How Dare You Hand Me $25 Billion Dollars!

There was a House hearing with CEOs of the top banks today, where the banksters took a mostly conciliatory tone.

The banking executives said they were aware of the ill will that surrounded them.

“It is abundantly clear that we are here amidst broad public anger at our industry,” said Lloyd C. Blankfein, the chief of Goldman Sachs. “Many people believe — and, in many cases, justifiably so — that Wall Street lost sight of its larger public obligations.”

Lawmakers brought up the overarching question of the day. “What did you do with the new money?” asked Gary L. Ackerman, Democrat of New York, who said it seemed to him that the banks were not loaning out the funds they received from government.

Each of the bankers outlined the ways in which they had used the government capital. Goldman, for instance, increased its financing to clients like Sallie Mae and Verizon Wireless. Morgan Stanley said it had made $10.6 billion in new commercial loans and $650 million in loan commitments to consumers.

And the bankers were emphatic that they were continuing to make loans.

“We have every incentive to lend,” said Kenneth D. Lewis, the chief executive of Bank of America. “And despite the recessionary headwinds, we are lending.”

The claim is that the credit crunch is the fault of the secondary market and not the banks, which is actually plausible. But this is the part that gets me.

At the House Financial Services Committee hearing minutes ago, Rep. Joe Baca (D-CA-43) asked the following question:

"How do you feel about the bailout? Do you feel that the bailout was necessary?"

I thought that was just about the biggest softball I'd ever heard. Imagine my surprise!

Lloyd Blankfein, CEO, Goldman Sachs:

"I don't necessarily think it was necessary at the time, but -- and this was said at the time -- they were looking ahead at an emerging recession that was going to get worse, and for prudential reasons, it was necessary for the systemic safety and soundness. And as subsequent events have borne out, I think it has provided safety and soundness, and taken some of the risk away from the system."

Ken Lewis, CEO, Bank of America:

"I actually agree. I know at the time we did not feel like we needed the 15 billion. But I think in light of the severity of the recession, and in light of the speed at which the economy deteriorated, I think we have lent more money because we had the TARP funds and that level of capital."

Like we did these people a favor for paying them off after they nearly sunk the global economy. And this isn't the first time the banksters have grumbled about all that money they were being handed. In fact, today's New York Times quotes executives who want to return the money and get the government off their backs:

Even before the government announced its latest efforts to fix the troubled banking industry on Tuesday, executives at Goldman Sachs and Morgan Stanley said they wanted to repay the money quickly. Both banks received $10 billion under the first rescue plan last fall.

Paying back all those funds would be difficult in this tough economic environment. But banking executives worry that the government may intrude further into their businesses as long as they are beholden to Washington.

“We just think that operating our business without the government capital would be an easier thing to do,” said David A. Viniar, the chief financial officer of Goldman. “We’d be under less scrutiny, and under less pressure. Not that we’d be out of the public eye; we’re still going to be in the public eye.”

Please. There is no way a bunch of insolvent banks can even make it without government help. If there was, the loans would be repaid tomorrow. They can't raise the equity that needs to be offered to taxpayers in place of their money. And let's get to what this is really about - banksters want to save their precious bonuses, the ones they've been handing out to their employees without even hesitating, despite playing with taxpayer money. The claim in the House session today was that TARP money didn't go toward bonuses, which makes no sense whatsoever since money in the hands of the bank is money in the hands of the bank no matter where it came from. They and their friends in the Republican caucus are indignant that they can be told how much to earn (Republicans had no problem telling union auto workers how much they could earn, by the way). They want to be free to reward their friends and colleagues with bonuses... I mean retention payments:

Two Wall Street firms that received at least $60 billion in government bailout funds will be rewarding their financial advisers with controversial retention payments, the terms of which one senior executive described as "very generous" in audio obtained by the Huffington Post.

The soon-to-be-merged financial giants -- Morgan Stanley and Citigroup's Smith Barney -- announced the payments during an internal conference call last week, but warned advisers against describing them in terms that would cause PR headaches.

"There will be a retention award. Please do not call it a bonus," said James Gorman, co-president of Morgan Stanley. "It is not a bonus. It is an award. And it recognizes the importance of keeping our team in place as we go through this integration."

