The stake through Ronnie’s heart

Ronald Reagan is finally dead — at least his deregulation policies and trickle down con-game; the American dream is breathing shallowly too, and our super-power mythology is as flat and crispy as road-kill. Surely anyone who repeats the Yuppie “Greed is Good” mantra, even under their breath, will end up prone and holding their gushing nose.

The sheer arrogance of our current situation stuns me — taxpayers, limping along in dire circumstances, will have to pick up the marbles big financiers dropped and cover the asses of the “catch me if you can” high rollers playing fast and loose with the retirement funds of elders and the life-savings of millions — indeed, the wellbeing of a nation and, ultimately, markets across the globe.

These people are carnivores, supping at our table and reaching into our plate. They’ve brought nothing with them but snake oil and a sure determination that the rubes can be fleeced without much effort. Well, hell — it worked.

It’s the Palin model, isn’t it: I have spunk, I have agenda, I have confidence — trust me!

The perfect companions to McFix-It: I know how to win wars, I know how to fix the economy, I know how to fix Washington — trust me!

And where is our little Decider during all this mayhem, you ask? I’d have thought in the bunker with Uncle Dick — but evidently, due to the meltdown, he’s had to send the Dark Veep off to attend a fundraiser in his name while he meets with his financial advisers … in the bunker … in the corner … in the dark.

A few excellent reads; decoding the greed and arrogance. Don’t miss any. First one’s a pip!

Jude

Dear Main Street: A Letter of Explanation From Wall Street
Deal Journal, The Wall Street Journal via Yahoo
Thursday, September 18, 2008

[thanks, Christine]

Dear Main Street,

Are you trying to make sense of what’s happening here on Wall Street?

Don’t worry — you aren’t alone. A lot of people even here are trying to figure that out. It isn’t that complicated, but Wall Street is so full of mumbo jumbo that it’s easy to get confused — or bored.

Say “collateralized mortgage obligation” a dozen times and see if you can stay awake.

Stick with me, though, Main Street and I’ll explain what’s going on here in New York.

Believe it or not, you’ve seen this movie before. And I don’t mean, “It’s A Wonderful Life,” though that movie isn’t far from the mark.

What’s going on is a classic industry shakeout — not all that different from the shake-out of the American steel or auto industries over the past half century. Just in a much shorter time frame.

In just nine months, we have gone from five big, independent Wall Street brokers to only two — Morgan Stanley and Goldman Sachs.

The government took over Fannie Mae and Freddie Mac, the country’s largest mortgage companies, a bit more than a week ago.

And just Tuesday, we nationalized AIG, the world’s largest insurer.

Of course, consolidation inevitably produces winners and losers. Lehman Brothers, the fourth largest US broker, is a loser. It went bankrupt two days ago.

Bank of America is a winner. It bought brokerage Merrill Lynch three days ago and is now our nation’s largest financial institution.

That’s a lot of change in not a lot of time.

And when there’s change, there’s uncertainty. Today, for example, we still don’t know whether Washington Mutual, the largest U.S. savings & loan, will stay independent.

Uncertainty isn’t good for any business, as it destroys confidence. It is especially bad for our financial system, because the system runs entirely on confidence. I lend you money confident that you will pay me back. If I don’t have confidence in you, I won’t lend.

Which is just like Wall Street today. Our nation’s financial institutions don’t really trust each other. And for good reason.

In all, about $2 trillion dollars of lower quality mortgages are spread about our financial system. Many of these are now in default which threatens the banks that hold them.

And of course the lack of trust spirals. Less lending by banks to each other, less lending to Main Street’s companies and less lending to you. In the end, the money’s not there for you to get a mortgage or auto loan.

And you account for 70% of the economy. So when the money isn’t there, that’s bad for everybody. Without credit, you get a crisis — a credit crisis.

Of course, we deserve heaps and heaps of blame. Wall Street took the mortgages, sliced and diced them a hundred ways, sold and traded them. We took a nice cut along the way, blissfully oblivious to the risks.

We do have a remarkable talent for cooking up crazy get-rich schemes. Remember the Internet bubble? That was less than a decade ago.

But Main Street, you’re also to blame.

Recall the hundreds of billions in bad mortgages that are now killing Wall Street? That was money lent to you, Main Street, for homes and condos many of you could not afford.

And ironically, it is now your money that will be used to repay those dud mortgages because we on Wall Street are running out of money.

The government takeovers of AIG and Fannie and Freddie? That’s your money. J.P. Morgan’s buyout of broker Bear Stearns last March was also your money,

You might not like it. We on Wall Street may not like it. And even the politicians in Washington may not like it.

