But low interest rates have not spurred economic growth nearly as much as hoped, especially from small companies and startups.  That’s because of too much regulation and wrong fiscal policy that suppress bank lending and capital investment.


New financial regulation restricts the ability of banks to serve the economy


            New financial regulation under The Dodd-Frank Act aimed at preventing another crisis restricts new lending and trading by imposing more stringent capital, leverage and liquidity requirements, as well as compliance costs, including onerous internal operational and IT adjustments.  The changes are especially burdensome for small banks.  In addition, the Financial Stability Oversight Council (FSOC) in coordination with its international sponsor, the Financial Stability Board (FSB), has designated large banks (with assets over $50 billion) and certain non-banks “systemically important financial institutions” (SIFIs) subject to even greater regulation, including annual stress tests that determine whether a bank may deploy its capital for dividends, stock buybacks or acquisitions.


As a consequence, start up and small businesses are starved for capital, thus hampering economic growth and job creation.  In addition, U.S. banks are less competitive globally.  Regulators discourage lending for overleveraged buyouts, and new risk retention requirements discourage issuance of collateralized loan obligations (CLOs) denying credit access to higher risk companies.  Effectively, the Fed has encouraged borrowing through extremely low interest rates but limits risk through regulation.  Meanwhile, less regulated non- banks, such as hedge funds and asset-management firms, compete with banks as they take on such activities as securities lending, mortgage servicing and credit surety.  In short, banks face restricted operations and new competition at the expense of profits that deprive the economy of capital for needed growth.


Banks also face new global Basel III regulations.  Included is a current proposal that imposes minimum risk-weighting floors on certain classes of assets to limit possible understatement of risk.  This means, in recognition of the fiscal realities of many countries today, sovereign debt would no longer be assigned a zero-risk weighting automatically.  Such change would force governments to pay higher interest rates on their debt to compensate for bank purchases that cost more regulatory capital.  (Perhaps this would impose some discipline on excessive government spending).  In addition, greater risk-weights would raise the capital requirement for banks as the denominator of the capital-asset ratio increases lowering the ratio below statutory rates.  The result would further restrict lending needed to finance economic growth, unless the capital requirement (the numerator) is reduced commensurately with the risk weighting increase. 


            Nevertheless, banks are lowering lending standards amid slow growth, generally soft loan demand, depressed net interest margin from low interest rates, and competition from non-banks, including boutique M&A firms.  These pressures combine with currently dormant bond and currency markets that crimp profits.  As such, today banks pursue riskier credit card accounts and higher yield loans, including more mortgages that do not meet the Dodd-Frank qualified mortgage (QM) standard.  In fact, real estate special interests, such as developers and brokers, are pressuring the new seemingly receptive Consumer Finance Protection Board (CFPB) to relax mortgage underwriting standards.  Auto loans have already returned to near pre-crisis lending criteria.  Also underlying this slippage in credit quality is a renewed political impetus on a regulatory level to accommodate lower income borrowers again.  Accordingly, subprime lending is now called nonprime to remove the stigma of less creditworthy individual borrowers arising from the financial crisis.  The Federal Housing Authority (FHA) continues apace insuring nonprime mortgages supported by minimal down payments.  And new leadership at the Federal Housing Finance Administration (FHFA), the conservator of Fannie Mae and Freddie Mac, is sympathetic to the reversion.


            Today, bank concentration is greater than ever because of the many large mergers and bank liquidations in the wake of the financial crisis.  Because of industry consolidation, much more capital is set aside that could be otherwise loaned in a healthy economy, thus restricting potential growth.  To be sure, new capital, leverage and liquidity requirements are beneficial to an extent.  But a more decentralized industry with a thriving system of community banks on which small businesses can rely might be more advantageous.  That’s because in the aggregate more unrestricted regulatory capital would be available for lending while market risk is more dispersed, thus mitigating the “too big to fail” problem.  The question is, How much regulatory capital at the cost of economic growth?


The Volcker rule


            One of the most significant provisions of the Dodd-Frank Act is the curtailment of proprietary trading by banks under the Volcker Rule named after the former Fed Chairman, Paul Volcker.  Considering the massive losses incurred in institutional portfolios from highly leveraged risky mortgage securities that triggered the financial crisis, this is an understandable focus.  But the problem was bad mortgage underwriting by originating banks, not trading.  Limiting bank principal transactions reduces liquidity in bond markets that will ultimately result in less credit availability and higher borrowing costs throughout the economy.  Indeed, trading profits from stocks, bonds, currencies and commodities have been an important source of revenue for banks that bolster capital and create shareholder value.  In fact the current dearth of arbitrage opportunities in an environment of low interest rates and minimum market volatility has substantially depressed bank profitability. 


Some bonds are exempted from the Volcker rule, including U.S. government, agency, state and local issues.  And provisions permit genuine risk management hedging, as well as market making on behalf of customers.  But so-called speculative trading for profit is proscribed beginning 2015.  This is of particular concern for highly indebted governments that rely on a liquid market whose sovereign debt is not exempted.  In addition, banks have to incur immediate write-downs of impaired non-compliant securities in forced sales that otherwise might be avoided if allowed to hold them to maturity.  The solution to bank trading risk in securitized assets, which was the hallmark of the financial crisis, is to ensure credit quality in lending through good transparent underwriting standards. 


The question becomes how much upside opportunity should be sacrificed to limit downside risk?  Trading can involve unforeseen complexity.  Consider J.P. Morgan’s London Whale portfolio with its multiple layers of countervailing derivatives risk that yielded a $6 billion loss to the puzzlement of highly trained people.  But low risk trading in various asset classes can support bank capital, or at least not seriously impair it, given new capital and leverage requirements.  In any event, the unregulated hedge funds are picking up some of the slack from new restrictions on bank proprietary trading to the benefit of general market liquidity and economic growth.


Repurchase agreement financing


            But regulators properly seek restrictions on high leverage repurchase agreements that primarily financed the huge mortgage securities portfolios that went bust during the financial crisis.  These are the short-term secured loans between financial institutions, some of which could not be rolled over during the credit freeze.  This left impaired portfolio securities without replacement financing that had to come from equity capital instead.  Or, the loss of financing forced forfeiture of the securities to the repo lender in a seizure of collateral valued less than the unpaid loan balance.  In turn, the lender was unable to fully repay its own short-term funding source in an actual or perceived daisy chain reaction among counterparties throughout the financial system that challenged their capital buffers.  As a consequence, much buying and selling ceased in a credit freeze amid devastated collateral security values and repo defaults that threatened bank solvency.


Proposals to limit repo financing levels and establish longer maturities are under consideration.  In addition, a new accounting rule makes it more difficult to understate repo leverage by recording certain repos as sales rather than borrowings.  Such regulation, coupled with a new general leverage requirement, will diminish the risk of potential contagion in a highly interconnected financial system.




            Another prominent plank of the Dodd-Frank Act concerns ending customized over-the-counter derivatives contracts in favor of standardized exchange-traded transactions.  Like the media hype about bank proprietary trading, derivatives in general were not instrumental in the financial crisis, except for a large portfolio of unhedged credit default swaps of AIG alone, the failure of which contributed to the need for a $180 billion government bailout.  The mandated exchanges will make derivatives contracts more costly for both financial institutions and industry with broad economic effects, and be less competitive with private contracts executed through foreign banks.  Exchange-traded derivatives reduce counterparty risk by establishing a collective capital buffer, and will be easier to track counterparties in the event of bankruptcy and liquidation, which was a difficulty in the case of the Lehman Brothers collapse.  But in normal circumstances they’re a solution looking for a problem in which cost exceeds benefit. 


Some of the adverse effect on economic growth of transacting through exchanges is mitigated by a bill before Congress that exempts from costly margin and clearing requirements the non-financial end-users who simply hedge against the price fluctuation of raw materials.  Those ordinary futures and options contracts should not be confused with the exotic on-balance sheet securities (not derivatives) of financial engineers, such as collateral debt obligation (CDOs), which played a significant role in the financial crisis for their opacity, complexity and poor creditworthiness.


The rating agencies


            One of the chief causes of the financial crisis was the dereliction of the major rating agencies in failing to properly assess the credit quality of mortgage-backed securities.  Yet, little has changed in this area while Moody’s, Standard & Poor’s and Fitch still dominate 95% of the ratings market.  However, Dodd-Frank did establish the new Office of Credit Ratings charged with ensuring the transparency and integrity of rating criteria.  Inserting a third party should mitigate the conflict of interest inherent in the issuer hiring the rater, and thereby restore investor confidence in eventual large scale securitization that is vital to a liquid thriving economy.  While investors who buy individual bonds are indifferent to the continued role of the big rating agencies, those who would purchase securitized assets are once burned, twice shy in the wake of the subprime debacle.  It is hoped the new ratings oversight will change their minds when healthy loan demand again warrants securitization financing with its liquidity benefits for the economy.


The SIFI designation


            The aforementioned systemically important financial institutions (SIFI) designation is controversial as it imposes a significant extra regulatory burden on so designated financial institutions.  Accordingly, critics call for more transparency about the criteria applied.  Particularly controversial is the SIFI designation for non-banks, such as asset-management firms and insurance companies, and the application of bank risk criteria to their assessments.  Understandably, those firms resist the designation.


Banks carry leveraged proprietary investments (to be limited by the new Volcker Rule) whose failure puts at risk legions of shareholders, bondholders, depositors, and counterparties throughout the global financial system.  By contrast, investment portfolio losses of asset-management firms are borne entirely by clients who entrust their investments to the firms for their management or custody.  That is why those assets are not even recorded on the balance sheet; they don’t belong to the firm. 


Proprietary transactions of asset-management firms are limited to hedging certain investment risk for clients, some securities lending for profit, and conducting operations (assessing management fees and paying office salaries, rent, etc.).  They do not finance portfolios as they are entirely funded by client investments and associated dividends and interest.  Even losses from highly risky funds designed for today’s extra yield seekers are borne only by those clients who choose to invest.  There is no liability to the firm (except for possible malfeasance like that of Bernie Madoff).   Yes, bad things can happen but they are contained.  For example, during the financial crisis the Reserve Primary Fund, the largest and oldest money fund, lost a sizable sum from a large investment in Lehman Brothers paper which tanked when the issuer collapsed.  The loss was an issue because it “broke the buck”, meaning it reduced the clients’ net asset value below the historically fixed $1 a share.  Clients lost only about 1% and the debacle did not threaten the financial system as whole even though the firm was liquidated.  Similarly, in 1994 a PaineWebber short-term bond fund suffered a large loss when derivatives designed to squeeze extra yield went awry.  The parent company made up the small percentage loss to the clients.  While derivatives became a dirty word for a while, no systemic fallout ensued.


            Likewise, insurance companies pose no systemic threat to the financial system as a whole, thus critics decry proposed SIFI status.  Their investment portfolios are funded by client premiums actuarially assessed based on expected claims.  No leverage is involved.  Actual claims and administrative expenses as a percentage of earned premiums are routinely monitored and regulated.  Portfolio assets are restricted by state regulation to help ensure they can fund claims.  Contagion is not an issue as only policyholders or shareholders bear the risk of inordinate claims or bad investments.


            To subject asset-management firms and insurance companies to capital requirements and other restrictions that apply to banks in order to cover virtually non-existent risk, would force those institutions to turn away business to limit assets, thus curtailing opportunities for investors and insurance seekers.  Alternatively, the firms would have to raise new idle capital reducing their profitability and service to clients, or raise management fees and premiums to compensate for the costs of new regulatory capital.  Ultimately, capital requirements on these non-banks would reduce liquidity, credit availability, and risk protection in the financial system, with negative implications for economic growth. 


