Wintery Knight

…integrating Christian faith and knowledge in the public square

How Margaret Thatcher, the Iron Lady, saved Britain

Here’s an article from the UK Daily Mail with some more details about her.

Margaret Thatcher stood almost alone in driving through the tough policies now credited with saving the economy, secret papers reveal.

The Tory Premier had to take on her predecessor Harold Macmillan, Bank of England governor Gordon Richardson and even her own Chancellor Geoffrey Howe to push through the policies which pulled Britain back from the brink of economic chaos.

Documents released by the National Archives under the 30-year rule show the pressure Mrs Thatcher faced from the Establishment behind the scenes – and the extent to which she was isolated.

In 1980, the year after becoming Britain’s first female Prime Minister, Margaret Thatcher embarked on a controversial programme to revive the moribund economy through deep public spending cuts and strict control of the money supply, intended to stamp out inflation.

He warned that while her programme of cuts might give a ‘sense of exhilaration’ to her supporters, the country was heading for industrial collapse and ‘dangerous’ levels of unemployment.

Macmillan, then 86, sent the letter following a meeting with the Prime Minister at Chequers in August 1980.

He criticised her for abandoning ‘consensus politics’ to pursue radical reforms and ‘divisive politics’, which he said went against the ‘essence of Tory democracy’.

It was Macmillan who coined the phrase ‘you’ve never had it so good’ in 1957 during the long post-war economic boom.

His brand of consensus politics is now credited with contributing to the economic malaise that brought Britain to its knees in the late 1970s.

Years later, in her memoirs, Mrs Thatcher poured scorn on consensus politics, writing: ‘What great cause would have been fought and won under the banner “I stand for consensus”?.’

[...]In 1981, 365 economists wrote to The Times urging Mrs Thatcher to change course and limit the damage caused by the recession.

But she was unmoved, and her tough stance succeeded in reducing inflation from 27 per cent to four per cent in four years, putting Britain on the road to recovery.

Mrs Thatcher’s economic views were heavily influenced by the right-wing Cabinet minister Sir Keith Joseph, with whom she set up the free market think tank the Centre for Policy Studies in 1974.

Both drew on the work of the influential American economist Milton Friedman whose monetary theories challenged the post-war consensus on economic thinking.

I recommend reading the whole article for some more articles where Lady Thatcher had to stand against everyone and hold onto her convictions in the teeth of the majority.

Here’s an article from Forbes magazine that summarizes her effort to turn Britain around.

Excerpt:

It’s hard to appreciate today how desperate Britain’s condition was before Thatcher took office.  Its economy was a laughing stock, the perennial sick man of Europe.  Strikes were endemic and union bosses effectively governed the country.  Her Conservative Party had long ago made its peace with the welfare state and the ethos of high spending and high taxes. While the previous Tory Prime Minister, Edward Heath, wanted to revive Britain, he hadn’t a clue how to do it. In a make-or-break showdown with the coal miner’s union, Heath called a special election under the banner “Who Governs Britain?”  Heath lost and unions’ dominance in Britain seemed secure.

Great leaders have an astute sense of taking advantage of circumstances. Even though Heath had lost two elections, none of the senior party officials would challenge him.  At the time, Thatcher was not regarded as one of the party’s major figures.  But she was the only Tory who firmly believed in free markets and in Britain’s ability to become again a proud nation based on the principles of liberty. She was a devotee of Friedrich von Hayek and Milton Friedman and of the idea of paring back big government and giving free enterprise room to flourish. Astonishingly she beat Heath in a leadership fight in 1975 and led the Tories to victory in 1979.

Immediately she began slashing income tax rates and reining in galloping spending and fighting inflation.  She also exhibited that critical sense of timing. When she took office, she was faced with a potential strike of nurses whose union was demanding huge pay increases. Thatcher compromised in a way that some thought she didn’t have the backbone to turn Britain around.  Instead she was exhibiting a great politician’s sense of knowing when to pick a fight.  Thatcher eventually pushed through major labor union reforms and made it clear she would not tolerate any union riots or violence.  Shortly after Thatcher won reelection, the coal miners union, which had destroyed Heath, decided to take her on. But unlike Heath Thatcher was fully prepared.  The big showdown ensued and Thatcher beat the coal miner’s union resoundingly. It never recovered from that defeat.

Thatcher knew the deadweight on the economy of excessive taxation. She cut the top income tax rate from 98% to 40%. She cut the corporate income tax rate from 52% to 35%.

One of Thatcher’s greatest innovations was the systematic selling off of the government’s business assets, dubbed privatization.  After World War II Britain nationalized enormous swaths of the economy which actions subsequent Conservative governments left largely untouched.  Thatcher sold government companies off and her example has been followed by countless nations around the world.

