Saturday, September 27, 2008

House GOP Idea: Change Bailout Plan, Make Sure McCain Is Credited For It

  Common Dreams

Published on Saturday, September 27, 2008 by

House GOP Plan: Reshape Bailout, Be Sure McCain Gets Credit

by Patrick O'Connor

Congressional negotiators are back at work on a bailout deal as House Republicans pursue a two-track strategy: Shape the plan to their liking, and make sure John McCain gets some of the credit.

Demonstrators protest in front of the New York Stock Exchange against the $700bln Wall Street bailout plan on September 25. (AFP/File/Nicholas Roberts)

Aides to the House-Senate negotiating team met until 1:40 a.m. Saturday morning and are back at the Capitol now. A meeting of principals - Sens. Chris Dodd and Judd Gregg, Reps. Barney Frank and Roy Blunt - could come Saturday afternoon, with leaders still hoping for a vote before the markets open Monday.

McCain arrived back in Washington just before dawn on Saturday, and his campaign said he planned to "resume negotiations with the administration and congressional leaders from both parties to forge a bipartisan solution to our economic crisis."

Republicans are clearly worried that their presidential candidate's first effort to engage in the bailout negotiations didn't come off as well as they might have hoped - that in the public's mind, a deal was close until McCain parachuted in, a White House meeting collapsed and McCain left for the debate in Mississippi with the various factions farther from a deal than they'd been before.

House Republicans are now trying hard to recast those events.

What actually happened, they say: By not taking a stand on the modified version of the Treasury plan that Democrats, Senate Republicans and the White House seemed nearly ready to support, McCain gave House Republican the time they needed to force a better deal for taxpayers and homeowners alike.

During a brief session in the Capitol on Friday, McCain reminded a small band of Republican leaders that he had given them a political opening in the landmark legislative fight.

According to people present, McCain then told his congressional colleagues, "Now, go get something."

McCain had swept into town Thursday morning like a conquering hero, poised to save the economy - and, by turns, his presidential campaign.

Democrats derided his decision as a blatantly political - and completely unnecessary - maneuver.

House Financial Services Committee Chairman Barney Frank (D-Mass.) joked that McCain's gesture reminded him of the late-comedian Andy Kaftans doing his famously understated rendition of the Mighty Mouse theme, "Here I Come to Save the Day."

"We are making very real progress," Frank said at the time. "This is a stunt. I hope people will be able to ignore it. He doesn't bring anything to it."

While McCain greeted his top allies on Capitol Hill, lawmakers were working toward a compromise deal in a bipartisan, bicameral meeting. When that meeting ended, both Dodd, the Democratic chairman of the Senate Banking Committee, and Sen. Bob Bennett, a Republican from Utah, said that negotiators had agreed on a plan that could pass both houses of Congress and be signed by the president.

Gregg, a Republican from New Hampshire, told Politico Friday that the compromise wouldn't have come together so quickly if Democrats didn't know that McCain was on his way. "We wouldn't have had as much movement [Thursday] as we did have, if he hadn't come to town and some of our colleagues on the other side of the aisle wanted to upstage him," Gregg said.

With the deal struck, Republicans in the House believed that the trap was set, not so much for McCain as for their own leader, Ohio Rep. John A. Boehner.

As House Republicans saw it, Democrats and the White House were close to a deal and just needed McCain to sign on so they could roll Boehner under the bus and claim a bipartisan victory.

Boehner himself had emerged from a brief meeting with McCain earlier that day in his Capitol office unsure what the presidential candidate would do.

But if the Democrats and the White House were ready for a game of "ganging up on Boehner" - as the minority leader said later - McCain didn't play along.

At the White House, Bush beseeched lawmakers to join him in announcing progress toward a deal. According to one report, the president asked, "Can't we just all go out and say things are OK?"

But McCain said little during the White House meeting. And when it ended, neither he nor Bush nor Barack Obama said anything at all to the reporters waiting outside in the rain.

In a statement, the McCain campaign said the meeting "was spent fighting over who would get the credit for a deal and who would get the blame for failure."

Most important: "There was no deal or offer yesterday that had a majority of support in Congress."

That play gave Boehner, whose rank and file was in an open revolt against the Bush administration plan, more room and more time to operate.

It's not what House Republicans were expecting. McCain has a strained relationship with many of his GOP colleagues, some of whom view him as a political opportunist who chooses personal glory over partisan loyalty.

Asked before the White House meeting if McCain would have any effect on the debate over this bailout, Rep. Kevin Brady (R-Texas) said, "No."

"The Democrats and the White House want everyone to go down there and have a big group hug," Brady said of that meeting. "I'm not so sure he's going to be a part of that group hug."

Boehner himself had said he didn't know what whether McCain could help.

Republicans acknowledge that McCain's first trip back to Washington didn't shift votes in either direction; even they acknowledge that they don't know what, exactly, their presidential candidate thinks of the Treasury plan. But they credit McCain with creating an opening they didn't have before.

"[The trip] played a very important role in elevating this to a serious crisis for most voters," Putnam said.

Gregg agreed, saying that the trip focused voters' attention on the financial problem in a way that nothing else had: "People suddenly said, ‘Oh wow, this must be really, really bad if you've got both presidential campaigns . . . coming to Washington," Gregg said.

On Friday morning, McCain paid Boehner a follow-up visit in the leader's large Capitol suite. They were joined by Putnam, Blunt - the GOP whip - and his chief deputy, Virginia Rep. Eric Cantor, who played a central role crafting the Republicans' alternative.

The presidential candidate told the assembled congressional leaders that he was initially skeptical about Treasury Secretary Henry Paulson's grave economic warnings, but that he became convinced after a series of briefings that the need was very real. Congress had to pass something over the weekend, McCain said.

But he told the group that Speaker Nancy Pelosi (D-Calif.) had a choice: She could either allow her negotiators to craft a package that Republicans would accept, or she could make it a partisan vote by attaching the plan to a must-pass stop-gap funding bill that lawmakers from both parties would be compelled to support.

If she chose the latter category, McCain told the Republican leaders that they could vote against the hugely unpopular measure and he would help them make that vote a campaign issue on the trail.

Before he left, he told the group that he needed to fly to Mississippi for the first presidential debate, so he wouldn't be sticking around either way.

But, he told them, "You guys need a negotiator."

That same morning, Boehner tapped Blunt to fill the role, jump-starting a legislative conversation that had stalled; just the night before, House Republicans had refused to send a representative to a meeting with Paulson, the Democrats and Senate Republicans.

Democrats now say it's possible that deal could come together in time for votes Sunday. Blunt, appearing on Fox News on Saturday morning, seemed less optimistic and warned that Monday's market opening could yet come and go without a deal.

"I think if it doesn't happen on Sunday, it won't happen until Thursday or Friday," he said. "At the end of the day, it'd be better to get it done right than get it done quickly."

                                     © 2008

John McCain: Proud Bush Supporter

  Dear John, you keep on trying to distance yourself from your continued Bush support over the past eight years. I'm sorry, my friend, but it just does not wash.

John McCain: Proud Bush Supporter

  Dear John, you keep on trying to distance yourself from your continued Bush support over the past eight years. I'm sorry, my friend, but it just does not wash.

