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September 2008

Notes to Self: For Wednesday...

Comic Relief: John McCain: Deficit Super-Hawk:


Democrats Are Better Republicans than Republicans Are:

The Liscio Report: Presidential economics: Do parties matter?

The Liscio Report: Presidential economics: Do parties matter?

The Liscio Report: Presidential economics: Do parties matter?

Source: Doug Henwood, Liscio Report.

Democrats Are Better Democrats than Republicans Are:

The Liscio Report: Presidential economics: Do parties matter?

The Liscio Report: Presidential economics: Do parties matter?

The Liscio Report: Presidential economics: Do parties matter?

Source: Doug Henwood, Liscio Report.

The Magnitude of the Financial Crisis:

Econbrowser: Paulson bailout

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...

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?

Read this document on Scribd: null

Read this document on Scribd: null

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...

FNMA AND FHLMC Are Not Responsible for the Housing Bubble:

Subprime lending gets a break from being the villain - The Curious Capitalist - Justin Fox - Economy - Markets - Business - TIME


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...

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...

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..."

Reasons to Be Cheerful: Why the Dodd Plan Is a Good Idea

Paul Krugman writes:

Balance sheet baloney: There’s a turn of phrase I hate in the current discussion, because it sounds smart and serious but is in fact a complete evasion of the key issue. And I’m sorry to say that Ben Bernanke uses it in today’s testimony:

More generally, removing these assets [i.e., toxic mortgage-related waste] from institutions’ balance sheets will help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth.

“Removing these assets from institutions’ balance sheets” — what an evasive phrase.... Hank and Ben are talking about... turning the assets over to Uncle Sam, and getting cold hard cash in return. And then the question is how much cash they get in return. It’s all about the price. Now, if the price Treasury pays is very low — anything comparable to what financial institutions are able to sell the stuff for now — it’s going to do nothing for confidence and capital. If the price is high, confidence and capital will improve — but taxpayers may well take a big loss. The premise of the Paulson plan– though never stated bluntly — is that these assets are hugely underpriced, so that Uncle Sam can buy them at prices that help the financial industry a lot, without big losses for taxpayers. Are you prepared to bet $700 billion on that premise?

This is why the Dodd plan is good. Say the Treasury pays the bank Y for a bundle of assets, and finds that in the long run it is unable to sell them for more than X < Y. Then the difference Y-X is deemed to have been invested in the common stock of the bank as of the date of purchase.

The bank gets the cash: Y. Its balance sheet improves. After the fact, we look back and assess what share of that improvement was capital and what share was a recognition that the asset was worth more than its October 2008 fire-sale value, and we divvy up profit-and-loss accordingly.

In the words of the immortal Frederick Frankenstein: "IT--COULD--WORK!!"

The CRA and the Bubble

More intellectual garbage collection from Steve Benen and Matthew Yglesias:

The Washington Monthly: THE NEW TALKING POINTS.... For about a week now, Republicans have been looking for a way to blame the crisis on Wall Street on Democrats. The search hasn't gone well -- at one point, John McCain said Barack Obama was partially responsible, because he'd been "gaming the system." The comment didn't make a lick of sense, no one bought it, and McCain hasn't repeated it since.

But conservatives kept on trying. In fact, the right seems to have finally come up with a new line: Democrats forced banks to give mortgages to low-income minorities, those low-income minorities couldn't keep up with their mortgage payments, and the banks struggled as a result. Voila! Blame the Dems!

Fox News' Neil Cavuto helped get the ball rolling. Media Matters reported that Cavuto conflated giving home mortgages to minorities with risky lending practices, suggesting that there should have been "a clarion call that said, 'Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster.' "

The National Review is on board with a similar line of thinking, blaming the Community Reinvestment Act for much of the crisis: "The CRA empowers the FDIC and other banking regulators to punish those banks which do not lend to the poor and minorities at the level that Obama's fellow community organizers would like. Among other things, mergers and acquisitions can be blocked if CRA inquisitors are not satisfied that their demands -- which are political demands -- have been met. There is a name for loans made to people who do not have the credit, assets, income, or down payment to qualify for a normal mortgage: subprime."

All of this seems rather silly on its face, but thankfully, Matt Yglesias went to the trouble of setting the record straight.

For one thing, the timeline is ludicrous. The Community Reinvestment Act was passed in 1977. Are we supposed to believe that CRA was working smoothly throughout the Carter, Reagan, Bush I, and Clinton years and then only under Bush II did overzealous anti-"redlining" enforcement come into play, perhaps a result of Dubya's legendarily close relationship with ACORN? Or maybe overzealous enforcement back in the late 1970s is somehow responsible for a real estate blowout that only materialized 30 years later? It doesn't even come close to making sense.

Beyond that, the mere existence of "subprime" loans -- i.e., mortgages given to less-creditworthy individuals at higher interest rates -- isn't the problem here. The problems have to do with what was done with the loans after they were packaged, sold and used to make leveraged plays.

Sorry, conservatives, you'll have to keep looking for a way to blame Democrats for this mess. Good luck with that.

FNMA, FHLMC, and the Housing Bubble

Justin Fox:

Is McCain right about Fannie and Freddie?: John McCain, after feinting in the direction of SEC Chairman Chris Cox, has decided that Fannie Mae and Freddie Mac are to blame for all our nation's ills. This would be convenient because Fannie in particular had a long and lucrative symbiotic relationship with the Democratic Party. But is it true?

Fannie and Freddie were freakish hybrids, private when it suited them (such as on payday) but quasi-public when that was more convenient. If Congress had been willing to give them a real regulator with real power, taxpayers might never have had to bail the companies out.... Buuuuuuut, when the mortgage markets began to go absolutely crazy in late 2003, Fannie and Freddie were barely in the picture.... [H]ere's the view of an actual industry expert, Tanta of Calculated Risk:

Fannie and Freddie... were nowhere near the biggest culprits in the recent credit bubble. They may finance most of the home loans in America, but most of the home loans in America aren't the problem; the problem is that very substantial slice of home loans that went outside the Fannie and Freddie box.... [T]he immovable objects of the conforming loan limits and the charter limitation of taking only loans with a maximum LTV of 80% unless a well-capitalized mortgage insurer took the first loss position, plus all their other regulatory strictures, managed fairly well against the irresistible force of "innovation." If there has ever been an argument for serious regulation of the mortgage markets, the GSEs are it.

And finally... the verdict of a trio of real estate scholars [Kerry Vandell, Major Coleman, and Michael LaCour-Little] who've been cited in this blog before.... [T]he Congressional crackdown on Fannie Mae and Freddie Mac (which came in the wake of accounting scandals and seemed well-deserved at the time) may have been a proximate cause of the housing bubble. And John McCain says he supported the crackdown. This whole thing is his fault! No, I don't really believe that last part. But it does play up the absurdity of McCain's charge that it's all Fannie's and Freddie's fault.

Subprime lending gets a break from being the villain - The Curious Capitalist - Justin Fox - Economy - Markets - Business - TIME

KQED Forum 10:00 AM September 23, 2008

I will not be responsible for my actions if I ever, ever, ever again have to listen to one more Alien Lizard Person--excuse me, hack from the Club for Growth--say that the reason we have a financial crisis is because of Big Government: that we established FNMA and FHLMC and they made rash mortgage loans.


There is a question of journalistic ethics here. KQED Forum has no more excuse for putting representatives of the Club for Growth on the air than it has for putting those who warn us against the Alien Lizard People on the air. I greatly value a diversified portfolio of intellectual opinions. I don't value people who make up their own fake facts.

Atlantic Monthly Death Spiral Watch (Yet Another Marc Ambinder Edition)

Marc Ambinder once again cites the Diageo/Hotline Tracking Poll--an undersampled daily poll designed to produce a whole bunch of spurious three-day climbs in one candidate's relative vote share followed by a three-day decline so that reporters can trick readers into thinking that there are important pieces of news and trends in there.

An undersampled poll designed to mislead the public.

He should be ashamed and embarrassed.

Why oh why can't we have a better press corps?

John McCain Is Dishonest and Dishonorable

For choosing a running mate without checking to see whether she was the kind of person who would ban books she had not read from public libraries.

Sam Stein:

Author Of Book Palin Targeted Lashes Back: She's My Mortal Enemy: The author of the book Sarah Palin reportedly tried to have removed from her hometown library blasted back Saturday evening, saying the Alaska Governor... was an enemy of intellectual freedom and a "disastrous choice" for vice president.... Reached by phone, Willhoite was ultimately not surprised he had once been Palin's target. In fact, he admitted to being "strangely flattered" that he was "on her list."...

Willhiote has been at the center of religious conservative complaint ever since his work - which is about a young boy discussing his divorced father's new, gay roommate - was first published in 1989. The book was the no. 2 "most frequently challenged book" between 1990 and 2000, according to the American Library Association. But that didn't make him any less critical of Palin, who he saw as a dangerous politician, both on issues of press and literary freedoms as well as gay rights.... On Sunday, the New York Times fleshed out rumors that as mayor of Wasilla, Palin had asked the town's librarian to remove certain books from the library's shelves. Citing contemporary news accounts and witnesses - including Palin's predecessor, John Stein, and her former campaign manager, Laura Chase - the paper reported that:

[I]n 1995, Ms. Palin, then a city councilwoman, told colleagues that she had noticed the book "Daddy's Roommate" on the shelves and that it did not belong there, according to Ms. Chase and Mr. Stein. Ms. Chase read the book, which helps children understand homosexuality, and said it was inoffensive; she suggested that Ms. Palin read it. "Sarah said she didn't need to read that stuff," Ms. Chase said. "It was disturbing that someone would be willing to remove a book from the library and she didn't even read it."

John McCain: Dishonorable, Dishonest, Underbriefed, Incurious, and Ignorant

From ThinkProgress:

McCain Clueless When Asked About Fiorina’s $40 Million Golden Parachute: ‘I Do Not Know The Details’: For the past week, Sen. John McCain (R-AZ) has been railing against Wall Street “fat cats” and pledging to “stop multi-million dollar payouts to CEOs who have broken the public trust.”

This principled stance against excessive executive compensation, however, is undermined by the fact that McCain’s senior economic adviser and former Hewlett-Packard CEO Carly Fiorina received $42 million dollars in compensation after being fired from HP. On NBC this morning, host Meredith Vieira noted that Fiorina “is an example of exactly the kind of person you say is at the root of the problem.” McCain replied, “I don’t think so”:

McCAIN: I don’t think so. … Because I think she did a good job as CEO in many respects. I don’t know the details of her compensation package. But she’s one of many advisers that I have.

Q: But she did get a $45 million dollar golden parachute after being fired while 20,000 of her employees were laid off.

McCAIN: I have many of the people, but I do not know the details of what happened.

“How can you not know the details of her past? I mean, that would be awfully important,” Vieira responded.... Nor is McCain’s statement that Fiorina did a “good job” as CEO of Hewlett-Packard quite accurate. The board of HP fired Fiorina in 2005, concluding “that she was spending too much time on the road, neglecting the nuts-and-bolts execution of her own strategic ideas,” according to the New York Times. “[H]er superstar status was also her undoing.”

AS CEO, Fiorina parked profits overseas using tax shelters, even though it negatively impacted the economy. The company held more than $14 billion overseas in 2004, according to the Washington Post. The Wall Street Journal noted that her tenure was “marked by a drop in morale at a company with a legendary history of a collegial culture.”

Fiorina’s golden parachute and her rocky tenure at HP, however, don’t seem to matter to McCain, who does “not know the details of what happened.”

No real American would vote for a president as unqualified as John McCain. Nobody.

Socialism in One Sector: The Dodd Mark

Looks pretty good to me...

The Dodd Mark:

Read this document on Scribd: Dodd Financial Rescue Mark


[BLANK] introduced the following bill; which was read twice and referred to the Committee on [BLANK]

A BILL To provide authority for the Federal Government to purchase certain types of troubled assets for the purposes of pro- viding stability or preventing disruption to the financial markets and banking system and protecting taxpayers, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,


(a) SHORTTITLE.—This Act may be cited as the [BLANK] Act of 2008’’.

(b) TABLEOFCONTENTS.—The table of contents for this Act is as follows:

Sec. 1. Short title; table of contents.
Sec. 2. Authority to purchase troubled assets.
Sec. 3. Considerations.
Sec. 4. Oversight.
Sec. 5. Rights; management; sale of troubled assets.
Sec. 6. Maximum amount of authorized purchases.
Sec. 7. Funding.
Sec. 8. Limits on review.
Sec. 9. Assistance to homeowners and localities.
Sec. 10. Maintaining insurance parity.
Sec. 11. Minimizing foreclosures.
Sec. 12. Termination of authority.
Sec. 13. Increase in statutory limit on the public debt.
Sec. 14. Credit reform.
Sec. 15. Annual financial reports and audits.
Sec. 16. Conflicts of interest.
Sec. 17. Executive compensation.
Sec. 18. Studies and reports.
Sec. 19. Disclosures on exercise of loan authority.
Sec. 20. Special inspector general for the troubled asset program.
Sec. 21. Definitions.



(1) AUTHORITY.—The Secretary is authorized to establish a program to purchase, and to make and fund commitments to purchase troubled assets from any financial institution, on such terms and condi- tions as are determined by the Secretary, and in ac- cordance with policies and procedures developed by the Secretary.


The Secretary shall implement any program under paragraph (1) through an Office of Financial Stability, established for such purpose within the Office of Domestic Finance of the Department of the Treasury, which office shall be headed by an Assistant Secretary of the Treasury.

(b) NECESSARYACTIONS.—The Secretary is authorized to take such actions as the Secretary deems necessary to carry out a program established under subsection (a), including, without limitation—

(1) appointing such employees as may be required for such purpose and defining their duties;

(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code;

(3) designating appropriate entities as financial agents of the Federal Government, authorized to perform in such capacity all such reasonable duties related to this Act as may be required;

(4) establishing vehicles that are authorized to purchase troubled assets and issue obligations, subject to approval and supervision by the Secretary; and

(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out this Act.


(1) IN GENERAL.—The Secretary may not purchase, or make any commitment to purchase, any troubled asset unless the Secretary receives contingent shares in the financial institution from which such assets are to be purchased equal in value to the purchase price of the assets to be purchased.



(i) IN GENERAL.—The contingent shares to be received by the Secretary under paragraph (1) may, at the determination of the Secretary, include shares of the financial institution, its parent company, its holding company, any of its subsidiaries, or any other entity which is owned, controlled, or managed by such institution.

(ii) DEBT INSTRUMENTS.—In the event that the equity of the financial institution from which such troubled assets were purchased is not publicly traded on a national securities exchange, the Secretary shall acquire a senior contingent debt instrument in lieu of contingent shares, which shall automatically vest to the Secretary on behalf of the United States Treasury in an amount equal to 125 percent of the dollar amount of the difference between the amount the Secretary paid for the troubled assets and the disposition price of such assets. The Secretary may demand payment of such contingent debt instrument under such terms and condi- tions as determined appropriate by the Secretary.

