TGIF — and appreciating the change

March 28th, 2008

It’s been a tough week for me and I’m glad to see the weekend. The house suddenly seems bigger and emptier, so I’m going to distract myself by going to a ‘meet ‘n greet’ Saturday for Jay Nixon, the Dem who’s running for governor of Missouri.

For the last four years, Roy [#3 Big Dog in the Pub senate] Blunt’s son, Matt, has made life more miserable for the poor in this state — cutting health services for children and elders and diverting funds to pet projects [National ID cards, 'homeland' issues and the like.] Amazingly, a few months back Matt announced he would not be running for re-election; said he’d accomplished most of what he wanted to do [like tank reproductive rights and services and create a Christofascist fiefdom.]

Scuttlebutt is that he’ll run for Congress — but I don’t know why any Pub would want to put themselves through it. The 29th Pub congressperson recently announced retirement a few days ago — they’re leaving in droves, on the heels of a power-spree that has cut the legs out from under the nation, and whoever fills their seat will face the Blue wave, not only limiting their ability to put forth their agenda but buckling them into the hot seat to be accountable for all that happened under their party’s excess.

But — we wanted change and it’s here; Blunt’s departure is welcomed. Nixon has been quietly slogging ahead in his bid for governor for three years and the sudden collapse of the ‘old boy’ candidate put some wind beneath his wings — I’ll be interested to read his energy. I expect him to be a Blue Dog Dem — moderate; here in the heartland, it’s hard to find a fire-breathing progressive.

So, change is happening but it’s still unformed, hazy, all but invisible — I’m stumbling on little snips and bits of info that indicate that the iron grip the Righty’s have enjoyed is fading fast. For instance, Alabama’s Gov. Don Siegelman is being released from prison on bond, as an unexpected process of his appeal — that couldn’t have happened if Rove had any clout left; we’ve finally come, as a nation, to the realization that most everything Bushy is criminal. It only took us 7 years.

Time Magazine has written a piece about how FAUX News will have to recreate themselves as Dubby exits the building — I was thinking the same thing about Stephen Colbert, the other day. His shtick is so delicious, as is … but it will have to take a turn, and I’m sure he’s planning it already. He and Stewart have a streak of genius — they’ll survive.

I stumbled on one of those little hints of change that amused me, especially amid the continuing dust-up over James Carville’s calling Bill Richardson a Judas for turning his back on Hil and endorsing Barack — the Carville’s [James, a longstanding Clinton operative and his wife, Mary, a Cheney insider, are Washington's ... truly ... Odd Couple] will be moving to New Orleans, the Ragin’ Cajun’s hometown. It was an entertaining snip, so I posted it last. Uncle Dick will, of course, be moving on … but what about the Clinton’s? I know there are still jet planes to get you back to the Hill in speedy fashion, even out of New Orleans — but somehow that personal decision signals a political retreat; perhaps one of those little invisible changes slowly taking form that may hint at the future.

Here’s three articles on economy — one, by Garrison Keillor, is highly readable and more socially poignant than the others. He makes me laugh — and his commentary on spelling caught me up, considering how often my spell-checker takes me [and you] into peril. To my credit, I usually catch and correct before posting on the blog, so go over there if you can’t bear it … bare it … whatever! [wink]

The final money piece is by Krugman, giving Hillary a gold star for her economic plan. I’ve included a link at the bottom for specifics on the candidates speeches.

[A word about Obama's speech on economy -- I truly appreciate that this man attempts to educate us with a preamble on HOW we got where we are; he seems to do this continually. It also makes it difficult to 'sound bite' him, so reporters are forced to write complete sentences in their articles. I don't know that such a skill would make him the better president, by the way -- just sayin'. I'm declaring appreciation.]

So change is here, seeping in at the edges as well as coming down like a [bad news] hammer, and times are tricky … but life goes on, and I urge you to do something fun this weekend — take some pleasure in it. Give and get hugs and spread some love around — nothing, and certainly nothing political, is so important as that. Nothing.

