"Obama Attacks McCain’s Mortgage Plan"

NY Times:

This 30-second advertisement for Senator Barack Obama will be shown across the nation on national cable television, according to the campaign. It is titled “Tested.”

PRODUCER Obama campaign media team

THE SCRIPT A narrator says: “In a time of crisis, our leaders’ judgment is tested. On Tuesday, an announcement.” Senator John McCain: “I would order the secretary of the Treasury to immediately buy up the bad home loan mortgages in America.” The narrator: “On Wednesday, the details. McCain would shift the burden from lenders to taxpayers guaranteeing a loss of taxpayer money. Who wins? The same lenders that caused the crisis in the first place. Putting bad actors ahead of taxpayers? We can’t afford more of the same.”

ON THE SCREEN The advertisement opens with still images: a foreclosed home with a “For Sale” sign, a worried stock trader, the Capitol. Then a clip of Mr. McCain’s announcing of his home mortgage plan at the debate Tuesday. The narrator says the plan would “shift the burden from lenders to taxpayers” as a graphic of a CNN Money.com article that reaches a similar conclusion appears on the screen. The advertisement ends with images of a street sign on Wall Street, followed by a photograph of Mr. McCain with President Bush.

ACCURACY Even Mr. McCain’s economic adviser, Douglas Holtz-Eakin, conceded that the plan would place a burden on taxpayers. Under the proposal, the government could buy the home loans of Americans who are at risk of defaulting (or are already delinquent) and allow them to obtain new mortgages at more favorable rates. Taxpayers would be responsible for the difference in value between the old and new mortgages. It is very likely the McCain plan would result in “a loss of taxpayer money,” as the message says.

While the advertisement portrays lenders as the winners in this arrangement, it fails to acknowledge the potential benefits to homeowners, namely more affordable mortgages. Mr. Holtz-Eakin has also noted that stabilizing home values would speed economic recovery. The commercial does not mention the fact that legislation, including the $700 billion bailout bill that Congress and the president approved last week, paved the way for the plan that Mr. McCain proposed. Both Mr. McCain and Mr. Obama supported the bill.

SCORECARD With millions of Americans at risk of foreclosure, Mr. Obama has seized on Mr. McCain’s mortgage proposal as a way to question his judgment on economic issues. While the advertisement glosses over the critical point of the McCain plan — that it is meant to be a lifeline for homeowners before they slide into foreclosure — it makes some valid points about the new liabilities taxpayers would face.

Barack Obama

The Daily Show: "Clusterf#@k to the Poor House - Bailout Bill Passes" (video)

The Daily Show, video (08:24).

Howie P.S.: The video ain't pretty, but it is pretty funny. On the other hand, what the McCain campaign is going to do in the next 31 days is neither:

Sen. John McCain and his Republican allies are readying a newly aggressive assault on Sen. Barack Obama's character, believing that to win in November they must shift the conversation back to questions about the Democrat's judgment, honesty and personal associations, several top Republicans said.

"Net Backlash Hinders Bailout"

Ari Melber:

If you believe the wisdom of the crowd, this bailout blows.

An intense and often spontaneous Internet backlash hindered bipartisan efforts to pass the $700 billion bailout. As soon as the basics of the measure were publicized, e-mail and Web discussions exposed a sharp and important divide between the public and elites on the proposal. Proponents insist the "rescue plan" is essential to shoring up credit and stabilizing the financial markets, while critics say taxpayer money should not be spent to bail out irresponsible behavior on Wall Street. A remarkably broad coalition of elites back the bailout measure, of course, from both parties' nominees and congressional leaders to the majority of commentators across the corporate media spectrum. Across the fuller spectrum of the Internet, however, it's a different story.

Websites of all stripes are brimming with intense opposition to the plan. Bailout talk dominated the blogopshere this week. References to the measure hit a staggering 14,000 per day at its peak, for the vote on Monday, according to the blog search engine Technorati.com. (By comparison, references to "Obama," an international Web sensation, average about 8,000 per day.) On Capitol Hill, the high volume of constituent e-mail against the bailout has computers on the brink of crashing--literally. Congress temporarily banned e-mail to representatives because its website, House.gov, was about to go down. On Tuesday, a House official told members that the unusual step was "temporarily necessary to ensure that Congressional websites are not completely disabled by the millions of e-mails flowing into the system."

The vast majority of e-mails are against the bailout, according to politicians who have disclosed estimates. Senator Sherrod Brown said in a newspaper interview that a whopping 95 percent of his e-mail opposed the measure and "nearly all" of Senator Barbara Boxer's e-mail was against the bill, according to her staff.

"What happened this week online has been far more spontaneous than organized," said blogger David Sirota, author of The Uprising, a recent book about the "populist revolt" against Wall Street and Washington. "Many of the organizational players actually stayed on the sidelines, but the Internet became a real outlet for activists and the public to vent its outrage to Congress," he told The Nation. Groups like U.S. Action tapped into that sentiment, using net and grassroots outreach to quickly organizing more than 250 street protests around the country. Activists also used the Web to pick apart and expose the entire bailout bill, which some members did not read in full. (The version that passed on Wednesday ran hundreds of pages, and Senator John McCain acknowledged he did not read the three-page summary circulated by the Treasury Secretary. Web transparency advocates are fighting that habit, too.)

On the popular progressive site Hullabaloo, a blogger named dday wrote that Monday's dramatic House vote was the culmination of an uprising by average citizens, online and off, who have lost any faith that political elites are acting in their interest.

"Nobody has confidence in the political system," dday argued, "there's no trust and no belief, and so a popular uprising is the result... While the support of the bill was mixed, the opposition was quite vocal and almost nobody believed that regular people would get anything out of it." It was clearly "regular people," in districts red and blue, who deluged the House, expressing scorn for the bailout and rejecting the crisis narrative that was unfolding on the nightly news. There is no way to determine exactly how many members of Congress were swayed, but many who opposed the vote said they were prioritizing the public's views over intense pressure from their party, their donors and (some) experts.

"When the White House and Congress, two highly unpopular institutions at the moment, come along with a top-down, no-debate, no-transparency, save-the-fatcats bill and ask for its immediate passage," writes TechPresident co-founder Micah Sifry, "we shouldn't be surprised to see those same forces reflexively hit back."

