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Friday, October 31, 2008

God save us from these stark raving loonies

Un-freakin’-believable. How often can one say that?

We already saw Palin screw up completely on understanding the powers of the Vice President (“He’s in charge of the Senate.”) Perhaps that was a bit arcane. We shouldn’t expect to hold her to having a good knowledge of the what's involved in the office to which she aspires. That’s one of those unfair gotchas.

But – Oh – My – Gawd! Now we see on stark display the fact that Palin doesn’t even have an understanding of the Constitution worthy of a decent middle school student. She thinks press criticism of what she says about Obama threatens her 1st Amendment rights. Boo hoo.

Anyone who would even think about voting to put this supposedly grown person in the White House is light-years behind blindly ignorant. It’s impossible to overstate how awful this is.

Thursday, October 30, 2008

Polls Show Bob Cesna is Right about Palin

Published: October 30, 2008

A growing number of voters have concluded that Senator John McCain’s running mate, Gov. Sarah Palin of Alaska, is not qualified to be vice president, weighing down the Republican ticket in the last days of the campaign, according to the latest New York Times/CBS News poll.

How have vice-presidential candidates influenced your view of the campaign?
Post a Comment »All told, 59 percent of voters surveyed said Ms. Palin was not prepared for the job, up nine percentage points since the beginning of the month. Nearly a third of voters polled said the vice-presidential selection would be a major factor influencing their vote for president, and those voters broadly favor Senator Barack Obama, the Democratic nominee.

And in a possible indication that the choice of Ms. Palin has hurt Mr. McCain’s image, voters said they had much more confidence in Mr. Obama to pick qualified people for his administration than they did in Mr. McCain.

After nearly two years of campaigning, a pair of hotly contested nominating battles, a series of debates and an avalanche of advertisements, the nationwide poll found the contours of the race hardening in the last days before the election on Tuesday. Twelve percent of the voters surveyed said they had already voted. These were among the findings:

¶Mr. Obama is maintaining his lead, with 51 percent of likely voters supporting him and 40 percent supporting Mr. McCain in a head-to-head matchup.

¶Some perceptions of race are changing, with a marked increase in the number of people who say they believe that white and black people have an equal chance of getting ahead in America today.

¶Mr. McCain’s focus on taxes, including his talk about Joe the Plumber, seems to be having some effect, as a growing number of voters now say Mr. McCain would not raise their taxes.

¶Eighty-nine percent of people view the economy negatively, and 85 percent think the country is on the wrong track.

¶Mr. Obama continues to have a significant advantage on key issues like the economy, health care and the war in Iraq.

The survey found that opinions of Mr. Obama and Mr. McCain had hardened considerably, as 9 out of 10 voters who said they had settled on a candidate said their minds were made up, and a growing number of them called it “extremely important” that their candidate win the election. Roughly half of each candidate’s supporters said they were “scared” of what the other candidate would do if elected. Just 4 percent of voters were undecided, and when they were pressed to say whom they leaned toward, the shape of the race remained essentially the same.

The Mandatory Rejection of Sarah Palin

By Bob Cesca
There are a lot of things to ridicule about Sarah Palin's incomprehensible speaking style and backwards, simplistic views on the issues. But it's her politics of fear and division that must be wholly rejected on Tuesday because it's practically too terrible to imagine waking up one week from today in an America that rewards the awfulness and fear she and her allies rely upon. So before we arrive at the end of the Bush dark ride, let's make sure the Palin dark ride comes to a complete stop on Tuesday.

Bailout Funds for Bonuses: Waxman Seeks Bank Data On Use of Bailout Funds

By Amit R. Paley and Binyamin Appelbaum
Washington Post Staff Writers
Wednesday, October 29, 2008; D03

Congressional investigators yesterday demanded that the nation's nine largest banks prove they are not using an emergency infusion of $125 billion in taxpayer funds to lavish their executives with wealthy bonuses.

Rep. Henry A. Waxman (D-Calif.), chairman of the House Committee on Oversight and Government Reform, noted that before the infusion, the banks had spent or allocated $108 billion on employee compensation and bonuses for the first nine months of 2008, nearly the same amount as last year.

"I question the appropriateness of depleting the capital that taxpayers just injected into the banks through the payment of billions of dollars in bonuses, especially after one of the financial industry's worst years on record," Waxman wrote in a letter to the banks.

Lawmakers across the political spectrum want to ensure that the government's bailout program results in increased lending, not bigger paydays for executives.

Banking industry officials said they fully intend to use money from the government's bailout program to make loans and increase liquidity. They noted that bonuses are a normal part of compensation packages. The fact that the allocations on compensation so far in 2008 are identical to last year suggests that the bailout money will be not used to boost bonuses, they said.

"Waxman's barking up the wrong tree," said Scott E. Talbott, senior vice president of government affairs for the Financial Services Roundtable, which represents the nation's most powerful banks, brokerages and insurers. "We reject his basic premise. The institutions fully intend to use the money to start making loans."

But a new study suggests that financiers are still bullish about their bonuses. More than two-thirds of Wall Street professionals are expecting a bonus this year, and 36 percent are anticipating a larger bonus than last year, according to a survey by eFinancialCareers, a career networking company. How about zero or a refund of ill gotten gains??

"Some experts have suggested that a significant percentage of this compensation could come in year-end bonuses and that the size of the bonuses will be significantly enhanced as a result of the infusion of taxpayer funds," Waxman said.

In his letter to the banks, Waxman asked them to provide detailed data on compensation packages since 2006, as well as the projected salaries and bonuses for the rest of the year. The request was sent to Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, J.P. Morgan Chase, Merrill Lynch, Morgan Stanley, State Street, and Wells Fargo.

The Treasury Department has so far pledged $163 billion to 30 financial institutions out of $250 billion allocated for capital investments. The money has gone to the nation's largest banks and just a few smaller banks, such as Saigon National Bank of California, which will get $1.2 million.

The Bush administration's approach has been relatively inclusive, granting funding to nearly all of the nation's largest banks. The only two exceptions among the 20 largest banks are National City, which was forced to sell itself, and U.S. Bancorp, regarded by analysts as perhaps the healthiest of the major banks.

Treasury officials also continue to work on legal arrangements that would allow thousands of the nation's smallest banks to take government investments. Many community banks are basically private partnerships that lack the ability to issue preferred shares to the government in return for capital.

Frederick Cannon, a banking analyst at Keefe, Bruyette & Woods, a New York investment bank, said demand for the investments appeared strong.

"It's cheap capital for a capital-starved industry," Cannon said. "I think most banks are asking themselves, 'Why shouldn't I take it?' "

The Bush administration yesterday stepped up its insistence that the banks not hoard the funds.

"What we're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America," said White House press secretary Dana Perino. "Banks exist to lend money."

But regulators continue to make clear that they cannot force banks to increase lending. They have said some banks should use the money for other purposes, such as acquisitions. Some banks, for their part, have said that they intend to hold on to the money. So they can buy up other banks and competitors with Treasury help??

When First Horizon, a Tennessee bank, got $866 million in government investment on Monday, it said the money "adds to its already substantial cushion against the adverse effects of the weakening economy."


Dems (Waxman , Barney Frank, etc. ) are trying hard to make sure that Bailout funds are not being used on the bank executives and their Christmas bonuses. Where's Bush the Decider, McSame on this???

The slippery slope to Marxist socialism

Obama has pledged not to raise income taxes for people making over $250,000 per year. This would suggest that he will keep the 33% tax bracket the same up to that figure, and he has disclosed publicly an intention to increase the top marginal income rate from the current 35% to 39.6% -- i.e., the same rate for the wealthy in those terrible Clinton years when such socialism caused the wealthy segment of the population to shrivel to a fraction of its former fat Reagan-era self.

Extrapolating a bit from those numbers, by my calculations the married couple filing jointly with an Adjusted growth Income of $600,000 – no doubt, a figure most of us can easily relate to – will face about the following increase in monthly tax burden from Obama’s proposed new tax brackets: out of a gross paycheck of about $50,000 PER MONTH – make sure that registers, $50,000 PER MONTH -- the tax take will increase from about 12,200 to 13,000. That’s an $800 dollar increase, taking the aggregate IRS obligation from 24.6% of gross income to 26.1%. OK, OK, that’s $800 worth of a slippery slope towards total income confiscation by the state. One can never be too careful.

We forget: what Obama is proposing is to raise the marginal rates on incomes above $250,000. No increase is felt until that figure is reached, and applies only to the amounts in excess of that figure. That means the real effect will be smaller than we first imagine without thinking very hard. If your income is $250,001, your tax burden does not suddenly jump to 39.6% of the whole thing; everything's the same, except now you will also pay 39.6 cents on that extra dollar instead of 35 cents.

For the couple more squarely in the middle class with an annual gross income in the more reasonable neighborhood of $450,000, which means taking it in at a rate of a mere $30,000 PER MONTH or so, the Federal tax burden on that paycheck, such as it is, should go from about $7900 to $8100, or an increase of about $200 per month.

Cry me a river!!!

Jaw dropping

Steve Benen at Washington Monthly notes that McCain blasted Obama today for proposing tax breaks for the big oil companies. Yeah, you heard that right:

TAX BREAKS FOR BIG OIL.... The GDP may have fallen into negative territory, but there's at least one company that's doing very well: ExxonMobil's third quarter profits totaled $14.83 billion, the best quarter any U.S. company has ever had.

Like practically everything else, this has campaign implications. The AP reports, "Republican presidential candidate John McCain seized on reports of record oil company profits Thursday to criticize Democratic rival Barack Obama for favoring tax breaks for the oil industry."

That's not a typo or an editing error. The McCain campaign saw ExxonMobil's record-breaking profits as grounds to go after Obama for support tax breaks for Big Oil.

Honestly, how does one respond to something like this? By pointing out the $1.2 billion tax break McCain wants to give to ExxonMobil? By noting the $4 billion in tax breaks McCain supports for America’s largest oil companies? By highlighting the fact that McCain's energy policy reflects Big Oil's wish list? By reminding folks of McCain's abysmal record on alternative energy solutions? By mentioning that McCain's campaign is being run and financed by lobbyists for the oil industry?

Is there a parallel universe or something? (Or, perhaps more likely, an orthogonal universe?)