But nobody has a choice — unless you happen to have an odd yearning to live in a barter economy.

So Main Street, our crisis is unfortunately your crisis. We made the mess together and now we pay for it together.

The mergers, government takeovers and bankruptcies that will continue to sweep our financial system are a good sign. It means that we are fixing ourselves. Albeit at gunpoint.

Isn’t it strange the way our free market works? The government saves Wall Street — and you Main Street foot the bill.

My advice? Save this letter and show it next time we all embark on another stupid misadventure.

Sincerely,

Wall Street

Copyrighted, Dow Jones & Company, Inc. All rights reserved.

A Nation of Village Idiots
James Moore, HuffPo
September 18, 2008

Don’t let them tell you this economic meltdown is a complicated mess. It’s not. Our national financial crisis is readily understood by anyone who has seen greed and hypocrisy. But we are now witnessing them on a profound, monumental scale.

Conservative Republicans always want the government to stay out of business and avoid regulation as long as they are making lots of money. When their greed, however, gets them into a fix, they are the first to cry out for rules and laws and taxpayer money to bail out their businesses. Obviously, Republicans are socialists. The Bush administration has decided to socialize the debt of the big Wall Street Firms. Taxpayers didn’t get to enjoy any of the big money profits on the phony financial instruments like derivatives or bundled sub-prime paper, but we get the privilege of paying for their debt and failures.

Let’s just consider the money. The public bailout of insurance giant (becoming a dwarf) AIG is estimated at $85 billion. According to one report, that’s more than the Bush administration spent on Aid to Families with Dependent Children during his entire time in office. That amount of money would also pay for health care for every man, woman, and child in America for at least six months.

How did we get here?

That’s pretty easy to answer, too. His name is Phil Gramm. A few days after the Supreme Court made George W. Bush president in 2000, Gramm stuck something called the Commodity Futures Modernization Act into the budget bill. Nobody knew that the Texas senator was slipping America a 262 page poison pill. The Gramm Guts America Act was designed to keep regulators from controlling new financial tools described as credit “swaps.” These are instruments like sub-prime mortgages bundled up and sold as securities. Under the Gramm law, neither the SEC nor the Commodities Futures Trading Commission (CFTC) were able to examine financial institutions like hedge funds or investment banks to guarantee they had the assets necessary to cover losses they were guaranteeing.

This isn’t small beer we are talking about here. The market for these fancy financial instruments they don’t expect us little people to understand is estimated at $60 trillion annually, which amounts to almost four times the entire US stock market.

And Senator Phil Gramm wanted it completely unregulated. So did Alan Greenspan, who supported the legislation and is now running around to the talk shows jabbering about the horror of it all. Before the highly paid lobbyists were done slinging their gold card guts about the halls of congress, every one from hedge funds to banks were playing with fire for fun and profit.

Gramm didn’t just make a fairy tale world for Wall Street, though. He included in his bill a provision that prevented the regulation of energy trading markets, which led us to the Enron collapse. There was no collapse of the house of Gramm, however, because his wife Wendy, who once headed up the Commodities Futures Trading Commission, took a job on the Enron board that provided almost $2 million to their household kitty. And why not? Wendy got a CFTC rule passed that kept the federal government from regulating energy futures contracts at Enron.

If John McCain gets elected and chooses Phil Gramm as his Treasury Secretary, which many politico types see as likely, they will be able to talk about the good old days when Gramm was in congress and McCain was in the senate and they were in the midst of the Savings and Loan crisis.

The S and L scandal, which may look precious when compared to our present cascade of problems, isn’t hard to understand, either. But it is impossible to take John McCain seriously on our current financial Armageddon since he was dabbling in the historic collapse of 747 S&Ls that occurred during Ronald Reagan’s era. In the early 80s under the Republican president, congress deregulated the savings and loan industry in much the same way that Gramm made sure there were no laws hindering our current financial malefactors on Wall Street. S&Ls simply lobbied until they had less regulation and then began making rampant, unsound investments.

The guy who was going the wildest with financial freedom was Charles Keating, who headed up Lincoln Savings and Loan of California. Because the S&L industry had managed to get congress to increase FDIC insurance from $40,000 to $100,000 on deposits, the irresponsible investing of people like Keating began to put taxpayer insurance funds at great risk of loss. Keating placed money in junk bonds and questionable real estate projects and because so many other S&Ls started acting the same way the Federal Home Loan Bank Board (FHLBB) began to push for a regulation that limited these dangerous speculative “direct” investments to 10% of an S&L’s assets.

