Brookings Institute (nonpartisan, haha)

Financial Disaster: What Role for Congress?

The News & Observer

September 23, 2008 —

As the president calls for swift action on far-reaching powers for the Treasury to buy up $700 billion of bad debt from Wall Street firms, Congress faces an age-old dilemma. Legislative bodies are not built for speedy action, but emergencies require them to act with dispatch.

If Congress fails to grant new powers to the Treasury, it risks deepening (and being blamed for) the greatest financial crisis since the Depression. If Congress rubber-stamps the proposal from Secretary Treasury Henry Paulson, it risks making a colossally expensive mistake—at exorbitant cost to taxpayers and to Congress’s reputation and future power.

In times of crisis, presidents often urge Congress to legislate quickly. When Congress does so, more often than not it defers to administration experts and enhances executive power. Enactment of the use of force resolution and the USA Patriot Act after the attacks of September 11^th are recent examples. Both legislative measures came back to haunt legislators who disagreed with how the president subsequently interpreted the expansive powers granted by those congressional delegations of authority.

Why is the rubber stamp so wrong, especially in light of the potential for global financial meltdown? Careful deliberation, after all, is hardly a hallmark of the contemporary Congress, and stalemate abounds over tough problems (especially when intensively competitive parties are loath to compromise). But the costs of a rubber stamp are severe. Deliberation is undermined, alternative solutions are ignored, and unintended consequences are rampant. This time around, those unintended consequences include encouraging more excessive risk taking by financial firms in the future and demands from other industries for similar treatment in the future that will be hard to resist and cheap in comparison. Given the slew of questions that have been raised from the left and right about Paulson’s request for unchecked power to purchase distressed assets and the cost to taxpayers, Congress is right to put the brakes on immediate passage of a blank check.

How then should Congress proceed to vet and amend the proposal? Some basic ground rules should apply.

1. Bipartisan consent is critical. When Democratic Speaker Nancy Pelosi and Republican presidential nominee John McCain agree that executive pay should be limited for firms that benefit from the program, the administration should take heed. Both parties should care about building public confidence that Wall Street executives will pay a price for the government bailout.

1. Focus on matters of power and process. The precarious state of financial markets does not justify the grant of unfettered power to the current Treasury Secretary and his successor after the elections. Legislative ambiguity fuels executive power. This means that strong and ongoing oversight of how the Secretary exercises his new authority should be written into the legislation. Details of the program—which assets can be bought, how they will be valued—should be stipulated in the bill or accompanying report.

1. Seek bicameral agreement. Differences between the House and Senate derail compromise as often as do fights between Congress and the president. Legislative review of Paulson’s plan should start, not end, on a bicameral footing. This means that efforts to expand mortgage relief should center swiftly on those provisions most likely to garner bicameral consent.

Congress is right to reject open-ended grants of power at untold cost. That imperative needs to be matched with an equally rigorous effort to nail down avenues of agreement both across the chambers and between the branches. How Congress acts this week has enormous consequence both for the soundness and stability of financial markets and for Congress’s institutional health and future.

September 29, 2008

Op-Ed Columnist

The 3 A.M. Call

By PAUL KRUGMAN

It’s 3 a.m., a few months into 2009, and the phone in the White House rings. Several big hedge funds are about to fail, says the voice on the line, and there’s likely to be chaos when the market opens. Whom do you trust to take that call?

I’m not being melodramatic. The bailout plan released yesterday is a lot better than the proposal Henry Paulson first put out — sufficiently so to be worth passing. But it’s not what you’d actually call a good plan, and it won’t end the crisis. The odds are that the next president will have to deal with some major financial emergencies.

So what do we know about the readiness of the two men most likely to end up taking that call? Well, Barack Obama seems well informed and sensible about matters economic and financial. John McCain, on the other hand, scares me.

About Mr. Obama: it’s a shame that he didn’t show more leadership in the debate over the bailout bill, choosing instead to leave the issue in the hands of Congressional Democrats, especially Chris Dodd and Barney Frank. But both Mr. Obama and the Congressional Democrats are surrounded by very knowledgeable, clear-headed advisers, with experienced crisis managers like Paul Volcker and Robert Rubin always close at hand.

Then there’s the frightening Mr. McCain — more frightening now than he was a few weeks ago.

We’ve known for a long time, of course, that Mr. McCain doesn’t know much about economics — he’s said so himself, although he’s also denied having said it. That wouldn’t matter too much if he had good taste in advisers — but he doesn’t.

