ECONOMIC MELTDOWN UPDATE....Here in the U.S., we've now seen the collapse of Bear Stearns, IndyMac, Fannie Mae, Freddie Mac, and Lehman Brothers, as well as the more-or-less-collapse of Countrywide and Merrill Lynch. In addition, AIG and WaMu are teetering, and perhaps Morgan Stanley and Goldman Sachs too. Current conventional wisdom, speaking in that scarily even tone that airplane pilots assume when both their engines have flamed out, suggests that the U.S. financial system might melt down completely this week. Conversely, the cheery optimists think it might avoid it — for the next few days anyway. I'd guess the optimists are right, but it's not as if I'd be willing to put any money behind that bet.

But here's a question for one of the serious econ-bloggers out there: Have lots of big non-U.S. banks collapsed? There was Northern Rock, but anyone else? Are any European financial systems in danger of meltdown? Why not?


While you were sleeping, the landscape of the US financial system changed dramatically. CNBC is calling it, "The biggest shakeup in the history of the US financial system." The country is in a "once-in-a century" financial crisis, former Federal Reserve chairman Alan Greenspan said on ABC's "This Week" on Sunday. The New York Times reported late Sunday that Bank of America has reached a $44 billion deal to buy troubled investment firm Merrill Lynch. Another firm wasn't so lucky: Unable to find a buyer over the weekend, 158-year-old investment bank Lehman Brothers filed for bankruptcy Monday morning. Lehman's liquidation will mark the largest collapse of a Wall Street bank since Drexel Burnham Lambert folded in the wake of the junk bond scandal almost two decades ago.

The problems don't end there. "We will see other major financial firms fail," Greenspan said on "This Week." Giant insurance company American International Group (A.I.G.) asked the Federal Reserve for $40 billion, "without which the company may have only days to survive," according to the Times. Washington Mutual, too, may be in trouble, after its shares plummeted late last week and Moody's Investor Service downgraded the bank's debt to "junk" status. And in Europe, a Swiss newspaper reported that Swiss bank UBS will have to take another $5 billion in write-downs.

We'll see what happens over the course of the day on Monday, but A.I.G., at least, seems to be in serious trouble. Adam Bakhtiar, a CNBC analyst, called Sunday's events a "tidal wave of horrific news." James K. Galbraith, an economist and contributing writer for Mother Jones, wrote in an email that while he has "a pretty good record on attacking Wall Street," his "schadenfreude is very much under control at the moment":

The world will not be a better place with two free-standing investment banks—Goldman [Sachs] and Morgan [Stanley]—and a half-dozen major commercial banks, if that, running everything. Further, there is a risk that the unraveling will become disorderly and out of control from this point, as assets hit the market in fire sales and do not find takers. This will affect pension funds and greatly compound the collapse of the wealth position of the middle class.... The collapse of Wall Street will hit Main Street like Ike hit Houston.

So how do we get out of this crisis? Well, the prime mover of all of these problems is the collapse of the housing bubble in the United States. "There's no question that this is in the process of outstripping anything I've seen, and it still is not resolved and it still has a way to go," Greenspan said Sunday. "And indeed, it will continue to be a corrosive force until the price of homes in the United States stabilizes."

The collapse of Lehman and the broadening crisis will undoubtedly be topic "A" for the presidential campaigns this week. Barack Obama and John McCain want to lead this country. How do they plan to respond to Monday morning's news?

The Republican Brand

THE REPUBLICAN BRAND....Barack Obama is spending an awful lot of time these days trying to associate John McCain with George Bush. And why not? McCain has pretty thoroughly embraced Bush's ideas and Bush's approval ratings are in the tank, so why shouldn't he?

But here's a thought. Why is it that Obama's ads don't try to play off the brand of the Republican Party instead? Claiming that McCain is just a shadow of Bush, whether it's true or not, is a tough sell. (All those years as a maverick, you know.) But claiming that McCain is a Republican is an easy sell. And the Republican brand is in the tank right now every bit as badly as George Bush's.

