Undernews For September 21, 2008
Undernews For September 21, 2008
FROM THE PROGRESSIVE
Washington's Most Unofficial Source
611 Pennsylvania Ave SE #381
Washington DC 20003
Editor: Sam Smith
I don't know what money is today, and I don't think anybody at the Fed does either. - Richard Pratt, Chairman of the Board of the Federal Home Loan Bank, 1982
PAGE ONE MUST
Alexander Cockburn, Counterpunch - By all rights, this last crisis has brought us to the crossroads where neoliberalism should be buried with a stake through its heart. We’ve had thirty years worth of deregulation - the loosening of government supervision. This has been the neoliberal mantra preached by both major parties, the whole of the establishment press and almost every university economics department in the country. It is central to the current disasters. And if you want to identify symbolic figures in the legislated career of deregulation, there are no more resplendent culprits than the man at McCain’s elbow, Phil Gramm, and the man standing at Obama’s elbow at his press conference, Robert Rubin. . .
If Obama becomes president what advisors will he recruit? Will he keep Rubin at his side along with his passel of Chicago School economists? His left supporters hope that he has a secret plan under wraps, that a populist T-shirt lies under the decorous mask of bipartisanship. I doubt it. Caution and respectability seem integral to Obama’s political persona. His core political task has been to assure the big-money funders of his campaign that as concerns maintenance of the present system his are a safe pair of hands. "Secret plan" theorists have some notion of "the real Obama" ripping off his mask on Inauguration Day. It doesn’t work like that. The political system is designed to ensure that the mask becomes the man. . .
Over the past quarter century the US manufacturing economy went offshore. Lately the so-called New Economy of the "Information Age" has been moving offshore too. Free trade has left millions without decent jobs or prospects of ever getting one above the $15 an hour tier.
Below a thin upper crust of the richest people in the history of the planet there’s the rest of America which in varying degrees of desperation, can barely get by. Millions are so close to the edge an extra 25 cents a gallon of fuel is a household budget-breaker.
Wages have stagnated. Decade after decade the bargaining power of workers has dwindled. We’ve had the macabre spectacle of American=based workers ordered to train their overseas replacements before being fired.
Bipartisan ruses like the Clinton-inspired exclusion of energy and food costs from the measures of "core inflation" ensure that social security payments don’t keep up with real inflation, which - if you take in the soaring costs of groceries and fuel for heat and transport - is double the official rate, the same way real employment - now officially just above 6 per cent - is actually around 12 per cent. . .
But then, as the cranky German in the British Museum liked to point out, the capitalist system is always in crisis. Crisis is integral to the system. In too many ways, over the past twenty years, brooding on its own crises, the left has forgotten that and in the low contour of radical ideas and of radical political organization in this electoral cycle we are suffering the consequences.
Paul Krugman - Historically, financial system rescues have involved seizing the troubled institutions and guaranteeing their debts; only after that did the government try to repackage and sell their assets. The feds took over S&Ls first, protecting their depositors, then transferred their bad assets to the RTC. The Swedes took over troubled banks, again protecting their depositors, before transferring their assets to their equivalent institutions.
The Treasury plan, by contrast, looks like an attempt to restore confidence in the financial system - that is, convince creditors of troubled institutions that everything’s OK - simply by buying assets off these institutions. This will only work if the prices Treasury pays are much higher than current market prices; that, in turn, can only be true either if this is mainly a liquidity problem - which seems doubtful - or if Treasury is going to be paying a huge premium, in effect throwing taxpayers’ money at the financial world.
And there’s no quid pro quo here - nothing that gives taxpayers a stake in the upside, nothing that ensures that the money is used to stabilize the system rather than reward the undeserving.
I hope I’m wrong about this. But let me say it again: Treasury needs to explain why this is supposed to work - not try to panic Congress into giving it a blank check. Otherwise, no deal.
Ann Woolner, Bloomberg - The real kick in the teeth is that the executives who inflicted all this financial pain, who forced unprecedented government takeovers, walk away with hundreds of millions of dollars. It's up to us -- innocent little us -- to dig into our pockets, into our futures and into our children's futures to fix their spectacular errors.
Stanley O'Neal took a $161 million package last year when he left Merrill Lynch & Co. (remember Merrill Lynch?), even without a severance package in the mix. Angelo Mozilo, founder and top executive at Countrywide Financial Corp., reaped almost $122 million during 2007 in stock options alone.
For a mere three months at the helm of American International Group Inc., Chief Executive Officer Robert Willumstad gets a $7 million package.
And while the value of Richard Fuld's shares in Lehman Brothers Holdings Inc. plunged roughly $1 billion, he still pulled in almost $490 million by selling options and share grants in the 14 years that the company's been public, according to Fortune magazine.
We now know those shares were grossly overpriced, resting as they did on subprime mortgages. Shouldn't he give back most of it? All of it?
At least the government is blocking the $24 million given to the fired top guns at Fannie Mae and Freddie Mac, both taken over earlier this month.
As a rule, it isn't easy to take back money or benefits awarded as part of an employment contract, unless you can figure out some way the executive violated the contract's terms.
But it's worth a try. Consider these options.
Toss the rascals in jail. Criminal prosecution allows the government to seize ill-gotten gains. Snip the straps off those golden parachutes and grab them. Take over bank accounts, investment accounts, mansions, private planes and yachts.
The feds did bring charges against a couple of Bear Stearns Cos. hedge fund managers in June, and Federal Bureau of Investigation Director Robert Mueller told Congress this week his agency is pursuing possible suspects "as far up the corporate chain as necessary.''
The hitch is that proving executives lied in criminal ways is easier said than done, Enron and WorldCom convictions notwithstanding. . .
OK, so file civil suits.
WorldCom shareholders sued and wrangled $18 million from the pockets of directors, who agreed to pay more than 20 percent of their combined net worth. Another $36 million came from the directors' insurance carriers. These days, collecting from an insurer might not be the best idea. If AIG is doing the insuring, it would be the taxpayers paying out.
William McGuire, former CEO of UnitedHealth Group Inc., agreed this month to personally cough up $30 million to resolve a lawsuit over stock-option backdating. That's on top of the $600 million in benefits -- mostly in stock options -- he said he will turn in to resolve another shareholder suit.
The problem is that it normally takes something akin to criminal conduct, such as options backdating or accounting fraud, for civil suits to take money out of the hands of the accused. And, as previously noted, it isn't clear we will have that here.
LA Times - Some lawmakers and financial experts wonder whether U.S. officials are up to the task of directing large corporations through such turbulent times. AIG, for instance, has 116,000 employees and does business in about 100 countries. Fannie Mae and Freddie Mac together hold or guarantee $5.4 trillion of mortgages, about half of the nation's home loans.
"The government does not have a core competency to run an insurance company of the magnitude of an AIG," said David M. Walker, former head of the Government Accountability Office, the congressional watchdog agency. "It's clearly not going to be able to effectively manage AIG and do what needs to be done.". . .
"When you have these
things going on behind closed doors, it's a little
disconcerting," said Dean Baker, co-director of the Center
for Economic and Policy Research, a left-leaning think tank
in Washington. "When you do have sell-offs of the parts of
AIG, we want to make sure that is done on a fair-market
basis. You don't want to have sweetheart deals." Still,
given the dire financial problems faced by AIG, Fannie Mae
and Freddie Mac, Baker said, it won't be difficult for the
federal government to improve on their management.
"It's hard to see how they could do worse," he said.
The history of federal bailouts has been generally good, said Benton E. Gup, a finance professor at the University of Alabama and editor of the 2003 book "Too Big to Fail: Policies and Practices in Government Bailouts." The government even turned a $313-million profit on stock options it received when it provided $1.5 billion in loan guarantees to automaker Chrysler Corp. in 1980, he noted.
In those bailouts, however, the government did not take control of the companies. It simply provided guarantees for loans. The Federal Reserve and Treasury did the same thing in March when they authorized $29 billion in loan guarantees to JPMorgan Chase & Co. to facilitate its purchase of struggling brokerage Bear Stearns Cos.
But the bailouts of AIG, Fannie Mae and Freddie Mac are new territory, fueled by an attempt to avoid a global financial disaster.
