George Will notes a number of ironies in the election and makes some predictions:

September’s financial storm probably sealed Obama’s victory by raising the electorate’s anxieties while lowering its confidence in Obama’s opponent. John McCain’s responses — suspending, sort of, his campaign; ratcheting up his rhetoric about Wall Street “greed and corruption” — suggested a line spoken solemnly by the Capitol Steps’ George W. Bush impersonator: “Uncertain times call for uncertain leadership.” But the storm’s aftermath — $1 trillion or so of government resources siphoned away — will severely constrain Obama’s presidency. So, this year the conditions conducive to the election of liberals, with their baroque plans and rococo dreams, have put a polar frost on most such ambitions…

Obama’s first problem will be drawing lines to circumscribe bailout promiscuity. The Bush administration, having executed a swan dive, or perhaps a belly-flop, into the financial sector, now seems to be flinching from extending the interventions into the industrial sector. Democrats in Congress, feeling their oats and hearing clamors from local corporations, will be Obama’s first affliction.

“Uncertain times call for uncertain leadership.” Interesting. Though of course there are many motivations for a person’s vote, it is not so surprising in this time of economic tumult that a majority of Americans supported the younger and more robust man over the old fellow.

From the Washington Post’s ombudsman:

The Post provided a lot of good campaign coverage, but readers have been consistently critical of the lack of probing issues coverage and what they saw as a tilt toward Democrat Barack Obama. My surveys, which ended on Election Day, show that they are right on both counts…The op-ed page ran far more laudatory opinion pieces on Obama, 32, than on Sen. John McCain, 13. There were far more negative pieces (58) about McCain than there were about Obama (32), and Obama got the editorial board’s endorsement…Obama deserved tougher scrutiny than he got, especially of his undergraduate years, his start in Chicago and his relationship with Antoin “Tony” Rezko, who was convicted this year of influence-peddling in Chicago.

Move along now. Nothing to see here.

From a piece in the NYT — the thing speaks for itself. It’s pretty bad out there. HT: Big Picture

There are going to be a lot of setpieces over the next four years, so we might as well start getting used to them. The president-elect’s press conference was just such a show, as the array of CEO’s, former Treasury Secretaries and politically symbolic attendees illustrated. Senator Obama’s planned remarks were cautious, and even seemed to imply his potentially backing off from some tax increases. The event was held while the market was open and was designed not to rattle the market.

The Q&A portion of the event was highly scripted and obviously so. ABC, CBS, NBC, AP, CNN, Reuters, the NYT and the local Chicago papers got to ask a question. Opposition press did not. The rather labored dog metaphor was swallowed whole by the adoring media as a genuine ad-lib. The one genuine ad-lib was a flop that the Senator had to later apologize for. So perhaps in the future all impromptu remarks and jokes will be scripted.

Possibly some future moments of levity may be brought to us by the Obama administration’s new chief of staff, Rahm Emanuel. According to Bloomberg, Senator Obama “once joked at a charity dinner that when Rahm Emanuel severed his middle finger, it almost rendered him mute.” A pretty funny comment, but the serious point is not to be missed.

These fellows aren’t fooling around; they know how to craft an image and enforce discipline. Already some in the elite media are getting uncomfortable with the self-conscious image making that has been the hallmark of Senator Obama’s campaign. But what will they do, since they know just what happens to those in the media that oppose the administration?

Bloomberg said that “jobless claims jumped and the shrinking economy crushed earnings at companies from Blackstone Group Inc. to News Corp,” and that these events led to this performance by the market:

The Standard & Poor’s 500 Index fell 5 percent to 904.9, extending its two-day loss to 10 percent. The Dow Jones Industrial Average retreated 443.48 points, or 4.9 percent, to 8,695.79. The Russell 2000 Index of small U.S. companies declined 3.6 percent to 495.92. The MSCI World Index of 23 developed markets lost 6.2 percent to 921.87.