And yet, unless I'm mistaken, Obama's ads never mention "failed Republican policies" or suchlike. Why is that? Is there some legal hangup? Is it because he's trying to be post-partisan? Is he doing it and I just haven't noticed (always a possibility)? Or what?

Selling His Soul

SELLING HIS SOUL....Tom Friedman is still pissed off at John McCain campaign:

It's a campaign now built on turning everything possible into a cultural wedge issue — including even energy policy, no matter how stupid it makes the voters and no matter how much it might weaken America.

I respected McCain's willingness to support the troop surge in Iraq, even if it was going to cost him the Republican nomination. Now the same guy, who would not sell his soul to win his party's nomination, is ready to sell every piece of his soul to win the presidency.

So why is McCain doing this? Obvious answer #1: he's just running a standard Republican campaign. Nobody should really be surprised by this. Obvious answer #2: This is hardly the first time McCain has sold his soul. He'll regret it later, of course, but this is just who he is, despite the layers of maverickiness he's managed to cover himself in over the years.

But there's another piece to this. As near as I can tell, McCain, deep in his gut, has convinced himself that Barack Obama is flatly unfit to the president. He's too inexperienced, he's an empty suit, he's naive, and he'll end up surrendering a weakened and declining America to Islamic extremism without a fight. The campaign corollary to this is obvious: the truly honorable course if you love your country is to do whatever it takes to make sure Obama never gets near the Oval Office. If that means running a campaign that sullies your own reputation — well, you just have to suck it up and pay that price. History will eventually exonerate you. In McCain's mind, the fact that he's willing to sacrifice his own reputation is a sign of just how deeply he loves his country.

This is ironic, of course, since it's something of a Messiah complex, exactly the label he's tried to hang around Obama's neck. Less ironic, but a lot scarier, is that it's McCain who would almost certainly accelerate America's Bush-induced decline if he were elected.

His economic policy, after all, is essentially Bush's. Actually, a bit worse than Bush's. And that economic policy has been a disaster of epic proportions: eight years of weak GDP growth; a fantastic increase in the national debt; anemic employment numbers; declining median wages; and a skyrocketing current account deficit. Eight more years of this and America will be the world's biggest banana republic.

And the picture is pretty similar on national security. McCain is almost certain to continue George Bush's policies there too: relentless militarization of the war on terror as a substitute for a long-term strategy of victory; toxic growth in worldwide levels of anti-Americanism; a gut level belief that the mere act of negotiation is a sign of weakness; a belief in bluster as a primary weapon of state; a vast overextension and weakening of our military; a distrust of international institutions so deep that he's unable to even conceive of how to leverage them effectively; and a flat inability to understand the basic nature of the fight against terror. McCain seems to be convinced that we're refighting Vietnam or the Cold War, not something completely new and different that won't primarily be defeated from the deck of an aircraft carrier. We're in bad shape on this front already; keep it up for another eight years and we'll be in a hole so deep that we might not ever get out.

In fact, America is weaker on almost all fronts today than we were eight years ago. I can't tell if McCain understands this or not, but I assume not since he doesn't propose to substantially change either the policies or the worldview that have gotten us here. However, I think McCain does realize that the American public understands this, which is why he's doing everything possible to distract them from it. Look over there! Barack Obama wants to teach your kindergarteners about sex!

And it might work. It has before, after all. But I continue to think that it won't this time. The public doesn't seem to have made up its mind yet about whether Obama can truly bring about serious change, but once the ur-distraction of Sarah Palin wears off they're almost certain to realize that McCain definitely won't. He's another Herbert Hoover, a once well-meaning man who never fully understood what he was up against — and when this election is over I wouldn't be surprised to see McCain suffer the same fate: lost to history as a symbol of a previous era, and ending his career with increasingly bitter denunciations of a public mood and a changing world that he can barely comprehend.

