Thursday, March 31, 2011

The War on Fox

Media Matters has announced that it has redefined itself. It will no longer pretend to be a general media watchdog exposing right-wing bias in the mainstream news media. Now it is devoted mainly to taking down Fox News. An early shot in their new guerrilla war on Fox is the release of a clip from a Fox executive admitting that he found speculation that Barrack Obama is a socialist "far fetched" but ran it anyway because of pressure from above. That was written up in a Washington Post piece here under the title "Another major blow to Fox's credibility".

This is a story where what you take away from it depends on what you bring to it. If you dismiss any notion that Obama is a socialist then this is confirmation that Fox's top brass was trying to twist the news.

Before we go any further, we need to ask if there was any reason to believe that Obama is a socialist. If there is no evidence then Fox was lying. If there is evidence then the executive in question was wrong and the Fox brass was right.

There is evidence that Obama had strong socialist tendencies and they come from an unimpeachable source - the President himself. His father was a communist and, even though he had no contact with Barry jr, the President looked to his father for his identity. His first book, "Dreams from my Father" is about Barry jr's search for his father and a black identity. Obama refers to Frank Marshall Davis as a mentor. Davis was a long-time member of the Communist Party USA and wrote for a communist paper. In fact, he was notorious enough that Obama did not list Davis's full name in his book. Obama describes his college days thus:

To avoid being mistaken for a sellout,I chose my friends carefully. The more politically active black students. The foreign students. The Chicanos.The Marxist Professors and the structural feminists and punk-rock performance poets.We smoked cigarettes and wore leather jackets. At night,in the dorms,we discussed neocolonialism, [the socialist, anti-colonialist revolutionary] Franz Fanon,Eurocentrism,and patriarchy. When we ground out our cigarettes in the hallway carpet or set our stereos so loud that the walls began to shake, we were resisting bourgeois society's stifling constraints. We weren't indifferent or careless or insecure. We were alienated.

He was a member of communist and socialist organizations in college.

Obama's time as a community organizer is well-known but most people are not aware that the whole concept of community organizers came from Saul Alinsky, another communist.

There is no question that Obama was a communist in his late teens and early 20s. This is all a matter of public record and the President's own words. It is also a matter of record that he soured on Alinsky and community organizing. The big question is how much of that ideology does he still retain?

During the campaign he made an analysis of the Bill of Rights where he called them incomplete because they did not allow for redistribution. His off-the-cuff remarks to "Joe the Plumber" also showed that he was in favor of redistributing wealth.

So when Fox carried speculation that Obama is a socialist, they had good reason to wonder. Media Matters is disseminating some fibs of their own by ignoring Obama's history.

As an opening shot against Fox, this one fell short of the mark. People who already hated Fox will see it as further justification for their feelings. Fox's supporters already know that it was and continues to be a valid question. Neither side is likely to be moved by this revelation.

Wednesday, March 30, 2011

President Obama and Libya

President Obama's address to the nation on Libya was, at best, disingenuous. He said some things that are questionable and other things that may be true now but are likely to change. For example, he claimed to be taking the middle course between people who did not want the US to be involved and ones who wanted an all-out invasion. I have no idea who the pro-invasion people are and I suspect that Obama made them up in order to make his own actions seem more moderate. Actually, most people who called for a no-fly zone, myself included, expected that it would be just that similar to the no-fly zone established by President Bush (41) in Iraq. The bombs and cruise missiles were a surprise.

Obama talked about turning operations over to NATO. This sounds like we have finished our part. In fact, we will continue to do the heavy lifting in the operation. Remember, we transferred operations in Afghanistan to NATO a decade ago.

The President promises that we will not have any boots on the ground. What will happen if Gadafi's government falls? Will we continue to hold back or will we start supplying peacekeeping forces? The Obama administration has already admitted that we will probably send thousands of troops into Libya to keep the peace and prevent a new Somalia.

