Tuesday, September 30, 2008

Sigh. Move to the Right

From the AP (several versions of this articles are available throughout the Internet):

WASHINGTON (AP) — Senate leaders have scheduled a vote for Wednesday on the 700 bllion Wall Street rescue plan rejected by the House.

Majority Leader Harry Reid and GOP Leader Mitch McConnell say, however, that they're going to add a tax cut package already rejected by the House on Monday.

The bipartisan move caps a day of behind-the-scenes maneuvering on Capitol Hill over what sweeteners to add to the bill to attract votes from House Republicans.

Reid and McConnell's move may prove popular with Republicans, but it risks a showdown with House leaders insisting that a popular measure extending certain business tax breaks be financed by tax increases elsewhere in the code.

The Senate plan would also raise federal deposit insurance limits to $250,000 from $100,000.

So, the deal that Reid has cut means making the plan more palatable to Republicans rather than to Democrats? How nice. Can we stop moving to the right? These guys LOST. Their leader is a lame duck. They are hated throughout the country. Act like a god damned majority party, would you?

Raising the FDIC insurance limit would help people who already have a lot of money, but it would not benefit the vast majority of the country. How many households have a cool quarter million in cash just sitting around?

What else are they thinking of?
Other ideas include extending unemployment insurance benefits, typically a Democratic goal, but one that appeals to some Rust Belt Republicans. Another Democratic-backed idea would double the property tax deduction taken by people who do not itemize their taxes. And another calls for more spending on transportation infrastructure projects, which would create more jobs. Budget hawks in both parties might object, however.
Extending unemployment insurance when unemployment is on the rise. There's an idea - helping the little guy and gal not starve or freeze this winter. Property tax deductions are nice if you own property and it is worth enough and you make enough to be able to take a deduction. Hmm, that might help me, but not as much as a solid economy all the way around. Spend money on infrastructure. Does this mean things like high speed rail and fixing delapidated bridges?

I myself like the Red Queen's suggestions:
1) We implement Galbraith's plan to eliminate caps on FDIC insurance and we fund the hell out of it. We also fund the hell out of FBI investigations into Bankster crimes. No one trusts a corrupt financial system and when there is no trust there is no credit. We need to implement measures to instill trust.

2) We put in Hillary's HOLC program. But the mortgages that are most at risk. Keep people in their homes and paying something on them. This keeps property values level because the market isn't flooded with foreclosures while we work all the madness out of the standing loans.

3)Universal healthcare NOW. If we can come up with 85 billion for AIG, we can certainly come up with 85 billion for something that has a much more immediate and comprehensive effect on the health and household budgets of every single person in the country.

4)We have to stop living on credit and start paying people what they are worth. We need a national living wage, not minimum wage. Any person working full time should be able to afford the basics of food, shelter, and transportation. Any business that cannot afford to pay a living wage should fail.

5) Restructure corporate write offs. Corporations can take deductions for two things- wages paid to American workers (not including the golden parachutes of executives) and supplies bought from American companies. There is no reason anyone should get a tax break for spending money outside the US.

6) Tax the fuck out of golden parachutes. There may not be a way to limit the top of the wage scale, but we can certainly make it less profitable to ruin a company and then quit running it.

7) Tax the hell out of profits from dirty energy sources to pay for investment in clean energy. Allow companies to bypass the profit taxation if they put the money into green energy R& D directly.
Hey, Harry, here's a plan Democrats can get behind. Oh, right, you're a bipartisan Obamacan, not a Democrat anymore. Any plan that makes the Republicans happy is just fine by you.


Somerby on Nominal Allies

I am working on a big post and don't have anything to add to the general furor over the Hanky Panky. Instead, here is Bob Somerby on Atrios (Duncan Black) changing his reporting on the first preseidential debate to fit the media narrative, my emphais:

One last point about “nominal allies,” for whose likely decency Atrios thoughtfully vouches.

Starting in the summer of 2002, we began to express an unfortunate theme, one we had only begun to ponder: We began suggesting to readers that their nominal allies are often not actual allies. (We tepidly mentioned E. J. Dionne first.) This takes us back to a political era which may now be nearing an end, as American institutions disintegrate. But looking ahead to what may become a vastly changed political landscape, we’ll suggest to readers that the growing inanity of the liberal web makes that entity no ally either. Increasingly, the liberal web is written by and for fly-weights. You’re handed silly, childish tales—silly tales that will make you feel good.

You’re told that you play on a team called The Shirts—and that The Shirts are very good people. You’re told about the vile team called The Skins—and you’re handed endless proof of their troubling ways. Just yesterday, the Post’s Shankar Vedantam did a nice job describing the general way this process works, as he has done many times in the past. (His weekly pieces are true must-reads.) But increasingly, the liberal web is written for rubes. People like Atrios serve you crap sandwiches, assuming you’ll wolf them straight down.

Unfair to Atrios? To tell the truth, we can’t exactly say. But again, just click here to read that third post, the one about the way McCain was treating Obama “on a par with dog shit.” Do you really believe that Atrios thought that? Or was he just serving another thick sandwich—scripting you with the words you should say? Trust us: If you believe he really thought that, there will be many fine meals ahead. For ourselves, we can’t help wondering if the Three Tenors didn’t all learn a catchy new tune.

Their outrage was stirring—by Saturday noon. In real time, it seemed oddly muted.

Nominal versus actual allies. I think this really sums up the way Left Blogistan has been going, PB 2.0 as much as PB 1.0. Perhaps it s an unavoidable outcome of an environment in which partisanship is the ground for all subsequent discussion. Bob Somerby has no respect, let alone love, for John McCain, so his criticism of Duncan's change of story has to do with the integrity of the reporting, particularly reporting that is done in real time and with a wide audience.

Somerby has always and only been concerned with one thing - the lies of the media that serve to defend the debasement and dismantling of our institutions. It is truthiness that has become the lasting institution. Women have certainly found out that unless they embrace the "Bros before Hos" ethos, our presumed allies on the left are nominal, not actual. The Paulson bill gave us another view on this, with a horrifically fascinating mix of reasons for casting this or that vote, all claiming to be in the service of the ordinary citizen.

We need to learn how to pick our allies.


Monday, September 29, 2008


I can't offer any better thinking about the economics side of the Hanky Panky than can be had on Calculated Risk, Krugman, RGE Monitor (Roubini), Interfluidity, naked capitalism and Angry Bear (just to name my favorites), so I won't try. Also, the crew at Corrente is keeping the political commentary coming fast and furious, so pop on over for a smorgasbord of write ups.

In most cases, these various analyses tend to focus on the leadership and their machinations. I want to look a little more closely at the rank and file of the House and what the vote there may indicate.

I've been studying the interactive map at the New York Times, counting up not just how many votes were cast by which party members, but also at geographic distribution. After all, November is not a national election day. It is a day of elections across the nation. Variations between states and regions of states matters.

First let's start with the observation that 19 seats is what the Republicans need to gain to take back the House. As noted by Lambert, there are 31 contested seats in the House this year (not all held by Democrats, of course) and this vote was pretty damn important to the millions of extremely engaged citizens keeping tabs of on the proceedings. There were a truckload of nervous Congress critters on both sides of the aisle this morning.

I took numbers off the NYT map (and I'm having a little problem getting my numbers to add up exactly from the map count. I have one too many Dem yes votes, 2 too few Rep yes votes, 1 too few Dem no votes and one too many Rep no votes) to look at the information from various perspectives.

Of the four regions, only the Northeast (CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT) with 72% of their representatives being Democratic voted more than 50% for the measure, voting 65% yes and 35% no (I'm rounding).

The table shows the % of representative by regions by party affilaition, the total percentage of yes and no votes for that region, then the percent of each party what voted yes or no.

RegionDemRepYesNo%Dem Yes%Dem No%Rep Yes%Rep No

The Northeast Democrats held their percentages best with the least vote defections. This makes sense given the dominance of the New York delegation. What is perhaps suprising given the hatred the Unity Democrats have for Southerners, the Southern Democratic delegation held its numbers next highest, though 13% below the Northeast delegation. In the Midwest, the Democrats saw a greater decline among their numbers compared to the South than did the Republicans. This says to me that Democratic support in the Midwest is softer than support in the South, and representatives feel a greater need to cater to constituents than do Southern representatives. The shocking defections were in the West, where Republican opposition was only a few percentages higher than in the Northeast, while Democratic defections were 26% higher than their Northeastern counterparts. The majority of Western Democratic representatives voted against the measure.

The take away from this data for me is that Democrats in the Midwest and West are vulnerable and feel a need to shore up support. Any perusal of the comment threads on econoblogs show a significant percentage of posters declaring that they will vote against critters who voted "Yes". As I pointed out in the debate post a few days ago, these are mostly Independent white male voters, the kind who are supposed to provide the margin of victory in elections.

