Thud

By Creature

Wall Street and economists across the land are unimpressed with today's unveiling of the Obama/Geithner bank bailout plan. I guess taking the vague and incestuous Bush/Paulson plan and making it vaguer and more incestuous was not the best idea in the world.

Until the "N" word is taken seriously everything else is widow dressing.

What's at stake

By Mustang Bobby

David Brooks is worried that Barack Obama is overconfident about his financial stimulus package:

This will be the most complex piece of legislation in American history, and as if the policy content wasn’t complicated enough, Obama also promised to pass it via Immaculate Conception — through a new legislative process that will transform politics. The process, he said, will be totally transparent. There will be no earmarks, no special-interest pleading. In a direct rebuttal to Federalist No. 10, he called on lawmakers to put aside their parochial concerns and pass the measure in weeks.

And as if that isn’t enough, he promised next month to make repairing Social Security and Medicare a “central part” of his budget. “I’m not out to increase the size of government long-term,” he told John Harwood of The Times.

This is daring and impressive stuff. Obama’s team has clearly thought through every piece of this plan. There’s no plank that’s obviously wasteful or that reeks of special-interest pleading. The tax cut is big and bipartisan. Obama is properly worried about runaway deficits, but he’s spending money on things one would want to do anyway. This is not an attempt to use the crisis to build a European-style welfare state.

[...]

Maybe Obama can pull this off, but I have my worries. By this time next year, he’ll either be a great president or a broken one.

Mr. Brooks is worried that the Obama stimulus plan is being put together in a hurry. But unlike some people, Mr. Obama's team has been aware of the financial crisis for a while longer than four months, and there is more substance to Mr. Obama's plans than the smoke, mirrors, and balloon animals that the Bush administration cobbled together in their hurried and messy response to the collapse of Wall Street in September; remember Treasury Secretary Paulson's three-page memo granting him absolute power?

If Mr. Obama's campaign for the presidency and his deft handling of the transition so far are any guide, it appears that when it comes to planning ahead, Mr. Obama has got this. His confidence, which seems to be unsettling to Mr. Brooks, is sure enough that he is willing to work with Republicans and recalcitrant Democrats to accomplish his goal without worrying about his ego or his legacy. I know this may come as a shock to Mr. Brooks, but unlike some of his predecessors, including his immediate one, but Mr. Obama isn't in this to establish his legacy. (In the first place, his legacy is already been set by his election.)

Like a lot of conservatives, Mr. Brooks is confusing self-confidence with bravado. I know this might be a new concept to some people, especially those on the right who have this annoying habit of turning everything into a cult of personality, but whether or not Mr. Obama is a great president or a broken one a year from now doesn't really fit into the equation, because if the economy isn't on the road to recovery a year from now, it won't matter: there won't be much of a country left to be president of.

(Cross-posted from Bark Bark Woof Woof.)

Reflections on Time's people of the year

By Michael J.W. Stickings

As you've probably heard by now, Time's Person of the Year for 2008 is, as was fully expected and as is richly deserved, Barack Obama. Seriously, did anyone even come close this year?

The runners-up are an interesting bunch: Treasury Secretary Henry Paulson, French President Nicolas Sarkozy, Chinese film director Zhang Yimou, and someone named Sarah Palin.

It's far too early to assess Paulson's impact, though there's no denying his influence on the political and economic landscape not just of the U.S. but of the world. I'm not sure who this "Sarah Palin" is (for some reason, if I think back through the year that was, what comes to mind is a nagging cold sore), but Sarkozy certainly deserves to be on the list, having emerged, perhaps improbably, as Europe's leading statesman, and Zhang, the artist behind the spectacular Beijing Olympics opening ceremony, is a suitably ecclectic selection. (The piece at Time on Zhang is by Spielberg.)

On Zhang, I must admit that I'm not as much of a fan anymore. Once upon a time, back in the early '90s, when he was making Ju Dou, Raise the Red Lantern (which I would put on my list of the greatest films of all time -- a chillingly powerful masterpiece), The Story of Qiu Ju, and To Live (a brilliant journey through modern China), I thought he was one of cinema's finest directors, a bold and courageous voice speaking out, often through historical parable to avoid the censors, against tyranny and brutality, and specifically against the tyranny and brutality of his country's totalitarian regime.

