WILL THE DEREGULATION STUPIDITY NEVER END?

Here’s an article written by Newt Gingrich in Forbes.com. It's not his best work ...

Newt’s trying to set a story-line that suggests the market collapse we’re seeing today is a result of faulty regulations, and not underlying structural problems. In a few words, he’s saying don’t just look at collapsed prices. Think about what you could get for financial instruments if the markets were fine. To fix the problem Newt’s calling for another set of accounting standards because … well, it will help fix market prices.

Let’s see. At the end of each day, financial instruments are valued at the price they can fetch out on the open market … and that's a bad thing? It is according to Newt Gingrich. Here’s Newt’s explanation (Mumbo-Jumbo Fair Warning ... skip to the next paragraph, for my translation):

Because existing rules requiring mark-to-market accounting are causing such turmoil on Wall Street, mark-to-market accounting should be suspended immediately so as to relieve the stress on banks and corporations. In the interim, we can use the economic value approach based on a discounted cash flow analysis of anticipated-income streams, as we did for decades before the new mark-to-market began to take hold. We can take the time to evaluate mark-to-market all over again. Perhaps a three-year rolling average to determine mark-to-market prices would be a workable permanent system … It is not widely understood that the adoption of mark-to-market accounting rules is a major factor in the liquidity crisis which is leading companies to go bankrupt. But it is destructive to have artificial accounting rules ruin companies that would have otherwise survived under previous rules.

Got that? Don't worry. I've put this through my "Newt B.S. 'O Meter." Here’s the English language translation ...

Newt Gingich wants to change the rules so we can revalue all the ugly financial instruments that are currently worth 20-30 cents on the dollar (if that). He thinks we should value these financial instruments on a three year average. You know, so the financial instruments, and the financial institutions holding them, don’t have to suffer the consequences of “impaired” values of a collapsed market. Best of all, no one gets their feelings hurt because they're sitting on trash (OK, I threw in that last one).

If you’re still having trouble getting a hold on Newt’s proposal, let’s try this. Assume you own a home with an average value of approximately $500,000 over the past three years. Today, the home is worth $325,000. According to Gingrich’s logic you should be able to value your home according to its three year average.

This might be enticing (and exciting) if Newt was talking about your home. However, Newt’s not talking about your home. He’s talking about the market instruments that got us into this mess! Under Newt’s plan the value of your home will still be sucking wind. And the market instruments that got us into this mess? Well, they’ll start going up.

But don’t worry, says the Newtster. Once the big guys start making money, the markets will stabilize, so you’ll win in the long run (if you've heard that story before you're not alone).

But let’s assume Newt was talking about the value of our homes. Can you imagine going to your bank, and then saying “How about an equity loan? My house is worth $325,000 on the market … but the average value has been $500,000 … so give me $100,000 … even though I'm up-side down and owe $400,000.” Or, can you imagine turning over your $325,000 house to the bank and telling them "It’s worth $500,000, so pay me the difference"? Better yet … well, you get the picture.

Does this make sense to you? It does to Newt, and a whole bunch of republicans too. And it’s all proposed in the name of deregulation … you know, to help markets function better.

This is the kind of republican-led deregulation proposal that got us into the market mess in the first place. Rather than look at the real problem (poor oversight, greed, and stupidity) Newt Gingrich wants to do some creative accounting …

And here’s the kicker. CFO.com is telling us that the nations’ chief financial officers are saying we don’t need Newt’s plan. A couple of turns of the screws have already helped.

Worst of all for Newt is that the investment community actually like the bailout plan. They also reject the notion of suspending current accounting methods - which Newt wants to do - because rock bottom prices will keep the government from paying too much for garbage in a bailout. They're actually looking out for America's financial interests.

I wonder who Newt's lobbying for these days ...

- Mark

PALIN'S "DO-OVER"

Incredible. Sarah Palin gets a "do-over" with Katy Couric. And she brings her Dad along.



It was bad enough that the McCain camp wouldn't let her out in public to comment on the first presidential debate. Now McCain's running around holding her hand during her Couric "do-over"? Palin should have gone alone.

This clip is uncomfortable to watch, and embarrassing.

- Mark

CONGRESSMAN COSTA COMMENTS ON THE BAILOUT VOTE

Here's Congressman Costa's comments on the vote for the financial rescue package ...

“American business owners on Main Street are feeling the effects of the current crisis on Wall Street, and I was not willing to put American businesses and farms at risk. I supported this legislation to avert a financial crisis that, in a worst case scenario, could turn our current recession into a deep depression. It’s the economic irresponsibility of the Bush Administration’s financial policies over the last seven and a half years that have largely put us in this problem.

However, we now must go back to the drawing board to craft legislation that can receive bipartisan support to ensure that our financial system does not crumble before our eyes. I am disappointed we did not pass this legislation and I will work with my colleagues to see our nation through this challenge.”

Congressman Costa hits the nail on the head when he points to the Bush administration's policies as contributing factors to this mess.

Some republicans, it appears, don't appreciate such straight talk and voted against the bailout proposal because Nancy Pelosi said pretty much the same thing when she announced the proposal yesterday.

We have perhaps the greatest financial crisis in our nation's history staring us in the face, and republicans are whining because of a little straight talk? We can't fix a problem if we never acknowledge what it is. Republicans would rather kick things around until they can cloud the analysis with double-talk ...

Kudos to Costa for pointing out the obvious.

- Mark

WHAT A MESS ...

Congress rejected the bailout proposal with 228-205 vote and market players are starting to panic. When it became clear what was going on in Washington the Dow dropped almost 700 points ...

Here's how our representatives voted: Rep. Jim Costa, YES; Rep. Kevin McCarthy, NO.

Here's what we have: Republicans killed the deal ... George W. Bush no longer has any influence over his party ... John McCain's "return to Washington" publicity stunt has been exposed for being just that, a publicity stunt ... the global market MSCI index has tanked 5.9%, the steepest decline in its 38 year history ... and global market players are so spooked that the Fed appears to be taking matters into their own hands ...

What a mess. Stay tuned.

- Mark

THE ROOTS OF MARKETS AND WEALTH

As per my comments on the radio program today, here's a segment from my forthcoming book, THE ROOTS OF MARKETS & WEALTH. This portion - from Chapter 10, "An Empire of Debt ... Violating Adam Smith's 'Laws of Nature'?" - examines the republican myth about Reaganomics. Specifically, I argue that "laissez-faire" policies (taking government out of the market) played a supporting role, at best, in helping the nation's economy recover and grow during the 1980s. The implications for policymaking are obvious ...

REAGANOMICS: STATE-LED RECOVERY … DEFICIT SPENDING ORGY
Upon entering the White House in 2001, the center-piece of President George W. Bush’s economic program was rooted in Ronald Reagan’s supply-side economic policies. He reasoned that by putting more money in the hands the nation’s wealthy that investments would increase, which would create more jobs and generate more tax revenue.

Insisting that the Reagan administration’s policies got the economy moving the Bush administration promised that just as Reagan saved the American economy from stagflation and misery that his tax-cutting, favor-the-rich, plan would reinvigorate the American economy. While the rhetoric was strong, a careful read of the facts illustrates that the Bush administration misread both Reagan’s accomplishments and history.

To understand what President Bush was trying to emulate in 2001 it’s necessary to recall the conditions that Ronald Reagan inherited, and supposedly tamed while in office. With inflation (12-13 percent) and interest rates (20 percent) reaching new heights in the late 1970s, and with unemployment on the rise (around 6 percent), both confidence and investment were lagging in America. The result was a new term in the field of economics and a fresh challenge in American politics: Stagflation (recession, low productivity, and inflation). By the time Ronald Reagan left office inflation and interest rates were back down to single digits, while unemployment hovered around a more acceptable 5 percent.

Because of these developments, conservatives and ill-informed talk show hosts like to claim that a combination of tax cuts, deregulation, bureaucratic reform, and assorted incentives created the environment for investment that energized the economy. Indeed, according to revisionist historians the Reagan administration was able to get America moving by reducing the size of government, cutting government spending, and getting “government off of our backs.” This would be an interesting by-line except for one thing. It’s not true.

