Ben Bernanke on The Huffington Post

Kashkari: One Of People's Sexiest Men Alive

2008-11-20T17:44:54Z

This explains why he got such a harsh grilling the other day in Congress. Nobody likes a pretty boy!

Wonder if he knew in his Ferrari-posing high school days that this would be his fate. His teachers really would have hated him even more.

But this is kind of hilarious especially considering the people who he is sharing the pages with: Todd Palin, New Kids on the Block (?), Ben Bernanke.

(Kidding, but if they're picking Kashkari anything could happen.)
Read the full story here.

Related:
"Is Kashkari A Chump?" (VIDEO)
Neel Kashkari, Bailout Czar, Not A Fan Of Public Questions

Congress extends jobless benefits; stocks fall 400

2008-11-20T08:01:49Z

WASHINGTON — Jarred by new jobless alarms, Congress raced to approve legislation Thursday to keep unemployment checks flowing through the December holidays and into the new year for a million or more laid-off Americans whose benefits are running out.

The economic picture was only getting worse, if Wall Street was any indication. The Dow Jones industrials dropped more than 400 points for a second straight day, reaching the lowest level in more than five years, and the Standard & Poor's 500 index fell below lows established six years ago.

Fed Guards Against Deflation

2008-11-19T23:03:26Z

The Federal Reserve is already engaged in unorthodox "quantitative easing" and should prepare for the possibility that more extreme measures could be needed to guard against deflation, Don Kohn, its vice-chairman, said on Wednesday.

"We have already engaged in forms of quantitative easing," Mr Kohn told the Cato Institute, a think-tank. He said the US central bank should consider "what other forms of quantitative easing might happen as a contingency plan".

Mr Kohn said he believed the likelihood of sustained deflation was "still remote" but "less remote than it was". His comments followed the biggest monthly decline in US consumer prices for decades last month.

Headline consumer prices fell 1 per cent in October, though they were still up 3.7 per cent year on year. That decline was largely driven by a fall in energy prices, which helps the US economy rather than harms it and will not in itself trouble the Fed at all.

But the core inflation rate - which excludes energy and food - also turned fractionally negative in October, though it too was up 2.2 per cent year on year. If core prices declined for a sustained period of time, that would pose a serious threat to the US economy.

Read full story here. (Log-in required)

Lawmakers press Paulson on bailout plan changes

2008-11-18T09:57:28Z

WASHINGTON — Faced with exasperated lawmakers upset by shifts in bailout strategy, Treasury Secretary Henry Paulson launched a spirited defense Tuesday of his handling of the $700 billion program and expressed fresh reservations about tapping the pool for mortgage guarantees to relieve skyrocketing home foreclosures.

Members of the House Financial Services Committee grilled Paulson for not doing enough to help distressed homeowners and for failing to force banks that get some of the bailout money to specifically use it to bolster lending to customers, one of the prime reasons behind the rescue package.

Emma Coleman Jordan: Diving For Dollars and The Discount Window

2008-11-14T20:44:49Z

The powerhouse credit card company American Express has just joined the storied list of financial firms converting to bank holding companies. Like Merrill Lynch and Salomon Brothers, American Express is seeking shelter from the subprime storm by converting to the highly regulated Bank Holding Company form. In another economic climate, these voluntary conversions from the largely unregulated corporate forms that shape credit card companies and the minimally regulated and often wild, risk seeking investment bank culture would be inexplicable.

Today, the reason for the conversions are obvious, its all about the Benjamins. Yes, access to large amounts of cold cash from customer deposits, and low-cost borrowing at the discount window offered by the Federal Reserve can turn even firms that have an allergy to government regulation into believers in the benefits of regulatory oversight.

How should taxpayers and bank customers view this growing trend of corporate category-hopping? The irony of this flight to regulation is not lost on us consumers who have weathered the voracious appetite of credit card companies to solicit our business and then treat us like red headed step-children, with sharply escalating teaser rates, universal default rules, industry opposition to bankruptcy protection for consumers choking on a suffocating pile of huge interest costs from high interest rates that never seem to go down with other interest rates. Add to this the confusing minimum payment rules and a foul brew of penalty fees that pile up for the unwary to create balances that balloon far beyond the amount of the original debt.

There is a word for what I am feeling about American Express' flight to regulation: Schadenfreund, or comeuppance. The stress and worry that the highly-compensated executives of American Express, Morgan Stanley and Merrill Lynch are experiencing in this crisis can't be half as intense as the customers of these financial giants who were trammeled by high interest rates, risky investment strategies and huge compensation packages for executives who cooked up the products that caused us all so much financial pain. Like my mother used to say: "what goes around, comes around."

