The Economy - Government for Sale?

[Mulu]

Alright, you asked for it....

A comprehensive look at Republican Failures. Admittedly, I'm just scratching the surface here, but the denial of reality is getting to be too much for me.

The Republicans had total control of the Federal government for 6 years. From January 2001 to January 2007 all three branches of government were firmly under Republican control. They had 6 years to prove to the world that Republican policies were superior, that conservative ideals would make America stronger.

What they did instead was to prove that Republican governance is both unethical and incompetent. Republican Congressmen dove head first into the trough, and let Bush Jr. do whatever he wanted to do. So, what did Bush Jr. do? He lied, and he ran the country into massive debt, ultimately helping to cause the current financial crisis.

1. 9/11

A Shock, Not a Surprise
The 9/ 11 attacks were a shock, but they should not have come as a surprise. Islamist extremists had given plenty of warning that they meant to kill Americans indiscriminately and in large numbers. Although Usama Bin Ladin himself would not emerge as a signal threat until the late 1990s, the threat of Islamist terrorism grew over the decade.

(82) In February 1993, a group led by Ramzi Yousef tried to bring down the World Trade Center with a truck bomb. They killed six and wounded a thou-sand. Plans by Omar Abdel Rahman and others to blow up the Holland and Lincoln tunnels and other New York City landmarks were frustrated when the plotters were arrested. In October 1993, Somali tribesmen shot down U. S. hel-icopters, killing 18 and wounding 73 in an incident that came to be known as "Black Hawk down." Years later it would be learned that those Somali tribes-men had received help from al Qaeda.

(93) In early 1995, police in Manila uncovered a plot by Ramzi Yousef to blow up a dozen U. S. airliners while they were flying over the Pacific. In November 1995, a car bomb exploded outside the office of the U. S. program manager for the Saudi National Guard in Riyadh, killing five Americans and two others. In June 1996, a truck bomb demolished the Khobar Towers apartment complex in Dhahran, Saudi Arabia, killing 19 U. S. servicemen and wounding hundreds. The attack was carried out primarily by Saudi Hezbollah, an organization that had received help from the government of Iran.

(104) Until 1997, the U. S. intelligence community viewed Bin Ladin as a fin-ancier of terrorism, not as a terrorist leader. In February 1998, Usama Bin Ladin and four others issued a self-styled fatwa, publicly declaring that it was God's decree that every Muslim should try his utmost to kill any American, military or civilian, anywhere in the world, because of American "occupation" of Islam's holy places and aggression against Muslims.

(113) In August 1998, Bin Ladin's group, al Qaeda, carried out near-simultaneous truck bomb attacks on the U. S. embassies in Nairobi, Kenya, and Dar es Salaam, Tanzania. The attacks killed 224 people, including 12 Americans, and wounded thousands more.

(119) In December 1999, Jordanian police foiled a plot to bomb hotels and other sites frequented by American tourists, and a U. S. Customs agent arrested Ahmed Ressam at the U. S. Canadian border as he was smuggling in explosives intend-ed for an attack on Los Angeles International Airport.

(126) In October 2000, an al Qaeda team in Aden, Yemen, used a motorboat filled with explosives to blow a hole in the side of a destroyer, the USS Cole, almost sinking the vessel and killing 17 American sailors.

(132) The 9/ 11 attacks on the World Trade Center and the Pentagon were far more elaborate, precise, and destructive than any of these earlier assaults. But by September 2001, the executive branch of the U. S. government, the Congress, the news media, and the American public had received clear warning that Islamist terrorists meant to kill Americans in high numbers.

It is singularly ironic that Bush Jr's highpoint in the polls was after we were attacked by terrorists. The irony is he let it happen on his watch. Bush and his administration, and indeed Republicans in general, castigated Bill Clinton for his "obsession" with Osama Bin Laden. They didn't see Osama as a threat. The mentality of the Bush Administration in particular was basically that anything Clinton was wrong, so because Clinton had chased Osama as a dangerous threat, they did the opposite and decided he was a waste of time. Their focus was entirely on Iraq.

Had Al Gore been president when the fateful memo "Bin Laden Determined to Strike Within the US" was delivered to the Whitehouse, he would have put the intelligence and military on high alert. How do I know this? Because that's what Clinton/Gore did during their administration on prior warnings. Gore understood the threat.

Of course, we will never know if being on high alert would have been enough to actually prevent the attacks, but Gore would have at least tried. Bush and his administration purposefully ignored the warning, and Condoleeza Rice later testified to Congress that nothing in the memo caused her to believe there was an imminent threat.

Conclusion: Gross Negligence.

2. The Case for War with Iraq

An investigation by the Pentagon's inspector general has found that civilian intelligence analysis meant to support the Bush administration's case for going to war against Iraq was "reporting of dubious quality or reliability." The Washington Post reports that the US Defense Department findings also say that this prewar analysis gathered by former Undersecretary of Defense Douglas Feith supported " the political views of senior administration officials rather than the conclusions of the intelligence community," but also says that these actions were not illegal.

Not illegal, just unethical.

Feith's office "was predisposed to finding a significant relationship between Iraq and al Qaeda," according to portions of the report.
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In 2004, the 9/11 Commission, also known as the National Commission on Terrorist Attacks upon the United States, found that there was no evidence "of a collaborative relationship between Saddam [Hussein] and Osama bin Laden's Al Qaeda terror organization before the US invasion."
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Eric Edelman, Feith's successor and a former aide to Vice President Dick Cheney, said Feith had received instructions from then Deputy Secretary of Defense Paul Wolfowitz to ignore the findings of the intelligence community that Mr. Hussein and Al Qaeda were "unlikely allies."

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It would not have made sense for Saddam to support groups like al-Qaida that were dedicated to overthrowing secular governments like his own.

Of course he didn't, in fact he created a counter-terrorism strike force to deal with the possibility of his planes getting highjacked by Al Qaida. And we knew this before we invaded.

SSCI Phase II

The Phase II report on Bush administration public statements, in conjunction with the SSCI’s original July 2004 report on Iraq’s alleged Weapons of Mass Destruction, indicates that political manipulation extended beyond the intelligence itself to affect investigation of the intelligence failures on Iraq as well as the Bush administration’s use of that information.

In conjunction with other recently declassified materials, the Phase II report shows that the Bush administration solicited intelligence then used to “substantiate” its public claims.

A recently declassified draft of the CIA’s October 2002 white paper on Iraqi WMD programs demonstrates that that paper long pre-dated the compilation of the National Intelligence Estimate on Iraqi capabilities.

The timing of the CIA’s draft white paper coincides with a previously available draft of the British Government’s white paper on Iraqi WMD, demonstrating that the Bush administration and the Tony Blair government began acting in concert to build support for an invasion of Iraq two to three months earlier than previously understood.

A comparison of the CIA draft white paper with its publicly released edition shows that all the changes made were in the nature of strengthening its charges against Iraq by inserting additional alarming claims, in the manner of an advocacy, or public relations document. The draft and final papers show no evidence of intelligence analysis applied to the information contained. Similar comparison of the British white paper shows the same phenomenon at work.