Sifry, a longtime campaign finance reform advocate (and former Nation staff writer), argues that the Internet is beginning to counter the dominance of special interests and top-down deal-making. It is "not enough to stop" the ultimate passage of the bailout bill, he says, but the backlash hints at fundamental ways to "alter the way business is done on Capitol Hill."

Pitted against a united political and media establishment, average voters were outgunned on the bailout battle from the start. If you believed the media and experts last week, the bill was an essential measure headed for speedy passage on Monday. It was another one of those inevitable, bipartisan solutions--crafted on Wall Street, sold on K Street, purchased in the Capitol and relentlessly promoted back in the Midtown Manhattan broadcast studios--with no role for the public who would foot the bill. The Web helped people storm the debate, rallying opposition to buck two branches of government and shock the markets.

Ultimately, reactive net movements are not positioned to spontaneously unite behind one alternative, and the bailout's powerful backers are getting much of what they want. That is not, however, the only result. A different Congressional leadership might have tapped this uprising to break with the president, and push a completely new plan (vesting authority in an independent body instead of the Treasury Secretary, for example, or prioritizing credit assistance, domestic spending and re-regulation instead of such a large package for Wall Street.)

A significant number of politicians and candidates have been jolted by the reaction. And only the public knows if the uprising will continue after Election Day.

Senate Bailout Vote: Murray "Yes"--Cantwell "No"

Andrew (NPI Advocate):

Minutes ago, the United States Senate voted seventy four to twenty five to pass fundamentally flawed legislation that would bail out Wall Street's mistakes to the tune of nearly three fourths of a trillion dollars.

Ken posted the roll call earlier.

Voting yes were Senators Patty Murray, Larry Craig and Gordon Smith. Voting no were Senators Maria Cantwell, Mike Crapo and Ron Wyden.

Senators Obama and McCain voted yes.

The following is the text of Senator Cantwell's unprepared remarks (delivered earlier this evening on the Senate floor) calling for a redesigned solution that addresses the causes of this financial crisis - a solution that safeguards America's common wealth and holds Wall Street accountable.

Mr. President, I don't think 5 minutes would possibly be enough time for me to explain all the things I would like to say. I am sure I could spend an hour talking about credit default swaps. I am sure I could spend 2 days talking about the lack of transparency in the financial markets.

I am sure I could spend a lot of time explaining what I think is the right thing we should do to put as much liquidity into the markets as possible. So I will try to be succinct.

I came to the Senate knowing what it is like to take a tough vote. To make the decision that is right for the American public. It’s most important to do the right thing. I also know what it is like to see millions of dollars in the stock market go away and watch a stock bubble burst.

I also know what it is like to stand on the Senate floor, as I did 3 years ago, when someone tried to cram legislation in the Defense authorization bill to open up drilling in the Arctic Wildlife Refuge, and I said then that is was the equivalent to legislative blackmail.

I am not going to vote for this legislation tonight based on whether someone crams in tax credits, for which I actually have fought so hard. I am going to render my decision based on what I think is important for the American people.

I think there is something that is missing in our discussion. I applaud Chairman Dodd who has worked hard on the Banking Committee. I applaud my colleague who just spoke, who spoke eloquently about the need to do something.

But the problem with the legislation before us is that it is choosing winners and losers in corporate America. It is inserting the Federal Government in a role in which they decide, along with the private sector, exactly how funds should be allocated.

I am for the full faith and credit of the U.S. Government backing these institutions. What I am not for is turning the keys to the Treasury over to the private sector.

There is much we could agree on tonight. We could agree on the new changes to the FDIC rule. We could agree on mark to market accounting changes and to bringing better marketing and accountability to the system.

We could agree on the up-tick rule and other predictability measures that help the market understand that there is a broad commitment by this institution to do something to help stabilize the markets.

But I am very concerned about the "pick here, pick there" approach that has transpired in the last several weeks.

I ask you to just think of one institution, in my State, Washington Mutual - which I would not necessarily applaud for its subprime lending rates or for its use and backing of credit default swaps, but I would ask you to consider the fact that as that institution was forced into sale by this Government.

Who were the winners and losers in that?

JPMorgan got the assets of that institution and benefited from that. In fact, JPMorgan predicted to me on a conference call the night they acquired Washington Mutual that after one year with their investment, they would have an over $500 million on that investment. That is a 27 percent returned in one year.

The FDIC got some money out of that, too. And then to say nothing about the over 60,000 shareholders who were wiped out.

My complaint is: where is JPMorgan - who should be standing up for the retirement plans, the deferred compensation plans, and other packages that the employees at that company were due?

It is very convenient for us to now choose that we are going to add to JPMorgan's bottom line. In fact, if we would instead do what I am suggesting, we could have an equity proposal instead of having TARP, the Troubled Asset Relief Program, as the roof over America.

Instead, we could have an equity program where the United States would leverage our capital and spur ten to twelve times the private sector investment at the same time, our Nation would be better funded, better prepared, for the onslaught of trouble that is still going to remain after we pass this legislation.

I could not even get my amendment to be considered.

So, so much for the transparency of the Senate.

I am going to continue to work for this idea, for equity, for a more leveraged position, and that we do the traditional role that Government has done time and time again: to use our equity to leverage the private sector to secure our economy.

Thank you Mr. President, and I yield the floor.

We at at the Northwest Progressive Institute strongly applaud Senator Maria Cantwell for her courageous vote.

She is a dependable champion for the public interest, and her speech tonight (which was not prepared in advance) is filled with uncommon sense.

Barack Obama and the Democratic Congressional leadership would be wise to listen to the very serious concerns that Senator Cantwell raised.

If this bailout bill is supposed to be a cure, it's almost worse than the disease that caused it. This is not the timely, deliberative reform that America needs.

Howie P.S.: Here's Patty Murray's statement, via the NPI Advocate. They also have Obama's statement here. Booman says "This was not a popular bill or a particularly good bill. I supported it, but without enthusiasm. Most of the Senate felt the same way. Now we will see what the House does."