Wednesday, October 29, 2008

CDS Primer

by Wayne Pinsent
Credit default swaps (CDS) are the most widely used type of credit derivative and a powerful force in the world markets. The first CDS contract was introduced by JP Morgan in 1995 and by mid-2007, the value of the market had ballooned to an estimated $45 trillion, according to the International Swaps and Derivatives Association - over twice the size of the U.S. stock market. Read on to find out how credit default swaps work and the main uses for them.

How They Work
A CDS contract involves the transfer of the credit risk of municipal bonds, emerging market bonds, mortgage-backed securities, or corporate debt between two parties. It is similar to insurance because it provides the buyer of the contract, who often owns the underlying credit, with protection against default, a credit rating downgrade, or another negative "credit event." The seller of the contract assumes the credit risk that the buyer does not wish to shoulder in exchange for a periodic protection fee similar to an insurance premium, and is obligated to pay only if a negative credit event occurs. It is important to note that the CDS contract is not actually tied to a bond, but instead references it. For this reason, the bond involved in the transaction is called the "reference entity." A contract can reference a single credit, or multiple credits. (To learn more about bonds, see our tutorial Advanced Bond Concepts.)

As mentioned above, the buyer of a CDS will gain protection or earn a profit, depending on the purpose of the transaction, when the reference entity has a negative credit event. When such an event occurs, the party that sold the credit protection and who has assumed the credit risk may deliver either the current cash value of the referenced bonds or the actual bonds to the protection buyer, depending on the terms agreed upon at the onset of the contract. If there is no credit event, the seller of protection receives the periodic fee from the buyer, and profits if the reference entity's debt remains good through the life of the contract and no payoff takes place. However, the contract seller is taking the risk of big losses if a credit event occurs. (For related reading, see Corporate Bonds: An Introduction To Credit Risk.)

Hedging and Speculation

CDS have the following two uses.

A CDS contract can be used as a hedge or insurance policy against the default of a bond or loan. An individual or company that is exposed to a lot of credit risk can shift some of that risk by buying protection in a CDS contract. This may be preferable to selling the security outright if the investor wants to reduce exposure and not eliminate it, avoid taking a tax hit, or just eliminate exposure for a certain period of time. (For more on hedging your investments, read Practical And Affordable Hedging Strategies and Corporate Use Of Derivatives For Hedging.)
The second use is for speculators to "place their bets" about the credit quality of a particular reference entity. With the value of the CDS market, larger than the bonds and loans that the contracts reference, it is obvious that speculation has grown to be the most common function for a CDS contract. CDS provide a very efficient way to take a view on the credit of a reference entity. An investor with a positive view on the credit quality of a company can sell protection and collect the payments that go along with it rather than spend a lot of money to load up on the company's bonds. An investor with a negative view of the company's credit can buy protection for a relatively small periodic fee and receive a big payoff if the company defaults on its bonds or has some other credit event. A CDS can also serve as a way to access maturity exposures that would otherwise be unavailable, access credit risk when the supply of bonds is limited, or invest in foreign credits without currency risk. (For more, see Risky Portfolio? Currencies Come To The Rescue.)

An investor can actually replicate the exposure of a bond or portfolio of bonds using CDS. This can be very helpful in a situation where one or several bonds are difficult to obtain in the open market. Using a portfolio of CDS contracts, an investor can create a synthetic portfolio of bonds that has the same credit exposure and payoffs.


While most of the discussion has been focused on holding a CDS contract to expiration, these contracts are regularly traded. The value of a contract fluctuates based on the increasing or decreasing probability that a reference entity will have a credit event. Increased probability of such an event would make the contract worth more for the buyer of protection, and worth less for the seller. The opposite occurs if the probability of a credit event decreases. A trader in the market might speculate that the credit quality of a reference entity will deteriorate some time in the future and will buy protection for the very short term in the hope of profiting from the transaction. An investor can exit a contract by selling his or her interest to another party, offsetting the contract by entering another contract on the other side with another party, or offsetting the terms with the original counterparty. Because CDSs are traded over the counter (OTC), involve intricate knowledge of the market and the underlying assets and are valued using industry computer programs, they are better suited for institutional rather than retail investors. (For more insight, read Are Derivatives Safe For Retail Investors?)

Market Risks

The market for CDSs is OTC and unregulated, and the contracts often get traded so much that it is hard to know who stands at each end of a transaction. There is the possibility that the risk buyer may not have the financial strength to abide by the contract's provisions, making it difficult to value the contracts. The leverage involved in many CDS transactions, and the possibility that a widespread downturn in the market could cause massive defaults and challenge the ability of risk buyers to pay their obligations, adds to the uncertainty.

Little known about man who has sent thousands to GOP

By Andrew Zajac, Ray Gibson and Bob Secter |Tribune reporters
October 29, 2008

Big campaign donors typically come with deep pockets and influence. But in Illinois this election cycle, no one not running for office himself has given more to the nation's federal campaigns than Shi Sheng Hao of Roselle, a virtual unknown in business and political circles.

Before September 2007, Hao's name had never appeared in the 15-year-old federal database of campaign contributors. Since then, however, his donations have topped $120,000 — including $70,100 on a single June day to Republican presidential candidate John McCain.

Over the same time frame, a network of Hao relatives has kicked in more. The take from this group over the last 13 months exceeds $269,000, a small amount to Democrats but most of it to McCain and the Republican National Committee, records show.

Hao didn't register to vote at the northwest suburban address attached to his donations until October 2007, a month after he wrote his first political check, $25,000 to the RNC.

The circumstances surrounding Hao's sudden and prolific political activism are curious and his whereabouts unclear. His name isn't listed on property records or the mailbox at the unassuming tract home listed on his donations. Hao lives "overseas," insisted a man who answered the door at the Roselle home recently. The man declined to identify himself.

The story of Hao—whose varied roster of business associates appears to include a Taiwanese government investment arm as well as the mastermind of a decade-old Democratic fundraising scandal — is an eyebrow-raiser in the current election climate.

Ethnic Chinese donors became an issue in the battle for the Democratic nomination last year because some didn't seem to live where they claimed on contribution records. Now, Republicans are raising questions about the authenticity of many small donations Democrat Barack Obama has received from abroad.

Sheila Krumholz, executive director of the Washington-based Center for Responsive Politics, said the timing of the Hao-related contributions appeared troubling, though there could be a plausible explanation. "Large contributions from people who have never given previously do generally provoke questions about who they are and what they're up to, and most importantly, what they're looking for," said Krumholz, whose non-partisan group closely tracks political donations. "The public needs to be concerned because there are fraudulent donations, and persons use them to gain influence and access in Washington."

McCain spokesman Brian Rogers said Hao was not a "major donor" and "not a part of this campaign in terms of fundraising," but declined to discuss him further or address the campaign's procedures for vetting donors. RNC spokesman Danny Diaz said he would not respond to questions from the Tribune, contending that the newspaper was biased against McCain.

So who is Shi Sheng Hao, and what are his means and motives for becoming a mega-donor? No one answers a telephone listed in his name in the 630 area code, and there's no answering machine. Messages left for him by phone and e-mail with several relatives went unanswered.

But this much can be gleaned from public records:

Donation disclosures list his occupation as a businessman with entities identified only by slightly different acronyms: ADECC, AAEC, A.A.E.C.C. On some he is also listed as president of American Chinese Entertainment Ltd.

Hao and his wife, Hsin-Ning, declared bankruptcy in 1995, at the time using the Roselle home as an address and listing as a business a firm called Asian American Environmental Control.

Hao holds an Illinois driver's license that lists his address as the Roselle home, but property records show the four-bedroom house has been owned since 1992 by Robert and Jen Chi, and their last name is on the mailbox. Contacted at the Des Plaines marketing firm where she works, Jen Chi said she didn't want to discuss Hao, though she said she knew how to get in touch with him and would have him call the Tribune. He never did.

"I don't know anything about his business," said Chi, who herself gave $15,000 to the RNC the week after Hao's first donation. "I don't want to be stuck in the middle." Hao's wife, Hsin-Ning, also used the Roselle address when she made a $25,000 contribution to the RNC last year. In September, however, she listed a Taipei address on a $2,300 contribution to the campaign fund of former Democratic presidential candidate Hillary Clinton.

There is no record in business databases of American Chinese Entertainment Ltd., the firm listed in some Hao donation records. However, an Asian American Entertainment Corp. was incorporated early this year in California with a Shi Sheng Hao as president. Government records show that firm and at least two other Hao companies have connections to the family of Gene and Nora Lum, onetime prominent Democratic fundraisers in the Asian-American community who were convicted in 1997 of making political donations through illegal straw donors.

A Taiwanese firm with a nearly identical name as Hao's new California company, Asian American Entertainment Ltd., is also headed by a Shi Sheng Hao. That firm has been embroiled in a lengthy legal battle in Las Vegas over a soured partnership in an application for a casino license in Macau, the former Portuguese colony now part of China.

A court filing in that case described Hao's firm as a business affiliate of the China Industrial Development Bank, a finance arm of the Taiwanese government. Hao is listed as a resident of Taiwan in corporate papers filed in the case.

It is not clear whether the Shi Sheng Hao in the lawsuit and the California ventures is the same Shi Sheng Hao using the Roselle address. But public records point to numerous coincidences, including corporations with similar names and an overlap of investors. Some political donations from the Roselle address also refer to Hao by a nickname, Marshall, the same nickname given for Hao in the Las Vegas court action.

Federal records indicate a pattern of large and coordinated donations from Hao, relatives and associates. Collectively, eight of them gave a total of $130,000 to the RNC in late September to early October of last year.

AIG And The Trouble With 'Credit Default Swaps'

Planet Money, Morning Edition, September 18, 2008

With the government's $85 billion loan to American International Group — and its controlling stake in the company — the United States is now in the insurance business.

AIG is the largest commercial and industrial insurer in the nation, NPR business correspondent Adam Davidson told Steve Inskeep. The company also offers lines for individual customers in the U.S. and around the globe. The more traditional aspects of AIG's business continue to perform fairly well.

But a few years ago, AIG got involved in a new aspect of the financial system: It joined in the selling of so-called credit default swaps. A credit default swap, or CDS, is essentially insurance on debt.