9 financial institution from which troubled assets
10 are to be purchased has more than 1 class of
11 shares, the contingent shares to be received by
12 the Secretary shall be that class of shares with
13 the highest trading price during the 14 business
14 days prior to the date of the purchase of such
15 assets.

(C) CONTENT.—The instrument rep-
17 resenting the contingent shares shall contain
18 anti-dilution provisions of the type employed in
19 capital market transactions, as determined by
20 the Secretary, to protect the Secretary from
21 transactions such as stock splits, stock distribu-
22 tions, dividends, and other distributions, merg-
23 ers, and other reorganizations and recapitaliza-
24 tions.

(3) VESTING OF SHARES.—If, after the pur-
1 chase of troubled assets from a financial institution,
2 the amount the Secretary receives in disposing of
3 such assets is less than the amount that the Sec-
4 retary paid for such assets, the contingent shares re-
5 ceived by the Secretary under paragraph (1) shall
6 automatically vest to the Secretary on behalf of the
7 United States Treasury in an amount equal to—
8 (A) 125 percent of the dollar amount of
9 the difference between the amount that the Sec-
10 retary paid for the troubled assets and the dis-
11 position price of such assets; divided by
12 (B) the amount of the average share price
13 of the financial institution from which such as-
14 sets were purchased during the 14 business
15 days prior to the date of such purchase.
16 (4) DEFINITION.—As used in this subsection,
17 the term ‘‘contingent share’’ means any equity secu-
18 rity traded on a national securities exchange.


Before establishing a program under this Act, the
21 Secretary shall make a finding that such program is nec-
22 essary—

(1) to provide stability or preventing disruption
24 to the financial markets or banking system; and

(2) to protect the taxpayer.



(1) ESTABLISHMENT.—There is established the
4 Emergency Oversight Board, which shall be respon-
5 sible for—
6 (A) reviewing the exercise of authority
7 under a program developed in accordance with
8 this Act, including—

(i) all actions taken by the Secretary
10 and the office created under section 2, in-
11 cluding the appointment of financial
12 agents, the designation of asset classes to
13 be purchased, and plans for the structure
14 of vehicles used to purchase troubled as-
15 sets; and

(ii) the effect of such actions in assist-
17 ing American families in preserving home
18 ownership, stabilizing financial markets,
19 and protecting taxpayers; and
20 (B) making recommendations, as appro-
21 priate, to the Secretary regarding use of the au-
22 thority under this Act.

(2) MEMBERSHIP.—The Emergency Oversight
24 Board shall be comprised of—

(A) the Chairman of the Board of Gov-
1 ernors of the Federal Reserve System, who
2 shall serve as the chairperson of the Emergency
3 Oversight Board;

(B) the chairperson of the Board of Direc-
5 tors of the Federal Deposit Insurance Corpora-
6 tion;

(C) the chairperson of the Securities and
8 Exchange Commission;

(D) one member who is not a government
10 employee, having appropriate financial expertise
11 in both the public and private sectors, ap-
12 pointed jointly by the Majority leadership of the
13 Senate and the House of Representatives; and

(E) one member who is not a government
15 employee, having appropriate financial expertise
16 in both the public and private sectors, ap-
17 pointed jointly by the Minority leadership of the
18 Senate and the House of Representatives.

(3) MEETINGS.—The Emergency Oversight
20 Board shall meet 2 weeks after the first exercise of
21 the purchase authority of the Secretary under this
22 Act and monthly thereafter.

24 gency Oversight Board may appoint a credit review
25 committee for the purpose of evaluating the exercise
1 of the purchase authority provided under and the as-
2 sets acquired through such exercise, as the Oversight
3 Board determines appropriate, and the employees of
4 such credit review committee shall be employees of
5 the Federal Government.

(5) COSTS.—The costs of the Emergency Over-
7 sight Board and a credit review committee appointed
8 by the Emergency Oversight Board shall be reim-
9 bursed by the Secretary.


12 later than one month after the date of the first exer-
13 cise of the authority granted in section 2(a)(2), and
14 monthly thereafter, the Secretary shall provide to
15 the Committee on Banking, Housing, and Urban Af-
16 fairs, the Committee on the Budget, and the Com-
17 mittee on Finance of the Senate and the Committee
18 on Financial Services, the Committee on the Budget,
19 and the Committee on Ways and Means of the
20 House of Representatives a written explanation of
21 the overall actions taken by the Secretary during the
22 reporting period and a detailed financial statement
23 with respect to the exercise of authority under this
24 Act, including—
(A) all agreements made or renewed;

(B) all transactions occurring during the
2 month, including the parties involved;

(C) the nature of the assets purchased;

(D) all projected costs and liabilities;

(E) operating expenses, including com-
6 pensation for financial agents;

(F) the valuation method used for each
8 transaction; and

(G) a description of the vehicles estab-
10 lished to exercise such authority.

12 basis, every Friday, the Secretary shall make public
13 the total value of assets held and the total amount
14 of assets purchased and sold during that week under
15 the authority of this Act.


(a) EXERCISE OF RIGHTS.—The Secretary may, at
19 any time, exercise any rights received in connection with
20 troubled assets purchased under this Act.


(1) IN GENERAL.—Except as provided in para-
23 graph (2), the Secretary shall have authority to

manage troubled assets purchased under this Act,
1 including revenues and portfolio risks there from.


(A) IN GENERAL.—The Corporation, shall

manage all residential mortgages and residen-
5 tial mortgage-backed securities purchased by
6 the Secretary under this Act.

8 costs and expenses of the Corporation in car-
9 rying out this paragraph shall be reimbursed to
10 the Corporation by the Secretary.

12 out this paragraph, the Corporation shall utilize
13 a systematic approach for preventing fore-
14 closures and ensuring long-term, sustainable
15 homeownership through loan modifications and
16 use of the HOPE for Homeowners Program es-
17 tablished under section 257 of the National
18 Housing Act and any other programs that may
19 be available for such purposes.

21 poration shall provide to Congress a monthly
22 report on its activities under this paragraph
23 during the reporting period, including specific
24 information on the number and types of loan
25 modifications made and the number of actual
1 foreclosures occurring with respect to such
2 loans during the reporting period.

4 Corporation may, at any time, upon terms and
5 conditions and at prices determined by the Sec-
6 retary, sell, or enter into securities loans, repur-
7 chase transactions, or other financial trans-
8 actions in regard to any troubled asset man-
9 aged by the Corporation under this paragraph.

12 extent practicable, acquire—
13 (A) sufficient ownership or control of
14 pooled residential mortgage loans, or a
15 securitization vehicle for such loans so that the
16 Corporation has authority to modify the under-
17 lying residential mortgage loans, either directly
18 or through a designee; and
19 (B) whole residential mortgage loans, so
20 that the Corporation may use its authority to
21 modify the underlying residential mortgage
22 loans, either directly or through a designee.

24 may, at any time, upon terms and conditions and at prices
25 determined by the Secretary, sell, or enter into securities
1 loans, repurchase transactions, or other financial trans-
2 actions in regard to any troubled asset purchased under
3 this Act.


(1) DEPOSITS.—Not less than 20 percent of
6 any profit realized on the sale of each troubled asset
7 purchased under this Act shall be deposited as pro-
8 vided in paragraph (2).

(2) USE OF DEPOSITS.—Of the amount referred
10 to in paragraph (1)—

(A) 65 percent shall be deposited into the
12 Housing Trust Fund established under section
13 1338 of the Federal Housing Enterprises Regu-
14 latory Reform Act of 1992 (12 U.S.C. 4568);
15 and

(B) 35 percent shall be deposited into the
17 Capital Magnet Fund established under section
18 1339 of that Act (12 U.S.C. 4569).

(3) REMAINDER DEPOSITED IN THE TREASURY.—All amounts remaining after payments under
21 paragraph (1) shall be paid into the General Fund
22 of the Treasury for reduction of the public debt.


The authority of the Secretary to purchase troubled
2 assets under this Act shall be limited to $700,000,000,000
3 outstanding at any one time, by aggregating the purchase
4 prices of all troubled assets held and any expenditures
5 made under section 10(a).


For the purpose of the authorities granted under this
8 Act, and for the costs of administering such authorities,
9 the Secretary may use the proceeds of the sale of any secu-
10 rities issued under chapter 31 of title 31, United States
11 Code, and the purposes for which securities may be issued
12 under chapter 31 of title 31, United States Code, are ex-
13 tended to include actions authorized by this Act, including
14 the payment of administrative expenses. Any funds ex-
15 pended for actions authorized by this Act, including the
16 payment of administrative expenses, shall be deemed ap-
17 propriated at the time of such expenditure.


(a) IN GENERAL.—Any determination of the Sec-
20 retary with regard to any particular troubled asset pursu-
21 ant to this Act shall be final, and shall not be set aside
22 unless such determination is found to be arbitrary, capri-
23 cious, an abuse of discretion, or not in accordance with

(b) EXCEPTION.—Notwithstanding subsection (a),
1 the terms of a residential mortgage loan that is part of
2 any purchase by the Secretary under this Act shall remain
3 subject to all claims and defenses that would otherwise
4 apply notwithstanding the exercise of authority by the Sec-
5 retary or the Corporation under this Act.


(a) DEFINITIONS.—As used in this section—

(1) the term ‘‘Federal property manager’’
9 means—

(A) the Federal Housing Finance Agency,
11 in its capacity as conservator of the Federal
12 National Mortgage Association and the Federal
13 Home Loan Mortgage Corporation;

(B) the Corporation, in its capacity as con-
15 servator or receiver of an insured depository in-
16 stitution; and

(C) the Board of Governors of the Federal
18 Reserve System, with respect to any mortgage
19 or mortgage-backed securities or pool of securi-
20 ties held, owned, or controlled by or on behalf
21 of a Federal reserve bank;

(2) the term ‘‘consumer’’ has the same meaning
23 as in section 103 of the Truth in Lending Act (15
24 U.S.C. 1602);

(3) the term ‘‘insured depository institution’’
1 has the same meaning as in section 3 of the Federal
2 Deposit Insurance Act (12 U.S.C. 1813); and

(4) the term ‘‘servicer’’ has the same meaning
4 as in section 6(i)(2) of the Real Estate Settlement
5 Procedures Act of 1974 (12 U.S.C. 2605(i)(2)).


(1) INGENERAL.—Each Federal property man-
9 ager shall, with respect to any residential mortgage
10 loans and any mortgage-backed securities that it
11 holds, owns, or controls on or after the date of en-
12 actment of this Act, develop a program that is des-
13 ignated to provide a systematic approach for pre-
14 venting foreclosure on the properties securing such
15 loans and securities, and ensuring long-term, sus-
16 tainable homeownership through loan modifications
17 and use of the HOPE for Homeowners Program es-
18 tablished under section 257 of the National Housing
19 Act and any other programs that may be available
20 for such purposes.

(2) MODIFICATIONS.—In the case of a residen-
22 tial mortgage loan, modifications made under para-
23 graph (1) may include—

(A) reduction in interest rates;

(B) reduction of loan principal; and

(C) other similar modifications.

(3) TIMING.—Each Federal property manager
3 shall develop and begin implementation of the pro-
4 gram required by this subsection not later than 60
5 days after the date of enactment of this Act.

7 property manager shall, 60 days after the date of
8 enactment of this Act and every 30 days thereafter,
9 report to Congress specific information on the num-
10 ber and types of loan modifications made and the
11 number of actual foreclosures occurring during the
12 reporting period in accordance with this section.

(5) CONSULTATION.—In developing the pro-
14 gram required by this subsection, the Federal prop-
15 erty managers shall consult with one another and, to
16 the extent possible, utilize consistent approaches to
17 implement the requirements of this subsection.


(1) INGENERAL.—Each Federal property man-
21 ager shall make available to any State or local gov-
22 ernment that is receiving emergency assistance
23 under section 2301 of the Foreclosure Prevention
24 Act of 2008 (Public Law 110-289) for purchase at
25 a discount, any properties that it owns through fore-
1 closure in that State or locality, in order to facilitate
2 the sale of such properties and to stabilize neighbor-
3 hoods affected by foreclosures.


7 shall make available to the Secretary of Hous-
8 ing and Urban Development (in this section re-
9 ferred to as the ‘‘Secretary’’) information on
10 properties available for purchase under this
11 subsection.

(B) CLEARINGHOUSE.—The Secretary and
13 the Federal property managers shall develop a
14 clearinghouse for the information compiled
15 under this paragraph, and make such clearing-
16 house easily accessible by States and local gov- 17 ernments described in paragraph (1).

19 case in which an Federal property manager is not the
20 owner of a residential mortgage loan, but holds an interest
21 in obligations or pools of obligations secured by residential
22 mortgage loans, the Federal property manager shall—

(1) encourage implementation by the loan
1 servicers of loan modifications developed under sub-
2 section (b);

(2) encourage the loan servicers to make fore-
4 closed properties available for sale to State and local
5 governments at a discount, as described in sub-
6 section (c); and

(3) assist in facilitating any such modifications
8 or sales, to the extent possible.

(e) LIMITATION.—The requirements of this section
10 shall not supersede any other duty or requirement imposed
11 on the Federal property managers under otherwise appli-
12 cable law.


(a) REIMBURSEMENT.—The Secretary shall reim-
15 burse the Exchange Stabilization Fund established under
16 section 5302 of title 31, United States Code, for any funds
17 used for the temporary guaranty program for the United
18 States money market mutual fund industry during the pe-
19 riod when the Exchange Stabilization Fund was used as
20 the source for the guarantee.

22 is prohibited from using the Exchange Stabilization Fund
23 for the establishment of any guaranty programs for the
24 United States money market mutual fund industry.


(1) IN GENERAL.—The Secretary is authorized
2 to establish an insurance or guarantee program for
3 money market mutual funds in connection with the
4 program authorized by this Act.

(2) APPLICABILITY.—The authority of this sub-
6 section shall remain in effect—

(A) for 120 days following the date of en-
8 actment of this Act; or

(B) such longer period, not to exceed 365
10 days after the date of enactment of this Act, as
11 the Secretary certifies in writing to Congress is
12 necessary to continue the insurance or guar-
13 antee program for money market mutual funds.


16 by the Secretary or a program to provide guarantees
17 or insurance to the money market mutual fund in-
18 dustry shall not provide insurance in excess of the
19 amount of insurance provided to any depositor under
20 the Federal Deposit Insurance Act (12 U.S.C. 1811
21 et seq.).

(2) PREMIUMS.—In exchange for providing
23 such a guarantee or insurance, the Secretary shall
24 charge premiums to those money market funds
25 which receive the insurance. The rate charged by the
1 Secretary shall be equivalent to the rate charged by
2 the Corporation to deposit insurance providers, re-
3 spectively, for such insurance.

