Globalization

Gordon Brown Steps Up To the Plate

The major Western nations are on the verge of adopting a strategy to deal with the financial crisis pioneered by Gordon Brown earlier this week.  The FT has an interesting piece today that reflects on what this means for the previously struggling British Prime Minister.

As he has over the last few weeks Joe Nocera does a great job putting these extraordinary events in perspective.  And yet another story warns of the possible devasting impact of credit default swaps, a subject that needs immediate attention from Washington's policymakers.

One in Six American Homeowners Now Underwater

From the WSJ tomorrow (via MSNBC) an article that offers more evidence that much more pain is to come, and that we must find a way to keep people in their homes:

The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults - the very misfortune that touched off the credit crisis last year.

The result of homeowners being "underwater" is more pressure on an economy that is already in a downturn. No longer having equity in their homes makes people feel less rich and thus less inclined to shop at the mall.

And having more homeowners underwater is likely to mean more eventual foreclosures, because it is hard for borrowers in financial trouble to refinance or sell their homes and pay off their mortgage if their debt exceeds the home's value. A foreclosed home, in turn, tends to lower the value of other homes in its neighborhood.

About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30 percent in some areas, roughly 12 million households, or 16 percent, owe more than their homes are worth, according to Moody's Economy.com.

The comparable figures were roughly 4 percent underwater in 2006 and 6 percent last year, says the firm's chief economist, Mark Zandi, who adds that "it is very possible that there will ultimately be more homeowners underwater in this period than any time in our history."

Notes on the New Politics

For the last several years NDN has been making an argument that a "new politics" of the 21st century is emerging.  Driven by vast changes in demography, media and technology, and the a whole new set of very 21st century challenges (and one could add the utter collapse of modern conservatism) a new politics was emerging in America that would be very different from the century just past.  

Reflecting on the morning papers 3 stories stuck out as interesting examples of how the world is changing around us.  1st up is how the Army is starting to see nation building and the shoring up of "fragile states" as a primary area of responsibility.  2nd is a fascinating piece by Eve Fairbanks on the sensibility of the next generation of Congressional Republicans.  Finally, a wide ranging and important piece by our friend David Rothkopf, who argues: 

The current economic debacle is far more likely to be seen by historians as a true global watershed: the end of one period and the beginning of another. The financial chaos has brought down the curtain on a wide range of basic and enduring tenets also closely linked with the Reagan era, those associated with neoliberal economics, the system that the Nobel Prize-winning economist Joseph Stiglitz has called "that grab-bag of ideas based on the fundamentalist notion that markets are self-correcting, allocate resources efficiently and serve the public interest well." Already this crisis has seen not just our enemies but even some of our closest allies wondering whether we are at the beginning of the end of both American-style capitalism and of American supremacy.  

Change is indeed coming to Washington.  And this next Presidency will without doubt be among the most important in American history. 

Krugman Reflects on the Bush Bailout Bill

From his column today:

The House will probably vote on Friday on the latest version of the $700 billion bailout plan - originally the Paulson plan, then the Paulson-Dodd-Frank plan, and now, I guess, the Paulson-Dodd-Frank-Pork plan (it's been larded up since the House rejected it on Monday). I hope that it passes, simply because we're in the middle of a financial panic, and another no vote would make the panic even worse. But that's just another way of saying that the economy is now hostage to the Treasury Department's blunders.

For the fact is that the plan on offer is a stinker - and inexcusably so. The financial system has been under severe stress for more than a year, and there should have been carefully thought-out contingency plans ready to roll out in case the markets melted down. Obviously, there weren't: the Paulson plan was clearly drawn up in haste and confusion. And Treasury officials have yet to offer any clear explanation of how the plan is supposed to work, probably because they themselves have no idea what they're doing.

As readers of this blog are aware NDN has been raising similar concerns about the plan - that it is not clear that it will work.  One thing that will have to be done, perhaps during the lameduck session in November, is the passage of a plan to keep people in their homes.  For as the new housing data shows housing prices continue to plummet, causing more foreclosures, which is then in turn bringing down home prices even more which is then doing to bring down the core assets whose drop is bringing down the financial house of cards on top of it all. 

Nothing in this now enormous bill will address this fundamental problem. which of course has been driving this entire crisis.  Our fear is that without it we are not doing all that we can to stabilize our wobbly financial markets, and do the right thing by the taxpayers who are footing the bill for this incredible bailout. 

NYTimes Editorial Page Reacts to the Bailout Collapse

This is running on their site now:

After nearly eight years of voting in virtual lock step with President Bush on everything from tax cuts to torture, House Republicans decided on Monday to break ranks on the survival of the nation's financial system.