Jude

Poor America
Blame our financial woes on poor spellers, like the intellectual charity case in the White House.
Garrison Keillor, Salon via CommonDreams
Friday, March 28, 2008

Here we are, ignorant peasants in our mud huts at the base of the volcano of finance, begging the gods to spare us as the ground shakes beneath our feet and economists examine the entrails of pigeons and the shamans of the Federal Reserve fling handfuls of sacred powder into the steaming crater. We live with a system rejiggered by Republicans — freedom from regulation, but when the manure hits the ventilator, the Feds step in with a few hundred billion to rescue the players — and nobody can tell us ignorant savages how rough the upheaval might be. Nobody knows.

Meanwhile, there were rumors of spring but then it snowed 9 inches here on the windswept tundra so there were no crocuses for us on the way to Easter, just snow and ice, and we went to celebrate the risen Lord with a certain dread of slipping and falling. You fall on ice, you could hit your head and suddenly your command of English is gone. This happens.

The fear of disaster does not slow us down much, however. We are cockeyed American optimists. We go to the Good Shepherd Home to take Uncle Gene his lily and we see old people slip-sliding along with their walkers, enduring the extreme tedium of decrepitude, and we honestly don’t expect this to ever happen to us. We expect to continue singing and tap-dancing right up to The End and the roll of the credits.

The Puritans I am descended from were not cockeyed optimists. That was one reason they came to Minnesota. Living here is like being in a difficult marriage, a true test of one’s mettle, and the reality is that spring is going to be a little late again and love is not all you need and to dream the impossible dream and fight the unbeatable foe does not exempt you from the laws of physics when your car hits glare ice.

We used to have a potluck culture in Minnesota — the sharing of food as a way of life, you do your best for me, I do my best for you. But it easily breaks down: If some folks bring homemade pies and others bring a gallon of factory-made potato salad, forget it, the potluck is over. If other people don’t care to make something good, then why should we? And so Aunt Elsie’s excellent fried chicken passes from the scene and we settle for a Barrel O’ Breasts from KFC and meanwhile standards slip in the public schools and bankers hand out high-risk mortgages.

I know a woman who at age 34 inherited a potful of cash and found a financial advisor who seemed smart enough until one day, referring to a partner in the firm, he said, “Me and him think you should stick with stocks.”

“Should I accept financial advice from someone who uses Me as a subject?” she asked me.

No.

And now I am wondering if the upheaval in finance may not be the result of the raging epidemic of poor spelling we see all around us. A college graduate just sent me an e-mail asking about a band that “one” a contest, wishing she had been “their” to see it. Misspelling drives me nuts. You young people learned spelling by the Close Enough method. As long as we know what you mean, you think it’s OK. And nobody corrects you. And you go along on your merry way, and the dark clouds of Error build up in the rain forest and the ground shakes.

People accuse us liberals of permissiveness — no no no no no. We liberals are oppressive, not permissive, working day and night to take your guns away and make you apply for a permit every time you spit. In my heart, I belong to the Correctness Party, the party of good spellers, of people who pay attention to details. The Current Occupant is not one of us. He is not a man who puts pen to paper with any confidence. Intellectually he has been a charity case all his life. He is one of those men who are lucky that their fathers were born before they were.

I vote to send him up to talk to the volcano. Let him climb up to the crater in his loincloth and crouch in the billowing steam and tell the volcano to stop shaking and stay there until it does. Him and Greenspan could do it together. ++

10 days That Changed Capitalism
Rob Johnson and Robert Borosage, CampaignForAmerica’sFuture
March 28th, 2008

The world has changed. The market fundamentalism that has dominated our economics over last three decades has been unmasked as a sham, deemed useless by the guardian of the integrity of finance itself, the Federal Reserve.

Without a vote of the Congress or a public debate, the Bush administration and the Federal Reserve have made government the guarantor of the shadow banking system – the unregulated, unhinged hedge funds and investment houses whose compulsive excesses now threaten the global economy. They say necessity is the mother of invention, but we seen only a part of the new machine, not surprisingly, the part that buttresses Wall Street. They have scrambled to put this together in an emergency, behind closed doors, without a hint of the necessary regulatory changes that must rationally accompany such guarantees. That is what the fight in the coming months will surely be about.

As the article below by David Wessel of the Wall Street Journal summarizes, the intervention puts at risk hundreds of billions of taxpayer dollars.

It also transforms the economic debate. It is inconceivable that taxpayers should be asked to bail out private buccaneer speculators without enforcing limits on their speculation – capital reserves, limits on what gambles they can take, oversight, transparency, new restrictions on their pay packages to remove the current multi-million dollar personal incentives to invent new Penza schemes and scams.