Banksters are indignant that they actually have to be accountable to anyone. They'd rather have to lay off entire floors of office workers than have to give back their precious penthouses.

UPDATE: MoveOn did a nice action on the Hill today, seeking answers and accountability from the banksters. Good luck with that.

Past The Point Of No Return

There was a report out yesterday about climate change that basically said we've reached a point where dramatic changes to the climate, to sea levels and to weather patterns were irreversible, that even if we dropped everything and eliminated every single carbon emission it would take perhaps thousands of years to return to equilibrium. I feel the same way about California's finances. If every Yacht Party member suddenly turned into Paul Wellstone and we changed every revenue source and dysfunctional structural barrier, we'd STILL be in a world of hurt. A couple stories today make that clear.

First, a coalition of emergency room doctors has had enough and is suing the state for additional funding to stave off a total collapse of the ER provider network.

Frustrated emergency room doctors filed a class-action lawsuit against the state Tuesday, saying that California's overstretched emergency healthcare system -- which ranks last in the country for emergency care access -- is on the verge of collapse unless more funding is provided.

Across the state, scores of hospitals and emergency rooms have shut their doors in the last decade, leading to long waits, diverted ambulances and, in the most extreme cases, patient deaths.

Doctors say the situation is only getting worse. State officials, struggling to balance the budget, have proposed another $1.1 billion in Medi-Cal cuts.

"Are people truly suffering consequences? Absolutely," said Irv Edwards, one of the doctors represented in the lawsuit and president of Emergent Medical Associates, which staffs 14 emergency rooms in California. "This could happen to you or me. We could be traveling through San Francisco or San Jose, get in a car accident, have a broken leg and end up in the ER, where it takes hours to be treated regardless of our screams. Then we get to diagnosis, and they say, 'There's no orthopedic on call. I'm sorry.' "

ER doctors are required by law to treat whoever comes through the door, and rising ranks of the uninsured have stretched the system beyond repair. Further, specialists are frustrated with the low reimbursement rates and are taking their names off of call sheets for referral in case emergencies require their services. A physician on KPCC's "Air Talk" today described the suit as a "canary in a coal mine," warning that without increases in rates, not just restoration of funding but increases, there will be no emergency room network in California, period.

Then we have Standard and Poor's downgrading the state's credit rating for economic recovery bonds once again, meaning that investors will see a lower-than-expected return and will be far less likely to buy whatever else California sells in the future, which by the way is how we fund our state government.

Finally, you have two ignorant lawmakers, Arnold Schwarzenegger and Jerry Brown, asking the US to halt federal oversight of state prisons even though precious little has been done to manage the crisis. Brown and Schwarzenegger are more interested in saving a few pennies than the Constitutional rights of those incarcerated. The failure to understand this problem over 30 years have put these disgraced leaders in the position to lie to their own citizens because they can't face up to their responsibilities. And as the accountability for this shocking behavior is remote, there is no reason for it to stop.

State Attorney General Jerry Brown feigns to be shocked, outraged and appalled that a proposal to build prison facilities for older, chronically ill, physically impaired, feeble prisoners includes exercise rooms, TV rooms, gardens and natural light.

Taking all this away, as Brown surely knows, wouldn't save much money – but it would make life difficult for prison workers to manage the prison population. Hey, why not take away air conditioning, too? [...]

Brown whines that a federal court-imposed solution would violate "state sovereignty." Yet he knows perfectly well that the state could avoid any court-imposed solution if it would simply take responsibility for a solution on its own.

One such solution had been proposed by the governor and was supported by legislative Democrats, a bond package for facilities. Senate Republicans killed it last May.

And nothing stops the state from working with Kelso on a negotiated settlement that would reduce the population of older, feeble, chronically ill prisoners or build facilities to house them.

But none of that is happening. Despite all the complaining about the federal courts, the governor, lawmakers and Attorney General Brown seem quite content to let the courts decide – deflecting blame to the judges and away from themselves for the choices that have to be made.

Jerry Brown doesn't believe that prisoners are human beings and that they lost their Constitutional rights upon conviction, even if they are being held for the medical condition of drug addiction (which he ensured by opposing Prop. 5 in the most dishonest manner possible). His attitude is retrograde and horrifying and shows a complete failure to account for his own actions.