But then he started making more crowd-pleasing epic entertainments like Hero, House of Flying Daggers, and Curse of the Golden Flower. All three are magnificently beautiful movies, and all three are profoundly engaging, but, somewhere, the voice of protest and resistance was lost. Hero, like his earlier films, can be read as a defence of the individual against the state, but, ultimately, the message is that the glory of China, the glory so celebrated at the Olympics this year, requires the sacrifice of the individual to and/or by the state. The Curse of the Golden Flower, a fascinating mixture of Machiavelli and Shakespeare that may be too gorgeous for its own good (in a way, the movie equivalent of the gorgeous Gong Li, Zhang's frequent leading lady), ends on a similar note, with resistance utterly defeated by a brutal tyrant. Are there parables in there? Sure. But whatever parables there are are overwhelmed by the sheer spectacle of it all, the old Zhang vanquished by the new one, the protest replaced by unabashed nationalism, a celebration of the past, present, and future glory of China, with Zhang become one of its leading artistic cheerleaders -- for what was the opening ceremony in Beijing but nationalist cheerleading?

Portrait of an epic failure

By Libby Spencer

Is it me or does Paulson look like he's seriously considering bolting out of camera range? Or maybe he's weighing the political cost of slapping Bush upside the head for dragging him into this pathetic photo op?



[via mikevotes]

(Cross-posted at The Impolitic.)

Paulson to ask Congress for more TARP cash

By Creature

I guess my bigger question within the context of the Wall Street meltdown is why are things like mortgages, auto, student and credit-card loans being packaged as securities (and now in need of saving) in the first place? I know I may be missing something here, but wasn't there a time when a loan was just a loan?

(Cross-posted at State of the Day.)

From bailing out to buying in

By Creature

This is the bailout plan we've been waiting for. From the NYT:

Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, according to government officials.

Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it. Such a move would quickly strengthen banks’ balance sheets and, officials hope, persuade them to resume lending. In return, the law gives the Treasury the right to take ownership positions in banks, including healthy ones.

I don't know much, but from all I've read this is the path we should have been considering from the start. It's good to see the Treasury, now that it has the billions it asked for, acting as their European counterparts have in trying to get a handle on this crisis. For the unhinged Right it's socialism; for the rest of us, with actual brains, it's sound policy.

For more reaction, see Meme.

(Cross-posted at State of the Day.)

Gravity sucks

By Carl

As anybody who's ever ridden a bicycle or even stood up knows, what goes up must come down.

This is as true for the stock market as it is for anything else. Granted, it's a whole lot harder for the market to fall back to sea level, something about retained earnings and asset values underpinning stock prices, but trust me on this: it is not impossible.

Enter Paul Krugman:

The bailout plan released yesterday is a lot better than the proposal Henry Paulson first put out — sufficiently so to be worth passing. But it's not what you’d actually call a good plan, and it won't end the crisis. The odds are that the next president will have to deal with some major financial emergencies.

Absolutely.

I'm not arguing that this is the mother of all financial crises. I am arguing, however, that the MOAFC stands a better chance of happening now, when the market is weakened and the solutions ineffectual, just like an opportunistic flu is more likely to incubate when the body's defenses are weakened.

The trouble with this bailout package is, it's like giving a bandage to a patient who's suffered a heart attack because he got a papercut filling in his admittance forms.

The real trouble is, well, ask a hundred pundits the cause of this problem, and you'll get a hundred different answers, all of them wrong.

Ask a hundred different economic pundits and you'll get a hundred different answers, of which 95% are incomplete.

Make no mistake about this: this crisis is pervasive and infiltrates the coziest sectors of our economy, and the world's economy. There was no single simple cause and there will not be a single answer, although the ultimate solution may end up being enormously simple. I think. I'll post more on my solution later this week.

We were worried about avian flu? This is an economic avian flu.

Curiously and coincidentally, this flu, like the avian one, has its roots in Asia. America exports debt. Period. We're good at it. We export roughly $700 billion annually (there's a reason that the bailout was pegged at that figure, and that's the reason right there).