Gambling On The Future

Imagine a bank that has bought bonds from, say, the Port Authority of New York and New Jersey. That means the bank holds debt from the Port Authority. With any loan, there's always the risk of the debtor's failing to pay the money back. To protect themselves, bankers began buying credit default swaps. If the Port Authority failed to keep its end of the bargain, the bank could call up its insurer and cash in its CDS.

AIG treated its CDS business the same way it treated all the other lines. Insurers sell policies for lots of cars and houses, betting that only a few customers will have wrecks or devastating fires.

"Any one house burning down doesn't increase the likelihood that lots of other houses will burn down," Davidson said. "That doesn't apply to bond insurance."

In the case of bonds, one default can create a domino effect. Investors lose confidence in the market. Interest rates spiral. Borrowers can't find new capital to stay afloat.

"As far as we can tell, AIG didn't quite think this one through," Davidson said.

As AIG Goes, So Goes The Global Economy?

Why would a company as large as AIG gamble its future on a new twist in the financial system? The lure of money may have been too strong, Davidson said. The CDS market has grown into a $70 trillion annual business. Davidson likens the situation to AIG saying, "Hey, we know insurance better than anyone. We're going to get into that business."

The pure size of the CDS business is enough to make a failure of AIG a threat to the entire global economy. What's more, the CDS market is far from transparent. "Nobody knows exactly who has them and where they got them from," Davidson said. The fear is that AIG has insurance banks all over the world for trillions of dollars that would suddenly be at risk. If AIG collapsed, banks would stop lending money to each other.

"If that stops, global economic activity stops," he said. "We don't know that that would have happened, but it seemed like a real possibility. And that was why the government stepped in."

Global Panic: Forward to the Past, 2008 - 1929

by Michael Faulkner, Manchester Guardian - October 19, 2008


Senator .....of Virginia has addressed a letter to ...the governor of the Federal Reserve Bank of Boston, advocating legislation "making it mandatory on the administrators of banking laws to prevent, by penalisation, such disasters in stock-gambling operations as recently have disgraced our country."

The dateline for this was November 11th 1929. The item was included in a facsimile double-spread of the paper's coverage of the crash of that year. The senator was Carter Glass, founder of the U.S. Federal Reserve system and co-sponsor with Henry Bascombe Steagall, of the legislation that led in 1933 to the Glass-Steagall Act enforcing the separation of investment and commercial banking activities.

As my familiarity with this legislation was limited to the knowledge that the Act had been abrogated by Clinton in 1999, I needed more information. I turned to Investopedia where a certain Reem Heakal dispenses sound advice to investors. His brief entry on the Glass-Steagall Act leaves no doubt about his attitude to its repeal:

"To the delight of many in the banking November 1999 Congress repealed the Glass-Steagall Act with the establishment of the Gramm-Leach-Bliley Act, which eliminated the GSA restriction against affiliation between commercial and investment banks. Furthermore, the GLB Act allows banking institutions to provide a broader range of services, including underwriting and other dealing activities."

This was apparently written recently - but probably not within the last week or so. How about the following, from the same source, for an informed assessment of social responsibility in the financial markets:

"Furthermore, big banks of the post-Enron market are likely to be more transparent, lessening the possibility of assuming too much risk, or making unsound investment decisions. As such, reputation has come to mean everything in today's market, and that could be enough to motivate banks to regulate themselves."

It is difficult to read this sort of thing now without bursting into fits of laughter - or, more likely, outbursts of anger. But it should not be forgotten that only weeks ago this was the received wisdom about the way the banking system operated. According to the orthodoxy of "free market" fundamentalism, the only acceptable form of regulation was self regulation which, it was claimed, would operate according to the natural laws of the market. Now, in Britain, the term Nationalisation has been resurrected from a thirty year hibernation. No mainstream political party would have dreamed of suggesting that privatised utilities and industries - let alone the banks - should be nationalised. But now, part-nationalisation or possibly full nationalisation of the whole banking system is on the political agenda. Politicians of all parties, and contributors to the financial columns of British newspapers (most of whom never uttered a word of criticism of the de-regulated financial system) have been converted overnight into champions of tighter regulation and Keynesian-style interventionism. And just as nationalisation is back on the agenda, so too is discussion about capitalism. Until now use of the term was confined mainly to the pages of journals regarded by their critics as representative of the "unreconstructed left." Now, the perceptive neo-Keynesian commentator, Will Hutton writes in The Observer : "There is a combination of a worldwide bank run, seizure of credit markets and collapse of asset values that could plunge the globe into depression. This is history's joke: the crisis of capitalism long predicted by communists and socialists who are no longer able to take advantage of it."

The crisis facing us is truly terrifying. There has, understandably, been an outburst of rage against the ideologues and profiteers of free market fundamentalism. Hutton refers to the Financial Times' How to Spend it magazine advertising dresses costing £30.000, and to a hedge fund manager acquaintance who complained that he was being underpaid when he received $200m for one year's work. During the past 20 years or so one has become increasingly familiar with a "celebrity" world, inhabited by Russian oligarchs, hedge-fund managers, investment bankers, football stars - all possessing fabulous wealth beyond the imagination of ordinary mortals. Conspicuous consumption and ostentation has broken all bounds as the billionaires cruise the world in their private jets, or sail the seas in their luxury yachts and private submarines. Now, the members of this global kleptocracy are set to hold on to their billions. The rest of us will be left to face an arid future of welfare cuts, rising prices, mass unemployment, erosion of pensions, loss of savings and environmental devastation that will be the price paid by taxpayers for bailing out banks that are "too big to fail."

But the banking system has failed. The emergency measures that U.S., British and other European governments are attempting to put together at the G.7.summit, amount to a salvage operation for a global financial system that has failed. No-one knows the size or extent of the unsaleable "securitised loans" or junk assets held by these banks. No-one really seems to know how much - how many trillions of dollars - may be required to bail them out. Presumably that is why Gordon Brown was so evasive when asked this week-end whether he had learnt lessons from the Great Depression. He said "I want people to know that we are doing everything we can to rectify the failures. Looking back to the lessons of the past, if you have fundamental failure that has been exposed and you are now acting upon it, then that is the best solution." His government has just made available £500bn of taxpayers' money to keep the banks afloat. There is no guarantee that it will succeed. The bankers, cheerleaders for deregulation and fierce opponents of state "interference" in the financial markets, still operate, as they always have, on the principle "profits are private; losses are public." They now come, cap in hand, to be saved from the consequences of their own egregious excesses. Apart from proffering the begging bowl the bankers have remained silent through this crisis of their making. There have been no apologies and no resignations. They regard themselves as blameless. They remain adamantly opposed to any governmental presence on their boards of directors, imagining, it seems that once they have their hands on the taxpayers money they can remain accountable to no-one but themselves. Recently a new term has been coined for such people: Banksters. It is singularly appropriate.

Whether the measures taken so far to stabilize the situation will succeed remains to be seen. There will be some indication when the markets open tomorrow (13.October). There is already talk in Britain of the need to nationalise the whole banking system. That such an option is now being considered by politicians formerly committed to completely deregulated markets, is an indication of how serious things are.

Whatever happens, the future for millions of working people, the victims of this crisis, looks very bleak. There is widespread and growing anger. Many are asking "how could it have come to this?" Without attempting to provide anything like an answer to the question, I will conclude by offering a few insights that I have gleaned from history.

In Britain between 1945 and the late 1970s the economic policies of governments, Tory and Labour, were based upon a consensus sometimes referred to as "Butskellism", a term derived from the names of two post-war chancellors of the exchequer, Butler (Tory) and Gaitskell (Labour). The "commanding Heights" of the economy had been nationalised by Labour between 1945 and 1951 and Tory governments accepted the "mixed economy." By the mid 1970s, with rising inflation and increasing trade union strength, the advocates of free market fundamentalism - taking their inspiration from the Milton Friedman's Chicago School, demanded an end to regulation of the market, the crushing of trade unions and de-nationalisation. In 1979 Thatcher came to power in Britain, followed closely by Reagan in the U.S. The free-market fundamentalists took control. In Britain the trade unions were shackled, the manufacturing base destroyed and all the nationalised industries privatised. This process continued unabated throughout the 1980s.

During this process the collapse in 1991 of the Soviet Union has a significance often overlooked. However flawed an example of socialism the Soviet system may have been - and it certainly was - it nevertheless represented an example of a possible alternative economic system to capitalism. With its collapse, it could be - and was - argued that there was "no alternative" to the "free world", free-market version of totally unregulated capitalism. And so it took off as a system to be applied globally - with the consequences that now stare us in the face.

One final comment. The neo-Keynesian critics of the unregulated market, from J.K. Galbraith to Will Hutton, have exposed its defects and predicted its consequences. They have argued passionately for a socially responsible, fairer version of capitalism based on state intervention and regulation. They believe that it is possible to operate such an alternative and through it avoid the kind of crises that we are now experiencing. But this is questionable.

Another view is that such crises are systemic. Capitalism is a system that will always be driven by the forces of the market, and those in whose interests it operates will always strive to rid it of the "impurities" of state intervention and market regulation. If this is right, then the conclusion can only be that intervention and regulation are not enough to prevent the recurrence of the kind of global crisis that is now upon us. The system itself will have to be changed, and that can only be done by harnessing the rising mass anger into a global movement capable of achieving it.

Tuesday, October 28, 2008

U.S. confronts possibility of deep recession

Current economic downturn bringing anxiety similar to 1970s, '80s
By Adam Geller
The Associated Press
updated 10:26 a.m. ET, Thurs., Oct. 16, 2008
NEW YORK - The U.S. has not endured a deep and prolonged recession in more than a quarter century — enough time for many Americans to forget what one feels like.

But unlike the last two relatively short recessions, this one could be much longer and more severe, potentially bringing with it anxiety and job losses not seen in many years.

"In thinking about recessions, people will naturally think back to the last couple" in the early 1990s and in 2001, said Paul Ashworth, senior U.S. economist at Capital Economics in Toronto. "What they should be looking back at is further."
That requires dredging up memories of the economic slides in the 1970s, when an Arab oil embargo starved the nation of energy, and the early 1980s, when unemployment and inflation soared.

The last recession — coinciding with the collapse of the tech stock bubble and the terrorist attacks of 2001 — lasted just eight months. It was known more for the slow "jobless" recovery that followed than for the depth of the downturn.

Many economists agree that the nation won't be so fortunate this time.