The President left the impression that we could expect Gadafi to be overthrown soon. News reports make that seem unlikely. The rebels are literally an armed mob with no military structure. They have no chance against real troops.

So where does that leave us? Will we continue to shield the rebels? Will we broker a peace and get out, allowing the rebels to be slaughtered later? Will we begin arming and training the rebels? Are we sure that they are people we want to be involved with? The Taliban grew out of the Afghan rebels we armed and trained. Could this happen in Libya?

Remember back in the early 1990s we encouraged Saddam's people to rise against him. We implied that we would support them but failed to deliver until their rebellion had been crushed. That is when we established the no-fly zone which we maintained through the Clinton administration until Bush (43) invaded Iraq more than a decade later. Could our current actions in Libya eventually lead to this?

To use the President's favorite verbal tick, "make no mistake," Gadafi is a bad man. He has sponsored terrorism and ruled as a tyrant. Still, this was not enough for five different presidents to do more than drop a few bombs on him. We are only involved in Libya because Gadafi seems vulnerable.

One thing that bothers me. What would Candidate Obama have said if President Bush had taken the same measures under the same circumstances?

Wednesday, March 23, 2011

Why the Republicans Hate NPR

Last week Robert Creamer had a column in Huffington claiming to explain why Republicans hate NPR. He begins by telling how great NPR is and how many people listen to it (around 11% of the population). Then he lists the reasons that he believes that Republicans hate NPR:

First, they hate any successful public sector -- non-corporate venture. It flies in the face of radical conservative belief that the "private sector" always does things better.

{...} Second, the Republicans hate the idea that NPR is drawing listeners from stations owned by corporations like Clear Channel. They are all about "competition" until private corporations have to compete with public sector ventures that can provide superior services for less money and don't have to pay millions in profits to satisfy their corporate task masters.

{...} Third, Republicans want to kill NPR because it presents high quality, unbiased, factually accurate news. These qualities do not sit well with people who want the Rupert Murdoch's and Fox News's of the world to control what the public has the right to hear. They think unbiased news coverage is subversive.

{...} Fourth, the Republicans in the House wanted to attack NPR to throw some red meat to the Tea Party portion of its base.

I disagree with Creamer on most of these points. Note that he is not writing a dispassionate column, not when he tosses around terms loaded terms like "corporate task masters". The fact that he thinks that any news organization is unbiased let alone NPR shows his own biases. That is why the undercover video of NPR executives saying biased things is important.

This is the real reason that Republicans hate NPR. They hate seeing tax money being used to subsidize liberal viewpoints. This, in turn, is why Creamer loves NPR. He sees the world in terms of right and wrong (where Right = wrong). According to his bio, he is also an extreme progressive. His even borrows the term "corporate task masters" from the Marxists. So, from his point of view, is it the government's duty to fund radio stations that tell the "truth". He hates the existence of other points of view and is revolted by the prospect of having to compete with them.

There are better uses of taxpayer's money than subsidizing one set of viewpoints and the existence of these grant gives NPR a veneer of respectability that is unwarranted.

I will agree that this is throwing red meat to the Tea Party

Tuesday, March 22, 2011


President Obama has managed to craft a policy on Libya that no one likes. Obviously the peace lobby hates it but criticism goes much deeper. Nearly everyone in Congress objects to the President launching an attack without first consulting Congressional leaders. Presidents Bush (41 & 43) and Clinton were careful to get Congressional approval before committing armed forces.

Worse, the Arab League and the African League both supported a no-fly zone but have backed off from Obama's use of cruse missiles.

Part of the problem is that the President did not make his case to the American People, or anyone else. He simply ordered the start of hostilities and left the country. This leaves several questions unanswered:

What is our mission? Are we trying to remove Gadhafi? What happens if we succeed and the country descends into chaos? Are we actually helping a pro-democracy movement or are we just inserting ourselves into a tribal conflict?