In the area of privatizations, she did two remarkable things. She sold off much of Britain’s public housing.  An enormous number of Britons, far more than in the U.S., lived in these government-owned buildings. Thatcher pushed the sale of these apartments to occupants at low prices and on very advantageous terms. The purpose was to begin to shift the mentality of people and their dependence on government. Her other smart move was in the privatization of government-owned companies:  offering a significant number of shares to workers at very low prices.  Union leaders hated privatization but their opposition was undermined as their members realized that they could do very well buying cheap shares in these newly-privatized entities.  Here again she was changing peoples’ thinking:  pro-big government workers now saw themselves as share owners, taking on more of a capitalist mentality.

Before Thatcher, many social observers thought that Britain had an ingrained, unchangeable, anti-commercial culture that would forever stand in the way of the country becoming an economic success. Yet within a decade of her taking office, Britain had the most vibrant, large economy in Europe, one even more dynamic, innovative than that of Germany’s.  London became a magnet for entrepreneurs from France, Sweden and elsewhere.

One unchangeable characteristic of a great leader is courage and that means taking career-breaking risks.  Thatcher demonstrated her mettle in the Falkland Islands crisis.  When the Argentinean military dictatorship seized Britain’s Falkland Islands, most military experts felt the Sceptred Isle simply did not possess the military means to take them back. Defying almost the entire political establishment which was haunted by both Britain’s current weakness and the memory of the Suez Canal debacle in 1956, Thatcher declared that the seizure would not stand and that Britain would go to war to take the Islands back. Thankfully she received critical help from the U.S. thanks to in large part the unrelenting efforts of Defense Secretary Caspar Weinberger (who years later became Publisher and Chairman of Forbes). To the surprise of experts, Britain’s military expedition succeeded. The Argentinean military dictatorship fell and democracy was restored in that country.  For Britain the Falklands war was a huge boost to a demoralized nation. To the world it meant that once again tyranny would be resisted.

I recommend reading that whole article. It’s hard not to smile at a woman who clearly loved her country and worked to save it from poverty.

Why good men love Maggie

And now I must offend everyone. See, I have a theory about women. I think that women generally tend to be more beholden to the opinions and fashions of the crowd than men are. It’s not absolute, but it’s maybe two-thirds to one-third, in my experience. I think that it is generally hard for them to hold to their convictions in the face of peer pressure. That’s why so few young, unmarried women are conservative after graduating from college. As soon as they reach college, they are swayed towards liberal views by their need to feel good about themselves and their need to be liked by others. Their views at home were not rooted in real knowledge, they were just fitting in with their families and churches and saying whatever words they were expected to say. And then they go off to college and learn other words to say from another community that uses praise and blame to replace their former convictions with new convictions.

But Maggie Thatcher wasn’t like that. And here’s why:

John Ranelagh writes of Margaret Thatcher’s remark at a Conservative Party  policy meeting in the late 1970’s, “Another colleague had also prepared a paper arguing that the middle way was the pragmatic path for the Conservative party to take .. Before he had finished speaking to his paper, the new Party Leader [Margaret Thatcher] reached into her briefcase and took out a book.  It was Friedrich von Hayek’s The Constitution of Liberty.  Interrupting [the speaker], she held the book up for all of us to see.  ‘This’, she said sternly, ‘is what we believe’, and banged Hayek down on the table.”  (John Ranelagh, Thatcher’s People:  An Insider’s Account of the Politics, the Power, and the Personalities.  London:  Harper Collins, 1991.)

Policies like unilateral disarmament, wealth redistribution and redefining marriage sound good to many women – especially in college, and especially when only one side is presented and the other side is demonized. The only way to resist ideas that feel good and ideas that get you peer-approval is to have formed your own views through independent study. Lady Thatcher’s economic policies were formed through a study of real economists like Nobel-prize-winning economist F.A. Hayek and Nobel-prize-winning economist Milton Friedman. The reason why she was able to hold to her principles is because she knew what she was talking about, and her opponents did not. She didn’t care about feeling good. She didn’t care about what other people thought of her. She knew was right, and that was enough to sustain her in trying times. She had the knowledge, and her opponents couldn’t change her core convictions by trying to shame her. It didn’t work.

Filed under: Commentary, , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Banks foreclosing on churches in record numbers

From Reuters. (H/T Muddling)

Excerpt:

Banks are foreclosing on America’s churches in record numbers as lenders increasingly lose patience with religious facilities that have defaulted on their mortgages, according to new data.