(e) CONSULTATIONS.—In carrying out the duties of
5 the Secretary under this section, the Secretary shall con-
6 sult with the Board of Directors of the Corporation and
7 the Securities and Exchange Commission.



(1) IN GENERAL.—Section 1322(b) of title 11,
12 United States Code, is amended—

(A) in paragraph (10), by striking ‘‘and’’
14 at the end;

(B) by redesignating paragraph (11) as
16 paragraph (12); and

(C) by inserting after paragraph (10) the
18 following:
19 ‘‘(11) notwithstanding paragraph (2) and other-
20 wise applicable nonbankruptcy law—
21 ‘‘(A) modify an allowed secured claim for
22 a debt secured by the principal residence of the
23 debtor, as described in subparagraph (B), if,
24 after deduction from the debtors current
25 monthly income of the expenses permitted for
1 debtors described in section 1325(b)(3) of this
2 title (other than amounts contractually due to
3 creditors holding such allowed secured claims
4 and additional payments necessary to maintain
5 possession of that residence), the debtor has in-
6 sufficient remaining income to retain possession
7 of the residence by curing a default and main-
8 taining payments while the case is pending, as
9 provided under paragraph (5); and
10 ‘‘(B) provide for payment of such claim—
11 ‘‘(i) in an amount equal to the
12 amount of the allowed secured claim;
13 ‘‘(ii) for a period that is not longer
14 than 40 years; and
15 ‘‘(iii) at a rate of interest accruing
16 after such date calculated at a fixed an-
17 nual percentage rate, in an amount equal
18 to the most recently published annual yield
19 on conventional mortgages published by
20 the Board of Governors of the Federal Re-
21 serve System, as of the applicable time set
22 forth in the rules of the Board, plus a rea-
23 sonable premium for risk; and’’.

1 1325(a)(5) of title 11, United States Code, is
2 amended by inserting before ‘‘with respect’’ the fol-
3 lowing: ‘‘except as otherwise provided in section
4 1322(b)(11) of this title,’’.

7 11, United States Code, is amended by adding at the end
8 the following:
9 ‘‘(5) Paragraph (1) shall not apply with respect
10 to a debtor who files with the court a certification
11 that a foreclosure sale of the debtor’s principal resi-
12 dence has been scheduled.’’.

14 of title 11, the United States Code, is amended—
15 (1) in paragraph (1), by striking ‘‘and’’ at the
16 end;
17 (2) in paragraph (2), by striking the period at
18 the end and inserting a semicolon; and
19 (3) by adding at the end the following:
20 ‘‘(3) the plan need not provide for the payment
21 of, and the debtor, the debtor’s property, and prop-
22 erty of the debtor’s estate shall not be liable for, any
23 fee, cost, or charge, notwithstanding section 506(b),
24 that arises in connection with a claim secured by the
25 debtor’s principal residence, if the event that gives
1 rise to such fee, cost, or charge occurs while the case
2 is pending but before the discharge order, except to
3 the extent that—
4 ‘‘(A) notice of such fees, costs, or charges
5 is filed with the court, and served on the debtor
6 and the trustee, before the expiration of the
7 earlier of—
8 ‘‘(i) 1 year after the event that gives
9 rise to such fee, cost, or charge occurs; or
10 ‘‘(ii) 60 days before the closing of the
11 case; and
12 ‘‘(B) such fees, costs, or charges are law-
13 ful, reasonable, and provided for in the agree-
14 ment under which such claim or security inter-
15 est arose;
16 ‘‘(4) the failure of a party to give notice de-
17 scribed in paragraph (3) shall be deemed a waiver
18 of any claim for fees, costs, or charges described in
19 paragraph (3) for all purposes, and any attempt to
20 collect such fees, costs, or charges shall constitute a
21 violation of section 524(a)(2) of this title or, if the
22 violation occurs before the date of discharge, of sec-
23 tion 362(a) of this title; and
24 ‘‘(5) a plan may provide for the waiver of any
1 prepayment penalty on a claim secured by the prin-
2 cipal residence of the debtor.’’.

4 ments made to title 11, United States Code, by this sec-
5 tion shall apply with respect to cases commenced under
6 that title 11 on or after the date of enactment of this Act,
7 or pending on the date of enactment of this Act.

9 tion 257(e) of the National Housing Act (12 U.S.C.
10 1715z-23(e)) is amended—
11 (1) in paragraph (1)(B), by inserting before ‘‘a
12 ratio’’ the following: ‘‘, or thereafter is likely to
13 have, due to the terms of the mortgage being
14 reset,’’; and
15 (2) in paragraph (2)(B), by inserting before the
16 period at the end ‘‘(or such higher percentage as the
17 Board determines, in the discretion of the Board)’’.



(1) IN GENERAL.—Except as provided in para-
21 graph (2), the authorities provided under this Act
22 shall terminate on December 31, 2009.

(2) EXCEPTION.—Paragraph (1) does not apply
1 to the authorities granted in sections 2(b)(5), 5, and
2 7.

4 retary, upon submission of a written certification to Con-
5 gress, may extend the authority provided under this Act
6 to expire not later than 2 years from the date of enact-
7 ment of this Act. Such certification shall include a jus-
8 tification of why the extension is necessary to assist Amer-
9 ican families and stabilize financial markets, as well as
10 the expected costs to the taxpayer for such an extension.

(c) APPLICATION OF SUNSET TO TROUBLED ASSETS.—The authority of the Secretary to hold any trou-
13 bled asset purchased under this Act before the termination
14 date under this section, or to purchase or fund the pur-
15 chase of a troubled asset under a commitment entered into
16 before the termination date under this section shall not
17 terminate in accordance with this section.


Section 3101(b) of title 31, United States Code, is
21 amended by striking ‘‘$10,615,000,000,000’’ and insert-
22 ing ‘‘$11,315,000,000,000’’.


øTo Be Supplied by Budget Committee¿.



(1) IN GENERAL.—The Secretary shall annually
3 prepare and submit to the Congress, and make
4 available to the public, audited financial statements
5 prepared in accordance with generally accepted ac-
6 counting principles, such statements to be audited
7 annually by the Comptroller General, in accordance
8 with generally accepted government auditing stand-
9 ards. The Comptroller General shall annually issue
10 an advisory opinion on the adequacy of the internal
11 financial controls of the office established under sec-
12 tion 2 (in this section referred to as the ‘‘office’’).
13 The Secretary shall reimburse the Government Ac-
14 countability Office for the full cost of any such audit
15 as billed therefor by the Comptroller General.

(2) SCOPE OF AUTHORITY.—The Comptroller
17 General may audit the programs, activities, receipts,
18 expenditures, and financial transactions of the office,
19 and any contractor or agent of the office with re-
20 spect to any contract with or service performed for
21 the office or the Secretary in carrying out this Act.

23 pose of conducting an audit under this subsection,
24 the Comptroller General is authorized in the discre-
25 tion of the Comptroller General, to employ by con-
26 tract without regard to section 3709 of the Revised
1 Statutes of the United States (41 U.S.C. 5), profes-
2 sional services of firms and organizations of certified
3 public accountants for temporary periods or for spe-
4 cial purposes.

6 conduct audits under subsection (a), representatives of the
7 Comptroller General shall have access, upon request, to
8 any information, data, schedules, books, accounts, finan-
9 cial records, reports, files, or other papers, things, or prop-
10 erty belonging to or in use by the office or the Secretary,
11 and to the employees, accountants, financial advisors, and
12 other agents thereof, all at such reasonable times as the
13 representatives of the Comptroller General may request.
14 The representatives of the Comptroller General shall be
15 afforded full facilities for verifying transactions with the
16 balances or securities held by depositories, fiscal agents,
17 and custodians. The representatives of the Comptroller
18 General may make and retain copies of such books, ac-
19 counts, and other records as they deem appropriate.

(c) CORRECTIVE RESPONSES TO AUDIT PROBLEMS.—The Secretary and the office shall—

(1) take action to address deficiencies identified
23 by the Comptroller General, any other auditor en-
24 gaged by the office, and any audit committee; or

(2) certify that no action is necessary or appro-
1 priate.


(1) SYSTEM.—The office shall establish and
4 maintain an effective system of internal controls,
5 consistent with the standards prescribed under sec-
6 tion 3512(c) of title 31, United States Code, that
7 provides reasonable assurance over—

(A) the effectiveness and efficiency of oper-
9 ations, including the use of office resources;

(B) the reliability of financial reporting, in-
11 cluding financial statements and other reports
12 for internal and external use; and

(C) compliance with applicable laws and
14 regulations.

(2) ANNUAL STATEMENTS.—In conjunction
16 with each annual financial statement issued under
17 subsection (a), the office shall—

(A) state the responsibility of management
19 for establishing and maintaining adequate in-
20 ternal control over financial reporting; and

(B) state its assessment, as of the end of
22 the most recent year covered by such financial
23 statement of the Office, of the effectiveness of
24 the internal control over financial reporting.


(a) REGULATIONS REQUIRED.—The Secretary shall
2 promulgate regulations necessary to address and manage
3 or to prohibit conflicts of interest that may arise in con-
4 nection with the administration and execution of the au-
5 thorities provided under this Act, including—

(1) conflicts arising in the selection or hiring of
7 contractors or advisors, including asset managers;

(2) the purchase of troubled assets;

(3) the management of the troubled assets held;

(4) post-employment restrictions on employees;
11 and

(5) any other potential conflict of interest, as
13 the Secretary deems necessary or appropriate in the
14 public interest.

(b) TIMING.—Regulations required by this section
16 shall be issued in final form not later than 120 days after
17 the date of enactment of this Act.


The Secretary shall require that all entities seeking
20 to sell assets through a program established under this
21 Act meet appropriate standards for executive compensa-
22 tion and shareholder disclosure in order to be eligible,
23 which standards shall include—

(1) limits on compensation to exclude incentives
1 for executives to take risks that the Secretary deems
2 to be inappropriate or excessive;

(2) a claw-back provision for incentive com-
4 pensation paid to a senior executive based on earn-
5 ings, gains, or other criteria that are later proven to
6 be inaccurate; and

(3) such limitations on the entity paying sever-
8 ance compensation to its senior executives as are de-
9 termined to be appropriate in the public interest in
10 light of the assistance being given to the entity.



(1) STUDY.—The Comptroller General shall un-
14 dertake a study to determine the extent to which le-
15 verage and sudden deleveraging of financial institu-
16 tions was a factor behind the current financial crisis.

(2) CONTENT.—The study required by this sec-
18 tion shall include—

(A) an analysis of the roles and respon-
20 sibilities of the Board, the Securities and Ex-
21 change Commission, the Secretary of the Treas-
22 ury, and banking regulators with respect to
23 monitoring leverage and acting to curtail exces-
24 sive leveraging;

(B) an analysis of the authority of the
1 Board to regulate leverage, including by setting
2 margin requirements, and what process the
3 Board used to decide whether or not use its au-
4 thority; and

(C) recommendations for the Board and
6 Congress with respect to the existing authority
7 of the Board.

(3) REPORT.—Not later than June 1, 2009, the
9 Comptroller General shall complete and submit to
10 Congress a report on the study required by this sub-
11 section.


(1) STUDY.—The Comptroller General shall
14 conduct a study to assess the impact of the program
15 authorized by this Act, including—

(A) whether it has—
17 (i) provided stability or prevented dis-
18 ruption to the financial markets or the
19 banking system; and

(ii) protected taxpayers;

(B) with respect to the processes for pur-
22 chasing, pricing, and disposing of troubled as-
23 sets.

1 than 15 days after the date of enactment of this Act
2 and each 3 months thereafter, the Comptroller Gen-
3 eral shall submit a report on the study required by
4 this subsection to the Committee on Banking, Hous-
5 ing, and Urban Affairs of the Senate and the Com-
6 mittee on Financial Services of the House of Rep-
7 resentatives.


(a) IN GENERAL.—Not later than 7 days after the
10 date on which the Board exercises its authority under the
11 third paragraph of section 13 of the Federal Reserve Act
12 ((12 U.S.C. 343), relating to discounts for individuals,
13 partnerships, and corporations) the Board shall provide to
14 the Committee on Banking, Housing, and Urban Affairs
15 of the Senate and the Committee on Financial Services
16 of the House of Representatives a report which includes—

(1) the justification for exercising the authority;
18 and

(2) the specific terms of the actions of the
20 Board, including the size and duration of the lend-
21 ing, the value of any collateral held with respect to
22 such a loan, the recipient of warrants or any other
23 potential equity in exchange for the loan, and any
24 expected cost to the taxpayer for such exercise.

(b) PERIODIC UPDATES.—The Board shall provide
1 updates to the Committees specified in subsection (a) not
2 less frequently than once every 30 days while the subject
3 loan is outstanding, including—

(1) the status of the loan;

(2) the value of the collateral held by the Fed-
6 eral reserve bank which initiated the loan; and

(3) the projected cost to the taxpayer of the
8 loan.

(c) CONFIDENTIALITY.—The information submitted
10 to the Congress under this section may be kept confiden-
11 tial, upon the written request of the Chairman of the
12 Board, in which case it will made available only to the
13 Chairpersons and Ranking Members of the Committees
14 described in subsection (a).

(d) APPLICABILITY.—The provisions of this section
16 shall be in force for all uses of the authority provided
17 under this Act occurring on or after March 1, 2008, and
18 reports shall be required beginning not later than 30 days
19 after the date of enactment of this Act.


(a) PURPOSES.—The purposes of this section are as
23 follows:

(1) To provide for the independent and objec-
1 tive conduct and supervision of audits and investiga-
2 tions relating to the programs and operations of the
3 program authorized to be established under section
4 2.

(2) To provide for the independent and objec-
6 tive leadership and coordination of, and rec-
7 ommendations on, policies designed to—

(A) promote economy efficiency, and effec-
9 tiveness in the administration of such program;
10 and

(B) prevent and detect fraud and abuse in
12 such program.

(3) To provide for an independent and objective
14 means of keeping the Congress fully and currently
15 informed about problems and deficiencies relating to
16 the administration of such program and the neces-
17 sity for and progress for corrective action.

19 hereby established the Office of the Special Inspector Gen-
20 eral for the Troubled Asset Program.


(1) The head of the Office of the Special Inspec-
23 tor General for the Troubled Asset Program is the Special
24 Inspector General for the Troubled Asset Program, who
1 shall be appointed by the President.

(2) The appointment of the Special Inspector General
3 for the Troubled Asset Program shall be made solely on
4 the basis of integrity and demonstrated ability in account-
5 ing, auditing, financial analysis, law, management anal-
6 ysis, public administration, or investigations.

(3) The nomination of an individual as Special In-
8 spector General for the Troubled Asset Program shall be
9 made not later than 30 days after the establishment of
10 any program under section 2.

(4) The Special Inspector General for the Troubled
12 Asset Program shall be removable from office in accord-
13 ance with the provisions of section 3(b) of the Inspector
14 General Act of 1978 (5 U.S.C. App.).