The rejected bailout bill that was on the floor after a weekend of hard negotiating was objectionable in many ways, but it was a Republican-generated bill and was improved from the administration's original version. Sixty percent of House Democrats voted for the bill, enough to easily pass the measure if the Republicans had not decided to put on their display of pique and disarray.

The question now is whether the stock-market plunge that followed the House's failure to lead - and a renewed credit freeze - will be enough to get the 133 Republicans who voted against the measure to change their minds. And, more important, whether the damage that the no vote has inflicted is readily reversible.

Republican no votes were rooted less in analysis or principle than in political posturing and ideological rigidity. The House minority leader, John Boehner, conceded as much: "While we were able to move the bill drastically to the right, it wasn't good enough for our members."

It's not clear what would be good enough for the Republicans since there was very little talk of substance on Monday after the bill died on the floor of the House. Instead, the Republicans tried to blame a speech before the vote by House Speaker Nancy Pelosi, who connected the current crisis to the fiscal and economic mismanagement of the Bush years. It may not have been the perfect moment to say that, but it was true.

Republicans were also upset that serial bailouts represent a rejection of free-market principles. They do. That's because the free market in finance, unregulated and unsupervised, has failed. And, in its failure, it is inflicting greater damage on an already weak economy.

No amount of amendments to the bailout package will change the administration's disastrous economic record or erase the manifest failure of the Republicans' free-markets-above-all ideology.

Since last week, this page has urged Congress to take the time to get the bailout right. Over all, lawmakers have given too little consideration, in public at least, to alternatives to the Treasury's plan to buy up the bad assets from various financial firms.

In the bill rejected on Monday, the unlimited powers that the Treasury Department had initially sought were curbed, and Congressional oversight was added. But judicial review of Treasury's purchases was not adequately ensured. The courthouse door was not closed entirely; lawyers could still seek effective remedies for actions that violate the Constitution. But that's a much higher hurdle than the already formidable barriers in place to discourage lawsuits against the government.

Homeowners were also given short shrift with provisions that mainly urged lenders and the Treasury to do more to help them. That's unconscionable. The financial crisis is as much a problem for homeowners as for Wall Street investment bankers. Appeals to lenders' better natures have not worked to bring lasting relief to homeowners. If they are still not working in the coming months, Congress will have to revisit the issue.

Taxpayer protections are also iffy, such as a requirement that in five years, the president must give Congress a plan for recouping any losses from financial firms. What will happen then is anyone's guess. Lawmakers could decide at that point that taxpayers are the only pit bottomless enough to absorb those losses.

Still, the imperfections in this bill are the result of a democratic process that can be rethought, revisited and reworked. It is better than nothing, which is what some backward-looking House Republicans gave Americans on Monday.

The Protests Outside Treasury Begin

As some of you may be aware our office is right across from the Treasury Building.  I can see Paulson from my front porch, so to speak.  

A few minutes ago a very loud protest began outside Treasury.  It is angry, loud, unnerving. 

For those in Congress looking to but a deal back together I hope they consider what has happened to the American middle class this decade.  The typical family is making less money today than when Bush took office.  Those in bankruptcy, with homes foreclosed upon, in poverty and without health insurance have risen.  Every day anger at the economy drove the GOP from office in 2006 and is driving the national debate today.  Given all this it was almost unbelievable that Congress would pass the 1st Bush Bailout Bill which had so little obvious benefit for those struggling harder and harder to make ends meet.  It is why the calls coming into Congressional offices are running big time - 30 to 1 in some offices - against the deal.  

The economic performance of the Bush era has been an epic failure.  A lower standard of living for the typical family.  Rising poverty and those without health insurance.  Out of control spending balanced with dramatic tax cuts for the wealthy creates a structural budget deficit and a huge increase in the national debt.  American support for global economic liberalization dramatically recedes, and the new global trading round - Doha - fails.  Needed investments in our kids, our skills, our infrastructure, the all important transition to a low carbon economy all put off.   Umployment rising.  Collapsing housing and financial markets. Bush's economic stewardship has been disasterous for America - why should we expect him to all of a sudden to get a major financial crisis right? 

Our advice to Congress - put real provisions to keep every day in their homes as part of the final deal or don't be suprized if the American people and very real voters spit the bit.  The American people are tired of a government more concerned with things other than their increasingly difficult struggle to get ahead.  This debate is a time - even this close to the election - where Congress and the President can acknowledge that the struggle of every day matters to them as much as the struggle of big banks.  This isn't that hard my friends.  Keeping people in their homes is both the right economic thing to do and the right moral and political one as well.  

If you are looking for a plan on how to do it give Hillary Clinton a call.  She has a good one.

About that MBA

As I get ready to hear from our President tonight, I am comforted by recalling that indeed he is our first President with an MBA. 

Perhaps, tonight, he can use that MBA to explain this statement from his Treasury Department earlier this week.  