The two-day tumble wiped out more than half of the S&P 500’s rebound from a five-year low on Oct. 27. An industry report showing an unexpected decline in sales at U.S. chain stores in October also weighed on stocks as 25 of 27 companies in the S&P 500 Retailing Index slumped…The S&P 500 is down 38 percent this year, the steepest annual retreat since 1937. The benchmark for U.S. equities has plunged 42 percent since its record in October 2007

Of course this precipitous and record decline in stock prices could be due to the problems suggested by Bloomberg, but there is another possibility as well. The Carter administration appointed one of the worst Treasury Secretaries in US history, whereas the Clinton administration enjoyed a Treasury Secretary who reined in certain of the excessive campaign promises of the President. Could it be that a substantial portion of the current decline is due to uncertainty about which sort of financial officials the next administration is inclined to appoint?

Pollster Kellyanne Conway observed this about the election:

In two self-identification questions, just 33% of actual voters said they considered themselves Republicans, but 41% thought of themselves as conservatives. On the other end of the spectrum, 39% aligned as Democrats, but just 20% described their ideological alignment as liberal. That number is unchanged from the 20% of actual voters in our 2004 Post-Election survey said they were liberal.

Something in these numbers appears to be out of whack. For example, in a poll last year, 34% of Democrats said that they personally did not want the surge to work, and, in 2005, fully 32% of Democrats said that the US is “discriminatory and unfair.” Only 20% of those polled called themselves liberal. Is personally not wanting the US military to succeed in the surge anything other than a liberal position? What’s going on?

We have become much less willing to make predictions in recent times. Many predictions are simply the extrapolation of the present, whatever it might be, into the future. You need look no further than the price of oil over the last year to know the limitations of that approach. The world can turn on a dime, for both good and ill.

Here’s a prediction that we think is safer than most. Some time after Senator Obama becomes President, in his convincing victory, the people are likely to rue the media’s decision not to vet the man as they should have over the last two years. Roger Simon and Glenn Reynolds both have useful reflections on this issue.

It’s not likely that the MSM themselves will easily change course, because so many in the media seem completely unaware of their of the biases they mistakenly think they conceal. And it’s even worse than that for many in the elite media. Some have been so invested in Obama’s victory over the last months that they have failed to notice when newsworthy stories were directly handed to them.

Observers like Steven den Beste think that the media will try hard to regain their credibility. Maybe so. However, we think it may be even harder for the media to face the two sources of guilt that such an effort would require — that they had done the wrong thing in the first place, and that in redressing this failure, they risk accusations that they harbor a nasty bias against Obama.

There may be some political realignments over the next 2-4 years, but they may be different from the conventional wisdom. The American people have elected a man that they like, but in reality know very little about. That will change as he begins to do his job, which is to make decisions. Then Americans will begin to learn which Obama they elected. That such unnecessary surprises lie ahead is chiefly the media’s fault.

Shrinkwrapped asks which President Obama will show up on January 20:

If Barack Obama wins this election, as all signs seem to suggest, he may well run a generic, liberal Democratic administration. There are some very bright, very fine liberal economists who would probably do a decent job of managing the recovery. He could take a more modest approach to foreign affairs, maintain our military strength, and develop a strategic approach that facilitates the integration of the newly wealthy and powerful countries (BRIC=Brazil, Russia, India, China) into a new globalized international order. He would probably nominate very liberal Judges to the Supreme Court. I would find many reasons to oppose his choices but all of this would be well within the bounds of a typical center-left liberal administration.

Of concern, Barack Obama might actually believe his own hype, and as only a young person with no experience in the real world, believe he can change America and make it better by using the power of the government to increase fairness and equality, while talking to our enemies, spreading the wealth, and saving the planet. If he attempts to rule as a left wing ideologue, he will almost certainly lengthen the current recession and, as per Joe Biden, increase our chances of a major set-back in the war on terror that he does not profess to believe in. If he tries to rule to the left, it will be a long four years, for him and for the rest of us.

