Chart of the Day

| Tue Sep. 23, 2008 6:50 PM EDT

CHART OF THE DAY....Via Propublica, here's a history of government bailouts starting with the Penn Central bailout of 1970. All adjusted for inflation, of course. Click the link for all the gory details.

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Yes, Joe Biden's Helicopter Really Was "Forced Down" in Afghanistan

| Tue Sep. 23, 2008 5:31 PM EDT

One of the narratives the blogs are talking about this week is that Joe Biden is—gasp!—"gaffe-prone." Nevermind the fact that this has been the story about Biden for 30 years: now journalists are even finding gaffes where none exist. In a post on The Stump exploring Biden's unfortunate attack on his own campaign's ad, Michael Crowley claims that this Joe Biden anecdote is a "gaffe":

"If you want to know where Al Qaeda lives, you want to know where Bin Laden is, come back to Afghanistan with me. Come back to the area where my helicopter was forced down, with a three-star general and three senators at 10,500 feet in the middle of those mountains. I can tell you where they are.

In an unsigned follow-up post on The Plank (accompanied by an awful Slate-style "gaffe meter"), someone claims that this quote "could teeter into Hillary-in-Bosnia territory." But what exactly is wrong or misleading or inaccurate about Biden's story? The Jake Tapper post Crowley links to is an admirably straightforward fact-check of the story—it turns out Biden's helicopter was forced down by a snowstorm. But did Biden say the helicopter was "forced down under fire" or even "shot at"? No. And Tapper points out that Biden went on, saying this:

[John McCain] says he'll follow [Al Qaeda] to the gates of hell. You don't have to go to hell. Just go to Pakistan. Just go to that area. That superhighway of terror that exists between Afghanistan and Pakistan.

Biden's right on in the rest of the quote, too: As far as we know Al Qaeda and bin Laden are in what Biden calls, "That superhighway of terror that exists between Afghanistan and Pakistan."

So Sarah Palin is Meeting With World Leaders...

| Tue Sep. 23, 2008 5:25 PM EDT

You'd think this is something the McCain campaign would be excited to broadcast to the world, right? You tell me. They let the press observe a meeting between Palin and Afghan President Hamid Karzai for 29 seconds. The press then got 15-20 seconds of a meeting between Palin and Colombian President Alvaro Uribe. Hmm.

Oh, hey, just FYI? This person might be elected vice president of the United States in less than six weeks.

Asheville, NC is Out of Gas

| Tue Sep. 23, 2008 4:45 PM EDT

gas.jpg The city of Asheville, North Carolina and surrounding towns are so short on gas that residents must wait over an hour to fill their tanks, reports the Asheville Citizen-Times.

Many gas stations have closed altogether. Those which remain open have police stationed at the pumps to prevent fights from breaking out—one driver threatened another with a baseball bat. Asheville officials have canceled all nighttime events, and the county is asking that nonessential employees work from home or switch to a four-day week.

The gas crunch began after Hurricanes Gustav and Ike swept through the Gulf Coast, shutting down the oil refineries that supply western North Carolina. Because of its relatively remote location high in the Blue Ridge mountains, county officials estimate that shortages in the Asheville area will continue at least through the end of the month.

Obama's Lame New "Bermuda" Ad

| Tue Sep. 23, 2008 3:30 PM EDT

The Obama campaign released this ad today and held a press conference outside the RNC to gin up news coverage of it.

I don't understand why the Obama campaign is running this ad.

I can't wrap my brain around the fact that they are airing an ad this frivolous, low-budget, and general crappy. But that's not my point. I don't understand why they are running this ad now, with all the other news that ought to be focused on. Does anyone care about offshore tax shelters and John McCain's vacation to Bermuda right now? With the Congress debating how to use a sum of money the size of the annual federal budget to keep the American economy from collapsing?

Is the Obama campaign trying to dilute a news cycle that it is benefiting from?

Montgomery McFate Speaks (Sorta)

| Tue Sep. 23, 2008 3:11 PM EDT

The latest issue of Wired carries a piece on Montgomery McFate, the Harvard and Yale educated anthropologist—and onetime go-go dancer—who is one of the primary forces behind the army's controversial Human Terrain Program. The $130 million program, which has been sharply criticized [PDF] by the American Anthropological Association, among others, on ethical grounds, aims to bring cultural understanding to military units operating in Afghanistan and Iraq by embedding social scientists with combat detachments. The article largely focuses on McFate's Human Terrain work, though there was one paragraph that jumped out for me, as it relates to the story we ran in late July, disclosing that for more than a decade a freelance spy named Mary Lou Sapone (also known as Mary McFate) had infiltrated the inner sanctum of the gun control movement. Montgomery McFate is Sapone's daughter-in-law—she once went by Montgomery Sapone—and, according records we obtained, she and her husband Sean McFate (a/k/a Sean Sapone) for some time worked for his mother's private intelligence business.

Wired reports:

McFate herself has drawn fire from others in her field who say she's more spy than scholar. Revelations that nearly a decade ago she worked for her mother-in-law, who allegedly infiltrated left-wing groups on behalf of their opponents, have fed the outrage. (McFate says she researched broad policy topics and that her mother-in-law — from whom she has been estranged for many years—never disclosed her clientele.)

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Financial Innovation

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

FINANCIAL INNOVATION....Via Ezra, Dani Rodrik asks a pointed question about the rapidly innovating financial markets of the past couple of decades. Would increased regulation really sap innovation and cost the world trillions of dollars in real wealth?

[Financial boffins] owe us a bit more detail about the demonstrable benefits of financial innovation. What I would love to hear are some examples such financial innovation — not of any kind, but of the kind that has left a large enough footprint over some kind of economic outcomes we really care about. What are some of the ways in which financial innovation has made our lives measurably and unambiguously better?

If I had asked this question a little over a year ago, I suppose I would have been hearing a lot about how collateralized debt obligations and structured finance have allowed millions of people to purchase homes that they would not have been able to afford otherwise. Sorry, but you will have to come up with some other examples now.

It's an interesting question. One of Rodrik's commenters offers this: "Interest rate, currency and credit swaps have been extremely beneficial to corporate risk management. OTC Derivatives on fuel futures have been very useful to manage fuel price risk faced by airlines (which is now over 40% of their operational cost)." And that's true enough.

But it's the scale of the growth that gets me. The size of the market for credit default swaps, for example, grew from about $1 trillion in 2001 to $62 trillion in 2007. Has anything in the real world grown enough to justify that kind of increase in the CDS market? Or has it mainly been a way for purveyors of mid-rated bonds to turn their dross into something that pension funds are legally allowed to buy? Is that really useful to the economy in any real kind of way?

I should say at the outset that I'm inclined to believe that recent financial innovations have, in fact, been highly useful, and that the root problems lie elsewhere (too much leverage, stupid mortgage practices, too little oversight, etc.). Still, it would be interesting to read an in-depth defense of how financial innovation has helped the global economy, wouldn't it?

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?

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.