Tuesday, September 30, 2008

Screw the Bastards or Do Something?

The Dow fell 6.98 percent. The S&P 500 fell 8.81 percent. NASDAQ dropped 9.14 percent.
And Sarah Palin gets flustered by Katie Couric?
Politico reports that John McCain was a little hasty to take credit for the bailout package:
Sen. John McCain (R-Ariz.) and his top aides took credit for building a winning bailout coalition – hours before the vote failed and stocks tanked. The rush to claim he had engineered a victory now looks like a strategic blunder that will prolong the McCain’s campaign’s difficulty in finding a winning message on the economy.
In two very long weeks, John McCain has declared that the economy's fundamentals are sound, said that as president he would fire SEC chairman Christopher Cox when he couldn't, repeated his assertion that markets don't need more regulatory oversight, agreed that the bailout requires more oversight, returned to the idea of diverting Social Security funds into private investment accounts, issued a joint statement on the bailout with Barack Obama, announced he was suspending campaigning until further notice and would skip the first debate, sat silently in the White House meeting while the deal over the bailout fell apart, decided he would attend the debate after all, headed out on the campaign trail to take credit for the deal before it failed, and then tried to paint Barack Obama as inconsistent.
If John McCain and Congress seem unsure about what to do, it's because the country is unsure. Most people I know are struggling with two conflicting impulses: screw the bastards and do something. The challenge for Congress is to master—or at least tame—the impulse to screw the bastards just enough to find a way to do something effective.
These conflicting impulses play out differently at different political levels. Members of Congress have been hearing screw the bastards by a margin of 100 to one. But candidates for president can't simply say screw 'em; they're expected to look like they can lead, which is why McCain's erratic campaigning and failure to rescue the rescue package are hurting his campaign so badly. A good campaign has a theme, or at least a set of consistent messages. John McCain's campaign is largely about John McCain himself—and he is looking anything but consistent.
As for Sarah Palin, Atrios writes that maybe she should suspend campaigning. Her novelty act of a campaign played well for a couple of weeks until events forced the country to think about the need for actual governing.
She certainly fits the mold of a screw the bastards politician. For that matter, so does McCain to a certain extent. It strikes me that he's running as a Reagan revolutionary—cut taxes, cut spending, stand up to the bad guys. The problem is that the Reagan revolution happened 28 years ago. In a way, he really is fighting the last war.

Monday, September 29, 2008

Why Didn't Obama Deliver a Knockout Punch?

With a winning performance in Friday night's debate and a growing lead in national polls, one would think more political observers might start to appreciate what Barack Obama is on the verge of accomplishing. Maybe, just maybe, he knows something the rest of us don't.
Maureen Down is among those who
wanted Barack Obama to have delivered a knockout blow at John McCain Friday night:
Given the past week, the debate should have been a cinch for Obama. But, just as in the primaries, he willfully refuses to accept what debates are about. It’s not a lecture hall; it’s a joust. It’s not how cerebral you are. It’s how visceral you are. You need memorable, sharp, forceful and witty lines.
Perhaps Dowd is thinking about the kind of lines she would deliver in a debate, but then she isn't running.
James Fallows seems to understand better what Obama is up to.
Obama would have pleased his base better if he had fought back more harshly in those 90 minutes -- cutting McCain off, delivering a similarly harsh closing judgment, using comparably hostile body language, and in general acting more like a combative House of Commons debater. Those would have been effective tactics minute by minute.
But Obama either figured out, or instinctively understood, that the real battle was to make himself seem comfortable, reasonable, responsible, well-versed, and in all ways "safe" and non-outsiderish to the audience just making up its mind about him.
Keep in mind that even after weeks of erratic campaigning and widespread dismay over his pick of Sarah Palin, John McCain still enjoys a large measure of good will among voters. For years he has been lionized by the press and immensely popular among independent voters.
This reserve of good will can't be wiped away with a few spicy zingers. Even the most memorable put-down line in recent debate history—when Lloyd Bentsen told Dan Quayle, "You're no Jack Kennedy"—crystallized public opinion instead of turning it around. And by the way, the elder Bush still won that election. Perhaps Obama understands that the way to win is not to convince voters that John McCain is unfit to lead, but to present himself as someone they can support.
Another common complaint is to ask why Obama isn't further ahead in the polls, given the general political landscape. On this point it may be useful to recall that even Bill Clinton in 1996 failed to hit 50 percent; he won with 49.24 percent of the popular vote over Bob Dole and Ross Perot. The last Democrat to break 50 percent was Jimmy Carter in 1976, with 50.1 percent. Ten presidential elections have come and gone since Lyndon Johnson delivered the Democrat's last landslide victory. Barack Obama is lengthening his lead into six to seven point territory, which is far better than either Gore or Kerry were able to do at this stage of the campaign.

Saturday, September 27, 2008

The First Debate

Russell Baker, who covered the first Kennedy-Nixon debate for the New York Times, offers a lesson on the danger of snap judgments in his memoir, The Good Times:
Since I was on deadline and had to get the story to New York by filing separate paragraphs as the debate progressed, I kept my head down, listening, taking notes, and typewriting throughout.
It was surprisingly dull, hardly a debate at all, and I thought Nixon had a slight edge in what little argument there had been. With no real blows struck, the event seemed a dud, and my story's lead said the two had "argued genteelly."
With the story finished, I went out in the hall to find the Kennedy people ebullient. Pierre Salinger, the press man, greeted me with an ear-to-ear grin and said something about scoring a great triumph. I figured this was Pierre trying to influence my coverage, but as I talked to more and more people it was clear they thought Kennedy had indeed won a great victory.

