Meanwhile the NYT Opinionator blog picks up the back and forth Twittering between Joe Scarborough and the "elites" who don't get that the real point is that Cramer is sad because fellow Democrats are "turning on him..." Whatever, Joe.
Santelli's scared... or: some revolutionary HE turned out to be
Um ... who could possibly be afraid of Robert Gibbs? Answer: Rick Santelli, the Bourgeois Baron himself, and would-be leader of the Chicago Tea Party. Now, our friendly neighborhood "real American" Wall Street capitalist says he's terrified ... terrified, I say! ... of the guv'ment:
Robert Gibbs fires back at the Bourgeois Baron (Rick Santelli)
Rick Santelli thinks the guys on Wall Street and the Chicago Mercantile Exchange are the "real America" (as opposed to the "losers" who are out here getting themselves unemployed, getting sick, losing their healthcare and losing their homes ... losers...) Well, just watched Robert Gibbs' presser and apparently, the Obama White House begs to differ...
I’ve watched Mr. Santelli on cable the past 24 hours or so. I’m not entirely sure where Mr. Santelli lives or in what house he lives but the American people are struggling every day to meet their mortgages, stay in their jobs, pay their bills, send their kids to school,” Gibbs said. “I think we left a few months ago the adage that if it was good for a derivatives trader that it was good for Main Street. I think the verdict is in on that,” the press secretary said, poking directly at the cable journalist, who reports from the trading floor at the Chicago Board of Trade.
Gibbs insisted Santelli was misinformed when he said Obama’s program would amount to a transfer of money from prudent taxpayers to those who had taken reckless risks.
“Mr. Santelli has argued, I think quite wrongly, that this plan won’t help everyone,” Gibbs said. “This plan helps people who have been playing by the rules….I would encouraged him to read the president’s plan….I’d be more than happy to have him come here to read it. I’d be happy to buy him a cup of coffee—decaf."
I wonder if Santelli has talked to Michelle Bachman. If not, he should. His band of brothers will soon be running low, since apparently we're running out of rich people. He may have to throw those derivatives into the Chicago River himself...
Meanwhile, Balloon Juice offers a sound rebuttal to Mr. Storm the Bastille (on behalf of Marie Antoinette...)
The most amusing thing to me about this Rick Santelli faux populist broker revolt is not his invocation of the Nixonian silent majority, but the utter lack of perspective it displays. Yes, there is a simmering discontent and anger out there, and clearly the Republicans are going to try to tap into it, but the problem for Santelli and his crowd is that the anger is not directed at the people who are losing their homes, but at the people Santelli spends every day rubbing shoulders with at the trendy Chicago restaurants the brokers go to these days.
The audacity of Santelli’s “revolt” is that a mere 75 billion is being spent to help struggling families repackage loans- a pittance in the terms of the gargantuan amount of money being thrown at the banks, the Wall Street wizards, and the rest of the rocket scientists who are the root of this problem.
Hello Santelli? The guys on that trading floor already got their bailout. And where were you when that happened?
CNBC's Rick Santelli -- the wingers' new star -- decries mortgage help for 'losers' and leads a mini revolt on the floor of the Chicago mercantile exchange:
Throw open the debtors prisons, why don't ya! And orphanages! What's wrong with orphanages??? You know, I'd be interested to get Rick's views on bailing out the "losers" at the Wall Street banks, since they're the ones who tanked the economy last time I checked.
The economy shrank at a 3.8 percent pace at the end of 2008, the worst showing in a quarter-century, as the deepening recession forced consumers and businesses to throttle back spending.
Although the initial result was better than economists expected, the figure is likely to be revised even lower in the months ahead and some believe the economy is contracting in the current quarter at an even faster pace.
The new figure, released Friday by the Commerce Department, showed the economy sinking at a much faster clip in the October-December period than the 0.5 percent decline logged in prior quarter.
Although economists expected an even worse fourth-quarter performance — a staggering 5.4 percent rate of decline — the results were still grim.
Meanwhile, things weren't as bad for some people as for others. Those who did better than the rest of us include...
Bank executives, who handed out about $18 billion in bonuses to themselves, as a reward for screwing up the mortgage market... (President Obama scolded them roundly for it today.)
Exxon Mobile, which posted earth shattering, record profits of $45.2 billion, due to Bushian sky-high oil prices through most of last year. And get this: those profits were DOWN 33%...
And last, and actually, least ... Rudy Giuliani, who's still getting people to listen to him warble, on cable TV, talk radio and on and on, despite having gotten exactly ONE electoral vote during his presidential campaign, and becoming the laughing stock, not just of New York, but of the world, with his scandal-tainted, one state strategy bid for greatness.
While Bernie Madoff is chilling in his $7 million Manhattan penthouse under "arrest," and his wife is being looked as for possible crimes of her own, Madoff's two sons, Mark and Andrew, are emerging as heroes, of sorts, in this sorted drama. After all, it was they who turned their dad in to the feds after he allegedly admitted to them in a closed-door meeting that his investment genius rested on a giant feather bed of fraud.
So why is the Murdochian Times of London trying to tar Barack Obama's choie for SEC chief with the Madoff taint? First, their story, which makes my point in the first three paragraphs:
Mary Schapiro, Barack Obama's choice to lead the Securities and Exchange Commission (SEC), previously appointed one of Bernard Madoff's sons to a regulatory body that oversees American securities firms.
It has emerged that in 2001, Ms Schapiro, currently chief executive of the Financial Industry Regulatory Authority (Finra), employed Mark Madoff to serve on the board of the National Adjudicatory Council — the division that reviews disciplinary decisions made by Finra.
Last week, Mark Madoff, with his brother, Andrew, were understood to have approached the authorities after their father apparently confessed to orchestrating a $50 billion securities fraud.
So ... if Mark is one of two people who turned dear old dad in, where's the problem for Obama? The Times doesn't explain, and yet, they imply that there could be trouble (sound famliar, Blagophiles?)
Both sons have emphatically denied any involvement in what could be the biggest fraud perpetrated by an individual.
However, the link with Mark Madoff may prove controversial for Ms Schapiro and the President-elect, who has moved fast to replace Christopher Cox, the current head of the SEC. The watchdog has came under fire for failing to detect Mr Madoff's activities.
How so? It appears that the only link is an affirmative one: Ms. Schapiro hired one of the guys who took down Bernard Madoff. Problem. Solved. TPM talks up the fact that Mark and Andrew didn't let dad manage their foundations' money, which makes you wonder whether they at least thought he wasn't as good an investor as he claimed to be, but that by no means proves that either of them knew he was committing crimes. I could wind up being hugely wrong here, but hey, the United States is a gambling nation now, so why not. And by the way, it was the Bush SEC, headed by the apparently incompetent Christopher Cox (McCain was right about firing him, it turns out) that was, to paraphrase Sarah Palin, palling around with Madoffs:
Bernie Madoff’s niece, Shana Madoff (the daughter of Bernie’s brother, Peter) went to University of Michigan and then to Fordham law school in the early 90’s. After law school, she joined her father, Peter — also a Fordham law grad as well as the senior managing director of the Madoff firm — and her uncle. Shana became the in-house counsel of the firm her uncle founded. And shortly thereafter, in 1997, Shana, then 26, married Scott Ira Skoller (not a lawyer, far as we know) who at the time was the sales manager at Tyrone, a men’s clothing store in Roslyn, N.Y.
But Shana (pictured) and Scott didn’t last, it seems. And in 2006, she met Eric Swanson (U. of Minnesota, Hamline law), who worked at the SEC for 10 years, including as a senior inspections and examination official, before leaving in 2006. Among Swanson’s duties, reports the WSJ, was supervising the SEC’s inspection program in charge of trading oversight at stock exchanges and electronic-trading platforms. (The WSJ cites a press release from Bats Trading Inc., an electronic stock exchange that hired Swanson as general counsel earlier this year.)
SEC Chairman Cox said the commission will investigate “all staff contact and relationships with the Madoff family and firm, and their impact, if any, on decisions by staff regarding the firm.” Neither Shana nor Eric is named in the SEC statement as a target of the probe. Yet, David Kotz, the SEC’s inspector general who’s leading the probe, told the Journal that he intends to examine the relationship between Shana and Eric.
So did Eric Swanson’s relationship with Shana Madoff affect the SEC’s investigation of the Madoff firm? Who knows? But a spokesman for Swanson told the New York Times that Swanson’s “romantic relationship with his wife began years after the compliance team he helped supervise made an inquiry about Bernard Madoff’s securities operations.” And Randy Williams, a spokesman for Swanson’s current employer, BATS Exchange, said that Swanson had not participated in any inquiry into the Madoff firm or its affiliates while he was involved in a relationship with Shana.
So many Madoffs, so little time.
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Madoff scam-o-la rocks Palm Beach ... could Rush be a victim?
Many of Bernie "Mr. Ponzi" Madoff's biggest clients apparently were members of the Palm Beach elite (including some unnamed charities.) Many were members of the ultra-exclusive Palm Beach Country Club ... Hey, doesn't Rush Limbaugh live in Palm Beach? Yeah, apparently, he and Madoff were neighbors. Wonder if they ever shared "the cabbage..."
So why did the rich get taken? Good old fashioned greed:
There had been some warnings: Financial consultants had been suspicious for years about his astounding run of success.
They couldn't figure out how he managed to produce steady returns, month after month, even when everyone else was losing money — and leave almost no footprint while moving billions of dollars in and out of the markets.
"People would come to me with their statements and I couldn't make heads or tails of them," said Charles Gradante, co-founder of the Hennessee Group and advisor to hedge fund investors.
"He only had five down months since 1996," Gradante said. "There's no strategy in the world that can generate that kind of performance. But when people would come to him and say, 'How did I make money this month?' he didn't like it. He would get upset with people who probed too much."
Those investors were scrambling Friday to learn whether they had been wiped out by what prosecutors described as a multibillion-dollar Ponzi scheme. The assets of Madoff's investment company were frozen Friday in a deal with federal regulators and a receiver was appointed to manage the firm's financial affairs.
And sometimes, Madoff's investors actually assumed that he was cheating, and invested with him anyway (or even because of it):
For years and years I've heard people say that [Bernie's] investment performance was too good to be true. The returns were too steady -- like GE earnings under Welch -- and too high given the supposed strategy.
One Madoff investor, himself a legend, told me that Madoff's performance "just doesn't make sense. The numbers can't be straight." Another sophisticated Madoff investor actually went through trade confirms in order to reverse-engineer the strategy and said, "it doesn't add up."
So why did these smart and skeptical investors keep investing? They, like many Madoff investors, assumed Madoff was somehow illegally trading on information from his market-making business for their benefit. They didn't consider the possibility that he was clean on that score but running a good old-fashioned Ponzi scheme.
What if you had an investment firm that really was a giant Ponzi scheme? Well... the Wall Street Journal reports:
Bernard L. Madoff, a former chairman of the Nasdaq Stock Market and a force in Wall Street trading for nearly 50 years, was arrested by federal agents Thursday, a day after his sons turned him in for running what they said their father called "a giant Ponzi scheme."
