Sunday, September 28, 2008

Maybe Someone Does Have a Clue


The Wall Street Journal

September 25, 2008

Internet billionaire Mark Cuban recently suggested that some enterprising author write a book about the market turbulence called "No One Has a Clue What Is Going On and the Whole World Is Guessing."

Maybe the author should just keep the tape recorder on Stephen Schwarzman. The chairman of Blackstone Group was part of a roundtable of roughly 30 finance luminaries at the Waldorf-Astoria on Tuesday afternoon, hosted by the Yale School of Management and co-sponsored by The Wall Street Journal, and he kicked off the audience-participation segment with a nearly all-in-one-breath summary of the causes and effects of the credit crisis:

"It's a perfect storm. It started with Congress encouraging lending to lower-income people. You went from subprime loans being 2% of total loans in 2002 to 30% of total loans in 2006. That kind of enormous increase swept into the net people who shouldn't have been borrowing.

Those loans were packaged into CDOs rated AAA, which led the investment-banking firms [buying them] to do little to no due diligence, and the securities were distributed throughout the world, where they started defaulting.

When they started defaulting, out of bad luck or bad judgment, we implemented fair-value accounting....You had wildly different marks for this kind of security, which led to massive write-offs by the commercial-banking and investment-banking system.

In the face of those needed to raise new equity...which came from sovereign-wealth funds, in part, which then caused political resistance to sovereign-wealth funds, who predictably have withdrawn from putting money into the system....It seemed pretty obvious that would happen. We now find ourselves with a liquidity crisis where fundamentally the cost of money for financial intermediaries [such as investment banks] is significantly in excess of their cost of lending it. So several institutions found themselves in a structurally impossible position. ...Goldman reverted to a banking charter for a lower cost of funds, which today is still not low enough for the business.

"So that's the story of how we got there."

Give Me That Old-Time Religion

By Daniel Henninger

The Wall Street Journal

September 25, 2008

Responsibility! Accountability! Discipline! Oversight! Rules!

The canyons of Wall Street are ringing with Democratic politicians and liberal pundits crying out for the renewal of ancient values and a return to basics. The political right wants market failures to be punished with Old Testament ruin.
So we're all agreed: Standards of behavior matter.

All that remains is to see if this week's left-right consensus on standards can be extended to any corner of American life beyond "CEO pay" and other sitting ducks.

Once we're done imposing Spartan discipline on the dining rooms of Wall Street, how about some of the same for the halls and classrooms of the average inner-city high school? A nation in panic at the sight of banks imploding has yawned for years while the public-school system melted down.

A handful of Supreme Court decisions going back 40 years relaxed standards of oversight for dress codes, comportment, speech and expulsion, and the average school principal or teacher threw in the towel on daily discipline. Not my job.
Many school administrators can relate to the frontline mortgage-lending officers, some of them old-school bankers who used to help young borrowers understand the difference between the real world and probable ruin. That's what high-school principals used to do. No more.

Suddenly, local lenders were toiling (if they survived) in the easier liar-loan world fostered by Congress, Fannie and Freddie and guys with great tans in Los Angeles. The old public-school system, once a tight ship in countless towns, knew that game. The schools learned to shove another class of semi-educated bodies into the street every June and call them "graduates" the same way lenders called zero-down-payment borrowers "homeowners."
This column isn't a rant about the ruined schools. It's about spotting a ray of hope amid the past week's rubble in the financial markets. Something positive has been in the air this election, and all the calls now for a return to financial rectitude is part of it.

On Monday, Barack Obama gave a tough speech on cleaning up Washington. The details may be blather, but the cleanse-the-temple tone was out of a Jerry Falwell sermon circa 1980. He appealed to "our core values" and denounced an "ethic of irresponsibility." Both John McCain and Sen. Obama are selling repentance in politics.

Two months ago, one of the campaign's most important events took place at Saddleback Evangelical Christian Church, the Rev. Rick Warren presiding.Before that in April, Hillary Clinton and Mr. Obama did a "Compassion Forum" at Messiah College in Grantham, Pa. Sen. Clinton talked about feeling the Holy Spirit "on many occasions." Mr. Obama was still wearing sackcloth for "cling to religion."
This election may be won by whichever man looks better riding an economic surfboard the next month, but the campaign's undercurrents are pushing the basics back to the surface.

Yes, politicians will bend to any new wind that blows through, but this past week of financial turmoil has shown there's a strong whiff in the air for the values of the greatest generation. This was the 20% generation. In the post-war years, young couples knew they'd somehow have to save 20% of the down payment on a home mortgage. That's thrift, an archaic word I think is still in most dictionaries.

Push this idea far enough, and you're talking the world of "Ozzie and Harriet" (ABC-TV 1952-1966) versus "Sex and the City" (HBO, 1998-2004). Push further and you arrive at happy Sarah Palin and that family of hers. What Sarah represents produces pushback from the smart-set women on "The View" and big-city comedians and newspaper columnists, all trying to knock Little Miss Muffet off her too-perfect tuffet.

This, in short, is the culture wars -- endless and unwinnable. Until this week. This week revealed that when real money is on the line, even the left starts screaming for old-fashioned standards. Thus rose a shout for regulatory "oversight" of markets, and they don't mean some vague, Googlie "don't be evil." They want tough, punishing rules.