And of course, he had. I missed it completely because I had been too busy taking notes and writing to get more than fleeting glimpses of what the country was seeing on the screen. Most of the country had been looking, not listening, and what they saw was a frail and exhausted-looking Nixon perspiring nervously under pressure. (pp. 325-6)
Immediately after last night's debate, I thought the outcome was roughly even, and concluded that a draw was good news for Obama. After all, he is leading in the polls, and foreign policy is supposed to be McCain's strength. But the point in an election is not what I think, but what lots of other people think. On that score, Obama had a good night. According to the instant poll from CBS News, Obama had the better night:
Thirty-nine percent of these uncommitted debate watchers said Obama won the debate. Twenty-four percent said McCain won, and another 37 percent thought it was a tie.
Nearly half of those uncommitted voters who watched the debate said that their image of Obama changed for the better as a result. Just eight percent say their opinion of Obama got worse, and 46 percent reported no change in their opinions.
McCain saw less improvement in his image. Thirty-two percent have improved their image of McCain as a result of the debate, but 21 percent said their views of him are now worse than before.
Ezra Klein offers a good explanation of why a draw on foreign policy equals a win for Obama:
But that is not the broader media perception of John McCain's foreign policy. He is a Respected Voice. His authority is assumed. Admired. And starting from that baseline, the debate must have looked quite different. If you thought McCain the only candidate in the race able to talk confidently and fluently about foreign affairs, you were disabused of that notion tonight. Many in the media, it seems, held that notion.
And then there is McCain's demeanor. Any number of commenters have noted his grumpiness and lack of eye contact with Obama. Marc Ambinder writes that McCain seemed truly put out that voters might prefer his opponent:
McCain did not filter himself, letting his frustration and contempt for Obama show; he wouldn't let himself look at the challenger. He seemed to be channeling that famous Saturday Night Live skit featuring "Michael Dukakis" who looks to the camera and says, "I can't believe I'm losing to this guy." Over and over, he adopted the pose of an impatient school teacher: Obama "doesn't understand" or Obama "is naïve."
It would have been sufficient for Obama to convince voters he belonged on the stage and was ready to be president, which he clearly did. John McCain could not counter Obama's gain on that score by saying, through his words and his demeanor, that he didn't think Obama belonged there on stage with him. Early impressions often don't last. But sometime they do, as with Nixon's sweating and Gore's sighing. Are these impressions fair? No. Gore probably couldn't believe he was losing to that guy either. But Obama's self assurance and McCain's seeming petulance may take hold with the public and influence voters in the final weeks of the campaign.

Friday, September 26, 2008

Blowing Up the Bailout Deal

Another day, another bank goes under. The New York Times has the story:
Washington Mutual, with $307 billion in assets, is by far the biggest bank failure in history...
What's remarkable is that this isn't the biggest story of the day. The big story of course is the collapse of the bailout negotiations. Congressional leaders, along with John McCain and Barack Obama, were invited to sit down with George Bush, hopefully to arrive at an agreement. The session was intended to showcase John McCain as coming to town to seal the deal, but instead he sat silent as GOP dissidents blew the whole thing up.
The New York Times reports that
Paulson was literally on his knees:
In the Roosevelt Room after the session, the Treasury secretary, Henry M. Paulson Jr., literally bent down on one knee as he pleaded with Nancy Pelosi, the House Speaker, not to "blow it up" by withdrawing her party’s support for the package over what Ms. Pelosi derided as a Republican betrayal.
"I didn’t know you were Catholic," Ms. Pelosi said, a wry reference to Mr. Paulson’s kneeling, according to someone who observed the exchange. She went on: "It’s not me blowing this up, it’s the Republicans."
Mr. Paulson sighed. "I know. I know."
McCain had said he would skip tonight's debate to help deal with the crisis. Instead, McCain arrived in Washington in time to see the whole thing fall apart. The Washington Post reports that he hardly fit the role of an effective, hands-on leader:
For much of yesterday, McCain shuttled between meetings and his Senate office, but rarely came close to the Capitol suites and committee rooms where the talks were taking place. He had returned to his Crystal City condominium by 6 p.m., where aides said he continued to work the phones in support of the deal.
Boehner and McCain discussed the bailout plan, but Republican leadership aides described the conversation as somewhat surreal. Neither man was familiar with the details of the proposal being pressed by House conservatives, and up to the moment they departed for the White House yesterday afternoon, neither had seen any description beyond news
In other words, McCain was working on behalf of a deal he didn't understand, until he was confronted with the reality that he didn't have the support of many of his House colleagues. As the Times notes, things did not turn out as they planned:
It was the very outcome the White House had said it intended to avoid, with partisan presidential politics appearing to trample what had been exceedingly delicate Congressional negotiations.
Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Senate banking committee, denounced the session as "a rescue plan for John McCain," and proclaimed it a waste of precious hours that could have been spent negotiating.
Many suspected that McCain's stunt of suspending his campaign was meant to divert attention from his slide in the polls. Given his inauspicious foray into the banking negotiations, maybe he should get back on the trail.

Thursday, September 25, 2008

Maybe Bill Lee Should Suspend his Campaign

Maybe Bill Lee should take advice from John McCain and consider not campaigning himself. The News Journal reports that state GOP chairman Tom Ross tried to take a shot at Jack Markell yesterday by citing an old shareholders' lawsuit against Nextel. Why the Lee campaign would imagine that reminding the public that Jack Markell was a successful businessman is beyond me. The suit was dismissed as lacking merit:
Markell has denied any wrongdoing related to Nextel, and indeed the 1995 class-action suit filed against Nextel in federal court in New Jersey was dismissed a year later by U.S. District Judge Alfred M. Wolin, who rejected claims of insider trading.
Jack Markell reacted sharply:
"When a judge looked at these charges, he threw them out of court," Markell said Wednesday. "When the Republicans looked at them, they threw mud."
Bill Lee tried to distance himself from the mudslinging, but Markell would have none of it:
Markell saw no distance between Ross and Lee.
"The judge who is not running for office dismissed these charges," Markell said. "The former judge who is running for office is behind these attacks and should be dismissed as well."
As I said about John McCain, if campaigning isn't working, try not campaigning. Maybe Bill Lee should find a reason to suspend his campaign and return to retirement with his 40 percent of the vote and his good name unsullied by sleazy tactics.

