GOP Bushwackers

Americablog, rapping off the news from Politico:

We now find out that the Republican party cut ads, and sent them to TV stations around the country, opposing the bailout bill even BEFORE Pelosi spoke before the vote yesterday. The Republican National Committee, the official "party," was planning on the bill passing, and then was going to attack Democrats who voted FOR the bill.

* * * So in fact, the Republican party was playing games, playing politics, with our economy.

Then, what about that business over blaming Pelosi? Check this out:

GOP "Nilhilists" Sink Bailout Bill

We spent some time tracking down first-hand reports from anyone who could bear witness to what really happened on the floor of the House of Representatives yesterday when the bipartisan credit crisis bailout bill failed. Democrats delivered on their promise to hold their collective noses and deliver more than one-half of the total votes necessary; Republicans broke their promise to deliver the rest from their own members.

C-Span isn't permitted, by House rules, to show anything except blowhard congress-persons making wind for the camera. Most of the cable Tee-Vee political reporters, who have to travel with camera crews, customarily are kept off the House floor and had to hang around the cloakrooms. So, they could share only second- and third-hand spin stories.

But on Jim Lehrer's News Hour, the New York Times' John Shaw saw it with his own eyes:

Well, it was very interesting, because it's hard to know really how each party does their whipping operations, getting votes, but the Democratic side was much more active.

The speaker was right in the middle of it. There were swarms of people around her. They were feeding her notes. She was carefully monitoring the vote. She was sending emissaries over to the Republican side.

On the Republican side -- and, again, they may do it differently -- but the minority leader, John Boehner, was pretty much alone. It didn't seem like many people wanted to talk to him. Roy Blunt, the whip, was pretty much standing off by himself. His deputy, Mr. Cantor, was also pretty quiet.

So visually it looked like the Democrats were working harder. And at one point, Pelosi looked over and saw that not a lot of movement was going on that side. And she just said, in a very loud voice, "We're finished," which signaled that she was done trying to get more Democrats to vote for the package.

Boehner's peculiar quiescence inspired Rachel Maddow of MSNBC to ask a follow-up question -- "Who leads the Republican Party right now?" She came up with a surprising answer: the aforesaid "pretty quiet" Eric Cantor (R-Va), who is Assistant Minority Whip in charge of rounding up votes for the 'lonely' John Boehner.

Even conservative columnist David Brooks is disgusted by the Republicans' behavior:

House Republicans led the way and will get most of the blame. It has been interesting to watch them on their single-minded mission to destroy the Republican Party. Not long ago, they led an anti-immigration crusade that drove away Hispanic support. Then, too, they listened to the loudest and angriest voices in their party, oblivious to the complicated anxieties that lurk in most American minds.

Now they have once again confused talk radio with reality. If this economy slides, they will go down in history as the Smoot-Hawleys of the 21st century. With this vote, they’ve taken responsibility for this economy, and they will be held accountable. The short-term blows will fall on John McCain, the long-term stress on the existence of the Republican Party.

Brooks holds out hope that some cosmetic changes might make the bill more palatable to Republicans on a second go-around to pass the bill, probably on Thursday. Possibly so, but it seems to us it will be even more difficult to talk anyone who voted "no" yesterday into voting "yes" tomorrow.

How much more embarrassing, and difficult for constituents to swallow, would it be for a congressman -- say, like the hapless Jeff Miller -- to vote for the bailout bill after voting against it? Inescapably, such a vote would mean the congressman voted at least once this week against the national interest.

Words of One Syllable Dept.

Ideology Over Reality as Bailout Bill Fails

Early this afternoon, the bipartisan bailout bill, more properly known as the Emergency Economic Stabilization Act of 2008, went down to defeat. Unless it is brought up for another vote, we'll all soon have a chance to see what a worldwide depression is really like.

Remember, this is a bill no one likes. Not Bush, not Treasury Secretary Paulson, not the Republicans and not the Democrats. Main Street doesn't understand it. Every congressperson fears it -- or, rather, fears the political fallout. Yet, all signs are that it is necessary for the public good.

In a very real sense, what it all comes down to is a struggle between reality and ideology.

The reality is harsh. As Representative John A. Boehner (R-OH) said today, "there is too much at stake not to support" the bill:

He urged members to reflect on the damage that a defeat of the measure could mean “to your friends, your neighbors, your constituents” as they might watch their retirement savings “shrivel up to zero.”

Not just retirement accounts, we might add. With day-to-day business credit frozen, as vividly described last Friday on NPR radio, what's at risk are business payrolls, jobs, credit card loans, student loans, home loans, and every other form of lending, from overnight bank-to-bank lending to the cash advanced to fill your favorite ATM machine.

The ideology that opposes the bill is bankrupt. It is perfectly captured in all of its gory glory by the words of congressman Darrell Issa (R-CA). The New York Times reports this afternoon that "he was 'resolute' in his opposition to the measure because it would betray party principles and amount to 'a coffin on top of Ronald Reagan’s coffin.'”

Issa and the other 227 congressmen who voted against the bill may as well eat their ideology. It isn't good for anything else.

Dept. of Amplification

Economics professor Brad DeLong: "This Republican Party needs to be burned, razed to the ground, and the furrows sown with salt..."

Dept of Further Amplification

Roll Call on the motion to pass the Emergency Economic Stabilization Act of 2008

Republican Ayes - 65 .... Republican Nayes - 133
Democratic Ayes - 140 .... Democratic Nayes - 95

Jeff Miller Smack-Down

At about 10:35 am CDT today, Florida panhandle congressman Jeff Miller (R-Chucklehead) took to the floor of the House of Representatives for his assigned two minutes of debate on the Emergency Economic Stabilization Act of 2008 -- probably the most important economic legislation since the New Deal -- and stuck his foot in his mouth. Twice.

It was a deeply embarrassing moment for everyone in North Florida who has to call this guy "our congressman." Miller was elected to be a law-maker, but it seems he can't research or read proposed laws! Either that, or he reads pre-cooked, out-of-date staff memos with utterly no comprehension.

Miller used his two minutes of fame on the House floor to utter two falsities: (1) the fanciful theory that the cure to the banking and financial crisis is more tax cuts for wealthy corporations; and (2) his erroneous understanding that the bailout bill being debated today still contains the Bush administration's ridiculous blank check for $700 billion with no judicial oversight.

1. Tax Cuts for the Wealthy?

Miller's first point is laughable, of course. More tax cuts for wealthy corporations will increase liquidity of our frozen credit system? That makes as much sense as urging the poor to eat pastry. ("Que ne mangent-ils de la croûte de pâté?')