And Keating didn’t like it; he called on a private economist named Alan Greenspan, who promptly produced a study saying that there was no danger in “direct” investments.

But that didn’t convince the FHLBB and as further scrutiny showed Lincoln Savings and Loan was making even more historically bad investment decisions, a federal investigation was launched.

So Keating called his home state senator John McCain.

McCain and four other US senators (known to history as the Keating Five) met with Edwin Gray, then chairman of the FHLBB. McCain had been hesitant to attend but had reportedly been called a “wimp” behind his back by Keating. The message to the FHLBB and Gray from the Keating Five was to lay off Lincoln and cool the investigation. Gray and the FHLBB did not relent but Lincoln stayed in business until 1989 when it collapsed with the rest of the S&L industry. The life savings of more than 20,000 elderly investors disappeared with the failure of Lincoln. Keating went to prison for five years.

Charles Keating was John McCain’s pal. They met in 1981 and Keating dumped $112,000 in the McCain campaign bank accounts between ‘82 and ‘87. A year before McCain met with the FHLBB regulators, his wife Cindy and her father, according to newspaper reports at the time, invested about $360,000 in one of Keating’s shopping centers. The Arizona Republic reported McCain and his wife and their babysitter took nine trips on Keating’s private jet to the Bahamas to stay at the S&L liar’s decadent Cat Cay resort. The senator didn’t pay Keating back for the plane rides until years later when he was under investigation.

McCain wasn’t found guilty of anything but bad judgment, which is an historic understatement. Republicans, who led deregulation of the S&L industry, delayed the bailout until after the 1988 election to make sure George H. W. won the White House. The cost to taxpayers for helping these 747 bad actors in the S&L industry was finally estimated at $1.4 trillion. If the bailout had begun in 1986 instead of after the presidential election, the cost would have been contained at $20 billion.

And now the Republicans who engineered our present crisis and got us into the S&L debacle of the 80s are before us saying the markets need regulation. No, actually, they don’t need regulation. Why don’t you Republican capitalists who believe in the free markets get out of the damned way and let them work and allow these various financial nuthouses be crushed by the weight of their own stupidity? When it is all over, we’ll have sane and sober people create laws to make sure it doesn’t happen again, assuming we survive this chaos.

Also, while you are handing out our tax money to idiots on Wall Street, save a little of the long green for the unemployed auto and construction workers and all of the other people who have lost their jobs because you were too stupid to notice what Phil Gramm was doing and you were convinced everything was going to be just fine because the markets work.

These, then, are the people — the Republicans — who want to run our government for four more years. John McCain isn’t just one of them. He rides their jets. He takes their campaign donations. He makes them his campaign advisors. And he tells us to trust him.

He must think we are a nation of village idiots.

Hell, maybe we are. ++

Wall Street’s Just Deserts
Harold Meyerson, WaPo
Thursday, September 18, 2008

At the risk of speaking ill of the dead, what good was Lehman Brothers, anyway? And if Merrill Lynch was so bullish on America, why is it that, despite the torrent of foreign investment that flowed in to Lehman, Merrill and their Wall Street peers over the past half-decade, so few jobs were created in America during that period of “recovery”?

During the late, lamented Wall Street boom, America’s leading investment institutions were plenty bullish on China’s economy, on exotic financial devices built atop millions of bad loans, and, above all — judging by the unprecedented amount of wealth they showered on the Street — on themselves. The last thing our financial community was bullish on was America — that is, the America where the vast majority of Americans live and work.

Over the past eight years, the U.S. economy has created just 5 million new jobs, a number that is falling daily. The median income of American households has declined. Airports, bridges and roads are decaying. Rural wind-power facilities cannot light cities because our electrical grid has not been expanded. New Orleans has not been rebuilt. And as productive activity within the United States has ceased to be the prime target of investment, household consumption — more commonly known as shopping — has come to comprise more than 70 percent of our economy.

The banks’ underinvestment in America was hardly due to a lack of capital. But even as petrodollars and China’s dollars poured into Wall Street, the investment houses directed trillions into new and ever more dubious credit instruments, which yielded massive profits for Wall Streeters and their highflying investors, and put chump change into efforts to improve, to take just one example, American transportation.

It was not ever thus on Wall Street. In the late 19th and early 20th centuries, bankers such as August Belmont and J.P. Morgan invested European capital in American railroads and steel. Moreover, by the 1830s, a major political party, the Whigs, had arisen on a platform of “internal improvements” — fast-forwarding the nation’s development through a public commitment to building roads, rails and canals. Their successor party, the Republicans, continued these commitments, as Lincoln’s support for the transcontinental railroad and land-grant colleges makes clear.