The Obama administration has talked about turning the operation over to NATO quickly. Will our involvement be reduced or will this just give political cover? Turkey is already balking at NATO exceeding its mandate. What happens if NATO fails to accept responsibility for the mission?

Why did we delay so long? The revolt has been going on for most of a month but Gadhafi's forces have been winning. If we had waited another few days there would have been no rebellion to aid. As it is, members of the Obama administration admit that Gadhafi may still be in office at the end of hostilities.

In 2007, candidate Obama said, "The President does not have power under the Constitution to unilaterally authorize a military attack in a situation that does not involve stopping an actual or imminent threat to the nation." Obviously he changed his mind since then. What changed it? How does he justify this change of heart? The President has cited a UN resolution as his justification. Does this mean that he believes that US resolutions trump Congress and the Constitution?

Why didn't the President cancel his South America tour? He canceled trips to Asia because health care reform was bogged down and because of the BP oil spill. Isn't an attack on Libya on par with those?

And finally, how many people who voted for Obama in 2008 thought that he would involve the nation in a third war after expanding operations in Afghanistan and continuing Bush's policies in Iraq?

Thursday, March 17, 2011

Getting a Grip

Reactions to the Japanese nuclear reactor breakdowns are out of proportion and, in some cases, irrational. Just as the nuclear industry was getting organized again, this threatens to stop it. Eugene Robinson calls it a bargain with the devil. Anne Applebaum asks If the Japanese can't build a safe reactor, who can?

My answer to Robinson is that all of civilization is a bargain with the devil. The EPA just released a report claiming that emissions from coal-fired power plants cause 17,000 premature deaths a year and 11,000 heart attacks. Natural gas burns clean but there are allegations that fracking to release more gas causes earthquakes and contaminates drinking water. Ecologists want an end to undersea drilling after the Gulf Oil spill. Solar and wind generation required huge quantities of toxic rare earth metals. In countries without reliable electricity, wood-burning cook fires are a leading cause of death among women. We have to weigh our alternatives instead of rejecting one because of a well-publicized disaster.

Applebaum gives the Japanese more credit than they deserve. Yes, they have a long history of building earthquake-resistant buildings but these power plants were not designed for a 9.0 quake followed by a tsunami. They were designed 30 years ago to resist a much less powerful quake. This is a failure of imagination. Also, the Japanese are not infallible. The company operating these plants has a poor safety record.

So far, the nuclear disaster is serious but no one has been killed (except a worked who fell from a crane) and only a few injured. This is only a small part of a much larger disaster that killed tens of thousands, left tens of thousands more homeless, and interrupted services to Japan's most populous island. By the standards being applied to nuclear power, nothing should be rebuilt within miles of the coast.

In fact, after all of the attention lavished on New Orleans after Katrina and Haiti after its own earthquake, the news media is showing a surprising lack of compassion for the suffering of the Japanese. This has become a sidebar to the story about the reactors when the two should be reversed.

Wednesday, March 16, 2011

The Economics of Michael Moore

Michael Moore has been pushing the idea that we are not broke so we do not need to make government cuts on any level. His proofs are scatter-shot. He points to the cash reserves that businesses are accumulating and that fact that profits are up. He also points out that the 400 richest Americans are worth more than the bottom 50% combined. "The problem is that we are letting the rich keep too much of their money," he says. Let's take a closer look.

Corporate cash reserves are an interesting place to begin because they are easily misunderstood. Right now they are something over $2 trillion. That sounds like they are hoarding huge amounts of cash that other wise could be stimulating the economy. However, the way that cash reserves are calculated is misleading. Let's say that you have $2,000 in your pocket right now and call that your cash reserve. But, your rent is due and you have to make a car payment. Suddenly that cash reserve doesn't look so big. Corporate cash reserves work the same. Their cash on hand has to cover their payroll and other expenses. In addition, they are required by law to keep certain levels of cash on hand to meet emergencies. Subtract all of that and the corporate cash reserves drop by 75%. That still leaves them higher than normal but not high enough to provide a real stimulus.

