Bailout Has Been Changed to 'Rescue'

The White House has changed 'bailout' to 'rescue.' So, instead of bailing out the crooks on Wall Street, we're going to rescue the crooks on Wall Street. Hope everyone feels better now.

I doubt any decent bill that addresses our systemic problems as well as providing help for those who really need it can be passed in the current environment. However, some sort of stopgap bill is probably going to have to be passed just to get us to the first week in February. Obviously, the less spent the better.

Not surprisingly, the current crisis is bringing out the bottom feeders: Newt Gingrich is back in the news and is as eager as ever to dominate right wing authoritarians, too many of whom occupy seats in Congress. They seem to remember who got them there. Here's the Huffington Post:

Former House Speaker Newt Gingrich was working aggressively behind the scenes to defeat the Wall Street rescue plan minutes before he himself released a public statement in support of the package, NBC's Andrea Mitchell reported on Tuesday.

Yep, the same M.O. as usual—one has to give him that. Gingrich is one of the many reasons why we can't expect much seriousness from the House Republicans, though we still have to wait to see what the Senate Republicans will do.

A reader asked if there is a relationship between the credit crisis and the price of oil. The answer is yes and no. Because so many politicians, economists, bankers and corporate people don't fully understand the energy situation, the answer is largely no. These people do understand that large sums of money have been pulled out of the American housing market and its many faulty subsidiary investment schemes largely because overseas investors, mainly from Asia, need oil and are not just buying oil but trying to secure long-term sources which requires sizable investment in Africa and Asia. They do get that much. And they get that high oil prices are slowing down various sectors of the world economy (some understood it well enough to speculate dangerously and recklessly on oil). But they think of the current situation as temporary. And, in one sense, perhaps it is, but in the next twenty years we are likely to have an increasing number of these 'temporary situations' unless we recognize we have a problem and start dealing with it. So the answer is yes, but not according to those anesthetized by the usual market ideology.

In the meantime, the energy we need to run our economy still comes from oil. The oil industry, like any major business sector (well, more than most), has always had problems: oil spills, dry wells, production delays, refinery fires, financing problems etc. But we're entering an era where every problem is magnified much more than in the past. That is because the easy days of oil are over. We're in the hard days now. Here's the first of two stories from Rigzone:

As of September 29, 2008, 52 of the 3,800 offshore oil and gas production platforms have been confirmed as destroyed. Initial estimates are that the 52 destroyed production platforms produced a total of 13,300 barrels of oil per day and 90 million cubic feet of gas per day. Currently, MMS has no information on whether any of the destroyed platforms will be rebuilt by any operator.

Rebuilding platforms can be very expensive. Here's the other story:

From the operators' reports, it is estimated that approximately 57.1% of the oil production in the Gulf is shut-in. This shut-in figure for oil increased from yesterday’s figure due to operators’ errors in reporting for September 29, 2008. As of June 2008, estimated oil production from the Gulf of Mexico is 1.3 million barrels of oil per day. It is also estimated that approximately 45.7% of the natural gas production in the Gulf is shut-in.

Although it's not as bad as 2005 after Katrina, that's still a serious drop in oil production until everything gets back up (minus most of the 52 platforms). But I wouldn't want to guess whether oil prices will continue rising, falling or staying flat. Falling production usually means higher prices. But if the economy is sagging, that means lower prices. We're in an era of turbulence and turbulence at any moment is not easy to predict.

In the meantime, Washington has become a lunatic asylum so I'm not going to criticize the few sane people, almost all Democrats, who are trying to deal with an impossible situation. A real solution to the current crisis would require enough votes to overcome Bush's veto. Since a sizable proportion of House Republicans are stark raving mad and are perfectly willing to hold our economy hostage out of sheer spite, or because Gingrich said so or because Pelosi hurt their feelings, the Democrats are probably going to have to hold their nose on a ugly compromise of some sort just so we can reach next February with the economy reasonably intact. Here's some useful perspective from The Mahablog:

...from what I have read a large majority agree that the Administration’s basic approach is deeply flawed.

