Notes to Self: For Wednesday...

Comic Relief: John McCain: Deficit Super-Hawk:

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Democrats Are Better Republicans than Republicans Are:

Source: Doug Henwood, Liscio Report.

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Democrats Are Better Democrats than Republicans Are:

Source: Doug Henwood, Liscio Report.

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The Magnitude of the Financial Crisis:

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McCain on How to Fix the Financial Crisis: Replace Chris Cox with Andrew Cuomo:

George Will:

McCain Loses His Head: John McCain furiously, and apparently without even looking around at facts, said Chris Cox, chairman of the Securities and Exchange Commission, should be decapitated. This childish reflex provoked the Wall Street Journal to editorialize that "McCain untethered" -- disconnected from knowledge and principle -- had made a "false and deeply unfair" attack on Cox that was "unpresidential" and demonstrated that McCain "doesn't understand what's happening on Wall Street."...

McCain's smear -- that Cox "betrayed the public's trust" -- is a harbinger of a McCain presidency. For McCain, politics is always operatic, pitting people who agree with him against those who are "corrupt" or "betray the public's trust," two categories that seem to be exhaustive -- there are no other people....

On "60 Minutes" Sunday evening, McCain, saying "this may sound a little unusual," said that he would like to replace Cox with Andrew Cuomo, the Democratic attorney general of New York.... Conservatives who insist that electing McCain is crucial usually start, and increasingly end, by saying he would make excellent judicial selections. But the more one sees of his impulsive, intensely personal reactions to people and events, the less confidence one has that he would select judges by calm reflection and clear principles, having neither patience nor aptitude for either...

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McCain on Golden Parachutes:

Steve Benen:

The Washington Monthly: GOLDEN PARACHUTES.... The only consistent element of John McCain's recent rhetoric on economic issues is that he's just not thinking things through. In the latest example, McCain has been, in true populist style, railing against "golden parachutes" for CEOs.

The more lavish compensation packages are part of McCain's economic pitch, the more likely he'll face questions about former Hewlett-Packard CEO Carly Fiorina's golden parachute. And yet, as of this morning, he was apparently caught completely off guard. On NBC's "Today," Meredith Vieira told McCain, "You have said, senator, that there are a lot of reasons for this financial crisis, but you have said, bottom line, it's those fat cats. It's the greed of Wall Street. And you said, you promised ... to crack down on CEOs who walk away with huge severance packages. And yet the person that up until recently was your public face really on your economic policies was Carly Fiorina.... She was fired in 2005. But she left with what I think was a $45 million golden parachute while 20,000 of her employees were laid off. She's an example of exactly the type of person you say is at the root of the problem."

McCain replied, "I don't think so." When pressed, he added, "I think she did a good job as CEO in many respects. I don't know the details of her compensation package." Reminded that Fiorina received a $45 million golden parachute after being fired while 20,000 of her employees were laid off, McCain stumbled a bit before concluding, "I don't know the details of what happened." Hewlett-Packard didn't exactly excel under Fiorina's leadership. The company's stock fell 55% during her tenure, and as Vieira emphasized, she was fired. As "punishment," she walked out the door with $45 million and, soon after, became an advisor to a leading Republican presidential campaign.

This certainly seems like the kind of greed and mismanagement the new McCain should disapprove of, doesn't it?

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DeLong: Ben and Hank Go to the Mortgage-Asset Meltdown - Upload a Document to Scribd

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Glass-Steagall Repeal and the Financial Crisis:

Justin Fox:

While the Regulators Fiddled...: Bank of America's takeover of Merrill Lynch and JP Morgan Chase's of Bear Stearns underscored a truth that was already becoming apparent on Wall Street — super-banks (more commonly known as universal banks) are, for all their flaws, a lot more stable and secure than un-super investment banks. If you didn't have commercial banks ready to step in, you'd have a vastly bigger crisis today," says Jim Leach, a Republican former Congressman from Iowa (and current Barack Obama supporter) whose name is on the Gramm-Leach-Bliley Act that repealed Glass-Steagall. Leach is no neutral observer, and there can be no proving that Glass-Steagall repeal has made the world safer. But amid the predictable debate now underway about how much new financial regulation is needed, it just doesn't make a very convincing scapegoat for the crisis...