New Obama " Zero " Ad

  First ad made after the debate on Friday.

Friday, September 26, 2008

The First Presidential Debate: So Who Won?

  The ups or downs in the polling numbers won't show up for a few days, so don't expect to much, if any, change in Saturdays polling.

  However, CBS News did a poll of undecided voters and this is what they came up with.

40% of uncommitted voters who watched the debate tonight thought Barack Obama was the winner. 22% thought John McCain won. 38% saw it as a draw. 

68% of these voters think Obama would make the right decision
about the economy.  41% think McCain would.

49% of these voters think Obama would make the right decisions about Iraq.  55% think McCain would.

   It was a very interesting debate so far as those things go. I was really surprised that McCain was on the ball, so far as that goes. Obama did let McCain get away with a few things such as his statement that he always has supported our Vets. we all know better than that based on his voting record with Vet issues and funding.

  Obama presented himself well and did have his act together. I say tie game, which is not a good thing for McCain.

UPDATE: Wall Street Journal Poll  on the first debate.

Obama 58.3%, McCain 34.4%

Late Night Comedians On McCain And Palin

  John McCain has decided to come to the debate which kicks off in a few hours, but some of the comedians had fun with him before he changed his mind, again.


"As you know, John McCain wants to suspend his debate with Barack Obama until the economic crisis is over. And Sarah Palin wants to suspend her debate with Joe Biden until she can find Europe on a map."
---Jay Leno
"Paris Hilton is our guest tonight, unless she needs to rush to Washington to fix the economy. ... John McCain wants the presidential debate postponed until after the bailout. Sarah Palin wants the vice presidential debate postponed until after the election."
---David Letterman
"Sarah Palin is in New York City this week. Her family took the ferry to the Statue of Liberty. When she saw the ferry, she said, "Can't we build a bridge to that thing?"
---Conan O'Brien
"McCain showed up [in D.C.] without Sarah Palin, which is a shame because she actually has a lot of banking and financial experience. She lived right next to a bank. ... Sarah Palin was in New York at the U.N. to meet world leaders. Previously, her world experience has been limited to visiting the Epcot Center in Orlando."
---Jimmy Kimmel
"I, for one, cannot think of anything more presidential than suspending your presidential campaign! Being president demands suspending all kinds of things: habeas corpus, Gitmo prisoners..."
---Stephen Colbert
"So to sum up: the net effect of John McCain 'suspending' his presidential campaign: angering David Letterman."
---Jon Stewart

"I was watching the news on television earlier, and George Bush says the economy is in danger. Nothing gets past this guy! Wow! Like a steel trap." --David Letterman

  More Here

The Obama Debate: Ooopppss! The Obama\McCain Debate

  I guess McCain has decided to show up for the debate after all. This is going to be an interesting day before the show even starts.

   Anyway. I have little to say till  tonight. See you when you get home this evening.

Thursday, September 25, 2008

Dodd: McCain and House GOP trying to force their own bill

  Original Article

by FleetAdmiralJ  Thu Sep 25, 2008

Watching Dodd getting interviewed on CNN and basically said that the meeting with the President was a bust, and that many of the issues that they thought were resolved were suddenly brought up again by the House GOP, apparently with the support of John McCain, with some hints that Secretary Paulson may be interested in their plan.

Dodd was obviously not happy with this, basically insinuating that if they wanted to bring up an alternative plan, they should have done so at the start of the week, not after everyone has spent a week on this one deal.

Dodd also now doesn't think a deal will be done by tomorrow, and if the House GOP plan picks up steam, then it may not be until at least the end of next week until anything gets out.

My own thought on this is this: John McCain knew that the House GOP was reluctant to support the bailout bill, just because they tend to be ideologically opposed to government spending, period.

As a result, McCain took this opportunity to come in and show the House GOP a plan he thought they would like, and then came and crashed Bush's party by basically using the House GOP as the messenger to bring his new plan to the table.

In other words, he is literally trying to undue an almost done deal with seemingly everyone agreed on just so that he can come in and "save the day" by trying to force his own bill into the picture.

Of course, this also has other implications as well, including the fact that there is almost no way a deal will be reached by tomorrow night's debate, and there is a possibility that no deal may be reached even by next Thursday's Vice Presidential debate, giving them an excuse to skip out.

If I were Obama and the Democrats, this is what I would do:

Continue working on the current framework, but if it appears by the end of the day tomorrow that you just aren't going to get the House GOP votes you need to give yourself cover, then dump the plan and start working on your own from scratch.

Then next week we can have a battle - in Congress - between Obama's plan and McCain's plan and they can duke it out there.


Commenters are now reporting that Senator Corker (god I still can't believe he won) also said that they had a deal going in, and that it was blown up afterwards.  He, of course, tried to do it while being nicer to McCain, but that was the jist of it.

Update 2

Obama on CNN:  Deal was done before he and McCain arrived and then "something happened."  Obama also notes that the negotiations may be getting bogged down due to the introduction of Presidential politics.

   So does this mean that McCain has tossed aside his " Country First " campaign slogan? He most surely is not putting his country first. I'm shocked, I tell you.

Wednesday, September 24, 2008

John McCain Wants To Postpone The Debates?

  You have got to be kidding me! With this so-called financial crisis going on, this is the perfect time for our Presidential contenders to have this debate. I would surmise that dear old McCain doesn't want this debate to turn towards the subject of the economy or the financial problems from Wall Street simply because he knows nothing about the economy and because he may be asked about his role in helping with the deregulation laws which helped get us into this mess. Let us not forget the Keating 5 scandal, of which McCain was a very valued member.

  On john McCains plan to suspend his campaign because of this financial crisis.

   Here is a poll for you to check out.

The first debate between John McCain and Barack Obama is scheduled to take place in two days. Should the debate be held as scheduled? Should the debate be held, but the format changed to focus on the economy? Or, should the debate be postponed?

Hold as scheduled 50
Hold with focus on economy 36
Postpone 10

Is the right response to the turmoil on Wall Street to suspend the campaigns for president? To continue the campaigns as though there is no crisis? Or, to re-focus the campaigns with a unique emphasis on the turmoil on Wall Street?

Suspend 14
Continue 31
Refocus the campaign 48

If Friday's presidential debate does not take place, would that be good for America? Bad for America? Or would it make no difference?

Good for America 14
Bad for America 46
No difference 35

  It seems that not to many of us think to highly of McCains cheap political stunt.

    And, as an added bonus

David Letterman, according to Drudge:

"You don't suspend your campaign. This doesn't smell right. This isn't the way a tested hero behaves." And he joked: "I think someone's putting something in his metamucil."

"He can't run the campaign because the economy is cratering? Fine, put in your second string quarterback, Sara Palin. Where is she?"

"What are you going to do if you're elected and things get tough? Suspend being president? We've got a guy like that now!"

  Republicans. Have. Nothing!

FBI Investigating Financial Firms

  George Bush wants you and I to hand over a $700 Billion check to the financial firms which are screaming for cash before our economy tanks even more than it has already.

  According to ABCNews the  FBI is investigating some of these firms.

The FBI has opened preliminary investigations into several financial institutions whose collapse created chaos on Wall Street, law enforcement officials tell ABC News.