Declassified Pentagon documents demonstrate that the CIA white paper was modified in ways that conformed to the desires of the Undersecretary of Defense for Policy and his office, in much the same way that British documents indicate that country’s white paper was changed to conform to the desires of the Blair government.

The Committee’s report cites several conclusions in which the Administration’s public statements were NOT supported by the intelligence. They include:

Ø Statements and implications by the President and Secretary of State suggesting that Iraq and al-Qa’ida had a partnership, or that Iraq had provided al-Qa’ida with weapons training, were not substantiated by the intelligence.

Ø Statements by the President and the Vice President indicating that Saddam Hussein was prepared to give weapons of mass destruction to terrorist groups for attacks against the United States were contradicted by available intelligence information.

Ø Statements by President Bush and Vice President Cheney regarding the postwar situation in Iraq, in terms of the political, security, and economic, did not reflect the concerns and uncertainties expressed in the intelligence products.

Ø Statements by the President and Vice President prior to the October 2002 National Intelligence Estimate regarding Iraq’s chemical weapons production capability and activities did not reflect the intelligence community’s uncertainties as to whether such production was ongoing.

Ø The Secretary of Defense’s statement that the Iraqi government operated underground WMD facilities that were not vulnerable to conventional airstrikes because they were underground and deeply buried was not substantiated by available intelligence information.

Ø The Intelligence Community did not confirm that Muhammad Atta met an Iraqi intelligence officer in Prague in 2001 as the Vice President repeatedly claimed.
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“Before taking the country to war, this Administration owed it to the American people to give them a 100 percent accurate picture of the threat we faced. Unfortunately, our Committee has concluded that the Administration made significant claims that were not supported by the intelligence,” Rockefeller said. “In making the case for war, the Administration repeatedly presented intelligence as fact when in reality it was unsubstantiated, contradicted, or even non-existent. As a result, the American people were led to believe that the threat from Iraq was much greater than actually existed.”

“It is my belief that the Bush Administration was fixated on Iraq, and used the 9/11 attacks by al Qa’ida as justification for overthrowing Saddam Hussein. To accomplish this, top Administration officials made repeated statements that falsely linked Iraq and al Qa’ida as a single threat and insinuated that Iraq played a role in 9/11. Sadly, the Bush Administration led the nation into war under false pretenses.

source

Conclusion: Deliberate Deciet


3. The Wisdom of Invading and Occupying Iraq

"If we don't stop extending our troops all around the world in nation-building missions, then we're going to have a serious problem." — George W. Bush, Jan. 2001.

"To have brought the (Gulf) war into the populous Iraqi capital of Baghdad where Hussein is based would have involved a different type of military operation than in the desert, and would have put large numbers of Iraqi civilians and hundreds of thousands of our troops at risk of being killed," Dick Cheney 1997

"We would have been forced to occupy Baghdad and, in effect, rule Iraq."
"Under the circumstances, there was no viable 'exit strategy' we could see, violating another of our principles."
"Had we gone the invasion route, the United States could conceivably still be an occupying power in a bitterly hostile land. It would have been a dramatically different - and perhaps barren - outcome." - George H.W. Bush Sr.

The Iraq War Will Cost Us $3 Trillion, and Much More

By Linda J. Bilmes and Joseph E. Stiglitz
Sunday, March 9, 2008; Page B01
There is no such thing as a free lunch, and there is no such thing as a free war. The Iraq adventure has seriously weakened the U.S. economy, whose woes now go far beyond loose mortgage lending. You can't spend $3 trillion -- yes, $3 trillion -- on a failed war abroad and not feel the pain at home.

Some people will scoff at that number, but we've done the math. Senior Bush administration aides certainly pooh-poohed worrisome estimates in the run-up to the war. Former White House economic adviser Lawrence Lindsey reckoned that the conflict would cost $100 billion to $200 billion; Defense Secretary Donald H. Rumsfeld later called his estimate "baloney." Administration officials insisted that the costs would be more like $50 billion to $60 billion. In April 2003, Andrew S. Natsios, the thoughtful head of the U.S. Agency for International Development, said on "Nightline" that reconstructing Iraq would cost the American taxpayer just $1.7 billion. Ted Koppel, in disbelief, pressed Natsios on the question, but Natsios stuck to his guns. Others in the administration, such as Deputy Defense Secretary Paul D. Wolfowitz, hoped that U.S. partners would chip in, as they had in the 1991 Persian Gulf War, or that Iraq's oil would pay for the damages.

The end result of all this wishful thinking? As we approach the fifth anniversary of the invasion, Iraq is not only the second longest war in U.S. history (after Vietnam), it is also the second most costly -- surpassed only by World War II.

Why doesn't the public understand the staggering scale of our expenditures? In part because the administration talks only about the upfront costs, which are mostly handled by emergency appropriations. (Iraq funding is apparently still an emergency five years after the war began.) These costs, by our calculations, are now running at $12 billion a month -- $16 billion if you include Afghanistan. By the time you add in the costs hidden in the defense budget, the money we'll have to spend to help future veterans, and money to refurbish a military whose equipment and materiel have been greatly depleted, the total tab to the federal government will almost surely exceed $1.5 trillion.

But the costs to our society and economy are far greater. When a young soldier is killed in Iraq or Afghanistan, his or her family will receive a U.S. government check for just $500,000 (combining life insurance with a "death gratuity") -- far less than the typical amount paid by insurance companies for the death of a young person in a car accident. The stark "budgetary cost" of $500,000 is clearly only a fraction of the total cost society pays for the loss of life -- and no one can ever really compensate the families. Moreover, disability pay seldom provides adequate compensation for wounded troops or their families. Indeed, in one out of five cases of seriously injured soldiers, someone in their family has to give up a job to take care of them.

But beyond this is the cost to the already sputtering U.S. economy. All told, the bill for the Iraq war is likely to top $3 trillion. And that's a conservative estimate.

President Bush tried to sell the American people on the idea that we could have a war with little or no economic sacrifice. Even after the United States went to war, Bush and Congress cut taxes, especially on the rich -- even though the United States already had a massive deficit. So the war had to be funded by more borrowing. By the end of the Bush administration, the cost of the wars in Iraq and Afghanistan, plus the cumulative interest on the increased borrowing used to fund them, will have added about $1 trillion to the national debt.

The long-term burden of paying for the conflicts will curtail the country's ability to tackle other urgent problems, no matter who wins the presidency in November. Our vast and growing indebtedness inevitably makes it harder to afford new health-care plans, make large-scale repairs to crumbling roads and bridges, or build better-equipped schools. Already, the escalating cost of the wars has crowded out spending on virtually all other discretionary federal programs, including the National Institutes of Health, the Food and Drug Administration, the Environmental Protection Agency, and federal aid to states and cities, all of which have been scaled back significantly since the invasion of Iraq.

To make matters worse, the U.S. economy is facing a recession. But our ability to implement a truly effective economic-stimulus package is crimped by expenditures of close to $200 billion on the two wars this year alone and by a skyrocketing national debt.