THE LOTTERY AND THE POOR....Poor people spend a much larger chunk of their income on lottery tickets than rich people. Why? Because they're dumb and don't realize the odds are bad? Because they're desperate and therefore more willing to take a chance on a big payback? Because they're too poor to afford better forms of entertainment?

Maybe. But apparently the mere feeling of being poor, as opposed to any objective result of actually being poor, is also enough to get people buy lottery tickets. George Loewenstein, a neuroeconomist at Carnegie Mellon University, performed a study of low-income riders at a Greyhound bus station in Pittsburgh. Each person was given $5 to participate in a survey, and then told they could take some or all of the money in lottery tickets. But not everyone was given exactly the same survey:

We randomly assigned subjects to either feel relatively poor or relatively rich by having them complete demographic questions that included an item on annual income. The group made to feel poor was asked to provide its income on a scale that began at "less than $100,000" and went up from there, ensuring that most respondents would be in the lowest income tier. The group made to feel subjectively wealthier was asked to report income on a scale that began with "less than $10,000" and increased in $10,000 increments, leading most respondents to be in a middle tier. The group made to feel poor purchased twice as many lottery tickets (an average of 1.27) than those made to feel relatively wealthier (0.67 tickets, on average).

What this means is that lottery marketers — i.e., state governments — have a big incentive to make people feel poor because this helps them sell more tickets. Do you think they succeed? Do the lottery ads in your state make you feel poor? Is this a problem?

Via Mark Thoma, who doesn't think the state should have any role in lotteries at all aside from regulating private operators.

GEORGIA WITHDRAWAL UPDATE....I fully realize that no one cares about any non-Sarah P. news at the moment, but just in case you want a break, here's the latest on Georgia. It appears that, so far, Russia is sticking to its agreement to pull back its troops from Georgia proper:

Russian soldiers and armored vehicles rolled out of six checkpoints and temporary bases in the Black Sea port of Poti and other areas nearby, Georgian Security Council chief Alexander Lomaia said [on Saturday].

''They have fulfilled the commitment'' to withdraw from the area by Sept. 15 under an agreement European Union leaders reached with Russia last week, Lomaia told The Associated Press.

....Lomaia said some 1,200 Russian servicemen still remain at 19 checkpoints and other positions, 12 outside South Ossetia and seven outside Abkhazia. Russia said it would pull them out by Oct. 11 as long as 200 European Union observers are deployed to strips of territory surrounding the two separatist regions by Oct. 1.

No special comment on this. Just keeping everyone up to date.

Dam Aliens

600px-Volta_lake.jpg Freshwater ecosystems are losing even more species than terrestrial or marine environments. Why? Because of dams. More than 80,000 major dams and 2.5 million smaller reservoirs have altered natural hydrology across the U.S. The result: nearly 1,000 introduced species disrupting native aquatic systems.

The study published in the September Frontiers in Ecology and the Environment concludes that dam construction and biological invasions are closely linked, reports Environmental Science & Technology.

A University of Colorado Boulder team analyzed conditions in 4200 natural lakes and 1081 impoundments in Wisconsin and Michigan. They looked at five widespread nuisance species: Eurasian water milfoil (Myriophyllum spicatum), zebra mussel (Dreissena polymorpha), spiny water flea (Bythotrephes longimanus), rainbow smelt (Osmerus mordax), and rusty crayfish (Orconectes rusticus).

Campaign Miscellany

CAMPAIGN MISCELLANY....Here's a miscellaneous core dump of campaign stuff. Just some links and random thoughts, none of them especially pressing.

  1. The headline on the Washington Post's main campaign piece today is "Obama Campaign Vows Aggressive Response to GOP Attacks." And I have to say: that's a headline you really don't want to see. It makes you sound like a 98-pound weakling promising that next time you get bullied you're going to write a stern letter to the editor about it.

    Unfortunately, the reason for the headline is obvious: it's because David Plouffe sent an email to reporters this morning vowing an aggressive response to GOP attacks. That's really dumb. If you're going to attack, then attack. If you broadcast it beforehand you're practically hanging a sandwich board over your head announcing that the stuff you're planning to air next is just a political ploy and you don't really believe any of it. Dumb, dumb, dumb.