Rob Dugger: A Prescription for Recovery

Our friend Rob Dugger penned a powerful op-ed in the Washington Post today, A Prescription for Recovery.  It offers these five principles to help guide our next steps in putting our financial system back on track: 

· Put individual taxpayers first. The program needs to focus on keeping taxpayers in their homes, strengthening their local economies and protecting their savings. It has to help Americans broadly, not just a few, and certainly not the managers who got us into this mess.

· Minimize taxpayer costs over the long term. Short-term thinking created this crisis. Only long-term efforts will end it. The S&L crisis was limited to the financial sector. It was best addressed on an aggressive basis, bank by bank. This meant that least-cost resolutions were the way to go and that the RTC should buy and sell assets quickly, which it did. But the current situation is systemic. It involves our entire economy. This means the revitalization program should buy distressed assets early and plan to hold them for a long time. The goal is to make the economic adjustment as shallow as possible, to limit the injury to families, jobs, homes and savings.

· Avoid creating an interim program. This program must not be like the S&L "rescues" of the mid-1980s, which merely enabled the problems to grow. The program needs to have the capacity, flexibility and scope to address the vast size of the current crisis. Congress should put no dollar or time limit on our national commitment. Yes, markets will want dollar figures. If numbers must be given, let them be in statements about the program -- and let them be big. Do not shy away from saying that the United States is prepared to commit a trillion dollars over the next 10 years to halt this meltdown here and now.

· Remember global investors, whose confidence we must regain. This crisis is an economic heart attack, but not a fatal one. We must assure global investors that we are fully prepared to cover American losses. No one suggests that this will be easy. The budget choices being forced on us will be profoundly difficult. But we have the strongest democracy and the most durable legal and financial systems in the world. We have the capacity to absorb losses and the ability to reshape our economy. Foreign investors need evidence that we are committed to the changes necessary for recovery. When they see that, they will buy our private assets again.

· Do not hesitate. Bill Seidman's greatest lesson was action. It is far better to deal with a few assets, even without knowing quite what to do, than to do nothing while trying to work out the details. Whoever is in charge of the revitalization program must not hesitate to buy the assets that institutions offer -- these will be what is burdening the institutions and clogging our credit system the most. There are many strategies for buying assets and infusing capital that can protect the program from paying too much and ensure that taxpayers benefit from price increases as recovery occurs. The key is to get the assets in-house quickly and learn how to manage them effectively.

"Play Stump the Candidate", Says Sarah Palin

Right on the heels of Senator McCain's latest foreign policy gaffe, his side-kick/Vice Presidential running mate decided to take a crack at dispelling these "attacks" about her lack of foreign policy experience. Just to put this in context: in the past week a bomb was detonated at the U.S. Embassy in Yemen, two U.S. ambassadors were expelled from Latin American countries, and the ambassadors from those nations were similarly recalled from the U.S. (not to mention the ongoing conflicts in Afghanistan and Iraq, of course). The importance of the actual knowledge - not just "experience" travelling - and understanding of these complex international relationships by Presidential candidates cannot be understated. It is anything but unfair to demand that the persons running for the highest seat in the land possess higher than average knowledge and understanding of the different regions in the world and our interest in each.

In this town hall meeting Gov. Palin basically says that we shouldn't fear because she and her running mate might not be ready now, but they will be ready "on January 20", "God willing". And she explains her credentials in the area of foreign policy: she'll be ready because she "has that readiness"...she's "ready to serve". "You can even play stump the candidate if you want to" by asking her "specifics, with specific policy or countries."

 

Obama has Seized the Initiative

You can feel it. The Obama campaign is firing on all cylinders, driving the news cycle now, hitting McCain hard, systematically taking Palin down, announcing an extraordinary fundraising month and expanding its grassroots base, making much better use of Biden and other surrogates, and finding their voice on the economy as never before. The McCain campaign is on the defensive, reeling from harsh criticism of McCain's character and working to contain the downside of Governor Palin. The new McCain ads, issue-based, without the wildness of earlier ads, speak to a chastened McCain camp. The national tracks have shown a 1-2 point shift in the race this week toward Senator Obama.

Today the race is still dead even. But Senator Obama has seized the initiative, and the momentum has shifted from Palin to the Democratic ticket. 

I still think the greatest challenge facing McCain is that he has no real plan for the future, and that running on a culture war and character simply isn't going to be enough in this election given all the very serious stuff going on. As Jake wrote yesterday, the two main arguments of the new McCain TV ad - that lower taxes will create jobs, and drilling will lower gas prices - are not true, and not promises America can bank on. 

The lack of seriousness of the McCain campaign - and the whole national Republican Party at this point - is simply astonishing. 

But at least, as Tina Fey says, the good Governor can see Russia from her porch. 

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