Fed Refuses To Identify Recipients Of $2 Trillion In Emergency Taxpayer Loans, Bloomberg Sues For Info

2008-11-10T16:36:22Z

The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.

Bush Appointees Gates, Mullen, Bernanke Likely To Stay On Under Obama

2008-11-10T09:39:25Z

As President-elect Barack Obama prepares to fill top positions for his incoming government, he faces a stubborn reality: Some of the key individuals he will rely upon to tackle the country's most serious challenges are holdovers from the current administration -- a trio of Bush appointees who will likely stay in place for at least the first year or two of Obama's presidency.

In confronting the financial crisis and weakening economy, Obama must turn to Ben S. Bernanke, a Republican and former chairman of President Bush's Council of Economic Advisers, who will lead the Federal Reserve for at least the first year of the new administration.

In assuming control of the wars in Iraq and Afghanistan, Obama must work with Adm. Michael Mullen, chairman of the Joint Chiefs of Staff, who was appointed by Defense Secretary Robert M. Gates for a two-year term that will end in late 2009 and, by tradition, can expect to be appointed for a second term as the president's top military adviser. Mullen shares Obama's belief in focusing more on Afghanistan but is wary of a timeline for withdrawing troops from Iraq.

Don McNay: Credit Cards In The World of Taxpayer-Owned Banks

2008-11-02T13:50:09Z

Credit Cards in the world of taxpayer-owned banks

"meet the new boss. Same as the old boss." -The Who

The American people ponied up $700 billion to supposedly bail out some big banks on Wall Street. So far, we have not seen the banks what banks are supposed to do, lend people money. Instead they are doing the thing that Wall Street raiders do, take over other companies. PNC and Fifth Third were the first banks to make deals, backed by taxpayer dollars.

Bush and Paulsen encouraged bad behavior in their bailout bill. They gave big banks money and tax incentives to gobble up small banks. They made sure that their buddies on Wall Street were taken care of.

Most big banks didn't need bad behavior encouragement. They've been able to do harmful things long before the government started subsiding them.

Some of the biggest abuses come in the way that banks have handed out credit cards. Now that I, like every other American taxpayer, indirectly owns part of the Wall Street banks, I want to talk to them about how they have been acting.

I want to do is to throw credit card companies off every college campus. Is it any wonder that the banks needed a $700 billion bailout? What kind of business gives huge lines of credit to students who don't have jobs?

I always thought that you had to have a job to get credit. Not anymore. I have a college student in my household. He has minimal income, no assets and big student loans. However, the credit card companies love him. He gets ten times more mail than I do. All of them "pre approved" credit cards. All go straight in the trash.

Its bad for the college students to run up debt before they have jobs. Its bad for the nation to have a generation of college graduates paying off high interest credit cards instead of saving money to buy houses and cars.

Giving cards to college students couldn't have been that great of a business or the banks wouldn't have needed a bailout.

I saw an article in the New York Times that said that credit cards were the next problem area for the banks.

DUH!

We've had years of students, people coming out of bankruptcy and people with no income getting tons of credit cards. Usually with interest rates and fees that would make a loan shark blush.

Since they are getting multi million dollars bonuses, executives at Wall Street banks should have figured out what most of us know. Broke people don't pay loans back.

You can charge them all the interest and fees that you want. If they don't have any money, they are not going to give any to you. Especially if you are an unsecured debtor like a credit card.

People will make an extra effort to hang on to secured debts, like their houses and cars. The credit cards will be last in line.

We are now in an economy where a lot of people who were barely hanging on will get closer to the edge. You see people losing their jobs or going from high paying jobs to minimum wages. You see people who counted on the value of their house or 401k plan being suddenly disappointed.

We see a lot of people worried about feeding their families and keeping a roof over their heads.

When it comes to feeding your family or paying your credit card, the family is going to win every time.

I hope the banks factored that reality in before the came up with the $700 billion figure. They might want to hang on to some of that taxpayer cash instead of using it to buy other banks.

As bad as people are projecting, it will get worse. Recent events will change how people feel about debt.

People who got stuck with high interest credit cards aren't going to be in a hurry to pay them off.

Even if they can.

Banks had two things going for them in collecting credit card debts. They could shame people by embarrassing them in front of their neighbors and they could threaten to hurt their credit scores.

