Wednesday, December 31, 2008

A proposed resolution to the Blagojevich mess

Mark Kleiman addresses the twin issues of the crooked Rod Blagojevich as Illinois Governor and his effort to appoint Roland Burris to fill Barack Obama's Senate seat.

An interesting point to keep in mind. Impeachment is not a judicial trial. No one has the right to the presumption of innocence when they are being impeached.

The recession will continue to get worse for at least a year

The clearest proof that we are in a Recession has been the way the economy is shedding jobs at the rate of half a million a month. But that's a result, not a cause. There are a lot of causes, and they've built up over the last thirty years.

The causes of the recession include the reckless and incompetent banking out of the deregulated Wall Street, the extreme leverage that all of the investment banks adopted in the assumption that the market would always go up, and the sloppy risk management that ran all through Wall Street in the investment houses, from the large investors and funds and in the insurance companies. The utterly incompetent practices of the rating agencies pervade the entire mess, making an otherwise murky financial world totally opaque. But the core reason for the current recession is still the collapse of the housing bubble. That was the trigger that demonstrated that Wall Street's bankers were blindly and greedily working entirely to fill their own pockets and ignoring everyone else. The result is that right now no one in the big firms trusts anyone else to be able to pay back a loan. It doesn't matter what their financial condition looks like right now because the financial reports can't be trusted, and even if they could, the economy is still trending down and is very likely to provide more, mostly negative, surprises.

The short story is that the economy is not going to turn around until the housing market hits bottom and home values start to turn up. IN much of America that is not going to happen anytime soon, almost certainly not in 2009.

Kevin Drum looks at the reports that housing prices are still plunging, and compares the current value (See the Case-Shiller Index and also S&P/Case-Shiller Indices) to what it will be when the market has worked out the false value of homes caused by the housing bubble. Currently
...the Case-Shiller index is still only down to 158, and we've always known that it's not going to stop much before it gets into the 100-120 range. What's more, rapid declines aren't entirely bad news. We're probably better off getting to 100 sooner rather than later, since economic recovery almost certainly can't start until housing prices bottom out. (...)

Even at 2-3% per month, we've got at least another year before the housing market starts to reach its natural level. Until then, we're screwed.
No amount of "happy talk" by financial sales people, other bankers, politicians, or media financial figures is going to change that.

2009 is going to be a rough year financially.

Tuesday, December 30, 2008

Blundered Katrina reaction ended the Bush administration

It was the government's poor reaction to the Katrina disaster that ended their ability to get anything done. The Associated Press reports on an upcoming Vanity Fair article that reports part of an oral history on the bush administration due to be distributed nationally January 6.
Staff AP News Dec 29, 2008 21:41 EST

Hurricane Katrina not only pulverized the Gulf Coast in 2005, it knocked the bully pulpit out from under President George W. Bush, according to two former advisers who spoke candidly about the political impact of the government's poor handling of the natural disaster.

"Katrina to me was the tipping point," said Matthew Dowd, Bush's pollster and chief strategist for the 2004 presidential campaign. "The president broke his bond with the public. Once that bond was broken, he no longer had the capacity to talk to the American public. State of the Union addresses? It didn't matter. Legislative initiatives? It didn't matter. P.R.? It didn't matter. Travel? It didn't matter."

Dan Bartlett, former White House communications director and later counselor to the president, said: "Politically, it was the final nail in the coffin." [Snip]

Lawrence Wilkerson, top aide and later chief of staff to former Secretary of State Colin Powell, said that as a new president, Bush was like Alaska Gov. Sarah Palin, the 2008 GOP vice presidential nominee whom critics said lacked knowledge about foreign affairs. When Bush first came into office, he was surrounded by experienced advisers like Vice President Dick Cheney and Powell, who Wilkerson said ended up playing damage control for the president.

"It allowed everybody to believe that this Sarah Palin-like president — because, let's face it, that's what he was — was going to be protected by this national-security elite, tested in the cauldrons of fire," Wilkerson said, adding that he considered Cheney probably the "most astute, bureaucratic entrepreneur" he'd ever met.

"He became vice president well before George Bush picked him," Wilkerson said of Cheney. "And he began to manipulate things from that point on, knowing that he was going to be able to convince this guy to pick him, knowing that he was then going to be able to wade into the vacuums that existed around George Bush — personality vacuum, character vacuum, details vacuum, experience vacuum."
Wilkerson's comment on Cheney confirms what was written about Cheney in Barton Gellman's excellent book Angler: The Cheney Vice Presidency.

But it was the Bush administration's blundered reaction to the Katrina disaster that exposed its incompetence and passiveness in the similarly passive media. Once it became clear in the media that the government handling of Katrina was incompetent, it reflected back on their failure to prevent 9/11 as well as their failed occupation of Iraq and the unacknowledged rise of the Iraqi insurgency. The Bush administration's current passiveness and failed reactions to the economic crisis simply demonstrate that the problem is inherent in the Bush administration and not a one time screw up.

Addendum 10:57 am CST
Kevin Drum thinks that Matthew Dowd and Dan Bartlett missed part of the story about the public reaction the Bush's handling of Katrina.
I think this is only half right. I've long believed that what really killed Bush was the contrast between his handling of Katrina and his handling of the Terri Schiavo case, which had come only a few months earlier. It was just too stark. What the American public saw was that when the religious right was up in arms, the president and the Republican Party acted. Bill Frist performed his famous long-distance diagnosis; Tom DeLay fulminated on the floor of the House; Republicans tried to subpoena both Terri and Michael Schiavo; and President Bush interrupted his vacation and made his famous midnight flight to Washington DC to sign a bill transferring the case to federal court. It was both a whirlwind and a political circus.

And it showed that Bush could be moved to action if the right constituency was at risk. It wasn't just that Bush was mostly MIA during the early stages of Katrina, but that he was plainly capable of being engaged in an emergency if it was the right kind of emergency. But apparently New Orleans wasn't it. And that was the final nail in the coffin of his presidency.
So it wasn't just Bush's clearly bad handling of Katrina. It was also the fact that Katrina made it very clear the Bush was ready to support the religious right, but not the American people. So the American people turned on him.

That makes sense. Bush was able to conceal his failure to prevent 9/11 by good public relations and by acting like he was doing stuff about it afterwards. Maybe he really couldn't have prevented 9/11. But he really could have done a lot more about Katrina, and he could have at least acted like he cared. He did neither.

But I think there is yet another element to be considered. The media has operated on a stampede effect since about 1990, possibly starting with the Persian Gulf War. When 9/11 occurred, America was attacked in the biggest surprise attack since Pearl Harbor, and the media was ready to rally around the President no matter what. Bush was good at keeping the media on the subjects he wanted covered and was an expert at painting anyone who objected to his actions as being supporters of the 9/11 attackers. The problem with Katrina is that it was a well-anticipated problem with no enemy attacker behind it, and the 9/11 - terrorist - War on Terror media narrative did not work. Then the Bush administration so very clearly did nothing right during Katrina (after being handed the best FEMA ever by Bill Clinton) and also simply did nothing at all afterwards. Katrina created its own media narrative, and that narrative was far from kind to the Bush administration. For once the members of the media got out and actually reported, and a large part of the news was Bush's lackadaisical lethargic actions and frequent missteps.

Even Bush's loss of control of the media narrative showed clearly that Bush, as President, had no interest in the welfare of the American people in general. This is where Kevin's contrast to the earlier Terry Schiavo events comes in. Bush and the Republican clearly did not lose control of the media narrative during the Terry Schiavo mess. Why? Because they cared about what the religious right wanted. so the contrast between Schiavo and Katrina very heavily influenced American public opinion.

Saturday, December 27, 2008

The difference between brute force and deterrence.

The Israeli response to the Hama missile attacks from Gaza illustrates the difference between brute force and deterrence and when each is effective. Jonathan Zasloff explains.

The WaMu story; how the Wall Street banks screwed up

Wamu's story is rather extreme, but unfortunately, not very extreme. The Executives of WaMu simply took the Wall Street philosophy to its logical conclusion.

As you read these excerpts from the New York Times, notice the motivation of chief executive Kerry K. Killinger. Then notice how he influenced the entire bank by choosing and financially motivating the supervisors who worked for him.
On a financial landscape littered with wreckage, WaMu, a Seattle-based bank that opened branches at a clip worthy of a fast-food chain, stands out as a singularly brazen case of lax lending. By the first half of this year, the value of its bad loans had reached $11.5 billion, nearly tripling from $4.2 billion a year earlier. [Snip]

According to these accounts, pressure to keep lending emanated from the top, where executives profited from the swift expansion — not least, Kerry K. Killinger, who was WaMu’s chief executive from 1990 until he was forced out in September.