He's also the top candidate to be the state's next governor.

We are past the point of no return.

Off The Cliff

533,000.

Skittish employers slashed 533,000 jobs in November, the most in 34 years, catapulting the unemployment rate to 6.7 percent, dramatic proof the country is careening deeper into recession.

As companies throttled back hiring, the unemployment rate bolted from 6.5 percent in October to 6.7 percent last month, a 15-year high.

"These numbers are shocking," said economist Joel Naroff, president of Naroff Economics Advisors. "Companies are sharply reacting to the economy's problems and slashing costs. They are not trying to ride it out."

The unemployment rate would have moved even higher if not for the exodus of 422,000 people from the work force. Economists thought many of those people probably abandoned their job searches out of sheer frustration. In November 2007, the jobless rate was at 4.7 percent.

And job losses in September and October were revised downward as well. Basically it's something like 750,000-800,000 less jobs in all. And combine this with the really pathetic retail sales figures in November.

By the way, people holding their breath that the credit crisis is over had better think again. It's not, despite hundreds of billions of dollars pumped into banks. And that's driving the job loss. If small businesses can't receive credit, they're not going to increase payroll or even keep it the same.

I don't know what the President-elect can do about this and I think it's pretty silly to criticize him for, what, not storming the gates of the White House and taking over, but clearly this interregnum period is having disastrous effects. With more Administration meetings on the "Bush legacy project" than the economy, seemingly, there's really nobody at the controls of the ship of state.

"At a time of great crisis with mortgage foreclosures and autos, he says we only have one president at a time," (Barney) Frank said. "I'm afraid that overstates the number of presidents we have. He's got to remedy that situation."

But how? He can start making some calls and leaning on lawmakers, I suppose. But to what end? We're not going to pass a trillion-dollar stimulus while George Bush is still President.

I think people have to get used to the fact that nobody really knows the proper course of action here. This is a very scary time.

UPDATE: Obama statement:

"The 533,000 jobs lost last month, the worst job loss in 34 years, is more than a dramatic reflection of the growing economic crisis we face. Each of those lost jobs represents a personal crisis for a family somewhere in America. Our economy has already lost nearly 2 million jobs during this recession, which is why we need an Economic Recovery Plan that will save or create at least 2.5 million more jobs over two years while we act decisively to maintain the flows of credit on which so many American families and American businesses depend.

"There are no quick or easy fixes to this crisis, which has been many years in the making, and it's likely to get worse before it gets better. But now is the time to respond with urgent resolve to put people back to work and get our economy moving again. At the same time, this painful crisis also provides us with an opportunity to transform our economy to improve the lives of ordinary people by rebuilding roads and modernizing schools for our children, investing in clean energy solutions to break our dependence on imported oil, and making an early down payment on the long-term reforms that will grow and strengthen our economy for all Americans for years to come," said President-elect Obama.

There's been a subtle shift in language. Now we're talking about saving or creating 2.5 million jobs. I think that's a signal that recovery money will go to state and local governments to fill the holes in their budgets. But beyond that, it's a bad sign. Because it means Obama no longer thinks it realistic to create that many jobs. 2009 is going to be awful. And there will be many who blame him.

Let's Not Go Congratulating Each Other Yet

Ezra Klein is correct that the conservative response to the financial crisis has been just as discredited as the conservative policies that caused it:

By contrast, my take on this will make David Broder cry: The liberals were right. Not the Democrats. The liberals. They were right that deregulation had gone too far. They were right when they spent the last few years offering unpopular predictions that the Housing Bubble would pop. They were right that a liquidity problem had become a solvency problem. They were right that government intervention on a massive scale was needed to stabilize the capitalist system. They were so right, in fact, that Hank Paulson and George W. Bush couldn't hold the line, and will now sign into law the most profoundly socialist measure this country has seen since the 1930s.