First, it’s interesting to note that job creation under Ronald Reagan never matched the levels achieved under Jimmy Carter, while the size of the federal government’s workforce grew from 2.8 million employees to 3.1 million. In fact, the number of federally subsidized programs under Ronald Reagan was scaled back only to 1970-1975 levels, which helps explain why the Reagan administration hardly put a dent in the size of government.

Acknowledging this, in 1985 Fortune magazine wrote that the “budget is way out of balance because of a little-known fact: real federal spending, adjusted for inflation, has climbed even faster under President Reagan than it did in the Carter years.” In the end, in spite of what the supply-side supporters promised, the national debt almost tripled from approximately $930 Billion to $2.7 Trillion under Reagan.

So what created the conditions for the American economy to stabilize in the late 1980s, and take off during the 1990s? Primarily three factors: all of which undermine the Bush administration’s second-coming-of-Reagan claim (they also pretty much debunk the “first-coming-of-Reagan” claim too).

On the inflation front, we find that OPEC – an oligopoly that depends on cooperation to sustain itself – found its solidarity undermined by late 1981. With the beginning of the Iran-Iraq War, which Saddam Hussein initiated in part because the ayatollahs were fomenting fanatic revolution in Iraq, black markets in the oil industry grew as cheating on the part of the two combatants began (to fund their war efforts).

In addition, conservation efforts, alternative energy sources, new oil discoveries, among other developments, helped to stabilize oil prices. But these efforts were initiated by President Ford and, to a larger degree, by President Carter. Still, the reality was OPEC unity – one of the primary catalysts behind price hikes – had unraveled, while government-inspired conservation efforts paid off. As the price for oil dropped, so did inflationary pressures.

We also need to recognize a second force on the inflation front. Recall the strategy employed to control inflation was taken up by Federal Reserve Chairman Paul Volcker. In spite of pressure from the Reagan administration, who initially wanted to expand the money supply, most economists agree that by sticking to his guns, and maintaining a stringent monetary policy, Mr. Volcker helped to slay the inflation dragon. Critical here is that Mr. Volcker was appointed by Jimmy Carter, and not Ronald Reagan.

Finally, the Reagan administration’s deficit spending broke all previous records. In fact, his administration spent twice as much as the previous 39 presidential administrations combined, in the process using taxpayer funded debt to deposit hundreds of billions of dollars into the national and global economy each year. This government induced “pump priming” was an artificial stimulus – what economists call a “Keynesian stimulus” (Chapter 9) – and was hardly a vote of confidence for laissez-faire economics.

In sum, cracks in OPEC unity, conservation efforts, a tight monetary policy, and a state-led stimulus to our larger economy suggest that the Reagan administration’s policies were, at best, a supporting rather than leading factor in reversing the dismal economic environment of the 1970s.

Perhaps more importantly was how Ronald Reagan used the state to make favorable legislation for industry a standard state function, while turning hostility toward labor into a conservative virtue. Combined with record budget deficits, the Reagan years helped create an economy supercharged by deregulation and debt. But worst of all is how his policies worked to undermine the laws of justice Adam Smith argued was necessary for markets to function efficiently and equitably ...

- Mark

BAILOUT HUMOR

While bailout politics is serious stuff, this TT comic captures the moment ...


As usual, if you can't read the font, click on the comic.

- Mark

DEBATE COMMENTS ...

While I think the blow by blow on the foreign policy issues produced a draw, Obama clearly won on style and expectations.

This was McCain's stage, and his opportunity to bury Obama on foreign policy/commander-in-chief issues. It didn't happen. John McCain never looked at Obama, and seemed surly. Obama looked calm and patient. Perhaps more importantly, because foreign policy was supposed to be his primary weakness, by standing toe to toe with McCain on the issues Obama came out ahead on this one.

McCain did make a couple of mistakes. Pakistan was not a "failed state" when Musharraf came to power (in a military coup). He also seemed to elevate Obama's foreign policy mojo by trying to paint Obama as potentially wreckless for wanting to go after al Qaeda in Pakistan. Obama actually looked better, and more presidential, after the fact.

Again, this was McCain's stage. It should have been a cakewalk. Instead, it was a draw on the issues. Obama won.

- Mark

UPDATE: I can't believe I forgot to write this one down ... As Joe Biden points out, McCain made another mistake. McCain can't distinguish between strategy and tactics. Here's Biden explaining it ...

ALASKA MUST BE PROUD, II ...

Jack Cafferty nails it ...



- Mark

P.S. I showed this to my 10-year old (as a lesson) and she started laughing. I'll discuss the part she started laughing at during the program.

McCAIN'S RETURN TO WASHINGTON ... PATHETIC GRANDSTANDING

From TheHill.com, it looks like John McCain - who has already said he's clueless about economic issues - really had no business returning to Washington.

Specifcially, McCain (1) sits on none of the congressional committees doing the bailout proposal work and (2) hasn't sponsored a single banking bill during this Congress. Barack Obama, on the other hand, has 5 bills within the Banking Committee's jurisdiction. From what I can see, 3 of them touch on bailout proposal issues.

John McCain ... Putting McCain First.

- Mark

ALASKA MUST BE PROUD ...

I don't know how Tina Fey or the crew at SNL can top this material ..



- Mark

COMPARING THE BAILOUT PLANS ...

Let's compare the bailout plans, in simple terms.

The Paulson-Bush Plan demands a blank check. It says, "trust us."

The Boehner-Republican Plan demands government security. It says "let's do it again."

The Democratic-Obama Plan demands taxpayer protection. It says, "You screwed up, go sit in a corner."

The McCain Plan demands media attention. It says, "Look at me, I'm important too."

I'll discuss all of these on tomorrow's radio program.

- Mark

THE PAULSON-BUSH PLAN

For those of you who haven't seen Secretary Paulson's blank check bailout proposal, here it is. I've italicized key points of interest.


LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY

TO PURCHASE MORTGAGE-RELATED ASSETS

Section 1. Short Title.

This Act may be cited as ____________________.

Sec. 2. Purchases of Mortgage-Related Assets.

(a) Authority to Purchase.--The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

(b) Necessary Actions.--The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:

(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;

(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;

(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;

(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and

(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.

Sec. 3. Considerations.

In exercising the authorities granted in this Act, the Secretary shall take into consideration means for--

(1) providing stability or preventing disruption to the financial markets or banking system; and

(2) protecting the taxpayer.

Sec. 4. Reports to Congress.

Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.

Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.

(a) Exercise of Rights.--The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.

(b) Management of Mortgage-Related Assets.--The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.

(c) Sale of Mortgage-Related Assets.--The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.

(d) Application of Sunset to Mortgage-Related Assets.--The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time.

Sec. 7. Funding.

For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Sec. 9. Termination of Authority.

The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.

Sec. 10. Increase in Statutory Limit on the Public Debt.

Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.

Sec. 11. Credit Reform.

The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.

Sec. 12. Definitions.

For purposes of this section, the following definitions shall apply:

(1) Mortgage-Related Assets.--The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.

(2) Secretary.--The term “Secretary” means the Secretary of the Treasury.

(3) United States.--The term “United States” means the States, territories, and possessions of the United States and the District of Columbia.

THESE GUYS ARE IDIOTS

Earlier today I wrote that the republicans want to (1) rebuke President Bush publicly and (2) gut Obama's "Protect the Taxpayers and Homeowners" provision. Well, it looks like it's worse than that.

According to CNNMoney.com the republicans are proposing an Economic Rescue Principles plan that, incredibly enough, removes "regulatory and tax barriers that are currently blocking private capital formation." Put another way, they want tax breaks and more deregulation. You can read their proposal here.

I don't know if anyone has told these guys, but tax breaks for the rich and deregulation are what got us into this mess. What's really blocking private capital formation is fear ... fear of each other's stupidity eating into their profits. This is why banks and financial institutions are not lending to each other - in spite of hundreds of billions in FED-laced loans & credit.