"They are not taking over because they believe they can manage them better, but rather because it's a way to provide a government guarantee," said Pablo Spiller, a professor of business and technology at UC Berkeley. "This is the biggest financial crisis in the last 80 years.". . .
The government placed Fannie Mae and Freddie Mac into a conservatorship run by the Federal Housing Finance Agency, a body created by Congress this summer. Paulson said having a government-appointed conservator was the only way he would commit taxpayer money to the bailout.
The agency's director, James Lockhart, appointed new CEOs and board chairmen after consulting with the Treasury Department. The conservator cannot liquidate the companies, but otherwise has full power to run them. But President Bush's successor is likely to appoint a new director of the agency, who will run the conservatorship, as well as a new Treasury secretary.
In the AIG bailout, the government received 80% of the stake in exchange for loans from the Federal Reserve that kept the company from bankruptcy. The Federal Reserve Board, which authorized the bailout, said the loan was designed to let the company sell some assets "in an orderly manner.". . .
is purportedly from an anonymous Democratic congress member.
Whether or not that's true, it's still quite interesting.
Paulsen and congressional Republicans, or the few that will actually vote for this (most will be unwilling to take responsibility for the consequences of their policies), have said that there can't be any "add ons," or addition provisions. Fuck that. I don't really want to trigger a world wide depression (that's not hyperbole, that's a distinct possibility), but I'm not voting for a blank check for $700 billion for those mother fuckers.
Nancy said she wanted to include the second "stimulus" package that the Bush Administration and congressional Republicans have blocked. I don't want to trade a $700 billion dollar giveaway to the most unsympathetic human beings on the planet for a few fucking bridges. I want reforms of the industry, and I want it to be as punitive as possible.
Henry Waxman has suggested corporate government reforms, including CEO compensation, as the price for this. Some members have publicly suggested allowing modification of mortgages in bankruptcy, and the House Judiciary Committee staff is also very interested in that. That's a real possibility.
We may strip out all the gives to industry in the predatory mortgage lending bill that the House passed last November, which hasn't budged in the Senate, and include that in the bill. There are other ideas on the table but they are going to be tough to work out before next week.
I also find myself drawn to provisions that would serve no useful purpose except to insult the industry, like requiring the CEOs, CFOs and the chair of the board of any entity that sells mortgage related securities to the Treasury Department to certify that they have completed an approved course in credit counseling. That is now required of consumers filing bankruptcy to make sure they feel properly humiliated for being head over heels in debt, although most lost control of their finances because of a serious illness in the family. That would just be petty and childish, and completely in character for me.
I'm open to other ideas, and I am looking for volunteers who want to hold the sons of bitches so I can beat the crap out of them.
And a second email . . .
Here's the industry's play: progressives will approach Nancy with ideas for reform, and she'll agree to push for their proposals, and she'll really mean it. Then industry lobbyists will go to Dennis Moore, Melissa Bean and a few other Democrats, and tell them how dire the consequences of the proposals would be, and that the members who understand how the economy works need to step up to stop Nancy and the crazy liberals from doing something rash. Then those Democrats will go to Steny and tell him how terrible Nancy's crazy ideas would be, and how we can't rush into something like that without much, much more thought. Maybe Barney will try to talk to Dennis or Melissa, but it will become apparent quickly that they have no idea what they're talking about; they're just repeating by rote what the lobbyists told them to say. Melissa may actually be dumber than Sarah Palin. Barney will realize he might as well talk to the lobbyists directly and save a step. The lobbyists will agree to something inconsequential, but certainly nothing that would really affect the industry's conduct. Then the leadership will do the math and conclude that because the vast majority of Republicans will vote against any bill, we can't get enough votes without the Dennis and Melissa crowd. The only way, our leadership will conclude, to get anything at all passed is to include nothing more than the inconsequential proposals that the lobbyists agreed to. Then we'll all go along because it would be wildly irresponsible not to act when we're staring over the brink of a complete collapse of world financial markets.
I'd diagram it for you if I had a chalkboard. I've seen the play again and again, and it always goes for long yardage.
The only defense for the play is for a significant group of Democrats to say they won't vote for any proposal that isn't unpalatable to industry, and mean it. It's a pretty high stakes game of chicken, but otherwise we come out of this with nothing but a $700 billion giveaway to a crooked industry.
Boomberg - U.S. Democratic lawmakers said they would act quickly on a $700 billion rescue plan for financial companies, while demanding that the legislation limit compensation for executives of companies that will benefit. . .
"I know of nobody who is arguing over the amount of money or even about that the secretary ought to have the authority to purchase these toxic instruments, these bad debts,'' said Senator Christopher Dodd, the Democratic chairman of the Banking Committee.
Still, Democrats said they would seek changes, including limiting executive compensation and offering new help to homeowners struggling to avoid foreclosure. Representative Barney Frank, the chairman of House Financial Services Committee, wants the U.S. Comptroller General to be able to audit the Treasury's program. Lawmakers and Paulson both signaled a willingness to compromise. . .
Democrats said today that they understand Paulson's demand for passage of a bill that is not weighed down with a myriad of proposals. "We will not Christmas-tree this bill,'' Senator Charles Schumer, a New York Democrat, said on "Fox News Sunday'' television program. "The times are too urgent.''
House Speaker Nancy Pelosi said . . . that the administration's $700 billion proposal "does not include the necessary safeguards. Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive executive compensation. We will not simply hand over a $700 billion blank check to Wall Street and hope for a better outcome.
Frank said it would be a "grav http://www.bloomberg.com/apps/news?pid=20601103&sid=aKp5ytcRbHPEe mistake'' not to include a executive pay provision, while Paulson called such a measure "punitive.''
On new aid for homeowners, Paulson signaled a willingness to compromise. The Treasury secretary said that while the bill could include "mortgage relief components,'' the administration's plan already addresses the issue.
Paulson also said that "the vast majority of foreclosures in this country -- as regrettable as they are and as painful as they are -- are coming from people who either don't want to stay in their home and live up to their obligations or those that never had the financial capability to stay in their home.''
LA Times - It's a rare day when finance officials, leftist intellectuals and ordinary salespeople can agree on something. But the economic meltdown that wrought its wrath from Rome to Madrid to Berlin this week brought Europeans together in a harsh chorus of condemnation of the excess and disarray on Wall Street.
The finance minister of Italy's conservative and pro-U.S. government warned of nothing less than a systemic breakdown. Giulio Tremonti excoriated the "voracious selfishness" of speculators and "stupid sluggishness" of regulators. And he singled out Alan Greenspan, the former chairman of the U.S. Federal Reserve, with startling scorn.
"Greenspan was considered a master," Tremonti declared. "Now we must ask ourselves whether he is not, after [Osama] bin Laden, the man who hurt America the most. . . . It is clear that what is happening is a disease. It is not the failure of a bank, but the failure of a system. Until a few days ago, very few were willing to realize the intensity and the dramatic nature of the crisis.". . .
On the other end of the political spectrum, among leftists who have long predicted calamity for what they call the "savage neoliberal capitalism" of Wall Street, there were gleeful allusions to the stock market crash of 1929.
"Between the dread of a world in the midst of collapsing and the shiver of pleasure that finally something serious is happening to the kingdom of liberalism, how to orient oneself?" Eric Aeschimann wrote Thursday in the newspaper Liberation, a voice of French intellectuals whose disdain for capitalism persists in the 21st century.
Expressing nostalgia for "the good old days when bankers jumped out of windows," Aeschimann condemned as "extortion" the rescue of U.S. corporate giants by the very state that free-marketeers resent. . .
Joaquin Almunia, an ideologically moderate Spanish Socialist who is the European Union's economic commissioner, offered a simple analysis.
"It has been a problem of greed," he told El Pais newspaper. "In Europe it can't be said that we did nothing, European banks bought toxic products. . . . Nobody knows when this will end.". . .
The spectacle across the ocean has left a lasting impression on many Europeans. Hanna Evers of Berlin, a cellphone retailer interviewed in the shopping district of Wilmersdorfer Street, said she was angry about the amount of money that had been "burned" in recent days.
"And I'm furious when I see the pictures of Americans who thought they were on the sunny side of life and now have lost their homes and have to live in their cars," Evers said. "I definitely do not feel sorry for the bankers who lost their jobs in the last couple of days. I can't believe that a country like the U.S.A. could have been so careless on a money issue!"