Between 2001 and 2007, Mr. Killinger received compensation of $88 million, according to the Corporate Library, a research firm. He declined to respond to a list of questions, and his spokesman said he was unavailable for an interview.

During Mr. Killinger’s tenure, WaMu pressed sales agents to pump out loans while disregarding borrowers’ incomes and assets, according to former employees. The bank set up what insiders described as a system of dubious legality that enabled real estate agents to collect fees of more than $10,000 for bringing in borrowers, sometimes making the agents more beholden to WaMu than they were to their clients.

WaMu gave mortgage brokers handsome commissions for selling the riskiest loans, which carried higher fees, bolstering profits and ultimately the compensation of the bank’s executives. WaMu pressured appraisers to provide inflated property values that made loans appear less risky, enabling Wall Street to bundle them more easily for sale to investors.

“It was the Wild West,” said Steven M. Knobel, a founder of an appraisal company, Mitchell, Maxwell & Jackson, that did business with WaMu until 2007. “If you were alive, they would give you a loan. Actually, I think if you were dead, they would still give you a loan.” [Snip]

“I never had a clue about the amount of off-the-cliff activity that was going on at Washington Mutual, and I was in constant contact with the company,” said Vincent Au, president of Avalon Partners, an investment firm. “There were people at WaMu that orchestrated nothing more than a sham or charade. These people broke every fundamental rule of running a company.” [Snip]

“It was a disgrace,” said Dana Zweibel, a former financial representative at a WaMu branch in Tampa, Fla. “We were giving loans to people that never should have had loans.”

If Ms. Zweibel doubted whether customers could pay, supervisors directed her to keep selling, she said.

“We were told from up above that that’s not our concern,” she said. “Our concern is just to write the loan.”

The ultimate supervisor at WaMu was Mr. Killinger, who joined the company in 1983 and became chief executive in 1990. He inherited a bank that was founded in 1889 and had survived the Depression and the savings and loan scandal of the 1980s.

An investment analyst by training, he was attuned to Wall Street’s hunger for growth. Between late 1996 and early 2002, he transformed WaMu into the nation’s sixth-largest bank through a series of acquisitions.

A crucial deal came in 1999, with the purchase of Long Beach Financial, a California lender specializing in subprime mortgages, loans extended to borrowers with troubled credit.

WaMu underscored its eagerness to lend with an advertising campaign introduced during the 2003 Academy Awards: “The Power of Yes.” No mere advertising pitch, this was also the mantra inside the bank, underwriters said.

“WaMu came out with that slogan, and that was what we had to live by,” Ms. Zaback said. “We joked about it a lot.” A file would get marked problematic and then somehow get approved. “We’d say: ‘O.K.! The power of yes.’ ” [Snip]

Branches were pushed to increase lending. “It was just disgusting,” said Ms. Zweibel, the Tampa representative. “They wanted you to spend time, while you’re running teller transactions and opening checking accounts, selling people loans.”

Employees in Tampa who fell short were ordered to drive to a WaMu office in Sarasota, an hour away. There, they sat in a phone bank with 20 other people, calling customers to push home equity loans.

“The regional manager would be over your shoulder, listening to every word,” Ms. Zweibel recalled. “They treated us like we were in a sweatshop.”

On the other end of the country, at WaMu’s San Diego processing office, Ms. Zaback’s job was to take loan applications from branches in Southern California and make sure they passed muster. Most of the loans she said she handled merely required borrowers to provide an address and Social Security number, and to state their income and assets.

She ran applications through WaMu’s computer system for approval. If she needed more information, she had to consult with a loan officer — which she described as an unpleasant experience. “They would be furious,” Ms. Zaback said. “They would put it on you, that they weren’t going to get paid if you stood in the way.” [Snip]

The sheer workload at WaMu ensured that loan reviews were limited. Ms. Zaback’s office had 108 people, and several hundred new files a day. She was required to process at least 10 files daily.

“I’d typically spend a maximum of 35 minutes per file,” she said. “It was just disheartening. Just spit it out and get it done. That’s what they wanted us to do. Garbage in, and garbage out.”

WaMu’s boiler room culture flourished in Southern California, where housing prices rose so rapidly during the bubble that creative financing was needed to attract buyers.

To that end, WaMu embraced so-called option ARMs, adjustable rate mortgages that enticed borrowers with a selection of low initial rates and allowed them to decide how much to pay each month. But people who opted for minimum payments were underpaying the interest due and adding to their principal, eventually causing loan payments to balloon.

Customers were often left with the impression that low payments would continue long term, according to former WaMu sales agents.

For WaMu, variable-rate loans — option ARMs, in particular — were especially attractive because they carried higher fees than other loans, and allowed WaMu to book profits on interest payments that borrowers deferred. Because WaMu was selling many of its loans to investors, it did not worry about defaults: by the time loans went bad, they were often in other hands.

WaMu’s adjustable-rate mortgages expanded from about one-fourth of new home loans in 2003 to 70 percent by 2006. In 2005 and 2006 — when WaMu pushed option ARMs most aggressively — Mr. Killinger received pay of $19 million and $24 million respectively.

WaMu’s retail mortgage office in Downey, Calif., specialized in selling option ARMs to Latino customers who spoke little English and depended on advice from real estate brokers, according to a former sales agent who requested anonymity because he was still in the mortgage business.

According to that agent, WaMu turned real estate agents into a pipeline for loan applications by enabling them to collect “referral fees” for clients who became WaMu borrowers.

Buyers were typically oblivious to agents’ fees, the agent said, and agents rarely explained the loan terms.

“Their Realtor was their trusted friend,” the agent said. “The Realtors would sell them on a minimum payment, and that was an outright lie.”

According to the agent, the strategy was the brainchild of Thomas Ramirez, who oversaw a sales team of about 20 agents at the Downey branch during the first half of this decade, and now works for Wells Fargo.

Mr. Ramirez confirmed that he and his team enabled real estate agents to collect commissions, but he maintained that the fees were fully disclosed. [Snip]

By 2005, the word was out that WaMu would accept applications with a mere statement of the borrower’s income and assets — often with no documentation required — so long as credit scores were adequate, according to Ms. Zaback and other underwriters.

“We had a flier that said, ‘A thin file is a good file,’ ” recalled Michele Culbertson, a wholesale sales agent with WaMu.

Martine Lado, an agent in the Irvine, Calif., office, said she coached brokers to leave parts of applications blank to avoid prompting verification if the borrower’s job or income was sketchy. [Snip]

By the time shareholders joined WaMu for its annual meeting in Seattle last April, WaMu had posted a first-quarter loss of $1.14 billion and increased its loan loss reserve to $3.5 billion. Its stock had lost more than half its value in the previous two months. Anger was in the air.

Some shareholders were irate that Mr. Killinger and other executives were excluding mortgage losses from the computation of their bonuses. Others were enraged that WaMu turned down an $8-a-share takeover bid from JPMorgan.

“Calm down and have a little faith,” Mr. Killinger told the crowd. “We will get through this.” [Snip]

In September, Mr. Killinger was forced to retire. Later that month, with WaMu buckling under roughly $180 billion in mortgage-related loans, regulators seized the bank and sold it to JPMorgan for $1.9 billion, a fraction of the $40 billion valuation the stock market gave WaMu at its peak.

Billions that investors had plowed into WaMu were wiped out, as were prospects for many of the bank’s 50,000 employees. But Mr. Killinger still had his millions, rankling laid-off workers and shareholders alike.

“Kerry has made over $100 million over his tenure based on the aggressiveness that sunk the company,” said Mr. Au, the money manager. “How does he justify taking that money?”
This was a disaster caused by Killinger's greed, his excessive pay and his prospective bonuses. But on a more global scale, it was also caused by bankers hiring people who are motivated by money instead of the satisfaction of growing a long term effective business. The clearest example of that in this story is the role of the advertising slogan "The power of Yes." Policy was set to match the advertising slogan rather than to build a bank for the long term, and the proof of its effectiveness was the short-term growth of revenue (which was "jacked up" by dubious accounting.) Since Killinger had been an analyst himself, it's where that attitude came from - Wall Street. All that counts for the company is the bottom line, and financial reporting is done quarterly and annually, while stock market price is considered daily and even hourly.

Killinger had no interest in anything about WaMu except his salary and his excessive bonuses, and Wall Street's short-term obsession with quarterly performance fed right into that. True, the bonus system itself was clearly poorly structured, but remember that it was structured for Killinger by the Board of Directors who Killinger himself had appointed.

To achieve those bonuses, Killinger made sure that apparently high profit but dubious loans were pumped out at high rates of speed (1)by pressuring employees to do whatever it took to sell the loans and (2) by kickbacks to mortgage brokers who initiated the loans and faked the paperwork to make sure they could be sold to investors, then (3) by running loan approval sweatshops in which it was never permissible to say No because saying No meant the supervisors bonus was reduced. In every case the supervisors were motivated by high bonuses dependent on achieving short term goals by any means possible and by ignoring long term consequences.