(5) For purposes of section 7324 of title 5, United
16 States Code, the Special Inspector General for the Trou-
17 bled Asset Program shall not be considered an employee
18 who determines policies to be pursued by the United
19 States in the nationwide administration of Federal law.

(6) The annual rate of basic pay of the Special In-
21 spector General for the Troubled Asset Program shall be
22 the annual rate of basic pay provided for positions at level
23 IV of the Executive Schedule under section 5315 of title
24 5, United States Code.

1 Inspector General for the Troubled Asset Program shall,
2 in accordance with applicable laws and regulations gov-
3 erning the civil service—

(1) appoint an Assistant Inspector General for
5 Auditing who shall have the responsibility for super-
6 vising the performance of auditing activities relating
7 to any program established under section 2; and

(2) appoint an Assistant Inspector General for
9 Investigations who shall have the responsibility for
10 supervising the performance of investigative activi-
11 ties relating to such program.

(e) DUTIES.—(1) It shall be the duty of the Special
13 Inspector General for the Troubled Asset Program to con-
14 duct, supervise, and coordinate audits and investigations
15 of the purchase, management, and sale of assets by the
16 Secretary of the Treasury under any program established
17 by the Secretary under section 2, including by collecting
18 and summarizing the following information:

(A) A description of the categories of troubled
20 assets purchased or otherwise procured by the Sec-
21 retary.

(B) A listing of the troubled assets purchased
23 in each such category described under subparagraph
24 (A).

(C) An explanation of the reasons the Secretary
1 deemed it necessary to purchase each such troubled
2 asset.

(D) A listing of each financial institution that
4 such troubled assets were purchased from.

(E) A listing of and detailed biographical infor-
6 mation on each person or entity hired to manage
7 such troubled assets.

(F) A current estimate of the total amount of
9 troubled assets purchased pursuant to any program
10 established under section 2, the amount of troubled
11 assets on the books of the Treasury, the amount of
12 troubled assets sold, and the profit and loss incurred
13 on each sale or disposition of each such troubled
14 asset.

(2) The Special Inspector General for the Troubled
16 Asset Program shall establish, maintain, and oversee such
17 systems, procedures, and controls as the Special Inspector
18 General considers appropriate to discharge the duty under
19 paragraph (1).

(3) In addition to the duties specified in paragraphs
21 (1) and (2), the Inspector General shall also have the du-
22 ties and responsibilities of inspectors general under the In-
23 spector General Act of 1978.

(f) POWERS AND AUTHORITIES.—(1) In carrying out
1 the duties specified in subsection (e), the Special Inspector
2 General for the Troubled Asset Program shall have the
3 authorities provided in section 6 of the Inspector General
4 Act of 1978.

(2) The Special Inspector General for the Troubled
6 Asset Program shall carry out the duties specified in sub-
7 section (e)(1) in accordance with section 4(b)(1) of the
8 Inspector General Act of 1978.


(1) The Special Inspector General for the
11 Troubled Asset Program may select, appoint, and employ
12 such officers and employees as may be necessary for car-
13 rying out the duties of the Special Inspector General, sub-
14 ject to the provisions of title 5, United States Code, gov-
15 erning appointments in the competitive service, and the
16 provisions of chapter 51 and subchapter III of chapter 53
17 of such title, relating to classification and General Sched-
18 ule pay rates.

(2) The Special Inspector General for the Troubled
20 Asset Program may obtain services as authorized by sec-
21 tion 3109 of title 5, United States Code, at daily rates
22 not to exceed the equivalent rate prescribed for grade GS–
23 15 of the General Schedule by section 5332 of such title.

(3) The Special Inspector General for the Troubled
1 Asset Program may enter into contracts and other ar-
2 rangements for audits, studies, analyses, and other serv-
3 ices with public agencies and with private persons, and
4 make such payments as may be necessary to carry out
5 the duties of the Inspector General.

(4)(A) Upon request of the Special Inspector General
7 for the Troubled Asset Program for information or assist-
8 ance from any department, agency, or other entity of the
9 Federal Government, the head of such entity shall, insofar
10 as is practicable and not in contravention of any existing
11 law, furnish such information or assistance to the Special
12 Inspector General, or an authorized designee.

(B) Whenever information or assistance requested by
14 the Special Inspector General for the Troubled Asset Pro-
15 gram is, in the judgment of the Special Inspector General,
16 unreasonably refused or not provided, the Special Inspec-
17 tor General shall report the circumstances to the appro-
18 priate committees of Congress without delay.

(h) REPORTS.—(1) Not later than October 31, 2008,
20 and every calendar quarter thereafter, the Special Inspec-
21 tor General for the Troubled Asset Program shall submit
22 to the appropriate committees of Congress a report sum-
23 marizing the activities of the Special Inspector General
24 during the 120-day period ending on the date of such re-
25 port. Each report shall include, for the period covered by
1 such report, a detailed statement of all purchases, obliga-
2 tions, expenditures, and revenues associated with any pro-
3 gram established by the Secretary of the Treasury under
4 section 2, as well as the information collected under sub-
5 section (e)(1).

(2) Nothing in this subsection shall be construed to
7 authorize the public disclosure of information that is—

(A) specifically prohibited from disclosure by
9 any other provision of law;

(B) specifically required by Executive order to
11 be protected from disclosure in the interest of na-
12 tional defense or national security or in the conduct
13 of foreign affairs; or

(C) a part of an ongoing criminal investigation.


In this section, the term ‘‘appropriate commit-
17 tees of Congress’’ means—

(1) the Committees on Finance, Budget, and
19 Banking, Housing, and Urban Affairs of the Senate;
20 and

(2) the Committees on Ways and Means, Budg-
22 et, and Financial Services of the House of Rep-
23 resentatives.


(1) Of the amounts made available to
1 the Secretary of the Treasury under section 6,
2 $75,000,000 shall be available to the Special Inspector
3 General for the Troubled Asset Program to carry out this
4 section.

(2) The amount available under paragraph (1) shall
6 remain available until expended.


For purposes of this Act, the following definitions
9 shall apply:

(1) BOARD.—The term ‘‘Board’’ means the
11 Board of Governors of the Federal Reserve System.

13 ‘‘Comptroller General’’ means the Comptroller Gen-
14 eral of the United States.

(3) CORPORATION.—The term ‘‘Corporation’’
16 means the Federal Deposit Insurance Corporation.

18 nancial institution’’ means—

(A) any institution, including banks, sav-
20 ings associations, credit unions, securities
21 broker and dealers, and insurance companies,
22 having significant operations in the United
23 States; and

(B) upon the determination of the Sec-
1 retary, in consultation with the Chairman of the
2 Board of Governors of the Federal Reserve Sys-
3 tem, any other institution that the Secretary
4 determines necessary to promote financial mar-
5 ket stability.

7 ‘‘residential mortgage loan’’ means a consumer cred-
8 it transaction that is secured by the principal resi-
9 dence of a consumer.

(6) SECRETARY.—The term ‘‘Secretary’’ means
11 the Secretary of the Treasury.

(7) TROUBLED ASSETS.—The term ‘‘troubled
13 assets’’ means—

(A) residential or commercial mortgages,
15 and any securities, obligations, or other instru-
16 ments that are based on or related to such
17 mortgages, that in each case were originated or
18 issued on or before March 14, 2008; and

(B) upon the determination of the Sec-
20 retary, in consultation with the Chairman of the
21 Board of Governors of the Federal Reserve Sys-
22 tem, any other financial instrument, as the Sec-
23 retary determines necessary to promote finan-
24 cial market stability.

(8) UNITED STATES.—The term ‘‘United
1 States’’ means the States, territories, and posses-
2 sions of the United States and the District of Co-
3 lumbia. 4

Ben Smith Has Finally Eaten His Wheaties: Calls McCain and His Staff Big Fat Liars

More reasons why John McCain should not be president, from Ben Smith:

McCain camp criticism rife with errors: Sen. John McCain’s top campaign aides convened a conference call today to complain of being called “liars.” They pressed the media to scrutinize specific elements of Sen. Barack Obama’s record. But the call was so rife with simple, often inexplicable misstatements of fact that it may have had the opposite effect: to deepen the perception, dangerous to McCain, that he and his aides have little regard for factual accuracy....

“Any time the Obama campaign is criticized at any level, the critics are immediately derided as liars,” Schmidt told reporters. But as he went on to list a series of stories he thought reporters should be writing about Obama and Biden, in almost every instance he got the details wrong.

Schmidt criticized the press for the relatively sparse coverage of the fact that one of Biden’s sons, Hunter, is a registered federal lobbyist. “His son is a lobbyist for the credit card and banking industry,” Schmidt said. But Hunter Biden’s lobbying clients don’t include any banks or credit card companies. He did work, as a vice president and then as a consultant, for MBNA, a Delaware-based bank and credit card giant to which Biden had close ties. But he does not appear to have lobbied for the firm. “Steve Schmidt lied — or just got it flat wrong," said Biden spokesman David Wade. "Hunter Biden has never — never — been a lobbyist for the credit card or banking industry."

Schmidt attacked Obama for his ties to William Ayers, who has spoken of his role in 1960s anti-war bombings committed by the Weather Underground. "What we know for sure, and is beyond debate and argumentation is this: Senator Obama said that William Ayers is a guy that lives in his neighborhood. We know that that is a disingenuous and untruthful answer,” Schmidt said. “Senator Obama began his political career in its early stages raising money at Ayers’ house,” he said. Obama did hold a 1995 campaign event at Ayers’ house. It was not, however, a fundraiser, and Ayers did not contribute money to Obama’s first campaign, according to Illinois records.

Schmidt also complained of Obama backers’ attacks on McCain’s running mate, Alaska Gov. Sarah Palin. “As soon as Gov. Palin was nominated, one of … Obama’s chief campaign surrogates, [Florida Rep.] Robert Wexler, went out and accused her of being a Nazi sympathizer,” Schmidt said. “Where is the outrage to that aspersion on the part of some of the biggest newspapers in the country?” But Wexler didn’t call Palin a Nazi sympathizer. He called former presidential candidate Pat Buchanan a Nazi sympathizer, and attacked Palin for allegedly having endorsed him...

It would have been nicer had Ben Smith had the balls to say that Republicans are big fat liars, say, a decade ago. But better late than never.

Paul Krugman Violates Every Safe Driving Law of New Jersey at Once...

And writes:

Dodd - Paul Krugman: Dodd: Very preliminary, no details — but this sounds like a big step in the right direction.... Very serious stuff — and a major challenge to Paulson’s approach. Treasury should now be required to explain why this isn’t a much, much better way to do this rescue. More when I’m not in a car, almost unable to read my screen.

Maybe Paul has Ascended to the state where "in a car" doesn't mean "driving a car." I've only read through half of the proposed Dodd bill, but I concur: Dodd looks like a plan I can get behind--a serious attempt to solve the problem, preserve accountability, and balance the equities. Too bad he isn't the VP nominee.

Dawn Kopecki and James Rowley of Bloomberg have read the whole thing, and do a good job of summarizing it:

The Liqudity Trap, and Open Market Operations on the Risk Premium on a Pan-Galactic Scale

Conventional open-market operations work on the liquidity premium--they either relax a cash-in-advance constraint keeping aggregate demand low, or relax a relatively-safe-investments-look-unprofitable animal spirits constraint keeing investment and thus aggregate demand low. For the past year the problem has not been that safe interest rates have been low--far from it. The problem has been that risky asset values have been low (partly because a lot of risky assets are backed by investments that weren't fundamentally very profitable, and partly because risk premia are high because the supply of risky assets is great and the mobilized risk-bearing capacity of the private market is not that large).

So the natural answer appears to be open-market operations working not on the liquidity premium but on the risk premium--Operation Twist on a Pan-Galactic scale.

Paul Krugman has thoughts:

The humbling of the Fed: Not a day has gone by since this crisis began that I haven’t been thankful that Ben Bernanke is the chairman of the Fed; had events gone a bit differently (thank you Harriet Meiers!) the post might well have gone to some unqualified Bush loyalist.

That said, the Fed’s experience in this crisis has been humbling; getting traction has proved harder than BB himself suggested in his pre-crisis writings. Here are my thoughts on why....

[T]he Fed... is a very big player, but not that big compared with the market as a whole — the Fed has roughly $800 billion each of assets and liabilities in a $50 trillion credit market. And conventional monetary policy consists, basically, of enlarging or contracting the Fed’s balance sheet. Why does the size of a financial player constituting less than 2 percent of the credit market matter? The answer is that the Fed’s liabilities are special: nobody else has the right to create monetary base, which can in turn be used either as currency or as bank reserves. When the Fed expands the money supply, the key thing isn’t that it’s buying Treasury bills, it’s the fact that it’s doing so by expanding the monetary base.... But in March, and again this week, interest rates on T-bills fell close to zero — liquidity trap territory. What does that do to the Fed’s role?... [O]nce T-bills have a near-zero interest rate... the two sides of the Fed’s balance sheet become perfect substitutes.... [T]he liquidity trap makes conventional monetary policy impotent.

But why not purchase stuff other than T-bills? This can be thought of as changing the composition of the Fed’s balance sheet, rather than enlarging it; and Ben Bernanke, in happier days, thought that might be an effective policy in a liquidity trap. There are, however, three reasons to be doubtful about this stuff:

  1. The Fed is now trying to move a much bigger rock: it is, in effect, trying to raise the price of financial assets other than T-bills by selling T-bills and buying other stuff. There’s only (yes, “only”) $800 billion of monetary base....

  2. T-bills and other assets, such as long-term bonds, are probably much better substitutes for each other than T-bills are for monetary base — money is unique as a medium of exchange....

  3. The reason T-bills are an imperfect substitute for, say, corporate bonds — to the extent they are — is risk. Therefore, the reason changing the composition of the Fed’s balance sheet can move prices, to the extent it can, is because the Fed is taking on risk. This isn’t a role the central bank is meant to play; you’re sliding over into fiscal policy.

Nonetheless, I guess the Fed had to try the “Bernanke twist.” And it did — the old Fed balance sheet, in which T-bills were the vast bulk of assets, is no more. But the effects have been disappointing, especially weighed against the risk, which I know is making Fed officials very nervous.... So Ben Bernanke came into his current position believing that central banks have the power, all on their own, to fight Japan-type problems. It seems that he was wrong.

Krugman's (2) seems to be wrong, for the reason he gives in his (3): T-Bills are not close substitutes for mortgage-backed securities. If they were close substitutes, we wouldn't have a problem. It's the huge risk premium that makes them fail to be close substitutes--if the risk premium fell, things would be very different.

But I am not sure that (3) is right: taking on risk doesn't seem to me to be well-described as fiscal policy any more than as conventional open-market operation monetary policy. It is something else. I'm calling it open-market operations on the risk premium, but that is not a very good name.