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FNMA AND FHLMC Are Not Responsible for the Housing Bubble:

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Deregulation:

Justin Fox:

While the Regulators Fiddled...: [U]nconvincing is the claim... that the... Community Reinvestment Act... caused the subprime mortgage lending binge.... [W]hen the subprime lending binge really took off from 2003 to 2006, financial institutions subject to CRA weren't the ones leading the way. Neither were government-sponsored behemoths Fannie Mae and Freddie Mac. No, starting in 2003, as a long boom in house prices and mortgage lending that had at least some foundation in economic reality (lower interest rates, higher incomes) gave way to an orgy of ever-sharper price increases fueled by ever-dodgier loans, the folks in the drivers' seat were the mortgage brokers that made the loans and the Wall Street investment banks that packaged them into private-label mortgage-backed securities. And these people were barely regulated at all.... "You had a regulatory mechanism that was targeted very narrowly to prudential regulation of the banking industry," says Gene Ludwig...

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For Lobbying Before He Was Against It:

From the New York Times:

Loan Titans Paid McCain Adviser Nearly $2 Million: By DAVID D. KIRKPATRICK and CHARLES DUHIGG Senator John McCain’s campaign manager was paid more than $30,000 a month for five years as president of an advocacy group set up by the mortgage giants Fannie Mae and Freddie Mac to defend them against stricter regulations.... Mr. McCain, the Republican candidate for president, has recently begun campaigning as a critic of the two companies and the lobbying army that helped them evade greater regulation.... [T]he McCain campaign stepped up a running battle of guilt by association when it began broadcasting commercials... charging that [Obama] takes advice from Fannie Mae’s former chief executive, Franklin Raines....

Incensed by the advertisements, several current and former executives of the companies came forward to discuss the role that Rick Davis, Mr. McCain’s campaign manager and longtime adviser, played in helping Fannie Mae and Freddie Mac beat back regulatory challenges when he served as president of their advocacy group, the Homeownership Alliance.... “The value that he brought to the relationship was the closeness to Senator McCain and the possibility that Senator McCain was going to run for president again,” said Robert McCarson, a former spokesman for Fannie Mae.... Mr. Davis “didn’t really do anything,” Mr. McCarson, a Democrat, said.... Mr. Davis did draw Mr. McCain to a 2004 awards banquet that the companies’ Homeownership Alliance.... The organization printed a photograph of Mr. McCain at the event in its 2004 annual report....

[C]urrent and former executives, however, said the Homeownership Alliance was set up mainly to defend Fannie Mae and Freddie Mac by promoting their role in the housing market, and the two companies paid almost the entire cost of the group’s operations. “They were financed largely, possibly exclusively, by Fannie and Freddie,” said William R. Maloni.... “We thought it would be helpful to have someone who was a broadly recognized Republican to be the face of the organization, and that person became Rick Davis.” Mr. Maloni added, “Rick, for that purpose, turned out to be quite good.”...

At the time that Fannie Mae and Freddie Mac recruited Mr. Davis to run the Homeownership Alliance in 2000, they were under new pressure from private industry rivals and deregulation-minded Republicans who argued that the two companies’ federal sponsorship gave them an unfair advantage and put taxpayers at risk...

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Dow 36000:

[T]hose of us unlucky enough to own Dow 36000: The New Strategy for Profiting from the Coming Rise in the Stock Market can go to our bookshelves, pull it down, and read that "the Dow should rise to 36000 immediately"--i.e., in October, 1999. But Hassett and Glassman say, they are going to be cautious and conservative. They "believe the rise will take some time, perhaps three to five years..." (p. 18). They acknowledge that they might be wrong: the rise might come much quicker. They tell investors not to delay but to "seize the opportunity now [i.e., in 1999] to profit from the rise in the Dow to 36000 (p. 125)."

On pages 18 and 19 they sneer at one of their American Enterprise Institute colleagues who back in 1998 gave a cynical laugh and said, "As long as you don't say when [the Dow will reach 36000], I suppose it is all right." Glassman and Hassett's response: "we aren't laughing. The case is compelling.... 36000 is a fair value for the Dow today... stocks should rise to such heights very quickly. As you read on, you will... learn to invest in ways that take advantage of a remarkable time in financial history..."

Comments

[Hans]

If I were really cynical, I would say that the goal of the Republican party is a higher Gini coefficient.
We are a wealthy country. After food, shelter and clothing are no longer a worry, absolute wealth does not really make you happier. However, relative wealth does make a difference. So if you have wealth, and want to send money to the party that will make you happier, perhaps you wisely choose the Republican party. Even if you would have a higher income under Democrats.
Or maybe it is just that the pro-business narrative is appealing.