This won't wash. You can't claim, as holier-than-thou politics is now, that sending an army of regulatory storm-troopers into Wall Street will ensure integrity in mere bankers who themselves come from a broader, anything-goes culture.

There's a reason Barack Obama is delivering secular sermons in places like Green Bay, Wis. Green Bay's beef with a culture of corner-cutting predated Bear Stearns. Wall Street hasn't been the only font of wretched excess. More than opportunism has landed this presidential campaign in places that represent standards, like Saddleback in California and Messiah in Pennsylvania. People want standards again because they work -- in business, in schools, in daily life.

In my ear, I can hear one of the four candidates giving a speech connecting Wall Street to the nation's Main Streets. Standards, responsibility, accountability, rules? You bet. Bring 'em all back.I wonder which one of them would give it.

Tuesday, September 16, 2008

Old-School Banks Emerge Atop New World of Finance

By: Carrick Mollenkamp and Mark Whitehouse

The Wall Street Journal

September 16, 2008

More than 200 years after it was born at the base of a buttonwood tree, Wall Street as we have known it is ceasing to exist.

The rapid demise of 158-year-old investment bank Lehman Brothers Hodlings
Inc., together with the takeover of 94-year-old Merrill Lynch & Co., represent a watershed in the banking industry's biggest restructuring since the Great Depression.

For decades, the world of banking was divided largely into two kinds of businesses. Commercial banks took deposits and made loans, eking out a decent return under the burden of heavy regulations designed to protect depositors. Standalone securities firms such as Lehman, Merrill and the now-defunct Bear Stearns Cos. took no deposits and were lightly regulated, freeing them to take big risks and make fat profits at the cost of occasional losses. More recently, some of the biggest institutions, such as
UBS AG and Citigroup Inc., combined the two.

Now, as many securities firms are consumed in the wake of a disastrous foray into financial wizardry, the balance of power is shifting. On the wane are the heavy borrowing and complex securities that financiers embraced in recent years. On the rise is a more old-fashioned business of chasing customer deposits and building branch networks, conducted with the backing of federal insurance programs to keep depositors from pulling out en masse.

Of the five major independent investment banks that existed a year ago, only two --
Goldman Sachs Group Inc. and Morgan Stanley -- remain standing. Two others, Merrill and Bear Stearns, have been acquired by big deposit-taking institutions, Bank of America Corp. and J.P. Morgan Chase & Co. Other giant commercial-banking players, such as Wells Fargo & Co. in the U.S., as well as Germany's Deutsche Bank AG and Spain's Banco Santander SA, have emerged as some of the most powerful players in an industry that is likely to be safer but less lucrative for shareholders.

Banks are heading "back to basics -- to, if you like, the core purpose of the system with less bells and whistles," says Douglas Flint, finance chief at
HSBC Holdings PLC and co-chair of the Counterparty Risk Management Policy Group, a task force of finance executives working on a framework to prevent systemic financial shocks. "There is a recognition that when the dust settles...the construct of the industry will be different."

Evidence of the new importance of bread-and-butter banking is appearing around the globe. Deutsche Bank, which had been focused on building its global investment-banking business, last week agreed to pay nearly €3 billion ($4.3 billion) in a two-stage deal to acquire the 850 domestic branches of Deutsche Postbank AG, the retail banking arm of the German postal system. Santander, which also wooed Postbank, paid £1.26 billion ($2.26 billion) in July for troubled U.K. mortgage lender Alliance & Leicester.

The shift reflects a broader reassessment of how best to do the essential business of banking, which plays a crucial role in the economy by turning their short-term liabilities -- savers' cash and deposits -- into longer-term investments such as mortgages and corporate loans. In recent years, commercial banks moved a lot of that business off their heavily regulated balance sheets and into the realm of securities firms.

The investment banks packaged the loans into an array of ever more complex securities, which they kept on their books or sold to a broad range of investors -- including hedge funds and bank-affiliated funds known as conduits and structured-investment vehicles, or SIVs. To fund their activities, the securities firms and investors borrowed heavily in the commercial-paper market and the so-called repo market, where borrowers put up securities as collateral for short-term loans.

This alternative banking system proved profitable, in part because participants weren't required to meet commercial banks' more rigid reserve requirements against potential losses. But these banks' strategies backfired with the onset of the credit crunch last summer, as heavy losses on mortgage and other investments in some cases proved too much for their thin capital bases, and the markets on which they relied for funding dried up.

A federal bankruptcy-court filing by Lehman on Monday in New York highlights the quick spiral. As of May 31, Lehman depended on repo loans for $188 billion in borrowings. But as the value of the securities Lehman had put up as collateral for the loans fell amid the broader market turmoil, its lenders started demanding extra collateral.

Because the amount it could borrow against its securities kept falling, Lehman was forced to dip ever deeper into its cash reserves, prompting ratings firms to consider cutting its credit ratings, according to the filing. Lehman's efforts this month to raise money by selling an investment-management firm proved too late.

As repo loans and other market-based funding on which investment banks rely becomes more expensive, the question becomes whether independent broker-dealers, unattached to big banks with ample deposits, will survive. "In the coming months, we expect a significant overhaul of all the brokers' business models," wrote Matt King, a credit strategist at Citigroup in London, in a recent report.

