Gergen at the Walker and a "Shock Doctrine" Weekend
By Brian Lambert
David Gergen, advisor to Ronald Reagan, George H.W. Bush, and Bill Clinton and who now seen frequently as part of CNN's sprawling panel of talking heads, has never been my idea of a go-to guy for cutting the bulls**t. Gergen's line of wisdom is pretty deeply steeped in maintaining traditional lines of power and authority, which may have been OK for FDR but has been in need of serious reform . . . hell, revolution since the start of the Vietnam War.
But I spent a chunk of Friday night listening to Gergen speak at the Walker Art Center. He had been flown in by local Ameriprise financial advisor David Trysk & Associates, and somehow I got on the guest list. With my titanic portfolio on the verge of the same abyss as everyone else in the (deeply) ironically named William McGuire Theater (here's betting good old Dr. Bill survives what's coming just fine), I was interested in what case Gergen could possibly make for maintaining the status quo.
Gergen has put on these shows many times before. He knows how to walk the thin nonpartisan line. That's usually what annoys me about him. But he was a lot more compelling in long form than he is in forty-five seconds with Wolf Blitzer or Anderson Cooper.
He claimed he hasn't yet made up his mind between John McCain and Barack Obama. But the structure of his speech suggested otherwise. He first set up his admiration for McCain's sense of honor and belief in the great traditions of American life. Then he applied criticism in the form of a kind of sepia-tinted lens of anachronism to McCain's fighter pilot, shoot-first decision-making style, which, as Gergen sees it, manifests itself in impatience with the time required for (re-)building allied coalitions for financial stability and crime/terror-fighting in our fully-wired global community. The "decent guy, but . . . " structure with references to Obama's more deliberative "Team of Rivals" style (Doris Kearns Goodwin's book on Lincoln) implied that even he, David Gergen, as densely woven a piece of D.C. cloth as anyone, realizes that the old regimes—of both finance and foreign policy—have now failed miserably and conclusively and must be replaced. But that's just my interpretation.
As of Friday night, the form of the taxpayers' gargantuan . . . socializing . . . bailout of Wall St. was only just being understood. The reaction from people such as Robert Reich and Paul Krugman—people who have issued repeated warnings about precisely the kind of collapses we watched last week—would come the next day and Sunday. As of Friday, all we knew was that this was going to the biggest shift of public capital for private relief in the history of the world. I certainly had no idea that a key facet of the plan, such as it is, would allow Treasury Secretary Henry Paulson, former chairman and CEO of Goldman Sachs, i.e. a major Wall St. player, free reign to do as he sees fit with all that money with no Congressional oversight or even an accounting of his decision-making for ninety days.
The exact language: "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."
Are you kidding me? $700 billion to $1 trillion entrusted to the same crowd that has doubled the national debt in seven years and has basically started and fought a $1 trillion war on off-budget money it is borrowing from the Chinese? . . . and no one gets to ask any impertinent questions much less say, "No f**king way."
As Gergen talked about the inevitability of a "New Order" coming—although perhaps after the old guard, preying on the terror a financial meltdown strikes in large numbers of voters, wins one last American election—I laughed to myself at the heavy play of financial service-provider commercials on political talk shows. Big Wall St. firms literally underwrite network punditry. But now . . . all that "trust" and "caring" and "intelligence at work for you" stuff. Who can watch even Sam Waterston . . . Jack McCoy! . . . without throwing up a little bit?
It has been a very bad decade for the old U.S. of A. But until this "sub-prime" thing started stinking up the place (and this meltdown is about much more than bad mortgages), I was confident that our rapacious capitalist bastards were the best on the planet. But now . . . even they are revealed to be yet another pack of bungling crooks.
Gergen's main point was what he sees as the four critical issues—crises—facing the next president.
As he put it, "Normally a new president might have to deal with one of these. But the next president is going to have to face all four at once."
First was putting "our financial house in order." This means not just bailing out Wall St. but getting the cost of health care under control . . . coughbillmcguirecough . . . before getting a knee operation beats gross financial sector fraud and malfeasance in bankrupting us first.
Second was controlling "loose nukes" in the hands of everyone but particularly the Pakistanis. (Gergen believes terrorists will "test the new president in the first ninety days" of the next administration.)
Third was controlling all the volatile antipathies in the Middle East, which requires a far more committed coalition of allies than we took into Iraq. That 90 percent U.S., 9.9 percent British, and .00001% Cameroonian thing ain't going to cut it anymore.
And fourth was global climate change.
(I know, nothing about stopping gay marriage or illegal immigration. How very odd.)
Gergen's sober note was still ricocheting around my few remaining undamaged neurons when I got home and found an e-mail from a friend mentioning that author Naomi Klein had been on Bill Maher's HBO show. I read Klein's book The Shock Doctrine: The Rise of Disaster Capitalism last month, and as the stunning-formlessness-of-this-astonishing-blank-check idea started sinking in, with even George Will . . . George Will . . . calling it "socialism," I'm now as impressed by Klein's prescience as I am by her argument.
And this isn't socialism like the Swedes where they get something for the money they hand over to the government: you know, decent health care and education. Huh uh. This is American socialism, where those of us below the level of a Carlyle Group hedge fund manager get nothing . . . zip . . . other than the bill for the casino operation the "deregulation" crowd (same as the cynical "Government isn't the solution to our problem, government is the problem" crowd) has allowed to run amuck on Wall St.
At its essence, Klein argues that every time there is a cultural shock—9/11, Katrina, and now this meltdown—the majority of the public, overwhelmed by something uglier, nastier, and far more real than American Idol—goes into a kind of shock and either permits or ignores the grossest manipulations of its "leaders" in government and other offices of high power. As we, the public and the press, take our eyes off the ball to get all maudlin, self-pitying, and sentimental, the sharks, AKA the smartest kids in the room, abetted by the usual "small government" crowd, seize the opportunity to get away with major, highly self-serving shifts in law they never could if we—or the press—were paying attention.
