Palin and Clinton video

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me@rescam.org

No friend to Latinos on immigration

RUBEN NAVARRETTE JR.
THE UNION-TRIBUNE

September 17, 2008

As they recall the failure of immigration reform in Congress, Democrats want to come off as the good guys.

This means burying the fact that their patrons in organized labor instructed them to kill any compromise that included guest workers – a concept AFL-CIO President John Sweeney termed “a bad idea (that) harms all workers.”

And it means trying to refute a new Spanish-language television ad from the McCain-Palin campaign that blames Barack Obama and other Senate Democrats for undermining immigration reform in 2007 with procedural delays and “poison pill” amendments intended to make the legislation unpalatable to Republicans.

Translated, the ad says: “Obama and his congressional allies say they are on the side of immigrants. But are they? The press reports that their efforts were 'poison pills' that made immigration reform fail. The result: No guest worker program. No path to citizenship. No secure borders. No reform. Is that being on our side? Obama and his congressional allies: Ready to block immigration reform, but not ready to lead.”

That is exactly what happened. It was smart but cynical politics. Led by Senate Majority Leader Harry Reid, Democrats were able to please the unions and deny a Republican president a huge legislative victory, all the while making it look as if the opposing party was to blame for the debacle.

Luckily, some members of the media kept their eye on the ball and put the blame where it belonged: on Reid and the Democrats. The Washington Post's David Broder, in a column published in June 2007, blasted Reid for going “out of his way to rewrite (the immigration bill) to meet the demands of organized labor.”

Now, in response to the McCain-Palin ad, Democrats are practicing revisionist history. Sen. Robert Menendez of New Jersey said in a statement released by the Obama campaign: “To say that Barack Obama and Senate Democrats blocked the bill that Republicans filibustered is hypocritical and not true. John McCain has lost his credibility when it comes to the immigration issue. . . . (He) cannot attack Democrats on immigration in Spanish while pandering to the extreme right Tancredo wing of the Republican Party in English.”

I understand that Menendez is trying to earn Obama's good graces after being a vocal supporter of Hillary Clinton in the primaries. But did he really compare McCain to Tom Tancredo, the nativist congressman who also sought the GOP nomination in this year's primaries?

Senator, I know Tom Tancredo. I've written about Tom Tancredo. And John McCain is no Tom Tancredo. One of the few things that these men share is a strong dislike for one another. In one debate, McCain described Tancredo's explanation of what makes someone an American as “beyond my realm of thinking.”

Others on the left are also lending a hand to Democratic efforts at damage control. They include groups dedicated to the admirable goal of achieving comprehensive immigration reform. What is not so admirable is the way that these groups have turned on McCain, whom not long ago they praised for fighting the good fight on the immigration issue. Now they claim that McCain has flip-flopped.

Baloney. They're the ones who flip-flopped, and for no grander reason than because we're in an election year.

“We are stunned,” declared Frank Sharry, executive director of America's Voice, a Washington-based liberal-leaning organization in a statement.

“A Spanish-language ad approved by Sen. John McCain accuses Sen. Obama and the Democrats of derailing immigration reform? He knows better. The whole political world knows better. Comprehensive immigration reform was blocked not by Democrats but by Republicans. . . . Immigrants and Latinos are intelligent. They know the difference between fact and fiction.”

I always appreciate it when non-Latinos are patronizing and tell me what I should or shouldn't know. I know this much: Some folks inside the Beltway are so eager to put a Democrat in the White House that they're putting party before truth.

They include Latino groups such as the National Council of La Raza and the Mexican American Legal Defense and Education Fund who, as Sharry said, should know better.

During a conference call this week with reporters, NCLR Vice President Cecilia Munoz also criticized the ad and called immigration an issue that “tends to determine who the good guys are and the bad guys are for Latinos.”

That implies that these advocacy groups can tell the difference. That's the point. Blinded by partisanship, they haven't a clue.

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me@rescam.org

Economy refocuses presidential race

DAVID S. BRODER
THE WASHINGTON POST

September 18, 2008

Someday, we will learn. When it's September and important issues cry out for attention, but we seem consumed by trivia – watch out.

In September 2001, cable news and even some “serious” newspapers were preoccupied with Gary Condit, a married Medesto congressman who had an affair with a Justice Department intern who disappeared and later was found murdered.

It was all-Condit all the time in the news – until Sept. 11, when something far more consequential happened, and Condit slipped back into obscurity.