The United States is a rich and strong country, but even rich and strong countries squander trillions of dollars at their peril. Think what a difference $3 trillion could make for so many of the United States' -- or the world's -- problems. We could have had a Marshall Plan to help desperately poor countries, winning the hearts and maybe the minds of Muslim nations now gripped by anti-Americanism. In a world with millions of illiterate children, we could have achieved literacy for all -- for less than the price of a month's combat in Iraq. We worry about China's growing influence in Africa, but the upfront cost of a month of fighting in Iraq would pay for more than doubling our annual current aid spending on Africa.

Closer to home, we could have funded countless schools to give children locked in the underclass a shot at decent lives. Or we could have tackled the massive problem of Social Security, which Bush began his second term hoping to address; for far, far less than the cost of the war, we could have ensured the solvency of Social Security for the next half a century or more.

Economists used to think that wars were good for the economy, a notion born out of memories of how the massive spending of World War II helped bring the United States and the world out of the Great Depression. But we now know far better ways to stimulate an economy -- ways that quickly improve citizens' well-being and lay the foundations for future growth. But money spent paying Nepalese workers in Iraq (or even Iraqi ones) doesn't stimulate the U.S. economy the way that money spent at home would -- and it certainly doesn't provide the basis for long-term growth the way investments in research, education or infrastructure would.

Another worry: This war has been particularly hard on the economy because it led to a spike in oil prices. Before the 2003 invasion, oil cost less than $25 a barrel, and futures markets expected it to remain around there. (Yes, China and India were growing by leaps and bounds, but cheap supplies from the Middle East were expected to meet their demands.) The war changed that equation, and oil prices recently topped $100 per barrel.

While Washington has been spending well beyond its means, others have been saving -- including the oil-rich countries that, like the oil companies, have been among the few winners of this war. No wonder, then, that China, Singapore and many Persian Gulf emirates have become lenders of last resort for troubled Wall Street banks, plowing in billions of dollars to shore up Citigroup, Merrill Lynch and other firms that burned their fingers on subprime mortgages. How long will it be before the huge sovereign wealth funds controlled by these countries begin buying up large shares of other U.S. assets?

The Bush team, then, is not merely handing over the war to the next administration; it is also bequeathing deep economic problems that have been seriously exacerbated by reckless war financing. We face an economic downturn that's likely to be the worst in more than a quarter-century.

Until recently, many marveled at the way the United States could spend hundreds of billions of dollars on oil and blow through hundreds of billions more in Iraq with what seemed to be strikingly little short-run impact on the economy. But there's no great mystery here. The economy's weaknesses were concealed by the Federal Reserve, which pumped in liquidity, and by regulators that looked away as loans were handed out well beyond borrowers' ability to repay them. Meanwhile, banks and credit-rating agencies pretended that financial alchemy could convert bad mortgages into AAA assets, and the Fed looked the other way as the U.S. household-savings rate plummeted to zero.

It's a bleak picture. The total loss from this economic downturn -- measured by the disparity between the economy's actual output and its potential output -- is likely to be the greatest since the Great Depression. That total, itself well in excess of $1 trillion, is not included in our estimated $3 trillion cost of the war.

Others will have to work out the geopolitics, but the economics here are clear. Ending the war, or at least moving rapidly to wind it down, would yield major economic dividends.

As we head toward November, opinion polls say that voters' main worry is now the economy, not the war. But there's no way to disentangle the two. The United States will be paying the price of Iraq for decades to come. The price tag will be all the greater because we tried to ignore the laws of economics -- and the cost will grow the longer we remain.

The [SSCI phaseII] report also notes that pre-war statements by Bush administration officials “regarding the postwar situation in Iraq” — including Vice President Cheney’s infamous declaration that the U.S. would be “greeted as liberators” — “did not reflect the concerns and uncertainties expressed in the intelligence products.”

Like Cheney, McCain was not shy about assuring Americans that we would be “greeted as liberators.” Right before the war began, McCain told MSNBC’s Chris Matthews that “absolutely” a “large number of Iraqis” will “treat us as liberators“:

MATTHEWS: Are you one of those who holds up an optimistic view of the post-war scene? Do you believe that the people of Iraq or at least a large number of them will treat us as liberators?

MCCAIN: Absolutely. Absolutely. [Hardball, 3/12/03]

In fact, the Senate Intelligence report on pre-war statements specifically notes a pre-war intelligence report that directly refuted this claim. A January 2003 Intelligence Community Assessment acknowledged that “Iraq was a deeply divided society that likely would engage in violent conflict unless an occupying power prevented it.”

Conclusion: Incompetent governance. Not worth it, not by a long shot.

4. Deregulation of Wall Street

Q: In 1999, you were one of the senators who helped pass deregulation of Wall Street. Do you regret that now?

McCAIN: No. I think the deregulation was probably helpful to the growth of our economy.

McCain voted for the bill that deregulated Wall St. and allowed such “reckless conduct” to occur in the first place. And one of the bill’s architects was McCain economic adviser, former Sen. Phil Gramm (R-TX).

In 1999, Congress passed the Gramm-Leach-Bliley Act, which abolished “all of the significant rules put in place at the time of the Great Depression designed to prevent a repeat.” Specifically, this act “destroyed the Depression-era barrier to the merger of stockbrokers, banks and insurance companies.”

Yesterday, a group of economists, including Nobel Prize winner Joseph Stiglitz, slammed Gramm for having a “mentality that doesn’t understand the nature of systemic risks in financial systems,” and said that his bill helped create the current financial turmoil:

Economic experts say that Gramm and others are to blame for the current crisis that is shaking Wall Street.

Gramm’s successful effort to pass banking reform laws in 1999, which reduced decades-old regulations separating banking, insurance and brokerage activities, helped to create the current economic crisis.

“As a result, the culture of investment banks was conveyed to commercial banks and everyone got involved in the high-risk gambling mentality. That mentality was core to the problem that we’re facing now,” Stiglitz says.

Lakshman Achuthan, managing director of the Economic Cycle Research Institute, said that “we were setting up this bonfire years ago — the deregulation, the inordinate amount of liquidity given to the system all set the stage for the bubble and the bust.”

So McCain is promising to put an end to the “reckless conduct” that he voted to allow, while being advised by a team that still believes rampant deregulation is the way to go.

On the campaign trail on Monday, Mr. McCain, the Republican presidential nominee, struck a populist tone. Speaking in Florida, he said that the economy’s underlying fundamentals remained strong but were being threatened “because of the greed by some based in Wall Street and we have got to fix it.”

But his record on the issue, and the views of those he has always cited as his most influential advisers, suggest that he has never departed in any major way from his party’s embrace of deregulation and relying more on market forces than on the government to exert discipline.

While Mr. McCain has cited the need for additional oversight when it comes to specific situations, like the mortgage problems behind the current shocks on Wall Street, he has consistently characterized himself as fundamentally a deregulator and he has no history prior to the presidential campaign of advocating steps to tighten standards on investment firms.

He has often taken his lead on financial issues from two outspoken advocates of free market approaches, former Senator Phil Gramm and Alan Greenspan, the former Federal Reserve chairman. Individuals associated with Merrill Lynch, which sold itself to Bank of America in the market upheaval of the past weekend, have given his presidential campaign nearly $300,000, making them Mr. McCain’s largest contributor, collectively.

Mr. Obama sought Monday to attribute the financial upheaval to lax regulation during the Bush years, and in turn to link Mr. McCain to that approach.