Remember, his chief mentor on economics is Phil Gramm, the arch-deregulator, who took special care in his Senate days to prevent oversight of financial derivatives — the very instruments that sank Lehman and A.I.G., and brought the credit markets to the edge of collapse. Mr. Gramm hasn’t had an official role in the McCain campaign since he pronounced America a “nation of whiners,” but he’s still considered a likely choice as Treasury secretary.

And last year, when the McCain campaign announced that the candidate had assembled “an impressive collection of economists, professors, and prominent conservative policy leaders” to advise him on economic policy, who was prominently featured? Kevin Hassett, the co-author of “Dow 36,000.” Enough said.

Now, to a large extent the poor quality of Mr. McCain’s advisers reflects the tattered intellectual state of his party. Has there ever been a more pathetic economic proposal than the suggestion of House Republicans that we try to solve the financial crisis by eliminating capital gains taxes? (Troubled financial institutions, by definition, don’t have capital gains to tax.)

But even President Bush has, in the twilight of his administration, turned to relatively sensible people to make economic decisions: I’m not a fan of Mr. Paulson, but he’s a vast improvement over his predecessor. At this point, one has the suspicion that a McCain administration would have us longing for Bush-era competence.

The real revelation of the last few weeks, however, has been just how erratic Mr. McCain’s views on economics are. At any given moment, he seems to have very strong opinions — but a few days later, he goes off in a completely different direction.

Thus on Sept. 15 he declared — for at least the 18th time this year — that “the fundamentals of our economy are strong.” This was the day after Lehman failed and Merrill Lynch was taken over, and the financial crisis entered a new, even more dangerous stage.

But three days later he declared that America’s financial markets have become a “casino,” and said that he’d fire the head of the Securities and Exchange Commission — which, by the way, isn’t in the president’s power.

And then he found a new set of villains — Fannie Mae and Freddie Mac, the government-sponsored lenders. (Despite some real scandals at Fannie and Freddie, they played little role in causing the crisis: most of the really bad lending came from private loan originators.) And he moralistically accused other politicians, including Mr. Obama, of being under Fannie’s and Freddie’s financial influence; it turns out that a firm owned by his own campaign manager was being paid by Freddie until just last month.

Then Mr. Paulson released his plan, and Mr. McCain weighed vehemently into the debate. But he admitted, several days after the Paulson plan was released, that he hadn’t actually read the plan, which was only three pages long.

O.K., I think you get the picture.

The modern economy, it turns out, is a dangerous place — and it’s not the kind of danger you can deal with by talking tough and denouncing evildoers. Does Mr. McCain have the judgment and temperament to deal with that part of the job he seeks?

Putting $700 bn into perspective.

No, Really, How Much Is $700 Billion?

About 12 Bill Gateses.

By Juliet Lapidos
Posted Tuesday, Sept. 23, 2008, at 6:27 PM ET

---

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson urged Congress Tuesday morning to authorize a $700 billion bailout of struggling financial institutions. Although the congressional leadership has indicated its willingness to get onboard with the plan, rank-and-file lawmakers from both parties are balking at what’s been called the largest bailout in U.S. history. Just how much is $700 billion?

A lot, or not that much. There are about 300 million men, women, and children currently living in the United States, so the bailout is equal to roughly $2,300 per person. That’s right around what we each paid, on average, for gas and oil in 2006 ($2,227) and a bit less than our average personal tax burden ($2,432).

Stepping away from average Joes, $700 billion is equal to about 12 Bill Gateses. The assembled net worth of the Forbes 400 is $1.57 trillion, or more than twice the cost of the bailout. Titanic, one of the highest-grossing movies of all time, raked in $1.8 billion from the worldwide box office, so James Cameron would have to make roughly 381 Titanic-sized blockbusters to settle Wall Street’s debts. According to the Centers for Disease Control, the single-year cost of obesity in the United States was $117 billion in 2000, or about one-sixth the bailout—although that number has been disputed.

If the federal government siphoned off Florida’s gross domestic product, we could cover the bailout. Invading the Netherlands might be advisable—that nation’s GDP was $768.7 billion last year. Of course, invasions cost a lot of money. Back in 2003, the Bush administration told Congress that the Iraq war would cost between $60 billion and $100 billion, but it’s estimated that, so far, we’ve spent about $600 billion. Should the Treasury receive authority from Congress to borrow $700 billion, the national debt will rise by only about 7 percent. Right now, it’s sitting at $9.6 trillion.

