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Why Sarah Palin Matters

Contrary to common perception, the American government is full of some very clever people indeed. A simpleton might think that it’s a bad idea for the Federal Reserve to lend billions of dollars that don’t exist, encourage banks to do the same and ask the government to insure the resulting financial system with money it doesn’t have. A dullard might tell you that if the Federal Government spends far more money than it receives year on year there will be long term consequences. A true Neanderthal will point out that if you encourage banks to give loans to people to who can’t afford to pay them back, it might blow up in your face when they, umm, don’t pay them back.

Clever people, though, know better. Their answers are, in order, the Fractional Reserve, Deficit Spending and the Community Re-investment Act.

The re-establishment of sound money and public finances are essential to America’s long term future, but I will, here, only deal with the last item. Everyone knows that the current financial crisis originated in the American ‘sub-prime’ market. A lot of journalistic ink has been spilt discussing the practices of predatory lenders, but that wasn’t the talk a few years ago. Then it was tight-fisted bankers who were alleged to be engaged in “redlining”, a practice in which people from poor and minority communities are refused mortgages. To combat this The Community-Re-Investment Act was passed in 1977, criminalising those who did not give a certain proportion of loans to the subprime market; it was subsequently expanded in 1995.

Their final two pieces of the puzzle were the Housing and Community Development Acts of 1992, which got Fannie Mae and Freddie Mac on board to underwrite and give these subprime mortgages and the establishment of myriad taxpayer funded NGOs, such as ACORN, that would use legal measures to intimidate alleged redliners. The consequence was a massive injection of money into the housing market, generating a housing boom as well as increased home ownership among the desired groups. The loans were parcelled up into little packages and re-sold throughout the financial system. A lot of people with political connections, especially those in the pseudo-private GSEs, Fannie Mae and Freddie Mac, made a lot of money.

Of course, eventually house prices stopped rising, oil and food prices started to do so and millions of Americans decided they either couldn’t or wouldn’t keep up with their monthly payments. Fast forward to now and we have Congress scrapping over a bailout to sort out the resulting mess.

I don’t want to make a partisan point. Washington Democrats are up to their necks in this debacle, but so are many, many Republicans. The Bush administration did try to reform the regulation of Freddie Mac and Fannie Mae in 2005, but it certainly didn’t try hard enough. At some point almost everyone from either party was prepared to cash in, either electorally or financially, from what amounts to the Subprime Pyramid Scam.

So, why is Palin important? When she became Governor of Alaska she promised to sort out two problems. First, a cartel of energy companies that paid almost nothing in tax, received grotesque subsidies and bribed officials to block all competitors; secondly, a corrupt Republican establishment responsible for this and other problems. Palin told the cartel, who were requesting billions of dollars to build a new pipeline, to get lost, introduced competition, taxed the companies at equitable rates and got the new pipeline completed anyway. In so doing she contributed more to meeting America’s energy challenges than literally any other politician alive. She also demonstrated practically the difference between being pro-market and pro-business. As for corrupt Alaska’s Republicans: well, ask them how they feel about her.

Washington is a disgrace. It has spent decades encouraging the poor decisions that caused this crisis and is now proving woefully incapable of even ameliorating it. The Republic has the chance to bring to the White House someone not in the pocket of special interests – be they party, financial, industrial, union or whatever – whose political career is characterised by opposition to the politics of corrupt, crony capitalism that has brought it to this impasse. In all likelihood it will pass up this chance for a smooth talker who rose through Chicago politics by associating with slumlords and machine-politicians and just so happened to be the third largest recipient of bribes (sorry, donations) by Freddie Mac and Fannie Mae last year. When the next, even bigger, bailout comes in 15 years, I hope Americans are glad their President, whoever he or she may be, gives a good interview.

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