“I certainly don’t fault Senator McCain for these problems, but I do fault the economic philosophy he subscribes to,” Mr. Obama told several hundred people who gathered for an outdoor rally in Grand Junction, Colo
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In early 1995, after Republicans had taken control of Congress, Mr. McCain promoted a moratorium on federal regulations of all kinds. He was quoted as saying that excessive regulations were “destroying the American family, the American dream” and voters “want these regulations stopped.” The moratorium measure was unsuccessful.

“I’m always for less regulation,” he told The Wall Street Journal last March, “but I am aware of the view that there is a need for government oversight” in situations like the subprime lending crisis, the problem that has cascaded through Wall Street this year. He concluded, “but I am fundamentally a deregulator.”

Later that month, he gave a speech on the housing crisis in which he called for less regulation, saying, “Our financial market approach should include encouraging increased capital in financial institutions by removing regulatory, accounting and tax impediments to raising capital.”

Conclusion: Incompetent governance. Republicans will never learn.

[ç i p h é r]

Ah, that's just it. You want to tie EVERYTHING to the war in Iraq. But you can't do that here. The root cause of the problem in the financial markets was the massive lending to unqualified borrowers. JUNK LOANS!

Notably absent from your commentary is that Bill Clinton signed the 1999 act into effect. Remember him?

Also notably absent is everything that has happened since 1999 - which I've been citing - that led up to today. I don't blame you; It's entirely unflattering of Democrats.

[Mulu]

Ah, that's just it. You want to tie EVERYTHING to the war in Iraq. But you can't do that here. The root cause of the problem in the financial markets was the massive lending to unqualified borrowers. JUNK LOANS!

And their repackaging as AAA securities. How the war effects that is our total debt and ability to buy our way out of this mess, which if you had actually read the article you would realize. Quadrupling the cost of oil hasn't helped our economy much either. The economy is a lot more than one thing. Our ability to weather this current crisis is absolutely linked to the Iraq War. To suggest otherwise is simple ignorance. The invasion and occupation of Iraq has had numerous unintended consequences. Unintended, but foreseeable.

I should also point out the obvious, both junk loans and junk paper made up of bundled junk loans only became possible due to deregulation and artificial lowering of the interest rate, both Republican mandates.

Notably absent from your commentary is that Bill Clinton signed the 1999 act into effect. Remember him?

Clinton signed a lot of Republican laws into affect. They had control of the Congress, after all. He sure wasn't cheerleading it, and the underlying ideology behind the deregulation was and still is firmly Republican, a point you conveniently ignore. Also, Clinton originally threatened to veto this bill. When Republicans garnered enough support to override his veto, he relented rather than face being overridden.

Also notably absent is everything that has happened since 1999 - which I've been citing - that led up to today. I don't blame you; It's entirely unflattering of Democrats.

It's unflattering to everyone, though Republicans were in charge during that time, and lobbying for the bill and its underlying policy of deregulation. The main difference is, the Republican party still believes in deregulation even after this fiasco. They aren't learning from the mistake, which in fact was my conclusion. This is by far more the fault of Republicans than Democrats, and the American voter seems to realize that according to polls, by a factor of roughly 2:1.

Postscript: Unless we get attacked by terrorists in the next 40 days, McCain is finished.

Harmful military spending, unbalanced budgets, fiscal irresponsibility, protectionist and monopoly handouts to friends is the old style Republican playbook. The new style is audacious, unprecedented, and truly awful for the economy. It begins with the Republican-controlled Federal Reserve, which, under Alan Greenspan and Ben Bernanke, has flooded the economy with money and credit and bailed out every economic crisis since 1987. Greenspan's admonitions against "irrational exuberance" apparently were not intended to restrain the Federal Reserve's irresponsible monetary policy. Who in their right mind could honestly say that the Fed had nothing to do with the housing bubble after driving the nominal interest rate to 1% and proclaiming that the mortgage market was well regulated?

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Who's responsible?

[ç i p h é r]

As WW likes to say, that's a fallacious argument. The war in Iraq did not precipitate the problem NOR was this financial crisis unavoidable. The problem with Fannie Mae and Freddie Mac - the institutions at the heart of this crisis - was foreseen 7 years ago by the very administration you love to hate and then reiterated by McCain two years ago. Spin this however you want, but these are on the record. Whatever general economic philosophy they subscribe to, they got this EXACTLY right. Give them credit.

The irony here is that Bush was calling for the creation of a whole new regulatory body after issuing warnings on Fannie and Freddie, but Democrats oppose it, notably Barney Frank D-Mass and Chuck Schumer D-NY. In fact, they did the opposite, which was to pressure regulators to ease up on capital requirements on Fannie/Freddie and essentially allow them to take on even greater risk (this despite the accounting irregularities and earnings cover-ups). Why? Because they wanted people who wouldn't ordinarily qualify for loans to get loans.

On a side note, if President Clinton deserves credit for all the good things that came out of his administration under Republican leadership in Congress, then he's equally at fault for all the things that went awry. Quid Pro Quo. That is, if you want to blame it all on deregulation, which you seem wont to do. To that point, consider this from your own source:

The Financial Services Modernization Act of 1999 would make perfect sense in a world regulated by a gold standard, 100% reserve banking, and no FDIC deposit insurance; but in the world as it is, this "deregulation" amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly.

The economic choice is clear: either maintain a fiat-money-creation system and reinstate the asset proscriptions of the Glass-Stegall Act or abandon or modify the existing system of money and banking altogether, possibly including elements of a gold standard. Without some basic alteration in rules, the entire economic system will continue to be at risk, as will America's predominance in the world of finance.

p.s. I don't see the paradox in having a natural inclination toward deregulation but proposing regulatory or oversight reforms when you do see legitimate problems that need to be addressed. It's a very logical approach to governance. Don't do more than you need to.

p.p.s. Alan Greenspan was a Clinton appointee.

[Mulu]

As WW likes to say, that's a fallacious argument. The war in Iraq did not precipitate the problem NOR was this financial crisis unavoidable.

I said neither. What I said, and this is indisputable, is that the Iraq War has tied up our resources and quadrupled the price of oil making us less able to deal with this, or any other, crisis. Learn to read.

The problem with Fannie Mae and Freddie Mac - the institutions at the heart of this crisis

Trying to blame this all on two institutions is a Straw Man. The primary problem is the repackaging of the mortgages and that was done by the Wall Street firms that are now dead, restructured or bought. The repackaging was enabled by deregulation, and McCain championed that deregulation. Pesky facts anyway. You're focusing on a stubbed toe and ignoring the decapitated head. The .7 trillion dollar bail out isn't for Fannie and Freddie....

On a side note, if President Clinton deserves credit for all the good things that came out of his administration under Republican leadership in Congress, then he's equally at fault for all the things that went awry.

He opposed the law Cipher, plain and simple.

p.s. I don't see the paradox in having a natural inclination toward deregulation but proposing regulatory or oversight reforms when you do see legitimate problems that need to be addressed.

But they didn't do that, did they?

Here you go Cipher, a WSJ op-ed on McCain.

John McCain has made it clear this week he doesn't understand what's happening on Wall Street any better than Barack Obama does. But on Thursday, he took his populist riffing up a notch and found his scapegoat for financial panic -- Christopher Cox, the chairman of the Securities and Exchange Commission.