Wednesday, September 24, 2008

Try Something

If campaigning isn't working out so well, then maybe it's time to try not campaigning:
Senator John McCain said Wednesday that he planned to suspend campaigning on Thursday, and seek a delay in this week’s planned presidential debate, so that he could return to Washington to try to forge a consensus on a financial bailout package.
What does he think he's gonna do? Show up Thursday and say, Hey guys, whatcha working on?
In ten days, John McCain has said that the economy's fundamentals are sound, declared that he would fire SEC chairman Christopher Cox when he couldn't, repeated his assertion that markets don't need more regulatory oversight, agreed that the bailout requires more oversight, returned to the idea of diverting Social Security funds into private investment accounts, discussed a joint statement on the bailout with Barack Obama, and finally just announced he was suspending campaigning until further notice—out of sheer exhaustion I suppose.

Stiffening Spines on the Bailout

If banks want the government to bail them out, they will probably have to put something on the table. The New York Times reports that Senate Democrats are not rolling over when it comes to Henry Paulson's plan to assume almost total authority to spend or invest $700 billion in taxpayer funds:

The Senate Democrats' proposals includes two bold provisions. One would grant the Treasury "contingent shares" of stock in any financial institution that wants to sell bad debt to the government; the other would grant bankruptcy judges the authority to modify the terms of primary mortgages, a step aimed at helping homeowners at risk of foreclosure.
Senator Chris Dodd has put forward a proposal that fills in some of the accountability left out of Paulson's plan, and would give the federal government a stake in any company it provides capital to:
(1) IN GENERAL.—The Secretary may not purchase, or make any commitment to purchase, any troubled asset unless the Secretary receives contingent shares in the financial institution from which such assets are to be purchased equal in value to the purchase price of the assets to be purchased.
This is just what happened with AIG. You want our capital? Fine, we own you. As the Times reports, this is how Sweden bailed its banking industry in 1992:
But Sweden took a very different course than the one now being proposed by the United States Treasury. And Swedish officials say there are lessons from their own nightmare that Washington may be missing.
Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.
That strategy kept banks on the hook and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.
If the prospect of turning over the equivalent of five percent of GDP to one man wasn't hard enough to swallow, Republican recalcitrance is stiffening Democratic spines. Democrats don't want to be left holding the bag if GOP lawmakers don't line up behind the bailout. ABC News reports that Republicans won't line up without John McCain:
ABC News' George Stephanopoulos reports: If Republican presidential candidate Sen. John McCain doesn't vote for the Bush administration's $700 billion economic bailout plan, some Republican and Democratic congressional leaders tell ABC News the plan won't pass. "If McCain doesn't come out for this, it's over," a Top House Republican tells ABC News.
McCain's position isn't made easier by the disclosure that his campaign manager's firm was paid $15,000 a month through last month by Freddie Mac. The New York Times reports that Davis's firm (he owns an equity stake) "had been kept on the payroll because of his close ties to Mr. McCain."
The Hill reports that
even Newt Gingrich is blasting the bailout:
Gingrich said he came out against Paulson's plan after looking at the absence of specifics and the focus the plan puts on giving such an enormous amount of money to the federal bureaucracy. "I thought if [Russian Prime Minister Vladimir] Putin had written that, I’d understand it," Gingrich said.
If Bush, Paulson and Bernanke want the money, they are going to have to put some oversight and some upside on the table.

Monday, September 22, 2008

Voodoo Economics and Social Security, Updated

Earlier today, I highlighted John McCain's continuing fascination with privatizing Social Security, which sent me back to my previous postings on the issue. Two years ago today, I tried to sum up why diverting payroll taxes to private accounts for Social Security would be bad public policy:
A dollar cannot be in two places at the same time. Payroll taxes diverted into private accounts would no longer be available to pay for guaranteed retirement benefits. Put another way, Bush wants to at least partially convert Social Security from a defined benefit plan to a defined contribution plan, which would necessarily erode the guaranteed minimum income.
Despite the GOP's enthusiasm for privatization, I'm pretty sure that most Americans who aren't looking for more insecurity in their finances. Privatizing Social Security didn't turn out to be a winner in 2005 and 2006, and I don't think it will be a winner in 2008.