What this tells me is that the Democratic leadership is risking losing their majority in the House by forcing such an unpopular and incendiary measure to a vote 5 weeks before the election. The bill will be kept in the public eye with votes for at least another week, and it will be the single most salient issue in the final campaign push nationwide. People are very aware of the connection between the big banks and the foreclosure epidemic. In San Diego, foreclosures and short sales dominate the housing market. The rental market is also affected as landlords lose the houses to foreclosures and renters face a contracting pool of available units. The mortgage meltdown is real, is hurting a lot of people who are not necessarily home owners (anybody whose income depended on home sales), and is going to motivate voters more than culture clash issues.

Simply put, when I'm going broke, I don't like the people who ripped me off to get bailed out.

If the Harry and Barney and Hank and Nancy movie insists on forcing senators to cast a vote on this bill, they are asking for trouble. A "Yes" vote by a Senator facing an election might cause a voter backlash. A "No" vote is a no confidence vote against the leadership, though it might please constituents. A "No" vote for a Republican in a contested seat is a no-brainer - there is virtually no downside and a potentially huge upside if it can garner them just a few percentage points at the polls. What Lambert calls a vacuum at the top is actually some fairly cagey behavior by The Precious to kiss his Wall Street patrons' collective ass by handing them bags of money but be able to claim plausible deniability for the shit sandwich being prepared in the Congressional dining hall. The Democratic leadership is firmly behind Hank Paulson (Bush is a complete non-entity at this point) and the question is how to create a bill with enough lettuce and tomato between the bread and the shit that enough Democrats can be convinced that "organic" is good for them (Yay Whole Foods Nation!); much better to buy prepackaged than to try to assemble the meal themselves in such a short period of time.

Then there is this conference call between Treasury and Wall Street types that the great unwashed was not supposed to hear about. It pretty much confirms that the concessions "won" by the leadership are intentionally toothless, mere formalitieis to manuever around. What happens to candidates who have voted "Yes" based on leadership assurances and then find out it was all a farce and it is just as much a power grab as it was before? Paul Krugman may be assured that Obama will benefit at McCain's exspence with the crisis, but what if the bullshit and kissing up cost the Dems their control of Congress? What policies can we expect to see in that case? Is Mr. Bipartisan going to cave to the High Borderists and give in on more deals, sucha s keeping Hank around to "transition" the job?

It is more than the Republicans playing Lucy and yanking away the football from the hapless Democrats. It is that the Democratic leadership has willingly walked into a situation where cooperation means cooptation and where the populace is united in opposition to the proposed plan. They have cavalierly placed their downticket people at risk to avoid offending the Village rather than driving a real bargain (including delay of everything possbile until Hank has cleaned out his desk and departed in January) that would rebound to the Dems election efforts. Oh, and actually do some good for us peons.

The irony that the Dem majority may be maintained because of the recalcitrance of some whacko Republicans would be funny if it were not such an indictment of the ineffective and demoralizing behavior of our so-called leadership, right up to the guy at the top who doesn't even want to be a Democrat.


The Meaning of Life

I am gathering thoughts and links for posts, and came across this, an intersection of GraphJam and Indexed:

Le Grand Content

It's... odd. Yet appealing.


Saturday, September 27, 2008

Prophylactic Measures

Slowly recovering from whatever has been dogging me the last few days and no longer feel so wrung out. I've been doing small chores all day, and reading over the econoblogs when I need to sit and recover.

There appears to be a consensus among the economists - the Hanky Panky is the financial equivalent of unsafe sex, indiscriminantly spreading way too many vital fluids with no way to track what was inserted where and with what devices. The only certainty is that the taxpayer is going to be thoroughly screwed, and not in a good way.

The divergence (and there's not much) is what is the best response to corral the public health threat. There is general consensus that there is no way to actually keep Hank from screwing around until he can be removed from the street corner he's working. At best, we need to insist that he wear a condom to keep the worst of the Hanky Panky contained, which means oversight. He hates it, it cramps his style, some customers won't agree to the terms, it reduces the sensations they feel and doesn't give them the satisfaction they crave.

After that, there seems to be another consensus - not much we can do until Bush is out of office. Until the madame running the operation is finally hauled off, we're stuck with the situation.
Krugman: On the other hand, there’s no prospect of enacting an actually good plan any time soon. Bush is still sitting in the White House; and anyway, selling voters on large-scale stock purchases would be tough, especially given the cynical attacks sure to come from the right. And the financial crisis is all too real.

Stiglitz: No one expects [Congressional Dems] to address the underlying causes of the problem: the spirit of excessive deregulation that the Bush Administration so promoted. Almost surely, there will be plenty of work to be done by the next president and the next Congress. It would be better if we got it right the first time, but that is expecting too much of this president and his administration.
There is also agreement that some actual treatment of the disease itself in the customers must be undertaken in the form of equity shares, kind of like penicillin to treat the clap, in the hopes of correcting the undercapitalization of the market. The big problem here is that the Hanky Panky is not really interested in changing the terms of the transaction, just getting somebody else to front the money and then take it up the, well, orifice of your choice, almost like asking new hookers to pay the customers for the honor of servicing their diseased and insatiable forms.

The trouble here is that whether the plan is passed in its current form (unlikely) or with a lot of lipstick, a new set of fishnets and a pocket full of Trojans (more likely), or even with a public health worker standing there, not passing judgment but saying you have to swallow the pill before you get the Panky (not gunna happen), the business is left intact, without fundamental modifications and with the restrictions all on the Treasury side.

That is what gets passed down to the next administration. What guarantees do we have from either side that they won't be perfectly happy to let the business go on as it has, with the taxpayer constantly on the hook for buying the latest social disease and curing it? What happens to the idea that we need to build a public health clinic, have better job opportunities so people are not left gambling their long-term safety in this market, and so forth? We're already hearing Unity Dems saying we can kiss pretty much the entire social safety net good-bye because we have to bail out Wall Street.

What we need Democrats to commit to is radical restructuring of the terms of the power relationship, so the public is no longer being prostituted by the government for the sake of the corporate johns.


Interfluidity - Nutcase? Not So Much

Here's a post from one of my favorite econoblogs, Interfluidity.

Why did Friday come early this week?

Okay. So now I reveal myself for what I am. A conspiracy theorist, a nutcase, a crank.

But tell me, why did Friday come early this week?

Isn't it a tradition for bank reorganizations to be announced after market close on Friday nights? Isn't part of the reason for that to give markets time to chill out, think a bit, notice that the ATMs still work and the branches have not been demolished, to let the sun rise and shine for a whole two days, in order to diminish the possibility of people freaking out?

So, here is today's news cycle. Red State Republicans react to a unprecedented popular outrage among their constituents and refuse to get with the program. It is leaked that President Bush solemnly opined, “If money isn’t loosened up, this sucker could go down.”

Was he standing at the teller window with a note about a bomb when he said that?

And, for good measure, the government announces "by far the largest bank failure in American history" with less than 16 hours to market open.

That loud noise, was that the sound of a single gunshot? Have the robbers killed a hostage, to show that they mean business?

Yes, the irony is delicious that Paulson's plan has for the moment been scuttled by the ideologues that his party has cynically nurtured, by the base that the business wing of the party always thought they could play. And yes, the House Republicans' alternatives, as reported by Justin Fox, are laughable.

But that doesn't explain the sequence of events this evening. Nor does it excuse the fact, that if a legislative response to the crisis was so critical, a single deeply flawed proposal was thrown at the Congress a week before adjournment, under terms that basically said "pass this, or else". It is surely coincidental that the plan was the most generous and least disruptive policy possible to industry from which Secretary Paulson hails.

No, I am a nutcase. These are all public servants doing their very best for the American people in a difficult situation. We need to pull together, rise above politics. Our leaders would never manipulate markets to frighten and punish the public so that we fall into line. That could never happen in the United States of America.

I am dark. Secretary Paulson could have offered any number of proposals to help ensure that this collapsing house of cards is a controlled demolition. He and Dr. Bernanke had months to put together policy options, long months between the fall of Bear and the fall of Lehman to create orderly processes for disorderly events they knew could come. At the last moment, they offered one option, a particularly unpersuasive plan imperiously presented as a fait accompli. When Congress balked, they relented and offered a few crumbs so that the people we elected could nibble at the edges without altering the core. And today, when it looks like those crumbs might not have been enough, we have the largest bank failure in American history, announced, oddly, on a Thursday night.

The only difficulty I have with the claim that this is all orchestrated is the years of evidence that the Bush administration is simply incompetant to get anything done right, and only the accident that total disruption of functional regulatory systems is the goal of the Movement Conservatives makes their screw up of all plans appear like it was meant to be that way. WaMu has been going down for months, as anyone who paid attention to lending practices in California could have told you.

But that does not eliminate opportunism as a sufficient explanation for what has happened. Paulson et. al. has fiddled while the nation's financial markets smoldered, and when the flames shot up, saw an opportunity to extort more from the surrounding neighborhoods by threatening to let the fire spread unless they donated to the Firemans' [Big Brass] Balls fund. Not does it preclude a few fine folks in the banking sector from deciding to toss some gasoline on the fire to try to spook the Democratic firewagon horses into making a mad charge out into the taxpayer suburbs.