"I was taught that the U.S.A. is the motherland of moneymaking," she added. "And now all I can see is a herd of headless chickens running around on Wall Street."
Reuters - Democratic presidential candidate Barack Obama on Sunday called the $700 billion price tag for a financial market bailout "staggering" and said the final product must protect U.S. taxpayers and include a commitment to new regulatory reforms. . .
Obama said any final package must ensure that taxpayers and homeowners were protected. He said it should include a global response and a commitment to broad regulatory reforms that would prevent another crisis.
Aides to Obama said he had spoken to Treasury Secretary Henry Paulson on Saturday and to congressional leaders including House Speaker Nancy Pelosi of California and Senate Democratic leader Harry Reid of Nevada, as well as New York Sen. Hillary Clinton and former President Bill Clinton over the weekend. . .
In Charlotte, Obama attacked McCain again for favoring privatization of Social Security and a more open-market approach on health care. "He calls himself 'fundamentally a deregulator,' when reckless deregulation and lack of oversight is a big part of the problem," the Illinois senator said. "And here's the really scary part. Now this 'Great Deregulator' wants to turn his attention to health care.". . .
Times UK - Staff at Lehman’s New York office who helped to cause the world’s biggest corporate bankruptcy are to share in a $2.5 billion bonanza. The bonus, which has been described by London staff as a "scandal" has been pledged by Barclays Capital, the British-based bank that last week acquired Lehman’s American operation and took on 10,000 staff. . .
A Chapter 11 bankruptcy document filed by Lehman Brothers Holdings Inc says that Barclays has identified eight individuals out of the New York staff of 10,000 who are vital to make the deal succeed and a further 200 who are identified as "key". It is thought that these eight directors will be locked into two-year contracts worth between $10m and $25m a year. . .
One London-based Lehman employee said: "It’s an absolute scandal. I will never work for an American firm again. It looks like they are prepared to cut you off at the knees. Nobody from America has been in touch since we went into administration on Monday."
Another said: "Every other financial institution has been saved, including Lehman Brothers in the US, but it’s another story for the employees in Europe.". . .
Price Waterhouse Coopers, the administrator to Lehman’s European operation has demanded that the firm repay L4.4 billion that was transferred from the UK to Lehman’s US holding company just hours before the firm collapsed. This left London with no money to pay staff.
Mike Allen, Politico - In a change from the original proposal sent to Capitol Hill, foreign-based banks with big U.S. operations could qualify for the Treasury Department’s mortgage bailout, according to the fine print of an administration statement Saturday night. The theory, according to a participant in the negotiations, is that if the goal is to solve a liquidity crisis, it makes no sense to exclude banks that do a lot of lending in the United States.
Treasury Secretary Henry Paulson confirmed the change on ABC's "This Week," telling George Stephanopoulos that coverage of foreign-based banks is "a distinction without a difference to the American people."
"If a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution," Paulson said.
"That's a distinction without a difference to the American people. The key here is protecting the system. ... We have a global financial system, and we are talking very aggressively with other countries around the world and encouraging them to do similar things, and I believe a number of them will. But, remember, this is about protecting the American people and protecting the taxpayers. and the American people don't care who owns the financial institution. If the financial institution in this country has problems, it'll have the same impact whether it's the U.S. or foreign."
The legislative outline that went to Capitol Hill at 1:30 a.m. Saturday had said that an eligible financial institution had to have "its headquarters in the United States." That would exclude foreign-based institutions with big U.S. operations, such as Barclays, Credit Suisse, Deutsche Bank, HSBC, Royal Bank of Scotland and UBS.
But a Treasury "Fact Sheet" released at 7:15 Saturday night sought to give the administration more flexibility, with an expanded definition that could include all of those banks: "Participating financial institutions must have significant operations in the U.S., unless the Secretary makes a determination, in consultation with the Chairman of the Federal Reserve, that broader eligibility is necessary to effectively stabilize financial markets." . . .
Sen. Barack Obama (D-Ill.), who was supportive of the bailout concept in a statement released Friday, believes that "whatever gets done in Congress has to protect Main Street," senior adviser Stephanie Cutter said on MSNBC on Saturday.
On "Fox News Sunday," Paulson told Chris Wallace that he would resist the Democrats' desired limits on executive compensation.
CITIZENS SPLIT DOWN THE MIDDLE ON
Zogby - American voters are split on support for the sweeping government rescue plan that some say could cost as much at $1 trillion. . . The poll, taken Friday and Saturday after the crisis had reached full boil, shows 46% support the bailout, and 46% oppose it. Eight percent were unsure.
But there is little debate that the problem facing the U.S. financial system, caused in large part by a failure of the sub-prime mortgage industry, poses a long-term threat - 70% agree with that statement. Just 24% said they think the problem is a small problem posing only short-term difficulty.
Further, a dramatic 84% believe that other investment banks and major U.S. corporations will fail in the coming weeks and months, while just 9% said they think the problem has hit its bottom.
Perhaps a reflection of the widespread distrust with which voters currently view Washington, nearly two out of three likely voters in this survey said they blame government entities, led by the White House, for causing this problem. Asked who is most to blame, 27% said the Bush administration, while 20% blamed Congress. By contrast, just 12% blamed investment banks - which will benefit most from this proposed bailout - and 17% blamed mortgage brokers.
Further, just 38% of likely voters have confidence that leaders in Washington will be able to solve this crisis, while 58% said they have little or no confidence in these leaders.
The survey shows that 83% of likely voters want those responsible for the unsound lending and investment practices that led to this crisis to be held criminally responsible, while 14% said they wouldn't agree with that. But these voters are not holding their breath for that to happen. Just 37% said they think those responsible will be held accountable, while 60% said they do not think those responsible will be held responsible.
Democrat Barack Obama holds a small edge over Republican John McCain in dealing with the financial crisis - 46% said Obama is best-equipped to deal with the financial crisis, compared to 41% who said McCain is best suited. Another 13% said they were unsure on the question.
Further, Democrats are seen as much better regulators of the mortgage and real estate industries - 42% said Democrats would be better regulators than Republicans, while 25% said they think the GOP is better at regulation.
Likely voters said they favor strict new regulations governing the mortgage industry to prevent such problems as the sub-prime mortgage meltdown from happening again. Nearly three out of four - 71% - said they favor tougher mortgage lending regulations, even if it means fewer people will be able to buy a home. Twenty-three percent disagreed that such new regulations should be put in place.
More than four out of five - 82% - said that political parties, presidential candidates and candidates for the U.S. Congress should be banned from receiving financial contributions from lobbyists or other representatives from those industries that are vital to the financial and national security of the country.
CLINTON-BUSH HOUSING BUBBLE BIGGEST IN A CENTURY
Sam Smith, Progressive Review - According to a study by Yale economist Robert J Shiller cited in his book, "Irrational Exuberance," between 1890 and 1990 the sale of the average existing house (not new construction) rose no more that 25% over the inflation corrected value for 1890. In the 1990s, beginning in the Clinton years, that changed dramatically. Between 1997 and 2006 the typical house doubled in value of over the 1890 average. In other words, the Clinton-Bush housing bubble was greatest in over a hundred years. If the average house drops by 50% we'll be back where we were in 1997.
Throughout the preceding century, houses varied from 85-125 percent of the 1890 average value with the exception of the depression, which for housing actually began during World War I. By 1920,housing prices were down to about 65% of 1890 levels and then began to slowly rise. By 1940 they were back to the 1890 figure. In other words, housing devaluation can be a harbinger of worse to come.
BUSH PROPOSES COUP BY EMERGENCY LEGISLATION
The Bush regime's proposed cure for the fiscal crisis involves the granting of greater new and irrevocable power to one official than at any point in American history. On matters financial, Henry Paulson, presently treasury secretary but former major participant, as head of Goldman Sachs, in the dangerous greed-driven practices that led to the crisis, will have the status of a dictator.
This is not being reported by the media; it is not being discussed by the candidates; and it is not being seriously debated by the general public. This is one of the most dangerous moments in American history. From Section 8 of the proposed legislation : "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."
Edge of the American West - The Secretary of the Treasury may purchase mortgage-related assets, and hire people to help him do it, and designate agents to do it, pretty much insofar as he pleases, up to $700,000,000,000, beholden to nobody and subject to no review, for the next two years.