I make this point not to wrap myself in a warm blanket of Schadenfreude -- there's little joy in seeing your allies proven perspicacious by a catastrophe -- but because it's actually important. The liberal understanding of the economy and its problems has been, in recent months and years, superior to the conservative understanding of the country and its problems. And this has only sharpened in recent weeks, as the Republican Party has spun off into the Gamma Quadrant with laughable theories about ACORN and Fannie Mae and Freddie Mac and the Community Reinvestment Act of 1977. Their argument isn't wrong in the sense that it's a serious engagement with the situation that happens to be less empirically sound than competing theories. It's just nonsense. And this isn't a time when we can afford governance powered by nonsense. We need governance by people who understood the magnitude and nature of the problem, and have some idea how to go forward fixing it.

This is all true to varying degrees. But it isn't clear that this effort to recapitalize the banks will prove sufficient to fixing the wreck that has been made of the economy. As Mr. Nobelist says, the credit markets still look tight. He's also predicting a likely global recession as the pain caused by the credit crunch starts to trickle into the greater economy. Noriel Roubini is similarly pessimistic:

Oct. 14 (Bloomberg) -- Nouriel Roubini, the professor who predicted the financial crisis in 2006, said the U.S. will suffer its worst recession in 40 years, causing the rally in the stock market to ``sputter.''

"There are significant downside risks still to the market and the economy,'' Roubini, 50, a New York University professor of economics, said in an interview with Bloomberg Television. "We're going to be surprised by the severity of the recession and the severity of the financial losses.''

The economist said the recession will last 18 to 24 months, driving unemployment to 9 percent, and already depressed home prices will fall another 15 percent. The U.S. government will need to double its purchase of bank stakes and force lenders to eliminate dividends to save them from bankruptcy, Roubini added. Treasury Secretary Henry Paulson said today he plans to use $250 billion of taxpayer funds to purchase equity in thousands of financial firms to halt a credit freeze that threatened to drive companies into bankruptcy and eliminate jobs.

"This will be the first round of recapitalization of the banks,'' Roubini said. "The government has to decide to intervene much more directly in the provision of credit and the management of these companies.''

All of which brings me to wondering whether or not the Bush Administration finally tried on the "liberal" solution after it became clear that no solution could limit major damage to the economy. They're also implementing it in a fundamentally flawed way, as Roubini alludes to, by taking non-voting stock from the banks instead of making sure they can impact management decisions. Therefore, while this partial nationalization may stave off a depression, it will be insufficient to stop a deep recession, which will then be blamed on - the nationalization plan. If we only went ahead with tax cuts for the rich and capital gains tax holidays, everything would have been fine.

This seems to me to be the Great Switcheroo here. John McCain is out today with just such a tax cutting plan, and it's at the front of the Republican "stimulus" package, which also calls for... well, offshore drilling, of course. (Didn't anybody tell them the moratorium was lifted?) This, of course, won't stimulate anything. But the point isn't to get it enacted. The point is to offer something else that could have been tried. It's a long game strategy.

We're in for some hard times and Democrats ought to prepare the country for it. Sen. Obama did a half-decent job of that yesterday. But it's clear that Republicans will try to wriggle off the hook and blame the solution as the problem. It's just their way.

...oh, and did I mention that the Democratic stimulus needs to be bigger? And targeted at state and local governments, infrastructure improvements to put Americans back to work, extending UI and food stamp aid? Good.

Comeback

Stocks are shooting up today. Why? Well, over the weekend, European leaders followed the lead of Gordon Brown and Britain (who bought up the Royal Bank of Scotland today), announcing plans for equity stakes in banks, and more important, vows to guarantee interbank lending. If that can't grease the skids of the credit market, absolutely nothing can. And since it's a global financial market, this affects Wall Street.

There's also Mitsubishi's buy of a stake of Morgan Stanley, and federal officials guaranteed that stake, protecting the company.

This has appeared to be enough, for now.

As I said a couple days ago, Brown seemed to have the right idea all along, to recapitalize the banks in exchange for equity stakes. Here's Nobel Prize winner Paul Krugman:

This sort of temporary part-nationalization, which is often referred to as an “equity injection,” is the crisis solution advocated by many economists — and sources told The Times that it was also the solution privately favored by Ben Bernanke, the Federal Reserve chairman.

But when Henry Paulson, the U.S. Treasury secretary, announced his plan for a $700 billion financial bailout, he rejected this obvious path, saying, “That’s what you do when you have failure.” Instead, he called for government purchases of toxic mortgage-backed securities, based on the theory that ... actually, it never was clear what his theory was.