The deal is falling apart because the batshit crazy conservative Congress critters are foaming at the mouth over socialism and the Democrats are not willing to go down with the ship unless those same crazies are firmly strapped down to the gunwales. Paulson understands that he has only a few days in which to rob the nation blind and the longer it goes, the less likely it becomes that he can take the money and run.

Nah, not a nutcase at all.


Trudeau on Palin

As always, Garry Trudeau is way ahead of the pack on exploring the cultural zeitgeist.

Start here, and read through the week's comics, with the punch line in the Saturday strip.

The basic set up is that BD, a life-long conservative, has purchased a "Sarah Palin Action Doll" for his daughter Samantha (Sam). His wife, Boopsie, is troubled by this purchase.

In six strips, Trudeau manages to illustrate (in every sense of the term) the political and psychological impact of Palin on the national scene. It is spare, funny, and wince inducing. No point along the political spectrum is left unskewered. The Blowback comments show he has gotten under the skin of just about everyone and is being congratulated for positions he's not actually taking.

Trudeau demonstrates once again that he is one of the best political observers around.


Wildly Liberal

Obama certainly doesn't sound like a populist, outraged at our economic crisis.
Persecuted Comrade Anonymouse - commenter on Calculated Risk
I didn't watch or listen to the debate last night partly because I was coming down with something (Um, anyone I was emailing last night, sorry for the incoherence, I really felt like shit) and partly because my own mind is made up about these two clowns.

Instead, I wandered over to Calculated Risk and read the live blog window and (when CR shut down the window) the Haloscan comment thread. The reason I did this was to get away from the opinions of the political blogosphere, which have settled into their respective camps and cliches, and observe what an audience of swing voters had to say.

The readers and commenters on the economics blogs, which I also follow, is much more like the profile of the typical independent voter that each side needs to swing over to win the election - predominantly white, male, libertarian-leaning, anti-political, of varying levels of economic expertise but thinking they are the bomb when it comes to such matters. Here are some quotes I transcribed from the live blog, which was shut down within 20 minutes for lack of substantive discussion of economic issues by the candidates:

- Both of these guys should be thrown out.
- Neither looking presidential
- Turning it off now
- Shady Property Obama and Seven Houses McCain
- Who is less prepared?
- This is a train wreck
- They both lose my vote

In the regular comment thread, I was struck by the quote I used at the start of this post, and by this one: Obama: "Quite [sic] calling me a liberal." That was in response to this answer from Obama, taken from the CNN transcript of the debate (Thanks to Lambert for finding it for me):
Tom -- or John mentioned me being wildly liberal. Mostly that's just me opposing George Bush's wrong headed policies since I've been in Congress but I think it is that it is also important to recognize I work with Tom Coburn, the most conservative, one of the most conservative Republicans who John already mentioned to set up what we call a Google for government saying we'll list every dollar of federal spending to make sure that the taxpayer can take a look and see who, in fact, is promoting some of these spending projects that John's been railing about.

Quit calling me a liberal. Lack of outrage. They both lose my vote. Obama protesting against being called a liberal and finger pointing (as well as sounding like a moron - set up what we call a Google? No, you may call it that, but "we" say "set up a Google search".) (I misunderstood the context - correction h/t Swift Loris) that the other guys spend money, too.

McCain was at least somewhat true to the bastardized Republican legacy of opposing expansion of the Federal government by talking about tax cuts, reduced spending and less government (except for more military), even as it is the absolutely wrong way to go given our national condition. No one expects McCain to say anything different or do any better. What I observed was a keen sense of disappointment that Obama wasn't stronger, more direct, with better responses, offering something concrete on any of the topics discussed.

The consensus in the discussion thread was that the candidates were both crappy, out of touch and mostly incoherent, but that McCain was more successful with his attacks on Obama than the other way around. A number of people commented that if this was the best that Obama could do after intense coaching for the debate, it did not speak well of the candidate. Least prepared presidential debate ever was also said in one form or another several times.

Here's the problem. Why isn't the Democratic candidate prepared to go in there swinging? It's more than just that Obama the individual is not inspiring or prepared (though it is true on both counts). It is that he is a perfect representative of the Unity Democrats' political philosophy. This is not just him up there being a milquetoast whiner. He is as much a reflection of his faction in the Democratic Party as McCain is of the dominant strands in the Republican Party.

What we should have seen was in fact someone who was outraged, who was "wildly liberal" in substance and style, who did not count it among his successes that he worked with extreme conservatives to set up a nickle and dime watch list to try to judge Congress critters on dollar amounts, and instead would blast McCain on the substance of their respective politics.

But that's kind of the problem, isn't it? There isn't that much daylight between the way the Unity Pony types are willing to allow the government to operate and the the way Movement Conservatives want to run it - privatizing risk of all kinds (physical, economic, medical) for individuals and socializing protection for the elite at the top. Think of all those campaign contributions and kick-backs, mmm-mmm good!

If you fundamentally believe things are OK in this country, if you don't diverge that much from the substance of your opponent's political approach and think that the real problem is some partisan troublemakers who need to be more argeeable, this is what your politics will look like.

Me, I could do with somone who is wildly liberal.


Friday, September 26, 2008

Doing the Hanky Panky

Hat tip CR. Nouriel Roubini has been one of the most consistently pessimistic and consistently correct economists on the scene for years. Even The Krug misses stuff that Roubini picks up. Here is an extended quote from a post Roubini made today about the utter, cynical ratfucking failure that is the Hanky Panky (my emphasis):

The Treasury plan (even in its current version agreed with Congress) is very poorly conceived and does not contain many of the key elements of a sound and efficient and fair rescue plan. ... It is a disgrace that no professional economist was consulted by Congress or invited to present his/her views at the Congressional hearings on the Treasury rescue plan.

Specifically, the Treasury plan does not formally provide senior preferred shares for the government in exchange for the government purchase of the toxic/illiquid assets of the financial institutions; so this rescue plan is a huge and massive bailout of the shareholders and the unsecured creditors of the firms; with $700 billion of taxpayer money the pockets of reckless bankers and investors have been made fatter under the fake argument that bailing out Wall Street was necessary to rescue Main Street from a severe recession. Instead, the restoration of the financial health of distressed financial firms could have been achieved with a cheaper and better use of public money.

Moreover, the plan does not address the need to recapitalize badly undercapitalized financial institutions: this could have been achieved via public injections of preferred shares into these firms; needed matching injections of Tier 1 capital by current shareholders to make sure that such shareholders take first tier loss in the presence of public recapitalization; suspension of dividends payments; conversion of some of the unsecured debt into equity (a debt for equity swap).

The plan also does not explicitly include an HOLC-style program to reduce across the board the debt burden of the distressed household sector; without such a component the debt overhang of the household sector will continue to depress consumption spending and will exacerbate the current economic recession.

Thus, the Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown.

So where is the Democratic response to get us these necessary policies and plans?

I have to agree in part with Arthur here that Paul Krugman's column yesterday was seriously underwhelming, though I don't think Mr Shrill is quite the shill for the ruling class as Arthur makes him out to be. However, Arthur's right to slap The Krug upside the head for the lame metaphor of "grown-ups in charge" Which then makes me ask, why Krugman, who pulls no punches with Bush, ends up plaintively calling for someone to be a grown-up and make the Hanky Panky go away?

Because the Democrats have played hanky-panky with the election and the voters for the last year:

han·ky-pan·ky /ˈhæŋkiˈpæŋki/ [hang-kee-pang-kee]–noun Informal.
1. unethical behavior; deceit: When the bank teller bought an expensive car and house, they suspected there might be some hanky-panky going on.
2. illicit sexual relations.
The grown-up was forcibly shoved out of the way by some decidedly juvenile power brokers who were so sure that a Democrat could not lose this year that they could nominate their favorite suck up and win. And now we are stuck with a contest between the His Petulance, The Precious and Old Grandpa Creepy, with Gaffaholic Joe and Soundbite Sarah bouncing along in their surly and shallow wake.

The liberals and party stalwarts are left between the Devil and the deep blue sea. Krugman has to argue in a round about way in support of a plan he himself doesn't like at all because the other guys are even worse. He (and Roubini and a whole host of other top economists) won't say flat out that the Democratic modifications to the plan are also trash and the Democrats need to quit being such mealy-mouthed wankers and present their own plan.

You know, act like the majority party and like leaders who expect to take the White House shortly?

As tonight's pitiful debate demonstrated tonight, there is no leadership at the top of the Democratic ticket. Obama mumbled and whined and waffled his way through the discussion of economics and financial policy. His best points were taken wholesale from Hillary's speeches. He has been 100% ineffectual on this crisis, a spectator to one of the biggest political opportunities in decades. His response has been to cave on every point of contention and preemptively declare of course he'll support whatever sausage comes out of committee. This vaguely centrist let's all sing Kumbayah position has meant he has lost a substantial part of the Democratic base and people like Krugman can't give him a shove for fear of damaging him enough to make him lose the tiny margin he must retain to win the general. He is as fragile politically as McCain is physically.