Its going to be hard for a bank that was bailed out by taxpayers to shame anyone into anything. Since people with good credit can't get loans, there is no incentive for someone with bad credit to even bother. They can default on their debt and make the banks come after them.

I've tried to collect from someone who was determined not to pay me. It was expensive, time consuming and I never did get all my money. Try multiplying that by a few million people. That is what the big banks are going to be dealing with.

From a moral standpoint, I want banks to clean up their act in the credit card department. Since many of the bankers work for me, and the rest of the American taxpayers, I'd like to protect my investment by making sure the credit card issuers get out of the stupidity game.

I can't afford to give them another $700 billion.

Don McNay is the founder of McNay Settlement Group and the author of the book Son of a Son of A Gambler: Winners, Losers and What to Do When You Win the Lottery. You can write to him at don@donmcnay.com or read other things he has written at www.donmcnay.com He is Treasurer of the National Society of Newspaper Columnists.

Larry Abrams: The Great Recession

2008-10-31T08:39:49Z

"Everyday the bucket go to the well. One day the bottom will drop out" -- Bob Marley

"What we have now is Capitalism on the way up and Socialism on the way down." -- Rep Jeb Hensarling, R-Tex

" . . . there is a huge amount of important thinking in Marx as to what is wrong with Capitalism, but not very much on what to do about it. As such, in figuring out where we go from here, we are really on our own." -- Robert Pollin

"We're all Keynesians now" -- Richard Nixon

By this time, two years from now, Joe the Plumber will be begging for Socialism.

Just in time for Halloween, a specter is once again haunting Europe, not to mention the rest of us. No Virginia, the specter is not Communism, it is the specter of deflation.

While many people have heard of deflation, most of us have never experienced it. I think we're about to. Typically a deflationary cycle is the ugly term that describes the most salient characteristic of an economic depression. Assets lose value, stocks lose value, commodities lose value: Kind of like now. So much value is lost that it becomes a vicious circle -- a negative feedback loop as the economists like to say -- that is extremely difficult for an economy to break out of.

During the Great Depression unemployment went to twenty five percent and GDP fell by half, so Depression is probably not a term to toss around lightly. Let's just call this current downturn, "The Great Recession."

Before we ask, as Lenin so elegantly put it, "what is to be done," a quick description of what brought us to this pass is in order.

As George Soros recently said, the bursting of the US housing bubble had the effect of bursting the larger bubble of leveraged debt that floated the world economy for the past generation. It is the busting of this Sixty trillion dollar debt bubble that is now washing over the world.

What we are witnessing is the collapse of Finance Capitalism, or what the late Marxist economist Ernest Mandel might have called "Late Capitalism." However Capitalism has failed before. You could probably argue that the crash of 1929 brought down the "Free Market" phase of classical Capitalism. Similarly, you could argue that the Arab Oil Embargo of 1973 and the subsequent "stagflation" crisis of the '70's ended the post-War period of Keynesian, "mixed market," government supported, Capitalism.

To end "stagflation," along with it's ruinous inflation rate which peaked at 13.5% in 1981, then Fed Chairman Paul Volcker basically stopped printing money -- or at least so much of it -- and engineered a ruinous recession that drove unemployment to it's highest point since the 30's. However the Volcker recession also brought inflation down to 3.2 percent, and as such was judged a success of monetary policy.

The problem for Volcker's Fed coming out of the '82-'83 recession was that the growth engine of the US economy since the end of WWII had been manufacturing, and manufacturing was in decline. Even so the US was, and indeed remains, the largest consumer economy the world has ever seen.

Volcker's pragmatic solution to the problem of declining production was to free up the administrative, finance and service sectors of the economy: to "commoditize," and take proper competitive advantage of, the vast consumer market itself. They called the regime, "Deregulation."

In the early 80's, manufacturing made up almost 24% of the US economy while the Finance economy -- banks, Wall Street, insurance companies -- made up about 7% of the economy. Twenty-five years later these numbers are pretty much reversed. The finance economy, particularly from the late 80's on, produced an incalculable, staggering mountain of wealth for the US and the world. This wealth, of course, was then redistributed upward in staggeringly disproportionate measure to the already rich, at the expense of a shrinking middle class and an emiserated working class, many of who were forced deeply into debt just to keep up.

As it turned out, it was the accumulation of this massive amount of consumer debt that made the spectacular rise of the finance economy -- and the concomitant rise of the super rich financiers -- possible.

The neo-conservatives, led by former Republican Party Chairman Ken Mehlman, even tried to enshrine this upwards wealth redistribution principle as the ideological cornerstone of the second Bush administration. They called it "the ownership society."