As Cokie Roberts . . . D.C. power toady Cokie Roberts . . . said on the same Sunday morning show as Will, it's enough in a situation like this meltdown, where the debt we'll be taking on to "save" Wall St. pretty much blows any chance of getting health care reform, that "conspiracy"-minded people might start thinking this was the plan all along. That is, to so severely cripple the next president with debt that no real changes are possible.
Here's Klein going at it with uber-blogger Andrew Sullivan on Maher's show. Here's Maher interviewing her a year ago. Here's Klein on BBC Newsnight last week. And here is part one of her six-part talk on "The Shock Doctrine" up in Vancouver.
The "shock" is set up this time so that not a day can be lost deliberating possible alternatives to the $1 trillion Paulson plan. And, as with 9/11, the usual pressure is already on skeptics (public and press) to do the prudent and patriotic thing and go along with whatever our "leaders" propose. So it will be a major test of both the Democrats' and media's cojones to stand up and remind the shocked public that we've been down this road with this crowd way too often and that this is much too big of a blank check for us to say again, "We trust you to do the right thing."
A lot of questions have to be asked—and fast.
Here's a (long) set of rules that should be applied to the bailout.
To paraphrase Ronald Reagan, "Our [current] leaders aren't the solution to our problem. They are the problem."
That New Order can't get here fast enough, and if it comes with a thick stack of indictments, all the better.
© 2008 MSP Communications, Inc. All rights reserved
Dude, we're fucked. We better drink ourselves silly Wednesday night.
Posted by: A Son of Mississippi on September 22, 2008 at 8:42 AM
The piece I took away from Shock Doctrine was that shocks are exploited to initiate less regulation, more privatizing of public services, and more free-market ideology that ultimately requires political repression to make the changes go over on uncontested by those screwed over in the process. I do smell something fishy about the quickie bail out, based as it is on closed door meetings and "just take my word for it the world is about to end," warnings, but am confused about how this new solution creates an environment the Freidmanites would find to their liking. (?)
LAMBERT: If I'm following Klein's argument, we are essentially being asked to "privatize" the debt of incompetent-to-corrupt financial sector gurus by shifting their exposure to taxpayers ... without offering you and me what shareholders would normally get if they contributed cash to a struggling business ... i.e. a share of ownership. The "private" - "public" thing is getting a serious twist here. But fundamentally we are shifting a tremendous amount of what little discretionary public capital remains to protect the interests of private speculators, and without ownership, oversight or accountability.
BTW: Nice editorial in the Strib last week.
Posted by: Paul Scott on September 22, 2008 at 8:48 AM
Would that we are being "asked." We are being told. And I can't help noticing that when people gathered together in the streets of St. Paul last month to register their discontent with the people who've gotten us here and are hoping to continue the trajectory we're on, $50 million worth of cops cobbled together from cities, federal agencies, the national guard and who know what off-the-books outfits from throughout the country felt free to treat them like so many cattle, employing the excuse that (shudder) bank windows were at risk.
LAMBERT: For $700 billion you'd think we -- the lenders -- would get to do the "tellin'." Since when do the borrowers set the terms?
Posted by: Jim Leinfelder on September 22, 2008 at 9:34 AM
The curious question is: "What are the alternatives?"
What are the alternatives to executive greed exemplified by William McGuire, whose name appears on auditoriums (Walker and Guthrie) in major institutions and land masses adjacent to the Mississippi River downtown as a salute to a massive fleecing of our health care dollars? Will it ever stop?
What is the alternative to bailing out with more taxpayer dollars corrupt, greedy executives who fleeced us on Wall Street while the ran away with millions and billions of dollars? Will they all walk? Bush has a pocket full of pardons to hand out in the next 4 months.
What is the alternative to 8 years (more accurately 28 years going back to Reagan) of deregulation in investment banking and money lending that brought us to this point of economic fiasco? Is it 4 more years of the same unintelligent dogma?
LAMBERT: The right of veto on presidential pardons might be a valuable condition of this loan.
Posted by: Robb on September 22, 2008 at 9:58 AM
I am not in serious disagreement with much of this, Professor Lambert. But I do hope you consider Chris Dodd, Jim Johnson, Jamie Gorelick, and Franklin Raines for your indictment list.
I would think this is the perfect time to get serious about 'climate change' though, and recognize the fraud that it is. Cap and trade anyone? Cmon, its the perfect time for it.
http://www.reuters.com/article/rbssIndustryMaterialsUtilitiesNews/idUSLF4432920080915?sp=true
Posted by: 108 on September 22, 2008 at 10:02 AM
BL - abetted by the usual "small government" crowd
I'll fact check you here. The small government crowd has as many reservations about this as you do.
BL - Are you kidding me? $700 billion to $1 trillion entrusted to the same crowd that has doubled the national debt in seven years, and has basically started and fought a $1 trillion war on off-budget money it is borrowing from the Chinese? ... and no one gets to ask any impertinent questions...
Isn't this what you want for climate change? A Czar? Some sort of technocracy?
LAMBERT: in actual fact the climate change issue has been thoroughly vetted by a completely transparent consortium of the world's best experts on the subject. If only we could say as much about whatever Paulson is thinking.
Posted by: 108 on September 22, 2008 at 10:14 AM
As Naomi Klein says, what we are seeing here today with Paulsonism is cry baby capitalism -- "When times are good they preach deregulation, when times are bad, they all want bail-outs"
That's not risk reward. That's not responsible fiscal management. That's not old-fashion conservative values, prudent lending, and sound investing. There is nothing here that resembles a "free market" when nearly a trillion dollars is handed to failed corporations and subloan hawkers of mortgages.That doesn't get to the heart of the systemic problem of greed that had overtaken the market and loan crisis.
