86 Comments

1. Cannoneer No. 4:

The “outs” always seek to impugn the legitimacy of the “ins.” The efforts by the losers of the 2000 election to disgust, poison, and undermine has continued relentlessly for 8 years, unchallenged and unanswered by the “winners”. But their fanaticism has backfired on them. They have as many disgusted with them.

Eventually We The People will no longer deny the painful truth about half of us, and the blood will flow.

Sep 24, 2008 - 3:55 am 2. Lugh Lampfhota:

“That leaves a housecleaning as the only possible venue for reform.”

And hence the populist appeal and elite hatred for Sarah Palin. Housecleaning is embodied in a real, flesh and blood human woman who lives, looks and talks just like me and my neighbors. The elites despise me and my neighbors so they attack Sarah.

There is hope that the electorate will give the elites a big English Agincourt salute and elect McCain/Palin. May the housecleaning begin soon.

Sep 24, 2008 - 4:19 am 3. James:

A pox on both houses is what happened in the WA state election recently, with neither party winning a majority (although Labor came close) and both then whoring themselves out to the Nationals.

Sep 24, 2008 - 4:40 am 4. wretchard:

Remember how aliens in the movies always used to say, “take me to your leader?” The Hill reports that nobody in Congress wants to risk being wrong about the bailout.

Pelosi (D-Calif.) has effectively sent the message that if she is going to jump off a cliff to rescue Wall Street, she wants House Minority Leader John Boehner (R-Ohio) and George W. Bush holding her hands when she leaps. Pelosi made this scenario clear at a lengthy closed-door meeting of House Democrats on Tuesday. Many of those present said they took Pelosi’s message to mean that a “majority of the minority” needs to support the bill before she will bring it to the floor. To get that kind of support, President Bush needs to go on television to speak directly to the public, and get on the phone to rally his fellow Republicans, said House Majority Whip James Clyburn (D-S.C.).

Is it being too cynical to think the Congressional leadership needs insurance? A fall guy to take the blame in case things go wrong? Oh I forgot that AIG is almost busted. Never mind: if things go well just about everyone will step forward to take the credit. It’s like the Surge. You can be for it before and after you were against it, or vice versa. Imagine what would happen if a terror nuke went off in NYC. Who’s going to make the call to strike back and risk hitting the wrong country?

Sep 24, 2008 - 4:52 am 5. I'm Just Plain Dumb:

I think the collective “we” are not ready for a house cleaning yet. The two radically polarized sides are still too strong. They may not be able to make a majority, but they still can prevent any reform from occuring. We are in deadlock. I forsee further stagnation.

Sep 24, 2008 - 5:00 am 6. hdgreene:

Central to our problem is a national media that wants to convince you that the solutions to your problems lay within 20 minutes of where they work and live rather than 20 minutes of where you work and live.

I’ve long thought that the Democrat Party (and many Republicans), The National Media, and the Federal Bureaucracy are knotted together by self interest and a shared belief in their own importance. Today they form their own political party, the Washington Party, that works to move ever more power to the capital and to the “national centers” — be it information centers (New York, D.C.), financial centers (New York, Chicago), entertainment (LA). Basically, for the Washington Party, all problems are national and all problems have a national solution — and they use the media (and “leaks”) to bring you along. Your kids go to a lousy school? Look to Washington for the answer, not your local community. This is the platform of “The Washington Party.”

The MSM is no longer the Watch Dog of the Public but the Guard Dog of The Washington Party. It no longer has an “adversarial relationship” with the bureaucracy and special interests, but rather with the free market and the rest of the nation.

The Washington Party takes the credit for all that is good and fixes the blame (on someone else) for all that is wrong. When they ask “Who has responsibility?” they mean “who can we blame.”

If there is a problem with the free market the answer is regulation. If their is a problem with the regulations the answer is more regulation. Problems with the additional regulations require yet more additional regulations. It’s a one way ratchet — at least until the whole rickety structure is about to collapse. Then there is a half-arsed deregulation, followed by the collapse — which is then blamed on the Free Market.

In California ten years ago they “deregulated” the electricity market but kept the price controls in place. This was not an example of deregulation. This was an example of stupidity — or brilliant bureaucratic strategy. When the doo-doo hit the fan-fan and the lights went out in California there was someone else with poo-poo on their face.

A similar process is at work with our latest financial crisis — which got “Made in Washington” stamped all over it.

So we have “The Washington Party,” and that is all well and good. What we need is a party for the rest of US.

Perhaps John McCain and Sarah Palin can head the Republicans in that direction. A President McCain may get it going (by controlling spending, for instance) but it will require a list of policy prescriptions and a lot of work at the grassroots level to get it going.

And, of course, a competitive national media.

Sep 24, 2008 - 5:15 am 7. Vinny Vidivici:

That Americans could, once upon a time, largely ignore what went on in Washington was a ‘feature’ of the American experiment, not the ‘bug’ of apathy and indifference bemoaned by folks who spent Sunday mornings buried in the Times. That’s because government was, at one time, not the central feature of national life it has become.

How much time do we now waste keeping track of and accounting for the malign impacts of government upon our investments, the education of our children, our health care, the energy we need to power our economy, our household budgets and our businesses?

As the old Soviets had their New Class, we in the West now have a new aristocracy, populating endless bureaus, committees, departments and ministries in Brussels, the UN and the $3 trillion monster the U.S. federal government has become. They’re surrounded with all the trappings od special privilege, divine sense of entitlement and willingness of subjects to be ruled as their forebearers. But despite their educations and pretenses of sophistication, they confuse money spending with governing, and legislation with leadership.

It would be crude to declare, henceforth, that Ivy League pedigree count negatively when assessing fitness for leadership — smacks too much of Khymer Rouge cadres examining hands for callouses and confiscating eyeglasses. But the ‘best and the brightest’ have failed us too often not to, at the very least, question why they should play such an enormous role in our lives.

Sep 24, 2008 - 5:28 am 8. DRJOHN:

On two separate occasions I have been tasked to ‘reform’ a small organization. The first was a program employing about 120 teaching assistants and faculty at a major state university. I had total administrative support and after two years of meetings and discussion my report was submitted and accepted by both administration and faculty senate. However, after two years the program was operating almost exactly as it did originally.

Ten years later I was tasked to reform the methods of evaluation, compensation, and retention of the (civil service) faculty at a degree granting graduate school run by the USAF. This took me five years, including having an authorizing line in the defense budget passed by Congress, but all our recommendations were accepted by SecAF and put in place. By the end of the first two years of operation, the system was mainly indistinguishable from the pre-reform system.

Why?

Because the same people were retained in both cases and they liked the old system.

Reform seldom takes hold from above. The universe is, at bottom, quite democratic. To a distressingly large degree, central control works only with the cooperation of the operators. Check out the trouble JFK had getting our missiles out of Turkey.

One is tempted to choose the ‘kill them all’ option, but a new set of folks emerge not very different from the old.

The American revolution was quite extraordinary.

More rules does not a reform make.

“That government govers best, which governs least.”

So? We bumble through; doing the best we can. Only radical teenagers believe in immediate reform, if only given enough power.

Most folks who call for radical reform want, not reform, but power.

Sep 24, 2008 - 5:29 am 9. Lifeofthemind:

That leaves a housecleaning as the only possible venue for reform.

That is why McCain choose Sarah Palin. McCain should run ads featuring all the tired faces of the Democratic party, the “permanent government”: Pelosi, Reid, Gorlick, Rangel, and Obama. The tag line should be “Throw the bums out.” The worst thing McCain has done is float the idea of Andrew Cuomo in his cabinet.

Sep 24, 2008 - 5:34 am 10. wretchard:

a new set of folks emerge not very different from the old

That is unfortunately true. Weeds keep coming back no matter how often they are pulled up. Throwing out the trash is a never ending process. But we do it anyway. Most computers have reset buttons and most everyone is familiar with the famous key sequence Ctrl-Alt-Del. And those keys are pressed not because anyone has any illusions about the cleansing permanency of their effect but only in the hope of clearing things up for a few hours before you have to do it again.

Revolutionaries are people who imagine that reform can be permanent. Those with no such illusions resign themselves to the expectation that it’s just another draw of the cards, another spin of the wheel, another day, another dollar.

Sep 24, 2008 - 5:43 am 11. RWE:

When I worked in the DC area I observed many gyrations by politicians in order to enable them to take credit privately for their actions and avoid blame publicly for those same actions.

Thus, there are people in the Pentagon who job it is to examine the Congressional language in the appropriations and authorization bills and figure out what they Really Meant.

And they always got it wrong, or at least some of it.

So “Upgrade the only suitable land missile range.” meant “Buy the University of Alaska a new office building/solarium.” There was no way to know that unless you had been let in on the scam.

Sep 24, 2008 - 5:48 am 12. Pseudo-Polymath » Blog Archive » Wednesday Highlights:

[...] failure … and American political tradition … [...]

Sep 24, 2008 - 6:05 am 13. Stones Cry Out - If they keep silent… » Things Heard: e34v3:

[...] failure … and American political tradition … [...]