This fellow has a very interesting analysis of the accuracy of pre-election polls that will either vanish down the memory hole quickly or become something to be pondered at leisure in the coming days. Meanwhile there’s this from US News:

I just talked to one of my best Team McCain sources who told me that heading into today all the key battleground polls were moving hard and fast in their direction. The source, hardly a perma-optimist, thinks it will be a long night, but that McCain is going to win. So add this with the new Battleground poll (Obama +1.9 only) and the rising stock market…

On the other hand, John Dickerson says: “An Obama loss would mean the majority of pundits, reporters, and analysts were wrong. Pollsters would have to find a new line of work, since Obama has been ahead in all 159 polls taken in the last six weeks. The massive crowds that have regularly turned out to see Obama would turn out to have meant nothing.” We’ll know soon who is right.

Can 8.7% of voters still be undecided this close to election day? We’ll know tomorrow.

Compare and contrast the gesture allegedly given to Senator Clinton by Senator Obama and the one he supposedly directed to Senator McCain. You be the judge of what’s actually going on.

Business historian John Steele Gordon takes us on a tour of American financial disasters. This is now:

in 1995, regulations adopted by the Clinton administration took the Community Reinvestment Act to a new level. Instead of forbidding banks to discriminate against blacks and black neighborhoods, the new regulations positively forced banks to seek out such customers and areas. Without saying so, the revised law established quotas for loans to specific neighborhoods, specific income classes, and specific races. It also encouraged community groups to monitor compliance and allowed them to receive fees for marketing loans to target groups.

But the aggressive pursuit of an end to redlining also required the active participation of Fannie Mae, and thereby hangs a tale. Back in 1968, the Johnson administration had decided to “adjust” the federal books by taking Fannie Mae off the budget and establishing it as a “Government Sponsored Enterprise” (GSE). But while it was theoretically now an independent corporation, Fannie Mae did not have to adhere to the same rules regarding capitalization and oversight that bound most financial institutions. And in 1970 still another GSE was created, the Federal Home Loan Mortgage Corporation, or Freddie Mac, to expand further the secondary market in mortgage-backed securities.

This represented a huge moral hazard. The two institutions were supposedly independent of the government and owned by their stockholders. But it was widely assumed that there was an implicit government guarantee of both Fannie and Freddie’s solvency and of the vast amounts of mortgage-based securities they issued. This assumption was by no means unreasonable. Fannie and Freddie were known to enjoy lower capitalization requirements than other financial institutions and to be held to a much less demanding regulatory regime. If the United States government had no worries about potential failure, why should the market?

Forward again to the Clinton changes in 1995. As part of them, Fannie and Freddie were now permitted to invest up to 40 times their capital in mortgages; banks, by contrast, were limited to only ten times their capital. Put briefly, in order to increase the number of mortgages Fannie and Freddie could underwrite, the federal government allowed them to become grossly undercapitalized — that is, grossly to reduce their one source of insurance against failure. The risk of a mammoth failure was then greatly augmented by the sheer number of mortgages given out in the country.

That was bad enough; then came politics to make it much worse. Fannie and Freddie quickly evolved into two of the largest financial institutions on the planet, with assets and liabilities in the trillions. But unlike other large, profit-seeking financial institutions, they were headquartered in Washington, D.C., and were political to their fingertips. Their management and boards tended to come from the political world, not the business world. And some were corrupt: the management of Fannie Mae manipulated the books in order to trigger executive bonuses worth tens of millions of dollars, and Freddie Mac was found in 2003 to have understated earnings by almost $5 billion.

Both companies, moreover, made generous political contributions, especially to those members of Congress who sat on oversight committees. Their charitable foundations could be counted on to kick in to causes that Congressmen and Senators deemed worthy. Many of the political contributions were illegal: in 2006, Freddie was fined $3.8 million — a record amount — for improper election activity.

That was then:

the collapse of 1836. Thanks to a growing population, prosperity, and the advancing frontier, poorly regulated state banks had been multiplying throughout the 1830’s. In those days, chartered banks issued paper money, called banknotes, backed by their reserves. From 1828 to 1836, the amount in circulation had tripled, from $48 million to $149 million. Bank loans, meanwhile, had almost quadrupled to $525 million. Many of the loans went to finance speculation in real estate.

