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Financial Reforms

FINANCIAL REFORMS....Bob Kuttner proposes three fundamental reforms for our broken financial system:Reform One: If it Quacks Like a Bank, Regulate it Like a Bank. Barack Obama said it well in his historic speech on the financial emergency last March 27...

| Wed Sep. 17, 2008 6:21 PM EDT

FINANCIAL REFORMS....Bob Kuttner proposes three fundamental reforms for our broken financial system:

Reform One: If it Quacks Like a Bank, Regulate it Like a Bank. Barack Obama said it well in his historic speech on the financial emergency last March 27 in New York. "We need to regulate financial institutions for what they do, not what they are." Increasingly, different kinds of financial firms do the same kinds of things, and they are all capable of infusing toxic products into the nation's financial bloodstream....

Reform Two: Limit Leverage. At the very heart of the financial meltdown was extreme speculation with esoteric financial securities, using astronomical rates of leverage. Commercial banks are limited to something like 10 to one, or less, depending on their conditions. These leverage limits need to be extended to all financial players, as part of the same 2009 banking reform.

Reform Three: Police Conflicts of Interest. The conflicts of interest at the core of bond-raising agencies are only one of the conflicts that have been permitted to pervade financial markets. Bond-rating agencies should probably become public institutions. Other conflicts of interest should be made explicitly illegal.

These are guidelines, not specific reforms, but they're the right guidelines. Kuttner calls this a "Roosevelt-scale counterrevolution," and I'd only add that we also need a Roosevelt-scale reform of our basic economic priorities. An economy that relentlessly favors a tiny class of the super-rich is fundamentally unstable. Conversely, one that relentlessly favors job and wage growth is not only stable, but benefits everyone, including the rich. If we continue to have an unbalanced economy, all the financial system reforms in the world won't keep meltdowns like this from happening over and over again. It really is time for a change.

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Construction Bonds

CONSTRUCTION BONDS....Andrew Sullivan is amused by a CBS report that Sarah Palin actually answered a question from the press today, "prompting concerned looks from staffers." I can well imagine. However, I'm more perplexed by the answer itself:"Disappointed that taxpayers are...

| Wed Sep. 17, 2008 5:25 PM EDT

CONSTRUCTION BONDS....Andrew Sullivan is amused by a CBS report that Sarah Palin actually answered a question from the press today, "prompting concerned looks from staffers." I can well imagine. However, I'm more perplexed by the answer itself:

"Disappointed that taxpayers are called upon to bail out another one. Certainly AIG though with the construction bonds that they're holding and with the insurance that they are holding very, very impactful for Americans, so you know the shot that has been called by the Feds — it's understandable but very, very disappointing that taxpayers are called upon for another one."

Construction bonds? What is she talking about? Maybe performance bonds? Not that that makes any more sense. What's more, I'm pretty sure that AIG's consumer and commercial insurance business wasn't in any danger. So why focus on that? I mean, if you're only going to give the press a single sentence, why not spit out something about counterparty risk and leave their jaws hanging?

Dow Finishes Day Lower Than When Bush Took Office

The Dow Jones Industrial average just closed for the day at 10609.66, about 50 points lower it was the week...

| Wed Sep. 17, 2008 5:00 PM EDT

The Dow Jones Industrial average just closed for the day at 10609.66, about 50 points lower it was the week George W. Bush took office as president of the United States.* In seven and a half years, GOP stewardship of the economy has produced negative results in the stock market. Remember, this is the same stock market that the Bush administration (and John McCain) wanted to invest your Social Security money in. That money would have been managed, in part, by now-bankrupt Lehman Brothers and no-longer-independent Bear Sterns and Merrill Lynch.

If you invested in the stock market in 2001, betting that Republicans are better for the economy, you bet wrong. Instead, we're in the midst of what Alan Greenspan has called a "once-in-a-century" crisis. But since you're a well-informed reader of MoJo Blog (or perhaps of Kevin Drum), you already know that Democrats are better for the economy.

bushchart2.JPG

Remember, it's not just the stock market that's done poorly under Republican leadership. It's also most Americans. GOP economic policies have redistributed wealth upwards, benefiting the private-jet-and-personal-megayacht set but leaving almost everyone else, including many who would technically be considered "rich", behind. Between 2002-2006, the bottom 90 percent of Americans got 4 percent of the nation's income growth, according to figures from the Center for American Progress (PDF). (The great chart to the right is from that same report). The 15,000 richest families in America got 25 percent of the income growth, and the median household income was 0.6 percent lower in 2007 than in was in 2000. And all these figures were calculated before the turmoil of 2008 and the chaos of the past week.

