Wednesday, October 15, 2008

Another Lesson for History

More on the economic mess. Read Washington Post, What Went Wrong, "the story of how Washington didn't catch up to Wall Street."

"A decade ago, long before the financial calamity now sweeping the world, the federal government's economic brain trust heard a clarion warning and declared in unison: You're wrong.

The meeting of the President's Working Group on Financial Markets on an April day in 1998 brought together Federal Reserve Chairman Alan Greenspan, Treasury Secretary Robert E. Rubin and Securities and Exchange Commission Chairman Arthur Levitt Jr. -- all Wall Street legends, all opponents to varying degrees of tighter regulation of the financial system that had earned them wealth and power.

Their adversary, although also a member of the Working Group, did not belong to their club. Brooksley E. Born, the 57-year-old head of the Commodity Futures Trading Commission, had earned a reputation as a steely, formidable litigator at a high-powered Washington law firm. She had grown used to being the only woman in a room full of men. She didn't like to be pushed around.

Now, in the Treasury Department's stately, wood-paneled conference room, she was being pushed hard.

Greenspan, Rubin and Levitt had reacted with alarm at Born's persistent interest in a fast-growing corner of the financial markets known as derivatives, so called because they derive their value from something else, such as bonds or currency rates. Setting the jargon aside, derivatives are both a cushion and a gamble -- deals that investment companies and banks arrange to manage the risk of their holdings, while trying to turn a profit at the same time.

Unlike the commodity futures regulated by Born's agency, many newer derivatives weren't traded on an exchange, constituting what some traders call the "dark markets." There were now millions of such private contracts, involving many of Wall Street's top firms. But there was no clearinghouse holding collateral to settle a deal gone bad, no transparent records of who was trading what.

Born wanted to shine a light into the dark. She had offered no specific oversight plan, but after months of making noise about the dangers that this enormous market posed to the financial system, she now wanted to open a formal discussion about whether to regulate them -- and if so, how.

Greenspan, Rubin and Levitt were determined to derail her effort. Privately, Rubin had expressed concern about derivatives' unruly growth. But he agreed with Greenspan and Levitt that these newer contracts, often called "swaps," weren't exactly futures. Born's agency did not have legal authority to regulate swaps, the three men believed, and her call for a discussion had real-world consequences: It would cast doubt over the legality of trillions of dollars in existing contracts and create uncertainty over how to operate in the market.

At the April meeting, the trio's message was clear: Back off, Born.

. .

[Levitt now says] 'I guess if I had to do it over again, I certainly would have pushed for some way to give greater transparency to products which turned out to be injurious to our markets.'"

Gee, thanks.

Palin is Now a Traitor

First, Palin praises a terrorist and now she sells out her country to pseudo-communist regime. A high-level delegation from the Russian energy company Gazprom met in Anchorage with state officials to talk about investing in Alaskan energy projects. See New York Times, Russian Gas Executives Visit Palin’s Turf.

Outrageous. Palin is a traitor to her country.

Why Republi-cons Cry

Republi-cons cry because they have lost their false idol, unregulated capitalism, and with it most of their money. See Washington Post, Gods That Failed.

Time for a Reality Check

Thanks to Bush's soaring budget deficits, neither McCain or Obama will be able to do half what they now propose or promise. See, Washington Post, When Life Hands You Deficits . . .

Time to implement GRAC, the Government Reform and Realignment Committee, to reform government. Wipe the slate clean of all government departments and agencies and add back only essential departments and agencies (the key work here is essential), honestly estimate the cost and reform the tax code to fund the entire cost of government, then implement over a ten year period. Presto, government reform.

Of course, someone with a little back bone will have to tell the public that we don't live in a fake world with false wealth, and you can't have your house and spend it too.


Blowback is a term used to describe the unintended consequences of an operation, usually in the context of covert espionage ops. But I think it appropriate here. I tried to warn Republi-cons that McCain mudpies would dirty him more than Obama. Just as I predicted, the personal attacks on Obama appear to have backfired.

The latest New York Times/CBS News poll found that "if the election were held today, 53 percent of those determined to be probable voters said that they would vote for Mr. Obama and 39 percent said they would vote for Mr. McCain. . . [and] roughly seven in 10 voters said that Mr. Obama had the right kind of temperament and personality to be president; just over half said the same of Mr. McCain."

Don't like the New York Times/CBS News poll, the New York Times has an interactive graph that allows you to select from a number of state and national polls that asked people which candidate they would vote for in the presidential race, even FOX (AKA the Republi-con spin machine).

Bottom line, it ain't lookin good for McCain.

Again, review my suggestion for McCain.

Who is Better With Your Money

Republi-cons hurt the bottom line. See New York Times, Bulls, Bears, Donkeys and Elephants, which states:

"Since 1929, Republicans and Democrats have each controlled the presidency for nearly 40 years. So which party has been better for American pocketbooks and capitalism as a whole? Well, here’s an experiment: imagine that during these years you had to invest exclusively under either Democratic or Republican administrations. How would you have fared?

As of Friday, a $10,000 investment in the S.& P. stock market index* would have grown to $11,733 if invested under Republican presidents only, although that would be $51,211 if we exclude Herbert Hoover’s presidency during the Great Depression. Invested under Democratic presidents only, $10,000 would have grown to $300,671 at a compound rate of 8.9 percent over nearly 40 years."

The article includes a nice graph the Obama campaign should run in an ad.

Listen to the Experts

Paul Krugman won the Nobel Prize for Economics this week. He is also a Princeton economist and a New York Times columnist. (I'm curious, does anyone know how many Nobel Prize winners work for FOX?)

You might want to read his column from September 22, "Cash for Trash," in which Krugman wrote that Paulson was demanding extraordinary power for himself to deploy taxpayers’ money on behalf of a plan that, "as far as I can see, doesn’t make sense." Instead, he called for the government to provide capital to financial firms and get a share in ownership in return.

"Among the first to push the idea of injecting money into banks in exchange for an equity stake was Rep. Spencer Bachus (R-Ala.), who proposed the idea at a Sept. 18 night meeting on Capitol Hill that included legislators as well as Paulson and Bernanke."

How much time was lost before Bush adopted the idea? Of course, Paulson had to help his former firm Goldman Sacks first.

Bush Will Be Missed

Less than 100 days until a new president is inaugurated. And already the honors roll in.

See Jim Morin on fear itself, Pat Bagley on how Bush happens, J.D. Crowe on Bush's pep talks, Steve Sack on Bush's retirement plan, David Horsey on Team Bush, Dwane Powell on Bushland, and Mike Keefe on going back to the Rovian barrel.

Won't you miss Bush?