Money market fund regulation


            Also, the SEC is considering new regulation over money market funds to prevent panic driven withdrawals during times of stress.  In 2008 this concern prompted the FDIC to temporarily guarantee money fund accounts when the aforementioned Reserve Primary Fund broke the buck and collapsed.  The SEC’s plan would abandon the fixed $1 per share value for institutional money funds, about a third of all money funds, in favor of a floating-rate valuation that reflects the actual market value of fund investments just like other mutual funds.  Shifting the risk of small principal loss from fund governance to the investor in this fashion is reasonable as investors should have to recognize the real value of their money fund assets as in any other fixed-income investment.   Potential loss is normal because of the very short-term maturities of the investments.  Theoretically, investors would be compensated by a slight increase in the fund’s yield in exchange for the risk of minor loss.  New rules would also restrict redemptions through waiting periods and fees, and ensure appropriate short-term debt maturities.   Both measures would mitigate potential losses.


Remembering Sarbanes-Oxley


            Critics say new financial regulation hamstrings firms without commensurate assurance against future calamities.  Sarbanes-Oxley requirements were met with similar skepticism in the early 2000s by those believing they were too costly and superfluous.  Since then many debacles occurred anyway, including Bear Stearns, Lehman Brothers, Fannie Mae and Freddie Mac of financial crisis fame, as well as Madoff, MF Global, Peregrine Financial, and JP Morgan’s London Whale.  But SOX had its successes as well.  And requirements were gradually adjusted to recognize economic realities.  Over time it is hoped new financial regulatory excesses are identified and eliminated for optimal cost/benefit balance and minimal cost to economic growth. 


Post-crisis legal settlements


            In addition to new regulation, numerous legal settlements and associated lawyer bills have depleted bank capital, further restricting lending.  Tens of billions have been assessed for mortgage underwriting, servicing and modification abuses, erroneous foreclosures, LIBOR manipulation, money laundering, and insider trading.  And settlements of foreign banks, such as BNP for skirting sanctions on Iran, Sudan and Cuba, and Credit Suisse for abetting tax evasion, impact their U.S. operations with some effect on economic growth here. 


Sanctioning bad behavior is good, but one senses overkill in a politically charged prosecutorial environment in the aftermath of the financial crisis.  Certainly this is true with respect to mortgage issues which originated in federal government forcing on banks a more liberal affordable housing policy for lower income Americans.  Prosecutors and their allies in media divert opprobrium from government to the banks by focusing on relatively minor mortgage servicing failures while ignoring the much more serious lowering of mortgage underwriting standards encouraged by HUD, under the auspices of incumbent presidents, and certain members of Congress.  


Certain large bank settlements have a questionable relationship to the degree of abuse as government can draw on unlimited resources and impose regulatory reprisals and political retribution to extract concessions from the deep pocketed banks.  It is noted that settlement proceeds are applied to borrower relief with no regard for the private-label mortgage-backed security investors who were victims of loan misrepresentations.  This inequity will weigh on the return of private securitization so important to economic growth. 


The Department of Justice is suing Standard & Poor’s, and not Moody’s and Fitch, for its bad credit ratings on mortgage-backed securities.  Notwithstanding the rating agency’s apparent wrongdoing, this wreaks of political vindictiveness for downgrading U.S. debt in 2011in response to the budget and debt ceiling debates.


            Recognizing the need to effectively sanction violations to deter abuses, the threat of overly punitive litigation in combination with excessive regulation can have a dampening effect on the operations of the financial system to the detriment of the economy.


Main Street


Slow growth


            According to The Wall Street Journal, the economy has grown at only an annual average of 2.1% in the five years since the end of the Great Recession, including a 2.9% contraction in the first quarter of 2014.  This contrasts with 4.1% annual growth during an expansion since 1960.  To achieve that historical rate in the two years remaining in President Obama’s term annual growth would have to reach 6.5%.  The latest forecast for 2014 GDP growth is 1.6%.  Depressed wages and benefits, that are lower than ten years ago, contribute to historically high corporate profits that have tended to validate record high stock prices, but that decline in employment income also restrains consumption and GDP growth.  Upcoming Q2 2014 earnings reports which will continue to reflect cost cutting and lagging revenues may or may not justify current lofty stock valuations, which also are supported by corporate stock buybacks and investor appetite for riskier assets amid low interest rates.  But the traditional wealth effect from greatly appreciated stock holdings is not in evidence as personal spending, two-thirds of the economy, is sluggish while saving is growing.  What’s more, companies are buying back stock, increasing dividends and making acquisitions rather than engaging in much needed capital investment.  Or, they’re sitting on cash or chasing yield from alternative financial assets rather than hiring and increasing production.  In addition, banks, companies and individuals continue to deleverage at the expense of lending, production and consumption. 


The Fed’s effort to revive the housing sector, and to a lesser extent the Treasury’s loan modification programs, have resulted in some improvement in home prices and sales but some 20% of homeowners with a mortgage remain underwater, preventing many unemployed from selling and relocating for new work.  The situation also weighs on the huge aftermarket for construction, finance, brokerage and home furnishings.  Indeed, housing depends on jobs and income which derive only from economic growth. Government economic stimulus, which included targeted tax cuts, was ineffectual and largely politically motivated in favor of labor unions. Critics say the expenditures were too small to succeed. But there is no indication government would appropriate additional monies any better, and in any case would divert capital from the private sector which allocates it more efficiently.


Declining productivity, both within companies and because of fewer new business startups, also depresses the economy.  This is attributed to high taxes, costly regulation, restrictive financing, and a lack of qualified workers.  According to The Wall Street Journal, below average productivity since 2005 has resulted in $4 trillion less output.


Inadequate credit availability has restricted some businesses and individuals as banks have been wary of lending because of new capital requirements, low returns and questionable repayment prospects in a slow economy.  Instead, they choose to hold treasury securities and bank reserves, and pay down debt.  But banks have relaxed lending standards of late in reaction to competition from non-banks, as well as generally soft loan demand.


Unemployment and underemployment


            Chronic unemployment and underemployment depress consumption resulting in inadequate businesses confidence to invest and hire.  While the nominal unemployment rate at 6.1% has improved significantly from the 10.0% recession high, it does not capture the legions of workers who have stopped looking for work.  Indeed, the labor participation rate at 62.8%, is a 35 year low.  The number of jobs lost during the recession has been restored, but they are largely low paying and part-time.  What’s more, the shortage of good jobs denies workers the economic and professional advancements that come with changing employers, leaving many in a certain state of stagnation.


Bloated government supports too many employees and contractors which burden taxpayers the same as welfare and subsidies do at the expense of private sector growth.  Structural changes have occurred in the workforce what with the plight of the long-term unemployed, the gap between skilled and non-skilled workers, and the dearth of qualified workers attributable to poor educational standards in the schools.  To some extent, government programs have perversely discouraged employment through easy food stamp eligibility (1 out of every 6 Americans), extended unemployment benefits (2 years), low qualification requirements for disability benefits, mortgage assistance, and heath care subsidies.  Indeed, losing these benefits, along with foregone leisure, discourages working for many in a society in which traditional industriousness and ambition are seemingly on the wane in favor of the security of government benefits.  And with so many jobs converted to part-time employment to avoid the Obamacare health care mandate, recovery is further challenged.


            Labor laws and union contracts (especially those of the public sector) deny many employers flexibility in adjusting wages, benefits, pensions, work hours, and hiring and firing practices to immediate economic realities that could greatly improve productivity.  These and other opportunities for economy exist, even changing lavish corporate cultures, but can be difficult to achieve politically.  At present, major labor concessions are limited to bankruptcies.


            Employment normalization in both the supply and demand sides of the labor market is the key to real economic recovery.  But it is undermined by fiscal and regulatory disincentives for workers and employers, by political obstacles to structural and cultural reform in the workplace, and by increasing lassitude in the workforce, perhaps borne of the frustrations of a protracted drought in the employment market.


Onerous taxation


            The 2013 income tax increase for those earning over $200,000 annually, to include the 3.8% net investment tax to help fund Obamacare, is counterproductive to economic recovery.  Taxes are too high for a sluggish economy and, unlike all but a handful of developed countries, foreign profits are taxed when repatriated.  To avoid the burden, U.S. companies retain $2 trillion of profits overseas rather than repatriate them at the highest corporate tax rate in the world at 35% (less foreign taxes paid).  Since most companies do not opt to disclose the contingent liability for U.S. taxes on repatriated foreign earnings, this issue may be underappreciated from an economic perspective, but the amount is a potential lightening rod when raised by anti-corporate and big government political interests.  


Companies are even changing their domiciles to lower tax countries for a permanent benefit in so-called corporate tax “inversions”.  Medtronic, Inc. is moving to Ireland to avail itself of a 12.5% tax rate in the course of merging with Covidien.  Medtronic is also motivated by the new Obamacare tax levied on the medical devices it manufactures.  This applies not just to MRI and CAT scan machines, but such things as replacement lenses used in cataract surgery, as well as the minute instruments employed in the procedure.  Pfizer was ready to reincorporate in the UK before its proposed merger with AstraZeneca Plc fell through because of price, and Wallgreen is considering a move to Switzerland.  So important is tax relief that many U.S. companies stipulate in merger agreements that deals are terminated without penalty should the foreign tax benefit be revoked by Congress.


According to Senator Rob Portman (R-OH) in a 6/25/14 Wall Street Journal op ed, U.S. companies pay a 55% premium to acquire foreign companies that allow a domicile move vs. a 20% average premium in domestic mergers.  A lower competitive corporate tax rate would prompt repatriation of $2 trillion of overseas profits and attract domestic and foreign investment in the U.S. rather than abroad.  Such a boon would spur massive job creation that produces new revenues for the Treasury permitting deficit and debt reduction, and potentially lower marginal rates on individuals that would generate more growth.


            In an effort to set the stage for tax reform, the Senate made hay last year about untaxed overseas profits of Apple in hearings that suggested legitimate tax avoidance is reprehensible.  Today the tax benefits of a foreign merger are barely mentioned in deal making for fear of attracting the scrutiny of the IRS and populists in Congress.  Critics lambast inversion companies for not paying their fair share of U.S. taxes needed to help finance government spending, like they complain about rich individuals.  Why isn’t that premise ever questioned, that is, the justification for the level of spending in the first place?  And why isn’t the tax burden shared over a wider base?  These reincorporations overseas should be a shot over the bow for big government apologists.  Demonizing companies for legally moving headquarters overseas to become more competitive and profitable for the benefit of shareholders has to be vigorously challenged.  Sadly, Starbucks and eBay were cowed into voluntarily paying U.S. tax on foreign earnings out of fear of ostracism.  Their shareholders should hold them accountable.  In fact, significantly lowering the U.S. corporate tax rate would deter corporate relocations.  Not surprisingly, Treasury Secretary Jacob Lew has called for Congress to enact legislation that limits inversions.


            The new Foreign Account Tax Compliance Act (FATCA) requires foreign financial institutions to report holdings of U.S. citizens in an effort to reduce costly tax evasion.  This is fine, but to the extent it ostracizes and deters legal tax avoidance, it’s tyrannical.  In fact, Fidelity Investments and other asset-management firms told their U.S. clients overseas they can no longer buy mutual funds in their brokerage accounts, doubtless for fear of running afoul of the new law.  Those firms also are reacting to Credit Suisse Group’s recent agreement reached in conclusion of a U.S. Department of Justice investigation to plead guilty for abetting U.S. tax evasion and pay $2.6 billion.