Wall Street woke up on Friday finding out it was Christmas morning in September. The government handed those crooks a great big trillion dollar cash box wrapped in silk bows and gold leaf wrapping paper. Thank you Pappie Bush!
The thieves not only got out of jail free, they will get $700 billion in taxpayer cash. Holy BeJees, they dropped the bomb last week but it won't explode until we the taxpayers start paying the money out.
And if our money is put into bailing out these companies, what do we get? In exchange for having our skin in the game, the investment of our hard earned dollars what responsibilities does Wall Street, banking, loans and foreclosures have to this massive, never-seen-before financial bail-out of crony capitalism?
LAMBERT: If the taxpayers put up the dough the taxpayers should get "senior debt" status on these companies. Whatever money they make comes back to us ... first.
Posted by: Robb on September 22, 2008 at 12:28 PM
You are correct, we have the wrong leadership and it lives on both sides of the aisle. If you think that just tossing Bush will fix things, you are wrong.
Consider that one of the last major deregulations of banking was signed by a Mr. Clinton. Or consider that Barney Frank helped lead the charge to get mortgages in the hands of those who couldn't afford them. Or even consider that the latest government regulations to require mark-to-market valuations on holdings caused the meltdown to accelerate last week.
I'm not suggestion for a minute that heads shouldn't roll. Start with Cox, fire him today. Ditto for the heads of Fannie and Freddie who converted their bloated companies into investment banks (and neither party stopped that but gladly took their campaign donations). At the same time, those in both parties who were on the banking committees should be tossed.
I've been with you on the rants with Bush and Iraq and agree he was at fault. This one is far deeper and both parties could have done something (where were the Dems the last two years?) Sadly everyone (both parties) had their hands deep in the pockets of the billionaires that caused this mess.
LAMBERT: There's no way to give Congressional Democrats a free pass on this. But I get a little weary of everyone suggesting that just because "the Democrats" have held control of the House for a year and ten months they should have solved every epic mess that was either created or exacerbated by the previous six years of Republican control of the White House, House, Senate ... and Supreme Court. Where would they even start? Iraq? Health care? Environment? Schools? Infrastructure? Also, beware those trying to make comparisons between this and previous "gaming" scandals. True enough, Bill Clinton signed the bill in Dec. 2000 that included language "deregulating" risky trading by avoiding transparency, etc. ... but Phil Gramm wrote it.
Posted by: Dave on September 22, 2008 at 12:40 PM
Thanks Brian. But, not to change the subject, I wanted to know what you think of the puzzling new line of attack from the other Coleman's people. You know: Al Franken may have written anti-McCain humor for SNL!! Grab the torches!!!
And that would be wrong because....why, again? He spent -- though it turns out he didn't, rats! -- what, 20 minutes typing up a funny parody of the desperate McCain commercials of recent weeks. The funny Franken that you say should be running would have seemed to have emerged in full force. Would that he uses that strength when he gets around to going after the spiderwebs that grew over Colemans' gavel for the Special Investigations Subcommittee.
LAMBERT: Apparently "SNL" is elitist. Obviously only pointy-headed types watch THAT show. Wait a minute. Didn't McCain host the show once?
Posted by: Paul Scott on September 22, 2008 at 1:32 PM
And do not forget that DEREGULATION has been the battle cry of the Republican Party since... FOREVER... and they have opposed regulation as viciously as pit-bulls. As soon as a McCain administration would enter office, they would use the crisis, once again, to excuse all the culprits and call for further deregulation of commercial and investment banks. They already are allowing Bank of America exemption from regulations to rush the sale of Merrill Lynch. Nothing like a crisis to provide excuses for NOT doing the right thing and let your friends and contributors profit at doing more corrupt and profitable business.
Yes, Clinton as a conservative Southern Dixiecrat played into the hands of the banking industry but during Clinton's reign of office they never got as much as they did from Republicans. The Republicans have done as much as they can to corporatize government, subsidize oil drilling (they want to do much more of this in years to come), bail out savings and loans, bail out the airlines, auto and steel and given huge no-bid government contracts without accountability to military contractors while attempting to "privatize" the war.
Do you really think this crony capitalism will all end if the Republicans can somehow point the blame at Clinton and the Democrats and gain election or re-election to office?
LAMBERT: The echo chamber will be able to sell that one, yes.
Posted by: Robb on September 22, 2008 at 2:45 PM
What is my favorite labelmaker saying today, the guy who called me a 'socialist' just because I wanted affordable health care for my two sons who don't have any?
BJ, what label is appropriate for these mentally corrupt wall streeters? What is their ideology say to do now--socialize? Mighty damned expensive party favors at this social event. Where is their free market capitalistic ideology now...leave it in their other suit?
And the timing couldn't be more precisely selected could it, just after McCain's party on the river in St Paul and just before they lose another 20 GOP seats in congress in November.
Brian, thanks for posting this. Shame MSM doesn't have the courage to expose this, and shame on any representative (paging Senator Coleman?) who backs this bailout as written. We should put a stop on this bailout today.
I recommend Senator Sanders response to this implosion, and encourage all of BJ's favorite labels (like conservative and libertarian) to think twice before returning GOP hacks like Coleman to Washington to send our tax monies into Wall Street AND AROUND THE WORLD to bail out finanial idiots with nothing in return. At least when a union bails out its company, they usually get something in return.
And if Franken follows the standard party line on this, it is to his detriment.
I'm thinking this is reminding me more and more of how Ventura became governor over those all too familiar party hacks he ran against...and I can think of no greater reward for Coleman's representation of MN citizens than to lose again to a third party candidate. A fitting legacy, and just a bonus for him to have to go out and find a real job in this economy.
Wait, it is fuzzy, but I'm seeing him in a think tank...or at least it is a tank of some sorts.