Miller is dead wrong on the facts, too, when he claims U.S. corporate tax rates are among the highest in the world. Check it out for yourself right here. For those who don't have the time to read and compare international tax rate charts, business-friendly Smart Money Magazine summarizes the reality (boldface added) --

You may have heard: U.S. corporations face one of the highest income tax rates in the world, though the mention of "rate" is often enough excised, so that what comes through is the assertion that corporations pay too much in taxes. This is simply untrue if your basis for comparison is the developed world. The truth is that while the 35% corporate income tax rate is high indeed, the creativity and global reach of U.S. corporations make them among the most lightly levied.

Between 2000 and 2005, U.S. corporate taxes amounted to 2.2% of the GDP. The average for the 30 mostly rich member countries of the Organization for Economic Cooperation and Development was 3.4%.

2. No Judicial Review?

As for Miller's second point, once again he shows how fundamentally stupid, lazy, and ineffectual he is. The man appears to be talking about Treasury Secretary Paulson's three-page proposal of nearly two weeks ago. That was plainly a non-starter, as Bill Moyers remarked the same week Paulson pitched it.

After Miller (thankfully) was forced to sit down by his own Republican floor manager, Rep. Barney Frank had to remind our congressman (see the video below) that Section 119 at page 58 of the bill being debated expressly provides for agency and judicial review.

The video below, which concludes with Barney Frank's smack-down of Jeff Miller, is all the proof you need that Jeff Miller should not be in Congress. He's an embarrassment to all of North Florida.

Jeff Miller Gets Tutored in
How to Read a Bill

Wall Street Wizardy Index

While we wait to see if Republican ideologues in Congress will succeed in plunging us into another Great Depression or the bipartisan bailout bill will set fire to a long run of hyper-inflation, we have a question for the gurus of economics. It may be a mere idle inquiry, but it bugs us.

Our question is inspired by a report from the respected Center on Economic Policy and Research. "The Reagan Question: Are you better off now than you were eight years ago?" economists John Schmitt and Jue Jin Rho ask.

This is from the executive summary, with the part that tickled our curiosity put in boldface print for your convenience:

The unemployment rate, the inflation rate, and the "Misery Index" (the sum of the first two) are all higher in 2008 than they were in 2000. Other indicators that capture employment opportunities, wage growth, growth in family incomes, poverty, health-insurance coverage, personal savings rates, the price of gasoline, and college tuition fees, as well as a range of macroeconomic indicators including GDP growth, the trade deficit, the federal debt, and the net foreign debt, are also all worse in 2008 (or the most recent period available) than they were in 2000.

The two indicators that are better in 2008 than they were in 2000 are the inflation-adjusted level of median family income, which is up only 0.4 percent in seven years, and the productivity of the average worker, which has increased faster in the 2000s than it did in the 1990s.

That's certainly good news about worker productivity, even if it doesn't appear to have staved off the current credit crisis. But that set us to wondering this: Is there an economic index measuring the cumulative productivity of corporate CEOs? Wall Street wizards? Government regulators?

Bipartisan Bailout Bill

Reuters News Service has an early, useful summary of key provisions of the bipartisan "Emergency Economic Stabilization Act of 2008" announced late this afternoon. These include --

• $700 billion in buying power would be doled out by Congress in stages. After the first $250 billion is authorized, the President could request another $100 billion. The final $350 billion could be cleared by a further act of Congress.
  
• The government will take a stake in companies that tap federal aid so that taxpayers can share in the profits if those companies get back on their feet. An exception applies to financial firms with less than $500 million in assets or if the government buys less than $100 million of soured investments.
• If a company receives aid but fails, the government will be one of the last investors to see a loss.
• A new congressional panel would have oversight power and the Treasury secretary would report regularly to lawmakers in two elements of a multi-level oversight apparatus.
• If the Treasury takes a stake in a company, the top five executives would be subject to limits on their compensation.
• Executives hired after a financial company offloads more than $300 million in assets will not eligible for "golden parachutes."
• Would permit the Federal Reserve to begin paying interest on bank reserves, giving it another tool for easing credit strains.
• Mandates a study on the impact of mark-to-market accounting standards, that critics blame for a downward spiral in the valuation of assets on corporate balance sheets.
• The federal government may stall foreclosure proceedings on home loans purchased under the plan.
• Alongside the plan to buy securities outright, the Treasury Department will conceive an alternative insurance program that would underwrite troubled loans and would be paid for by participating companies.
• If the government has taken losses five years into the program, the Treasury Department will draft a plan to tax the companies that took part to recoup taxpayer losses.

The full text of the bipartisan bailout bill announced this afternoon is available at:

http://financialservices.house.gov/

Worldwide interest is so intense that the servers are extremely busy right now, so be patient and try again later if you can't get through. Mirror sites are popping up by the minute. Here are some of them (to be supplemented as time permits):

Senate Banking Committee (pdf format, 109 pp.)

Washington Post

Huffington Post

Public Markup.org

New York Times [pdf]

Los Angeles Times [pdf]

C-Span [pdf]

For the official "section by section analysis" click here.


One note about last night's negotiations: In answer to a question from the press, Speaker Nancy Pelosi said at the end of the joint news conference late Sunday afternoon that "great resistance" to limiting CEO "golden parachute" pay was mounted by Republicans. A large faction of conservative GOP congressmen declared themselves strongly opposed to any law that would impose a penalty tax on any corporation that (1) sought cash from the Treasury Department under this rescue bill, and then (2) used some (or all) of it to fashion a golden parachute for their top executives.

What changed their minds? They backed off when Pelosi threatened to use the power of her office to ensure that there would be a roll-call vote, in effect guaranteeing that everyone in the world would know the names of the rabid free-market Republicans who wanted to invite Wall Street tycoons to suckle for free at the teat of the American taxpayer.

That kind of transparency terrified the Republicans, and so they backed off.

McCain's Next Gamble: A Shotgun Wedding

McCain camp prays for Palin wedding:

Inside John McCain’s campaign the expectation is growing that there will be a popularity boosting pre-election wedding in Alaska between Bristol Palin, 17, and Levi Johnston, 18, her schoolmate and father of her baby. “It would be fantastic,” said a McCain insider. “You would have every TV camera there. The entire country would be watching. It would shut down the race for a week.

The vulgarity of such a campaign gamble would be truly appalling. But it would solve three nasty problems for McCain:

1. How to keep Palin away from more damaging interviews ("she's working on the wedding");
   
2. What to do with the regiment of lawyers and "communication operatives" McCain sent to Alaska to cover-up all the embarrassing facts about Sarah Palin ("we're making out the invitations") ; and
   
3. What to name the kid ("Brummagem")
   

It also would answer, finally and completely, whether American voters are complete suckers who can't be trusted with the franchise.

Paul Newman (1925-2008)

Handsome, intelligent, talented, funny, generous, courageous and caring, Paul Newman was a uniquely wonderful human being.

Obituary here.
Filmography here.
Hole-in-the-Wall Foundation here.
Scott Newman Center here.