The Securities and Exchange Commission, in a civil complaint, said it was an ongoing $50 billion swindle, and asked a judge to seize the firm and its assets. "Our complaint alleges a stunning fraud that appears to be of epic proportions," said Andrew M. Calamari, associate director of enforcement in the SEC's Enforcement Bureau. ...
Madoff's firm is known as securities broker dealer, but he also runs a separate investment advisory business which had more than $17 billion in assets under management, federal authorities said, citing two unidentified employees and a Securities and Exchange Commission filing.
Madoff counted several large hedge fund investment firms as clients, along with some European banks, so if his firm has lost more than $50 billion, the impact could be widespread.
On Wednesday, Madoff told two senior employees that he was "finished," that he had "absolutely nothing," that "it's all just one big lie," and that it was "basically, a giant Ponzi scheme," federal prosecutors said in their statement.
According to a criminal complaint filed on Thursday and cited by the Journal, Madoff "deceived investors by operating a securities business in which he traded and lost investor money, and then paid certain investors purported returns on investment with the principal received from other, different investors, which resulted in losses of approximately billions of dollars."
Madoff also said his business was insolvent, and that it had been for years, estimating losses to be at least $50 billion, prosecutors alleged, again citing the two unidentified employees.
According to the complaint, Madoff told one of his senior employees that clients were seeking about $7 billion in redemptions and that "he was struggling to obtain the liquidity necessary to meet those obligations." The employees believed the firm had about $17 billion under management.
Earlier this week, Madoff also allegedly told an employee that he wanted to pay bonuses to employees this month-- earlier than usual. Later, two employees who met with Madoff at his apartment were told that the business was a giant Ponzi scheme, which they took to mean that Madoff "for years been paying returns to investors out of principal received from other, different investors." Madoff allegedly told those employees that the firm was insolvent, according to the complaint.
And in case you missed it in the first link, those "senior employees" ... who also turned him in to the feds ... were his SONS. And the voluble Mr. Cramer adds:
Just what this market needed: the highest profile hedge-fund scandal I may have ever seen -- Bernie Madoff's arrest today. This guy ran $17 billion for the wealthiest of the wealthy and the most clued-in of customers. $17 billion! As my friend Doug Kass says, this one is bigger than Bayou -- heck, bigger than Boesky.
When Boesky got busted, there was an instant backlash by the public against the securities markets -- people figured they were rigged and then they got confirmation.
With the nonsense we see daily with the Exxons and the Chevrons and the JP Morgans and the Goldmans and the last hour of trading with the Pro Ultra ETFs, it is easy to believe that things can be rigged and I believe they are in a bizarrely legal way blessed by the SEC.
While you were busy bitching about the UAW's contracts and saying "hell no" to a Big Three, blue collar bailout, AIG is using your money todouble the salaries of some of its white collar workers.
Dec. 4 (Bloomberg) -- American International Group Inc., whose bonuses and perks drew fire from lawmakers after the insurer accepted a federal bailout, will make special retention payments that more than double the salaries of some senior managers, according to a person familiar with the matter.
Some executives among 130 recipients will get more than $500,000, about 200 percent of their salaries, to stay through 2009, said the person, who declined to be named because the information hasn’t been publicly disclosed. An undetermined number of lower-paid employees will also get cash awards to dissuade them from quitting, the person said.
“It seems like more than what you’d need to pay to get people to stick around,” said David Schmidt, a senior consultant at executive pay firm James F. Reda & Associates. “Nobody’s hiring, so where are you going to go?”
Wow. You can screw up a company and then get paid to stay in your job when nobody else is hiring anyway? Maybe these guys should get government jobs. Oh, wait, they already have them.
Meanwhile, while the boss is over in China begging for table scraps, Treasury is turning to Team Obama for help getting Congress to fork over the second half of the $700 billion top hat and tails, bonuses for CEOs free cash giveaway.
Lame Duck Teasury Secretary Henry Paulsen insisted on talking again today, as did his boss, sending the markets south, as happens every time either of these clods drops jaw. Meanwhile, the latest brand new proposal out of George Bush's Washington sounds as lame as the first twothree ten. And as usual, it's focused on handouts to Paulsen's friends in the banking industry. The idea is artfully cloaked in the pretense of "helping Main Street":
The Federal Reserve and Treasury moved today to boost consumer spending and lower home mortgage rates, committing up to $800 billion to make it easier for households to borrow money for cars, tuition bills and new homes as part of a broad effort to rekindle economic growth.
The new program puts the balance sheet of the country's central bank behind two critical but troubled parts of the economy -- consumer spending and housing. It is largely separate from the $700 billion Troubled Asset Relief Program, administered by the Treasury Department and focused on shoring up the country's financial system.
Ah, that sounds lovely. But what this really is, is a bailout of wealthy investors:
A Treasury news release noted that in 2007, about $240 billion in car, student and other consumer loans had been packaged by the companies that issued them into larger securities and sold to investors, who then benefit from the flow of payments from borrowers. That system of packaging and reselling loans keeps money flowing to banks and other lenders, allowing them to make even more money available to consumers.
However it all but stopped over the past two months, leading to rising interest rates, a downturn in lending -- and a risk that economic growth could be dragged down even further.
The Fed said it would provide up to $200 billion to investors who put the money toward consumer loans in the form of credit cards, auto loans and student loans, as well as some forms of small business lending.
In other words, Uncle Sam is about to write a big, fat check to erase the risk that big investors took when they bought junk credit card and mortgage debt. Then, magically relieved of the burden of that bad paper, banks will suddenly decide to start lending packagable money again. Tada! But wait, there's more:
The Fed's consumer lending program is partially backed by $20 billion from the TARP, which will be used to absorb losses on the program up to that amount. The Fed loans to investors will earn interest and also a fee from those who take advantage of it.
Paulson said the initial $200 billion "is a starting point" and could grow over time.
In addition to consumer spending, the Fed announced it would buy up to $100 billion in mortgages held by Fannie Mae, Freddie Mac and the Federal Home Loan Bank in an effort increase the flow of money into the housing markets and lower interest rates. The Fed will also buy another $500 billion in bundles of mortgage-backed securities issued by the agencies.
The fact that TARP money is wrapped up in this is just one problem. The federal government is clearly going to have to become the spender of last resort, given that consumers aren't secure enough in our jobs to start buying things (or gassing up) any time soon. But for the government to use tax money to eliminate investment risk, and to bail out big investors, is criminal. Oh, and the banks that have been getting these shovels full of your money? They've been using them to bail out THEIR investors too, by paying dividends (something they plan to keep doing for the next three years), and they've been using their TARP money to pay bonuses to their executives, and even (hello, Citibank and Wells Fargo,) to buy other banks. I'd like to see the Big Three automakers even think about doing anything like that.
Meanwhile, the administration continues to reject a reasonable proposal from the head of the FDIC, which would directly help struggling homeowners stay out of foreclosure, while protecting taxpayers, all at a cost of just $40 billion -- a fraction of the $7 trillion estimated cost of all these serial bailouts of the rich.
The Paulsen regime's eagerness to hand out taxpayer cash to the investor class on their way out the door is so brazen, it's like a bank robbery in broad daylight, with the police holding open the vault door. And Paulsen and Bush used alarmism, and threats of a "Great Depression II" to scare Americans into going along with the $700 billion (and climbing) bank bailout. Meanwhile, the U.S. auto industry, with 3 million "regular folks' jobs" in the balance, isn't worthy of help. Fancy that.
From the Iraq money pit to the Bush tax cuts for the top 1 percent income earners to the Wall Street bailout, the Bush administration has been one, eight year long mugging; a reverse Robin Hood spree in which we, the middle class working people, are being robbed blind, right before our eyes, in order to give to the rich.
AIG's executives were scolded on Capitol Hill ... and then they partied on, dude
Did you hear the one about the credit default swap peddler / insurance giant who went in the toilet, got a huge bailout from Uncle Sam, then got a second bailout, and blew the money on lavish parties for their top sales performers and executives? Well here's the sequel:
Even as the company was pleading the federal government for another $40 billion dollars in loans, AIG sent top executives to a secret gathering at a luxury resort in Phoenix last week.
Reporters for abc15.com (KNXV) caught the AIG executives on hidden cameras poolside and leaving the spa at the Pointe Hilton Squaw Peak Resort, despite apparent efforts by the company to disguise its involvement.
"AIG made significant efforts to disguise the conference, making sure there were no AIG logos or signs anywhere on the property," KNXV reported.
A hotel employee told KNXV reporter Josh Bernstein, "We can't even say the word [AIG]."
A company spokesperson, Nick Ashooh, confirmed AIG instructed the hotel to make sure there were no AIG signs or mention of the company by staff.
"We're trying to avoid confrontation, keep our profile low," said Ashooh. "Some of our employees have been harassed."
You don't say... By the way those please were quite successful:
US Treasury Secretary Henry Paulson's decision to inject another US$27 billion into failed insurer AIG and raise the taxpayers' investment to $150 billion suggests he is more intent on helping his pals on Wall Street than protecting taxpayer interests.
And the Asia Times also explains how we got into this mess:
AIG has solid businesses in industrial, commercial and life insurance, but like a lot of financial firms was attracted to easy profits writing credit default swaps on mortgage-backed bonds - so called collateralized debt obligations (CDOs).
AIG received fees to guarantee repayment of those mortgages, or the funds obtained through foreclosures when homeowners defaulted. Like most on Wall Street, AIG executives believed home prices would rise faster than household incomes forever, so these CDOs really bore little risk.
This credit default swap business was outside AIG's highly regulated, solid insurance businesses but was backed by the value of those businesses. Essentially, if the CDOs fell too much in value, AIG pledged the value of those businesses.
If an abnormal number of the mortgages failed, the held-to-maturity value of the CDOs would fall and obligations would trigger for AIG to post collateral. When that happened in 2007, AIG deposited cash or other liquid assets with the investors holding the CDOs. With the housing market so depressed by the summer of 2007, AIG could not raise enough cash to meet all its obligations.
On September 16, the Federal Reserve provided $85 billion in loans to AIG in exchange for warrants - the right to buy common stock - equal to 79.9% of the company.
AIG was to pay 8.5% above the benchmark London Interbank Offered Rate (Libor) for the first $85 billion. The insurer was to use the loans to honor obligations to holders of the credit default swaps, and AIG was to sell parts of its insurance businesses to repay the loans to the Federal Reserve. That loan proved inadequate, and the Fed advanced another $38 billion on October 9.
The $123 billion was not enough to finance AIG's short-term credit default swap obligations, and it cannot sell enough pieces of its good insurance businesses to pay back the Federal Reserve in the current environment.
Now, the Federal Reserve and Treasury are agreeing to restructure $60 billion of the original loan, lowering the interest rate to 3% above Libor and invest about another $27 billion in AIG. The interest rates on the loans were lowered, in part, because large shareholders complained about heavy-handed government action.
How wonderful for AIG! The rest of us? Not so much. Where are the Marshalls when you need them. Back to the party:
Company officials confirmed the company spent an estimated $343,000 to sponsor the 2008 Asset Management Conference. A spokesperson said much of the cost would be recouped from product sponsors at the conference.
KNXV said the president of AIG unit Royal Alliance Associates, Art Tambaro, stayed in a two-story Casita suite and worked out at the spa while others participated in seminars.