Still, to get this arrangement republicans are offering to have the private sector pay an insurance premium to make sure their mortgage backed securities (MBS) will pay off. How nice of them.

Here's the problem. The proposal has the federal government insuring about half of the MBS market, with the private sector insuring the other half.

Gee, I wonder which half the government gets to insure?

In essence, the republican proposal says to the taxpayer, "You guys stabilize the markets (for $350 billion), and make sure they work, and we'll step in and throw a capitalist party ... as long as you give us some more deregulation and tax breaks."

These guys not only want to rebuke Bush, and eviscerate Obama's proposal, but they want to start the game all over.

These guys are idiots. And they're banking on America being full of a bunch of idiots too ... as is John McCain.

- Mark

BAILOUT POLITICS ... CLEAR THE VOMITORIUM

So I'm flipping through the channels trying to determine whether anyone is reporting that the Bush administration will get their bailout proposal. This morning it looked like the Democrats got some of their concerns addressed, which had the press discussing a bailout bill that could be voted on today or tomorrow. Suddenly, John McCain is air-dropped in, and just like that it looks like there will be no bailout any time soon.

Right now the press is blaming Republican Minority Leader, John Boehner, especially since it appears he agreed to many of the provisions that are now being rejected beforehand. Here's what many people see ...

1. President Bush has little or no influence within his party.

2. John McCain has little or no influence on events.

Then we have the real world.

Obama was eating McCain's lunch the past two weeks. Sarah Palin was looking like a bit player from the movie FARGO. Their poll numbers were slumping. What we have going on today is a major game of political theater playing out between John McCain, John Boehner and the American taxpayer. The prize? The American presidency.

Everyone knows that Paulson and the president want their plan. Everyone knows Boehner prefers something that guts Obama's proposals (an equity stake in firms for the American taxpayer, CEO pay limits, homeowner relief, and bi-partisan oversight panel). This is where John McCain comes in.

By having McCain show up, Boehner has his trump card. McCain's "Drama Queen Politics" distracts the press from Boehner backing away from an agreed upon plan. Keep in mind the press is on McCain like white on rice (or incompetence on Bush). This works for the republicans because they can show that they don't support a lame duck and highly unpopular president's bailout proposal. They can now angle for something that will weaken Obama's proposals. McCain and the republicans steal the show.

But here's the good part. No one is discussing how low McCain is falling in the polls, or how unprepared Sarah Palin is. And it gets better. No one has the time to start talking about what's slowly making its way into the news ... John McCain and his role in the Keating 5.

Obama hasn't spoken at this time, so I hope he comes out and (1) publicly calls John McCain and President Bush out for their inability to get their guys in line and (2) for orchestrating what's amounted to a White House photo-op.

My friends, this is beyond "Silly Season." It's Bread & Circus in the best tradition of Rome. Clear the way to the vomitorium ...

- Mark

DRAMA QUEEN POLITICS

Apart from President Bush's "scare-mongering-to-sell-my-bailout" speech last night, there's another issue voters need to keep in mind.

Since the credit/financial market problems emerged on the political scene we have watched John McCain have his own meltdown. He has done the following:

1. Claimed "market fundamentals" are sound ... and then unilaterally changed what "fundamentals" mean.

2. Claimed he was against a bailout for AIG ... before he was for it.

3. Suggested he would fire SEC Chair Christopher Cox ... who is only remotely connected to this mess, and can't be fired by the president.

4. Suspended his very serious presidential campaign because things are, well, so serious ... in the process proving he can't multi-task.

5. Called for postponing the first presidential debate ... because his polling numbers are tanking.

Keep in mind that all of this occurred after McCain panicked and picked Caribou Barbie as his VP running mate. For added measure, after calling for a bailout McCain has said he might not vote for the bailout proposal (but he did say this in a decisive manner, mind you).

Let's not mince words: Temperament counts as much as judgment. McCain has neither.

John McCain is an unstable Drama Queen, and unfit to lead.

- Mark

BUSH'S 14 MINUTE CAMEO

Here's a few comments on George Bush's 14 minute cameo appearance ...

Bush tried to explain everything that's gone wrong in the markets in real simple terms. This is hard enough to do when you understand what's going on. Bush clearly has no idea what's happening. His blank "reading-the-teleprompter" eyes made this clear. Still there are several things to cull from Bush's appearance.

THE ISSUE(S): With President Bush's "our entire economy is in danger" observation he efectively said "We're in trouble and we have no money in credit markets because people got greedy and stupid." He used his standard M.O. to get America and Congress to support his Paulson-escorted bailout plan; i.e. "Be Afraid Because Worse May Be Around the Corner."

HOW DID WE REACH THIS POINT?: President Bush tried to explain what's happened with reference to easy money (created by funds from abroad and low interest rates) and the emergence of toxic mortgage backed securities (MBS, a form of CDOs, which I posted on below). He then tried to pin blame on house flippers. Conveniently, Bush said nothing about a culture of debt, tax breaks, and deregulation.

What really happened? Effectively, the same people he dumped tax breaks on ran the economy into the ground.

HOW WILL THE PLAN WORK?: President Bush effectively said "By bailing out stupid and greedy people with my plan we remove the risk from the market, for now."

In an 8 year span of self-serving and pathetic moments, this was one of his worst.

WHAT ABOUT OUR ECONOMIC FUTURE?: President Bush pretty much told us, "Don't worry, the government has your back." Everything else he said means nothing.

At the end of the day, Bush missed an opportunity to look presidential. He could have said, "We were wrong ... I was wrong, forgive me." Instead, he said "Give me the money so I am remembered only as a blundering General George Custer, and not as a floundering Herbert Hoover too."

- Mark

FARGO REPLAY, WITH CARIBOU BARBIE

I just finished with the kid's homework, and need to get to my stuff. However, I had to post Caribou Barbie's interview with Katy Couric. No wonder they don't let her do these things. Canned lines and befuddlement ... this is embarrassing.



McCain's VP pick sounds and looks more and more like an extra off of the cast of FARGO (1996). She could have been Jerry Lundegaard's clueless wife ... yah betcha'

- Mark

THIS IS NUTS ... WHY THE BAILOUT PROPOSAL NEEDS TO BE REJECTED

While everyone in Congress is rightly concerned with the provision in the Treasury Department's $700 billion bail-out proposal that tells us decisions made "are non-reviewable ... and may not be reviewed by any court of law or any administrative agency" there are additional reasons to reject the Bush administration's bailout proposal.

Page one of the proposal tells us the Treasury Secretary can enter into contracts "without regard to any other provisions of law regarding public contracts" and can designate "financial institutions as financial agents of the Government." According to the bailout proposal Secretary Paulson can do this, and pretty much whatever else he wants, "without limitation."

While the above is pretty clear, it's Bush/Finance-speak for "We make the rules, and will appoint our buddies to do whatever we want ... and the courts can't review any of the wrong-doing that went on either ..."

But here's the real kick in the teeth: "The Secretary's authority to purchase mortgage-related assets under this Act shall be limited to $700,0000,000,000 outstanding at any one time. With this one sentence, this much is clear: $700 billion is the first installment.

This blank check bailout proposal needs to be rejected, today.

- Mark

CHICKEN LITTLE RIDES AGAIN ...

Fed Chair Ben S. Bernanke is urging Congress to grant the U.S. Treasury Secretary Henry Paulson Czar-like authority to do what he wants with $700 billion of taxpayer money. This includes purchasing financial toxic waste at more than generous levels. Here's Paulson on the dangers we face:

"I believe if the credit markets are not functioning, that jobs will be lost, the unemployment rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover ..."

If Congress doesn't play along both Bernanke and Paulson say the financial sky will fall.

Guess what? I'm more concerned with this happening again. Unless Congress addresses how debt & deregulation feed stupidity and greed, Paulson's bailout proposal only postpones what's happening into the next administration.

Bailout - and Bailout Now - is not the solution. I say fix this, and fix it now.

- Mark

OSTRICH ECONOMICS: EXPLAINING CDOs & CDSs ...