Investigators are probing investment bank Lehman Brothers and insurer American International Group, or AIG, for possible fraud, according to law enforcement officials.

A senior official tells ABC News that lending giants Freddie Mac and Fannie Mae are in the government's sights, as well.

  The Republicans want us to help finance their crooked friends? I would hope that our House and Senate will say no to this bailout in its present form.

  Speaking of the bailout. Here is the alternative plan from GOP Conservatives.

The stripped-down plan advocates a two-year suspension of the capital gains tax and calls for pull privatization of Fannie Mae and Freddie Mac, which were taken over by the federal government earlier this month.

  My question is, why do away with the capitol gains tax since these firms aren't making any gains in the first place? Aren't they supposed to be losing money, hence the need for $700 Billion?

    I smell are Republican rat.

Monday, September 22, 2008

Socialism US-Style and Ronald Reagan

Published on Monday, September 22, 2008 by Reuters

Socialism US-Style and Ronald Reagan

by Bernd Debusmann

"Government is not the solution to our problem; government is the problem...It is my intention to curb the size and influence of the federal establishment."

That statement, in Ronald Reagan's inaugural address on January 20, 1981, was the opening shot in what became known as the Reagan Revolution: small government, low taxes, de-regulation, a belief that the markets know best. The revolution's spirit shone through the 2008 platform of the Republican Party, presented at its convention early in September.

"We do not support government bailouts of private institutions," it said. "Government interference in the markets exacerbates problems in the marketplace and causes the free market to take longer to correct itself. We believe in the free market as the best tool to sustained prosperity and opportunity for all."

The final bell for that philosophy may have tolled on September 16, when the government nationalized the American International Group (AIG), the world's biggest insurance company, as part of a series of interventions to prop up the U.S. financial system and housing market at a cost, so far, of around $1 trillion to cure an American financial plague that is spreading to the rest of the world.

All contrary to the dogma of the Republicans who occupied the White House for 28 of the past 40 years. But in September, pragmatism trumped ideology and the world's leading capitalist country acted much like some of the European countries American free marketeers have often derided as "nanny states."

Irony of history: As the American crisis neared a crescendo, the European Union's economic and monetary affairs commissioner, Joaquin Almunia, warned that Europe should not employ "financial socialism" by bailing out failing companies. "Socialists like me, we are against financial socialism."

At the bottom of the U.S. crisis are deadbeat mortgages masquerading as sophisticated financial instruments, mortgage-backed securities, that were insured, in theory, by so-called credit default swaps. The assumption was that housing prices would continue to rise. Trouble started when the housing bubble burst.

"The paradox is that this whole mess was created by a bunch of zealots who believed in the laissez faire ideology of free markets unbound by proper rules, regulation and supervision," said Nouriel Roubini, an economics professor at New York University and head of RGE Monitor, an economic information service. Roubini sees the United States turning into "the USSRA, the United Socialist State Republic of America."

Those leading the effort to keep the U.S. financial system afloat, above all Treasury Secretary Hank Paulson and Federal Reserve chief Ben Bernanke, have studiously avoided the word "nationalization." (After all, this is an un-American concept, the sort of thing that happens in places like Venezuela, where Hugo Chavez nationalizes companies in the name of his 21st century socialism).

"Socialism, 21st century style," was the headline on a blog by Floyd Norris, the widely-read chief financial reporter of the New York Times. Others were more subdued. "Corporate welfare" was the term used by Columbia University professor Joseph Stiglitz, winner of the 2001 Nobel Prize in economics.


The crisis, the worst since the Great Depression, has inflicted amnesia on some of Reagan's ideological heirs. They include John McCain, the Republican presidential candidate who supported de-regulation and endlessly proclaimed himself "a proud foot soldier in the Reagan revolution" when he courted the party base in the primary contest for the nomination.

McCain's initial reaction to the unfolding crisis was a call for the establishment of a commission to find out what led to the crisis, a classic Washington insider's response. He could have started by asking Phil Gramm, until recently his economic guru and once thought a leading contender for the post of Treasury Secretary if McCain won the election.

Gramm lost his position as economic advisor to the McCain election campaign after describing the United States as "a nation of whiners" suffering from "mental recession" - not the kind of remark likely to win votes from citizens grappling with financial hardship.

Gramm was the driving force behind the two pieces of legislation at the bottom of the crisis -- the repeal, in 1999, of the 1933 Glass-Steagall Act which had created a firewall between commercial and investment banking; and the Commodities Futures Modernization Act of 2000. The way the latter passed was extraordinary: 262 pages of dense language slipped into an 11,000-page omnibus bill on the Friday before the Christmas recess.

"The act freed complex derivatives from any regulation," said Michael Greenberger, who served in the Commodities and Futures Trading commission in the late 1990s. "It set the stage for the present mess and the problem is, no one knows how many of these instruments are still out there or who holds them."

Congress this week is scheduled to discuss an unprecedented $700 billion plan, submitted by the Bush administration, to use taxpayer money to buy up a mountain of bad debt. No one knows whether this will be enough and most Americans doubt that Washington leaders will be able to solve the crisis, according to a Zogby poll taken after the plan was announced.

The survey, of likely voters in November's elections, said 83% wanted those responsible for the practices that led to the crisis to be held criminally responsible.

That's not part of the plan.

© 2008 Reuters

Bernd Debusmann is a Reuters columnist.
(Editing by Sean Maguire)


John McCain Says Wall Street Deregulation Is Good For Economy

Q: In 1999, you were one of the senators who helped pass deregulation of Wall Street. Do you regret that now?

McCAIN: No. I think the deregulation was probably helpful to the growth of our economy.   Source

  John McCain said that on 60 Minutes

  This man is pathetically unbelievable!

  Meanwhile, Barack Obama has a new ad out about John McCains healthcare plan.

   Mindless McCain and Brainless Barbie have no business near the White House.

Sunday, September 21, 2008

Hank Paulson: Act Now Before It's Too Late

  If you listen to Paulson, the Treasury Department, Bush, Cheney,McCain, Pelosi, Dodd, and others, you get the impression that our economy will be coming to a standstill by next week if those crooked financial firms don't get the taxpayers $ 700 Billion to bail their sorry, inept asses out of the troubles that they have brought upon themselves.

One bad thing about this free ride for these crooks is that you and I get screwed out of our money and Barack Obama gets screwed out of his healthcare plans, among other ideas. The money will not be there for his plans, period! All in the Republican scheme of things.

Memo from Paulson to Cheney:
It appears that the ultimate cost of your bailout program will approximate 1 trillion dollars. As such, there is no way for Obama to implement his universal health plan. You might remind the insurance companies that we expect sufficient reciprocity when they're signing checks.

Let's be honest. The implementation of the Paulson-Cheney-Bush-Rove Plan will effectively strip an Obama administration's budget options. Universal Health Care, Infrastructure improvement, funds for alternative energy and even the middle class tax cuts are all vulnerable. If you think that the GOP isn't well aware of this, you underestimate their willingness to impact Middle America. It's essential that Paulson isn't allowed to become king for the remaining term of Bush. We must insist on transparency and a bi-partisan set of people to monitor this program or America will see 4 more years of Bush's impact on the country. We cannot be rushed into this like we have been in the past. Nothing good will come of that.  DKos

  While we are at it, let us contact of Senators and tell them NO on this version of this bailout! Tell them to grow some balls for once and not give into the Bush Crime Syndicate.