            A significantly lower corporate tax rate would stimulate capital investment that is essential for better economic growth.  Tax preferences currently result in an effective tax rate of about 20% but that benefit accrues mainly to large companies.  Ending credits and deductions for special interests in exchange for substantially lowering the 35% statutory rate (25% is commonly recommended) would be a boon for all of corporate America, especially small businesses which produce most jobs.


Government interference


            Meanwhile, the federal government continues to spend with abandon redirecting capital from the private economy with no appetite for curtailment, raising the gross federal debt to over 100% of GDP.  Trillion-dollar deficits have abated to what will be about $600 billion for fiscal 2014.  But that is attributable to sequestration cuts, the 2013 tax increase, and denouement of operations in Iraq and Afghanistan.  And taxpayer funded health care premium subsidies and other taxes under The Affordable Care Act will challenge fiscal progress going forward.


The higher the debt the more likely eventual budget surpluses might be applied to repayment rather than tax cuts that would stimulate the economy more.  In addition, the debt level will become more problematic as interest rates rise putting additional pressure on the deficit.  Rising debt complicates the response to economic disruption, such as recession, and exacerbates financial cycles as it grows as a percentage of GDP.  Tax cuts deferred or prevented by continued excessive spending at the federal, state and local levels could weigh on economic growth for a long time.  Both spending and tax cuts are needed to stimulate economic growth which in turn can facilitate further spending and tax cuts and yet more growth.  But government takeover of health care and student loans, a predisposition for higher taxes and endless social programs dedicated to wealth redistribution, as well as rigid environmental allegiance, all augur a countervailing scenario.  There isn’t even much support for reducing fraud and waste.


Government restrictions on oil and gas development through new fracking techniques are suppressing a torrent of economic activity.  Approving the Keystone XL Pipeline and drilling projects on federal lands would provide a valuable fillip to the economy through jobs, lower oil prices and energy independence.  Abusive enforcement by the Environmental Protection Agency and the Department of Justice intimidating companies to settle trumped up charges, especially small businesses that can’t afford to defend themselves, is a drag on profits and the economy.  Increasingly onerous government reporting requirements imposed on businesses don’t help either.  Carbon emissions requirements and other mandates should be subject to strict cost/benefit analysis.  The executive branch’s punitive rulemaking process undermines legislation enacted by the people’s surrogates in Congress.  Presidential overreach through unlawful unilateralism has to be stopped with the utmost resistance.


            Free trade that enhances consumer choice and purchasing power is essential to a flourishing economy.  Imprudent concessions to labor and the environmentalists in trade agreements should be avoided.  Openness to foreign investment is also important but new financial regulation discourages overseas banks while high taxes and Sarbanes-Oxley requirements deter all industries.


On the other hand, calls to close the Export-Import Bank and restructure Fannie Mae and Freddie Mac are encouraging.  Any taxpayer funded entity, even a profitable one, diverts capital from private sector growth and invites government intransigence and corporate cronyism.  Such is the case of Fannie and Freddie in which the Obama administration seized profits instead of returning them to shareholders in contravention to the law governing the current conservatorship.  Ignoring the rule of law like this will deter capital from flowing to any successor organization and the mortgage market in general to the detriment of the economy writ large.  One can only hope this Administration’s flouting of the law is unique and not a new presidential paradigm.


Immigration reform


            Some tout specious economic benefits from immigration reform.  Yes, accommodating highly skilled immigrants in the engineering and technology fields, for example, through more liberal issuance of H-1B visas would be an economic plus with limited cultural and political downside given their numbers.  In addition, a well-managed temporary work visa program to correct seasonal labor shortages would be beneficial, especially in agriculture.  But flooding the land with millions of low skilled, uneducated workers in a general admission would displace many low income Americans creating massive unemployment, social disruption, and economic malaise.    


Immigration policy also has to be assessed in respect of sovereignty, security, and quality of life considerations, especially in regard to entrants from below the southern border.  Too much accommodation would strain infrastructure, expand government dependence, and invite poverty, crime, disease and other social ills with little prospect of assimilation.  Of course, business wants the cheap labor but let employers and consumers pay more, if necessary, to protect the culture and ensure the nation’s sovereignty and safety.


The Panacea

Government saved the financial system from the near collapse it was so instrumental in causing, and probably has secured it for the long-term through certain salutary reforms.  This assumes effective enforcement until institutional memory fades again.  Now government must focus on freeing the real economy which it has failed to restore to necessary growth.  This means shifting ultra liquidity from Wall Street to Main Street through higher interest rates that revive bank lending in a significant stimulus to underserved consumer and business demand.  In addition, fiscal incentives and regulatory relief will spur soft demand where it exists. 

The Fed has begun the process of raising longer term rates with the tapering of quantitative easing which will end completely by the end of 2014.  That change has stimulated certain bank lending that replaced longer term investments in treasuries and agency mortgage securities.  Now the Fed has to raise short-term interest rates above inflation to further motivate banks to make sufficient short-term floating-rate loans needed by consumers and small businesses.  Transitional disruption could occur but forbearance is essential.  (Recall the twenty years of prosperity that ultimately ensued after Paul Volcker’s painful prime rate rise to 21.5% under different circumstances in 1980.  Of course, no such medicine is needed now.)

Higher inflation-adjusted interest rates that reflect equilibrium in the credit markets will redirect investor capital from risky high-return investments of yield chasers back to more attractive alternatives that will finance regular America, such as bank deposits and investment-grade corporate bonds.  At the same time, this capital migration will defuse potential financial asset bubbles and general inflation when the economy recovers in earnest.  In addition, higher rates will reward ordinary savers who in turn will boost consumption from newfound interest income denied them for so long.

Furthermore, substantial cuts in government spending and taxation along with regulatory relief, especially in respect of energy development, will release capital for private sector production that generates jobs and growth. Particularly important are accommodations to small businesses as the source of most jobs.   

Therein lays a panacea for economic recovery, but for the intractable political impediments.


©2014 William J. Dodwell



Post-Crisis Bank Settlements Leave Defrauded Mortgage Securities Investors High and Dry


By William J. Dodwell    September 13, 2014


  On the heels of new capital requirements and other Dodd-Frank reforms, large banks have had to pay enormous public legal settlements in compensation for the wrongs of the financial crisis.  But investors in non-agency, or private-label, mortgage-backed securities (MBS) received no relief from the settlements, even though government lawsuits acknowledged them as financial loss victims for being misled about the quality of the underlying residential mortgages. 


Rather, the mortgage crisis settlement money goes entirely to resolve federal and several state mortgage fraud investigations, and to compensate “struggling homeowners, borrowers and communities affected by the bank’s conduct”, even though they were not named as victims in the lawsuits brought by the Department of Justice (DOJ) under Attorney General, Eric Holder.  In fact, borrowers already benefited from the $25 billion multi-bank settlement with federal agencies and state attorneys general in 2012 to recompense for loan servicer abuses concerning foreclosure, loan modification, and documentation.  Now they’re compensated again for the macroeconomic effects of widespread MBS underwriting fraud including plummeting home prices, economic recession and unemployment.  What’s more, many of those borrowers perpetrated fraud by misrepresenting themselves on mortgage applications (liar loans) or by borrowing beyond their means.  


Agency MBS investors were protected already against default by government-backed guarantee which was invoked when guarantors Fannie Mae and Freddie Mac failed.  The GSEs recouped some of their guarantee losses from the DOJ settlements with their conservator, the Federal Housing Finance Agency (FHFA).  They also recovered through direct FHFA settlements with banks, including U.S. subsidiaries of foreign firms, which had to repurchase disputed mortgages and non-agency MBS they sold to the government entities.  Some private-label MBS investors sought loan repurchases as well through private lawsuits filed against MBS issuing banks.  As mentioned, the DOJ settlements did not award compensation to private MBS investors.


Following are some major pre-tax bank settlements arising from misrepresentations of the quality of: private-label MBS sold to investors; mortgages and non-agency MBS sold to Fannie Mae and Freddie Mac; and mortgages insured by the Federal Housing Authority (FHA): 

  • Department of Justice  vs. Bank of America:  $16.7 billion
  • Department of Justice vs. J.P. Morgan Chase:  $13 billion
  • Private investor group including Pimco, Black Rock, AIG and the Federal Reserve Bank vs. Bank of America:  $8.5 billion
  • Department of Justice vs. Citigroup:  $7 billion
  • Federal Housing Finance Agency (on behalf of Fannie and Freddie) vs. Morgan Stanley:  $1.25 billion
  • Federal Housing Finance Agency (on behalf of Fannie and Freddie) vs. Goldman Sachs:  $1.2 billion
  • Securities and Exchange Commission (on behalf of the FDIC) vs. Goldman Sachs:  $515 million.


Another anomaly concerns the largest settlement, between Bank of America and the DOJ, which rested on defaulted residential mortgages of two newly acquired subsidiaries, Countrywide Financial and Merrill Lynch.  Countrywide, fraught with problem mortgages, was a boneheaded purchase made just before the universal manifestation of the financial crisis.  But Treasury Secretary Hank Paulson pressured the CEO, Kenneth Lewis, into later acquiring Merrill Lynch against his will in the heat of the financial crisis to save the financial system.  As such, only 4% of the mortgages litigated were issued directly by Bank of America.  Similarly, J.P. Morgan Chase accommodated a suppliant federal government in its purchase of the failed Bear Stearns at the onset of the financial crisis only to be sued six years later by the DOJ for the acquired company’s sins leading up to the financial crisis.  


Indeed, the banks fear the power of government.  It is widely believed the DOJ lawsuit against J.P. Morgan Chase was in some part prompted by CEO Jamie Dimon’s public criticism of the Dodd-Frank Act and President Obama’s economic policy.  Apparently, the specter of government retaliation muted the banks from publicly complaining about federal pressure to lower mortgage underwriting standards, the seminal cause of the financial crisis.  Of course, that grievance would not likely carry much weight with the DOJ anyway as a fellow agency of the executive branch, but it might had the case gone to trial, as risky and costly as that would be.  One senses the banks adopted a “You can’t fight city hall attitude.”


Were the banks really as culpable as publicized considering their diluted underwriting standards were urged by government in the first place?  Or, was bank silence about that coercion a quid pro quo for government not prosecuting individual bank executives (Angelo Mozillo excepted), and not insisting on bonus clawbacks or compensation caps?  In any case, the circumstances set the stage for potential bank shakedowns by government. 


The genesis of the problem


To establish the fairness, or injustice, of the bank settlements it is appropriate to review the improprieties that gave rise to the financial crisis.  Here focus centers on defrauded MBS investors, not the lesser loan servicing abuses for which five large banks agreed to a $25 billion settlement in 2012. 


The federal government was hell bent on upping the ante on its affordable housing policy, founded on the 1977 Community Reinvestment Act, by increasing home ownership among lower income Americans.  This escalation began in the Clinton administration and continued in the Bush years despite his early protestations, with encouragement from Congress, primarily Barney Frank (D – MA), Chairmen of the House Financial Services Committee and Senator Christopher Dodd (D – CT), Chairman of the Senate Banking Committee, ironically both of Dodd-Frank financial reform fame. 


Government forcibly prevailed on banks to relax lending criteria to accommodate this agenda.  The Federal Reserve Bank diligently enforced minority lending quotas on member banks.  Non-compliance would, among other things, invite resistance to branch expansion and acquisition approvals.  The Department of Housing and Urban Development (HUD) pressured Fannie Mae and Freddie Mac to lower their standards for the loans they purchase from originating banks for government guaranteed securitization and sale to investors.  In fact, the voracious demand of those GSEs for new mortgages was the primary impetus that fueled the subprime loan crisis.  


