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Saturday, November 15, 2008

blizzard of lies

Tell us what we've won:

Yes, that's right, you've got a troubled insurance giant with billions of dollars tied up in worthless pieces of paper masquerading as securities. Yours for the low low price of $85 billion dollars!

You know, if this was Bolivia, the State Department would put out a strong statement declaiming the nationalization of industry and the stifling of private enterprise. But of course, in this case, industry made horrible decisions, so that justifies the Communism. It's unclear to me that it's even legal for the government to structure this absent legislation, but we're in a brave new world.

To be clear, AIG perhaps was too big to fail. And the hash that has been made of the financial markets cannot plausibly be worked out without government intervention. But can this be the end of the "drown government in the bathtub" rhetoric we've heard from conservatives since Goldwater? They eliminated regulation and oversight, ignored the maddening decisions made by the big banks who gambled with borrowed money and lost, and then obliged as the corporations came begging for a handout.
This has cost taxpayers and investors dearly, and the ones responsible are largely getting away with it; the CEO got a $47 million dollar severance package back in July.

Their debt, the result of their horrible choices, is now our debt. The risk has been socialized. And to top it off, this is an INSURANCE company who couldn't manage their own risk.


I have no idea if this bailout was a good thing or a bad thing. I don't have enough information to make that determination.

The real issue is that you need a sensible regulatory framework to prevent financial crises from happening in the first place and criteria and practices for dealing with them when they do, along with a sensible and consistent broad social safety net for individuals and families for when crises happen to them.

It might have been the right thing to run down to the river with buckets to collect water to throw on the burning building, but it would have been much better to have better fire codes and a functioning fire department.

Michael Hirsh on who's to blame:

Who is mostly to blame for the biggest upheaval on Wall Street since the Great Crash? The disaster appears to have many fathers. "In a way, it's the perfect crime: Who do you go after?" asks Jim Rokakis, the treasurer of Cuyahoga County in Ohio, one of a slew of state-level officials who saw the mess coming years ago but were ignored by the Feds. "If you arrest the mortgage brokers, how can you in good conscience not arrest the officers of the mortgage banks and the rating agencies?" Rokakis wonders. Ultimately, a big share of the blame lies with Wall Street CEOs who encouraged all this bad lending by packaging it into ever more complex securities, and then invested in it themselves by the billions. Indeed, the myth surrounding the subprime fallout is that no single player along the pipeline could have prevented what happened, including the giant investment banks that loaded their balance sheets with this dreck only to have it drag them into oblivion. "Everyone's to blame, and no one's to blame," says financial expert Joseph Mason of Drexel University, summing up a common view of academia and in Washington.

I don't buy it. Especially the idea that somehow the blame lies mainly with Wall Street's greed, as John McCain reiterated the other day, saying we have to "fix" it. How do you fix greed? And let's face it, left to its own devices, Wall Street has always operated on pure adrenalized greed, which is why financial manias and bubbles come and go and always will.

This mess is mostly a titanic failure of regulation. And the largest share of blame goes back to one man: Alan Greenspan. People mainly fault the former Fed chief, who once enjoyed a near-saintly reputation because of his reputed "feel" for market conditions, for ushering in an era of easy credit that accelerated the mortgage mania. But the much bigger problem was Greenspan's Ayn Randian passion for regulatory minimalism. Under the Home Ownership and Equity Protection Act enacted by Congress in 1994, the Fed was given the authority to oversee mortgage loans. But Greenspan kept putting off writing any rules. As late as April 2005, when things were seriously beginning to go wrong, he was saying that subprime lending would work out for the common good—without government interference. "Lenders are now able to quite efficiently judge the risk posed by individual applicants," he declared at the time. So much for his feel. New regs didn't get put into place until this past July—long after the crash had come, under Greenspan's successor, Ben Bernanke. The new Fed chief's "Regulation Z" finally created some common-sense rules, such as forbidding loans without sufficient documentation to show if a person has the ability to repay.

Rokakis, the Cuyahoga treasurer, recalls when he first sensed the beginnings of the storm: way back in 2000. The foreclosure rate in the Cuyahoga County had doubled in one year, the treasurer noticed. That suggested, very early on, that lending practices were becoming irresponsible and very often fraudulent. In October of that year, Rokakis led a local delegation to the Federal Reserve Bank of Cleveland asking for help. After much pleading the Fed scheduled a daylong conference in March 2001, titled, "Predatory Lending in Housing." "We asked them to step up and take action," Rokakis recalled recently in his office in downtown Cleveland. Nothing was done. At the national level, Greenspan even stymied marginal efforts to put innocuous restrictions in place, like protections for Habitat for Humanity borrowers. "He was just philosophically opposed," says Mike Calhoun of the Center for Responsible Lending in Washington. "Here's what I learned about the Fed: They do wonderful lunches. Their cafeteria is really good," says Rokakis. "But the Federal Reserve Bank is not there to protect us. It's there to protect the banks." And now the banks are helping themselves to vast amounts of taxpayer money. Enjoy your retirement, Alan.