"I don't think we can escape damage to the real economy," former Federal Reserve Chairman Paul Volcker said this week in Singapore. "I think we almost inevitably face a considerable recession."

The Fed's current chairman, Ben Bernanke, delivered a more measured but similarly grave assessment in a speech Wednesday, saying that even if markets stabilize, "broader economic recovery will not happen right away."

Stock prices plunged, with major U.S. indexes down 8 to 9 percent on one of their worst days ever on concern about deteriorating economic conditions.

The signs of stress certainly are starting to show: The U.S. has lost 760,000 jobs since late last year, and retail sales in September plunged 1.2 percent, the largest drop in three years.

Every recession is driven by its own dynamic and psychology. The current slump started with the collapse in the housing market and got worse with sharp restrictions on credit that pressured consumer spending and businesses.

That is a different environment from 1973, when an oil crisis was the culprit, squeezing U.S. businesses and consumers. In the early 1980s, raging inflation and high interest rates took their toll. Hey he forgot about the Iran oil cutoff and the Ayatollah.

Both periods saw millions of Americans out of work. In 1975, the unemployment rate peaked at 9 percent. In 1982, it jumped to 10.8 percent.

Most economists forecast a sharp increase in the number of people who lose their jobs. But they do not see it leading to unemployment on the scale of either the 1970s or 1980s.

The jobless rate is currently at 6.1 percent, and many economists expect it to rise to about 7 percent early next year — a level the country has not seen since 1993. Some analysts believe the unemployment rate could climb close to 8 percent, which hasn't happened since 1984. Goldman Sachs says unemployment will go to 9% by yearend and double digits in 2009.

But this recession could begin to feel like those of the past not just because of lost jobs, but because of fear about the future.

In the 1980s, as the nation struggled with inflation and a transition from a manufacturing economy to one based on services, Americans had "a huge amount of uncertainty and anxiety that lingered on for a long period of time," said Bart van Ark, chief economist for The Conference Board."That element I find comparable to what we're seeing today, but some of the underlying dynamics are very, very different."

In 1973, the U.S. economy had been growing for three years and unemployment had dropped to well below 5 percent. Then, on Oct. 6, Egyptian and Syrian forces launched surprise attacks on Israeli-held territory while Jews were observing Yom Kippur. Arab members of OPEC soon cut off shipments of oil to the United States and other countries that supported Israel.

Oil prices rose sharply and forced rationing of tight supplies. Drivers lined up at filling stations on odd or even days depending on the number on their license plates. Some stations ran out of gas.

A recession is typically defined as a period in which the economy shrinks for two quarters in a row. In the shallow 2001 recession, the quarters weren't even consecutive.

But in the 1970s, the recession stretched on for a year and a half. Nearly 2.2 million people lost their jobs. By the end of 1974, the Dow Jones industrial average had lost more than 40 percent of its value. At the same time, the nation was focused on the Watergate scandal and the vacuum left by President Nixon's resignation in August 1974.

The economy began to recover in spring of the next year. But inflation, which had eased as the oil embargo was lifted, spiked again. By 1980, prices were rising at an annual rate of 13.5 percent.

With the fall of the Shah and the Iranian revolution and taking of American hostages and second oil cutoff and anxious about a hostage crisis in Iran and the Carter's administration inability to tame inflation, Americans elected Ronald Reagan president. But it wasn't at all clear how his plan to increase defense spending would cure the economy's ills.

Volcker, appointed by Carter to lead the Fed in 1979, took on inflation by sharply raising interest rates. It worked, but made life even more difficult for consumers at a time when the nation was doubtful about its economic future.

"That was the feeling at that time: hopelessness, in terms of how do we get out of this situation," said Anthony Campagna, author of "The Economy in the Reagan Years."

The next recession did not come until 1990, as preparations for the Gulf War drove up the price of oil. But the 1.6 million jobs lost was much less severe than in the previous downturn, and this one lasted for just eight months.

When it recovered, the economy staged its longest expansion on record — 10 years of growth. The next recession, in early 2001, was similarly short-lived. The number of people out of work rose sharply, but compared with some past recessions, unemployment rate was relatively mild.

The fact that the last two recessions were so short, the damage relatively limited and the preceding good times so long has helped many people forget the pain of a more severe economic slump.

My comments:

Several factors suggest this recession could be much worse.... the 1973 and 1980 recessions were due to single factors like oil cutoffs ... this one is much more systemic due to the excesses and new inventions of the financial engineers in banks, insurance companies like AIG, and hedge funds; easy money due to the Fed and globalization; excess leverage; low interest rates and American consumerism run wild in housing and buying in general; poor short term decision making by American CEOs more interested in next year bonuses than the long term.

American corporations more heavily taxed? No!

You may have heard from the Republican Kool-Aid drinkers assured declarations that U.S. corporations are taxed more heavily than corporations in other industrialized countries. It’s hard to know off the top of your head where people who say such things are coming from, but it didn’t sound right.

Well, it’s false, according to the Organization of Economic Cooperation and Development, of which the United States is one of 19 members. What people who say this are mixing up is the highest marginal rate – the U.S. has the second highest rate among the member countries – with the actual effective rate. In fact, because of more generous exemptions, deductions and other tax-reduction mechanisms, the actual effective tax rate is BELOW THE AVERAGE for the 19 OECD members, with U.S. corporations paying 13.4 per cent of profits compared to the OECD average of 16.1 per cent.

You’ll hear it again. Shoot it down: It’s false, false, false.

Will the votes be counted?

I gather about a quarter of the voting has already been done through early voting and absentee balloting. Mrs. Walldon and I voted by absentee about two weeks ago here in New Jersey. I also gather that it appears Obama is way up (56 to 39) in the early voting, but that he and McCain are essentially tied among those who haven't yet voted. All of which raises a question in my mind.

In years past, the absentee ballots have only been counted (at least here in NJ) if there was a high likelihood that they would make a difference. The evaluation of likelihood was based on votes already counted, not on the likely complexion of the absentee votes. So, suppose McCain wins by two or three points among the votes actually counted on election day. People may simply ignore the absentee votes even though, in this rare case, they would be likely to swing the election the other way.

In other words, there may be a big danger in having gotten all the Democrats to vote early, since the Thuglicans may simply choose not to count those votes.

Monday, October 27, 2008

The blame game: let's get started!

We will be delving into pointing fingers for the world financial/economic crisis for many years – as we should. How else will we know what went wrong? There will be many, many culprits. But for starters, I would just like some perspective on these questions:

What would have happened if any or all of the following had happened:

• The rating agencies – Standard& Poors, Moodys – had rated the “tranches” of mortgage-backed securities honestly? Nothing is much more disgusting than a top manager at one of the agencies angrily telling one of the professionals simply to ignore the lack of understanding of how much risk there was underneath them -- an email exchange that has been posted on the Internet.

• Alan Greenspan had simply said in one of his Congressional hearings a few years ago that there was “irrational exuberance” in the housing market – i.e., that people were being encouraged to borrow on apparent wealth in their homes that may not be real over the long run? Think maybe “Flip This House” might have been moved to the 3 AM time slot after that? To me, though, Greenspan's behavior is easily explained: he knew perfectly well that teeny-tiny interest rates generating the house prices allowing credit to be expanded was the only thing proppoing up the economy during a Republican administration. He knew perfectly well that the fundamentals, like job growth, manufacturing jobs, wages, were for crap, but he wasn't going to be the one to spoil the party. Simple as that. I was pretty sure that was what was going on, and what the hell did I know compared to the experts at the Fed?

• The U.S. Office of the Comptroller under Bush had not gone out of its way, at the instigation of the big national banks, to prevent the attorneys general of the states from holding them to the same standards applied to local lending institutions to prevent deceptive lending practices?

• The New Deal-era Glass-Steagall Act -- maintaining the separation of the ho-hum activities we are familiar with that commercial banks do from the high-flying creativeness of investment banking -- had not been repealed? Clinton signed it, but it was Reaganomics all the way.

Couldn't happen to a nicer fellow

Sen. Stevens (R-AK) convicted on all counts in corruption trial.

The crash

It's easy to over react to the polling, but it really is a bit frightening to see Obama sink from a 14 point lead to a 5 point lead over a mere three days in the one-day samples for the DailyKos tracking poll. That's a nine point shrinkage in three days in a poll with a MOE of about 3 points. In other words, three times the sampling error of the poll.

That, together with the continuing crash of the Asian and European markets last night has my stomach in knots for the day today.

Sunday, October 26, 2008

Run for cover, folks. The caves are filling up fast.

Last year, Volvo sold 41,970 trucks in the third quarter. This year, it sold a total of 115 in the third quarter.

Saturday, October 25, 2008

Stealing the election

Mark my words, if they can find a way to steal this election, they will do it. Here's the plan to steal Ohio:

President Bush is asking the Justice Department to look into whether 200,000 Buckeye State poll-goers must use provisional ballots on Election Day because their names do not match state databases.

Why the Subprime Mezzanine CDO business existed.

Subprime Mezzanine CDOs are 10-20X levered vehicles that contain only the BBB and BBB- tranches of Subprime debt. He told me that the “real money” (US insurance companies, pension funds, etc) accounts had stopped purchasing mezzanine tranches of US Subprime debt in late 2003 and that they needed a mechanism that could enable them to “mark up” these loans, package them opaquely, and EXPORT THE NEWLY PACKAGED RISK TO UNWITTING BUYERS IN ASIA AND CENTRAL EUROPE!!!! These CDOs were the only way to get rid of the riskiest tranches of Subprime debt. Interestingly enough, these buyers (mainland Chinese Banks, the Chinese Government, Taiwanese banks, Korean banks, German banks, French banks, UK banks) possess the “excess” pools of liquidity around the globe.