Body Language Debate

Most of the Tee-Vee hairdos, talking heads, and viewer polls we've seen give last night's debate to Obama, or generously call it a draw. But almost everyone is expressing mild surprise that McCain didn't lash out and physically clobber Obama over the head with a blunt instrument, so hostile did he appear on the Tee-Vee screen.

McCain, many are saying, looked angry and talked down to Obama. He was sarcastic and belittling toward Obama. He wouldn't look at him. He blinked a lot.

Far more than their words, it was the contrast in body language during last night's debate that was stark -- and not to McCain's advantage, as any number of commentators across the literary spectrum are noting.

Reporter Richard Adams in the Guardian:

Television is of course words and pictures, and physical interaction of the two men was a fascinating study all of its own. On that level Obama certainly did better than McCain: he looked directly at McCain as he spoke. McCain refused to look in Obama's direction - even as he was delivering his own attacks against the Democratic candidate, and so allowed his body language to undercut his spoken language, suggesting that he was uncomfortable or even embarrassed.
* * *
Obama, though, looked directly at McCain throughout. And that made his words all the more effective. McCain, meanwhile, just grinned at something off-stage.

But on a larger scale, McCain made a strategic error. He wanted to reiterate his theme that Obama is too young, too unready, to be president. But with Obama there on stage beside him, looking presidential behind his podium and measured in his manner, McCain's words just didn't ring true.

Television critic Alessandra Stanley in the NY Times:

Theirs was a generational collision, and at times it looked almost like a dramatic rendition of Freudian family tension: an older patriarch frustrated and even cranky when challenged by a would-be successor to the family business who thinks he can run it better.

Novelist Merrill Markoe at the Huffington Post:

McCain sometimes seemed so unable to conceal his rage that I thought I was watching a weird Bill Plymptom cartoon of McCain's face morphing in to a tea kettle, with a rattling lid and steam coming out his ears. Every time McCain mentioned "reaching across the aisle," I thought "To do what? Grab someone by their throat and shake them til their eyeballs pop out of their head?"

Eugene Robinson, WaPo political columnist:

Throughout the 90-minute debate, McCain seemed contemptuous of Obama. He wouldn’t look at him. * * * His body language was closed, defensive, tense. McCain certainly succeeded in proving that he can be aggressive, but the aggression came with a smirk and a sneer.

Pollster George Harris, in the Kansas City Star:

McCain appeared angry and dismissive of Obama and generally impressed as someone who would slap colleagues across the aisle if reaching over to them. He said several times in the debate that he hasn't won the Miss Congeniality contest in the Senate, and he proved why during the debate.

I suspect that women voters especially would be turned off by McCain's sarcastic tone because women do tend to be the conciliators in our society... . McCain wouldn't return the eye contact but rather glared or displayed a tight and angry expression.

I also suspect (but don't have the data to support) that older voters were also turned off by Senator McNasty.

Even Christian Broadcast Network reporter David Brody found it "very noticeable" that McCain avoided making eye contact with Obama:

He never made eye contact with him. Obama kept looking at McCain.

When the visual evidence of your eyes shows you a rash, impulsive gambler with a Napoleon Complex, it's difficult to believe him when he claims to want to "reach across aisle" and heal partisan divisions.

One final note that may not have been obvious to the average viewer but which has been noticed by a few others: something deliberate was going on with the technical production that must -- simply must -- have been demanded by the McCain campaign. As Kathyrine Seelye, wrapping up a live blog at the Times, notes:

As for the optics of the night, that was some fancy camera work: Mr. Obama is noticeably taller than Mr. McCain, and yet they appeared of equal height, both in simultaneous side-by-side shots and at their lecterns.

You might call this the Alan Ladd Affect. Hollywood history tells us that in order to sell the diminutive (5'4") Alan Ladd as a tough guy in gangster movies, Paramount Pictures resorted to the full range of visual tricks to disguise his height disadvantage, from elevator shoes to special camera angles.

Once again, life imitates art imitating life.

Debate On; Blood Drive Begins

Former McCain advisor Craig Shirley:

"In the end, he blinked and Obama did not. The 'steady hand in a storm' argument looks now to more favor Obama, not McCain."

Shirley added, "My guess is that plasma units are rushing to the McCain campaign as we speak to replace the blood flowing there from the fights among the staff."

Credit Crisis: What We Haven't Been Told

"The danger was that the system was fundamentally unstable. Almost overnight it could go from working well to collapsing. If any one of the Asian countries piling up dollars (and most were doing so) began to suspect that any other was about to unload them, all the countries would have an incentive to sell dollars as fast as possible, before they got stuck with worthless currency."

James Fallows, "Countdown to a Meltdown",
Atlantic Monthly, July 2005

Even Princeton economist Paul Krugman has expressed puzzlement over why the Bush administration went into panic mode over the economy so quickly and without much warning a week and a half ago. And where did the number of $700 billion come from?

After all, FED chairman Bernanke and Treasury Secretary Paulson spent most of this year and last reassuring everyone who asked that the economy was strong and the derivative mortgage meltdown was "contained." Suddenly, last week they changed their tune and demanded $700 billion with no strings attached, no oversight, and no clear explanation of how they planned to spend it.

What explanations they offered publicly have puzzled everyone. Vague statements about diminishing confidence in our financial institutions; true but insufficient descriptions about the burden on the books of banking institutions posed by unmarketable mortgage derivative assets; the threat of uncollectible CDOs; broad descriptions of concern that the credit markets are freezing up.

On one level, we are just as puzzled as you may be about the three largest mysteries hanging over the financial crisis:

• How did this crisis come upon us so suddenly?
  
• Why are FED chairman and Secretary of Treasury so spooked?
• Why won't Bernanke and Paulson come clean in public?
  

We hasten to add that we have no inside information. We weren't involved, and have not spoken to anyone who was, in those private meetings where Bernanke and Paulson scared the bejesus out of key administration and congressional leaders. And, of course, we didn't personally witness Secretary Paulson fall to his knees last night and beg Democrats to save the nation from Republicans.

So, what we are about to say is purely the product of what education we have, what we have read, and thinking about those three mysteries. Here is what we have come to believe the facts strongly suggest:

Bernanke and Paulson anticipate the U.S. economy is on the verge of a meltdown because one or all of China, Japan, the United Arab Emirates, and/or Russia have signaled they are pulling the plug on the U.S. dollar.

In all the credit crisis reporting, there has been almost no mention of this possibility. Conventional news sources cover the issue as if it were exclusively a domestic matter between the greedy crooks on Wall Street and the taxpayers from Main Street.

But what if we're right? What if the triggering factor is the imminent collapse of the American economy because foreign nations are no longer willing to fund our profligate ways?

This would explain the vagueness of the explanations offered in public, the seeming suddenness of the crisis, and why those in the know -- like Bernanke, Paulson, and a tight circle of others -- are scared witless. To publicly place the blame on foreign countries -- even if we're the ones who put ourselves in hostage to them -- is to invite the same kind of wrath against "the other" that Americans now feel about Wall Street brokers.