However, Congress more or less tweaked Paulson’s approach rather than try something completely different. They improved it mightily, according to many. But my understanding is that the smarter people in Congress figured the more conservative members would dismiss the smart approach outright. So instead of the best bill, they put together the best bill they thought they could sell to the right-wing troglodytes in the House.

And it still didn’t pass.

(snip)

As Paul Krugman and others say, probably all that can be done now is to patch something together that will keep the economy limping along until a new administration and Congress is sworn in. And pray that will be an Obama administration, because McCain clearly is out of his depth on this issue and will be no better, possibly worse, than Bush.

No one should forget that this is Bush's bill offered just weeks before an election. Bush is, after all, the leader of the Republican Party and ought to be able to get his party to go along. His heir-apparent, John McCain also supports the bailout, or so he says when he isn't talking about how strong the economy is or how he needs to suspend his campaign so he can get his photo op at the White House. And needless to say McCain too is having trouble getting his party to go along. Do we really want these same Republicans back in January with McCain as president? S.W. Anderson of Oh!Pinion summarizes the situation rather well:

So, the feeling among Pelosi and House Democrats yesterday was that if Republicans wanted a bailout, they should vote in substantial numbers to pass it, making the effort clearly bipartisan.

As the vote was held, Democrats saw many Republicans weren’t up for that. So, seeing no reason to stick their own necks out when Republicans wouldn’t, more and more Democrats voted against the bill as well. Thus, the defeat.

Today, House Democrats and Republicans are said to be working for a revised version of the bill, one that will attract the dozen or more additional votes needed to pass it.

House Democrats should explain their refusal to go out on a limb to benefit the Bush administration and Republican colleagues unwilling to do their own part.

House Republicans should put up or shut up.

The Republican Legacy: The Worst Economic Crisis in Three Generations

Heckuva job Bush and his Republican friends have given us the credit crisis, the housing bust, the energy crisis, two budget-busting wars with the threat of a third and record oil company profits. Time and time again, the Republicans, including John McCain who doesn't know how many houses he has and who loves to buy stacks of $100 chips for gambling, have also offered giveaways to the rich who are already rich and don't need giveaways. Did I mention that we're in an economic crisis?

Did I also mention that every sane person in Congress is holding their nose because they are probably going to have to vote yes on a bailout plan that is certainly better than Bush's plan but far from ideal because Bush and Republicans refused to deal with the problem when it would have been far smarter to do so a year or two ago? Yeah, it's a mouthful to swallow. And nobody likes it. Did everyone think that the Chinese were going to pour their billions into our housing market forever while huge areas of our economy lagged behind in the 20th century? Were we going to buy oil from the Arabs forever while shipping our jobs overseas? Were we going to borrow from the future forever?

Okay, any readers still left are probably not Republican. So let's get down to business. I've been reading Paul Krugman, Berkeley economist Brad DeLong and others trying to understand the economic crisis. Krugman and DeLong have been very useful but I also found an interesting article on The Oil Drum that does a good job of sizing up the situation. Let me show a graph from the article first:




As simply as I can put it, the higher up the blue line is, the more deeply we're in a credit crisis. The left side of the graph represents 2006 through about April 2007. In that period, the credit markets weren't great but they were relatively normal and stable. Then things started happening. The weird moment occurs in July 2007 when the credit markets look as if they're settling down (where the trough is) after some trouble in June 2007. But July 2007 is the moment when the foot traffic in mortgage companies stopped and many banks suddenly got nervous (or broke out in sweat). It took two or three weeks for the credit crisis to show up on the graph where suddenly it goes sky high. What follows after is the turbulence of the markets. Graphs can give you an idea of what's happening but when there's lots of turbulence, it starts getting very difficult to read what's happens next. There's a spike in late March of 2008: that's the Bear Stearn meltdown. And the skyrocketing line on the far right: that's now and it scares Krugman and a lot of other economists.