I was responding to a writer, and thought I should share this part of the discussion ...

... A CDO is a collateralized debt obligation. This is “finance-speak” for selling you the monthly payments that someone makes on a home mortgage or a credit card. The monthly payment, as you can imagine, is tied to the debtor’s ability to pay their debts. When you bundle a bunch of debt contracts together you have a CDO. If the debtor can’t make their monthly payments the holder of the CDO is in trouble.

A CDS is a Credit Default Swap. In (hopefully) even simpler terms, a CDS is insurance. AIG believed they could sell a CDS and insure investments like they insured a house. The seeds of collapse were planted when CDS-Insurance instruments were bought up by "investors" who were more concerned with getting access to monthly premiums, but not so keen about the idea of providing insurance. Things got really ugly when AIG and other market players began insuring CDO instruments tied to subprime mortgage contracts, and other market garbage.

AIG, however, isn’t the only institution involved in the CDS-insurance mess. Keep in mind, market players of all stripes were looking at the CDS market as income. As a result, CDS contracts were shipped around so much, and viewed as income streams to such a degree, that no one actually thought they might have to pay up if the market tanked. This is Ostrich-Economics.

CDOs and CDSs are like alchohol - good in moderation, but toxic if everyone’s drinking beyond necessity. And when you do it daily, well ... What Fannie Mae and other financial institutions did was purchase and trade CDOs and CDSs on levels that were not prudent. Think about this little nugget of information. The CDS market - which makes sense on the surface - jumped to twice the value of the U.S. stock market between 2001 and 2007 (from $1 trillion to $45 trillion). Market players effectively stacked CDOs & CDS’s on top of one another like a child stacks Legos. At some point, while each block looks strong, the whole thing will fall.

While this is another gross oversimplification, selling CDS insurance tied to cover toxic CDO contracts would be like me taking the insurance policies of homes destroyed in Hurricane Katrina and Hurricane Ike, and using them to apply for a loan - and then having the bank accept them as collateral! Financial institutions did this for a long time until the mess collapsed on itself.

So, yes, like your children, the guys who brought us this mess thought they could stack financial Legos into the sky indefinitely.

This is what the Bush administration wants you to bailout.

- Mark

THE ROOTS OF MARKETS AND WEALTH

Those of you who have been following my program and reading this blog know that I sent out the manscript for my book, tentatively titled, The Roots of Markets & Wealth: The Indispensable Role of the State in Making Markets Work. I say "tentatively" because it looks like I'll be changing the title, at the request of the publisher. It turns out what I wrote fits right into this market meltdown mess. What I post below is a snippet from Chapter 1, "Milton Friedman Got it Wrong ... Politics is at the Heart of American Capitalism."

To set up the excerpt below, what I'm saying is that we are a nation that prides itself on the separation of powers concept. I've selected the passage below because the bailout proposal put forth by Secretary of Treasury Paulson eviscerates this principle. If you haven't been following the news, Secretary Paulson and the Bush administration have put together a $700 billion bailout that says the plan can't “be reviewed by any court of law or any administrative agency.”

We all know what happened the last time the Bush administration asked for a blank check (in war). I especially like the section below because it's clear bailouts and "trust us" weren't something Adam Smith & the Founding Fathers thought were good ideas ...

ADAM SMITH’S “LAWS OF JUSTICE” AND THE FEDERALIST PAPERS
As we will see in Chapter 2, market opportunities for everyone are difficult to achieve ... and are not something that “just happen.” Opportunities grow when government removes the stagnant blood of political privilege. Opportunities are created when we seek to eliminate stifling social practices that prohibit certain groups from participating. Opportunities multiply when policy-makers seek out and defeat market conspiracies. Opportunities grow when the state moves against favorable legislation that lowers competition. Finally, opportunities emerge when the quest for advantage and power in markets – which is very similar to the search for power and advantage in politics – is tamed by both constitutions and the law.

But these proactive approaches to government aren't always acknowledged. To avoid taking our opportunities “for granted” (see Milton Friedman) it is imperative that society accept that government oversight and regulations are necessary for markets to function smoothly. The reasons for this are simple, and two-fold.

First, if there was anything Adam Smith believed would undermine the market and the logic of the invisible hand, it was the unearned acquisition of resources (and he wasn’t talking about assistance to the poor here). We can understand this by looking at the state’s historic role in transferring funds, granting subsidies, and protecting specific industries. While prefacing his discussion on the importance of the “laws of justice” Adam Smith argued that deliberately shifting a “greater share” of resources to an industry “than would naturally go to it” would retard “the progress of society toward real wealth and greatness.” Specifically Smith wrote:

Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men.

But, as we know, there are undue subsidies, protected industries, and tax obligations that are not absorbed equally across society. There’s also the prospect that private players will not provide the goods and services they say they will. It’s one of the reasons Adam Smith believed that proprietors of private roads (who charge tolls) should be placed “under the management of commissioners or trustees.”

These are the dynamics Adam Smith worried about. He understood that the quest for advantage and power in politics has a parallel world in markets. To insure the laws of justice were not violated it was the duty of the state (i.e. “the sovereign”) to protect the “system of natural liberty.” This would occur only if the state made an effort “to protect every member of the society” – to the extent possible – “from the injustice or oppression of every other member” in it. Smith was arguing that, while it is good to believe in natural liberty, the state has to confirm the conditions that make it work. Put another way, when it comes to the harmony creating forces of the market, it is good to “trust, but verify.” This is where warnings and caveats on human nature from The Federalist Papers become important for us.

As many might recall, The Federalist Papers were a series of articles prepared by John Jay, Alexander Hamilton, and James Madison to try and convince the states to ratify the new Constitution (most understand that James Madison did most of the writing). They are also considered philosophical masterpieces. Among the many observations made, the articles warned about the dangers of allowing small groups, or factions, to run roughshod over a weak central government. The real danger for the new nation was that small powerful groups might be able to capture the levers of a corrupt or weak government, and then place their narrow interests above those of the nation. The subtext here is of equal voltage to the larger argument. Specifically The Federalist Papers warned a young nation of human frailties and about the dangers inherent in the individual quest for power.

In Federalist #10, for example, Madison bluntly tells us that, “If men were angels, no government would be necessary.” For our purposes this tells us that we would not need government if those pursuing wealth and profit were angels. But they are not. In spite of Milton Friedman’s optimism, there is little to indicate that markets are immune from the emotions and biases that dominate the human condition. Advantage seeking, jealousies, ego, poor judgment and the search for power get the best of us. This is why the concerns Adam Smith had with reference to the laws of justice and natural liberty are warranted. Simply stated, while the pursuit of wealth may drive people to work hard, the prospect of wealth and power also drive us to violate the laws of justice.

It is not a stretch to argue the individual search for power through commerce and wealth – like the search for power through government and authority – push people to conduct themselves in a manner that is not commensurate with the actions of angels. This is why both our political and economic world requires institutional checks and balances. This helps explain why Adam Smith believed that among the duties of the state, the need to “verify” that the laws of justice in markets were not violated was among them. These concerns were not lost on James Madison ...

- Mark

Note: At the end of the day, not only have the neo-conservatives and the Bush administration violated the laws of justice Adam Smith believed were so important but, with with the restrictions proposed by Paulson's bailout plan, the Bush administration is now advocating that we toss out the separation of power principles the Founding Father's put in place.

... BROUGHT TO YOU BY VIAGRA

On my radio program this past Saturday I thought we had a very good adult discussion about the challenges we face as a country. From Sophia's opening comments, through our discussion with Mark (who rarely agrees with me), we touched upon the transformation of the American economy, and why we're not out of the financial woods just yet.

Our discussion on the Great Depression, Glass-Steagall, Nixon's de-linking the dollar from the gold standard, deregulation that began under Carter (culminating in the incredibly stupid Garn-St. Germain bill), the Financial Modernization Act (Gramm-Leach-Bliley Act, 1999), and other market-related developments, gave me hope that we (America) might be able to continue this level of adult conversation through the elections.

At my age, and in my profession, you would think I would have learned by now ...