Compare for example the Reconstruction Finance Corporation, created in January 1932, and authorized to loan to pretty much any lending agency as it pleased, with not more than $200,000,000 for the relief of banks closed or in the process of liquidation. All loans had to be secured, couldn’t be made on foreign securities or acceptances, no more than 5% of the money could go to any one company, couldn’t exceed three years’ term, couldn’t pay fees or commission to applicants for loans, and so forth. Railroads accepting such loans had to do so under terms acceptable to the regulatory Interstate Commerce Commission.
The law in addition made provision for winding up the Corporation when appropriate and requiring it to report quarterly to the Congress on its activities and employees.
In short, although the situation in January of 1932 was visibly more dire than it is now, Congress was less willing to hand over utter independent authority to the Hoover administration.
With Roosevelt, Congress was a bit more trusting of the executive. Compare the National Recovery Act, of June 1933:
"The President is hereby authorized to establish such agencies, to accept and utilize such voluntary and uncompensated services, to appoint, without regard to the provisions of the civil service laws, such officers and employees, and to utilize such Federal officers and employees, and, with the consent of the State, such State and local officers and employees, as he may find necessary, to prescribe their authorities, duties, and responsibilities, and tenure, and, without regard to the Classification Act of 1923, as amended, to fix the compensation of any officers and employees so appointed.
"The President may delegate any of his functions and powers under this title to such officers, agents, and employees as he may designate or appoint, and may establish an industrial planning and research agency to aid in carrying out his functions under this title."
It’s worth noting the Supreme Court found this blanket grant unconstitutional. . .
Do you think this Congress should be more trusting of the Bush administration than the 1932 Congress was of the Hoover administration? Conversely, do you think the Bush administration deserves the same level of trust from this Congress as the Roosevelt administration? Even the giant relief bill of 1935, which gave Roosevelt around $5bn, had more strings attached than this law.
Wikipedia - Asset Management and Securities Services is a rapidly growing business for Goldman as it gains market share. It is separated into two divisions, and includes Asset Management, which provides large institutions and very wealthy individuals with investment advisory, financial planning services, and the management of mutual funds, as well as the so-called alternative investments (hedge funds, funds of funds, infrastructure funds, real estate funds, and private equity funds). The Securities Services division provides prime brokerage, financing services, and securities lending to mutual funds, hedge funds, pension funds, foundations, and High net worth individuals. This segment accounts for around 19 percent of Goldman's earnings. . . As of 2007, the fund was valued at $32.5 billion, the second-largest fund hedge fund after competitor JP Morgan's $33.1 billion fund
In August 2007, it emerged that Goldman had to spend $2 billion to rescue its own Global Equity Opportunities hedge fund from "significant market dislocation."
On August 28, 2007, a former Goldman Sachs associate accused of being the mastermind behind an insider trading scheme, one that pocketed $6.7 million, pleaded guilty in Federal District Court in Manhattan. . .
In 2005, the firm advised both the New York Stock Exchange and Archipelago, which owns an electronic trading platform, in merger talks. Controversy surrounded the deal as John Thain, who at that time headed the New York Stock Exchange, was a former Goldman Sachs Executive.
Also in 2005, Goldman Sachs received criticism from civic groups and New York City politicians when they received approximately $1.6 billion in taxpayer subsidies (mostly through Liberty Bonds) from New York City and state taxpayers to finance the firm's new headquarters near the World Financial Center in Lower Manhattan in return for a commitment to keep at least 9000 employees and a major trading operation in Manhattan. . .
In 1986, David Brown was convicted of passing inside information to Ivan Boesky on a takeover deal. Robert Freeman, who was a senior Partner, the Head of Risk Arbitrage, and a protege of Robert Rubin [later Treasury Secretary under Clinton], was also convicted of insider trading, with his own account and with the firm's.
n 2006, Goldman Sachs' mortgage-bond division - Alternative Mortgage Products (GSAMP) - issued 83 home-loan-backed bonds, valued at $44.5 billion. In the subprime sector, it grew its business by 59% from 2005, offloading some $12.9 billion on to fund managers.
According to Inside Mortgage Finance, that made GSAMP the 15th biggest issuer of subprime-backed bonds in 2006. According to the website ABAlert.com, Goldman Sachs was one of the top 10 sellers of Collateralized Mortgage Obligations and may have sold about $100 billion in CMO's over the last two and a half years.
But, by the start of the third quarter this year, those securities were being downgraded by the credit ratings agencies faster than any other subprime lender. According to a Reuters report, Citigroup's research, stated "portions of Goldman's GSAMP-issued bonds, which include subprime loans from a variety of lenders, have been downgraded a combined 69 times by Standard & Poor's and Moody's Investors Service in the year through June 15. Sixty of the GSAMP downgrades refer to classes from 2006 bonds," Citigroup added, and Allan Sloane in The Washington Post stated that one of Goldman's 2006 crop - the GSAMP Trust 2006- S3 - may actually be "the worst deal. . . floated by a top-tier firm." One in every six of the 8,274 mortgages bundled together in GSAMP Trust 2006-S3 was already in default 18 months later. Whoever bought the S3 bonds will have either taken a 100% loss, or are waiting to sell it on at a heavy discount.
The media has almost entirely ignored the enormous conflict of interest involved in having a Treasury Secretary who was a former chief of Goldman Sachs assuming huge powers that could affect his former firm. In addition, one of Obama's key advisors is a former head of Goldman Sachs and was Treasury Secretary under Clinton. In the story below, the NY Times does mention GS, but note how the writer refers to those who rise questions about the firm as "irreverent."
Ben Smith, NY Times - The federal government’s proposed rescue plan coursed through the financial system like a shot of adrenaline Friday. Battered firms, including Morgan Stanley and Goldman Sachs, showed new signs of life. Even those thought to be near dead, like A.I.G. and Washington Mutual, were being resurrected by the market.
The news quickly revived investors in those and other firms. Lloyd C. Blankfein of Goldman Sachs, for example, did not seem to need a rapid infusion of capital for his firm. Irreverent commentators pointed out that Goldman’s former chief executive, Henry M. Paulson Jr., now the Treasury secretary, had administered medicine that would, as it turned out, help his old friends. . .
The only remaining independent banks, Morgan Stanley and Goldman Sachs, were once again the golden boys of Wall Street. But all manner of financial institutions could benefit from the plan, from Citigroup and its big investors, like the Abu Dhabi Investment Authority; to Washington Mutual and its large private investor, David Bonderman; to perhaps even the American International Group and its former chairman and chief executive, Maurice R. Greenberg. . .
Goldman Sachs will be able to sell some troubled assets. That fact reignited discussion about the many administration officials who are Goldman alumni. Along with the Treasury secretary, who created the plan, another former executive of the firm is Joshua Bolten, the White House chief of staff. The plans lifted Goldman’s shares 20 percent on Friday, to $129.80. Mr. Paulson, once Goldman’s biggest individual shareholder, had to sell his stake when he moved to the Treasury Department.
The government’s decision about which assets to accept will determine which banks are helped most. For example, the acceptance of commercial mortgage-backed securities will help big banks like Morgan Stanley, Goldman Sachs and Citigroup. . .
Michael Mandel, Business Week, March 2008 - In the middle of perhaps the greatest financial upheaval since the Great Depression, Treasury Secretary Hank Paulson is proposing a change in financial regulations which basically amounts to a big wink to Wall Street. His plan will go nowhere, both for political and practical reasons. In fact, it does not even meet the minimum standard of improving transparency, which would reduce the possibility of a similar crisis in the future. . .
The one clear improvement is more regulatory oversight for mortgage lenders. Otherwise everything else in the plan consists of rearrangements and clarifications of current regulatory responsibilities, at least in the short and medium run. For example, responsibility for regulating insurance companies would gradually be shifted from the state to the federal level. And the SEC and the Commodity Futures Trading Commission should be merged. The Paulson plan makes sure to note that the new combined agency should engage in faster approvals of new financial products.
The Paulson plan belongs in a fictional world where financial institutions do a good job in regulating and monitoring themselves. Unfortunately, that’s not the world we live in.
The most striking thing about the current problems is just how much money the banks and the investment banks have lost. They apparently had no idea of how risky their own exposure was. The supposedly smart guys were simply stupid.