All the while, Fannie and Freddie concealed the undue concentration of subprime mortgages they amassed for their securitizations.  (But the Fed must have known from its data on bank mortgage sales to the GSEs.)  Bank recognition of the real aggregate subprime MBS exposure outstanding would have alerted the private MBS market early on, and thus greatly deter new issuances and probably avert the crisis.  Members of Congress also brought their influence to bear on the GSEs.  In exchange for political contributions and employment opportunities they supported legislation favorable to the GSEs, such as raising the individual loan amount eligible for government guarantee.  Most significantly, Congress had a light touch in its scrutiny of operations.


At the same time, the larger banks issued their own private-label (non-guaranteed) mortgage securities.  They were backed by lower quality loans created not only at the behest of government, but also of the banks’ own accord inasmuch as regulators acquiesced to even further underwriting deterioration.  Might government also have pressured the credit rating agencies to give triple A ratings to bank issued MBS?  The incentives for the banks to maximize loan issuance, as well as the securitization of those loans and the loans of other banks were:  lucrative loan origination fees; ongoing loan servicing rights (collection and MBS distribution of principle and interest) for both private and agency securitizations; minimal loan retention risk; flexible credit rating agencies; and the tacit approval of regulators.  Concurrently, the Fed maintained very low interest rates in the years leading up to the crisis that complemented lower underwriting standards to create a credit bonanza that overheated the housing market.


To be sure, the banks engaged in reprehensible behavior of their own.  They issued “no doc” loans which precluded genuine credit evaluation.  They overstated home appraisals to qualify more loans.  They inflated interest rates and fees for targeted communities.  They offered teaser rates that tripled after one year, the impact of which was not impressed on the borrower.  They presented loan contracts in Spanish to attract Latino borrowers, only to execute them in English on less favorable terms.  And, of course, they misleadingly passed bad loans on to Fannie and Freddie, as well as non-agency MBS investors.  Meanwhile, the regulators turned a blind eye, and pliant credit rating agencies indiscriminately assigned their top imprimatur to ensure future business for themselves.  Plenty of blame to go around.


Ultimately, massive defaults and attendant portfolio write-downs from lax mortgage underwriting seriously threatened the financial system.  The losses greatly depressed home values and tanked the economy, ushering in the Great Recession followed by a historically slow recovery.  In the process Fannie Mae and Freddie Mac failed and were taken into conservatorship.  They subsequently received a $188 billion capital infusion which has since been repaid.  Eventually, public and private lawsuits ensued.


Where does the settlement money go?


            Despite DOJ lawsuits naming defrauded private-label MBS investors as victims, they received nothing from the settlements.  Instead, proceeds are designated for borrower relief in the form of cash, and principal and interest reduction for underwater mortgages, along with tax relief for the forgiveness.  Monies also are allocated to public pension funds and for demolition to clear foreclosed homes to avoid neighborhood blight and property devaluation.  In addition, payments went to several states for housing related programs and consumer aid to homeowners, such as counseling, as well as for anti-fraud law enforcement efforts.  Yet, homeowners were never alleged as victims in the lawsuits.


            Of course, populist prosecutors, judges and media lack sympathy for presumptively sophisticated investors who they would say should have known better.  But they were still defrauded.  The DOJ may figure investors willfully assumed risk when they bought MBS, not distinguishing default from seller misrepresentation. Should an expert auto mechanic necessarily know a new car he buys has a certain faulty part?  Besides, MBS investors relied on government sanctioned credit rating agencies, one of which the DOJ has sued separately for alleged negligence.   


            Current government prosecutions harbor a wealth redistributionist bent that favors borrowers who lose their homes, especially minorities.  And it ignores borrower fraud and the role of government in creating the crisis.  What’s more, one wonders whether auditors of the Inspector General and the General Accountability Office (GAO) are watching the disposition of politically directed billions to the myriad “consumer aid” programs benefiting from the settlements.


Defrauded MBS investors


            Who were the defrauded MBS investors who do not get a dime from the public bank settlements?  They were individuals investing in private-label MBS through brokerage accounts, 401(k) plans, mutual funds and asset-management accounts.  They were private pension funds, corporate treasuries, university endowments, non-profits, hedge funds, and, of course, financial institutions with proprietary portfolios.  In fact, the large banks incurred losses from unwittingly buying each other’s toxic MBS.  The MBS bond insurers suffered as well, including industry leader, Ambac, which went bankrupt.  All manner of other financial asset classes held by U.S. individuals and institutions were collaterally decimated as well resulting in near financial collapse and the worst recession since the Great Depression.  All because MBS issuers misrepresented the quality of mortgage-backed securities to investors, as specifically charged in the DOJ lawsuits. 


Falling home prices attendant to massive mortgage defaults created underwater mortgages (still some 17% of all mortgages in Q2 2014 according to Zillow), meaning they exceed home values.  This affects even non-delinquent borrowers who cannot sell or refinance as a result.  In addition, the high volume of liberally granted mortgages gave rise to loan servicer snafus and abuses, including erroneous foreclosures. 


To be sure, all that has taken a high human toll.  But those losses quantitatively pale in comparison to the broad impact of the subprime loan crisis on the overall investment community.  Fallen home prices, and especially underwater mortgages, devalue MBS because underlying loan-to-value (LTV) ratios rise, thus reducing or eliminating the equity securing the loans comprising the MBS.  Likewise, borrower defaults and foreclosures, as well as principal and interest reductions, occur at the expense of MBS investors and direct lenders.


Although investors have enjoyed huge recoveries in stock and bond prices since the financial crisis, MBS investments have not fared nearly as well.  Many MBS investors who held fast recovered some losses.  And distressed debt investors profited from buying at the bottom in the secondary market.  But financial institutions subject to regulatory capital requirements had to sell and realize losses immediately.  Indeed, individual and institutional investors who purchased MBS during the run-up to the financial crisis and who suffered losses due to fraudulent underwriting disclosures are logically and morally entitled to some compensation from government legal settlements with banks. 


            The securitization of residential mortgages, which relied on private-label MBS investors, provided enormous liquidity for banks.  That is, by selling mortgages to private MBS investors and to Fannie and Freddie, banks could engage in far greater mortgage lending because those sales made room on the balance sheet for more loans.  Indeed, even many lower risk borrowers would not have had access to home financing were it not for securitization. 


But as it happened, MBS investors also served as dupes and pawns who, relying on credit ratings, unwittingly enabled the implementation of politically motivated government affordable housing policy and resulting bank fraud.  Legal settlements specifically cite failure to conform to stated underwriting guidelines in the sale of mortgages to non-agency MBS investors as the reason for the prosecution.  Then why not some relief for them in the setttlements?  Apparently, prosecutors expect those defrauded investors to seek remedy through provisions in the MBS indenture that permit private so-called “putback” lawsuits which require issuing banks to repurchase bad underlying loans from MBS investors.  But that option has proved unreliable.


And what about bank shareholders whose stocks plummeted as a result of the crisis?  The settlements cited the failure of banks to adequately disclose repurchase risk in the Management Discussion & Analysis (MD&A) section of quarterly 10-Q Reports to investors.  More accurate risk assessment might have dampened investor demand for bank stocks and minimize shareholder losses.  


MBS investors who held bank shares as well, not only financed mortgagees, but also provided value to the banks originating the loans.  Losses from their depressed bank shares, also caused by MBS underwriting fraud cited in the DOJ settlements, make compensation for these MBS investors even more compelling.  To wit:  Bank stocks are still 36% below their 2007 pre-recession level according to the KBW Bank Index vs. 34% higher for the S&P 500 in the same period.  Something is owed still struggling homeowners.  But MBS investors deserve consideration too.


Unlike private-label MBS investors, government sponsored entities, Fannie Mae and Freddie Mac, as well as the FHA, were named as beneficiaries in the huge DOJ legal settlements with Bank of America, J.P. Morgan Chase and Citigroup.  The awards reimburse Fannie and Freddie for honoring credit guarantees to agency MBS investors, and the FHA for insuring misrepresented mortgages.  Fannie and Freddie also recovered from other banks in separate settlements through the FHFA.


It will be interesting to see how MBS investors fare in DOJ’s pending $5 billion lawsuit against Standard & Poor’s for its alleged negligence in assigning MBS credit ratings.  In the bank settlements the banks were held liable as MBS issuers and charged with predatory lending and mortgage underwriting misrepresentation.  In the S&P case, the banks and others are victims as MBS investors reliant on the credit ratings.  It would seem more difficult to deny MBS investors relief in this case, but be prepared for another settlement pursuant to a wealth redistribution agenda.  After all, the real motive for the lawsuit might be retaliation for S&P downgrading a U.S. bond rating in 2011, not sympathy for private investors. 


Investor recourse denied – private-label MBS putback lawsuits


            Aside from government lawsuits, many buy and hold private-label MBS investors hoped to recover losses through putback lawsuits but have been gravely disappointed.  MBS bond indentures contain a provision under “Representations and Warranties” whereby investors may put, or sell, their securities back to the issuing banks if they can establish that underlying loans are of lower credit quality than represented.  Issuers record a provision on the balance sheet for this potential repurchase liability and explain it in financial reports.  But like insurance, an MBS investor might not know how reliable putback protection is until a claim is filed. 


            In fact, putbacks are replete with obstacles.  Bond Trustees, who have fiduciary responsibility for the MBS investors, resist efforts to make issuers repurchase bonds because they hire them, even though investors pay their fees.  In an inherent conflict of interest, future business hangs in the balance for the Trustees, as it does for credit agencies hired by issuers.  In addition, repurchase claims require a collective 25% holding among claimant investors in a particular MBS to have legal standing and move forward, while the other investors are bound by the settlement.  Claimants must prove that MBS default losses resulted from misrepresentation of loan quality and underwriting standards as distinct from a legitimate credit event, such as borrower job loss or divorce.  Each putback case has to be presented on a loan-by-loan basis which is tedious and costly.  In fact, some Trustees don’t even request the loan file, making the ultimate recovery far less.  Even if claims are completed, recovery might not cover legal and administrative costs. (Monoline bond insurers had somewhat better putback protections in their indentures.)  One consolation might be that disclosures and concessions that support investor relief established in public lawsuits could facilitate discovery in future private putback suits against MBS issuers.  Lawyers love copycat litigation.


            The putback experience creates a pall over future private securitizations as many investors view failed repurchase lawsuits tantamount to contract abrogation.  In the future, only guaranteed agency MBS may suffice.  However, recent investment patterns show how complacent investors can be about default risk in their insatiable quest for yield.  Witness frontier bonds and other exotic investments.  In any case, future securitization will depend on optimally ensuring the quality of MBS collateral loans.


Nevertheless, the FHFA succeeded in achieving putback recoveries from repurchase claims on behalf of Fannie Mae and Freddie Mac against mortgage-selling banks.  The combined DOJ and FHFA settlements substantially contribute to restored GSE profitability from which the government was fully repaid for its bailout.  But the Treasury disputably retains all post-crisis profits rather than allow the entities to repay their publicly held preferred shareholders who seek payment of suspended dividends and liquidation of appreciated shares.  Again, government interest supersedes that of private investors. 