Asian nations, flush with cash as their economies have overheated, have invested heavily in American debt, first in Treasuries bill and notes, and then when the purchase of those became unprofitable (for the same reason mortgages became attractive) in mortgage backed securities.

The gamble everyone made was that housing prices could only keep going up. Remember the title of this column?
As housing prices peaked and slid down a little, banks stopped lending money, forcing Fannie Mae and Freddie Mac to step in to keep the supply of mortgages consistent with the (overmarketed) demand.

How many Ditech.com and Countrywide commercials were there each hour just a few years ago? Five? Ten? Twenty? It's no surprise that these companies were the canary in the flu mine. They had the riskiest loans with the least capitalization, and needed to borrow the money they were lending.

And banks were only too happy to lend to them. Why? Because banks knew that the Fed and Treasury would step in when things got hairy. After all, the Fed helped arrange the bailout Long Term Capital Management. They'd have to step in where people's homes were at risk!

This is not the only cause of the current crisis and books will be written about them all, until eventually a comprehensive picture is put together, but I think this is a reasonable timeline of this crisis and how it unfolded. Call it the tree on which to hang the ornaments.

But like a Christmas tree, what goes up eventually must come down...

(Cross-posted to Simply Left Behind.)

Politics stops at the border, right?

By Carl

Then explain this:

US intelligence analysts are putting the final touches on a secret National Intelligence Estimate (NIE) on Afghanistan that reportedly describes the situation as "grim", but there are "no plans to declassify" any of it before the election, according to one US official familiar with the process.

Officials say a draft of the classified NIE, representing the key judgments of the US intelligence community's 17 agencies and departments, is being circulated in Washington and a final "coordination meeting" of the agencies involved, under the direction of the Office of the Director of National Intelligence, is scheduled in the next few weeks.

According to people who have been briefed, the NIE will paint a "grim" picture of the situation in Afghanistan, seven years after the US invaded in an effort to dismantle the al Qaeda network and its Taliban protectors.

Lemme think, now...what happens in the next few weeks...*koffkoff* electionisonlyfiveweeksaway*koffkoff*

Ah, yes, and a grim picture of Afghanistan would play against the public image of John McCain on national security.

Or maybe not. If I'm the McCain campaign, I want this report released to make people understand that the past eight years have been a boondoggled blunderfest, that has to be fixed.

This issue plays to Obama, too, to be sure: the agent of change trope is tailormade for the case I made for the "Maverick". In other words, the declassification of this report would neither hurt nor really help either candidate.

Which is why it will likely remain conveniently classified until November 5, when miraculously it will be leaked to the Washington Post.

After all, it's important that the American people hear confirmation of what Admiral Michael Mullen said last week to Congress we're running out of time. "I'm not convinced we're winning it in Afghanistan," were his exact words.

Couple that with the story about the deteriorating situation Pakistan in last week's Time Magazine, and you have a now-regional fuck up on the part of the Bush administration.

All this is happening while the clown car that is the White House has distracted you with handwringing and bickering over the $700 billion bailout as proposed by Treasury Secretary Henry Paulson.

Fingerpointing seems to be the order of the day on the Hill. All eyes focused on McCain's support or lack thereof of Paulson's deeply flawed package, while Nancy Pelosi has demanded strong Republican backing in the House.

Give Pelosi credit. She's at least taking a stand. Harry Reid has all but dissappeared here. Can you say "Senate Majority Leader Clinton"? I knew that you could. So now we uncover the bargain Hillary and Barack came to.

Things are so bad in the House that even the Dark Lord of the Shits, Dick Cheney, can't keep his stormtroopers quiet, probably because they've deliberately kept their minions in the dark.

That's not to minimize the bailout or underlying economic troubles of the country. Bush and company have managed to do what Osama bin Laden, 19 terrorists and four airplanes could not: bring America to its knees.

What it does point out is, yet again, the Bush administration is deliberately paying lip service to an unfolding foreign crisis in order to let it fester to the point where the US is, once again, forced to go to war.

Only this time, it will be for the good of the economy, and not just the oil barons. You think jingoism was the order of the day in the early Aughts, wait till you seen what happens next!