Wall Street Journal - Douglas Elmendorf, a senior fellow at Brookings Institution and former Treasury official, said while inaction is a risk, the Treasury's plan could cost taxpayers a huge amount of money. "This approach saddles taxpayers with significant downside risk but limited potential upside gain," Mr. Elmendorf said.
From a July 23 letter from Ralph Nader to Senator Chris Dodd and Rep. Barny Frank
Ralph Nader, July 23 - I write today to suggest that you jointly hold hearings on the Federal Deposit Insurance Corporation’s ability to deal with potential bank failures in the next several years.
In a March 10, 2008 memorandum on insurance assessment rates, Arthur J. Murton, Director of the Division of Insurance and Research for the Federal Deposit Insurance Corporation stated:
"While 99 percent of insured institutions meet the 'well capitalized' criteria, the possibility remains that the fund could suffer insurance losses that are significantly higher than anticipated. The U.S. economy and the banking sector currently face a significant amount of uncertainty from ongoing housing sector problems, financial market turbulence and potentially weak prospects for consumer spending. These problems could lead to significantly higher loan losses and weaker earnings for insured institutions."
Indeed, the recent failure of IndyMac highlights the need for tough Congressional oversight. Banking experts have indicated that the cost of the collapse of IndyMac alone will be between $4 billion and $8 billion. The FDIC has approximately $53 billion on hand to deal with bank failures. This amount may not be adequate given the cost of IndyMac and given the approximately $4 trillion in deposits the FDIC insures.
Several questions should be presented to FDIC officials such as. . .
As of March 31, 2008 the FDIC reported 90 "Problem Institutions" with assets of $26 billion. What is the current number of "Problem Institutions" and what are the assets of these "Problem Institutions"?
How many banks are likely to fail in 2008 and 2009 respectively?
What is the estimated range of costs of dealing with the projected failures?. . .
The FDIC is not likely to address its own inability to clearly assess the current risks posed to depositors and taxpayers by the high-rolling banking industry. I hope you hold hearings sooner rather than later on this important matter.
Senator Bernie Sanders, Huffington Post - In my view, we need to go forward in addressing this financial crisis by insisting on four basic principles:
1. The people who can best afford to pay and the people who have benefited most from Bush's economic policies are the people who should provide the funds for the bailout. It would be immoral to ask the middle class, the people whose standard of living has declined under Bush, to pay for this bailout while the rich, once again, avoid their responsibilities. . .
Specifically, to pay for the bailout, which is estimated to cost up to $1 trillion, the government should:
a) Impose a five-year, 10 percent surtax on income over $1 million a year for couples and over $500,000 for single taxpayers. That would raise more than $300 billion in revenue;
b) Ensure that assets purchased from banks are realistically discounted so companies are not rewarded for their risky behavior and taxpayers can recover the amount they paid for them; and
c) Require that taxpayers receive equity stakes in the bailed-out companies so that the assumption of risk is rewarded when companies' stock goes up.
2. There must be a major economic recovery package which puts Americans to work at decent wages. Among many other areas, we can create millions of jobs rebuilding our crumbling infrastructure and moving our country from fossil fuels to energy efficiency and sustainable energy. Further, we must protect working families from the difficult times they are experiencing. We must ensure that every child has health insurance and that every American has access to quality health and dental care, that families can send their children to college, that seniors are not allowed to go without heat in the winter, and that no American goes to bed hungry.
3. Legislation must be passed which undoes the damage caused by excessive de-regulation. That means reinstalling the regulatory firewalls that were ripped down in 1999. That means re-regulating the energy markets so that we never again see the rampant speculation in oil that helped drive up prices. That means regulating or abolishing various financial instruments that have created the enormous shadow banking system that is at the heart of the collapse of AIG and the financial services meltdown.
4. We must end the danger posed by companies that are "too big too fail," that is, companies whose failure would cause systemic harm to the U.S. economy. If a company is too big to fail, it is too big to exist. We need to determine which companies fall in this category and then break them up. Right now, for example, the Bank of America, the nation's largest depository institution, has absorbed Countrywide, the nation's largest mortgage lender, and Merrill Lynch, the nation's largest brokerage house. We should not be trying to solve the current financial crisis by creating even larger, more powerful institutions. Their failure could cause even more harm to the entire economy.
Michael Hudson, Global Research - The White House committed at least half a trillion dollars more to re-inflate real estate prices in an attempt to support the market value junk mortgages - mortgages issued far beyond the ability of debtors to pay and far above the going market price of the collateral being pledged.
These billions of dollars were devoted to keeping a dream alive - the accounting fictions written down by companies that had entered an unreal world based on false accounting that nearly everyone in the financial sector knew to be fake. But they played along with buying and selling packaged mortgage junk because that was where the money was. As Charles Prince of Citibank put it, "As long as they're playing music, you have to get up and dance." Even after markets collapsed, fund managers who steered clear were blamed for not playing the game while it was going. I have friends on Wall Street who were fired for not matching the returns that their compatriots were making. And the biggest returns were to be made in trading in the economy's largest financial asset - mortgage debt. The mortgages packaged, owned or guaranteed by Fannie and Freddie alone exceeded the entire U.S. national debt - the cumulative deficits run up by the American Government since the nation won the Revolutionary War. . .
Instead of waking up the economy to reality, the government has thrown all its resources to promote the unreal dream that debts can be paid - if not by the debtors themselves, then by the government - "taxpayers," as the euphemism goes.
Overnight, the U.S. Treasury and Federal Reserve have radically changed the character of American capitalism. It is nothing less than a coup d'Etat for the class that FDR called "banksters." What has happened in the past two weeks threatens to change the coming century - irreversibly, if they can get away with it. This is the largest and most inequitable transfer of wealth since the land giveaways to the railroad barons during the Civil War era. . .
It turned out, inevitably, that some of the financial institutions that made billion-dollar gambles - usually in the form of a thousand million-dollar gambles in the course of a few minutes or so, to be precise - couldn't pay up. These gambles all occur in microseconds, at strokes of a keyboard almost without human interference. . .
The nearest analogy is the invasion of the Harvard Boys, World Bank and US AID. to Russia and other post-Soviet economies after the Soviet Union was dissolved, pressing free-market giveaways to create national kleptocracies. It should be a worrying sign to Americans that these kleptocrats have become the Founding Fortunes of their respective countries. We should bear in mind Aristotle's observation that democracy is the political stage immediately preceding oligarchy.
The financial machines that placed the trades that bankrupted A.I.G. were programmed by financial managers to act with the speed of light in conducting electronic trades often lasting only a few seconds each, millions of times a day. Only a machine could calculate mathematical probabilities factored in regarding the squiggles up and down of interest rates, exchange rates and stock and bonds prices - and prices for packaged mortgages. And the latter packages increasingly took the form of junk mortgages, pretending to be payable debts but in reality empty flak.
The machines employed by hedge funds in particular have given a new meaning to Casino Capitalism. That was long applied to speculators playing the stock market. It meant making cross bets, lose some and win some - and getting the government to bail out the non-payers. The twist in the past two weeks' turmoil is that the winners cannot collect on their bets unless the government pays the debts that the losers are unable to cover with their own money. . .
So why has the Treasury found it necessary to enter this picture at all? Why should these gamblers be bailed out, if they had enough to lose without having to become public wards by going on welfare? Hedge fund trading was limited to the very rich, for investment banks and other institutional investors. But it became one of the easiest ways to make money, loaning funds at interest for people to pay out of their computer-driven cross-trades. And almost as fast as it was made, this revenue was paid out in commissions, salaries and annual bonuses reminiscent of America's Gilded Age in the years prior to World War I - years before the income tax was introduced in 1913. The remarkable thing about all this money was that its recipients didn't even have to pay normal income tax on it. The government let them call it "capital gains," which meant that the money was taxed at only a fraction of the rate that incomes were taxed.
The pretense, of course, is that all this frenetic trading creates real "capital." . . . It is as much "capital" as the right to conduct a lottery and collect the winnings from the hopes of the losers. But then, casinos from Las Vegas to riverboats have become a major "growth industry," muddying the language of capital, growth and wealth itself. . .