As an exercise for the reader, consider how and why Wall Street itself, run by bankers motivated by money (instead of building businesses) and obsessed with the latest quarterly reports, has collapsed. Remember that Wall Street itself is now on life support being funded by none other than Henry Paulson, currently Secretary of Treasury and previously Chairman of Goldman Sachs Wall Street Bank. And Paulson himself is using taxpayer money to bail out his precious banks. The Wall Street attitudes that destroyed WaMu dominate Wall Street and have had much the same effect there as on WaMu.

Thursday, December 25, 2008

Rachel Maddow shows the hole Rick Warren is digging

I really like Rachel Maddow. Here she is on the subject of Rick Warren and what he is doing to Barack Obama.

Another threat to the Republicans eliminated in a small plane crash.

What do Paul Wellstone, Mel Carnahan, Ron Brown, Mickey Leland, John Tower, John F. Kennedy, Jr and Michael Connell all have in common?

Everyone of them was a threat to the Republican Party. Everyone of them died in a small plane crash just before they were to do something the Republicans did not want done.

Michael Connell? Who's he? He was Karl Rove's information systems expert who helped Rove steal the 2000 and 2004 presidential elections, among others. He was also about to testify about how he stole elections for Rove in the King-Lincoln-Bronzeville federal civil rights lawsuit against Ohio Republican Secretary of State J. Kenneth Blackwell.
Ohio Republican Secretary of State J. Kenneth Blackwell hired Connell in 2004 to create a real-time computer data compilation for counting Ohio’s votes. Under Connell’s supervision, Ohio’s presidential vote count was transmitted to private, partisan computer servers owned by SmartTech housed in the basement of the Old Pioneer Bank building in Chattanooga, Tennessee. Connell’s company, New Media Communications worked closely with SmartTech in building Republican and right-wing websites that were hosted on SmartTech servers. Among Connell’s clients were the Republican National Committee, Swift Boat Veterans for Truth and, that housed at one point Karl Rove’s missing emails. Rove’s email files have since mysteriously disappeared despite repeated court-sanctioned attempts to review them. [Snip]

At 12:20 am on the night of the 2004 election exit polls and initial vote counts showed John Kerry the clear winner of Ohio’s presidential campaign. The Buckeye State’s 20 electoral votes would have given Kerry the presidency.

But from then until around 2am, the flow of information mysteriously ceased. After that, the vote count shifted dramatically to George W. Bush, ultimately giving him a second term. In the end there was a 6.7 percent diversion—in Bush’s favor—between highly professional, nationally funded exit polls and the final official vote count as tabulated by Blackwell and Connell.

Until his death Connell remained the IT supervisor for six Congressional committees. But on the day before the 2008 election, Connell was deposed by attorneys Cliff Arnebeck and Bob Fitrakis about his actions during the 2004 vote count, and his continued involvement in IT operations for the GOP, including his access to Rove’s e-mail files and the circumstances behind their disappearance.

Various threats have been repeatedly reported involving Connell and other IT experts close to the GOP. On July 24, 2008, Arnebeck emailed Attorney General Michael Mukasey, stating: “We have been confidentially informed by a source we believe to be credible that Karl Rove has threatened Michael Connell, a principal witness we have identified in our King-Lincoln case in federal court in Columbus, Ohio,….”

Connell’s death comes at a moment where election protection attorneys and others appeared to be closing in on critical irregularities and illegalities. In his pre-election deposition, Connell was generally evasive, but did disclose key piece of information that could prove damaging to Karl Rove and the GOP. Examining attorneys in the King- Lincoln-Bronzeville civil rights lawsuit, stemming from the 2004 election theft, were confident Connell had far more to tell.

There is widespread concern that this may be the reason he is now dead. This is the report from Alex Jones' Inforwars:
Michael Connell, the Bush IT expert who has been directly implicated in the rigging of George Bush’s 2000 and 2004 elections, was killed last night when his single engine plane crashed three miles short of the Akron airport. Velvet Revolution (”VR”), a non-profit that has been investigating Mr. Connell’s activities for the past two years, can now reveal that a person close to Mr. Connell has recently been discussing with a VR investigator how he can tell all about his work for George Bush. Mr. Connell told a close associate that he was afraid that George Bush and Dick Cheney would “throw [him] under the bus.”

A tipster close to the McCain campaign disclosed to VR in July that Mr. Connell’s life was in jeopardy and that Karl Rove had threatened him and his wife, Heather. VR’s attorney, Cliff Arnebeck, notified the United States Attorney General , Ohio law enforcement and the federal court about these threats and insisted that Mr. Connell be placed in protective custody. VR also told a close associate of Mr. Connell’s not to fly his plane because of another tip that the plane could be sabotaged. Mr. Connell, a very experienced pilot, has had to abandon at least two flights in the past two months because of suspicious problems with his plane. On December 18, 2008, Mr. Connell flew to a small airport outside of Washington DC to meet some people. It was on his return flight the next day that he crashed.

On October 31, Mr. Connell appeared before a federal judge in Ohio after being subpoenaed in a federal lawsuit investigating the rigging of the 2004 election under the direction of Karl Rove. The judge ordered Mr. Connell to testify under oath at a deposition on November 3rd, the day before the presidential election. Velvet Revolution received confidential information that the White House was extremely concerned about Mr. Connell talking about his illegal work for the White House and two Bush/Cheney 04 attorneys were dispatched to represent him.
Here is a report on the plane "accident" itself.
Connell was a highly experienced pilot. His crash is suspicious.
Current cover stories include the possibility that his plane ran out of fuel. But its crash was accompanied by a very large fireball explosion that burned for more than ten minutes. A trooper on the scene immediately identified Connell, but newspaper accounts say his body was charred beyond recognition.

Connell told various sources that he was being threatened by Rove. He canceled at least two previous flights due to mechanical failure. A father of four, his decision to fly from a highly restricted airport in Maryland remains a mystery. Connell reportedly did contract work for security-industrial agencies, like the CIA. Connell also openly acknowledged that he was the first IT contractor to move his servers behind the firewall of the US House of Representatves [Sic] where he oversaw the websites of the House Judiciary Committee, Intelligence Committee, Ways and Means Committee, and Administrative Committee, arguably the four most powerful committees in the House.
Is there any proof that Connell was assassinated? No, not at this time, but tipsters certainly anticipated it, warned that his plane would be sabotaged, and then he was killed in a suspicious plane crash.

But why was he killed? This article describes the vote stealing that occurred and lays out Connell's central position in the alleged crime.
4. Ultimately, however, it is the GOP's computerized control of the vote count that may have been decisive. And here is where Rove's e-mails, and the wee hours of the morning after the election, are crucial.

Despite the massive disenfranchisement of Ohio Democrats, there is every indication John Kerry won Ohio 2004. Exit polls shown on national television at 12:20am gave Kerry a clear lead in Ohio, Iowa, Nevada and New Mexico. These "purple states" were Democratic blue late in the night, but, against virtually impossible odds, all turned Bush red by morning.

Along the way, Gahanna, Ohio's "loaves & fishes" vote count, showed 4,258 ballots for Bush in a precinct where just 638 people voted. Voting machines in Youngstown and Columbus lit up for Bush when Kerry's name was pushed. Rural Republican precincts registered more than 100% turnouts, while inner city Democratic ones went as low as 7%. Warren County declared a "Homeland Security" alert, removed the ballot count from public scrutiny, then recorded a huge, unlikely margin for Bush.

These and many more instances of irregularities and theft were reported at and then confirmed by U.S. Representative John Conyers and others who researched the election.

But the most critical reversals may have come as exit polls indicated that despite massive Democratic disenfranchisement, and even with preliminary vote count manipulations, Kerry would win Ohio by 4.2%, a margin well in excess of 200,000 votes.

The key to that reversal may be electronic. It has now become widely known that the same web-hosting firm that served a range of GOP websites, including the one for the Republican National Committee, also hosted the official site that Blackwell used to report the Ohio vote count.

This astonishing conflict of interest has been reported at the on-line investigative service. Cross-postings have come from luaptifer at Dailykos and blogger Joseph Cannon's They all confirm that the RNC tech network's hosting firm is, based in Chattanooga, Tennessee. SMARTech hosts, and among other Republican web domains, in a bank basement.

Furthermore, the same hosting site that handled redirections from Blackwell's "official" site also handled the White House e-mail accounts that have become central to investigations of the Gonzales purge of eight federal prosecutors, some of whom were themselves involved in vote fraud investigations.

Conflicts of interest in programming services and remote-access capability appear throughout the RNC's computer networks, Rove's secret White House e-mail, and the electronic vehicles used by Blackwell to finally reveal his "official" presidential vote counts for Ohio 2004.