The surge in church foreclosures represents a new wave of distressed property seizures triggered by the 2008 financial crash, analysts say, with many banks no longer willing to grant struggling religious organizations forbearance.

Since 2010, 270 churches have been sold after defaulting on their loans, with 90 percent of those sales coming after a lender-triggered foreclosure, according to the real estate information company CoStar Group.

In 2011, 138 churches were sold by banks, an annual record, with no sign that these religious foreclosures are abating, according to CoStar. That compares to just 24 sales in 2008 and only a handful in the decade before.

The church foreclosures have hit all denominations across America, black and white, but with small to medium size houses of worship the worst. Most of these institutions have ended up being purchased by other churches.

The highest percentage have occurred in some of the states hardest hit by the home foreclosure crisis: California, Georgia, Florida and Michigan.

Christianity requires a certain framework of laws and policies to practice, and churches need to make sure that their flocks vote intelligently in order to maintain an environment where churches can thrive. Part of that environment is economics.

Filed under: News, , , , , , , ,

Bank run in socialist Europe begins

Europe: Annual Budget Deficit as % of GDP

Europe: Annual Budget Deficit as % of GDP

From CNBC.

Excerpt:

Money-market funds in the United States have quite dramatically slammed shut their lending windows to European banks. According to the Economist, Fitch estimates U.S. money market funds have withdrawn 42 percent of their money from European banks in general.

And for France that number is even higher — 69 percent. European money-market funds are also getting in on the act.

Bond issuance by banks has seized up because buyers have gone on strike.

From the Economist’s Free Exchange Blog:

In the third quarter bonds issues by European banks only reached 15 percent of the amount they raised over the same period in the past two years, reckon analysts at Citi Group. It is unlikely that European banks have sold many more bonds since.

Corporate depositors are also pulling their cash.

Free Exchange:

“We are starting to witness signs that corporates are withdrawing deposits from banks in Spain, Italy, France and Belgium,” an analyst at Citi Group wrote in a recent report. “This is a worrying development.”

And there are troubling signs that banks are even running out of collateral to back their borrowings from the European Central Bank .

So far the liquidity of the European Central Bank (ECB) has kept the system alive. Only one large European bank, Dexia, has collapsed because of a funding shortage. Yet what happens if banks run out of collateral to borrow against?

And from the leftist New York Times.

Excerpt:

The flight from European sovereign debt and banks has spanned the globe. European institutions like the Royal Bank of Scotland and pension funds in the Netherlands have been heavy sellers in recent days. And earlier this month, Kokusai Asset Management in Japan unloaded nearly $1 billion in Italian debt.

At the same time, American institutions are pulling back on loans to even the sturdiest banks in Europe. When a $300 million certificate of deposit held by Vanguard’s $114 billion Prime Money Market Fund from Rabobank in the Netherlands came due on Nov. 9, Vanguard decided to let the loan expire and move the money out of Europe. Rabobank enjoys a AAA-credit rating and is considered one of the strongest banks in the world.

American money market funds, long a key supplier of dollars to European banks through short-term loans, have also become nervous. Fund managers have cut their holdings of notes issued by euro zone banks by $261 billion from around its peak in May, a 54 percent drop, according to JPMorgan Chase research.

This is really disturbing. I wonder if any of my economics-minded commenters can explain to me what happens when there is a run on banks. I am guessing that there will be some rioting over benefits as austerity measures are imposed, and interest rates will go up.

Filed under: Commentary, , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

After causing the first recession, Democrats plant seeds of the next recession

From the Competitive Enterprise Institute. (links removed, please see original article for links)

Excerpt:

The Wall Street Journal today writes about how the Obama administration is repeating the “mistakes of the past by intimidating banks into lending to minority borrowers at below-market rates in the name of combating discrimination.” Assistant Attorney General for Civil Rights Thomas Perez has argued that bankers who don’t make as many loans to blacks as whites (because they make lending decisions based on traditional lending criteria like credit scores, which tend to be higher among white applicants than black applicants) are engaged in a “form of discrimination and bigotry” as serious as “cross-burning.” Perez has compared bankers to “Klansmen,” and extracted settlements from banks “setting aside prime-rate mortgages for low-income blacks and Hispanics with blemished credit,” treating welfare “as valid income in mortgage applications” and providing “favorable interest rates and down-payment assistance for minority borrowers with weak credit,” notes Investors Business Daily.