I was glancing at the news/talk shows this morning, and what did I see? The market has miraculously "recovered" and, apparently, everything in America is fine once again. We're now back to the same Jerry Springer-like banalities that keep republican electoral hopes alive ... the guy who survived being cut in half by a train ... the Emmys ... the story of a speed boat going too fast and disintegrating ... and other media trivialities that remind us all that Rome's days of Bread & Circus have returned. Only this time, rather than Caligula, it's brought to you by Viagra.

This, my friends, tells me that we may be only a day or two away from lipstick politics, once again. This is not good.

For those of you who listened to the program on Saturday, and are serious about the problems that confront America, here's an excellent post on what has happened to the American economy and why we should still be worried. It's kind of long (especially if your attention span is governed by People Magazine) but I especially like this post because it seems as if the writer got his cue by listening to our program on Saturday (thank you Sophia and Mark).

For those of you who tuned in, you'll understand what I mean once you read the post. For those of you who didn't listen, this is a good opportunity to catch up on what's been happening in America over the past 30 years.

- Mark

THE BAILOUT MESS AND ... A MUSEUM?

So I've been thinking about the best way to explain this financial mess so that the average person can understand what's happening. I'm not sure this is the best way to do so, but I think I'm on to something ...

Imagine you're going to a Museum. Let's call this museum the Wall Street Museum of Debt and Deregulation. The museum is made up of several rooms with assorted themes. In one room, THE PANIC ROOM, we see paintings of horizons with fine details of assorted scenes in the foreground. Incredibly enough, in each painting we can see both the forest and the trees. Each forest represents No Credit / No Financing / Stupid Decision-Making. These are the broad strokes of collapse.

But if we really want to appreciate the painting we need to look a little closer at the trees. In our museum the trees are represented by Bear Stearns, Fannie Mae and Freddie Mac, Lehman Brothers, A.I.G., Merril Lynch, etc.

As we look even closer at each painting we can discern rolling meadows before the trees, barns and farm animals, lakes, etc. These scenes, however, are not so bucolic in our museum, as they are represented by the invidual instruments and activities of each institution that has been bailed out.


In the foreground of the Fannie Mae/Freddie Mac Painting, aptly titled "The Tower of Babel," we see a picture of people purchasing highly toxic CDO products, when they should have been focused on government sanctioned products. For contrast, also in the painting is Fannie Mae's heavily regulated side-kick, Ginnie Mae. She is sitting alone, but content. She may not have gotten the sudden high from big toxic profits, but she did not purchase toxic garbage either.

In the foreground of the Lehman Brother's painting, "Operation Rolling Blunder," instead of rolling hills in the foreground we see rolling debt. But we also see that those who are continuously lending and rolling money over for Lehman are worried. Lehman Brothers is shifting their investment and debt instruments so many times they have become a financial chameleon. Their risk levels shift every month. Lenders are worried because Lehman is borrowing too much each month ($100 billion) and decide they can't risk more money. As panic hits the market, lenders get cold feet, and Lehman is forced to declare bankruptcy.


Then we have insurance giant AIG. In the foreground we have people selling insurance. AIG thought they could sell insurance for markets filled with toxic instruments like they sold insurance for houses. Instead, they were insuring a house of cards, which is captured in the painting. In the painting's foreground we see the owners of houses bemoaning collapsing home values. We also see the holders of these mortgages asking AIG insurers to demonstrate they can cover the written value of their mortgages. AIG can't do this. Panic hits. An $85 billion bailout loan is organized by the federal government.

There are additional rooms in our museum. But no one seems interested in THE ROOM OF BAILOUTS PAST, where we find paintings of "The Mexico Bailout" (1982), "The Continental Illinois Affair" (1984), "The Savings & Loan Debacle" (1989-1990), "The Asian Currency Reclamation Project," "The Fed Organized LTCM Bailout" and the list goes on.

Making mattes worse, no one wants to go into THE GALILEO ROOM, which helps museum goers see ... we'll discuss this on the program this afternoon.

- Mark

INGRATES & WHINERS ...

The idiots on Wall Street who brought us this financial mess are complaining because they now have to abide by new rules ...

The NY Times is reporting that market players are upset that new SEC rules are preventing them from making bets that the price of certain stocks will fall. When market players do this they like to say they are selling "short." These guys also like to call themselves "investors." Both caricatures are wrong. These people are gamblers making bets that a market is going to tank.

These guys belong in Vegas, not on Wall Street. Then we have the chutzpah.

Can you imagine ... The government takes taxpayer money and dumps it into the market in order to save it. Then government regulators put new rules in place so the same idiots who helped run things into the ground can't go out and do it all over again. And they're complaining?

So who are the biggest ingrates and whiners? You guessed it, the hedge fund guys ... the people who made the most over the past 10 years.

Hedge fund managers who made vast profits betting against the nation’s financial titans called the ban unfair, and said the move would only prolong the financial crisis.

Here's another good one.

Many players warned that the government’s sweeping actions might have unintended consequences. The ban on short selling raised questions about how certain parts of the capital markets would function.

One can only wonder where these guys get the strength to go on ... Seriously, what a bunch of ingrates and whiners.

- Mark

OOOPS ...

Here’s John McCain’s prescription for the nation's Health Care sector, from the current Sept./Oct. edition of Contingencies, the magazine of the American Academy of Actuaries (by way of Dailykos):

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.

But look on the bright side. We still have access to health care under Bush's secret plan, as long as everyone can make it to an emergency room, right?

- Mark

THE MOTHER OF ALL BAILOUTS

A couple of days ago I said that markets would continue to tank unless the government orchestrated a bailout. Little did I know they would nail us with the Mother of All Bailouts. I woke up this morning to find the Bush administration ready to shove $500 billion to $1 trillion in bailout funds to the big guys.

To provide some perspective, think about this: In 1980 our total national debt was just $907 billion dollars. Put another way, it took 204 years of spending for the United States of America to rack up nearly $1 trillion dollars in debt.

In one roll of the dice the republican-led deregulation binge, and tax cut jihad, did what it took over 200 years and 39 presidents to accomplish, almost $1 trillion in taxpayer funded debt. Worse, successive republican presidents have spent money like drunken sailors (with apologies to drunken sailors, who eventually sober up).


Today our national debt stands at $9.6 Trillion - more than ten times what it was when Ronald Reagan took office.

But what really irks me about all of this - apart from the additional $7,000 that each one of will have to pay up to make this thing work (how are Bush's tax cuts working out for you now?) - is that we still have the press referring to those who are being bailed out as "investors." Let's cut the crap. Everyone who benefits from this is no longer an "investor" ... they are wards of the state.

Somehow, incompetence and ineptitude are not enough to describe what President Bush and the republicans have done to this country. And it gets worse. Only in America, during an election year, could John "Bush's Third Term" McCain be competitive.

Think about it ... up until 3 days ago John McCain consistently referred to himself as a "deregulator" ... just on Monday John McCain said the "fundamentals" of the economy are sound ... and John McCain's top economic advisor is former senator Phil Gramm, one of the architects of legislation that gutted regulations from the financial markets. Gramm is also the same guy that said we're a "nation of whiners."

Now, to be fair, it was Bill Clinton who signed the legislation (Financial Services Modernization Act) into law in 1999, so I won't say it was all Phil Gramm's fault. However, there's also no doubt that Clinton and other Democrats were cowed by the republicans constant yelping about deregulation. Moreover, it was George W. Bush and the republican-led Congress that said "Let the market work it out ... don't worry about rising debt levels ... it's all good, as long as I get mine ..." Well, take a look at what that mentality has brought us ... it's not pretty (click on the graph to read).

As a nation we owe 3 times what we produce, and it all started with Ronald Reagan's deregulation and tax cut jihad scheme. You can come to your own conclusions regarding the parallels between 1929-1931 and today (if you can't figure it out you're probably a McCain supporter).

My friends, the Mother of All Bailouts is only the beginning. It's simply buying Bush (and McCain) time to stay alive politically. Bush is already leaving with two failed wars under his belt. He doesn't want to leave the White House looking like Herbert Hoover too.