Meanwhile, the British government went straight to the heart of the problem — and moved to address it with stunning speed. On Wednesday, Mr. Brown’s officials announced a plan for major equity injections into British banks, backed up by guarantees on bank debt that should get lending among banks, a crucial part of the financial mechanism, running again. And the first major commitment of funds will come on Monday — five days after the plan’s announcement.

At a special European summit meeting on Sunday, the major economies of continental Europe in effect declared themselves ready to follow Britain’s lead, injecting hundreds of billions of dollars into banks while guaranteeing their debts. And whaddya know, Mr. Paulson — after arguably wasting several precious weeks — has also reversed course, and now plans to buy equity stakes rather than bad mortgage securities (although he still seems to be moving with painful slowness).

While President Paulson was concerned with whether any plan fit with a carefully constructed ideology, Brown actually looked at the problem and sought to fix it.

It's important not to breathe a sigh of relief and think the crisis is solved. It's not. There are still systemic problems and a virtual certainty of recession. That requires an entirely different response. Getting the credit markets working again is only a start.

Borrowing Money Costs Money

The more that this financial system unwinds, the more that I am amazed it lasted this long. It reminds me of the Monty Python sketch where the Amazing Mystico conjures up a block of flats.

Voice Over: But even more modern building techniques are being used on an expanding new town site near Peterborough; here the Amazing Mystico and Janet can put up a block of flats by hypnosis in under a minute.

Mystico removes his cloak, gloves and top hat and hands them to Janet, who curtsies. He then makes several passes. Cut to stock film of flats falling down reversed so that they leap up. Cut back to Mystico and Janet. She hands him back his things as they make their way to their car, a little Austin 30.

Voice Over: The local Council here have over fifty hypnosis-induced twenty-five story blocks, put up by El Mystico and Janet. I asked Mr Ken Verybigliar the advantages of hypnosis compared to other building methods.

Cut to a man in a drab suit.

SUPERIMPOSED CAPTION: 'MR K. V. B. LIAR'

Mr Verybigliar: Well there is a considerable financial advantage in using the services of El Mystico. A block, like Mystico Point here, (indicating a high-rise block behind him) would normally cost in the region of one-and-a-half million pounds. This was put up for five pounds and thirty bob for Janet.

Voice Over: But the obvious question is are they safe?

Cut to an architect's office. The architect at his desk. Behind him on the wall are framed photos of various collapsed buildings. He is a well-dressed authoritative person.

SUPERIMPOSED CAPTION: 'MR CLEMENT ONAN, ARCHITECT TO THE COUNCIL'

Architect: Of course they're safe. There's absolutely no doubt about that. They are as strong, solid and as safe as any other building method in this country provided of course people believe in them.

Cut to a council flat. On the wall there is a picture of Mystico.

Tenant: Yes, we received a note from the Council saying that if we ceased to believe in this building it would fall down.

Voice Over: You don't mind living in a figment of another man's imagination?

Tenant: No, it's much better than where we used to live.

Voice Over: Where did you used to live?

Tenant: We had an eighteen-roomed villa overlooking Nice.

Voice Over: Really, that sounds much better.

Tenant: Oh yes - yes you're right.

Cut to stock shot of block falling down in slow motion. Cut back to tenant and wife inside. Camera shaking and on the tilt.

Today we learn that the Federal Reserve is going to buy commercial paper, which is the short-term debt that banks lend to one another. Kevin Drum explains how this works, and how the financial system is crumbling because, well, people stopped believing in it:

COMMERCIAL PAPER....Banks, finance companies, and large corporations routinely finance their ongoing operations by issuing short-term debt known as commercial paper. It's denominated in large amounts (typically a million dollars or more), it's unsecured, it's low cost, it matures quickly (typically in 30 days or so), and it can be issued easily because it doesn't have to be registered with the SEC. Without access to commercial paper, large modern corporations would seize up and die.

Which, unfortunately, is what's happening right now. The commercial paper market is essentially frozen, and as notes mature and need to be rolled over, companies are finding it impossible to get routine financing. (This is how "Wall Street problems" turn into "Main Street problems.")