[nathan]

The gap between CDs and treasuries may be due to big money (people or institutions that have too much for FDIC insurance, even spreading it around multiple banks) flocking to treasuries and abandoning other riskier fixed income assets (preferred, etc). after the fed bailout of fannie and freddie, it becomes perhaps more logical to avoid preferreds for investors. this may lead to a bifurcation of funding: very risky common equity and very risk-averse & protected debt, and not much in between (preferreds, etc). if there is only so much risk-averse debt that can be used to fund an entity, and the in-between capital is not available, then there will need to be a lot of risky equity capital -- this may change the cost of capital firms.

no one knows how to value these assets that the fed might purchase. and there is somewhat of an interactive effect on valuation: if the government wants, the govt might be able ignite inflation and do other things to make sure the debt behind the securities is repaid. some sort of an incentive for the government to avoid inflation to bail out risky investments by the fed might be interesting.

the fed should consider lowering interest rates in the very near future - the discount rate? anyways. how much $ would this provide to banks borrowing money fromt the fed?

the problems in financials, autos and airlines needs to be kept from spreading elsewhere. fiscal stimulus considered by Congress (eg, offer assistance to some vulnerable populations to pay essential bills) is an interesting idea.

[who gave Roubini the magic 8 ball?]

Bernanke, a republican, seemed to be either unaware or lied today about the Republican cash for trash plan.

The Lonesome Dove rule applies to Bernanke, ride with cattle rustlers, die with cattle rustlers.

Bernanke is not a serious person.

[Kato Bernanke]

The Paulson/Bernanke plan is the Cheney plan.

via Hullabaloo, "Long Term Capital"

Fratto insisted that the plan was not slapped together and had been drawn up as a contingency over previous months and weeks by administration officials. He acknowledged lawmakers were getting only days to peruse it, but he said this should be enough. [my emphasis]

The plan has been underdevelopment in secret for months. No, there is no reason to trust Bernanke. Can someone please give him the flyer for buying real estate in that wonderful paradise the UAE. Or he can bunk up with Greenspan on Palm Isle Kato style.

[Kato Bernanke]

Bernanke should be "contained" before he central plans again.

This has been going around, but is the Paulson/Bernanke plan:

SUBJECT: REQUEST FOR URGENT BUSINESS RELATIONSHIP

DEAR AMERICAN:

I NEED TO ASK YOU TO SUPPORT AN URGENT SECRET BUSINESS RELATIONSHIP WITH A TRANSFER OF FUNDS OF GREAT MAGNITUDE.

I AM MINISTRY OF THE TREASURY OF THE REPUBLIC OF AMERICA. MY COUNTRY HAS HAD CRISIS THAT HAS CAUSED THE NEED FOR LARGE TRANSFER OF FUNDS OF 800 BILLION DOLLARS US. IF YOU WOULD ASSIST ME IN THIS TRANSFER, IT WOULD BE MOST PROFITABLE TO YOU.

[Kato Bernanke]

Was $2 tril the last call that Roubini made that Republican/Greenspan/Bernanke Thought will cost us?

Well, the ante has been raised, Now Ohmygod says it will be $5 trillion.

I think we need a special new denomination in our paper currencies, it will be called the Thrillion with a face value of $1,000,000,000,000.

What about the Hussman plan?

[Oskar Shapley]

Why is inequality growth under Bush 43 smaller then under Clinton?

[christofay]

Oskar:

The stock market bubble, there was a lot of wealth created for internet entrepreneurs and for the Big 5 IBs + others in stock offerings/promotions.

Do you remember Pets.com? Surely a lot of stock was sold by the Pets.com C-suite before it went kaput. Which IB brought Pets.com to market, was it Goldmine Sachs? Mark Cuban smarter than most sold early and had enough money to buy a real main street asset, some basketball team.

With the latest IB bubble there is less of an opportunity to spread the paper winnings around, most of the paper profits from the Greenspan/Bush sound economy went to the IBs

[Maynard Handley]

"super-banks (more commonly known as universal banks) are, for all their flaws, a lot more stable and secure than un-super investment banks."

Oh I'm sure that will never ever ever change.

How about the idea that banks capped to a maximum size, so that NO SUCH THING AS AN INSTITUTION TOO BIG TO FAIL exists might be even more stable and secure?

[christofay]

Case of AOL fame knew when to cash in the paper winnings and buy a real main street asset. He bought the isle of Hawaii or something.

Case successfully promoted his service co to Time/Wantmore. He thought Time/Wantmore was going to be his opportunity to get big on main street. Unfortunately AOL, which never made money, was a big enough of a drag on T/W that it brought the parent company too low. Before that Case bought Hawaii, the big isle, not the state.