As usual with Bush, it's all about him. This is not over.

- Mark

McCAIN vs. McCAIN REGULATION CAGE MATCH ... and some more lies

From Think Progress, here's a look at McCain’s for-and-against stand on regulation since the economic meltdown began this past Monday:

- Deregulation: McCain issued a statement Monday morning saying that “we cannot tolerate a system that handicaps our markets and our banks.”

- Regulation: McCain’s campaign then put out an ad calling for “tougher rules on Wall Street.”

- Deregulation: On NBC’s Today Show, McCain said, “Of course, I don’t like excessive and unnecessary government regulation.”

- Regulation: Then, on CBS’s The Early Show, McCain said, “Do I believe in excess government regulation? Yes.”

- Both: On CNBC’s Squawk Box, McCain said, “We don’t want to burden average citizens with over-regulation and government bureaucracy…And I’m proud to be a Teddy Roosevelt Republican, who said, ‘unfettered capitalism leads to corruption,’ and we’ve got to fix this.”

The video of McCain’s morning show flip-flop is available on the Think Progress website here.

And what would a McCain post be without noting his daily lies? Here's McCain saying (1) oil rigs & hurricanes can peacefully co-exist, (2) the Cubans are letting the Chinese drill near the U.S. coast, and (3) oil rigs are good for fish because they're swimming around the structures. Huh? To make a long story short, all three of these assertions are lies.

A marine biologist responded to McCain's last assertion on fish & oil rigs, saying “"Just because fish are there doesn't mean the platform constitutes habitat ... That’s like taking a picture of birds on a telephone wire and saying it’s essential habitat.”

- Mark

OBAMA: McCAIN'S CAMPAIGN "LIKE A 'SATURDAY NIGHT LIVE' ROUTINE"

With John McCain fumbling over market "fundamentals" and Sarah Palin hiding from the press (Sean Hannity is not the press), it looks like Obama's hitting his stride.



- Mark

THE FUNDAMENTALS ARE STRONG?

While nobody's jumping out of windows just yet, I can assure you they're moving the desks.

The market took another hit today. Some portfolios are going to be wiped out soon, followed by a few more financial institutions. If you want to know what's happening, take a look at this from Brad De Long's blog:

But the biggest and most obvious risk of all is the one associated with Lehman's own debt, which is now trading at less than 35 cents on the dollar ... [it] means an unknowably huge loss for anybody who wrote credit protection on Lehman Brothers at any point over the past five years. Those sellers of credit protection are staring down the barrel of billions of dollars in claims, and they're going to have to raise that money quick by selling anything they can get their hands on—and that might well include stocks.

In a few words, whoever Lehman Brothers paid money to provide insurance for their debt instruments (see CDS post below) is going to have come up with the cash, and fast.

My Prediction: Unless more bailouts, or government orchestrated reorganizations occur, look for the stock market to continue its free fall through the end of the week.

- Mark

BROKEBACK PARTY, BROKEBACK CAMPAIGN

Paul Begala has an interesting take on Democrats and their reaction to the McCain campaign. He argues that rather than focusing on what John McCain and Sarah Palin are doing, Democrats should be focusing on McCain's real running mate ... George Bush.

Sure, he's hyping his book Third Term: Why John McCain (Hearts) George W. Bush, but his comments are spot on.

This photoshopped picture, which he attaches to his post, says it all: They can't escape Bush.



- Mark

AND THE UGLINESS CONTINUES ...

It looks like problems in the market simply won't go away. After saying it wouldn't bailout any more private players, it looks like the federal government is going to jump into the AIG mess.

Here's what's happening, hopefully in easy to understand analogy form ...

The best way to think of the AIG mess is to imagine taking out a home equity loan to help out a deadbeat relative. Then, imagine you're sitting around with one of your cynical cousins and they say, "You know, you're never going to get the money back." You respond, "I bet you I do." You make the bet. The silliness continues, and other cousins take you up on your bet.

As they expected, Deadbeat Relative #1 doesn't pay you. You not only lose the money you lent to your relative, you lose your house. Because you have such a dysfunctional family, you're now faced with the prospect of having to pay off your cynical relatives. You don't have the money. They could care less. They panic because they had already planned what they were going to do with the money you were going to pay them. They're now camping out at the doorstep of your new apartment.

You pray for a miracle. Since you're not a giant coroporation, the federal government ignores your plight. You declare bankruptcy, and go on an alcoholic binge.

End of analogy.

AIG's problem is they thought they could cover the complex and murky world of collateralized debt obligations (CDOs, represented by Deadbeat Relative #1) like they covered lives, homes and cars (here's a pretty good article that explains what's happening). As the provider of insurance for poorly constructed CDO products, AIG is on the hook to pay the insurance policies of the first wave of CDO defaults (Deadbeat Relative #1) and other market players whose CDO contracts are going to tank in the future (your Cynical Relatives).

How big is this insurance mess? Consider this. The size of insurance portfolios (called Credit Default Swaps) grew from a “modest” $1 trillion in 2001 to an astounding $45 trillion by 2007 – which is more than double the value of the U.S. stock market, and far exceeds the $7.1 trillion mortgage and $4.4 trillion U.S. treasuries market.

My friends, with additional mortgage problems around the corner (adjustable rate mortgages haven't begun to kick in) we are looking at a financial mess that really is just beginning.

Don't believe me? Take a look at the growing size of total U.S. credit market debt, which I posted on a few months back. As a reminder, it's far bigger today than it was in 1929. If I get a chance, I'll post on this later in the day.

I'll definitely be talking about this on the program this Saturday.

- Mark

P.S. For those of you who want some graphics on the CDO/CDS mess, this is from the NY Times.

FDIC, RUNNING OUT OF CASH?

What would you think if you bought a home in Galveston last week, only to see its value washed away with Hurricane Ike. Not to good, huh? Now suppose that your local bank says, "Don't worry, we'll let you use your demolished, uninsured, home as collateral for a new loan ... full value."

Sounds like a great deal, right? It would be, except for one thing. This doesn't happen in the real world ... that is, unless you're one of the giant financial institutions that aided and abetted the stupid decisions which helped create the market conditions we see today.

The NY Times is reporting that "concerns over what may unfold in the market on Monday led [the Federal Reserve] to dramatically loosen its standards on making emergency loans to major Wall Street investment banks." How loose, you ask? The Check this out ...

In an obscure but highly important announcement late Sunday evening, the Fed said it would let Wall Street firms post as collateral much riskier assets — including equities, junk bonds, subprime mortgage-backed securities and even whole mortgages — in exchange for emergency loans ...

Great. Where do I sign up? Oh, wait, I can't. And neither can you. Incredibly enough, it gets worse. How about this little nugget, buried in the article ...

Administration officials acknowledged last week that more bank failures were inevitable, and the main protection for depositors — the Federal Deposit Insurance Corporation — is likely to exhaust its reserves.

What? After shoveling money into the bottomless pit that is Wall Street incompetence, and the federal government is now suggesting it's running out of money? I don't know - then again, it appears no one in Washington or Wall Street does either - but "the Federal Deposit Insurance Corporation ... is likely to exhaust its reserves" doesn't sound encouraging.

Someone might want to tell the NY Time's Eric Dash about this. He seems to think FDIC is a bottomless pit.

- Mark

OBAMA HAS A BRIDGE TO SELL McCAIN ...

Here's Obama taking it to John McCain for copying his "change" theme. It's pretty funny.



For those of you who don't have the web tools to watch this, here's the money quotes.

"But now suddenly, John McCain says he is about change, too. He even started using some of my lines. Suddenly he says he wants 'to turn the page.' He had an ad today that he started running that he and Gov. Palin would bring the change that we need. He had this in an advertisement. Sound familiar? Let me tell you something, instead of borrowing my lines he needs to borrow our ideas ... if you think those lobbyists are working day and night for John McCain just to put themselves out of business, well then I've got a bridge to sell you up in Alaska."

- Mark

GLOBAL MARKETS RESPONDING

Wow. This is getting uglier by the minute. And it's not even Monday yet.