This is just a back-door way to nationalizing the banks, but in the worst way possible. The commercial paper market is bigger than the $700 billion dollars given to Treasury in the bailout, and if it's seized up, in the short term the Fed will be buying a healthy percentage of it. This crisis of confidence is what the bailout was designed to fix. And they're doing it without consulting Congress.

Anyone else notice that the Fed just keeps doing these things without bothering for things like Congressional approval? Things that it doesn't actually have the legal right to do? (The Fed isn't supposed to lend money if there's a possibility of losing money) Paulson may have tried a huge money and power grab, but he at least went to Congress for it.

Is it a good idea? Not really. But it's a less stupid idea than the bailout. Most of the paper will pay back, there isn't a huge amount of risk in it (though some is backed by mortgages and other assets, or by companies which are shaky, so there isn't no risk) and it is short term. It's probably necessary at this point, since TARP will do nothing to solve any of the fundamental financial or economic problems and people know it. A plan that had, oh, put a floor under housing prices say, or which had given the FDIC authority to take over banks that aren't lending (if you aren't lending you must be insolvent, right?) might have worked. Paulson's "bailout" - (buy) up a small percentage of trillions of dollars of trash on companies books - won't.

The essence of this is that banks want to be able to swap money for debt without paying any cost in the exchange. They want to secure cheap credit so they can hand out cheap credit. But universally cheap credit is why we're here in the first place. And now, with all these outlays and the Fed continuing to print money, somehwere down the road it's going to lead to massive inflation (although oil is going down now as the overall economy slows).

But endless borrowing costs money. And when you lose a bunch of money the way all these players did in the housing market, there's nothing left to borrow. And then everyone stops believing in the system.

Maybe that's because it wasn't that good a system to begin with, one that needs to be reformed.

Down, Down, Down

The Dow is currently under 10,000 for the first time since I don't know when, and world markets are plunging as well as the credit crisis spreads globally, particularly in Europe:

European nations scrambled on Sunday night to prevent a growing credit crisis from bringing down major banks and alarming savers as troubles in financial markets spread around the world, accelerating economic downturns on three continents.

The German government moved to guarantee all private savings accounts in the country on Sunday, hoping to reassure depositors who had grown nervous as efforts to bail out a large German lender and a major European financial company failed.

Late Sunday, it was disclosed that new bailouts had been arranged for both of those companies, Hypo Real Estate, the German lender, and Fortis, a large banking and insurance company based in Belgium but active across much of the Continent.

The spreading worries came days after the United States Congress approved a $700 billion bailout package that officials had hoped would calm financial markets globally.

The shaky instruments that the US investment firms were using to package mortgages and leverage risk were sold on the gloval market. It was inevitable that this would spread to even the most stable country. The entire financial system needs to be scared straight and massively re-regulated so they never take down the entire world again. The last countries standing will be those that make things.

The Fall Of Iceland

There may not be another nation in the world I have more of an interest in visiting than Iceland; friends have described it as an entire country run by young indie music fans. It's very distressing to see them on the business end of this financial crisis.

Iceland is on the brink of collapse. Inflation and interest rates are raging upwards. The krona, Iceland's currency, is in freefall and is rated just above those of Zimbabwe and Turkmenistan. One of the country's three independent banks has been nationalised, another is asking customers for money, and the discredited government and officials from the central bank have been huddled behind closed doors for three days with still no sign of a plan. International banks won't send any more money and supplies of foreign currency are running out.

People talk about whether a new emergency unity government is needed and if the EU would fast-track the country to membership. On Friday the queues at the banks were huge, as people moved savings into the most secure accounts. Yesterday people were buying up supplies of olive oil and pasta after a supermarket spokesman announced on Friday night that they had no means of paying the foreign currency advances needed to import more foodstuffs.

They bought up lots and lots of international credit in the late 1990s and now the debt is mounting and the currency is plummeting. And this is happening, albeit to a lesser degree, throughout Europe, suggesting that this is a global crisis which is moving in waves.

This is going to be a painful few years. Many more banks will fail, and the resultant fallout will leave a financial industry with bigger firms than ever, hardly eliminating the number of those that are "too big to fail." The Treasury Department buyout of those toxic assets is going to be slow and unlikely to do anything but put a tourniquet on things, and this line is astonishing:

Even after working feverishly over the last two weeks, the Treasury will not buy its first distressed asset from a bank for roughly six weeks, and almost certainly not until after the Nov. 4 elections.