Hillary is the only political figure of any stature who is standing up to the money grab by the Bushies and offering something beyond a bandaid to staunch the hemorrhaging and let us stagger a little further down the economic road. Again, it's not that Hillary said this, but that she is saying the kinds of things all of the Democratic leadership should be saying. As I've pointed out in my recent posts about her statements over the last year, not just the last week, she has been going after the roots of the problem, which is the structure of power relationships between the financial industry and the individual consumers. You can't merely recapitalize, as necessary as that may be to staving off severe recession. You also have to reoganize and shake these bastards off their perches. If you don't you simply encourage more behavior like this (from Bloomberg):

Unprecedented Power

Erik Brynjolfsson, of the Massachusetts Institute of Technology's Sloan School, said his main objection "is the breathtaking amount of unchecked discretion it gives to the Secretary of the Treasury. It is unprecedented in a modern democracy."

Advocates for a rescue plan this week point to a seizing up of credit markets, reflected in elevated inter-bank lending rates, as reason for action. Some economists are unconvinced.

"I suspect that part of what we're seeing in the freezing up of lending markets is strategic behavior on the part of big financial players who stand to benefit from the bailout,'" said David K. Levine, an economist at Washington University in St. Louis, who studies liquidity constraints and game theory.

This is what playing fast and loose with electoral outcomes does, bargaining away vision and capability to face severe, systemic crisis to be able to put up yet another out-of-touch soulless bipartisan nebbish because Democrats "can't lose" this year.

Actually, they can even win the White House and still lose very, very big because they will not have the will or the leadership to take on the systemic problems facing the nation. They will be saddled with all of Bush's failures and not have a clue of how to get out of it because they see nothing wrong with playing the game.

Hanky panky is what they do best.


Thursday, September 25, 2008

And Promises to Keep

While the Congressional Democrats all seem to be doing the Hanky Panky (which is much like doing the Hokey Pokey, except using the arms and legs of tax payers instead of your own), Hillary continues the themes and promises of her primary campaign. The article in the Wall Street Journal echoes much of what we saw in her Senate speeches of September 18 and September 19, distilling and strengthening what she has been saying for months.

It is Hillary's insistance that, whatever we must do to handle the demands of the moment, we need to radically reconceptualize exactly what the nation is facing:
This is not just a financial crisis; it's an economic crisis. Therefore, the solutions we pursue cannot simply stabilize the markets. We must also deal with the interconnected economic challenges that set the stage for this crisis -- and reverse the failed policies that allowed a potential crisis to become a real one
The failure is not some accident of market forces or a weird alignment of the planets. It is the direct result of deliberate policies that are wrong because they have led us to this end. Then she presents a decent argument for bipartisanship:

The time for ideological, partisan arguments against these actions is over. For years, the calls to provide borrowers an affordable opportunity to avoid foreclosure as a means of preventing wider turmoil were dismissed as government intrusion into the private marketplace. My proposals over the past two years were derided as too much, too soon. Now we are forced to reckon with too little, too late.
We did it your way and your way failed. Now you get to do it our way. You can stop your ideological partisanship that has brought us to this pass. You can abandon your failed policies and deal with the dact that there's a new game in town. Or you can be shut out. I was right, you were wrong. Suck it up and deal.

So, what's wrong? Here is a nice, easy to understand explanation of the economic problem caused by the political policies, and just why the Hanky Panky is not going to fly politically:
As a result, the home-mortgage crisis slowly eroded the value of debt instruments upon which Wall Street firms were depending. That is how this house of borrowed cards began to fall. If we do not take action to address the crisis facing borrowers, we'll never solve the crisis facing lenders. These problems go hand in hand. And if we are going to take on the mortgage debt of storied Wall Street giants, we ought to extend the same help to struggling, middle-class families.
Share and share alike. There is going to be pain, and it is going to be shared, one way or the other. Main Street is in for a world of pain as it is, but Wall Street can share that burden and make it less, or else Wall Street can feel the full pain of its own failure. It all comes down to what is equitable:

Second, American taxpayers should have a voice and a stake in the resolution of this market crisis. If the Treasury proposal is enacted in its current form, the American government would assume enough financial risk to become the majority shareholder in the companies rescued by taxpayer dollars.

The American people are bearing the risk and therefore deserve to reap the rewards of a shared equity model. And mortgage securities bought by taxpayers must be valued accurately at prices disclosed in real time, with checks and reporting requirements to prevent abuse.

For risk, there must be rewards. Isn't that what is said everytime the right screams about the foul crime of taxing the rich? We can't penalize the risk takers! OK, then, that will hold for all risk takers, not just the insiders.

To do this means rethinking the relationships of power, and making explicit the costs and benefits of doing business. These fundamentally are political decisions, not economic ones. The nature of risk and reward are shaped by the deliberate hand of government, not the "invisible" hand of the market:
Third, taxpayers are being asked to bear an unparalleled degree of financial risk. We cannot allow taxpayers to take on this burden so that Wall Street and the Bush administration can hit the "reset button." This historic intervention demands a historic shift in priorities: an end to the broken culture on Wall Street, and the broken economic policies in Washington.
And, finally, she sums up the stakes:
This is a sink-or-swim moment for America. We cannot simply catch our breath. We've got to swim for the shores.
This is a call to action, and an embrace of politics for the sake of the nation. It's not the fiddling of wonks, but a reformulation of how we should think. Put this leadership in front of the kinds of proposals we see from economic thinkers like James Galbraith, Nouriel Roubini and Paul Krugman, and we could be talking a Great Deal.

Unlike the current leadership of the Democratic Party, who are simply bouncing off the Bush proposal like pinballs, accepting the basic terms of the deal and trying to beef up some goodies to help with the November election, Hillary is presenting a vision of what a Democratic economic plan should do. It is not pandering for votes though it is very aware of the needs of constituents found from rural backwaters to Manhattan skyscapers. She may have details wrong, but it is not for lack of trying. It is a committment to use power to make institutions serve public good before private greed.

This is and is not a different person than I saw this time last year when the primary contests revved up. Hillary has always been someone willing to dare to do great things, but the primaries -brutal, rigged, stacked against her as a person in a way I have never seen in 30 years of politics - appear to have scoured her clean of any hesitancy or defensiveness that formerly attended her attempts at great works. Maybe it was seeing the people who needed her to be their advocate. Maybe it was understanding the depth of respect and trust so many of us have in her after the decades of public abuse. Maybe it was knowing that there is nothing for her to lose by simply doing what is right.

Whatever the reason, there is a clear and unwavering voice who makes clear the difference between those who want to play politics and those who want to use it for the public good. It is a political philosophy comfortable with making life better and more secure for ordinary people.

There are miles to go.


Proactive Thinking

James Galbraith has an article in the Washington Post this morning, A Bailout We Don't Need, going into detail on how we don't have to engage in any Hanky Panky to address the financial crisis because it is fundamentally a crisis of confidence, but we do have to address the real structural deficiencies that have led to the discomfiture of the privileged because of the misery of the many. We need an FDR response:

Now that all five big investment banks -- Bear Stearns, Merrill Lynch, Lehman Brothers, Goldman Sachs and Morgan Stanley -- have disappeared or morphed into regular banks, a question arises.

Is this bailout still necessary?

The point of the bailout is to buy assets that are illiquid but not worthless. But regular banks hold assets like that all the time. They're called "loans."

With banks, runs occur only when depositors panic, because they fear the loan book is bad. Deposit insurance takes care of that. So why not eliminate the pointless $100,000 cap on federal deposit insurance and go take inventory? If a bank is solvent, money market funds would flow in, eliminating the need to insure those separately. If it isn't, the FDIC has the bridge bank facility to take care of that.

Next, put half a trillion dollars into the Federal Deposit Insurance Corp. fund -- a cosmetic gesture -- and as much money into that agency and the FBI as is needed for examiners, auditors and investigators. Keep $200 billion or more in reserve, so the Treasury can recapitalize banks by buying preferred shares if necessary -- as Warren Buffett did this week with Goldman Sachs. Review the situation in three months, when Congress comes back. Hedge funds should be left on their own. You can't save everyone, and those investors aren't poor.

With this solution, the systemic financial threat should go away. Does that mean the economy would quickly recover? No. Sadly, it does not. Two vast economic problems will confront the next president immediately. First, the underlying housing crisis: There are too many houses out there, too many vacant or unsold, too many homeowners underwater. Credit will not start to flow, as some suggest, simply because the crisis is contained. There have to be borrowers, and there has to be collateral. There won't be enough. ...