Barack Obama

Democracy Now: “Bridge Loan To Nowhere” (audio and video)

Democracy Now with audio and video:

On Monday, the House voted 228 to 205 against authorizing the largest government intervention in the financial market in U.S. history. The measure would have granted the Treasury unprecedented authority and up to $700 billion dollars to relieve faltering banks and other firms of bad assets backed by home mortgages, which are falling into foreclosure at record rates. As the economic crisis worsens and spreads across the globe we speak with Robert Johnson, former chief economist of the Senate Banking Committee and Bruce Marks, the Founder and CEO of NACA, the Neighborhood Assistance Corporation of America.

"Bailout - local delegation votes, reax" (with video)

Strange Bedfellows (Seattle P-I online-only political blog):

How Washington's House members voted on the $700 billion emergency financial rescue package that was defeated Monday:

Yes: Rep. Jim McDermott. Rep. Norm Dicks. Rep. Adam Smith. Rep. Rick Larsen. Rep. Brian Baird (All Democrats).

No: Rep. Dave Reichert. Rep. Cathy McMorris Rodgers. Rep. Doc Hastings. (All Republicans). Rep. Jay Inslee (Democrat).

Here's what they are saying:

Rep. Jim McDermott, Democrat, 7th Congressional District (Seattle). Voted for the bill.

"I thought long and hard about it, and I know that (House Speaker) Nancy (Pelosi, D-Calif.) and (House Financial Services Committee Chairman) Barney Frank (D-Mass.), who negotiated it, care about the American people in much the same way I do and they got the very best deal they thought they could get. I can tell you 27 reasons why it was not a good package but I think we needed to get started on this issue," McDermott said in an interview with the P-I.

McDermott said the Democrats who voted against the bill shared his concerns about it: that it didn't give the government enough of an equity stake in the distressed assets that would be bailed out; that it didn't provide for enough oversight by Congress; and that it didn't offer homeowners enough protection from foreclosure.

McDermott also said he wished Congress could hold hearings on the bill.

"We're trying to do this on the back of a galloping horse," he said.
Despite the setback for the bill, McDermott said he thinks negotiators will resume discussions and produce a financial rescue package that can win approval.
"Every time something like this happens, people think it's the end of the world; it's not," he said. We're going to come up with something, I think, because everyone agrees something needs to happen."

Rep. Jay Inslee, Democrat, 1st Congressional District (northern King and southern Snohomish counties). He voted against the package, the only Washington state Democrat to join the state's Republican members in opposition.

"For all the talk of protecting the taxpayer, there were only limited promises that the taxpayers' $700 billion investment would be paid back and there were no provisions to help struggling homeowners," Inslee was quoted in a news release from his office.
"We needed a pro-growth bill to stimulate the economy, and that is not what we got," Inslee said in the release. "The American people deserve better. I could not, with good conscience, vote for the bill presented to me."


Rep. Dave Reichert, Republican. Voted against the bill.

"Undeniably, action is necessary to address the crisis in our financial markets and ensure that credit remains available for middle class families to buy homes and put their children through college. That's evident by the daily fluctuations in the market. I'm hopeful that Congress will soon consider a modified version of the bill that was rejected today that will stabilize markets, utilize more private capital, and bring new oversight, reform, and accountability while protecting taxpayers.

"It's more important to get this legislation right than to act in haste. Panic on Wall Street brought us to this point, and we cannot let panic in Congress push through a remedy that is worse than the illness. Instead of a $700 billion blank check, we need a comprehensive package that helps Wall Street recover with more private capital, not taxpayer dollars; that holds accountable the bad actors who contributed to this crisis; and that enforces existing laws while modernizing outdated ones."


Darcy Burner, Democratic candidate for the 8th Congressional District (running against Reichert)

"Darcy believes we need to do something to strengthen our financial markets but she did not support this current bailout package. She felt it did not do enough to protect taxpayers andlimit out of control executive pay. And it did not address in an effective way the deregulation and lack of oversight over the financial markets that has been responsible for putting us in this situation in the first place." � Sandeep Kaushik, Burner spokesman.

Rep. Adam Smith, Democrat. Voted for the bill.

"Like many Americans, I had major concerns with the Bush Administration's initial financial recovery proposal. It contained no help for ordinary Americans struggling with their mortgage payments, no oversight and no protection for taxpayers. It was a major power grab attempt by the Administration in the form of a $700 billion blank check and Congress correctly rejected that plan. I also worried about the true extent of this economic crisis � would it just punish Wall Street people who acted unwisely? Or would it impact us all? And, if the latter was true was action by Congress required?"

"After listening to many of my constituents, small business owners, local bankers, and many others in the business and financial world, I have concluded that this crisis is more serious than just the normal downside of the business cycle; that failure to act by Congress could turn a severe economic slow down into a panic--a run on banks and all financial institutions that could plunge us into a deep and lasting recession; and that the plan before Congress, while offering no guarantees, represented a prudent and necessary step to prevent this much more painful economic outcome."

Rep. Cathy McMorris Rodgers, Republican. Voted against the bill.

"The financial crisis we are facing right now is greater than anyone could imagine. It is difficult for all of us to get our arms around the depth and complexity of this crisis. The decision on whether to support this package is one of the most difficult I have faced. I agree this bill is much better than the one we started with. It does more to protect the taxpayer, it does more to ensure Wall Street executives are held accountable, and it does more to increase oversight.

"Despite the positive changes that were made, I voted against this bill because, on principle, I am not convinced it is the right approach and I believe there are still numerous questions about its feasibility. Committing 700 billion of our tax dollars requires a longer, more thoughtful debate."

Rep. Doc Hastings, Republican. Voted against the bill.

"I judged this bill on two primary grounds: what could the cost be to the taxpayers and is it good policy for the federal government to seize the financial markets in this way.

The final bill provides more taxpayer protections than the first proposal, yet it still potentially leaves taxpayers holding the $700 billion bag for the reckless actions of Wall Street and that is something I cannot support.

And on the question of increased government intervention in the marketplace, I am just plain opposed to such a massive intrusion into the economy and the marketplace.