Let’s say Slate charged its advertisers $30 per 1,000 ad impressions, a common industry rate. And let’s imagine for a second that the federal government decided to nationalize Slate in order to pay for the bailout. We’d need our readers to rack up enough page views to see 23.3 trillion banner ads before the feds were satisfied.

For historical perspective, consider that the Marshall Plan, which helped finance the recovery of Western Europe after World War II, cost the United States about $13 billion. Of course, in 2008 dollars that’s more like $100 billion. And Niall Ferguson has estimated that as a comparable share of the U.S. GDP, it’s more like $740 billion.

Lastly, in apocalyptic terms, $700 billion really isn’t all that much. If nothing is done to change the way we finance Social Security, the trust fund reserves will be exhausted by 2041. This means that, in 75 years, there’ll be a shortfall of $4.3 trillion—or about six bailouts. According to the Stern report (issued by U.K. economist Sir Nicholas Stern), global climate change could cost the planet $9 trillion (or 12.86 bailouts) if we don’t address the problem within the next decade or so.

Got a question about today’s news? Ask the Explainer.

Explainer thanks Scott Berridge of the Bureau of Labor Statistics.

Juliet Lapidos is a Slate assistant editor.

Article URL: http://www.slate.com/id/2200718/

Adam and Eve: a thought-exercise.

I noted that I wanted to blog on this awhile back.  As a pleasant break from absorbing the nuances of white collar crimes, I think I’ll check this one off my list.

I’m pretty divided on this one, and as irrelevant as it seems, I would say that it touches on how liable God is with regards to human failing.

POV #1: Generally, I’ve always considered it incredibly unfair, this whole Adam and Eve thing.  No, not just because it’s the woman who first went “chomp” on that fateful fruit (though it is pretty unfair, I bet Adam would have done the same if he’d been tempted first).  Let me first give the Scriptural passage from Genesis.

Now the Lord God had planted a garden in the east, in Eden; and there he put the man he had formed.  And the Lord God made all kinds of trees grow out of the ground- trees that were pleasing to the eye and good for food.  In the middle of the garden were the tree of life and the tree of the knowledge of good and evil…The Lord God took the man and put him in the Garden of Eden to work it and take care of it.  And the Lord God commanded the man, ‘You are free to eat from any tree in the garden; but you must not eat from the tree of the knowledge of good and evil, for when you eat of it you will surely die.’

…Now the serpent was more crafty that any of the wild animals the Lord God had made.  He said to the woman, ‘Did God really say, ‘You must not eat from any tree in the garden’?’  The woman said to the serpent, ‘We may eat fruit from the trees in the garden, but God did say, ‘You must not eat fruit from the tree that is in the middle of the garden, and you must not touch it, or you will die.”

‘You will not surely die,’ the serpent said to the woman.  ‘For God knows that when you eat of it your eyes will be opened, and you will be like God, knowing good and evil.’…

So gist of it is, God put the tree in the middle of the Garden (tempting), Eve is tempted by the snake (he doesn’t actually lie…she made the first mistake. “…you must not touch it” was not God’s word so when snake says ‘you will not surely die’, he’s kind of telling the truth), Eve chomps, gives to Adam, Adam chomps and it’s downhill, out the Garden to pain and labor.  They do get knowledge and break free of naïveté, however.

My complaint is that it’s entirely contrived, I mean, Man is simply fated to fall.  If it wasn’t Adam and Eve, it’d be Cain or Abel or Seth or Enoch or Methuselah or Enoch etc. etc. etc.  So better it be Adam and Eve than anyone else!  Elsewise, how utterly unfair would that be.  Adam and Eve’s descendants romp around in Garden of Eden and Cain’s kids get shunted to the desert simply because they are the children of Cain.  And maybe down the line, one of Isaac’s kids takes a bite out of the fruit and out he and all his offspring go as well.  And so on.  In this view, thank goodness Eve took that fruit.

POV #2: First of all, the tree had to be there because otherwise, there would be no free choice.  Without Tree, it’d be like tending sheep who just eat, drink, and make merry.  Wait, bad analogy seeing how God is often compared to a shepherd and believers his flock…huh.  Anyhow, I won’t go off on a tangent.  So Tree is there.  But God also creates animals and rivers and streams and other tasty fruit trees.  One might argue that he did all he could to divert their attentions away from the Tree of Knowledge and he clearly laid out the consequences, in fact he made the consequences sound quite dire.  You’ll die, he says.  Regardless though, tree planted, they eat and are kicked out.