Here's the article and two important points:

...the most notable thing over the past year has been the general mistrust amongst banks, and their reluctance to lend to one another.

(snip)


• The players that had low risk, low cost funding, high volume investment strategies are stuck as the low cost bit has disappeared; they have to stop their business; some have come to trouble in the process, but this is a liquidity issue and they might be saved by central bank intervention;

• those that had high risk, low cost funding, high(er) returns are quite dead as the high risks happen to have been (really) bad risks. The disappearance of low cost funding is, to a large extent, irrelevant to their situation.

The trouble is that the two cases are often hard to distinguish....

By the way, the article mentions the LIBOR, a daily index of international interest rates in different currencies. I didn't know what the Libor was until a friend, BT, sent me the article ten days ago. The subject is arcane but the article is well written.

The Oil Drum article leads to a number of other articles worth reading. Here's an excerpt from an article in the Financial Times:

If lenders demand huge spreads for such short periods, they are either tightly constrained in their ability to lend, deeply concerned about the solvency of counterparties, or engaged in predatory behaviour. Whichever of these possibilities is true, credit to the economy will dry up. If banks do not trust banks, what do they trust? The answer is: only the government.

In the U.S., the government is George W. Bush. Obviously Congress legislates and the Democrats have vastly improved on the ridiculous bill Bush originally sent them but it is Paulson and others who will physically handle the bailout. Obviously we have a problem for the remaining four months of Bush's presidency.

My Wife's Cat Had More Foreign Policy Experience Than Sarah Palin

Those who know me know that the following story is true. Some years ago my wife worked and lived three doors down from the home of the Russian Consul General in San Francisco. She had a cat then named Bessie who liked to roam the neighborhood. From time to time my wife noticed that Bessie started coming home smelling of expensive perfume and a nice fire. Well my wife was busy then and was glad that Bessie with socializing with the neighbors. Then my wife noticed Bessie was definitely gaining weight. My wife wondered who was being so nice to Bessie? She was a chef then for a wealthy family and one day Bessie came home with a distinct smell around her whiskers that she recognized: caviar. She mentioned to several neighbors her suspicion that Bessie was visiting the Russians and getting acquainted. Sure enough, two or three times, Bessie was seen slipping through the front door as though she were an expected guest.

Eventually my wife moved on to another job (she'd been working six days a week and said enough of that). Alas, for many years, Bessie thought she was something of a queen. She was a talkative cat and we wondered sometimes what she talked about with the Russians.

By the way, the nearest Russian consulate to Alaska is in Seattle. So much for Sarah Palin's absurd notion of foreign policy experience.

In recent days, the nonsense and posturing of the McCain campaign may have much to do with the fiasco of picking Sarah Palin. A candidate's first presidential decision is the choice of a vice president. McCain has obviously failed and appears to be bent on changing the subject by sabotaging the bailout with more demands for more deregulation.

Here's the latest on the negotiations from Politico:

Treasury Secretary Henry Paulson came up to the Capitol hours later to revive talks, but House Republicans did not participate, and Democrats warned that the whole process could collapse unless President Bush gets them to come to the table.

“Unless this fourth leg shows up at some point, this could fall off very quickly,” said Senate Banking Committee Chairman Christopher Dodd (D-Conn.).

At the White House, in fact, House Minority Leader John Boehner had bluntly warned about the lack of Republican support for the massive government intervention: “I can’t invent votes,” Boehner said. But House Financial Services Committee Chairman Barney Frank (D-Mass.) angrily accused the minority of trying to undercut Paulson by crafting a late-breaking alternative proposal—with the tacit support, Frank said, of Republican presidential candidate John McCain.

Yes, indeed, the Republican drama queen showed up at the last moment. Mr. Deregulator himself. He of the Keating Five (remember the meltdown of the S&Ls?).