What about the rich? If they control so much of the nation's wealth then we should take it away from them, right? Again, this is a lot more complicated.

First, why does the bottom half control so little wealth? Part of this is demographics. People under 30 tend to owe more than they own. When I was in my 20s we rented an apartment. We had two cars and some money in the bank and never missed a payment but, between car loans and student loans, we probably owed more than we were worth. We are a lot better off now. Not counting inheritance, we still have savings and a lot of equity in our house.

This is typical. Younger workers have not had time to accumulate much wealth and have a lot of debt. Even Bill Gates had a year or so when he had to live in his Microsoft office because he couldn't afford an apartment. People in the lower half may never reach the top 400 but most of them will cross into the top third at some point in their lives.

But let's assume that the top 400 have accumulated far too much wealth and we should take it away from them. Their total net worth is still less than the current deficit by around $200 billion and we still have next year's deficit to worry about and they year after that.

It gets trickier. Let's look at Bill Gates. He is currently worth around $56 billion. What if we decided that most of it was undeserved and seized $55 billion? What we would get is a pile of investments, mainly Microsoft stock. The government cannot spend stock so it would have to sell it off but it would not get anywhere $55 billion for it. That $55 billion is based on the current price but a massive sell-off would affect the price. When you dump that much stock it causes the price to drop and once it starts going down, it plunges rapidly. That's what caused housing prices to drop so much - too many people had to sell at any price.

Besides, who is going to buy Bill Gate's Microsoft stock if we also seize most of the assets of the other top 399? They will be selling their investments, also. The international markets would collapse.

Michael Moore insists that we do not need to cut government, we just need to soak the rich but $1.6 trillion is a lot of money. The rich don't have that much pocket change and trying to saddle them with the bill will end up hurting the rest of us. It might be indirect but it will happen. An example was the luxury tax levied on expensive yachts under George H. W. Bush. At the time this looked like a pittance on rich people's toys but most expensive boats are bought by the upper-middle class who take out a mortgage to do it. The tax doubled the required down payment and made these boast too expensive for most people. The boat-building industry saw an 80% drop in sales and the tax ended up reducing tax revenue by more than it raised. Eventually it was repealed.

Let's take one more look at Bill Gates and Moore's assertion that we are letting the rich keep too much of their own money. Gates founded Microsoft in the 1970s. Originally it consisted of three people and one product - a BASIC interpreter. After making a deal with IBM to provide an operating system, the company really took off. Most of Gates' wealth came from his stock in Microsoft. If we let him keep too much of his wealth then how would that have worked? Would we have required him to sell off portions of his holdings whenever they reached some limit? How would that have affected Microsoft? Would it have still grown?

None of that matters in the world of Michael Moore. He sees the world with a Marxist lens that says that wealth is bad and the rich are undeserving. I have no idea how he reconciles that with his own personal worth of $50 million. Would he still make movies if we capped his income at $100,000 per movie?

Monday, March 14, 2011

Some Thoughts on Public Service Unions

I have been a government worker for more than 30 years. When I first started I was covered by a union. Later I was promoted into a classification that the union did not cover. Because of some perceived management abuses, a new professional bargaining group was formed. It was not exactly a union but it acted as one. Even later I was promoted out of the classification this group covered.

All of this gives me some insight on public service unions from the inside and from the near-outside.

I don't see a lot of benefits derived from collective bargaining. The biggest advantages to working for the government - pension, civil service, job security - existed long before public service unions could collectively bargain. Public service unions were legalized in the Kennedy administration. OPERS, the pension plan I am under was founded 75 years ago. Civil Service protections go back to the 19th century.

Originally I was covered by AFSCME. This was at the tail end of the high-inflation years of the last-1970s. I remember that we got cost of living raises every few months, which was good, but that the raises were the same for everyone. I think that they were based on average salary which meant that people who made less than the average saw their income go up faster than inflation while people who made more than the average saw their buyign power decrease. That part was bad.