To give readers a flavor of Mr. McCain untethered, we'll quote at length: "Mismanagement and greed became the operating standard while regulators were asleep at the switch. The primary regulator of Wall Street, the Securities and Exchange Commission (SEC) kept in place trading rules that let speculators and hedge funds turn our markets into a casino. They allowed naked short selling -- which simply means that you can sell stock without ever owning it. They eliminated last year the uptick rule that has protected investors for 70 years. Speculators pounded the shares of even good companies into the ground.

"The chairman of the SEC serves at the appointment of the President and has betrayed the public's trust. If I were President today, I would fire him."

Wow. "Betrayed the public's trust." Was Mr. Cox dishonest? No. He merely changed some minor rules, and didn't change others, on short-selling. String him up! Mr. McCain clearly wants to distance himself from the Bush Administration. But this assault on Mr. Cox is both false and deeply unfair. It's also un-Presidential.

Take "naked" shorting, in which an investor sells a stock short -- betting that it will fall in price -- without first borrowing the shares he is selling from an investor who owns them. The SEC has never condoned the practice, and since 2005 it has clamped down on short selling in any stock that shows evidence of naked shorting. The SEC further tightened its rules against naked shorting just hours before Mr. McCain excoriated Mr. Cox for doing nothing.

The rules announced Wednesday will increase penalties and close loopholes that exempted broker-dealers from the rules against naked shorting. They also make it clear that deliberately selling short a stock whose shares cannot be borrowed is fraud under the Securities Exchange Act. That's all to the good, we suppose; fraud is fraud. But regular short selling is not fraud. It adds valuable information to the market about what investors believe to be the price direction of a stock. Demonizing short-sellers as a band of criminals, or barring short-selling outright in financial stocks, as regulators in the U.K. did Thursday, removes information from the market.

Then there's Mr. McCain's tirade against the "uptick rule," a Depression-era chestnut that investors could only short stock after a rise in that stock's price. The SEC staff studied the effect of the uptick rule on prices for years, in a controlled experiment involving thousands of stocks. It found the rule had no effect. Other studies, including those that examined the uptick rule's effect on stocks disclosing bad news, also found that it "protected" no one. The SEC's permanent staff has long supported repeal and the SEC's commissioners voted to do so unanimously in June 2007.

While he was at it, Mr. McCain added the wholly unsupported assertion that "speculators pounded the shares of even good companies into the ground." It wasn't very long ago that he blamed speculators on the long side for sky-high oil prices. Then oil prices fell. Now Mr. McCain wants voters to believe speculators are responsible for driving mismanaged financial companies to ruin. The irony is that this critique puts Mr. McCain in the same camp as some of the Wall Street CEOs who have led their firms so poorly. They also want someone (else) to blame.
/
It is arguable that, because of his inexperience, Obama is not ready for the presidency. It is arguable that McCain, because of his boiling moralism and bottomless reservoir of certitudes, is not suited to the presidency. Unreadiness can be corrected, although perhaps at great cost, by experience. Can a dismaying temperament be fixed?

And a better one from Salon

John McCain has launched his second Hail Mary pass in a month. On Wednesday he called for a suspension of the presidential campaign—no events, no ads, and no debate Friday—so that he and Barack Obama can head to Washington to forge a bipartisan solution. Even more than his selection of Sarah Palin as running mate, this gambit feels like a wild improvisation someone in the McCain team mapped out on his chest: OK, you run to the fire hydrant, cut left, and then when he gets to the Buick, John, you heave it.
It's not clear what, exactly, McCain is going to do in Washington. He doesn't sit on any of the relevant committees, and everyone is already deep in negotiations. Still, he's coming anyway. It doesn't make much logical sense. The only way to understand it is politically: In a presidential campaign, the surest sign that a candidate is playing politics on an issue is when he claims not to be playing politics on an issue. The only way for McCain to convince everyone that his intentions are 100 percent pure is for him to drop out of the race completely. A campaign doesn't end—and its distracting affects don't disappear—just because one candidate says so.
/
McCain's argument is that he represents something other than politics as usual, and this gambit certainly isn't usual.
/
Whether McCain's crazy gambit is seen as desperate or brilliant, it doesn't matter. Either way, it's probably not the last. The beneficial effects of the Palin Hail Mary lasted only a few weeks, and another adrenaline injection was needed. If this one doesn't work, that's OK—in due time they can try another razzle-dazzle play. And if it does work, that's great—in due time they can still try another razzle-dazzle play. It all makes the prospect of a McCain White House very exciting. So exciting, he might want to schedule periodic suspensions of his presidency to get anything done.

And finally the Post.

McCain's Ploy

By Harold Meyerson
Thursday, September 25, 2008; Page A19

Slipping in the polls? Concerned that Americans may be paying more attention to the declining economy -- and even supporting economic regulation again -- than to your own stellar leadership abilities?

If you're named John McCain, the answer became apparent yesterday afternoon -- make the solution to the economic crisis all about you. Suspend your campaign. Pull out of tomorrow's debate -- a trivial exercise merely allowing Americans to judge the two candidates side by side. Change the terms of the nation's economic discussion from the course we should take, and the defects of the laissez-faire model that got us here, to the indispensability of John McCain, leader of leaders.

(Besides, if tomorrow's debate goes on as scheduled, it will doubtless focus on the economy as well as foreign affairs, its announced topic. McCain sees foreign policy as one area where he can outshine Obama. Only by rescheduling the debate after the crisis has passed can he be sure he will have his moment in the foreign policy sun.)

Yesterday's Post-ABC News Poll showed Barack Obama opening a nine-point lead over McCain, chiefly because of the economic anxiety flooding the nation and the belief of most Americans that Obama is more in touch with economic realities than McCain is and has a better sense of how to navigate both the current crisis and America's long-term economic challenges. But the McCain plan for victory this November never counted on Americans picking McCain on the basis of the issues.

As his strategists saw it, they had to confine the discussion to a comparison of the character of the two candidates. Alas for McCain, reality intruded over the past week, distracting the public from McCain's stellar attributes as a decisive leader with news of an impending economic collapse. So the task for his managers has been to diminish this new story to just one chapter in the ongoing saga of John McCain, the man who rides to the rescue.

Can McCain pull this off -- persuading the public to forget how he and his fellow Reagan Republicans changed the nation's economic rules in ways that allowed Wall Street to run amok, and refocusing its attention on his decisiveness at this moment of crisis? I doubt it.

For one thing, America may be a republic of amnesiacs, but deep in some seldom-used brain lobe, it does recall that its two political parties have differed on questions of regulation and stimulating the economy, a comparison that does not now work in Republicans' favor. For another, presidential debates aren't distractions from the business of the nation. However confining their formats may at times be, they are central to the business of democracy, and suspending that business so that a lowest-common denominator consensus can be reached in Washington -- or so that McCain can complain that Obama is an obstructionist if he doesn't go along with McCain's proposals -- is an affront to American voters.