Finance gets Bailed Out: Bye Bye Social Security,Medicaid, and Medicare

  The conservatives have been wanting to do away with those programs, especially since Reagan was in office. As an anti-government group, the conservatives are almost where they want to be. Are you and I on our way to a corporate dictatorship? That is what we will have if the conservatives, along with some sorry Democrats, manage to bankrupt the government.

Original Article

by TheOrchid  Sun Sep 21, 2008

Paulson's plan is as bad we've been saying it is--a power grab with no upside for the taxpayer and no hint of regulatory reform to solve the underlying market problems.

But there's more, and I haven't seen this addressed yet.

If Paulson's plan is actually implemented in anything like it's current form, and $700 billion--or more--vanishes into the black hole that is now our financial "services" industry, the incoming President in 2009 will be confronted with a stark choice:  either continue to uphold the financial markets, or uphold the core of liberal government:  Social Security, Medicare and Medicaid.

If the bailout commences, economists will start to come out of the woodwork to explain why the country must first avoid bankruptcy, and to avoid bankruptcy, these social programs must go.  Foreign investors, looking at the state of the United States' finances, will be unwilling to loan the U.S. any money to shore these programs up while simultaneously protecting financial markets.  Congress will take a look at the numbers, as well, and either (1) decide to slash these programs; or (2) do nothing, allowing the country to slide into bankruptcy, in which case the programs die anyway.

In any event, if the bailout goes forward, Social Security, Medicare and Medicaid go the way of the dinosaur.

This is really what we're fighting for now.

Financial Bailout Bill IS NOT A Good Bill

  This is a very long article which should be read. There is more than a government bailout at stake here!

Original Article 

The Way Forward

by Stirling Newberry  Sun Sep 21, 2008

Let us speak of rights and reason. Of rights we have to begin from the final humiliation against a free people a proposal to grant dictatorial powers to an outgoing administration. In effect, the ability to hide all of the financial wrong doing of the last 8 years. It would give Paulson not only the power to buy assets, but put terms in place which would make legal investigation of those arrangements impossible, and these contracts could not be questioned in a court of law. It is the Authorization for Use of Military Force, Protect America Act, and war spending votes all rolled into one. Having seen that it cannot assume the unitary executive since the Supreme Court rejected it, they are now turning to Article III to get a trembling Congress to accept it. There is a crisis, but there is no catastrophe. Even when the physical nexus of the financial world was directly attacked, there was no need for this kind of unlimited spending power.

However, what is important now is a solution. What we need now, is reason in action, as we already have reason to act.

The outlines of that solution are beginning to be accepted. It is a simpler, and broader, solution than has yet penetrated the minds of the interiors of power, because it is not about how to pay for a clean up within a functioning system, but how to change the system itself.

This is not a financial crisis in the end, as the Paulson Proposal shows, but a constitutional moment, where the very mandate of government is in play. Paulson wants the tax payer to be the fool of last resort, the group of people stupid enough to buy things that no one else on the planet is stupid enough to buy. We have reached the currency crisis which the election of 2000 implied would come. If we do not solve it now, it will only recur, in a worse form, soon enough.

The gut reaction on the Paulson proposal is a resounding Hell No. The word reviled is not to strong.

Even the University of Chicago's finance department cannot swallow the monster that has crawled from the cabinet. However Luigi Zingales mentions the key point. What is clogging the restructuring of debt are lynch pins that tie speculative money to ultimately scarce assets that cannot grow any farther. In the case of the Great Depression, that asset was gold. Gold could no longer grow as fast as the economy, debts pegged to gold hobbled the global economy. FDR dispensed with this, and the Supreme Court agreed. Ultimately the government must enforce contracts, and contracts which bring an end to government itself, must, therefore fall.

It is self-evident, or at least has been to Americans since we were Americans and not British subjects in America, that government is instituted by the people, however construed, for the good of the people. There have been three long struggles since that moment. The first has been to acknowledge that all people are members of The People, the second is to establish broadly the good which they have a right to expect,  and the third is to provide more perfect instruments for the first to pursue the second.

Governments then have a basic mandate to enact the good, they have mechanisms to effect that mandate, one of which is money, and they have a relationship to the people which constitutes the meaning of government. The Paulson Proposal is, in effect, an amendment to the Constitution, which states that the executive, in its sole discretion, has a mandate to prop up the financial sector at whatever cost, without review. It states that it has the mechanism of unlimited and unfettered spending power. It asserts a meaning which is foreign to virtually every part of the political spectrum, libertarians, conservatives, centrists, liberals, and socialists alike have balked at this vast grab of power which violates separation of powers, accountability, and virtually every other principle advanced for the protection of a Democracy. This much is obvious, and is obvious to millions of people. The Paulson Proposal is a demand for economic servitude.

However, it is not enough to reject the wrong. It is important to assert the right, as, in the famous words of perhaps our greatest president, God gives us the grace to know the right. It is not enough to reject the Paulson proposal, but to assert that there is a clearer and better way forward.

The Red Queen's Race

The first step to doing this is to explain the present crisis clearly. This is because people are often aware of the lesser crimes that were instrumental to the greater crime, but not their meaning. It would be like banning shifting into reverse, because that is what the get away car did to escape from the mafia paid homicide. Many of the individual actions which have led here are neutral, or if not neutral, incidental, to the problems themselves. If not these mechanisms, then some others would have been taken. It is not wrong to ban some of the particulars, but only if, importantly, the root cause is also addressed.

The particular financial crisis began, so it is said, from sub-prime mortgages going wrong. This is in correct, in that those mortgages existed because of inflated money supply. That inflated money supply existed because of ultra-low interest rates produced by the Fed. Those interest rates existed because of the necessity of using them to pay for the Iraq war without increasing taxes on the wealthy.

However the Iraq war was not a individualized lurch rightward, nor were many of the actions which have led to this crisis taken by Bush. Glass-Stengall was repealed by Clinton, not Bush. Much of the financial system deregulation was written by Bob Rubin, not Hank Paulson. From this it has been theorized that there is a conspiracy of bankers out to suck the life out of the ordinary people. If only it were that simple.

The reality is that the reason people of both reactionary and progressive impulses alike have walked the road of perpetual consolidation, we are now down to two major investment banks from five, is that there has been an underlying necessity that has pushed them forward. There were other solutions, but once this one was chosen, there was no political will, nor any political capital for a different one. Here is what happened and why.

In the 1930's America abolished the gold standard for individual debts, and instead dollars were issued based on loans made on good assets in banks. A system of insuring and examining and regulating those banks was created, and investment banking and retail banking were separated, this was not done all at once, it was not done by design, it was however, within a paradigm or design pattern. Once the idea of stabilizing the anchors of the economy was come upon, and using promises of the people as the foundation for that stability, each additional step became easier and clearer. The feverish activity of the first week of what was to become the "Hundred Days," gave way to long and protracted political battles.