What this meant in practical terms was that anyone who was willing to go so deeply into debt that they would never be able to get out of it, would be able to buy what they wanted in George Bush's America. You could even buy an overpriced house in an exploding, speculative market on credit with nothing down. It was a kind of civic compact.

We can see how that turned out. Now, as they say on the street, the banks have played themselves out of position and some of the great names among them sit squarely on the brink of insolvency.

What is to be done?

Internationally, French President Sarkozy has called for a new Bretton Woods agreement to govern the international financial system. Fed Chairman Ben Bernanke has already signaled that under the next, Obama, Administration, there will have to be a massive monetary stimulus package. There is now a debate among economists about how much this stimulus should be, and what it should consist of.

Nouriel Roubini, who predicted this disaster with amazing prescience, is talking about five hundred billion dollars to be used for infrastructure and support of financially stressed states. Others are talking about refashioning a regime that can regulate and police the markets domestically.

The problem with the proposed solutions however is that it feels a little like putting Humpty Dumpty back together again.

These ideas assume that the collapse of the financial system was a mistake -- letting Lehman Brothers fail, lax regulation and the like -- and not the inevitable result of building an empire on debt, rather than utility.

Structural and moral concerns aside, these ideas also assume that the collapse of the financial system was a "one in a hundred years event" that won't be repeated anytime soon. As economist Jeffery Sachs -- himself a booster of the massive stimulus package -- has said, there is a non-linear nature to busts and crashes that makes them unpredictable; that we should probably expect to be shocked again, possibly by nature itself, as catastrophic climate change really kicks in over the next decade or so.

Recently, former Secretary of Labor Robert Reich asked out loud, if, in allowing banks like Chase and BOFA to buy up smaller failing banks, we weren't just setting the table for more epic collapses of key systemic institutions that really were too big to fail.

Economist Jeff Faux proposed in the Huffington Post, October 10, that one of the banks the Treasury Department is forced to nationalize stays nationalized. The First National Bank would then serve as a model, doing, among other things, the kind of community lending smaller banks used to do before they were knocked out of business by bigger banks.

I would propose that Faux's model be applied across the economy. If the government is forced to bail out -- as seems increasingly likely -- Ford, GM and Chrysler, why not just buy Chrysler (which is looking for a buyer anyway) and use it as a model for what a competitive American car company could be?

The key problems that a new Bretton Woods agreement -- as doubtful as that might be -- or a stimulus package, do not address, are the key problems we face in rebuilding the economy. One, what to do with economies of scale, where there is a irresistible tendency toward capital concentration and monopoly and two, what to do about a system of trade that doesn't factor the real cost of carbon into pricing?

The answer would seem to be a system not rooted so much in Marx as in the US Constitution. We need an economic system of checks and balances where the public sector competes with the private sector and keeps it honest, and vice versa.

The big question is, will President Barack Obama even consider such an outlandish proposal?

The answer is, of course not: At least, not until everything else fails.

In the words of Bob Marley, "You think it's the end, but it's just the beginning."

David Sirota: Dem Rep. Davis Defends Endangered GOPer & Attacks Fellow Dem Over Bailout Bill

2008-10-30T22:04:36Z

Seems to me Rep. Artur Davis (D) just made himself a big contender for a primary in 2010. Davis, as you can see from this Birmingham News story, has decided to spend the last week of the 2008 campaign defending endangered GOP Rep. Mike Rogers and attacking Better Democrat Josh Segall (D) for Seagall's criticism of the Wall Street bailout bill:

Artur Davis critical of Josh Segall's anti-bailout campaign ad

WASHINGTON - U.S. Rep. Artur Davis admonished a fellow Alabama Democrat on Tuesday for running a campaign commercial that takes issue with the $700 billion economic rescue plan approved by Congress earlier this month.

Democrat Josh Segall of Montgomery, a candidate for Congress in east Alabama, started airing a television commercial districtwide Tuesday that called the bailout of the financial industry "Wall Street welfare." Segall is challenging U.S. Rep. Mike Rogers, R-Saks, who twice voted for the rescue plan.

"I think it should not be the subject of a political attack on Mike Rogers," Davis said. "I wish Josh was not running that ad that refers to the bailout."

Davis said he was defending Rogers' vote as well as his own.

"There is no question it was an unpopular vote, but sometimes members of Congress have to cast an unpopular vote," Davis said. "Mike cast the right vote. Six of us cast the right vote. I stand by that position."