A few lessons I learned from that period was that unions were more concerned with their own members than with City workers as a whole. At one point the non-uniformed and fire unions had agreed to a wage freeze because of a budget crunch. Some money became available and the administration offered to use it to give everyone an increase. The police union was still negotiating and insisted that they get all of the money.

Later, after I was promoted out of the classifications covered by AFSCME, they were trying to justify something and used the argument that management could afford it because they had been giving "top management" the same benefits that AFSCME got. I got a real laugh out of being included in the term "top management". I supervised one or two people and spent at least 90% of my time doing the same work that they did. Since then management has never quite gotten the same benefits as union members. Thanks AFSCME.

One classification had a single pay rate rather than a range meaning that everyone was paid the same regardless of performance. Management wanted to change this so that high-performers could be rewarded. The union refused, insisting that the raises would only be used to reward management's friends.

Years later the City was in a budget crunch and raises of any kind were hard to come by. To save money, the City promoted a few people to a salaried position so that they would not be paid overtime. This caused them to organize the new group CMAGE which represented professional workers. Promises were made - CMAGE would always be an independent group and it would not require a "fair share" payment. Both of these promises were broken rather quickly. Co-workers still covered by CMAGE (which is now part of CWA) would love to take their vote back.

So my personal experience with unions has not been very positive.

On a different but related subject, teacher unions are warning about increased class size if cuts are made to education. I recently found a picture of my 6th grade class. The class size was 34. It did not feel huge and I never felt like the teacher was overwhelmed and had no time for me. In fact, numerous studies have shown that smaller class size does not help the student.

So why the push for smaller classes and the scare stories about larger classes? Because larger classes are more work for the teachers. It is as simple as that.

Remember that unions exist to benefit their members (and the union leaders, possibly not in that order). They do not exist to benefit the public at large. The largest unions use part of their dues to elect candidates that will support them over the general population. This almost exclusively benefits the Democrats.

Thursday, March 10, 2011

Fox News North?

Robert F Kennedy jr wrote a column that has gotten a lot of coverage claiming that Fox news will not be moving into Canada because they have laws against lying on broadcast news.

This seemed strange when I read it so I did some research. It turns out that RFK jr is misrepresenting things. Fox News has been available in most of Canada for years. What he is really talking about is a totally new venture that has nothing to do with Fox or Rupert Murdoch. It is a new channel called Sun TV that is planned by Quebecor Media which, ironically, is the only cable provider that does not carry Fox.

It is hoping to duplicate Fox's success by carrying "straighttalking news". Because of this, Sun TV is being called "Fox News North". There is no connection with Fox although its founder did have lunch with the Canadian prime minister, Rupert Murdoch and Fox News president Roger Ailes. Sun will get its international programming from CNN instead of Fox.

Sun's premier has been pushed back from Jan. 1 to April 18 but I cannot find any news stories that indicate that this has anything to do with Canadian laws about lying on broadcast news.

UPDATE: The more I think about Kennedy's original column the more it bothers me. His thesis seems to be that it is impossible to have a conservative news channel without lying. The most charitable thing that can be said about is own column is that it gives a false impression yet he still has the nerve to accuse conservatives of lying.

Wednesday, March 09, 2011

Why Do Conservatives Hate Trains?

Slate's David Weigel asks Why do conservatives hate trains? While he makes an effort to quote both sides of the argument, he also laces his column with quotes like this one:

"You need to distinguish between Republicans and conservatives and libertarians when you look at this," says William Lind, the director of the American Conservative Center for Public Transportation. "It's the libertarians who push this crap."
The column makes little effort to follow up on exactly what the "crap" is.

A good chunk of the dispute is found in the fifth paragraph.

Libertarians, of course, have no problem with trains (see, e.g., Atlas Shrugged). They do have a problem with federal spending on transportation, as do many Republicans.