John McCain and the Magic of the Markets

First some good news: the New York Times reports that Barack Obama and John McCain both believe that the $700 bailout requires greater oversight. The bailout would add as much as five percent of our gross domestic product to the federal indebtedness. But when it comes to loading up on debt, John McCain believes we can go further:
But Mr. McCain said in an interview here with CNBC and The New York Times that he would press on with his plan to extend the Bush tax cuts and to cut others.
Contrary to the warnings of fiscal analysts, he said he believed he could do so and balance the federal budget, which was falling deeper into deficit even before the financial crisis, by the end of his first term.
Perhaps the scale of the bailout hasn't sunk in for Senator McCain. Perhaps he has assimilated Dick Cheney's belief that deficits don't matter. But I find it astonishing that he could seriously say that our national government could extend the Bush tax cuts, add another round of new cuts, finance the bailout, and still balance the budget in his lifetime, let alone in his first term.
The bailout would add $700 billion in spending and borrowing authority—five percent of GDP—to be used to buy impaired assets, which means some of that money is gone. To imagine that we could add five percent of GDP to the national debt, further cut taxes and still balance the budget is delusional.
But wait, there's more:
Mr. McCain also stuck by his support for allowing workers to invest a portion of their Social Security payroll taxes in stocks and bonds, an approach that Democrats call privatization and that Mr. Obama has used to suggest Mr. McCain would subject retirees to excessive market risk.
There are few assets or income source that families have been able to rely on in good times and bad. Home ownership used to be a stable asset for families. Social Security provides a reliable, if modest, income for retirees. But the true believers in the magic of the marketplace would rather that all of our assets be subject to market fluctuations. Back in July, McCain had some startling words on Social Security:
"Americans have got to understand that we are paying present-day retirees with the taxes paid by young workers in America today. And that's a disgrace. It's an absolute disgrace, and it's got to be fixed," he said.
If Social Security is a disgrace, it has been so since it was created during the Great Depression. Current workers have paid the benefits of retirees since the program was created, one year before John McCain was born. Its finances were last adjusted 25 years ago, and is running a surplus. But having worked since FDR isn't good enough for John McCain. In the wake of the worst failure of the financial markets since Herbert Hoover, John McCain sincerely believes that the magic of the marketplace will make Bush's Social Security scheme work, pay for another round of tax cuts and finance the biggest bailout of our lifetime.

Saturday, September 20, 2008

Five Percent of GDP

This weekend the executive and legislative branches of our federal government are considering the most sweeping extension of government authority over the economy since FDR.
The proposed $700 billion in spending authority represents roughly five percent of the gross domestic product or GDP. It is more than the current budget for defense, or for Social Security benefits, or for Medicare and Medicaid combined. No wonder Wall Street rebounded at the end of the week.
New York Times has published the text of the sketchy draft, which would give
the Secretary of the Treasury almost limitless authority over that $700 billion. The proposal, presented below in its entirety, is breathtaking in its scope and brevity:
Section 1. Short Title.
This Act may be cited as ____________________.
Sec. 2. Purchases of Mortgage-Related Assets.
(a) Authority to Purchase.--The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.
(b) Necessary Actions.--The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:
(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;
(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;
(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;
(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and
(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.
Sec. 3. Considerations.In exercising the authorities granted in this Act, the Secretary shall take into consideration means for--
(1) providing stability or preventing disruption to the financial markets or banking system; and
(2) protecting the taxpayer.
Sec. 4. Reports to Congress.
Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.
Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.
(a) Exercise of Rights.--The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.
(b) Management of Mortgage-Related Assets.--The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.
(c) Sale of Mortgage-Related Assets.--The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.
(d) Application of Sunset to Mortgage-Related Assets.--The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.
Sec. 6. Maximum Amount of Authorized Purchases.
The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time
Sec. 7. Funding.
For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.
Sec. 8. Review.
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.
Sec. 9. Termination of Authority.
The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.
Sec. 10. Increase in Statutory Limit on the Public Debt.
Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.
Sec. 11. Credit Reform.
The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.
Sec. 12. Definitions.
For purposes of this section, the following definitions shall apply:
(1) Mortgage-Related Assets.--The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.
(2) Secretary.--The term “Secretary” means the Secretary of the Treasury.
(3) United States.--The term “United States” means the States, territories, and possessions of the United States and the District of Columbia.

Friday, September 19, 2008

Self Inflicted Wounds

How did we get in this mess? And how can we avoid it in the future? Floyd Norris has the right idea in the New York Times:
Allow me to propose a simple principle that the next president and Congress could follow as they devise a new financial regulatory regime to replace the one that failed so badly:
If an activity is important enough to justify a government nationalization to prevent a default, it is important enough to be regulated.
As the financial markets crumbled from the unraveling of billions in credit default swaps, Securities & Exchange Commission chairman Christopher Cox swung into action, not by challenging the reckless behavior of the banks themselves, or by questioning the regulatory regime that let them wreck our financial markets, but by going after the short sellers who were betting the banks' stocks would tumble. (Short sellers bet that stocks will go down, usually in anticipation of bad news.) The SEC this morning issued a temporary ban on shorting 799 financial stocks.
Norris has scathing words for Cox's fixation on the shorts:
Had the S.E.C. gone over the records of Lehman and Bear Stearns with the vigilance it now promises for the shorts, we might not be in this mess.
It's commonplace for companies in trouble to blame those betting they will fail instead of their own mismanagement. But blaming the shorts for bringing down an entire sector is absurd. Let's be clear: Our financial system is failing, not because some skeptics took short positions on the big banks, but because the banks were badly managed while our regulators looked the other way. The banks weren't done in by the shorts, but by self inflicted wounds.

Thursday, September 18, 2008

Cleaning Up the Financial Mess

How do we get out of the current financial mess without rewarding those who drove our financial institutions into the ditch? The New York Times reports that our national government is considering plans to take more toxic assets off the books of the Wall Street giants that got us into this mess in the first place:
WASHINGTON — Top officials at the Treasury Department and Federal Reserve began discussing with Congressional leaders a plan to buy up vast numbers of distressed mortgages held by ailing financial institutions.
While the details of the plan remain to be worked out, the discussions could result in the biggest bailout in United States history, and the most direct commitment of taxpayer funds so far in the worst financial crisis that Fed and Treasury officials say they have ever seen.
Some of the comments on my latest Guardian piece raise the question of how much of the current crisis is due to natural economic cycles, and how much is due to lax regulatory oversight. One reader referred to Galbraith's A Short History of Financial Euphoria and concluded: "Only a fool pretends they can stop this." I'm not sure Galbraith would agree.