The second great crisis is in state and local government. Just Tuesday, New York Mayor Michael Bloomberg announced $1.5 billion in public spending cuts. The scenario is playing out everywhere: Schools, fire departments, police stations, parks, libraries and water projects are getting the ax, while essential maintenance gets deferred and important capital projects don't get built. This is pernicious when unemployment is rising and when we have all the real resources we need to preserve services and expand public investment. It's also unnecessary. ...

Next, let's think about what the next upswing should try to achieve and how it should be powered. If the 1960s were about raising baby boomers and the '90s about technology, what should the '10s and '20s be about? It's obvious: energy and climate change. That's where the present great unmet needs are.

So, let's use the next few years to plan, mapping out a program of energy conservation, reconstruction and renewable power. Let's get the public sector and the universities working on it. And let's prepare the private sector so that when the credit crunch finally ends, we'll have the firms, the labs, the standards and the talent in place, ready to go.

Some will ask if we can afford it. To see the answer, don't look at budget projections. Just look at interest rates. Last week, in the panic, the federal government could fund itself, short term, for free. It could have raised money for 30 years and paid less than 4 percent. That's far less than it cost back in 2000.

No country in this situation is broke, or insolvent, or even in much trouble. For once, Wall Street's own markets speak the truth. The financially challenged customer isn't Uncle Sam. He's up on Wall Street, where deregulation, greed and fraud ran wild.

Shorter Galbraith: We do not need to follow the irresponsible and greedy response put forward by the Bush administration. We need to do what is right by the country, not hand over the public treasury to Wall Street so they keep their profits and the rest of us pay for the swindle. The country has greater needs than making sure Bush's base is protected.

Hello? Are there any Democrats left in Congress?


Wednesday, September 24, 2008

And If It's the Truth?

I'm trying to deal with cognitive dissonance here. I'm afraid it won't be clever or snarky or particularly thought provoking because I'm really tired and I'm simply at an end of trying to make sense of what passes for politics in the blogosphere.

On the one hand, I'm reading up on Shakesville (via TGW via Falstaff) about an ad running on various "progressive" blogs showing a silhouette of a naked female, the kind you see on the mudflaps of trucks, "pole dancing" against an oil derrick with the caption "Drill, baby, drill!" in mockery of Gov. Palin.

On the other hand, I'm reading up in Corrente that it's the fault of white female voters - and no other demographic - if Obama loses due to their out of control racisim, based on the results of a single AP-Yahoo poll.

Sexism that the guys can't see when it is using classic imagery found on the vehicles of "rednecks" everywhere and racisim that they can pick up even when dog whistled or denied.

When Democratic women say "The Obama camp has run a sexist, mysogynistic campaign," we are told we're wrong, no such thing, there was not any sexism there, except maybe some from Tweety. When Democratic women say, "No, it's not his race, it's his lack of commitment to the programs that matter to us," we are told that, no, we're all just racist bitches, and that it's our fault if he doesn't win.

What does it mean to electoral outcomes if what we Democratic women are saying is simply true? That there is too much encouragement of and reliance upon misogyny as a campaign tactic? That our objections to this candidate really are based on rational economic self-interest, and are not due to his race?

Using shame (shame of being female, shame of being racist) rather than offering benefit is a tactic that may intimidate some, and perhaps win some over who would rather be part of the pack that attacks than one who is attacked, but mostly it engenders resentment. It is nothing on which political solidarity can be founded. Hasn't the Democratic Party learned that it is not enough to run on "I'm not [insert opponent here]"? That was a losing argument against Nixon, Reagan, Bush I and Bush II. Shouting "The other party is worse!" does nothing to address the weaknesses and failings of our own. Put on top of that a very public contempt for the concerns of a large and (until now) unswervingly loyal constituency and this is a recipe for long term, nearly permanent loss of electoral power.

I'll never vote Republican, but for the first time in my life, I feel no desire to vote Democrat, either.

I've written reams of analysis of why the current election is shaping up the way it has and I may be wrong about my judgments on those things, but I know my own thoughts. When I say I won't vote for Obama after the revolting campaign he has run and because he doesn't have anything substantive to back him up, I mean exactly those two things, nothing more, nothing less.

It's just the truth.


Making Shit Up

Paul Krugman on just what the Hanky Panky is all about:
A sneaking suspicion

So now the whole rationale for the plan is “price discovery”: we’re going to throw lots of taxpayer funds into the pot because that will let us find the true values of troubled assets, which are higher than the fire sale prices out there, and so balance sheet will improve, confidence will return, etc, etc..

So I just did a Nexis search trying to find out when Paulson and Bernanke started talking about price discovery, which we’re now told are at the core of the plan’s logic. And the answer is …


I can’t find any use of the term, or even a hint of the argument, until yesterday’s Senate hearings.

One possible explanation. It wasn’t until yesterday that they realized that it would actually be necessary to explain themselves.

But there’s another possible explanation, which I find terrifyingly plausible: the plan came first, and all this stuff about price discovery is an after-the-fact rationalization, invented when people started asking questions.

It has seemed very strange to me that such a supposedly crucial economic program would be based on such an exotic argument. My sneaking suspicion is that they started with a determination to throw money at the financial industry, and everything else is just an excuse.
This is of a kind with Bush & Cheney using the trauma of 9/11 to push through their glorious little war with Iraq. There is a true crisis, though in this case a crisis that has been forseen by good economic analysts for the better part of three years, and the BushCo administration tries to turn it into a an exercise in personal enrichment. In the midst of turmoil, they flat out lie their way into what they want for themselves and screw the rest of us.

Ditch the plan, Democrats. Create one that is realistic and may actually solve the problem. Dare the Chimp to veto it and then run on that veto until November.


Tuesday, September 23, 2008

More Myth Debunking

Time economist writer Justin Fox has a good overview of the arguments of left and right as to the role of the Community Reinvestment Act and the Gramm-Leach-Bliley Act on the current economic circus. He's singularly unimpressed with the howling on either side:

While the Regulators Fiddled ...

It has become an article of faith for many on the left — and some from other political precincts — that the 1999 repeal of the Depression-era Glass-Steagall Act, which separated commercial banks from Wall Street, is directly responsible for our current dire financial plight. Its repeal, argued journalist Robert Kuttner in testimony before Congress last year, enabled "super-banks ... to re-enact the same kinds of structural conflicts of interest that were endemic in the 1920s."

Kuttner may be right about the conflicts, but it's awfully hard to see how they brought on the current mess. In fact, Bank of America's takeover of Merrill Lynch and JP Morgan Chase's of Bear Stearns underscored a truth that was already becoming apparent on Wall Street — super-banks (more commonly known as universal banks) are, for all their flaws, a lot more stable and secure than un-super investment banks.

"If you didn't have commercial banks ready to step in, you'd have a vastly bigger crisis today," says Jim Leach, a Republican former Congressman from Iowa (and current Barack Obama supporter) whose name is on the Gramm-Leach-Bliley Act that repealed Glass-Steagall. Leach is no neutral observer, and there can be no proving that Glass-Steagall repeal has made the world safer. But amid the predictable debate now underway about how much new financial regulation is needed, it just doesn't make a very convincing scapegoat for the crisis.

Also unconvincing is the claim made by some conservatives that the Clinton Administration's 1995 Community Reinvestment Act (CRA) regulations, which pushed banks to lend in poor communities, caused the subprime mortgage lending binge that sparked the current troubles. It's certainly conceivable that Washington's long-held obsession with fostering home ownership helped fuel the housing bubble. But when the subprime lending binge really took off from 2003 to 2006, financial institutions subject to CRA weren't the ones leading the way. Neither were government-sponsored behemoths Fannie Mae and Freddie Mac.

No, starting in 2003, as a long boom in house prices and mortgage lending that had at least some foundation in economic reality (lower interest rates, higher incomes) gave way to an orgy of ever-sharper price increases fueled by ever-dodgier loans, the folks in the drivers' seat were the mortgage brokers that made the loans and the Wall Street investment banks that packaged them into private-label mortgage-backed securities.

And these people were barely regulated at all, at least not in the sense that bankers are regulated. "You had a regulatory mechanism that was targeted very narrowly to prudential regulation of the banking industry," says Gene Ludwig, who as Comptroller of the Currency oversaw the nation's big banks from 1993 to 1998. What that did, Ludwig explains, was to motivate banking companies to move activities to their less-regulated affiliates, and give a leg up to competitors (stand-alone investment firms, hedge funds, mortgage brokers, you name it) that weren't being watched by banking regulators at all.

I think Fox is a little too generous to the content of the Acts (It does matter who benefitted most from them, and the structuring of the benefit was not mistake), but he hits on the same theme I was pointing at the other day - it matters if the administration doing the implementation believes in regulation and the authority of the government to be proactive in defense of the public's benefit.

Now, if the Democrats had any spines, they would seize on this as another point of distinction between themselves and the Republicans, one that is to the benefit of the ordinary person and of the long term financial health of the nation. Of course, that is easier to do if you actually believe in using power explicitly for the benefit of the citizenry as such, and not just those showing visible signs of grace.