This year a calamity has occurred in the financial world. The nonsense about Sarah Palin's family dynamics and other matters, down to and including lipstick on pigs, has been banished by the mayhem on Wall Street as ruthlessly as the Condit story was erased seven years ago.

Once again, New York has become the focus of the nation's eyes, which guarantees that the mass media concentrated there will keep this economic crisis story where it belongs – at the center of attention.

The presidential candidates certainly recognize the change. It took less than 24 hours after Sunday's dramatic developments involving Lehman Brothers, Merrill Lynch and AIG for John McCain and Barack Obama to prepare new statements and fresh ads on Wall Street issues.

But McCain stumbled at the outset with a comment that the economy is “fundamentally sound,” and the Democrats pounced. Obama, campaigning in Colorado, delivered an unusually tough critique of McCain's long record as an advocate of deregulating markets. Obama was reinforced in an orchestrated chorus of Democratic voices, liberated from their preoccupation with the governor of Alaska and her family.

Neither man had much to offer in the way of advice. The meetings of Treasury, Federal Reserve and banking officials in New York were dealing with questions of such technical complexity and financial importance that the politicians knew better than to intervene.

The lack of content does not reduce the political significance of what has happened. For months, McCain's managers have understood that his biggest challenge is that eight out of 10 Americans think the country is moving in the wrong direction. To overcome the voters' natural inclination to punish the party in power, there are relatively few things McCain can do.

One is to sow doubts about Obama and his prospective actions, and McCain has been assiduous in doing that. He and his cohorts have questioned Obama's experience, criticized his tax policies and challenged his approach to energy issues.

Another is to create a narrative that diverts attention from the voters' fundamental dissatisfaction. That was the purpose of McCain's reform initiative – a narrative rooted in his own rebel personality and anti-establishment history, reinforced by the choice of Palin as his running mate. That story line was well-launched at the Republican National Convention, and it visibly tightened the race.

But now the structural weaknesses in the economy – already visible in rising unemployment and stagnant incomes for most workers – have caught up with some of the most famous players in the game. The jobs and savings sacrificed in the great stock market sell-off were significant in themselves. And these were potential Republican voters who took this shellacking. They and their friends and neighbors will be that much harder to enlist in the McCain cause.

The larger effect is the psychological damage to an electorate already struggling to maintain any optimism about the country and its future. For all the excitement Palin has generated, the national mood is still a major barrier for McCain and the Republicans.

There may be other external events that jolt the presidential race – and the debates are still to come. But for now, Wall Street and its woes are causing big problems for John McCain.

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me@rescam.org

Preserving divided government

GEORGE F. WILL
THE WASHINGTON POST

September 18, 2008

Conservatives, who reputedly have lumps of coal where their hearts should be, have fallen in love. So have many people who are not doctrinal conservatives. The world is a sweeter place because Sarah Palin has increased the quantity of love, but this is not a reliable foundation for John McCain's campaign.

The tech bubble was followed by the housing bubble, which has been topped by the Palin bubble. Bubbles will always be with us, because irrational exuberance always will be. Its symptom is the assumption that old limits have yielded to undreamt-of possibilities: The Dow will always rise, as will housing prices, and rapture about a running mate can be decisive in a presidential election.

Palin is as bracing as an Arctic breeze and delightfully elicits the condescension of liberals whose enthusiasm for everyday middle-class Americans cannot survive an encounter with one. But the country's romance with her will, as romances do, cool somewhat, and even before November some new fad might distract a nation that loves “American Idol” for the metronomic regularity with which it discovers genius in persons hitherto unsuspected of it.

McCain should, therefore, enunciate a closing argument for his candidacy that goes to fundamentals of governance, concerning which the vice presidency is usually peripheral. His argument should assert the virtues of something that voters, judging by their behavior over time, prefer – divided government.

The incumbent Republican president's job approval is in the low 30s but is about 10 points higher than that of the Democratic-controlled Congress. The 22nd Amendment will banish the president in January, but Congress will then be even more Democratic than it is now. Does the country really want there to be no check on it? Consider two things that will quickly become law unless McCain is there to veto them or unless – this is a thin reed on which to depend – Senate Minority Leader Mitch McConnell has 40 reliable senators to filibuster them to deserved deaths.