Wednesday, September 17, 2008

TommyWonk on Biden and Palin

The Guardian has posted another of my opinion pieces on its Comment is free website, this on Joe Biden and Sarah Palin:
Sarah Palin's understanding of the world is as shallow as Joe Biden's is profound. Is she ready for that 3am phone call?
Unless you think that keeping firearms around the house is qualification for protecting our country, there is no doubt that Biden has the superior understanding of national security:
Palin's understanding of the world is as shallow as Biden's is profound. In her first television interview, Palin betrayed her ignorance of the Bush doctrine, in which our current president declared he would act pre-emptively against state sponsors of terrorism. Charles Gibson of ABC News had to gently explain to her that the doctrine was established by our current president to justify the invasion of Iraq. Palin almost casually mentioned in her interview that she would consider war with Russia as an outcome of the recent conflict with Georgia.
In contrast, Biden needs no coaching in the ways of the world. He discussed the options available to the US after returning from a visit to Georgia after Russia sent troops there, including invoking the terms of the Jackson-Vanik amendment, which affects American trade relations with Russia. Biden didn't need a staffer to explain the meaning of this obscure bit of statecraft, which was adopted in 1974, the year Palin celebrated her tenth birthday.
Of course, for some voters, actually knowing the subject isn't so important:
A sign in front of a nearby church recently proclaimed: "God does not call the qualified. He qualifies the called." Ours is a religious country. But in our system of government, we don't leave decisions about our governance to the Almighty, but to the citizens. We get to decide who is qualified to govern us.
The coolest thing about being published by a leading British paper? Seeing my prose edited with British spelling, such as "polarisation."

And Another One Bites the Dust

A really bad weekend was punctuated by the federal buyout last night of American International Group, the world's largest insurance company. Our federal government injected $85 billion of cash in return for warrants that, if exercised, would allow the feds to take a 79.9 percent stake in the company.
You may have thought that insurance was a pretty boring business, and AIG's auto and home insurance businesses are said to be doing fine. The product line that brought the company down involved—you guessed it—mortgages.
The New York Times explains:
What frightened Fed and Treasury officials was not simply the prospect of another giant corporate bankruptcy, but A.I.G.’s role as an enormous provider of esoteric financial insurance contracts to investors who bought complex debt securities. They effectively required A.I.G. to cover losses suffered by the buyers in the event the securities defaulted. It meant A.I.G. was potentially on the hook for billions of dollars’ worth of risky
securities that were once considered safe.

If A.I.G. had collapsed — and been unable to pay all of its insurance claims — institutional investors around the world would have been instantly forced to reappraise the value of those securities, and that in turn would have reduced their own capital and the value of their own debt.
AIG has $440 billion of insurance outstanding on mortgage backed securities. Had AIG failed, the world's largest financial institutions would have been forced to write down the value of these securities on their balance sheets, accelerating the financial crisis.

Tuesday, September 16, 2008

It's the Economy Stupid

A funny thing happened while the country was fixated on the Sarah Palin phenomenon: Our largest financial institutions collapsed.
The chaos in the financial markets didn't come about by accident. It didn't happen because American workers are less productive or families less prudent with their household budgets. It didn't come about because we're a nation of whiners. It didn't come about because of greed on Wall Street. We've seen similar crises throughout history; I don't believe that human nature changes that sharply from year to year.
Instead the crisis with our largest financial institutions came about because, once again, we have let the financial wizards have their way while telling us not to worry about the exotic new products they've peddled to investors and borrowers. But this didn't happened because Main Street is inhabited by rubes. It happened because Washington enabled our financial giants to slip the bonds of regulation and economic reality so they could tell us that this time they really have discovered something so clever that we didn't need to worry about whether it would work or not.
If there is one theme that runs through the history of financial scandal and failure over the last 25 years, it's that we this time the wizards have devised something so clever and foolproof that we don't have to worry about outdated notions like matching assets and liabilities, maintaining reserves and oversight of the capital markets. That's what they said when S&Ls started speculating with federally insured deposits. That's what the Nobel Prize winners at Long-Term Capital Management said before they crashed and burned. That's what the smartest guys in the room from Enron said before going bankrupt. That's what the mortgage brokers said when selling adjustable rate mortgages that forced the federal government to take ownership of Freddie Mac and Fannie Mae. That's what they said before Bear Stearns, Lehman, Merrill Lynch and AIG were brought low.
Fool me once, shame on you. Fool me twice, shame on me. Fool me over and over again, there's something going on. What's going on is that our national government has allowed the same people to sell us the same line and stick us with cleaning up the mess they left behind. Only this time the mess is bigger than we've seen in a long time.
As the AP via the News Journal reports, Joe Biden understands:
"My lord, take a look at what – who got us in this hole, whose policies," Biden said. "This has been a Republican philosophy of letting Wall Street do what they want and the middle class be damned. It's about time we change it. If I sound like I'm angry, I am fighting mad for middle-class people who have been the scapegoat of this economy because of the policies of the McCains and the Bushes."
John McCain didn't seem to catch on until this morning, when his handlers told him he couldn't keep repeating the same line about the fundamentals of the economy being strong. Chuck Todd of MSNBC went back and checked how often he's said that this year:
By our count, he has used that phrase at least 16 times between Jan. 1 and June 5th of this year.
Unlike John McCain, Barack Obama understands that the government has a role in protecting us from the worst excesses of the financial markets:
John McCain cannot be trusted to reestablish proper oversight of our financial markets for one simple reason: he has shown time and again that he does not believe in it.
And so we are rudely awakened from the personality driven politics of the last several weeks to be reminded that, once again, it's the economy stupid.