What happened on September 18-19 took years of preparation, capped by a faux ideology crafted by public-relations think tanks to be broadcast under emergency conditions to panic Congress - and voters - right before the presidential election. This seems to be our September election surprise. Under staged crisis conditions, Pres. Bush and Treasury Secretary Paulson are now calling for the country to come together in a War on Defaulting Homeowners. This is said to be the only hope to "save the system." . . . The largest transformation of America's financial system since the Great Depression has been compressed into just two weeks, starting with the doubling of America's national debt on September 7 with the nationalization of Fannie Mae and Freddie Mac. . .
Remember when President Bush and Alan Greenspan informed the American people that there was no money left to pay Social Security (not to mention Medicare) because at some future date (a decade from now? 20 years? 40 years?) the system might run a deficit of what now seems to be merely a trivial trillion dollars spread over many, many years. The moral was that if we can't figure out how to pay, let's plow the program under right now.
Mr. Bush and Greenspan did have a helpful solution, of course. The Treasury could turn Social Security and medical insurance money over to Bear Stearns, Lehman Brothers and their brethren to invest at the "magic of compound interest."
What would have happened to U.S. Social Security had this been done? Perhaps we should view the past two weeks' events as having assigned to Wall Street gamblers all the money that has been set aside since the Greenspan Commission in 1983 shifted the tax burden onto FICA wage withholding. It is not retirees who are being rescued, but the Wall Street investors who signed papers saying that they could afford to lose their money. The Republican slogan this November should be "Gambling insurance, not health insurance.". . .
The theory of democracy rested on the assumption that voters would act in their self-interest. Market reformers made a kindred happy assumption that consumers, savers and investors would promote economic growth by acting with full knowledge and understanding of the dynamics at work. But the Invisible Hand turned out to be accounting fraud, junk mortgage lending, insider dealing and a failure to relate the soaring debt overhead to the ability of debtors to pay - all of this mess seemingly legitimized by computerized trading models, and now blessed by the Treasury.
Michael Hudson is President of The
Institute for the Study of Long-Term Economic Trends, a Wall
Street financial analyst, Distinguished Research Professor
of Economics at the University of Missouri, Kansas City and
author of Super-Imperialism: The Economic Strategy of
American Empire (1972 and 2003)
A CAMPAIGN FOR OBAMA IN ELEVEN SENTENCES
We recently suggested that the Obama campaign use as its primary theme an adaptation of the old Reagan line: How are you doing compared to 8 years ago? This would have the effect of concentrating attention on reality rather than on a phony American Idol contest in which McCain & Palin have the clear edge over Obama & Biden. Here from Campaign for America's Future are a few examples of what we're talking about:
Since 2001, the overall costs of living has increased 21.5 percent, driven by big increases in such life essentials as gas, home heating oil and food.
Gasoline and home-heating oil has increased 108 percent and 99 percent, respectively, since 2001.
Shoppers are paying 41 percent more for bread, 37 percent more for ground beef, and almost 100 percent more for eggs since January 2001.
Since 2000, median household income has declined by 1 percent ($324).
The personal savings rate is the lowest it has been since the Great Depression.
In 2007, the total value of all forms of household debt was at its highest on record - nearly 20 percent of all assets.
Since 2000, poverty has increased 18 percent - an increase of almost 5.7 million Americans.
Home prices fell 4.8 percent between the second quarter of 2007 and the second quarter of 2008 - back to 2005 levels.
Since January 2008, the United States has had a net loss of 679,000 jobs.
Employer-provided health insurance for workers has decreased by 8 percent since 2000. That means almost 2 million fewer workers have coverage
The percentage of workers covered by employer-provided pensions declined by 2.8 percentage points from 2000 to 2006 to 8 percentage points below the level in 1979.
CNN - A new Government Accountability Office report on voting system testing finds that the Election Assistance Commission has not notified election officials across the country about electronic voting machine failures. And a new study by Common Cause and the Century Foundation finds that 10 very vital swing states have significant voting problems that have not been addressed since the last election. . .
20,000 left polling places without voting in 2006 because of
crashed computer registration machines and long lines. And
this election day, Colorado will have another new
"You know, Colorado is two years behind many states in implementing a statewide voter database. . . This is a new system, and there's just a lot of unknowns as to whether or not voters will be successful," said Jenny Flanagan of Common Cause.
The problems listed in the report range from not enough voting machines to glitches with electronic registration poll books. Read the report Don't Miss
"We're seeing a lot of problems where people are being kicked off the data base rolls if their name is on as Alex as opposed to Alexander or they've put a middle initial in there name and it's not there," said Susan Greenhalgh of Voter Action. "These are problems that are being created by software restrictions that are stringent or glitches in some cases where the program is incorrectly bouncing people off the rolls.". . .
But Tova Wang of Common Cause said there is a "very good chance, with all of the new voters that we are going to see this year, that there will be a big demand for the use of provisional ballots."
"And yet I see nothing, except in one of the 10 states, that the states are doing to ensure that there will be enough provisional ballots on hand so that they don't run out of them. Ideally, provisional ballots should be on hand for 10 percent of the voting population," she added.
Washington Post - Courses in epidemiology, public health and global health -- three subjects that were not offered by most colleges a generation ago -- are hot classes on campuses these days. They are drawing undergraduates to lecture halls in record numbers, prompting a scramble by colleges to hire faculty and import ready-made courses. Schools that have taught the subjects for years have expanded their offerings in response to surging demand.
At Johns Hopkins, which has offered an undergraduate major in "public health studies" since 1976, there were 159 students studying the field 10 years ago; this year, there are 311 majors. At the College of William and Mary, a freshman seminar called "Emerging Diseases" is so popular that it is offered in two sections each semester. "It fills up instantly," said Beverly Sher, the immunologist who teaches it. . .
A recent survey by the Association of American Colleges and Universities found that 137 of its 837 members, or 16 percent, now offer majors or minors in public health. (The number offering single courses is unknown.) Nearly two-thirds of the schools in that group require students majoring in the subject to undertake fieldwork or research.
Washington Post - When newly appointed White House chief of staff Joshua B. Bolten tried to shake up the Bush administration in the spring of 2006, he spent weeks wooing Goldman Sachs chief executive Henry M. Paulson Jr. to be Treasury secretary. Bolten had personal reasons for thinking Paulson might be a good pick -- Bolten himself had worked for the influential investment bank in Europe in the 1990s -- and Paulson eventually gave in to his persistent lobbying. . .
Paulson and Bolten are just two of the onetime Goldman figures who find themselves managing perhaps the biggest financial crisis since the Great Depression. After Paulson took over at Treasury in May 2006, he turned to Goldman colleague Robert K. Steel to help him oversee financial markets. Steel left recently to run Wachovia, but several other Goldman alumni remain to help Paulson deal with the ongoing market turmoil.
Such heavy reliance on the most prestigious Wall Street investment firm has become something of a bipartisan Washington tradition in recent years; Clinton Treasury Secretary Robert E. Rubin was also a co- chairman of Goldman Sachs, as was Bush economic adviser Stephen Friedman. But if the Wall Street meltdown continues, the tradition may come under scrutiny, especially if Goldman eventually needs the kind of government assistance granted Bear Stearns or American International Group.
From the right, prominent voices question Paulson's use of taxpayer dollars to help rescue private firms, while liberal and labor groups attack the ideological orientation of the Treasury secretary and other officials hailing from Goldman.
"Goldman culture has prided itself on creating sort of financial statesmen who would come to Washington as well as operate in the highest realm of finance," said Robert Borosage, president of the Institute for America's Future, a liberal think tank. "What's clear is that these people in both parties -- whether it's Rubin or Paulson -- have been leading promulgators of the deregulation that has gotten us in this hole."
GETTING LIBERALS ON THE AIR
Progress Report - Last week, MSNBC debuted a new prime-time political show hosted by Rachel Maddow, a progressive radio host on Air America. The debut attracted more viewers than both Larry King and Glenn Beck's programs, on CNN and CNN Headline News, respectively. After one week on air, Maddow's was MSNBC's highest-rated show on Tuesday, with Keith Olbermann's Countdown in second place. When Olbermann announced Maddow's new show last month on the progressive blog Daily Kos, he wrote to its readers, "Yes, you had something to do with it."