Judging by comments one hears from average Americans, most of us want to jail the Wall Street crooks. But you can't jail another country. You can only make war against it.

The most useful linkable sources we can point to as support for our theory are two little-noticed articles by James Fallows in the The Atlantic Monthly. The first appeared in the July, 2005 issue. The title was "Countdown to a Meltdown." The second article, in January of 2008, was titled: "The $1.4 Trillion Question."

"Meltdown ... $1.4 trillion." Do those words sound familiar?

Fallows long has been a highly respected American author and magazine editor. He's been living in China the past few years, after having had an even longer sojourn in Japan before that. From that distance, he has had a unique opportunity to objectively see how the U.S. economy fits into and relates to the larger world economy. That has led him for some time to become very worried over the prospect of a world-wide financial crisis -- one that easily could be the very thing that is terrifying Paulson and Bernanke.

Fallows' 2005 article was written as if it were penned in the year 2016 and the writer was looking back on this very time. It is scarily prescient, except that he thought the credit crisis would fall upon us in 2009, not 2008.

He begins with what was known when the article was written: Bush's massive tax cut plan for the wealthy. "Everything changed" on 9/11? No, it changed the day those tax cuts were enacted -- June 7, 2001.

[H]ere is what really mattered about that June day in 2001: from that point on the U.S. government had less money to work with than it had under the previous eight presidents. Through four decades and through administrations as diverse as Lyndon Johnson's and Ronald Reagan's, federal tax revenue had stayed within a fairly narrow band. The tax cuts of 2001 pushed it out of that safety zone, reducing it to its lowest level as a share of the economy in the modern era.

What followed were escalating U.S. trade deficits... a "plummeting" U.S. dollar ... hugely increasing U.S. budget deficits... and inappropriately low interest rates... a "jobless recovery"... and "the evaporation of personal savings."

Americans saved about eight percent of their disposable income through the 1950s and 1960s, slightly more in the 1970s and 1980s, slightly less and then a lot less in the 1990s. At the beginning of this century they were saving, on average, just about nothing.

The possible reasons for this failure to save — credit-card debt? a false sense of wealth thanks to the real-estate bubble? stagnant real earnings for much of the population?—mattered less than the results. The country needed money to run its government, and Americans themselves weren't about to provide it. This is where the final, secret element of the gun-cocking process came into play: the unspoken deal with China.

The terms of the deal are obvious in retrospect. Even at the time, economists discussed the arrangement endlessly in their journals. The oddity was that so few politicians picked up on what they said. The heart of the matter, as we now know, was this simple equation: each time Congress raised benefits, reduced taxes, or encouraged more borrowing by consumers, it shifted part of the U.S. manufacturing base to China.

In Fallows' own version of Looking Backward, Fallows then projected an "oil shock" followed by loss of confidence on the part of foreign countries in the value of the dollar. What he predicted is what we're seeing right now, before our eyes:

As the dollar headed down, assets denominated in dollars suddenly looked like losers. Most Americans had no choice but to stay in the dollar economy (their houses were priced in dollars, as were their savings and their paychecks), but those who had a choice unloaded their dollar holdings fast.

The people with choices were the very richest Americans, and foreigners of every sort. The two kinds of assets they least wanted to hold were shares in U.S.-based companies, since the plummeting dollar would wipe out any conceivable market gains, and dollar-based bonds, including U.S. Treasury debt.

Thus we had twin, reinforcing panics: a sudden decline in share prices plus a sudden sell off of bonds and Treasury holdings. The T-note sell off forced interest rates up, which forced stock prices further down, and the race to the bottom was on.

Fallows issued a second, even more explicit warning, in the January 2008 issue. As he explained:

Through the quarter-century in which China has been opening to world trade, Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States. This is the real meaning of the vast trade surplus—$1.4 trillion and counting, going up by about $1 billion per day—that the Chinese government has mostly parked in U.S. Treasury notes. In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China. Like so many imbalances in economics, this one can’t go on indefinitely, and therefore won’t. But the way it ends—suddenly versus gradually, for predictable reasons versus during a panic—will make an enormous difference to the U.S. and Chinese economies over the next few years, to say nothing of bystanders in Europe and elsewhere.
* * *
Neither government likes to draw attention to this arrangement, because it has been so convenient on both sides. For China, it has helped the regime guide development in the way it would like—and keep the domestic economy’s growth rate from crossing the thin line that separates “unbelievably fast” from “uncontrollably inflationary.” For America, it has meant cheaper iPods, lower interest rates, reduced mortgage payments, a lighter tax burden. But because of political tensions in both countries, and because of the huge and growing size of the imbalance, the arrangement now shows signs of cracking apart.

Remember, this was written nine months ago, when the Bush administration was assuring everyone that things were hunky-dory and, indeed, the only economic need on the horizon was to make permanent the Bush tax cuts for the wealthy -- just as John McCain urges now.

Were there any warning signs the Bush administration missed? In that January article, Fallows answers with a resounding "yes."

In the past six months, relative nobodies in China’s establishment were able to cause brief panics in the foreign-exchange markets merely by hinting that China might stop supplying so much money to the United States. In August, an economic researcher named He Fan, who works at the Chinese Academy of Social Sciences and did part of his doctoral research at Harvard, suggested in an op-ed piece in China Daily that if the U.S. dollar kept collapsing in value, China might move some of its holdings into stronger currencies. This was presented not as a threat but as a statement of the obvious, like saying that during a market panic, lots of people sell. The column quickly provoked alarmist stories in Europe and America suggesting that China was considering the “nuclear option”—unloading its dollars.

Again, speaking for ourselves, we don't know for a fact that China -- or Japan for that matter, or the Arab Emirates, or Russia or any other creditor nations holding dollar-denominated U.S. Treasury bills -- actually has threatened the "nuclear option." But, clearly, something quite sudden spooked the Treasury Secretary. And the scary scenarios James Fallows has been trying to warn us about are shockingly similar to the sort of thing we're witnessing now.

What does it all mean?

First, our own chickens are coming home to roost. Much as we might like to think otherwise, we can't blame only Wall Street or even China and the other creditor nations. We are responsible for our own past foolishness. The sooner we realize this, the quicker we can begin working on a real solution.

Second, the Bush administration isn't telling us the complete truth. Most likely, it's fearful of coming clean because this is a financial crisis that the Bush administration precipitated with its signature 2001 tax cuts that effectively wiped out the budget surpluses of the Clinton years.

Third, everyone in Washington knows the widespread sentiment of average Americans is to "string up those Wall Street criminals," as a woman told us yesterday at a local fitness center. She is so mad she actually said, "I'd be willing to go through a depression so long as I see those crooks in jail."