McCain's ploy was transparent. To counter the public's preference for Obama's economics over his own, he would get both of them in a room and emerge proclaiming that they had reached agreement, that they had no differences. In fact, they have very real differences. McCain wants to retain tax cuts for the wealthiest Americans; Obama wants to create tax cuts for all but the wealthiest 10 percent of Americans. Obama favors policies -- through investments in infrastructure and education and through legislation enabling Americans to join unions without fear of being fired -- to build the base of the economy, while McCain's record is one of opposition to such policies. Obama favors trade agreements only when they raise labor and environmental standards with our trading partners and protect them here at home; McCain has supported every trade pact that has weakened such standards and has never said one word about protecting our standards or raising them abroad.

Comparisons such as these are odious, however, to McCain's prospects.

He cannot win on the strength of his positions. He can only win on the strength of his character. Problem is, McCain's character, as we have seen in his selection of Sarah Palin as his running mate, is heavy on decisiveness and weak on judgment. In this, despite his campaign's protestations, a McCain presidency would be very much an extension of George W. Bush's. The president helped McCain out last night by inviting both candidates to Washington today to put their imprimatur on a deal that seemed near completion. At the risk of making McCain's gesture look less heroic, he also made it look less self-absorbed.

But self is McCain's selling point. He is either the man on horseback riding to the rescue, or he is nothing -- or, more precisely, the loser come November. Obama, Lord knows, has his flaws, but he does not seem to believe that the nation's crises are primarily about him.

Comments on Bush's last speech.

The Innocent Bystander
Terence Hunt writes for the Associated Press: "How did it happen, America's grave financial crisis? President Bush offered a bunch of explanations but held Washington completely blameless, painting a picture of a government standing innocently on the sidelines as the economy went off the rails.

"Somehow, under Bush's scenario, the country wound up at the precipice of 'a long and painful recession' at a time when, apparently, the Congress, the White House, the regulators and the Fed were doing exactly what they were supposed to be doing. Now that the economy has tanked, Bush says the federal government is responding with 'decisive action.'

"Shouldn't the people in charge have been doing that before everything became such a mess? . . .

"Nowhere in his 13-minute speech did the president suggest that the people in Washington who are supposed to keep an eye on the economy missed a step, failed to raise alarms or hesitated to intervene. The guilty parties in Bush's script were overseas lenders flush with cash, American borrowers reaching for more than they could afford, easy credit terms, a banking system eager to cooperate and too much optimism about rising home values.

"Bush spoke vaguely about investment banks that 'found themselves saddled with' toxic assets and banks that 'found themselves' with questionable balance sheets.

"The economic collapse -- well, it happened."

Steve Clemons blogs: "What is shocking about the presentation by Bush -- and the deal that is unfolding -- is that we don't see any acceptance of responsibility for the failure of his team's stewardship of the economy. We didn't hear acknowledgment that the compulsive deregulation mantra of Bush's political and economic allies created a massive bubble where lots of billionaires were created and now tens of millions of less fortunate Americans are holding the bill..

"We didn't hear Bush say that it's time to reverse the tax cuts that he put in place to help those who have already benefited from the perverse finance and housing bubble that was pumped up.

"We didn't hear a firm commitment from Bush to help the working families who hold these sub-prime and adjustable rate mortgages to stay in their homes and to help stabilize the lives of hard-hit Americans, their neighborhoods and their jobs. All the while, the macro players and big firms and their stakeholders are bailed out."

Doesn't shock me at all, the man has never admitted to fault.

Not a Giveaway?
John D. McKinnon writes in the Wall Street Journal: "The president tried to defuse widespread criticism of the $700 billion plan as a bailout of Wall Street, telling Americans in a prime-time televised address that the program 'is aimed at preserving America's overall economy,' not individual companies or industries. . . .

"Signaling a possible concession, Mr. Bush said the plan should be 'designed to protect taxpayers.' He even appeared to open the door to limits on compensation for executives of some companies, another provision many Democrats and some Republicans have demanded. Mr. Bush said there is emerging consensus that the plan 'should make certain that failed executives do not receive a windfall from your tax dollars.'"

But as McKinnon notes: "Two people familiar with the situation said Mr. Bush envisions compensation restrictions only in cases where the government is helping out a failing institution." In other words, it could have almost no effect.

Andrew Leonard writes for Salon: "We didn't hear anything about slowing foreclosures or getting equity for taxpayers from Bush. The president said he understands the 'frustration of responsible Americans,' but I'm not sure he gets exactly how much anger there is in this country at what has happened not just recently, in the economy, but over the entire course of his administration. Most Americans know that the economy is in trouble, even if they don't quite grasp how close we are skittering to a major meltdown. But what makes some of us maddest is to think that the people who have benefited most from the culture of deregulation and hands-off government that are supposed to be the watchwords of the Republican Party will be the recipients of one of the greatest disbursements of government largess in history."

Michael Abramowitz writes in The Washington Post: "After ceding the lead role in responding to the crisis to Treasury Secretary Henry M. Paulson Jr., Bush last night grabbed the largest megaphone available -- a prime-time White House address to the nation -- to make the case that the economy could collapse without extraordinary government intervention in the workings of the financial markets. . . .

"With the president's approval ratings as low as ever -- 26 percent in a new Fox News poll-- his credibility among Democrats virtually nonexistent and his influence minimal among Republicans in Congress, it is not at all clear that the president's exhortations will move the emerging legislative package over the finish line in the face of opposition from vocal factions in both parties.

Where's the Leadership?
The New York Times editorial board writes: "It took President Bush until Wednesday night to address the American people about the nation's financial crisis, and pretty much all he had to offer was fear itself.

"There was no acknowledgement of the shocking failure of government regulation, or that the country cannot afford more tax cuts for the very wealthy and budget-busting wars, or that spending at least $700 billion of taxpayers' money to bail out Wall Street and the banks should be done carefully, transparently and with oversight by Congress and the courts.

"We understand why he may have been reluctant to address the nation, since his contempt for regulation is a significant cause of the current mess. But he could have offered a great deal more than an eerily dispassionate primer on the credit markets in which he took no responsibility at all for the financial debacle."

Dean Baker blogs for TPMCafe that "it is extremely difficult to trust this administration. It was good to hear President Bush say that he doesn't want the CEOs that wrecked their companies profit from this bailout, but does anyone believe that he will structure the bailout to ensure that this does not happen? Similarly, he has gone along with the idea that the government will get an equity stake in financial companies in exchange for buying their junk, but does anyone believe that we will get as good a deal as Warren Buffet did when he bought a stake in Goldman Sachs?

"There can be no presumption of good faith from this administration. Unless the conditions are written in stone, for example specific rules that limit executive compensation using the same type of language that CEOs use when they sign contracts with their companies, there is no reason for the public to believe that they will get a fair deal in this bailout. The public should also demand that some genuine outsiders, representatives of labor, consumer groups and other non-Wall Street segments of society, have a direct oversight role in this deal.

"If these demands are too extreme for the Bush administration, then they are not telling the truth about the financial crisis. If the risks are really as great as President Bush claims, then he should unhesitatingly agree to guarantees that will prevent the incompetents from profiting further from their incompetence. We shall see."