Sunday, September 14, 2008

Wind Power and Delaware's Next Governor

The premise of today's News Journal article that Jack Markell might exact his revenge on Bluewater Wind for helping John Carney in the primary at first seemed too absurd for me to even consider refuting. The idea that Bluewater Wind was courting Markell's displeasure by allowing Carney to put his prestige on the line is so far fetched that it had not occurred to me or anyone I had talked with over the course of the legislative session. I would know, having kept in close contact with both camps in the long period from December to June when the fate of wind power hung in the balance.
The political landscape was obvious to all. As part of the existing power structure, John Carney had the most to lose if Bluewater got stuck in the General Assembly. Those of us pushing for the General Assembly to support wind power were more than happy to see the pressure put on Carney, given his deep ties among legislators. To his credit, John Carney doubled down by putting his prestige on the line with his advocacy for the agreement to make Delaware the hub for Babcock & Brown's east coast operations, and by putting his weight behind the negotiations between Bluewater and Delmarva Power. Sure he trumpeted his success in pushing for a deal, but who wouldn't? As for Jack Markell, he first voiced his support for wind power in December, 2006, and could hardly change his mind now, even if had any inclination to do so.
Instead of offering an opportunity for payback, Bluewater's success gives Markell an opportunity to build bridges with the labor leaders who backed Carney and supported the wind power project. If he hasn't already done so, Jack Markell will be able to call the electrical workers and building trades and discuss how they were on the same side on this one. I would imagine that he has already discussed it with Sam Lathem of the AFL-CIO, who was particularly outspoken in his support of Bluewater.
The benefits of offshore wind power in Delaware will outlast the tenure of our next governor and several more to follow. Both John Carney and Jack Markell understand that, and would agree that in this case good policy makes for good politics.

Saturday, September 13, 2008

The New York Times Magazine on Wind Power in Delaware

While the county has watched with fascination as the Cape Wind project struggled with a powerful and politically connected set of opponents, Delaware stepped to the front of the line in the race to build the first offshore wind power project in the U.S. Those of us who fought to make wind power a reality in Delaware have wondered when the story would catch the attention of the national media.
The New York Times Magazine tomorrow will publish an extensive article on the Delaware experience. The piece, written by Mark Svenvold, describes how Peter Mandelstam of Bluewater Wind was first drawn to Delaware by an analysis of wind power potential off the coast:
"The moment I read that paper,” the wind entrepreneur Peter Mandelstam recalled, “I knew in my gut where my next wind project would be."
The analysis was prepared by Amardeep Dhanju, Phil Whitaker and Sandra Burton, grad students at the University of Delaware working under Willett Kempton.
It so happened that the day Dhanju’s semester-long research project was discussed, Kempton had invited several wind entrepreneurs to class. Mandelstam was the only invitee to show up in person. It was then that Mandelstam had his eureka moment.
The early story of how professors Kempton and Jeremy Firestone first drew Bluewater Wind to Delaware is still not widely known, and well worth reading. The two years of struggle to bring wind power to Delaware all came about because Mandelstam accepted Kempton's invitation to discuss wind power with his class.
Jeremy wrote me this morning that the article rings true, except that it misses the story of "how citizens led the decision makers and elected officials and the open process that led to the outcome." Professors Kempton and Firestone will be on Radio Times with Marty Moss-Coane on WHYY, 91 FM, Monday morning at 11:00 to flesh out the story.
My name comes up briefly in the discussion of wind power economics, along with that of a certain candidate for governor who supported wind power early in the process. The juxtaposition with NRG's proposal to build a new coal power plant and the subsequent struggle with Delmarva Power are correctly described as shaping the debate.
But the story of how Delaware's activists drove the debate still has not been fully told. Last week, Barbara Hill of Clean Power Now in Massachusetts was tapped to sit on a panel at the gathering of the American Wind Energy Association right here in Wilmington. No activist from Delaware was selected to take part in the proceedings, even though we have succeeded where Massachusetts is still struggling. Much of the story of the role citizens played in bringing offshore wind power to Delaware remains to be told.

Thursday, September 11, 2008

Primary Results from Wilmington

Buried in the big news from Tuesday were some surprising results from Wilmington. Most observers were surprised that Norman Griffiths outpolled Theo Gregory in the race for City Council president. While both are well respected, Theo was seen as having the inside track as chair of the Democratic city committee. As happened with John Carney, being the favorite among party regulars was not enough to get him across the finish line first when faced with an able and determined rival. Even though Norm Griffiths is seen as a somewhat reserved guy, he was out there going door to door across the city, and had workers deployed in election districts that Theo didn't cover.
The Democratic Party in Wilmington isn't a single organization, but a network of smaller fiefdoms with complicated and often conflicting loyalties. Even when party loyalists voice their preferences, candidates like John Carney and Theo Gregory still had to patch together an effective street organization out of many diverse pieces.
The election in Wilmington signalled something of a youth movement. Three relatively young men won elections over older rivals: Ernest M. Congo in the 2nd district, Steve Martelli in the 8th, and Justen Wright in an at-large slot. Congo and Wright both come from prominent funeral home families. Two other young contestants gave established Council members a scare: Nnamdi Chukwuocha came within two points of Charle Potter, Jr. and Richard Dyton fell just 41 votes short of Stephanie Bolden.