Hilzoy of The Washington Monthly links to several stories. Here's a snippet she quotes from The New York Times:

Mr. Boehner pressed an alternative that involved a smaller role for the government, and Mr. McCain, whose support of the deal is critical if fellow Republicans are to sign on, declined to take a stand.

The talks broke up in angry recriminations, according to accounts provided by a participant and others who were briefed on the session, and were followed by dueling press conferences and interviews rife with partisan finger-pointing.

In the Roosevelt Room after the session, the Treasury secretary, Henry M. Paulson Jr. literally bent down on one knee as he pleaded with Nancy Pelosi, the House Speaker, not to "blow it up" by withdrawing her party's support for the package over what Ms. Pelosi derided as a Republican betrayal.

"I didn't know you were Catholic," Ms. Pelosi said, a wry reference to Mr. Paulson's kneeling, according to someone who observed the exchange. She went on: 'It's not me blowing this up, it's the Republicans."

Mr. Paulson sighed. "I know. I know.""

Shakespearean tragedy or comedy? It's hard to say. After eight years, Bush has destroyed his credibility. Other Republicans, particularly those in the House, have almost no credibility but these are the same guys who voted with Bush 90% of the time, particularly when Bush was asking for more power. Hamlet or Falstaff? MacBeth or Caliban? Beats me. The real motives of professional liars is difficult to divine. Notice the cute role that John Boehner plays. Boehner replaced the Duke of Hastert who replaced Gingrich the Grinch. Actually, Gingrich might be behind some of the nonsense: see The American Conservative:

...McCain’s stunt has been predictable (right down to Gingrich’s Romneyesque call for a “workout, not a bailout”), and it says a great deal about what these people think constitutes leadership: opportunism, trying to hog the credit for other people’s work and, above all, a mindless dedication to taking action. No doubt, if these were what made for great leaders McCain would be the new Augustus.

Laughably, Gingrich likens this to Eisenhower’s “I will go to Korea,” but unlike Eisenhower and the Korean war McCain has no credibility concerning the crisis he is supposedly addressing. In the end, knowing when you can contribute something and knowing when to avoid complicating an already difficult situation by intruding on ongoing negotiations is what separates grandstanding from leadership. It is what separates the simple egomaniacs from the ambitious pols who nonetheless have some idea what public service is. McCain’s belief that he is indispensable in a time of crisis is the surest sign that he is unfit for any office in republican government, much less the chief magistracy of the Republic.

That's a conservative speaking. Gingrich, no doubt, would love for McCain to win so Palin could be moved aside to make room for Gingrich himself, Cheney-style. Of such plots do these deceivers dream.

The Dow went up almost 200 points on Thursday. That may have been the stock market trying to recover on its own or it may have been a reaction to the belief that a deal was near. Tonight, the bad news: here's the Times again:

Washington Mutual, the giant lender that came to symbolize the excesses of the mortgage boom, was seized by federal regulators on Thursday night, in what is by far the largest bank failure in American history.

Regulators simultaneously brokered an emergency sale of virtually all of Washington Mutual, the nation’s largest savings and loan, to JPMorgan Chase for $1.9 billion, averting another potentially huge taxpayer bill for the rescue of a failing institution.

We are in a crisis that has been in the making since Ronald Reagan became president. Instead of seizing the future and facing the growing problems that face us, too many American politicians, mostly Republicans, mostly right-wing conservatives, chose the easy road of greed, corruption and business as usual. And too many Americans went along with them. With one exception, things have gotten increasingly worse year by year. That exception, and it was a mild one, was the Clinton Administration. For six of those years, opportunities were lost because of the recklessness of people like Newt Gingrich.

I have mixed feelings about the bailout. I think there might be better solutions. The main thing that worries me about the bailout is the feeling that it's based on the notion that housing prices will bounce back. I don't think so, not without inflation, and that is no way to go. We need leadership. John McCain cannot provide that leadership. Barack Obama is the better man. But Obama has made a point that is frequently overlooked. If there is to be change, the leadership has to come from the American people. And that leadership is going to require an honest evaluation of our predicament and an openness to new ideas and new ways of doing things. Because of the late hour, it may not be enough. But it will be what's necessary to come out on the other side.