As to the crisis about which we are warned, I hope it can be abated, though I do believe additional steps can be taken to allow for the infusion of new capital, instead of focusing solely on preventing a freeze of existing capital. I also believe an insurance-centered approach would allow for relief in a way that places the responsibility for paying on Wall Street and those being bailed out."

Howie P.S.: You can watch Nancy Pelosi's remarks that "Lead to GOP Finger-Pointing" here, and Barack Obama's remarks yesterday here. Ben Smith is now reporting that Obama "steps off the sidelines with a specific proposal calculated to win more Democratic support for the bailout, and a promise to involve himself personally. His statement, out early this morning," here. Ken Camp reviews the options in "Bailout: What's next" (NPI Advocate). Matt Stoller chimes in with "Treasury Officials Admit Bill's CEO Compensation Measure and Restrictions on Paulson Were a Farce" (H/t to Glenn Greenwald who's no fan of the bailout bill that failed yesterday). Booman says "Be a Grown-Up...it is an acceptable piece of legislation under the circumstances." Ari Melber, riding onboard Air Obama, has "Obama Demurs on McCain Bailout Attack, For Now" this morning. Ari says ends with this back and forth

Jeff Zeleny, a reporter for The New York Times, crouched near the motorcade and asked for a response to McCain’s latest attack — that Obama was “injecting politics” into the fight over the bailout.

Obama said he had already addressed the issue in his speech on Monday, and he pledged that he would have more to say tomorrow. This is a campaign, so that promise is pretty safe.

Obama also yelled back that he’d learned not to take the bait — though that’s not an exact quote, and I’m not sure what it means anyway. (McCain’s bait? Zeleny’s?)

Howie P.P.S.: I vote for the bait in question as belonging to McCain.

Barack Obama

"O2B Candidate Burner on the Bailout Bill" (with video)

mcjoan (front paged on Kos):

Orange to Blue candidate Darcy Burner has joined those Democrats who recognize that the financial crisis needs to be addressed, but that bailing out the financial industry to the tune of $700 billion without helping Main Street isn't the way to do it.

From an e-mailed statement:

Darcy believes we need to do something to strengthen our financial markets but as she said this morning prior to the vote she did not support this current bailout package. She felt it did not do enough to protect taxpayers and amounted to little more than a wealth transfer from the middle class to the very wealthy. It did not do enough to limit out of control executive pay. And it did not address in an effective way the deregulation and lack of oversight over the financial markets that has been responsible for putting us in this situation in the first place.

More from the Seattle Times

Eighth Congressional District candidate Darcy Burner said this morning that if she were in Congress, she would have voted against a $700 billion bailout of the financial industry that the House of Representatives is considering this morning.

"We need to do something," she said. But she said the compromise package being pushed by Democratic leaders in Congress doesn't go far enough to protect taxpayers.

Burner said it doesn't fix the underlying problems that caused the financial crisis, namely too much deregulation of the financial industry. And she said it doesn't do enough to limit executive pay.

Which is what she said on September 20, when the $700 billion Bush proposal was announced.

Burner, like a lot of candidates and a helluva lot more Americans, want this thing done fairly. This bailout package can be restructured in a way that protects taxpayers, that helps to actually stem the financial crisis that all of the people who've lost their homes are in the middle of, while it also addresses Main Street. It can be done. It has to be done.

"Journalist William Greider on the Financial Turmoil and Bailout Plan"

BREAKING--Howie P.S.: It has just been announced that the bailout plan bill has failed to pass the House.KUOW.org (audio):

Congress struggled with the proposed $700 billion bailout plan last week. The cost per taxpayer – about $2500. William Greider, political journalist and National Affairs Correspondent for The Nation, says Paulson's proposal is a "historic swindle." Why? Greider writes that tax payers "are the naked investors in this drama, asked to put up many billions to rescue Wall Street firms with nothing more than a vague promise it will save the Republic." Today we look at the financial turmoil with Greider.

Democracy Now: "“Is This the United States Congress or the Board of Directors of Goldman Sachs?” Rep. Dennis Kucinich Rejects $700 Billion Bailout"

Democracy Now (with audio and video):

The House is set to vote today on a $700 billion emergency bailout plan for the financial industry. The proposed legislation was forged during a marathon negotiating session over the weekend between lawmakers from both parties and Treasury Secretary Henry Paulson. The 110-page bill would authorize Paulson to initiate what is likely to become the biggest government bailout in US history, allowing him to spend up to $700 billion to relieve faltering banks and other firms of bad assets backed by home mortgages, which are falling into foreclosure at record rates.

Howie P.S.: The Kucinich interview starts after the daily news roundup. If you stay tuned afterwards, there are two more good stories: 1)"FDR in 1933: There Must Be A Strict Supervision Of All Banking and Credits and Investments" with the NY Times' Adam Cohen and 2)"Senators John McCain and Barack Obama Debate Iraq, Pakistan, Russia During First Debate" with The Nation's Robert Dreyfuss.

"An Appropriately Populist Anti-Bailout Rant"

Dennis Kucinich (The Nation):

The $700 billion bailout for Wall Street, is driven by fear not fact. This is too much money in too a short a time going to too few people while too many questions remain unanswered. Why aren't we having hearings on the plan we have just received? Why aren't we questioning the underlying premise of the need for a bailout with taxpayers' money? Why have we not considered any alternatives other than to give $700 billion to Wall Street? Why aren't we asking Wall Street to clean up its own mess? Why aren't we passing new laws to stop the speculation, which triggered this? Why aren't we putting up new regulatory structures to protect investors? How do we even value the $700 billion in toxic assets?

Why aren't we helping homeowners directly with their debt burden? Why aren't we helping American families faced with bankruptcy. Why aren't we reducing debt for Main Street instead of Wall Street? Isn't it time for fundamental change in our debt based monetary system, so we can free ourselves from the manipulation of the Federal Reserve and the banks? Is this the United States Congress or the board of directors of Goldman Sachs? Wall Street is a place of bears and bulls. It is not smart to force taxpayers to dance with bears or to follow closely behind the bulls.

That Kucinich is spot on comes as no great surprise.

Howie P.S.: The Nation post concludes with

When he bid for the Democratic presidential nomination this year, he spoke more consistently and more bluntly about the economic crisis than any of the other contenders.

