Blogs

Paulson Faces Skepticism From Senate Banking Committee

| Tue Sep. 23, 2008 3:10 PM EDT

Treasury Secretary Hank Paulson faced a tough crowd Monday in the Senate. Appearing before the Senate Banking Committee with Federal Reserve Chairman Ben Bernanke, Paulson withstood criticism from Senators on both sides of the aisle who were almost universally skeptical of his bailout plan and the short timeframe in which he wants to see it passed.

Senator Elizabeth Dole (R-N.C.) said that Paulson's three-page plan, which asks for $700 billion to buy distressed assets from failed banks but contains no provisions for oversight and demands little in return from financial institutions receiving aid, was "hastily concocted." Senator Daniel Akaka (D-Hawaii) said Congress "must not give Treasury a blank check." Echoing senators from both parties, he said, "we must do more to keep people in their homes."

The suspicion surrounding Paulson's plan was bipartisan. While everyone agreed that a bailout was necessary, senators from both parties asked Paulson and Bernanke why Congress was being asked to "rush into" a bailout. Senator Jon Tester (D-Mont.) demanded to know why Congress had just a week to allocate $700 billion dollars or face financial Armageddon. Who was supposed to see this coming? he asked. And why didn't they?

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Lehman and the Bailout

| Tue Sep. 23, 2008 2:47 PM EDT

LEHMAN AND THE BAILOUT....Was last week's financial crisis caused by the Fed's decision to allow Lehman Brothers to go into bankruptcy? I'm not sure, but here's the basic argument in favor of this scenario:

  1. Monday: Fed allows Lehman to go bankrupt.

  2. Tuesday: Reserve Prime, a money market fund with exposure to Lehman securities, announces that it has "broken the buck." Money market funds are supposed to be the safest places possible to park your cash outside of T-bills, so this causes a panic.

  3. Wednesday: Depositers start making large-scale withdrawals from other money market funds. Banks need to service these withdrawals, so they begin hoarding cash and calling in their short-term loans (excess reserves held by banks increased last week from a normal $2 billion to nearly $200 billion). Every bank is doing the same thing, so no money is available for normal interbank loans. LIBOR skyrockets.

  4. Later Wednesday: with everyone hoarding cash, the credit markets seize up completely. The commercial paper market, which funds actual operations of actual companies, is close to death. The entire financial system is near collapse.

  5. Thursday: Bernanke and Paulson announce their bailout plan. This reduces the panic that banks will go bust and thereby frees up the credit markets a bit.

More details here. If I understand everything correctly, Bernanke and Paulson basically took a look at what happened after they allowed Lehman to collapse and decided it couldn't happen again. Hence the bailout.

Mission Creep Dispatch: John Nagl

| Tue Sep. 23, 2008 2:13 PM EDT

nagl.jpgAs part of our special investigation "Mission Creep: US Military Presence Worldwide," we asked a host of military thinkers to contribute their two cents on topics relating to global Pentagon strategy. (You can access the archive here.)

The following dispatch comes from John Nagl, a retired military officer and author of Learning to Eat Soup With a Knife: Counterinsurgency Lessons From Malaya and Vietnam. Nagl is a senior fellow at the Center for a New American Security.

How the US Can Win in Afghanistan; Lessons from Iraq

Afghanistan is not just the base from which Al Qaeda attacked the United States on 9/11; it is also the key to stability in Pakistan, which is the only Islamic country known to possess nuclear weapons. The security of those weapons and the stability of Pakistan would be vital American national interests even if Osama bin Laden and his associates were not hiding in the lawless Afghan-Pakistan border region and plotting their next attack.

Lilly Ledbetter: Obama's Newest Ad Star

| Tue Sep. 23, 2008 1:44 PM EDT

At some point, the Goodyear Tire company is going to wish it had simply paid Lilly Ledbetter like a man. Instead, the company managed to turn the Alabama grandmother into the Democrats' poster child for the evils of a GOP-dominated Supreme Court and a powerful critic of John McCain. Last year, the court ruled against Ledbetter in a case she filed against Goodyear for paying her 40 percent less than men in similar jobs. The decision rolled back years of precedent and made it much harder for women to challenge pay discrimination in court. Members of Congress introduced legislation named after Ledbetter to remedy the problem, then failed to pass it. A star was born.

Ledbetter gave a rousing speech at the Democratic convention, and this week, she makes her debut in a series of Obama campaign ads blasting John McCain for opposing pay discrimination laws. Ledbetter is Obama's answer to Carly Fiorina and Meg Whitman: a white, working-class woman who played by the rules and got screwed by GOP policies and judges on every level. In the Obama ad, she quotes John McCain dismissing the gender pay-gap by saying that women just need "more training and education." After noting that she had the same education and training as the men who made more than her at Goodyear, Ledbetter quips: "On the economy, it's John McCain who needs an education."

Ledbetter's story polls so well that the advocacy group People for the American way is also using her case in ads targeting seven Republican senators up for reelection, including New Hampshire's John Sununu and Minnesota's Norm Coleman, who voted to confirm Bush nominees John Roberts and Samuel Alito. PFAW is only one of a number of liberal groups hoping to make the future of the Supreme Court a major campaign issue. (The next president is likely to appoint anywhere from one to three new justices.) Today in a conference call, PFAW president Kathryn Kolbert noted that the Obama ads may be the first time that a Supreme Court case has been turned into a significant presidential campaign issue (aside from Roe, of course).