Much of this easy-credit-induced speculation had been caused, as it happens, by President Andrew Jackson. This was a terrific irony, since Jackson, who served as President from 1829 until 1837, hated speculation, paper money, and banks. His crusade to destroy the Second Bank of the United States, an obsession that led him to withdraw all federal funds from its coffers in 1833, removed the primary source of bank discipline in the United States. Jackson had transferred those federal funds to state banks, thereby enabling their outstanding loans to swell.

The real-estate component of the crisis began to take shape in 1832, when sales by the government of land on the frontier were running about $2.5 million a year. Some of the buyers were prospective settlers, but most were speculators hoping to turn a profit by borrowing most of the money needed and waiting for swiftly-rising values to put them in the black. By 1836, annual land sales totaled $25 million; in the summer of that year, they were running at the astonishing rate of $5 million a month.

While Jackson, who was not economically sophisticated, did not grasp how his own actions had fueled the speculation, he understood perfectly well what was happening. With characteristic if ill-advised decisiveness, he moved to stop it. Since members both of Congress and of his cabinet were personally involved in the speculation, he faced fierce opposition. But in July, as soon as Congress adjourned for the year, Jackson issued an executive order known as the “specie circular.” This forbade the Land Office to accept anything but gold and silver (i.e., specie) in payment for land. Jackson hoped that the move would dampen the speculation, and it did. Unfortunately, it did far more: people began to exchange their banknotes for gold and silver. As the demand for specie soared, the banks called in loans in order to stay liquid.

The result was a credit crunch. Interest rates that had been at 7 percent a year rose to 2 and even 3 percent a month. Weaker, overextended banks began to fail. Bankruptcies spread. Even several state governments found they could not roll over their debts, forcing them into default. By April 1837, a month after Jackson left the presidency, the great New York diarist Philip Hone noted that “the immense fortunes which we heard so much about in the days of speculation have melted like the snows before an April sun.” The longest depression in American history had set in.

Many people had their hands in the till in this disaster. Wasn’t the first time and won’t be the last. It would be nice to see some of them go to jail, however.

The Democratic presidential candidate:

if somebody wants to build a coal-powered plant, they can; it’s just that it will bankrupt them because they’re going to be charged a huge sum for all that greenhouse gas that’s being emitted.

Maybe he’ll clarify his remarks on Wednesday. Maybe.

Early voting in Los Angeles county used to be a breeze. There were touch-screen locations throughout the city, but that came to an end in 2007. Now there is but one place to cast an early ballot, a government building about 15 miles southeast of downtown.

It takes a certain amount of fortitude to vote early in LA this year. The process can consume 3-4 hours, exclusive of travel time. When we went yesterday afternoon, there was an long line just to get into the official waiting area. In there, a large tent with rows of folding chairs that seat 500 people or more, poll workers give out strips of paper with three digits. You get to vote when your number is called. Our guess is that maybe 400 people an hour vote. (Our advice is: bring a book; we read the entire novel Rebecca while waiting.)

It was an interesting demographic mix. Though there were a few more young people than we expected, the crowd seemed to be mostly in their 30’s and 40’s. Some people brought their young kids. Perhaps half the voters were African Americans (apologies to La Shawn Barber). The crowd seemed less Hispanic than LA is generally. (Our demographic was a bit underrepresented.) The atmosphere was friendly and somewhat subdued. It was a little like waiting in church for a very long time for the service to begin.

Occasionally there was a bit of joking. Once in a while someone would say Bingo! or otherwise celebrate when the woman calling out numbers finally ended some voter’s long wait. There was quite a lot of laughter when the announcer called out “666,” but otherwise people were quiet or chatted in low voices.

There was a freak thunderstorm in the middle of the afternoon, a very unusual occurrence in LA, where the rainy season doesn’t begin for another month. People continued to wait in the long line in the rain, with or without umbrellas.

We suppose that it would be hard to generalize from voting in Los Angeles, a blue city in a very blue state. But early voting in LA this year required an extra amount of commitment and intensity, because it killed a whole day. Senator Obama seemed to be the beneficiary of this commitment and intensity, at least in Los Angeles. We saw nothing to suggest that the polls are not correct.