  2. Note the difference between this and the way Republicans act. No matter how dumb or revolting their attacks are, they spray 'em like they mean 'em — and reporters, who are intimidated by this kind of thing, react accordingly. Democrats should take note.

  3. In Slate today, Farhad Manjoo observes that John McCain is lying a lot in this campaign and that it's working. Then he explains why. So why isn't Obama lying a lot too? He doesn't have an answer for that.

  4. Maybe Chris Cilliza has the answer:

    Republicans have always — or at least for as long as the Fix memory lasts — adopted a realpolitik approach to political campaigns.

    That is, they use tactics that work — whether or not they are "fair". Republicans are, typically, far less concerned about the approval of newspaper editorial boards and the so called "eastern media elite" than their Democratic counterparts, a fact that allows them almost total freedom when it comes to how they conduct their campaigns.

    Democrats, on the other hand, always promise to play as down and dirty as Republicans but when the rubber hits the road tend to back off somewhat.

    That certainly seems to be the case today, anyway. Plouffe promised a more aggressive response and we ad mocking McCain for not knowing how to use email. I bet that has them quaking in their boots over at RNC headquarters.

  5. OK, so what would a Republican-esque attack on McCain look like? Steve Benen half-jokingly suggests that Obama try to tar him as anti-Israel because he's vowed to end earmarks — and aid to Israel is technically funded as an earmark. But that won't work. Not because it's too moronic (I'm not sure we've plumbed those depths yet), but because every attack needs to start with a kernel of truth, and this one doesn't have it. There's just nothing plausible to hang it on.

  6. So what would work, smart guy? Beats me. Anyone who'd hire me as a campaign consultant would be an idiot. And my mind doesn't really work this way anyway. But if I had to take a guess, it would be a vicious attack on McCain's honor. It's character-based, there's much more than just a kernel of truth to hang it on, and it would put McCain on the defensive.

    I'd never do it because I'm a wimp. But I'll bet FDR or Bill Clinton could have figured out a way to make it work. Maybe Obama ought to head back to Harlem and have another chat with the Big Dog this weekend.

  7. Sure, sure, you say, that's all very clever. But what do I really think? Answer: I think E.J. Dionne has the right take:

    Here's the problem: Few voters know that Obama would cut the taxes of the vast majority of Americans by far more than McCain would. Few know Obama would guarantee everyone access to health care or that McCain's health plan might endanger coverage many already have. Few know that Obama has a coherent program to create new jobs through public investment in roads, bridges, transit, and green technologies.

    In short, few Americans know what (or whom) Obama is fighting for, because he isn't really telling them. And few know that McCain's economic plan is worse than President Bush's. As Jonathan Cohn points out in the New Republic, McCain would add $8.5 trillion in new debt over the next 10 years. It's McCain who should be on the defensive.

    It should not be hard for Obama to use crisp, punchy language to force the media and the voters to pay attention to the basic issue in this election: whether the country will slowly continue down a road to decline, or whether, to invoke a slogan from long ago, we can get the country moving again.

    Bottom line: Democrats aren't Republicans. Slamming McCain is fine, but I just don't think Obama can pull off the kind of Lee Atwater gutterball that the GOP specializes in. And if he can't do it with conviction, then he shouldn't do it. Instead, he should figure out a way to make his real message resonate with voters. If he does that with conviction, voters will respond just fine.

Move over, McCain and Palin. The strangest bedfellows of this election season are the tabloids and the mainstream media. Check out this week's cover of Newsweek, featuring a gun-toting Sarah Palin:


And the National Enquirer online, featuring a gun-toting Sarah Palin:


Logos aside, can you tell which photo treatment is which? Yes, the Enquirer broke the story of John Edwards' extramarital liaison before the MSM. It seems the mainstream media is now taking artistic cues from them as well as story ideas.

—Nikki Gloudeman