The new financial order also highlights the lasting impact of the elimination of the Glass-Steagall Act, a Depression-era law that prevented U.S. commercial banks from doing investment-banking business. The repeal of Glass-Steagall, in 1999, allowed commercial banks to break into the securities business and ultimately gain the heft to compete with the likes of Bear Stearns and Merrill.

This universal banking model has proved hard to manage, with the likes of Citigroup and UBS knitting together a vast empire of operating units. Even so, these and other big deposit-taking banks that are required by regulators to maintain bigger cushions against losses, such as Bank of America, have so far survived the credit crunch better than some of the stand-alone securities firms.

Thanks in large part to government programs that insure them, deposits have been a rare bright spot during the credit crunch. In the U.S., savings and small time deposits -- two important classes of customer money -- stood at $6.9 trillion at the end of August, up 7.6 % from a year earlier, according to the Federal Reserve. In the euro area, total deposits stood at €6.3 trillion as of the end of July, up 12.8% from a year earlier, according to the European Central Bank.
Meanwhile, the U.S. market for the IOUs known as asset-backed commercial paper, a key source of short-term funding for the bank and brokerage industry, has shrunk by more than a third since the crisis began last year, to $780 billion as of Sept. 10.

Sticking to the basic banking model hasn't worked for everyone. Smaller banks in the U.S. and Europe have suffered, in part because they lack the scale and diversification to absorb heavy losses generated by growing defaults on mortgage and corporate loans.
To be sure, some stand-alone investment banks, such as
Goldman Sachs Inc., are well funded. And some innovations and markets will rebound when the credit crunch fades. Consumer debts such as mortgages, credit-card balances and student loans will still be packaged into securities.

But such securitization, analysts say, will likely happen in smaller volumes and in more conservative forms, such as so-called covered bonds. Many of the instruments central to the current crisis were created and sold by banks with no stake in their performance. In contrast, covered bonds have payments that are bank-guaranteed regardless of how poorly the packaged loans perform. Covered bonds are the main source of mortgage-loan funding for banks in Europe, where a $2.75 trillion market has long thrived. Some analysts predict a U.S. market could grow to $1 trillion over the next few years.

"Securitization will play a lesser role for the well-capitalized, highly rated banks," says Ganesh Rajendra, a researcher at Deutsche Bank in London. "But it will still help them manage their capital and risks in many cases."

Internationally, banks that haven't been disabled by write-downs are moving aggressively to buy deposit-rich lenders. Deutsche Bank, which declined the opportunity to bid for Postbank a few years ago, chose to outbid Santander last week in part because it didn't want to see the large retail operation fall into the hands of a foreign rival.

Monday, September 15, 2008

Russia Stock Market Fall Is Said to Imperil Oil Boom


The New York Times

September 12, 2008

Rattled by falling oil prices and the war in Georgia, Russia's stock market has slumped so severely that it now threatens the country’s oil-fueled boom of recent years, economists say.

The benchmark RTS index has lost 46 percent of its value since its peak in May, representing a paper loss of about $700 billion for Russian companies. Much of that decline has come since the war in Georgia and the subsequent war of words with the United States and Europe that unsettled foreign investors, who began withdrawing capital.

On Friday the RTS, which peaked in May at 2,487, rebounded slightly, rising 3.36 percent to close at 1,342. The country’s other main stock exchange, the MICEX, was rose 6 percent on Friday, after weeks of heavy losses.

While initially seen as a problem confined to the Russian stock market, which is volatile in the best of times, the drop in share prices is now spilling over to the real economy. Companies that had pledged shares as collateral for loans, for example, are now facing margin calls, bankers in Moscow say.

“It’s a classic squeeze,” said Roland Nash, chief strategist for Renaissance Capital in Moscow.

The underlying problem for the Russian stock market is that about 80 percent of the shares are in companies exporting commodities with a history of boom-bust cycles. Additionally, the risk premium for investing in Russia has risen with the war.

It is unclear which problem caused more damage. In one indication that Russian politics lubricated the market slide here, however, investors have pulled nearly $5 billion this year from emerging market funds with a heavy Russia weighting, according to EPFR Global, a company that tracks fund flows. By comparison, investments in Middle East and African funds, which are also seen as dependent on commodity prices, have risen this year.

The decline has elicited a response from officials here that economists described as panicky, including a number of plans that would have seemed inconceivable a few months ago.

For next year, Russian officials are projecting federal revenue growth of 1.8 percent, compared with an estimated 13.8 percent this year. Just in the last week, the value of Russia’s hard currency reserves has dropped $8.9 billion. The ruble is down 6 percent since the war in Georgia.

“The government and central bank need to do all they can to ensure inflow of additional financial resources into the financial market,” President Dmitri A. Medvedev
said Thursday. “This is absolutely obvious, and this must be done for sure.”

The finance minister, Aleksei L. Kudrin, who had opposed investing any of Russia’s $573 billion in hard currency reserves in the domestic market during a milder correction a year ago, this week approved of the idea. Mr. Kudrin added Thursday that the government might also tap money in the state pension fund to invest in equities.

In a stop-gap measure, the Central Bank has injected more than $11 billion into the Russian banking system and is intervening to halt the daily decline in the ruble’s exchange rate with the dollar. Investors, however, remained skeptical.