One factor may be Ohio's electronic touch-screen voting systems, on which were cast more than 800,000 votes in an election decided by about one-seventh that total. Such vulnerabilities, among other things, have been confirmed in exhaustive reports by Conyers's Committee, by the Government Accountability Office, by the Carter-Baker Commission, by Princeton University, by the Brennan Center, and by others.

But overall, the electronic record of every vote in Ohio was transmitted to the Secretary of State's office, and hosted in real time in Chattanooga. Under such circumstances, the joint hosting of the White House e-mail system and accessibility by Blackwell and Rove to the same computer networks linked to the Ohio vote count, takes on an added dimension.

Mike Connell, a Republican computer expert, helped create the software for both Ohio's official 2004 election web site, and for the Bush campaign's partisan web site during the 2000 election. The success of Connell's GovTech Solutions has been attributed by Connell to his being "loyal to my network," including the Bush family.

Blackwell shared those loyalties. Like Connell, he worked for the Bush-Cheney campaign, serving as its Ohio co-chair. He was also in control of the vote count that was being reported on software Bush loyalist Connell helped design.

It was in a crucial period after midnight on election night 2004 that these paired conflicts of interest may have decided the election. As exit polls showed a decisive Kerry victory, there was an unexplained 90-minute void in official reporting of results. By this time, most of the vote counts were coming in from rural areas, which are traditionally Republican, and which, ironically, usually report their results earlier than the Democratic urban areas.

In this time span, Kerry's lead morphed into a GOP triumph. To explain this "miraculous" shift, Rove invented a myth of the greatest last-second voting surge in US history, allegedly coming from late-voting fundamentalist Republicans. No significant evidence exists to substantiate this claim. In fact, local news reports indicate the heaviest turnouts in most rural areas came early on election day, rather than later.

According to a January 13, 2005, release from Cedarville University, a small Ohio-based Christian academy, Connell's GovTech Solutions helped make the shared server system run "like a champ...through the early morning hours as users from around the world looked to Ohio for their election results."

After 2am, despite exit polls showing very much the opposite outcome, those results put Bush back in the White House.

In January, 2005, the U.S. Congress hosted the first challenge to a state's Electoral College delegation in our nation's history. At the time, the compromised security of the official Ohio electronic reporting systems was not public knowledge. But the first attempt to subpoena Karl Rove's computer files had already failed.

Now a second attempt to gain such access is being mounted as the Gonzales scandal deepens.

Congressman Henry A. Waxman (D-CA) has raised "particular concerns about Karl Rove" and his electronic communications about the Gonzales firings.

Rove claims both his own computer records and the RNC's servers have been purged of e-mails through the time the Ohio vote was being reversed. Rove's attorney, Robert Kuskin, has told a Congressional inquiry that Rove mistakenly believed his messages to the RNC "were being archived" there.

But the RNC says it has no e-mail records for Rove before 2005. Rob Kelner, an RNC lawyer says efforts to recreate the lost records have had some success. But it's not yet known whether communications from the 2004 election can be retrieved.

Nor is it known whether the joint access allowed to top GOP operatives Rove and Blackwell was responsible for the election-night reversal that put Bush back in the White House.

But there remains another avenue by which the real outcome of Ohio 2004 could be discovered. Longstanding federal law protected Ohio's ballots and other election documentation prior to September 3, 2006. Blackwell gave clear orders that these crucial records were to be destroyed on that date.

Prior to the expiration of the federal statutory protection, a civil rights lawsuit was filed in the federal court of Judge Algernon Marbley, asking that the remaining records be preserved. The request was granted in what has become known as the King-Lincoln Bronzeville suit (co-author Bob Fitrakis is an attorney in the case, and Harvey Wasserman is a plaintiff).

Thus, by federal law, the actual ballots and electronic records should be available for the kind of exhaustive recount that was illegally denied---or "rigged," as prosecutors in Cleveland have put it---by Blackwell, Bennett and their cohorts the first time around.

Ohio's newly-elected Secretary of State, Jennifer Brunner, has agreed to take custody of these materials, and to bring them to a central repository, probably in Columbus.

This means that an exhaustive recount could show who really did win the presidential election of 2004.

It may also be possible to learn what roles---electronic or otherwise--- Karl Rove and J. Kenneth Blackwell really did play during those crucial 90 minutes in the deep night, when the presidency somehow slipped from John Kerry to George W. Bush.
There is a lot of circumstantial evidence that the Republicans stole the 2004 election in Ohio, but Mike Connell's testimony would have linked all the various suspicious events together. And Karl Rove is said to have threatened Mike Connell's life if he talked.

Monday, December 22, 2008

Bush, Cheney and the conservatives caused the economic crisis and general Wall Street corruption

Iraqi journalist Muntader al-Zaidi threw two shoes at George Bush to remind everyone that Bush and his minions are directly responsible for the deaths of hundreds of thousands of Iraqis. They are also the reason that there are 4 million refugees spread around the Middle East. Eric Margolis points out what else Bush, Cheney and the conservatives are responsible for.
While al-Zaidi was being beaten in prison for his courageous act, off in New York, the fabled financial guru, Bernie Madoff, was accused of bilking clients of an astounding $50 billion while well-fed watchdogs of the Securities and Exchange Commission slept.

Thanks to Madoff and other Wall Street bandits, tens of millions of Americans have lost their life savings and retirement funds, and the word financial system is on the rocks. The storm they created has blown as far east as the Gulf and South Asia.

Ironically, while Bush and Cheney were obsessed by al-Qaida, searching under every rock in Afghanistan for Osama bin Laden, the real danger to America was at home – on Wall Street. The same bin Laden who pointed out a decade ago that America’s economy, its Achilles Heel, would one day collapse.

Wall Street’s financial con men, hedge fund nabobs, and casino capitalists took home a staggering US $33.3 billion of bonuses in 2007 alone thanks to shady financial engineering and peddling fraudulent securities. So far, they have escaped prosecution and get to keep their millions and $30 million South Hampton beach houses. That these fraudsters go unpunished, and get to keep their swag, is unconscionable. [Snip]

The US national debt is twice America’s net worth.

Government and business encouraged a reckless credit binge to which the nation became addicted. Manufacturing fell to only 12% of GDP. Finance – the shuffling of paper – became America’s leading industry, at almost 25% of GDP. Americans saved nothing and had to borrow $1.2 trillion from China and Japan to keep their orgy of consumerism going.

Washington’s response to the financial crisis was panic, then flooding the economy with freshly-printed money in hope something positive would happen. Japan made precisely the same gamble when its bubble economy collapsed in the early 1990’s. Today, Japan has one of the world’s highest deficits and its economy remains stagnant.
Wall Street used the political conservatives to remove government supervision, then they converted the economy into a banker's paradise where bank loans were used for the consumption purchases needed to pump up the economy while their merger-happy parasites shifted real production off-shore to third world countries where they didn't have to share profits with the workers who actually produce the goods the economy has consumed.

The executives of large American companies were bought off with extravagant salaries and bonuses as they consolidated, merged and drove their companies into the ground. Here's Eric Margolis' description of what the car companies have been doing:
Worse is coming. Chrysler and Ford will shut plants in January. GM is next. In spite of the $ 13.4 billion auto industry bailout announced by President Bush last week, many plants may never reopen. Even the mighty Toyota just announced its first-ever loss.

The staggering US auto industry closely resembles the old Soviet Union: economically declining, bereft of new ideas, producing unwanted products, run by dimwitted careerist bureaucrats.

America produces the wrong cars, and far too many. The bloated auto industry must downsize. It has been selling cars only thanks to the steroid of cheap, easy credit – in effect, almost giving them away. Now that the drug is largely cut off, sales have nosedived.

The US economy has been running almost entirely on credit for a decade.
When MBA's, Economists and Lawyers run the economy and it is hard to find students who want to work hard enough to learn the relatively poorly paid jobs of engineers, the economy is being driven into the ground. But that's what Conservatives and Libertarians have been doing since Reagan was elected President.

It'll happen every time conservatives and bankers take control of the economy. The current economic crisis is just the chickens coming home to roost.

Saturday, December 20, 2008

California suffers the ravages of "no new taxes - small government."

California has two lessons to teach.

California has a constitution that requires a two-thirds vote to pass the budget. Roughly 40% of the legislature consists of conservatives who demand "No New Taxes!" under all circumstances.

The result? California posts 8.4% jobless rate, third highest in U.S.. The state is about to go into bankruptcy, and it is the direct result of the Reagan Revolution and Proposition 13.

Except for the very wealthy, good government provides a better way of life than the pure libertarian Free Market. That's the first lesson out of California.