We mentioned Barack Obama’s “Aunt Zeituni” the other day, when a London newspaper found her living in a “rundown public housing estate” in Boston. Mark Steyn raised the question about whether she had made an illegal campaign contribution to her nephew, because it was unclear if she is an US citizen. It turns out that the answer to that question appears to be yes, and there’s even more to the story. Aunt Zeituni is apparently in the United States illegally. AP:

Barack Obama’s aunt, a Kenyan woman who has been quietly living in public housing in Boston, is in the United States illegally after an immigration judge rejected her request for asylum four years ago…Zeituni Onyango, 56, referred to as “Aunti Zeituni” in Obama’s memoir, was instructed to leave the United States by a U.S. immigration judge who denied her asylum request, a person familiar with the matter told the AP late Friday. This person spoke on condition of anonymity because no one was authorized to discuss Onyango’s case. Information about the deportation case was disclosed and confirmed by two separate sources, one of them a federal law enforcment official.

It should be noted that Aunt Zeituni is hardly an insignificant person in Senator Obama’s life. She appears by name almost 70 times in his memoir Dreams from My Father. She attended his swearing-in at the US Senate in 2004.

A few points: (a) what are the chances that the media would have run John McCain out of town on a rail if this story was about him? (b) isn’t it just a tad creepy that Senator Obama sermonizes endlessly about how Americans should pay higher taxes to be their “brother’s keeper,” when he has these skeletons in his closet? (c) what on earth have the media been doing for the last two years when they should have been vetting this guy? (Not looking into any of this, apparently — HT: Maggies Farm)

AP:

In a bold move brimming with confidence, Democrat Barack Obama broadened his advertising campaign on Friday into two once reliably Republican states and further bedeviled rival John McCain by placing a commercial in the Republican presidential nominee’s home state of Arizona

In a bold move brimming with confidence, the Obama campaign made a modest media buy in Arizona, confident that the media would report it as…a bold move brimming with confidence.

From the Drudge Report we learn that certain newspapers can be punished for their bad behavior:

NY POST, DALLAS MORNING NEWS, WASHINGTON TIMES TOLD TO GET OUT… ALL 3 ENDORSED MCCAIN…The Obama campaign has decided to heave out three newspapers from its plane for the final days of its blitz across battleground states — and all three endorsed Sen. John McCain for president! The NY POST, WASHINGTON TIMES and DALLAS MORNING NEWS have all been told to move out by Sunday…

However, even making contributions to the campaign of Senator Obama sometimes doesn’t help. Consider the case of Barack Obama’s Aunt Zeituni Onyango, who made such a contribution, even if it isn’t entirely clear that she is a US citizen. She still found herself living “in a disabled-access flat on a rundown public housing estate in South Boston.”

(By the way, the Boston Globe finally caught up with Ms. Onyango, after the Times of London found her first. She did not want to comment on her relationship to Senator Obama: “‘We’ll talk after the election,’ she said. ‘Come talk to me after the fifth’.” The Globe has apparently obliged. The three newspapers kicked off Obama’s plane ought to learn from the Globe that it’s time to get with the program.)

An American author commented on the election, and the “police state” in America:

“The record shows that voting machines in America are rigged…My friends Ken Follett and Susan Cheever are extremely worried. Naomi Wolf calls me every day. Yesterday, Jane Fonda sent me an email to tell me that she cried all night and can’t cure her ailing back for all the stress that has reduces her to a bundle of nerves…My back is also suffering from spasms, so much so that I had to see an acupuncturist and get prescriptions for Valium…After having stolen the last two elections, the Republican Mafia…If Obama loses it will spark the second American Civil War. Blood will run in the streets, believe me. And it’s not a coincidence that President Bush recalled soldiers from Iraq for Dick Cheney to lead against American citizens in the streets…Bush has transformed America into a police state, from torture to the imprisonment of reporters, to the Patriot Act.”