“Going forward, one of the big issues that people have with the Russian market is too much state ownership, too much manipulation,” Rory MacFarquhar, an economist for Goldman Sachs
in Moscow, said in a telephone interview. “Nobody is going to believe that is not politicized.”

Sunday, September 7, 2008

Stage Set for Pivotal Realignment in '08

By Susan Page


September 5, 2008

Sweeping demographic changes in the American electorate are undercutting old assumptions about swing voters and battleground states and making the 60-day general-election campaign that starts this morning even less predictable than usual.

The nation is becoming more racially and ethnically diverse, a diversity that has spread across the country. Aging Baby Boomers remain the biggest generational group in the electorate, but second in size are the Millennials — 18- to 31-year-olds who have distinctive attitudes toward race and politics. In the space of a generation, Americans have seen dramatic changes in the roles of women, the structure of families and the nature of the workplace. There has been a revolution in the technology that delivers information and knits communities.

Presidential nominees John McCain and Barack Obama personify that changing nation in striking ways. In age, race and life experience — even in use of innovative technology in the campaign — they mirror a nation in transition.

Some analysts are predicting that the 2008 election — like the one in 1980 that brought the election of Ronald Reagan as president and set the nation on a more conservative course — looms as a landmark contest in which the country is receptive to change.

"This is a pivotal moment in the sense that the politics is catching up to the demographic changes," says William Frey, a Brookings Institution scholar who analyzes population trends.

Democratic pollster Geoffrey Garin calls Democrat Obama — who's 47, biracial and multiethnic — "the face of the new generation" who has mobilized millions of younger voters this year.

But Garin notes that some, especially older white voters, find Obama's message and background — he is a first-term Illinois senator who spent nearly as long as a community organizer as he has in Congress — unpersuasive and even discomfiting.

In contrast, Republican McCain, a 72-year-old white man and decorated Navy veteran, has represented Arizona in the Senate for a quarter-century.

Their messages contrast, too: McCain attacks Obama for inexperience ("Is he ready to lead?" GOP ads ask) while Obama promises change from what he says are eight years of failed leadership by Republicans.
In some ways, cultural trends have helped both candidates. Obama's hope of becoming the first African-American president has been boosted by younger voters who seem less polarized about race than their elders; his candidacy probably wouldn't have been realistic a quarter-century ago. Changing attitudes about age have helped McCain, who would be the oldest president elected to a first term.
"We no longer say someone is too old or too young" for a job, says Bernadette Budde, a political analyst with the Business Industry Political Action Committee. "We have a culture that believes Tony Bennett and Miley Cyrus have equal amounts to contribute to the world of song."

Both candidates have balanced the demographic makeup of their tickets with their choices of running mates.

McCain picked Alaska Gov. Sarah Palin, a working mother 28 years his junior whose husband is part Alaska Native. Obama picked Delaware Sen. Joe Biden, a white man and six-term senator who is 18 years older than him.

Even so, national campaigns are usually all about the top of the ticket. Will the McCain-Obama election be a turning point in American politics?

Some analysts say yes.

The 2008 race will "prove in part to be a decisive political contest between the old America and the new America. Between the thing we were, and the thing we have been becoming for 40 years or so," Peggy Noonan, a former speechwriter for Reagan, wrote in The Wall Street Journal in June. "I suspect the political playing out of a long-ongoing cultural and societal shift is part of the dynamic this year."
Democratic pollster Celinda Lake sees Obama and Palin as examples of the sorts of candidates who increasingly will emerge in American politics. "This is really the first campaign of the 21st century," she says.

Demographic destiny

Major demographic changes have shaped and reshaped American politics throughout the nation's history.

Andrew Jackson's election in 1828, which forged the modern Democratic Party, reflected the rise of a broader and more raucous democracy as the frontier pushed west and states began to drop restrictions that meant only property owners could vote.
A century later, in 1932, Franklin Roosevelt tapped support from the growing ranks of Irish-American, Italian-American and other ethnic voters as part of a liberal political alliance that would hold the White House for 28 of the next 36 years.

That FDR coalition, which began to crack in 1968, collapsed with Reagan's election in 1980.

The California governor was helped in the campaign by population shifts into the South and West, and to the suburbs from big cities. The South, which had been part of Roosevelt's territory, became a GOP stronghold as white voters abandoned the Democratic Party.
Reagan's conservative alliance has held the White House for 20 of the past 28 years.

There are parallels between this year's election and the one that launched Reagan's presidency a quarter-century ago. In 1980, as now, voters were anxious about the economy and gas prices.

A foreign-policy quandary — then, the Iranian hostage crisis; now, the Iraq war — contributed to their unease. Support for the incumbent party, then the Democrats, was undercut by voters' desire for change.
This time, McCain represents an incumbent Republican Party, but he emphasizes his own desire for change and distances himself from President Bush. Like President Carter did in 1980, McCain attacks his opponent as a risky choice who offers what he calls "the wrong kind of change."

In another similarity to 1980, key groups in the electorate are up for grabs. Reagan attracted white working-class voters in the Midwest, many of them union members, who traditionally had voted Democratic. Since then, those "Reagan Democrats" have become part of the Republican base.

This time, Hispanics, the nation's fastest-growing ethnic group — as a percentage of the population their presence has more than doubled since 1980 — are fiercely contested.