The new basis then, was the value of developed land. The incentive was for Americans to develop their cities and towns, and reap the rewards of increased home values and stability of their communities. This, in turn, created the ability of the government to print more dollars, relatively confident that if there was a dollar, then somewhere there was economic activity underneath it. There was, at least, someone with an address who could be taxed.

The model that we used for development was the automobile, and we saw the rise of the automobile city, which was far more sprawled out than the old industrial city. Old industrial cities have population densities of around 7000 to 10000 per square mile, where as automobile cities peak at around 3000 per square mile and often have as little as 750 per square mile. In short, the use a great deal more land, and a great deal more gasoline per capita to create and support. Suburban sprawl reaches a particular density, and then it sprawls outward farther.

As long as all the oil came from the US, it was not much of a problem. There were fights over who got to be part of the truly personal mechanized society, there were even more brutal fights over those on the margins of that society. Civil Rights were, at basis, the right to be part of the new age that was spreading across America.

However, in the late 1960's American oil production slowed. This was exacerbated by the Vietnam War, which created spending on activities that did not aid America, but the same wall was coming with or without the Gulf of Tonkin Resolution. At first there were attempts to stave this off, but, in the early 1970's the Arab oil producers enforced their role as the swing producer in the world, by using an embargo. Later there would be a war between Iran and Iraq. The intermediate steps, such as abandoning Bretton-Woods and creating a floating currency regime, deregulating the airlines, attempts to save gasoline, were all stopgaps until a new basis for the global economy came into being. That basis was the paper for oil economy. In this economy the United States generated paper based on development arbitrage and technology, which Arabs bought, and in return they sold us oil for that paper which we were to turn around and use to create more paper.

It served, in a way, both interests. First it gave the oil to the old sprawl system, and for the Arabs it provided an umbrella of protection and stability, as well as assets for the time when their oil no longer commanded the same premium that it did then. The internal response in the US was to create a Red Queen's Race, where it was made harder and harder to own the assets of America, at the same time, the Arab states grew socially conservative, and attempted to thwart the rise of a middle class that would demand imports and capitalization. It was an agreement by the conservative forces in both systems, and in turn both used it to drive their respective political systems to the right, even though underlying technological and social trends were for greater liberalization and freedom.

It is this dynamic, and not any of its subsidiary moves, that is important. The implementation of trade, banking deregulation, tax policy are all means by which the United States and the West tried to stay one step ahead of oil. The roots of this crisis are then the demand to keep the sprawlconomy going, the decision to engage in the paper for oil economy, and the de facto result of making it so that the wealthy, rather than the society as a whole, would hold the paper. In short, our rich, had to stay ahead of their rich. This created the most important race to the bottom: of top tax rates. It is impossible to tax our wealthy more than their wealthy taxed themselves.

The 1% Solution

The death of this system was that it worked too well, in that with the coming of the internet bubble it seemed as if the "New Economy" would replace "Bricks and Mortar." Oil prices plunged to their lowest real value since the coming of the petroleum age. Arab nations bled dollars, and were under pressure. The Clinton-Rubin dollar drought nearly capsized the conservative economies of Saudi Arabia and other oil states. Many responded, not by liberalizing, but by creating even more radical anti-Western ideologies, to hold of the wave of liberalization that would inevitably come should the become consumer states.

This dynamic threatened the very basis of the reactionary coalition in America. They had always assumed that they had stacked the deck for a permanent Republican majority and hold on power. Thwarted over and over again by Clinton in their attempts to secure power in the 1990's, it became evident that the left could play the paper for oil game better than the right could. This is because the left, not the right, had become the party of free markets, and since the left had much less concern over who got rich, it was able to open more opportunities. Free Trade, the dotconomy, a reduction in military spending and corresponding increase in civilian investment all altered the very composition of the small club of the Republican Party.

The dot bust that followed the dot boom was, to some extent, timed. Greenspan's rate raising campaign of 1999 and 2000 was not outside of the bounds of discretion as Fed chairman, but it was more aggressive than he had been with a Republican President in trouble, and was much less accommodating than he would be with a later Republican. In other words, what he did wasn't obviously manipulation of the election, but it was out of character.

It was in this environment that the election of 2000 occurred, American was on the cusp of, but not yet in, recession. It had had a brief period of broad prosperity, but not yet completely taken hold. It was also facing a massive crash in speculative equities. Enter George W. Bush.

His overt promise was to bail the wealthy out of their dot crash with tax cuts. These tax cuts satisfy the need of the Red Queen's Race, in that they gave money back to Americans, and much less to others. Thus preventing a situation where assets would be bought up cheaply while illiquid. However, the response of the oilarchies, at the bottom of the crash, was to sell. This was the brutal climax of a three year long bear market, which occurred in the summer of 2002. The plan had been to lower interest rates through the floor, pressure the yield curve to favor mortgages over industrial output, and buffer industry with a war. When the bubble popped, the insolvent banking system would be bailed out by ordinary people, leading to a frozen in place economy. This process I labelled Japanification. It would lead to a long period of stagnation, where the majority people would not live that badly, but they would have little hope of improvement, and face increasing pressures personally and financially.

Thus, it was not enough to bail out our rich, it was necessary for Bush, if he and others wanted a permanent reactionary state, to control a flow of oil to pour into their version of the sprawlconomy. This was the Iraq War, and the ultra-low interest rates that Greenspan provided, by his own admission, had two purposes. One was to get as many people to own homes as possible, the other was to finance the war. Both policy results were failures. The costs of the failure in Iraq are not necessary to go over here. What is more important is the housing bubble caused by the failure of the Fed to accept in 2005 that the Bush economy had failed, and take the economy into recession then, ending the building boom, and force the fiscal reckoning in Congress. Instead we received horse hockey hokum from Greenspan, even as the numbers he presented showed that almost all of the increase in debt was going to fuel short term consumption.

The 1% solution to the Red Queen's race was to allow our top 1% to pile up asset inflation to match the petro-dollar acquisition of assets. The Iraq war was a recognition that, to keep the Republican base, oil was needed, and to keep control of the top, it had to be in American hands.

"Financial Genius is Leverage and a Rising Market."

John Kenneth Galbraith quipped that financial genius is leverage, and a rising market. It is for this reason. among others that he had a suspicion of the "dubious magic of monetary policy." Monetary policy means that those who have, get. Monetary policy means that those first in line at the bank window, get to sell at a profit to those farther down that line. It is not a neutral market stimulus, but, in fact, a very specific one.

In our case leverage was provided not only by low interest  rates, but by the SEC relaxing leverage ratios, the failure of various regulatory agencies to enforce laws already on the books, let alone new laws that might have been desirable being passed.

The reason that mortgages were the basis for this vast mountain of instruments is relatively simple. The United States partially liberalized it's economy. Some people competed very directly against the rest of the world, while others did not. People naturally fled from competitive exporting, to non-competitive non-tradeables. One can't go to Singapore for a Big Mac tonight. One can't buy a house in Ireland to commute to a job in Topeka. One can't go to a hospital in Mumbai. And we don't let people build our aircraft carriers, such as the Ronald Reagan, George Herbert Walker Bush, or Gerald Ford.

As with many things, what we got was socialism, protectionism, Keynesianism and liberalism - for the Republican Coalition. This was the practical political realization of the post-Reagan Republican Party. They couldn't afford to buy landslides any more, but they could afford to buy enough of the cheap states to control Congress and the Presidency. With the occasional assist from the Supreme Court.