These pools are basically derived from two sources: 1) massive trade surpluses with the US in USD, 2) petrodollar recyclers. These two pools of excess capital are US dollar denominated and have had a virtually insatiable demand for US dollar denominated debt…until now. They have had orders on the various desks of Wall St. to buy any US debt rated “AAA” by the rating agencies in the US. How do BBB and BBB-tranches become AAA? Through the alchemy of Mezzanine-CDOs. With the help of the ratings agencies the Mezzanine CDO managers collect a series of BBB and BBB- tranches and repackage them with a cascading cash waterfall so that the top tiers are paid out first on all the tranches – thus allowing them to be rated AAA. When you lever ONLY mezzanine tranches of Subprime RMBS 10-20X, you magically have 80% of the structure rated “AAA” by the ratings agencies, despite the underlying collateral being a collection of BBB and BBB- rated assets… This will go down as one of the biggest financial illusions the world has EVER seen. These institutions have these investments marked at PAR or 100 cents on the dollar for the most part. Now that the underlying collateral has begun to be downgraded, it is only a matter of time (weeks, days, or maybe just hours) before the ratings agencies (or what is left of them) downgrade the actual tranches of these various CDO structures. When they are downgraded, these foreign buyers will most likely have to sell them due to the fact that they are only permitted to own “super-senior” risk in the US. These tranches of mezzanine CDOs will fetch bids of around 10 cents on the dollar. The ensuing HORROR SHOW will be frightening. Consequently, when Kudlow on CNBC tells his viewers that the Subprime problem is “contained”, I gasp.

Friday, October 24, 2008

Republican Schizoid

From the DC Underground:
The Republican Party is atomizing, and each faction must participate in Project BLAME. The neocons may want to blame the theocons. The economic conservatives will likely blame the big spenders. The conflagration will be so multi-dimensional we'll need a program to sort out the players. They will need to answer fundamental questions: What does it mean to be a Republican? Do Republicans support laissez-faire or nationalized banking? Do Republicans support a balanced budget or half-trillion-dollar deficits? Do Republicans want a "humble foreign policy" like George W. Bush, or preventive war against countries that pose no threat, like, umm, George W. Bush? Are Republicans the party of limited government or a vast Medicare prescription drug benefit? Are they wary of Big Brother or eager to expand warrantless wiretaps? Do they support Christian values or torture? Are they the party that believes that cutting-edge technology can shoot a missile out of the sky or the party that believes humans and dinosaurs walked the earth simultaneously?

Meet John McCain's Pals

Menachem Rosensaft. Posted October 20, 2008 | 08:33 AM (EST)
Ok, who would you like to see alongside the next President of the United States in a crisis, Warren Buffett or Phil Gramm? General Colin Powell or Randy Scheunemann? Paul Volcker or Nancy Pfotenhauer? We know a great deal about Powell (Republican former Secretary of State, former National Security Advisor and former Chairman of the Joint Chiefs of Staff), Buffett (CEO of Berkshire Hathaway, one of the richest and most successful influential businessmen in the world), and Volcker (former Chairman of the Federal Reserve), all prominent Obama supporters, but what do we know about some of the luminaries who have John McCain's ear?

First and foremost, there is Phil Gramm, the former Chairman of the Senate Banking Committee, whom Nobel Economics Laureate Paul Krugman has called "McCain's guru on economics," and whose deregulation of the banking industry not only enabled banks to go into the subprime mortgage business in the first place, but made possible the "gimmicks" - hybrid instruments, credit swaps and the like - that McCain now rails against. Krugman famously described Gramm in his New York Times column as "the arch-deregulator, who took special care in his Senate days to prevent oversight of financial derivatives -- the very instruments that sank Lehman and A.I.G., and brought the credit markets to the edge of collapse." Gramm, we should all remember, was McCain's most prominent and influential economic adviser until earlier this summer when he dismissed the state of the economy as a "mental recession" and called Americans a "nation of whiners."

McCain has been "palling around" with Phil Gramm for decades. The two are close personal friends, and McCain was national chairman of Gramm's short-lived 1996 bid for the Republican presidential nomination.

And then there are the lobbyists. The neo-con Randy Scheunemann, McCain's chief foreign policy adviser, was a registered foreign agent for the Republic of Georgia and several other countries while simultaneously serving as McCain's senior foreign policy advisor. (Scheunemann also has close ties to the discredited Iraqi politician, Ahmad Chalabi.) In November 2007, Scheunemann discussed Georgia with an aide in McCain's Senate office. And according to the Washington Post, on the same day that Scheunemann was prepping McCain for a telephone call with Georgia's president in April of this year, Scheunemann's lobbying firm signed "signed a $200,000 contract to continue providing strategic advice to the Georgian government in Washington." Both McCain and Sarah Palin have made American support for Georgia a cornerstone of their foreign policy. Palin told Charles Gibson in her ABC News interview that she considered the Russian invasion of Georgia to have been "unprovoked," and that the United States might have to go to war against Russia to protect Georgia. Not surprisingly, Scheunemann was one of the McCain advisers who prepped Palin for the Gibson interview. As Kelley Beaucar Vlahos recently asked in The American Conservative (hardly a left-wing publication), "When McCain suggests there will be 'severe, long-term negative consequences' for Russia if it doesn't leave Georgia alone, how do Americans know that isn't the $800,000 Scheunemann's lobbying shop has gotten from Georgia since 2004 talking?"

Charlie Black, McCain's chief campaign adviser, is a long-time lobbyist for Colombian interests, as are numerous major contributors to the McCain campaign. The lobbying firm Black headed until earlier this year earned more than $1.8 million from Occidental Petroleum Company, Colombia's largest oil and gas producer, and has represented numerous other Colombian businesses and individuals. According to the New York Times, Black

"lobbied Congress, the State Department and the White House on Occidental's behalf regarding 'general energy issues' and 'general trade issues' involving Colombia. His list of activities also included winning 'foreign assistance for Colombia' and efforts to block an economic embargo against the country, which has a questionable human rights record."
Small wonder, then, that McCain considers the Colombian Free Trade Agreement "something that's a no-brainer." McCain's instinctive position appears to be that what's good for his lobbyist pals must be good for the United States. This is the same Charlie Black, incidentally, who told Fortune Magazine in June that another terrorist attack on U.S. soil "would be a big advantage" to McCain, and who masterminded Jesse Helms' racist 1990 North Carolina senatorial campaign against Harvey Gantt.

Still others in the McCain entourage have close ties to the mortgage industry. Campaign Manager Rick Davis used to head the Homeownership Alliance, an advocacy group on the behalf of Fannie Mae and Freddy Mac, and Davis Manafort, the lobbying firm that still bears Davis' name, received monthly $15,000 payments from Freddie Mac until August of this year. And Kurt Pfotenhauer, the husband of McCain's senior policy adviser Nancy Pfotenhauer, was the top lobbyist for the Mortgage Bankers Association. The telegenic Nancy Pfotenhauer is also a former Washington lobbyist for Koch Industries whose Koch Oil subsidiary was once cited by a Senate Committee as "the most dramatic example of an oil company stealing by deliberate mismeasurement and fraudulent reporting." Only a few days ago, Ms. Pfotenhauer said that while the Obama-Biden ticket was doing well in Northern Virginia, "the rest of the state, real Virginia, if you will, I think will be very responsive to Senator McCain's message." She apparently believes that the upstate part of the Commonwealth of Washington, Jefferson, Madison and Monroe has somehow turned into a "fake" Virginia.

Davis has another questionable accomplishment to his credit. According to the Washington Post, he "helped arrange an introduction in 2006 between McCain and a Russian billionaire whose suspected links to anti-democratic and organized-crime figures are so controversial that the U.S. government revoked his visa." No one has suggested that McCain ever did any improper favors for Oleg Deripaska, the billionaire in question who just happens to be, again according to the Washington Post, "one of the richest men in Russia and a close ally of President Vladimir Putin." Nevertheless, the very fact that McCain had dinner and drinks, that is, "palled around," with the controversial Deripaska at least once less than three years ago at an exclusive Swiss resort (seven months later, in August 2006, McCain allegedly had dinner again with Deripaska and Davis in Montenegro) is at least as noteworthy as what Colin Powell has called Barack Obama's "very, very limited relationship" with Bill Ayers on the board of a respected Republican-funded educational foundation in Chicago.

At last week's debate, Barack Obama told us that he would look for guidance and advice to individuals like Warren Buffett, Paul Volcker, Joe Biden, and Richard Lugar, the ranking Republican on the Senate Foreign Relations Committee. We must assume that Phil Gramm, Randy Scheunemann, Charlie Black, Rick Davis and Nancy Pfotenhauer would figure prominently in a McCain-Palin administration. Is there anything else anyone needs to know before going into the voting booth?

Menachem Rosensaft is a lawyer in New York City

America Don't be Blue, They'll Dump Your Credit Default Swaps for You

From the DC Underground:
Washington Post article 10/21/08 on credit default swaps (CDSs) sheds some light on these assets and why they are not like insurance:

1. "...Meanwhile, the New York Fed has been meeting with private companies to set up a private clearinghouse for swap trades that could be in operation by the end of the year.

The clearinghouse, for a fee, would act as an intermediary that would guarantee transactions between swaps traders. In order to make those guarantees, the clearinghouse would require traders to maintain a sufficient amount of capital in their accounts. That would make it difficult to trade swaps without having the resources to cover a contract should a default happen."

2. then we had the pathological gamblers stepping in :

"Originally, swaps acted like insurance policies for bond investors in case a company collapsed and could not pay back buyers of its bonds. To protect themselves against such defaults, bond investors could agree to pay a periodic fee to have another party cover the losses.

Unlike stocks and bonds, credit-default swaps fell outside the government's purview largely because they are private contracts. A law backed by leading Republicans and passed by Congress in 2000 specifically exempted swaps from oversight by the SEC and CFTC, which oversees commodity trading. What else is new... McCain probably voted for it but also Clinton probably approved it.

Since then, big hedge funds and other traders discovered that swaps could be traded and used to speculate on how close a company was to collapse. The market mushroomed. Its total value outgrew that of all publicly traded stocks combined. The swaps market began to affect the financial system in once unimagined ways."

Guess AIG was printing CDSs like little pieces of paper that they collecting a sucker fee for but didn't needed have enough or any assets to cover the CDSs in the event that the bubble burst so now Uncle SAP has to step up for $86 billion but rumor has they are now asking for $ 123 billion. With the CDS market at $55 trillion, AIG must have been printing CDS contracts like monopoly money. Can you even talk about leverage .... it was fraud and a Ponzi scheme where AIG was not able to get out of town fast enough.

Gap Growing Between Rich and Poor

Study concludes that inequality threatens the "American Dream"
The Associated Press
updated 10:58 a.m. ET, Tues., Oct. 21, 2008

PARIS - The gap between rich and poor is getting bigger in the world's richest countries — and particularly the United States — as top earners' incomes soar while others' stagnate, according to a 30-nation report released Tuesday.