And the second lesson? The Republican Party is good for nothing except obstructionism. They'd rather fight and obstruct others than work with them. This is true across the nation, but as usual in America, California is leading the way. Conservatives have given America the current Recession, the worst since the Depression - which was also caused by the same Libertarian conservative philosophy. The cause of the economic disaster is just clearest in California. The rest of the U.S. is going to follow California into the economic pit because of the Republican Party.

Tuesday, December 16, 2008

The NY Times has posted a searchable copy of the report of the Iraq reconstruction experience.

The draft of a federal report by the Office of the Special Inspector General for Iraq Reconstruction is now on line and searchable. Here it is.

The TPM book club discussion of Krugman's book "The Return of Depression Economics."

The TPM Book Club hosted Paul Krugman discussing his updated book The Return of Depression Economics and the Crisis of 2008. A number of other authors have discussed the ideas Krugman presents.

If you want an outstanding discussion of why the current economic situation is the way it is, this is a great place to start. The comments to each post are in many ways as illuminating as the posts themselves. My post is intended to pull the related posts together into a single location for convenience.

(note: These posts are listed in oldest first order, which is the reverse of the traditional blog order found on the TPM Cafe website. This oldest first order is, however, the logical way to follow any stream of thought.)

Krugman starts out on December 15th with this comment which he titled "When the world's in crisis, the rules don't apply":
Right now the world economy is in a nosedive, and understanding what I call "depression economics" -- the weird world you get into when even a zero interest rate isn't low enough, and a messed-up financial system is dragging down the real economy -- is essential if we're going to avoid the worst.

The key thing, when you're in a situation like this, is realizing that normal rules don't apply. Ordinarily we'd welcome an increase in private saving; right now we're living in a world subject to the "paradox of thrift," in which private virtue is public vice. Normally we want to be careful that public funds are spent wisely; right now the crucial thing is that they be spent fast. (John Maynard Keynes once suggested burying bottles of cash in coal mines and letting the private sector dig them up -- not as a real proposal, but as a way of emphasizing the priority of supporting demand.)

The big test for the next few months will be whether policymakers here and abroad can wrap their minds around this Alice-in-Wonderland world. If they can't, nobody knows how deep the rabbit hole goes.
Click through to read the comments to this initial post. Below are the followup articles from December 15th through December 19th contributing to the discussion. The comments to each post are frequently as illuminating as the post itself.

December 15, 2008December 16, 2008December 17, 2008December 18, 2008December 19, 2008

Note: When commenters use the term LTCM, they mean the collapse of the Long Term Capital Management hedge fund in the late 90's.

Fed sets historically low interest rate

From the Wall Street Journal:
WASHINGTON -- U.S. Federal Reserve officials on Tuesday slashed official interest rates to an historic low range to combat a deepening recession and signaled they will keep rates "exceptionally low" for some time amid rapidly waning price pressures.

Officials also signaled a new phase for policy in which lending programs financed by the Fed's ballooning balance sheet, a process known as quantitative easing, replace the federal funds rate as the Fed's primary policy tool.

The Federal Open Market Committee voted unanimously to reduce the target fed funds rate for interbank lending from 1% to a range of zero to 0.25%, the lowest since the Fed started publishing the funds target in 1990. The market-determined effective fed funds rate already has already hit record lows in recent weeks. (Read the Fed's statement.)

Economists had expected a smaller cut of just 0.5 percentage point, and hadn't envisioned the Fed setting a range.

"The Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time," the Fed said, adding it will "employ all available tools' to promote growth and maintain price stability.

The Fed has used a variety of operating targets through the decades, including the discount rate and monetary aggregates.

The Fed also lowered the discount rate paid by commercial and investment banks for Fed loans by 0.75 percentage point to 0.5%.

In a statement, the FOMC said its focus "will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level."

Ben Bernanke tipped the shift toward quantitative easing -- in which cash is essentially created and used to finance lending facilities -- earlier this month. He said that while the Fed's ability to use interest rates to support the economy "is obviously limited" with rates so low, the "second arrow in the Federal Reserve's quiver -- the provision of liquidity -- remains effective."
This is getting into what Paul Krugman has described as "The Return of Depression Economics." From a review of his book by that name, here is what Krugman means by Depression Economics.
Krugman does not think the world is about to descend into a 1930's-style depression. In fact, he argues that such a fate can be avoided if we instead remember the economic theories born of the Depression, most notably the work of Lord Keynes. Depression economics, Krugman says, ''is the study of situations where there is a free lunch, if we can only figure out how to get our hands on it, because there are unemployed resources that could be put to work.'' He thinks that in some places, most notably Japan, it is time for government to actively seek inflation.

...Krugman argues that now, as in the 1930's, there is too much emphasis on economic orthodoxy and on somehow restoring the confidence of investors. To be sure, confidence is of immense importance at certain times, and a major reason that country after country suffered currency collapses was that investors took flight. But countries facing crises now are not going to be any more successful than Herbert Hoover was at winning confidence by slashing public works spending while their economies stagnate.

What appalls Krugman now is not the problems the world faces but the reluctance to learn from them. ''Those who worried about balanced budgets back when uncontrollable deficits were the problem suddenly insist that raising taxes and cutting spending will actually prevent a recession, because it will improve confidence,'' he says. ''Those who wanted stable prices back when inflation was the risk now claim that 'managed inflation' will somehow backfire.''

The reality to Krugman is that there are few, if any, economic policies that are always right for all countries. What you should do depends on where you are and on an ability to think clearly about how you got there. There are times when capital controls can work, and when they would be disastrous. There are times when fixed exchange rates can work wonders, and times when they can blow up. That is not the easy answer, but it is the right one.
Krugman's book has been updated and reissued this month. The updates include
~ The failure of regulation to keep pace with an increasingly out-of-control financial system
~ Steps that must be taken to contain the crisis (a rarity in the spate of books coming forth in response to the failing economy)
The economic rules that the Republican Party has been spouting since Reagan was elected will NOT be helpful now that they have caused the greatest Recession since the Great Depression.

Bush's war against the Rule of Law

One of the core concepts that has made America a great nation is that it is a democracy based on the Rule of Law. That is, Americans are governed by laws rather than by the arbitrary whims and decisions of some leader. Inherent in that idea is the fact that there is no individual in America who has the Constitutional Right to ignore law and act contrary to Law without punishment.

The Bush administration, led by Dick Cheney and David Addington and supported whole-heartedly by George W. Bush, has moved sharply in the last eight years to create a Presidency which is above the law and which is not restrained by the law in any way. The Bush administration is worked diligently to institutionalize government based on the arbitrary rule of the Office of the President rather than Rule of Law.

Glenn Greenwald explains this in an in-depth interview with Bill Moyers. This link leads to both the video of the Bill Moyers interview with Glenn Greenwald and to the transcript.

Of all the very destructive and clearly Unamerican legacies that Bush will leave behind him, including the worst Recession since the Great Depression, the concerted effort to destroy the Rule of Law in America will be the longest and most destructive action Bush has supervised.

Greenwald describes the first time he was aware that the government had totally stepped over the line and departed from a government under the Constitution.
BILL MOYERS: Was there a moment when what you lay what you have called "creeping extremism" became apparent to you in a minute particular?

GLENN GREENWALD: Actually, there was. And I'll describe to you exactly what it was. It was in 2002 when Jose Padilla, an American citizen born in the United States on U.S. soil, was essentially abducted by the government - by the U.S. government. And it was - he was accused in a press conference held by John Ashcroft of being the dirty bomber.


GLENN GREENWALD: Of seeking to detonate a radiological weapon within an American city. Obviously something that is a crime and it should be prosecuted as a crime. But rather than announce that they intended to indict him and bring charges against him, as the Constitution requires, the Bush administration instead announced that it has the power to arrest and detain American citizens on U.S. soil indefinitely based solely on the say so of the president without having to charge that person with a crime and without even having them have access to a lawyer.

And that's exactly what was done the Jose Padilla, a U.S. citizen in this country, for years. And the lynchpin of American liberties since the founding, as the founders said, has been that the government does not have the power, not even the British king had the power since the Magna Carta, to order citizens imprisoned without charges based solely on the unchecked say so of the president. That is the power that this government assorted and seized and exercised. And that's when I realized that things had gone radically awry.
[Underlining mine - WTF-o]
Go watch (or read) the Interview between Bill Moyers and Glenn Greenwald.

Or go to a copy of the full transcript of the interview.

Sunday, December 14, 2008

Atrios asks "Why did we attack Iraq?"

There are two cultures at war with each other in the U.S., and there have been since the nation began. Digby has documented the Two Tribes of America, one of which dominates the American South and the other which tends to dominate the rest of America. The culture of the South includes the attitude of low taxes, small government, low government services, and prefers government solutions to problems that include a lot of police and military activity.