This is exactly right although it is incomplete. The full answer is that Libertarians are against trains because they are expensive luxuries that only exist through government subsidies and duplicate existing transportation. If trains were really superior then private companies would be building them and fares would pay for the service. Instead, the cost of building trains is passed on to the general population and non-riders have to subsidize the cost of tickets or else no one would ever take the train.

The liberal viewpoint is that riding a train is more pleasurable than driving and they are more prestigious than taking a plane or (god forbid) a bus so subsidies are justified. That sort of thinking is why the federal government could only pay for $1 out of every $1.40 spent last year.

The article makes some points about ridership but they are incomplete. Currently, ridership estimates for the various Obama administration high-speed train projects is over-estimated. If gas prices were to rise to $8/gallon then demand for trains would increase dramatically. Would trains break even? Probably not. None of the current rail projects can carry enough people to make a real difference in highway congestion. An huge increase in demand would probably require an expansion in rail capacity and we would eventually be back were we started with deficits and subsidies.

One factor that was never even eluded to in the column is the issue of peak capacity. Highway planners have to plan for peak capacity, otherwise known as rush hour. This means building extra lanes and bypasses. Allowing for peak capacity with trains is more complicated since there is are limits on how many people a train can carry at once. If you require some people to stand for an hour's train ride then they are going to reconsider driving. At some point you have to add more tracks which is very expensive on a per-rider basis. Adding highway lanes is also expensive but they are only needed where congestion is highest.

The biggest reason that peak capacity costs more for trains than for cars is obvious but nearly invisible. With trains, the government provides the entire package. With automotive transportation, the government only provides the roads. The drivers provide the cars and private business provides the refueling infrastructure. This is never figured in when comparing the cost of trains and cars but it explains the real divide between pro and and anti-train advocates.

People living in high-density cities are less likely to have a car and are used to having government-provided transportation take them from one place to another. To them it is only natural that the same service should be offered between cities. People who live in rural or suburban areas use their cars constantly. For any destination close enough for a train, it is easier to drive. They see trains as a drain of their tax money for someone else's use.

Right now the fight is similar to the fight over Obamacare. The goal is to commit so much money to trains that the states have no choice but to continue. Remember that there is a significant string attached to the current spending - a state that stops a rail project or shuts it down once it has been built will have to refund the federal money spent on it. Witht he feds picking up most of the building costs, the annual subsidies to run these lines will never be high enough to cover the funds that would have to be repaid if the line was closed. A few states have recognized this trap and rejected rail spending. California, on the other hand, is committing itself forever.

Update: According to National Review, "The more money California sponges from states that have rejected federal high-speed-rail dollars, the more local support, which is critical for additional funding, seems to be melting away."

Thursday, March 03, 2011

Addicted to Big Government

The heck with oil addiction. We are addicted to big government. Like any addiction it has gone from something that we had control over to something that threatens to control us. It is ruining our finances.

A recent poll shows what I am talking about. People are worried about the deficit but they want programs that affect them preserved. They are only willing to cut services or raise taxes on other people.

The most popular: placing a surtax on federal income taxes for those who make more than $1 million per year (81 percent said that was acceptable), eliminating spending on earmarks (78 percent), eliminating funding for weapons systems the Defense Department says aren't necessary (76 percent) and eliminating tax credits for the oil and gas industries (74 percent).

The least popular: cutting funding for Medicaid, the federal government health-care program for the poor (32 percent said that was acceptable); cutting funding for Medicare, the federal government health-care program for seniors (23 percent); cutting funding for K-12 education (22 percent); and cutting funding for Social Security (22 percent).

The trouble is that the cuts that people are willing to make will not fix the problem. The things they want saved are the real causes for long-term budgetary problems.

How did we get here? In the late 19th and early 20th centuries the popular wisdom was that we could fix all of the world's ills through central planning. By using scientific methods, we could make everything work more efficiently. The ugliness of free markets would be tightly controlled by government and unions. Income would be redistributed from the undeserving rich to the deserving workers.