Once burned, twice shy, today banks restrict mortgage lending.  Because of potential repurchase liability from selling loans to Fannie and Freddie, banks set credit standards higher than required by the GSEs.  Non-bank mortgage specialists, such as Quicken Loans, are filling some of the void but, according to the Mortgage Bankers Association, mortgage lending declined 54% in the first half of 2014 year-over-year.  In addition, the homeownership rate fell to the lowest level in almost 20 years.  


Securitization reform


            In the aftermath of the financial crisis, the Dodd-Frank Act prompted the regulators to make numerous corrective changes to the securitization process, some of which favor MBS investors.  Now loan originators must require more stringent underwriting criteria for so-called “Qualified Mortgages (QM)” or be subject to more onerous regulatory capital charges.  Private-label MBS issuers have to retain a minimum of their securitized loans on the balance sheet.  They also must submit reports on underlying loan detail to the SEC to reduce investor reliance on rating agencies.  (This requirement does not apply to private placements.) 


In the past, the loan detail file was available to MBS investors. But its examination was too tedious and time consuming for many of them to complete.  Instead, they relied on the credit rating.  Is this justification for shutting out the MBS investors from the government settlements?  Also, large issuers hired third-party due diligence experts with specialized software to analyze loan data to assess the quality of the loans comprising their MBS issuances.  But litigation revealed that issuers often ignored warnings in order to maximize MBS volume.  Now the SEC will be watching, (one hopes).


            Additionally, in the last five years the Financial Accounting Standards Board (FASB) strengthened sale and consolidation accounting criteria for MBS issuers.  These changes make it more difficult for an issuer to transfer MBS credit risk to investors through the sale of loans.  The amendments also restrict issuers from keeping the MBS off the balance sheet.  As a consequence, many more private MBS issuers are subject to recording loan losses and regulatory capital charges on the underlying mortgages, a deterrent to reckless issuance.  Giving pause to MBS investors is a new fair value measurement rule which requires investors to recognize losses in income when “other than temporary impairment” becomes apparent.  Investors can no longer avoid write-downs by simply stating the intention to hold a security to maturity.  However, security devaluation deemed only temporary does not have to be so recognized, thus preventing an artificial effect on earnings from ephemeral market events.  What's more, MBS investments are now generally subject to greater regulatory capital charges.


            New regulation better ensures quality MBS collateral, and tempers unscrupulous issuance and imprudent investment.  But private-label MBS bond indentures will have to provide better credit enhancement through stronger putback protection or more bond insurance to attract investors in the future.  They certainly can forget about relief from government prosecution.


Congressional proposals to reduce the size and role of the GSEs in a public/private partnership with banks depend on a robust market for private securitization.  But in view of the experience of many private-label MBS investors, before and after the crisis, that prospect is currently in question.  Moreover, a healthy economy relies on the liquidity and credit availability securitization markets afford, including those for non-mortgage asset-backed securities.  It is hoped the aforementioned reforms will restore investor confidence to assure that outcome.


Full circle


            In a sense, government affordable housing policy has come full circle.  Government forces the banks to lend to unqualified borrowers.  The banks unload the loans on Fannie, Freddie and unwitting private-label MBS investors. When the defaults and foreclosures mount, the DOJ and other federal agencies litigate the banks into massive settlements claiming predatory lending and loan misrepresentation to buyers and investors.  It then recycles the settlement proceeds back to the unqualified borrowers (and political allies) at the expense of MBS investors.  The banks pay; the investors pay; and some unqualified borrowers keep the home they couldn’t afford.  But still, many homeowners continue to suffer. Meanwhile, the government scores political points and laughs all the way to the next crisis of its own making. 


Speaking of which, loose lending standards persist at Fannie, Freddie and the FHA.  Recently, the FHFA proposed increasing the GSE’s fixed percentage of single family mortgage purchases and refinancings associated with low income borrowers, especially in heavily minority neighborhoods, to some 25%.  And despite the talk about eliminating the GSEs, or winding them down by sharing credit risk with the banks, rumor has it Fannie and Freddie are preparing a new public offering.  2008 redux?  Beware non-agency MBS investors.


                                                                        ©2014 William J. Dodwe


How Foreign Exchange Rates Underpin the Dynamics of the Global Economy


By William J. Dodwell     February 8, 2015

“Follow the money” refers to the ultimate motivator and the means of detecting truth, especially regarding heinous acts. Just as the primacy of money is illustrated in human behavior, it also is evident as a lynchpin of the global economy in the form of the foreign exchange of nations. Goods, services, stocks, bonds and commodities are all transacted through it and valued by it. Herewith, an analysis of the integrated behaviors of world currencies that impinge on global economic growth and investment with an eye towards illustrating the importance of a sound currency.


Where does currency come from?


Goods and services come from production. Securities stem from the underlying value of issuing companies. All are priced by their supply and demand in the marketplace. By contrast, currency is created by central bank fiat aimed at ensuring appropriate liquidity in the economy. But it is also priced by supply and demand as measured by the interest rate in domestic markets and by the exchange rate internationally. As such, foreign exchange is not a free market like other commodities. Ultimately, a sound currency, as a function of effective monetary and fiscal policies, supports a healthy national economy in the global context. But no currency is an island as it interacts in myriad ways with other currencies as determined by respective national factors, as well as a multiplicity of exogenous variables. Indeed, arbitrage opportunities among currencies prompt some $5 trillion of currency trades a day according to the U.K. Financial Conduct Authority.

A nation’s central bank achieves price stability by expanding or contracting the money supply to correct imbalances between the supply and demand for goods and services in the economy that create inflation or deflation. In the process, the central bank influences the interest rate and the exchange rate. Specifically, the central bank conducts so-called open market operations by which it purchases short-term government securities from member banks. The sale proceeds add money in circulation as those banks create new lending to businesses and individuals, thus stimulating a sluggish economy. This increase in the money supply also reduces short-term interest rates in accommodation to borrowers as measured by a benchmark rate governing overnight lending among banks. Lower interest rates tend to lower the foreign exchange rate. Conversely, the central bank sells government securities to banks in exchange for its cash on hand (excess bank reserves) to withdraw funds from an overheated economy. This monetary tightening raises short-term interest rates to curtail lending and discourage borrowing. Higher interest rates tend to bolster the foreign exchange rate.

Central banks also purchase longer term government bonds, asset-backed securities and corporate bonds in the primary and secondary markets with newly created money. This process is called “quantitative easing”for the purpose of adding additional liquidity to the financial system that lowers longer term interest rates to further stimulate the economy.

The central bank creates new money to encourage banks to increase lending. But if lending is not profitable enough the banks may decide to just hold the extra reserves for the future, or invest in government securities for its own portfolio. Both open market operations and quantitative easing are euphemistically referred to as “printing money” because they introduce new credit into the financial system. But the only new money actually printed is that needed to satisfy demand at ATMs and teller windows, an infinitesimal fraction of the total money supply. Rather, newly created money is digitally produced as the central bank credits the accounts of member banks while recording a corresponding liability of its own. Ensuing bank lending also is transacted through electronic book entry to the reciprocal accounts of the banks and their borrowers, thus circulating money throughout the economy.

Or so it is hoped. The monetary easing of the Federal Reserve Bank aimed at stimulating economic growth has not been as effective as expected. Protracted near-zero short-term interest rates and extensive quantitative easing have resulted in inflated financial assets rather than more consumer and capital spending. That’s because low interest rates made lending insufficiently profitable. They also failed to stimulate borrowing largely because of suppressed wages and high unemployment which contributed to soft consumer and business demand. As a result, newly created money flowed to higher return stocks, bonds and private-equity stakes as investors tried to overcome the low interest rates. The banks, rather than lend, in large part purchased treasury securities from other financial institutions, such as hedge funds, pension funds, and asset management firms, which in turn invested in higher return assets inflating financial markets in the process. The newly created money, which quadrupled the Fed’s balance sheet, was meant to facilitate bank lending to stimulate the purchase of goods and services in the real economy. We’re still waiting. Many worry about pent up inflation that will devalue the dollar when the economy fully normalizes as that new money moves from financial assets to goods and services in response to higher interest rates that make lending more attractive to banks.

Demand in the economy determines the velocity by which money circulates and approaches equilibrium with the money supply controlled by the central bank. With each transaction money moves from one seller of goods and services to another, or converts to financial assets, producing a multiplier effect. Velocity slows when spending declines and investment increases in the extreme with adverse consequences for economic growth and generally the foreign exchange rate. Consumed goods and services and depreciated capital assets create new replacement demand which engenders new production. This is the process of economic growth without which money becomes a spent force in the regular economy. Soft demand in the U.S. economy from stagnant wages and high unemployment has slowed money velocity to the detriment of growth and monetary expectations, although improvement is finally underway.

Monetary operations of the central bank directly affect interest rates which in turn influence currency exchange rates in international markets. Higher interest rates generally attract investors to fixed-income assets denominated in a higher yield currency, such as deposits and bonds, while lower rates do the opposite.


The vicissitudes of the foreign exchange markets


Currencies are buffeted by constantly changing economic and political forces that affect their volatility and value. Besides monetary policy, other factors govern foreign exchange rates which in turn exert a major influence on the global economy. Indeed, currency movements interact with interest rates, portfolio values, exports, imports, profits and ultimately economic growth. Following are market fundamentals that determine a currency’s exchange rate.

  • Interest-rate differentials between currencies as determined by respective monetary and fiscal policies, as well as macroeconomic forces. A devalued currency forces a country to raise interest rates to attract foreign investment at the risk of throttling domestic economic growth. Generally, investors avoid lower yielding currencies.
  • Economic growth as determined by household spending and saving, business spending and investment, as well as net exports. It affects wages, corporate profits, financial asset prices, business inventory, and plant and equipment. Too much government spending, taxation and regulation hamper economic growth by diverting capital from the private sector restricting production and growth. A free trade policy promotes growth.
  • Inflation or deflation as determined by monetary policy which governs the money supply and demand imbalances in the economy. Inflation devalues a currency. Deflation does the same because it stifles economic growth.
  • Trade flows as indicated by a country’s trade deficit or surplus that result from imports and exports. Exports support a currency as foreign buyers have to purchase the exporter’s currency to buy a good, thus bidding up the exchange rate. Conversely, imports depress a currency as buyers purchase another currency selling their own to purchase a good. A strong currency tends to suppress exports because they become more expensive to foreign buyers, thus resulting in a drag on profits, but it concomitantly makes imports cheaper in the buyer’s currency. A weak currency makes imports more expensive and invites inflation as domestic producers get leeway to raise prices and still be competitive with rising import prices. According to the principle of comparative advantage, a country may run a benign trade deficit concentrating on products it can manufacture economically because of superior technology, for example, while importing products other nations can produce more economically because of, say, lower labor costs. The better productivity contributes to economic growth that can offset the drag a trade deficit might have on the exchange rate.
  • Portfolio flows involving the foreign purchase and sale of a country’s securities and other investments such as real estate and corporate acquisitions. Beforehand each transaction necessitates the purchase of the currency in which a security or investment is denominated, hence the positive effect on the exchange rate. Net purchases bid up a currency; net sales bid down a currency.