But Washington knows, too, that there is a very broad nativist streak in our populace. How much more ungovernable -- and dangerous -- might we become if we thought the credit crisis could be blamed on "the yellow race" or Arabs?

Fourth, if James Fallows was right in his predictions, then what Paulson and Bernanke are trying to do is calm our international creditors, not so much Wall Street. Like a home owner with a mortgage he can't pay who offers the bank part-payment in hopes of forestalling foreclosure, in just seven years the United States has become a nation with debts it can't pay. Paulson and Bernanke are asking for nearly $1 trillion to mollify our creditors in hopes they won't, in effect, 'foreclose' on the U.S. dollar.

Finally, if we're right, then what this means is whether or not Congress gives Bernanke and Paulson what they want, this is just the beginning of the credit crisis. It will take America as many, or more, years to get out of this mess as it takes for a bankrupt to re-establish good credit.

Thought for the Day

If 'this sucker goes down' it looks like John McCain will own the next Great Depression.

"This Sucker Could Go Down"

We haven't read of such panic in the White House since the bad old Watergate days when it was revealed that Nixon has tapes. From today's New York Times:

WASHINGTON — The day began with an agreement that Washington hoped would end the financial crisis that has gripped the nation. It dissolved into a verbal brawl in the Cabinet Room of the White House, urgent warnings from the president and pleas from a Treasury secretary who knelt before the House speaker and appealed for her support.
* * *
It was an implosion that spilled out from behind closed doors into public view in a way rarely seen in Washington.
* * *

“We’re in a serious economic crisis,” Mr. Bush told reporters as the meeting began shortly before 4 p.m. in the Cabinet Room, adding, “My hope is we can reach an agreement very shortly.”

But once the doors closed, the smooth-talking House Republican leader, John A. Boehner of Ohio, surprised many in the room by declaring that his caucus could not support the plan to allow the government to buy distressed mortgage assets from ailing financial companies.

Mr. Boehner pressed an alternative that involved a smaller role for the government, and Mr. McCain, whose support of the deal is critical if fellow Republicans are to sign on, declined to take a stand.

The talks broke up in angry recriminations, according to accounts provided by a participant and others who were briefed on the session, and were followed by dueling news conferences and interviews rife with partisan finger-pointing.

In the Roosevelt Room after the session, the Treasury secretary, Henry M. Paulson Jr., literally bent down on one knee as he pleaded with Nancy Pelosi, the House Speaker, not to “blow it up” by withdrawing her party’s support for the package over what Ms. Pelosi derided as a Republican betrayal.

“I didn’t know you were Catholic,” Ms. Pelosi said, a wry reference to Mr. Paulson’s kneeling, according to someone who observed the exchange. She went on: “It’s not me blowing this up, it’s the Republicans.”

Mr. Paulson sighed. “I know. I know.”

Our favorite quote? It's one for ages:

“If money isn’t loosened up, this sucker could go down,” President Bush declared Thursday as he watched the $700 billion bailout package fall apart before his eyes, according to one person in the room.

There is more... a lot more, and it's shocking.

McCain the Knight-Errant

"Sir Knight of the Rueful Countenance, I can no longer bear to hear you run on at this rate! Why, this were enough to make any man believe that all of your bragging and bouncing of your knight-errantry... are mere flim-flam stories, and nothing but shams and lies."

-- Cervantes, Don Quixote, chap. XI ( Ormsby transl. 1885)

Everyone who has been following the financial crisis knows that senators like Chris Dodd (D-CT) and Richard Shelby (R-AL)* of the Senate Banking Committee, and their counterpart in the House Barney Frank (D-MA) have been working overtime improving the Bush administration's financial bailout bill. It's been apparent for some time that more substantive legislation than Treasury Secretary Paulson's 2 1/2-page plan will pass Congress within days.

But now John McCain is trying to act the knight-errant and grab the credit. This goes beyond lying. It is insulting to the American public and, quite likely, delusional if McCain supposes we can be fooled by this grandstanding.

In an Ohio television interview just this past Tuesday -- six days after Chris Dodd's counter-proposal was circulated on Capitol Hill and was published on the web -- McCain admitted he hadn't even read Paulson's proposal yet, much less the better bill by Dodd.

John McCain has jumped the shark.

---
Dept. of Amplification
9-25 pm

* ABC reports this afternoon that Senator Shelby "is expected to ultimately oppose the bailout" and is not participating in the bill negotiations or drafting."

Heard Around Town - Financial Panic Edition

Pensacola area people are talking. Here are some of the remarks we've overheard this week.

(Middle-aged wife to husband, while standing in line at the grocery store ): "Be sure to get lots of cash for the weekend. They always close banks on Friday."

(Shop owner): "Business dropped off a cliff in April. I would sell but I'm not sure there are any buyers out there."

(Woman friend, discussing the bailout bill): "To hell with that. They ought to make everyone who voted for Bush pay for it."

(Young lawyer acquaintance, on the phone): "I registered for a seminar in bankruptcy. It looks like that's where the business will be."

(Stranger at gas pump): "My grandmother went through the Depression. I wish I'd listened to her more closely."

(Escambia County process server): "It's terrible out there. So many people!"

(Woman): "It's going to be the Depression all over again. Bank failures, locusts, no potatoes."

McLobbyist McLie

Newsweek explodes another McCain campaign lie -- about McCain's campaign manager.

Deja Boo-Boo

"Hegel remarks somewhere that all great, world-historical facts and personages occur, as it were, twice. He has forgotten to add: the first time as tragedy, the second as farce."

-- Karl Marx, The Eighteenth Brumaire
of Louis Bonaparte, chapter 1 (1852)

* * *

President Eisenhower On Richard Nixon's Experience - 1960

* * *

Governor Sarah Palin on John McCain's Experience - 2008

McCain's Debate Delay Dodge

This is the best chronology we can put together on the fly, for now, about today's bizarre political developments:

1. Obama called McCain this morning to propose that they issue a joint statement on shared principles with regard to pending legislation to hand $700 billion (or maybe $1 trillion) over to Treasury Department Secretary Paulson so he can distribute it as he sees fit.
2. McCain apparently agrees to the joint statement idea. Staff members from the two campaigns begin meeting to hammer out the details.
   
3. McCain goes before Tee-Vee cameras to say he is suspending his campaign and calls on Barack Obama to agree to a postponement of Friday night's televised debate.
4. In mid-afternoon Obama holds a press conference, makes a short statement, and answers questions. Among other things, he points out that one of the two candidates will be elected President in just forty days and the people deserve to know, now when it counts, what each of the candidates has to say. He also points out that a president has to be able to handle more than one major thing at a time and there is no reason the candidates cannot handle both the credit crisis and the debate.
   

Real reporters as well as cable TV hair-dos are wondering if McCain is afraid of a public debate because he's "plunging" in the polls?