Bloomberg.com is reporting that "Asian stocks, U.S. futures and the dollar tumbled as credit market turmoil" continued over the weekend.

It will be interesting to see what John McCain whines and lies about this week as he seeks to distract America from the real world.

- Mark

WATCH FOR GOLDEN PARACHUTES ...

With Merril Lynch's sale to Bank of America set, it looks like John A. Thain, Merrill Lynch’s chairman and chief executive, will walk away with about $25 million for his time at Merrill. He's been on the job less than 10 months.

But this pales in comparison to what his predecessor got. E. Stanley O’Neal, received an exit package worth more than $161 million last October (2007). O'Neal had earned $70 million during his four years at the head Merril Lynch.

That's a sum total of $231 million for helping run the company into the ground.


After standing by and watching George W. Bush give a wink and a nod to this pirate-like business model, which has helped steer the country off an economic cliff, republicans want to keep things moving in the same direction. Only this time, they want to give the country over to a man who admits his knowledge of the economy is limited, and consists primarily of reading through Alan Greenspan's book. Talk about putting ideology above the facts.

I think I hear Nero's violin ...

- Mark

MARKET WOES DEEPEN

With the recent bailout of Fannie Mae and Freddie Mac, more trouble is coming around the corner. The NY Times is reporting that Lehman Brothers, Merrill Lynch, Washington Mutual, and insurance giant, American International Group (AIG), are primed for collapse or bankruptcy as well.

There's a reason why this is happening. And it's all tied to deregulation (thank you Ronald Reagan) and artificially cheap credit (thank you Alan Greenspan). And while analysts are hoping takeovers, or a sudden influx of funds are around the corner, they really have no plan for dealing with the steady drip of institution collapse in the economy.

With more collapses are around the corner you would think John McCain would want to tout his economic policy proposals. Oh, yeah, I forgot. He has none, other than more of the same. Tax cuts.

No wonder all he wants to talk about is lipstick. His world view and economic policies represent the Mother of All Pigs.

- Mark

FINAL THOUGHTS ...

Sarah Palin has had her moment. John McCain did not check her out. That's his problem.

Look, Putin and the Chinese are not impressed by Caribou Barbie's "independence." Matt Damon was right when he said this is a bad Disney Movie. Sarah Palin is a joke. Country First? That means you don't embarrass us with, Sarah Palin - We aready had one cheerleader who was a governor from an an oil state.

We need no sequels.

- Mark

McCAIN = BUSH ON STEROIDS?

Let's put McCain's lies aside for a moment. This is what's really important.

In my August 22 post on the McCain's, I pointed out that during the Bush administration the wealthiest Americans have seen their wealth increase by about $1.8 million since 2002. You, me, and the rest of America's working class have seen our economic positions improve on average by about $1,400. If you're like me, you probably are saying "Big Deal, gas prices alone eat that up, and more ..."

Anyways, in spite of this imbalance - and record national debt - John McCain wants to give America's richest 1% another $269,000 per year, which we can't afford. This would only compound our economic woes. Here's the breakdown of what happens under the tax programs proposed by Senators Obama and McCain.

On the good side, it looks like Alan Greenspan is finally coming to his senses. He says America can't afford McCain's plan.

- Mark

CARIBOU BARBIE CLUELESS ABOUT BUSH DOCTRINE

As if this needs to be said ... Sarah Palin is not ready to be vice president. After more than 6 years of the Bush Doctrine (preemptive strikes/war are OK) Sarah Palin could only offer an empty look and an incoherent thought when asked about it by Charlie Gibson. Here's the magical moment ...



Fortunately for Palin, Gibson bailed her out rather than press the issue (Why? I have no idea). Later Palin suggested that because "you can actually see Russia from land" in Alaska she has certain insights into Russian policy. What a joke. I guess that makes everyone living on the U.S.-Mexico border experts on Latin American and Mexico.

As the Baltimore Sun put it, "ABC anchorman Charles Gibson came across as a stern, no-nonsense senior professor putting a graduate student through a tough exam in the first part of his interview with Alaska Gov. Sarah Palin."

Palin failed.

And for those of you who might think otherwise. A doctrine is not a "world view." It is a specific policy explaining how you plan to conduct foreign policy. It is what you plan on doing, not an ideology. There's a difference. She should know this.

You would think she and John McCain would be embarrassed. They're not. They're republicans.

- Mark

P.S. In the full disclosure/FYI category, I first heard the "Caribou Barbie" reference from Stephanie Miller.

HANNITY SLAPPED AROUND BY KUTTNER

The American Prospect's Robert Kuttner takes it to FOX's Sean Hannity ...

The real good stuff starts at about 2:30 into the clip. Rather than saying "Here are the facts ..." Hannity is reduced to crying "I don't care ..." and "you've got to convince the American people ..." Kuttner really gets Hannity's goat when he says Hannity's position on the economy makes him a "fool," which drives Hannity into an emotional meltdown.



It's taken about 10 years, but we're finally starting to see progressives stand up for themselves in front of people like Hannity. And while it's not always pretty (confrontation rarely is), it's absolutely necessary when you're dealing with media thugs like Hannity.

Kudos to Kuttner for doing the "in the trenches" work that needs to be done.

- Mark

McCAIN'S LOW ROAD EXPRESS

With the McCain camp seemingly unconcerned about using distortions and lies to make their case, I'm sure more of these will be popping up soon.



- Mark

THIS HELPS EXPLAIN THE ECONOMIC MESS ...

As many of you know, I regularly receive market updates from a number of market "analysts" trying to sell me/everyone their forecasts and pre-packaged intruments. Some of the analysis is good, but most of it is pure self-promotion and self-serving. They do, after all, want to sell you stuff.

This morning I received the following solicitation from Newsmax ...

Dear Newsmax Reader:

As John McCain has soared in the polls after picking Sarah Palin, the Obama campaign has engaged in a vicious smear campaign against her. Obama has likened her to a "pig with lipstick" and the Wall Street Journal reports that 300 liberal journalists have descended on Alaska in an effort to dig up dirt on her ... You can help defend Sarah Palin from such vicious attacks ...

There's a couple of things that need to be pointed out here.

First, "300 liberal journalists" haven't "descended" on Alaska. What's happened is that, prompted by McCain's failure to vet and make available his candidate, the press has determined they need to go out and get the information themselves. The last time I checked the 1st Amendment makes it clear that this is both legal and constitutionally protected. If McCain hadn't panicked and picked Caribou Barbie without vetting her this wouldn't be happening. McCain's to blame for the mess he's whining about today.

Second, Newsmax is using their mailing list, which is quite extensive, to peddle lies and innuendo. This fits their M.O. ... using their list to dump garbage off on less than informed customers. You can bet your lipstick pack others are doing likewise.

Third, these guys can't even get their quote right. It's "putting lipstick on a pig" not a "pig with lipstick." But what's a simple fact-check when you're peddling lies? This, unfortunately, is what happens when you watch too many Porky's movies.

Finally, Newsmax is demonstrating it has no clue about market performance under Democratic and Republican administrations. It's not even close. If these guys were smart, they would be pushing Obama-Biden. Don't believe me? Check this out.

No wonder the market is in such a mess. Newsmax and their kind are clueless ideologues who are not only fact-challenged, but clearly have no problem peddling half-truths and lies.

- Mark

OBAMA TO McCAIN: GROW UP

John McCain was looking for an apology from Barack Obama because Obama said McCain's economic policies would be like "putting lipstick on a pig." In his increasingly deluded mind, McCain found the remark offensive to his running mate, Caribou Barbie. Here's Obama's response:



In a few words, Obama is telling McCain to "grow up."

I'm not sure, and I hope I'm wrong, but this may not be enough. In today's National Inquirer-FOX News drenched political environment, I think Obama needs to be a bit more blunt; especially since the mail-in ballots start coming in next month.

Obama needs to tell McCain on national television - and then to his face - to "grow up." When Camp McCain starts howling the next day about Obama's "lack of respect for a war hero" Obama can dismiss it with a "What's he whining about today ..." remark.