The exquisitely misnamed Employee Free Choice Act would strip from workers their right to secret ballots in unionization elections. Instead, unions could use the “card check” system: Once a majority of a company's employees – each person confronted one-on-one by a union organizer in an inherently coercive setting – sign cards expressing consent, the union would be certified as the bargaining agent for all workers. Proving that the law's purpose is less to improve workers' conditions than to capture dues-payers for the unions, the law would forbid employers from discouraging unionization by giving “unilateral” – not negotiated – improvements in compensation and working conditions.

Unless McCain is president, the government will reinstate the equally misnamed “fairness doctrine.” Until Ronald Reagan eliminated it in 1987, that regulation discouraged freewheeling political programming by the threat of litigation over inherently vague standards of “fairness” in presenting “balanced” political views. In 1980 there were fewer than 100 radio talk shows nationwide. Today there are more than 1,400 stations entirely devoted to talk formats. Liberals, not satisfied with their domination of academia, Hollywood and most of the mainstream media, want to kill talk radio, where liberals have been unable to dent conservatives' dominance.

Today, as usual, but perhaps even more so, Americans are in the iron grip of cognitive dissonance. It is a genteel mental disorder afflicting those people – essentially everybody – who have contradictory convictions and yearnings.

Consider health care. Americans want 2008 medicine at 1958 prices, and universal coverage with undiminished choice – without mandatory purchases or government interference with choices, including doctor-patient relationships.

As usual, neither party completely pleases a majority of voters. That is why 19 of the 31 elections since World War II produced or preserved divided government – the presidency and at least one chamber of Congress controlled by different parties.

Divided government compels compromises that curb each party's excesses, especially both parties' proclivities for excessive spending when unconstrained by an institution controlled by the other party. William Niskanen, chairman of the libertarian Cato Institute, notes that in the last 50 years, “government spending has increased an average of only 1.73 percent annually during periods of divided government. This number more than triples, to 5.26 percent, for periods of unified government.”

By picking Palin, McCain got the country's attention. That is a perishable thing and before it dissipates, he should show the country his veto pen.

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me@rescam.org

Sarah's home on the Last Frontier

MAUREEN DOWD
THE NEW YORK TIMES

September 18, 2008

Carly Fiorina, the woman John McCain sent out to defend Sarah Palin and rip anyone who calls her a tabula rasa on foreign policy and the economy, admitted Tuesday that Palin was not capable of running Hewlett-Packard.

That's pretty damning coming from Fiorina, who also was not capable of running Hewlett-Packard.

Carly helpfully added that McCain (not to mention Barack Obama and Joe Biden) couldn't run a major corporation. He couldn't get his immigration bill passed either, but now he's promising to eliminate centuries of greed on Wall Street.

The Wall Street Journal reported that McCain is taking Palin to the U.N. General Assembly next week so she can shake hands with some heads of state. You can't contract foreign policy experience like a rhinovirus. To paraphrase the sniffly Adelaide in “Guys and Dolls,” a poy-son could develop a cold war.

The latest news from Alaska is that the governor keeps a tanning bed in the Juneau mansion. As the Los Angeles Times pointed out, when Palin declared May 2007 as Skin Cancer Awareness Month in Alaska, the press release explained that skin cancer was caused by “the sun and from tanning beds.”

I sauteed myself in Sarahville last week.

I wandered through the Wal-Mart, which seemed almost as large as Wasilla, a town that is a soulless strip mall without sidewalks set beside a soulful mountain and lake.

Wal-Mart has all the doodads that Sarah must need in her career as a sportsman – Remingtons and “torture tested” riflescopes, game bags for caribou, machines that imitate rabbits and young deer, and coyotes to draw your quarry in so you can shoot it, and machines to squish cows into beef jerky.

I talked to a Wal-Mart mom, Betty Necas, 39, wearing sweat pants and tattoos on her wrists.

She said she's never voted, and was a teenage mom “like Bristol.” She likes Sarah because she's “down home” but said Obama “gives me the creeps. Nothing to do with the fact that he's black. He just seems snotty, and he looks weaselly.”

Ten Obama supporters in Wasilla braved taunts and drizzle to stand on a corner between McDonald's and Pizza Hut. They complained that Sarah runs government like a vengeful fiefdom and held up signs. A guy with a bullhorn yelled out of a passing red car: “Go back to the city, you liberal communists!”

At gatherings in the Last Frontier, pastors pray for reporters, drilling evokes cheers and Todd Palin is hailed as a guy who likes to burn fossil fuels.

I had many “Sarahs,” as her favorite skinny white mocha is now called, at the Mocha Moose. “I've seen her at 4 a.m. with no makeup,” said manager Karena Forster, “and she's just as beautiful.”