Under Perez’s “disparate impact” theory, banks are guilty of racial discrimination even if they harbor no discriminatory intent, and use facially-neutral lending criteria, as long as these criteria weed out more black than white applicants. The Supreme Court has blessed a more limited version of this theory in the workplace, but has rejected this “disparate impact” theory in most other contexts, such as discrimination claims brought under the Constitution’s equal protection clause; discrimination claims alleging racial discrimination in the making of contracts; and discrimination claims brought under Title VI, the civil-rights statute governing racial discrimination in education and federally-funded programs. Despite court rulings casting doubt on this “disparate impact” theory outside the workplace, the Obama administration has paid liberal trial lawyers countless millions of dollars to settle baseless “disparate impact” lawsuits brought against government agencies by minority plaintiffs, even after federal judges have expressed skepticism about those very lawsuits, suggesting that they were meritless.

Fearing bad publicity from being accused of “racism”, banks have paid out millions in settlements after being sued by the Justice Department, even though they would probably prevail before most judges if they aggressively fought such charges (although doing so would probably cost them millions in legal fees).  A Michigan judge called one proposed settlement “extortion.” These settlements provide cash for “politically favored ‘community groups ” allied with the Obama Administration, and the Journal’s Mary Kissel predicts that “many” of the loans mandated by these settlements “will eventually go bad.”

This is exactly what caused the first recession.

Who caused the first recession?

Here’s a summary of how we got into the first recession – it was caused by the Democrats, and the Republicans tried to stop them.

First, watch this video of Barney Frank obstructing regulators and defending Fannie Mae and Freddie Mac. (H/T Verum Serum)

Now look at this Boston Globe article.

Excerpt:

When US Representative Barney Frank spoke in a packed hearing room on Capitol Hill seven years ago, he did not imagine that his words would eventually haunt a reelection bid.

The issue that day in 2003 was whether mortgage backers Fannie Mae and Freddie Mac were fiscally strong. Frank declared with his trademark confidence that they were, accusing critics and regulators of exaggerating threats to Fannie’s and Freddie’s financial integrity. And, the Massachusetts Democrat maintained, “even if there were problems, the federal government doesn’t bail them out.’’

Now, it’s clear he was wrong on both points — and that his words have become a political liability as he fights a determined challenger to win a 16th term representing the Fourth Congressional District. Fannie and Freddie collapsed in 2008, forcing the federal government to buy $150 billion worth of stock in the enterprises and $1.36 trillion worth of mortgage-backed securities.

Frank, in his most detailed explanation to date about his actions, said in an interview he missed the warning signs because he was wearing ideological blinders. He said he had worried that Republican lawmakers and the Bush administration were going after Fannie and Freddie for their own ideological reasons and would curtail the lenders’ mission of providing affordable housing.

“I was late in seeing it, no question,’’ Frank said about the lenders’ descent into insolvency.

This is not in doubt – this is a known fact. Democrats caused the recession by meddling in the free market.

Democrats caused the recession and Republicans tried to stop them

Here is Barney Frank in 2005 claiming that fears of a housing bubble are unfounded.

Here’s the timeline showing who wanted to regulate Fannie and Freddie, and who blocked their attempts.

Here’s video from a hearing showing Democrats opposing regulations:

That’s right – Republicans wanted to regulate Fannie Mae and Freddie Mac, and Democrats said Fannie Mae and Freddie Mac are “doing a tremendous job”.

Fannie Mae and Freddie Mac had paid the Democrats off handsomely during multiple election cycles, but I’m sure that the Democrats’ opposition to regulations had nothing to do with those political contributions.

The only ones to try and stop the Democrats were George W. Bush in 2003 and John McCain in 2005. Both attempts were blocked by Democrats.

Filed under: Polemics, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Deutsche Bank says 48% of mortgage balances will exceed home values in 2011

Story from Yahoo News. (H/T ECM)

Excerpt:

NEW YORK (Reuters) – The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said on Wednesday.

[...]Covering 100 U.S. metropolitan areas, Deutsche Bank in June forecast home prices would fall 14 percent through the first quarter of 2011, for a total drop of 41.7 percent.

[...]Homeowners with the riskiest mortgages taken out during the housing boom have seen the greatest erosion in equity, in part because they were “affordability products” originated at the housing peak, Deutsche said. They include subprime loans, of which 69 percent will be underwater in 2011, up from 50 percent in March, Deutsche said,

Of option adjustable-rate mortgages — which cut payments by allowing principal balances to rise — 89 percent will be underwater in 2011, up from 77 percent, the report said.

Regions suffering the worst negative equity are areas in California, Florida, Arizona, Nevada, Ohio, Michigan, Illinois, Wisconsin, Massachusetts and West Virginia. Las Vegas and parts of Florida and California will see 90 percent or more of their loans underwater by 2011, it added.

Socialism destroys economic growth. There is no way around it.

Filed under: News, , , , , , , , , , , , , , , , , , , , , , , ,

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