LAMBERT: Here's a good piece I just came across. From the Financial Times: http://www.ft.com/cms/s/622acc9e-87f1-11dd-b114-0000779fd18c,dwp_uuid=73adc504-2ffa-11da-ba9f-00000e2511c8,print=yes.html
Posted by: The Other Mike on September 22, 2008 at 4:01 PM
Brian I can't let the Dems off that easy on this one. And they wanted no part of fixing Fannie/Freddie Mac.
In 2006 a bill was introduced (by McCain of all people) to add new oversight to Fannie/Freddie. This was due to people already aware of the funny business they were up to. That bill was killed the Committee on Banking, Housing, and Urban Affairs and our friend Mr. Dodd.
Also note that Dodd was the top campaign contribution earner from Freddie and Fannie with Obama at #2. The head of Freddie is on record (and video) calling the Dems "family".
That doesn't mean the Republicans skate free on this one. They sure could have got something done and McCain's bill had flaws of its own.
But I'm also not comfortable believing that throwing Obama into office could have improved this. He had no idea this was coming and arguably should have (based on the contributions he accepted).
The irony of all this is Freddie/Fannie were government sponsored companies with government financial guarantees.
I'm only harping on this because Freddie/Fannie failing are what started this mess. It is not the Democrats fault either, it took all of Washington to screw this up. McCain has taken $$ from Freddie/Fannie, so no pass for him either.
LAMBERT: I can't agree with you Dave that this mess started with Fannie and Freddie. Nor can I accept that McCain's call for more oversight of those two in 2005 -- after years of preaching the deregulation sermon and drinking Phil Gramm's Kool-Aid now makes him a credible reformer. No doubt the financial sector dropped a lot of dough in a lot of pockets. Lord knows they had the money to buy friends. But part of the game now is confusing the public with who actively manipulated the system -- via legislation as much as lobbying (like McCain's campaign manager) -- to reduce transparency, thereby encouraging trading on highly suspect assets.
Posted by: Dave on September 22, 2008 at 5:11 PM
Interesting news, your FT link above, but nothing I want our country to respond to (overtly).
Here is where our attention needs to be--
http://www.dmagazine.com/ME2/dirmod.asp?nm=Core%20Pages&type=gen&mod=Core%20Pages&tier=3&gid=B33A5C6E2CF04C9596A3EF81822D9F8E&
Finally, conservatives have been willing to speak out against their hijacked GOP party. It is truly time to bury the labelmaker and put the best minds together to put our country on the right track.
No conservative in their right mind would approve the Bush-Paulson bailout, especially with that Section 8 clause (hey, isn't that the military CRAZY clause...fitting, eh?).
Listening yet BJ, if you won't listen to Allison, who are you listening to?
LAMBERT: His inner demons.
Posted by: The Other Mike on September 22, 2008 at 10:39 PM
"part of the game now is confusing the public with who actively manipulated the system"
What are we in danger of confusing about Raines and Gorelick? About Dodd's efforts to shield Fannie from real accounting? About Cuomo and Frank's directives to expand the writing of alt-a and subprime loans?
"No doubt the financial sector dropped a lot of dough in a lot of pockets"
Fannies money - to the Democrats - bought protection from oversight.
Wall Streets money attempted to buy protection from Sarbanes-Oxley and mark to market accounting. They did not succeed given the post-Enron political environment. Economic populism won the day.
"thereby encouraging trading on highly suspect assets."
I was pooling loans for sale to Fannie in 1994 for crying out loud. Gramm's bill did not enable this, nor did any others that followed. What makes them liquid and tradeable at all is their implicit guarantee by Fannie and the Government. Gramm's Bill did not reduce the transparency, Sarbanes-Oxley did not reduce the transparency. To the extent that these notes were hard to value was because Fannie wanted it that way and Chris Dodd and Barney Frank made sure it stayed that way. The market that existed independantly of Fannie and Freddie just followed along.
LAMBERT: http://www.bloggingstocks.com/2008/09/15/100-year-crash-mccain-advisor-spurred-62-trillion-derivatives/print/
Posted by: 108 on September 22, 2008 at 11:42 PM
I like Nick's Column today - I think thats the right sentiment.
For what its worth, I'm skeptical of the urgency to write an all encompassing bill right now. It can wait for new Treasury Secretary Franklin Raines or George Soros or Todd Palin or whoever it might be.
Theres certainly no freaking way Dodd should be leading that committee.
Posted by: 108 on September 22, 2008 at 11:46 PM
Jots with dots...Under some versions of the plans 'they' are throwing around, a lot of corporate paper could be absorbed by the bailout. Like, the Star Trib's debt, for instance. I don't expect that type of plan to come to fruition....Gingrich's criticism of the the bailout is the best I've heard....Prior to this, I was opposed to allowing bankruptcy judges rewrite mortgage terms. But if we're going to bailout the firms holiding paper, its fair to modify the mortgages.
LAMBERT: Very generous of you, 108. It appears the so-called "Swedish plan" is gaining traction. I prefer the idea that we -- the taxpayers -- emerge from this holding "senior debt" on whoever gets our money.
Posted by: 108 on September 22, 2008 at 11:58 PM
I'm sorry but I have to disagree with the statement, "...Freddie/Fannie failing are what started this mess." Freddie and Fanny failing were not beginning of failure, their collapse were the result of bad fiscal policy, a lack of proper regulation to insure the safety of investor money, and bad oversight of loans and subprime lending.
Listen, you could get a home loan on the internet by responding to spam email (something McCain wouldn't know since he doesn't know how to use a computer) and these ARMS, interest only loans and refies were happening all across the board and NOT just Freddie and Fannie.
That's the government and rigid doctrinaire Republican policy of turning their backs on government oversight while banks and lenders were fleecing the borrower that began the years/decades long course that led us here. Lots of money changed hands and it was not going to be the Bush administration, Allen Greenspan, or John McCain who were going to stop this greed lust for money and profit.
I agree the Democrats, once they took control of Congress and the Banking Committees in the House and Senate should have moved rapidly to shut this whole mess down. But do not forget it was Republican policy and their undying dogma of deregulation at all cost that STARTED this mess and all the collapse of institutions came as a symptom of their myopic greed.