The other tribe has grown out of the U.S. Northeast and Midwest, and includes believing in universal public education and government support for the economy. Needless to say it included the belief in higher taxes as needed to support expanded government service. It should be no surprise that the American industrial revolution grew out of the culture of the northern tribe.

So what does this have to do with Atrios' question why we attacked Iraq? This was George Bush's explanation, offered in Baghdad:
BAGHDAD -- Arriving in Baghdad today for a farewell visit, President Bush staunchly defended a war that has taken far more time, money and lives than anticipated, saying the conflict "has not been easy" but was necessary for U.S. security, Iraqi stability and "world peace."
Atrios points out the Obvious. That statement is a lie. The invasion of Iraq was not required for U.S. security, Iraqi stability and "world peace" and in fact undermined each of those goals.

The real answer is that in 1994 the Southern American culture took over Congress under Newt Gingrich and in 2000 the Southern Tribe took over the White House under George Bush. Their solution to problems is to blow them up or send in the military.

The problem they perceives was the decline of world oil, the economic basis of American hegemony over much of the world, at the same time time that third world nations were actively resisting American hegemony. While the third world nations include more than just the Islamic culture, the Islamic nations sit on top of a large chunk of the world's oil supply and can make a lot of trouble for American economic and military hegemony.

Iraq was not the center of that resistance. It was simply the weakest of the Islamic oil states, and so was seen by the Southern American tribe as the perfect subject for a demonstration invasion by the American military.

The excuses were dreamed up to justify the previously made decision (published by the Project for the New American Century) to invade Iraq. 9/11 presented the perfect opportunity, even though the 9/11 attack was conducted by primarily Saudi Arabian individuals financed by Saudi Arabian and trained in Afghanistan under the auspices of the Taliban, a Sunni Muslim extremist organization supported by elements of the Pakistanian Inter-Services Intelligence Agency.

This was a cultural decision by the Southern U.S. cultural tribe, not a rational defense of America or an effort to ensure Peace. America attacked Iraq specifically to demonstrate that they would and could do so. Secretary of Defense Don Rumsfeld said so when he described the invasion of Iraq as an effort to apply "Shock and Awe."

See? That's not all that hard to understand. But the question that Atrios asks is a little different. It's not whether the true reasons can easily be discerned, it's whether the teachers in 80 or so years will dare to teach that truth in high school.

Probably not. I don't recall my high school teaching about Andrew Jackson's Indian Removal and the Trail of Tears, and I was in high school at least 120 years after the Indian Removal.

As usual in 80 or more years American Exceptionalism will trump the truth.

The Republican approach to solving the credit crisis, Recession, and foreclosure mess. Obstruct everything.

When Eric Holder was first announced as the Obama choice to be nominated as Attorney General, there was very little complaint. Even most Republicans considered him well-qualified. But now Karl Rove has decided to go after holder's scalp in the Senate hearings, and the Republican Senators are lining up behind Rove to attack. Why?

Steve Benen offers a good discussion, with this ending
It's possible that Rove, if the "word on the street" is accurate, may simply want congressional Republicans to prove a point, picking a fight they're likely to lose in order to set a combative tone for the next two years. The goal, in other words, would be to maintain as toxic an environment as possible, and the Holder nomination would simply be a means to an end.

It sounds like a pretty dumb strategy for an unpopular party facing off against a man who'll enter the White House with a lot of popularity and goodwill behind him.
Dumb? Yeah, probably, but it's what the Republicans in the Senate do. They can't govern, but as their actions to go after the Automotive Worker's Union no matter what their obstructionism costs the nation shows, they are great at obstructing good governance.

Of course, it's not just the Senate Republicans. They are all talking to each other and deciding how they are going to take the Obama administration down. Also from Steve Benen
The Republican National Committee, true to form, is going to comical lengths to try to connect Barack Obama to Rod Blagojevich, reality notwithstanding. The latest initiative includes a three-minute web video featuring a bunch of instances in which the senator from Illinois met the governor of Illinois. The horror.

The video is likely part of RNC chairman Mike Duncan's campaign to keep his job -- he's desperate to prove to Republicans that he can be at least as ridiculous as the other candidates for the post. But outside this context, the Republican National Committee's baseless smear campaign against the president-elect seems unusually cheap, even by RNC standards.
The Republicans have created the mess America is currently in, and their solution to the problems their greed-first anti-union ideology has created is to attack the government that has been elected to try to solve the problems they have created.

Saturday, December 13, 2008

Rachel Maddow on the Republican union-busting efforts

Here is Rachel Maddow presenting a discussion of how the Republicans are working to destroy the United Auto Workers Union.

Bill Sher discusses the ways the Republicans are trying to destroy the American economy.

Southern Republicans are out to kill off the Big Three bridge loan and the United Auto Workers Union

The new civil war over America's automotive industry has started. Japan, Germany and Korea between them are currently building 18 new automotive assembly plants, all in the Southern U.S., and none are union. This is the motivation behind the efforts by Senators Mitch McConnell and Richard Shelby as well as Representative Bob Corker to torpedo the Big Three bridge loan and kill off both the United Auto Workers and the Detroit auto companies.

This political move will strengthen their political hold on their respective states. It will not particularly damage the Republican Party since they have already lost and written off Michigan, Ohio, Pennsylvania, Indiana, and Minnesota. Besides, even if those states do vote Democratic in the future, the Detroit-based auto companies are going to be shutting down plants and laying off workers in those states as they shrink in the future anyway.

Consider how this is working. The Southern states have ponied up a lot of taxpayer money to get the foreign non-union auto plants to locate there. If the federal government provides taxpayer bail-out money to the Detroit auto companies, then the taxpayers in Southern states are also paying tax money to support the out-of-state auto companies that are competing with their in-state companies. Robert Reich explains further.

As for the clear anti-union bias demonstrated by the Republicans, that's just what they do. They hate unions because it allows workers to put limits on what the executives and investors can do and forces the executives to pay labor more, funds that come directly out of the return to investors. That's the reason for this memo about union-busting sent to Senate Republicans.

As long as the Republicans regain the power they have lost in the last two elections they don't care of America goes into Depression or if foreigners buy up the industrial jobs in this country. It's no skin off their noses. So we can expect even more obstructionism from the Senate Republicans for the next two years. Since the recent two years saw the Republicans conduct the highest number of filibusters ever, to exceed that is going to be something to watch.

Friday, December 12, 2008

NRO objects to boycotts of businesses that supported repeal of Prop 8. Tough.

Mark Kleiman responds to NRO's Maggie Gallegher.

Galleger decided to write about the injustice of a boycott against a West Hollywood restaurant because its manager contributed to Proposition 8.

Gee. Who knew that just sending a $100 donation to a homophobic movement might rebound and effect the manager's job? I wonder how much angst Gallegher has for the highly qualified attorneys who applied for jobs at the Republican politicized Department of Justice and were turned down because they were "too liberal?"

Thursday, December 11, 2008

Obama, Daschle and health care financing

One major thing about the election of Obama as President will be the effort to break the health insurance lobby and allow Americans to get universal health care. The announcement that ex-Senate majority Leader Tom Daschle will become Secretary of Health and Human Services as well as director of the new White House Office of Health Reform indicates that Obama is serious about health care reform.

Ezra Klein has a really interesting article about how Tom Daschle and Barack Obama are connected. The connection is the previously very powerful chief of staff to Daschle as Majority Leader (Pete Rouse) who came to work for the most junior Senator in the Senate after Tom Daschle was defeated for reelection in 2004. Here is Ezra Klein's description of the Daschle - Obama connection and it's implications for the coming battle to get universal health care.
Obama's campaign was built off the plans Rouse wrote for Tom Daschle's Senate run. It even used the same people. His deputy campaign manager, Steve Hildebrand, managed Daschle's 2004 campaign. His director for battleground states, Jennifer O'Malley Dillon, and his director of communications, Dan Pfeiffer, were both deputy campaign managers for Daschle in 2004. Obama's foreign-policy director, Denis McDonough, was Daschle's foreign-policy adviser, and his finance director, Julianna Smoot, was head of Daschle's PAC. And in February of 2007 -- which is rather early for this sort of thing -- Tom Daschle, who had served with Joe Biden and Chris Dodd and John Edwards and Hillary Clinton, stepped forward and endorsed Barack Obama, giving Obama crucial establishment credibility, a powerful emissary to elite Washington, and a key adviser. And since then, other Daschle confidantes have entered Obama's inner circle, namely Phil Schiliro, formerly Daschle's policy director and now Obama's legislative liaison.