Kucinich was not treated particularly seriously the media or his fellow Democratic candidates.

Now that Kucinich has been proven right, however, Barack Obama might want to pay attention to what the former mayor, state legislator and veteran congressman is saying.

He actually gets it.

"What Is This Money Even For?"

Hunter (front-paged now on Kos):

What Devilstower said in an earlier post can't be repeated enough. The $700 billion figure isn't an explainable one, given the purported problem at hand of "bad mortgages".

And that's where we get that math problem. 1% of all mortgages -- the amount now in default -- comes out to $111 billion. Triple that, and you've got $333 billion. Let's round that up to $350 billion. So even if we reach the point where three percent of all mortgages are in foreclosure, the total dollars to flat out buy all those mortgages would be half of what the Bush-Paulson-McCain plan calls for.

Then we need to factor in that a purchased mortgage isn't worth zero. After all, these documents come with property attached. Even with home prices falling and some of the homes lying around unsold, it's safe to assume that some portion of these values could be recovered. In the S&L crisis, about 70% of asset value was recovered, but let's say we don't do that well. Let's say we hit 50%. Then the real outlay for taxpayers would be around $175 billion.

Which, frankly, is a number that Wall Street should be able to handle without our help. After all, the top firms on Wall Steet payed out $120 billion in bonuses alone between 2000 and 2006. If they've got that kind of mad money, why do they need us to step in now? And why do they need twice as much as all the mortgages that are even likely to implode?

Indeed. And despite what we've been told, then, we can only presume that the problem is in fact not all the bad, scary subprime mortgages. And it's not. Yes, a lot of people are finding themselves upside-down on their houses right now, but Paulson isn't proposing we do squat to solve that -- and even the "controversial" Democratic counterproposal, that we actually do at least a little something to help those people, after they've already gone bankrupt, is pathetically weak.

Instead, we're getting a Wall Street bailout not of the mortgages, but of the absurd, speculative, economy-wrecking derivatives based on those mortgages, derivatives that investors and banks ravenously sold each other at unsupportable and quite-probably-crooked prices. Those derivatives, generally speaking, are "bets" on the state of the underlying mortgages. And they didn't just bet wrong -- they bet irrationally, based on presumptions of near-zero risks to those underlying mortgages. And worse, the big banks even -- bafflingly -- got special permission to overleverage themselves 40 to 1, all but assuring collapse if those derivatives went south. Which they did.

Fine, then, but how is that self-induced bubble an unweatherable economic crisis for the rest of us? Yes, those banks may fail -- as they should. It'd be a crime if they didn't, given their mismanagement of their accounts. But the real problem is that those banks are, literally, too big to be allowed to fail. Their failure would present a liquidity problem for the rest of the market. They can do anything -- they could even burn money on the street -- and the strong preference of government would be to bail them out for it, because the alternative is financial chaos.

The subprime mortgages aren't the problem. And the overleveraged firms shouldn't be a problem. The problem is keeping the rest of the economy afloat no matter what happens to the firms in trouble.

The problem is that there's a lot of different ways to do that, and it's not at all clear that Paulson's way is the best. Paulson proposes to bailout the firms in question, by giving them the Mother Of All Do-Overs. We taxpayers will buy, from banks both in trouble and not in trouble, up to $700 billion dollars worth of the overpriced, now-worth-much-much-less derivatives in question. That will provide a real (inflated) price for the derivatives, and lo and behold -- the firms will be saved, because we've now created a market for their unmarketable, worthless products. They stay afloat, because the taxpayers pay them to do it. And, importantly, since all the banks now know that if any of the other banks are hemorrhaging money through these bad derivatives, the taxpayers will bail them out at some decent price, all the banks trust each other again, and feel free to loan each other money again, and the liquidity problems are solved. In theory. If the Fed can keep up with all the bad paper being tossed at them.

But while that's unquestionably the best possible plan Wall Street could themselves possibly come up with -- it doesn't just save their bacon, it makes large parts of their debts simply vanish -- it's an obscenely expensive thing, and is rife with problems. The temptation for profiteering on the part of the corporations is going to be huge, and quite doable. The underlying mortgages are still defaulting, and more importantly the bursting of the housing bubble has put millions of people into an insupportable amount of debt, and those are not going to be happy consumers, so the economy is still going to go very south, very quickly.

And it smacks, strongly, of the very same dynamic that has governed the last few decades of American history. We're transferring yet another giant chunk of money from the general public to the most wealthy. In this case, a trillion dollars or so worth.

All the while, we're being told that we can't be punitive about this, and punish the firms in question. We can't set new regulations. We can't take equity in the firms we're giving so much money too. We can't do squat except buy their bad paper, and hope to hell that they survive, while the rest of us wallow in the steep recession almost certain to come as a result of the housing bubble collapse.

Is that the best approach? I'm not convinced, and I'm more than a little angry at the Democrats for, once again, accepting what they are given and trying to tweak it rather than coming up with true counterproposals. Propping the housing market up from the bottom may be much cheaper than trying to prop up the entire derivatives market from the top, and would seemingly have the same stabilizing market effects. Taking equity in firms in exchange for taking their crappy, non-marketable products would, yes, seem the absolute least we could do -- there must be an upside for the taxpayer in providing this trillion-dollar investment at the expense of ballooning our national debt and crippling public sector works for a decade or more. But that's still weak tea, all things considered.

Not being talked about as much, though, is that we must allow overextended companies to fail. It is an essential part of our economy that economy-threatening recklessness on the part of speculators not be rewarded, and especially not be rewarded by the government. Any actions to stabilize the economy should indeed inject liquidity -- but it's not clear that injecting liquidity through the very companies most in trouble is sustainable or even rational.

More than that, I think Americans can and should be quite furious at the way this extraordinarily business-friendly proposal has been steamrolled through under premise of imminent crisis, with no serious debate of any more balanced alternatives. It is another black mark in the legacy of the Bush years -- for both parties. If the Congress really passes the Paulson plan with, as it looks now, absolutely no substantive debate of alternative plans, it has once again shirked its most basic duties, and is an embarrassment to the nation it supposedly represents.