LAMBERT: Fannie and Freddie are getting a lot of attention because they are so damned big and intertwined with everyone in Congress. But they are also being used as a smokescreen to obscure the priniciples and legislation that put the whole game into its casino death spiral.
Posted by: Robb on September 23, 2008 at 7:44 AM
What is fascinating is seeing all these rock-ribbed conservative Wall Street analysts and commentators of the Republican stripe stand up there on national TV and bite their tongue and say, against their will, that there should have been better regulation and oversight before this house of cards fell.
For decades these dufus' have been saying over and over that there should be less regulation and less government oversight -- let the market regulate itself. They've slapped down moderate voices of reason that say some regulation and oversight is necessary. WSJ editorials wold scream that is "socialism," anti-free market, or anti-capitalist even though market regulation goes all the way back to the Republican Teddie Roosevelt.
Now, they are eating crow. Lots and lots of crow pie.
LAMBERT: Right. And we'll soon be eating what the crows drop.
Posted by: Robb on September 23, 2008 at 8:04 AM
In addition to the numerous laments and outrage about how perverse this bailout is on a 'free enterprise' level, what really pisses me off is what this says about this glorious country's priorities. Do we come up with the necessary funds to deal with the aging infrastructure? To create mass transit systems? To provide health care to poor children? To create alternative energy sources? No, let's not do any of those things, but let's help Wall Street and, for God's sake, let's do it in five days, start to finish. Never has there been a more telling example of how hollow this country is at its moral core. Let me reprise what I said in my earlier post: We're fucked.
LAMBERT: How are your hunting-gathering skills?
Posted by: A Son of Mississippi on September 23, 2008 at 9:28 AM
Now Fed Reserve Chairman Ben Bernanke is urging Congress to adopt his bail out plan with great haste. Anyone who sets out with this kind of urgency and haste in the face of incredible past incompetence should be viewed with suspicion.
More importantly, I think all American taxpayers ought to take note that in Section 8 of this bail out proposal Bernanke is trying to shove down our throats it states that said decisions by the secretary are “Non-reviewable, may not be reviewed by any court of law or any administrative agency”
What happened to review, oversight, and holding government officials and cabinet members accountable? I think the lack of oversight and accountability what lead to this whole mess in the first place, isn't it?
They are certainly using the "economic crisis" mentality to give themselves carte blanche.
Posted by: Robb on September 23, 2008 at 9:39 AM
http://www.bloggingstocks.com/2008/09/15/100-year-crash-mccain-advisor-spurred-62-trillion-derivatives/print/
So?
Oh right – I hadn’t considered the insidious nature of bond insurance, and all who push it.
Its still goes back to Fannie. The swaps needed to exist in abundance for the originators to be able to move their paper to market and replenish their capital. Fannie was the biggest originator of mortgage securities – it made the market. You must think all the fatcats got together and said, “that’s how we’ll take everyone’s money – with bond insurance – we’ll get Phil Gramm to introduce a bill.”
Now I suppose we can entertain a circular argument where you say, if these swaps didn’t exist, then all these loans wouldn’t have been originated. But make no mistake, it was the Clinton cronies who really, really wanted those loans originated. What wasn’t ideological was just greed.
This all goes back to the ease in which mortgages have been available over the last 20 years. If you really think there’s been a lack of regulation, it resided in the originations. Changing that is at direct cross purposes with how the democrats have approached affordable mortgages.
Posted by: 108 on September 23, 2008 at 3:45 PM
Alright, despite a preponderance of financial fiasco and laisser-faire neglect of sound fiscal policy -- you are going to insist it all comes down to Chris Dodd, Fannie & Freddie Mac, and Democrats giving home loans to working class people. That's a marketing person spin-doctoring (LIES) of the truth. American citizens know better.
Americans also know that the Republican Party and the Bush administration has an never-seen-before ability to totally screw everything up and then, like the bad boy on the playground, turn around and point the finger of blame at anyone standing nearby. They did it with Katrina, they did it with Abu Ghraib, they did it with WMD, they did it with Enron and Worldcom, they did it with Arthur Anderson... the list of failures due to their incompetence is really quite astonishing.
When will you blowhards take responsibility for the last 8 years of these and many other miserable GOP failures?
Posted by: Robb on September 24, 2008 at 10:58 AM
This whole mess reminds of a quote from your man, Ronald Reagan, 108, that he directed at the federal government, but that could just easily be applied to the home mortgage debacle and the Gordian Knot of bundling that divorced the originators from consequences:
The mortgage-backed securities crisis "is like a baby: An alimentary canal with a big appetite at one end and no sense of responsibility at the other."
Posted by: Jm Leinfelder on September 24, 2008 at 11:07 AM
That’s as good an analogy as any Jim.
For you fellows who insist on viewing this through the prism of securities regulation and deregulation, I believe you’re obliged to tell us of at least one instance of where the creation or trading of a credit swap caused an ARM mortgagor to go into default. I’m looking for some sort of cause / effect here, but I haven’t seen anyone with the ability to articulate it. Mouthing ‘laissez-faire’ isn’t a very good attempt in my book.
Swaps are merely insurance for defaults. AIGs problem was its claim overhang sunk the company. The holders of those securities were smart to insure them. It was good that the insurance contracts were out there. That wasn’t a regulatory problem, it was brilliant foresight.
LAMBERT: "Swaps are merely insurance for defaults". What? Pretty obviously all those "questionable mortgages" were being sliced and re-packaged for bidding and betting purposes WAY beyond "insurance for defaults". Come on, man.
Posted by: 108 on September 24, 2008 at 11:54 AM
http://www.beachwoodreporter.com/politics/nader_predicted_wall_street_me.php
The man everybody loves to hate had this crisis pegged in 2000!