In addition, the following ad hoc activities influence the exchange rate:


  • Safe haven effect where investors flock to stable currencies, usually the dollar, the yen and Swiss franc, in times of disruption and uncertainty. This occurs when geopolitical factors or event risk from wars, transgressions, etc. create negative economic implications for an affected currency.
  • Central bank intervention where the home currency is purchased to prop up a falling exchange rate, or sold to curb currency appreciation that makes its exports uncompetitive. These efforts are often neutralized quickly by much greater currency market forces. Foreign currency is also bought to build reserves needed to pay for imports or to finance foreign currency denominated debt.
  • Repatriation of foreign profits involving the selling of local currency and the purchase of the home currency supports the home currency’s exchange rate. But a stronger dollar results in those profits translating into fewer dollars in the conversion.
  • Currencies pegged to the dollar, such as the Mexican peso and Chinese yuan, where they float in tandem with the dollar or within a range rather than on the basis of internal economic forces. This policy can be disadvantageous if it prevents a country from adjusting to, for example, overheating conditions from fiscal excess and heavy capital inflows. The exchange rate has to be realistic relative to the peg to avoid disruptive revaluations.
  • Currency controls imposed by the government that limit the access residents have to foreign currency, or that restrict capital flight out of the country. The purpose is to limit the influx of speculative investments (hot money) from abroad that might overheat the economy and cause serious inflation and economic bust. Currency controls also stanch a currency outflow that can decimate the exchange rate.
  • Black market in which a currency illegally trades at a premium based on real economic value in parallel with the artificial official exchange rate set by the government. It exists in countries with weak economic fundamentals, such as hyperinflation, to escape currency controls imposed by the government. The purpose of the black market is to establish a real exchange rate by which foreign currencies, especially the dollar, may be purchased to hedge the deterioration of their local currency holdings.

Foreign exchange fundamentals and the other influences constitute vectors in constant flux impinging on a currency to establish an exchange rate. Those forces can have countervailing effects on the rate depending on conditions. For example safe haven investing can offset concerns about slow growth. Or, a sizable trade deficit might offset the attraction of high interest rates.


King Dollar


The U.S. dollar has been the world’s “reserve currency” since 1944 when the signatories of the Bretton Woods agreement abandoned the gold standard to rely on a currency backed by a world dominant economy with unparalleled productive capacity. The advent of dollar-denominated oil prices in 1973 reinforced that reserve status. As such, central banks store a certain amount of dollars to hedge against the devaluation of their own currencies, and others they hold as “hard currency” reserves to import goods and service debt denominated in foreign currency. Gold is also a common component of reserves. A stable dollar contains inflation, helps keep interest rates low, and attracts foreign investment in the U.S. economy and its capital markets.

In 1944 the Bretton Woods Agreement forged by forty-four nations established adjustable fixed exchange rates to facilitate currency conversions in trade. Previously, international trade was transacted in dollars which linked to gold at a fixed conversion rate of $35 an ounce, another testament to the pre-eminence of the U.S. currency. A foreign importer, for example, would pledge one ounce of gold to purchase a $35 good. After Bretton Woods, that importer purchased the good at a prescribed exchange rate between his currency and the dollar, say, .5 pound sterling for $1, while the U.S. Treasury in turn managed the money supply to maintain $35 gold convertibility. Eventually, the supply of dollars increased to fund extensive foreign investment to the point that fixed gold convertibility could not be maintained. This triggered competitive devaluations, a dollar selloff and strong demand for gold.

As a consequence, in 1971 President Nixon closed forever the gold window at the Fed ending the convertibility of gold. Then, after resetting fixed exchange rates twice in efforts to save Bretton Woods, he finally supported free floating exchange rates in 1973 based on market forces. The value of gold also floated according to supply and demand for the metal, usually in inverse relationship to the dollar. Subsequently, exchange rate fluctuation from the conversion of foreign currency-denominated assets and liabilities distorted corporate quarterly earnings such that they no longer reflected basic operations. In time, the accounting rules changed whereby unrealized balance sheet exchange rate translation was removed from earnings and isolated as a component of shareholders’ equity.

But the extreme level of U.S. federal debt, at over $18 trillion, can undermine the dollar’s reserve currency status as it hampers economic growth by diverting capital from the private sector. The debt also potentially deters investment in treasury securities that finance government spending, making borrowing more expensive. As such, some speculate the yuan will replace the dollar as the world’s primary reserve currency given China’s newly significant economic influence. Or, a basket of currencies might substitute for the dollar.

Nevertheless, the relative economic strength of the U.S. vis a vis other nations has accorded its treasury securities and the dollar safe haven status. China and Japan which purchase 20% of U.S. public debt really have no viable alternative for now. As such, the day of reckoning expected in reaction to profligate government spending is deferred. Too many elected officials ignore the negative effect of excessive government spending on the dollar to promote a redistributionist domestic agenda. Yet, they publicly express support for a sound dollar, recognizing the sensitivity of the dollar in world markets. This is especially true since the 1987 stock market crash which some attribute in part to Treasury Secretary James Baker’s threat to lower the dollar against the German mark.

Currently, oil exporting countries rely on their currency reserves to reverse declines in their home currencies attributable to lower oil prices by purchasing them in the open market. The resulting currency appreciation blunts the impact of declining oil revenues from the halving of dollar-denominated oil prices. A strong dollar keeps oil prices down worldwide while a weak dollar causes oil exporters to raise the price in adjustment for the drop in local currency in the conversion from dollars. Non-U.S. oil importers benefit from cheaper dollar-denominated oil but that advantage can be offset when they purchase dollars to buy the oil if their currencies weaken. Dollar-denominated oil creates a dominant demand for the U.S. currency around the world allowing Americans to indulge in countervailing capital outflows from imports and investments overseas.


The link between currency and economic growth


A sound currency enables a nation to perform well in the global economy. It depends on strong financial institutions and avoiding or correcting monetary and fiscal excess to establish a creditworthiness that attracts foreign investment capital. What’s more, a stable currency may foster safe haven status in times of market stress. Capital inflows attracted to a structurally sound currency support lower interest rates, asset appreciation, rising wages, corporate profits, diverse production, and consumer choice, all of which contribute to economic growth. A strong currency also makes imports cheaper affording a country the luxury of foreign products without the otherwise deleterious effects of a large trade deficit. A temporarily weak currency, as distinct from a structurally flawed currency, also draws foreign investors lured by the advantageous exchange rate. Of course, a currency cannot be static as the forces that determine exchange rates fluctuate all the time, and some factors cannot be controlled, such as relevant geopolitical disruptions. Ideally, a country maintains a currency that inspires investor confidence in an interdependent world amid all kinds of upheavals, and is able to make adjustments in short order when the currency falters.

When a currency seriously weakens some investors rely on gold as portfolio insurance since it generally appreciates during times of economic stress and protects against asset-eroding inflation. Conversely, gold ordinarily declines when the dollar is strong, but lately the dollar and gold have moved up together because of a mutual safe haven effect amid uncertainty in Europe and the attendant volatility in the currency markets. As such, gold is functioning currently as a currency rather than a commodity Nevertheless, gold has not proved to be a good investment over the long term.

A prime example of the linkage of currencies and economies is the Asian crisis of 1997-1998. Having established themselves economically, several east Asian countries attracted substantial capital inflows from enterprising investors around the world which compounded over-lending by home banks and governments. All that financing eventually inflated property and stock values and created economic strains. Ramifications were felt in Europe and the U.S. as well because exporters relied on the region and investors incurred losses there. In reaction, these Asian countries decoupled their currencies from the dollar to which they were pegged, starting with Thailand, in order to let them reflect economic realities instead of the incongruent appreciating dollar. This triggered a series of regional devaluations in the effort to stay competitive in exporting to one another and to the rest of the world. As a consequence, imports became more expensive to the detriment of the individual economies. The devaluations also contributed to the collapse of Long-Term Capital Management, a large hedge fund, which threatened the world’s financial system. What’s more, deterioration in the Asian countries precipitated capital flight which devastated investment valuations. Ultimately, the IMF, the World Bank and others provided aid that stabilized region.


Following is an analysis of economic conditions currently underlying currency values.


Divergent economies and uneven growth


The European Central Bank (ECB) announced a much anticipated quantitative easing program in January 2015, to be implemented in March, as another means of combating deflationary pressures and stimulating growth in the eurozone. Japan has been running the monetary spigot for some time in an effort to devalue the yen in order to stimulate exports and reflate its long stagnant economy. Slower growth in China depresses currencies of exporters around the world, particularly in Asia and Australia. Soft global demand stymies oil exporters creating oversupply compounded by new hydraulic fracturing in the U.S.

OPEC refuses to cut production in order to depress the price of oil below the frackers’ breakeven point and put them out of business. Russia has been particularly vulnerable to the decline of its dollar-denominated oil export revenue because of lower oil prices which combines with Western sanctions imposed for its territorial incursions. But some of the dollar revenue decline is offset in the conversion to more rubles which have been devalued 50%.

An undervalued yuan (which floats within a range of yuans to the dollar) controlled by the government to help exports has been a source of global criticism for some time. Currently, currency manipulation is an obstacle in U.S. negotiations with eleven Pacific countries concerning the Trans-Pacific Partnership trade deal. An advantage a U.S. exporter may realize from lower tariffs could be offset by a foreign exporter’s government weakening of its currency, effectively subsidizing its exports. This issue is particularly problematic for the U.S. in view of the strong dollar which restricts American exports. Critics of an anti-currency manipulation provision say it could encroach a country’s desired monetary policy to weaken its currency appropriately through lower interest rates or quantitative easing.

Meanwhile, the U.S. completed a long phase of quantitative easing and is expected to raise its benchmark interest rate this year as economic growth warrants. This divergent path between the U.S. and other developed nations causes volatility and uncertainty in the currency markets which directs capital to safe havens such as the dollar and the yen. This happens despite debt levels that exceed 100% and 200% of GDP in the U.S. and Japan respectively.

Indeed, uncoordinated monetary policies among nations can lead to beggar-thy-neighbor competitive devaluations with adverse effects. And they have currently. As Europe and Japan pursue quantitative easing that devalues their currencies, increasingly other nations lower interest rates to devalue their currencies as well in order to protect export market share. As a result, attendant rising import prices can create inflation as domestic producers raise prices in tandem with imports, thus throttling economic growth. Repetitive independent mercantilist devaluations to support exports can eventually force interest rate increases to prevent currency collapse to which some countries are more vulnerable than others. In the process, bond prices suffer from both the currency devaluations and the corresponding interest-rate hikes. Disorderly foreign exchange markets can cause systemic problems in the global economy. Indeed, the U.S., West Germany, France and the U.K. understood this in forging the Plaza Accord in 1985 to manage competitive devaluations among their currencies. Currently, the independent decision of the Swiss National Bank to remove the cap on the franc/euro exchange rate has wreaked havoc in the currency markets. (See below.)


U.S. dollar



At present, the U.S. dollar is enjoying an eleven year high against other major currencies because of greater economic growth and the expectation of rising short-term interest rates this year. In addition, a flight to the safety of U.S. bonds supports the dollar in the face of economic malaise elsewhere in the world, suppressing longer term interest rates to the benefit of growth. But the U.S. has achieved only moderate growth in the aftermath of the Great Recession in an atmosphere of low inflation, despite long monetary accommodation aimed at stimulating the economy. Of late, the lowest oil prices in several years, helped by a strong dollar, contribute to economic health because of the savings to individual and industrial energy consumers. But the profit drain that lower prices pose for oil producers, their suppliers and lenders weigh on their stock values which dominate the major stock indexes.

Dollar strength is also attributed to currency weakness overseas as other major economies try to stimulate growth through monetary accommodation. That policy suppresses those currencies as the money supply increases in the absence of aggregate demand in the economy causing lower short-term interest rates and unattractive exchange rates to investors.

