“Soft despotism is a term coined by Alexis de Tocqueville describing the state into which a country overrun by "a network of small complicated rules" might degrade. Soft despotism is different from despotism (also called 'hard despotism') in the sense that it is not obvious to the people."

Tuesday, September 30, 2008

McCain on Offense Over Freddie and Fannie?

This ad is a start, but is too timid. Crank it up.


A Federal Probe of Fannie and Freddie
The mortgage giants have received grand-jury subpoenas on accounting and governance matters as the FBI widens its financial investigation

by Keith Epstein


There's nothing quite like a crisis to draw investigators looking for criminal action.

So it is now for the latest targets of various investigations: Fannie Mae (FNM) and Freddie Mac (FRE), the residential financing powerhouses whose accounting and disclosure records are being examined by a federal grand jury in New York. They join a corporate who's who of players swept up in the cascading economic crisis that also find themselves the subject of scrutiny by the FBI and others, from Lehman Brothers and insurer American International Group (AIG) to failed IndyMac Bancorp and mortgage lender Countrywide Financial.

In Freddie's case, the grand jury is focusing on "accounting, disclosure, and corporate governance matters" since January 2007, the McLean (Va.)-based company confirmed Sept. 30. Freddie said it received a subpoena on Sept. 26 from the U.S. Attorney's Office in Manhattan, as well as a notice from the Securities and Exchange Commission informing it of a separate inquiry. In both instances, the company was asked to preserve documents.

"Freddie Mac will cooperate fully," the company said in a statement. Fannie disclosed it had received a subpoena as well, in filings with the SEC.

Altogether, in the past year, some 26 companies with roles in the financial crisis have come under investigation, often because of suspected fraud. The SEC and Justice Dept. have declined to comment on the investigations. The FBI appears to have expanded its investigations not only to mortgage lenders but also investment banks, especially those that bundled home loans into securities. Among the current cases is one involving Bear Stearns; two former managers were arrested in June on securities fraud and other charges.

As long as 10 months ago, press reports suggested that Fannie masked potential losses on bad loans by using new accounting procedures. Both Fannie and Freddie have had to restate earnings in past years, following discoveries by federal regulators of irregularities on the companies' books.

A number of members of Congress, including several on the Senate Judiciary Committee, have urged the FBI to be more aggressive in pursuing possible criminal charges against major players in the crisis. "If people were cooking the books, manipulating, doing things they were not supposed to do, then I want people held responsible," said Senator Patrick Leahy (D-Vt.), the committee's chairman, at a Sept. 17 oversight hearing on the FBI. "And I suspect every American taxpayer—I don't care what their political background is—would like them held responsible."

Presidential candidate John McCain is doing his part to leverage what he considers Democrats' responsibility for the failure of Fannie and Freddie. In a new national TV ad, McCain blames Democratic rival Barack Obama for failing to take action as the companies floundered. "John McCain fought to rein in Fannie and Freddie," the ad states. "Obama was notably silent."

The ad makes no mention of the McCain campaign's own connections to Freddie and Fannie. The lobbying firm of McCain's campaign chairman, Rick Davis, received more than $2 million since 2000 from Freddie; starting in late 2005 or early 2006, Freddie paid $15,000 a month. Both Freddie and Fannie paid Davis some $30,000 monthly from 2000 to 2005 for running an organization promoting homeownership.

Nancy Pelosi, the Trillion Dollar Fool

Let's make this simple. Nancy Pelosi could have passed this bill. Lyndon Johnson would have passed it in a heart beat. The Democrats own Nancy Pelosi and they own the the trillion dollar loss inflicted on American wealth.


With friends like Pelosi, U.S. rescue plan hardly needs enemies

Posted: September 29, 2008, 6:30 PM by Kelly McParland
Full Comment, Kelly McParland, U.S. election National Post

Nancy Pelosi is one piece of work.

The Democratic Speaker of the House got up Monday to deliver an address supposedly intended to encourage legislators to pass the revised rescue plan that had been worked out at such great effort over the weekend.

Pelosi planned to vote for the package. She had been instrumental in negotiating it. She needed to convince other House members to do so as well, since feelings remained so high it was far from certain the measure had enough support to pass.

So what does she do? She devotes her speech to trashing the Bush administration, blaming it for the whole mess, picking over eight years worth of sore points between Democrats and Republicans and generally doing everything she could to revive the partisan bad feeling that has made an agreement so agonizingly difficult to achieve.

Who you calling a dumb ass?

She ridiculed the original plan brought to Congress by the Treasury Secretary and the chairman of the Federal Reserve; she emphasized repeatedly the vast amount of money at stake and characterized it once again as a bailout for a bunch of overpaid Wall Street money-grubbers-- fuelling the fierce sense of resentment among voters that other leaders have been striving to overcome.

She reamed out Bush, reamed out the deal, reamed out Wall Street and bitched mightily that Congress had been confronted so unexpectedly with such a monumental crisis.

If she’d set out to alienate the very people she needed to get the measure approved, she could have done a better job.

Sweet, Nancy. Very sweet.

- Kelly McParland

Monday, September 29, 2008

Monday Morning Scorecard?

Autumn. A wonderful time of year which brings welcome relief from heat and the return of football. Traditionally, on Mondays, fans sought out the collegiate and NFL results but this year, many of us also look to see the weekend banking results. This Monday, the US loser Wachovia has European company.

Europe Sees Three Bank Bailouts in Two Days

The crisis sparked by the collapse of Wall Street investment banks continues to spread through Europe. Three major banks were bailed out by private banks or governments on Sunday and Monday, including Germany's Hypo Real Estate, the Dutch-Belgian Fortis and Britain's Bradford & Bingley.

A consortium of banks has stepped in to bailout Munich's Hypo Real Estate.
Getty Images

A consortium of banks has stepped in to bailout Munich's Hypo Real Estate.
As Washington lawmakers came to an agreement on an unprecedented $700 billion taxpayer-funded financial market bailout aimed at bringing the current crisis under control, Europe saw three massive bank bailouts on Monday. A consortium of banks has stepped in to save Germany's Hypo Real Estate, the British government has nationalized mortgage lender Bradford & Bingley and the governments of the Netherlands, Belgium and Luxembourg have taken 49 percent stakes in the national assets of Fortis, the largest European bank to be hit by the global crisis yet.

In Germany, a consortium of banks has stepped in to save Europe's largest mortgage lender from collapse. On Monday morning, the Deutsche Bundesbank, the German central bank, and the financial supervisory authority BaFin said the German finance sector had provided Munich's Hypo Real Estate with a credit line "sufficiently high" to save the company from insolvency.

The previous evening, Hypo Real Estate announced it would have to write down the goodwill in its stake in Depfa, an Irish bank, and would forego a dividend payment. The company did not state the scope of the write down. "This impairment will have a significant material effect on our profit and loss calculations for the group," Chairman Georg Funke said.