Sep 24, 2008 - 6:07 am 14. Doug:

RWE:
Wo unto Hawaii and UH when WWII Veteran Inoyue is no longer with us!
—

Both Clinton and Obama have abandonment issues.
—
Wretchard said what he said @ 5:43 am, which included:

“Revolutionaries are people who imagine that reform can be permanent.”
—
Lifeofthemind said…

“Clinton was different. On paper he fit the role perfectly, big slob who you would like to play cards with. Knows how to tell a dirty joke and is chained to a harridan. But there is something deeper working in him. He really lives for the game.
He is like Obama in that he is a predator.
Not in the sense of having any physical or moral courage, but in that he is devoted to manipulating people.
That is true of all successful politicians but in Clinton it is taken to a higher order of magnitude.”
—
Spengler said…
How Friendless Obama Lost the Election

“Combine a child’s response to serial abandonment with the perspective of an outsider, and Obama became an alien species against which American politics had no natural defenses.

*He is a Third World anthropologist profiling Americans, in but not of the American system.
No country’s politics depends more openly on friendships than America’s, yet Obama has not a single real friend,* for he rose so fast that all his acquaintances become rungs on the ladder of his ascent.

One human relationship crowds the others out of his life, his marriage to Michelle, a strong, assertive and very angry woman.
—
Starling said…
(When Obama was reacting to Palin’s performance @ the Convention)

I read Spengler a few days back and thought it basically sound. I find Spengler almost as enjoyable a read a Wretchard’s work.
I agree with Spengler’s central thesis, i.e. that Obama is very insecure and that it shows up in the company he keeps and particularly the women in his life.
The way he has been lashing out at Palin is really a something to behold.
He really seems rattled and to have lost sight of the fact that he’s not running against her, but against McCain.
Biden, I would think, should be on the attack against Palin, if anyone.
Actually, I think they’d both be better off to ignore her and concentrate their fire on McCain.
But this woman thing, his need to attack Palin, is telling.
—
…as it is for many in the MSM.

Sep 24, 2008 - 6:25 am 15. Doug:

– OBAMA’S STRANGE BEDFELLOWS –

Sep 24, 2008 - 6:40 am 16. Reno Sepulveda:

>>>>>>>>>The same faces appeared in slightly different positions, like a deck of marked cards whose fundamental defects had been palliated by desultory shuffling.<<<<<<<<<<

I was thinkin I could use me another couple cans a that potted meat if ya got any extree. Mmmmm

Sep 24, 2008 - 6:44 am 17. Doug:

- Know Enough?
(Obama & Bill Ayers ad) – Barack and the terrorist –

Sep 24, 2008 - 6:47 am 18. Paul:

According to Blackhedd at Redstate, Ben Bernacke yesterday gave strong hints that the shaky securities held by Wall Street would be purchased at a price close to the value at maturity.

in plainer words, there will be no attempt to adjust these securities for the bad judgement of Wall Street or market forces. A COMPLETE BAILOUT!

This looks more and more like a con by Paulsen who by the way was heavily involved in this mess. We really have no way of knowing how bad this financial mess is. The critical information necessary to access how bad this is will never be fully explained. That is the nature of the Federal Reserve. The only indication we have is force with which Paulsen and Bernacke confronted Congress last thursday. We have to trust them, or so we thought. But by bailing our Wall Street completely and painlessly, Paulsen’s and Bernacke’s credibility and judgement all of a sudden doesn’t look so good. This appears to be a sweetheart deal for Paulsen’s friends and his former business partners.

One of the problems with the whole concept of the Federal Reserve Bank is that the whole financial system depends on the unshakeable faith in the impeccable trustworthiness and judgement of the Federal Reserve Board and it’s chairman. Now that Bernacke has fullly endorsed this mad money/power grab by Paulsen uncritically, the faith in the Federal Reserve should be and probably will be severely shaken.

Sep 24, 2008 - 6:53 am 19. Cascajun:

Lugh Lampfhota: “There is hope that the electorate will give the elites a big English Agincourt salute and elect McCain/Palin. May the housecleaning begin soon.”

Well, don’t hold your breath. I suspect, when it comes to economic and social policy, a President McCain will simply shuffle the deck and deal another hand of “Washington Party” poker. Yes, the stakes are high, but don’t worry, they play with taxpayers money, not their own.

George Will highlights a McCain tendancy that worries many.

http://jewishworldreview.com/cols/will092308.php3

In the piece, Will notes that McCain has stated that he would fire the current chair of the SEC, Chris Cox, and replace him with someone like Andrew Coumo.

____________
On “60 Minutes” Sunday evening, McCain, saying “this may sound a little unusual,” said that he would like to replace Cox with Andrew Cuomo, the Democratic attorney general of New York who is the son of former governor Mario Cuomo. McCain explained that Cuomo has “respect” and “prestige” and could “lend some bipartisanship.” Conservatives have been warned.

Conservatives who insist that electing McCain is crucial usually start, and increasingly end, by saying he would make excellent judicial selections. But the more one sees of his impulsive, intensely personal reactions to people and events, the less confidence one has that he would select judges by calm reflection and clear principles, having neither patience nor aptitude for either.
____________________

Andrew Coumo may be one of those who is really responsible for the present economic crises. From the Village Voice:

____________________

There are as many starting points for the mortgage meltdown as there are fears about how far it has yet to go, but one decisive point of departure is the final years of the Clinton administration, when a kid from Queens without any real banking or real-estate experience was the only man in Washington with the power to regulate the giants of home finance, the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC), better known as Fannie Mae and Freddie Mac.

Andrew Cuomo, the youngest Housing and Urban Development secretary in history, made a series of decisions between 1997 and 2001 that gave birth to the country’s current crisis. He took actions that—in combination with many other factors—helped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments. He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down, and he legalized what a federal judge has branded “kickbacks” to brokers that have fueled the sale of overpriced and unsupportable loans. Three to four million families are now facing foreclosure, and Cuomo is one of the reasons why.

__________________

http://www.villagevoice.com/2008-08-05/news/how-andrew-cuomo-gave-birth-to-the-crisis-at-fannie-mae-and-freddie-mac/1

McCain’s pick of Sarah Palin encouraged so many because it made people think that maybe he wouldn’t fall for the whole “let’s be bipartisan” B.S. that never wins any friends for conservatives in the media or with the Dems. Then McCain spouts off this idotic tripe about Coumo… That coupled with his response to the economic crises is to cut executive pay. What the hell? Like that will really makes a damn bit of difference. The current crisis, brought on largely by government meddling in the economy, is the perfect occasion to educate and persuade Americans and all McCain can come up with is that we need to stop those executives from making too much money and appoint some Democrat over the SEC.

Sep 24, 2008 - 7:04 am 20. Mark:

As war is politics by other means (Clausewitz), so too are Fannie, Freddie, and financial legislation politics by other means.

If you can’t convince voters to raise taxes to pay as you go on social welfare programs, then you need to cover the costs in other ways, whether related to mortgages, social security, medicare, medicaid, etc.

I watched Barney Frank on C-Span the other night. He was still fighting for the social welfare aspects of financial legislation. Like Chaucer’s Pardoner, he and his party tell you how they fleece you, and then they turn around and ask you to sign up for more of the same.

See Tom Wolfe’s “Man in Full” for the scene of a bank selling off the assets of a high-rolling real estate developer. Let the sell-off begin. No bonuses. No severance packages.

Sep 24, 2008 - 7:50 am 21. steveaz:

Paul,
I’ve come to the conclusion that our nation’s financial crisis and the loss of liquidity in the markets posed the possibility that, instead of OUR government being in charge of juggling the mess, FOREIGN governments would.

In short, this is a nationalist issue.

In this light, who’d you rather have buying up the failed banks and defaulted mortgages of the nineties, a conglomerate of Swiss, Chinese and German bureaucrats, or the US Treasury?

If you think about it, the best way to permanently disable the American economic juggernaut would be to own it and then abuse it. The abuse part of the equation is easy to perform – simply study the Raines’ management of Fannie Mae to see an example of “in your face” abuse of an essential American, financial organization. It is the ownership part of the equation that our overseas detractors can’t seem to pull off.

At this point in the game, I’m glad that the Fed’s stepped in. At least WE, the US’s citizens, can fortify and reform OUR own system now without the fear of an anti-American government vandalizing our attempts.

Furthermore, now, we, the people own every record of every fraudulent loan, and every undeserved paycheck, and we, the people, can take our time leafing through 15-years of recorded graft and formulate our own national response to the record’s revelations. (On this point, pay very close attention to McCain’s pick for AG.)

Imagine trying to do that if, say, China or Russia had bought and owned the files! It’d be like trying to pull teeth out of a hen.

Sep 24, 2008 - 7:56 am 22. Patriot Front:

It’s important to remember that this nightmare was fathered by the federal government. Bill Clinton has the nerve to show his face and chime in about greed on Wall Street. Sure, the corporate fatcats are not without fault, but their crimes are residual; the damage they did is not the cause of the crisis.
The Clinton Administration forced banks under penalty of law to give mortgages to people who were not credit worthy. The true perpetrators of this mess is your typical liberal politicians who are either totally deranged, or wicked enough to cause a financial catastrophe with a vote-buying scheme disguised as warm and fuzzy home ownership affirmative action.

Sep 24, 2008 - 7:59 am 23. Flyover Citizen:

Reading through all the comments, I get the sense that nothing changes primarily because the players in DC never change. Seems like an excellent argument for term limits.

Sep 24, 2008 - 8:14 am 24. cedarford:

Wretchard – as Christopher Hitchens observed, Barack Obama hasn’t put John McCain away despite the Wall Street meltdown. It isn’t that people are thrilled with John McCain. It’s that not many trust Barack Obama either.