By the mid-20th century, the behemoths of American manufacturing reinvested their own resources to meet most of their capital needs, while New Deal-era and subsequent administrations (including that of Republican Dwight Eisenhower) invested heavily in the nation’s infrastructure. Wall Street played a diminished role during the golden years of mass American prosperity but came roaring back beginning with the financial deregulation of the Reagan era.

Finance set the terms of corporate behavior over the past quarter-century, and not in ways that bolstered the economy. By its actions — elevating shareholder value over the interests of other corporate stakeholders, focusing on short-term investments rather than patient capital, pressuring corporations to offshore jobs and cut wages and benefits — Wall Street plainly preferred to fund production abroad and consumption at home. The internal investment strategy of 100 years ago was turned on its head. Where Morgan once funneled European capital into American production, for the past decade Morgan’s successors have directed Asian capital into devices to enable Americans to take on more debt to buy Asian products.

Worse yet, as Wall Street turned its back on America, so did government. The Bush administration and congressional Republicans (John McCain among them) kept American incomes low by opposing hikes in the minimum wage; helping employers defeat unionization; and shunning policies to modernize infrastructure, make college more affordable, and boost spending on basic science and research.

Today, it’s the Democrats who sound like Lincoln’s Republicans. In recent months, the Obama campaign and liberal think tanks in particular have generated numerous proposals for heightened public commitment to infrastructure and education. Unlike tax cuts, which chiefly bolster our ability to consume imported goods and commodities, infrastructure investments make us more productive and have a multiplier effect that creates more jobs over and above those that the government funds directly. Congressional Democrats have included major infrastructure investments in their pending new stimulus bill, which Bush and GOP leaders oppose.

Someone needs to invest in the United States of America. For the past decade and, in a broader sense, for the entire duration of the Reagan era, both government and Wall Street have opted not to. Should Barack Obama win, the era of neglectful government will probably come to an end. No matter who wins, Wall Street is vanishing before our eyes. And by the measure of their contribution to America’s economic strength and well being, both Reagan-age government and Wall Street’s investment banks plainly deserve to die. ++

The Progress Report
Faiz Shakir, Amanda Terkel, Satyam Khanna, Matt Corley, Benjamin Armbruster, Ali
Frick, and Ryan Powers - Think Progress
September 18, 2008

The New Hoovers

This week started off rough. In fact, Monday was the first “Black Monday” of the century, comparable, as the Center for American Progress’s Andrew Jakabovics notes, to “the 20th century’s signature day in financial history back in the Fall of 1929.” By the end of the day, the Dow Jones had dropped 504.48 points, “the biggest decline since Sept. 17, 2001 — the day the index reopened after the 9/11 terrorist attacks — when it fell 7 percent, or 684.81 points.” Topping that off were the failures of Fannie Mae, Freddie Mac, Lehman Brothers, and AIG, as well as new worries over Goldman Sachs and Morgan Stanley. “What we are witnessing may be the greatest destruction of financial wealth that the world has ever seen — paper losses measured in the trillions of dollars,” writes the Washington Post’s Steven Pearlstein today. Presiding over this chaos was President Bush, who has consistently chosen to deny that anything was wrong with the markets. Sen. John McCain (R-AZ) has also been there cheering on this disasterous de-regulation, and is only now trying to pretend that he had always favored more robust oversight. House Speaker Nancy Pelosi (D-CA) has ordered a probe of Wall Street and in the coming days, and she plans to demand testimony from various Bush administration officials and other Masters of the Universe.

HOOVER 2.0 – GEORGE BUSH: As recently as a few months ago, when it was already clear that the financial markets were in turmoil, Bush was trying to continue his do-nothing economics. “The President’s hands-off attitude is reminiscent of Herbert Hoover in 1929 and 1930,” Sen. Charles Schumer (D-NY) said in March. Last year, Bush was telling reporters that he wasn’t very good at economics since he received only a “B in Econ 101″ (in reality, he received the equivalent of a C-). However, this hands-off approach is what has propelled the current financial crisis. According to the Washington Post, both Republican and Democratic lawmakers alike “said the crisis is in part result of insufficient government regulation on Wall Street.” “Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke need to face squarely the vast array of mistakes made by the Bush administration’s financial regulators over the past eight years,” notes Jakabovics. Last year, instead of aggressive measures to help home mortgage borrowers, lenders, and investors work out payment problems with federal supervision, the Bush administration embraced Paulson’s “voluntary debt workout plan, called Hope Now, which (let’s be frank) failed to help homeowners or the larger home mortgage marketplace,” Andrew Jakobovics of the Center for American Progress observed.