And he has a 10 point plan (that doesn't create an all powerful Financial Oz) that makes flipping sense.
But who in government cares about sense anymore.
Posted by: The Other Mike on September 24, 2008 at 12:11 PM
Why is it when Hugo Chavez takes over an oil company it is "nationalization"& is considered wrong, yet when the U.S. government takes over financial institutions - and thus ownership of American's homes - it is called a "bailout" ?
LAMBERT: Because Chavez "hates freedom". We don't. Stop asking so many elitist questions.
Posted by: Jed Leyland on September 24, 2008 at 12:12 PM
Brian,
“C’mon man..” doesn’t cut it. You’re not smart enough to argue with me about this. You just want to live in your little world of denial until the relevant Fallows or Frontline piece comes out to tie this to the Republicans in a way you can articulate.
A swap is not an interest paying mortgage bond. The securities didn’t fell this house of cards. It was the mortgages.
I’ll give you another chance though. Explain to us the deregulatory aspects of Sarbanes-Oxley.
Posted by: 108 on September 24, 2008 at 12:28 PM
BL, you use parentheses around “questionable mortgages” Why? Do you harbor some skepticism they were actually questionable? Who’s directive was it to expand the orgination of questionable mortgages? Who bought and bundled those from private originators?
“Questionable mortgages” represents the bulk of the Clinton administrations affordable housing initiative. We’ve got hindsight now – what do you think of it?
LAMBERT: I use parentheses because of the misinformative emphasis being placed on less than 5% of mortgages issued, as though those, (and the point is often made ... to "lower income" borrowers, i.e. minorities ... is the primary cause of this disaster. And I say, "come on, man" because you seem (or seemed) smart enough to at least cop to the fact that it was the bundling and betting of these inside the whole opaque derivative casino that created the exponential punch that drove the system to its knees. You want to lay it strictly on greedy "low-income borrowers" and the Democrats (lacking Congressional majority) trying to get them into homes, okay. But that conversation bores me.
Posted by: 108 on September 24, 2008 at 12:42 PM
If you stand out in the street screaming "...the sky is falling" as long and as loud as Ralph Nader has over the years, you're bound one day when tragedy strikes to be seen as possessing prescience on the fate of the world.
Yes Ralph, as long Republicans and end times evangelists roam among us, one day we will all die and mankind will come to a miserable and cruel end. But standing there and saying it doesn't make you omnipotent nor fit to be President.
Posted by: Robb on September 24, 2008 at 1:42 PM
BL – no such thing, on any count.
This is the 4th time in recent weeks you’ve given me this lefthanded admonishment of not living up to some smartness standard you ‘thought’ I was capable of. Now I know this is just an example of parroting back to that comforting assumption of liberal intellectual superiority that allows people like you to maintain your worldview. But I am smarter than you – on this and many other things. Its worth knowing and remembering.
I lived this. And by the way – nice aspersion on who I may think is a ‘low income borrower.’ The mortgage industry was a way to break into the business world for people who were 25 or so in 1995. Few barriers to entry, plentiful jobs. I had siblings and numerous friends and other relatives who did, and got entry level jobs at the gargantuan loan outfit in Bloomington – the one that outearned its auto manufacturing division. I also observed people who were a little older and had failed in other businesses go into mortgage banking with very iffy expertise. There were a few years of success and many of these folks went out and bought $375k starter mansions on ARMs.
Mrs. 108 and I we’re talking about this the other night at our kitchen table in our 1000 sq ft Levittown style rambler that we bought for $135k with a 30 yr fixed mortgage in 2000. We heard these people say they knew this was likely to happen – the foreclosures – and they took the mortgages anyway. So I look at this with a fairly Mencken like bemusement. But I’ll go back to my old lying eyes on this, rather than the no nothings who shout some de-regulation they can’t cite or articulate.
You get bored if you have to engage an argument past a single, snarky one liner.
But whatevs. Last time. It’s not the derivatives, they’re of no impact without defaults.
I’m just here to educate, fellows. And hear myself talk. Those are the only reasons. -30-
LAMBERT: Look, part of my "low income borrower" snark is this insinuation that those were the ONLY people getting in over their heads. I'll agree with you - emphatically -- that there were a hell of a lot of player wannabes who grabbed up the starter McMansions on mystery credit as well. But you're still at a fraction of all mortgages -- that has, as I say, exploded exponentially, thanks too ... well, you seem to think it was the Democrats giving Freddie and Fannie a pass. I say -- as you can see by a swap market that has gone berserk since '01 that it had a hell of a lot more to do with something else, most likely freshly applied opacity and extremely lax regulation -- of the few regulations there ever were. Go ahead blame Clinton and Barney Frank. But I'm not buying.
Posted by: 108 on September 24, 2008 at 2:29 PM
108: Pull you head out of your a--.
What happened at Lehman in 15-seconds? (Then we can await for Frontline, Fallows and the FBI investigations) Mortgage brokers bought mortgages at different amounts and risk levels and in order to balance the risk-reward ratio, they created mortgage-backed securities (MBS). They chopped up all the different mortgages and then they sold them to other banks and investment firms. Lehman being one of those firms borrowed money to buy the securities leveraged at a staggring 30:1. Chopping, dicing, splitting reselling. Not responsible.
This is what Brian means when he describes the "slicing and re-packaging of risk for bidding and betting purposes WAY beyond "insurance for defaults." Not good guardianship, oversight, or fiscal management.
Lehman had $5.4B of debt obligations last quarter, but only $2.3B in income. When you cannot pay debt obligations means you are insolvent. Meanwhile, during this meltdown Lehman was paying out billions in executive compensation. Fraud or criminal conduct? Lehman couldn't pay its debt obligation thus they filed bankruptcy. Melt down. Goodbye Lehman Brothers.