However, the Bundesbank and BaFin said the rescue package would be sufficient to save the company from failing as a result of problems created by the turmoil in the international financial markets. The organizations did not state which banks were involved in the bailout. Kerstin Vitvar, an analyst with UniCredit, told Reuters she estimated the value of the credit line at between €25 and €30 billion ($43 billion).

On Monday, Hypo Real Estate's Funke said the package would cover the group's refinancing needs for the foreseeable future, and that the short- and middle-term credit lines of "more than several billions of euros" would be enough to shield the company from the influence of the "currently largely inoperative international money markets."

As late as Sunday evening, the company -- the first amongst Germany's DAX index of blue chip firms to fall into the grip of the worldwide financial crisis -- appeared on the verge of declaring insolvency.

Nationalizations of Bradford and Bingley and Fortis

Meanwhile, underscoring the Europe-wide exposure to the crisis, the British government on Monday announced it would nationalize mortgage lender Bradford & Bingley. The Treasury said it would take over the troubled company's mortgage and loan books for £50 billion (€62.7 billion or $89.8 billion.) The government said it would take over the company's mortgages and facilitate the sale of its £20 billion pound savings and branch network to Spanish banking giant Santander.

"We are standing behind the system to stabilize it because to let Bradford & Bingley go down would have destabilized the entire system, especially given what's gong on in the world at the moment," British Finance Minister Alistair Darling told BBC radio.

The bank focused on so-called buy-to-let mortgages for rental properties, whose owners have been hit hard by troubles in the United Kingdom's housing market, where falling property prices and rising mortgage rates have left many unable to cover their monthly mortgage payments.

Benelux Bailout

The news came one day after the Dutch, Belgian and Luxembourg governments announced an €11.2 billion bailout of troubled Fortis bank, which saw a partial nationalization of the company. Fortis is Belgium's largest bank, and the government in Brussels is providing €4.7 billion for a 49 percent stake in the company's Belgian operations. Luxembourg is providing €2.5 billion for 49 percent of Fortis Bank Luxembourg, and the Dutch are investing €4 billion for 49 percent of Fortis Holding Netherlands.

Negotiations over the partial nationalization were led by Jean-Claude Trichet, the president of the European Central Bank, underscoring his concern over the financial stability of the euro zone, the area where Europe's common currency is used, if Fortis were to collapse. With over 85,000 global staff and cross-border structures, the governments felt it could not be allowed to fail.

The company's chairman has resigned and the governments are also forcing it to sell its stake in ABN Amro, the bank's main competitor, which it purchased as part of a consortium with Royal Bank of Scotland and Spain's Santander one year ago. The consortium paid €70 billion, the greatest amount ever paid to acquire a bank. Since the purchase, Fortis shares have lost more than three-quarters of their value. Last week the company's shares dropped by a third over investor concern about its liquidity.

Fortis itself paid €24 billion for its share in ABN Amro, reducing its available capital. As a result of the current credit crisis, the company has had trouble getting capital increases or selling off assets.

-- dsl, with wire reports



Does Ahmadenijad Speak for Islam?

West, Islamic nations split at nuke meeting

By GEORGE JAHN, Associated Press WriterMon Sep 29, 3:06 AM ET

VIENNA, Austria — Islamic anger over Israel's nuclear program and bids by Iran and Syria to gain more influence threaten to turn this week's 145-nation International Atomic Energy Agency meeting into an unprecedented showdown between the West and the developing world.

Opening Monday, the IAEA's general conference has traditionally been an annual chance for the United Nations nuclear monitoring agency's member countries to plan general nuclear policies that range from strengthening nonproliferation to programs of medical and scientific benefit.

Decisions are traditionally made by consensus, a practice that had led all sides to bridge sometimes substantial differences and opt for compromise on most issues for most of the general conference's 52-year history. A vote on any topic is unusual and considered a huge dent in the meeting's credibility.

But Islamic frustration over Israel's refusal to put its nuclear program under international purview and resistance by the Jewish state to Muslim pressure on the issue threatens to force a vote for the third year running.

After losing the vote two consecutive years, Islamic nations are threatening to up the ante this year, warning they will call for a ballot on every item, no matter how uncontroversial, unless they get conference backing on the issues close to their heart.

"In all my years of dealing with the general conference, I have never seen it as divided as this," said one conference veteran Sunday, the eve of the conference. The diplomat demanded anonymity because he wasn't authorized to comment to the media.

As in the past two years, Islamic IAEA members are expected to put forward a resolution urging all Mideast nations to refrain from testing or developing nuclear arms and urging nuclear weapons states "to refrain from any action" hindering a Mideast nuclear-free zone.

Israel, widely considered the only Mideast nuclear weapons state, last year called for a vote on that resolution because of the introduction of a separate Arab-backed resolution deeming Israel a "nuclear threat" and refusal by its sponsors to withdraw it. The resolution was defeated but the fact it was put to the ballot further weakened the consensus principle.

Arab members — backed by Iran — this year have again asked conference organizers to include a similar item. Although it is now labeled "Israeli Nuclear Capabilities" instead of "Nuclear Threat," the Jewish State still objects to being singled out. And diplomats told The Associated Press ahead of the meeting that it will again force a vote on the Mideast nuclear-free zone resolution unless the second item is withdrawn.

Focusing on Israel by name "is substantially unwarranted and flawed," said a letter prepared for review by the conference from Israel Michaeli, the Jewish State's IAEA representative.

Sponsors of the item should instead "address the most pressing proliferation concerns in the Middle East," said the letter in allusion to Iran's defiance of U.N. Security Council sanctions for refusal to stop uranium enrichment and world concerns about allegations that Tehran had past plans to make nuclear weapons.

On Saturday, the U.N. Security Council approved a fourth resolution critical of Tehran's defiance on uranium enrichment, which can create both nuclear fuel and the fissile core of warheads.

But Iran, along with ally Syria, figures even more directly at the Vienna conference because they are among four nations seeking their geographic region's nomination for a seat on the IAEA's decision-making 35-nation board.

Iran's bid is strategic. Tehran is running to counteract a U.S. push to have Afghanistan or outsider Kazakhstan elected over Syria, which is under IAEA investigation for allegedly hiding a secret nuclear program, including a nearly completed plutonium producing reactor destroyed last year by Israel.

Tehran is ready to withdraw from the race if Afghanistan does so, narrowing the field to favored Syria and Kazakhstan, diplomats told the AP. But as of Sunday, Afghanistan, backed by the U.S. and its allies, was not ready to do so.

If the regional group does not agree on a candidate by the time the conference turns to the issue, the meeting will also be asked to vote on which nation should take the board seat.