Wretchard may have underestimated the impact of the economy on voters. It is slowly hitting home that the person who was fiscally prudent and didn’t run up 20K in credit card debt and didn’t move from a 190K house to a 450K house because of concern housing prices might fall….That person is realizing their good decisions will not spare them from severe financial punishment to save the Corporatists and enable the illegal alien family that DID buy the 450K house to stay in that house.

I think the anger is just boiling up slowly. And like it or not, the Party that ran Congress for the last 12 of 14 years, and had the White House for 8, and are most closely associated with Corporatist fatcats in the public’s mind – are Republicans.

The polls are already moving towards Obama. He has now opened a significant lead. Only his own weaknesses and inexperience stop this from being a done deal.

It doesn’t help that McCain is a long-time deregulator and believer in the “genius of the markets” and “noble leaders” of private industry to successfully self-regulate themselves. Or that “Maverick” peppers his speeches with references to all the “long-time Dear Friends” of both Parties he knows.
Or that the public is slowly becoming aware that we have other huge ticking time bombs waiting to explode on top of this one – like 58 trillion in unfunded future entitlement liabilities that make America’s balance sheets actually far worse than any “socialist welfare state” that Right Wingers routinely condemn as “unsustainable”.

Even the Republican argument that all this economic stuff doesn’t really approach the significance of “Evildoer Terrahists!” bombing Manhattan and DC again, and that should remain a near-fixation to the exclusion of almost everything else is being lost with the taxpayers.

Manhattan gets bombed? DC? Dead bodies of politicians and financiers littering the streets?
Many, many, Americans learning just how badly the financiers and hacks inside the Beltway have fucked them in the last 12 years, deep down, may wonder if Manhattan and DC getting bombed might actually be good for the rest of the country.

Sep 24, 2008 - 8:17 am 25. Lifeofthemind:

Barney Frank did have a good prop yesterday. He was waving a roll he claimed was 700 Billion Zimbabwean dollars. Frank is deep at the heart of what caused this disaster and he is frantically trying to cast himself as the voice of moderation and bipartisan reason to cover his tracks.

Sep 24, 2008 - 8:35 am 26. Tarnsman:

“One is by a reorganization and the second is through wholesale housecleaning — A LARGE SCALE REPLACEMENT OF THE RULING ELITE.”

That, my friends, is why Sarah Palin touched a nerve with so many people. She is “one of us”. Someone not connected to the elites that have led us down this garden path. McCain, Obama and Biden are all ‘tainted’. It is why you are seeing the “I am voting for Sarah” bumper stickers.

Flyover, the founding fathers thought that citizen politicians would serve as the foundation of the government. Men who would come from the body politic, serve their time and return to being a citizen, and then perhaps return again to public service with new found wisdom and insight. I have never believed in term limits, but believe in “rotation in office”, meaning that politicians would be limited in the number of consecutive terms that they would be allow to serve and then would have to step aside and return to being a ‘citizen’. They would be proscribed (proscribe: to banish or exile)for a defined amount of time before they could stand for election again for the office they once held. Truly gifted and talented politicians would be returned to office, while the hacks would have their one turn, never to be heard from again. Think this rule should also apply to Presidents. It would completely change the dynamics of our political system.

Sep 24, 2008 - 8:43 am 27. steveaz:

Correction: Obama’s campaign manager, one Mr. Johnson, ran Fannie Mae into the ground – not Mr. Raines. Raines drove Freddie into the ditch.

It is apparent that both Raines and Johnson did their jobs well because they were compensated grandly for it. It’s as if they were simply following their keepers’ larger plan.

Reparations v.2.0?
-Steve

Sep 24, 2008 - 8:49 am 28. Tamquam Leo Rugiens:

Franks et al are, it seems to me, in a desperate position. There is a good chance that the trough will be yanked away and set up elsewhere. The big question for these pols is now, how can I secure a spot for me and my cronies to belly up to the new trough? Why, by holding up the whole thing until I get my guaranteed spot!

Sep 24, 2008 - 9:43 am 29. Roderick Reilly:

I remember when the CIA went through a “housecleaning” after the Bay of Pigs fiasco. They fired my late father, among many others, who had nothing to do with the Cuba or Carribbean or whatever desk (my father was a Kremlinologist). Just like big, lumbering companies lay off capable workers after the executives screw up, institutions will find ways to “clean house” by eliminating people who are not the problem, but who may be inconvenient to the powers-that-be within that agency.

I’m not saying the task of “cleaning house” is hopeless, but I am saying that this is a factor that must be considered by “reformers.”

Also, note: The federal bureaucracies view a Republican administration as occupiers, and a Democratic administration as liberators. There will be NO genuine reform with Democrats in charge. Also, with the penchant for grandiose programs by Obama & Company, the opportunities for corruption will likely increase exponentinally in an Obama administration; not just in the federal government, but in any institutions that deal intimately with the feds. On top of all that, corruption will be driven by the desire for retribution by thinly-disguised radicals and grievance-driven minority politicians who will find ways to loot the treasury at every turn. This is virtually a guarantee. Obama’s hint that big-spending programs may have to be delayed due to the financial crisis, while probably sincere, will only mean a temporary halt to this trend. Thanks to the remarkable obtuseness displayed by Barney Frank and Chris Dodd, Fannie Mae and Freddie Mac will be up to their old tricks in a couple of years, AND they will do so as entirely government-owned and controlled entities.

As to John McCain: He has the gumption and desire for genuine fiscal reform, but he’s a “Teddy Roosevelt Republican” at heart. Remember that Teddy Roosevelt was a Progresive who even wrote that he found the Constitution inconvenient to a progressive agenda.

Sep 24, 2008 - 10:20 am 30. Paul:

Steveaz:

Some sort of bailout may be necessary, just not this bailout. With this bailout there is no accountability, no checks and balances, and it rewards the flagrant disregard for risk the Big Wall Street firms have adopted over the last few years. This cozy “too big to fail” relationship between the Federal Government and Wall Street is a big part of the problem, and this bailout as outlined so far only reinforces that problem.

This bailout could be done piecemeal. That would give some time to better sort out the problems and propose appropriate solutions with a thorough debate, without the extortion that the Democrats are trying to pull. Newt’s recommendations if enacted, which Wretchard posted yesterday, would surely rally the markets and mitigate some of the financial distress. By doing a piecemeal bailout, there would be time for the Republicans to build support for those pro -growth measures.

Bernacke’s and Paulsen’s argument is that doing it all at once are necessary to restore confidence to the markets. However, if many credible people have concerns over the propriety of this bailout, the confidence of the Federal Reserve will be undermined and confidence in the markets will not be restored but weakened. A measured, well thought out approach that addresses the weaknesses in system, and that has the ability to be tweeked and improved over time while addressing defaults as they come up, also could restore confidence in the markets.

The biggest fear right now is that Paulsen and Bernacke in their actions implied there is some impending major financial collapse possible, if action isn’t taken in the next few days. By the nature of their actions alone, the financial markets have become severely distressed. I’m not sure a financial collapse is imminent, because of the high handed nature of their proposal and the fact that we have not been given the evidence of the reason for this immediate financial collapse.

Your point is an interesting one. I’m not sure it is completely correct. Russia and China hold over a trillion dollars of securities from Freddie and Fannie that were not explicitly backed by the Federal Government. If Freddie and Fannie default, I don’t think they have any guaranteed recourse. That is not to say though, that a default on those securities would not have a tremendous impact, with severe financial and foreign policy implications. A default surely would.

The weakness in financial markets needs to be addressed. But this bailout proposal could lead to even bigger problems and massive financial manipulation leaving the Country in a condition much worse than today, particularly if Obama becomes President.

Sep 24, 2008 - 11:13 am 31. Dai Alanye:

Warren Buffett–a man similar to the mean banker in It’s a Wonderful Life, and an advisor of Lightning Handsome Obama–has announced a huge buy of Goldman-Sachs, whose former chairman is Treasury Secretary Henry Paulsen. You don’t think…?

Nah, that’s impossible in The USA.

Before any buyout, I suggest we take Newt’s (and others’) advice to get rid of mark-to-market. Let’s see how that works for a while.

Regarding Sarah, whatever her fitness to be President or even Vice President, she actually accomplished things in Wasilla and Alaska. Without a famous husband or family name, without money or an elite education–she fired people or put them in jail, both cut and increased taxes, cut earmarks, and put through a major energy project against the will of entrenched interests. On top of all that (or because of it) she’s the most popular politician around.

Running against her in the top spot we have a man who doesn’t so much have a resume as a legend.

Sep 24, 2008 - 11:52 am 32. Eggplant:

It’s becoming obvious that McCain needs to convince John Q. Public that he can do a better job of managing the economy than the Messiah. Rationally, that should be a slam-dunk. However recent opinion polls indicate that John Q. Public mistakenly believes the Messiah can better manage the economy (blame the MSM for this stupidity). It is vital that McCain demonstrate a better understanding of economic issues in the up coming debates.

Unfortunately, having the economy tank just before the general election is a nightmare scenario.

Recent opinion polls also indicate that the Iraq War has become a “non-issue”. This is unfortunate because these same opinion polls indicate that the public trusts McCain more with national security. If the debate focuses on national security, people will probably change the channel and ignore it.