Robert Kuttner writes for the American Prospect that Congress should take a few weeks before acting: "Paulson's tactic of demanding instant action because impending catastrophe recalls how the same Bush Administration rushed through the USA PATRIOT Act. But there are two key differences. After 9/11, American citizens were terrified and willing to give the Bush administration whatever it wanted. And Congress totally caved. This time, citizens are frightened -- but not gulled. Congress is hearing from constituents that the Paulson plan is an outrage. . . .

"For a lot less than $700 billion, we could refinance every mortgage in America that is at risk of foreclosure. Along the way, we could keep people in their homes and shore up the collapse in housing prices. Paulson's plan does neither. Markets would begin loosening up, as in Paulson's plan, but the route would be bottom-up rather than top-down. Homeowners would be the primary beneficiaries rather than the incidental ones. With Paulson's approach, the wave of foreclosures continues, reducing the likelihood that the government gets its money back."

Gosselin, Simon and Reynolds write in the LA Times: "Frank explained the political logic of the situation this way: 'Whatever you think about whether or not there was a need [for a bailout] . . . once the president, secretary of the Treasury and chairman of the Federal Reserve have announced that if you don't do this, there will be a collapse, there's probably going to be a collapse if you don't do it.'"

Germans Take Issue
Eric Pfanner writes in the New York Times about how Europeans are bristling at Bush's assertion that an influx of foreign money into the United States was one of the root causes of the credit crunch.

"Peer Steinbrück, the German finance minister, countered in a speech in Berlin that the conditions that gave rise to the current turmoil in the markets were allowed to develop because of a reckless pursuit of short-term profit and huge bonuses in 'Anglo-Saxon' financial centers -- along with a lack of political backbone to stand up to what he characterized as bankers' greed."

Why the $700 Billion Figure?
Where does that $700 billion figure come from? Bush certainly didn't explain that last night. Maybe because there is no good explanation.

Brian Wingfield and Josh Zumbrun write for Forbes that "some of the most basic details" of the plan, "including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

"'It's not based on any particular data point,' a Treasury spokeswoman told Forbes.com Tuesday. 'We just wanted to choose a really large number.'"

I suddenly want to imprison everyone at the Treasury department....

[Mulu]

Wow, the Wall Street Journal is really hammering McCain lately...

Last we checked, the President of the United States was still George W. Bush, the Secretary of the Treasury was still Henry Paulson, the Chairman of the Federal Reserve was still Ben Bernanke, and Congress still had 533 members not running for President who are at least nominally competent to debate and pass legislation.

So count us as mystified by Senator John McCain's decision yesterday to suspend his campaign and call for a postponement in Friday's first Presidential debate so that he and Barack Obama can work out a consensus bill to stabilize the financial system. This is supposed to be evidence of leadership?

And I was so right about the reasons for McCain's suspension.

The McCain campaign is working "feverishly" to take down television advertisements that it is running nationally, according to sources who follow media ad buys. And the move, driven by the Senator's self-enforced suspension of his campaign, could save his candidacy more than a million dollars a day.

Now *that's* change you can take to the bank!

Saving cash in the interim -- when the race is dominated by economic news and the upcoming debates -- would allow McCain to plow money back into the race during the waning days of the election.

"They are not going to penetrate in this issue climate," said the source. "The debates are coming up, so that is free media. And they are going to need bigger investments in key states down the road."

Letterman burns McCain for cancelling on him and not letting Palin take over his campaign while he goes to Washington.
Part 2

He thinks she's ready to take over the country, but she can't take over his campaign?

Priceless.

[White Warlock]

Are you paying any attention to the facts surrounding this financial crisis?

Here's a 3 minute summary for you:
http://www.youtube.com/watch?v=VgctSIL8Lhs

Lol, Fox is so funny. Fox news and their picking points, failing utterly to point out the Republicans controlled both the House and Senate during those times, failing to present the talking points posed by Republicans in opposition, and failing to indicate that these efforts were blocked due to Republican votes (can't be blocked by Democratic votes alone, seeing as they were a minority in both House and Senate... oh, but those are such Inconvenient Truths, eh). As well, in 2003, in the time of the comments posed by the rather stupid democrat from Massachusetts, Greenspan was singing the same tune. He only reversed when it became 'obvious' how bad he messed up.

Seriously Cipher, stop relying on Fox' pick-and-choose approach to reporting.

Stop drinking the cool-aid. Look past the talking points.

exactly...

[ç i p h é r]

I said neither. What I said, and this is indisputable, is that the Iraq War has tied up our resources and quadrupled the price of oil making us less able to deal with this, or any other, crisis. Learn to read.

I read it just fine. The implication in your comment - which I was responding to - is that this crisis was somehow inevitable and so the war then becomes relevant. It wasn't inevitable. The war is entirely irrelevant. We shouldn't be in this situation to begin with. Even Obama said that in the last day or two.

Now you're going on at length about the general economic philosophies of Republicans and Democrats, as if that alone is meaningful. What's abundantly clear is that the Bush administration recognized the danger posed by Fannie Mae to the financial markets well in advance of the current problem and proposed something that I would expect you would find amenable - more regulation - to contain or mitigate the risk.

Trying to blame this all on two institutions is a Straw Man. The primary problem is the repackaging of the mortgages and that was done by the Wall Street firms that are now dead, restructured or bought. The repackaging was enabled by deregulation, and McCain championed that deregulation. Pesky facts anyway. You're focusing on a stubbed toe and ignoring the decapitated head.

No it's not. Fannie Mae and Freddy Mac - which I believe combine for about 80% of the subprime market - WERE the problem and it was all part of a concerted Democratic effort to increase loans to subprime borrowers (part of that broader socialist agenda no doubt). I'll let the NY Times convince you of that (pay attention to the date):

http://query.nytimes.com/gst/fullpage.h ... wanted=all

He opposed the law Cipher, plain and simple.

That's really beside the point (though it's quite debatable). My point is that if you're going to denounce deregulation, then Clinton deserves your critism for repealing the Glass-Steagall act in 1999 just as he deserves your praise for helping balance the budget. In both cases, he worked with Republicans. Still, the Financial Services Modernization Act didn't create the subprime mess, it just helped propagate the problem throughout the investment community. But it also wasn't without its benefits to consumers, like permitting banking and investment services under one roof (a convenience many of us probably enjoy).

p.s. I don't see the paradox in having a natural inclination toward deregulation but proposing regulatory or oversight reforms when you do see legitimate problems that need to be addressed.

But they didn't do that, did they?

No, but not because they didn't try to institute reforms. There was too much opposition.

[ç i p h é r]

I realize you guys discount fox reporting, which is why I tend to avoid using it as a source, but it's not as though anyone else was reporting this. Yet. I checked. And, it was just a brief segment, so I didn't expect to get a comprehensive view of the situation.

The point is that Democrats were involved to a significant degree in where we are today (I don't remember hearing anything about this at the time to be perfectly honest, probably because the nation's focus was on Afghanistan and Iraq for the most part). Clearly, there were Republicans involved in killing the reforms too. I don't think anybody disputes that.

[Mulu]

I read it just fine. The implication in your comment - which I was responding to - is that this crisis was somehow inevitable and so the war then becomes relevant.