McCain: The Maverick Becomes a Mackerel

In British slang, a mackerel is a fool. If we only look at McCain's actions over the last week, he qualifies. If we include his selection of Sarah Palin as his running mate, he's close to the cliff. If we try to visualize the man in charge of the economy if he wins the election, we see him and the nation in free fall.

I've been watching the news closely for weeks while working on a large editing project. Part of my current assignment in the project is to update an assessment of the world's condition. My gut reaction is that things have been happening so fast it's a bit difficult to keep up. But I can summarize the current situation in this manner: in a time of crisis, as we face a series of crises both at home and abroad, the people at the top who are currently in charge of our foreign policy have no credibility and the people in charge of our economic policy, largely the same crowd, also have no credibility. Folks, this is not how the United States normally operates.

The idea that a fading, out-of-touch McCain is somehow going to restore credibility is too painful to consider. If our nation were a bit more rational than it is at the moment, there would be a push to honor McCain for his services 35-40 years ago while urging him to retire to his ranch in Sedona where he can enjoy his millions, his houses and a steady stream of visitors. But these are not sane times.

There is far too much to summarize in a post but here's some items that catch my interest:

Everything is fine. Or not. Here's an item from Businomics:

It's OK: We've got a guarantee. The owner of an office building in London has a lease with Lehman. But don't worry. They have an insurance policy to protect them if their tenant cannot pay the rent. The insurer: AIG.

Here's a reminder of the bail-outter-in-chief's track record so far: Bush's Legacy of Squandering Taxpayer Money.

Talking Points Memo has a number of stories on the bailout proposal. Here's some gallows humor from a TPM reader:

Considering as how the proposed Wall Street bailout will be one of the most intensely lobbied efforts in American history, will there be anyone left to manage John McCain's campaign?

So far, not many economic blogs think much of the zero oversight that apparently is part of Bush's bailout. I mean, isn't the lack of oversight what got us into trouble in the first place? Here's more from the Economic Populist.

Brad DeLong, the economist from Berkeley, sometimes puts things succinctly. Here's the issue for the next five days if not the next six weeks:

John McCain chose Sarah Palin to be his vice president.

There is a 40% chance John McCain will be president on January 21, 2009.

There is no way in hell that anybody should give any extra power to any Treasury Secretary chosen by John McCain.

I beg the Democrats in congress: write a bill that makes sense.

Nightmare scenario: McCain, just looking for a trophy for his Hall of Fame, steps down if he wins the election. Sarah Palin is a poor choice for president but she takes instruction well and follows the party line. Cheney remains in town and stays at his secret location while he runs the show.

Okay, I'm joking but eight years ago our nation had a surplus, we were at peace, and Wall Street wasn't completely overrun by crooks. (sigh)

Compassionate Conservative = George W. Bush = John McCain = Maverick

Mitt Romney: "I'm the Candidate of Change"
John McCain: "I'm the Candidate of Change"

Craig: ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ



The Republican side of the 2008 campaign is bizarre one night and boring the next.

I have a confession to make. While I want Barack Obama to win and hope very much he does since our country is in crisis and since wasting more time is something we cannot afford, a small part of me nevertheless wouldn't mind John McCain winning. Why? Because if the American people don't get that our nation is in trouble and that we need to get serious about changing course, then it might as well be McCain. George W. Bush has so damaged our country that we will be feeling the effects for some time to come. Even the current economic downturn may not bottom out until another two or three years down the road. If Americans this year are not ready to understand what deep shit we're in, they might as well elect McCain and see how bad it can get. Because McCain ain't got a clue.

I know it's an odd thing to say, but it's true. There's no point electing Barack Obama unless Americans understand the work that needs to be done. There's hope but only if we start looking at the world as it is and not as the Republican leadership imagines it to be.