Something akin to this response is needed.

Now, I understand the need to get back on message. But the national media isn't helping. They live and die for the sound byte, and appear to be enthralled with their new toy, Caribou Barbie.

The polls are shifting. Obama needs a big political play to get the campaign back on track, and soon. Making Team McCain out to be a bunch of whiners would help.

- Mark

THE McCAIN-PALIN LYING MACHINE, II

When John McCain's campaign manager said he thought the presidential campaign wasn't going to be won on the issues, he wasn't kidding. That was his way of telling us the McCain campaign - who can't run on their, or Bush's, record (hence the lies) - was going to do whatever it took to drag Barack Obama through the mud. Here's how they've started.

Back when Barack was an Illinois State Senator he sponsored legislation designed to provide information to children about adults they don't know, and how to deal with tough issues like inappropriate advances or touching. Preparing kids for pedophiles; a noble piece of legislation by any standard.

As reported by CBS, John McCain has turned Obama's intention to warn kids about pedophiles into this disgusting ad:

... A 'staunch defender of the existing public school monopoly. Obama's one accomplishment? Legislation to teach 'comprehensive sex education' to kindergartners. Learning about sex before learning to read? Barack Obama. Wrong on education. Wrong for your family.

Responding, Obama campaign spokesman Bill Burton said in a statement. "Last week, John McCain told Time magazine he couldn’t define what honor was. Now we know why."

I agree. But this goes beyond lying. These are sick vile people.

- Mark

YOUR OBAMA TAX CUT

If you want to know how much you and the other 95% of working-class Americans would get from Obama's proposed tax cut program, check out this site (also @ "obamataxcut.com).

Be sure to pass this on to independents and others still sitting on the fence. Real numbers make a difference.

- Mark

THE McCAIN-PALIN LYING MACHINE ...

If you're a republican and the Wall Street Journal is calling you on your lies, you know you've stepped in it. Here's what the WSJ is saying about Sarah Palin's declaration that she's a fiscal conservative who opposed the mega-pork Bridge to Nowhere project ...

... Gov. Palin's claim comes with a serious caveat. She endorsed the multimillion dollar project during her gubernatorial race in 2006.

"Caveat"? Let's call it what it is, a LIE. And for those of you inclined to claim, "Palin's still a fiscal conservative because she eventually opposed the bridge project ..." the WSJ tells us that while ...

... [Palin] did take part in stopping the project after it became a national scandal, she did not return the federal money. She just allocated it elsewhere.

This doesn't sound like someone who wants to save the American taxpayer money. Worse, it wasn't Palin who pulled the plug on the project, it was Congress. And what does the WSJ have to say about John McCain's lying claim that Sarah Palin's earmarked-pork addiction is not as bad as Barack Obama's (once again trying to taint others with their cesspool of lies)? You're going to like this one ...

At a rally today, Sen. McCain again asserted that Sen. Obama has requested nearly a billion in earmarks. In fact, the Illinois senator requested $311 million last year, according to the Associated Press, and none this year. In comparison, Gov. Palin has requested $750 million in her two years as governor -- which the AP says is the largest per-capita request in the nation.

At what point does the press begin calling McCain and Palin "liars"? And where are the Christians who claim to know a thing or two about bearing false witness?

Just asking.

- Mark

PALIN CHARGES STATE TO LIVE @ HOME

Some of you may recall my post on fiscal conservative State Senator Tom McClintock, who lives with his family year-round in the Sacramento area, but claims daily per diems ($170 per day in state reimbursements) because his "legal residence" is a Thousand Oaks home, where his rich Mom lives. Well, it looks like Sarah Palin likes the "It was legal" approach to governing too. The Washington Post is reporting ...

Alaska Gov. Sarah Palin has billed taxpayers for 312 nights spent in her own home during her first 19 months in office, charging a "per diem" allowance intended to cover meals and incidental expenses while traveling on state business.

Again, all of this may be legal but it also smells of someone trying to make some extra cash by taking advantage of a state law.

- Mark

PALIN: WAR, A "TASK FROM GOD"

If Jeremiah Wright was fair game, so is Sarah Palin's association with the Wasilla Assembly of God. Through their leaders, the Wasilla Assembly of God tells people that curses can be intergenerational (which could explain the Cubs' drought), that cities and regions can be possessed by demonic powers (no word on whether this applies to the White House, or its occupants) and, as you will see, that cell phone annointments are possible (brought to you by Verizon?).

It appears that the rationale of Palin's church is tied to feeding a culture of fear that we've seen before, and from which many Conservatives seem to draw their sense of self.

The real zinger in this clip, however, is Sarah Palin telling the gathering that her son, who deployed to Iraq this weekend, was about to engage in a "task from God." Great, another dominionist who thinks the U.S. military is God's military. If you don't want to watch the entire clip (which seems like a "Jesus Camp, II" promo), Palin's "task from God" comment is 8:45 into this clip.



If Palin would do a little more secular research rather than stumping for a Jesus Camp, II promo she might know that the Freddie Mac abd Fannie Mae aren't publicly owned entities, as she suggests here.

No wonder Team McCain won't let her out to speak on her own - she might be Dan Quayle with lipstick.

- Mark

WHY I LOVE GEORGE BUSH, II

I love George Bush because he makes me look like a prophet ...

The Bush administration, who talks a big game about accountability and market fundamentals, is going to bailout FANNIE MAE and FREDDIE MAC. You and I will will pick up the tab, which should cost us billions more than whatever the Bush administration says it will.

I began writing about this back in April. In spite of what the Bush administration said at the time, I wrote that the American Taxpayer - you and me - were going to pick up the tab caused by deregulation, cheap money, and industry stupidity in the housing market. If you're curious what this is all about, here's one of my earlier posts on the topic (or click on one of the labels below).

I'll have more to say about this during the week.

- Mark

SERIOUSLY, LET'S DRIVE A STAKE THROUGH IT

Since this seems to be “Sarah Palin Week” let’s chat about her a bit more ...

The republican base is thrilled. Unfortunately, these are the same people who thought George W. Bush was so wonderful they elected him twice. Today even they recognize the man is a failure and an embarrassment. Still, they don’t want to recognize their failed judgment and, incredibly enough, want the rest of the country to follow their lead, and failed judgment – again. What a bunch of losers.

On another level, something else is very clear. Sarah Palin is an extremist … on Evolution she thinks Adam & Eve were around 6,000 years ago riding dinosaurs … on Gun Control, she thinks there should be none … on the issue of Choice, she’s against it … and Climate Change? It’s all in God’s hands … what a nut job.

Still, republicans are happy because Palin allows them continue living in Neverland … you know, that wonderful place where they Never have to grow up, and their superheroes are Never defeated.

My question is how will her faith help us with a $10 trillion dollar debt, a world that's catching up on us, and a world that respects us less every day? How will her penchant for turning serious issues into a snarky high school pep rally help us deal with Russia, China, and the assorted thugs abroad? How will drilling in Alaska help when we consume 25% of the world’s petroleum but have only 3% percent of its reserves? How does drilling, and continuing the failed tax cut policies of republican presidents since Ronald Reagan, help with an unemployment rate that just hit 6.1%?

My friends, I teach American Foreign Policy and International Relations. It’s going to take a lot more than faith and mocking speeches to move mountains abroad … George W. Bush showed the world what happens when you use your “gut” instead of your brain … George W. Bush showed us all what happens when you listen to clueless ideologues who are ignorant to the world’s grand chessboard … finally, President Bush showed the world what happens when you pick a former cheerleader and a Red State governor to be president.

Today our nation needs knowledge, judgment, and respect for others if we are going to lead the world again. Palin possesses none of these qualities. John McCain may have been a P.O.W. but he’s also cancerous, 72 years old, and thinks Bush has done a fine job.

It’s time to drive a stake through the venomous heart of the neoconservative movement, which Palin represents. It has, after all, brought us nothing but record debt, failed leadership, and contempt from abroad.

The republicans don’t deserve another shot at this.

- Mark