The Dow keeps plummeting, (below 8,000 -- losing nearly half its value this year...) along with the global markets. It's a crisis that it seems no entity, no agency of government can stop. General Motors' stock fell below FIVE DOLLARS for the first time in 60 years. FIVE... Jesus... analysts are projecting that the big three U.S. auto makers cannot all survive. At least one will go away completely, or be absorbed by another company... President Bush is making noises about doing something, but honestly, events have overtaken him, and everybody else... World finance chefs are holding an emergency meeting. Good luck with that.
BTW one astute blogger posted a chart plotting McCain's poll numbers against the S&P 500.
Fascinating. Clearly, this guy is going to need more than Bill Ayers to get back into the race. Or not:
As Pollster’s Steve Lombardo says, “The economic situation has virtually ended John McCain’s presidential aspirations and no amount of tactical maneuvering in the final 29 days is likely to change that equation.”
Meanwhile, Barack Obama slams McCain for "stoking anger and division" at a time like this ... Italy's Silvio Berlusconi walks back from his suggestion that world markets simply be closed.
The Dow got hammered again today. Nothing the Fed or the feds are doing is working... and with credit in seizure, J.D. Powers fears the global automobile market may completely implode by next year. So what's the problem? This from a good old fashioned conservative:
"The crisis we are entering is not due to a lack of credit. The core of the problem was our dependency on credit in the first place. A lack of credit is a symptom of our dependency on it. It is a crisis of Consumer Capitalism, the idea that Consumption can be the major source of growth in an economy. We must somehow transition to Producer Capitalism again. We have an entire economy, almost worldwide, based upon debt and consumption. It could not last because over time every dollar of debt created creates less and less GDP growth in the economy. Therefore, more and more debt must be created just to keep the same rate of economic growth. We are now literally consuming our economy to its death. The efforts to "get liquidity going" and the like, while maybe easing conditions in the very short term, weeks, are only going to make the collapse greater. It is simply adding more kindling to the bonfire of debt that is already raging."
Stuffed into the 451- page bill are more than $1.7 billion worth of targeted tax breaks to be doled out for a sty full of eyebrow-raising purposes over the next decade.
The special provisions include tax breaks for:
* Manufacturers of kids' wooden arrows - $6 million.
* Puerto Rican and Virgin Is- lands rum producers - $192 million.
* Wool research.
* Auto-racing tracks - $128 million.
* Corporations operating in American Samoa - $33 million.
* Small- to medium-budget film and television productions - $10 million.
Another measure inserted into the bill appears to be a bald-faced bid aimed at winning the support of Rep. Don Young (R-Alaska), who voted against the original version when it went down in flames in the House on Monday.
That provision - a $223 million package of tax benefits for fishermen and others whose livelihoods suffered as a result of the 1989 Exxon Valdez oil spill - has been the subject of fervent lobbying by Alaska's congressional delegation.
Lots of the breaks and set-asides are designed for "rural communities." Here's just a few from the Library of Congress summary of the bill:
The Senate passes the "economic rescue bill" by a wide margin, after loading it with good old fashioned gimmes (corporate and AMT tax cuts, rural school funding, raising the FDIC limit to $250,000, mental health parity and all the lard that makes John McCain's head spin, but which are the way business gets done in "Warshington." ... am I the only one who finds it ironic that the way to woo conservative Republicans is to give them more pork?) ... and they do it on the day Obama heads back to the Senate and gives a speech in the well. Poor McCain. He wasn't even involved, other than to vote for the package, too. The Senators are gratuitously thanking each other now. The House tries again on Friday. With the goodies packed in for them, they should approve.
... The Senate bill would raise Federal Deposit Insurance limits to $250,000 from $100,000, as called for presidential nominees Barack Obama and John McCain only hours earlier.
... The Senate measure will graft the bailout language to a tax bill it approved last week, on a 93-2 vote. It includes: a provision to prevent more than 20 million middle-class taxpayers from feeling the bite of the alternative minimum tax, $8 billion in tax relief for those hit by natural disasters in the Midwest, Texas and Louisiana and some $78 billion in renewable energy incentives and extensions of expiring tax breaks.
In a compromise worked out with Republicans, the bill does not pay for the AMT and disaster provisions but does have revenue offsets for part of the energy and extension measures.
That wasn't enough earlier this year for the House, which insisted that there be complete offsets for the energy and extension part of the package.
The Senate version also may include a measure to require health plans for 51 or more employees to give equal treatment to mental health or addiction if they cover such illnesses. The House and Senate have passed similar mental health parity measures, but none has gone to Bush for his signature.
So its cookies and cream all around! And if Obama and Biden back it, Nancy P will be backed into a wee little corner. This as Pelosi and Harry Reid take the extraordinary step of attempting to come to the rescue of President Bush (a man no one trusts, in or out of his party...)
Other bailout news: two Yale professors say: why not just pay off all the delinquent mortgages? The Financial Times has more global doom and gloom. Meanwhile, in the WaPo, CFR conservative Michael Gerson excoriates Nancy Pelosi for her now infamous "mean-girl" speech, and then says this about House Republicans:
... whatever their provocations, pressures and justifications, House Republicans once again revealed the souls of backbenchers -- spouting their ideological purity from atop the ruins of the financial system. The temporary government purchase of bad mortgage debt is not equivalent to the liquidation of the kulaks. Serious conservative thinkers such as Ryan and Cantor, who chose to work within the legislative process, got many of the improvements they sought. But most House Republicans with ideological objections had nothing better to propose and no intention to try. They chose allegiance to abstract principles over practical reality. It is the political philosophy of Samson: Bring down the entire temple to make a political point. In this case, the president, their own congressional leadership, their own presidential candidate and the world economy are now wounded and struggling amid the rubble. I suppose the point is made. But it is a reminder of why Republicans are no longer trusted as the congressional majority.
If Newt is the roaster, is John Boehner the weenie?
John Boehner went all-in on the bailout bill, and got hosed. He failed to deliver more than 65 GOP votes, and looks like he can't whip worth a damn. Some are even questioning whether he could lose his leadership post to a more "conservative" conservative.
Former House Speaker Newt Gingrich was working aggressively behind the scenes to defeat the Wall Street rescue plan minutes before he himself released a public statement in support of the package, NBC's Andrea Mitchell reported on Tuesday.
Gingrich was whipping up votes for the opposition, Mitchell said, apparently without the knowledge of the current GOP leader, John Boehner, who was responsible for recruiting enough support from his caucus to help ensure the bill's passage. Ultimately, the GOP was only able to rally roughly a third of its members.
"Newt Gingrich," she said on MSNBC, "I am told reliably by leading Republicans who are close to him, he was whipping against this up until the last minute, when he issued that face-saving statement. Newt Gingrich was telling people in the strongest possible language that this was a terrible deal, not only that it was a terrible deal, it was a disaster, it was the end of democracy as we know, it was socialism -- and then at the last minute [he] comes out with a statement when the vote is already in place."
After the vote, Gingrich played the phony and lamented the non-passage of the bill. But not everybody was buying it, especially since Newt was one of the righties urging John McCain to kill the bill, and send out a press release... From the July 23 edition of The Hill:
Former Speaker of the House Newt Gingrich said Tuesday that any lawmaker who votes for the Bush administration's $700 billion bailout package, which he called a “dead loser,” will face defeat in November.
Gingrich (R-Ga.) said he thinks Treasury Secretary Henry Paulson is trying to scare lawmakers into passing the bailout plan quickly and without thorough study.
“I think what Paulson hopes to do is say, ‘If you don’t do exactly what I want you to do, the whole world’s going to collapse on Tuesday’,” Gingrich said.
The former Speaker, talking to reporters at a lunch, added that he expects Democratic presidential candidate Sen. Barack Obama (Ill.) to back the plan. He predicted that, if Republican presidential candidate Sen. John McCain (Ariz.) ends up opposing the administration proposal, there will be an overnight “emergence of a McCain/reform wing of the Republican Party.”
Gingrich said that occurrence would turn the election on its head, with Republicans running ads that feature Obama with President Bush on the same team in pushing for a “nightmare” bailout plan.
Newt also predicted, 6 days before the vote, that if the bill failed to pass on Friday, it would fail because lawmakers would read it on Saturday and cringe. How clairvoyant...
So what could Newty be up to? Is he preparing to run for president in 2012, as Mike Barnacle accused on "Morning Joe" yesterday? Could be. His big "Drill Here, Drill Now" gambit is heavily funded by the oil industry, whose money would also be useful in a national election, not to mention in key states like Louisiana, Florida and out West. If he runs, the scandal-plagued Gingrich would need to build a firewall on the libertarian right, to mitigate against any evangelicals who won't be able to force themselves to stomach him, as they are with McCain because of Sarah Palin. And he very much shored up that firewall with the 130 Republicans he denied to John Boehner. Now, they listen to Newt.
And Boehner? I'm sure Newt is saying, to hell with him. After all, they have a history:
House members are no strangers to political treachery either, although you need to go back nearly a decade to find a world-class example. To get rid of House Speaker Newt Gingrich (R-Ga.), a loosely organized band of co-conspirators proved less deft than their Roman legislative forebears did in mounting their secret scheme. Although the coup fell apart the day after it was launched, the reputations of almost all those involved -- including their intended victim -- never fully recovered.
A core group of rebels, drawn mostly from the large GOP class of '94, sought to find a way to oust the imperious speaker. But to do so, they needed help from the top Republican leadership. It soon came from Majority Leader Dick Armey (Texas), Majority Whip Tom DeLay (Texas), GOP conference Chairman John Boehner (Ohio) and Rep. Bill Paxon (N.Y.), then a trusted Gingrich capo.
The plan was to have Armey, DeLay, Boehner and Paxon -- each an independent actor with his own power base -- confront Gingrich with a fait accompli: step down or face being voted out of office. Armey, however, backed out when it appeared that Gingrich wanted Paxon to succeed him. In the murky aftermath, DeLay confessed his role, which helped to rehabilitate his reputation. Armey never did. And Paxon -- who was to Gingrich what Brutus was to Caesar -- was out of a leadership job. After the 1998 midterm elections, waged by congressional Republicans as a (failed) referendum on impeaching President Clinton, Gingrich himself was soon gone. (after spending some time in political purgatory, the former Speaker has once more become a hot commodity.)
With Armey and DeLay long gone, could this be Newt's little payback for the fourth member of the wolf pack, while enhancing his own presidential / populist portfolio in the process? You've got to wonder...
McCain should take no credit for the bailout bill, before its time...
Is it just me, or has John McCain lost it? He's suspending his campaign ... he's not suspending his campaign ... he won't debate ... he will debate ... he's headed back to Capitol Hill to lead House Republicans to pass the $700 Bush bailout bill ... but he's also dining at a posh hotel restaurant while the work is being done ... he won't phone it in ... but he conducted his "leadership" on the phone ... he takes all the credit for the bailout bill, until it doesn't pass, in which case it's Barack Obama's fault ... (but of course, this is no time for partisanship. although that, too, is Obama's fault...)
It's exhausting just keeping up with the stunts, twists, turns, backtracks and utter, careening craziness of the McCain campaign. Can you imagine the hot mess he'd be as president???
