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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.

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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.

Study: Toxic PBDEs Are 10 Times Higher in California

| Fri Oct. 3, 2008 9:44 PM EDT

A team of researchers led by the Silent Spring Institute in Newton, Mass. just published a study in the journal Environmental Science & Technology that shows that the levels of PBDEs—fire-retardant chemicals used in furniture, bedding, and other household items—are ten times higher in California households than in other areas of the country. Just as worrying, the study shows that California residents have twice the amount of PBDEs in their bloodstream than do people living elsewhere.

Why? The LA Times speculates that the high levels of PBDEs could be attributed to a law California passed 30 years ago requiring furniture and bedding to contain enough of the chemicals so that the items could resist ignition for 12 seconds if held to an open flame.

Writes the Times:

The research team, which also included scientists from UC Berkeley, Brown University in Rhode Island and Communities for a Better Environment, a California environmental activist group, collected samples from 49 homes in the San Francisco Bay Area cities of Richmond and Bolinas and 120 homes on Cape Cod and compared levels in those homes with published levels from Canada, Europe and several U.S. cities.

Levels in California homes were 10 times higher than those on Cape Cod, five times higher than those in Texas, six times higher than those in Washington, D.C., four times higher than those in Boston and 200 times higher than those in Europe, where the chemicals are used sparingly.

Perhaps it's time to ditch your chemical mattress?

—Katie Flynn

Economy Screws Climate

| Fri Oct. 3, 2008 9:26 PM EDT

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Economic turmoil on its latest grandest scale is already threatening Europe's climate protection policies. Automakers today urged EU authorities today to reconsider proposed limits on CO2 emissions. Their argument: the current financial crisis makes it too hard to meet them, reports New Scientist.

Cynical-mini-me says why not make the car-makers adhere to tighter CO2 emissions and then give them a bail-out? You know, the tried and true method.

The European Commission is also proposing to auction CO2 emissions permits by 2013. But now Poland, Greece, Hungary, Slovakia, Romania, and Bulgaria are assembling a blocking minority to stall that climate package. They argue their power plants don't have enough cash to compete with giants like Germany on the free-market auctions.

Well, no one's got cash now. Maybe not even by 2013. Too bad we didn't seriously tackle this environmental regime change when the global economy was fat and happy. The ranks of the whiners just got bigger and louder and harder to budge. All while the environmental meltdown that no one's paying attention to until it gobbles us up is coming our way too.

Julia Whitty is Mother Jones' environmental correspondent, lecturer, and 2008 winner of the Kiriyama Prize and the John Burroughs Medal Award.

MoJo Audio: Linguist Robin Lakoff Analyzes Sarah Palin's Accent

| Fri Oct. 3, 2008 9:11 PM EDT

Last night after the veep debate, my friends and I couldn't stop doing the Sarah Palin accent. But is she the only candidate on the campaign trail who sounds like where she comes from? And does she do it on purpose? I called on Robin Lakoff, a professor of sociolinguistics at the University of California, Berkeley, for some straight talk about the speech patterns of Sarah Palin, Joe Biden, John McCain, and Barack Obama.

In this podcast, Lakoff explains how Obama and McCain's speech have evolved since we talked last year during primary season—and why there's more to Palin's speech than her Wasilla ways.

Visiting "Foreclosure Alley"

| Fri Oct. 3, 2008 6:28 PM EDT

If you've got 10 free minutes and a strong stomach, watch this report on a community destroyed by foreclosures. There's video of deserted houses, still filled with TVs, computers, photographs, and other belongings, and an interview with a man who lives on a cul-de-sac of empty homes. He's literally the only one left. Pretty heartbreaking stuff.

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Can a Palin Art Trope Be Far Behind?

| Fri Oct. 3, 2008 6:03 PM EDT

mojo-photo-goldkatemoss.jpgIs this, finally, the last sign of the impending apocalypse? Or are things going to get even worse? Artist Mark Quinn has immortalized model Kate Moss in actual 18-carat gold in a sculpture on display at the British Museum in London. No, it's not solid gold, but weighs "about as much as the supermodel herself," which means it's worth around 2.5 million bucks, even melted down. Elevating the low and immortalizing the ephemeral are of course standard tropes in art (and even on the Riff!) but it sure seems like pushing the insanity envelope has really taken off in sculpture lately. Here are some of the more jaw-dropping recent three-dimensional examples of why our culture is in a hedonistic free-fall. Needless to say, many of these links will not be safe for work.