It ain't gonna be pretty, folks.


(crossposted to Simply Left Behind)

"Crisis"

By Michael J.W. Stickings

I think Chris Bowers is right:

Things are getting a little suspicious about this "crisis."

1. Why did the Bush administration suddenly declare a "crisis" during the final two weeks when Congress would be in session during his presidency? Is it maybe because, after the election, Congress would know it wasn't dealing with Bush anymore?

2. If this is such a sudden crisis, why is it that the Bush administration was drawing up the plan for this bill for months beforehand?

3. Why is it that Congress is supposed to bail out many banks and firms that are actually quite successful and profitable right now, and not just those that are failing?

4. Why is Paulson blatantly lying to Congress about oversight?

5. Where did the $700 billion figure come from?

6. Why is Paulson urging that debate on the matter be held after the legislation is passed?

The burden of proof should always be placed on those who are demanding a huge government bailout, not upon those who are skeptical that one is needed. And yet the questions keep mounting, with no answers in sight.

Bush and Paulson are fearmongering, I fear, driving up the panic in order to secure as massive a taxpayer-funded welfare program for Paulson's buddies on Wall Street as possible.

Don't trust them. Because they have done nothing to deserve your trust.

There may indeed be a "need for government intervention," as Chris admits, but "[t]he case hasn't been made" -- and any intervention should be driven not by those with an interest, a self-interest, in welfare for Wall Street, but by those who have been empowered by the people to advance and protect the public interest.

It is time for Americans to take back both their democracy and their economy. With this election, they have just the opportunity to do so.

The presumptuousness of Henry Paulson

By Michael J.W. Stickings

So Treasury Secretary Paulson was against oversight of his massive $700-billion bailout plan (i.e., his taxpayer-funded welfare scheme for his fellow Wall Street cronies)... until he was for it. Or not.

As Think Progress is reporting, Paulson told Congress today that he does in fact want oversight. In fact, the only reason he hadn't mentioned it before is that he hadn't wanted to seem "presumptuous." But, you know, oversight is "the role of Congress" and "that's something we're going to work on together. So if any of you felt that I didn't believe that we needed oversight: I believe we need oversight. We need oversight."

Thanks for the clarification.

But isn't Section 8 of the plan also pretty clear: "Review: Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

Krugman is absolutely right about this: "[I]f Paulson can't be honest about what he himself sent to Congress -- if he not only made an incredible power grab, but is now engaged in black-is-white claims that he didn't -- there is no reason to trust him on anything related to his bailout plan."

Honestly, do you trust this man -- do you trust the Bush Administration -- with $700 billion of your money?

NO FREE BAILOUT!

Risky business

By Carl

George Will, not a man I either admire or whose bromides and harangues I pretend to really even listen to, once said one of the smartest points about American government policy.

Unintentionally, of course. He's not that bright. He originally had been speaking of the tax code when he said that businesses tend to privatize profits but socialize losses.

In other words, a business can deduct its losses from the IRS (and by extension, the government) but will work like the dickens to retain as many earnings as possible and avoid as much tax as possible, even to the point of tax evasion.

Unfortunately, as Paul Krugman points out today, this policy is not limited to the tax code:

The logic of the crisis seems to call for an intervention, not at step 4, but at step 2: the financial system needs more capital. And if the government is going to provide capital to financial firms, it should get what people who provide capital are entitled to — a share in ownership, so that all the gains if the rescue plan works don’t go to the people who made the mess in the first place.

That’s what happened in the savings and loan crisis: the feds took over ownership of the bad banks, not just their bad assets. It’s also what happened with Fannie and Freddie. (And by the way, that rescue has done what it was supposed to. Mortgage interest rates have come down sharply since the federal takeover.)

But Mr. Paulson insists that he wants a “clean” plan. “Clean,” in this context, means a taxpayer-financed bailout with no strings attached — no quid pro quo on the part of those being bailed out. Why is that a good thing? Add to this the fact that Mr. Paulson is also demanding dictatorial authority, plus immunity from review “by any court of law or any administrative agency,” and this adds up to an unacceptable proposal.