I stopped by Sarah's old Pentecostal church, the Wasilla Assembly of God, and perused some books: “The Bait of Satan,” “Deliverance from PMS” and “Kissed the Girls and Made them Cry: Why Women Lose When They Give In.” (Author Lisa Bevere advises: “Run to the arms of your prince and enter your dream.”)

In Anchorage on Saturday, I went by a conference conducted by James Dobson's Focus on the Family and supported by Sarah's current church, the Wasilla Bible Church, about how to help gays and lesbians “journey out” of same-sex attraction.

(As The New York Times reported recently, in 1995, Palin, then a city councilwoman, told colleagues she had seen “Daddy's Roommate” on the shelf of the library and did not approve. The Wasilla Assembly of God tried to ban “Pastor, I Am Gay” by Howard Bess, a liberal Christian preacher in nearby Palmer.)

Anne Heche's mother, Nancy, talked about her distress when her daughter told her she was involved with Ellen. Jeff Johnston told me he had “a struggle” with homosexuality “for a season,” but is now “happily married with three boys.” (Books for sale there included “Mommy, Why Are They Holding Hands?” and “You Don't Have to Be Gay.”)

I covered a boisterous women against Palin rally in Anchorage, where women toted placards such as “Fess up about troopergate,” “Keep your vows off my body,” “Barbies for war!” “Sarah, please don't put me on your enemies list” and “McCain and Palin = McPain.”

A local conservative radio personality, Eddie Burke, who had lambasted the organizers as “a bunch of socialist, baby-killing maggots,” was on hand with a sign reading “Alaska is not Frisco.”

“We are one Supreme Court justice away from overturning Roe v. Wade,” he excitedly told me.

R.D. Levno, a retired school principal, flew in from Fairbanks. “She's a child, inexperienced and simplistic,” she said of Sarah. “It's taking us back to junior high school. She's one of the popular girls, but one of the mean girls. She is seductive.”

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me@rescam.org

I'm sorry but you have to worry about a person in their 70s with the most stressful job in the world. The average lifespan for men is 73.6. McCain is 72. I have to worry about a nut job with Obama because he is black. It is sad but I do. However I do worry about McCain more to be honest. VPs are more important than ever in this race.

I know Pelosi is 3rd in line and I don't worry about that to say. Because it has never happened for one reason. But I worry about the whole ball of wax if it does. Beyond the VP Presidential Succession is not in our Constitution. It is a simple law that was never made into an amendment. That worries me more than Pelosi.

However, a man of his age has to consider that he may die in office

Depends on how much DNA he inherited from his mother. She's still going strong at 92.

VP with the same level of experience. Not one with less than Obama.

The vote for president matters most. You can't worry about "what ifs". Worry about the here and now. If you don't care about that then worry about Pelosi. She's 3rd in line.

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The flustered rookie? McCain

GEORGE F. WILL
THE WASHINGTON POST

September 23, 2008

“The queen had only one way of settling all difficulties, great or small. 'Off with his head!' she said without even looking around.”
–“Alice's Adventures in Wonderland”

Under the pressure of the financial crisis, one presidential candidate is behaving like a flustered rookie playing in a league too high. It is not Barack Obama.

Channeling his inner Queen of Hearts, John McCain furiously, and apparently without even looking around at facts, said Chris Cox, chairman of the Securities and Exchange Commission, should be decapitated. This childish reflex provoked The Wall Street Journal to editorialize that “McCain untethered” – disconnected from knowledge and principle – had made a “false and deeply unfair” attack on Cox that was “unpresidential” and demonstrated that McCain “doesn't understand what's happening on Wall Street any better than Barack Obama does.”

To read the Journal's details about the depths of McCain's shallowness on the subject of Cox's chairmanship, see “McCain's Scapegoat” (Sept. 19, Page A22). Then consider McCain's characteristic accusation that Cox “has betrayed the public's trust.”

Perhaps an old antagonism is involved in McCain's fact-free slander. His most conspicuous economic adviser is Douglas Holtz-Eakin, who previously headed the Congressional Budget Office. There he was an impediment to conservatives, including then-Congressman Cox, who as chairman of the Republican Policy Committee persistently tried and generally failed to enlist CBO support for “dynamic scoring” that would estimate the economic growth effects of proposed tax cuts.