The United States is getting setup for a major screwing. If elected, the Messiah would have no clue how to manage the current economic situation. His natural inclination would be towards socialist/Marxist solutions that would be like adding gasolene to a fire. In addition, the Messiah’s obvious lack of qualification in national security would be an open invitation for Islamic fascists and other enemies to “test him”, e.g. terrorist attacks against American assets, Putin attacking the Ukraine, etc. For this same reason, Israel would feel little obligation to follow the Messiah’s lead or assume he could provide competent leadership. Israel’s best strategy would be to ignore the Messiah and pursue a completely independent policy even if it was disasterous for the United States.

We are looking at a huge “double whammy” if McCain doesn’t win. This could break us as a nation.

Sep 24, 2008 - 11:58 am 33. wretchard:

We are looking at a huge “double whammy” if McCain doesn’t win

This is the probable outcome. And even if McCain does win, the basic crisis won’t go away. I think the political and economic “normal” are over. For decades groups of self-selected people have been slowly taken cultural, informational and financial power into their unaccountable hands. Maybe they now only answer to themselves. But at any rate, the cliques are now poised to will themselves both into power and into unimaginable wealth. Who’s going to stop them? Obama? McCain? Choosing whether or not to bail Wall Street out; attempting to keep powerful interests from hijacking everything including what were formerly considered sovereign acts, are simply the first of the tough hurdles ahead.

Sep 24, 2008 - 12:17 pm 34. We're Screwed in '08:

“We are looking at a huge “double whammy” if McCain doesn’t win. This could break us as a nation.”

If McCain does win it could break us as a nation. He’s vacillated all over the place as to the AIG bailout, and according tothe phlegmatic George Will, McCain appears more erratic than even Obama! I’m concerned.

McCain Loses His Head
By George F. Will
Tuesday, September 23, 2008; A21

“The queen had only one way of settling all difficulties, great or small. ‘Off with his head!’ she said without even looking around.”
– “Alice’s Adventures in Wonderland”

Under the pressure of the financial crisis, one presidential candidate is behaving like a flustered rookie playing in a league too high. It is not Barack Obama.

Channeling his inner Queen of Hearts, John McCain furiously, and apparently without even looking around at facts, said Chris Cox, chairman of the Securities and Exchange Commission, should be decapitated. This childish reflex provoked the Wall Street Journal to editorialize that “McCain untethered” — disconnected from knowledge and principle — had made a “false and deeply unfair” attack on Cox that was “unpresidential” and demonstrated that McCain “doesn’t understand what’s happening on Wall Street any better than Barack Obama does.”

To read the Journal’s details about the depths of McCain’s shallowness on the subject of Cox’s chairmanship, see “McCain’s Scapegoat” (Sept. 19). Then consider McCain’s characteristic accusation that Cox “has betrayed the public’s trust.”

Perhaps an old antagonism is involved in McCain’s fact-free slander. His most conspicuous economic adviser is Douglas Holtz-Eakin, who previously headed the Congressional Budget Office. There he was an impediment to conservatives, including then-Rep. Cox, who, as chairman of the Republican Policy Committee, persistently tried and generally failed to enlist CBO support for “dynamic scoring” that would estimate the economic growth effects of proposed tax cuts.

In any case, McCain’s smear — that Cox “betrayed the public’s trust” — is a harbinger of a McCain presidency. For McCain, politics is always operatic, pitting people who agree with him against those who are “corrupt” or “betray the public’s trust,” two categories that seem to be exhaustive — there are no other people. McCain’s Manichaean worldview drove him to his signature legislative achievement, the McCain-Feingold law’s restrictions on campaigning. Today, his campaign is creatively finding interstices in laws intended to restrict campaign giving and spending. (For details, see The Post of Sept. 17; and the New York Times of Sept. 19.)

By a Gresham’s Law of political discourse, McCain’s Queen of Hearts intervention in the opaque financial crisis overshadowed a solid conservative complaint from the Republican Study Committee, chaired by Rep. Jeb Hensarling of Texas. In a letter to Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke, the RSC decried the improvised torrent of bailouts as a “dangerous and unmistakable precedent for the federal government both to be looked to and indeed relied upon to save private sector companies from the consequences of their poor economic decisions.” This letter, listing just $650 billion of the perhaps more than $1 trillion in new federal exposures to risk, was sent while McCain’s campaign, characteristically substituting vehemence for coherence, was airing an ad warning that Obama favors “massive government, billions in spending increases.”

The political left always aims to expand the permeation of economic life by politics. Today, the efficient means to that end is government control of capital. So, is not McCain’s party now conducting the most leftist administration in American history?

Sep 24, 2008 - 12:17 pm 35. Eggplant:

We’re Screwed in ‘08 said:

“If McCain does win it could break us as a nation.”

McCain is not a Marxist. He’s intelligent and rational. McCain is also capable of thinking out of the box. Finally, McCain is not a coward. During the Iraq War’s darkest times, McCain backed the President while the moonbats were shrieking “cut and run”.

It’s going to require a whole lot of rational courage to get us out this mess.

Sep 24, 2008 - 12:26 pm 36. David M:

The Thunder Run has linked to this post in the – Web Reconnaissance for 09/24/2008 A short recon of what’s out there that might draw your attention, updated throughout the day…so check back often.

Sep 24, 2008 - 1:27 pm 37. sigintel:

McCain has suspended his campaign and asked the debate commission to cancel Fridays debate so he can go to Washington and work on the crisis. The Obama camp has just said “no way” and that “the debate is on”. Could this be another OODA event for McCain to call out Obama and show off his leadership capabilities over the anointed one’s?

Sep 24, 2008 - 1:40 pm 38. Leo Linbeck III:

One of the things the current crisis highlights is the way in which monopolies die: with a bang, not a whimper.

The core of the issue that the troika of Bernacke, Paulson, and Cox are struggling with is that Fannie and Freddie were monopolies (OK, they were technically a duopoly, but any business executive or game theorist worth their salt know how to participate in a duopoly to extract monopoly rents.) AIG, in some markets like credit-default swaps, was also a dominant player. Their monopolistic behavior drove other competitors out of the market, behavior that was aided and abetted by their political stroke.

There are two fundamental forces at work as financial services firms such as Fannie, Freddie, and AIG (and Enron before them) grow. The first is related to the benefits of pooling risk. Any given security or insurance policy has a risk profile that can be approximated by a statistical distribution. As the number of securities grow, assuming that these risks are somewhat uncorrelated, the per-security risk of the pool shrinks (the total risk of the pool may still grow, but at a much lower rate than the face value of the security). This is the most important economy of scale for a financial firm.

The other force at work is that as any organization grows, it becomes more governed by perception than by reality. The height of the organizational pyramid grows, and the person at the top gets further and further away from the “facts on the ground.” The CEO eventually ends up in a “virtual” world, one in which lower level employees (and in the case of mortgages, originators) feed information up the organization in a manner that becomes more and more abstracted and manipulated at each layer. At the top, you get very aggregated information (revenue growth, default rates, etc.) that can, for a long time, remain disconnected from reality. Because of this distance, CEOs rely on trust and loyalty more than facts and evidence, since even the “facts” they receive are communicated through intermediaries (mid-level executives) that they must trust.

This simple fact of organizational life means that CEOs manage in a world of perception that can become radically disconnected from the facts. They spend a lot of their working hours managing perceptions and cultivating relationships, and this effort places a special premium on subordinate loyalty, who in turn learn that they boss can’t handle the truth. So, the CEOs make really lousy decisions (or non-decisions) that hurt the firm in the long run, but make them look great (and pay them well) in the short run. This is a major diseconomy of scale.

In the normal give-and-take of a competitive market, individual firms pay a steep price for letting perception and reality get out of whack – their competitors (often smaller and more nimble) take market share and eventually force a reckoning with the facts. But when the firm is a monopoly, this check on their behavior is gone, and the disconnect can grow greater and greater until there is a major correction such as we are witnessing today.

In the case of financial services firms, this situation is compounded by the fact that there is so little underlying equity in the firm. It has been reported that Morgan Stanley only had $3 of equity for every $100 of assets. So when a major disconnect is exposed between the perceived value of their assets (e.g. subprime mortgages) and their true value, there is not enough surplus capacity (i.e. equity) to absorb the correction. This means they either raise a bunch more equity, or they are out of business. In other words, they are bankrupt.

Now, in addressing this situation, so far the troika has acted fairly prudently. Their stepping into Fannie and Freddie simply affirms their government-approved monopoly status, and makes them accountable to their guarantor. Ideally, this takeover will lead to a gradual dismantling of these giants, and the restoration of true competition. The “bail-out” of AIG is, in fact, not a bail-out but instead an alternative form of liquidation, in which the Fed or the US Treasury or both will act as “debtor-in-possession” lenders while the profitable portions of their business are auctioned off. This may, in fact, be a more orderly way to liquidate than bankruptcy for a firm of this size and scope. Judgment call, but a reasonable one.

The Fed actions to inject huge amounts of liquidity into the market are also probably make sense. In a situation where assets move in very large amounts, insufficient liquidity can destroy the entire system. This is, in fact, what happened in the Great Depression, where the Fed tightened liquidity so much that we entered a deflationary spiral that killed the “real” economy. To be sure, adding this much liquidity will cause big inflationary pressures, but those are longer term challenges that are dwarfed by the risk of deflation.

Where the troika probably goes too far is in now setting up a “Resolution Trust Corporation” style buyer-of-last-resort for distressed assets. The expense and moral hazard of such a plan is almost certainly more greater than the benefits of letting a thousand flowers wilt. It also takes a market that can function reasonably well (so long as there is sufficient liquidity, which they have certainly provided) and convert it into a monopoly.