In a 20-year study of its member countries, the Paris-based Organization for Economic Cooperation and Development said wealthy households are not only widening the gap with the poor, but in countries such as the U.S., Canada and Germany they are also leaving middle-income earners further behind, with potentially ominous consequences if the global financial crisis sparks a long recession.

Inequality threatens the "American Dream" of social mobility — children doing better than their parents, the poor improving their lot through hard work — which is lower in the U.S. than countries such as Denmark, Sweden and Australia, the report found.

The two decades covered in the study — 1985-2005 — saw the development of global trade and the Internet, and a period of overall strong economic growth. The countries covered are mostly developed nations, especially in Europe.

The United States has the highest inequality and poverty in the OECD after Mexico and Turkey, and the gap has increased rapidly since 2000, the report said. France, meanwhile, has seen inequalities fall in the past 20 years as poorer workers are better paid.

Jefferson on the Need to Regulate Banks: GOP Slept Through This (and Most) History Lesson

'I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.'
Thomas Jefferson 1802

Calling the Bottom of the Market: Who knows?

Has the market hit bottom yet? The current bear wrought roughly a 32.8 decline. Seven of the 10 bear markets have gone lower. Arguably, this decline is at least, if not more, serious than the recent 2000-02 decline of 49% which applied to this market would specify the bottom at about 6400. If we have the Great Crash decline of 865%, the bottom would be 2988.

Here's the data for the last 10 big bear markets

Period % decline/ duration in mos.

9/29- 6/32 86.1 %/ 34 mo

3/37- 4/42 60%/60mo.

5/46- 6/49 40%/37mo.

12/61-6/62 28.0%/6mo.

11/68-5/70 36.1%/18mo

1/73-10/74 48.0%/21mo

11/80-8/82 27.8%/21mo.

8/87-12/87 33.5%/3mo.

3/00-10/02 49.1%/30mo.

10/07- present 32.8%/ 12 mo. so far

Note that most of these occurred when a Republican was President.

20bn barrel oil discovery puts Cuba in the big league

• Self-reliance beckons for communist state
• Estimate means reserves are on a par with US

Friends and foes have called Cuba many things - a progressive beacon, a quixotic underdog, an oppressive tyranny - but no one has called it lucky, until now .

Mother nature, it emerged this week, appears to have blessed the island with enough oil reserves to vault it into the ranks of energy powers. The government announced there may be more than 20bn barrels of recoverable oil in offshore fields in Cuba's share of the Gulf of Mexico, more than twice the previous estimate.

If confirmed, it puts Cuba's reserves on par with those of the US and into the world's top 20. Drilling is expected to start next year by Cuba's state oil company Cubapetroleo, or Cupet.

"It would change their whole equation. The government would have more money and no longer be dependent on foreign oil," said Kirby Jones, founder of the Washington-based US-Cuba Trade Association. "It could join the club of oil exporting nations."

"We have more data. I'm almost certain that if they ask for all the data we have, (their estimate) is going to grow considerably," said Cupet's exploration manager, Rafael Tenreyro Perez.

Havana based its dramatically higher estimate mainly on comparisons with oil output from similar geological structures off the coasts of Mexico and the US. Cuba's undersea geology was "very similar" to Mexico's giant Cantarell oil field in the Bay of Campeche, said Tenreyro.

A consortium of companies led by Spain's Repsol had tested wells and were expected to begin drilling the first production well in mid-2009, and possibly several more later in the year, he said.

Cuba currently produces about 60,000 barrels of oil daily, covering almost half of its needs, and imports the rest from Venezuela in return for Cuban doctors and sports instructors. Even that barter system puts a strain on an impoverished economy in which Cubans earn an average monthly salary of $20.

Subsidised grocery staples, health care and education help make ends meet but an old joke - that the three biggest failings of the revolution are breakfast, lunch and dinner - still does the rounds. Last month hardships were compounded by tropical storms that shredded crops and devastated coastal towns.

"This news about the oil reserves could not have come at a better time for the regime," said Jonathan Benjamin-Alvarado, a Cuba energy specialist at the University of Nebraska.

However there is little prospect of Cuba becoming a communist version of Kuwait. Its oil is more than a mile deep under the ocean and difficult and expensive to extract. The four-decade-old US economic embargo prevents several of Cuba's potential oil partners - notably Brazil, Norway and Spain - from using valuable first-generation technology.

"You're looking at three to five years minimum before any meaningful returns," said Benjamin-Alvarado.

Even so, Cuba is a master at stretching resources. President Raul Castro, who took over from brother Fidel, has promised to deliver improvements to daily life to shore up the legitimacy of the revolution as it approaches its 50th anniversary.

Cuba's unexpected arrival into the big oil league could increase pressure on the next administration to loosen the embargo to let US oil companies participate in the bonanza and reduce US dependency on the middle east, said Jones. "Up until now the embargo did not really impact on us in a substantive, strategic way. Oil is different. It's something we need and want

All you Cubans in Miami can kiss the sanctions against Cuba good by. All your republican friends will be deserting you. Why, because Cuba has oil. Anyone who has oil is our friend, take a look at any communist country that has oil.

Why the economy fares much better under Democrats

On job and income growth, the record couldn't be clearer.
By Larry M. Bartels
October 21, 2008 edition
Christian Science Monitor
Princeton, N.J. - John McCain is a maverick and Barack Obama is a postpartisan problem-solver. But you wouldn't know it by looking at their economic plans. Both candidates' proposals faithfully reflect the traditional economic priorities of their respective parties. That makes the track records of past Democratic and Republican administrations a very useful benchmark for assessing how the economy might perform under a President McCain or a President Obama. The bottom line: During the past 60 years, Democrats have presided over much less unemployment and much more robust income growth.

The $52.5 billion plan Senator McCain announced last week includes $36 billion in tax breaks for senior citizens withdrawing funds from retirement accounts and $10 billion for a reduction in the capital gains tax. Those are perks for investors, most of whom are relatively affluent. (McCain is also proposing a two-year suspension of taxes on unemployment benefits, but that's a fraction of the plan's cost.) He also favors broader tax cuts for businesses and wants to extend President Bush's massive tax cuts indefinitely, even for people earning more than $250,000 per year.

McCain's proposals reflect the traditional Republican emphasis on cutting taxes for businesses and wealthy people in hopes of stimulating investment – "trickle down" economics, as it came to be called during Ronald Reagan's administration. But will proposals of this sort really "stop and reverse the rise of unemployment" and "create millions of new jobs" as McCain has claimed? The historical record suggests not.

President Bush's multitrillion-dollar tax cuts, which were strongly tilted toward the rich, could not prevent (and may even have contributed to) significant job losses. On the other hand, when Bill Clinton raised taxes on affluent people to balance the federal budget (while significantly expanding the Earned Income Tax Credit for working poor people), unemployment declined substantially. Under Clinton's watch, 22 million jobs were created.

Prefer a broader historical comparison? In the past three decades, since the Organization of the Petroleum Exporting Countries oil price shocks of the mid-1970s and the Republican turn toward "supply side" economics, the average unemployment rate under Republican presidents has been 6.7 percent – substantially higher than the 5.5 percent average under Democratic presidents. (The official unemployment rate takes no account of people who have given up looking for work or taken substantial pay cuts to stay in the labor force.) Over an even broader time period, since the late 1940s, unemployment has averaged 4.8 percent under Democratic presidents but 6.3 percent – almost one-third higher – under Republican presidents.

Lower unemployment under Democratic presidents has contributed substantially to the real incomes of middle-class and working poor families. Job losses hurt everyone – not just those without work. In fact, every percentage point of unemployment has the effect of reducing middle-class income growth by about $300 per family per year. And the effects are long term, unlike the temporary boost in income from a stimulus check. Compounded over an eight-year period, a persistent one-point difference in unemployment is worth about $10,000 to a middle-class family. The dollar values are smaller for working poor families, but in relative terms their incomes are even more sensitive to unemployment. In contrast, income growth for affluent people is much more sensitive to inflation, which has been a perennial target of Republican economic policies.

Although McCain portrays Senator Obama as a "job killing" tax-and-spend liberal, the new $60 billion plan Obama unveiled last week also has a tax break as its centerpiece – a tax break specifically tailored to create jobs by offering employers a $3,000 tax credit for each new hire over the next two years. Obama's proposal would also extend unemployment benefits by 13 weeks for those who remain jobless, as well as match McCain's in suspending taxes on unemployment benefits.

Obama's new proposal complements $115 billion in economic stimulus measures he had already announced, including $65 billion in direct rebates to taxpayers and $50 billion to help states jump-start spending on infrastructure projects. All of this is squarely in the tradition of Democratic presidents since John F. Kennedy, who have relied on public spending and tax breaks for working people to stimulate consumption and employment during economic downturns.

These and other policies have produced not only lower unemployment under Democratic presidents but also more economic output and income growth. In fact, over the past 60 years, the real incomes of middle-income families have grown about twice as fast under Democratic presidents as they have under Republican presidents. The partisan difference is even greater for working poor families, whose real incomes have grown six times as fast under Democratic presidents as they have under Republican presidents.

Of course, past performance is no guarantee of what will happen when the next president takes office. However, given the striking fidelity of both presidential candidates to their parties' traditional economic priorities, the profound impact of partisan politics on the economic fortunes of American families over more than half a century ought to weigh heavily in the minds of voters.

• Larry M. Bartels directs the Center for the Study of Democratic Politics in Princeton University's Woodrow Wilson School of Public and International Affairs. He is the author of "Unequal Democracy: The Political Economy of the New Gilded Age."

Palin backs shipping Alaskan LNG to Japan

Oct 21 03:15 AM US/Eastern
AP National Writer

On the campaign trail, Sarah Palin says repeatedly that America must tap its own natural gas and oil reserves to become energy-independent.
But the Alaska governor and GOP vice presidential candidate has pushed the federal government to allow a liquefied natural gas plant to continue exporting to Asia—the only such plant in the United States that sends the product overseas.

"When we talk about energy, we have to consider the need to do all that we can to allow this nation to become energy-independent," Palin said earlier this month during the vice presidential debate. "It's a nonsensical position that we are in when we have domestic supplies of energy all over this great land. And East Coast politicians who don't allow energy-producing states like Alaska to produce these, to tap into them, and instead we're relying on foreign countries to produce for us."