Davis represents Birmingham, Alabama - not exactly a super-wealthy place. And yet he's publicly attacking a fellow Democrat for criticizing Congress's decision to send $700 billion to Wall Street bankers in New York - literally and figuratively far away from places like Birmingham. It's nauseating, though when you look at Artur Davis's campaign finance reports and realize what kind of a corporate lackey he is, it's not surprising.

Give money to Josh Segall right now through OpenLeft's Better Democrat page. Help Segall continue airing this ad so that he can win the seat over Davis's objections. I hope Segall can use Davis's disgusting behavior to juxtapose himself against the corrupt wing of the Democratic Party. That is, I hope in a tough district like the one he's running in, Seagall can use Davis's shenanigans to show how he's going to be a true independent populist progressive who doesn't kowtow to either party.

Kevin Phillips: The New Hooverites

2008-10-28T11:58:26Z

The time has come to review how back in 2005-2006 George W. Bush -- now increasingly perceived as another Herbert Hoover -- picked two top appointees who helped steer him towards his fateful 2008 rendezvous with a second Great Crash.

One of them, a top level financier, insured that Washington's eventual rescue policies would concentrate on trying to bail-out Wall Street while ignoring the gnawing cancer of its warped ambitions and financial malpractices. The second, a professor, misapplied dogma about how to guard against severe downturns into a disastrous attempt to refight the onset of the 1930s depression - his academic specialty. He did not understand the very different context of our own era of cyber-spatial financial recklessness and gathering global inflation.

Henry Paulson, Bush's pick as treasury secretary, was not your ordinary gray-flannel investment bank CEO. One 2006 Business Week article spotlighted the new secretary as a high-roller: "Think of Paulson as Mr. Risk. He's one of the key architects of a more daring Wall Street where securities firms are taking greater and greater chances in their pursuit of profits." That, the magazine added, "means taking on more debt...it means placing big bets on all sorts of exotic derivatives and other securities." That means stuff like collateralized debt obligations (CDOs) and credit default swaps (CDSs), innovations we now know to have spread toxicity, opacity and paralysis.

Economics professor Ben Bernanke, before replacing Alan Greenspan as Federal Reserve Board chairman in early 2006, had served almost three years as the Chairman of George W. Bush's Council of Economic Advisers. There he had been a cheerleader for Bush economic policies, including upper-bracket tax cuts, Social Security privatization, "securitization" of assets and "safe" financial derivatives. On top of which, he was an academic and theoretical specialist in monetary policy and economic depressions - a man who boasted of understanding downturns' critical preventative. The Fed should pump up the money supply or liquidity which would overcome any credit crunch. As a card-carrying monetarist, he also insisted there was no meaningful inflation during the 2005-2007 period even though global commodity price indexes had been soaring.

Thus, and without knowing it, did an inept George W. Bush assemble his two chief architects of neo-Hooverism. They would pick up where the original Disasterman, Alan Greenspan, Fed Chairman between 1987 and early 2006, had left off. Together, alas, the two would steer U.S. policy towards false pretenses, panic and economic disaster - Old Hoover outcomes re-achieved through new biases, ideology and myopia.

Wall Street's "Mr. Risk," calling the shots at Treasury, would focus the Bush administration's 2008 economic "rescue" policies not on the broad national interest but on bailing-out the "Frankenstein Fifteen" top U.S. financial institutions - the big five investment firms, the five largest commercial banks, the four mortgage biggies, and AIG, the rogue insurance giant. Along with the buccaneering hedge funds, these were the big firms that borrowed huge sums, merged grandiosely,, experimented with all "the exotic derivatives and other securities" and led the multi-trillion-dollar metastasis through which finance ballooned to take over domination of the U.S. economy by 2004 with 20-21% of the U.S. Gross Domestic product. Although in mid-2007, Paulson pretended that the emerging crisis involved no more than bad real estate lending practices, the cynical observer can assume that "Mr Risk," the arch-insider, knew what he was covering up - how deeply the malpractice and deception ran -- and on whose behalf.

If Paulson wanted to keep the spotlight off the real culprits - the Frankenstein financial and mortgage banker laboratories, with their several trillions of exotic mortgages, toxic CDOs and Las Vegas-like credit swaps - then narrow-gauge academician Bernanke at the Fed was the perfect sidekick. The economic ivory-tower theory in which Bail-out Ben had immersed himself for thirty years ignored 21st century mega-innovations and looked back seven decades to the Crash of the 1930s and how that long-ago debacle might have been prevented.