Now, the devil is in the details, to which we do not have access. It is certainly possible that the problem is so big that we have no other choice. But I think it is right to be skeptical and ask intelligent questions about what, exactly, is going to happen.

Finally, what is most remarkable about this entire situation is that it is basically a panic by institutional investors – the professional money managers. Individual bank deposits have hardly budged, largely because most of them are insured. (I had breakfast yesterday with the CEO of a large regional bank, and he said that his deposits have actually been growing at a healthy clip. Interesting.) This “panic of the pros” is part of the reason the press is going nuts, and the press drives the politicians to “Do something, dammit!”

Given that the money managers have largely built their businesses by giving people the impression that they are smarter than the market, what we are dealing with then is a complete meltdown of the “perception class” – investment pros, press, politicians – that has driven perception down so far that it is well below reality. That is what panic means: the world of perception << the world of reality.

However, eventually, these two worlds will realign. This can either happen by the recovery of their nerve or the deterioration of the real economy.

I pray that it is the former.

L3

Sep 24, 2008 - 1:48 pm 39. Alexis:

Senator Obama’s support for state subsidies for private corporations that manage public housing isn’t much different from “conservative” ideas of paying private corporations to manage state prisons. Or for that matter, charter schools.

However much one may disagree with Senator Obama’s politics (and I certainly do disagree), one should be willing to admit that Obama’s version of state-subsidized corporatism isn’t much different from versions promoted by some conservative Republicans.

Sep 24, 2008 - 1:53 pm 40. slade:

No matter what happens, Hank Paulson (Bernanke, Bush and, the roomful of investment bankers) are *caught* in a win-win situation. If Congress refuses an appropriation, then a different type of pain will be administered. We were warned. If the full appropriation is authorized, it is likely that larger credit freeze will be avoided. If partial appropriation is authorized, several months/quarters of white-knuckle stagnation are ahead. But bottom line, love hime or hate him, Paulson played the only rational hand available to him.

I am roughly on the side of the Angry Public but have to say (vis a vis the “transition phase between youthful idealism and cynical realism”) that it’s hand and hand whether we like it or not.

The one thing I will not agree with is the persistent assertion that the Public is part of the Problem because we wanted Ownership Society. The public is therefore responsible for (1) the illegal mortgages and (2) the unregulated derivatives industry in CDO’s and CDS’s that literally force-multiplied the magnitude of the bad mortgages through over-leveraging, which is not getting much traction in the hearings.

At this point I am OK with any outcome. I think the public should choose their medicine. If the Plan is preferred, it better be explained. I don’t care how much midnight oil has to be burned to get the “dummies” in bed with the “sharpies” but if it’s a function of whose money is being played, then I’d start lecturing.

About now.

Sep 24, 2008 - 2:00 pm 41. jkumpire:

Folks,

We in this conversation are forgetting something: Federalism.

A, if not the, major problem with the US government today is that it is doing way too much. State governments are enslaved by the feed trough and the laws and regulations that run downhill from Washington.

In the video at the top of this ad, what is the real problem: The FEDs gave the money and do the oversight, [b]not the city or the state of Illinois.[/b]

That is a direct reflection of liberalism controlling government since FDR. It is so entrenched in the Federal gov’t that it would take Ronald Reagan four or 5 terms in office to root out the liberals there. And unlike the above poster’s point about who ran things for x number of years, there has been no real conservative majority in the
Congress to spearhead reform. If there was, we would have had a sane energy policy in 2002 or 2003, Fannie and Freddy reform in 2005, and a long-term fix for SS/Fedicare in 2005 or 2006.

The supposedly dominat “Right wing radicals” have never had power to change things. Don’t drink the Kool-Aid of the left that are selling a bill o0f goods.

Sep 24, 2008 - 2:15 pm 42. slade:

RE: Presidential Debate

Cancel AND reschedule. This is not hard.

Sep 24, 2008 - 2:16 pm 43. jkumpire:

Continue: Please look at what really has gone on recently, not the mirage you have been sold. Was Bill Clinton a conservative? Let’s see, from 2001-2002 who ran the Senate? Has either house of Congress had a working conservative majority that could run any piece of legislation to the President’s desk?

Let’s see, when did the twin towers fall, 1993 or 2001? In short, events and political images/ realities have dimmed the vision of a lot of people who are conservatives as to how much control we really had in DC.

Sorry about the bad spelling.

Sep 24, 2008 - 2:21 pm 44. Alexis:

One concern I have about the $1,000,000,000,000 bailout is that it may not do much good. If speculators get bailed out now, how would this not merely encourage more speculation in the future? How would this not promote even bigger bubbles, so big that no government would be able to manage the resulting mess?

It feels as though every American is being asked to flush thousands of dollars down the toilet, and all for bailing out Wall Street tycoons. The United States could finance the best transportation system in the world for less money, we could probably afford regime change in Iran for less money, and yet this bailout demanded by President Bush looks like throwing good money after bad money.

It will be difficult to convince middle class Americans to give a hoot about Wall Street when it seems as though Wall Street never gave a damn when American manufacturing jobs were shipped to China. Why does our financial sector need preferential treatment while steel, furniture, electronics, textiles, and other key industries do without? Does the Bush administration honestly think that Congress will give up all oversight when our Treasury Secretary says “Trust Me”?

If the Treasury and the Fed are so correct in their analysis, why didn’t they figure out something was wrong with the market six years ago, six months ago, or even six weeks ago? Why all of a sudden? Why all in a hurry? Why now? Is this really a crisis that can’t wait until after the Presidential election?

This entire financial mess looks like fodder for conspiracy theorists. If Obama loses, the theories will claim there’s a Bush conspiracy to sink the Obama campaign. If McCain loses, the theories will claim there’s a Bush conspiracy to sink the McCain campaign. In any case, it will be difficult to get a majority in Congress to support a bailout that would leave every politician voting for it smelling of Fannie’s and Freddie’s Famous Perfume, a fragrance well known to those who have ever been in the vicinity of a dead skunk.

Sep 24, 2008 - 2:24 pm 45. 2x4:

sigintel:

McCain has suspended his campaign and asked the debate commission to cancel Fridays debate so he can go to Washington and work on the crisis. The Obama camp has just said “no way” and that “the debate is on”. Could this be another OODA event…?

I believe so. No matter what BHO will do, he’ll lose. Either he’ll agree to join and appear weak (it’s McCain sponsored initiative) or he’ll appear that he’s concerned only with HIS campaign, not with the state of US economy.

Just my 2 cents…

Sep 24, 2008 - 2:40 pm 46. jkumpire:

Alexis,

It’s not supposed to be the job of the FED and Treasury to determine the course of the Economy, or predict it. That is what the market is supposed to do, and why we have Recessions and other bad economic news once in a while.

The problem is that the liberals and leftists have injected so much of the government into the Economy it has distorted it. Ever heard of Redlining? Ever heard of Fannie and Freddie’s “profit by the cooked number scheme?”

The left wants to turn the US into another failed European socialist/Russian communist utopia. Which is the problem.

Sep 24, 2008 - 2:47 pm 47. Alexis:

Let’s say for the sake of argument that I’m a congressman. (I’m not, let’s suppose that I am.) Why should I vote for a bailout even if I know it’s the right thing to do? I know it would be unpopular. Indeed, this bailout’s unpopularity would be one of the few topics my constituents can agree upon. If I vote for the poison pill, I would breathe life into my opponent’s campaign portraying me as out of touch with my constituents. If I vote against the poison pill, I would need to dance carefully to explain how I’m being a true statesman who wanted a good bill to get passed, yet my conscience wouldn’t allow me to vote for this stinker. I would then rail against the special interests (who never seem to include any of my own political supporters and certainly not anybody who has donated to my political campaign), all the while letting somebody else get the blame for passing that unpopular bill.

If I were cynical, I would try to look as though I’m sticking up for the will of my constituents when I’m really voting against their wishes. I might try to vote at a time when most voters won’t notice what’s going on. I might try to add a sufficient number of earmarks so I could tell my constituents, “Look, I know this bill is really bad, but I voted for it because I used my clout on some obscure subcommittee to add half a billion dollars worth of pork for my home district, and that means jobs, jobs, jobs.”

Passing an unpopular bill won’t be easy in this political climate.

Sep 24, 2008 - 2:48 pm 48. whiskey:

First, the economic crisis is serious. People could be out of work in a severe depression. Unfortunately, the media will not report that both Bush and McCain proposed years ago reforms that would prevented the crisis from occurring. And that the crisis is the result of Barney Frank, and Chris Dodd, and Chuck Schumer’s work, along with Barack Obama’s.

It’s why Obama has halted his self-destruct, and will likely win the Presidency, because of the economic crisis. People blame Bush and thus, McCain.

McCain’s gamble is to suspend his campaign, call for bipartisanship, and challenge Obama to put country first. Obama’s response is to go to business as usual.

Which is the big crisis facing our elites — they cannot respond to the “end of normal” as Wretchard put it. Contrary to Cedarford’s assumption, nuking of NYC or DC means 3-6 million dead, economy globally in crisis (as all container trade is shut down) and another attack unless examples are made, to make the prospect too horrible.

Elites will not want to “nuke the wrong country” but unless ALL possible suspects are nuked the attacks will continue. And the Muslim world will have to be wiped out in pure survival. With the leaders being not the elites but the thieves and con men of Ballard’s “Empire of the Sun” prison camps. Men who at least know how to survive.