Duncan Black wants to know, seriously, "What's wrong with McCain's left eye?"

What we'd like to know is why did McCain unilaterally decide to go in front of the cameras to propose to Obama that the campaign debate be postponed if he already was in touch with Obama by telephone? Just who is playing politics with the financial crisis?

Dept. of Amplification

McCain the Knight-Errant

"Now John McCain is trying to act the knight-errant and grab the credit. This goes beyond lying. It is insulting to the American public... ."

Unearthing Another McCain Lie

We get emails. This morning a reader asked us to address the meme making the rounds of right-wing fringe elements to the effect that famed de-regulator John McCain co-sponsored regulatory reform legislation in 2005 which would have prevented the current credit crisis by reigning in Freddie Mac and Fannie Mae, sometimes lumped together as "government-sponsored entities" or GSEs.

Only the big, bad Democrats stopped him, or so it is claimed.

Is this true? the reader asks.

The short answer is "no." It is a deeply dishonest, cynical distortion of the facts.

Where Do Wingnuts Get These Crazy Ideas?

Who knows how such craziness gets started? We've seen suggestions that Rush Limbaugh, whose knowledge of economics begins and ends with the street price of oxycodone, dreamed it up. Others say it was college-dropout Sean Hannity of Fox News.

The McCain campaign effectively juiced this deceptive meme the other day when Kevin Hassett -- a McCain campaign advisor whose major claim to fame is that he's one of the two idiots who predicted "Dow 36,000" -- repeated it in one of those we'll- print- any-old-opinion articles at Bloomberg.com.

Hassett's article is complete fiction. It has about as much truth as the latest caterwauling that Rick Davis, McCain's head campaign manager, really wasn't in the pay of Freddie Mac. In fact, as we now know, Davis's firm was paid $15,000 per month by Freddie Mac until last month (!) "because of Mr. Davis’s close ties to Mr. McCain, the Republican presidential nominee, who by 2006 was widely expected to run again for the White House."

As Steve Bennen points out:

Davis lobbied against federal regulations of Fannie Mae and Freddie Mac through the Homeownership Alliance, and once that was done, Davis asked Freddie Mac to put his firm on retainer, for $15,000 a month, for very little work.

Hi, Mom!

Alas, to get to the truth about McCain and Freddie Mac reform, as is so often the case, requires a tedious examination of the facts. Wingnuts don't do facts. We have to.

In this case, to answer our reader's question what's required is a long archeological expedition through the archives of the Congressional Record. Unearthing facts is never an exciting task and never ever something the right-wing wants to bother you with.

Moreover, to understand the facts in this instance requires some knowledge about the arcane legislative process, mortgage financing, executive branch regulatory oversight, and the shenanigans of Wall Street investment houses as they invented the nightmares of new slice-and-dice mortgage derivative instruments and CDOs in the late 1990's and early 2000's.

At the risk of boring the one or two other intrepid readers who have read this far (Hi, mom!) , here is what we need to tell our morning correspondent who asked us to look into the matter.

S. 190 (2005)

This much is true: On January 26, 2005, Nebraska senator Chuck Hegel (a Republican senator who has refused to back McCain) introduced S. 190 at the start of the 109th Congress. S. 190 was an executive branch reorganization bill that had been kicking around previous congresses for several years. Because all bills die at the end of every two-year Congress if they're not enacted as laws, sponsors had to re-introduce it after every two-year congressional election.

S. 190 would have transferred a number of mortgage loan regulatory and oversight functions traditionally given to the U.S. Housing and Urban Development Department (H.U.D.) to a new agency to be called the "Federal Housing Enterprise Regulatory Agency." Nothing in the text of the bill itself would have prevented the current credit crisis, although, obviously, there was hope that the new agency might better police Freddie Mac and Fannie Mae loan activities.

Co-Sponsors

Co-sponsors of S.190 when it was introduced in January 2005 were Elizabeth Dole (R-N.C.) and then-senator John Sununu (R-N.H.). Not John McCain.

McCain did not become a listed co-sponsor until May 25, 2006 -- a year and a half later, or almost one full year after the bill's short life came to an end. (see screenshot below).

This was two months after McCain's announcement on the David Letterman show that he would be running for president.

As it had in earlier congressional sessions, the Republican majority in both the Senate and the House killed the bill outright within six months. It was never brought to a floor vote in either the House or the Senate. (Remember, this was after the 2004 elections when voters rewarded Bush and his fellow Republican congress-persons with a continuing majority in all three elective branches of government.)

Here's a screenshot from the non-partisan govtrack.gov describing the short life of the bill:

What's meant by the phrase "to be reported with an amendment in the nature of a substitute favorably"? Again, as govtrack.gov explains:

[A] substitute bill was drafted up, possibly by the highest committee members, that makes substantive changes to the original, and the bill has been replaced by this substitute. This substitute is actually drafted in the form of an amendment to the original that reads “strike all after the enacting clause and insert the following”, i.e. it’s an amendment that says start over with this. This is the substitute amendment.
* * *
As for the term favorably, this means that a majority of the members of a committee support the bill being reported.

So, in the instance of S. 190 in the 109th Congressional session it was the Republican majority committee that substituted another bill for Hegel's and reported a later version favorably. And it was the Republican-dominated House and Senate leadership that never got around to formally asking for a vote on the measure.

Johnny Come Lately

McCain, well behind the curve, was adding his name as a co-sponsor to Hegel's bill months and months after another bill had taken its place and even that substitute bill had been derailed by his own party.

Public records will never reveal this, but it's a good bet that lobbyists for Freddie Mac and Fannie Mae -- many of whom today are running John McCain's campaign under Rick Davis' leadership -- had a lot to do with killing the substitute bill once it was reported out of committee. Indeed, the man chosen by McCain to be his "transition team leader" should he win the White House, William Timmons Sr., has lobbied for Freddie Mac and Fanny Mae since the year 2000. Such people as Timmons and Davis are the most likely source for advising McCain to sign onto the bill when it no longer mattered.

It's one of the oldest deceptions in the legislative bag of tricks to pretend to sign on to a piece of legislation you know is dead in the water. Despicable lying? Yes. Bad legislating? Of course. But clever politics when you can pull the wool over the people's eyes.

But that's not the end of the story.

Regulatory Reform of the GSEs

Beginning with a series of House of Representative votes in mid 2007, Democratic leaders in the current 110th Congress eventually enacted the re-designated H.R. 3221 (over Republican party opposition from 163 of 202 House Republicans), now known as the Housing and Economic Recovery Act of 2008 (HERA). You can read a summary of the bill here [pdf] or the full text of the bill here.

On all recorded roll call votes in the Senate, John McCain was absent and not voting. So, too, was every other senatorial candidate for president, from both parties, except for Christopher Dodd (D-CT).