"To a certain extent, I think John gets hurt by [the bailout bill's failure]," said Ed Rollins, a CNN contributor who worked on former Gov. Mike Huckabee's primary campaign earlier this cycle. "He obviously, at the end of the day, said he was for it. But more important than that, he said he was the one who would bring them to the table and to a certain extent he will be viewed now as not being able to do that."
And when it comes to McCain's "leadership," apparently it had better be bi-partisan, because it sure doesn't extend to his own party:
Rollins added, "McCain is our nominee and [congressional Republicans] will do everything they can to help him, but they are not going to go over the cliff for him. They did that for Bush, and they thought that this measure was just too dramatic for their constituencies."
The GOP strategist spoke to the Huffington Post just an hour after the House failed to pass the $250 billion bailout package by a margin of 205 to 228. Republicans in that body were quick to cast blame on Speaker Nancy Pelosi for giving a "partisan" speech earlier on Monday -- a doubtful assertion given the benign text of Pelosi's remarks. When it came to McCain's leadership qualities, however, Rollins argued that the last week has left much to be desired.
"I think the reality is, he made a big show coming in and at the end of the day it really wasn't realistic for him," he said.
Damn. Well who can this guy lead? Joe Lieberman? Hell, even Lindsey Graham is getting worn out!
I don't blame John McCain for not rounding up enough Republican votes to get this bailout bill through the House of Representatives--he's not a member of the House, he's never held a leadership position and therefore doesn't know how to whip votes and finally--well, uh--there is one tried and true method for getting members of Congress to vote aye and McCain opposes it: a sweetener, like say, funding for a bridge in their districts. That is one reason why we have earmarks. McCain is opposed to giving away baubles for the greater good.
I do blame McCain for his puerile histrionics and for dragging this issue--which should have been above partisanship--into presidential politics. Let's make no mistake about it: his various gimmicks had absolutely nothing to do with the substance of the issue.He doesn't know all that much about the substance of the issue. The gimmicks were a failed attempt to make it seem as if he had powers, and knowledge, he didn't have. Clearly, he was in a more difficult position than Obama--the populist conservative wing of House Republicans was unwilling to take responsibility for the fruits of the deregulation that they promoted--and that might have required a more aggressive effort to move votes on his part, but the flailing about only confused Republicans (was he for, was he against?) and made matters worse.
Geez. I sure wish we had someone in the campaign who would bring some calm, sober leadership to this messy situation...
Barack Obama told a crowd in Westminster, Colo., not to panic at the House of Representatives' failure to pass the Bush administration's $700 billion bailout bill.
"It's important for the American public and for the markets to stay calm,” Obama said, “because things are never smooth in Congress, and to understand that it will get done.”
Who's really to blame for the mortgage and Wall Street Meltdown? Larry Kudlow and other conservatives blame the poor, minoritiesm and the 1977 Community Reinvestment Act. Now, here's the rest of the story:
Maybe he shouldn't have bothered ... John McCain suspended his campaign and rushed back to Washington to make the bailout deal happen. Well, funny thing, that...
The bailout fails. Here's how the win-loss column looks:
First, the winners:
Conservative House Republicans -
They beat back not just their own president, but the Democratic majority, Barney Frank, and Henry Paulson. If nothing much happens, and the economy doesn't go completely into the ditch, they'll look like geniuses. If the bottom falls out of the market, and small businesses can't get basic credit, or we do go into a deep recession, they'll be the goats.
Liberal Democrats -
Led by Dennis Kucinich and several members of the Black Caucus, they defied their leadership and held out for more bennies for the little guy. They now have a platform for their preferred solution, which channels FDR: help for homeowners, a federal jobs through infrastructure investment program, and the like. But they also risk taking the blame if things go to hell.
The angry populace -
Angry Americans likely scared many members into voting against the bailout. Now, they'll feel empowered. Again, if nothing happens: they're the smartest kids in the room. If the sky falls, they'll be left holding the bag ... literally.
The media -
They get to talk about this for another week. Jim Cramer should do really well, as should CNBC.
Barack Obama -
By steering clear of the entire mess, Obama can now claim a healthy distance, not only from the process, but also from the failure. Staying cool in a crisis: priceless.
Barney Frank (semi-winner...) -
Frank is more winner than loser on this one. Even though he led the failed effort, Frank emerged as a leading voice in the process, and bought himself a national platform to become the chief "I told you so" if the markets crater. He also will have a strong hand in the next negotiation, if things go badly on Wall Street and Main Street. On the other hand, if nothing much happens, he'll look like Bush's bitch.
... now, for the much longer list: the losers (in the approximate order of their loseriness)...
President Bush -
He's the single biggest loser in this whole, messy affair. In short: nobody believes him anymore, not even when he says we're headed into the next Great Depression. His credibility has been so shot through, by his pushing around Congress for seven years, and mostly, by the lies attending the invasion of Iraq, that he can't even convince 70 Republicans to do as he asks. What a pathetic end to the War Presidency.
Hank Paulson -
Probably as a residew of Bush's unpopularity and lack of credibility, Mr. Goldman Sachs reached way too far with his two page grab for dictatorial power. His bill was so outrageously bad, so audacious, that he probably doomed the result as much as anyone. Even a fixed-up Paulson bill wasn't palatable to many of members who rose to microphone today.
John Boehner -
The Boner's leadership position can't be considered secure if he couldn't whip more than 66 votes for a bill he helped negotiate. Also, he's not the star of the ascendant right wing of his party today, he's the enemy. Look for a leadership fight in the minority.
Nancy Pelosi -
Even though Barney Frank was equally visible, Pelosi ultimately had the responsibility for getting the bill passed, and she failed to build the bi-partisan consensus needed to do it. Already, she's become the chief culprit in the public statements of the GOP. Apparently, they didn't like her speech or something ... (since when do Republicans care about "nice?")
John McCain -
He injected himself into what turned out to be a failed process, where bi-partisanship only happened to the extent that the most liberal and most conservative House members voted against the bailout bill. And McCain's own campaign narrative suggested that he swooped into Washington to bring conservative Republicans along. By that standard, he failed as utterly as Boehner did -- and in far more high-profile fashion.
Those in the center in both parties lost big in the vote today, and they will be wringing their hands and nervously watching "Power Lunch" every day until November 4th.
Wall Street -
They got soundly spanked in the House of Representatives today, and it seems that nobody really cares what happens to their cherished investment houses and banks. They'll have to find another way to survive, probably by merger, perhaps by international takeover. And no matter what happens, they will be blamed.
Main Street -
With no uncertainty in the market, the credit crunch will continue. And those who are feeling puffy chested over defeating the bailout today, might have trouble getting basic credit, or find their paychecks harder to cash, tomorrow. What will they demand then? Meanwhile, the likelihood of average mortgage holders getting anything close to a bailout of their own remain somewhere between "slim" and "none."
This is likely just the first round. There will be new negotiations, and both of the winning sides (liberal Dems and conservative Republicans, are already lining up to put their priorities on the table. They can't both win, however, since one side wants a "Main Street bailout" for individual Americans, and the other basically wants corporate tax cuts and very little more.
Barney Frank just rose to plead with his fellow liberals on the Democratic side "not to throw out" the bailout bill because "it doesn't have everything they like." He said he is only in Congress because of his commitment to poor people, and that he fought for everything he could for the disadvantaged, but he added that if the bill fails, they get nothing.
Now, John Boehner is making his pitch, saying the "risk of doing nothing is too great" not to act, and acknowledging "nobody wants to vote for this ... I didn't come here to do this, to vote for things like this ... but these are the votes that separate the men from the boys, and the men from the women. These are the votes that your constituents sent you here to vote on their behalf."
He challenged his colleagues to "ask what's in the best interests of the country." He said that his judgment is that the House must vote for the bill, "to keep ourselves from the brink of an economic disaster."
Both men received healthy applause after their statements, but it's not at all clear that there are enough votes -- given the defections on the left and the right -- to pass this bill.
On the day that Citigroup swallowed Wachovia before it too, failed, and as world financial markets are cratering, the debate is on in the House over the, I must say, much improved, bailout bill (details, text). The debate is shaping up as one of the clearest cut dichotomies between liberalism and conservatism in recent memory. Conservatives in the House, including Ron Paul, are railing against the bill on the floor, decrying it as a quick slide toward government ownership of capital and socialism. Some are calling for even less deregulation, and, surprise, surprise, more corporate tax cuts.
Liberals are also railing, some decrying the bill as too helpful to Wall Street, but the consensus on the Democratic side is generally pro-government intervention, in keeping with the liberal belief that the government represents the backstop against economic meltdown at both the macro, and micro level.
Interestingly enough, a number of Black Caucus members are ranting that the bill doesn't have enough help for individual homeowners and to stop predatory lending, and some, including Sheila Jackson Lee of Texas, are urging a "no" vote.
But for the most part, most mainline Republicans and Democrats are indicating they will, however reluctantly, vote for the bill. Many are praising Rep. Barney Frank for creating a palatable compromise to Hank Paulsen's initial attempt at a massive power grab.
What's really interesting is the position of President Bush, who having pleaded for the bill's passage can now, clearly, finally, no longer call himself a conservative.
Located in the Portals project just east of the 14th Street bridge and overlooking the Washington Channel and its yacht moorings, the hotel is not convenient either to the marble corridors of Capitol Hill or the office buildings of downtown. The streets nearby are mostly deserted in the evenings.
The hotel's management seems to be counting on the draw of two high-profile restaurants to help to make the hotel a destination. The first, Café Mozu, the hotel's less formal restaurant, opened in March. The second, Cityzen, under the command of Eric Ziebold, formerly at the very highly regarded French Laundry under Thomas Keller, will open for dinner only in September.
Café Mozu belies the Washington rule that restaurants with views don't have very good food. The room is modern, serene, and full of light. Floor-to-ceiling windows look out--across a freeway--to the Washington Channel and the Jefferson Memorial. The hotel's Asian roots are alluded to in the restaurant's waiting area, built to evoke the veranda of a grand colonial hotel and furnished with white rocking chairs.
To run Café Mozu and serve as the hotel's executive chef, the Mandarin Oriental has hired Hidemasa Yamamoto, for many years chef of the Jockey Club on Massachusetts Avenue. Limited by the preferences of the Jockey Club's clientele--a coalition of politicians and cavedwellers who never got much beyond crabcakes, red meat, and chicken salad--Yamamoto never really had a chance to spread his wings. At Café Mozu, the menu is his own.
Yes, well it seems a satisfied palate is the best foundation for arms length deal-making. Even more about the fine dining establishment from the Mandarin Hotel website:
Lunch and dinner menus showcase irresistible selections such as Roasted five spices Duck, raisincouscous, orange scented curry jus”, Crispy Wild Salmon with fingerling potatoes, Brussels sprouts and haricots verts, Braised Pork Belly with sweet potato puree, baby onions and goat cheese polenta and Black Sea Bass with bok choy, string beans, snow bean sprouts and aromatic lemongrass broth.
Heavenly desserts from our pastry department include a Bitter Chocolate and Passion Fruit Mousse, Flourless Poppy Seed Cake, Lychee Crème Brulee and Champagne-Verbena Parfait.