I could digress and talk about whether they’re created good or evil or neutral.  I’d lean towards neutral.  And what the original problem is (curiosity?) but then white collar crime would never get done.  Back to the original question, how liable?  Set them up for failure or did what he could to forestall the failing?  Lol of course it’s rather silly and irrelevant, but a fun thought-exercise nonetheless, which I find religious discussions often are.  I must say though, for fairness sake, thank goodness Eve chomped.  With that, I conclude, as I feel like I’m bordering on blasphemy, heh.

Saturday Night Live – Palin / Hillary Open – Video – NBC.com

Link to SNL video.

Sarah Palin and Katie Couric

I’m lazy and lacking in time, and I’ve had so many satisfying conversations with Chad about this that I won’t again expound.  So I lift James Fallow in whole.

Videos here.

To be serious about Palin and Couric

26 Sep 2008 07:00 pm

Gov. Palin’s comments about Russia seem to have drawn more attention than any other part of her interview with Katie Couric. I think this is mainly because .. well, they just sound funny. “As Putin rears his head and comes into the air space” and so on.

But, no joke, it is worth spending a little time on what, specifically, we have learned about Palin and her limitations via her attempted answers to Katie Couric.  After the jump, three specimens  — one about Israel, one about financial markets, one about domestic spending — that, as I mentioned after the Charlie Gibson interview, indicate that Palin is disqualifyingly ignorant of the fundamentals of public policy.

After thirty years of meeting and interviewing politicians, I can think of exactly three people who sounded as uninformed and vacant as this. All are now out of office. One was a chronic drunk.

George W. Bush is in a completely different and superior league to what we’ve seen from Palin. When people made fun of his inexpressiveness in the 2000 campaign (and onwards), it was because he mispronounced words or used cliches. It was nothing like the total inability to express any coherent thought on any issue outside “values politics” that Palin has revealed. (And to be fair: she can talk clearly and with nuance about those values issues, from abortion to prayer, and about some Alaskan questions.)

Details after the jump. The crucial point, of course, is that Palin did not put herself in this position. Her running mate did.
___________

1) Sarah Palin on “second guessing” Israel

Couric: You recently said three times that you would never, quote, “second guess” Israel if that country decided to attack Iran. Why not?

Palin: We shouldn’t second guess Israel’s security efforts because we cannot ever afford to send a message that we would allow a second Holocaust, for one. Israel has got to have the opportunity and the ability to protect itself. They are our closest ally in the Mideast. We need them. They need us. And we shouldn’t second guess their efforts.

Couric: You don’t think the United States is within its rights to express its position to Israel? And if that means second-guessing or discussing an option?

Palin: No, abso … we need to express our rights and our concerns and …

Couric: But you said never second guess them.

Palin: We don’t have to second-guess what their efforts would be if they believe … that it is in their country and their allies, including us, all of our best interests to fight against a regime, especially Iran, who would seek to wipe them off the face of the earth. It is obvious to me who the good guys are in this one and who the bad guys are. The bad guys are the ones who say Israel is a stinking corpse and should be wiped off the face of the earth. That’s not a good guy who is saying that. Now, one who would seek to protect the good guys in this, the leaders of Israel and her friends, her allies, including the United States, in my world, those are the good guys.

What’s the problem here? Two extremely glaring ones. The first is that Palin has obviously been given the slogan “don’t second-guess Israel’s security efforts” and is clinging to it all the way down, even when she can’t amplify or explain it under questioning.

The far more profound worry is that knowing who “the good guys” are is the first, rather than the last, step in making foreign policy decisions — especially those with the snarls that involve Israel, Iran, nuclear proliferation, preemptive strikes, and so on. The United States should know what it stands for — and the physical security of Israel is obviously one of those things. The chilling fact is that in the interview itself, Palin betrayed no awareness that there could be an analytical step beyond identifying “the good guys.”

2) Sarah Palin on the financial crisis:

Couric: If this [bailout bill] doesn’t pass, do you think there’s a risk of another Great Depression?

Palin: Unfortunately, that is the road that America may find itself on. Not necessarily this, as it’s been proposed, has to pass or we’re going to find ourselves in another Great Depression. But, there has got to be action – bipartisan effort – Congress not pointing fingers at one another but finding the solution to this, taking action, and being serious about the reforms on Wall Street that are needed.