Bush did better than previous Republicans among Latinos in 2004 but Obama now holds a 43-percentage-point advantage among them, according to a survey taken in June and July by the non-partisan Pew Hispanic Center.

Younger voters make up another key group. Obama's appeal among them has created one of the widest generation gaps since political polling became routine a half-century ago.

Voters under 30 are Obama's strongest age group, the USA TODAY/Gallup Poll shows. Voters 65 and older are McCain's strongest age group.

'Pretty good for Democrats'

"Every growing demographic is trending Democratic and every shrinking demographic is trending Republican, from young people to Hispanics to you-name-it," says James Carville, an architect of President Clinton's 1992 victory. "The underlying shifts in demographics portend pretty good for Democrats in the future."
Minnesota Gov. Tim Pawlenty agrees that Republicans need to do more to reach out to new groups of voters.

"The country is changing demographically; it's changing technologically; it's changing economically; it's changing culturally," Pawlenty says. "Republicans need to, not change their values or their principles, but we do need to do a better job of applying them to the emerging issues and challenges and circumstances of our time," he says.

In 1980, 14% of the nation's population was non-white. Now, one in four Americans are in minority groups.

By the middle of the century, racial and ethnic minorities are projected to make up a majority of the U.S. population.
What's not clear is whether those demographic and other shifts have gone far enough to determine November's election.

Indeed, they have created a backlash among some voters.
In a national survey of women sponsored by the advocacy group EMILY's List, one-fifth of those 63 and older called the nation's increasing racial diversity a negative trend.

A similar number felt the same way about the Internet.
In a campaign memo for Hillary Rodham Clinton's presidential bid, posted online last month by The Atlantic and not disputed by Clinton officials, strategist Mark Penn scoffed at the idea that the nation was ready for someone with Obama's background to be president.
"Save it for 2050," he wrote.

'Destabilizing these states'

The changes in who we are, where we live, what we do and how we view the world have altered the political leanings of states once considered solidly in one camp or the other.

The calculations by each candidate of what states he can count on and which ones he can contest are more complicated than they were even four years ago.

"The level of demographic change does have an impact," says Ruy Teixeira, editor of The Future of Red, Blue and Purple America, being published this month.

"These changes are destabilizing these states," Teixeira says. "Just because states voted one way a couple of elections ago doesn't mean they're going to stay that way."

The last several elections have been marked by constancy: From the 2000 election to the 2004 election, 47 of the 50 states were consistently Republican or Democratic. Only Iowa, New Hampshire and New Mexico switched their electorate votes from one party to the other.

This time, however, the Obama campaign is trying to make significant changes in the Democrats' map.

Some states that Democratic candidates traditionally target, including West Virginia and Arkansas, are getting relatively short shrift, but the campaign has run TV ads in 14 states that backed Bush in 2004.

"One of our goals is to wake up on Nov. 4 with as many paths to 270 electoral votes as possible," Obama campaign manager David Plouffe says, referring to the number needed to win the election.

The Obama campaign has tried to build a "bigger battleground," in part by analyzing demographic changes in states that have a large number of African-American voters or have seen an influx of young people or college graduates.

"Virginia, North Carolina, Montana, Alaska — only Sen. Obama could be competitive" in those states as a Democrat, Plouffe said. (He spoke before McCain picked Palin, presumably bolstering the GOP's hold on her home state.)

McCain campaign manager Rick Davis outlines a much more traditional electoral map and scoffs at the idea that Obama can contest states such as North Dakota, Montana and Georgia, where the Democrat is now airing TV ads.

The McCain camp predicts the contest will come down to familiar cliffhanger states such as Florida and Ohio.

Still, McCain's appeal to Hispanics could be crucial, Pawlenty says.
"That could tip the election nationally in a close election," he says. "And that could be the difference as to whether he's president of the United States or not."

Both campaigns are focusing on the emerging Mountain West battlegrounds of Colorado, Nevada and New Mexico.

An influx of young people and other newcomers to Colorado has made the Centennial State a particular bellwether this time, even though it's gone Republican in nine of the past 10 elections.
Meanwhile, economic troubles in Michigan and Pennsylvania, particularly in manufacturing, have roiled their economies and their politics. Both are prime targets for the GOP even though they have voted for the Democrat in every presidential election since 1992.
"The white working class is a declining demographic, but they're still a lot of people, a lot of voters," Teixeira says.

Those voters, particularly older ones, weren't a receptive group for Obama in the primaries.

The GOP also hopes to win Wisconsin and New Hampshire, states that went for Democrat John Kerry in 2004 but where McCain's reformist message could resonate.

"Other elections were more predictable, where you could narrow down the number of states in which you campaign, and you could decide groups to write off — but you can't do that anymore," Budde says.

"I don't think this election fits in a mold."

The Maverick Ticket

By William Safire

The New York Times

September 7, 2008

Samuel Augustus Maverick, Texas rancher of the 1840s, is proudly sitting up in his grave. His name, which has become an eponymous American word, was cited repeatedly at last week’s unexpectedly enthusiastic Republican convention.

“I’ve been called a maverick,” John McCain told his rounded-up party. “Sometimes it’s meant as a compliment; sometimes it’s not.” True enough: old Sam Maverick’s friends said he refused to brand his cattle because it was cruel to animals; competing ranchers said it let him round up and claim all the unbranded cattle in the neighborhood. In an era that has sophisticates displaying designers’ initials, the Americanism maverick now means “one who bears no man’s brand,” or in McCain’s evocation of Thoreau’s metaphor, “marches to the beat of his own drum.”