But a Democratic majority in the House passed the reform bill. And a bipartisan coalition of Democrats and Republicans passed it in the Senate.

Dept. of Amplification
10-3-08 om

In the wake of the vice presidential debate where Sarah Palin claimed that McCain "sounded a warning bell" in 2006 about Fannie Mae and Freddie Mac, New York Times fact-checkers agreed with our analysis: McCain was tardy in recognizing the issue, not a leader:

Ms. Palin was referring to Mr. McCain’s decision in 2006 to sign on as a co-sponsor of a Senate bill that would have overhauled regulations governing Fannie Mae and Freddie Mac. But the legislation was introduced more than 16 months earlier and the debate over the issue had been going on for some time. He also only added his name after an oversight agency issued a lengthy report condemning practices at Fannie Mae.

An Urgent Email

Dear American:

An urgent email addressed especially to your person by the Ministry of Treasury of the Republic of America is waiting in your inbox here. Please to be sure you read it as it will be to your great benefit and good fortune.

Bailout Bill's Sine Qua Non

After listening to the Paulson-Bernanke-Cox show at the Senate Banking Committee hearing this morning, Princeton economist Paul Krugman says on his daily blog that something very much like the N0. 1 condition listed by Robert Reich should be a sine qua non of any bailout bill:

[A]ny bank that wants to remove toxic assets from its balance sheet can do it at a stroke — just declare them worthless, and poof! they’re gone. But of course, that would reduce confidence and capital, not increase it — and that’s not what Hank and Ben are talking about. They’re talking about turning the assets over to Uncle Sam, and getting cold hard cash in return. And then the question is how much cash they get in return. It’s all about the price.

Now, if the price Treasury pays is very low — anything comparable to what financial institutions are able to sell the stuff for now — it’s going to do nothing for confidence and capital. If the price is high, confidence and capital will improve — but taxpayers may well take a big loss. * * *

But how can we help the financial situation without making that bet? By taking an equity stake. That way, if it turns out that the feds are pumping money in at above-fair prices, at least they get ownership, just as a private white knight would have.

In fact, Prof. Krugman says it twice:

[T]he plan only helps the financial situation if Treasury pays prices well above market — that is, if it is in effect injecting capital into financial firms, at taxpayers’ expense.

What possible justification can there be for doing this without acquiring an equity stake?

No equity stake, no deal.

There is precedent for this in Sweden's banking crisis of the early 1990's, as the International Tribune explains:

Financial deregulation in the 1980s fed a frenzy of real estate lending by Swedish banks, which spent too little time worrying whether the value of collateral might evaporate in tougher times. Property prices exploded.

The bubble deflated fast in 1991 and 1992. A vain effort to defend Sweden's currency, the krona, resulted in an incredible spike in overnight interest rates at one point to 500 percent. The Swedish economy contracted for two years straight after a long expansion, and unemployment, at 3 percent in 1990, quadrupled in three years.

After a series of bank failures led to ad hoc solutions, the moment of truth arrived in September 1992, when the government of Prime Minister Carl Bildt opted for a clear-the-decks solution.

With the full support of the opposition center-left, Bildt's conservative government announced that the Swedish state would guarantee all bank deposits and creditors of the nation's 114 banks. Sweden formed an agency to supervise institutions that needed recapitalization, and another that sold off the assets, mainly real estate, that the banks held as collateral.

The big difference between the Swedish solution and the Bush-Bernanke proposal is that "Sweden did not just bail out its financial institutions by having the government take over the bad debts. It also clawed its way back by pugnaciously extracting equity from bank shareholders before the state started writing checks."

By the end of the crisis, the Swedish government had seized vast swaths of the banking sector, and the agency had mostly fulfilled its tough mandate to drain share capital before injecting cash. When markets stabilized, the Swedish state then reaped the benefits by taking the banks public again.
* * *
Looking back, Swedish official say the tough approach toward the banks paved the way for success. It eliminated "moral hazard," the problem of relieving investors of bad decisions. And, much as it might be a shock in the United States, the demise of shareholders also underpinned the political consensus that help restore stability to financial markets even before the bailout was truly under way.

To be sure, solving the banking crisis in Sweden took several years, during which the Swedish economy endured a recession, according to Bloomberg News. By now, however, it ought to be clear to all that a prolonged recession is the least we face under every scenario being seriously put forward in Washington.

The alternative of doing nothing is even worse. The proposal of the Bush administration, which involves a straight-forward give-away to Wall Street with no equity stake in anything, is likely to exacerbate the widening class divisions in contemporary U.S. society, just as Hooverism did nearly eighty years ago, with all that mankind's history teaches us this implies for the social order and domestic tranquility.

No equity stake, no bailout.

Cloudy Crystal Ball - 1929 Edition

From the Las Vegas Daily Optic, October 24, 1929 (subscription only):

The disaster today on Wall Street will have a most salutary effect. It will wipe out the petty gambler, who hoped to become suddenly rich by marginal trading. It should place Wall Street investments on a basis which will check the flood of money from the country banks to New York and restore the stable market for public bonds and other securities necessary for industrial development in the interior of the country.

Many a home is crushed by the collapse of the market today and the happiness of thousands will vanish with the realization of financial misfortune, but the general good is well served.

Palin's 'Road to Nowhere'

Sunlight on the Financial Crisis Legislation

You know, already, that Treasury Secretary Paulson's proposed Wall Street rescue bill is not quite three pages long. Basically, it gives him carte blanche to hand out over $700 billion of taxpayer money to whoever he may please, and further provides that his beneficence "may not be reviewed by any court of law or any administrative agency."

The leading alternative bill that seems to be emerging from congressional discussions is sponsored by Senator Christopher Dodd (D-CT), chairman of the Senate Banking Committee. The full text of what must be assumed to be an early draft of Dodd's bill is available in pdf format here.

Much more user-friendly versions of both bills can be found on PublicMarkup.org:

Click here for the Paulson/Bush administration bill.

Click here for the Senator Dodd bill.

There, you can read each bill section-by-section and, if you like, add your own thoughts or questions. The new web site, sponsored by the non-partisan Sunlight Foundation, also promises to post "amended and further drafts" as they become discoverable.

The Harper Fix

Has the financial crisis got you down? Feeling blue over all the red ink crossing the stock ticker tape?

Just give a listen on WUWF-FM radio every Friday afternoon to the congenitally optimistic Rick Harper, economist at the Haas Center for Business and Economic Development on the Pensacola campus of the University of West Florida. He's cheaper than anti-depressants.

The charming thing about Dr. Harper (he's not a real doctor -- just a Ph.D.) is that he always sees the bright side. If your house were to burn to the ground, he'd see value in the glowing embers-- charcoal is wonderful for barbecues, don't you know.

Early last Friday morning, he proclaimed:

Well, the FED and the Treasury and the Securities and Exchange Commission now have the tools that they need to handle the crisis. So, I don't think we're at any risk of turning into a massive bank failure scenario.