The ultimate expressions of this movement were communism, socialism, and fascism. The Progressive movement was closely involved with this movement, also which is why many of these themes are still part of the Obama administration. Of course, we never took the plunge into full-fledged centralized government. Instead we have made incremental steps.

One consistent tactic has been to create a limited program then make it grow. When it was established, Social Security only covered half the country. Medicare and Medicaid were much smaller when they were created. Many supporters of Obamacare were open about their goals. They were playing the long game. They are convinced that, once the public starts to receive the benefits of Obamacare it will be impossible to repeal.

At the same time, any time something bad happens there is a rush to "fix" it with new laws. After toys manufactured in China were found to contain toxic materials, Congress passed new laws to protect our children. They also essentially outlaw resell of children's clothes or small-scale domestic manufacture of toys because the required tests are too expensive. This happens constantly on all levels of business. The newest requirement for cars is likely to be a back-up camera which will add $100-$500 to the price of new cars, depending on whether the car already has a video screen or if one will have to be added.

Expanding government is easy. It is always someone else's money. The problem comes when "someone else" turns out to be future taxpayers and the bills come due. That time is rapidly approaching for Medicare, Medicaid, and Social Security. All of these have "trust funds" but these are nothing but bonds that have to be paid from the general fund.

So where do we go from here? People spent decades planning their future around government promises of pension and medical care in their old age. There isn't enough money to pay for these promises but it isn't right to renege on our promises, either.

Like any addiction, quitting will be painful and there are likely to be relapses. But the first step is admitting that we have a problem.

Wednesday, March 02, 2011

Oil and the Economy

It has been less than three years since we saw $4/gallon gas prices but people have already forgotten how this caused the Great Recession. This happened in three different ways.

First, rising oil prices started fears of inflation. People fixated on the cost of filling the gas tank and cut back on other purchases. Air fare also went up making all travel more expensive. The vacation industry was hit especially hard.

But that was minor compared to what happened next. In reaction to rising prices, the Fed raised interest rates. This was their normal response but things had changed since the last time they did this. The housing balloon had happened. This had several sub-components of its own. There was the sub-prime market - people with bad credit ratings who got a mortgage anyway. Most of these people had variable rate mortgages with little equity. The interest rates on their loans had been so low that even a minor increase in interest caused their monthly payments to rise beyond what they could afford. But this was not limited to the sub-prime market. People were treating their homes as ATMs, taking out loans based on the increase in housing values. They were hit just as hard by the rise in interest rates. Unlike previous decades when people had to put down substantial down payments, modern homeowners had very little of their own money tied up in their homes. There was a great incentive to walk away from mortgages that they could not afford. This caused a spike in the number of houses on the market which, in turn, caused a huge drop in house values.

The housing bubble would have burst at some point regardless but it was the rise in interest rates meant to counter inflation (which, in turn was caused by oil prices) that triggered it.

Finally there was the effect on automakers. For years they made their money by selling SUVs. These had low mileage and high profit margins. Chrysler had a line-up of almost nothing but SUVs, most of them getting less than 15 MPG. GM was not much better. Because the economy was beginning to contract, people were reluctant to buy cars and when they did, they bought the wrong cars. The government mandates fleet fuel efficiency. In order to meet this target, the car makers have to sell smaller, more efficient cars. The market does not want these cars so the car makers have to cut their profit margin in order to stimulate sales. In some cases the cars are being sold at a loss. All of this worked as long as they sold enough SUVs but when the market for SUVs evaporated they could not make enough money on the smaller cars. In a way it was only fair that the government had to bail out GM and Chrysler since government mileage requirements contributed to their problems. Regardless, rising gas prices hurt car makers which had a ripple effect through the economy.

When the world economy collapsed the price of oil dropped with it. Now the world economy is recovering and there is political unrest in many oil-producing areas. Oil is expensive again which could act as a brake on the world economy.