The Op-Ed page editors yanked this former speechwriter back into harness to assess convention speeches, so here goes:

At the Democrats’ gathering in Denver, the best burst of unremarked writing was the loving introduction of Senator Joe Biden by his son: powerful testimony to the lifelong fidelity of a father after family tragedy. The TV camera’s reaction shot of Michelle Obama wiping authentic tears from her eyes and cheeks was to me the convention’s most moving image.

As opined in this space last week, Barack Obama’s speech the final night brought hosannas from the faithful, but — encumbered by its pretentious stadium setting — did not meet his high rhetorical standard. About the only member of the punditariat who agreed that this season’s emperor of oratory was short on clothes that night was David Broder of The Washington Post, who had the unfair advantage of being objective.

Then came the maverick ticket with its takeover of the change game. Senator Joe Lieberman, avoiding Obama’s error of playing to the multitude of partisans present, looked straight at the camera and spoke effectively to fellow Democrats and independents at home about McCain’s coalition-building work in the Senate. Joe faces heavy punishment for his courage from a vindictive Democratic leader, Senator Harry Reid. Best delivery by a Republican male was by Senator Lindsey Graham, who focused on the wisdom of the “surge” McCain advocated. (Obama was later forced by Fox’s persistent Bill O’Reilly to admit, at long last, that the surge “succeeded.”)

Then the St. Paul convention was hit by Hurricane Sarah and her admirable family. The cliché is that — faced by part of a party long troubled by McCain’s different drumming — the governor of Alaska was able to “energize the base” of social conservatives. The more salient fact is that her skillful speech and joyful demeanor was even more impressive than Obama’s introduction to the Democratic Party four years ago. The establishment-shaking candidate was a happy warrior in the glare of major-league scrutiny. Most of the huge, uncommitted audience at home enjoyed this strong woman’s national audition; the first test of McCain’s gamble paid off.

Though her “lipstick” ad lib got the laugh (and may have offended pit-bull fanciers), she forcefully delivered a Sorensenesque line that crystallized the choice this year’s voters face: “There are those who use change to promote their careers. And then, there are those, like John McCain, who use their careers to promote change.”

The McCain acceptance speech reads better than it was read. The straight talker never has been a smooth orator, but his homely, unprofessional speaking style has a way of underscoring his depth of character. The key word in this campaign is “trust,” and with McCain, what you see is what you get.

One purpose of a speech accepting nomination is to press a candidate’s key strength. That called for McCain to set aside his longtime reluctance to recount publicly his wartime suffering. He was careful not to claim to be owed anything by his country; on the contrary, many viewers learned for the first time of how he was “blessed because I served in the company of heroes,” and was affected for the better by his searing wartime experience, which made him readier to command in the future.
The other purpose was to turn the tables on the early campaign “narrative.” Experience is a useful opening political argument — but it looks backward. “Experience Counts” was Richard Nixon’s static slogan in 1960, but “let’s get the country moving again” — John Kennedy’s winning phrase — looked ahead. That’s the outlook McCain chose to adopt in his speech, which was strong on tomorrow’s education needs.

In willingly taking up the two-edged sword of maverickism; in spelling out his frequent fights against the sclerotic, cozy two-party establishment; in zinging that “big-spending, do-nothing, me-first-country-second Washington crowd”; in choosing an exciting new running mate even as Obama was splashing about in the news media adulation of his smoothly delivered acceptance extravaganza, McCain stiffly stole the clothes of change.

That last paragraph befits a speechwriter’s peroration, not the soberly sage, almost bipartisan analysis I originally intended. Note the incidental pop at “media adulation,” a red flag to the arugula-munching “panjandrums of the opinion media,” in Arthur Schlesinger Jr.’s phrase, gleefully waved by Sarah Palin and most other Republican convention speakers. McCain, who reveled in media-darlingism eight years ago, did not participate in such shooting at literate fish in a barrel.

As one whose only claim to coinage fame is in Spiro Agnew’s 1970 nattering nabobs of negativism, I have an attack dog in that fight (though not a maligned pit bull).

But here’s a question: In light of public opinion of most opinion journalists being down around that of Congress, is it smart politics to bash the news media?

Because Agnew, and later Nixon, ultimately were forced to resign, conventional wisdom now holds that their blast at “elitism” backfired; but it probably played a part in Nixon’s 49-state re-election landslide in 1972. By curtailing the “instant analysis” and having elected opposition leaders on TV to answer presidential addresses, the press back then took much of the punch out of the administration attack.

However, by slamming back furiously today, some of those mainstreaming or blogging in the news media just might be helping to make their critics’ point. We can hope that the winners in tomorrow’s alliteration wars will be the pleasant Pollyannas of positivism.

A Servant’s Heart

By Peggy Noonan

The Wall Street Journal

September 6, 2008

Sarah Palin killed. And more than killed.

Much has been said about her speech, but a few points. "The difference between a hockey mom and a pitbull? Lipstick" is pure American and goes straight into Bartlett's. This is the authentic sound of the American mama, of every mother you know at school who joins the board, reads the books, heads the committee, and gets the show on the road. These women make large portions of America work.