Alas, poor Ben - his economist heroes have long been Milton Friedman and the latter's wife, Anna Schwartz, who some four decades ago co-authored a landmark volume entitled A Monetary History of the United States. On October 18, in a prominent interview published by the Wall Street Journal, Anna Schwartz opined that Bernanke was simply getting Fed policy wrong. The problem does not lie with the money supply or liquidity as it did in the 1930s. It lies with all these toxic securities the Wall Street geniuses dreamed up, gorged on, and sold around the globe in huge quantities between 2003 and 2007. "They're toxic," says Ms. Schwartz, "because you cannot sell them, you don't know what they're worth, your balance sheet is not credible, and the whole market seizes up." In fact, by giving transfusions to otherwise insolvent banks, Paulson and Bernanke have prolonged the crisis: "They should not be recapitalizing firms that should be shut down...Firms that made wrong decisions should fail." That, of course, was how it worked in the old days when "creative destruction" kept capitalism on its toes. Now, of course, it's on its butt.

If Paulson and Bernanke had been willing to take a reformist blowtorch to the big fifteen and their practices and products back in late 2007 or early 2008, some six or eight might well have had to be dismantled, taken over or forced into bankruptcy or receivership, but the stock market and credit crisis of the last few months might been avoided or greatly mitigated. Instead, Paulson pretended that nothing serious was wrong because he came out of the same Wall Street ego-trip, and Bernanke could not transcend his student-of-the- 1930s academic background. "This was {his} claim to be worthy of running the Fed," says Anna Schwartz. However, Bernanke flubbed because he was fighting the last war, not the present one.

Worse still, the policies that Paulson and Bernanke did implement at such staggering cost have only begun to do their full long-term damage, which will probably come in a round of even more serious inflation. Together, the Treasury and the Fed have spent or loaned over a trillion dollars in financial-sector aid. As set out by economist Brad Setser of the Council of Foreign Relations, besides steering $950 billion into the U.S. financial system ($500 billion sent over by the Treasury), the Fed has provided still another $450 billion of dollar liquidity to European central banks to spread around on that continent. This decision by the United States to be the lender of last resort, in tandem with Washington's late September and October scare rhetoric about U.S. and world economy seizing up unless Congress passed the Paulson-Bernanke bail-out plan, has internationalized the crisis and made the U.S. dollar the pretended currency of the rescue instead of the vulnerable currency of the underlying problem. Something similar happened back in August 2007, when for 4-5 weeks a flight to "safety" and U.S. treasury debt buoyed the U.S. dollar. September and October have brought this result on an even larger scale.

Administration economists have said not to worry. This trillion won't be inflationary because that effect will be lost amid the 2008 assets deflation. This is probably more bunk from economic experts who have been right about practically nothing in the last few years. Global commodity indexes have been rising since 2003, although carefully crafted federal statistics kept that pressure from being acknowledged in the U.S. until 2008. Now the common wisdom is that declining commodity prices spell a long-term decline. The better likelihood is that inflation, still much in evidence globally, is only taking a breather, as it did circa 1971 and circa 1974 during the 1967-1980 inflation cycle. Within a matter of months, Washington's huge 2008 borrowing and soon-to-be-record trillion-dollar budget deficits will send inflation to new heights, and the current "treasuries bubble" and "U.S. dollar bubble" will pop.

Indeed, Ben Bernanke must remember from his old research that in the Spring of 1933, even after the huge assets deflation of 1929-32, new President Franklin D. Roosevelt's talk about cheap money, stimulus and reflation quickly sent commodity prices and inflation climbing. And today's rampant loan-making and deficit economics, by comparison, promise to make the FDR of 1933 look like Ebenezer Scrooge. Neo-Hooverism, in contrast to the 1929-32 version, is coming out of a new playbook.

Kevin Phillips's new book is Bad Money: Reckless Finance, Failed Politics and the Global Crisis of American Capitalism, published in April by Viking.

Leo W. Gerard: When It Comes to Slicing the American Pie, McCain Serves Only the Rich

2008-10-24T20:46:11Z

Protesters disrupted a convention of mortgage financers in San Francisco this week, storming the stage as former Bush adviser Karl Rove spoke, heckling bankers with bullhorns, and badgering a panel with demands for a foreclosure moratorium.

Fear and frustration compelled ordinary citizens to harangue the green-visor set at their normally-staid annual meeting. Middle class Americans are losing their jobs and their homes and their hope while watching Ben Bernanke and Hank Paulson spend their tax dollars to bail out the infinitely-wealthy on Wall Street whose reprehensible risk-taking caused the country's financial crisis. The middle class want their piece of the American pie.