Mmm-mm. Pass the bailout, AND the fingerling potatoes!! Hey, did you say couscous? John McCain LOVES coucous! (It's very down-home...)
By the way, why did the completely "fair and balanced" Politico feel the need to scrub its references to McCain's dinner? Per the Huffpo:
Politico reports (update: Politico has updated the article and removed the reference to McCain's dinner, but as you can see in this Google search, the reference was there in the original article):
As his colleagues worked on the deal at the Capitol Saturday night, McCain and his wife, Cindy, dined with Sen. Joe Lieberman and his wife, Hadassah, at CityZen, one of Washington's best restaurants. [Note: they got the right hotel, wrong restaurant...]
Could it be that Roger Simon has pulled yet another Ron Fournier on behalf of McCain? After all, Simon was almost alone among the pundits not working for Fox News, in saying that McCain was the winner of Friday's debate...
To be fair, McCain did say of his whereabouts last night:
I was working on all of the other stuff that I was working on, and contacting people, and working away."
Yeah, working away on a $300 bottle of wine (after which even Joe Lieberman probably sounded interesting...)
John McCain goes to Washington, tries to look busy...
An unwittingly hilarious account of John McCain's "wince-worthy" return to Capitol Hill to "shepherd" the bailout process (and the lame attempts by Republicans to make him look relevant):
Sen. John McCain returned to Washington on Thursday after declaring that he has suspended his campaign, but he appeared largely detached from the flurry of negotiations on a $700 billion economic rescue package that appeared to be headed to a successful conclusion.
McCain's "Straight Talk Air" landed at National Airport just after noon, and McCain's motorcade sped toward the Senate. But by then, senior Democrats and Republicans were already announcing that a deal in principle had been reached.
That news appeared to be somewhat premature as House Republican leader John Boehner told his members that "no deal" had yet been reached. McCain arrived at 3:40 p.m. at the White House, where he and his rival, Sen. Barack Obama, were scheduled to meet with President Bush and congressional leaders at 4 p.m.
The leading Democratic negotiator on the Bush administration's $700 bailout plan accused John McCain of undermining the proposal and prodding House Republicans to lay out a wholly different approach that is opposed by the White House.
"This is the presidential campaign of John McCain undermining what Hank Paulson tells us is essential for the country," said Democratic Rep. Barney Frank, (D-Mass.), chairman of the House Financial Services Committee. "This is McCain at the last minute getting House Republicans to undermine the Paulson approach."
McCain really, really wants to help out ... I mean REALLY...
But for most of the afternoon, McCain has not visibly been part of the action on the issue. He was not present when House and Senate negotiators emerged from a two-hour meeting to declare success. That announcement was made by Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, Sen. Robert F. Bennett (Utah) and Frank.
McCain, by contrast, spent some time in his office with several Republican colleagues, briefly stopped at Boehner's office, then left for lunch at the Capitol's Mansfield Room before returning to his office in the Russell Senate Office Building.
Republican Rep. Spencer Bachus (Ala.) said he had spoken to McCain yesterday, had breakfast with two McCain advisers this morning and spoke to McCain again immediately after today's meeting. But, Bachus said, "John's not trying to call the shots for the House caucus, I can tell you that. He's just opposed to the plan in its present form."
Frank reacted angrily to Bachus's statements, insisting that lawmakers were well on their way toward an agreement they could put to a vote, and that this afternoon's meeting at the White House was largely irrelevent.
"We'll be glad to go and tell them there really isn't that much of a deadlock to break," Frank said. "But I'm always glad to go to the White House."
McCain aides expressed cautious optimism, saying that there is "no deal until there's a deal," but McCain made no comments to the reporters trailing him around the Capitol.
Maybe he should just find a Starbucks and wait till someone calls ... DOH! Not computer literate, so WiFi availability not enticing...
So, yes, apparently there is a deal ... and all before the presidential candidates even got to shoot the shizznit with Dubya...
The leaders of House and Senate banking committees reached a bipartisan agreement Thursday on the framework for legislation authorizing Treasury’s ambitious $700 billion rescue plan for the financial markets.
The final language of the bill must still be negotiated with Treasury, which watched nervously from the outside as the closed-door meeting ran close to three hours in the Capitol. But the announcement gives renewed momentum to the massive government intervention, which the administration badly wants approved before the markets open next week.
The plan would phase in the bailout, but still give Paulson virtually free reign with the first $350 billion. Also:
There is a greater emphasis on efforts not just to relieve Wall Street firms of their bad debts but also to help homeowners threatened by foreclosure. Companies that benefit from the plan would be expected to limit pay and severance packages for their executives, and community banks are expected to benefit from a new $3 billion tax break as a result of their stock losses in the government takeover of the two mortgage finance giants, Fannie Mae and Freddie Mac.
The announcement came just hours before a White House meeting planned for Thursday afternoon, at which President Bush and the two presidential candidates, Sens. John McCain and Barack Obama, are expected to meet with congressional leaders as well as some of the same lawmakers from the House Financial Services and Senate Banking Committees.
Nice picture, but where is our captain, John McCain??? Oh right ... the meeting... hope it helps!
Just one of the reasons why I love Thom Hartmann's show. Today, he read from an op-ed piece published in the Washington Post on February 14 -- Valentine's Day -- and written by then- New York Governor Elliot Spitzer, about the origins of the mortgage crisis. I'll reprint the entire piece, since it's important that you take in the entire thing:
Predatory Lenders' Partner in Crime How the Bush Administration Stopped the States From Stepping In to Help Consumers
By Eliot Spitzer Thursday, February 14, 2008; A25
Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, making loans with deceptive "teaser" rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.
Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.
Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.
What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.
Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.
Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.
In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.
But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.
Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.
When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.
One month later, Spitzer was splashed across the tabloids as "Client 9" in the now notorious prostitution scandal. A sealed affidavit concerning his illicit activities was leaked on March 10. He resigned his governorship on March 12. Even at the time, more than a few people wondered whether Spitzer was being paid back for something he had said or done as governor, or as attorney general of New York. As the Chicago Tribune's "The Swamp" blog surmised:
Is it just me or does the complaint implicating New York Gov. Eliot Spitzer in a frolic with a call girl read like it was written by people with a very large axe to grind with the now former rising star of the Democratic Party?
Charging documents like this one typically contain the absolute minimum necessary to sustain the accusations.
Prosecutors act as though they'd rather be waterboarded than give up anything beyond what they like to call "the four corners of the complaint."
Not to worry. There was journalistic catnip larded throughout the complaint, enough to stoke the media frenzy for days. Of particular note is the heavy involvement of "Kristen", Spitzer' Valentine eve tryst partner. (Helpfully described as "American, petite, very pretty brunette, 5 feet 5 inches, and 105 pounds.)
...Yeah, conceivably there's some value in broadly hinting at kinky predilections in case Spitzer wants to claim that the financial transactions were unconnected to sex. Maybe it's a warning to him that if he struggles too much, the contents of the sock drawer where the sex toys are stored will be strewn on the carpet.
But it also has the feel of a pile-on -- some payback, a come-uppance for a guy who made a lot of enemies in prosecutions of Wall Street crooks and was seen by some to overplay his hand, to needlessly embarrass his quarry.
Another indicator of an "I'll fix your wagon" flavor to L'Affaire Spitzer is the speed at which the whole thing has unfolded.
The charging affidavit which, remember, doesn't refer to Spitzer by time or other even vague identifier like 'prominent government official', was unsealed last Thursday and by 2 p.m. or so on Monday, when the New York Times posted its first story on the scandal and the governor effectively was toast.
While New York Governor Eliot Spitzer was paying an ‘escort’ $4,300 in a hotel room in Washington, just down the road, George Bush’s new Federal Reserve Board Chairman, Ben Bernanke, was secretly handing over $200 billion in a tryst with mortgage bank industry speculators.
Both acts were wanton, wicked and lewd. But there’s a BIG difference. The Governor was using his own checkbook. Bush’s man Bernanke was using ours.
This week, Bernanke’s Fed, for the first time in its history, loaned a selected coterie of banks one-fifth of a trillion dollars to guarantee these banks’ mortgage-backed junk bonds. The deluge of public loot was an eye-popping windfall to the very banking predators who have brought two million families to the brink of foreclosure.
Up until Wednesday, there was one single, lonely politician who stood in the way of this creepy little assignation at the bankers’ bordello: Eliot Spitzer.
Who are they kidding? Spitzer’s lynching and the bankers’ enriching are intimately tied.
Spitzer was, by the way, taken down by the very domestic surveillance powers grabbed by President Bush after 9/11. Coincidence? Maybe.
Hartmann also reminded listeners about President Bush's push in 2002 for the "ownership society" -- and his grandiloquent desire for every American to own their home, their health insurance policy, and on and on. At the time, Bush said that just because a person is low income doesn't mean they shouldn't own a home that's "just as nice as anybody else's." Far from the moves by Andrew Cuomo's HUD agency to reverse redlining, Bush's HUD allowed banks to stretch the boundaries of lending propriety to their limits, and Bush's scandalized HUD secretary, Alphonso Jackson, was one of the administration officials who pushed back against attempts to reign in the industry. Here's how the administration described the home ownership plank of the "ownership society" on the White House website in 2004:
Expanding Homeownership. The President believes that homeownership is the cornerstone of America's vibrant communities and benefits individual families by building stability and long-term financial security. In June 2002, President Bush issued America's Homeownership Challenge to the real estate and mortgage finance industries to encourage them to join the effort to close the gap that exists between the homeownership rates of minorities and non-minorities. The President also announced the goal of increasing the number of minority homeowners by at least 5.5 million families before the end of the decade. Under his leadership, the overall U.S. homeownership rate in the second quarter of 2004 was at an all time high of 69.2 percent. Minority homeownership set a new record of 51 percent in the second quarter, up 0.2 percentage point from the first quarter and up 2.1 percentage points from a year ago. President Bush's initiative to dismantle the barriers to homeownership includes:
American Dream Downpayment Initiative, which provides down payment assistance to approximately 40,000 low-income families;
Affordable Housing. The President has proposed the Single-Family Affordable Housing Tax Credit, which would increase the supply of affordable homes;
Helping Families Help Themselves. The President has proposed increasing support for the Self-Help Homeownership Opportunities Program; and
Simplifying Homebuying and Increasing Education. The President and HUD want to empower homebuyers by simplifying the home buying process so consumers can better understand and benefit from cost savings. The President also wants to expand financial education efforts so that families can understand what they need to do to become homeowners.
First of all, that doesn't sound much different than the right wing's snide accusations about the "affirmative action lending" programs of the Clinton administration. But it also fails to describe the Bushies' preferred method of achieving success: relaxed lending standards that pushed more "entrepreneurs" into the lending and brokerage market, with ever riskier "financial products" that wound up sold off as securities on Wall Street. Hence, our current problem.
Meanwhile, few would recall that Bush's push for relaxed lending standards was actually fought by the very builders who were profiting from the real estate boom. From CNN Money, back in June 2004:
NEW YORK (CNN/Money) - Home builders, realtors and others are preparing to fight a Bush administration plan that would require Fannie Mae and Freddie Mac to increase financing of homes for low-income people, a home builder group said Thursday.