She has the power of the normal. Hillary Clinton is grim, stentorian, was born to politics and its connivances. Nancy Pelosi, another mother of five, often seems dazed and ad hoc. But this state governor and mother of a big family is a woman in a good mood. There is something so normal about her, so "You've met this person before and you like her," that she broke through in a new way, as a character vividly herself, and vividly genuine.

Her flaws accentuated her virtues. Now and then this happens in politics, but it's rare. An example: The very averageness of her voice, the not-wonderfulness of it, highlighted her normality: most people don't have great voices. That normality in turn highlighted the courage she showed in being there, on that stage for the first time in her life and under trying circumstances. Her averageness accentuated her specialness. Her commonality highlighted her uniqueness.

She seemed wholly different from, and in fact seemed a refutation to, all the men of Washington at their great desks who make rules others have to live by but they don't have to live by themselves, who mandate work rules from which they exempt Congress, for instance. They don't live by the rules they espouse. She has lived her expressed values. She said yes to a Down Syndrome child. This too is powerful

What she did in terms of the campaign itself was important. No one has ever really laid a glove on Obama before, not in this campaign and maybe not in his life. But Palin really damaged him. She took him square on, fearlessly, by which I mean in part that she showed no awkwardness connected to race, or racial history. A small town mayor is kind of like a community organizer only you have actual responsibilities. He wrote two memoirs but never authored a major bill. They've hauled the Styrofoam pillars back to the Hollywood lot.

This was powerful coming from Baberaham Lincoln, as she's been called.

By the end, Democrats knew they had been dinged, and badly. After the speech they descended on cable news en masse with the dart-eyed, moist-browed look of the operative who doesn't believe his talking points. They seemed like they were thinking, "I've seen this movie before and it doesn't end well." Actually they haven't seen it before in that Palin is something new, but they have seen it before in terms of what she said.

Which gets me to the most important element of the speech, and that is the startlingness of the content. It was not modern conservatism, or split the difference Conservative-ish-ism. It was not a conservatism that assumes the America of 2008 is very different from the America of 1980.

It was the old-time conservatism. Government is too big, Obama will "grow it", Congress spends too much and he'll spend "more." It was for low taxes, for small business, for the private sector, for less regulation, for governing with "a servant's heart"; it was pro-small town values, and implicitly but strongly pro-life.

This was so old it seemed new, and startling. The speech was, in its way, a call so tender it made grown-ups weep on the floor. The things she spoke of were the beating heart of the old America. But as I watched I thought, I know where the people in that room are, I know their heart, for it is my heart. But this election is a wild card, because America is a wild card. It is not as it was in '80. I know where the Republican base is, but we do not know where this country that never stops changing is.

It all left me wondering if this campaign is about to take on a new shape, with the old time conservatism on one side, and a smoother, evolved form of the old style liberalism on the other.

It doesn't get more dramatic, or dramatically drawn, than that.

I don't like the new media war. I don't like what it has the potential to do to the election, and the country.

The media overstepped. The Republican party resented it. GOP strategists saw a unifying force rising: anger in the base. They too had seen this movie before. They slammed the media. The media shot back: "You're attacking us for doing our job!"

How did the media overstep? By offending people by going so immediately and so personally into issues surrounding Mrs. Palin's family. They did not overstep by digging, by deep reporting, by investigating Palin's professional record.

Campbell Brown of CNN did nothing wrong for instance in pressing a campaign spokesman on Palin's foreign policy credentials. She was unjustly criticized for following an appropriate and necessary line of inquiry. But endless front page stories connected to Mrs. Palin's 17-year-old daughter? Cable news shows that had people insinuating Palin, whom America had not yet even met, was a bad mother, and that used her daughter's circumstances to examine Republican views on abstinence education? That was ugly.

In the end it made Palin the underdog, and gave her the perfect platform for the perfect dive she made Wednesday night.

We have had these old press fights in the past – they were a source of constant tension when I was a child, when Barry Goldwater came forward as a conservative and the press scorned him as a flake, and later when Ronald Reagan came up and the press dismissed him as Bonzo.

But this latest fight commences on a new and wilder battlefield. The old combatants were old school gentlemen, Eric Sevareid and Walter Cronkite; the new combatants are half-crazy cable anchors, the lower lurkers of the Internet, and the anonymous posters on the comment thread on the radical website.

This new war on new turf is not good, and carries the potential of great harm. Everyone really ought to stop, breathe deep, and think.
I am worried they won't. A friend IM'd the day after Palin's speech, and I told him of an inexplicable sense of foreboding. He surprised me by saying he shared it. "Calling all underworlds reporting for duty!," he wrote. "The bed is about to fly around the room, the puke is about to come out." He meant: this campaign is going to engage unseen powers and forces. He meant: this campaign, this beautiful golden thing with two admirable men at the top and two admirable vice presidential candidates, is going to turn dark.

It is starting to look to me like a nation-defining election. And in this it seems almost old-fashioned. 1992 for instance didn't seem or feel nation-defining, not as I remember it, nor did 2000. 1964 did, and '80 did, but they both ended in landslides. Landslide is not what I'm seeing here.

Where are the Democrats going to go? I suspect to foreign policy. In politics it used to be called Tolstoy: war and peace. McCain-Palin will mean more war, Obama-Biden will mean peace.

This campaign is about to become: epic.