Jim Hamilton on the Paulson Bailout

Over at Nouriel Roubini's place. Very good:

RGE - Paulson bailout: Let me begin with the point on which I am in complete agreement with Treasury Secretary Henry Paulson and Federal Reserve Chair Ben Bernanke--it is hard to overstate just how scary this week's developments in financial markets could be.

Prior to the establishment of the Federal Reserve in 1913, the United States would periodically experience events that are often referred to as "financial panics."... [T]he difference between the interest rate on 3-month certificates of deposit and 3-month treasury bills. The alarming behavior of this spread began in August 2007, when it spiked up to 243 basis points, higher than anything seen in the previous 20 years.... Following the bankruptcy of Lehman Brothers, the spread reached 527 basis points on Thursday. Financial intermediaries, who earn their profit by lending at a modest markup over their borrowing cost, simply cannot be expected to function in this kind of an environment. Lending institutions that had been solvent before this week would not remain so for long if this situation were to persist....

By my count, the Federal Reserve has already extended something on the order of $455 billion in loans collateralized by some of these same troubled assets, namely $125 billion in repos, $150 billion in the term auction facility, $50 billion in "other loans", $30 billion from the Bear Stearns deal, and $100 billion in "other Federal Reserve assets". That $455 billion total does not include this week's $85 billion loan to AIG, nor the $180 billion in reciprocal currency swap lines.

[T]he $700 billion is construed to be in addition to the comparable sum that's already been committed by the Federal Reserve. And it seems to be in addition to the $1.7 trillion in debts from Fannie and Freddie that the U.S. Treasury has now apparently assumed, and is in addition to the guarantees on $3.1 trillion in agency MBS for which the Treasury has again apparently assumed responsibility. And do you think that this week's $700 billion is going to be the last such request? Granted, these numbers I've been adding up represent loans or guarantees, which are something very different from outright expenditures. Actual losses should only amount to a small fraction of this sum. But even a small fraction of $6 trillion is still a huge number.

Before we can solve these problems, we need to agree on what caused them. In a narrow mechanical sense, that seems straightforward to answer. Reckless underwriting standards and excessively low interest rates contributed to bidding up house prices to unsustainable levels. Real estate price declines have now engendered current and prospective future default rates that translate into large capital losses for institutions holding assets based on those loans. This erosion of capital makes creditors wary of extending any new funds to these institutions.

But there is also a deeper question here that is harder to answer. How did the financial system come to be susceptible to such a profound degree of miscalculation and inappropriate leveraging of risk in the first place?...

How you get from our current situation to one where financial institutions are adequately capitalized is of course one of the key challenges of the moment.... Transparency strikes me as something that ought to be easier to achieve. I would start with a centralized clearing house for reporting all derivative contracts and collateral pledged for them.... the taxpayers are asked to commit such sums, we are owed a coherent and compelling explanation of why this kind of problem is never going to occur again...

Paul Krugman Gets, I Think, too Close to His Inner Hayek

He writes, this morning:

Cash for Trash: The Paulson plan calls for the federal government to buy up $700 billion worth of troubled assets, mainly mortgage-backed securities. How does this resolve the crisis? Well, it might.... [But] even if the vicious circle is limited, the financial system will still be crippled by inadequate capital. Or rather, it will be crippled by inadequate capital unless the federal government hugely overpays for the assets it buys, giving financial firms — and their stockholders and executives — a giant windfall at taxpayer expense. Did I mention that I’m not happy with this plan?...

This is analogous to the argument that the Hayekians always made against central bank stabilization policy carried out by open market operations. The problem, the Hayekians said, that the Keynesian central bankers saw was that the prices of safe bonds were too low to bring full employment. The solution the Keynesian central bankers pursued, the Hayekians said, was to print cash and buy safe bonds and so push safe bond prices up and interest rates down until businesses were confident enough that they could make a profit to employ all the workers who wanted jobs. But, the Hayekians said, this worked only because the Keynesian central bankers were buying the bonds for more than their real true value. Eventually the bonds would have to fall back in price to their true value. And when they did, you would find that all the extra investment undertaken during the false Keynesian boom had further increased the overhang of unproductive and useless capital, and that you were in a situation in which the gap between the market equilibrium interest rate and the interest rate consistent with full employment is better than ever.

This Hayekian argument was, of course, dead wrong. Its problem was that it mistook value for being a fact of nature rather than a social relationship among people. The value of something is what people are willing to pay for it. If there is extra liquidity--extra real money balances--in the economy then the value of commodities in terms of nominal yardsticks will be higher and the value of liquidity will be lower--which means that the value of bonds will be higher. There is no "fall back in price to their true value."

Similarly, financial institutions will be grossly undercapitalized if bond prices don't recover and will be well capitalized if bond prices do recover. The way to make bond prices recover--and housing prices as well--is to boost the economy's risk tolerance by raising demand for risky assets and reducing the burden of risk that the private sector needs to hold by reducing the supply of risky assets on the private market. You reduce the supply of risky assets by having the government buy them up. You expand the demand for risky assets by restoring confidence and by providing capital injections. You do both of these at fair prices--at current values--and you find that values have changed *without the governent having to overpay for anything.

This is, I think, what Olivier Blanchard was trying to teach me in the spring of my sophomore year with his disquisitions on the "Metzler model." But I did not understand it at the time...

Moral-Philosophic Implications for Socialism in One Sector of a Visit from the Bernoulli Fairy

Suppose the Bernoulli Fairy comes down from the sky and offers you a choice: she can flip a coin and with heads your lifetime annual income will be $50,000 while with tails your lifetime annual income will be $200,000, or she can eliminate the risk and give you a lifetime annual income of $X. What, then, is the highest annual income at which you would still gamble?

Think for a moment: I will be back.

For most people the tipping point for $X = $100,000 or so: each doubling seeming equally worthwhile, and so a 50% chance of loosing half your lifetime income being worth risking only if it comes with a 50% chance of a double. Some people appear to be more risk-averse: you can find people for whom $X is as low as $68,000--although they are rare.

But if you take a look at financial market returns--stocks, junk bonds, corporate bonds, and Treasuries--over the past century, and you ask what is the value of $X implicit in the risk premia that financial markets have yielded, you get an answer more like $55,000: the market acts as though prices are set by people--as if the market is ruled by "representative agents" of the kind who appear in economists' models and theories--who are indifferent between (a) a $55,000 annual lifetime income with certainty, and (b) a 50-50 gamble between a lifetime annual income of $50,000 and one of $200,000 (see Mehra and Prescott (1`985), "The Equity-Premium: A Puzzle," Journal of Monetary Economics 15, 145-62; Rabin and Thaler (2001), "Anomalies: Risk Aversion"; DeLong and Magin (2008), "The Equity Premium: Past, Present, and Future"; and millions of others).

This has five implications:

  1. If you are willing to take on risk in financial markets to a greater than average degree, you can make huge fortunes. Think of it: you are accepting assets that promise an average return of $125,000, and yet the market is silling to sell them to you for only $55,000. As long as the risk does not turn out to be much bigger than expected and blow you up, life can be very lucrative.
  2. The average rate of return on capital invested in Wall Street is high--that $125,000-$55,000 again--which means that the financial interest rate for risky investments (like highly-leveraged corporations or junk bonds or subprime mortgages) is very high too. The fact that the interest rate on risky investments is high means that the value of long-duration assets (like mortgages) is low: the cash flows come to you far in the future, and if you had the cash now you could deploy it very profitably.
  3. Heaven help you if you have borrowed short-term and invested long-term and perceived riskiness or the price of risk rises--because then you are bankrupt because your future cash flows are discounted at a ferocious rate.
  4. The markets as they are constituted do a very bad job of mobilizing the collective risk-bearing capacity of society. Risky and long-duration assets really ought--in a fundamental sense--to sell for much more than they do, and that they would if financial markets were doing their job to properly diversify risk away across all of the savers and wealth holders of the global economy.
  5. There is no reason to take past averages or ratios as in any way reflecting the "fundamental" values of financial assets. The "fundamental" configuration of prices and asset values has a somewhat higher risk-free interest rate, a somewhat lower risky bond rate, and much higher equity prices and dividend-price ratios than the world we see.

I am still unsure whether there is a sixth valid implication. If there were, it would be:

It is time for the government to seize control of the price of risk and turn it into an administered price set by centrally-planning technocrats in the interest of social welfare--just as between fifty and a hundred years ago we decided that the short-term price of liquidity, the Bank Rate or the Federal Funds Rate, was too important to be left to the market and was turned into an administered price set by centrally-planning technocrats in the interest of social welfare.

About That Backwards-S...

Mitchell Harwitz writes, about what I call the Krugman Backwards-S:

I first saw that curve deployed by Murray Kemp. It was in the first edition of his trade theory text, used as a device to refute Milton Friedman's claim that speculation always made (foreign exchange) markets stable. Not long after that, I read Marshall's theoretical pamphlet on trade, and saw the same sort of figure deployed, this time to argue that unstable equilibria were always "surrounded" by stable equilibria (stability in the sense of Marshall, of course).

Given Paul Krugman's age, I'll bet he was in graduate school when Kemp taught trade theory at MIT. In any case, one probably ought to call the curve the Marshall-Kemp-Krugman Backwards-S. And that's the Samuelson-style of designation, isn't it? By the way, I'd guess that if you dug hard enough in the footnotes of Samuelson's Foundations, in the sections on dynamics and stability, you'd find Samuelson referring to Marshall's formulations...

Probably should add "Obstfeld" to that list of names as well...

Note to Self: Inflation of the 1970s Readings for Tuesday

Kevin Lansing: Exploring the Causes of the Great Inflation

Blinder, Alan S. 1982. "The Anatomy of Double-Digit Inflation in the 1970s." In Inflation: Causes and Effects, ed. R. Hall, pp. 261-282. Chicago: Univ. of Chicago Press.

DeLong, J. Bradford. 1997. "America's Peacetime Inflation: The 1970s." In Reducing Inflation: Motivation and Strategy, eds. C. Romer and D. Romer, pp. 247-276. Chicago: Univ. of Chicago Press.

Hetzel, Robert L. 1998. "Arthur Burns and Inflation." FRB Richmond Economic Quarterly, pp. 21-44. accessed June 2000.

William Poole, Robert H. Rasche, and David C. Wheelock: The Great Inflation: Did The Shadow Know Better?

Andreas Beyer, Vitor Gaspar, Christina Gerberding, and Otmar Issing: Opting Out of the Great Inflation: German Monetary Policy After the Breakdown of Bretton Woods

Alan S. Blinder and Jeremy B. Rudd: The Supply-Shock Explanation of the Great Stagflation Revisited

Michael Bordo and Barry Eichengreen: Bretton Woods and the Great Inflation

Why Are Republicans so Awful for the Economy?

Chris Carroll speculates:

RGE - Capitalism and Skepticism: Why does the economy perform so badly under Republican Presidents?

The facts are hard to dispute; indeed, the historical record is now so stark that diehard Republicans are probably starting to wonder if there is a curse.... Democrats have outperformed Republicans by almost any measure of economic achievement (GDP growth per capita, unemployment, inflation, budget deficits).... Thanks to the profligacy of the current administration... average Federal spending as a fraction of GDP... under Republican Presidents now exceeds that under Democrats over the measured period.... The pattern holds up when the span of historical analysis is extended farther back in time... using stock returns to measure economic performance.... (Data are available on my web page, at

An economist’s natural inclination is to say that there’s no point in pondering why Republican performance has been so dismal, because the question cannot be answered with the rigor demanded by professional respectability. But as the tenure of George Herbert Hoover Walker Bush shudders to a calamitous close, history seems to require that we try to give an answer.

That answer can’t be found by drilling down (so to speak) into the specific policy proposals of the two parties, which over the years have evolved in ways too arbitrary to permit any meaningful generalization. Nor are there any clearly identifiable differences in doctrine that should translate into a reasonable expectation of better economic performance under one party or the other....

Maybe capitalism works better when its excesses are restrained by skeptics than when true-believers are writing, interpreting, judging, and executing the rules.... Maybe... capitalism works better when it is being held accountable to some external standard.... [F]or better or worse, the defining manifesto of the latter part of the age was Milton Friedman’s Capitalism And Freedom. But that book’s power derived partly from its fierce independence from the orthodoxies of its time.... The book for the new epoch has not been written yet, but I have a proposed title: Capitalism and Skepticism...

John McCain Is too Erratic to Be President

YHWH alone knows what he would do:

McCain for President?: Nolan McCarty, Keith Poole and Howard Rosenthal: [I]t would be hard for voters or even seasoned observers to predict what McCain might do as president. Our own research on congressional roll-call voting reveals that McCain has the second most erratic voting record in the Senate since the end of World War II.... When McCain served in the House of Representatives from 1983 to 1986, his voting record placed him right in the middle of the Republican caucus, at a time when that caucus was not nearly so conservative as it is today. When he entered the Senate in 1987, he voted as a middle-of-the road Republican. Beginning in 1993, McCain began to alter his voting behavior. In some terms, he was one of the most consistently conservative voters in the Senate while during others he was among the most liberal Republicans....

Because McCain's voting record has gyrated so much, however, it is hard to find the principle that links McCain's resume of heterodoxies together....

[H]is anti-corruption sensibilities do not seem to have given him reservations about his other high-profile defection from Republican orthodoxy. McCain supports a cap-and-trade system as a means to control emissions. Unfortunately, cap-and-trade would produce levels of congressional corruption not seen since the Gilded Age and make all of the earmarking abuses seem mild in comparison. A cap-and-trade system would set a limit on production in the United States and then issue emission credits that could be bought and sold.... The problem is that Congress would establish the allotments! Every business in America, along with the affected workers and local politicians, would frantically lobby their senators and representatives for additional allotments. In exchange for campaign contributions, more allotments would be forthcoming.

This system would be a nightmare of corruption and inefficiency. Economists have been sounding the warning about this for some time and pointing out that a simple carbon tax with the proceeds going to the U.S. Treasury or an auction of allotments would be far more efficient....

While he was running for president in 2000, he specifically called out the evangelical leaders Jerry Falwell and Pat Robertson as agents of intolerance on par with Louis Farrakhan and Al Sharpton. And yet McCain reconciled with Falwell before his death and delivered the commencement address at Liberty University in 2006. McCain has long been a supporter of comprehensive immigration reform measures that include guest-worker programs and paths to citizenship for undocumented aliens already here, as well as enhanced border security. Yet after his own immigration measure – co-sponsored with Democratic Sen. Edward Kennedy – failed to achieve cloture in the Senate, McCain disavowed the comprehensive approach.... [H]is biggest heterodox-to-orthodox transformation was on the Bush tax cuts. In 2001, McCain said he could not “in good conscience support a tax cut in which so many of the benefits go to the most fortunate among us at the expense of middle-class Americans who need tax relief.” But in 2008, he supports making all of the Bush cuts permanent and cutting corporate tax rates further. Given that large deficits and few evident economic benefits came from the tax cuts, it is hard to see any principle connecting his position in 2001 to that of 2008 except for opportunism...

