2008 - %3, October

Wildlife Preservation: A Cheney Tale

| Mon Oct. 6, 2008 9:57 AM EDT

bald_eagle_american_flag.jpg Yesterday, Vice President Dick Cheney spoke at the White House Conference on North American Wildlife Policy. In a statement that may surprise you and a number of environmental groups, Cheney said, "President Bush made wildlife conservation an early and a high priority of his administration. We've carried out that commitment in these eight years."

There's reason to question whether wildlife conservation is really a high priority in the Bush Administration. It's refusal to act on global warming for years, despite the fact that the changing climate threatens wildlife habitats, throws its commitment into doubt. The same goes for the Administration's plan to gut the Endangered Species Act, its refusal to address upcoming mass extinctions, and its willingness to let jeep enthusiasts run roughshod over the West's wide open spaces. The League of Conservation Voters says, "The Bush administration has arguably been the most anti-environmental in our nation's history."

I have another reason to doubt Cheney's commitment in particular.

Advertise on MotherJones.com

Reregulation

| Mon Oct. 6, 2008 2:18 AM EDT

REREGULATION....Sebastian Mallaby argues today that, contrary to Barack Obama's claims, deregulation isn't to blame for the credit crisis:

The key financiers in this game were not the mortgage lenders, the ratings agencies or the investment banks that created those now infamous mortgage securities. In different ways, these players were all peddling financial snake oil, but as Columbia University's Charles Calomiris observes, there will always be snake-oil salesmen. Rather, the key financiers were the ones who bought the toxic mortgage products. If they hadn't been willing to buy snake oil, nobody would have been peddling it.

Who were the purchasers? They were by no means unregulated. U.S. investment banks, regulated by the Securities and Exchange Commission, bought piles of toxic waste. U.S. commercial banks, regulated by several agencies, including the Fed, also devoured large quantities. European banks, which faced a different and supposedly more up-to-date supervisory scheme, turn out to have been just as rash. By contrast, lightly regulated hedge funds resisted buying toxic waste for the most part — though they are now vulnerable to the broader credit crunch because they operate with borrowed money.

At a minimum, I'd make a couple of counterpoints. First, Phil Gramm's 2000 Commodity Futures Modernization Act (supported, unfortunately, by the Clinton administration) was specifically designed to "protect financial institutions from overregulation" — primarily by leaving the market for credit default swaps completely unregulated. There may be several underlying causes for the credit crisis, but this is surely one of the very big ones.

Second, after the LTCM debacle of 1998, Alan Greenspan (and, sigh, Robert Rubin) produced a report suggesting that we should "encourage," "promote," and "consider" guidelines that might prod financial institutions into reducing their drunken sailor approach to leverage. But they declined to produce actual regulations to that effect. In fact, as I noted the other day, in 2004 the SEC issued a rule allowing big investment banks to increase their allowable leverage ratios. That turned out not to be such a good idea.

Third, there was a bipartisan failure to regulate the mortgage market into a semblance of rationality. Just the opposite, in fact, as lawmakers pressed Fannie Mae to insure ever dodgier loans and Alan Greenspan encouraged Americans to take advantage of ever cheaper mortgage rates. A little bit of commonsense rulemaking could have gone a long way in the mortgage market a few years ago.

Mallaby is right that deregulation isn't solely at fault for the credit crisis. But it's hardly an innocent bystander either. A little bit of market skepticism over the past decade would have done everyone a world of good (literally), and once we catch our breath from the current meltdown it's time to think about how to rebalance our attitude toward financial regulation. It's an area where Democrats have been barely any better than Republicans, and one that Barack Obama is right to give serious attention to.

A McCain Flip-Flop on Osama bin Laden?

| Sun Oct. 5, 2008 11:38 PM EDT

On August 7, 1998, hundreds of people were killed when terrorists detonated car bombs at the U.S. embassies in Tanzania and Kenya. Almost immediately, the United States had evidence that a little-known group called al Qaeda was complicit in the attacks. Though al Qaeda and Osama bin Laden had been plotting against the United States for years, this act of mass-murder won the band of Islamic terrorists and its leaders worldwide infamy. Weeks after the attack, President Clinton fired scores of Tomahawk missiles at a suspected al Qaeda training camp in Afghanistan, and he also attacked a pharmaceutical factory in Sudan his administration claimed was a chemical weapons plant.