McCain’s big gamble is to paint Obama as unable to respond to the economic crisis. He will require a wing man of the 527’s to ruthlessly attack Obama on this issue. Painting Obama as weak, ineffectual, and clueless, while McCain acts decisively to stem the crisis.

Obama is a creature of the “normal” where things don’t change. Where if you make the wrong decision, NYC is not nuked, there are not 3-7 million dead, the most important city in America dead, and fear and anger running so hot that people will do anything and everything to survive. He and the elites cannot fathom the thin edge between prosperity and pure survival.

He still might win. But do Dems want to own the “Nuking of NYC?” I don’t think so.

Sep 24, 2008 - 2:49 pm 49. slade:

One concern I have about the $1,000,000,000,000 bailout is that it may not do much good. If speculators get bailed out now, how would this not merely encourage more speculation in the future? How would this not promote even bigger bubbles, so big that no government would be able to manage the resulting mess? – Alexis

I have now voluntarily positioned myself in the financial peanut gallery but here’s my take. The appropriation is being *structured* as an *investment* that will potentially return money to the lender – the taxpayer – via interest payments. I think that explanation has the potential to be marginally correct, but it’s a devil-details situation that Congress is trying to control by enhancing Paulson’s “3-page proposal.”

Second issue about systemic failures and bigger fixes – acknowledged by everyone. “This is just the first step.” So the concern – legitimate – is the persistence of diligence once the microphones disappear. Comprehensive regulatory reform. OK. We don’t see to *do* comprehensive. The long-term fixes must be incremental, in my view, with some version of this appropriation as the first (baby) step.

As far as conspiracy is concerned, I don’t see the international element, but I do see some serious issues within the investment banks with their leveraged derivatives markets now being represented by ?? Paulson, Rubin, et al, and of course the recent Buffett buy-in to Goldman. The American people would deserve to be buried in their own naive hubris to pretend the conflict of interest did not exist.

It’s ugly.

Sep 24, 2008 - 2:54 pm 50. Eggplant:

2×4 responded to sigintel:

“McCain has suspended his campaign… Could this be another OODA event…?

I believe so. No matter what BHO will do, he’ll lose. Either he’ll agree to join and appear weak (it’s McCain sponsored initiative) or he’ll appear that he’s concerned only with HIS campaign, not with the state of US economy.”

I agree with 2×4. McCain was surprised by the sudden change in the economic situation that downgraded the relative importance in national security (McCain’s trump card). McCain had to reacquire the initiative (once again get inside Hussein’s OODA cycle).

If Hussein is an idiot, he’ll be insisting on a debate while McCain is in the Senate Chamber actively organizing action on the economy. Hussein’s next decision could make or break his campaign.

I should add that this sort of tactical maneuvereing is an example of why McCain should be our next President.

Sep 24, 2008 - 2:55 pm 51. wretchard:

First, the economic crisis is serious. People could be out of work in a severe depression. Unfortunately, the media will not report that both Bush and McCain proposed years ago reforms that would prevented the crisis from occurring. And that the crisis is the result of Barney Frank, and Chris Dodd, and Chuck Schumer’s work, along with Barack Obama’s.

The Democrats may have started the fire, piled on the fuel, lit the match. But the Republicans didn’t put out the fire, or even give the alarm. Thus they bear responsibility, but not the only responsibility. Nobody really saw it coming. Oh, there were a few Cassandras. But by and large warning of the crisis never strode front and center into the public stage. In retrospect researchers will find evidence that it could have been foreseen, the way Pearl Harbor or 9/11 could have been foreseen. Yet the bottom line is that the professionals were caught out. That’s why Lehman is gone, why Wall Street as we knew it is over.

“Punishing” the Republicans while rewarding Frank, Dodd and Obama — or Wall Street — may not be logical; but politics often isn’t. Supposing for a moment that Obama does become President, with all his scurvy crew, then the probable outcome is a jump from the frypan into the fire. That is definitely a possible outcome which can be anticipated in several ways. The “smart” thing to do is to calculate how one can benefit from that outcome — it will be a happy hunting ground for wheeler-dealers. The other thing to do is figure out how utilize the rebound when it comes. And it will come.

Sep 24, 2008 - 3:08 pm 52. slade:

RE: the (inevitable) rebound.

That’s why I have such a bad feeling about all of this. Schedules vary, but sometime between 2012 and 2016, SS and Medicare/caid are expected to become insolvent. And I would add, even though nobody aside from me knows the existence of the *other* GSE, that the PBGC will likely collapse at or about the same time.

It’s going to take a lot of growth to “backstop” the coming defaults.

Sep 24, 2008 - 3:13 pm 53. slade:

Not to mention that 2012 – 2016 is the same time frame for an expected global oil shortage.

It would appear that the one thing we all have in common – and the *group* always expands when blame is looking for a home – but the one thing we all have in common is that we have been living on borrowed time – deferred payments now coming due.

Sep 24, 2008 - 3:22 pm 54. Eggplant:

Slade said:

“That’s why I have such a bad feeling about all of this. Schedules vary, but sometime between 2012 and 2016, SS and Medicare/caid are expected to become insolvent.”

Even if the Messiah doesn’t win, we’re probably two moves away from checkmate due to the babyboomers bankrupting SS and Medicare/caid. The Messiah Mk 2 will be running for President in 2012 and he/she will be campaigning on how to fix SS or what to do with all the radioactive debris on Manhatten Island.

Our chickens are coming home to roost in a long single file.

Sep 24, 2008 - 3:22 pm 55. slade:

RE: the Congressman’s conundrum.

There’s a snaggy reality beneath all of the explanations we’ve been given so far – from Paulson’s “it’s complicated” to Bernanke’s “constriction of commercial paper” to Cramer’s “you will cease to exist in two weeks – or less.” The reality is that it’s all true. That requires superior give-and-take, of which I would venture to say that Congress has come out ahead so far – simply by not rolling over to what came off as a “do or die” dictate. And the Fat Ladies haven’t sung yet either.

As I said, it will be interesting to see but I am guessing a Plan by Friday.

As for McCain-Obama, neither of the candidates has a good grasp of this issue so the decision pivots on the collective team that can best be anticipated, (Rubin versus Paulson) as well as the balance of power with Congress and how that plays out, but I do not see how a case can be made on either man alone. That’s why the polls can’t grasp the popular sentiment which is now considering the bigger picture of collaboration.

Sep 24, 2008 - 3:32 pm 56. wretchard:

On the night the Titanic sank, Captain Smith had two challenges. Regulating the launch of the lifeboats and making certain the order of embarkation was preserved. He failed in the first: many lifeboats were launched half-full. Hundreds of people who could have been saved died on the ship completely unnecessarily. The second challenge, ensuring that “women and children” were first, failed because of the influence of the First Class passengers. A disproportionate number of First Class passengers survived. Many Steerage passengers were locked below. When the ship sank, some were more equal than others.

The current financial crisis resembles the Titanic problem in some ways. ‘Not enough lifeboats’ equals not ‘not everyone gets all his money back’. Some people are going to go down with Wall Street. But how many and who gets to survive is still unresolved. Like Captain Smith, two challenges need to be faced by the captains of the ship. The first is to wind up business in such a way that panic doesn’t mean financial lifeboats are lowered half-empty. The argument for a bailout is precisely based on this rationale. The bankers argue that things must be done in an orderly way and there’s no denying that. Otherwise there will be runs and fundamentally sound firms will collapse leading to losses that will be worse than otherwise. But the bailout poses a moral hazard for meeting the other challenge: ensuring that nobody gets to jump the line. Like the Titanic there are first class passengers and there are the great unwashed. Given the record of the financial professionals, is it hard to believe that they will not try to get their money back ahead of the others? The “gentlemen” on the Titanic did it. Why not the Masters of the Universe?

So in the simplest terms, the problem can be posed as “design a bailout to minimize total economic loss while preserving the order and proportionality of loss.” Easy to say. Hard to do.

Sep 24, 2008 - 3:34 pm 57. slade:

The other thing RE the American people is they are in the unenviable position of deciding whose interests are most fundamentally misaligned – financial services industry or Congress.

Sep 24, 2008 - 3:42 pm 58. whiskey:

I think Obama wins this. He’s not held accountable for whatever compromises are made. While McCain is. Moreover, McCain has been weak in making sure people know Obama was in eyebrow deep in the mess and essentially, bought and paid for by Freddie and Fannie and the like.

However, if Obama wins, and he probably will at this point (with about a week of unanswered campaigning) it’s silly to think there will be a backlash. Already he’s talking of unleashing his partisans on show trials and the like. He can simply use the crisis to suspend the Constitution and enact President for Life Socialism. Ala his models Cuba and Venezuela. There won’t be any political force to stop him.

He won’t be accountable unless/until America gets nuked. Simply because he’ll hold all the cards. Hard left Presidency, Congress, and Judiciary. With mandatory pictures of “the One” in every room. Your new God.

Sep 24, 2008 - 3:42 pm 59. jkumpire:

Wretchard wrote:

“But the Republicans didn’t put out the fire, or even give the alarm. Thus they bear responsibility, but not the only responsibility. Nobody really saw it coming.”