But mortgages had another magical property, and that is that they were the heart of the sprawlconomy, and no political party could be allowed to have them fail. Thus the bet was that if everything went wrong, there would be a massive bailout. The British fretted over the lack of "moral hazard." In finance terms, almost any position is better if you don't have to protect against the downside. In the circles I travelled in, this was known as the "eating babies" case. "Well if that happens the world has gone to hell and we are  all eating babies, so it doesn't matter." For example the effects of global thermonuclear war can be discounted, because we will have other things on our mind than the value of our Intel shares.

However, the trick was to systematically create investments which would all go wrong at once, and then proclaim that they could not. The catalog of financial games, for example, packaging sub-prime loans valued at the face value of the loan, which was highly unlikely to be paid, while at the same time packaging good loans at the default value of the house, which was virtually impossible to occur, because if the owner defaulted it would be because of a massive economic downturn, were just two of the tricks used in creating Collateralized Debt Obligations and derivatives that had no relation to reality.

The truth about finance is that it is about giving people permission to do things they otherwise would not be allowed to do. It is, therefore, a social utility. The key to controlling finance is not regulation per se, but in having a social project to which it is directed. Regulation then, is the way we tell that institutions are following the socially and politically agreed upon course. If the course is wrong, no amount of regulation will work, because even if it is still on the books, it is dead letter.

Thus with Greenspan, Bernanke, and others who were part of - not merely the broadly agreed upon paper for oil project, which both Democrats and Republicans signed on to - the project for a permanent Republican and reactionary order, regulations and indeed economic sobriety were out the window.

The reason Greenspan got the nick name "bubbles" was for his practice of finding a way to inflate the top level money supply, called M3, without it becoming consumer demand. Inflation was defined as "inflation of consumer goods." This is the inflation that our foreign bond holders care about, because it is their buying power from us. Thus, a simple policy measure was in place: make the broades measure of money supply, called M3, go up, without inflation in what America sells, called "core inflation" rising beyond a comfort zone. All this sounds bloodless and analytical, until you realize that it is impossible to sustain. This is because core inflation can only be contained by monetary policy if the money ordinary people have access to is expensive and scarce. A good measure of this money is called "M1." But M3 is just M1 on quaaludes. All of the bets made that are in M3, have to be paid back by M1. Now you can do this for a little while by two expedients. One is to make it so people who buy assets accept less return on their investment, as measured by say "Price to Earnings Ratio" or interest rates. The other is to drain the savings rate of ordinary people, so that money is flying around faster and faster. This is called "the velocity of money."

However, both of these have limits. At a certain point buyers are getting the lowest returns they can accept, and consumers are not saving. In fact, by the marginal theory of utility, it will go on a bit longer than it should go on, because it takes a while for people to realize that no only are they losing money, they aren't going to make money. In this decade, the total annualized real return on the S&P 500 has been - negative. That's right, money put into the S&P, including dividends, has been behind inflation. And that's just in dollars. In this decade the US savings rate has turned - negative. That's right, we are spending down. In this decade American wages have been, in real terms, negative. And that's before we count in the housing bubble.

This then was the state of affairs at the time when Daniel Altman labelled this a revolutionary gamble to create a neoconomy

The Adventures of Captain Carnage

Benjamin Bernanke is an academic expert. Specifically, he is an expert in how to manage a crash in assets, without creating a situation where the rich will require a bail out from the public, and the public, in turn, demands real control over the society. His thesis was that the Federal Reserve in the Great Depression could have printed money to prevent deflation, and then used extra-ordinary means to prevent inflation. His argument was that FDR, in though not in so many words, could be prevented if only the right macroëconomic policies had been taken, followed up by using gaps in the system if need be.

Bernanke was, thus, obviously, the choice for Fed Chief after Greenspan. He has the misfortune of having had his policies put into practice, to borrow a quip from John Kenneth Galbraith. His failure was the attempt to impose microëconomic manipulation and market failure on macroëconomics. His papers do not hold together even as they are written, and I am happy to say I was busy calling him a fraud before it was fashionable. It will be a lot more fashionable very soon.

But for practical purposes, it is enough to note that starting in 2007, when the various positions began what Krugman labelled "The Great Unravelling". In financial terms, a position unravels when it's parts no longer work together. A sophisticated investment is not merely picking stocks you like, but in putting together different possible futures, and having something that will do well in all of them. A position unravels when the future doesn't coöperate.

The assumption that mortgages would not be allowed to unravel  met head on with the assumption that unlimited amounts of money could be created, so long as that money did not become demand for real things. This is the contradiction mentioned above. It is impossible for financial instruments to expand for ever, and for wages to stay flat forever, without bringing new people in to the system. It is impossible to do this with a basically constant amount of oil.

This problem is known to engineers as the problem of "scaleability." Can a solution be expanded, and if so what happens. Unlimited amounts of money cannot rest on limited amounts of oil. Even the total amount of oil is not important so much as the peak bandwidth of cheap oil. Oil at 140 dollars a barrel is not cheap enough for people run the sprawlconomy on.

Bernanke's attempts at bail outs failed, because with each failure, the financial people next in line could either accept the loses, or fail in turn. This is why each bail out has lead to another, bigger, bail out. From loans, to debt swaps, to outright guarantees, to the Freddie and Fannie bail out, to the Paulson Proposal, each bail out has gotten bigger, and been attached to money that is less and less likely to ever be seen again by the tax payer. The cost of 100 billion in loans is really the cost of the returns could have been done with that money for a few months. This is a few billion at most. The cost of 100 billion dollars in buying toxic assets, is probably 100 billion dollars give or take a few cups of coffee.

In July the plug was pulled on Captain Carnage's printing press, because the cost of oil was threatening to rattle apart the entire Republican coalition. North Dakota and South Dakota were in play on the Presidential level, with Montana leaning Democratic. The Republicans wanted liberalism on the cheap, and expensive gasoline put it out of reach. Thus, the plug was pulled. M3 began contracting rapidly, and oil fell as rapidly. This was expected, the cost of oil was not a problem of oil undersupply in particular, that's the chronic problem, but a problem of acute dollar oversupply. As soon as the dollars went away, so too did the inflation. Since then you have not heard much from Ben Bernanke, because he tried and failed.

Instead Paulson has come to the front, and he has presented a more traditional, bare knuckles, solution to the panic, one that would not have been unfamiliar to bankers of old: get the government to buy up the worst assets, send a few people out to pasture, and have life go on. It is thus Pauslon who has gotten the ball here. You can also bet that there will be no money left in the till by the election, because otherwise what would have happened is that Bernanke would have resigned as Fed Chair, Paulson would have been appointed, and the Fed, not the Treasury, would be given the blank check. The Fed has taken on hundreds of billions of toxic debt already, it could be empowered to take on even more.