Ten years later, this past August 7, John McCain released a statement on the anniversary of the embassy bombings. It was a harsh indictment of the Clinton administration and others who in McCain's estimation had not regarded the threat of al Qaeda with sufficient seriousness back then:

Today marks the 10th anniversary of the al Qaeda terrorist attacks on U.S. embassies in Kenya and Tanzania that killed more than 225 people, including 12 Americans, and injured thousands others. The attacks made it painfully clear that al Qaeda's terrorist call to arms to attack Americans anywhere in the world was not an empty threat. The attacks proved the vulnerability of U.S. installations overseas, and demonstrated -- to any that needed further evidence -- that al Qaeda was a well-funded, organized and treacherous terrorist organization determined to kill Americans. Tragically, the U.S. response to the 1998 embassy bombings was wholly inadequate in addressing the threat posed by Al Qaeda despite the horrific toll of the embassy bombings in Kenya and Tanzania. Too many Clinton Administration officials refused to act effectively to counter the dangers posed by al Qaeda. Three years later, al Qaeda's commitment to kill was devastatingly brought to our soil.

But at the time--even after the embassy bombings--McCain, too, was slow to recognize the nature of the threat posed by al Qaeda and bin Laden. Weeks after these attacks, he even came across as dismissive of bin Laden as a danger and showed no enthusiasm for hunting down this terrorist and his al Qaeda allies. And he did so in a Mother Jones interview.

In mid-September 1998, journalist Jason Vest, on assignment for the magazine, conducted an hour-long interview with McCain. At the time, McCain's efforts to pass campaign finance reform and anti-tobacco legislation had made him, as Vest put it, "the darling of political reporters." Much of the interview covered issues of money and politics. But with the embassy bombings still in the news, Vest asked McCain about bin Laden and how to deal with terrorism. The following exchange ensued:

LA vs. Philadelphia

| Sun Oct. 5, 2008 7:42 PM EDT

LA vs. PHILADELPHIA....The Dodgers won their divisional series last night. The Phillies won theirs this afternoon. I hereby declare war on Atrios.

Quote of the Day - 10.05.08

| Sun Oct. 5, 2008 2:27 PM EDT

QUOTE OF THE DAY....From George W. Bush, dressing down an advisor who suggested that his 2001 tax rebate plan was bad policy:

"If I decide to do it, by definition it's good policy."

That's from Ron Suskind. Click the link for more.

Iceland's Collapse

| Sun Oct. 5, 2008 2:06 PM EDT

ICELAND'S COLLAPSE....You think there's a banking crisis in the United States? Just be glad you don't live in Scandinavia's smallest country:

Iceland is on the brink of collapse. Inflation and interest rates are raging upwards. The krona, Iceland's currency, is in freefall and is rated just above those of Zimbabwe and Turkmenistan. One of the country's three independent banks has been nationalised, another is asking customers for money, and the discredited government and officials from the central bank have been huddled behind closed doors for three days with still no sign of a plan.

....On Friday the queues at the banks were huge, as people moved savings into the most secure accounts. Yesterday people were buying up supplies of olive oil and pasta after a supermarket spokesman announced on Friday night that they had no means of paying the foreign currency advances needed to import more foodstuffs.

I have to say, though, that the citizens of Iceland seem to be taking their travails remarkably cheerfully. "We will have to eat haddock and Icelandic lamb and forget these imports of goose livers and Japanese soy sauce," says Iceland's most famous chef. And drink more liquor. Lots more liquor.

Advertise on MotherJones.com

Springsteen Does an Obama for Obama

| Sat Oct. 4, 2008 11:40 PM EDT

Throughout convention week in Denver in August, the word swirled that Bruce Springsteen would appear the final night. It did not happen. And for Democrats, that was a good thing. Barack Obama--accused by foes of being too glamorous--did not need a rock star on the set on his big night (though Sheryl Crow and Stevie Wonder did appear early in the evening). But Springsteen is indeed doing what he can.

On Saturday, Springsteen appeared at an Obama voter registration rally in Philadelphia. Tens of thousands of people were there. He performed a thirty-minute acoustic set. But he also speechified. And he practically outdid Obama in political eloquence:

I am glad to be here today for this voter registration drive and for Barack Obama, the next President of the United States. I've spent 35 years writing about America, its people, and the meaning of the American Promise. The Promise that was handed down to us, right here in this city from our founding fathers, with one instruction: Do your best to make these things real. Opportunity, equality, social and economic justice, a fair shake for all of our citizens, the American idea, as a positive influence, around the world for a more just and peaceful existence. These are the things that give our lives hope, shape, and meaning. They are the ties that bind us together and give us faith in our contract with one another.
I've spent most of my creative life measuring the distance between that American promise and American reality. For many Americans, who are today losing their jobs, their homes, seeing their retirement funds disappear, who have no healthcare, or who have been abandoned in our inner cities. The distance between that promise and that reality has never been greater or more painful.

It's October!

| Sat Oct. 4, 2008 7:49 PM EDT

IT'S OCTOBER!....The Washington Post has this year's least surprising story:

Sen. John McCain and his Republican allies are readying a newly aggressive assault on Sen. Barack Obama's character, believing that to win in November they must shift the conversation back to questions about the Democrat's judgment, honesty and personal associations, several top Republicans said.