The shadow banking system now must be brought out of the shadows. After all we are constantly told that finance serves the economy, and the market system is the best means to solve our social goals. It feels very uncomfortable when our servant’s servant becomes our master’s master as Wall Street has been permitted to become in America in recent years by contribution- hungry elected officials.

As Barack Obama noted in his speech yesterday, the deregulation that fostered this folly was supported by both parties. It began under Jimmy Carter, accelerated under Ronald Reagan, went into hyper speed under Bill Clinton, and spiraled into catastrophe under George Bush. The freedom to gamble with other peoples’ money has been protected by lavish campaign contributions and powerful lobbies. These financial buccaneers have treated the laws and rules that govern our financial markets like just one more asset to be bought and sold. They have been unabashed in their arrogant abuse of power, rigging the rules and daring the world to stop them. A particularly audacious example occurred only last year when a concerted lobby campaign convinced the Democratic majority in the Senate to sustain the tax dodge that enables billionaire hedge fund operators to pay a lower tax rate than their secretaries.

This cannot continue. They ask to pocket their profits and have taxpayers protect them from their losses. That offends the principles of both democracy and the market. If they are too big to fail – if their failure will bring down the entire economy – then they are also too big to gamble on their own. They must be regulated – or perhaps nationalized, as the British have just done with one of their leading banks. After all they are asking to nationalize their losses. Why not some of their profits too?

This debate must be accessible to, and reflect the concerns of, citizens. It cannot be the exclusive province of so-called experts, Wall Street operators, economists and legislators. Too often, Wall Street manages to profit having the party and then make a bundle from the government in cleaning up the mess as they socialize the losses that they created.

It is important to understand how reckless Wall Street has been. They have not only victimized the American people through recession and bailouts. Their recklessness threatens to blow up their own cherished role as well. They have damaged the international reputation of the U.S. dollar, turning the world’s reserve currency into the equivalent of a junk bond. The excesses of their hubris-driven repackaging of assets has muddied the U.S. credit allocation process and accelerated the US decline as the financial center of world commerce. Their sacred cow of “free trade” is unlikely to withstand the pressure of a prolonged slump. Wall Street is compulsively consuming itself.

We are going to follow this debate closely at CAF. It will be a constant feature of this blog. We’ll call on the best progressive economists and analysts to break it down. We’ll collect the best documents so you can follow the debate. And we’ll be driving campaigns to make certain that the public doesn’t once more get stuck with the bill for the bankers’ party, with no assurances that the reckless structure of finance has been repaired.

David Wessel provides good summary of where we are below…

Ten Days That Changed Capitalism
Officials Improvised To Rescue Markets; Will It Be Enough?
David Wessel, WallStreetJournal
March 27, 2008; front page

The past 10 days will be remembered as the time the U.S. government discarded a half-century of rules to save American financial capitalism from collapse.

On the Richter scale of government activism, the government’s recent actions don’t (yet) register at FDR levels. They are shrouded in technicalities and buried in a pile of new acronyms.

But something big just happened. It happened without an explicit vote by Congress. And, though the Treasury hasn’t cut any checks for housing or Wall Street rescues, billions of dollars of taxpayer money were put at risk. A Republican administration, not eager to be viewed as the second coming of the Hoover administration, showed it no longer believes the market can sort out the mess.

“The Government of Last Resort is working with the Lender of Last Resort to shore up the housing and credit markets to avoid Great Depression II,” economist Ed Yardeni wrote to clients.

First, over St. Patrick’s Day weekend, the Fed (aka the Lender of Last Resort) and the Treasury forced the sale of Bear Stearns, the fifth-largest U.S. investment bank, to J.P. Morgan Chase at a price so low that a shareholder rebellion prompted J.P. Morgan to raise the price. To induce J.P. Morgan to do the deal, the Fed agreed to take losses or gains, if any, on up to $29 billion of securities in Bear Stearns’s portfolio. The outcome will influence the sum the Fed turns over to the Treasury, so this is taxpayer money; that’s why the Fed sought Treasury Secretary Henry Paulson’s OK.