This summer, Palin cheered the Energy Department for extending an export license for the Kenai Liquefied Natural Gas facility. The license allowed the Alaska plant to continue shipping its products to Asia through 2011.

The plant began shipping its product exclusively to Japan in 1969, renewing federal export permits every few years. As energy prices have soared in recent years, and with supplies dwindling, there has been increased opposition to allowing the plant to export.

The current license extends a permit that otherwise would have expired in 2009.

"In these times of economic uncertainty, this is great news for the state and its residents," Palin said when the license was approved in June.

During negotiations, which began last year, Palin had pressed for enough natural gas to serve Alaska to remain in-state. She added, however, that the rest should be shipped primarily to Japan.

The license was granted despite opposition from some federal officials who argued that domestic liquefied natural gas should be sold within the U.S.

"If America is really so short of energy that we need to drill in national wildlife refuges and other sensitive areas, why should energy supplies, sitting in U.S. terminals, be sent back out of the country simply because these energy companies can get a higher price from a foreign buyer?" Sen. Ron Wyden, D-Ore., said.

The plant's owners, Marathon Oil Corp. and ConocoPhillips, had argued that U.S. terminals equipped to handle shipments of liquefied natural gas were too far away, on the East Coast, in the South or in Puerto Rico.

San Diego-based Sempra Energy opened a new $975 million terminal in Baja, Mexico, in May. Its pipelines connect to California, Texas and Arizona.

Volatile oil and gas prices and limited energy supplies have prompted a steady increase in U.S. use of liquefied natural gas.

But aside from Alaska, there is no domestic production.

So while the United States imported 771 billion cubic feet of natural gas last year from Trinidad and Tobago, Algeria, Egypt, Equatorial Guinea, Nigeria and Qatar, Alaska is expected to export 100 billion cubic feet to Asia over the next two years

You knew something like this was coming from the slime throwers

Reproduced in full from Publius at Obsidian Wings:

I usually only read people like Riehl through the filter of John Cole and Tim F. But I saw (via Memeorandum) that Riehl wrote something about Obama's grandmother, and assumed the worst. Turns out, I was right -- it's the worst:

Man. I hope his numbers don't start to drop. He might have to hold a pillow against her face and maybe later break into tears the way Hillary did. Only I suspect hers were genuine.

You read it there first folks -- if his numbers drop, Obama might have to murder his grandmother and then cry fake tears about it.

Training Iraq to spend its surplus

I just saw this headline:

U.S. working to train Iraq to spend billion-dollar surplus

I would think a few days with Sarah Palin's clothes purchasing team should do the trick.

Thursday, October 23, 2008

Flash from the past

I saw a relatively new car today sporting a relatively new looking "Nixon-Agnew" bumper sticker.

Question: Who is the driver really supporting? Obama or McCain?


The Manchurian candidate

I find the Republican meme that Obama is some kind of Manchurian candidate really amusing. Think about it for a minute. If anyone is likely to be the Manchurian candidate it's McCain. Just go back and think about the plot line in the movie. The Manchurian candidate was a POW who was tortured and then hypnotized by his captors to be under their control whenever they triggered the hypnotic response. Which of our two candidates was a POW? Which of our two candidates was tortured by his captors? ...

Wednesday, October 22, 2008


It appears Obama is launching a stinging new robocall to counter McCain's sleaze. But, couldn't they have found a different name? Here's the transcript:

Hi, this is Jeri Watermolen, calling for the Campaign for Change. I live in Green Bay and, like you, I've been getting sleazy phone calls and mail from John McCain and his supporters viciously -- and falsely -- attacking Barack Obama. I used to support John McCain because he honorably served our country -- but this year he's running a dishonorable campaign. We know McCain will continue many of Bush's policies, and now he's using George Bush's divisive tactics. In fact, he hired the Bush strategists whose attacks even McCain once called hateful.

Barack Obama will turn the page on these negative politics and stand up for the middle class. That's the change we need, and it's why I have changed my mind about John McCain. Join me in voting for Barack Obama. Paid for the Campaign for Change, a project of the Democratic Party of Wisconsin, 608-255-5172, and authorized by Obama for America.

I mean, whether you spell it molen or melon, Watermelon is the very symbol of the lazy southern black sittin on the door stoop eatin his watermelon. Puhleeze!

Tuesday, October 21, 2008

Can't wait

I am sitting on pins and needles to see what crazy spin the right wingnuts are going to put on Obama's decision to leave the campaign trail in order to visit his seriously ill grandmother in Hawaii. Perhaps they'll say it's actually a secret trip to the Afghan-Pakistani border to meet with his boss and namesake, Osama bin Biden. Or, maybe they'll laugh about how he didn't have the guts to face the music while McCain trounced him so he ran away. I'm sure there will be something along those lines. They never fail.

Monday, October 20, 2008

Trig? Track?

Hey, if Sarah Palin is such a religious person, what’s wrong with the Biblical names that Real Americans give to their children? Trig, Willow, Track, Bristol and Piper? Sounds pretty un-Christian and un-American to me.

Obama? According to one source, Natasha means "Birth of Christ," Malia is a Hawaiian version of Mary.

Naming your kids: putting your money where your mouth is.

Sunday, October 19, 2008

Seething hatred

I just finished watching Colin Powell's endorsement of Barack Obama on Meet the Press, and the most remarkable thing about the whole show (apart from the endorsement itself) is how Tom Brokaw can barely disguise his seething hatred for Obama. And, then, of course, there was the second half of the show with four conservative commentators (counting Brokaw, Brooks, Mitchell, and Scarborough) and one non-partisan person on the other side.

Saturday, October 18, 2008

Hedge fund manager quits

Posted without further comment:

Andrew Lahde, the hedge-fund manager who quit after posting an 870 percent gain last year, said farewell to clients in a letter that thanks stupid traders for making him rich and ends with a plea to legalize marijuana.

Lahde, head of Santa Monica, California-based Lahde Capital Management LLC, told investors last month he was returning their cash because the risk of using credit derivatives -- his means of betting on the falling value of bonds and loans, including subprime mortgages -- was too risky given the weakness of the banks he was trading with.

``I was in this game for money,'' Lahde, 37, wrote in a two-page letter today in which he said he had come to hate the hedge-fund business. ``The low-hanging fruit, i.e. idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government.

``All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other sides of my trades. God Bless America.''

What's she saying?

This is a strange quote:

Federal Reserve Bank of San Francisco President Janet Yellen said in a speech this week that the plunge in oil prices along with slackening demand for labor and goods should "push inflation down to, and possibly even below, rates that I consider consistent with price stability."

By definition, "inflation" means rising prices, so any inflation whatsoever is inconsistent with "price stability."


Counting chickens

The other day I said something about not counting chickens yet but hearing peeps from inside the eggs. Unfortunately, the peeps have stopped now that McCain is gaining in the polls. He now leads by more than the MOE among men in general and by an enormous margin among white men -- and that's before taking account of any "Bradley effect."

The fat lady hasn't sung yet. And, don't forget, all those teeny boppers who are supposed to put Obama over the top NEVER vote.


Thursday, October 16, 2008

What's next?

McCain way behind in polls.

Election day nearing.

McCain claims that Acorn vote (registration) fraud threatens to undermine the very fabric of our Democracy (as one blogger notes, wouldn't the Soviet Union have liked to know that all they had to do was hire a bunch of poor blacks to register voters in order to undermine our democracy).

FBI decides to start massive investigation of Acorn vote fraud.

What's next? Emergency postponement of the election for a month or two so McCain can catch up?

Counting chickens

I'm not ready to start counting chickens yet, but I am beginning to hear peeps from inside the egg shells. Of course, maybe it's just my hearing going south.

Bush Strategist: McCain Knows He Put Country At Risk With Palin Pick

by Sam Stein

Matthew Dowd, a prominent political consultant and chief strategist for George W. Bush's reelection campaign eviscerated John McCain on Tuesday for his choice of Sarah Palin as vice president.

Dowd proclaimed that, in his heart of hearts, McCain knew he put the country at risk with his VP choice and that he would "have to live" with that fact for the rest of his career.

"They didn't let John McCain pick the person he wanted to pick as VP," Dowd declared during the Time Warner Summit panel. "When Sarah Palin got picked instead of Joe Lieberman, which I fundamentally believed would have given John McCain the best opportunity in this race... as soon as he picked Palin, that whole ready versus not ready argument was not credible."

Saying that Palin was a "net negative" on the ticket, he went on: "[McCain] knows, in his gut, that he put somebody unqualified on the ballot. He knows that in his gut, and when this race is over that is something he will have to live with... He put somebody unqualified on that ballot and he put the country at risk, he knows that."

The other panelists were surprised, a bit, by Dowd's bluntness. Not least because McCain's well-known campaign motto is "country first."

"No, I don't agree," said Mark McKinnon, a former McCain aide, after chiding Dowd for claiming particular insight into McCain's soul.

"Well," responded Dowd, "that's even more disturbing than my thought."

Time columnist Joe Klein summed up what seemed to be the panel's Palin consensus.

"It was a gimmick," he said of the pick. "It was one of the most disastrous decisions I have seen in a presidential campaign since I've begun covering them."

Later in the session, Hilary Rosen, the Huffington Post's Washington editor at large, noted that the Palin pick had been successful in energizing the Republican base -- and McCain himself. But Dowd wasn't biting.

"To me it is like Halloween," he said. "You get energized by eating all that candy at night but then you feel sick the next day."

Pres. Debate #3: Obama Takes the High Road Laid Back

My take on tonight's debate was:

Obama pluses:
-Health care-nailed McSame on increasing the cost
-Tax proposal efanged the "spread the wealth" canard
-Discredit of McSame budget freeze
-Far more Presidential demeanor, but will Joe Lunchbucket notice or care

-Budget freeze amplification missed, i.e. a violation of good economics to do in a recession
-not counter continuing lie that he would raise small busines taxes though he did point out that 95% of them were below $250k income hence 5% get no tax increase.
-not rebutt lies about Biden
-not attack Palin's competence, though that may have been sit on your lead strategy
-did not counter the ironic comparison to Hoover with "you should know John given your policy is the same as Hoover's"
-did not counter "should have run 4 years ago if want to run v. Bush" with "I think I am running against him now since there is no difference between your policies and his."