Tuesday, September 09, 2008

Jack Markell and Tim McBride

At his victory celebration tonight, Jack Markell was introduced, not by an established Democratic name, but by a teenager, Tim McBride, who is active in the Young Democrats Movement and managed the field organization for Jack in the 4th representative district. WDEL carried the introduction live, and Allan Loudell mentioned that he had never seen a major party nominee introduced by a teenager.
Jack Markell shook Delaware politics to its core with tonight's victory in the primary for governor by building his own grassroots organization that, at least in some districts, outperformed the Democratic machine. The task ahead for Markell and the party regulars is to bring in the new activists into the organization in a way that strengthens the party for November and beyond.
As for those who imagined that a closely fought Democratic primary would work to the advantage of the Delaware GOP, forget it. First, thousands of Republicans switched their registration to support Jack Markell, and are hardly likely to switch back to Bill Lee. Seocnd, there's that pesky Mike Protack, who will syphon off a few points from Lee in the general election. Third, there's the organizational advantage that Markell has built over the last two years, in contrast to Lee, who is widely seen as phoning it in. Finally, let's not forget our two senators, who will not be in the mood to let a sharply contested primary divert the party from victory this year. Tom Carper stopped in at the Markell celebration to share a few private words with our next governor.

Primary Day in Delaware

There are more contested races in today's primary than we've ever seen, starting with the Democratic and Republican nomination for governor. By tonight, we will know whether John Carney or Jack Markell will be our next governor. (Expected GOP nominee Bill Lee has hardly campaigned.)
John and Jack will be fielding the largest organizations of volunteers and paid campaign workers anyone has seen in a long time. John will have the party regulars and unions behind him; Jack has put together his own field organization from scratch.
And the fun doesn't stop there. We have hotly contested races for insurance commissioner, New Castle County executive, and Wilmington city council on the ballot. You would think the top races would take up all of the attention and volunteers, but up and down the ballot, candidates will have their own squads of poll workers.
Delaware politics customarily resembles an orderly corporate succession, but not this year. I've seen what a well managed army of enthusiastic volunteers can do to upset the natural order of things. Joe Biden did it in 1972. Jim Sills beat the incumbent to become mayor in 1992.
The so called Delaware way is not that everything is worked out in advance (as John Carney had hoped), but that folks work together after the election, as I expect will happen with most candidates and their supporters this time around. Most candidates and their supporters get involved because they care about governing. There will be plenty to do when all the votes have been counted, starting with the general election in eight weeks.
My advice for today is to keep your cool, wear comfortable shoes and enjoy the day.

Sunday, September 07, 2008

Primary Day on Tuesday

With the primary on Tuesday, time, money and patience are running out. All of the campaign lit has been printed and either mailed or dropped, and all of the arguments have been played out in the media and in door to door conversations. It's all now down to execution: Do we have the workers we need for Tuesday? Where should we deploy them? Which voters in which neighborhoods should we worry about getting to the polls?
Delaware has never seen so many contested primaries, and I expect record numbers of volunteers and paid campaign workers to hit the streets, and unusually high voter turnout on Tuesday. I will be working on Tuesday to elect my city councilman, Cam Hay. Here's a letter to the editor that offers some reasons why he deserves to be returned to council, including his work to revise the zoning map in the district where I live.
If you want to know where you vote on Tuesday, the Department of Elections has a handy polling place finder.

Friday, September 05, 2008

John McCain's Acceptance Speech

The New York Times neatly sums up John McCain's campaign for the presidency in the headline:
The Party in Power, Running as if It Weren’t
McCain is doing this by playing up his maverick image:
As Senator John McCain accepted the Republican nomination for president, he and his supporters sounded the call of insurgents seeking to topple the establishment, even though their party heads the establishment.
He presented himself as non-partisan:
You well know I've been called a maverick, someone who... someone who marches to the beat of his own drum. Sometimes it's meant as a compliment; sometimes it's not. What it really means is I understand who I work for. I don't work for a party. I don't work for a special interest. I don't work for myself. I work for you.
Eschewing party interests makes for good copy, but McCain has handed his campaign over to the disciples of Karl Rove in a Faustian bargain to win the election--the same people who used the most scurrilous tactics to attack his character back in 2000.
Running as a reformer is appealing, but McCain offered less in the way of specifics than Obama did a week ago. He said he would veto earmarks (even though he picked a running mate who gorged on them). He said he would cut taxes, drill for oil, fight Al Qaeda and stand up to Iran and Russia. He mentioned housing once, without saying what he would do for families that are losing their homes. He said he "will make it easier for more Americans to find and keep good health care insurance," without saying how.

He did not mention climate change or the environment at all.
He mentioned Iraq twice, and only in the past tense. Set aside the talk about heroism and reform, and the speech is pretty much standard Republican conservatism, except that he's leaving the social conservatism to his running mate.
Last week, Barack Obama answered those who said he was long on stirring speeches and short on specifics when he said he would "spell out exactly what that change would mean" if he were elected. He demonstrated that he was ready for high office by picking a running mate who is manifestly ready to help him govern.
John McCain did not offer a anything close to a program for governing. He demonstrated that he is not ready for high office by casually choosing a running mate who is woefully unprepared to help run the country. It's hard to run as the candidate of change as the nominee of the party in power for the last eight years, but John McCain is trying.

Thursday, September 04, 2008

Sarah Palin's Big Speech

Sarah Palin's speech last night fired up the cultural conservatives and libertarians in the Republican Party. She defended her selection as John McCain's running mate, and blamed the ensuing controversy on, who else, elites:
I've learned quickly, these past few days, that if you're not a member in good standing of the Washington elite, then some in the media consider a candidate unqualified for that reason alone. But here's a little news flash for all those reporters and commentators: I'm not going to Washington to seek their good opinion -- I'm going to Washington to serve the people of this country.
Attacking elites is time honored stuff, but a bit disingenuous given that her party has been in charge of our country for the last eight years.
Unfortunately for Sarah Palin, the buzz over her improbable nomination isn't just coming from Washington. Her nomination may be shoring up John McCain's standing among his own party, but after several days had not done anything to bring along independent voters, including women.