That is not correct. In 2005 this issue was seen and brought up in legislation, which did not pass the Senate because the Democrats obstructed it. Also, except for the so-called “conservative media”, this looming crisis never saw the light of day. But there were people who knew this day was coming, and their voices were not heeded by the establishment/leftists politicians and their cohorts.

The reform is another victim of the scorched earth partisanship practiced by the Democrats since they fairly lost the 2000 election. This fact is also very much overlooked, and they have poisoned the well of government with their hideous behavior since January 2001.

Sep 24, 2008 - 3:43 pm 60. cottus:

Wretchard, prescience is not the right word, but every time (everytime!) I read your postings and comments I get this tingly feeling up and down my spine.

In the last couple of days as three generations of Americans who are clueless about the dangers of financial collapse are caught in a disastrous combination of a bitter Presidential campaign and that collapse, I have come around to thinking perhaps this is the time to let ‘er rip. As a nation, we have lost the ability to fight wars properly. Now we have lost the ability to manage debt. A comment from one of many voices saying he didn’t care what happened – the guilty must be punished – no bailout whatever the consequences – I now agree.

It is a long way for you to travel, but I hope you are prominent at the next constitutional convention after the revolution. As for me, as the Turks said about the Russians, I promise to take 7 ‘liberals’ with me before I go.

Sep 24, 2008 - 4:08 pm 61. wretchard:

but I hope you are prominent at the next constitutional convention after the revolution.

I’m not qualified. Maybe my only qualification in life is an awareness and acceptance of the things I am not competent to do.

Sep 24, 2008 - 4:28 pm 62. steveaz:

Paul,
Thanks for your thoughtful reply.

In the debates over ‘privatization’ of Social Security, the merits of the “Ownership Society,” and whether we can rely on government to shepherd citizens throughout their lives, the Dems and the Europeans have dogs in the fight. This drives my thinking on the topic of the bailout.

I’m not sure that France’s and Germany’s hide-bound economists wouldn’t prefer to drag our economy down to their level, rather than loosen their governments’ regulatory frameworks and build-up their economies to our level. In fact, they’ve made this preference very clear.

The Eurocrats decided in the nineties that they would avoid competing directly with us (cue the Boeing vs AirBus debate), and that instead, they would promote and propagate a spectrum of proxy, sociological competitions – all mediated by global media. Greenhouse Gas Emissions, Childhood Obesity, the Iraq War, “Cowboy Unilateralism,” and Endemic Racism are the most memorable abstract contests that they chose.

In view of this, it’s not a large leap to imagine that their state-mediated banking systems would benefit if America’s financial industries failed dramatically, nor that they might assist in bringing it about. DeutcheBank et al would welcome the return of their countrymen’s investment capital in a big way. And, to throw a curl into this curve, Obama is Soros’ and Europe’s candidate.

Same goes for the Islamists. They can’t beat us on the battle field, so, they engage our domestic strengths here at home. So far, all they’ve gained by their 9/11 attack is a bail-out of major airlines, the Karzai regime in Afghanistan and a new, democratic republic in Iraq. But, no matter the results, it’s clear that their attack on the Twin Towers was an attempted decapitation of our economy.

Thus, despite the mediocrity of their accomplishments so far, it is perfectly natural that they would look to make a splash by undermining our financials today, too.

And Russia, too. Excise America’s markets from Western Europeans’ retirement portfolios and there is nothing left to bind Europe to America. A resurgent Russia will hold all cards then, including their energy, industrial and political bases. NATO will fall, and Germany will become a Russian rump-state. And, Europe’s framers, from Chirac to Schroeder, have never given much shrift to the notion that a common culture binds our continents (this is borne out in their voiced desire for Europe to serve as a “counterpoint” to America).

There are just too many parties slathering for an American depression right now not to cast a gimlet eye in their direction.

On a positive note, one good thing has come out of Bush/Paulsen’s popularization of the ‘financial crisis’ so far: at least we’re all discussing economics and their relationship to our republic’s finance and foreign policies in a starkly competitive world for the first time that I can recall in years.

And, more importantly, Bush has publicized this multi-faceted morass over the heads of a media determined to hide the outlines of the crisis – and the Democrat’s complicity in it – from the American public: quite an accomplishment.

I say, Bully for him.

Sep 24, 2008 - 4:31 pm 63. jkumpire:

One last point, from NRO:

All those who’ve sent me “shame on you” responses from my posting yesterday should take a look at a piece by economist Stan Liebowitz in today’s NY Post:

Mortgage lending took that “reckless and unsustainable turn” because of regulation – regulation driven by liberals and progressives, not free-market “deregulators.”

Pushed hard by politicians and community activists, the regulators systematically and deliberately altered financially sound lending practices.

The mortgage market was humming along just fine when, in the late 1980s, progressives decided that it needed to be “fixed.” Their complaint: Some ethnic groups got approved for mortgages at lower rates than others.

. . .

The shift began in 1989, when Congress amended the Home Mortgage Disclosure Act to force banks to collect racial data on mortgage applicants. By 1991, critics were using that data to paint lenders as racist by showing that minority applicants were approved at far lower rates. Banks were “Shamed By Publicity,” as one 1993 New York Times headline put it.

In fact, they found a racial disparity only by ignoring relevant data on applicants’ ability to make mortgage payments – such as their assets and credit history.

But the political pressure was intense – with few in politics or media eager to speak the truth. And then, in 1992, came a study from four researchers at the Boston Fed, which seemed to bear out the critics’ contentions.

That study was, in fact, based on quite flawed data – but the authors’ political, media and academic protectors stifled most serious criticism, smearing the reputation of one whistleblower and allowing the Boston authors to avoid answering serious academic challenges (mine included) to their work. Other studies with different conclusions were ignored.

The very next year, the Boston Fed announced new requirements for banks – rules that have now turned out to be monumentally catastrophic: Adopt “relaxed lending standards” or risk being labeled as racists, and face serious penalties under the federal Community Reinvestment Act.

Gone (as “arbitrary” and “outdated”) were traditional lending requirements such as requiring a down payment or limiting mortgage payments to 28 percent of income. (Of course, the loosened lending standards weren’t limited to poor and minority applicants – that would be discriminatory.)

Sep 24, 2008 - 4:37 pm 64. slade:

Mortgages are a diversionary issue for political red meat, the “dodgey” ones being 10% of the mortgage market. Bad day at Blackrock when 10% can freeze liquidity here and abroad. The balloon effect of insuring something you don’t own (CDS) coupled with the fancy pants repackaging (CDO’s) to generate transaction and management fees expanded the magnitude of the mortgage impact.

Doesn’t excuse anything or anyone. But it takes the focus off of the longer term problem of regulatory reform. Derivatives are not currently regulated. Anywhere, the European banks being in even worse shape – fully out of range of any form of government bailout.

Sep 24, 2008 - 4:46 pm 65. cedarford:

jkumpire:
Wretchard wrote:

“But the Republicans didn’t put out the fire, or even give the alarm. Thus they bear responsibility, but not the only responsibility. Nobody really saw it coming.”
That is not correct. In 2005 this issue was seen and brought up in legislation, which did not pass the Senate because the Democrats obstructed it…

Oh yeah, the old argument that the Party in control of the White HOuse & Executive, the Senate, and Congress in 2005 is blameless because the minority is more powerful.

Because Republicans did not wish to be rude to “dear friends” and scream at them (when fatcats were making featherbeds and extending the Revolving Door to both Paty’s hacks, and it would make extremist right-wingers like Phil Gramm look bad.

Oh, and Bush was so concerned about Iraqi
“noble freedom lovers and his Special Israeli Friends” that the fate of Americans was secondary.
And only “evildoer attacks” mattered to Bush. It’s one thing to care about an Evildoer attack on NOLA that flooded the city and killed over a thousand. But a harmless hurricane? Not something important. Same with the economy.

Sep 24, 2008 - 4:58 pm 66. jkumpire:

Cedarford,

Have you ever heard of a filibuster and a cloture vote? Or have you not noticed that it takes 60 votes to pass a measure through the Senate these days, esp. when the Dem’s ox is being gored. We could also talk about the media too, but far be it from me to bring you into reality. you will have to do that on your own.

Your other comments show you to be a clueless idiot as well, so I will pass my apologies along for saying that. And after wasting two minutes of my life responding to you, I’ll move along …

Sep 24, 2008 - 5:09 pm 67. steveaz:

Great comment, JKumpire.

The Progressives did the same thing with academic credentials.

By correlating ethnicity with hiring data, the Prog’s were able to assert that employers were racist in their hiring practices.

After years of facing shakedowns on this point, employers decided it’d be better if a third party was in charge of credential-ing (call it pre-employment screening) job applicants. This way, the credential-ing institution took the heat for not passing minorities, and the employers could simply point at an applicant’s lack of credentials in order to deny them hire.

And we got the same results, too. Not wanting to be labeled “racist,” the credential-ing entities proliferated their credentials, thus inflating their worth in the labor market place, and these same institutions became corrupted by their monopoly in awarding credentials.

Another parallel is, the idea that a credential is an entitlement was pushed by the Progs and their media alike – just like home-loans became a de facto entitlement during the nineties.

And, I haven’t even mentioned the Student Loan mess, yet. I’ll leave that for another day.

Sep 24, 2008 - 5:32 pm 68. sgi:

McCain and Bush have the identical problem: neither are great communicators. One or both of them should be taking this opportunity to describe to the American people how this happened and under whose watch. It wouldn’t hurt to accept some of the blame either, if indeed there is some to take and it appears that there is.