If I Were Running the Democratic Party, I Would:

  • No extraordinary grants of power to Treasury Secretaries who might be appointed by the erratic and unqualified John McCain:

    • Either:
      • (i) do the rescue through the Fed, or
      • (ii) follow the Marshall Plan and use an independent agency with its head chosen by the chair of the relevant senate committee, as Paul Hoffman was chosen by Arthur Vandenberg...
  • Proper and appropriate congressional and judicial oversight...

  • High end pay reform:

    • Cancellation of current golden parachutes...
    • Look-backs in the future--pay over $1M per year conditioned on the long-term profitability of the enterprise over more than a decade...
  • Equity stakes for the government:

    • Government buys securities at current market... * For every $4 the government pays for debt securities, it pays a fifth dollar for equity warrants...
  • Make it a round $1 trillion in authority...

  • A no-filibuster pledge from ten Republican senators with respect to the household mortgage relief bill that will be moving through the congress immediately after the financial rescue/nationalization bill...

  • If Republicans block whatever bill the Democrats propose this week, Wall Street can stagger on for a month and a half and we will come back into session the day after election day and do what is right then...

Economic Regulation

William Blackstone speaketh:

Article 1, Section 8, Clause 5: William Blackstone, Commentaries 1:264--68: [T]he regulation of weights and measures... for the advantage of the public, ought to be universally the same throughout the kingdom.... [N]o man can, by words only, give another an adequate idea of a foot-rule, or a pound-weight. It is therefore necessary to have recourse to some visible, palpable, material standard; by forming a comparison with which, all weights and measures may be reduced to one uniform size: and the prerogative of fixing this standard, our antient law vested in the crown.... This standard was originally kept at Winchester: and we find in the laws of king Edgar, near a century before the conquest, an injunction that the one measure... should be observed throughout the realm....

[U]pon these principles the first standards were made; which, being originally so fixed by the crown, their subsequent regulations have been generally made by the king in parliament. Thus, under king Richard I, in his parliament holden at Westminster, A.D. 1197, it was ordained that there shall be only one weight and one measure throughout the kingdom, and that the custody of the assise or standard of weights and measures shall be committed to certain persons in every city and borough; from whence the antient office of the king's aulnager seems to have been derived, whose duty it was, for a certain fee, to measure all cloths made for sale...

By the 1270s, the "clerks of the market" had:

... cognisance of all pleas, assizes whatsoever... the assize of beer, wine, and ale, in the town and suburbs, and [he] shall have the amends thereof, with fines, amercements and profits arising... and shall keep the assize and assay, and have the oversight of measure and weight therein in the king's presence and in his absence, burning and destroying such as shall be found false, sealing others... [which are] lawful and just and duly chastising trespassers in that behalf when need be, and he shall have power in the king's presence and in his absence to make inquisitions concerning forestallers and regrators, bad flesh and fish, awarding due punishment, and shall have the ruling and correction thereof, and fines, forfeitures, etc., as aforesaid...

George Will Says That John McCain Is Not Qualified to Be President

Mark Kleiman:

The Reality-Based Community: "As usual, substituting vehemence for coherence": George Will (!) goes off on poor John McCain (about 1:20 in the clip):

I suppose the McCain campaign’s hope is that when there’s a big crisis, people will go for age and experience. The question is who, in this crisis, looked more Presidential: calm and unflustered? It wasn’t John McCain, who (as usual) substituting vehemence for experience, said “Let’s fire somebody!” and he picked one of the most experienced and conservative people in the administration, Chris Cox, and for no apparent reason — or at least none he’d vouchsafe — said “Fire Chris Cox at the SEC.” It was unpresidential behavior by a presidential aspirant.

Then Sam Donaldson weighs in: "The question of age is back on the table."

And somewhat later Will concludes: "John McCain showed his personality this week, and it made some of us fearful."

John McCain: Cheerleader for Arsonists

Austan Goolsbee: - Transcripts: GOOLSBEE: Well, my only response would be it's good to see Senator McCain has suddenly become a champion of financial oversight and regulatory oversight. He, George Bush, Phil Gramm and their crew has been about burning down the rules of the road and trying to deregulate the financial environment, and it's a little strange for a guy that was cheerleader for a team of arsonists to now be coming forward and say he'd be a great fire department chief...

John McCain the Eiitist

From Political Radar:

Political Radar: Report: McCain Has 13 Cars, Obama 1: ABC News' Tahman Bradley Reports: After the brouhaha over Sen. John McCain's struggle to recall how many houses he owns, Newsweek wondered how many cars might be parked at the presidential candidate's multiple homes. The weekly newsmagazine checked vehicle registration records for both McCain and Sen. Barack Obama and found that when you include the candidates' spouses, McCain owns 13 cars, Obama 1.

McCain has a 2004 Cadillac CTS, a 2007 half-ton Ford pickup truck, a 1960 Willys Jeep, a 2008 Jeep Wranger among other American cars. He's got a few foreign vehicles in his fleet as well, owning a 2005 Volkswagen convertible and a 2001 Honda sedan. The only vehicle registered in Obama's name is a 2008 Ford Escape hybrid...

Barack Obama: Principles for the Nationalization of Mortgage Finance

Barack Obama Says:

Below is a Statement of Principles for the Treasury Proposal from Senator Barack Obama:

  • No blank check. If we grant the Treasury broad authority to address the immediate crisis, we must insist on independent accountability and oversight. Given the breach of trust we have seen and the magnitude of the taxpayer money involved, there can be no blank check.

  • Rescue requires mutual responsibility. As taxpayers are asked to take extraordinary steps to protect our financial system, it is only appropriate to expect those institutions that benefit to help protect American homeowners and the American economy. We cannot underwrite continued irresponsibility, where CEOs cash in and our regulators look the other way. We cannot abet and reward the unconscionable practices that triggered this crisis. We have to end them.

  • Taxpayers should be protected. This should not be a handout to Wall Street. It should be structured in a way that maximizes the ability of taxpayers to recoup their investment. Going forward, we need to make sure that the institutions that benefit from financial insurance also bear the cost of that insurance.

  • Help homeowners stay in their homes. This crisis started with homeowners and they bear the brunt of the nearly unprecedented collapse in housing prices. We cannot have a plan for Wall Street banks that does not help homeowners stay in their homes and help distressed communities.

  • A global response. As I said on Friday, this is a global financial crisis and it requires a global solution. The United States must lead, but we must also insist that other nations, who have a huge stake in the outcome, join us in helping to secure the financial markets.

  • Main Street, not just Wall Street. The American people need to know that we feel as great a sense of urgency about the emergency on Main Street as we do the emergency on Wall Street. That is why I call on Senator McCain, President Bush, Republicans and Democrats to join me in supporting an emergency economic plan for working families – a plan that would help folks cope with rising gas and food prices, save one million jobs through rebuilding our schools and roads, help states and cities avoid painful budget cuts and tax increases, help homeowners stay in their homes, and provide retooling assistance to help ensure that the fuel-efficient cars of the future are built in America.

  • Build a regulatory structure for the 21st Century. While there is not time in a week to remake our regulatory structure to prevent abuses in the future, we should commit ourselves to the kind of reforms I have been advocating for several years. We need new rules of the road for the 21st Century economy, together with the means and willingness to enforce them.

Politico Death Spiral Watch (Mike Allen Edition)

I think ThinkProgress has it wrong. It's not an "anonymous 'Bush insider'" who is calling Obama "uppity." It's reporter Mike Allen using a sock puppet to call Obama "uppity." Why oh why can't we have a better press corps?

Think Progress: In his Playbook this morning, Politico’s Mike Allen relays “a Bush insider’s prescription” for how Sen. John McCain (R-AZ) can change the dynamics of presidential race. The McCain campaign needs to drive “out the range of contrast that makes McCain different from Obama,” said the insider, whom Allen refers to as “one of the smartest Bushies.” Giving examples of those contrasts, the Bushie then used the racially-load term “uppity” to describe Obama:

The tactics that got them to mid-September in a tie are not going to get them to 50 percent plus one in November. They need … an eye toward driving out the range of contrast that makes McCain different from Obama (action-oriented rhetoric v. grand prose; accessible v. uppity; humble servant of country v. arrogant).”

This isn’t the first time a Republican insider has used the racial epithet to refer to Obama. Last month, Rep. Lynn Westmoreland (R-GA) told reporters that Obama and wife, Michelle, were part of “an elitist-class individual that thinks that they’re uppity.”

John McCain Is Dishonest and Dishonorable

Outsourced to Andrew Sullivan:

Andrew Sullivan: McCain's Integrity: For me, this surreal moment - like the entire surrealism of the past ten days - is not really about Sarah Palin or Barack Obama or pigs or fish or lipstick. It's about John McCain. The one thing I always thought I knew about him is that he is a decent and honest person. When he knows, as every sane person must, that Obama did not in any conceivable sense mean that Sarah Palin is a pig, what did he do? Did he come out and say so and end this charade? Or did he acquiesce in and thereby enable the mindless Rovianism that is now the core feature of his campaign?

So far, he has let us all down. My guess is he will continue to do so. And that decision, for my part, ends whatever respect I once had for him. On core moral issues, where this man knew what the right thing was, and had to pick between good and evil, he chose evil....

McCain made a decision that revealed many appalling things about him. In the end, his final concern is not national security.... McCain has demonstrated in the last two months that he does not have the character to be president of the United States. And that is why it is more important than ever to ensure that Barack Obama is the next president. The alternative is now unthinkable. And McCain - no one else - has proved it.

Eric Rauchway on the RFC

Eric writes:

New deal or no deal: It’s certainly both brief and expansive. The Secretary of the Treasury may purchase mortgage-related assets, and hire people to help him do it, and designate agents to do it, pretty much insofar as he pleases, up to $700,000,000,000, beholden to nobody and subject to no review, for the next two years.

Compare for example the Reconstruction Finance Corporation, created in January 1932, at 47 Stat. 5, and authorized to loan to pretty much any lending agency as it pleased, with not more than $200,000,000 for the relief of banks closed or in the process of liquidation. All loans had to be secured, couldn’t be made on foreign securities or acceptances, no more than 5% of the money could go to any one company, couldn’t exceed three years’ term, couldn’t pay fees or commission to applicants for loans, and so forth. Railroads accepting such loans had to do so under terms acceptable to the regulatory Interstate Commerce Commission.

The law in addition made provision for winding up the Corporation when appropriate and requiring it to report quarterly to the Congress on its activities and employees.

In short, although the situation in January of 1932 was visibly more dire than it is now, Congress was less willing to hand over utter independent authority to the Hoover administration.

links for 2008-09-20

Mainstream Media Death Spiral Watch

Why oh why can't we have a better press corps? Outsourced to Ezra Klein:

EzraKlein Archive | The American Prospect: It used to be that "on background" meant that someone was telling you something that could be damaging for their career, but that they felt it important for the public to know. The reporter, weighing the value of the information, could choose to mask the source but convey the fact. As such, readers began to habituate themselves to the fact that "background" information was actually better than attributed information. At some point, flacks figured this out, and started putting random things on background in order to increase perceptions of the information's importance. And so you get the absurd spectacle of a still unnamed Sarah Palin aide saying, "we go into today with a candidate who's got, on background, enormous clarity and action versus a candidate of contemplation and confusion."

Because, as you can imagine, it would really damage that aide's credibility if they were caught complimenting their boss on tape. At the end of the day, a lot of the failures in journalism are a collective action problem. If the profession set some standards for when they'd allow background, and when a proven lie would lead them to out a source, flacks and operatives would stop pulling this crap. But they don't, because there's always some reporter willing to play stenographer on the off-chance that it will, down-the-road, lead to useful access.

The offending journamalist is Scott Conroy, who has no business being in the business.

No Deal

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.

Marc Ambinder Asks a Question

Why oh why can't we have a better press coros?

Marc Ambinder writes:

Thoughts On Five Momentous Days: BTW: Did any presidential candidate, aside from Ron Paul, have any inkling of the Fed's emergency power?...

I cannot answer for the Republicans. But I can say for the Democrats: yes. Chris Dodd, John Edwards, Hillary Rodham Clinton, Barack Obama, and probably others knew what the Federal Reserve does, and what it has the power to do in a financial crisis under emergency and exigent circumstances.

Welcome to the Thunderdome!

The hundred-and-forty year-old cage match continues.

On the right side, those who rely on benevelont monetary technocrats to calm markets and control the excess of speculation through clever exercise of their discretion, like Sir Robert Peel:

Political Economy Working Notes and Papers: June 2008

Robert Peel, 1844: My confidence is unshaken that we have taken all the Precautions which legislation can prudently take up against the Recurrence of a pecuniary Crisis. It my occur in spite of our Prescuamay occur in spite of our Precautions, and if it does, and if it be necessary to assume a grave responsibility for the purpose of meeting it, I dare say men will be found willing to assume such a responsibility. I would rather trust to this than impair the efficiency and probable success of those measures by which one hopes to control evil tendencies in their beginning, and to diminish the risk that extraordinary measures may be necessary...

On the left side, those who hold that mere financial bandaids cannot resolve a crisis that has deeper causes in overproduction and the dialectical contradictions of capitalism, like Karl Marx:

Political Economy Working Notes and Papers: June 2008

Neue Rheinische Zeitung Revue: The years 1843-5 were years of industrial and commercial prosperity, a necessary sequel to the almost uninterrupted industrial depression of 1837-42. As is always the case, prosperity very rapidly encouraged speculation. Speculation regularly occurs in periods when overproduction is already in full swing. It provides overproduction with temporary market outlets, while for this very reason precipitating the outbreak of the crisis and increasing its force. The crisis itself first breaks out in the area of speculation; only later does it hit production. What appears to the superficial observer to be the cause of the crisis is not overproduction but excess speculation, but this is itself only a symptom of overproduction. The subsequent disruption of production does not appear as [what it really is,] a consequence of its own previous exuberance, but merely as a setback caused by the collapse of speculation...


The crisis reached its peak between 22 and 25 October, when all commercial transactions had come to a standstill. A deputation from the City then brought about a suspension of the Bank Act of 1844, which had been the fruit of the deceased Sir Robert Peel's sagacity.... Since his death Peel himself has been apotheosized in the most exaggerated fashion by almost all parties as England's greatest statesman. One thing at least distinguished him from the European 'statesmen' — he was no mere careerist.... His power over the House of Commons was based upon the extraordinary plausibility of his eloquence. If one reads his most famous speeches, one finds that they consist of a massive accumulation of commonplaces, skillfully interspersed with a large amount of statistical data...

>Capital, chapter 25: The course characteristic of modern industry, viz., a decennial cycle (interrupted by smaller oscillations), of periods of average activity, production at high pressure, crisis and stagnation, depends on the constant formation, the greater or less absorption, and the re-formation of the industrial reserve army or surplus-population.... The expansion by fits and starts of the scale of production is the preliminary to its equally sudden contraction... the simple process that constantly “sets free” a part of the labourers... the constant transformation of a part of the labouring population into unemployed or half-employed hands.