On the Net:

Special Field Order 15 - January 16, 1865- Major General William Tecumseh Sherman

Sunday, September 28, 2008

Hugh Hewitt and Ron Paul on the Financial Restoration Bill - Two Views

Hat tip: whit

Sunday, September 28, 2008
A Responsible Exercise of Representative Government

Posted by: Hugh Hewitt at 7:46 AM

The outline of the deal reached by legislators and the Administration represents not just the restoration of confidence and liquidity for Wall Street and thus a breakwater for Main Street, but also a reassuring return of purposeful legislating by the Congress. I expect not to like many of the details, but my party is in the minority on the Hill, and cannot expect to carry such matters. President Bush and his team have been acting responsibly throughout this crisis and continue to do so. The most talented and mature Republicans in the Congress --I single out Senator Jon Kyl as I interviewed him on Friday and can thus say with assurance that he has been working hard to resolve this incredibly complex and perilous situation-- have been working to assure the package does what it has to do with minimum long-term disruptions to the market. From the account in the Wall Street Journal, Speaker Pelosi also played an important role worthy of her office in bringing the negotiations to a close. All Americans should thank her and the other responsible legislators for working to get this done before the markets opened on Monday.

As Bill Dyer notes below, John McCain has also been working hard to rescue the rescue, demonstrating a presidential temperament that will serve him very well if he is elected and must work with Democratic majorities. (For an account of Senator McCain's conduct in the White House meeting, see my interview with White House Deputy Chief of Staff Joel Kaplan.) The next question is the the response of the House Republicans, which I hope follow that of the Senate GOP and the Administration. Some will not be able to sign on, I suppose, because they genuinely believe the package to be a disaster. Any sincerely held view should be respected, but I think the majority of the GOP House members will recognize that this is one of those rare moments where they must act as the Democrats did after 9/11 and through the following year --they must act to shape but not obstruct the will of the democratically-elected majority and the president in the course and aftermath of a crisis.

Such episodes as the one we are going through are always watched closely around the globe, and nowhere more so than in emerging democracies like Iraq's. If, as appears likely, the two parties which are on opposite sides of a deep ideological divide can work together to resolve a crisis and then immediately return to throwing hammers at each other for five weeks, this will be as great an example of the wonders of our system that can be imagined.

White Privilege

Linearthinker is Welcomed to The EB Board of Directors

Veronica will show you around.

Saturday, September 27, 2008

Obama, Black Congressional Caucus and The Banking Meltdown

"The world is fast developing geopolitically."

"The world is fast developing geopolitically." Hugo Chavez.

Russia offers Chavez nuclear help amid US tensions
Sep 26 02:05 AM US/Eastern
Venezuelan President Hugo Chavez was to meet Russian counterpart Dmitry Medvedev on Friday after Russia risked Washington's wrath by offering the fierce US foe help developing nuclear energy.

The two were to meet in the city of Orenburg after hawkish Prime Minister Vladimir Putin told Chavez in Moscow on Thursday that Russia was "ready to consider the possibility of cooperation in nuclear energy."

The countries have boosted ties in recent weeks following sharp US criticism of Russia's incursion into Georgia, with Moscow dispatching long-range bombers and warships to Venezuela for exercises near US waters.

Putin made the nuclear offer after Russia this week delayed talks with the United States and other powers on fears Iran is developing nuclear weapons, concerns critics say have been exacerbated by civilian nuclear technology provided by Moscow.

Chavez called for increased ties with Russia as a counter-balance to US power.

"Today like never before all that you said on the multi-polar world becomes reality. Let us not lose time," Chavez told Putin. "The world is fast developing geopolitically."

In deployments not seen since the Cold War, Russia this month sent two long-range bombers to Venezuela for exercises and has dispatched a flotilla of warships from the Arctic base of Severomorsk to Venezuela, near US waters.

Putin thanked Chavez for the "warm welcome" given to the planes and said South America was growing in importance for Moscow.

"Latin America has become an important chain-link in creating a multipolar world, and we will pay more attention to this vector," he said.

Russia's relations with the United States are in a deep chill, most recently over the brief war in Georgia last month -- a conflict where Chavez was one of the few world leaders to support Moscow.

During that war, Washington angered Moscow by holding naval exercises near its Black Sea coast. And when the war ended, the United States used warships to deliver humanitarian aid to Georgia.

Chavez and Medvedev were expected to touch on military and energy cooperation in Friday's talks, a Kremlin official said.

The Kremlin on Thursday announced that Russia had granted Venezuela a one-billion-dollar (682-million-euro) loan to buy Russian arms.

Venezuela has signed deals for 4.4 billion dollars' worth of Russian arms since 2005, including fighter jets, tanks and assault rifles.

Russia's Kommersant daily reported last week that Venezuela was planning to purchase anti-aircraft systems, armoured personnel carriers and more combat aircraft.

Chavez arrived in Russia from China and will continue on to France as part of a world tour ahead of local elections in Venezuela in November. It is his third trip to Russia since June of last year.

Russia is buying friends and influencing people in our own back yard. Russia has the third largest cash reserves in the world and has established itself as an aggressive, major energy player while the United States is suffering a financial meltdown. The next President will face Russia, Iran, Venezuela, South Korea, al-Qaeda and a rising fundamentalism throughout the Islamic world. A world of troubles destabilized by misfits and malcontents bent on opposing capitalism and freedom. In the last century this conglomerate of dysfunctional ideologies were spearheaded by Communism. Communism went by the way side, but the dysfunction never died. As long as mankind survives on this planet, he must battle the dark forces of bitterness, greed, envy and malevolence. This duty falls to every generation in one form or another.

No one knows the outcome of our current financial crisis. We could be entering a decade or longer period of recession, malaise or depression. It seems very likely that the next President will be forced to fight the good fight with a hamstrung economy even as the dark forces have overflowing coffers.

Question: Obama vs Chávez & Putin, or McCain?

Do you even have to ask? The professorial theorist or McCain? The community activist or McCain? The community activist or the life long warrior? A man who gave blood for his country or a bench warmer in Reverend Wright's "God Dammed America Church"?

How could this even be close?

In the previous post:

bobal said...

Excellent caller from KGO.
Says he been in the hiring business all his life. Two kinds of people, talkers and knowers, doers. Always hire the knowers, doers. Talkers use abstractions, and, with the proper voice inflextion, tone and cadence, you can make a statement such as, "I would use our military wisely", which any 6th grader can say and agree with, and make it sound profound, even though really nothing has been said.

McCain is the knower, doer of the two, Obama the talker.

Hire McCain.


Medvedev and Chávez sign $1 billion military loan

By Graham Bowley and Michael Schwirtz Published: September 26, 2008

Russia stepped up efforts to project its increased might on the world stage on Friday, welcoming President Hugo Chávez of Venezuela by signing a $1 billion military loan to the country and announcing wide-ranging plans to modernize Russia's nuclear deterrence.

The Russian Navy also dispatched a warship to the Indian Ocean to try to intercept a Ukrainian vessel reportedly carrying 30 battle tanks that was seized by pirates. The United States also sent a warship in hot pursuit.

After a military exercise in the southern city of Orenburg, near the border with Kazakhstan, President Dmitri Medvedev declared Friday that by 2020 Russia would construct new types of warships, including nuclear submarines carrying cruise missiles, and an unspecified space defense system.