Thus the book on Bernanke is that he printed dollars, polluted the Fed balance sheet, and could neither stop the financial crisis, nor prevent inflation, nor stop the one thing which he said needed to be stopped: the contraction of the money supply in the face of an economic downturn. Remember this is what right wing academics say was the cause of the Great Depression: the fed allowing the "great contraction" of money supply going into a down turn. We are now in a position to judge this theory and say that it is not the case, the Fed's actions of 1930 may have precipitated the economic crisis, but had they done differently the result would have been to pull the Fed chairman and put in someone in charge who would do the same thing in attempting to bail out the wealthy and stick everyone else with the bill.

Small Steps are not enough

In March of this year, economist Peter Davidson proposed that two agencies be used to solve the growing fiscal crisis. His proposal was to use a Home Owner's Loan Corporation model, a depression era program where the government bought unstable loans at a discount, and then cut the interest rate and the face value, allowing the homeowner to stay in the house. This is a "foreclosure in place" plan along the lines proposed in general by Larry Summers in February. By March the idea received attention in the press. From a fellow at the American Enterprise Institute.

Now think on this. This late this winter and early spring and respected academics were already clear on the need for debt relief - academics from the left Post-Keynesian Economics school of thought to the ultra-rightist American Enterprise Institute. In fact proposals for the return of an HOLC have been offered for sometime from the margins.

This idea has flowered in recent days, from Nouriel Roubini, and other writers. Hillary Clinton has taken up the HOLC banner.

The HOLC proposal would do two things. First it would offer a floor to the market. Second it would prevent homes from being dumped on the market just as this would create a contagion even for good loans. But it is not enough. Even after there is debt relief, that still leaves a host of other people in a great deal of trouble, For example, the people who do not qualify for debt relief, but are going to be even more upside down in their homes than they were before. It also means that some loans are going to unravel, since it is absolutely certain that an HOLC price for loans will be lower than what is offered.

In short the HOLC is not nearly radical enough. Instead, with the US already committed to stabilizing half of all mortgages in the US, it is only one small piece of what must be a wider restructuring of the financial markets.

But this gets us back to a very simple question, in a crisis of liquidity, the question is how to put money into the system, and then pull it out once the crisis has passed. In a financial crisis such as this one was some time ago, the question is how to borrow money to clean up the mess, and then impose regulations to prevent the exploitation of both the bail out, and the flaws in the system. However, we are not faced with either of these two smaller problems.

The problem is what, exactly, are we going to pay these loans off in? Remember the reason this is a crisis, and we can't just walk away, is that our money is based to no small extent on mortgages. We buy oil and import goods with this money. If the total money supply cannot expand, then it must mean that American living standards must drop dramatically in order to pay back the mortgages. The American people, in 2000 and 2004 were sold "a pig in a poke." They were not told what the differences were, nor were they told what the consequences could be. While it will be impossible to avoid having the penalties fall on the American public for what they bought and voted for - "You don't know what it is, and you're voting for it." - the greater blame must fall on elites. However, as long as elites can stay in power promising that the land casino will re-open after some clean up from the last party, there will be no such change.

A Constitutional Crisis

As Paulson's little demand for dictatorial powers makes clear, this is not really a financial crisis. Instead, it is a political and constitutional crisis. Paulson told Barney Frank that putting in an amendment to cap executive pay would be a "poison pill." If this were really a catastrophe in the making, one where the American public's money was needed right now, or else, then Paulson would have accepted almost any conditions, even if he intended to renege on them in practice. After all, with 700 billion to spend, it would have been trivial to make sure that a few billion sloshed to the people whose golden parachutes he took away. The defense department loses track vast sums of money. It would not have been hard to do that here. Clearly we are not in the moment of true catastrophic financial failure. Hence there is no reason to not make this as hard a bargaining process as possible.

The key to the constitutionality of this is that in order to pay back the massive sums of debt taken on by the failed Bush executive, which will probably amount to some 8 trillion dollars when all of the dust is finally cleared out of the air and everything is accounted for - some new source of value must be created. There is no way, with current rates of oil production, the global expansion of the middle class, and current rates of oil consumption, for the US to ever produce enough houses, at high enough prices, to print enough money to grow our way out of this debt. It is physically impossible, just as there ever being enough physical gold to pay off the debts of the First World War and its aftermath, because interest multiplies like rabbits, and gold does not.

Thus it is necessary, not merely to shift money around, but to change the very definition of money. This is why the "cram down" model is also wrong. There is no reason for the Arabs to accept a cram down, they can just raise the price of oil to the point where all of the surplus value created in the global economy flows to them. This gets them effectively what they paid for, even if the numbers are not correct. It would also mean that the center of the financial world would be Dubai, not New York, London, or even Shanghai.

This means that while HOLC/RTC proposals are useful the most important step right now is to meet the demands of the Treasury Secretary for arbitrary powers head on, and select a different entity to manage any bail out, and to forbid bailing out of specific securities, but only of whole entities. In short, before the public will by any more toxic assets, the public will have the authority to remove the people who bought, created, and sold those assets.

There is already an entity whose purpose it is to evaluate failed institutions, collect insurance, and merge institutions into healthy ones. That entity as Robert Reich correctly observed in a recent radio interview, is the Federal Deposit Insurance Corporation. Since we have, effectively, taken responsibility for the global financial system, it is time to accept that the principle of insurance, direction, and regulation is required. This process has been going on for some time, since, in fact, the response to the crash of 1987, when circuit brakers were put in place to prevent wide swings of the stock market. However, as of this year, with the US having taken on the losses for the markets world wide, effectively, the solution must be that the financial system must pay for access and insurance in good times, so as to have funds in moments like this. That this principle has escaped 20 years of executive and legislative leaders is a sign of how far down the wrong road we have come.

This means that the FDIC needs to be expanded to have a reach not just for banks, but for securities as well, and for all funds held as securities. Since people already pay fees to mutual funds, it will not be difficult to shift some of this revenue from money managers, where it is buying brass nameplates and vacations, to an insurance fund. That insurance fund can be used to retire foreign debt as its means of accumulating interest.

After the FDIC has finished taking over entities, then individual mortgages can be assigned for debt relief to an HOLC, and individual assets which are saleable, but entangled in financial instruments, can be offloaded to an RTC to be run for some period of time and then sold when market conditions improve. However the lynchpin is the acceptance that the US Dollar is now based on all equities, securities, and assets which are in the wider financial system denominated in dollars, and the expansion of the total capital system, and not just the suburban sprawl system, will be what the dollar is backed by. Since it has been true in effect, there will be no macroëconomic consequence to making it true in practice. The difference will be that it will be the public, and Wall Street and Riyadh, which will direct the use of the financial system.

In the very short term, then, what is necessary is to prevent American assets from being bought up cheaply by foreigners, and to radically reduce the value of current dollars without capsizing the economy. Fortunately there are several ways this can be done.

Part of the problem is that we have an executive which is illegally in place. This cannot be gotten around in coming up with proposals. If we had a legal President acting in good faith, as opposed to one who just sent a note to the Congress demanding a 700 billion dollar bribe or the economy will get it, then this would be a rather easy situation to deal with. The President could use the powers under the trading with the enemy act and the declaration of a national emergency to prevent US assets from being bought up by foreign entities. The strategic reserve would be tapped, rationing imposed on oil imports, and the market allowed to fall to a discovery point where only US national liquidity could be used to purchase assets. This would be done in the context of a promise to repeal the Bush revenue reductions retroactively by the new Congress, and the additional revenue devoted to back the bonds.