The superficiality of Political Economy shows itself in the fact that it looks upon the expansion and contraction of credit, which is a mere symptom of the periodic changes of the industrial cycle, as their cause...


Capital, chapter 25: It will be remembered that the year 1857 brought one of the great crises with which the industrial cycle periodically ends. The next termination of the cycle was due in 1866. Already discounted in the regular factory districts by the cotton famine, which threw much capital from its wonted sphere into the great centres of the money-market, the crisis assumed, at this time, an especially financial character. Its outbreak in 1866 was signalised by the failure of a gigantic London Bank, immediately followed by the collapse of countless swidling companies. One of the great London branches of industry involved in the catastrophe was iron shipbuilding. The magnates of this trade had not only over-produced beyond all measure during the overtrading time, but they had, besides, engaged in enormous contracts on the speculation that credit would be forthcoming to an equivalent extent. Now, a terrible reaction set in, that even at this hour (the end of March, 1867) continues in this and other London industries...

Note to Self: Potential Dealbreakers:

For political viability and rough equity, the financial rescue plan requires:

  • Pay reform
    • Cancellation of current golden parachutes
    • Look backs in the future--pay over $1M conditioned on the long-term profitability of the enterprise over more than a decade
  • Substantial upside for the government
    • Immediate substantial equity dilution via warrants for companies that put any substantial share of their assets to the Treasury
  • Congressional approval of terms
  • Personnel: I wouldn't vote for anything that could give a McCain-appointed Treasury Secretary this much authority. I don't think I know Paulson well enough to trust him with this much authority. (I would trust Bernanke.)

A Plea for Honesty in Campaigning

Bruce Bartlett pleads for honesty in campaigning, wishing that we lived in the Republic of Plato rather than here in the Sewer of Romulus:

Back to Square One: Voters should insist that McCain and Obama throw out their tax and spending plans and offer something that reflects current economic realities. These new plans must be more than vague generalities and should commit the next president to a course of action that involves real spending cuts and real tax increases.

Of course, the idea of a candidate telling voters that they will suffer if he is elected runs counter to every political instinct. But it is not necessarily politically fatal. In 1992, Bill Clinton put forward a fairly detailed list of spending cuts and tax increases and was, nevertheless, elected.

The trick will be getting both Obama and McCain to put forward budget restructuring packages so one isn't unfairly penalized for his honesty. People deserve to know whether the next president thinks we only need to raise taxes on the rich or only need to eliminate earmarks in the budget to solve our fiscal problems. This will tell them whether the next president is a serious person or intellectually dishonest about the nature of the nation's fiscal problem.

It would be useful for both candidates to work from the same benchmark, such as reducing the projected deficit by $1 trillion over 10 years. That would pretty much eliminate the use of "smoke and mirrors" and unserious proposals. If one candidate wants to raise taxes by, say, $1 trillion, then he should say so and spell out how. If he thinks we can get $1 trillion out of the income tax without burdening middle- and lower-income workers, let's hear how. If he thinks we can cut spending by that much, he should explain how. If he thinks it can be done without significantly cutting popular programs such as Medicare, I for one would like to know how. Perhaps a consortium of think tanks would agree to jointly score the plans for honesty and accuracy.

Realistically, a deficit reduction package of the magnitude that I suggest would require a variety of tax increases and spending cuts, including cuts in entitlements and appropriated funds. It's probably realistic to assume that the balance would be roughly 50-50 between taxes and spending, though each candidate could offer a different balance. But if the proposed package is so one-sided as to make enactment by Congress impossible, this is also useful information for voters.

The time for free lunches is past. We must get McCain and Obama to put forward new economic plans. The people deserve to know what is really going to happen in January, and our next president should know whether voters support his vision. With an electoral mandate, quick action in Congress may be possible. And right now we need quick and decisive action if we are to right the economy.

Doug Elmendorf for Treasury Secretary

He writes:

Concerns about the Treasury Rescue Plan: One approach is to purchase mortgage-related debt or other troubled securities.... Yet this approach has significant disadvantages.... First, the affected debt instruments are quite heterogeneous, which makes setting appropriate prices and quantities very difficult.... A second problem with buying troubled debt is that it provides the most help to the financial institutions that made what are, in retrospect, the worst investment decisions.... Third, this approach saddles taxpayers with significant downside risk but limited potential upside gain....

An alternative... is for the government to make equity investments in a wide cross-section of such institutions. For concreteness, suppose that the government offered to make an equity investment in every firm regulated by a federal or state banking regulator equal to 10 percent of the market value of the company as of September 1st in exchange for a 10 percent equity stake in the company. (The 10 percent figure is illustrative. As with the first approach, a judgment about the appropriate total amount of government funds would need to be made.)... [T]he government would not need to determine the appropriate prices and quantities of individual mortgage-related securities, it would not be providing a greater reward to companies that have made the worst investments, and it would gain the opportunity for taxpayers to receive a higher return if the financial system recovers more strongly. Still, objections can be raised.

First, the even-handedness of these investments means that they would not focus on the firms facing the greatest stress, which might damp the immediate bang-for-the-buck.... A second difficulty would be choosing the companies that would be eligible for this offer.... Third, firms that were optimistic about their future prospects without government assistance would likely decline this offer. But shareholders would be unlikely to hold out in expectation of a better deal from the government in light of the losses suffered by shareholders in the Federal Reserve and Treasury rescue operations this year.

A fourth objection is that the government would be a minority shareholder and could not control the institutions in which it invested. Therefore, this approach could not be used to help struggling mortgage borrowers directly; any additional assistance to borrowers would need to be channeled through the Federal Housing Administration or some other entity. In addition, the government could not dictate corporate strategies regarding asset accumulation or liquidation. This passive shareholder position creates some risks, but it avoids substantial risks associated with the government attempting to control and manage the entire financial system.

Whichever of these broad alternatives the government pursued—buying mortgage-related debt and other troubled securities, or investing in a wide range of financial institutions—the assets acquired would need to be divested over time. After the financial crisis has passed, the government would sell its holdings to private investors on a gradual basis over a period of years.

Luigi Zingales for Deputy Secretary:

The Paulson RTC will buy toxic assets at inflated prices thereby creating a charitable institution that provides welfare to the rich—at the taxpayers’ expense. If this subsidy is large enough, it will succeed in stopping the crisis. But, again, at what price? The answer: Billions of dollars in taxpayer money and, even worse, the violation of the fundamental capitalist principle that she who reaps the gains also bears the losses.... Since we do not have time for a Chapter 11 and we do not want to bail out all the creditors, the lesser evil is to do what judges do in contentious and overextended bankruptcy processes: to cram down a restructuring plan on creditors, where part of the debt is forgiven in exchange for some equity or some warrants. And there is a precedent for such a bold move. During the Great Depression, many debt contracts were indexed to gold. So when the dollar convertibility into gold was suspended, the value of that debt soared, threatening the survival of many institutions. The Roosevelt Administration declared the clause invalid, de facto forcing debt forgiveness. Furthermore, the Supreme Court maintained this decision. My colleague and current Fed Governor Randall Koszner studied this episode and showed that not only stock prices, but bond prices as well, soared after the Supreme Court upheld the decision. How is that possible? As corporate finance experts have been saying for the last thirty years, there are real costs from having too much debt and too little equity in the capital structure, and a reduction in the face value of debt can benefit not only the equityholders, but also the debtholders....

Forcing a debt-for-equity swap or a debt forgiveness would be no greater a violation of private property rights than a massive bailout, but it faces much stronger political opposition. The appeal of the Paulson solution is that it taxes the many and benefits the few. Since the many (we, the taxpayers) are dispersed, we cannot put up a good fight in Capitol Hill; while the financial industry is well represented at all the levels. It is enough to say that for 6 of the last 13 years, the Secretary of Treasury was a Goldman Sachs alumnus. But, as financial experts, this silence is also our responsibility. Just as it is difficult to find a doctor willing to testify against another doctor in a malpractice suit, no matter how egregious the case, finance experts in both political parties are too friendly to the industry they study and work in.

The decisions that will be made this weekend matter not just to the prospects of the U.S. economy in the year to come; they will shape the type of capitalism we will live in for the next fifty years. Do we want to live in a system where profits are private, but losses are socialized? Where taxpayer money is used to prop up failed firms? Or do we want to live in a system where people are held responsible for their decisions, where imprudent behavior is penalized and prudent behavior rewarded? For somebody like me who believes strongly in the free market system, the most serious risk of the current situation is that the interest of few financiers will undermine the fundamental workings of the capitalist system. The time has come to save capitalism from the capitalists.

Teresa Nielsen Hayden Thinks John McCain Is Unqualified to Be President

She writes:

Making Light: Melanoma and narcissism: Kelly, I’ll take “Arrogance and Bad Vetting” for $600. Their vetting process seems to have only taken a few days, and to have been conducted from Washington and on Google. The centerpiece of it was a long questionnaire they went over with Palin in person.

I take their belief that Palin would self-report any problems as evidence that they didn’t know the woman. The same goes for expecting her to know what happened to Thomas Eagleton when he failed to report a lurking problem.

There are multiple reports from people in Alaska (big state, small community), and particularly people in the Alaskan government, who said they’d never been asked anything, and that they didn’t know anyone else who’d been asked either. In addition, one of the employees at the Wasilla newspaper (which is only partly available online) let drop that prior to Palin being named the Republican candidate for Vice President, no one had looked at the newspaper’s hardcopy archives in months

If you want to set yourself up for unpleasant surprises, that’s one way to do it....

My instant reaction to the Troopergate chronology was that we’re looking at a clinical personality disorder, located somewhere in the immediate vicinity of narcissism. If I’m right, Palin is basically out of control, and unlikely to improve. Have you ever dealt with a full-blown narcissist? “Self-centered” is too mild a description. They’ve got a weirdly information-deprived worldview; they can’t process criticism, failure, or noncompliance; and they have a constant need for external validation of their grandiose self-images. It can lead them to do amazingly stupid things.

What I immediately noticed was that Palin hasn’t bothered to keep track of the stories she tells. It’s not that she can’t; she’s not that stupid. Rather, it hasn’t occurred to her to do so. She isn’t thinking about other people’s reactions. That isn’t bad judgement, or an absence of judgement. It’s a pathological lack of interest in the subject. Here are my comments on the Troopergate chronology that “DobermanTracker” posted at McClatchy:

  • **First she would not tell us (Anchorage, Alaska) why she fired Monegan. He was in a high-profile position; he’d already had a middlin’-distinguished career; Palin appointed him in the first place; when she fired him, she offered him another state job; and there just doesn’t seem to be much evidence of general dissatisfaction with his work, or of preexisting disagreements between Palin and Monegan that didn’t involve Wooten. It was bizarre of Palin to not realize she’d be expected to explain that, or that there might be repercussions. I’d expect a candidate for county dogcatcher to know better than that.
  • Then, finally, she said she wanted to take the department in a new direction.
  • Took forever (week at least) to get her to state what that direction was. “Taking the department in a new direction” is not the same thing as “firing for cause.” It’s one of four unrelated issues Palin has cited as her reason for firing Monagan. She dropped the second one--that he was not adequately filling state trooper vacancies--after Monegan pointed out that the police academy was about to graduate its largest class ever. The third, that he wasn’t doing enough to fight alcohol abuse problems, is problematical in light of the fact that the state job she offered him at the time of his firing was Executive Director of the Alcoholic Beverage Control Board. The fourth, that he “did not turn out to be a team player on budgeting issues,” could mean anything. (Subsequent, equally meaningless accusations—viz., “egregious insubordination,” “obstructionist conduct”—are irrelevant to this discussion, since they were cooked up by the legal attack dogs the McCain organization sicced on the case.)

Oh, and Palin also said, early and often, that it had nothing to do with repeatedly pressuring him to fire her ex-brother-in-law, which she never did, and didn’t know about either.

Now, the thing about (1.) taking the department in a new direction, (2.) attracting more recruits, (3.) focusing more on alcohol abuse, and (4.) being a team player on budget issues, is that whether or not Monegan mishandled them (evidence: still not in evidence), they shouldn’t have come as a complete surprise to him when he first heard about them; i.e., after he was fired. Those are all policy and structure issues. Any one of them would have required Palin to do a fair amount of talking and memo-exchanging with Monagan before she could even tell they were a problem, much less a problem on whose solution she and Monegan were irreconcilably opposed. When you’ve got a guy who by all-but-one accounts was doing a good job, only you want him to take things in a different direction, the first thing you do is talk to him about taking it in a different direction. Firing him comes a lot later, after flurries of memos plus maybe a few F2F tiffs, tizzies, and scenes. By the time it finally happens, it shouldn’t be a surprise to anyone.

Next point: what are the odds of anyone having four different large-scale administrative problems so serious that every one of them warrants firing him on zero notice, yet none of the problems are interrelated? It’s improbable, is what it is. Also, what are the odds that someone could be screwing up his job like that without pissing off an underling so badly that they’d be willing to talk about it to a friendly and understanding reporter? Should be news stories. Aren’t. And one more bit about that “taking it in a new direction” thing. Palin replaced Monegan with Chuck Kopp, former police chief and acting city manager of Kenai. Whoops! Turns out Kopp had been suspended, investigated, and given a letter of reprimand by the City of Kenai for sexually harassing an underling. Kopp departed, clutching his $10,000 severance package. (Monegan got no severance.) Palin then appointed Joseph Masters, a former security director for a private petrochemical firm. Asked in an interview whether Gov. Palin had discussed her vision of the department with him before hiring him, Masters said “Gov. Palin didn’t give me any guidance or direction or mandates for the department.” It appears that Palin’s “new direction” is as unfindable as evidence of Monegan’s misdeeds.

Oh, who are we kidding? She didn’t fire him for cause. She ran out of patience one day with his continuing refusal to proceed illegally against her ex-brother-in-law, fired him, and only afterward realized that people would notice and have opinions about it. Even then, she didn’t realize that giving four or five different excuses would present a problem.

Every time I try to imagine Sarah Palin at work, what comes out of her mouth is Glory’s dialogue from Season Five of Buffy.

  • Finally she said Monegan was not doing a good job of working on bootlegging in the villages and in recruiting new troopers—she forgot that 3 weeks prior to this announcement she had stated on TV news that he was doing a great job in both of these departments.
  • She even stated she had offered him a job on the Alcohol Board (while firing him as commissioner) simply because he was doing such a good job in this area. Then, couple of days ago, she stated, he was not fired at all, that he quit.

“I did it in self-defense—and besides, I didn’t push him, he jumped. Furthermore, I can prove I was in another city when it happened.” If you stack up too many stories, you eventually reach a point where they all fall over.