A Gallup analysis of its tracking poll shows that McCain's support among Republican white women improved five points, from 85 percent to 90 percent in the period of August 30 to September 1. In contrast, Obama showed an eight point bump among independent white women. Obama improved 11 points among independent white men.
I expect these numbers to move a bit in McCain's direction now that the GOP convention is fully underway. But so far, Palin's selection has not helped him among independents.
Adam Nagourney describes the road ahead for her in the New York Times:
From here, Ms. Palin moves into a national campaign where she will have to appeal to audiences that are not necessarily primed to adore her. She will have to navigate far less controlled campaign settings that will test not only her political skills but also her knowledge of foreign and domestic policy. And she must convince the country she is prepared to be vice president at a time when the definition of that job has been elevated to the status of governing partner — something voters might have been reminded of Wednesday by images of Vice President Dick Cheney embarking on a mission to war-torn Georgia.
“The people who are in the hall — they’ve already been sold, they are the choir,” said John C. Danforth, a former Republican senator from Missouri,. “Now the question for her and for McCain and for everybody who is inside the hall is how to clarify their message to the American people.”
So far, it's only the choir that's been clapping along with Sarah Palin.

Tuesday, September 02, 2008

One Storm that Isn't Blowing Over

Republicans hoped the storm would all blow over, meaning the storm over the botched pick of Sarah Palin as John McCain's running mate. But it doesn't look like it will anytime soon.When faced with unwelcome news, there's the time honored tactic of releasing it when folks aren't paying attention, which is what the New York Times reports that the McCain campaign was trying to do:
“We are going to flush the toilet,” said Tucker Eskew, who is a senior adviser to Ms. Palin, describing the campaign’s plans for Labor Day, when much of the nation was busy with family and social activities.
The trouble is a pregnant teenager is the kind of story that is irresistible even when families are disinclined to talk about Georgia or energy policy. A daughter's pregnancy is hardly a threat to the republic, but it has added to the growing story of a botched roll out of McCain's running mate.
Even an experienced hand like Priscilla Rakestraw couldn't resist an apt but unfortunate quote, given here to USA Today:
"I think there will be a period of surprise and questions: When did McCain know and what did he know?" said Priscilla Rakestraw, a Republican National Committee member from Delaware.
For instance, did he know about Palin's membership in a party calling for a vote on secession from the United States? Jake Tapper of ABC News noticed that the fringe party's motto is at odds with McCain's latest slogan:
Officials of the Alaskan Independence Party say that Palin was once so independent, she was once a member of their party, which, since the 1970s, has been pushing for a legal vote for Alaskans to decide whether or not residents of the 49th state can secede from the United States.
And while McCain's motto -- as seen in a new TV ad -- is "Country First," the AIP's motto is the exact opposite -- "Alaska First -- Alaska Always."
Lynette Clark, the chairman of the AIP, tells ABC News that Palin and her husband Todd were members in 1994, even attending the 1994 statewide convention in Wasilla. Clark was AIP secretary at the time.
But at least she has that mavericky opposition to earmarks, doesn't she? Not according to the Achorage Daily News:
But Palin was for the Bridge to Nowhere before she was against it.
But wait, there's more, according to the Washington Post:
ST. PAUL, Minn., Sept. 1 -- Alaska Gov. Sarah Palin employed a lobbying firm to secure almost $27 million in federal earmarks for a town of 6,700 residents while she was its mayor, according to an analysis by an independent government watchdog group.
As far as I know, Wilmington, Delaware's largest city (where I used to work) has never hired a Washington lobbyist. Wasilla is smaller than one of Wilmington's council districts. I'm trying to imagine how one might spend $27 million in my council district.
But doesn't McCain's have an advantage on national security? We could ask an experienced GOP hand like David Frum:
Ms. Palin's experience in government makes Barack Obama look like George C. Marshall.
Now might be a good time for some counter punching from a master brawler like Karl Rove, who tried to land a blow on Joe Biden:
When the topic of running mates came up, he referred to U.S. Sen. Joe Biden (D-Del.) as a "big, blowhard doofus."
Well gosh, that hurts.
As for Biden himself, the Washington Post reports that he has the good sense to stay out of the way of this train wreck:
"I know people worry about Biden-style talk, but the truth is, I simply don't know. I take her on face value. She's a governor, that's no mean feat, and she seems to have a strong personal story."
Biden said that, based on what he knows, "There is no reason not to respect her and believe she's qualified to be vice president." "I have a simple proposition, children are off limits," he said, getting loud applause from the audience as he repeated a rule Obama issued yesterday.
Stay tuned.

Monday, September 01, 2008

Lost in the Flood

Lost in the flood of stories about Hurricane Gustav and Sarah Palin is the first of four days the Republicans scheduled to explain why they should be entrusted with running the country. Yes there are pundits who are earnestly telling us why bad weather or a bungled VP pick is good news for John McCain, but a presidential campaign gets only so many chances to speak directly to voters, and the McCain campaign just lost one of those days.
Keep in mind that the hurricane story isn't about to blow over. Hannah and Ike are queuing up in the Caribbean.
As for the Sarah Palin story, it isn't working out quite as John McCain anticipated. As a friend points out, she has an appealing quality in a made for television way: Hockey mom and small town mayor becomes governor and then vice presidential nominee. The story of everyman (and everywoman) going to Washington to talk sense to the powers that be has a long standing appeal in popular culture. But Sarah Palin's charm is being buried by the steady rain of stories that point to a stunning failure to properly vet her for the second highest job in the land. This story isn't blowing over, either.