Sarah Palin: Not a Charitable Conservative?

| Fri Oct. 3, 2008 4:58 PM EDT

On Friday afternoon, the McCain-Palin camp released the last two years of Sarah Palin's taxes. (Only the last two?) The campaign's summary notes that Sarah and Todd Palin had a gross income of $166,080 in 2007, her first year as governor. The couple donated $2500 to charity that year and also made "non-cash" donations of $825. This represented 1.5 percent of their adjusted gross income.

The average American donates about 3.1 percent of his or her income to charity. Many churches recommend tithing 10 percent.

Study: Chocolate and Alcohol Are Bad for Your Planet

| Fri Oct. 3, 2008 4:53 PM EDT

You may already know how food manufacture contributes to global warming—it's had its fair share of coverage lately, though the actual numbers have varied. In 2007, climate change experts pegged agriculture as producing 10 to 12 percent of global emissions. A Greenpeace study bumps this number up to 17 to 32 percent when you factor in land-use changes such as deforestation and overgrazing.

But a four-year UK study recently released by the Food Climate Research Network is likely to be the most comprehensive research so far. Pegging 19 percent of the UK's greenhouse gas emissions as food-related—with meat and dairy contributing half of those—the report serves up more than the usual recommendations to shop locally and walk to the store.

Among the options? Eliminating "unnecessary" foods with little nutritional value like alcohol, which it says contributes 1.5 percent of emissions from food, and chocolate. According to Cadbury, notes the report, the milk in a chocolate bar is the source of 60 percent of the bar's greenhouse gas emissions (no word on whether dark chocolate-lovers are more eco-friendly).

Other personal change recommendations include: using microwaves more often, covering cooking pots for efficiency, shopping on the Internet, and accepting "different notions of quality"—presumably eating bruised peaches.

The UK report also states that by 2050 we'll all need to eat similar to developing countries today: A four-ounce portion (or two sausages) of meat every other day, four cups of milk per week, max, and no cheese. (Currently, the average Brit consumes more than three times that, or the equivalent of two chicken breasts, four ham sandwiches, six sausages, eight pieces of bacon, three hamburgers, 12.5 cups of milk, and three and a half ounces of cheese each week.)

But what do the meat and dairy associations have to say about this? Not surprisingly, the National Farmers' Union in England calls the proposals "simplistic". Chocolate lovers have yet to weigh in.

—Brittney Andres

If I Were an Obama Strategist, Here's How I'd Spend the Next Month

| Fri Oct. 3, 2008 4:51 PM EDT

Aside from even one word about poverty, minorities, or the underclass in last night's VP debate, I was most waiting to hear Sarah Palin questioned about her "maverick" boss's role in making sure that America neither knew, nor cared, about the fate of its Viet Nam era POWs. If there's ever a better time to delve into exactly how the "party of patriotism" feels about inconvenient soldiers (they were slowing up the peace process), I hope I don't live to see it.

Like most Americans, I existed in a pre-war, pre-Gitmo state of annoyed disbelief whenever some bug-eyed Pinko insisted we'd left soldiers behind when we left Viet Nam. This is America: we don't, we'd never, do such a thing. But since we started extraordinarily rendering folks to places like Egypt and Syria so they could be tortured, since we continue a war aimed largely at enriching companies like KBR and Halliburton, when it's clear that Wall Street will be allowed to do absolutely anything it likes to Main Street (let alone MLK Blvd, as SNL so aptly put it) I no longer roll my eyes when presented with such evidence. Instead, I have to fight bitter tears when my kindergartener comes home proudly reciting the Pledge of Allegiance she's just learned. "With truth and justice for all?" Gets me every time. It makes me so angry and ashamed, I have to look away as I hypocritically applaud her recitation of those increasingly hollow words.