"A guaranteed nuclear deterrent system for various military and political circumstances must be provided by 2020," Medvedev said, in comments reported by Reuters.

"Large-scale construction of new types of warships is planned, primarily of nuclear submarines armed with cruise missiles, and multipurpose submarines," he was quoted as saying. "A system of air and space defense will be created."

Irritated by Western recognition of the independence of Kosovo, NATO's expansion into the former Soviet realm, and the United States' insistence on establishing a missile defense system in Eastern Europe, Russia has become increasingly determined to project its military might and defiantly ignored American and European warnings when it sent troops into Georgia last month.

In a sign of increasing antagonism, Moscow has withheld some cooperation with Western countries on international efforts to halt Iran's nuclear ambitions.

The Russian government said Tuesday that it would boycott a meeting that had been scheduled at the United Nations for Thursday to discuss a fourth round of sanctions to force Iran to give up what many countries think is a program to develop nuclear weapons. The session was to have included the five permanent members of the Security Council and Germany.

The Russian announcement was viewed by many diplomats as retribution for a tough speech that Secretary of State Condoleezza Rice delivered last week in which she denounced Russia's behavior in the Georgian conflict.

At the Pentagon on Friday, officials were calm, even muted, in their response to the statements from Russian leaders, with the highest-ranking American military officer saying the announcement on upgraded nuclear deterrence was a reaffirmation of military modernization plans the Kremlin already had described to their American counterparts.

And the officer, Admiral Mike Mullen, chairman of the Joint Chiefs of Staff, also said that closer Russian ties to Venezuela at their current levels did not constitute a significant threat to American national security.

Mullen said that in his previous position, as the American chief of naval operations, and in his current post, his Russian counterparts have made "very clear to me that their intention was to modernize their strategic forces."So the newest statements, he said, are consistent with Russian policy going "as far back as a couple of years."On growing Russian cooperation with Venezuela, Mullen said, both nations certainly had the right to "work together if they see fit."

"I just don't consider that a really significant threat at this particular point in time," Mullen said during a Pentagon news conference.

Although some Bush administration officials have urged a more punitive response to Russia after its invasion of Georgia, voices from the Pentagon have urged a calm and deliberate response. To that end, Mullen's comments were closely in line with the tone set over recent weeks by Defense Secretary Robert Gates.

In Britain last week to meet with NATO defense ministers, Gates said that while Moscow seemed to be returning to "czarist habits and aspirations," these are far less of a threat than the Communist-era Kremlin's "ideology-based effort to dominate the globe."

Russia and the United States agreed Friday to seek a new United Nations resolution calling on Iran to comply with earlier demands to suspend uranium enrichment, The Associated Press reported.

The move was a sign that the two countries at least were talking, though the statement only reiterated previous positions.

Foreign Secretary David Miliband of Britain said the brief resolution would affirm the three previous ones, which imposed progressively tougher sanctions on Iran for refusing to halt its enrichment program and urged Tehran to comply, The AP reported.

Emboldened by oil revenues, and the United States' distractions in Iraq and Afghanistan, Russia has said it wants to build alliances to stand up to American power in the world, and has sought closer relations with Chávez, a longtime critic of the United States.

On his second visit to Russia in two months, Chávez met with Prime Minister Vladimir Putin on Thursday and on Friday traveled to Orenburg to meet with Medvedev.

The $1 billion loan for weapons purchases and military development was announced in a Kremlin statement released Thursday night. The statement said Putin and Chávez had spoken on enhancing economic cooperation and trade in commercial goods as well as military technologies.

The $1 billion loan will help finance programs related to military-technical cooperation, the statement said. The Kremlin would not elaborate on the deal.

From 2005 to 2007, Venezuela has signed 12 weapons contracts with Russia valued at a total of more than $4.4 billion, the Kremlin statement said.

The announcement was the latest gesture of military friendship between Russia and Venezuela, two counties that have increasingly positioned themselves as mavericks vis-à-vis the West.

The Kremlin says its economic and political stability has allowed it to broaden the scope of its military and economic cooperation beyond what it calls its traditional sphere of influence.

This month, a pair of Russian Tu-160 long-range bombers capable of carrying nuclear weapons received a warm welcome when they landed in Venezuela.

Russia has also dispatched a squadron from its North Sea Fleet to the Caribbean to take part in joint naval exercises with the Venezuelan Navy sometime in November.

"Latin America, of course, is becoming an obvious link in the chain making up a multipolar world," Putin said during his meeting with Chávez.

"We will allocate more and more attention to this vector of our economics and foreign policy."

Russia has already delivered Sukhoi Su-30 fighters, Mi-17 transport helicopters and thousands of Kalashnikov assault rifles to Venezuela. There are also plans to build a factory in the country that will manufacture those weapons under license.

Graham Bowley reported from New York and Michael Schwirtz from Moscow.

Paul Newman Dies of Cancer

Friday, September 26, 2008

McCain v. Obama

Friday night at the EB

Obama came out swinging, ready to rumble but McCain came back. Who won? Who knows? The polls may tell but it looks like a draw to me.

Obama did not stutter and stammer, possibly because he was repeating what he has said a thousand times on the campaign trail.

McCain missed a big opportunity to point out that it has been repeatedly shown that tax cuts lead to increased receipts in the treasury.

McCain carried on about two sentences too long on the issue of veterans but his command of foreign leaders and the issues was impressive and not matched by Obama.

Also, I thought McCain scored well on Pakistan. It's as if Obama, like some of us haven't figured that COIN is the only way we're going to resolve the problem of the Taliban and al-Qaeda in the FATA.

The big question which may be answered at this election is do the American people want a big nanny state. Have they been convinced that they're hurting and struggling and must have a government bailout.

Obama plays to the downtrodden, the oppressed, the victims. McCain tries to appeal to the strengths of the American character. Obama plays his role well but McCain is no Ronald Reagan.

It was very interesting when McCain went after Obama for saying that it was irresponsible or imprudent for him to say "outloud" that he would go into Pakistan, Obama came back with you said, "Bomb, bomb, bomb, bomb, bomb Iran."

Who Caused the Housing Mess?

HT Charles

Friday, September 26, 2008, a new flight plan?

It will be an interesting day. Post them as you get them.

Thursday, September 25, 2008

Why is McCain Not Using His Air Time?

John McCain has announced that he has suspended his air time and media buys until a settlement is reached on the banking system restructure. This makes no sense to me. It would be better that he uses the time to explain the importance of the plan and how he sees a solution. Why is he leaving a vacuum to be filled by Obama?

Wall Street Biography

A Template for the Hugo Chavez Retirement Ceremony

Wednesday, September 24, 2008

McCain on Fannie Mae in 2006...Obama on Fannie Mae Take

The United States Senate May 25, 2006

Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were “illusions deliberately and systematically created” by the company’s senior management, which resulted in a $10.6 billion accounting scandal.

The Office of Federal Housing Enterprise Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator’s examination of the company’s accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac–known as Government-sponsored entities or GSEs–and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay.