Nevertheless, the strong dollar has its downside. Exporters and multinational corporations with overseas operations suffer from the translation of foreign currency based revenue to fewer dollars in financial reporting resulting in crimped profits which adversely affect their stock prices. As a consequence, those companies cut spending, primarily jobs, to compensate for declining overseas revenue that doesn’t cover dollar denominated costs. Similarly, returns on foreign investment securities decline in the currency conversion. Lower profits from foreign exchange translation hampers economic growth. Companies commonly minimize currency risk from overseas business through hedging.




The eurozone, now comprised of nineteen countries, has averaged negative GDP growth since 2008 because of slack demand as evidenced by near-zero inflation. As result, the euro has sunk to an eleven year low against the dollar and other major currencies. In fact, December 2014 prices declined year-over-year for the first time since 2009 and are expected to have declined even more in January 2015. This deflation lowers domestic sales and revenue as consumers defer purchases expecting prices to fall further. It also affects euro debt repayment because the fixed debt becomes more expensive relative to a declining price level. Deflation reduces discretionary income and thus suppresses individual and business spending.

As mentioned, the European Central Bank will soon start quantitative easing to further combat deflation and stimulate demand in the economy by lowering longer term interest rates. The program includes monthly purchases of sovereign bonds well into 2016 that come on the heels of ineffective central bank buying of private sector asset-backed securities and covered bonds, as well as a policy of near-zero short-term interest rates. Eurozone sovereign bond yields have reached extreme lows in anticipation of the ECB bond purchases, notwithstanding the excessive debt levels and questionable creditworthiness of some of the issuers. In fact, many European bonds have negative yields. The downward effect on the euro has prompted other central banks to lower interest rates to combat currency appreciation that fetters their countries’ exports.

The eurozone might take solace from the weaker euro resulting from the ECB bond purchases and lower yields that makes exports more competitive. But, while this currency devaluation is a convenient alternative to ineffective monetary and fiscal accommodation to raise inflation and spur growth, it has its adverse consequences. A weaker euro makes dollar denominated debt more expensive, imports more costly, and renders foreign investment less appealing if currency weakness is other than temporary. Since the ECB’s bond buying program invites those maladies by depressing the euro, some expect it to fall to parity with the dollar.

Managing a single currency monetary policy over disparate economies affected by different fiscal policies can be problematic. The euro, established in 1997 to facilitate trade among European nations by reducing the transaction costs attendant to multiple currency conversions, has been challenged by stresses of the last few years. Since the 2011 European debt crisis (which continues) Germany has played a disproportionate role in rescuing the eurozone, in collaboration with the ECB, the IMF and the EU at large. Most of the aid was directed to Ireland, Italy, Spain, Portugal and Greece. Ireland, Portugal and Spain have recovered substantially, and Greece, although currently struggling, restructured debt and even returned to the capital markets with a bond issue. But euro sovereign debt levels have not improved as overspending continues, taxes remain high, overregulation and recalcitrant trade unions have not changed, high unemployment persists, and patience in the fiscal austerity solution wanes as it hampers economic growth and employment. Meanwhile, Germany’s objection to further bailouts becomes more vociferous. In addition, sentiment in the UK to adopt the common currency has abated. Some call for harmonization of tax policy throughout the eurozone, but that too is challenging among dissimilar economies.

Today the problems in Greece are coming to a head again as a result of the recent parliamentary election. Europeans worry that the victorious leftist Syriza party headed by the new prime minister, Alexis Tsipras, will repudiate the bailout debt and relax the widely unpopular fiscal austerity programs required by previous lending agreements. In fact, days after his election Tsipras pledged to rehire thousands of public workers, scuttle privatization plans stipulated in the bailout agreement, and remove the yoke of creditors. Although a more conciliatory tone followed later, the ECB announced it will no longer accept Greek bonds as collateral for loans it extends to banks. It is feared that this election victory will challenge the political order throughout the eurozone by emboldening other radical groups to forsake spending cuts and needed regulatory change. Any default, or even further restructuring by the new Greek government, will anger those that rescued Greece from collapse, especially Germany. Speculation about Greece exiting the monetary union abounds putting to the test ECB head Mario Draghi’s 2012 pledge to “do whatever it takes” to save the euro. That promise was prompted by an aversion to purchases of southern tier sovereign debt among the northern tier countries because of concern about restructuring losses. They also were deterred by having to comply with more stringent regulatory capital requirements applied to debt holdings backed by weaker underlying economies.

A euro exit, unwanted by 74% of Greeks according to a poll, would be unpleasant for Greece as debts and contracts are recalculated in a much devalued national currency involving large haircuts. In addition, savers would seek outside safe havens. Remaining European Union taxpayers, the ECB and the IMF who funded loans to Greece would bear the defaults. As a consequence, some investors would avoid euro debt causing borrowing costs to increase while some contagion would take effect in reaction to the threat to the inviolable permanence of the euro established at inception. In the meantime, banks and broker-dealers are stress testing their trading platforms and counterparty exposures to prepare for a possible break from the euro, as well as conversion to home currencies if Greece and possibly other euro members bolt.

To be sure, fiscal discipline is essential for Greece to remain in the eurozone. But current austerity programs are very unpopular on the left and right in Greece and throughout Europe giving rise to new political factions. France’s finance minister has expressed sympathy with Greece’s plight and appears accommodative. Christine Lagarde, head of the IMF, recently said some middle ground is needed between substantive government spending cuts and a safety net for those left destitute from loss of jobs and pensions in order to restore economic growth and full employment. On average EU nations are near the original Maastricht Treaty limit on EU budget deficits of 3% of GDP, but average debt is way over the 60% of GDP limit at 87% according to EU Business in April 2014. Greece had a deficit of 12.7% and debt of 175%. While the Maastricht limits are still considered prudent targets, continued breaches by most EU members undermine the credibility of the common currency. Greece would have to secure an extension of the existing bailout which expires at the end of February 2015 to repay upcoming debt redemptions and to remain in the eurozone. But, again, Germany strongly resists.


Japanese yen


At the end of 2012 Japan adopted a policy of stepped up monetary and fiscal accommodation called Abenomics named after the new prime minister, Shinzo Abe. His aim is to further lower the value of the yen to stimulate exports and to reflate the economy which has endured long bouts of deflation and stagnation since the 1990s. So far, low interest rates, quantitative easing, government spending and regulatory reform have not produced desired results. The yen has depreciated about 35% against the dollar since the program began.


Swiss franc


In a bold act of monetary independence, the Swiss central bank caught the world by surprise in January 2015 by removing the 1.20 franc cap it had imposed for 3 ½ years on the exchange rate with the euro. Anticipation of the ECB’s imminent quantitative easing program and the attendant euro decline prompted the move as the Swiss National Bank faced the costly burden of ever increasing euro purchases to maintain the cap as the euro sinks. In addition, the central bank was concerned about the inflation that might result from its substantial money creation that funds the euro purchases. Better to stop now and cut losses. The cap was established to accommodate Swiss exporters by limiting the appreciation of the franc caused by safe haven investors reacting to ongoing economic sluggishness in the eurozone that depressed the euro.

As a consequence of the cap removal, the euro immediately dropped up to 30% as the franc floated freely upwards. This caused the Swiss central bank to lower already negative short-term interest rates to reverse some of that currency appreciation that hurts exports. In turn, other central banks lowered short-term interest rates to deter their home currencies from appreciating from investors gravitating to their relatively higher rates. The Swiss move also triggered volatility and illiquidity in bond and currency markets around the world as reflected in a sizable decline in the dollar vs. the franc and gains against other currencies. Some foreign exchange brokers depleted their equity in revaluing their trading positions and in recognizing losses from margin lending to smaller clients. On the other hand, some larger players profited handsomely. Since Swiss borrowing rates were among the lowest in the world, franc denominated borrowings were popular in carry trades in which investors borrowed cheaply in francs and invested in higher yielding currencies. But those investors were whipsawed when the Swiss National Bank made its move causing the euro to decline and the franc to appreciate. In addition, Swiss businesses will suffer greatly as export revenues drop substantially from the franc appreciation, thus squeezing profits margins. A selloff in Swiss stocks reflects that eventuality.


Pound sterling


Although the UK is a member of the European Union, it has not adopted the euro as its currency. That independence allows the UK to customize its monetary policy through the Bank of England to its own economic needs, including the devaluation of the pound to stimulate exports. By contrast, the European Central Bank conducts a single monetary policy for the entire eurozone based on 19 different economies, and its charter prohibits euro devaluation. Some British officials favor joining the euro in order to fully integrate with Europe and better influence the euro economy. Others believe the UK economy is not sufficiently in sync with the eurozone to warrant a change. Indeed, today the UK, like the U.S., has recovered mildly from recession while the eurozone continues to grapple with deflationary pressures.


Chinese yuan (or renminbi)


The Chinese yuan, also called the renminbi, is gradually becoming convertible in global markets through international trade and as yuan denominated bonds (called dim sum bonds) are sold outside of China by a variety of issuers. But plans to relax capital controls have been deferred in order to concentrate on domestic issues including slower growth and high debt, rather than be distracted by international speculative moves on the yuan. The yuan is currently the fifth most used currency for international payments just behind the Japanese yen according to Swift, the global payment system.


Mexican peso


The Mexican central bank allowed a full devaluation of the peso in 1994 and 1995. Preliminary attempts to prop it up through intervention in the markets and by raising interest rates were unsuccessful as the higher borrowing costs slowed economic growth. An overvalued peso had encouraged large scale importing that created a significant trade deficit that weighed on the peso. Indeed, the currency dropped more than 60% before becoming pegged to the U.S. dollar within a band of exchange rates where it remains today.


Indian rupee


Once a basket case, the Indian economy has embraced free market principles in the last 20 years resulting in substantial economic growth and international trade that has produced sizable foreign currency reserves. But in the last few years the country has succumbed to deleterious fiscal policies contributing to slower growth and inflation. The country also has been affected by slow global growth that has engendered a significant trade deficit and a decline in foreign investment. A resulting currency selloff has reduced the rupee by about a third.


Venezuelan bolivar


Economic collapse in Venezuela from government repression has decimated the bolivar creating a large black market in the currency where it sells for some 15 times the official rate. Pegged to the dollar within a prescribed range, a much devalued bolivar has made imports quite costly, thus restricting businesses and limiting consumer choice. The dearth of foreign product competition also spurs inflation as domestic producers freely raise prices. In fact, inflation reached 60% in May 2014 according to Bloomberg Business. However, strong dollar-denominated oil export revenues fund dollar-denominated bond redemptions, and convert to ever more devalued bolivars with which to support domestic spending.


Russian ruble


The Russian ruble has declined some 50% in the past year mainly because of falling export revenue resulting from lower oil prices, as well as economic sanctions imposed in reaction to transgressions in eastern Ukraine. But dollar-denominated oil revenue that translates into more devalued rubles provides a palliative. After costly unsuccessful market interventions and a huge growth-threatening hike in interest rates to support the ruble, the central bank allowed it to float freely downward. Currently, the specter of inflation and default loom large.


Argentine peso


The Argentine peso has fallen to record lows due to a precipitous drop in dollar reserves needed to service debt and pay import bills. A bond default last year, the country’s second in 12 years, and a burgeoning black market suggest an atmosphere prime for yet another devaluation. The peso has depreciated some 35% in the past year including a 20% central bank devaluation in July 2014.


Emerging markets


Emerging markets suffered from easy credit resulting from an influx of yield chasing investment in local bonds and real estate that drove up their currencies. They include the BRICS nations of Brazil, Russia, India, China and South Africa, in addition to Mexico, Argentina and eastern Europe countries. That outside hot money created inflation and overbuilding resulting in a boom and bust scenario. The ensuing growth slowdown in the emerging markets has depressed demand for commodities they imported, thus lowering prices to the detriment of commodity producing countries. Recovering growth in the U.S. is currently attracting capital away from the emerging markets with a corresponding effect on the currencies. But lately, some investor interest is returning to the sector’s securities.


