I think we should look for an alternative explanation.

We've heard much chatter about Treasury Secretary, Tim Geithner, and Economic Advisor, Larry Summers, both making similar gaffes last week-end, cracking the door open for a "middle-class tax increase." I'd say the probability is low, let's say one in a hundred, that the Former Treasury Secretary and former Harvard President, would make such a gaffe in view of the boss's repeated statements to the contrary. I think the probability is equally low that the current Treasury Secretary and former President of the New York Fed would make such a gaffe. If so, the probability of both doing so is 1 in 10,000-1/100 x 1/100.

Come on folks. I'm supposed to be the naïve one around here. Alternative explanations are in order. What about those boys were testing the water for their boss?

Bob McTeer
Stating the Obvious

When Wal-Mart recently announced support of the employer mandate portion of President Obama's Health Care proposal, a friend of my wife's, a small-business owner, expressed her anger during an extended manicure session. Not one to complain without action, she announced her intention to boycott Wal-Mart, where she had been a faithful shopper for years. She would begin her boycott as soon as she stocked up on some important staples, including washing detergent, fabric softener, and various types of canned goods. Good for her.

President Obama is one of the best speakers (and probably one of the best rhetoricians) I've ever heard. He can put words together like few others can. However, he pulls a few tricks on his listeners that I find insulting to my intelligence. I worry that others might not even notice, so here I go again, stating the obvious.

It is true that the President inherited the financial crisis and resulting recession, and I think it's fair for him to remind us of that from time to time. So far, so good. But all too often, he slips in a little spin to the effect that "the present crisis is the result of eight years of the failed economic policy of the previous administration." At that point there is a brief allusion to tax-rate cuts or trickle-down economics, something that I've never heard anyone advocate.

Another variation goes something like this: "Why would we want to adopt the same policies to get us out of this mess [usually meaning tax-rate cuts] that got us into this mess in the first place."

You've heard other versions of the same theme: since this crisis developed when the previous administration was in office, it was their fault, and every policy they ever espoused was, ipso facto, responsible. That little hide the pea shell game must have a formal name in rhetoric, but I'm satisfied just to call it a lack of common sense and an insult to our intelligence. He knows better, but he thinks we won't.

To belabor the obvious for the record, the financial crisis began when the making of mortgage loans increasingly shifted out of reputable commercial banks and thrifts to mortgage brokers, many of whom made loans that they (and the borrower)  knew, or should have known, could not be repaid, especially after the interest-rate adjusted on the variable-rate mortgages. The brokers got their fees and sold the loans to other financial institutions which "securitized" them or included them in packages of mortgage-backed securities that were sold all over the world. This separation of the decision to make the loan from the bearer of the risk of the loan created a giant moral hazard that few recognized at the time, largely because the activity had moved outside the purview of the established regulators and into no-man's land.

Once the inevitable defaults started, we learned that our financial institutions were much more fragile than we had thought, loaded with too much debt relative to capital. The problem was aided and abetted by rating agencies that gave their stamp of approval to the securities containing toxic waste, and the problem was magnified by side-bets (credit-default swaps) on repayment of these instruments and many others without appropriate reserves put aside to cover possible payouts. It's easy to see how that could happen since those providing the insurance generally assumed they were insuring against a "black swan" event-too remote to worry about.

Regulators were also at fault-not so much because of failure to police institutions in their jurisdiction, but by not noticing and blowing the whistle on the movement of this activity outside any of their jurisdictions. It thrived between the regulatory cracks, and by definition no regulator is in charge of the cracks.

A big part of the policy problem was the government promotion of home ownership to the extent of giving mortgage giants Fannie Mae and Freddie Mac ever higher quotas to meet. Efforts were made to reign in Fannie and Freddie, but they were rebuffed by Congress, which made the problem much bigger by the time it was recognized. So there was some government policy responsibility involved. Unfortunately for the legitimacy of the President's argument, the "previous administration" was the one trying to fix the problem.

My Thanksgiving would be complete if Mr. Obama demonstrates similar wisdom by asking Robert Gates to remain Defense Secretary through the end game in Iraq. He too is ideally qualified, doing an excellent job, and appears to be well along the way to peace with honor, which I define as victory.

During my two years as Chancellor of the Texas A&M University System (November 2004-November 2006), Bob Gates was President of its flagship university, Texas A&M. Bob came to A&M after retiring as Director of the  Central Intelligence Agency, the only Director to have worked his way up through the ranks. In the C.I.A., He served his country under both Republican and Democratic presidents.

At Texas A&M, Bob was devoted to the students. He turned down more than one high-level government job to stay with his kids. He didn't seek the job of Defense Secretary, and its offer caused him much anguish. But, bottom line, Bob Gates is a patriot, and a patriot does what he has to do when his country needs him, especially in wartime. So, off he went with tears in his eyes, leaving behind the university and the kids he loved.

Incidentally, to him, he also had to give up substantial speaking fees and board memberships-he had recently been made Chairman of one of those boards, Fidelity Investments. But the regrets were only for the Aggies.

I've joked that dealing with university faculty was good training for dealing with generals. It was a true joke. I've watched Bob as he methodically thought out plans of action and then had the patience to achieve the necessary buy-in from the stakeholders. He readily allowed the credit for his ideas to be hijacked by others as their own. The goal was always more important than the credit.

They say that university politics is so vicious because the stakes are so low. While university politics swirled around him, he never played that game. I learned not to listen to rumors or innuendo concerning Bob, nor to play the lets-you-and-him-fight game, because he always played it straight.

During a search for a new university president, a wise member of our search committee said that the ideal candidate wouldn't be seeking the job. The ideal candidate is happily doing a good job somewhere else, and we'll have to find and persuade him to come.  

That was how Bob was drafted back into service. He wasn't looking. That may also be true now if the President-elect asks him to stay a while longer. If so, that's just one more reason he's the man for the job.

Let's give thanks this Thanksgiving for patriots like Bob Gates.