The National Association of Home Builders, along with the National Association of Realtors and the Mortgage Bankers Association, are drafting a letter to Alphonso Jackson, secretary of the Department of Housing and Urban Development (HUD), arguing that middle-income home buyers are the ones that will get hurt by the proposed plan, the NAHB told CNN/Money.
In April, the HUD proposed new rules that would raise the percentage of loans bought by the two government-sponsored enterprises (GSEs) that finance borrowers whose incomes are at or below the median for their area, according to the Wall Street Journal .
But the groups will warn in the letter that the proposed rules requiring the two GSEs to finance more "affordable housing" may have "unintended consequences," hurting some poor and middle-income people struggling to afford houses, the Journal said.
Fannie and Freddie, which use their ability to borrow cheaply in the government agency bond market to help middle-to-low income people buy homes, would be compelled to provide more funds to low-income home buyers by slashing their financing of middle-income home buyers, David Crowe of the NAHB told the paper.
The points being raised by the groups have also mirrored objections raised by Fannieand Freddie. Both GSEs said they favor more efforts to promote affordable housing, but say HUD has made some unrealistic assumptions about how much more the GSEs can do over the next few years, the Journal said.
The Limbaugh crowd seeking to blame the Clinton administration for the current crisis must be made to answer for the "ownership society," Bush's HUD, and the administration's further relaxation of lending standards (and their promotion of predatory lending) long before we start blaming minorities and the poor for our troubles.
Mr. Coulter strikes again. His/her latest column? You're going to love the title:
They Gave Your Mortgage to a Less Qualified Minority
Yup yup. That's her headline. After that, s/he takes a moment to exonerate John McCain in the 1980s S&L crisis before getting to her point:
Even if McCain had been implicated in the Keating Five scandal -- and he wasn't -- that would still have absolutely nothing to do with the subprime mortgage crisis currently roiling the financial markets. This crisis was caused by political correctness being forced on the mortgage lending industry in the Clinton era.
Before the Democrats' affirmative action lending policies became an embarrassment, the Los Angeles Times reported that, starting in 1992, a majority-Democratic Congress "mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers. Operating under that requirement, Fannie Mae, in particular, has been aggressive and creative in stimulating minority gains."
Under Clinton, the entire federal government put massive pressure on banks to grant more mortgages to the poor and minorities. Clinton's secretary of Housing and Urban Development, Andrew Cuomo, investigated Fannie Mae for racial discrimination and proposed that 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low- to moderate-income borrowers by the year 2001.
Instead of looking at "outdated criteria," such as the mortgage applicant's credit history and ability to make a down payment, banks were encouraged to consider nontraditional measures of credit-worthiness, such as having a good jump shot or having a missing child named "Caylee."
Threatening lawsuits, Clinton's Federal Reserve demanded that banks treat welfare payments and unemployment benefits as valid income sources to qualify for a mortgage. That isn't a joke -- it's a fact.
When Democrats controlled both the executive and legislative branches, political correctness was given a veto over sound business practices.
In 1999, liberals were bragging about extending affirmative action to the financial sector. Los Angeles Times reporter Ron Brownstein hailed the Clinton administration's affirmative action lending policies as one of the "hidden success stories" of the Clinton administration, saying that "black and Latino homeownership has surged to the highest level ever recorded."
Meanwhile, economists were screaming from the rooftops that the Democrats were forcing mortgage lenders to issue loans that would fail the moment the housing market slowed and deadbeat borrowers couldn't get out of their loans by selling their houses.
A decade later, the housing bubble burst and, as predicted, food-stamp-backed mortgages collapsed. Democrats set an affirmative action time-bomb and now it's gone off.
The sad thing is, Coulter's racist views are shared by a broad swath of her party. The rest of them just don't have the balls this guy does, to put it in print. Even sadder: her attempt to inject racial hatred into the public's attitudes on the financial crisis will work with a fair number of people. Never mind the fact that most of the people I know here in Florida who have had to short sell were not "welfare recipients with a good jump shot," they were high income individuals who either got laid off (or had a spouse get laid off,) or who, in that middle American "get rich quick" dream kind of scenario, tried their hand at "flipping," but started the game too late.
Most of the homes here in South Florida that were bought at inflated prices were purchased by middle class folks who spent their Hurricane Andrew insurance settlements to get out of Miami-Dade County and build a brand new home in the Broward burbs. Many of them used too little of the cash for their down payment, kitting out their homes instead, and then got in trouble via multiple refinancings.
In fact, refinancing is a key component of this crisis, and I doubt that Section 8 holders were the ones using their homes like a piggy bank. Regular middle class folks leveraged their home values to the hilt, pushed by appraisers who were willing to value homes at two, three times the real value. If Coulter is correct, then how can it be that housing advocates have been screaming all these years about a low income housing crisis, as condos and expensive homes went up all over the sunbelt, while nothing new was built in the inner city? Both things cannot be true -- that "welfare queens" bought all these homes and that people on welfare had no homes available to them.
Coulter's rant also presumes, as so many of her ilk do, that all or most black and brown folks are poor. In fact, prior to Andrew Cuomo taking the helm at HUD, even middle class African-Americans faced red-lining into "certain neighborhoods" and higher interest rates even if they had comparable, or even higher credit scores than their white counterparts (my mother sold real estate in the 1980s, and quit doing it because of her disgust with the practices.) Outside of income, minorities haven't substantially increased their homeownership stake since the S&L crisis:
Per the U.S. Census bureau:
Homeownership Rates by Race and Ethnicity of Householder
American Indian, Aleut, Eskimo
Asian or Pacific Islander
From 1999 to 2007, white homeownership jumped 2 percent, while black homeownership went up 1 percent -- meaning that the white race increased twice as quickly, if you're following "the math." and since fewer than half of blacks and Hispanics own homes, versus 75 percent of non-Hispanic whites, and combined, blacks and hispanics make up about one quarter of the U.S. population, it's statistically impossible for minorities to constitute the majority of delinquent homeowners, even if you're math skills are on the level of ... Ann Coulter.
(By the way, just as a sidebar, in 2006, some 9.8 million Americans received food stamps. Another 3.3 million received some form of public assistance. That included 3.4 million black people getting food stamps and 1.2 million receiving public assistance out of the approximately 11 million blacks classified as "in poverty" by the federal government. It included 5.5 million whites getting food stamps and 1.7 million receiving other public assistance, out of 56 million classified as at or near the poverty line.) Around 2.5 million white and non-white Hispanics received food stamps, plus another 980,000 who got public assistance (the numbers exceed 100 percent because Hispanics cross both racial lines.) All told,
Mr. Coulter also conveniently omits the fact that had there not been a junking of federal regulation in 1999 at the behest of John McCain's chief economic adviser Phil Gramm, even tens of thousands of bad loans wouldn't have infected the entire system, because there would have been no chop-shop derivatives flooding Wall Street; no loan selling and packaging, no appraisal hustling craziness. And the people shop and swapping those derivatives weren't a bunch of low income black people.
Coulter is clearly making a play to racialize the problem, the better to help the mostly white, mostly non college graduate, right wing talk radio consuming GOP base get excited about voting against the nigg... I mean, the "Democrat." She is one of those old-fashioned race baiters you read about in the history books, only Ann has the added cache of also being a hermaphrodite. Clever positioning.
Either way, Republicans who might wish to marginalize such a person have to contend with the fact that her view, in nearly as crass terms, has recently been articulated by such "mainstream" Republicans as Larry Kudlow and Neil Cavuto.
By the way, how anybody black can be a member of a party that contains Ann Coulter and her ilk, is beyond me.
One of the giant mortgage companies at the heart of the credit crisis paid $15,000 a month to a firm owned by Senator John McCain's campaign manager from the end of 2005 through last month, according to two people with direct knowledge of the arrangement. The disclosure contradicts a statement Sunday night by Mr. McCain that the campaign manager, Rick Davis, had no involvement with the company for the last several years. Mr. Davis's firm received the payments from the company, Freddie Mac, until it was taken over by the government this month along with Fannie Mae, the other big mortgage lender whose deteriorating finances helped precipitate the cascading problems on Wall Street, the people said...
...On Sunday, in an interview with CNBC and The New York Times, Mr. McCain responded to a question about Mr. Davis's role in the advocacy group through 2005 by saying that his campaign manager "has had nothing to do with it since, and I'll be glad to have his record examined by anybody who wants to look at it."
Freddie Mac had previously paid an advocacy group run by Davis, called the Homeownership Alliance, $30,000 a month until the end 2005, when that group was dissolved. That relationship was the subject of a New York Times story Monday, which drew angry denunciations from the McCain campaign. McCain and his aides have vehemently objected to suggestions that Davis has ties to Freddie Mac-an especially sensitive issue given that the Republican presidential candidate has blamed "the lobbyists, politicians and bureaucrats" for the mortgage crisis that recently prompted the Bush administration to take over both Freddie Mac and its companion, Fannie Mae, and put it under federal conservatorship.
But neither the Times story -- nor the McCain campaign -- revealed that Davis's firm, the Washington, D.C. based lobbying firm Davis Manafort, continued to receive $15,000 a month from Freddie Mac until last month-long after the Homeownership Alliance had been terminated. The two sources, who requested anonymity discussing sensitive information, told Newsweek that Davis himself approached Freddie Mac in 2006 and asked for a new consulting arrangement that would allow his firm to continue to be paid. The arrangement was approved by Hollis McLoughlin, Freddie Mac's vice president for external relations, because "he [Davis] was John McCain's campaign manager and it was felt you couldn't say no," said one of the sources. [McLoughlin did not return phone calls].
Obama says thanks, but no thanks, to the McCain to nowhere
Barack Obama responds to John McCain's indecent proposal:
The White House rivals maneuvered to claim the leadership role on the financial crisis that has overshadowed their campaign six weeks before Election Day. Obama said he would proceed with his debate preparations while consulting with bailout negotiators and Treasury Secretary Henry Paulson. McCain said he would stop all advertising, fundraising and other campaign events to return to Washington and work for a bipartisan solution.
"It's my belief that this is exactly the time when the American people need to hear from the person who, in approximately 40 days, will be responsible for dealing with this mess," Obama said at a news conference in Clearwater, Fla. "It's going to be part of the president's job to deal with more than one thing at once."
Meanwhile, it's becoming clear that not only does McCain, who hasn't been to the Hill in five months, but suddenly has rediscovered his love for legislating, hope to forestall a potential Rick Davis campaign ad from the Obama side, not to mention keep from answering questions about the crisis (and take a respite from the polls) McCain is also hoping to use this window of media opportunity to try and lash himself to Obama, and gain political cover for whatever deal comes out of Capitol Hill:
Sen. Lindsey Graham, McCain's representative in debate negotiations, said McCain will not attend the debate "unless there is an agreement that would provide a solution" to the financial crisis. Graham, R-S.C., told The Associated Press that the agreement would have to be publicly endorsed by Obama, McCain, the White House and congressional leaders, but not necessarily given final passage by the House and Senate.