Morning Notes

Before I'm out the door and off to work, a few odds and ends:

Bailout Talks Advance, but Doubts Voiced in Congress - NYT article that reflects much of the points I made yesterday. The Democratic revisions of the Paulson pig slop are being characterized as "rancorous" - those bad, partisan Dems. Some Democrats, like Harry Waxman, are disgusted by the whole thing. Republicans are divided, and a big chunk opposes the bill. They are singling out the bankruptcy provision as unacceptable.

Campaign mailers - I got another Obama fund raising letter today. Not. One. Use. Of. Democrat. There is a full color glossy insert "A Tale of Two Conventions" with photos from the convetions and not one thing identifies them as Democrat or Republican. The letter from David Plouffe (gag) mentions Republicans five times, but never breathes the word "Democrat". The letter from Obama doesn't even do that much, vaguely talking about "opponents".

Come one, Democrats, you might as well be shot for a sheep as a lamb. Stand up for something worthwhile and stand up for yourselves.


Monday, September 22, 2008

Partisans and Pigs

I am elbow deep in a project that is consuming most of my free time, so I doubt I'll be posting much this week. Here are a few thoughts on the evernts of the day.

First off, I'm walking back some of the cattiness about Chris Dodd in the last few posts. He has come back with a stronger plan (see Krugman and CR for more knowledegable commentary than I can provide) than I gave him crecit for doing, and has three key points that I think should be non-negotiable for the Democrats:

  1. Equity warrants if the assets purchased are bogus. Krugman thinks this is extremely important. Basically, the government gets it's money back through sales of the assets or equity in the company.
  2. Executive pay and benefits get slapped around by limiting the compensation of the companies that are taking public funds.
  3. What I think is the most significant because it will affect consumers directly, "grant[ing] bankruptcy judges the authority to modify the terms of primary mortgages, a step aimed at helping homeowners at risk of foreclosure." (NYT)

The last provision is the one the administration is shoving back on the most, of course. There are numerous points of oversight, reporting, and regulation in Dodd's proposal, though still probably not enough. Looking at Paulson's "plan", it seems pretty clear to me that it is little more than a bailout of Paulson's own buddies on Wall Street on the one hand, and another bald-faced power grab attempt by the Bush/Cheney administration on the other, making for a breathtakingly pure example of the motivation of the Movement Conservatives - grabbing it all for themselves.

But even Dodd's effort to beat back the demons of stupidity is still failing to redefine the issue on the Democrats' terms. They are not moving boldly, as Hillary has advocated, to redefine the power relationships of the priviliged few to the government and to the rest of us. The Democrats are getting suckered, once again, by the earnest entreaties of the High Borderists to be "bipartisan" and to "set aside politics" to address the crisis as quickly as possible. Shorter Broderism - give Hank what he wants and quit being obstructionist! The Democratic leadership is afraid to challenge Bush and the Republicans directly this close to the election, allowing their consent to be bought through "concessions" on a plan that was moronic on the face of it. The Dems are, as usual, trying to mitigate the shit sandwich presented by the Republicans instead of whipping up a tasty pastrami on rye with a side of jicama slaw in opposition. All they can do is drag the proposal slightly less to the right and get their hands covered in the effleunt oozing from the sandwich.

And they are screwed. If they have nothing significantly different of their own to offer (and Dodd's proposal is pedestrian, good mostly in comparison to Paulson's deposit on the great shitpile), then they have tied themselves to Bush's toxic administration in yet another way. Their partisanship can be priced - it is the revolving credit line on $700 billion less the depreciation of assets and a few mostly symbolic cuts to CEO pay. Compare this to the McCain strategy, as discussed by Ed Kilgore, "The GOP's Bottomless Crack Pipe":

The general expectation this week is that the Paulson Plan for avoiding a worldwide financial meltdown, with an uncertain number of modifications, is going to pass Congress overwhelmingly, and recede into the background in the presidential campaign.

I don't know about that.

Every Democrat should read Patrick Ruffini's post from yesterday at NextRight. He is, I strongly suspect, perfectly reflecting the game that Republicans, including Team McCain, want to play with the Paulson Plan:

Republican incumbents in close races have the easiest vote of their lives coming up this week: No on the Bush-Pelosi Wall Street bailout.

God Himself couldn't have given rank-and-file Republicans a better opportunity to create political space between themselves and the Administration. That's why I want to see 40 Republican No votes in the Senate, and 150+ in the House. If a bailout is to pass, let it be with Democratic votes. Let this be the political establishment (Bush Republicans in the White House + Democrats in Congress) saddling the taxpayers with hundreds of billions in debt (more than the Iraq War, conjured up in a single weekend, and enabled by Pelosi, btw), while principled Republicans say "No" and go to the country with a stinging indictment of the majority in Congress....

In an ideal world, McCain opposes this because of all the Democratic add-ons and shows up to vote Nay while Obama punts.

History has shown us that "inevitable" "emergency" legislation like the Patriot Act or Sarbanes-Oxley is never more popular than on the day it is passed -- and this isn't all that popular to begin with. All the upside comes with voting against it.

Ruffini is exactly right about the politics of this issue, especially for Republicans. Think of this as like one of those periodic votes on raising the public debt limit. It has to pass, of course, but there's zero percentage in supporting it for any one individual. The speculative costs of the legislation actually failing are completely intangible and ultimately irrelevant, while the costs it will impose are tangible and controversial from almost every point of view. For McCain and other Republicans, voting "no" on Paulson without accepting the consequences of that vote is the political equivalent of a bottomless crack pipe: it will please the conservative "base," distance them from both Bush and "Washington," and let them indulge in both anti-government and anti-corporate demagoguery, even as Democrats bail out their Wall Street friends and big investors generally. You simply can't imagine a better way for McCain to decisively reinforce his simultaneous efforts to pander to the "base" while posing as a "maverick."

Democrats are right to demand significant substantive concessions before offering their support for the Paulson Plan. But just as importantly, they need to demand Republican votes in Congress, including the vote of John McCain. If this is going to be a "bipartisan" relief plan, it has to be fully bipartisan, not an opportunity for McCain to count on Obama and other Democrats to save the economy while exploiting their sense of responsibility to win the election for the party that let this crisis occur in the first place.

What, get McCain to agree to be bipartisan and vote in a way that hurts his electoral chances? What do you think he is, a Democrat? Kilgore falls face first into the bullshit trap that is "bipartisanship", namely, that it means Democratic capitulation to Republican demands. For Republicans to refuse to concede shows that they are committed to principle, can't be bought, standing up for what is Right, and other gag-inducing cliches.

Pelosi-Bush Wall Street Bailout. Bingo. Bush drags us into the sewer, Democrats frantically try to drag the nation back to shore, and the Republicans get to both have their political obstructionist cake and eat their financial giveaway pie, too. But I think it is even more ugly than that.

  1. The Democrats labor away at patching the worst of the holes in the Paulson plan, to which Hank "reluctantly" agrees, secretly chortling away at how many goodies he gets to have. They get the few provisions Dodd has set out.
  2. Anti-Bush (yes, Bush is "too liberal" for these folks) Republicans refuse to vote for the pig (with or without lipstick), screaming about government bailouts. It allows them to look like they give a crap about ordinary people. Many people will object to the plan as too much money for the underserving Wall Street types.
  3. McCain distances himself from Bush and reinforces the "Maverick" brand. Spends the next few news cycles talking about the love affair Wall Streeet has with Obama. Says he wants (mumble, mumble, mumble) to help the ordinary citizen.
  4. The Democrats and a few Republicans pass the pig, and it hits Bush's desk.
  5. BUSH VETOS IT. Says that is is full of Democratic pork barrel politics, and that he can't sign it. Demands it get rewritten to take out the "special interest" "political" measures. Bemoans the Democrats' unwillingness to forego politics "for the good of the nation."
  6. Democrats lack the the votes in Congress to over-ride the veto.
  7. It is now October. They look weak, ineffectual. McCain rails against "buy outs" and "kissing up to Wall Street." Can't actually offer anything of his own, but that's not the point.
  8. The Village starts the bipartisan haka, terrified at the sight of their dwindling portfolios. Wall Streeet is threatening to withhold their checks from The Precious, screaming that won't they just please get this crisis resolved?
  9. The Democrats are left holding the bag, unable to pass something that will actually help people, unwilling to go down fighting for something that is unapologetically FDR Democratic.
  10. Just weeks before the election, they shamefacedly walk back their few partisan measures and agree to most of Paulson's original plan, reserving just a few of the oversight measures.

Thre's nothing besides the bankruptcy judge provision that Bush can't actually live with and it is not enough of an issue on which to hang an entire rejection of the plan - which, like GLBA, they don't actually object to all that much.

The key for me here in Kilgore's analysis is that McCain can play to his base with opposition to the bill, but the Democrats won't decide which of their bases they actually want to appeal to, the Whole Foods Nation (WFN) types and upper class technocrats populating the white collar world or the middle and working class Main Street folks who may have a crappy little 401(k) tucked away somewhere, but whose wealth is spiraling down the drain on depreciating home values. A real solution that does help the homeowners would also, in the long run, help the technocrats.