In any case, McCain's smear – that Cox “betrayed the public's trust” – is a harbinger of a McCain presidency. For McCain, politics is always operatic, pitting people who agree with him against those who are “corrupt” or “betray the public's trust,” two categories that seem to be exhaustive – there are no other people. McCain's Manichaean worldview drove him to his signature legislative achievement, the McCain-Feingold law's restrictions on campaigning. Today, his campaign is creatively finding interstices in laws intended to restrict campaign giving and spending. (For details, see The Washington Post of Sept. 17, Page A4; and The New York Times of Sept. 20, Page One.)

By a Gresham's Law of political discourse, McCain's Queen of Hearts intervention in the opaque financial crisis overshadowed a solid conservative complaint from the Republican Study Committee, chaired by Rep. Jeb Hensarling of Texas. In a letter to Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke, the RSC decried the improvised torrent of bailouts as a “dangerous and unmistakable precedent for the federal government both to be looked to and indeed relied upon to save private sector companies from the consequences of their poor economic decisions.” This letter, listing just $650 billion of the perhaps more than $1 trillion in new federal exposures to risk, was sent while McCain's campaign, characteristically substituting vehemence for coherence, was airing an ad warning that Obama favors “massive government, billions in spending increases.”

The political left always aims to expand the permeation of economic life by politics. Today, the efficient means to that end is government control of capital. So, is not McCain's party now conducting the most leftist administration in American history? The New Deal never acted so precipitously on such a scale. Treasury Secretary Paulson, asked about conservative complaints that his rescue program amounts to socialism, said, essentially: This is not socialism, this is necessary. That non sequitur might be politically necessary, but remember that government control of capital is government control of capitalism. Does McCain have qualms about this, or only quarrels?

On “60 Minutes” Sunday evening, McCain, saying “this may sound a little unusual,” said that he would like to replace Cox with Andrew Cuomo, the Democratic attorney general of New York who is the son of former Gov. Mario Cuomo. McCain explained that Cuomo has “respect” and “prestige” and could “lend some bipartisanship.” Conservatives have been warned.

Conservatives who insist that electing McCain is crucial usually start, and increasingly end, by saying he would make excellent judicial selections. But the more one sees of his impulsive, intensely personal reactions to people and events, the less confidence one has that he would select judges by calm reflection and clear principles, having neither patience nor aptitude for either.

It is arguable that, because of his inexperience, Obama is not ready for the presidency. It is arguable that McCain, because of his boiling moralism and bottomless reservoir of certitudes, is not suited to the presidency. Unreadiness can be corrected, though perhaps at great cost, by experience. Can a dismaying temperament be fixed?

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me@rescam.org

Palin and the Truman comparison

BARBARA SHELLY
THE KANSAS CITY STAR

September 23, 2008

Harry S. Truman has been pressed into service once again.

This time it's Republican vice presidential contender Sarah Palin who has invoked comparisons with the man from Independence.

“Long ago, a young farmer and haberdasher from Missouri followed an unlikely path to the vice presidency,” Palin said in her speech at the Republican National Convention. “A writer observed: 'We grow good people in our small towns, with honesty, sincerity, and dignity.' I know just the kind of people that writer had in mind when he praised Harry Truman.”

Steven Hayward, a writer at the American Enterprise Institute, picked up on the theme in an essay published in The Weekly Standard.

Truman, he wrote, was a “regular citizen” who rose to “control the levers of government without having first joined the certified political class.”

Palin, who has never so much as appeared on “Meet the Press,” is another regular citizen aspiring to a high place in government, Hayward argued.

There are much worse fates in death than to be Harry Truman, who has become so popular that politicians of all stripes aspire to associate themselves with him.

President Bush has said that he and Truman faced many of the same challenges, and predicted that his decisions, too, would be vindicated in time.

George H.W. Bush and Bill Clinton both compared themselves with the 33rd president during their 1992 race.

Palin has as much right as the next candidate to drape herself in the Truman mantle. But by claiming the similarities, she also risks highlighting the differences.

Palin and Truman are alike in their small-town roots. Both ran for office without elite educational credentials. Palin bounced around among several schools before earning a degree from the University of Idaho, and Truman never attended college.

Both displayed an ability to take on the establishment. As a U.S. senator, Truman denounced corporate greed and warned about special interests attaining too much power. Palin used ethics as a springboard to defeat an incumbent governor from her own party.

But by the time Franklin D. Roosevelt selected him as his vice president, Truman was much more a member of the national political establishment than Palin and her supporters want to acknowledge.