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

I urge my colleagues to support swift action on this GSE reform legislation.

– Sen. John McCain
The Floor of the US Senate, May 25, 2006

Rumblings. Congress Needs to Act on Pending Financial Collapse

Forget how we got here. Forget who did it. Forget who will benefit. The rumblings are unmistakable. Time is short. Without action the entire financial system is coming down. There will be no place to hide.

We need leadership to make decisions that will be unpopular and probably finish political careers. That is the type of men we need but not what we have.

Courage and action. We are down to days.

Total US debt rose from 163 % of GDP in 1980 to 346 % in 2007.

Say what?

We are the problem, not the banks, not the government, not the anything else. We have just been borrowing and spending, buying way too much of what we do not need and we have been doing it for twenty eight years.

Forget your credit score. Quit buying so much crap and start saving again.

Take a look at this:

..."The aggregate stock of US debt rose from a mere 163 per cent of gross domestic product in 1980 to 346 per cent in 2007. Just two sectors of the economy were responsible for this massive rise in leverage: households, whose indebtedness jumped from 50 per cent of GDP in 1980 to 71 per cent in 2000 and 100 per cent in 2007; and the financial sector, whose indebtedness jumped from just 21 per cent of GDP in 1980 to 83 per cent in 2000 and 116 per cent in 2007" (see charts below).

Paulson’s plan was not a true solution to the crisis

By Martin Wolf Financial Times
Published: September 23 2008 19:38 | Last updated: September 23 2008 19:38

Desperate times call for desperate measures. But remember, no less, that decisions taken in haste may shape the financial system for a generation. Speed is essential. But it is no less essential to get any new regime right.

No doubt, the crisis has long passed the stage when governments could leave the private sector to save itself, with just a little help from central banks. For the US, the rescue of Bear Stearns was the moment when that option evaporated. But the events of the past two and a half weeks – the rescues of Fannie Mae and Freddie Mac, the failure of Lehman Brothers, the sale of Merrill Lynch, the rescue of AIG, the flight to safety in the markets and the decisions by Morgan Stanley and Goldman Sachs to become regulated bank holding companies – have made a comprehensive solution inevitable.

The US public expects action. The question is whether it will get the right action. To answer it, we must agree on the challenge the US financial system faces and the criteria for judging how it should be met.

What then is the challenge? The answer given by Hank Paulson, the all-action US Treasury secretary, last Friday, in announcing his “troubled asset relief programme”, is that “the underlying weakness in our financial system today is the illiquid mortgage assets that have lost value as the housing correction has proceeded. These illiquid assets are choking off the flow of credit that is so vitally important to our economy.” The core challenge, then, is viewed as illiquidity, not insolvency. By creating a market for the toxic assets, Mr Paulson hopes to halt the spiral of falling prices and bankruptcies.

I suggest we should take a broader view of events. The aggregate stock of US debt rose from a mere 163 per cent of gross domestic product in 1980 to 346 per cent in 2007. Just two sectors of the economy were responsible for this massive rise in leverage: households, whose indebtedness jumped from 50 per cent of GDP in 1980 to 71 per cent in 2000 and 100 per cent in 2007; and the financial sector, whose indebtedness jumped from just 21 per cent of GDP in 1980 to 83 per cent in 2000 and 116 per cent in 2007 (see charts). The balance sheets of the financial sector exploded, as did the sector’s notional profitability. But leverage, alas, works both ways.

Since US net international debt was 39 per cent of GDP at the end of 2007, virtually all of this debt is an asset of another domestic entity and would net out to zero. But when the gross debt stock is huge and economic conditions difficult, the chances that many entities are bankrupt is high. When people fear mass insolvency, lenders stop lending and the indebted stop spending. The result can be the “debt deflation”, described by the American economist, Irving Fisher, in 1933 and experienced by Japan in the 1990s.

Given the recent explosion in leverage, the challenge is unlikely to be one of mispricing of the toxic mortgage-backed securities alone. Many people and institutions made leveraged bets that have since gone sour. Their debt cannot be repaid. Creditors are responding accordingly.

Now turn to the criteria to be used in judging the intervention. First, it would deal with the systemic threat. Second, it would minimise damage to incentives. Third, it would come at minimum cost and risk to the taxpayer. Not least, it would be consistent with ideas of social justice.

The fundamental problem with the Paulson scheme, as proposed, is then that it is neither a necessary nor an efficient solution. It is not necessary, because the Federal Reserve is able to manage illiquidity through its many lender-of-last resort operations. It is not efficient, because it can only deal with insolvency by buying bad assets at far above their true value, thereby guaranteeing big losses for taxpayers and providing an open-ended bail-out to the most irresponsible investors.

Furthermore, these assets are illiquid precisely because they are so hard to value. The government risks finding its coffers stuffed with huge amounts of overpriced junk even if it tries not to do so. Also objectionable, though more in design than in the fundamentals, were the unchecked powers for the Treasury. Such a fund should be operated professionally, under independent oversight. Finally, if the US government is to bail out incompetent investors it should surely also provide more help to the poor and often ill-informed borrowers.

Yet, above all, a scheme for dealing with the crisis must be able to remedy the looming decapitalisation of the financial system in as targeted a manner as possible. A fascinating debate on how to do this is under way in the economists’ forum on To the contributions, including Tuesday’s Comment page article by Dominique Strauss-Kahn, managing director of the International Monetary Fund, I would add one by Luigi Zingales of Chicago University’s graduate school of business.*

The simplest way to recapitalise institutions is by forcing them to raise equity and halt dividends. If that did not work, there could be forced conversions of debt into equity. The attraction of debt-equity swaps is that they would create losses for creditors, which are essential for the long-run health of any financial system.

The advantage of these schemes is that they would require not a penny of public money. Their drawback is that they would be disruptive and highly unpopular: banking institutions would have to be valued, whereupon undercapitalised entities would have to adopt one of the ways to improve their capital positions.

If, as seems plausible, a scheme that imposes such pain on the financial sector would be rejected out of hand, the next best alternative would be injection of preference shares by the government into decapitalised institutions, on the lines proposed by Charles Calomiris of Columbia University. This would be a bail-out, but one that constrained the behaviour of beneficiaries, not least on payment of dividends. That would make it far better than dropping benefits on the unworthy, via mass purchases of overpriced toxic paper.

What then do I conclude? Yes, there may well be a place for intervention in the market for toxic securities. But this is a costly and ineffective way of meeting today’s deepest challenge. What is needed, still more, is a clear and effective way of deleveraging and recapitalising the financial sector, ideally without using taxpayer funds. If such funds are to be used, they must also be injected in as carefully targeted and controlled a way as possible. Comprehensive action is essential, as Mr Paulson has decided. But let the US take the time to make that comprehensive action right.

*Why Paulson is wrong,

Tuesday, September 23, 2008

McCain Does Streisand - HT Gag Reflex

Et Tu Bernanke?

Don't try to figure out what the relevance of the video. I was looking for something on Judge Roy Bean, the hanging judge...