Currency as a commodity




While currency is a funding vehicle that enables consumption and investment essential for a growing economy, it is also a commodity by which investors can profit. Indeed, as mentioned, some $5 trillion of foreign exchange is traded daily, significantly affecting currency rates that govern global business. Large banks manage huge foreign exchange portfolios for servicing retail client needs, corporate risk management, as well as to engage in speculative profit in their own accounts. Many individuals also trade for profit. Travelers need foreign currency for consumer purchases. Businesses need it to hedge against fluctuating prices of imported raw materials, as well as conversion losses from overseas profits and foreign securities. Traders capitalize on market volatility to employ complex strategies for arbitraging exchange rate differentials through trading currencies in the spot, forward, futures and options markets. Indeed, heavy trading by large speculators such as George Soros can disrupt entire economies. In addition, central banks intervene in the markets to protect their exchange rates against excessive appreciation or devaluation. In fact, of late central bank moves in conducting monetary policies have created considerable volatility in the currency markets giving rise to higher currency trading volumes as traders capitalize on profit opportunities. Consider the ECB’s quantitative easing, the Swiss National Bank’s decoupling of the Swiss franc and euro, and the reactions to these events around the world.

A common strategy among traders is the so-called carry trade involving the borrowing of a low yield currency, such as the Japanese yen, to invest in a higher yielding currency, such as the U.S. dollar, to profit on the interest rate spread. This trade is risky as traders can be whipsawed when currency rate swings cause a short (borrowing) position to suddenly appreciate and a long (ownership) position to depreciate possibly causing a net FX loss that may exceed the interest margin earned. As such, the trader incurs substantial losses as he pays more than cost to cover the short and gets less than cost on selling the long. As mentioned, this happened recently when the Swiss franc rose dramatically in response to the Swiss central bank removing the franc cap versus the euro. In fact, one major FX broker-dealer, FXCM, Inc., lost its entire equity and many others breached regulatory capital rules as customers were unable to repay borrowings advanced them to finance their positions. In reaction to the Swiss franc event U.S. foreign exchange brokers have imposed stricter customer margin requirements. But FXCM forgave the debt of its small traders in an effort to retain their business. Nevertheless, margin limitation does not apply to foreign customers allowing them to leverage to the hilt and potentially generate much larger losses for themselves and their brokers. What’s more, today traders rely on computer-driven models that enable them to get in front of momentum trends where they capitalize on the volatility created by such events as the removal of the Swiss franc peg to the euro and the precipitous drop in oil prices.

U.S. and European regulators have been investigating banks for manipulating foreign exchange rates, universally relied on for pricing portfolios around the world, in order to achieve personal advantage in proprietary trading books. Reportedly, the scandal involves rigging two day-end rates used to mark-to-market currency positions. Although reprehensible, such tinkering in a $5 trillion FX market is inconsequential overall, paling in comparison with the vagaries traders face from the massive currency movements resulting from international trade, central bank intervention, and economic and political forces. More serious are new allegations of efforts to move currency markets by tipping off hedge funds about upcoming bank foreign-exchange trades. So far, six banks settled for $4.3 billion to resolve regulatory litigation but new investigations will probably yield more.




In recent years a virtual currency called bitcoin has been available as an alternative to the vicissitudes of traditional currencies and the strictures of processing transactions within the banking system. Untethered to sovereign governmental forces, its value is determined purely by supply and demand irrespective of particular interest rates, inflation, trade, or economic growth, and it functions only on a digital basis. But, so far, the innovation has been beset with problems. Extreme volatility and major selloffs have rendered it unreliable as a store of value. In fact, bitcoin has lost 80% of its value since its 2013 peak. Mt. Gox, the original bitcoin exchange based in Japan, engaged in price manipulation costing investors some $500 million and later went bankrupt after succumbing to a hacking attack. These and other security breaches have undermined confidence in the currency.

New bitcoin firms have emerged, including Coinbase which has attracted investments from banks, the New York Stock Exchange and some wealthy individuals, and has just become the first licensed exchange. Right now bitcoin needs transparency in its real-time pricing and better security to achieve a mass market. The move toward broad state regulatory approval will help bitcoin’s legitimacy in the marketplace. Currently, Coinbase is licensed to do business in about half the states. The Federal Reserve Bank is reviewing the systemic viability of the bitcoin concept.


The importance of a sound currency


Foreign exchange functions as a medium of exchange and a store of value in a highly interdependent world of international trade and investment that relies on currency stability. Currencies are proxies for individual economies as they interact in complex relationships. Currency values are established by the forces of supply as determined by central banks, and demand as governed by myriad global market dynamics. When a currency comports with a sustained relative balance among production, consumption and investment in its underlying economy, with a tolerance for reasonable adjustment, it is a sound currency that attracts foreign capital and yields economic growth. The U.S. dollar has been a model of that paradigm for some time as evident by its long held reserve currency status.

But a shift from the primacy of private enterprise to dominant government threatens the model as politics supersedes economics. Politically motivated monetary and fiscal excesses that infringe on supply and demand in the economy create market distortions that undermine a currency. This can set the stage for economic crisis and social unrest that invites more government. Unmoored volatile foreign exchange markets serve speculative traders, not productive nations.

                                                                                        ©2015 William J. Dodwell




The Developing Federal Student Loan Debacle and the Real Cost to Taxpayer

By Willliam J. Dodwell    August 27, 2015


 Buried in the Patient Protection and Affordable Care Act (PPACA) of 2010 overshadowed by the public hoopla concerning government’s takeover of health care is a totally unrelated provision that further empowers government at great expense to the public fisc.  This companion legislation, called the Health Care and Education Reconciliation Act, renders the U.S. Department of Education the direct lender for almost all prospective federal student loans, greatly reducing the role of banks.  At present, the government loan portfolio stands at $1.3 trillion representing 43 million borrowers, including loans originated before the PPACA.  Student loan debt now is second only to mortgages among household liabilities, exceeding credit cards and auto loans. 


Under federal control, the student loan program is gradually metastasizing in a move from monthly payment forbearance to loan forgiveness, and ultimately to ongoing free taxpayer-funded college education for all.  No doubt, many borrowers are delaying or stopping monthly payments in anticipation of eventual forgiveness.  Jason Delisle of the New America Foundation writes in The Wall Street Journal that 20% of borrowers are in default.  This is despite an average income-based loan forgiveness of $41,000 per borrower and $125 billion of total forbearance involving up to three years of deferred monthly payments.

Misleading financial reporting by the U.S. Department of Education


To date, the federal student loan program has been reportedly quite profitable overall as gains from loans to graduate students and parents more than offset the losses on the undergraduate and for-profit portfolios.  In fact, profits derive almost entirely from loans to parents and graduate students, including medical and law school borrowers, who are better credit risks having good income prospects that ensure repayment.  But is the student loan program really profitable?  It may be on a net interest margin basis where the government receives more interest from borrowers than interest it pays on Treasury debt.  Indeed, loan interest rates range from 2 to 4.5 percentage points above the loan comparable Treasury note, with graduate students and parents paying more than undergraduates. 


But the Department of Education is notorious for obfuscating detailed information on loan delinquencies and defaults, as well as payment deferrals and forgiveness, a charge even levied by Douglas Elmendorf, the former Democratic CBO director.  Susan Dynarski, professor of economics, education and public policy at the University of Michigan, and former advisor to the Obama administration, wrote about the Department of Education’s information brownout in the New York Times on March 22, 2015.  She says the Federal Reserve Bank, the Treasury, the new Consumer Financial Protection Bureau, as well as private organizations seek demographic loan detail to detect student debt patterns threatening households and the economy.  In addition, they want to quantify and foresee impending losses in order to intervene with borrower relief.  But available data are highly limited, as is financial reporting on profitability.  Unlike voluminous mortgage data now compiled by the government in the aftermath of the financial crisis, student loan demographics and true performance are largely aggregated and shrouded in secrecy by the Department of Education. 


Historically, the government has been loath to publicize real student loan default rates, even under previous federal direct loan and guarantee programs.  What’s more, it refuses to outsource detailed analytics to other agencies or private firms.  As a consequence, the information dearth conceals the growing losses and economic impact of the student loan program.  Could it be that the truth about loan defaults would prevent the program’s expansion and galvanize opposition against proposed loan forgiveness and free college education as a new entitlement?  Fortunately, Congress is on to the charade.  Representative Tom Price (R., Ga.) and Senator Mike Enzi (R., Wyo.) are trying to get the Congressional Budget Office (CBO) to adopt true “fair value accounting” for student loans where performance is accurately evaluated as it is by banks, particularly with respect to defaults.  But big government politicos resist this initiative.


Federal accounting vs. bank accounting


Measuring student loan losses according to generally accepted accounting principles (GAAP) adopted by private banks transforms government reported profits to huge deficits.  In so doing, the CBO’s projected $135 billion profit for the ten year period 2015-2024 converts to a $1.9 trillion loss according to the table below.  Consider the 13% default rate (in dollars) of 2013 and 2014 reported by the Department of Education applied to a growing $1.3 trillion portfolio.  After deducting defaulted balances that apparently are not removed from the loan book contrary to bank accounting, and deducting balances in forbearance (non-paying loans because of deferred payment allowances and pre-graduation), the default rate suggests a $122 billion default loss in 2015 alone.  This loss increases commensurately over time with the size of the portfolio.  Adding an estimated $28 billion for net interest income, the projected 2015 operating loss amounts to $94 billion on a GAAP basis.


The reason for the profitability discrepancy is that federal accounting adopts a net present value method of computing profit and loss rather than cost-based accounting employed by banks.  Present value accounting involves forecasting all future net cash flows for the remaining duration of each loan, going out up to 20 years or more.  That forecast aggregates loan outlays with scheduled principal repayments and interest received, and incorporates a deduction for actual defaults, as well as consideration for prepayment patterns and default recoveries.  Then the government discounts those future cash flows to present value at a rate that is supposed to account for estimated default risk over the future life of the loans attributable to changing macroeconomic conditions.  The resulting net present value is compared to that of the previous period to determine profit or loss.  A higher present value denotes a profit for the current period, a lower one a loss.


  1. Understated discount rate


    In the process, the discount rate the CBO applies is a prescribed Treasury note rate that corresponds to the duration of each loan to capture credit risk.  This would consider the probability that higher interest rates and other factors will weigh on the economy to precipitate spikes in unemployment that trigger some permanent nonpayment.  But even the CBO openly acknowledges that the riskless Treasury discount rate is not a realistic proxy for default risk.  As a consequence, reported student loan profitability is significantly inflated.


    An appropriately higher discount rate would reduce the net present value such that it would turn reported profits to sizable losses.  For example, consider the non-partisan CBO’s recently projected $135 billion profit in the 10-year period 2015-2024.  By applying a discount rate 1.5% higher than the Treasury rate, the CBO projects an $88 billion loss, a $223 billion swing.  But the Department of Education’s reported 2013 and 2014 default rate of 13% reflected a degree of risk that would warrant a much higher discount rate than, say, the riskless 2.5% 10-year Treasury note, and seemingly even the higher risk-adjusted rate the CBO adopted.  The discount rate is supposed to reasonably anticipate principal and interest payments that are not forthcoming because of defaults. A higher discount rate translates to a lower present value that