Which is all to say that Daschle is rather better integrated into Obama's political structure then your everyday appointee. And he has the relationships and the information to have made an informed judgment on whether the president-elect was serious enough about health care to merit Daschle's full-time involvement. Which is again why I urge people not to underestimate the importance of this pick, either as a signal of intentions or a signal of strategy. Though this point is argued in greater detail below, the distance between Ira Magaziner and Tom Daschle could not be greater. Magaziner knew nothing of the Congress. Daschle knows nearly everything. If the Clinton plan failed because it was too much the product of a policy process and too little the product of a congressional process, Daschle's involvement is the strongest evidence possible that Obama's plan will not suffer from the same mistakes.
The American health care crisis was supposed to be the major reason why Obama needed to be elected President. People are dying for lack of timely access to health care, while the people are are getting health care are paying a great deal more per person than people in other countries do, and in return getting health care that is not even up to average international standards.

Add to that situations like the health care expenses of the Detroit auto makers have made Detroit automobiles too expensive to compete with those from Japan and South Korea. So health care finance reform is critical to America.

This should not be put on hold because the American economy is collapsing into the worst recession since the Great Depression. The problems of the economy cannot be dealt with effectively without also dealing with the problems of health care financing. So it looks like Obama is going into the Presidency to deal with both health care financing and the economy. Tom Daschle as Secretary of HHS is a sign that the health care financing is going to be dealt with.

Wednesday, December 10, 2008

Joe Stiglitz lays out the causes of the current severe recession

Nobel-laureate economist Joseph Stiglitz lays out what he considers the five major mistakes that led to the current economic disaster. The problem is that we have undergone a financial system failure, one the result of numerous bad decisions. Here are the bad decisions:
  1. Back in 1987 Reagan replaced the world class central banker Paul Volker with the Ayn Randian Libertarian gold bug and free- unregulated- financial market apostle Alan Greenspan. Throughout his nearly two decades as Federal Reserve Chairman Greenspan ran a loose money low interest policy that created excess of liquidity, and he combined this with his belief that financial markets were self-regulating, so he did not provide the banks with the regulations they needed. This led directly to two financial bubbles followed by the current financial freeze-up.

  2. In 1999 the bankers and financial industry succeeded in removing the Depression era Glass-Steagall Act. The Glass-Steagall Act had separated the commercial banks which made loans from the Investment banks that organized the sale of stocks and bonds. The intent was to keep the bank which sold the equity or bonds of an organization from pressuring its lending arm to loan money to the organization if that organization was getting into financial trouble. The difficulty is that combining the two kinds of banks causes commercial banks - which are supposed to conservatively invest other people's money - are sucked into the high-risk highly-leveraged financial operations of the investment banks. The entire American banking system became a great deal more risky and less able to deal with economic downturns.

    Then in 2004 the SEC "... allow[ed] big investment banks to increase their debt-to-capital ratio (from 12:1 to 30:1, or higher) so that they could buy more mortgage-backed securities, inflating the housing bubble in the process." This was based on the assumption that the big banks were capable of regulating themselves. The results show that they were not. Among other problems, no one bank is capable of identifying the systemic risks that exist when numerous banks all operate similar computer models to manage their portfolios. There is no control that prevents them all from selling the same stock at the same time, an even sure to cause a financial disaster in the market.

  3. Then there were the two separate tax cuts aimed primarily at the rich in 2001 and 2003. They were supposed to stimulate the economy, but actually did very little stimulation. The economy was primarily stimulated by Greenspan's low interest rates and enlarged money supply, which worked through inflating the housing bubble.

    The tax cuts also lowered the capital gains tax but there was no tax on interest. This encouraged investors to borrow money from the home equity to invest and deduct the interest each year on their taxes. The capital gains were not taxed until the investment was sold, sometime far in the future. The already excessive borrowing and lending was being encouraged by the Bush tax cuts.

  4. Two additional items were the exclusion of stock options from consideration in company's financial reporting and the incentive of the companies selling bonds and mortgage back bonds paying the rating agencies to rate the financial instruments. Stock options were used to pay executives when the market was going up and other payments were used to pay them when the market did not go up.

    But the fact that rising markets increased the value of stock options led a lot of companies to fudge the financial reports to increase the value of the options. The fact that the rating agencies were paid by the sellers of the rated financial instruments meant that the rating agencies competed to see who would rate each issue the highest. Both of these factors led to less accurate financial reports. Everyone knows not to trust them.

  5. The most recent problem has been the bail-out package to preserve Wall Street. The initial package demanded from Congress consisted of three pages that amounted to a demand by Secretary of the Treasury Paulson for $700 billion to be spent in any way he saw fit with no oversight. It amounted to a demand to Congress "Gimme tons of money and I'll take care of the Wall Street banks." (It's no real surprise, with Paulson's attitude, that the Detroit auto makers attempted the same strategy on Congress a few weeks ago.)

    When a slightly improved bill was passed right before the election, Paulson then did not know what to do with it. His original plan to buy up bad loans quickly was abandoned as the massive insurer AIG failed and had to be rescued, but nothing that Paulson attempted was directed at the real underlying problems causing the economy and the markets to collapse. No surprise, because the Bush administration and Wall Street all operated on the Neo-Hooverian philosophy that the markets were self-correcting. Stiglitz describes the administration's efforts to turn the economy around with the bail-out this way: didn't address the underlying reasons for the loss of confidence. The banks had made too many bad loans. There were big holes in their balance sheets. No one knew what was truth and what was fiction. The bailout package was like a massive transfusion to a patient suffering from internal bleeding-and nothing was being done about the source of the problem, namely all those foreclosures. Valuable time was wasted as Paulson pushed his own plan, "cash for trash," buying up the bad assets and putting the risk onto American taxpayers. When he finally abandoned it, providing banks with money they needed, he did it in a way that not only cheated America's taxpayers but failed to ensure that the banks would use the money to re-start lending. He even allowed the banks to pour out money to their shareholders as taxpayers were pouring money into the banks.

    The other problem not addressed involved the looming weaknesses in the economy. The economy had been sustained by excessive borrowing. That game was up. As consumption contracted, exports kept the economy going, but with the dollar strengthening and Europe and the rest of the world declining, it was hard to see how that could continue. Meanwhile, states faced massive drop-offs in revenues-they would have to cut back on expenditures. Without quick action by government, the economy faced a downturn. And even if banks had lent wisely-which they hadn't-the downturn was sure to mean an increase in bad debts, further weakening the struggling financial sector.

    The administration talked about confidence building, but what it delivered was actually a confidence trick. If the administration had really wanted to restore confidence in the financial system, it would have begun by addressing the underlying problems-the flawed incentive structures and the inadequate regulatory system.
Stiglitz sums up the causes of the current financial and economic crisis this way.
Was there any single decision which, had it been reversed, would have changed the course of history? Every decision-including decisions not to do something, as many of our bad economic decisions have been-is a consequence of prior decisions, an interlinked web stretching from the distant past into the future. You'll hear some on the right point to certain actions by the government itself-such as the Community Reinvestment Act, which requires banks to make mortgage money available in low-income neighborhoods. (Defaults on C.R.A. lending were actually much lower than on other lending.) There has been much finger-pointing at Fannie Mae and Freddie Mac, the two huge mortgage lenders, which were originally government-owned. But in fact they came late to the subprime game, and their problem was similar to that of the private sector: their C.E.O.'s had the same perverse incentive to indulge in gambling.

The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal. Looking back at that belief during hearings this fall on Capitol Hill, Alan Greenspan said out loud, "I have found a flaw." Congressman Henry Waxman pushed him, responding, "In other words, you found that your view of the world, your ideology, was not right; it was not working." "Absolutely, precisely," Greenspan said. The embrace by America-and much of the rest of the world-of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today.
In short, it is as I have been writing since this Recession started, we are living out the predictable results of the Reagan Revolution put into place by the conservative movement.

Any time the financial sector is deregulated the result will always be a series of booms and busts, each larger than the previous one. Markets are NOT self-adjusting, and they can only be protected from themselves by appropriate government regulation.

Addendum December 11, 2008 11:42 am CST
Digby also posted on this Stiglitz article and she makes a really important point.
Democrats are working very hard to discredit the very concept of ideology in favor of technocratic competence. And I would guess most Americans find that to be something of a relief by now. But I think it's as much a mistake to sweep this under the rug as it is to let bygones be bygones on the torture regime. There is ideology and then there is ideology and people should know the difference. These dogmatic deregulators and market fundamentalists ran a decades long experiment that failed on an epic scale. If the country doesn't understand what went wrong here -- if they get confused by complexity and propaganda --- there is every reason that the free lunch mentality these ideologues promoted will make a comeback the minute we see the light at the end of the tunnel. Ideology matters.

Tuesday, December 09, 2008

A few miscellaneous items for 12 09 2008

Ill. Governor Blagojevich arrested for corruption

It has been announced that this morning the FBI arrested the Illinois Governor Blagojevich along with his chief of staff, John Harris. Blagojevich is the man who was to have appointed the Illinois Senator to replace Barack Obama. He was trying to sell the appointment.