Where's it going?:
Bottom Line: It is easy to take potshots at the Fed; I have taken my share over the past year. I think, as an institution, they abdicated their regulatory responsibilities, and we are all now paying the price. I think their communication strategy, and their lack of policy consistency, is maddening. But I think we are now all realizing where we are headed. We are moving into the endgame, when Congress socializes the losses after privatizing the gains.
Remember that: socialized losses, privatized gains.

Sen. Sherrod Brown goes there:

"It is not so much his economic proposals but his economic record," Brown said of McCain. "His main adviser is Phil Gramm -- he was his mentor in the Senate -- and you just tie it all together. Of course John McCain supported the oil industry, he has oil lobbyists working for him. Of course John McCain supported these trade agreements, he has got Wall Street people working for him... It is all wrapped up together. John McCain is a creature of these interest groups in Washington. He is no maverick and, from the Keating Five on, his ethics have been questionable. He's not a maverick and Barack has got to just keep hammering on that."

(bold mine) 'Keating Five' needs to become a household phrase, and fast.

Obama is running a two minute long ad on the economy. Steve Benen comments:
It's not at all flashy, but it presents Obama as sober and substantive. I don't know if audiences are seriously prepared to sit through a two-minute commercial -- people tend to have short attention spans -- but Obama wants to be the responsible grown-up in the race, and this is part of the broader pitch.

From the beginning the entire Obama campaign has been about betting on the American people and not just cynically trying to manipulate the public. It's why the attacks on Obama's patriotism have always struck me as so ridiculous. This guy believes in this country and he shows it not just by wearing a flag pin but by putting his own fortunes on the line. Conversely McCain thinks the best route to the White House consists of lying and distracting citizens away from the issues that affect them. This election will tell us a lot about who is right.

Obama's off the ropes

Chris Matthews is usually mostly interested in inside sports and validating his own weird psychological hang-ups, but on the rare occasion he gets indignant he's fun to watch. (vid)

A Conservative for Obama

Palin's latest explanation for why she fired Monegan (i.e. "Troopergate") is that he was too aggressive in persuing child molesters. Taken together with McCain's slamming of Obama for supporting standards that teach kids the difference between "good touching" and "bad touching," it would seem a McCain/Palin administration would be very pedophile-friendly indeed... Unless child molesters are a key swing demographic this cycle I think it might be worth making an issue of this. Let's see the attack ad! (note: yes of course we know that's not really what's going on: Palin's excuse is an attempt to avoid being caught abusing her power as governor, and the McCain ad was just an excuse to try to make Obama seem like a scary black pervert... but I think at this point it's fair to characterize their position as being 'pro-pedophile.' They're the ones who initiated the sleaze and politics ain't beanbag.)

Palin during her sportscasting days (vid)

An old Palin ad
from her mayoral run (vid)

Some helpful graphs depicting the candidates' tax plans

McCain suggests he won't meet with the Prime Minister of Spain:

Per a post on Josh Marshall's site, I just listened to an interview John McCain did with a Spanish journalist recently. The interview is in English, but there's a Spanish translator translating the tape into Spanish at the same time. So the English part is difficult to hear. I am however fluent in Spanish, and what Josh reports is exactly what the Spanish version shows.

Namely, that John McCain didn't appear to know that Spain was in Europe, or that the leader of Spain was named Zapatero. This, after the interviewer told him, and I paraphrase, "Okay let's switch to Spain - would you be willing to meet with the head of our government, Mr. Zapatero." McCain then launched into this weird discussion about how friends of America are welcome, but enemies of America are not, and then he starts talking about Mexico. The reporter, obviously sensing something weird, asks him again, and again, would you be willing to meet with our president. McCain again talks about America's enemies. Finally, she says, and again I paraphrase, "Senator, I'm talking about here in Europe, in Spain, would you be willing to talk to our leader?" And McCain AGAIN starts rambling about America's enemies.

What's even odder, the article about the interview in the Spanish paper says that in April McCain told El Pais during an interview that he'd love to have Zapatero visit the US, that any differences we may have had in the past are bygones. So it's simply bizarre that, if McCain actually understood what was going on during the this recent interview, that he'd now equivocate about inviting Zapatero.

Either McCain had no idea what the woman was talking about when she said "Spain," and then said "our president, Mr. Zapatero," - and then he still didn't understand when she repeated, I'm talking about Spain and our president here in Spain - or McCain intentionally snubbed the country of Spain tonight for no apparent reason, which is very hard to believe. The interview is absolutely bizarre, especially in that it sounds like McCain wasn't even lucid, it sounds like he simply doesn't have complete control over his faculties anymore. And judging by the fact that just a few months ago McCain was fine with Zapatero, it sounds like McCain simply wasn't quite all there any more during the interview. He got horribly confused and didn't know what was going on.

Zapatero is the leader of the "Spanish Workers Socialist Party," so perhaps McCain regards him as an ideological enemy? Spain is, obviously, a friendly nation to us though, and Lord knows we don't need more enemies. Or maybe McCain's just going senile, I have no idea.

Final thought:

"The fundamental business of the country, that is the production and distribution of commodities, is on a sound and prosperous basis."
Sound familiar?

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