In short, if we had a President, as opposed to an illegal executive, there would be mechanisms in place by which a Congress could delegate sufficient authority to both bail out the financial system and prevent a short term fall in equities from becoming a permanent entrenchment. The public will, in a matter of weeks, be able to correct this problem, and in a matter of months an new government could be inaugurated. Thus all the Congress needs to do for now, is get to Zero Hour of the inauguration of a new President, and it will have the chance of doing so with the new Congres in January to authorize other short term measures as is necessary. While it is better to deal with the problem early, the problem is George W. Bush, and he is not going away until next year.

Thus the centerpieces of a counter congressional bill are:

  1. Expansion of the FDIC to include money market funds, brokerages, and other financial funds. Institutions which are out of this expansion, if any, will be allowed to fail as a class. Assign the CBO as the Congressional means of oversight and give the CBO authorization to extend credit to the FDIC, which can be waived if, after Congressional review, the money is justified. Basically, anything that Bush does on the way out the door must be subject to review by the incoming Congress and Administration.
  1. Authorization of an HOLC type cram down of mortgages with government liens, the profits of which are split between home owners and the mortgage system, now in taxpayer hands anyway. Place this process in the hands of the FHA, and have the CBO assigned to continuous oversight. Authorize some 20 billion dollars in stock to be purchased by the government.
  1. Declaration of a national emergency, without expansion of the debt ceiling, and also with explicit judicial review. In the national emergency specific authorization can be given to review any transfer of effective control of banks or other financial entites. In this declaration can be rationing of gasoline, imposition of conservation and other austerity measures.
  1. Dramatically expand safety net programs for the inevitable economic shock: food stamps, unemployment insurance, suspension of interest on student loans, loans to the government by members of the National Guard, active Military, or Reserve and so on.

That's all that is needed for today. For later? Yes, progressive taxation, green relief, federal debt restructuring and so on. But for today, that is all that is needed to stem the tide. When a new executive is in place, then Bernanke can be removed, the Fed restructured to be part of a joint Executive-Congressional control of monetary policy, green relief put in place, and a massive conservation drive funded.

But that is for tomorrow. Today what we need to do is to authorize the government to be the insurer of last resort and not the idiot of last resort. The short term problem is that interbank lending came to a near halt because banks didn't know which other banks were infected to what degree, and the fear that the money market funds would come unravelled. These can be provided for by the means above. If the Federal Government begins stepping and a dealing with problem banks, and buffers the inflationary hit, then we can go forward and deal with the larger crisis.


These events are not a short term bump on the road, but the culmination of the decision a generation ago to use paper to buy oil, to inflate that paper by allowing those at the very highest reaches of a social elite to engage in a "race to the top" with the suppliers of oil. This system was accepted by both parties, and it created a neo-liberal era where any restriction to creating paper wealth had to be removed. This was not a matter of left or right, everyone was a neo-conservative, and every one was a neo-liberal.

The failure of this system has been widely predicted, but there was neither a holistic replacement, nor the political will to replace it. Criticism of it was outside of the mainstream, or channelled into the form of arguing over the margins of the benefits of it. It accumulated massive debt, and that debt is the heart of the financial pressure.

In 2000 Bush entered office with the plan of bailing out those in the US who had bet badly on the stock market, and invading Iraq to break the impasse over control of oil. Both of these policies failed. The back stop for failure was the Greenspan/Bernanke plan of creating a housing bubble, and then when the burst came, to inflict the costs on the American public. This is "Japanification."

We are now at the point where Japanification is the question, and Paulson is trying to enforce it at gun point: do this or I will do nothing and let everything fall apart. Since the result of this will be a political catastrophe for the Republicans, the Democrats should propose an alternate bill, make no compromises, and let the Republicans Hooverize the name of George W. Bush.

The correct response is to expand the FDIC, begin taking over institutions as a whole, providing immediate debt relief through an HOLC, and declare a national emergency to enforce austerity and prevent any short term attempts to profit from the financial chaos. A windfall profits tax on oil companies isn't a bad idea either, since it would bring in tens of billions of dollars right when they are needed the most.

This solution, or some version of it, is in line with proposals from economists and political figures such as Robert Reich, Peter Davidson, Nouriel Roubini and others. It also leads to the correct solution to the larger fiscal crisis, which is removing the oil bottleneck to the growth of wealth, and therefore the growth of wages to pay financial instruments, and the cramming down of instruments which claimed the profits of a new economy, while at the same time tried to prevent it.

In that future come a great drive to reduce consumption, increase savings, increase exports, globalize opportunity for all and not just for some, and create a very different system of work. But that is another day. Today's purpose is to say no to dictatorship, and to craft a counter which is yes to insurance and accountability.

Government Bailouts: Screwing You Again

  After the $700 Billion bailout that the Bush administration is giving the financial sector, it should be clear to you that you and I have been and are getting fucked once again by both the government and these sleazy investment firms.

  You can thank Senator John McCain and a few of his campaign lobbyist for a lot of this mess which we find ourselves in thanks to some bad bills and massive deregulation of banks and brokerages and so on and so on.

  This shit started back with the Garn-St. Germain Depository Institutions Act, which was one of the rules that helped bring about the S&L crisis back in the 80's.

  John McCain was somewhat involved with this S&L problem as where a few other senators. Remember the Keating 5? Coupled with deregulation, one should have known that things would only get worse.

  Now these firms will get all of their debt wiped out by the taxpayers and then their stock values will go way up because their books will look so good. The traders will be making a killing on this bailout, as will the CEO's.


The expansion of unregulated Savings and Loans in the 1980s brought on the collapse of that industry, a crippling of the economy, and left taxpayers holding the bag. Maybe that was only happenstance. Those pushing for the Garn-St. Germain Depository Institutions Act may not have known what they were doing.

The deregulation of the California electricity market, along with the protections provided to Enron through Phil Gramm's lobbyist-written legislation brought blackouts, fiscal and political chaos, and left taxpayers holding the bag. But the people who engineered that event -- people like Gramm and Greenspan -- had already seen what happened with the S&Ls. They should have known better. Still, perhaps that was only coincidence.

The sub-prime mortgage crisis that has not only come so close to utterly destroying the markets, but has ruined the value of many people's homes and left millions with mortgages they can't pay, was also the outcome of the deregulation created by these men. The very predictable outcome.  When taxpayers are left holding the bag for $1 trillion this time around, it's hard to believe it's any sort of accident.

This is enemy action. This is a bullet deliberately fired into the economy by men willing to exercise their ideology regardless of the cost to taxpayers. Men who have every expectation that they can plunder the system again and again, while the public picks up the tab. John McCain may not have had his finger directly on the trigger, but he was there. He assisted. These were his personal friends and philosophical comrades. He may not be the high priest, but he has been a loyal acolyte in the cult of deregulation.

It may come as a surprise to the champions of deregulation, but nobody likes regulation. The restrictions that were placed on banks, S&Ls, and other institutions in the 1930s weren't put there because someone thought it would be fun. They were put in place because they addressed problems that had just been clearly and painfully revealed. They were put in place because they were necessary.

It's bad enough if John McCain didn't know that. It's far worse if he did.