John McCain also made a speech. It was flat.

Palin Pitches Sam's Club Tent

By Gerald F. Seib

The Wall Street Journal

September 3, 2008

Republican reformers have been crying out for the party to do more for the ranks of "Sam's Club Republicans" -- that is, working-class GOP voters more comfortable in a big-box store than a country club.

With Gov. Sarah Palin of Alaska as John McCain's running mate, the party now has a new national leader whose personal story resonates precisely with those Sam's Club Republicans.

The question for the reform movement now is whether Gov. Palin and the party can develop an economic message with equal appeal to the party's blue-collar contingent, which has been responsible for much of the party's growth in the last two decades. And on that front, reformers think the party has some work to do.

"On paper, and I'm sure this is partly why the McCain people picked her, she is the prototypical figure for working-class Republicans," says Ross Douthat, author of a new book entitled, "Grand New Party: How Republicans Can Win the Working Class and Save the American Dream."

But, he says, she is "unformed" on economic policy, adding: "I don't think they've really hit on a middle-class-friendly economic agenda."

Regardless of how it plays out, the Palin pick was designed in part to reinforce the image of Republican presidential nominee John McCain as a maverick agent of change who is willing to shake up the party. And it was designed in part to put forth a vice presidential nominee whose profile -- mother, hunting enthusiast with a blue-collar husband -- would appeal to blue-collar Republicans, moderate Democrats and independents the party badly needs to woo this year.

Those happen to be the same goals of reformers within the party who have been clamoring for an updated message. They argue that the party has benefited enormously in the last generation by luring in millions of middle-class and blue-collar Americans who embraced the party's culturally conservative message.

But, the reformers argue, the party's economic message hasn't been adjusted to appeal to these nontraditional Republicans. Now, they say, the party has to speak more directly to them, particularly as Democratic nominee Barack Obama hones a campaign message -- built around a middle-class tax cut -- that is designed to address deep-seated middle-class economic anxieties.

"You can win them over, most of them, on social issues," says Minnesota Gov. Tim Pawlenty, who coined the term "Sam's Club Republicans" several years ago. "But there's a perception that Republicans are rich, stereotypical people who don't care about modest-income folks. It's not true, but I don't think we've done a very good job of translating our ideals and principles into proposals they can understand."

To some extent, Republicans may be the victims of their own policy successes in the last generation -- successes that reformers fear have made the party complacent and entrenched in old policy appeals.

Starting with Ronald Reagan's election as president in 1980, Republicans began campaigning successfully on a formula emphasizing tough military and national-security views, cutting marginal tax rates, reforming the welfare bureaucracy, fighting crime and resisting affirmative action.

But many of the goals embodied in that formula have been achieved in the last generation, even as Republicans keep stressing them, Mr. Douthat argues. Meanwhile, he worries that Republicans may be losing their advantage with the very set of new voters they drew in along the way. "This year," he argues, "Obama owns the middle-class tax-cut issue.

To combat that, Mr. Douthat and other reformers argue for Republicans to adopt a broad and aggressive "family-friendly tax reform." Such a change would be designed to appeal to working-class families by offering a significantly enlarged child tax credit, giving a direct tax break specifically to parents in the middle and lower income brackets.

Taxes on investments also would be kept low, and the top marginal tax rate would be reduced a bit as well. To make up lost revenue -- and keep deficits under control -- the change would eliminate or reduce the deduction now given for state and local taxes, and apply that lower top rate to a larger universe of taxpayers.

For his part, Gov. Pawlenty argues for an updated Republican message to appeal to Sam's Club Republicans on four fronts:

Health care: Gov. Pawlenty contends that, in a new economy, Republicans should do a better job of convincing working-class voters that their approach of having government help workers carry their own private health insurance from job to job is preferable to relying on either employers or a government program.

Energy: Sen. McCain hit on a winning theme with working-class voters on energy this summer by arguing for a suspension of the federal gas tax and pushing for more oil drilling off America's coasts, Gov. Pawlenty argues. That message hit the right note on a "pound-the-table issue" for middle-class voters.

Education: Republicans need to convince blue-collar families that they can build a better education system, because they are coming to realize that in the new global economy "you'd better have an education that leads you to a skill." That means, he argues, that Republicans should stress such policies as performance pay for teachers, school choice, education boot camps to pull up disadvantaged children and development of online courses.

Fiscal discipline: Above all, he argues, people go to Sam's Club because they don't have a lot of money to spend and want "accountability for value." The want the same from government. So, he argues, Republicans have to do more to show financially strapped voters in the middle class they are the party of fiscal discipline, rather than budget deficits.

Douglas Holtz-Eakin, the policy director for Sen. McCain's presidential campaign, agrees. The Republican image right now "suffers from spending money hand over fist, and the perception a lot of that was just lining the pockets of folks who had close political connections," he says.

The looming question is how much Gov. Palin can help articulate a message on these fronts. Her record on economic policy is sparse. She cut property taxes as a mayor and appealed to populist sensitivities by selling a private jet used by the previous governor. And as governor she has claimed to have resisted "earmarks," those congressional appropriations that fund specific projects with federal tax dollars, though news reports from the time indicate she pushed for earmarked funds for her city while a mayor.

That's a mixed picture -- and one she's likely to try to clear up Wednesday night in her own closely watched speech at the convention here.