Then the Fed lent directly to Wall Street securities firms for the first time. Until now, the Fed has lent directly only to Main Street banks, those that take deposits from ordinary folks. That’s because banks were viewed as playing a unique economic role and, supposedly, were more closely regulated than other types of lenders. In the first three days of this new era, securities firms borrowed an average of $31.3 billion a day from the Fed. That’s not small change, and it’s why Mr. Paulson, after the fact, is endorsing changes to give the Fed more access to these firms’ books.

Increased Leverage

In the days that followed, the Republican Treasury secretary leaned on two shareholder-owned, though government-chartered, companies — Fannie Mae and Freddie Mac — to raise capital that their boards didn’t want to raise. In exchange, their government regulator allowed them to increase their leverage so they can buy about $200 billion more in mortgage-backed securities.

So Fannie and Freddie will get bigger, a welcome development when mortgage markets are in trouble. Already, they have regained lost market share. They accounted for 76% of new mortgages in the fourth quarter of last year, up from 46% in the second quarter, Mr. Paulson said Wednesday. But everyone knows that if Fannie or Freddie stumble, taxpayers will get stuck with the tab.

And then, the federal regulator of the low-profile Federal Home Loan Banks, which are even less well capitalized than Fannie and Freddie, said they could buy twice as many Fannie and Freddie-blessed mortgage-backed securities as previously permitted — more than $100 billion worth.

Was this necessary? It’s messy, uncomfortable and undoubtedly flawed in many details. Like firefighters rushing to a five-alarm fire, policy makers are making mistakes that will be apparent only in retrospect.

Too Great to Ignore

But, regardless of how we got here, the clear and present danger that the virus in the housing, mortgage and credit markets is infecting the overall economy is too great to ignore. The Great Depression was worsened because the initial government reaction was wrong-headed. Federal Reserve Chairman Ben Bernanke spent an academic career learning how to avoid repeating those mistakes.

Is it working? It is helping. One key measure is the gap between interest rates on mortgages and safe Treasury securities. A wide gap means high mortgage rates, which hurt an already sickly housing market. A lot of recent activity, including Wednesday’s previously planned auction in which the Fed is trading Treasurys for mortgage-backed securities, is aimed at increasing demand for those securities to drive down mortgage rates.

The gap remains enormous by historical standards, but has narrowed. On March 6, according to FTN Financial, 30-year fixed-rate mortgages were trading at 2.92 percentage points above the relevant Treasury rates; Wednesday the gap was down to 2.22. Normal is about 1.5 percentage points. Money markets are still under stress, as banks and others hoard cash and super-safe short-term Treasurys.

Is it enough? Probably not. Although it’s hard to know, the downward tug on the overall economy from falling house prices persists. The next step, if one proves necessary, is almost sure to require the explicit use of taxpayer money.

Cushion the Blow

The case for doing more is twofold. One is to cushion the blow to families and communities, even if some are culpable. The other is to disrupt a dangerous downward spiral in which falling prices of houses and mortgage-backed securities lead lenders to pull back, hurting the economy and dragging asset prices down further, and so on.

In ordinary times, a capitalist economy lets prices — such as those of homes, mortgage-backed securities and stocks — fall to the point where the big-bucks crowd rushes in, hoping to make a killing. But if the big money remains on the sidelines, unpersuaded that a bottom is near, the wait for bargain hunters to take the plunge could be very long and very painful.

So the next step, no matter how it is dressed up, is likely to involve the government’s moving in ways that put a floor under prices, hoping that will limit the downside risks enough so more Americans are willing to buy homes and deeper-pocketed investors are willing, in effect, to lend them the money to do so. ++

Loans and Leadership
PAUL KRUGMAN, New York Times
March 28, 2008

When George W. Bush first ran for the White House, political reporters assured us that he came across as a reasonable, moderate guy.

Yet those of us who looked at his policy proposals — big tax cuts for the rich and Social Security privatization — had a very different impression. And we were right.

The moral is that it’s important to take a hard look at what candidates say about policy. It’s true that past promises are no guarantee of future performance. But policy proposals offer a window into candidates’ political souls — a much better window, if you ask me, than a bunch of supposedly revealing anecdotes and out-of-context quotes.

Which brings me to the latest big debate: how should we respond to the mortgage crisis? In the last few days John McCain, Hillary Clinton and Barack Obama have all weighed in. And their proposals arguably say a lot about the kind of president each would be.