One thing is for certain, though. No matter how bad a deal looks, doctrinaire Republicans can always be counted on to come up with an "alternative" that would be ten times worse. Their "alternative" plan, the one they're holding out for? Cut corporate taxes -- again -- and remove even more regulations on those companies -- again. Because that'll release the magic money fairies and the problem will be solved. And no, I'm not kidding. Except about the fairies. Maybe.

There's been nothing about the Washington reaction to this that has inspired confidence. And now that the fight has turned explicitly political -- with no regard whatsoever for the underlying economics -- I can only imagine it getting less substantive from here.

Barack Obama on NBC Nightly News: "Obama hopes to 'build' off bailout progress" (video)

MSNBC, video (02:34):

Detouring from the campaign trail, both presidential candidates arrived in Washington as President Bush and congressional leaders negotiated the proposed bailout package. NBC's Brian Williams speaks with Sen. Barack Obama.

Barack Obama

"150 Economists Petition in Opposition to the Bailout Plan"

From Meteor Blade's front pager on Daily Kos, "Bailing Out the Yachts":

To the Speaker of the House of Representatives and the President pro tempore of the Senate:

As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:

1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.

2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.

3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America's dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.

For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come.

Signed (updated at 9/25/2008 8:30AM CT)

Acemoglu Daron (Massachussets Institute of Technology)
Adler Michael (Columbia University)
Admati Anat R. (Stanford University)
Alexis Marcus (Northwestern University)
Alvarez Fernando (University of Chicago)
Andersen Torben (Northwestern University)
Baliga Sandeep (Northwestern University)
Banerjee Abhijit V. (Massachussets Institute of Technology)
Barankay Iwan (University of Pennsylvania)
Barry Brian (University of Chicago)
Bartkus James R. (Xavier University of Louisiana)
Becker Charles M. (Duke University)
Becker Robert A. (Indiana University)
Beim David (Columbia University)
Berk Jonathan (Stanford University)
Bisin Alberto (New York University)
Bittlingmayer George (University of Kansas)
Boldrin Michele (Washington University)
Brooks Taggert J. (University of Wisconsin)
Brynjolfsson Erik (Massachusetts Institute of Technology)
Buera Francisco J. (UCLA)
Camp Mary Elizabeth (Indiana University)
Carmel Jonathan (University of Michigan)
Carroll Christopher (Johns Hopkins University)
Cassar Gavin (University of Pennsylvania)
Chaney Thomas (University of Chicago)
Chari Varadarajan V. (University of Minnesota)
Chauvin Keith W. (University of Kansas)
Chintagunta Pradeep K. (University of Chicago)
Christiano Lawrence J. (Northwestern University)
Cochrane John (University of Chicago)
Coleman John (Duke University)
Constantinides George M. (University of Chicago)
Crain Robert (UC Berkeley)
Culp Christopher (University of Chicago)
Da Zhi (University of Notre Dame)
Davis Morris (University of Wisconsin)
De Marzo Peter (Stanford University)
Dubé Jean-Pierre H. (University of Chicago)
Edlin Aaron (UC Berkeley)
Eichenbaum Martin (Northwestern University)
Ely Jeffrey (Northwestern University)
Eraslan Hülya K. K.(Johns Hopkins University)
Faulhaber Gerald (University of Pennsylvania)
Feldmann Sven (University of Melbourne)
Fernandez-Villaverde Jesus (University of Pennsylvania)
Fohlin Caroline (Johns Hopkins University)
Fox Jeremy T. (University of Chicago)
Frank Murray Z.(University of Minnesota)
Frenzen Jonathan (University of Chicago)
Fuchs William (University of Chicago)
Fudenberg Drew (Harvard University)
Gabaix Xavier (New York University)
Gao Paul (Notre Dame University)
Garicano Luis (University of Chicago)
Gerakos Joseph J. (University of Chicago)
Gibbs Michael (University of Chicago)
Glomm Gerhard (Indiana University)
Goettler Ron (University of Chicago)
Goldin Claudia (Harvard University)
Gordon Robert J. (Northwestern University)
Greenstone Michael (Massachusetts Institute of Technology)
Guadalupe Maria (Columbia University)
Guerrieri Veronica (University of Chicago)
Hagerty Kathleen (Northwestern University)
Hamada Robert S. (University of Chicago)
Hansen Lars (University of Chicago)
Harris Milton (University of Chicago)
Hart Oliver (Harvard University)
Hazlett Thomas W. (George Mason University)
Heaton John (University of Chicago)
Heckman James (University of Chicago - Nobel Laureate)
Henderson David R. (Hoover Institution)
Henisz, Witold (University of Pennsylvania)
Hertzberg Andrew (Columbia University)
Hite Gailen (Columbia University)
Hitsch Günter J. (University of Chicago)
Hodrick Robert J. (Columbia University)
Hopenhayn Hugo (UCLA)
Hurst Erik (University of Chicago)
Imrohoroglu Ayse (University of Southern California)
Isakson Hans (University of Northern Iowa)
Israel Ronen (London Business School)
Jaffee Dwight M. (UC Berkeley)
Jagannathan Ravi (Northwestern University)
Jenter Dirk (Stanford University)
Jones Charles M. (Columbia Business School)
Kaboski Joseph P. (Ohio State University)
Kahn Matthew (UCLA)
Kaplan Ethan (Stockholm University)
Karolyi, Andrew (Ohio State University)
Kashyap Anil (University of Chicago)
Keim Donald B (University of Pennsylvania)
Ketkar Suhas L (Vanderbilt University)
Kiesling Lynne (Northwestern University)
Klenow Pete (Stanford University)
Koch Paul (University of Kansas)
Kocherlakota Narayana (University of Minnesota)
Koijen Ralph S.J. (University of Chicago)
Kondo Jiro (Northwestern University)
Korteweg Arthur (Stanford University)
Kortum Samuel (University of Chicago)
Krueger Dirk (University of Pennsylvania)
Ledesma Patricia (Northwestern University)
Lee Lung-fei (Ohio State University)
Leeper Eric M. (Indiana University)
Leuz Christian (University of Chicago)
Levine David I.(UC Berkeley)
Levine David K.(Washington University)
Levy David M. (George Mason University)
Linnainmaa Juhani (University of Chicago)
Lott John R. Jr. (University of Maryland)
Lucas Robert (University of Chicago - Nobel Laureate)
Luttmer Erzo G.J. (University of Minnesota)
Manski Charles F. (Northwestern University)
Martin Ian (Stanford University)
Mayer Christopher (Columbia University)
Mazzeo Michael (Northwestern University)
McDonald Robert (Northwestern University)
Meadow Scott F. (University of Chicago)
Mehra Rajnish (UC Santa Barbara)
Mian Atif (University of Chicago)
Middlebrook Art (University of Chicago)
Miguel Edward (UC Berkeley)
Miravete Eugenio J. (University of Texas at Austin)
Miron Jeffrey (Harvard University)
Moretti Enrico (UC Berkeley)
Moriguchi Chiaki (Northwestern University)
Moro Andrea (Vanderbilt University)
Morse Adair (University of Chicago)
Mortensen Dale T. (Northwestern University)
Mortimer Julie Holland (Harvard University)
Muralidharan Karthik (UC San Diego)
Nanda Dhananjay (University of Miami)
Nevo Aviv (Northwestern University)
Ohanian Lee (UCLA)
Pagliari Joseph (University of Chicago)
Papanikolaou Dimitris (Northwestern University)
Parker Jonathan (Northwestern University)
Paul Evans (Ohio State University)
Pejovich Svetozar (Steve) (Texas A&M University)
Peltzman Sam (University of Chicago)
Perri Fabrizio (University of Minnesota)
Phelan Christopher (University of Minnesota)
Piazzesi Monika (Stanford University)
Piskorski Tomasz (Columbia University)
Rampini Adriano (Duke University)
Reagan Patricia (Ohio State University)
Reich Michael (UC Berkeley)
Reuben Ernesto (Northwestern University)
Roberts Michael (University of Pennsylvania)
Robinson David (Duke University)
Rogers Michele (Northwestern University)
Rotella Elyce (Indiana University)
Ruud Paul (Vassar College)
Safford Sean (University of Chicago)
Sandbu Martin E. (University of Pennsylvania)
Sapienza Paola (Northwestern University)
Savor Pavel (University of Pennsylvania)
Scharfstein David (Harvard University)
Seim Katja (University of Pennsylvania)
Seru Amit (University of Chicago)
Shang-Jin Wei (Columbia University)
Shimer Robert (University of Chicago)
Shore Stephen H. (Johns Hopkins University)
Siegel Ron (Northwestern University)
Smith David C. (University of Virginia)
Smith Vernon L.(Chapman University- Nobel Laureate)
Sorensen Morten (Columbia University)
Spiegel Matthew (Yale University)
Stevenson Betsey (University of Pennsylvania)
Stokey Nancy (University of Chicago)
Strahan Philip (Boston College)
Strebulaev Ilya (Stanford University)
Sufi Amir (University of Chicago)
Tabarrok Alex (George Mason University)
Taylor Alan M. (UC Davis)
Thompson Tim (Northwestern University)
Tschoegl Adrian E. (University of Pennsylvania)
Uhlig Harald (University of Chicago)
Ulrich, Maxim (Columbia University)
Van Buskirk Andrew (University of Chicago)
Veronesi Pietro (University of Chicago)
Vissing-Jorgensen Annette (Northwestern University)
Wacziarg Romain (UCLA)
Weill Pierre-Olivier (UCLA)
Williamson Samuel H. (Miami University)
Witte Mark (Northwestern University)
Wolfers Justin (University of Pennsylvania)
Woutersen Tiemen (Johns Hopkins University)
Zingales Luigi (University of Chicago)
Zitzewitz Eric (Dartmouth College)