Bernanke: Approve bailout or risk recessionBy JULIE HIRSCHFELD DAVIS and JEANNINE AVERSA, Associated Press Writers 23 minutes ago

Federal Reserve Chairman Ben Bernanke bluntly warned reluctant lawmakers Tuesday they risk a recession with higher unemployment and increased home foreclosures unless they act on the Bush administration's $700 billion plan to bail out the financial industry.

Despite the warning, influential lawmakers in both parties demanded changes in the White House-backed proposal, and conservative Republicans recoiled at the prospect of federal intervention into private capital markets.

Six weeks before the elections, both major party presidential contenders also insisted on alterations in the administration's prescription for the worst financial crisis in decades.

Bernanke's remarks about the risk of recession came in response to a question from Sen. Chris Dodd, D-Conn., who seemed eager to hear a strong rationale for lawmakers to act swiftly on the administration's unprecedented request.

"The financial markets are in quite fragile condition and I think absent a plan they will get worse," Bernanke said.

Ominously, he added, "I believe if the credit markets are not functioning, that jobs will be lost, that our credit rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover in a normal, healthy way."

GDP is a measure of growth, and a decline correlates with a recession.

Dodd later spoke disparagingly of the administration's proposal. "What they have sent us is not acceptable," he told reporters after presiding over a lengthy Senate Banking Committee hearing at which Bernanke and Treasury Secretary Henry Paulson urged swift action by Congress.

Sen. Richard Shelby of Alabama, the panel's senior Republican, added, "We have got to look at some alternatives" to the administration's plan.

The legislation that the administration is seeking would allow the government to buy bad mortgages and other troubled assets held by endangered banks and financial institutions.

Getting those debts off their books should bolster the institutions' balance sheets, making them more inclined to lend and easing one of the biggest choke points in the credit crisis. If the plan works, it could help lift a major weight off the sputtering national economy.

The White House and key lawmakers have been in negotiations since the weekend on terms of the legislation. It was not clear what impact the new congressional complaints would have on the discussions.

"Nobody is happy" about the bailout request, said House Majority Leader Steny Hoyer, D-Md., although he spoke of possible passage of legislation by the weekend.

"Nobody wants to have to do this," agreed Rep. John Boehner of Ohio, the Republican leader. He said he was hopeful of a quick agreement.

Presidential politics have become part of the debate.

Sen. Barack Obama, the Democratic presidential candidate, called a news conference to urge changes in what he called the administration's "stubborn inflexibility."

He said Wall Street executives must not be allowed to walk away from the mess with multimillion-dollar severance packages, taxpayers who are bearing the risk of the bailout must benefit if it succeeds and homeowners should be able to get relief from unaffordable mortgages.

Obama's Republican opponent, Sen. John McCain, has also said he wants steps to limit the compensation of CEOs who leave financially wrecked firms.

The stakes were unmistakable.

"I understand speed is important, but I'm far more interested in whether or not we get this right," Dodd said at the hearing.

Later, he told reporters he hopes for legislation soon.

"But it is not going to be a blank check or a simple signing on to a bill that sends a blank check to this secretary or any other secretary." He noted that either Obama or McCain would probably be appointing a new treasury secretary after he takes over in the White House.

Across the Capitol complex, Vice President Dick Cheney and Jim Nussle, the administration's budget director, met privately with restive House Republicans, some of whom emerged from the session unpersuaded.

"Just because God created the world in seven days doesn't mean we have to pass this bill in seven days," said Rep. Joe Barton, R-Texas.

Added Rep. Darrell Issa, R-Calif., "I am emphatically against it."

Still, prospects for legislation seemed strong, with lawmakers eager to adjourn this week or next for the elections.

Differences include a demand from many Democrats and some Republicans to strip executives at failing financial firms of lucrative "golden parachutes" on their way out the door.

The administration balked at another key Democratic demand: allowing judges to rewrite bankrupt homeowners' mortgages so they could avoid foreclosure.

Paulson, seated next to Bernanke at the committee hearing, objected strongly when Sen. Chuck Schumer, D-N.Y., asked if $150 billion might be enough to get the program started, with a promise of more to come.

Paulson said that would be a "grave mistake," and would fail to give the markets the confidence they need to rebound.

Paulson repeatedly fielded questions from committee members asking why taxpayers should accept the burdens of a bailout.

"You worry about taxpayers being on the hook?" he replied at one point. "Guess what — they're already on the hook." Paulson suggested that the fallout from the credit crisis would hit everyone's pocketbook unless forceful action was taken. Moreover, a flawed and outdated regulatory system, which didn't catch abuses, needed to be overhauled, he said.

Despite the unresolved issues, President Bush predicted the Democratic-controlled Congress would soon pass a "a robust plan to deal with serious problems." He spoke before the United Nations General Assembly.

In his testimony before the Banking Committee, Paulson told senators that quick passage of the administration's plan is "the single most effective thing we can do to help homeowners, the American people and stimulate our economy."

But even before Paulson could speak, lawmakers expressed unhappiness, criticism of the plan and — in the case of some conservative Republicans — outright opposition.

"This massive bailout is not a solution. It is financial socialism and it's un-American," said Sen. Jim Bunning, R-Ky.

So far this year, a dozen federally insured banks and thrifts have failed, compared with three last year. The country's largest thrift, Washington Mutual Inc., is faltering.

The U.S. has taken extraordinary measures in recent weeks to prevent a financial calamity, which would have devastating implications for the broader economy. It has, among other things, taken control of mortgage giants Fannie Mae and Freddie Mac, provided an $85 billion emergency loan to insurance colossus American International Group Inc. and temporarily banned short selling of hundreds of financial stocks.

It sounds as if our Masters in Congress are saying the right words but I don't believe them. What a sad state of affairs.

Watch, we'll hear a lot of the "right talk" then, they will all vote to bailout the Wall Street grifters. I agree with Rufus, there are plenty of good regional banks around to pick up the slack. Banks are in the business to make money. Those without risk will make loans as long as the government makes the money available to them to lend. Let the gamblers take their losses. Bernanke says if we don't bail them out we're going into recession. Well, does anyone want to bet against a recession regardless of whether we bail out Wall Street or we bail out on them.

Resolute Untrust

"While there is no doubt a growing crisis in our financial markets, we must not rush to act in a manner that worsens or creates an additional crisis for American families and taxpayers," said Jeb Hensarling, chairman of the House Republican Study Committee.

Republican Senator Chuck Shelby went further, urging the pursuit of alternatives and warning against a rush to pass the package.

"I am concerned that Treasury's proposal is neither workable nor comprehensive, despite its enormous price tag. In my judgment, it would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted," he said.

"I believe Congress must immediately undertake a comprehensive, public examination of the problem and alternative solutions rather than swiftly pass the current plan with minimal changes or discussion."