Both ducked any specifics on the salient financial bailout issue although McSame tried to explain a proposal for home mortgages that was gobbldygook.

Wednesday, October 15, 2008

Verizon & ATT give McCain free Service

Because he's a presidential candidate:

Early in 2007, just as her husband launched his presidential bid, Cindy McCain decided to resolve an old problem -- the lack of cellular telephone coverage on her remote 15-acre ranch near Sedona, nestled deep in a tree-lined canyon called Hidden Valley.

By the time Sen. John McCain's presidential bid was in full swing this summer, the ranch had wireless coverage from the two cellular companies most often used by campaign staff -- Verizon Wireless and AT&T.

Verizon delivered a portable tower know as a "cell site on wheels" -- free of charge -- to Cindy McCain's property in June in response to an online request from Cindy McCain's staff early last year. Such devices are usually reserved for restoring service when cell coverage is knocked out during emergencies, such as hurricanes.

In July, AT&T followed suit, wheeling in a portable tower for free to match Verizon's offer. "This is an unusual situation," said AT&T spokeswoman Claudia B. Jones. "You can't have a presidential nominee in an area where there is not cell coverage."

Hmmmmm. Did Obama get free service? No.

Wake me up in time to watch the lions eat the Christians

You think you've got it bad

The median house price in Detroit last month was $9,250. That's right. Not $92,500. $9250. That means half the houses sold for less than $9,250.

The median price on a house or condo sold in Detroit last month plummeted 57%, to $9,250, from $21,250 a year ago, according to figures released Monday by Realcomp, a multiple listing service based in Farmington Hills.

I've decided to call the bottom on the Dow. I'm calling for a bottom somewhere between 6,000 and 6,500. But, if it breaks below 6,000, I'm calling the bottom at 4,000. But, if it breaks ...

Did somebody say there was a bottomless pit?

Debate question

Should McCain come on stage tonight with that Sheriff from Florida (or someone like him) to have Obama cuffed, arrested, and perp marched out of the place as a suspected terrorist?

It would be one way to make a big splash, wouldn't it? I mean hell, if you're going to call him a terrorist, put your money where your mouth is.

Anchorage Paper Calls Palin Response to Troopergate 'An Embarrassment'

From the DC underground:

By E&P Staff
Published: October 14, 2008 10:10 AM ET NEW YORK

Since its release late last Friday, the Alaska legislatures "Troopergate" has drawn much attention, and Gov. Sarah Palin has claimed numerous times that it actually found no ethical misdeeds on her part -- even as it charged her with a serious "abuse of power." The main paper in her home state is not buying it.

The Anchorage Daily News' angry editorial today was topped with the headline: "Palin vindicated? Governor offers Orwellian spin." It opens: "Sarah Palin's reaction to the Legislature's Troopergate report is an embarrassment to Alaskans and the nation.

"She claims the report 'vindicates' her. She said that the investigation found 'no unlawful or unethical activity on my part.'

"Her response is either astoundingly ignorant or downright Orwellian."

An excerpt follows.

In plain English, she did something "unlawful." She broke the state ethics law.

Perhaps Gov. Palin has been too busy to actually read the Troopergate report. Perhaps she is relying on briefings from McCain campaign spinmeisters.

That's the charitable interpretation. Because if she had actually read it, she couldn't claim "vindication" with a straight face.

Palin asserted that the report found "there was no abuse of authority at all in trying to get Officer Wooten fired."

In fact, the report concluded that "impermissible pressure was placed on several subordinates in order to advance a personal agenda, to wit: to get Trooper Michael Wooten fired."

Palin's response is the kind of political "big lie" that George Orwell warned against. War is peace. Black is white. Up is down.

Gov. Palin and her camp trumpeted the report's second finding: that she was within her legal authority to fire Public Safety Commissioner Walt Monegan. But the report also said it's likely one of the reasons she fired him was his failure to get rid of her ex-brother-in-law trooper.

That's not "vindication," and surely Gov. Palin knows it.

If anyone is going to vote for this ticket, you are doing the rest of us Americans a grave disservice. Abuse of power was what Watergate was about. Sartah Barracuda and McSame (Keating Five) have a track records for abusing their power going in. Do you think they won't abuse their power once in office the first time a bad situation comes along?

Sorry, Dad, I'm Voting for Obama

by Christopher Buckley
October 10, 2008 | 7:33am

The son of William F. Buckley has decided—shock!—to vote for a Democrat.

Let me be the latest conservative/libertarian/whatever to leap onto the Barack Obama bandwagon. It's a good thing my dear old mum and pup are no longer alive. They'd cut off my allowance.

Or would they? But let's get that part out of the way. The only reason my vote would be of any interest to anyone is that my last name happens to be Buckley—a name I inherited. So in the event anyone notices or cares, the headline will be: "William F. Buckley's Son Says He Is Pro-Obama." I know, I know: It lacks the throw-weight of "Ron Reagan Jr. to Address Democratic Convention," but it'll have to do.

Dear Pup once said to me, "You know, I've spent my entire life time separating the Right from the kooks."

I am—drum roll, please, cue trumpets—making this announcement in the cyberpages of The Daily Beast (what joy to be writing for a publication so named!) rather than in the pages of National Review, where I write the back-page column. For a reason: My colleague, the superb and very dishy Kathleen Parker, recently wrote in National Review Online a column stating what John Cleese as Basil Fawlty would call "the bleeding obvious": namely, that Sarah Palin is an embarrassment, and a dangerous one at that. She's not exactly alone. New York Times columnist David Brooks, who began his career at NR, just called Governor Palin "a cancer on the Republican Party."

As for Kathleen, she has to date received 12,000 (quite literally) foam-at-the-mouth hate-emails. One correspondent, if that's quite the right word, suggested that Kathleen's mother should have aborted her and tossed the fetus into a Dumpster. There's Socratic dialogue for you. Dear Pup once said to me sighfully after a right-winger who fancied himself a WFB protégé had said something transcendently and provocatively cretinous, "You know, I've spent my entire life time separating the Right from the kooks." Well, the dear man did his best. At any rate, I don't have the kidney at the moment for 12,000 emails saying how good it is he's no longer alive to see his Judas of a son endorse for the presidency a covert Muslim who pals around with the Weather Underground. So, you're reading it here first.

As to the particulars, assuming anyone gives a fig, here goes:

I have known John McCain personally since 1982. I wrote a well-received speech for him. Earlier this year, I wrote in The New York Times—I'm beginning to sound like Paul Krugman, who cannot begin a column without saying, "As I warned the world in my last column..."—a highly favorable Op-Ed about McCain, taking Rush Limbaugh and the others in the Right Wing Sanhedrin to task for going after McCain for being insufficiently conservative. I don't—still—doubt that McCain's instincts remain fundamentally conservative. But the problem is otherwise.

McCain rose to power on his personality and biography. He was authentic. He spoke truth to power. He told the media they were "jerks" (a sure sign of authenticity, to say nothing of good taste; we are jerks). He was real. He was unconventional. He embraced former anti-war leaders. He brought resolution to the awful missing-POW business. He brought about normalization with Vietnam—his former torturers! Yes, he erred in accepting plane rides and vacations from Charles Keating, but then, having been cleared on technicalities, groveled in apology before the nation. He told me across a lunch table, "The Keating business was much worse than my five and a half years in Hanoi, because I at least walked away from that with my honor." Your heart went out to the guy. I thought at the time, God, this guy should be president someday.

A year ago, when everyone, including the man I'm about to endorse, was caterwauling to get out of Iraq on the next available flight, John McCain, practically alone, said no, no—bad move. Surge. It seemed a suicidal position to take, an act of political bravery of the kind you don't see a whole lot of anymore.

But that was—sigh—then. John McCain has changed. He said, famously, apropos the Republican debacle post-1994, "We came to Washington to change it, and Washington changed us." This campaign has changed John McCain. It has made him inauthentic. A once-first class temperament has become irascible and snarly; his positions change, and lack coherence; he makes unrealistic promises, such as balancing the federal budget "by the end of my first term." Who, really, believes that? Then there was the self-dramatizing and feckless suspension of his campaign over the financial crisis. His ninth-inning attack ads are mean-spirited and pointless. And finally, not to belabor it, there was the Palin nomination. What on earth can he have been thinking?

All this is genuinely saddening, and for the country is perhaps even tragic, for America ought, really, to be governed by men like John McCain—who have spent their entire lives in its service, even willing to give the last full measure of their devotion to it. If he goes out losing ugly, it will be beyond tragic, graffiti on a marble bust.

As for Senator Obama: He has exhibited throughout a "first-class temperament," pace Oliver Wendell Holmes, Jr.'s famous comment about FDR. As for his intellect, well, he's a Harvard man, though that's sure as heck no guarantee of anything, these days. Vietnam was brought to you by Harvard and (one or two) Yale men. As for our current adventure in Mesopotamia, consider this lustrous alumni roster. Bush 43: Yale. Rumsfeld: Princeton. Paul Bremer: Yale and Harvard. What do they all have in common? Andover! The best and the brightest.

I've read Obama's books, and they are first-rate. He is that rara avis, the politician who writes his own books. Imagine. He is also a lefty. I am not. I am a small-government conservative who clings tenaciously and old-fashionedly to the idea that one ought to have balanced budgets. On abortion, gay marriage, et al, I'm libertarian. I believe with my sage and epigrammatic friend P.J. O'Rourke that a government big enough to give you everything you want is also big enough to take it all away.

But having a first-class temperament and a first-class intellect, President Obama will (I pray, secularly) surely understand that traditional left-politics aren't going to get us out of this pit we've dug for ourselves. If he raises taxes and throws up tariff walls and opens the coffers of the DNC to bribe-money from the special interest groups against whom he has (somewhat disingenuously) railed during the campaign trail, then he will almost certainly reap a whirlwind that will make Katrina look like a balmy summer zephyr.

Obama has in him—I think, despite his sometimes airy-fairy "We are the people we have been waiting for" silly rhetoric—the potential to be a good, perhaps even great leader. He is, it seems clear enough, what the historical moment seems to be calling for.

So, I wish him all the best. We are all in this together. Necessity is the mother of bipartisanship. And so, for the first time in my life, I'll be pulling the Democratic lever in November. As the saying goes, God save the United States of America