Is the bailout Bush's economic September 11th and/or McCain's "September surprise" campaign opportunity?

"Bailout Outrage Races Across the Web" (Business Week):

Arun Gupta was enraged as he learned the details of Treasury Secretary Henry Paulson's plan to fix the U.S. banking system with $700 billion in taxpayer funds. The 43-year-old copy editor and freelance journalist, who publishes his own alternative newspaper, The Indypendent, needed to channel his angst but couldn't find a live protest to attend. So on Sept. 22, he sent an e-mail to some politically active friends in New York. Within days, they'd planned a protest against the bailout in New York and at 80 other locations in the U.S. on Sept. 25.

"David Letterman Reacts to John McCain Suspending Campaign" video, (09:11):
It's already #1 on "Today's Top 20 Viral Videos: with over 400,000 views.

"McCain's Financial Crisis Timeline" (Sam Stein, HuffPo):

When John McCain held an unexpected news conference mid-Wednesday afternoon he addressed the current economic crisis with direness previously unseen. His campaign would be suspended, he told reporters, in order to work on the bailout legislation in Congress. The debate scheduled with Barack Obama on Friday night, he added, could be postponed.

Observers, critics, even fellow Republicans, were left wondering: where did this sense of urgency come from? After all, it was this past Sunday that McCain hinted on 60 Minutes that he would support the bailout -- "we have to stop the bleeding" -- only to express deep criticisms on Monday and then admit he hadn't even read the three-page proposal on Tuesday.

"Paulson, Senate Dems reach tentative bailout deal" (The Hill):

Senate Democrats emerged from a meeting Wednesday with Treasury Secretary Henry Paulson to report a general, conceptual — but fragile — agreement on a $700 billion plan to rescue the U.S. financial markets.

Senators said Paulson and the Democrats struck very tentative deals on Democratic demands on oversight and transparency, executive pay limits, and equity interest on taxpayers’ behalf as part of the massive plan. A hard-fought Democratic provision to allow bankruptcy judges to revise mortgage terms was not likely to survive the horse-trading, however, as Paulson would not agree to the provision that is already in the House and Senate versions.

Majority Whip Dick Durbin (D-Ill.) said a bill could be produced as early as Thursday, with debate and a vote likely over the weekend. Ideally, Durbin said the Senate would finish the bill before Wall Street opens on Monday.