I agree. Let's slow this freight train down. Take a deep breath. Secretary Paulson has warned about "dangers to the economy" but so far, we've heard nothing specific except that the taxpayers could be on the hook for at least $700 billion. I'm quite sure that we will owe that and more if we're bailing out the so-called Investment Banks which until recently were also commonly referred to as Wall Street. I'm afraid that what the US taxpayer will be stuck with is not real estate with real value but worthless paper...During this election season, I don't trust either party; Democrat or Republican, and the thought of the US Government owning large stakes of any company reminds me of the way we "owned" Fannie Mae and Freddie Mac.

A pox on all of them.

Monday, September 22, 2008

The Democrats Caused This Financial Mess

The Black Democratic Congressional Caucus.

Let there be no misunderstanding, there would be no financial meltdown without the absurd lending sponsored, aided and abetted by FannieMae and FreddieMac. These government spawned agencies were in the political pocket of the Democrats who fold on queue for the Congressional Black Caucus.

Now that is straight talk you will not hear, because the American public has been humbled and silenced by the black political thuggery establishment in Congress.

How the Democrats Created the Financial Crisis: Kevin Hassett
Commentary by Kevin Hassett

Sept. 22 (Bloomberg) -- The financial crisis of the past year has provided a number of surprising twists and turns, and from Bear Stearns Cos. to American International Group Inc., ambiguity has been a big part of the story.

Why did Bear Stearns fail, and how does that relate to AIG? It all seems so complex.

But really, it isn't. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally.

Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. They fueled Wall Street's efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools. In addition, they held an enormous portfolio of mortgages themselves.

In the times that Fannie and Freddie couldn't make the market, they became the market. Over the years, it added up to an enormous obligation. As of last June, Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments. Their large presence created an environment within which even mortgage-backed securities assembled by others could find a ready home.

The problem was that the trillions of dollars in play were only low-risk investments if real estate prices continued to rise. Once they began to fall, the entire house of cards came down with them.

Turning Point

Take away Fannie and Freddie, or regulate them more wisely, and it's hard to imagine how these highly liquid markets would ever have emerged. This whole mess would never have happened.

It is easy to identify the historical turning point that marked the beginning of the end.

Back in 2005, Fannie and Freddie were, after years of dominating Washington, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by my American Enterprise Institute colleague Peter Wallison, the Securities and Exchange Comiission's chief accountant told disgraced Fannie Mae chief Franklin Raines that Fannie's position on the relevant accounting issue was not even ``on the page'' of allowable interpretations.

Then legislative momentum emerged for an attempt to create a ``world-class regulator'' that would oversee the pair more like banks, imposing strict requirements on their ability to take excessive risks. Politicians who previously had associated themselves proudly with the two accounting miscreants were less eager to be associated with them. The time was ripe.

Greenspan's Warning

The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn't be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie ``continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,'' he said. ``We are placing the total financial system of the future at a substantial risk.''

What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

Different World

If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.

That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: ``It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.''

Mounds of Materials

Now that the collapse has occurred, the roadblock built by Senate Democrats in 2005 is unforgivable. Many who opposed the bill doubtlessly did so for honorable reasons. Fannie and Freddie provided mounds of materials defending their practices. Perhaps some found their propaganda convincing.

But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.

Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.

Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.

There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.

Oh, and there is one little footnote to the story that's worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess.

(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He is an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election. The opinions expressed are his own.)

To contact the writer of this column: Kevin Hassett at

Last Updated: September 22, 2008 00:04 EDT

Sunday, September 21, 2008

American Created the Financial Problem and Only America Can Fix It

Financial Crisis: America rises to the occasion as storm heads towards brittle Europe
By Ambrose Evans-Pritchard Telegraph
Last Updated: 9:35pm BST 21/09/2008

An almighty crash has been averted, very narrowly. There is no guarantee that the revolutionary actions of the US government will prevent a full-fledged global slump, but at least we now have a fighting chance.

By taking the colossal wreckage of the credit bubble onto its own books in a $700bn (£382bn) taxpayer sink, Washington has forestalled a run on the world banking system, and may hopefully have saved the viable core of modern capitalism.

Hank Paulson's "Super Sink" is the "game changer" we have all been waiting for in this interminable crisis. It puts a floor under the toxic debt that is bleeding the banking system to death, and ends the downward spiral of CDOs, CLOs, HELOCs, and such instruments of leveraged excess that lie at root of the credit terror. No doubt the Fed, the Treasury, and Congress have made a string of mistakes but they are now rising to the occasion - the reflexes of a wounded but still formidable superpower. The US has shown time and again that it has the institutions and flair to pull itself out of disaster.

We will find out soon enough whether the rest of the world can respond with such dispatch as the hurricane smashes into them. As of today, the core risk is no longer in the US. It has rotated to the weaker and more brittle polities of Europe, Latin America, and Asia - especially China.

Europe has embedded paralysis in its treaty law. Maastricht prohibits a Keynesian blitz. Budget deficits above 3pc of GDP are not allowed until an EU country is already in dire straits, and even then approval requires a committee vote by 27 states. So Ireland, Italy and France must now tighten fiscal policy into the downturn. There is no EU Treasury to back the euro, and therefore no Euro-Paulson with the powers and legitimacy to take sweeping steps in an emergency. By extension, there is no clear-cut lender of last resort either. Each country is on its own, yet none have the instruments of monetary policy to carry out a Paulson-type rescue with credible punch.

The European Central Bank stands aloof with Teutonic severity, as hawkish as the old Bundesbank - or the Reichsbank in 1931. It too is a prisoner of a rigid treaty mandate. There was a mad Wagnerian feel to its July rate rise. We now know that Euroland was already slipping into recession when it acted. Do the hawks mean to unleash Götterdämmerung on the peoples of Spain, Ireland, Italy, Portugal, and Greece, with all the dangers that must accompany a disintegration of EMU?

It is incessantly repeated - often by people with an animus against the US - that "dead-beat America" cannot afford these serial bail-outs. Perhaps, but compared with whom, and to what?

The US government debt (owed to the public, using the IMF measure) is just 48pc of GDP, one of the lowest of the G7 industrial powers. This compares with 57pc for Germany, 94pc for Japan, and 100pc for Italy. After the Second World War, the US debt touched 120pc of GDP. As the Habsburgs liked to say, today's drama is desperate but not serious.

Note too that the US is the only power (bar India) with a birth rate high enough to meet its future pension costs. Japan is already shrinking; China faces the start of workforce implosion within seven years; Russia is a demographic basket case.

Mr Paulson's Super Sink is modelled on the Resolution Trust Corporation, which cleaned up the Savings & Loan mess in the early 1990s. The RTC added no debt and made a profit in the end.

The Paulson plan will not prevent a deep US recession, but as the spearhead of a policy crafted to keep Americans in their homes, it will slow the avalanche of foreclosures and change the profile of future mortgage defaults. House prices may not, after all, drop by 34pc as now priced by the futures market. That is a reprieve for hundreds of regional lenders on death row.

Call it moral hazard if you want, but as President Bush said: "There will be ample opportunity to debate the origins of this problem. Now is the time to solve it."