Posted by: Robb on September 24, 2008 at 2:51 PM
I apologize if someone else above has already revealed this, but the lightbulb (courtesy Ben Stein and hat tip to my co-worker) just went on--
We are being asked as taxpayers to pay for bad banker 'gambling' debts in the form of Credit Default Swaps--
--all that crap about 'ohhh, the sub-prime mortgages and foreclosures...' is 90% smokescreen, here is the real reason for the bailout (and why no one wants to admit it to the taxpaying public)..
--http://finance.yahoo.com/print/expert/article/yourlife/109609#
Wiki 'Credit Default Swaps' to learn more...I'm too pissed at (1) bankers and (2) our government, for even thinking of asking us to bail them out without giving us ownership in their businesses.
I say call their bluff, my hunter-gather skills are just fine.
Posted by: The Other Mike on September 24, 2008 at 3:44 PM
Adam Platt put the question on another MSP blog:
"How what seems to me to be a relatively modest number of bad loans could unhinge the core of our nation’s (and the world’s) financial systems. I mean, there are no foreclosures on my block. And most of yours as well, I’d presume. But the world’s credit markets, the nation’s banking system, and the entire housing economy has been rendered a bloody pulp."
As Lambert says, there certainly were cases of ARMS and interest-only loans made to people who wanted MacMansions but didn't have enough income to afford them, especially in cities in California where house prices had vastly outpaced their value (why were the loans given? prices would have moderated if subprime loans weren't handed out) but as Brian and Adam point out, how could 5% bring down the entire housing economy?
It not like the dust bowl had swept the plains and Tom Joad off his land and into wagon trains headed for Weedpatch grape picking camps in California. Unemployment was not yet out of control. Its not like the Democrats had opened the bank vault and let the hoarding masses run out with fistfuls of cash. There was a lot of funny business going on with slicing and dicing this risk as a result of lax regulation both in giving loans (Bush home ownership society pledge) but also moving the debt around under the fast and free rules of Republican deregulation.
And almost everyone is calling this for what it is, except you 108, a bad case of lax regulation.
Posted by: Robb on September 24, 2008 at 4:27 PM
Well Robb with an extra b for bolshevism,
The fact that this is not Tom Joad's America happens to be one of my favorite contentions. Welcome to my side, where we don't make Steinbeck analogies or listen to Bruce Springsteen records.
I stand by my argument. If the loan portfolios are underperforming due to defaults, their values are eroded. That forces these firms to put up more assets to comply with their covenants, and the degree to which they're leveraged amplifies their problems in getting cash. I don't think being overleveraged is a good thing, I don't really shed a tear for these guys. I'm not a supporter of a bailout.
You can regulate the degree to which these firms leverage themselves, if you want. I understand thats changed, and in the recent past leveraging limits we're raised. I regard that as distinct from the idea of securitizing mortgages and writing swaps to insure them.
One thing thats got to happen, is hedge fund mania has to end. Its largely non productive for society. The way that is achieved, non capriciously, is to tax the managers at regular income rates, not the cap gains rate which its done currently. Obama, believe it not, has been two faced on this.
Posted by: 108 on September 24, 2008 at 5:10 PM
Bolshevism? You are a joke.
That's what we get in American today instead of informed discussion and debate of issues is ad homonym name-calling and anti-intellectual fear mongering from extremists who apparently never studied political philosophy or economic policy but STILL like to accuse others of these things they know zero about. Bolshevism? What an idiot you are.
Go back to your knee-jerk John Birch Society cave and poke rats with sticks and pick your teeth with it. And listen to your Statler Brothers or Toby Keith albums to reinforce your small-minded and negative stereotypes while you stir up your fear of Bolsheviks storming the White House.
Posted by: Robb on September 25, 2008 at 7:43 AM
Oh hilarious. You're really telling me off man. Pot, meet kettle. Robb with an extra b, you are the most easily caricatured fella here. Its seldom, in fact, that your posts don't include a reference to some future recriminations tribunals that you dream of. In my mindseye I can see the Che picture on your wall.
Posted by: 108 on September 25, 2008 at 9:18 AM
"...future recriminations tribunals that you dream of. In my mindseye I can see the Che picture on your wall."
I never had a Che poster nor do I listen to Springsteen. I've worked in the state office of a Republican U.S. Senator. You're paranoid delusions are a manifestation of your small mind that is disconnected from reality.
What drugs are you smoking 108?
Posted by: Robb on September 25, 2008 at 9:38 AM
Game, set match to 108.
Well done, sir.
A proposed T-shirt for Lambert To the Slaughter afficiandos like "Robb the Bolshevik" and "Hunter Gatherer Mike, Whose Kids are Uninsured":
"I possess that comforting assumption of liberal intellectual superiority that allows people like me to maintain my worldview."
Exquisite!
Posted by: bertram jr on September 25, 2008 at 9:48 AM
Like in other arguments I've noticed, 108 is dishonest here. He knows enough to seem to win an argument while conveniently ignoring facts that not only undermine his case, but completely destroy it. For instance, he does admit that swaps are insurance, but ignores the fact that, unlike other insurance, swaps weren't REGULATED! Among the many benefits that regulation of insurance provides, is a requirement to set aside cash to pay claims in those instances when disaster strikes. In this case, the disaster was falling housing prices. AIG, unregulated, did not set aside sufficient cash, and here we are.
Posted by: frogster on September 25, 2008 at 9:53 AM
I see now the glory that is having an editor ....
The information above, if edited to remove the needless attacks and namecalling, would actually be very informative to the average citizen, who is about to be fleeced of $2000/taxpayer in exchange for a new political bureaucracy and better hidden executive parachutes.
We suck.
Posted by: The Other Mike on September 25, 2008 at 10:29 AM
My "30 second conservative" view holds that evidence clearly indicates that Clinton signed into law the very policies (end "red lining")that Wall Street gorged on, and that Barney Frank (gay call-boy ring, anyone?) blocked the most vital reform move.
Oh, and that it was Bill Ayres that guided Obama's political ascendancy in Chicago.