Congress is trying to dish it out in the form of a second stimulus package that would extend unemployment insurance and food stamps and create jobs through programs such as highway construction projects.

Republican candidates John McCain and Sarah Palin oppose it. They're running around the country with caricatures of Joe the Plumber and Joe Sixpack, pretending the GOP ticket represents the best interests of the working class and small business owners. It's all false rhetoric and no real action. McCain and Palin object to intervention for anyone other than the wealthy, for whom they plan to enshrine tax cuts; for overfed CEOs, for whom they believe the $700 billion bailout was justified, and for themselves, for whom they believe the Republican National Committee appropriately opened its purse to purchase haute couture wardrobes, hair stylists and makeup artists.

McCain wants to brand a socialist S on Barack Obama although both voted for the bailout plan under which the U.S. government is nationalizing banks.

Unlike McCain, however, Obama is a man of the people and believes not in socialism but in the religious concept of everyone serving as their brothers' keepers. This is how he explained it in his acceptance speech at the Democratic National Convention:

"What -- what is that American promise? It's a promise that says each of us has the freedom to make of our own lives what we will, but that we also have obligations to treat each other with dignity and respect.

It's a promise that says the market should reward drive and innovation and generate growth, but that businesses should live up to their responsibilities to create American jobs, to look out for American workers, and play by the rules of the road.

Ours -- ours is a promise that says government cannot solve all our problems, but what it should do is that which we cannot do for ourselves: protect us from harm and provide every child a decent education; keep our water clean and our toys safe; invest in new schools, and new roads, and science, and technology.

Our government should work for us, not against us. It should help us, not hurt us. It should ensure opportunity not just for those with the most money and influence, but for every American who's willing to work.

That's the promise of America, the idea that we are responsible for ourselves, but that we also rise or fall as one nation, the fundamental belief that I am my brother's keeper, I am my sister's keeper.

That's the promise we need to keep. That's the change we need right now."

That philosophy has great appeal with unemployment at a five-year high of 6.1 percent, with the poverty rate rising to 12.5 percent in what is supposed to be the richest country in the world; with 47 million without health insurance; with 1 million homes lost to foreclosure in the past two years and another 1.5 million in the process, and with the chronically ill across American skipping medications because they can't afford them, as the NYT reported this week.

Because this philosophy is popular, Palin and McCain are trying to channel it, to steal it just as they did the "change" slogan, to try to make Americans believe that they would best serve the middle class. The problem is that everything they do belies their claims.

Sarah "Sixpack" Palin definitely has an elitist eye for clothing, hair styling and makeup. She spent $150,000 of Republican National Committee money on designer duds for herself and her family since accepting the nomination on Sept. 3. That's three times the annual income for a typical American family. If she doesn't shell out another dime, she'll have spent $2,400 a day on clothing between the convention and the election. The vice presidential candidate's taste includes a $2,500 Valentino Garavani jacket from Saks Fifth Avenue that she wore to the convention.

In addition, she and McCain decided their most important adviser, the one they would reward with the highest salary in the first two weeks of October as the stock market crashed, was Sarah Palin's makeup artist. Her earnings for proper Palin powdering were $22,800 for two weeks, nearly twice the salary McCain and Palin gave their second highest paid staffer -- their chief foreign policy adviser. They paid him $12,500, just $2,500 more than the $10,000 they ponied up for Palin's hair stylist, whose compensation was fourth highest. The total for Palin's hair and makeup in two weeks: $32,800.

While you're scrimping and saving and shopping at Costco to prevent foreclosure of your home, just remember what Palin told CNN reporter Drew Griffin about providing a stimulus package to help the middle class: "But now that we're hearing that the Democrats want an additional stimulus package or bailout package for what, hundreds of billions of dollars more, this is not a time to use the economic crisis as an excuse for reckless spending and for greater, bigger government and to move the private sector to the back burner and let government be assumed to be the be all, end all solution to the economic challenges that we have."

So, for Palin, great big government is okay to bail out Wall Street fat cats, but not to help the middle class. Palin's knee-jerk Republican "let-the-private-sector-solve-it" attitude shocks the consciousness after the indiscretion of the private sector just landed this country in financial crisis. We're not inclined to trust them, frankly, Ms. Palin.

McCain said the same, backing the bailout for the reckless on Wall Street, and damning attempts by Democrats to help those on Main Street -- of course, all the while dragging up the image of Joe the Plumber and contending he's the guy's advocate.