Mr. McCain is often referred to as a “maverick” and a “moderate,” assessments based mainly on his engaging manner. But his speech on the economy was that of an orthodox, hard-line right-winger.

It’s true that the speech was more about what Mr. McCain wouldn’t do than about what he would. His main action proposal, as far as I can tell, was a call for a national summit of accountants. The whole tone of the speech, however, indicated that Mr. McCain has purged himself of any maverick tendencies he may once have had.

Many news reports have pointed out that Mr. McCain more or less came out against aid for troubled homeowners: government assistance “should be based solely on preventing systemic risk,” which means that big investment banks qualify but ordinary citizens don’t.

But I was even more struck by Mr. McCain’s declaration that “our financial market approach should include encouraging increased capital in financial institutions by removing regulatory, accounting and tax impediments to raising capital.”

These days, even free-market enthusiasts are talking about increased regulation of securities firms now that the Fed has shown that it will rush to their rescue if they get into trouble. But Mr. McCain is selling the same old snake oil, claiming that deregulation and tax cuts cure all ills.

Hillary Clinton’s speech could not have been more different.

True, Mrs. Clinton’s suggestion that she might convene a high-level commission, including Alan Greenspan — who bears a lot of responsibility for this crisis — had echoes of the excessively comfortable relationship her husband’s administration developed with the investment industry. But the substance of her policy proposals on mortgages, like that of her health care plan, suggests a strong progressive sensibility.

Maybe the most notable contrast between Mr. McCain and Mrs. Clinton involves the problem of restructuring mortgages. Mr. McCain called for voluntary action on the part of lenders — that is, he proposed doing nothing. Mrs. Clinton wants a modern version of the Home Owners’ Loan Corporation, the New Deal institution that acquired the mortgages of people whose homes were worth less than their debts, then reduced payments to a level the homeowners could afford.

Finally, Barack Obama’s speech on the economy on Thursday followed the cautious pattern of his earlier statements on economic issues.

I was pleased that Mr. Obama came out strongly for broader financial regulation, which might help avert future crises. But his proposals for aid to the victims of the current crisis, though significant, are less sweeping than Mrs. Clinton’s: he wants to nudge private lenders into restructuring mortgages rather than having the government simply step in and get the job done.

Mr. Obama also continues to make permanent tax cuts — middle-class tax cuts, to be sure — a centerpiece of his economic plan. It’s not clear how he would pay both for these tax cuts and for initiatives like health care reform, so his tax-cut promises raise questions about how determined he really is to pursue a strongly progressive agenda.

All in all, the candidates’ positions on the mortgage crisis tell the same tale as their positions on health care: a tale that is seriously at odds with the way they’re often portrayed.

Mr. McCain, we’re told, is a straight-talking maverick. But on domestic policy, he offers neither straight talk nor originality; instead, he panders shamelessly to right-wing ideologues.

Mrs. Clinton, we’re assured by sources right and left, tortures puppies and eats babies. But her policy proposals continue to be surprisingly bold and progressive.

Finally, Mr. Obama is widely portrayed, not least by himself, as a transformational figure who will usher in a new era. But his actual policy proposals, though liberal, tend to be cautious and relatively orthodox.

Do these policy comparisons really tell us what each candidate would be like as president? Not necessarily — but they’re the best guide we have. ++

Parties Differ on Whom Economic Aid Should Help
EDMUND L. ANDREWS, NYT
March 28, 2008

James Carville, Mary Matalin Leave Washington
Washington Post via HuffPo
March 27, 2008

The quintessential Beltway power couple are escaping the Beltway: Mary Matalin and James Carville are moving to New Orleans.

“James told me when we got married we’d end up in Louisiana,” GOP strategist Matalin told us yesterday. Her Democratic strategist husband, famously known as the Ragin’ Cajun, has deep roots and a huge passel of family there, so “it’s like the Jews going back to Jerusalem,” she said. “It’s the Holy Land. The old Jew is taking me home.” ++

“So keep fightin’ for freedom and justice, beloveds, but don’t you forget to have fun doin’ it. Lord, let your laughter ring forth. Be outrageous, ridicule the fraidy-cats, rejoice in all the oddities that freedom can produce. And when you get through kickin’ ass and celebratin’ the sheer joy of a good fight, be sure to tell those who come after how much fun it was.”
~ Molly Ivins, 1944 - 2007

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

Entry Filed under: Political Waves