Ah, yes, the Patriot Act. People forget that it was quite popular and bi-partisan at the time it passed. Democratic Senator Patrick Leahy’s remarks praising the Patriot Act, which passed the senate 98-1, may be found here. The Patriot Act passed in the House 357-66. If it’s a police state, it’s at least apparently bi-partisan, not Bush’s. Which actually does raise an interesting point.

According to Bloomberg, a substantial part of our current mess began in 1998:

Greenspan, Treasury Secretary Robert Rubin and SEC Chairman Arthur Levitt opposed an attempt by Brooksley Born, head of the Commodity Futures Trading Commission, to study regulating over-the-counter derivatives. In 2000, Congress passed a law keeping them unregulated.

Levitt said he went along with concerns by Greenspan and Rubin that Born’s action might throw derivatives contracts into “legal uncertainty.” He said he now regrets that he didn’t press a presidential advisory group “to take a closer look” at the issue. Rubin said in an interview that “you could have had chaos” if Born’s plan found existing derivatives contracts invalid because they weren’t traded on an exchange. Both Born and Greenspan declined to comment.

Outstanding credit-default swaps, derivative contracts used to hedge or speculate on a company’s debt, would grow to $62 trillion from $631 billion…Ninety percent of the trades were concentrated in the hands of 17 banks.

100x the risk exposure in just ten years. It takes a real spirit of bi-partisanship, not to mention financial entrepreneurship, to get so far so fast. Thanks a lot, fellas.

Martin Wolf in the FT makes some points we generally agree with on the shocking economic statistics pictured above — wealth plummeting and liquidity disappearing:

the idea that a quick recession would purge the world of past excesses is ludicrous. The danger is, instead, of a slump, as a mountain of private debt -– in the US, equal to three times GDP –- topples over into mass bankruptcy. The downward spiral would begin with further decay of financial systems and proceed via pervasive mistrust, the vanishing of credit, closure of vast numbers of businesses, soaring unemployment, tumbling commodity prices, cascading declines in asset prices and soaring repossessions. Globalisation would spread the catastrophe everywhere…Everything possible must be done to prevent the inescapable recession from turning into something worse. Many of the needed actions were laid out in an article on the FT’s Comment page this week by Columbia University’s Jeffrey Sachs. I would stress five points.

First, as Oxford university’s John Muellbauer argues, deflation is a real danger. Yet deflation is lethal for indebted economies. Today, short-term interest rates look far too high in the eurozone and the UK. Central banks need to look at their economies afresh and cut rates by at least 1, and ideally 2, percentage points.

Second, the only way to let the private sector deleverage, without mass bankruptcy and huge falls in spending, is by substituting the asset everybody wants: government debt. Contrary to Professor Sachs, I think tax cuts are indeed part of the solution.

Third, it is crucial that lending be sustained both inside and among economies. Having gone to such trouble to recapitalise banks, governments should insist that their money be used to sustain credit lines to those likely to remain solvent. If banks are unwilling to do this, central banks will have to replace them, as the Federal Reserve is now doing.

Fourth, it is in the vital self-interest of the affected high-income countries to keep hard-hit emerging economies afloat through the crisis.

Finally, it is equally evident that the world will not return to equilibrium if countries in strong financial positions do not expand domestic demand. The day of the housing bubbles and huge current account deficits in high-spending high-income countries is gone. Those who rely on current account surpluses to sustain demand must think again.

Decisions made over the next few months may well shape the world for a generation. At stake could be the legitimacy of the open market economy itself. Those who view liquidation of past excesses as the solution fail to understand the risks. The same is true of those dreaming of new global orders. Let us first get through the crisis.

Art Laffer, whose opinions we often agree with, has a very different view as to what the right course of action is in this situation. Maybe he’s right, maybe he’s wrong, and maybe (in part) he’s trying to sell his new book. Based on our study and understanding of banking and the risks unleashed when high leverage meets panic, and we think that Mr. Wolf has the better argument in our current circumstances. Mr Laffer says that opinions such as ours “will be viewed in much the same light as what Herbert Hoover did in the years 1929 through 1932.” We shall see.