He'd been a senator for 10 years. And while he never lost his down-home manner, he had mastered Washington ways.

“... as so consistently through the Truman career, it had been the system of politics, the boss system, that counted in deciding his fate,” biographer David McCullough wrote of Truman's vice presidential nod.

It's fashionable in some political circles to decry “elitism,” an umbrella of derision that can be expanded to include Ivy League education credentials, foreign travel and even intellectual curiosity.

The anti-elitist crowd embraces Truman as a fabulous example of a self-made man, which he was.

But it's a disservice to the memory of the Missourian to confuse plain-spokenness with anti-intellectualism.

Truman was a prolific reader. He pored through volumes on history, biography, ancient civilizations and the arts.

Although he was criticized for a lack of foreign affairs experience when he became vice president, he had served in Europe during World War I as a captain in the Field Artillery and he had read hundreds of books on military history.

He was intensely curious about world affairs and thought the U.S. had made a huge mistake by refusing to join the League of Nations.

Comparisons are a high form of flattery, and politicians honor Truman by invoking his memory. But he shouldn't be oversimplified, or used to validate what might be considered weaknesses in the modern candidate.

History has defined Truman, and history will decide which of today's leaders match up to him. But politicians claim to do so at their own risk. He's a hard act to follow.

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me@rescam.org

Rushing into an economic remedy

ROBERT J. SAMUELSON
NEWSWEEK

September 24, 2008

Call it Paulson's Panic. That's both unfair and accurate. It's unfair because Treasury Secretary Hank Paulson didn't create the underlying conditions that led to today's financial turmoil, and the failure for not quelling it is shared by Federal Reserve Chairman Ben Bernanke.

But it's also accurate, because as world financial markets verged on panic, Paulson himself panicked. He saw no remedy except a massive bailout: having the government buy up to $700 billion worth of risky bonds.

Historians will judge whether his outsized proposal was necessary, but the notion that its congressional enactment would magically end the crisis may be wishful thinking. Americans often delude themselves that all problems can be “solved” if only government will act “boldly.” This may be another example.

Contrary to much commentary, Paulson's plan would not be the largest government intervention in the private economy since World War II. That distinction still belongs to Richard Nixon's imposition of wage-price controls in August 1971. True, Paulson would socialize unprecedented amounts of private debt; but Nixon asserted control over the entire economy. What's fascinating are the possible parallels between the two episodes, starting with a shared irony: Both came from administrations committed to “free markets.”

When Nixon declared the wage-price freeze – a complete surprise because he had consistently opposed controls – the decision proved “wildly popular,” writes Rice University historian Allen Matusow in his book “Nixon's Economy.” By one survey, 75 percent of Americans supported it.

“There was widespread public rejoicing that at last the government was protecting the people,” Herbert Stein, a Nixon economist, later observed. Consumer price inflation, which had been rising at a 4 percent annual rate, dropped toward 1 percent. People believed that by acting decisively government could outlaw inflationary psychology. It couldn't.

Inflationary pressures built up under the artificial lid of the controls. Moreover, the faulty economic doctrines that produced inflation – easy-money policies aimed at maintaining “full employment” of 4 percent joblessness – remained. When controls ended in 1974, inflation exploded to 12 percent. It averaged almost 9 percent from 1975 to 1981. Only the brutal 1981-82 recession, imposed by Paul Volcker's Fed and raising unemployment to 10.8 percent, ended the wage-price spiral.

Paulson argues that relieving banks of dubious mortgage-backed securities will “unclog” the financial system and encourage essential business and consumer lending. Maybe. It's true that these securities, because they cannot easily be valued, have created immense uncertainty. Banks and other financial institutions reduced routine lending to each other; everyone worried that the other bank might be in trouble. Having the Treasury buy these mortgage securities, on which losses have already been booked, might minimize these fears.

The trouble is that fears extend beyond mortgage securities. It wasn't just home mortgages that were bundled up into bonds and sold to institutional investors (pension funds, insurance companies, college endowments). Auto loans, credit card debt and commercial real estate loans have been similarly packaged, $900 billion worth in 2007. Naturally, doubts about the value of these securities have also increased.

“Securitization” may survive, but this lending is already down (80 percent in 2008), reports Thomson Reuters. Credit is tightening across the board; issuance of high-quality corporate bonds is down 22 percent, while riskier “high yield” bonds are down 65 percent.