Can the FDIC Weather the Financial Storm?

The federal bailout of American Insurance Group (AIG) is like putting a finger in the dike. Next to potentially require...

| Wed Sep. 17, 2008 4:01 PM EDT

The federal bailout of American Insurance Group (AIG) is like putting a finger in the dike. Next to potentially require government intervention is Washington Mutual, the nation's sixth largest bank with some $143 billion in deposits, which hangs by a thread. When—not if—it goes, the government is committed to protecting its depositors through the Federal Deposit Insurance Corporation. According to one estimate in The New York Timeson Wednesday morning, paying off Washington Mutual depositors could eat up half the FDIC's reserves, which currently stand at $45.2 billion. In August, the FDIC identified 117 banks and thrifts that could be in trouble. "A few more IndyMacs or 20 or 30 smaller collapses will wipe out [FDICs] reserves," predicts Dean Baker of the Center for Economic and Policy Research. That means the FDIC could bottom out, unless Congress steps in.

Commercial banks, already straining from the crisis, are now being encouraged by Treasury Secretary Henry Paulson, to take on crumbling Wall Street investment companies. That was the message in the Bank of America's recent takeover of Merrill Lynch. One of Washington Mutual's oft-mentioned suitors is Chase. That means that bank portfolios could become swollen with the junk bonds, lousy mortgages, and other speculative investments held by the unregulated collapsing investment banks on Wall Street. The already weakened commercial banks will find it difficult to survive with this additional load. If they fail, the FDIC's reserves are not big enough to cover the deposits of their customers.

Drudge

DRUDGE....Many years ago I had the bright idea that if you really wanted to understand everyday Americans, you ought to read the National Enquirer regularly. So I did for a few weeks ? and then gave up. It was just...

| Wed Sep. 17, 2008 3:48 PM EDT

DRUDGE....Many years ago I had the bright idea that if you really wanted to understand everyday Americans, you ought to read the National Enquirer regularly. So I did for a few weeks — and then gave up. It was just too boring.

I feel the same way about Drudge. I read him from time to time because I know that other people do, but I always drift away because there's really nothing much there. He only occasionally has exclusive news, and most of what he does have comes from sources inside MSM newsrooms and consists of a few sentences blurbing a story that shows up in its full form an hour or two later at the MSM site itself. Big deal. His roundups of basic news are no better than just reading a few front pages yourself. Sure, conservatives like him because he helped bring down the Clintons, but he hasn't done much since then. For the rest of us, it's basically kind of a boring site.

In other words, count me in Steve's camp. I mean, I get it, but I still don't get it. Why do people still read the guy? Isn't he sort of the disco of right-wing news sites?

TED Spread Update

TED SPREAD UPDATE....Our old friend the TED spread is a simple gauge of financial market jitters. (More here.) You will therefore be unsurprised to learn that, for the fourth time in the past year, it's spiking. Even at high prices,...

| Wed Sep. 17, 2008 3:18 PM EDT

TED SPREAD UPDATE....Our old friend the TED spread is a simple gauge of financial market jitters. (More here.) You will therefore be unsurprised to learn that, for the fourth time in the past year, it's spiking. Even at high prices, nobody wants to make short-term loans to banks. Can you blame them?

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Sarah Palin's Yahoo Accounts Hacked

So, you know those Yahoo accounts Sarah Palin was using to keep her official business safe from subpoenas? Turns out...

| Wed Sep. 17, 2008 2:34 PM EDT

palin-screenrab.jpgSo, you know those Yahoo accounts Sarah Palin was using to keep her official business safe from subpoenas? Turns out they're not so safe after all. Palin's Yahoo accounts (gov.palin@yahoo.com and gov.sarah@yahoo.com) were successfully hacked last night and you can see the screengrabs here. Since then, the accounts have been deleted, which could be considered destruction of evidence if a court chose to pursue it.