Thankfully there are experienced adults to vote for.
Posted by: bertram jr on September 25, 2008 at 11:01 AM
Oh yeah, lets just completely ignore the financial mess and start thrashing bashing about with gays and communist red-baiting. That will solve hte problem -- yeah right.
"We need to sell it better" was the conclusion by Paulson and Bush after yesterday. Sell it better? Not come up with a better plan, just SELL it better. And the tactic Paulson and Bush and the bail out artists want to use to sell it better is FEAR.
What a difference a week makes. Not too long ago, if you will remember correctly, all we heard was how bad the financial situation was with banks - WaMu, Wachovia, Citicorp, etc. Now, Paulson, the bail out artists, and the Republicans would like us to believe that banking is the pillar of strength and the savior to Wall Street's investment banks.
Obviously, as much as they'd like to pull the wool over our eyes with Frannie Mae and Freddie Mac, the hidden agenda behind the fear based bail out is to end the laws that keep investment banks split from commercial banks.
What does this mean for us as average Americans? It means that Goldman Sacks and Morgan Stanley will spread the risk (didn't that already make it a house of cards) to consumer deposits and thereby endanger the savings and deposits in commercial banks of all Americans. Let them merge and buy each other out and get even bigger.
On one hand, the fear rational we are being feed says we must give the Treasury secretary unprecedented power without oversight because Republican politicians and deregulators let these financial institutions get "too BIG to fail" Well, wouldn't that argue in favor of putting them on a diet?
Instead, under the big fat trillion dollar bailout we have Bank of America swallowing Merrill Lynch. Bank of America is already too big to fail but now it is going to be something worse. In all their infinite incompetence, the bail out will simply reward the wrong-doers and worsen the problem.
Economist Nouriel Roubini warned some time ago that America has a "subprime financial system, not a subprime mortgage market" and that we, he argued back as early as 2004 were headed into a future collapse that rivals the Great Depression.
And you still want to buy all this bail out crap from the Republicans?
Let's just start arguing about Barney Franks sexual preference and get distracted by the shinning thing over in the corner. 108 and bertram, jr., you have the attention spans of crack addicts.
LAMBERT: Crack addicts have feelings, you know.
Posted by: Robb on September 25, 2008 at 12:19 PM
Repeating the Bill Ayers misinformation over and over again ad nauseam will never make it true bertrum jr. But I'm sure you have no interest in anything even slightly resembling the truth.
For those of you who do value the truth you can check the Annenberg Foundations FactCheck.org for the debunking of the email change letters being falsely circulated about Obama's connections to "the Chicago machine" Willaim Ayers, the Daley political machine, real estate man Tony Rezko and Governor Rod Blagojevich.
In almost all cases, the extent of Obama's guilt-by-association is that he lived in the same city with them or went to a meeting where they were also in attendance. Obama did not live in Chicago or have any involvement with the Daley Machine (he was merely a child when the machine was in operation); Obama was 8 years old when Ayers was a radical and has said he doesn't agree with Ayers views and especially his actions. The only association Obama has with Blagojevich is that Blagojevich was governor while Obama lived in the state. That's like people accusing me of being shaped or sharing the views of Tim Pawlenty.
bertram jr. has transformed these casual and minimal encounters into mentorships and/or "controllers of his ascendency" while ignoring the fact that Obama's real Chicago advisors are for better or worse: Former Treasury Secretaries Robert Rubin and Larry Summers, former National Economic Adviser Gene Sperling, former chairpersons of the Council of Economic Advisers Laura Tyson and Joseph Stiglitz, former Federal Reserve Chair Paul Volcker, and Berkshire Hathaway Chairman and CEO Warren Buffett.
LAMBERT: You know of course that yours is not the story Hugh Hewitt and Sean Hannity are telling.
Posted by: Robb on September 25, 2008 at 2:42 PM
Who are Hugh Hewitt and Sean Hannity? Neighbors of yours Brian?
LAMBERT: Just a couple trolls.
Posted by: Robb on September 25, 2008 at 3:24 PM
Nor is it the truth.
But, hush, don't tell Robb The Bolshevik (TM)!
He's blissfully certain of his intellectual superiority!
Of course a community organizer can be President!
Posted by: bertram jr on September 25, 2008 at 4:08 PM
I have heard there are (8) confirmed half siblings of Obama.
Will US Weekly be looking into this?
Just wondering, what with the fascination about Palin's daughter and all.
Sickening, really.
Posted by: bertram jr on September 25, 2008 at 4:10 PM
"...these casual and minimal encounters"
Title of Clinton's memoirs?
Or best possible title for bertram jr.'s future blog?
Oh, it's so rich, so rich.
Posted by: bertram jr on September 25, 2008 at 4:12 PM
As my father used to philosophically tell me as a boy on our fishing trips to Northern Minnesota:
"Avoid getting into a pissing contest with a hose!"
LAMBERT: You're calling bertram a "hose"?
Posted by: Robb on September 25, 2008 at 4:35 PM
Ya know, given BJ's tenuous grasp of reality and the GOP's really awful week, combined with BJ's week of silence...I must admit I was sincerely afraid for his sanity, and given the GOP's love of guns, that he might just end it all this week.
I guess I needn't worry about him.
BJ, I'm fine too, and you need not worry about my boys...we all have to die of something, they'll probably live long enough to outlive this wall street bailout. You and I will not be so lucky, will we.
I wish you well, and hope for a full recovery from your condition.
LAMBERT: "Tenuous" strikes me as wild exaggeration.
Posted by: The Other Mike on September 26, 2008 at 12:29 AM
To reassure, Bertram Jr. is well positioned in the "real world'.
And, admittedly, well armed, too.
Quite comforting at the end of the day, actually.
Would someone please phone Obama so he can come over and solve this financial situation?
Thank you.
Posted by: bertram jr on September 26, 2008 at 9:06 AM