What we are discovering is that all the complex securities, combined with ever-greater international investment flows, have created a global financial system “so arcane that few people can understand its workings,” writes David Smick in his book “The World Is Curved: Hidden Dangers to the Global Economy.” The difference between now and two years ago is that financial managers then thought they understood the system; now they know they don't. Ignorance breeds risk-aversion and fear.

Like wage-price controls, Paulson's plan is no panacea. Banks, hedge funds, private equity funds and others are trying to reduce risk by “deleveraging” – selling stocks and bonds to raise cash, increase capital and cut their own debt. The rush to cash is a hallmark of financial crises. But what makes sense for one may be ruinous for all. Heavy selling depresses prices; lower prices then increase losses, deplete capital, prompt more selling and heighten fear. At best, Paulson's plan might pre-empt this spiral by allowing investors to unload their least attractive securities.

But it wouldn't automatically stimulate new lending, revitalize “securitization” or prevent more “deleveraging.” Time is needed. The rescue is being constructed so hastily that it may include all manner of flawed provisions: too much power for the Treasury secretary; authority for bankruptcy judges to modify mortgages.

Congress faces a wrenching dilemma, imposed on it by financial markets and Paulson. If it dawdles, it may invite the panic that Paulson has brazenly predicted. But if it acts quickly, it may create a monster whose full implications – possibly adverse – emerge only with time.

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me@rescam.org

I just hope Congress DOES NOT RUSH into a bailout... but they probably will cave in to Bush & Paulson's scare tactics again. :{

To late they alerady have. I really wish fiscal Conservatives would actually act like it and let the weak businesses die off.

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In a rich man's house there is no place to spit but his face.
Diogenes Of Sinope

Containing the Wall Street panic

DAVID IGNATIUS
THE WASHINGTON POST

September 25, 2008

In times like these, when even the most sober analysts are wondering if we're heading for another Great Depression, it's wise to take a deep breath, head to the basement, and dust off a copy of John Maynard Keynes' modestly titled 1936 treatise, “The General Theory of Employment, Interest and Money.”

Most of us remember Keynes from our college economics courses as the guy who advocated deficit spending to “prime the pump” during downturns. And that was certainly part of his argument. But revisiting “The General Theory,” what's striking is that it's a book about economic panics and the market psychology that produces them – and the consequent need for government intervention. Parts of it could have been written this week to describe the cascading defaults of Bear Stearns, Lehman Brothers and American International Group.

The problem with financial markets, Keynes argued, was that investors were periodically seized by an extreme form of what he called “liquidity preference,” which made them wary of putting their money into anything but the safest investments. “It is of the nature of organized investment markets . . . that, when disillusion falls upon an overoptimistic and overbought market, it should fall with sudden and even catastrophic force,” he wrote. “Once doubt begins it spreads rapidly.”

That's a pretty good description of what has been happening on Wall Street over the past few months. We've gone from a bubble of over-enthusiasm, in which interest-rate spreads took little account of risk, to a state of panic in which financial institutions are so risk-averse they don't want to lend to anyone. As Keynes observed, “the actual, private object of the most skilled investment today is . . . to outwit the crowd, and to pass the bad, or depreciating, half-crown to the other fellow.”

Keynes' revolutionary idea was that financial markets were not inherently self-correcting, as classical economics had argued. Left to itself, Wall Street might remain in a liquidity trap in which the markets would stay frozen and productive investment would cease. So it fell to the government to take actions that would restore confidence and stimulate investment. “I conclude that the duty of ordering the current volume of investment cannot safely be left in private hands,” he wrote.

Which brings us to Treasury Secretary Henry Paulson and the present financial crisis. Since he intervened to rescue Bear Stearns in March, Paulson has been trying to pump cash into markets that are locking up because of investors' extreme liquidity preference. But each rescue measure only sets up the next disaster – so that Paulson lurches from Bear Stearns to Fannie and Freddie to AIG, and now to a government pledge to buy up $700 billion or more of mortgage-backed securities.

What advice would Keynes offer Paulson and Fed Chairman Ben Bernanke? His first instinct, I think, would be to reiterate that markets, left to themselves, will not solve this sort of crisis. They need government help – in this case, on a scale that would have daunted even Keynes – including underwriting mortgage loans, backstopping the market for credit swaps, and other steps. But if these measures are taken piecemeal, without broad political support, they may only add to the public's anxiety. Indeed, that's a real worry now: A Wall Street panic may become a Main Street panic.