Golly. Who could have predicted that a Republican presidential campaign would go down this road when October rolled around?

Financing Fannie

| Sat Oct. 4, 2008 3:42 PM EDT

FINANCING FANNIE....The New York Times continues "The Reckoning" today, its series of stories about the origins of the credit crisis. Today's piece about Fannie Mae makes a couple of things clear. First, Fannie wasn't in any way the cause of the crisis, it was merely following Wall Street's lead. Angelo Mozilo, the head of mortgage giant Countrywide Financial, made that clear to Fannie's CEO, Daniel Mudd, in 2004:

Mr. Mozilo, who did not return telephone calls seeking comment, told Mr. Mudd that Countrywide had other options. For example, Wall Street had recently jumped into the market for risky mortgages. Firms like Bear Stearns, Lehman Brothers and Goldman Sachs had started bundling home loans and selling them to investors — bypassing Fannie and dealing with Countrywide directly.

"You're becoming irrelevant," Mr. Mozilo told Mr. Mudd, according to two people with knowledge of the meeting who requested anonymity because the talks were confidential. In the previous year, Fannie had already lost 56 percent of its loan-reselling business to Wall Street and other competitors.

"You need us more than we need you," Mr. Mozilo said, "and if you don't take these loans, you'll find you can lose much more."

Second, this was a bipartisan screwup. Democrats and Republicans were both eager to keep the housing market bubbly:

Capitol Hill bore down on Mr. Mudd as well...."When homes are doubling in price in every six years and incomes are increasing by a mere one percent per year, Fannie's mission is of paramount importance," Senator Jack Reed, a Rhode Island Democrat, lectured Mr. Mudd at a Congressional hearing in 2006. "In fact, Fannie and Freddie can do more, a lot more."

....The White House also pitched in. James B. Lockhart, the chief regulator of Fannie and Freddie, adjusted the companies' lending standards so they could purchase as much as $40 billion in new subprime loans. Some in Congress praised the move.

"I'm not worried about Fannie and Freddie's health, I'm worried that they won't do enough to help out the economy," the chairman of the House Financial Services Committee, Barney Frank, Democrat of Massachusetts, said at the time. "That's why I've supported them all these years — so that they can help at a time like this."

The whole piece is worth reading.

Beyond Paulson

| Sat Oct. 4, 2008 3:15 PM EDT

BEYOND PAULSON....The Paulson bailout plan has several underlying theories. First, by buying up toxic securities at above market prices, it injects needed capital into troubled banks. Second, by creating a market for these securities, it will raise the value of the toxic waste held by all banks, thus raising their capital base. Third, by creating this backstop, it will encourage private sources to inject capital into banks, as Warren Buffett recently did with Goldman Sachs and GE. Since banks need capital to make loans, all of this additional capital will free up the credit markets and allow borrowers access to credit once again.

As critics have pointed out, though, this might not work. And even if it does, it isn't the most direct way of recapitalizing banks. The most direct way would be to simply inject government money into shaky banks in return for preferred shares. It's true that if all goes well, the indirect method of the Paulson plan might produce a bigger bang for the buck — but then again, it might not. So what's next?

There are several policy measures that the government probably ought to think about implementing quickly. The key to most of them is to apply them to all banks, not just banks that are in trouble. If the policies are voluntary, any bank that takes advantage of them is admitting that it's in weak shape, which in today's market is as good as signing its own death warrant. Make them mandatory and nobody is stigmatized since they're just following the rules. A few possibilities:

  • Doug Diamond and others suggest that banks be required raise more capital: "The authorities could require all regulated financial institutions, no matter how well capitalized, to present plans to raise 2% of their assets in additional capital over the next quarter to preserve the stability of the financial system. This increased capital will not represent an increase in the permanent level of required capital for bank holding companies, but instead give institutions the extra capital that will allow them to lend."

  • Sebastian Mallaby passes along a proposal to suspend dividends: "The government should tell banks to cancel all dividend payments. Banks don't do that on their own because it would signal weakness; if everyone knows the dividend has been canceled because of a government rule, the signaling issue would be removed."

  • Arnold Kling suggests temporarily reducing capital requirements for new loans: "My alternative is to encourage new lending by lowering capital requirements at the margin. Tell banks that loans issued after September 1, 2008, require half the capital of similar loans issued before September 1. Some banks are in such bad shape that even with those lower capital standards they will not be able to make new loans. Fine. You don't want those banks to grow. But other banks have room to grow, and you want them to grow more than they would under the existing regulations."

Of course, there's also the suggestion that we suspend mark-to-market rules, thus magically increasing the accounting value of bad assets and thus the capital base of the banks holding the assets. However, this seems like such a patently bad idea that I'm hesitant to add it to the list above. The rest of the ideas seem at least worth looking at, though, and can be done in addition to (and in parallel with) the Paulson plan. There's no reason to put all our eggs in one basket, after all.