The Obama campaign has read this thing correctly, I think. And I wonder what voters in Mississippi would think if their debate, at one of their cherished universities, was called off do to bad atmospherics? (The university told the AP they are going ahead with preparations, and plan to hold a debate.) Meanwhile, when the McCain-centric Associated Press says this about you:
Even as McCain said he was putting the good of the country ahead of politics, his surprise announcement was clearly political. It was an attempt to try to outmaneuver Obama on an issue in which he's trailing, the economy, as the Democrat gains in polls. He quickly went before TV cameras minutes after speaking with Obama and before the two campaigns had hammered out a joint statement expressing that Congress should act urgently on the bailout.
And while McCain's campaign said he would "suspend" his campaign, it simply will move to Washington knowing the spotlight will remain on him no matter where he is.
... you know you're losing the media. And now, to the timeline of events, which is interesting to say the least:
Obama said he suggested they first issue a joint statement showing bipartisanship.
"When I got back to the hotel, he had gone on television to announce what he was going to do," Obama said.
McCain said he would return to Washington after addressing former President Clinton's Global Initiative session in New York Thursday. He canceled his planned appearance Wednesday on CBS' "Late Show With David Letterman" program and a meeting with the prime minister of India.
Barney Frank just suggested another scenario on MSNBC: that McCain is trying to "air drop himself in here tomorrow" to "set himself up to take credit for something that's going forward without him." Kind of like the G.I. Bill...
It's starting to look suspiciously personal for Hank Paulson, former chair of Goldman Sachs. First, Warren Buffett buys into the Wall Street firm, to the tune of $5 billion, indicating he must know a particular rescue of the firm is in sight. From ThinkProgress:
But the conflicts are also visible. Paulson has surrounded himself with former Goldman executives as he tries to navigate the domino-like collapse of several parts of the global financial market. And others have gone off to lead companies that could be among those that receive a bailout.
In late July, Paulson tapped Ken Wilson, one of Goldman’s most senior executives, to join him as an adviser on what to about problems in the U.S. and global banking sector. Paulson’s former assistant secretary, Robert Steel, left in July to become head of Wachovia, the Charlotte-based bank that has hundreds of millions of troubled mortgage loans on its books.
Goldman Sachs cashed in under Paulson, with earnings in 2005 of $5.6 billion; Paulson made more than $38 million that year. A 2005 annual report shows that “Goldman was still a significant player” in issuing mortgage bonds. The conflict of interest is increasingly clear today, as Bloomberg reports that “Goldman Sachs Group Inc. and Morgan Stanley may be among the biggest beneficiaries” of Paulson’s bailout plan:
Jesus, this guy could almost be a McCain campaign operative.
Of course, he hasn't been going great guns on foreign policy, either, telling "60 Minutes" this weekend that he essentially endorses Sarah Palin's dangerously dimwitted view that the U.S. could well wind up at war with Russia over a NATO'd Georgia (not to mention saying she's "absolutely" ready to be president...)
Meanwhile, more bad news for the GOP. Voters in new polling blame them, surprise surprise, for the economic meltdown and the Wall Street bailout, including voters in the crucial swing state of Nevada. A new Suffolk University poll finds:
The poll shows that the toss-up state of Nevada remains just that, with Sens. John McCain and Barack Obama statistically tied at 46 percent and 45 percent, respectively.
When likely voters were asked who they figure is responsible for the current financial state on Wall Street, 41 percent blamed the Republicans, 16 percent tagged the Democrats, 27 percent said neither, and 16 percent couldn't decide who to blame.
And a new CNN poll finds voters across the U.S. tagging the GOP with the blame for the present crisis by a 2 to 1 margin.
By the way, did you hear the one about the McCain campaign manager who was paid $30,000 a month to lobby on behalf of Fannie Mae and Freddie Mac against stepped up regulation? Guess who Rick Davis was lobbying? John McCain!
The Obama campaign just finished a conference call for reporters to discuss the new ad, "Article," which hits John McCain on his love of deregulation, and his plan to do to healthcare what his and Phil Gramm's policies have already done to the financial markets. Watch the ad:
Ever since McCain's article from the September/October edition of Contingencies Magazine was first re-posted by New York Times columnist Paul Krugman on Friday, Democrats have been chomping at the bits to ram it down McCain's throat. After all, what better way to deflate the idea that the Republican nominee, after years of pursuing deregulatory policies, all the sudden was a champion of government oversight? Or, for that matter, what better way to drive home the notion that McCain would put one's health care - not to mention Social Security - at play in a clearly erratic market.
Here’s what McCain has to say about the wonders of market-based health reform:
Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation.
So McCain, who now poses as the scourge of Wall Street, was praising financial deregulation like 10 seconds ago — and promising that if we marketize health care, it will perform as well as the financial industry!
The full McCain article is available as a PDF file here. The McCain response, according to one reporter on the call, is as follows:
Oh, okay, so now, Republicans believe in socialism...
On "This Week" on Sunday, Bush Treasury Secretary Henry Paulson confirmed that the administration is prepared to up the ante on American socialism by not only taking over the vast majority of Wall Street's bad assets (meaning, as George Will pointed out, that after the bailout, the government would control most U.S. investment banks) but that the White House would push for the $700 billion bailout to include buying up the bad assets of foreign financial firms, too:
"We are talking very aggressively with other countries around the world," Paulson said in an interview on ABC News' "This Week." "If a financial institution has business operations in the United States, hires people in the United States...they have the same impact on the American people as any other institution."
Paulson, the architect of the bailout, also said that he will fight requests by Democrats to include a broader stimulus package in the bailout legislation.
"We need this to be clean and quick, and we need to get it in place," said Paulson.
By "clean and quick," he means rush through a bailout for the big boys, with nothing for you, except the bill.
So much for Republicans' belief in the free market. In their former Darwinian belief system, failed companies are supposed to be allowed to fail. Not anymore. Now, Republicans believe in aggressive government intervention to help the richest of firms and investors stay rich. Bailouts for ordinary people who are in danger of losing their homes: not so much. You see, those people are actually to blame...
Meanwhile, the world begins to notice our sudden love of socialism. From the Herald, UK:
Today we will learn further details of what could turn out to be the greatest act of grand larceny in history: the US treasury secretary, Henry Paulson's, trillion-dollar bailout of the US banks. Following last week's crash, the US government has decided to use taxpayer money to buy up all the bad mortgage debts of the banks and investment houses and insurance companies and let them start again with a clean sheet. In other words, save them from the consequences of their own folly. Nothing similar is yet proposed here, but it will.
The Bad Bank bailout is a bad idea. If the bankers get away with this we really will be one step from serfdom. I'm someone who has always tended to the left of the political spectrum, but on this issue I side with the American conservatives, such as Republican Congressman John Culberson, who are saying that this is socialism for the rich. Congress has no right bailing out private investors with money pledged in advance from the children and grandchildren of American citizens.
Advocates of the Bad Bank fund cite the success of the Resolution Trust Corporation (RTC) which sorted out the wreckage from the US savings and loans bust in 1989. But the RTC was very different from this Bad Bank. It collected and eventually sold off loans made by banks that had already gone bust; what is being proposed now is to buy loans before the lenders go under. In other words, it will create an artificial market with artificial prices to perpetuate the bankers' delusion that they are not actually bankrupt.
Still less is Paulson's bailout any kind of legitimate descendant of the Reconstruction Finance Corporation set up by Roosevelt in 1933 to cope with the last comparable banking crisis during the Great Depression. The first thing FDR did was shut the banks down, throw out their managements and halt all dividend payments. He then reopened the banks under new management and under US Treasury supervision, giving federal loans to banks prepared to behave.
E pluribus hokum or When the gamblers bail out the casino By Spengler
Why should American taxpayers give US Treasury Secretary "Hank" Paulson a blank check to bail out the shareholders of busted banks? Why should the Treasury turn itself into a toxic waste dump for their bad loans? Why not let other banks join the unlamented Brothers Lehman in bankruptcy court, and start a new bank with taxpayers' money? Or have the Treasury pay interest on delinquent mortgages, and make them whole? Even better, why not let the Chinese, or the Saudis or other foreign investors take control of failed American banks? They've got the money, and they gladly would pay a premium for an inside seat at the American table.
None of the above will occur. America will give between US$700-$800 billion to the Treasury to buy any bank assets it wants, onany terms, with no possible legal recourse. It is an invitation to abuse of power unparalleled in American history, in which ill-paid civil servants will set prices on the portfolios of the banking system with no oversight and no threat of legal penalty.
Why are the voices raised in protest so shrill and few? Why will Americans fall on their fountain-pens for their bankers? If America is to adopt socialism, why not have socialism for the poor, rather than for the rich? Why should American households that earn $50,000 a year subsidize Goldman Sachs partners who earn $5 million a year?
Believe it or not, there is a rational explanation, and quite in keeping with America's national motto, E pluribus hokum. Part of the problem is that Wall Street, like the ethnic godfather in the old joke, has made America an offer it can't understand. The collapsing the mortgage-backed securities market embodies a degree of complexity that mystifies the average policy wonk. But that is a lesser, superficial side of the story.
Paulson's dreadful scheme will become law, because Americans love their bankers. The bankers enable their collective gambling habit. Think of America as a town with one casino, in which the only economic activity is gambling. Most people lose, but the casino keeps lending them more money to play. Eventually, of course, the casino must go bankrupt. At this point, the townspeople people vote to tax themselves in order to bail out the casino. Collectively, the gamblers cannot help but lose; individually they nonetheless hope to win their way out of the hole. Americans are so deep in the hole that they might as well keep putting borrowed quarters into the one-armed bandit. They have hardly saved anything for the past 10 years. Instead, they counted on capital gains to replace the retirement savings they never put aside, first in tech stocks, then in houses. That hasn't worked out. The S&P 500 Index of American equities today is worth what it was in 1997, after adjusting for inflation (and a pensioner who sells stock purchased in 1997 will pay a 20% capital gains tax on an illusory inflationary gain of 40%). Home prices doubled between 1997 and 2007 before falling by more than 20%, with no floor in sight.
As it is, many of the baby boomers now on the verge of retirement will spend their declining years working at Wal-Mart or McDonalds rather than cruising the Caribbean. Some of them still have time to tighten their belts and save 10% of their income (by consuming 10% less), plus a good deal more to compensate for the missing savings of the 1990s.
Altogether, they'd rather gamble, and if that requires a bailout of the house, they gladly will chip in to pay for it. After all, today's baby boomers won't pay for the bailout. The next generation of taxpayers will pay for Paulson's $700-$800 billion. If that enables the present generation to keep borrowing rather than saving, it is no skin off their back. If home prices continue to collapse, the baby boomers will die in debt anyway, working at low-paying jobs until the day before their funerals.
And Spengler has this additional, interesting note:
Investment banks typically hold about $30 of securities for every $1 of capital, so a 3% write-down would leave them insolvent. If Lehman Brothers classified 14% of its assets as Level III at the end of the first quarter; Goldman Sachs was at 13%. Why is Lehman bankrupt, and Goldman Sachs still in business? If Secretary Paulson, the former head of Goldman Sachs, had not proposed a general bailout last week, we might already have had the answer to that question.