The evidence, at first glance, looks pretty solid that the accounts were authentic. Photos of Palin's family were pulled from e-mails, plus a "sent" e-mail to aide Amy McCorkell was confirmed by a call to McCorkell herself, reports Wired.

Who knew the GOP was so in favor of government transparency? Maybe the McCain/Palin team is a real "maverick" ticket after all.

Soothing Words for a Crisis

SOOTHING WORDS FOR A CRISIS....Pretend you are an ordinary American. I know that's hard: as a reader of an elitist coastal blog you're barely even an American at all. But pretend. You just spent a hundred bucks yesterday to fill...

| Wed Sep. 17, 2008 1:45 PM EDT

SOOTHING WORDS FOR A CRISIS....Pretend you are an ordinary American. I know that's hard: as a reader of an elitist coastal blog you're barely even an American at all. But pretend. You just spent a hundred bucks yesterday to fill up your gas tank. You didn't get a raise this year. You've got some unpaid bills you're juggling. Your neighbor across the street just got laid off. Property taxes are coming due next month. Your car is making a funny noise. You just got a memo from HR telling you that the paycheck deduction for healthcare premiums is up again and your take-home pay will be $100 lighter next week.

You turn on the TV. At the commercial break there's a two-minute ad from Barack Obama about the meltdown on Wall Street. If you actually sit through it, here's what he says he's going to do to make things better:

  • Provide a $1000 tax cut for the middle class

  • End the "anything goes" culture on Wall Street

  • Fast track a plan to end our dependence on Mideast oil

  • Crack down on lobbyists

  • End the war in Iraq

Jonathan Stein comments: "It is everything Obama has been criticized for being on the stump these past several weeks: thoughtful, measured, and post-partisan. It takes no jabs at John McCain or George W. Bush. In the last few days, though, Obama and his ads have hit harder; obviously the campaign felt the content of this ad is too serious to be presented in that style. Key question: Does it hold your attention?"

Well, ordinary American, what do you say? Does it?

Mission Creep Dispatch: Winslow Wheeler

As part of our special investigation "Mission Creep: US Military Presence Worldwide," we asked a host of military thinkers to...

| Wed Sep. 17, 2008 1:20 PM EDT

wheeler.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 Winslow T. Wheeler, director of the Straus Military Reform Project at the Center for Defense Information in Washington, DC, and author of Wastrels of Defense: How Congress Sabotages US Security.

It's Not Just the Bases—or the Nukes

The sprawl of American bases, both wanted and unwanted by their international hosts, is an important consideration in understanding and then limiting the obnoxious overreach of the American empire. But as with nuclear proliferation, the other issue the left in American politics has latched onto, even were the matter to be solved to the complete satisfaction of the advocates (which I would strongly welcome), there would be hardly a scratch on the foreign policy and defense ills that drag America down.

Consider the following:

Campaigning in Wonderland

CAMPAIGNING IN WONDERLAND....Yesterday ? or was it the day before? It's getting hard to keep track ? Sarah Palin told a fib about the teleprompter breaking down during her acceptance speech. Megan McArdle comments:What I don't get about this lie...

| Wed Sep. 17, 2008 1:02 PM EDT

CAMPAIGNING IN WONDERLAND....Yesterday — or was it the day before? It's getting hard to keep track — Sarah Palin told a fib about the teleprompter breaking down during her acceptance speech. Megan McArdle comments:

What I don't get about this lie is the pointlessness. I expect politicians to lie. But I expect them to tell the standard sort of lies about how they will give us all $5 solar cars by 2010, and never, ever sleep with their staff. This seems like some sort of bizarre compulsive disorder.

There was a period during Bush's first term when his administration acted the same way. I don't mean the big lies, I mean the drumbeat of minor misrepresentations about almost everything. I remember there were times when I'd listen to something one of them said and think, the truth would have actually served them better. But for some reason they made up a less effective lie instead. It was like a reflex with them.

The same thing is starting to happen with the McCain campaign. Most of his lies are easy to understand. But now they've drifted into this kind of pointless stuff that doesn't even seem to provide any real benefit. I guess they're just creating their own reality.