The Press Fights Back....A Little

| Tue Sep. 23, 2008 1:31 PM EDT

THE PRESS FIGHTS BACK....A LITTLE....Via Sullivan, the latest from the Sarah Palin wonderland is her visit to the UN. The purpose of the visit is to, um, expand her already substantial experience in foreign affairs, and the McCain campaign wanted all the networks to cover it, of course. But they didn't want anyone asking Palin any questions. And then they decided they didn't even want reporters present, even if they kept silent. Just a camera, so that Palin's smiling face would show up on the network news deep in discussion with important foreign leaders.

But what do you know? Apparently the networks actually balked at being used quite so baldly. So the McCain campaign backed down and is now allowing one (1) CNN producer in the room along with the camera operator. But still no questions, I gather. Wouldn't want to put Palin under too much pressure, after all.

A Democratic Pushback on the $700 Billion Bailout?

| Tue Sep. 23, 2008 1:20 PM EDT

A Democratic pushback to the $700 billion Wall Street bailout plan proposed by the Bush administration is underway. At a Senate banking committee hearing on Monday morning, Senator Jon Tester, a Democrat and self-described "dirt farmer" from Montana, asked Treasury Secretary Hank Paulson and Federal Reserve chief Ben Bernanke why members of Congress only had one week to determine whether to spend $700 billion or watch the financial system "go down the pipes?" In other words, why the rush? Bernanke said the bailout was necessary to prevent a shutdown in credit that would lead to more unemployment, more foreclosures, and an economic contraction. "Lenders have to be able to lend," Paulson remarked.

But there are a lot of details in the plan to review and consider. And while the hearing was going on, over on the House side, a group of progressive- and populist-minded Democrats were trying to start a quasi-rebellion. On Monday afternoon, Representative Brad Sherman of California, who serves on the financial services committee, convened a meeting with eight other Democrats, and the group on Tuesday morning released a letter to House Speaker Nancy Pelosi questioning whether the Paulson plan has to be approved by week's end and demanding at least eleven major changes in the proposal.

Here's that letter:

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Obama and Ayers

| Tue Sep. 23, 2008 1:19 PM EDT

OBAMA AND AYERS....Stanley Kurtz has been working diligently for weeks in an attempt to prove that Barack Obama has hidden sympathies for pot-smoking-bank-bombing-60s-era domestic terrorism in the form of close (but well hidden!) ties to former Weatherman Bill Ayers. His operational strategy was to comb through the records of the Chicago Annenberg Challenge, a mid-90s educational experiment sponsored by Ronald Reagan's friend Walter Annenberg, to check for damning evidence that Ayers (who founded CAC) had a serious relationship with Obama (who was chairman of the board of directors, which did fundraising for CAC). I had sort of lost track of how this project was coming along, but apparently he finished up his labors and produced.....a mouse. Jason Zengerle summarizes:

So Kurtz spends days wading through 70 linear feet of material, suffers lord knows how many paper cuts, and the best he can come up with is that Ayers was part of a five-person "working group" that signed off on Obama joining CAC's board? That's pretty weak.

Better luck next time, Stanley.

In Dealing with the $700 Billion Bailout, Dems Ought To Point Fingers

| Tue Sep. 23, 2008 12:24 PM EDT

I am often reluctant to give advice to members of Congress. But in this case, it was hard to resist. Here's a posting initially put up elsewhere....

In reaction to the financial crisis, here's what the Democrats who control Congress ought to do:

1. Work vigorously on the bailout proposal submitted by Treasury Secretary Hank Paulson but add the populist provisions that Robert Reich and others are suggesting.

2. Point fingers.

Assigning blame ought to be a key component of the Democratic response to the current meltdown. And that ought not be hard to do. House Speaker Nancy Pelosi and Senator Harry Reid could set up a joint select committee to investigate the causes of the financial crisis. This committee then could start holding hearings immediately and haul before it the heads of the companies that have screwed up and imperiled the economy. This will not be a short list. Call in top officials from Lehman Brothers, Merrill Lynch, AIG, Bear Stearns, Countrywide Financial, Fannie Mae, Freddie Mac. Demand explanations from them. Explore how much money they pocketed personally while overseeing their institutions.

That's just a start. The committee should bring in experts who can explain (clearly!) how these players and others abused credit default swaps, subprime loans, mortgage-backed securities, and other hanky-panky financial products.

Wow. Here's a Very Bad Way to Handle the Financial Crisis

| Tue Sep. 23, 2008 12:09 PM EDT

A CEO in India has been beaten to death by a mob of fired workers. Yikes.

Pakistan Update

| Tue Sep. 23, 2008 12:09 PM EDT

PAKISTAN UPDATE....Just in case the imminent collapse of the American financial system doesn't have you quite worried enough, here's a report from the LA Times about the imminent collapse of Pakistan:

More than any other terrorist attack in this volatile country, the devastating truck bombing of the Marriott Hotel over the weekend has presented government and military leaders here with a stark choice: Go all out against extremists or risk the nation's collapse into chaos.

That is the growing consensus among many Pakistani analysts and commentators, who fear that without rapid, determined and ironfisted action by officials and security forces, this nuclear-armed land is in danger of becoming a failed state, with Islamic radicals in control.

....The descent into violence and fear here has been sharp.

In a country where suicide bombings were relatively rare five years ago, more than 300 people have been killed in such attacks this year. What seemed at first to be a threat confined to the nation's fringes, in the rugged and uncontrollable border and tribal areas, has now penetrated urban centers, including the very heart of this leafy, broad-avenued capital.

As usual, the real state of play is pretty murky. But murky in a bad way, not a good one.

In the meantime, it appears that the Pakistani military didn't open fire on a U.S. helicopter that didn't fly into Pakistani airspace. That's the story, anyway.