In other words, ladies and gentlemen, we've co-signed a home loan for a friend, without any access to his income, and now the bill is due, he can't afford to sell enough of his crap on eBay and the mortgage is due.

If this was the first or only bailout we had endured, that might be OK. After all, it would be an experiment, and experiments are allowed to go bad.

But this is neither the first time we've had to bailout out bad loans (Krugman correctly refers to the S&L crisis of the 80s), or even companies in deep fiscal trouble.

We've been down this road before, and will sadly travel it many times into the future unless we change the paradigm. More on that later, perhaps next week.

We are in essence buying $700 billion dollars of near-worthless paper... after all, if it had value, the banks could package and sell it...in the hopes that some miracle, mirabile dictu!, and they gain value again.

Some will, many will not. While I find it hard to believe that these so-called "adults" of the Bush administration haven't calculated a generous breakeven point for the bailout where we stand to make back our $700 billion, I can pretty much guaran-damn-tee you that point is highly, perhaps even exuberantly, overoptimistic.

I haven't run the numbers, but I'd be willing to bet Paulson's gamble will show us losing a few hundred million, maybe we recapture $400 billion. Maybe. Not likely.

Meanwhile, these banks, the WaMus and Wachovias and Wells Fargoes, all get to line up at this big pig trough for their slop of Fed money, in the hopes that somehow, banks that managed to keep their books in order privately, like Citibank, who ended up with a saudi bailout will begin lending them good money after bad.

With no penalty to the banks who got Federal money. No management changes. No seizure of assets to offset even a small portion of the bailout. No censure of the board of directors for failing their fiduciary oversight, and all golden parachutes intact.

Meanwhile, if you owe a mortgage and you have trouble paying it off, you lose your house, even if the Fed somehow steps in and finds you a shelter, but then again, the Republicans have cut those unnecessary social services because, you know, it inflates the deficit...

George Will is correct: Our priorities are all screwed up.

(Cross-posted to Simply Left Behind.)

Waking up in a crazy house

By Capt. Fogg

As an indication of the insanity level now rising past the levies and flood gates and embankments of humanity, Lady Lynn Forester de Rothschild, wife of Lord Evelyn de Rothschild and more tightly connected to the ultra rich and well connected than can be achieved with epoxy, thinks Barack Obama is an elitist and so will support millionaire McCain. Either words mean nothing any more or the disease of belief has destroyed any remnants of cognitive function in America. It's impossible to have a sense of irony and not be in pain this morning. I'm sure someone in a clapped out 40-year-old trailer in Belle Glade, Florida agrees with her opinion and will join her in supporting John McCain's all-jive express.

I've been awaiting a terrorist attack since the McCain campaign began, the benefits of a hysterical population being pivotal to his pretended image of a tough, militaristic defender. The embassy bombing in Yemen can't, of course, be blamed on McCain, but George W. Bush's attacks and incursions into Pakistan certainly are sufficient provocation and McCain is the heir apparent to the the puppethood of Bush. It's obvious that fear of Islamic evil is being promoted. Is it too much to wonder if actual attacks are being provoked?

Well do you feel more entitled this morning? We all now own 79% of AIG along with Fanny Mae and Freddy Mac and it only cost us -- well, don't ask, it's only borrowed money anyway and debt doesn't matter. Eventually China will bail us out in turn since our continued indebtedness is to their advantage. Maybe they will be satisfied with a 79% share.

I hear from Raw Story that George had a prepared speech about the health of the economy ready to deliver to reporters about his meeting with key economic advisers like Treasury Secretary Henry Paulson, Fed Chairman Ben Bernanke, and others. He decided to slink home without comment. I wonder why.

Meanwhile, back at the McCain campaign, John says, according to Crooks and Liars, that he can offset the $315 billion price tag for 45 new nuclear power plants by cutting earmarks. Maybe that's why he took on Palin the Earmark Queen, because the only way to do that is not to do that and say you did. Besides, what's another 300-billion-pound monkey on our backs? We can all just go out and marry millionaires like he did.

Anyway, the Dow has now erased yesterday's "rebound" plus another 80 points, and I think I'll go back to bed.

(Cross-posted from Human Voices.)