Maddow's show is one of the few success stories of the efforts by progressives to see more progressive voices on TV. In fact, the day before Maddow's debut, MSNBC announced it was pulling Olbermann and Chris Matthews from its election coverage -- a move the New York Times said was a "direct result of tensions associated with the channel's perceived shift to the political left." Despite Olbermann and Maddow's rating successes, MSNBC and the other networks still don't seem to be getting the message: Americans want to hear progressive voices on television.
After 9/11, and particularly in the lead-up to the Iraq war, news programs purged their ranks of several voices seen as remotely hesitant about President Bush's foreign policy. After political commenter Bill Maher criticized the war in Afghanistan, "he was quickly alerted that he had gone beyond the bounds of acceptable discourse -- even though that's his job. (His show is called 'Politically Incorrect.')," David Talbot at Salon.com noted. In fact, then-White House press secretary Ari Fleischer declared ominously, "Americans need to watch what they say, watch what they do, and this is not a time for remarks like that; there never is."
At MSNBC, progressive host Phil Donahue was fired in February 2003 for his anti-war views, despite the fact that his show was the network's highest-rated program. An internal NBC memo said Donahue presented a "difficult public face for NBC in a time of war. . . He seems to delight in presenting guests who are anti-war, anti-Bush and skeptical of the administration's motives." The memo outlined a possible nightmare scenario in which the show would become "a home for the liberal antiwar agenda at the same time that our competitors are waving the flag at every opportunity." The same week Donahue was fired, the network brought on Jesse Ventura and right-wing shock jock Michael Savage.
Wired - The scrappy civil liberties group suing the telecom giant filed another suit -- this one against the government and top officials involved in the spying. By suing the government directly, the EFF is attempting to undermine the government's plan to use a new power handed to it by Congress in July. The so-called telecom immunity provision nearly automatically forces a judge to dismiss lawsuits against companies accused of helping the government spy -- without court approval -- on the phone and internet communications of Americans.
Thursday's potential class action suit against the government -- filed in federal district court in Northern California -- seeks a halt to the program, an accounting of who was spied on and damages for the five named plaintiffs. It also names high government officials -- in their official and personal capacities -- putting them at risk of fines they would be personally liable for.
Among those listed - former Attorney General John Ashcroft, former Attorney General and White House Counsel Alberto Gonzales, Vice President Dick Cheney, and Cheney's chief of staff David Addington, along with current and former heads of intelligence agencies involved in the spying. .
The suit argues the spying violated federal wiretap law, the First Amendment's guarantee of anonymous speech and the Fourth Amendment's guarantee against unreasonable searches.
Others have challenged the government program directly, but no one has succeeded so far. The EFF hopes the whistle-blower evidence it has used to keep the AT&T case alive will also work to prove it has a right to sue the feds as well. . .
The suit relies heavily on company documents provided to it by former AT&T technician Mark Klein, who says the NSA controlled a secret internet spying room in an AT&T facility on Folsom Street in San Francisco.
That suit so annoyed the government that the President threatened to veto a bill expanding his ability to spy without warrants unless Congress also included retroactive legal immunity for telecoms being sued for allegedly helping the government warrantlessly spy on Americans.
After a drawn-out fight over immunity that included a threatened filibuster, the Democratically controlled Congress acceded in July to Bush's demand for immunity.
Times, UK - Public libraries are dropping their hallowed rule of silence and other rigid protocols in order to revive their falling membership. Patrons will be allowed to talk on mobile phones, bring food and drink, play on computer games and watch football matches. Libraries have been increasingly shunned in recent years as the public turn to the internet and other forms of entertainment. The number of books borrowed in the past ten years has fallen by 34 per cent, with 40 libraries closing across Britain last year. . .
In Hillingdon, West London, book borrowing rose 32 per cent when the council introduced a Starbucks café into one of its main libraries. Outlets of the coffee chain will start in all 17 of its libraries over the next year.
Henry Higgins, a Hillingdon councillor, said that patrons were also attracted by greater book diversity and Nintendo Wii video games that can be played on site. Mr Higgins said: "We looked at it and thought, why would anyone want to borrow a book from somewhere that looks dusty and antiquated? So we changed things."
The Times tested the new approach yesterday at a library in Whitechapel, East London, which has been renamed an Ideas Store and diversified to attract a different clientele. The noise inside was almost as loud as the din on the street outside, with a series of public information stands set up in the foyer. Health professionals were taking blood for diabetes tests and recruitment officials chatted to people.
No one batted an eyelid when The Times conducted a 15-minute interview in the middle of the library, and staff appeared unperturbed when our BlackBerry rang out at full volume. . .
DEJA VU: NO
FAULT CAPITALISM MEETS LEMON SOCIALISM
Sam Smith, Progressive Review - Eighteen years ago I did a long report on the savings & loan bailout, which turned out to be the second S&L scandal. A few excerpts
The sum of money involved is staggering, Newsweek estimates that even at a conservative $250 billion cost, this is an amount that would pay for existing education programs for the next four years; or nearly pay for universal health insurance and long-term care for the next four years; or overhaul the nation's water systems, repair all bridges and have money left over to start fixing highways. There are currently some 40,000 law suits over all this money and the figure is expected to double by year's end,
But recounting neither the sum nor the sin involved leads to a solution. After all, the broad outline of the S&L scandal have been known for some time yet in its wake the president and the Congress have fashioned an extraordinarily shoddy, dangerous, expensive and corrupt jury rig to correct the matter.
Not only is the government failing to solve the problem, it is creating massive new scandals, inequities and public deficits. . . Among the other clear beneficiaries of the bailout are the quick-rich financiers who, with their soul brothers, helped to create the scandal. . .
We know - or should know by now - that the crisis was created in no small part by the gluttony and stupidity of advocates of the so-called free market running rampant through America's fiscal countryside. What you may not realize is how far the government's acquiescence went. . . As Rep. Charles Schumer put it, "The government behaved like a fire insurance company that said to its customers, go ahead, play with matches. We'll cover you if anything goes wrong."
Thanks to recent revelations we now have a better idea of why Congress didn't look after our interests more assiduously. As just one small example, one study has found that S&Ls gave $45 million to congressional candidates during the past three elections, including more than $1 million to members of current congressional banking committees. .
The questions the media have asked often miss the mark. Because these questions are frequently planted by "official sources," however, they do reveal some of the hidden agenda behind the bailout. Here is an exquisite example from the Times in a recent weekend roundup of the news:
"Does the nation need a specialized industry to finance housing when it now has an efficient mortgage market? Does the nation need 13,000 independent banks and 3000 independent thrifts, or should institutions be allowed to consolidate across state lines, which would also enable them to spread their risks by diversifying their sources of loans and deposits?". . .
The clue to the source of such queries is the phrase "efficient mortgage market," one of those delightful terms of art used by economists and financiers which would never be used by the average homeowner or wistful would-be purchaser. . . In fact, the mortgage market is efficient only to the extent that it has made some people and some institutions a lot of money. It has also developed in such a way that the average age at which someone can afford their first home is rising rapidly, people are paying an exorbitant percentage of their income and the former stability of the home mortgage has been increasingly replaced by such economic Russian roulette techniques as variable interest rates. . .
In the first decade of [of the 20th] century, in the wake of the San Francisco earthquake, as other bankers helplessly watched their money disappear in fire and rubble, Amadeo Peter Giannini of the Bank of Italy walked 18 miles from his home to the bank where he retrieved some $80,000 in gold and silver from the vaults, loaded it on a wagon and made his way to his brother's house in the hills. There he opened for business loaning the money to San Franciscans so they could rebuild their homes and business. He gambled that his action would encourage others to deposit funds they had been hoarding so he could loan still more. It worked and on this shaky foundation there arose the Bank of America, later to become the largest banking house in the world.
In the last decade of the century, in the wake of another great disaster, America has reversed the parable. The money of the taxpayers, needed for their homes and businesses, is being loaded on the wagons of the state for deposit in the vaults of those few who have the means, the political power and the gall to profit from the rubble of the fiscal crisis . . . And America, its politicians, its captains of industry, its media, can think of little else to do about it except tacitly sanction the continued looting in the wake of the great capitalist riot of the 1980s.