Keynes' biographer Robert Skidelsky makes clear that at every stage of Keynes' career, he tried to think broadly about the social and political consequences of economic policy. That was true in his famous denunciation of onerous German reparations payments, which he correctly warned would lead to a future war; it was true in the magnanimity of the post-World War II international financial system he helped create at Bretton Woods.

A truly Keynesian rescue plan should do more than bail out foolish investors. How might the pieces fit into a larger design? Well, if the taxpayers are going to acquire a stake in the nation's largest insurance company, perhaps that company can be the cornerstone of a new system of universal private health coverage. If the taxpayers are going to acquire $700 billion in real estate assets, perhaps the eventual profits can fund new investments in infrastructure or energy technology.

Keynes spoke in the finicky English of a Cambridge don, but listen to what he said: “When the capital development of a country becomes a byproduct of the activities of a casino, the job is likely to be ill-done.” Keynes wouldn't have wanted to nationalize that casino; he was an active investor himself. But he reminds us that public purposes are best served by public institutions.

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me@rescam.org

NYT Revealed True Cause of Fannie Mae Crisis -- In 1999!

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

"Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements," said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. "Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market."

- New York Times, September 30, 1999

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&pagewanted=1

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me@rescam.org

To late they alerady have. I really wish fiscal Conservatives would actually act like it and let the weak businesses die off.

As noted several times before, these aren't weak businesses, they were forced under threat of legal action to make high risk loans.

It's real easy to point fingers in the wrong direction when you ignore the facts.

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Washington Post , Aug 19, 2008

Fannie Mae aimed to benefit from subprime loans and expand the market for them -- and hoped to pass much of the risk on to others, documents show. Along with subprime loans, which were typically issued to borrowers with blemished credit, the company targeted so-called Alt-A loans, which were often made with no verification of the borrower's income.

"By entering new markets -- especially Alt-A and subprime -- and guaranteeing more of our customers' products at market prices, we met our goal of increasing market share from 22 to 25 percent," Mudd wrote in a 2006 year-end report to the Fannie Mae board dated Jan. 3, 2007.

In other internal documents, there was a common refrain: One of Fannie Mae's objectives for 2006 was to "increase our penetration into subprime."

In an interview, Fannie Mae Executive Vice President Thomas A. Lund said the company pursued the purchase of subprime loans in 2006 and 2007 at the request of lenders, who wanted Fannie Mae to take the loans off their books. He said Fannie Mae hoped to bring higher standards to the market, and he added that the loans helped the company in its struggle to meet goals the government had set for Fannie Mae's advancement of affordable housing.

Gov. did require Fannie Mae to advance affordable housing. Gov did not force Fannie Mae into the subprime and Alt-A loan scams. During 2006 Bush was President and I believe a there was a Republican controlled congress. Phil Graham (R), McCain's advisor, kept swap markets from being regulated. That played a big role in allowing loans to become like casino bets.

Washington Post , Aug 19, 2008

Fannie Mae aimed to benefit from subprime loans and expand the market for them -- and hoped to pass much of the risk on to others, documents show. Along with subprime loans, which were typically issued to borrowers with blemished credit, the company targeted so-called Alt-A loans, which were often made with no verification of the borrower's income.

"By entering new markets -- especially Alt-A and subprime -- and guaranteeing more of our customers' products at market prices, we met our goal of increasing market share from 22 to 25 percent," Mudd wrote in a 2006 year-end report to the Fannie Mae board dated Jan. 3, 2007.

In other internal documents, there was a common refrain: One of Fannie Mae's objectives for 2006 was to "increase our penetration into subprime."

In an interview, Fannie Mae Executive Vice President Thomas A. Lund said the company pursued the purchase of subprime loans in 2006 and 2007 at the request of lenders, who wanted Fannie Mae to take the loans off their books. He said Fannie Mae hoped to bring higher standards to the market, and he added that the loans helped the company in its struggle to meet goals the government had set for Fannie Mae's advancement of affordable housing.

Gov. did require Fannie Mae to advance affordable housing. Gov did not force Fannie Mae into the subprime and Alt-A loan scams. During 2006 Bush was President and I believe a there was a Republican controlled congress. Phil Graham (R), McCain's advisor, kept swap markets from being regulated. That played a big role in allowing loans to become like casino bets.

LAF...did you even read your own quote?

"he added that the loans helped the company in its struggle to meet goals the government had set for Fannie Mae's advancement of affordable housing."

Try and place the blame where you like, but the simple fact is that these companies were not struggling prior to govt. intervention.

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