To some audiences McCain has claimed to have made an effort to strengthen the regualtion of the financial industry. This is disingenuous, as he and his party are four square behind removing constraints on the financial community and the business world in general. I have discussed his meager gestures toward regulating business. His overwhelming record in favor of deregulation is much discussed elsewhere. It is hard to imagine a record more clearly favoring abolishing regulatory constraints. Here is a video compilation of a few recent deregulation statements by McCain and speakers at the Republican convention.
CBS says that Obama won, although the polls do not seem to show a bump after the debate. This may be because there were so many things happening last week, including last week’s declaration by McCain of “Mission Accomplished” with respect to the bailout. It was only this week that this was shown to be as illusory as previously accomplished missions.
McCain’s seizing the headlines last week and his efforts to portray himself as leader of the congressional bailout coalition no doubt caused expectations for his performance in the debate to rise, particularly when foreign policy, his acknowledged strength, was the focus of the debate. Higher expectations may have contributed to the perception that he lost the debate.
I got the impression that he was betting the house when he “suspended” his campaign to demonstrate his leadership ability with the bailout legislation. He of course did not suspend anything except his own public appearances and arguably the television time he got for this gesture exceeded anything that he would have received had he continued to make scheduled public appearances. Once again though he took a short term gain — the appearance of leadership in crisis — and risked a long term loss. Once again, as with the vice presidential decision, it looks like the long term loss will outweigh the immediate gains. For all the broohaha last week, this week McCain looks ineffective. His white horse seems to have charged in the wrong direction.
The vice presidential debate could given the recent downward direction of the polls momentum. I shudder to think what episode awaits us to curb that event if it occurs.
Here’s an interesting bit of information from the New York Times. Democrats who voted for the bailout received appreciably more money form Wall Street than the Democrats who voted against it.
This once again brings to mind that the political division is not between Republicans and Democrats but between politicians serving corporations and those who are unaffiliated in that sense.
I do not understand the situation enough to be for or against the bailout but it is noteworthy that in this time of crisis there is a correlation between votes and campaign contributions.
I’m still struggling with understanding how at-risk home mortgages which total — according to everyone I know of — $112 billion can require $700 billion to remedy and the remedy as far as I can understand has nothing to do with making good on the mortgages that are supposedly the root of the problem.
McCain once again has hoisted himself by his own petard. McCain’s effort to reverse the downward trend in the polls last week seems to have backfired. His highly publicized return to Washington risked hindering those negotiations by turning them into a political spectacle.
He seemed to minimize the risk of derailing the negotiations by not taking an active part in them. Instead he seems to have limited his participation to contacting members of congress to encourage them to pass the bailout bill, focusing on the doubting Republicans in the House. His efforts got him into the news and stopped the chatter about his deregulation policies creating the crisis.
At the end of the week, when people believed that the bailout bill would pass, he was taking credit for solving the problem. With the bill’s spectacular failure, McCain finds himself in a worse situation than the one last week. Instead of diverting discussion from how we got into this difficulty and receiving accolades for averting disaster, he finds himself ducking the ricochets of his own salvos.
The man who claims to embody the best leadership qualities could not lead his own party in a time of crisis. The intense degree of attention McCain called to this matter puts the failure of his efforts in sharpest relief. Increasingly his judgment appears to be somewhat superficial and geared to public realtions rather than substance.
The polls indicate that McCain is suffering the most erosion of support among older voters. These people are generally regarded as a more knowledgeable group of voters. My guess is that McCain’s predilection toward snap judgments, and willingness to take serious risks are causes of diminishing support from this quarter. His record shows him voting almost entirely for deregulation and he has boasted about it consistently until very recently. There is nothing in his recent activity to show insight and judgment sufficient to separate him from his record.
I’m having trouble understanding this bailout business and I cannot find an explanation anywhere. Apparently a lot of other people are having trouble understanding this as well. My confusion relates to the claim that the problem is due to the foreclosure crisis and that at least $700 billion dollars is needed to fix it.
The total amount of troubled home loans is $112 billion. This at least was the number bandied around over the last year. It was that portion of Washington Mutual’s portfolio that brought it down. The Wall Street Journal this morning reports that Washington Mutual has $30 billion in bad loans that will be written down with the purchase. What are these loans? Are they not home loans?
From published reports just paying off the home loans would have rendered Washington Mutual highly solvent. If the government stepped in and paid them all off, what would we use the remaining $588 billion for?
Furthermore that does not take into account the collateral for the loans. If we were able to recover just one quarter of the amount for which the collateral had been orginally valued, that would reduce the cost by an absolute minimum of $28 billion, leaving a cost to the tax payers of $84 billion. It is likely that more would be recovered so that the actual cost would be around $50 billion.