INVISIBLE & UNAIDED VICTIMS OF THE FISCAL CRISIS
Sam Smith, Progressive Review - Barely a word of succor or solace, let alone any solutions, have been offered by the experts, media or candidates in either party on behalf of the most important victims of the fiscal crisis: ordinary citizens.
The silence has been stunning as those on top grapple with several decades of fiscal mismanagement, fraud, carelessness, greed and disarray. We have corporate gamblers bailed out, reckless companies loaned huge sums, avaricious banks saved, but no one seems to care about folks who bought houses they no longer can afford, communities which will now have to pay to help support them and states that will no longer receive their property taxes.
To get an idea of what is not being discussed, here is an exploratory calculation involving a quite different approach, one based on assuming that the first people to save are homeowners rather than their predatory lenders. The approach is shared equity, which the Review has pushed for some time. It involves the government being a passive equity partner with certain classes of homeowners, such as neophyte purchasers. But it could also be used in cases of pending foreclosures. And it would work well in the present crisis.
It has been estimated that there are up to a trillion dollars worth of bad loans. We don't know whether this is true or whether the government is deliberately hyping the crisis so it can do what it wishes. We further can't be sure that the home loans are as a big a factor in the crisis as the government claims. They may be being used to cover up fraud and rampant speculation. But let's accept the figure.
On second thought, let's not. After all, the trillion dollars represents the sum of the bad loans, not the amount that homeowners are unable to pay. If you're bailing out banks and other lenders you have to cover the whole loan. But if you are making it possible for homeowners to keep their property by just lowering the amount of their equity, the sum could be dramatically lower. Let's guess that $250 billion in shared equity would sufficiently lower the fiscal stress for homeowners so they could pay the rest of their loans without problems. That amounts to about three times what it has cost to bail out one failing insurance company, AIG.
Bingo. The banks have their money, the individuals have their homes, states have their property taxes, and communities don't have to worry about added social service costs for those losing their residences.
One more thing. The U.S. government has ownership in a large amount of real estate bought when prices were under stress. When these homes are sold five, ten, twenty years from now it is likely that they will be sold for a profit meaning that this bailout might ultimately bring money into the treasury.
Even if the shared equity decreased in value by thirty percent, the cost of bailing out tens of thousands of homeowners would be less than what has already been spent by the government on one corporation.
It's not a completely new idea. The government loaned Chrysler $1.2 billion and four years later had a profit of 300 million. It’s hoping something similar will happen with AIG.
But of course, when you do it for real people it becomes socialism. And under the rules of the game as written by those who created this fiscal crisis, only large icons of the free market are allowed to benefit from socialism.
On the other hand, we may have reached the point where we're finally tired of the poor sportsmanship and are willing to send the predators to the bench. It certainly is long overdue.
Chrystia Freeland, Financial Times - Central casting could not have produced a more perfect Republican financier than Mr Paulson, the jock from small-town Illinois who rose to run Goldman Sachs. Yet, in dollar terms, he now seems set to preside over a more massive nationalization of assets than Vladimir Putin. The country's capital markets became a lot less free this week with the Securities and Exchange Commission's ban on short-selling - and the main criticism was that the restriction should have come sooner. . .
Ronald Reagan's shadow has loomed large this year. In the spring, Mr Obama earned post-partisan points, and the wrath of the Clintons, by naming the Gipper as the most significant president in recent times. In St Paul, the Republicans defined Mr McCain as a foot soldier in the Reagan Revolution. But on September 15 2008 the Reagan era officially came to an end. The sunny confidence in the superiority of the American way has been undermined now not only by Guantanomo and Abu Ghraib but also by the fact that this financial crisis has its epicenter on Wall Street, not Moscow, Mexico City or Mumbai.
Washington Post - An article about health care published in an obscure journal led to a new skirmish Saturday between the campaigns of Democrat Barack Obama and Republican John McCain over who should be trusted with the ailing economy. . . The article was published in Contingencies magazine, which is produced under the auspices of the American Association of Actuaries. In it, McCain touted his plans for increasing competition in health care as one way to expand coverage and reduce costs. McCain wrote, "Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation." Obama, appearing at Bethune-Cookman University in Daytona Beach, Fla., mocked his rival . . . "So let me get this straight -- he wants to run health care like they've been running Wall Street."
PALIN EMBRACES WITCH HUNTING
AS WELL AS MOOSE HUNTING
IF YOU DON'T ALREADY THINK PALIN
IS A DANGEROUS NUT, WATCH THIS
Mother Jones - The Democratic National Committee, using publicly available records, has identified 177 lobbyists working for the McCain campaign as either aides, policy advisers, or fundraisers. Of those 177 lobbyists, according to a Mother Jones review of Senate and House records, at least 83 have in recent years lobbied for the financial industry McCain now attacks. . . Their clients have included AIG, the newest symbol of corporate excess; Lehman Brothers, which filed for bankruptcy on Monday sending the stock market into a tailspin; Merrill Lynch, which was bought out by Bank of America this week; and Washington Mutual, the banking giant that could be the next to fall. Among these 83 lobbyists are McCain's chief political adviser, Charlie Black (JP Morgan, Washington Mutual Bank, Freddie Mac, Mortgage Bankers Association of America); McCain's national finance co-chairman, Wayne Berman (AIG, Blackstone, Credit Suisse, Fannie Mae, Freddie Mac); the campaign's congressional liaison, John Green (Carlyle Group, Citigroup, Icahn Associates, Fannie Mae); McCain's veep vetter, Arthur Culvahouse (Fannie Mae); and McCain's transition planning chief, William Timmons Sr. (Citigroup, Freddie Mac, Vanguard Group).
Elizabeth Edwards talked with Free press medical writer Patricia Anstett the other day. She describes her philosophy of living with advanced breast cancer. Diagnosed in 2004, the cancer recurred in 2007 and has moved to her bones. Edwards also tells how she copes with loss of fidelity and trust in her marriage. She says she and her husband aren’t a perfect couple and there is no perfection in life. Edwards declines to address whether she has gotten over her husband’s affair. She compares any loss to losing a leg. You can learn to walk without one, but it always will be a part of you. Interesting snippets
Ecotality - Manure from a herd of 3,900 dairy cows will be used in Ohio’s first-ever project to capture methane from manure for generation of electricity. Buckeye Power, Inc. has started purchasing cow manure produced power from Bridgewater Dairy in northern Ohio, to provide green energy to the state’s 24 electric cooperatives. While Ohio is certainly not the first to utilize cow manure for this purpose, they are also considering a second biodigester generation system using waste from a poultry farm.
MONEY & WORK
Wall Street Journal - One symptom of these times: a surge in the number of million-dollar foreclosures. According to RealtyTrac, the number of homes valued at more than $1 million that are in some stage of foreclosure has swelled to 7,968 between January and August. That compares with 4,214 during the same period last year. The number of $2 million-plus homes in the process of foreclosure has grown even faster, surging to 499 in the year-to-date compared with 201 for the same period last year. Home values are based on comparable, recent sales in the neighborhoods.
Steven Wishnia, AlterNet - One 2006 study called cannabis the top cash crop in the nation, worth more than corn and wheat combined. It was the leading crop in 12 states, outstripping grapes in California and tobacco in North Carolina, and one of the top three in 18 others, coming in just behind apples in Washington and cotton in Georgia. . . As the U.S. marijuana market is illegal, there are no sales figures. Estimates of its size range from $10.5 billion a year to $113 billion. But three studies done by economists and policy analysts say ganja taxes could bring in anywhere from $2.4 billion to $31.1 billion in revenue, depending on how big the sales really are. About one-third of that would go to the states. . . A 2005 study by Harvard economics professor Jeffrey A. Miron, makes the most conservative projections of the three studies. It calculates possible pot tax revenues at $2.4 billion.
ARTS & CULTURE
Open Rights Group, UK - Last month the UK Intellectual Property Office asked for comments on the European Commission's proposal to almost double the term of copyright protection on sound recordings. The Commission's proposal is flimsy, misleading, and peppered with contradictions. Our submission [pdf] asks the UKIPO to reject it in the strongest terms. Our submission shows that for the vast majority of performers the projected extra sales income resulting from term extension is likely to be meager: from as little as 50¢ each year in the first ten years, to as "much" as E26.79 each year. That's because most of the gains (89.5%) will go to the top 20% of recording artists.
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