“There is high anxiety about the opening of the markets on Monday,” Durbin said. “It’s good to have a deadline, and we have a deadline now, with the Jewish holiday and the opening of the market. Frankly, I want us to stick to that. If we start talking about another week or two, it will take another week or two.”

Senators cautioned that the package’s fragile framework could very easily fall apart as more specific definitions and details begin to be ironed out.

“We can have these broad agreements in principle, but it’s got to translate into details,” said Budget Committee Chairman Kent Conrad (D-N.D.). “And there’s a lot of work to be done.”

Senators described a very somber, serious meeting, with Paulson describing the risk of inaction and working hard to sell the plan to skeptical Democrats during the closed-door caucus meeting. Paulson said unemployment rates could approach 10 percent if the plan was not adopted, senators said, although he did indicate possible receptiveness to the idea of implementing it in stages. Such a plan, Paulson told senators, has worked in countries like Japan, where financial rescue plans were done in stages.

“He talked about the risks in the markets, the risk of the financial system locking up, the risk of companies not being able to borrow money, the risk of major firms failing, the risk of a substantial increase in unemployment,” said Conrad.

Presidential politics hung thickly throughout the meeting, held just hours after Republican nominee Sen. John McCain (Ariz.) announced he was suspending his campaign and returning to Washington to participate in the debate. McCain has urged his Democratic rival, Sen. Barack Obama (D-Ill.) to do the same and postpone Friday night’s planned debate, but Obama has refused.

Democrats defended that decision Wednesday night, accusing McCain of an attempt to inject presidential politics into the process with his presence, and that the debate should be held.

“The American people need to hear from both candidates,” said Sen. John Kerry (D-Mass.), the party’s 2004 presidential nominee. “This notion of rushing to Washington and grandstanding, frankly, is I think inserting presidential politics right into it. It’s silly and impulsive and erratic and doesn’t do justice to the process of running for president.”

Kerry noted that McCain doesn’t even sit on the Senate’s Banking or Finance committees.

“To the best of my knowledge, he doesn’t serve on any of those committees,” Kerry said.

But Sen. Joseph Lieberman, I-Conn., a top McCain supporter, said both nominees can play “very important” roles in shaping the debate.

McCain can help “take what I see as the conceptual agreement and now work out the details, because it’s clear from this discussion that the details are not worked out.”

The Senate has just two more working days before its scheduled Friday adjournment, with an agreement still outstanding on a continuing resolution to fund the government.

Most seemed resigned to the idea of weekend work, especially on the financial bill, and several also said they weren’t convinced that a Monday morning deadline was even feasible or necessary.

“I’m not sure that’s possible,” said Sen. Robert Casey (D-Pa.) “For the life of me, I can’t see the difference from an economic or even a confidence circumstance, the difference between Friday and a day or two days later or Monday.”

Barack Obama

"Joint McCain-Obama Statement"

Mark Halperin (The Page, TIME):

“The American people are facing a moment of economic crisis. No matter how this began, we all have a responsibility to work through it and restore confidence in our economy. The jobs, savings, and prosperity of the American people are at stake.

“Now is a time to come together – Democrats and Republicans – in a spirit of cooperation for the sake of the American people. The plan that has been submitted to Congress by the Bush Administration is flawed, but the effort to protect the American economy must not fail.

This is a time to rise above politics for the good of the country. We cannot risk an economic catastrophe. Now is our chance to come together to prove that Washington is once again capable of leading this country.”

Speaking for himself, Senator Obama outlined the following principles that he calls on Senator McCain to support:

I believe that several core principles should guide this legislation.

First, there must be oversight. We should not hand over a blank check to the discretion of one man. We support an independent, bipartisan board to ensure accountability and complete transparency.

Second, we need to protect taxpayers. There should be a path for taxpayers to recover their money, and to turn a profit if Wall Street prospers.

Third, no Wall Street executive should profit from taxpayer dollars. This plan cannot be a welfare program for CEOs whose greed and irresponsibility has contributed to this crisis.

Fourth, we must help families who are struggling to stay in their homes. We cannot bail out Wall Street without helping millions of families facing foreclosure on Main Street.

Fifth, we both agree that this financial rescue package should move on its own without any earmarks or other measures. We have different views about the need for other action, but this must be a clean bill.

This is a time to rise above politics for the good of the country. We cannot risk an economic catastrophe. This is not a Democratic problem or a Republican problem – this is an American problem. Now, we must find an American solution.

Barack Obama

Naomi Klein: “Now is the Time to Resist Wall Street’s Shock Doctrine” (with audio and video)

Democracy Now with audio and video:

While the collapse of this country’s financial system continues to send shock waves around the world, we speak to the bestselling author of “The Shock Doctrine.” Naomi Klein says the public should be wary of the Bush administration trying to use the crisis to push through more of the radical pro-corporate policies that helped cause it in the first place.

Howie P.S.: The Naomi Klein interview comes after the morning news roundup @ about 23:00. On this day in particular, the roundup is worth a listen. True Majority, Progressive Democrats of America and other groups are sponsoring a public event in Seattle, "Protest the tax money giveaway to Wall Street," (Thursday, Sept. 25th) from 5-6:30PM at the Federal Building, 915 Second Avenue.

"No"

Emptywheel:

CR has posted the "bailout plan," as it currently stands.

Glenn Greenwald has an important response, as does gjohnsit over at DKos.

But here's all you need to know. Hank Paulson is asking for $700,000,000,000. That's $2,333 from every man, woman, and child in the United States.

In exchange for that money, Paulson is unwilling to accept any demands to make markets more transparent, limit executive compensation, or assist homeowners fighting foreclosure. The sole purpose of that $700,000,000,000 is to bail out Wall Street and only Wall Street, but not to fix it, or our larger economy.

He is asking to be absolutely unbound by any law when he spends that money.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

The only "string" attached is a semi-annual Congressional report--one in which they would have zero leverage to influence his choices.

Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.

Paulson didn't even have the class to call this a "review"--which underscores the degree to which he wants to be unbound by any and all review, legal, congressional, or anything else.

Hank Paulson--one of the CEOs who got us into this mess--is asking each and every American to give him $2,333 to do with as he sees fit, with absolutely no strings attached.

No.

H/t to Chad Lupkes.