Both of these groups have speculated in markets, trying to make up for the economic ground lost under Reagan, Bush I and Bush II, and both made risky investments. For the Whole Foods shoppers, they are looking at a future earnings loss that they want their legislators to forestall with this intervention. For the IGA shoppers, they are now being thrown out of houses when the investment failed to appreciate, their losses very much of the moment. The line is not so neatly drawn, of course, many WFN people having made bad real estate purchases, more than a few IGA shoppers coldly intending just to skim cash from NINJA loans. But for many, this was a chance at real wealth, the kind they could not get through their 9-to-5 shifts and trying to raise three kids. The paper losses of the upper middle class may not be recovered (And the capitalist pigs will oink, oink their way to new wealth), but they are still that much higher up the ladder than those who have zero wealth outside of their property. Even a total FDR response to the crisis is going to hurt this group badly, but it should leave them with better prospects than what they face now.

This is a world historic moment. It is an opportunity for Democrats to get their mojo back and draw a bright clear line in the sand between restructuring for a more egalitarian and sustainable economy and limping along trying not to fall into the trough where the pigs are gobbling down the swill.

When the powers that be are trying to make you buy the farm, pitchforks are in order.


Sunday, September 21, 2008

It's Worse Than That

As bad as the publically stated objectives for Paulson's plan may be, they are a misrepresentation to cover up the even more egregious truth of what Paulson actually intends. And the Democratic leadership is 100% in the know about what Paulson intends. Read this excerpt from naked capitalism's post Why You Should Hate the Treasury Bailout Proposal:

It would be best if this provision were expunged, but failing that, the Treasury should articulate what scenario it is worried about and any shield against legal intervention should be made as narrow as possible.

Now to the substance. The Treasury has been using the formula that it will buy assets at "fair market prices". As we have noted, there is simply huge amounts of cash ready to bottom fish in housing-related assets (we saw an estimate of $400 billion a couple of months ago). The issue is not lack of willing buyers; it's that the prospective sellers are not willing to accept prices that reflect the weak and deteriorating prospects for housing. Meredith Whitney, the Oppenheimer bank analyst who has made the most accurate earnings and writedown calls of her peer group, has noted how the housing market price decline assumptions used by major banks fall short of where the market is likely to bottom, given traditional price to income ratios and expectations reflected in housing futures prices.

In addition to the factors that Whitney (and others) have cited, the duration of the 1988-1992 US housing bear market and major financial crises suggests that that a peak-to-trough decline of 35-40% is realistic (obviously, this average masks substantial variation across markets and housing types). We are thus only a bit more than halfway through, as measured by the fall in prices.

Yet as we discussed, the plan makes no sense unless the Orwellian "fair market prices" means "above market prices." The point is not to free up illiquid assets. Illiquid assets (private equity, even the now derided CDOs were never intended to be traded, but pose no problem if they do not need to be marked at a large loss and/or the institution is not at risk of a run). Confirmation of our view came from a reader by e-mail:

I worked at [Wall Street firm you've heard of], but now I handle financial services for [a Congressman], and I was on the conference call that Paulson, Bernanke and the House Democratic Leadership held for all the members yesterday afternoon. It's supposed to be members only, but there's no way to enforce that if it's a conference call, and you may have already heard from other staff who were listening in.

Anyway, I wanted to let you know that, behind closed doors, Paulson describes the plan differently. He explicitly says that it will buy assets at above market prices (although he still claims that they are undervalued) because the holders won't sell at market prices. Anna Eshoo pressed him on how the government can compel the holders to sell, and he basically dodged the question. I think that's because he didn't want to admit that the government would just keep offering more and more.

I don't think that our leadership has been very good during this negotiation (or really, during any showdowns with this administration) at forcing the administration to own their position. If Paulson wants this plan, then he needs to sell it to the public, and if he sells a different plan to the public (the nonsense buying-at-market-price plan) then we should pass that. I'd rather see the government act as a market maker for the assets to get them transferred over to private equity firms and sovereign wealth funds and other willing holders. And if we need to recapitalize these companies, it seems like the cheapest way for the taxpayer is to go in and buy up the distressed debt and then convert that to equity.

So unlike the Resolution Trust Corporation, which took on dodgy assets which had fallen into the FDIC's lap due to the failure of thrifts, and the Home Owners' Loan Corporation, which was established in 1934 after the housing market had bottomed, this program is going to swing into action with the clear but not honestly disclosed intent of buying assets at above market prices when future markets and the analysts with the best track records on forecasting this decline (you can add Robert Shiller, CR at Calculated Risk, and Nouriel Roubini to the list) believe it has considerably further to fall.

As we said earlier, this is a covert, not particularly well designed, inefficient, and unduly costly recapitalization of the banking system. Why?

Losses on the paper acquired are guaranteed. This is not a bug but a feature. The whole point of this exercise is an equity infusion to banks. The failure to be honest about it upfront will lead to a taxpayer backlash (or will lead to the production of phony financial statements for the rescue entity, which will lead to revolt by our friendly foreign funding sources).

Taxpayers have no upside participation.

There is no regulatory reform as part of the package. This would seem to be a minimum requirement for a donation of this magnitude.

There is no admission that deleveraging is inevitable. This plan seems to be a desperate effort to keep bad debt from being written down. Yet the sorry fact is that a lot of these assets simply will not be repaid. There appears to be no intention to do triage. The financial services industry, on the back of an explosive growth in debt, has reached an unsustainable size. The industry will have to shrink. Yet the Administration does not address this issue; indeed, it appears it intends to forestall the inevitable. Regulators need to decide who will make it, who won't, and figure out what to do with damaged institutions. Instead, the reaction is ad hoc. The stunner was the contemplation of a possible merger between Morgan Stanley and Wachovia. As far as I can tell, the only thing the two firms had in common was coming into crisis on roughly the same timetable. For all I know, their IT systems are not compatible (many an otherwise promising bank merger has been scuttled over IT integration issues).

This really is little more than a scam to make the taxpayers provide the money to cover the losses for all the bad debt issued by the financial industry. What the Democrats have to do is refuse to get on board and put forward their own legislation that actually addresses the problem, send that to Bush and dare the bastard to veto it. Hang this around Bush's neck and stop letting the High Broderists shame the Dems into backing down. Barney Frank and Hillary are showing them how it's done.

Yes, Harry & Nancy, it IS class warfare, there is no "bipartisan" option, and you have a world historic moment in which to redefine both your party and your nation for the better.

Do you stand with Hoover or with FDR?


And We Get?

Tanta at Calculated risk reproduces what is alleged to be a letter from a member of Congress, originally linked at Open Left. Here is her post in full:

What We Should Get For $700 Billion

This is purported to be from a member of Congress, regarding the TARP authorization. I cannot independently verify that, but like Fox Mulder I want to believe:

Paulsen and congressional Republicans, or the few that will actually vote for this (most will be unwilling to take responsibility for the consequences of their policies), have said that there can't be any "add ons," or addition provisions. [Frank expletive]. I don't really want to trigger a world wide depression (that's not hyperbole, that's a distinct possibility), but I'm not voting for a blank check for $700 billion for those [serious obscenity].

Nancy said she wanted to include the second "stimulus" package that the Bush Administration and congressional Republicans have blocked. I don't want to trade a $700 billion dollar giveaway to the most unsympathetic human beings on the planet for a few [adjectival exuberance] bridges. I want reforms of the industry, and I want it to be as punitive as possible.

Henry Waxman has suggested corporate government reforms, including CEO compensation, as the price for this. Some members have publicly suggested allowing modification of mortgages in bankruptcy, and the House Judiciary Committee staff is also very interested in that. That's a real possibility.

We may strip out all the gives to industry in the predatory mortgage lending bill that the House passed last November, which hasn't budged in the Senate, and include that in the bill. There are other ideas on the table but they are going to be tough to work out before next week.

I also find myself drawn to provisions that would serve no useful purpose except to insult the industry, like requiring the CEOs, CFOs and the chair of the board of any entity that sells mortgage related securities to the Treasury Department to certify that they have completed an approved course in credit counseling. That is now required of consumers filing bankruptcy to make sure they feel properly humiliated for being head over heels in debt, although most lost control of their finances because of a serious illness in the family. That would just be petty and childish, and completely in character for me.

I'm open to other ideas, and I am looking for volunteers who want to hold the [colorful noun] so I can beat the crap out of them.

I've been an advocate ofbankruptcy cram-downs for ages, so no argument there. What I really really like is the idea of subjecting CEOs to the same petty humiliation everyone else gets treated to. I suggest that for every separate asset these CEOs sell to the government, they be required to write a Hardship Letter over a 1010 warning (that's a reference to the statute forbidding lying in order to get a loan) explaining why they acquired or originated this asset to begin with, what's really wrong with it in detail, what they have learned from this experience, and what steps they are taking to make sure it never happens again. Furthermore, the Treasury Department will empanel a committee of the oldest, most traditional, and bitterest mortgage loan underwriters--preferably those downsized to make way for automated underwriting systems--to review these letters and opine on their acceptability.