  • Now, she is stating he was fired and it was because of “egregious insubordination.” That’s one of the accusations cooked up by McCain’s people. If you don’t buttress it with details, all it means is “He didn’t do something I wanted.”
  • She is asking the Personnel Board - 3 people appointed by Palin - to dismiss the ethics complaint which she filed against herself in order to get it before the Personnel Board - because some out-of-context e-mails sent to Monegan prior to his having been (fired/quit) “exonerate the Governor totally and completely, once and for all.”

The story gets complicated. I highly recommend the Wikipedia entry, Alaska Public Safety Commissioner dismissal: a first-rate piece of work that’s like a vision of what Wikipedia could be in a better world than this.

(Digression: an interesting subplot: If you read the whole entry, pay attention to how many of the charges and complaints made against Mike Wooten, the ex-brother-in-law, turned out to not amount to much; how few of them are based on testimony from people who aren’t close to Sarah Palin; and how much time passes between Wooten’s supposedly scary and threatening words and deeds, and the dates on which Sarah Palin and her sister Molly get around to mentioning them to anyone else. I’m not saying Mike Wooten is a suffering saint; I’m saying the case against him shrinks considerably when you examine it. Three under-reported facts: (1.) Part of the basis for Mike Wooten being made an Alaska State Trooper in 2000 was the fulsome character reference provided him by Sarah Palin. (2.) The Domestic Violence Protection Order (DVPO) granted Molly McCann (Palin’s sister) at the time she filed for divorce was later quashed because McCann’s counsel was unable to produce any evidence of acts of physical or implied violence. In fact, McCann told police at the time of filing that Wooten had never physically abused her. Sarah Palin has since lied about the episode, saying the DVPO was lifted after Wooten’s supervisors intervened. Both Palin and the McCain campaign have subsequently cited the DVPO as evidence that Wooten was violent towards Molly McCann. (3.) At the McCann/Wooten divorce trial,

a representative for the Alaska State Trooper’s union testified that the union viewed the dozen complaints filed by McCann and her family against Wooten as “not job-related” and “harassment”. Judge Suddock repeatedly warned McCann and her family to stop “disparaging” Wooten’s reputation or risk the judge granting Wooten custody of the children. At a court hearing in October 2005, Judge Suddock said “disparaging will not be tolerated - it is a form of child abuse … relatives cannot disparage either. If occurs [sic] the parent needs to set boundaries for their relatives.”)...

The only reason Troopergate isn’t a bigger mess is that McCain sent a legal team to Alaska in order to obstruct justice. Once they were up and running, Palin’s words and deeds got a lot less random, ditto candid. Still, the uncontaminated pre-legal-team sample of her behavior is enough to establish that her emotional reactions are way off normal....

If she’s so incapable of taking responsibility for her actions that she can’t even answer for herself at a state-level inquiry, she’s not fit for high office. Leaders take responsibility. It’s part of the basic spec.

Note to Self: High-End Compensation Reform

A possibility:

  • A 100% tax on all personal compensation over $1 million a year that does not take the form of restricted common stock in the entity issuing the compensation, untradeable for ten years.
  • A 100% tax on the sale of and income from all securities derived from stock options paid as part of compensation where the underlying was worth less in inflation-adjusted dollars when exercised than when written.

Note to Self: Modern Monetary Policy

Conventional monetary policy:

  • Rescue the economy in a liquidity panic by dropping the safe interest rate via open market operations, and flooding the economy with liquidity.
  • Rescue the economy in a solvency crisis via inflation to reduce the value of nominal debt to levels at which debtors can pay.

Bernanke-Paulson economic policy:

  • Reduce the size of risk premia to normal levels and raise the value of risky assets to normal levels and so restore solvency to the financial system by having the government buy up risky assets, and so shrink the supply of outstanding risky assets for the private sector to hold.

The problem is to keep Bernanke-Paulson economic policy from becoming:

  • Restore solvency to the financial system by taking tax money and using it to buy underwater assets for more than they could ever be worth.

Perhaps the Skimpiest Proposal for the Most Extensive Grant of Authority I Have Ever Seen

More expansive than the National Industrial Recovery Act of 1933. The only thing that comes close is the Marshall Plan--and the Marshall Plan was run by an independent agency, the ECA; the ECA had to get its funding appropriated every year; and Dean Acheson turned down the job of Marshall Plan head on the grounds that with a Republican majority congress they needed a Republican administrator (they got Studebaker head Paul Hoffman).




Section 1. Short Title.

This Act may be cited as ________.

Sec. 2. Purchases of Mortgage-Related Assets.

(a) Authority to Purchase.--The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

(b) Necessary Actions.--The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:

(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;

(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;

(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;

(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and

(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.

Sec. 3. Considerations.

In exercising the authorities granted in this Act, the Secretary shall take into consideration means for--

(1) providing stability or preventing disruption to the financial markets or banking system; and

(2) protecting the taxpayer.

Sec. 4. Reports to Congress.

Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.

Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.

(a) Exercise of Rights.--The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.

(b) Management of Mortgage-Related Assets.--The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.

(c) Sale of Mortgage-Related Assets.--The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.

(d) Application of Sunset to Mortgage-Related Assets.--The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time

Sec. 7. Funding.

For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Sec. 9. Termination of Authority.

The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.

Sec. 10. Increase in Statutory Limit on the Public Debt.

Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.

Sec. 11. Credit Reform.

The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.

Sec. 12. Definitions.

For purposes of this section, the following definitions shall apply:

(1) Mortgage-Related Assets.--The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.

(2) Secretary.--The term “Secretary” means the Secretary of the Treasury.

(3) United States.--The term “United States” means the States, territories, and possessions of the United States and the District of Columbia.

John McCain Says American Couch Potatoes Eat at McDonalds Because of... Political Correctness?

Wow. He really is the stupidest man alive: The final important principle of reform is to rediscover our sense of personal responsibility to take better care of ourselves and our children.... Parents who don’t impart to their children a sense of personal responsibility for their health, nutrition, and exercise--vital quality-of-life information that political correctness has expelled from our schools--have failed their responsibility. Also, parents have to share in the responsibility to ensure that their children are covered by health insurance if, as is often the case, options are already available to them.... The “solution,” my friends... resides... with well-informed American families making practical decisions to address their imperatives for better health and more secure prosperity.... [W]e have always trusted in ourselves to meet any challenge that required only our ingenuity and industry to surmount. Any “solution” that robs us of that essential sense of ourselves is a cure far worse than the affliction it is meant to treat.

If I were a yellow-dog Republican this would make me an Obama supporter. There are some things just too stupid to be borne.

John McCain Is Simply Not Qualified

Menzie Chinn agrees with me that John McCain and his advisors are simply bats--- insane:

Econbrowser: Some Observations on the Ongoing Crisis: Causes and Opportunity Cost Again: what is the source of the crisis? Is it as is asserted here in this statement from John McCain today?

There are certainly plenty of places to point fingers, and it may be hard to pinpoint the original event that set it all in motion. But let me give you an educated guess. The financial crisis we're living through today started with the corruption and manipulation of our home mortgage system. At the center of the problem were the lobbyists, politicians, and bureaucrats who succeeded in persuading Congress and the administration to ignore the festering problems at Fannie Mae and Freddie Mac.

These quasi-public corporations lead our housing system down a path where quick profit was placed before sound finance. They institutionalized a system that rewarded forcing mortgages on people who couldn't afford them, while turning around and selling those bad mortgages to the banks that are now going bankrupt. Using money and influence, they prevented reforms that would have curbed their power and limited their ability to damage our economy. And now, as ever, the American taxpayers are left to pay the price for Washington's failure...

I certainly concur with the first sentence. But I do wonder about the assertion that the problem started with and is fundamentally driven by Fannie Mae and Freddie Mac. After all, neither of these two institutions were at the heart of the massive surge in subprime mortgages that are the most toxic component of these asset backed securities. Smarter people than me (Justin Fox, Tanta at CR h/t Mark Thoma) have been similarly dubious. Moreover, the originating entities for these subprime mortgages were not Fannie Mae and Freddie Mac, by large, but rather the banks that the Federal government refused to let state agencies regulate. Or the ones the Treasury's OTS itself failed to regulate. To refresh memories, consider this article from December 18, 2007 NYT:

WASHINGTON-- Until the boom in subprime mortgages turned into a national nightmare this summer, the few people who tried to warn federal banking officials might as well have been talking to themselves. Edward M. Gramlich, a Federal Reserve governor who died in September, warned nearly seven years ago that a fast-growing new breed of lenders was luring many people into risky mortgages they could not afford. But when Mr. Gramlich privately urged Fed examiners to investigate mortgage lenders affiliated with national banks, he was rebuffed by Alan Greenspan, the Fed chairman....

The Fed was hardly alone in not pressing to clean up the mortgage industry. When states like Georgia and North Carolina started to pass tougher laws against abusive lending practices, the Office of the Comptroller of the Currency successfully prohibited them from investigating local subsidiaries of nationally chartered banks...

And for some more concrete examples of how deregulatory zeal had an effect, consider this account from the WSJ (March 22, 2007):

Regulators appointed by President Bush often have been more sympathetic to industry concerns about red tape than their Clinton administration predecessors. When James Gilleran, a former California banker and bank supervisor, took over the OTS in December 2001, he became known for his deregulatory zeal. At one press event in 2003, several bank regulators held gardening shears to represent their commitment to cut red tape for the industry. Mr. Gilleran brought a chain saw.

He also early on announced plans to slash expenses to resolve the agency's deficit; 20% of its work force eventually left. When he left in 2005, Mr. Gilleran declared that the OTS had "exercised increased diligence in its review of abusive consumer practices" while reducing thrifts' regulatory burden. But his successor, Mr. Reich, a former community banker, has reversed many of Mr. Gilleran's cuts. Citing "understaffing," he hired 80 examiners last year and plans to add 40 more this year. A spokeswoman for Mr. Gilleran, now chief executive of the Federal Home Loan Bank of Seattle, said he wasn't available to comment.

So, from my perspective, locating the source of the current crisis in corruption/influence peddling surrounding Fannie and Freddie exhibits a misreading of recent history.

John McCain: dishonest, dishonorable, ignorant, incurious, and not underbriefed but misbriefed.

John McCain Is Dishonorable and Dishonest

Outsourced to Jeff Weintraub:

Jeff Weintraub: The lost honor of John McCain: Well, now it's clear. McCain and his campaign decided that the only way they could win the general election was to run a dishonest, dirty, and cynically unscrupulous campaign. So that's what we're going to get.

On the one hand, shamelessly repeated lies by and about Sarah Palin. (It's bad enough that McCain was irresponsible enough to pick her as a running-mate in the first place.) On the other hand, pervasive lying about Barack Obama--not just systematic misrepresentations of Obama's position on important policy questions (ho-hum, right?), but sleazy character assassination and noisy fake outrage.

Right now, for example, much of the Republican world is in a paroxysm of artificial indignation about the transparently ludicrous charge that Obama called Sarah Palin a pig. And the McCain campaign just released a truly disgusting ad falsely claiming that Obama, as a State Senator in Illinois, sponsored a bill mandating "comprehensive sex education" for kindergartners. This is not even a subtle or sophisticated smear. It's just straight gutter politics.... [W]hen John McCain unexpectedly won the Republican nomination, promising to run a substantive and "respectful" general election campaign, it looked possible that the Republicans might actually stay out of the gutter this time around. Apparently not. Well, it might work.

Some people I know will accuse me of being naive for saying this, but I feel genuinely disappointed with John McCain for taking this road...

JoChild Issues All of Us a Warning

Check your skin, regularly, and check your presidential candidates' medical records, completely:

Group News Blog: John McCain: When I moved to San Francisco in 1978, within a week I met... Dusty.... At age 40, she gave up waiting for the perfect partner to come along and arranged to get pregnant on her own. Eventually she had Tom, a beautiful little boy who gave her life all its meaning from that point on. When Tom was four, I went back for a visit and stayed with them for a week. After he went to bed the first night, she said "I want to show you something." She pulled up her pants cuff and pointed out a faint spot on her ankle. She said "This didn't used to be here. I'm worried it's cancer."

I am not a doctor and have no medical training, but at that time I worked in a major cancer clinic and I saw skin cancer daily. I bent over her ankle, peered at the spot and said "I dunno. I think it's probably some kind of freckle, but you should have it checked out by somebody who's competent, not me." She said she planned to -- she was in the medical field, and responsible. Her own mother had died of cancer when Dusty was five, and it had been a loss she'd never quite overcome.... Not long after I returned to Texas, Dusty called me and said it was melanoma.... She was dead within the year....

Last week, when I got the letter from Robert Greenwald talking about John McCain's refusal to release his medical records to fair scrutiny, the fact that there are 1,000 pages of them (I create medical records for a living, 1,000 pages is EXTREME), and the news that he has had malignant melanoma, deep primaries with removal of lymph nodes, my immediate thought was "Then he's dying." If he were to be elected, he'd have an almost 2 out of 3 chance of having a recurrence if he doesn't have one already. This is not the kind of cancer you count on escaping from. This is not Stage II, as it has been reported: Stage II by definition does not have lymph node involvement. By definition, it must be either Stage III or Stage IV.

When I worked in the cancer clinic, my favorite doctor there, Dr. S., the one I went to when I got my own cancer diagnosis, was known for being extremely blunt.... He ate lunch with us whenever he could, and one day he explained why he didn't offer people language they could use to deny the seriousness of their condition. (Because of the nature of our practice there, half the patients coming through the doors were likely to die -- we didn't get the easy cases.) He said "If I care about them, and I do, it's not kind to let them die without preparing for it. Folks need to talk with their families, talk with God, settle their affairs, and get ready. I give them what I'd want someone to give me." As he was in all other respects a deeply kind and generous man, I knew he meant it. And if I ever need oncological care, he will be my first choice....

[I]n Matt Stoller's column yesterday he tells of having visited his own dermatologist and asking for a reality check on McCain's malignant melanoma issue: He was told "It's bad. Real bad. And unlike most cancers, it doesn't really go away, even after years in remission." John McCain is, in effect, applying for the job of the most powerful position on the planet. Whether or not he is going to die in office, or have a cancer remission (the treatment for which will render him utterly unable to perform his job duties), is a critical question that must be answered BEFORE we "hire" him.... As Kathy Geier points out.... "For years, releasing a candidate's complete medical records has been standard practice for major party presidential candidates. The way the McCain has dealt with the medical records issue is highly unusual, to say the least...If McCain's medical history was entirely reassuring and he really were in excellent health, I doubt that the campaign would have dealt with his records the way they did. The campaign knows that voters have serious concerns about this issue, and if the medical records really were unproblematic, they wouldn't hesitate to release the whole enchilada to any reporter who asked, with no conditions and no strings attached."

If he is in fact a Dead Man Walking, then the choice of Sarah Palin as Vice President also becomes more than a Hail Mary pass intended to destroy any bounce from the wildly successful Democratic Convention. It becomes reckless in the extreme....

Demand access to the medical records NOW. Or insist that we treat their refusal as proof of the answer they dare not give.