HOOVER 3.0 — JOHN MCCAIN: McCain often says he tries to model himself after President Teddy Roosevelt, but perhaps Hoover might be a better comparison. Over the past year, McCain has described the economy’s fundamentals as “strong” at least 18 times. He said it most recently on Black Monday: “Our economy — I think still, the fundamentals of our economy are strong.” His rhetoric echoes what Hoover said on Oct. 25, 1929, a day after what is now known as Black Thursday : “The fundamental business of the country, that is the production and distribution of commodities, is on a sound and prosperous basis.” McCain is now trying to portray himself as a financial wizard, someone who believes “in excess government regulation” and “warned” federal officials of a potential subprime mortgage crisis as far back as two years ago. In reality, McCain has been clueless about the economy. “I’d like to tell you that I did anticipate it,” McCain said in November 2007 of the financial crisis, “but I have to give you straight talk, I did not.” In fact, he has been a leading advocate of deregulation. New York Times columnist and Princeton economics professor Paul Krugman has pinpointed Phil Gramm as one of the architects of the current financial crisis and the “odds-on favorite to be the Treasury Secretary” in a McCain administration. Gramm orchestrated the Gramm-Leach-Bliley Act in 1999, which “destroyed the Depression-era barrier to the merger of stockbrokers, banks and insurance companies.” He also pushed the Commodity Futures Modernization Act in 2000, which made legal “the mortgage swaps distancing the originator of the loan from the ultimate collector.” The Nation writes that “those two acts effectively ended significant regulation of the financial community.”

MAKING THE COUNTRY SAFE: In order to restore confidence in the financial markets, policymakers need to “protect homeowners and communities by preventing the continued acceleration of home foreclosures and by restoring confidence in the credit markets,” the Center for American Progress notes. With this goal in mind, earlier this year, the Center for American Progress proposed a Saving America’s Family Equity (SAFE) program, which recognizes that “both borrowers and investors, and ultimately taxpayers, are better off when loans are restructured rather than allowed to proceed to foreclosure.” This plan would “promptly facilitate the bulk transfer of mortgages into the hands of new private owners with the incentive and ability to modify or refinance the loans.” The housing bill recently passed into law reflects these principles, mandating a Treasury study of mortgage pools base on the SAFE program. As Jakabovics writes, a first step for the Bush administration would be to accelerate this study so that “regulators can get down to the real business at hand — finally fixing the problem in the mortgage marketplace at its source.” ++

Matthews Pushes Cantor On Bush’s Handling Of The Economy: ‘He’s Pulling One Of These Katrinas Again’
Think Progress
9/17/08

In a contentious segment on “Hardball” tonight, host Chris Matthews accused Rep. Eric Cantor (R-VA) and his conservative allies of “taking off your uniforms,” pretending they’re not Republicans, and running against President Bush. “I’m not going to let anyone get away with that kind of foolery,” Matthews said. He asked Cantor at least five times whether he supported the job Bush is doing — and all five times Cantor refused to answer.

Noting that a “normal president” would be more visible during such a crisis, Matthews compared Bush’s response to the current financial turmoil to his handling of Hurricane Katrina:

MATTHEWS: I’m just asking you where’s the President of the United States tonight? You got Paulson out there. Where’s the President? He’s pulling one of these Katrinas again. Where is he? The country’s worried like hell when you lose this amount of value in the wealth of this country in a matter of days. You’d think the President would come on television and explain the situation to the American people. I’m just asking where he is. That’s all I’m asking.

CANTOR: Chris, you’ll have to ask — I don’t know where he is. I assume he’s in the White House.

[Open link to] watch the clip.

Matthews was visibly frustrated, telling Cantor, “You have to take responsibility, sir, for the policies of this Administration that have gotten us into this mess. You can’t walk away and say, Oh we had nothing to do with this, can you? Say it if you want to. It’s your right.”

Matthews noted Cantor’s refusal to even mention the President: “You haven’t used the word Republican tonight, your party didn’t use it in the acceptance speech,” he said. “John McCain never said the word Republican, he never said the word Bush. You’re trying to take off your uniforms and run from the field of political battle and claim you’re not Republicans.” The GOP steered clear from both Bush and Cheney at their convention last month, mentioning Bush only once and never mentioning Cheney. ++

“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

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