I'm sure you all will have other suggestions.

I like Tanta's suggestions. Do go see the comment thread. Some of their suggestions are very funny. For my comment thread, who do you think said this?

But it points to the very serious divide in the Congressional Democrats, where some are very clear that this is a political opportunity to be used to the max (as in the above letter), while others *cough*Dodd*cough*Schumer*cough* are committed to defending the interests of their most important constituents, and screw both the party and the country.

This is why my focus on this blog is on the party. Unless the Democratic Party decides to stand for the ordinary citizen, then they are simply being Republican enablers. The focus cannot be a specific candidate (no matter how much I (heart) Hillary), it has to be on reforming the party.

In the coming week, anyone seriously concerned with party reform needs to keep close track on which Democrats oppose the Paulson wealth-grab and which enable it. Will Obama even come back to the Senate, or will he use the campaign to not go on record as for or against?

We get something, or they get nothing.


The Mother of All No-Docs

So, Hank Paulson wants the US taxpayers to make a loan to Wall Street. It seems that the big financial firms are underwater on the investments they made.

They don't want to provide actual balance sheets, just self-reported assets which may or may not exist. They want borrow the full value with no collateral down. Oh, and none of that pesky insurance against their defaults. They don't have any proof of income, and their employers can't really be reached. In fact, it's not clear they have any employment at the moment.

We're talking major league NINJA loans here. Oh, and it appears to be a 0% interest loan, too.

In short, the Wall Street banks are asking to be excused from the kind of underwriting of their credit-worthiness and ability to repay that typifies the toxic loans (subprime, ALt-A, prime, whatever) that got us into this mess in the first place. And Paulson wants to give them exactly that.

Hmm, would this be refinancing or a HELOC?


Update: And Chuck Schumer and Chris Dodd, the dynamic duo that helped bring us GLBA in the first place, are pushing hard to prevent any kind of oversight, restructions or even a faint promise of ROI for this massive transfer of wealth: Bipartisan Support for Wall St. Rescue Plan Emerges

And check out this chart for shits and giggles. More for this bailout than for Social Security. Nice.

Krugman on Why We Should Demand More from Paulson

The Krug sums it up nicely. The problem isn't the current crisis, but how to prevent the "solution" for the current crisis from becoming a huge profit-grabbing boondoggle for Bush's "base":

Thinking the bailout through

What is this bailout supposed to do? Will it actually serve the purpose? What should we be doing instead? Let’s talk.

First, a capsule analysis of the crisis.

1. It all starts with the bursting of the housing bubble. This has led to sharply increased rates of default and foreclosure, which has led to large losses on mortgage-backed securities.
2. The losses in MBS, in turn, have left the financial system undercapitalized — doubly so, because levels of leverage that were previously considered acceptable are no longer OK.
3. The financial system, in its efforts to deleverage, is contracting credit, placing everyone who depends on credit under strain.
4. There’s also, to some extent, a vicious circle of deleveraging: as financial firms try to contract their balance sheets, they drive down the prices of assets, further reducing capital and forcing more deleveraging.

So where in this process does the Temporary Asset Relief Plan offer any, well, relief? The answer is that it possibly offers some respite in stage 4: the Treasury steps in to buy assets that the financial system is trying to sell, thereby hopefully mitigating the downward spiral of asset prices.

But the more I think about this, the more skeptical I get about the extent to which it’s a solution. Problems:

(a) Although the problem starts with mortgage-backed securities, the range of assets whose prices are being driven down by deleveraging is much broader than MBS. So this only cuts off, at most, part of the vicious circle.
(b) Anyway, the vicious circle aspect is only part of the larger problem, and arguably not the most important part. Even without panic asset selling, the financial system would be seriously undercapitalized, causing a credit crunch — and this plan does nothing to address that.

Or I should say, the plan does nothing to address the lack of capital unless the Treasury overpays for assets. And if that’s the real plan, Congress has every right to balk.

So what should be done? Well, let’s think about how, until Paulson hit the panic button, the private sector was supposed to work this out: financial firms were supposed to recapitalize, bringing in outside investors to bulk up their capital base. That is, the private sector was supposed to cut off the problem at stage 2.

It now appears that isn’t happening, and public intervention is needed. But in that case, shouldn’t the public intervention also be at stage 2 — that is, shouldn’t it take the form of public injections of capital, in return for a stake in the upside?

Let’s not be railroaded into accepting an enormously expensive plan that doesn’t seem to address the real problem.

The problem is that the proposed "solution" is not actually addressing the underlying causes of failure, and it increasingly looks like an attempt to have the taxpayers foot the bills for the financial malfeasance of Wall Street.

Here are more helpful links to keep track of analysis of the issue:

Krugman: Calculated Risk:


Hillary's Statement on the Proposed Bailout

Lambert wanted to know if Hillary had said anything about Paulson's give away to Bush's base. Here is is, with my emphasis:
Statement of Senator Hillary Rodham Clinton on the Administration's Proposal to Restore Stability to U.S. Financial Markets

“When the American people, facing a foreclosure crisis and struggling economy, turned to this administration for help, the answer was no. Now, the administration is turning to the American people for help, to rescue the credit markets and take on hundreds of billions in debt and financial obligations as a consequence of that same foreclosure crisis. The truth is, Main Street came to Washington and got little. Now Washington is coming to Main Street and asking for a lot. The American people deserve to know that this isn't a blank check. While the need to address the current crisis is clear, I will only support steps that will prevent a widening crisis, tackle the worst kinds of abuse tolerated for too long by the Bush Administration, and address the root problems at work.

The proposed intervention outlined today by Treasury Secretary Henry Paulson would be a watershed moment for our economy. I believe that such an intervention demands that we fundamentally alter the priorities and policies of our nation under the Bush Administration that allowed this crisis to take place and escalate. Corporations that will benefit must be held accountable not only to large shareholders but also to the American people. And American taxpayers deserve to know that their money will not allow for a continuation of the status quo: short term profit at the expense of long term viability; obscene bonuses and golden parachutes regardless of performance; reckless risk taking that have placed the markets in so much jeopardy; rewards for those who foreclose on middle class families and sell mortgages designed to fail to turn a profit; and outsourcing of good jobs to serve short term stock prices instead of America's long term economic health. The prevailing dynamic of corporate America, where the sole priority was the dividend, the inflated bonus and the quarterly earnings report, must give way to a new respect for the long term prosperity of the American worker and the well being of the middle class.

After eight years of failed policies – and two years of an absentee administration – our only option left may be an unprecedented government intervention into the private markets. The markets must be stabilized to stave off wider turmoil. Nevertheless, the urgency of this crisis does not mean that we should offer a blank check to financial institutions or the privileged few. Nor can we simply allow the administration to use the taxpayers like a ‘reset button.’ We cannot allow Wall Street to act without oversight by a vigilant SEC and administration – and without regard for the American people, who will now have paid twice: in falling prey to a widening credit crisis, and in paying the bill to hopefully bring it to an end.

I will be examining the administration's proposal very closely to ensure that we do not approve a policy that may stabilize the markets in the short term without addressing the root problems facing middle class families or the kinds of reckless gambling that was permitted for far too long by the administration. The Bush Administration may have changed its tune once the crisis facing Main Street hit Wall Street. But we need to be sure that the American taxpayers – asked to shoulder yet more risk and responsibility – have a voice.”
This statement should be printed out, carried around and read five times a day by every Democrat. In four paragraphs, a new vision for the party and the country are laid out.

The first paragraph captures the power dynamic in Washington. Ordinary citizens cannot get assistance to deal with extreme crises caused by mismanagement of a needed industry. When that industry mismanages its way into the ground, the citizens are supposed to step up and help out. That is what needs to be answered, the power imbalance, not whether Bush's golf buddies can afford that 10th or 11th summer house.

The second paragraph is the most important, as Hillary calls for no less than an FDR level reorganization of the relations between the citizens and the corporations, which means the structure of power will change. The nation is not here to serve the interests of the monied class against the rest.

The third paragraph puts responsibility where it belongs - squarely on the head of the Bush administration. No more of this mealy mouthed "divisive politics of left and right" crap. The division is there because of the "privileged few" using the rest of us like piggy banks. If the fat cats keep screwing up, it's time to put them on a diet.

The fourth paragraph is an announcement of how she shall act and the standard against which Democrats should be judged. It makes clear, once again, that the real problem is not some liquidity issue but the very structure of the financial industry. Just stabilizing the stock market will not suffice, though it is clearly necessary.

See? It's not so hard to do what is right by all parties by being a strong, unapologetic Clinton Democrat. A little less unity and a lot more opposition, please.