[christofay]

UBS, Un Believable Superbank, is an example of a super bank. It has lost lots of money.

Citibank, or is it Citigrope now, is an example of an American superbank. We measure our financial criseses by timing moments when Citibank is close to failure, early 1990s till now, between which we had two super asset bubbles.

[christofay]

AIG is an example of a super financial player. It's good assets are insurance companies in Asia, and it's junk bonds are paper structures in the United States. If you eliminate the decisions made the toppest tier of management, the actual insurance companies, patient capital, are fine. Which raises another question, what will be the interest rate penalty the United States will pay for electing another Republican administration given whether Bernanke or McCain are selected rates are going higher?

[christofay]

Just one man's opinion, plus he's French, "The Horror, The Horror", via Hullabaloo

"We have a treasury secretary in America - Hank Paulson. I'm afraid he's gone insane. He's become like the Colonel Kurtz of Treasury Secretaries. He's gone native. He's co-opted trillions of dollars of American taxpayers' money and he's playing hedge fund like a rogue trader. We have got a rogue trader in the Treasury Secretary's office. He's being aided and abetted by Ben Bernanke who's been discredited as the entire Federal Reserve Bank has been utterly discredited. We're looking at a possible inflationary depression in America and the worse is yet to come, much worse is yet to come."

No, Paulson/Bernanke are the public face of the Bush/Cheney administraion, there is no reason to trust them and there is no reason to trust their competency; otherwise why are we melting down?

[kao-hsien-chih]

One misconception about Republicans and free markets is that Republicans--and their allies in the business world--love free markets. They don't. In fact, they are perfectly happy to tear apart the free markets, rig the prices, and stuff the invisible hand. These people aren't free marketeers. They are, in fact, communists, albeit of the right-wing, pro-business variety.

[christofay]

the republicans are not communists, don't use that loaded word.

the economic system is oligopoly. and the IB5 don't want their huge supply priced at market prices. that is the problem. we are in an operation to bail out an oligopoly. the IB5 are the five IBs that Chris Cox allowed to increase their leverage from 12+ times to 30+ times in 2004, at the same time Greenspan gave the wink wink to go out and sell junk bonds.

and not all republican men are closeted homosexuals.

[christofay]

Bernanke is Paulson's beard.

[Kato Bernanke]

Buffett is the only man who has the stature, the experience to valuate the Oligopoly IB5s' securities.

This is how to negotiate, and it is with the healthiest of the bunch:

• Goldman Sachs pays a fat dividend to Berkshire Hathaway of 10% on $5 Billion dollars -- that's $500 million per year. And, since this is a preferred, it gets paid out of net income in after tax dollars dollars. Ouch.

• Goldman gets the right to call the preferred at any time at a 10 percent premium. Ouch again.

• Buffett gets $5 billion worth of warrants with a strike price of $115, or about 43.47 million shares. The warrants are good for only 5 years.

via the Big Picture

[long-time fan]

That new Scribd toy of yours has a very bad effect on the readability of your blog.

[Grupetti]

long-time fan wrote:
"That new Scribd toy of yours has a very bad effect on the readability of your blog."

Ditto that...especially for those of us on the wrong side of the digital divide with old computers and slow dial-ups.

Other than that, thanks for the great info.

[Thayer Dodd]

T Boone Pickens is wrong. The greatest transfer of wealth in history is not oil money to the Mid-East. It is the "bailout" which is the last Cheney grab to transfer $700 Billion from this country's citizenry to it's class of the wealthy. We are being robbed by the Bush 43 crowd. Again.

[Will Sheward]

I love graphs Brad, they're fun. If I were to translate yours into UK economic terms and parties, they'd be interpreted thus:

The economy is in the toilet, so the Conservatives get elected because in the eyes of the electorate, the Conservatives are the party of economics who'll take the 'tough' decisions needed to sort things out. The Conservatives then take those tough decisions which, as is the nature of things, are both unpopular and slow to produce results. When they do begin to produce results the Conservatives aren't viewed as nice/compassionate enough to spend the proceeds on the shiny toys the electorate wants. So they get booted out of office and Labour takes power.

With a growing economy Labour spends like there's no tomorrow. The electorate is ecstatic for a few years until the excesses begin to take an economic toll and the economy dives sharply downwards. With the economy in the toilet and tough decisions needed yet again, the Conservatives get elected. And repeat.

Any graphing of economic growth against the political party in office at the time then shows slow/no growth under Conservatives, higher growth under Labour.