Here are some particulars of what Blagojevich is accused of doing.
Prosecutors also alleged Blagojevich expressed feeling "stuck" as a sitting governor and spent a large amount of time weighing whether he should appoint himself to the vacancy--possibly to avoid impeachment and help remake his image for a potential 2016 run for the presidency. A recent Tribune poll found Blagojevich with a record low 13 percent job approval rating.

Under state law, the governor has the sole unfettered discretion to name Obama's appointment.

Prosecutors alleged Blagojevich sought appointment as Secretary of Health and Human Services, secretary of the Energy Department or gain an ambassadorship in the new Obama administration, or get a lucrative job with a union in exchange for appointing a union-preferred candidate. An Obama spokesman had no immediate comment.

Blagojevich also was alleged to be using a favors list, made up largely of individuals and firms that have state contracts or received taxpayer benefits, from which to conduct a $2.5 million fundraising drive before year's end when a new tougher law on campaign donations, prompted by the governor's voracious fundraising, would take effect.

Even Blagojevich's recently announced $1.8 billion plan for new interchanges and "green lanes" on the Illinois Tollway was subject to corruption, prosecutors alleged. The criminal complaint alleges Blagojevich expected an unnamed highway concrete contractor to raise a half-million dollars for his campaign fund in exchange for state money for the tollway project. "If they don't perform, (expletive) 'em," Blagojevich said, according to the complaint.

Blagojevich and Harris also allegedly conspired to demand the firing of Chicago Tribune editorial board members responsible for editorials critical of Blagojevich in exchange for state help with the sale of Wrigley Field, the Chicago Cubs baseball stadium owned by Tribune Co.

In addition, federal prosecutors alleged Blagojevich and Harris, along with others, obtained and sought to gain financial benefits for the governor, members of his family and his campaign fund in exchange for appointments to state boards and commissions, state jobs and state contracts.

"The breadth of corruption laid out in these charges is staggering," U.S. Attorney Patrick Fitzgerald said in a statement.

"They allege that Blagojevich put a 'for sale' sign on the naming of a United States senator; involved himself personally in pay-to-play schemes with the urgency of a salesman meeting his annual sales target; and corruptly used his office in an effort to trample editorial voices of criticism."
Talking Points Memo is all over the details of this arrest.
At TPMmuckraker, Zach Roth is poring through the documents released this morning by the feds. Blagojevich is comically corrupt, by the feds' account. Here's a guy who has been under federal investigation for three years but who still thinks he can appoint himself to Obama's Senate seat and remake himself for a run for President in 2016:
"I've got this thing and it's [expletive] golden, and, uh, uh, I'm just not giving it up for [expletive] nothing. I'm not gonna do it. And, and I can always use it. I can parachute me there."
--David Kurtz
As Josh Marshall points out, Blagojevich has been under investigation by the feds for three years, and it is well known that they have been listening in to his phones for quite a while. For him to be making the apparently incriminating statements on the phone is simply chutzpah - or stupidity.

Personally, I think this is a competition between Louisiana and Illinois. Each currently has an ex-governor in prison for corruption - John Edwards for Louisiana and George Ryan for Illinois. They are tied in the prestigious "ex-governor-in-prison for corruption in office" competition, and Rod Blagojevich simply wanted to break the tie and help Illinois pull ahead.

Think Progress has a video of U.S. attorney Patrick Fitzgerald's press conference announcing Blagojevich's arrest.

Tribune bankruptcy is more Wall Street banking incompetence

The Chicago Tribune company filed for bankruptcy, and it becomes quite clear that Sam Zell's takeover last year should never have occurred. It was worse than the housing industry's subprime loans made based on inflated values using no down payment loans made to someone who could not pay the money back. Even worse, Zell's bankers used the Tribune company's Employee Stock Ownership program to take control of the common stock of the Tribune.

Then Sam Zell incompetently ran the several fine newspapers he had taken over into the ground. The story is worse than the incompetence shown by the Wall Street investment banks and the Detroit automotive companies combined, compounded by Sam Zell's disdain for journalism and his general incompetence. The man should never have been sold the Tribune.

Harold Meyerson of the Washington Post has the story.

Sunday, December 07, 2008

Alan Greenspan - The disillusioned Objectivist

Alan Greenspan was an Objectivist. Is he still? No one except Greenspan apparently knows.

So what's an Objectivist? This is from The Fall of a Free Market Prophet by Larry Beinhart [*]:
An Objectivist is a follower of Ayn Rand. [Ayn Rand's real name was Alissa Rosenbaum.] She was a writer. Her most famous book is a novel, Atlas Shrugged. In it, the capitalist entrepreneurs go on strike against the collectivist shlubs -- government, the unions, and the working class in general -- all of whom leach off of the great men, and the world collapses.

The capitalist leaders go off to the wilderness to form their own little utopia, where they build railroads that run on time and airlines that never crash, and have hot, gorgeous, young, college educated heiresses desperate to bed them. They are also very fit and hunky -- the entrepreneurs, that is, -- who are all male.

It's sort of a post-Nietzsche vision of supermensches. In it the only route to virtue is "a full, pure, uncontrolled, unregulated laissez-faire capitalism -- with a separation of state and economics, in the same way and for the same reasons as the separation of state and church."

She established a group. She was the leader, was surrounded by acolytes and devotees. Alan was among them.
So Alan Greenspan at one time believed in full, pure, uncontrolled, unregulated laissez-faire capitalism.
His mind was full of Objectivist ideas. A belief that humans were rational. That self-interest would guide unregulated capitalists to do only sane and sensible things. Not every capitalist all the time, but enough of them often enough, that a capitalist system would be inherently beneficent and operate for the good of all.

Free market capitalism -- as a faith -- really is an inverse of Marxism. It is a theology that believes their system will bring paradise on earth and moral perfection. When their system is in power in the real world, their true believers claim that any problem only happened because their ideology has not been applied with sufficient purity.
Alan had faith. Capitalists were rational people who would only do sane and sensible things. I mean, that's what Objectivists believe, and he was in Ayn Rand's inner core group. He read drafts of "Atlas Shrugged before it was published.

In 1987, Ronald Reagan appointed him as Chairman of the Federal Reserve.

He stayed on through Bush I and Bill Clinton.

Then along came George W. Bush.

He was one of those gentiles. The kind who would take a Jewish idea, whether it was Christianity or free market economics, and ride its ideology as far as circumstances would allow, unaware that he'd left its humanistic heart behind.

With nobody to restrain him, Greenspan put his full faith in the markets. He kept interest rates low. Which pumped money into the credit markets. He resisted regulations. When he was warned that real estate was blowing a big, big bubble, he refused to act.


Because he believed in the inherent virtue of markets.

So there he was, being quizzed by one of the heroes of the House of Representatives, Henry Waxman.

First, Greenspan said, in a prepared statement, "Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity (myself especially) are in a state of shocked disbelief."

Well, yes. One of the fundamentals of conservative, free market, laissez-faire, Objectivist economics is that business people will act sanely and sensibly, thereby protecting people who trust in them. That's a theological belief. Now, watching the bubble burst, Greenspan was doing a remarkable thing, and he does deserve some credit for it. He was acknowledging reality!

Then he said, "I made a mistake in presuming they were best capable of protecting their own shareholders." Which means they need to be regulated. By someone else. By government.

"In other words, you found that your view of the world, your ideology, was not right, it was not working," Waxman said. Meaning this notion that individual greed would, as if "guided by an invisible hand," lead to the greatest social good.

"Absolutely, precisely," Greenspan replied.

The acolyte of Alissa Rosenbaum, the apostle of Adam Smith, the enabler of George W. Bush, had acknowledged that their god -- the free market -- had failed.
Objectivism. Lassaize Faire free market philosophy. Libertarianism. All prescribe the same thing. Keep the government out of the private markets because the believers of each of those sets of ideas believe that the problems with the private markets is government interference.

Greenspan now appears to understand. Pure, unregulated Objectivism or Lassaize Faire free market philosophy or Libertarianism DO NOT WORK! They are quite as bad as an totally state-controlled economy that is entirely centrally controlled by the government, as the USSR and China have proven! One collapses every so often and takes years to recover. The other simply does not grow or innovate. Both outcomes are unacceptable for a modern industrial economy. Both require that government refuse to measure what the economy is doing or to prevent such measurements from being released to the public.

A mixed economy with minimal careful regulation based on good financial reporting and government inquiries that identify unfair market practices and externalities that destroy the environment or poison society is superior to both faith-based forms of economics.

Besides Alan Greenspan, current politicians who suffer from the Libertarian failed philosophy are Ron Paul, Grover Norquist, ex-Senator Phil Gramm, and Ex-house Majority Leader Dick Armey.

[*] Author of "Wag the Dog."