... Some Democrats in Congress are asking for some form of oversight, but it is hard to imagine how they might use it, for a Treasury with $800 billion to spend would constitute the whole market bid for low-quality mortgage assets, and would set whatever prices it wished. Professionals with years of experience set prices on these securities with great uncertainty. How would an overseer determine if it had set the correct price? And if the Treasury decided to bail out one bank (say, Goldman Sachs) rather than another, how would the overseer judge whether that decision was judicious, politically motivated, venal, or arbitrary?
If a liberal Democratic administration had put hundreds of billions of dollars of taxpayer money at risk by bailing out Bear Stearns and nationalizing American International Group (AIG), Fannie Mae and Freddie Mac, wouldn't conservatives accuse Democrats of "socialism"? Can Mr. McCain now square a circle by calling himself a conservative while favoring increased regulation?
In fact, Mr. McCain championed financial deregulation for years. In 1999, he supported legislation crafted by Phil Gramm, then a senator from Texas, that removed Depression-era walls between banking, investment and insurance companies -- allegedly to make the country's financial institutions more competitive and free to take entrepreneurial risks in the marketplace. (Many Democrats, including Sen. Joe Biden, the party's vice presidential nominee, supported this ill-considered legislation as well.)
The result was the creation of a free-market free-for-all of banks approving home mortgages to people who clearly couldn't afford to repay them if real-estate values stopped rising. It also spurred investment banks to buy and sell packages of mortgages after they had convinced themselves that by "spreading the risk," bad loans could become less-bad loans. Then they bought insurance contracts from gargantuan insurance companies like AIG to spread the risk even further. Investors banked on the fact that if real-estate values stopped rising (impossible!), and more and more people defaulted on their mortgages, Fannie and Freddie would pick up the tab. And, if Fannie and Freddie went down, there would be -- The-Ultimate-Bearer-Of-All-Risks -- the lowly taxpayers.
Now I know what former Sen. Gary Hart meant when he told an audience of wealthy Republican businessmen during his 1984 presidential campaign, "I know why you are conservatives -- you favor private enterprise for the poor and socialism for the rich."
And the boos keep coming, from Krugman, from Roger Cohen, and from Bill Kristol, who advises John McCain to flip-flop again and oppose the bailout. Personally, I'd give the same advice to Barack Obama...
Every so often, a member of the "conservative movement" offers us a clarifying moment, that illustrates the fundamental differences between the values and ideas of the two major political parties. (Phil Gramm declaring Americans "whiners" for not appreciating how well the economy is doing ... for rich people like him; John "seven homes" McCain declaring that "the fundamentals of the economy are strong," while Rome is literally burning all around him, being just two examples.) This morning on "Morning Joe," CNBC host, GOP booster, laissez-faire economics guru and John McCain sympatico Larry Kudlow, offered up such a moment.
Asked to explain the current crisis on Wall Street and Main Street, Kudlow declared that it's not the fault of the investment banks and hedge fund guys who packaged, bought and sold subprime mortgages for sport and profit, driving up demand for bad loans and incentivizing shady lending, or even the banks themselves, and their coterie of crooked appraisers and greedy mortgage brokers. It wasn't the Republican Congresses who systematically stripped the system of regualtions, thanks in large part to John McCain's buddy Phil Gramm. It wasn't the speculators or the flippers buying second, third, and even fourth homes and condos, or the price-gouging builders raising prices $30,000 a month here in Florida, or the greedy developers and brokers pushing home ownership with "no money down" as the latest fashion trend, or the combined speculative market that juiced up of home values beyond all reason. Nope. Those people are well off, and therefore they're better than you.
No, my friends, it turns out our current economic crisis, led by the massive mortgage meltdown, is the fault of liberals, who literally forced banks to lend mortgage money to poor people so they could assuage their "liberal guilt," and of course, it's also the fault of those icky, horrible poor people themselves. How dare they want to live like the rest of us! Why, they're POOR! ... and that's supposed to mean something in America!
Never mind that percentage-wise, home ownership among the poor is literally negligible, and that a huge part of the housing crisis is the LACK of affordable homes for people with little income, or that the majority of these 3-bedroom, $500,000 homes that are really worth $250,000 are being sold not to the poor, but to the middle class, often at teaser rates that mean their mortages literally can double after six or seven years.
Forget all that, and listen to Larry. He knows that it really was those bloody awful poor people, and the whimpering liberals who pamper them, at the expense of the downtrodden, helpless banks.
After a few minutes of this, Joe Scarborough was literally dumbstruck.
"Okay, so you're saying it's the poor people's fault," he deadpanned. Kudlow sputtered, but he had already said too much.
Going into the break, Scarborough sneered that coming up in the next segment, they'd explain how poor people were behind the JFK assassination, too.
Update: An astute commenter at TPM finds this link that delves into the role the SEC's lax oversight played in bringing us to the brink. An excerpt:
As we learn this morning via Julie Satow of the NY Sun, special exemptions from the SEC are in large part responsible for the huge build up in financial sector leverage over the past 4 years -- as well as the massive current unwind
Satow interviews the above quoted former SEC director, and he spits out the blunt truth: The current excess leverage now unwinding was the result of a purposeful SEC exemption given to five firms.
You read that right -- the events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1.
Instead, the 2004 exemption -- given only to 5 firms -- allowed them to lever up 30 and even 40 to 1.
Who were the five that received this special exemption? You won't be surprised to learn that they were Goldman, Merrill, Lehman, Bear Stearns, and Morgan Stanley.
As Mr. Pickard points out that "The proof is in the pudding — three of the five broker-dealers have blown up."
So while the SEC runs around reinstating short selling rules, and clueless pension fund managers mindlessly point to the wrong issue, we learn that it was the SEC who was in large part responsible for the reckless leverage that led to the current crisis.
The financial crisis continues to ripple across the globe this morning, from Moscow to London to New York City. Stocks took a dive this morning on Wall Street, even after the Fed agreed to bail out AIG, the nation's largest insurance company. The FDIC -- you know, the one that insures the money you have in the bank, up to $100,000? It's running short of cash, meaning that, in the AP's words, "the taxpayer may be the lender of last resort."
Meanwhile, maybe Sarah Palin can get on this right away: Russia is threatening to seize part of the oil-rich Arctic. Yep. Seize it.
And last but not least, no, Gerald Warner, it's not just you...
I don't know if I agree with E.J. Dionne about the innate intelligence of the American voter, but here you go:
All of a sudden, the culture war seems entirely beside the point, an unaffordable luxury in a time of economic turmoil. What politicians actually believe about the economy, what fixes they propose, whether they side with the wealthy few or the hurting many -- these become the stuff of elections, the reasons behind people's votes.
And nothing more exposes the hypocrisy of financial elites riding the coattails of those who revere small-town religious values than a downturn that highlights the vast gulf in power between the two key components of the conservative coalition. Even cultural conservatives will start to notice that McCain's tax policies are geared toward the wealthy investing class and Obama's toward the paycheck crowd. Even the most ardent friends of business have begun to argue that a re-engagement with sensible regulation is essential to restoring capitalism's health.
For some time, McCain's strategists figured they could deflect attention from the big issues by turning Palin into a country-and-western celebrity and launching so many ill-founded attacks on Obama that the truth would never catch up. The McCain strategists' approach reflected a low opinion of average voters, and some Obama supporters began worrying that their opinion might be right.
But those so-called average voters understand the difference between low- and high-stakes elections. They develop a reasonably good sense of who is telling the truth and who is not. And though it sometimes takes a while -- and a shock like this week's economic news -- these voters almost always turn on politicians who manipulate cultural symbols as a way to escape the consequences of their policies.
We'll see if he's right. I surely hope he is. But I suspect that even in the face of clear evidence that the GOP, McCain's party (whether he wants to admit it these days or not ...) is, and will continue to, pursue policies that benefit the monied elite at their expense, many lower-middle and middle class white voters, especially in the industrial heartland and certainly in the south, will continue to vote social issues and "culture," especially with a black man on the "European" ticket. These voters don't get, or simply don't care, what Republican party policies do to them, or to their finances, because they culturally ignore government. What they want is a president who "shares their values," and with whom they are personally comfortable. After that, the government can do its worst. They just keep trodding on. That, unfortunately, is America -- or at least a good 50 percent of it.
Two more bank failures on Wall Street, as Lehman Bros. files for Chapter 11, and Merryl Lynch is sold under duress, to Bank of America. The feds will let Lehman fail, opting not to go for yet another bailout.
What will Wall Street and the City of London look like, when the smoke clears?
The collapse of Lehman Brothers and the rescue of Merrill Lynch at the weekend do not mark the end of the financial crisis. There may still be more failures to come - former US Federal Reserve chairman Alan Greenspan, hardly known for his pessimism, suspects there will be.
For one thing, power will no longer rest with the great Wall Street investment banks, which once pulled the levers of corporate America, even though their financial firepower was dwarfed by the commercial banks'.
Only Goldman Sachs and Morgan Stanley remain forces to be reckoned with, now that Lehman is gone and Merrill and Bear Stearns subsumed into much larger entities,
Does that matter? In practical terms, not really: their functions - trading and underwriting debt and equity, advising companies on mergers - are already provided by big global banks such as Citigroup, Credit Suisse and Barclays.
The US low-tax zealot, Grover Norquist, is famous for wanting to "shrink government down to the size where we can drown it in the bathtub". Still alive, he is not turning in his grave, but his idea has been well and truly buried - and not by the Democrats he hates; they have been tongue-tied on the credit crisis.
It is Wall Street, the paradigm of "red in tooth and claw" capitalism, that has turned to government subsidy on an unprecedented scale.
Low, ideally non-existent, taxes may be very desirable, but when free-market principles came into conflict with the survival of business as we know it, priorities were clear. The US Federal government's full faith and credit - in other words, the resources of American taxpayers - should be urgently deployed to preserve as much as possible of the financial industry.
Luckily for Wall Street, government was still too big to fit in that bathtub - and proved only too willing to take up the challenge.
Sen. Barack Obama (D-Ill.) was first with a statement, at 6:17 a.m. Eastern: “The situation with Lehman Brothers and other financial institutions is the latest in a wave of crises that are generating enormous uncertainty about the future of our financial markets. This turmoil is a major threat to our economy and its ability to create good-paying jobs and help working Americans pay their bills, save for their future, and make their mortgage payments.”
Sen. John McCain (R-Ariz.) followed at 8:01 a.m.: “The McCain-Palin Administration will replace the outdated and ineffective patchwork quilt of regulatory oversight in Washington and bring transparency and accountability to Wall Street. We will rebuild confidence in our markets and restore our leadership in the financial world."
McCain was first with a TV ad, called "Crisis", vowing: "Our economy in crisis. Only proven reformers John McCain and Sarah Palin can fix it. Tougher rules on Wall Street to protect your life savings. No special interest giveaways. Lower taxes to create new jobs. Offshore drilling to reduce gas prices."
If it sounds familiar, it’s because it is: The candidates are repackaging their normal stump rhetoric to deal with an economic earthquake that could constrict voters’ ability to get loans, and is already reshuffling the biggest names in American finance.
Anything new to offer, Grandpa?
I await the Obama ad, which I assume is forthcoming ... (eyes rolling...) eventually...