The game was up in any case on Wednesday when yields on three-month Treasury notes fell to zero in a panic flight to safety, and investors began mass withdrawals from America's $3.5 trillion money market funds.

After the trauma of the last week - the Lehman bankruptcy, the state seizure of AIG, the Morgan Stanley scare, the heart attack in the market for credit derivatives, and the monoline debacle at AMBAC - it should be clear to everybody that rigorous debt liquidation would be viciously destructive.

The world has seen nothing like this (in peacetime) since President Franklin Roosevelt shut the banking system and confiscated gold in March 1933, though his words were more memorable than last week's Bushisms.

"The rulers of the exchange of mankind's goods have failed, through their own stubbornness and their own incompetence. They know only the rules of a generation of self-seekers.

"The money changers have fled from their high seats in the temple of our civilisation. We may now restore that temple to the ancient truths," he told the nation.

Will we hear such language before long from President Obama, addressing the most radical House and Senate in living memory? Probably. From moral hazard to moral rebirth.

Morgan Stanley, Goldman Sachs to become bank holding companies.

This is rather extraordinary in that commercial banks were prohibited from doing things that investment banks could do and investment banks were not permitted to do commercial and retail banking. Now it seems as if the investment banks will be able to complete for new sources of money and liquidity by being able to set up demand deposit accounts. Since the big investment banks do not have branch banks, I would expect that they will move to acquire many small regional banks to set up a national network.

If that is the case, then it may not be a bad idea to find healthy regional banks in good markets that have been beaten down in price, with the expectation that they may be merged into the large investment banks. Just a thought.


Goldman, Morgan to become holding companies
Last remaining independent investment banks will qualify for Fed aid

By Robert Schroeder, MarketWatch
Last update: 10:31 p.m. EDT Sept. 21, 2008

WASHINGTON (MarketWatch) -- In yet another extraordinary development for Wall Street, the Federal Reserve said late Sunday night that venerable investment banks Goldman Sachs and Morgan Stanley will become bank holding companies.
The Wall Street titans will be allowed to transition into holding companies following a mandatory five-day waiting period, and will be able to take advantage of credit from the Federal Reserve Bank of New York in order to complete the transition.

Upon completion, Goldman (GS:129.80, +21.80, +20.2%) and Morgan (MS:27.21, +4.66, +20.7%) , two of the biggest and most powerful investment banks on Wall Street, would join the ranks of and compete with Citigroup (C:20.65, +4.00, +24.0%) , JPMorgan Chase & Co. (JPM:47.05, +6.75, +16.8%) and Bank of America (BAC:37.48, +6.90, +22.6%).

In a short statement on its web site, the Fed said it authorized the New York Fed to extend credit to U.S. broker-dealer subsidiaries of Goldman and Morgan against all types of collateral that can be pledged at the Fed's primary credit facility for depository institutions.

The Fed also made the same collateral arrangements available to the broker-dealer subsidiary of Merrill Lynch.

The Fed's move is the latest milestone in a jaw-dropping couple of weeks for Wall Street and American business. Goldman and Morgan were the last two independent investment banks, following the filing for bankruptcy of Lehman Brothers (LEH:0.22, +0.16, +313.7%) and the acquiring of Bear Stearns by JP Morgan this spring. Bank of America, meanwhile, is buying Merrill Lynch (MER:29.50, +7.44, +33.7%).

Robert Schroeder is a reporter for MarketWatch in Washington.

Pakistan Wonders "How Could This Happen?"

Pakistani PM Appeals to Public for Help Identifying Bombers

By Barry Newhouse
Islamabad VOA
21 September 2008

Pakistan's prime minister is appealing to fellow Pakistanis to identify what he called the "black sheep" responsible for Saturday's devastating suicide bomb attack. VOA's Barry Newhouse reports from Islamabad, where officials say at least 60 people have died and 250 others were wounded in the blast at the Islamabad Marriott.

Rescuer workers Sunday morning continued to remove bodies from smoldering rubble at the luxury hotel in downtown Islamabad.

Officials said the attack had strained the capabilities of local rescue workers and the Pakistani military has been called in to help.

Militant groups in Pakistan frequently claim credit for bomb attacks soon after they occur, but no group has, as yet, come forward.

Pakistani Prime Minister Yousaf Raza Gilani made a public appeal Sunday for help in identifying those responsible.

Mr. Gilani says he appeals to the people to identify these black sheep and to isolate them because they want to destabilize the democracy and destroy the country's economy.

Officials announced a $130,000 reward for information about those behind the attack.

Our Financial Rulers and Masters. Analysis by Bird and Fortune

Hat tip: Mat

Saturday, September 20, 2008

Many Deaths and Injuries in Pakistan Marriott Hotel Bombing

Explosion at Pakistan Marriott hotel kills 40

Sep 20 11:29 AM US/Eastern
Associated Press

ISLAMABAD, Pakistan (AP) - Police say at least 40 people have died in a massive explosion that destroyed the luxury Marriott Hotel in Pakistan's capital.
Senior police official Asghar Raza Gardaizi said he fears there are dozens more dead inside.

He said that the Saturday blast, which reverberated throughout Islamabad, was caused by more than a ton of explosives.

The blast left a crater some 30 feet deep in front of the main building.

Flames poured from the windows of the hotel and rescuers ferried a stream of bloodied bodies from the gutted building.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

ISLAMABAD, Pakistan (AP)—A massive truck bomb ripped through part of the heavily guarded Marriott Hotel in Pakistan's capital Saturday, killing at least 11 people and wounding 25—a toll expected to rise significantly.

Ahmad Latif, a senior police official, said it was one of the biggest terrorist strikes in Pakistan history.

The Marriott is a favorite place for foreigners to stay and socialize in Islamabad, despite repeated militant attacks. A security guard at the scene, Mohammad Nasir, and several witnesses said a large truck had driven toward the gate before exploding.

The blast left a vast crater, some 30 feet deep in front of the main building, where flames poured from the windows and rescuers ferried a stream of bloodied bodies from the gutted building.

Mohammad Sultan, a hotel employee, said he was in the lobby when something exploded, he fell down and everything temporarily went dark.

"I don't understand what it was, but it was like the world is finished," he said.

An Associated Press reporter counted at least nine bodies scattered at the scene. Scores of people, including foreigners, were running out—some of them stained with blood. At a hospital where many of the casualties were taken, official Raja Ejaz said at least two people had died and 25 were wounded.

Ambulances rushed to the area, where a fire burned, smoke hovered and the carcasses of vehicles were thrown about. Windows in buildings hundreds of yards away were shattered.

There was no immediate claim of responsibility for the blast.

But Pakistan, a U.S. ally in the war on terror, has faced a wave of militant violence in recent weeks following army-led offensives against insurgents in its border regions, though the capital has avoided most of the bloodshed.

In January 2007, a security guard blocked a suicide bomber who triggered a blast just outside the Marriott, killing the guard and wounding seven other people.