Good thing we rushed into action, then, and put together such an expansive authority.

This is the final reckoning of a corrupt bargain that deindustrialized this country while maintaining our quality of life through borrowing. Ultimately we created a market for all that debt, magnifying the consequences exponentially when the financial industry could no longer cover its bets. This is drowning the entire world as they try to recoup their losses and make back some of the money from their American counterparts.

The deindustrialization legacy can be best seen right now from Reykjavik, walking through an empty aisle at the supermarket. The next half-decade will be a time to rebuild.

Bailed Out

Well, halfway, at least. The Senate passed the bill, with 2/5 of the DeFazio plan embedded - the raising of FDIC insurance limits, which was long overdue, and the ability for the SEC to suspend mark-to-market accounting, which is some kind of fairy tale. It also includes all kinds of other legislation, like a tax package which is mainly focused on renewable energy tax credits, the only - I repeat, only - provision through all of this which could grow the manufacturing sector and reindustrialize the country (which is, you know, the key to America's economic survival). It actually RAISES taxes for oil companies as well. I don't think "Exempt from excise tax certain wooden arrow shafts for use by children" needed to be in there, but hey, it's Congress!

The Senate jammed the House pretty good on this one, and I think they'll eventually comply.

My Senators, Boxer and Feinstein, both voted for it, which shows that this cuts across ideological lines. And yet I can't argue with a word Russ Feingold says here:

"I will oppose the Wall Street bailout plan because though well intentioned, and certainly much improved over the administration's original proposal, it remains deeply flawed. It fails to offset the cost of the plan, leaving taxpayers to bear the burden of serious lapses of judgment by private financial institutions, their regulators, and the enablers in Washington who paved the way for this catastrophe by removing the safeguards that had protected consumers and the economy since the great depression. The bailout legislation also fails to reform the flawed regulatory structure that permitted this crisis to arise in the first place. And it doesn't do enough to address the root cause of the credit market collapse, namely the housing crisis. Taxpayers deserve a plan that puts their concerns ahead of those who got us into this mess."

This is all true, and this was ultimately a bad plan, but I respect the opinion of hold your nose caucus as well. I would have preferred a short-term fix with a vote giving a popular mandate to the solution.

Because right now the public opinion situation is very muddled. People absolutely believe this is a crisis and they might not want to bail out Wall Street but they are adamant that something be done. This is acute in California. The state, with its emphasis on selling bonds and borrowing, is currently unable to pay its bills. Bonds for highway construction, schools, housing and water projects cannot be sold. The credit crunch has real-world effects. This is why the Governor wrote the Congressional delegation and urged passage. This is also why you don't run a government based on borrowing, but there you go.

And so you have the fascinating and strange situation where Democratic challengers in Congressional races are hammering their incumbent opponents for voting yes AND voting no on the House plan. On the side of "how could you vote for this" are Bill Durston (who rushed out an ad hitting Dan Lungren for voting yes) and Ed Chau (who slammed Gary Miller in a press release). On the side of "I can't believe you didn't vote for this" are Nick Leibham, who couldn't have been more exercised about Brian Bilbray's no vote (calling it "totally irresponsible") and Charlie Brown, who defended the need to do something against nutjob free market fundamentalist Tom McClintock.

And then you have Russ Warner, who cited David Dreier's hypocrisy while saying he would have voted for the bill as well:

Warner's campaign pointed to a conflicting statement on Dreier's website, where the 13-term incumbent writes, "I believe we need to empower families to make sound economic choices and avoid taxpayer funded bailouts."

While Warner says he would have voted for the bailout bill as well, his campaign attacked Dreier for changing his position.

The point is that no politician has any idea what the people want, and the decision-making process is exceedingly complex. Those who are taking principled stands are likely to be rewarded and those taking political ones punished, but even that is unclear. I would steer clear of making definitive statements about the public mood; chances are they don't even know what they think.

...it is also completely amusing that the bill bailing out Wall Street is called the Paul Wellstone Mental Health Parity Act. Because tax bills can't originate in the Senate, they grafted the legislation onto a bill that the House recently sent over. Which, by the way, is a good bill.