We felt better right away. However, after Treasury Secretary Paulson announced later that same day that he needed a $700 billion blank check to save western civilization, we needed another Harper fix.

McLying About McLying

Holy Pinocchio! When the right-of-center Politico.com accuses the McCain campaign of lying about lying, you know the campaign has a problem.

Buck Lee's Beach Fantasy

Amanda: In what way is she peculiar - may I ask?
Tom: She lives in a world of her own - a world of little glass ornaments. She plays old phonograph records - and that's about all.

-- Tennessee Williams, The Glass Managerie

Wednesday, the Santa Rosa Island Authority board will formally review a set of drawings by architect Carter Quina that, according to Jamie Page in today's News Journal, "show what potentially could be done to improve the most popular portion of the beach." Tellingly, there is no beach in Quina's beach drawings.

The SRIA presumably paid good money for these fantasies. Page tells us it plans to spend even more for grotesque art, as the genre is sometimes known:

Quina's initial drawings were created only to give the board a starting point for eventually putting out a request for proposals for conceptual drawings... .

Quina may have drawn the latest fantasy, but he has merely given two dimensional form to Buck Lee's wet dream. Lee is the SRIA's executive director who, against all evidence that meets the eye, has been insisting that huge parking ramps are needed throughout the commercial core of the beach.

Just like Amanda's crippled daughter in Tennessee Williams' The Glass Managerie, Buck Lee lives in a make-believe world of little "ornaments" that bear no relationship to the reality of current or future needs of Pensacola Beach. Also, as with Williams' pathetic, lame Laura, Buck Lee seems to busy himself mostly by replaying the same old music about walling off the beach with unsightly tall buildings, exactly as earlier studies proposed and the people rejected -- as we mentioned most recently here when we recalled:

That same incubus of cheap but destructive development ideas crawled out again a little more than a decade ago when the Island Authority contracted for an architect's plan to build a 3-story shopping mall right where Casino Beach sits today. Public outrage at the scheme to wall off Casino Beach from easy public view was so strong that even the Escambia County commissioners felt compelled to reject it. Indeed, they passed a resolution forbidding future commercial development of Casino Beach.

Residents who live on the beach struck a deal more than a decade ago when the Island Authority adopted building height restrictions throughout much of Pensacola Beach but none in the commercial core. The deal was: we won't object to anything you do with the commercial core if you stick to your word on zoning and height restrictions for residential neighborhoods.

What that means, as a practical matter, is that no beach residents' group is likely to take a stand against Lee's fantasies. It's up to the rest of the world -- Pensacola mainlanders, Escambia County taxpayers, out of town tourists, and Pensacola Beach business interests -- to weigh in with Santa Rosa Island Authority board members if they don't want to see the central core of the beach paved over and walled off.

Candidly, we would expect only email messages to board member Thomas Campanella and Tammy Bohanon to survive the political filters. But you can try to reach the rest of the board here, too.

No to a Blank Check Bailout

There is no doubt that a huge, trillion-dollar bailout is coming and it will be funded by American taxpayers. There is no choice, we are being told, if we are to avoid another Great Depression.

Most free market conservatives, faced with the bitingly bitter fruit of their 25-year campaign to deregulate investment banks, stock brokerage houses, hedge funds and other financial corporations -- and to neuter antitrust laws, SEC securities protection and basic consumer protection -- have abandoned their ideological posts and are running for the hills.

A few --like Treasury Secretary Henry Paulson himself, actually -- have sneaked across the lines and are now sleeping with the enemy. Or, as Kevin Phillips put it more elegantly this weekend:

[W]hat we're seeing with the actions of the Federal Reserve Board is the people who are the arsonists, the people who pumped it all up, who blew up the bubble are now racing to show up in firemen's hats and say, "We're gonna solve it. We're gonna take care of all this. Oh, and by the way, we're gonna keep pumping in the gasoline that we pumped in before that made a good flame."

In private talks over the weekend, Treasury Secretary Henry Paulson scared the hell out of everyone on Capitol Hill. One reason for the panic that hasn't gotten much ink, we suspect, is that he confided to them that it's not just U.S. financial corporations holding toxic mortgage-based exotic investments who are demanding to be made whole. Chinese, Japanese, European, and even South American financial institutions all bought the same "shitpile", as Duncan Black long has characterized it, from U.S. investment banks. Their governments are hot as hell about it and, you can be sure, they are threatening to rid themselves of all those American dollars they've accumulated as our own nation ran up its unsustainable debt under George W. Bush maladministration.

Behind Paulsen's "three page plan" to become the American Dictator of Finance is more than an attempt to save Wall Street. He's hoping to save the American greenback from falling below the Zimbabwean dollar.

We accept the reality that we are facing a financial crisis every bit as serious as the Great Depression. Even so, as editor Avi Zenilman reports in Politico today --

Many of the same economists and opinion-makers who’d provided a bipartisan sheen of consensus to Treasury Secretary Henry Paulson’s previous moves have quickly begun casting doubts on the wisdom of a policy that would allow Treasury to purchase without oversight hundreds of billions of dollars of difficult-to-price assets from financial institutions.

One of those economists is Robert Reich, former Secretary of Labor. He authored, also today, a list of five conditions which should be attached to any bailout authority Congress may give the Treasury Secretary Paulson:

1. The government (i.e. taxpayers) gets an equity stake in every Wall Street financial company proportional to the amount of bad debt that company shoves onto the public. So when and if Wall Street shares rise, taxpayers are rewarded for accepting so much risk.

2. Wall Street executives and directors of Wall Street firms relinquish their current stock options and this year's other forms of compensation, and agree to future compensation linked to a rolling five-year average of firm profitability. Why should taxpayers feather their already amply-feathered nests?

3. All Wall Street executives immediately cease making campaign contributions to any candidate for public office in this election cycle or next, all Wall Street PACs be closed, and Wall Street lobbyists curtail their activities unless specifically asked for information by policymakers. Why should taxpayers finance Wall Street's outsized political power - especially when that power is being exercised to get favorable terms from taxpayers?

4. Wall Street firms agree to comply with new regulations over disclosure, capital requirements, conflicts of interest, and market manipulation. The regulations will emerge in ninety days from a bi-partisan working group, to be convened immediately. After all, inadequate regulation and lack of oversight got us into this mess.

5. Wall Street agrees to give bankruptcy judges the authority to modify the terms of primary mortgages, so homeowners have a fighting chance to keep their homes. Why should distressed homeowners lose their homes when Wall Streeters receive taxpayer money that helps them keep their fancy ones?

To that, we would add at least two more conditions: meaningful oversight and standards for action. In a democracy no one person, however well intentioned, should be handed unlimited discretion and power to pay nearly a trillion dollars to whoever he likes for whatever reasons he fancies.