McCain can not afford to let the MSM or Obama interpret this crisis in their terms. Where’s McCain’s straight talk that he’s so famous for?

Sep 24, 2008 - 7:39 pm 69. NahnCee:

Read elsewhere that McCain could offer to have Palin debate Obama, if he insists on going ahead with the debate. After all, they are equally inexperienced on foreign affairs.

Sep 24, 2008 - 7:51 pm 70. Ex-fetus:

“Imagine what would happen if a terror nuke went off in NYC. Who’s going to make the call to strike back and risk hitting the wrong country?”

I hate to agree with C-4 on anything, but this would be great news for all except the few million caught in the Pika Dan. The other 300+ million Americans would just go on about their business. Only New Yorkers think New York is important. Well, maybe a few foreigners.
As far as hitting back, there are no wrong countries.
Start with Mecca, since that will take down one of the pillars of Islam, or at least make it easy to tell who has done their pilgrimage ( hair falling out, tendency to vomit a lot, glows in the dark, FLK’s, etc.). Then do Tehran, Moscow, Paris, Peking, Berlin and Islamabad.
Then we wait and see how much that bumps up the background radiation before looking for more targets.
If America is going down, we need to take everyone else with us. Dr Strangelove was right.

“So let’s get going. There’s no other choice. God willing, we will prevail in peace and freedom from fear and in true health through the purity and essence of our natural fluids. God bless you all.”

- General Ripper
Dr. Strangelove or: How I Learned to Stop Worrying and Love the Bomb; 1964

Sep 24, 2008 - 8:11 pm 71. slade:

RE: Palin debating Obama.

That would not just be an ooda loop, that would be an oofdah loop – shorthand for d@mn Sven, that hurt.

Sep 24, 2008 - 8:13 pm 72. This Guy Seems to Be Talking Sense « Arroyo Seco Real Estate:

[...] by leowalker on September 25, 2008 Which is a refreshing change. Leo Linbeck [...]

Sep 25, 2008 - 6:22 am 73. Konyok:

McCain’s campaign suspension seems to me to have a bit of the flavor of Gandhi threatening a hunger strike. Republicans are forced to rally behind a bailout.

Sep 25, 2008 - 7:51 am 74. slade:

Not a “bailout”, K, it’s restructuring” (I also like “Bad Asset Plan” and “Targeted Assistance”).

Try to keep up ::))

And Wall Street IS Main Street.

The convolutions and evocations as The Street tries to “over-communicate” (Jack Welch’s term), the primary message being that Wall Street IS Main Street (like the old saying – a rich man is just a poor man with money.)

Some simple arithmetic from a guest analyst on CNBC:

Dividends of top 20 financial institutions last year totaled $40B. At a leverage ratio of 10:1 (prudent and well below the 20:1 and 40:1 here and up to 60:1 overseas), that means that $400B of capital is available. So the market has sufficient liquidity for purchasing the, ah, bad debt. I have heard that claim repeated from others. The issue appears to be stuck on psychology.

That’s probably a reach too far for me – a price tag too high. The way I am seeing it, the “stress” for the average person will be about the same, with or without a bailout, that would be restructuring, to improve the mood of Wall St. The difference is whether or not the “stress” gets *leveraged* throughout the financial services industry.

If I am wrong, I am wondering why the technical explanation is not forthcoming to more directly connect the tight credit markets with the cost of the therapy. I’m thinking more in terms of tough love and cold turkey.

Sep 25, 2008 - 11:33 am 75. slade:

The narrative is being written as we speak.

Wall Street IS Main Street.

“Are you mad?” Look in the mirror. You have only yourself to blame. We’re all in this together. Especially since you now *own* our bad debt. Can’t we all just get along?

Sep 25, 2008 - 11:46 am 76. NahnCee:

I’m quietly thinking to myself that McCain’s campaign suspension will give him a chance to catch up on his naptime.

Sep 25, 2008 - 12:01 pm 77. slade:

That’s about right NahnCee. And Phil “Stop Whining” Gramm, who pulled off the 2000 Budget amendment that exempted the derivatives market from substantive regulatory control paving the way for exorbitant – and I would posit illegal – leverage ratios (ref Elephant Bar and other sites, although I was one early observer of the unregulated status of hedge funds and their derivative vehicles, but the subject has zero traction under the We are The World chorus that is now drowning out the last vestiges of rational thought – whew – going Dennis Miller here, which is now being blamed on the lack of savings which put too much money into the credit markets so the investors could *repackage* more *junk* with more leverage. H^ll, now that I finally understand, it’s ALL *our* fault. How did *they* ever tolerate *our* financial mismanagement?)

Maybe we should give them a cool trillion? Penance payment.

Sep 25, 2008 - 12:39 pm 78. slade:

That was probably over the top – well mired in my own oofdah loop.

I am not convinced, but The Fix is in. The Official Narrative is being engraved in concrete with well-modulated voices engaged in soothing tut-tut mode. This too shall pass.

But not for long.

At which time we’ll be out of office.

And I will be retired and off-grid as they say.

Sep 25, 2008 - 12:44 pm 79. slade:

SEC Update on Leveraging Blame

Much has been made of the SEC’s failure to spot trouble brewing at the investment banks that fell under its purview. An SEC rule change in 2004 — which didn’t generate a lot of attention at the time and passed before Cox came along — let the five largest investment banks significantly raise the amount of money they could borrow. In retrospect, the new ratio — $40 dollars borrowed for each dollar of capital to back it up — was precariously high, considering smaller broker-dealers were capped at a ratio of $12 borrowed for each dollar of capital.

Which means much of the up-ramping was not illegal – just irresponsible.

And I’m done now.

Sep 25, 2008 - 1:00 pm 80. slade:

The argument for “speed” not making the mark either.

I’ve been listening to a host of alternative *plans*:

Such as using the commodities indices as a way of valuing the bundled mortgage securities rather than this “reverse auction”;

Or injecting capital directly (and incrementally) into banks as a more targeted (and accountable) approach to allow each bank to better deal with its own accounts.

Recall the big Economic Summit held by Obama after the Olympics? Why not here and now? Now Sen Shelby and five pages of economists are disputing the plan, which reverberates in the markets, not good for Sen. Shelby or anybody with an interest in stabilizing whatever needs stabilizing. Like sending a fragile teenager out into the world of adults.

Too late now.

But something to consider in six months when the current allocation is …

gone.

As much as the “imaginary trench” between the two streets.

We are One Street, One World, in One Pickle.

Sep 25, 2008 - 2:09 pm 81. slade:

And this time I am really done except to warn that RE the subject of personal debt contributing to the credit crisis, it is worth recalling that inflation-adjusted wages flat since 2000 – flatter still if one includes energy and food costs, supplemented by rise in unemployment.

Are you angry? Look in the mirror. You can’t handle the truth!

Sep 25, 2008 - 2:15 pm 82. slade:

Interesting, isn’t it, how in 12 hours the debate has cross-focused from mortgage loans to the broader credit market?

Sep 25, 2008 - 3:13 pm 83. ledger:

Here is some humor as Iowhawk debates the financial bailout:

“Linda, we both know that credit is the lifeblood of the American economy. But today millions of Americans like myself are saddled with enormous adjustable rate mortgage debt which we can no longer pay, through no fault of our own. We were suckered in by deceptive easy-money advertising come-ons, confusing refinance deals, and free igloo coolers. And now, with a slowdown in the blog economy, some of us can barely make the payments on our quad-runners, let alone a crushing $1.2 million debt on a house that our appraiser says is worth $40,000 in scrap lumber, tops. America’s economic future depends on us having the peace of mind to know our homes and 56″ 1080 HD big screens won’t be yanked from under us…”

See: Iowahawk Debates: the Credit Bailout
http://iowahawk.typepad.com/iowahawk/2008/09/iowahawk-debate.html

Sep 25, 2008 - 4:51 pm 84. slade:

The Bourgeois Bohemian meets his Maker to sign contract papers turning his soul into receivership over spiced buffalo wings just before the witching hour of midnight in a franchise bar on South Flamingo?

How very bete noir.

I will issue a warning when I meet anybody that fits the description.

Sep 25, 2008 - 5:43 pm 85. Paul:

Gateway Pundit is reporting that John McCain will support the Republican Congressional Alternative plan tomorrow.

The plan is by far the best out there. If I’m correct, as explained by Rep. John Campbell on Hugh Hewitt, the plan is that Mortgage Backed Securities holders would be required to obtain insurance for those securities that would be insured by the Federal Government, ( at least a certain percentage of securities). That way the government would be paid to insure the securities, and then those holders could then sell the insured securities at close to face value in the open market.

This plan has several advantages. There is no direct bailout. The Federal Government is only on the hook for the insured securities that go bad. The government is paid. There is less likelihood of some huge government bureaucracy to control the economy and dispense political favors. It clean up the big investment banks’ books. And best of all, it would provide liquidity and credit to the markets again.

Now I hope McCain backs the Pubs version. The Democrats can pass the Bailout without Republican help. The political dynamic though is that the Democrats need a good number of Republicans to support their version of bailout because the Dems don’t want to be seen as the only ones who are bailing out the super rich on Wall Street.

Sep 25, 2008 - 10:47 pm 86. M. Simon:

jkumpire,

All the Ds have to do is put it to a vote with floor debate.

If the Rs are on board – fine. If not well why not?

Sep 26, 2008 - 5:49 am

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