Either the total amount of troubled home loans is more than six times greater than previously reported or there is a lot going on that I have not been able to find explained.
Did you know that Washington Mutual began just after the Great Seattle Fire in 1889? Here is a thumbnail sketch of its history. It has been around over a century and it appears that now its days are numbered.
Washington Mutual appears to have gone the way of Seafirst Bank in the 1980’s. Seafirst was at the time the biggest, baddest bank in the region and its board of directors hankered for more. At that time national banks were getting fat on third world loans and energy loans. Remember that an asset for a bank is a performing loan.
So you make a loan and you have an asset until a few payments are missed, then it flips to the other side of the balance sheet. This makes banks which loan heavily in one sector quite vulnerable to slumps in that sector of the economy. If the sector slows down things can turn around fast for the bank.
Banks hedge their bets by selling portions of their loans to other banks, called “participations.” The problem is that this seems to encourage banks to dive much deeper into a given area, so that the advantage of selling off portions of the loan are lost by the sheer magnitude of the lending. Penn Square Bank, a little shopping center bank in Oklahoma City, started making oil loans by the billions and selling off participations to banks around the country. Seafirst invested hundreds of millions of dollars in these participations, as well as serving as the primary bank in many of the loans and became a big player as rapidly as Washington Mutual.
But the bubble burst and Penn Square Bank folded, sending the biggest banks in the country into insolvency. Seafirst, already strapped with nonperforming third world loans was purchased by BankAmerica.
Ten or fifteen years later Washington Mutual decided to become a big player by riding the home lending boom. It succeeded and grew exponentially. With the bursting of that bubble, it too has I think reached the end of its days. It has probably not been bought out because of concerns about the market — home loans — into which it plunged. Financial institutions are not sure that the bottom has been reached and are reluctant to jump in even at fire sale prices.
There are only two major investment banks left standing and there are serious questions as to whether either one can survive. With Barklay’s, a foreign bank, buying Lehman it appears that the pool of potential domestic buyers is reduced if not depleted. It is at least questionable whether the federal government can afford to prop up Washington Mutual, but the country could ill afford to have a bank of its size fail.
Colossal mismanagement has put us in a situation where we are steeped in debt and watching our financial assets, so far only historic investment houses, taken over by foreign interests.
The United States does not have enough money to sustain its own activities. For reasons that I did not understand, nor apparently Alan Greenspan, rather than curb our country’s excesses we went into historic levels of indebtedness. Our foreign debt has more than quadrupled and our total national debt is over three trillion dollars.
This previously unknown level of debt quite predictably caused the dollar to weaken. As the dollar fell we have made a variety of efforts to prop it up but the weight of our debt has been too much for the interim measures we have undertaken.
While our leaders were focused on a war we entered into for reasons that have never been adequately explained by our leaders, they did not mind the store at home so that reckless lending practices were allowed to metastasize. This certainly artificially sustained the economy for a while and just as certainly these practices were unsustainable over the long haul. They were doomed to fail with fluctuations in the real estate market and like all houses of cards a tremor would be ruinous.
For reasons the Bush administration can best explain we were caught unprepared. We have been forced to take measures that will be hard for our economy to endure if they are successful in stemming the current disaster. At a time when we are borrowing money almost as fast as we can, the government is committing its resources to propping up its financial and insurance institutions. This diversion of funds that are already inadequate to meet expenses will add to our sorry state of indebtedness.
The second measure that we are taking is to print more money. Yesterday the Federal Reserve announced that it will be dumping $56 billion into the economy. When you print the stuff that is pretty easy to do. This however will contribute to the downward spiral of the value of the dollar.
I have commented, after reading Naomi Klein’s “Shock Doctrine,” that the United States really has been taking on the attributes of many South American countries. It has a diminishing middle class; the polarization of wealth distribution is greater than it has been since the beginning of the industrial age, before the first timid implementation of the restraints complained of by Republicans.
Like our neighbors to the south we have promoted the power of the executive to a greatly heightened level. We have reduced oversight of private financial activity while loosening restraint on governmental activity with respect to its citizens. Like South American countries we have gone deeply in debt and our financial institutions are not stable. Similar to them our currency is falling.
The current measures to cure the crisis are not the smoke and mirrors approach that we have adopted in the past. At the same time if they avert disaster they will leave us with an economy in worst condition than we thought it was in before the crisis. In short we will bring the crisis in the wings that we already knew about a few steps closer to center stage.