Of course, talking about “another Great Depression” is like talking about “another Holocaust.” So many fundamentals have changed in each circumstances that an exact repetition is inconceivable.

On the Holocaust front: the rise of Israel, the transformation of Germany, the fact that one Holocaust already occurred, etc.  On the Great Depression: the acceptance of Keynes, the rise of institutions specifically designed to avoid cascading worldwide deflation, the fact that one Great Depression has already occurred, etc.

There is no sign, listening to Palin, that she has any idea of what another world depression might mean, how loaded a term “another Great Depression” is, how this relates to what John McCain or her Republican party is saying and doing, or anything else involving public finance.

I submit: no one could have read a novel (Grapes of Wrath), seen a  movie (Cinderella Man, to choose an easy one; or Annie, or Of Mice and Men or Bonnie and Clyde or All the Kings Men or They Shoot Horses Don’t They), or read any history book about the Great Depression and have said these things. Implication: Sarah Palin has never seen or read, or never absorbed, any such material.

3) Sarah Palin on America’s budget choices (this is a passage that Andrew Sullivan and many others have identified):

Couric: Why isn’t it better, Governor Palin, to spend $700 billion helping middle-class families who are struggling with health care, housing, gas and groceries? Allow them to spend more, and put more money into the economy, instead of helping these big financial institutions that played a role in creating this mess?

Palin: That’s why I say I, like every American I’m speaking with, we’re ill about this position that we have been put in. Where it is the taxpayers looking to bail out. But ultimately, what the bailout does is help those who are concerned about the health care reform that is needed to help shore up our economy. Um, helping, oh, it’s got to be about job creation, too. Shoring up our economy, and putting it back on the right track. So health care reform and reducing taxes and reining in spending has got to accompany tax reductions, and tax relief for Americans, and trade — we have got to see trade as opportunity, not as, uh, competitive, um, scary thing, but one in five jobs created in the trade sector today. We’ve got to look at that as more opportunity. All of those things under the umbrella of job creation.

At face value, this is incomprehensible. More than that, it suggests a person whose previous two decades of adult life have not equipped her to absorb the briefings she is no doubt receiving about the big, obvious issues in the campaign: the market crash, health care proposals, tax plans.

Two natural reactions are: to laugh at the “Putin rears his head” part, and simply to avoid concentrating on the rest. But given her candidacy for national office, neither of those is enough.

I am not aware of any other current figure in national politics — by which I mean any member of the Senate or House — who would do a worse job under questioning. There could be some I don’t know about. But they’re not on a national ticket.

The Invitation, by Oriah House

This poem bring anything to mind?
__

It doesn’t interest me what you do for a living
I want to know what you ache for
and if you dare to dream of meeting your heart’s longing.

It doesn’t interest me how old you are
I want to know if you will risk looking like a fool
for love
for your dreams
for the adventure of being alive.

It doesn’t interest me what planets are squaring your moon…
I want to know if you have touched the center of your own sorrow
if you have been opened by life’s betrayals
or have become shrivelled and closed
from fear of further pain.

I want to know if you can sit with pain
mine or your own
without moving to hide it
or fade it
or fix it.

I want to know if you can be with joy
mine or your own
if you can dance with wildness
and let the ecstasy fill you to the tips of your
fingers and toes
without cautioning us to
be careful
be realistic
to remember the limitations of being human.

It doesn’t interest me if the story you are telling me is true.
I want to know if you can
disappoint another
to be true to yourself.

If you can bear the accusation of betrayal
and not betray your own soul.
If you can be faithless
and therefore trustworthy.

I want to know if you can see Beauty
even when it is not pretty
every day.
And if you can source your own life
from its presence.

I want to know if you can live with failure
yours and mine
and still stand on the edge of the lake
and shout to the silver of the full moon,

It doesn’t interest me
to know where you live or how much money you have.
I want to know if you can get up
after a night of grief and despair
weary and bruised to the bone
and do what needs to be done
to feed the children.

It doesn’t interest me who you know
or how you came to be here.
I want to know if you will stand
in the center of the fire
with me
and not shrink back.

It doesn’t interest me where or what or with whom
you have studied.
I want to know what sustains you
from the inside
when all else falls away.

I want to know if you can be alone
with yourself
and if you truly like the company you keep
in the empty moments.