No, Cipher. My implication, which should be quite clear, is deficit spending and tax cuts during a war and the spike in oil prices the war caused make us financially weak and thus a crisis like this hits even harder. Any crisis hits harder when your resources are stretched thin. I think I made myself pretty clear the first time, but hopefully third time's a charm.

The war is entirely irrelevant.

War is never irrelevant. It's a huge resource drain the reduces our capacities.

We shouldn't be in this situation to begin with. Even Obama said that in the last day or two.

Of course we shouldn't.

Now you're going on at length about the general economic philosophies of Republicans and Democrats, as if that alone is meaningful. What's abundantly clear is that the Bush administration recognized the danger posed by Fannie Mae to the financial markets well in advance of the current problem and proposed something that I would expect you would find amenable - more regulation - to contain or mitigate the risk.

I don't know where you got the bogus idea that this is all... oh wait I know where you got it. Fox News, right? The only crumb in this whole loaf of sh*t that is the Democrat's fault is Fannie and Freddie, so that's all Fox News is talking about, right?

Well, time to get educated. From your linked article:

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

In other words, the privately owned banks made the subprime loans. Fannie and Freddie just got stuck with them. The regulation change was in where they draw the line on what loans they are willing to purchase, and that line was drawn too low. But that's only one component of the whole picture.

The companies said they were urged to increase purchases of subprime debt by the Bush administration. The Department of Housing and Urban Development said in 2005 that Fannie and Freddie should increase financing for low-income areas or moderate-income regions with high minority populations to 37 percent of new business from 34 percent in 2001 through 2004. That rose to 39 percent last year.

Imagine that, it was Bush after all.

No it's not. Fannie Mae and Freddy Mac - which I believe combine for about 80% of the subprime market - WERE the problem

Fannie Mae of Washington and McLean, Virginia-based Freddie Mac held $114 billion of subprime and $71 billion in Alt-A securities as of June 30.

Now compare that to the investment banks. They have almost $6 trillion of debt and mortgage-backed securities, rebundled loans. Fannie and Freddie are a rounding error in this debacle. Do the math, and turn off Fox Lies. Countrywide and New Century and all the rest wrote bad paper and sold a good deal of it to Fannie and Freddie, the rest got rebundled into junk securities. The junk securities are the real problem. Do you really think that $0.7 trillion is for Fannie and Freddie?

The financial system got to its dangerous perch by betting extravagantly on real estate. When housing prices began plummeting and borrowers stopped making payments, financial institutions found themselves with huge inventories of bad loans. Not simple loans, but complex investments created by pooling millions of mortgages together and then slicing them into pieces. These were the investments that Wall Street bought, sold and borrowed against in cooking up the money it poured into housing.

The trouble is that these investments are so intertwined and complex that no one seems able to figure out what they are worth. So no one has been willing to buy them. This is why banks have been in lockdown mode: with mystery enshrouding both the value of their assets and their future losses, banks have held tight to their remaining dollars, depriving the economy of capital.

Now, the Treasury aims to clear the fog by buying up these investments. But their value is as mysterious as ever.

“There’s a tendency for people to think these are stocks and bonds and you know what the price is,” said Bruce Bartlett, a former White House economist under President Reagan. “The problem is people are operating in a world in which nobody knows what the hell is going on. There’s some naïve assumptions about how this would function.”

If Mr. Paulson pays the market rate — whatever that is — that presumably would not be enough to persuade banks to sell. Otherwise, they would have sold already. For the plan to work, Treasury has to pay a premium.

“It’s a straight subsidy to financial institutions,” said Martin Baily, a former chairman of the Council of Economic Advisers in the Clinton administration, and now a senior fellow at the Brookings Institution. “You’re essentially giving them money.”

"This euphoria might fade, because Fannie and Freddie are not the problem," said Christopher Low, chief economist at FTN Financial. "Their woes are a symptom of a worldwide contraction in credit that may not be cured by the decision."

You're looking at the stubbed toe.

My point is that if you're going to denounce deregulation, then Clinton deserves your critism for repealing the Glass-Steagall act in 1999

He did it under protest, in the face of a possible veto override by a Republican Congress. He didn't want it, he didn't advocate it, he certainly didn't lobby for it. Deregulation is Republican turf, everybody knows that, even foreigners.

[Veilan]

everybody knows that, even foreigners.

"Even"? At this point, I'm inclined to suggest that all those foreigners you come into contact with, Mulu, in fact are more informed than your average citizen.

(Of course, the same likely holds true the other way as well.)

[White Warlock]

p.p.s. Alan Greenspan was a Clinton appointee.

hehe....

First appointed Fed chairman by President Ronald Reagan in August 1987, he was reappointed at successive four-year intervals until retiring on January 31, 2006 after the second-longest tenure in the position.

[Mulu]

everybody knows that, even foreigners.

"Even"? At this point, I'm inclined to suggest that all those foreigners you come into contact with, Mulu, in fact are more informed than your average citizen.

Oh I know, I was just making a point.

And here's some food for thought Cipher. Bush blames the democrats for absolutely everything he can, yet he's been curiously silent about the financial crisis and who is to blame. Doesn't that give you a hint?

[ç i p h é r]

By that measure, the government shouldn't spend money on anything because, in the event we have a crisis, it could be a drain on our resources. Interesting line of reasoning.

In other words, the privately owned banks made the subprime loans. Fannie and Freddie just got stuck with them. The regulation change was in where they draw the line on what loans they are willing to purchase, and that line was drawn too low. But that's only one component of the whole picture.

They don't get stuck with loans, Mulu. They buy them and they did so because they lowered their own credit requirements to allow subprime borrowers to get loans.

Since you missed it the first time, I'll post it here for you:

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

'From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Come on. They called it 10 years ago. Are you really going to continue to insist that there is no Democratic culpability here and that this isn't rooted in lending to unqualified borrowers?

Sure, Fannie Mae and Freddie Mac are only a small part of the entire investment banking market, but they account for the VAST MAJORITY of subprime loans. The $700B bailout figure is based on an assumption that ~5% of the total mortgage market might be at risk. This is the Bush proposal however. Other figures that were floated around were in the $150B range.

As for your random snippets of text ....

[Mulu]

By that measure, the government shouldn't spend money on anything because, in the event we have a crisis, it could be a drain on our resources. Interesting line of reasoning.

Yes Cipher, that's exactly what the Iraq War is, just another government spending program.... One that's going to cost 3 trillion dollars.

Are you purposefully trying to be dense?

They don't get stuck with loans, Mulu.

They got stuck with them because they couldn't resell. That's called being stuck.

Since you missed it the first time, I'll post it here for you:

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

Oh, I saw it, but this article is 9 years out of date. Don't you think a few things have happened since then? One thing that happened is HUD under Bush made them push their credit rating limits even lower.

'From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Come on. They called it 10 years ago. Are you really going to continue to insist that there is no Democratic culpability here and that this isn't rooted in lending to unqualified borrowers?

Then why didn't the Republican Dominated government change it? Bush took office in January of 2001. He had a Republican controlled Congress. He appointed the Agency Head at HUD. Do you really think he was bound to continue Clinton's bidding? What actually happened is he picked up that ball and bounced it even further into the hazard zone. Get a clue man.

Trust me, if Bush could pin this on Clinton, he would have done so already. He's in this deep.