The ticket clearly lacks both introspection and economic expertise. McCain said it himself last year -- that he was no authority on the economy. By contrast, a person with some degree of economic proficiency, Federal Reserve Chairman Ben S. Bernanke, this week endorsed additional fiscal stimulus, saying it was appropriate now because the economy is likely to be weak for several quarters. In addition, economic expert and Nobel Laureate Paul Krugman said this week that additional government spending now - for a stimulus package -- is appropriate, particularly for infrastructure improvement, which would provide real value and create jobs.

Though McCain and Palin clearly don't understand, it's time for everyday Americans to share in the American pie. At a rally in Florida this week, Obama talked about how the policies of the Bush administration have shrunk the pie and permitted the wealthy to grab the few remaining crumbs. He told he crowd he has no desire to reapportion the pie, as McCain keeps accusing him wanting to do -- as a Socialist, you know. Also, Obama objects to the McCain-Palin policy of continuing to feed the rich all of the crumbs, which is particularly evident in the GOP tax plan.

Obama told the group that his goal is to expand the pie to ensure that all Americans get a piece. The crowd responded with a spontaneous chant of, "We want pie!"

That's what is going on in America. That's why protesters accosted mortgage bankers at their California convention. The middle class won't stand for the rich wolfing down all of the pie anymore.

Mort Zuckerman: The Anatomy of the Financial Crisis and Why We Must Get It Right

2008-10-22T11:03:25Z

Everyone is haunted by the fear our financial crisis might unwind into something like the Great Depression. The world of finance is undergoing a hundred-year storm. It has inflicted the greatest destruction of wealth in our history. It swept away giant blue-chip financial firms, in a few months, even in a few days of fear, panic, and mistrust, that had made it through the Great Depression. It's turned out worse than the most pessimistic of us imagined.

Most critically, the financial world is seized by a collapse of confidence. The uncertainty over the value of the securities they hold has led to an enormous risk aversion. Customers, creditors, and shareholders of the major financial firms wonder whether they might survive. Once confidence collapses, there is no telling when the selling will stop. It all brings to mind the story of the economist who walked past a hundred dollar bill and didn't pick it up. When asked why, he responded, "It can't be a hundred dollar bill for, if it were, somebody else would have picked it up by now."

All of this has produced an unprecedented credit squeeze in which banks are refusing to lend to other banks, much less to businesses and individuals. This squeeze has had a particular impact on the newly unregulated emergent shadow banking system made up of mortgage lenders, investment banks, broker-dealers, hedge funds, private equity funds, money market funds, structured investment vehicles and conduits. Many of these names we have never heard of before but cumulatively, they now provide a majority of America's financing. They are not banks but they act and seem like banks. They borrow short and invest long, mostly in illiquid securities; they have more debt in relation to equity than banks but have lacked, until recently, both deposit insurance and the support of the Federal Reserve as the "lender of last resort." They do not have deposits but have relied on roll-over, short-term funding obtained through borrowing in the money markets that has left these firms vulnerable to disruptions in the money markets. To the extent that they have bundled these investments into securities that were sold to the markets, they were are also vulnerable to mark to market losses when these markets, or their securities, start falling.

This quickly wiped out the banks' capital base and ended their roll-over funding. The functioning of the credit markets was brought to a virtual halt. Even worse, there is a quiet run on hedge funds and private equity funds ongoing that threatens to bring the shadow banking system to its knees. Now the question is whether this will produce an economic contraction on Main Street comparable to the Great Depression.

The inescapable bad news is that a serious recession is inevitable given the damage to the financial sector, as well as in the degree to which business and the general public has been traumatized by collapsing stock prices and the daily headlines. But this does not mean we are bound to have a spiraling recessionary dynamic comparable to the thirties. The unprecedented debt American families and businesses have assumed will continue to constrain the easing of the credit crunch. But we have avoided some of the mistakes of 1929.

Take monetary policy. This time the Treasury and the Federal Reserve moved quickly and positively. They understood that when banks lose money they have to shrink their balance sheets and since bank assets are its loans, this would mean a drastic reduction in credit and worsening business conditions. The Fed has sought to ease the credit crunch by injecting over $1.5 trillion into the financial system and, most recently, added another $250 billion directly into the banks to re-liquefy them, plus increasing deposit insurance, extending it to money market funds, aggressively lowering interest rates and, importantly, doing that in concert with the other major economic powers.

In the early 1930s, the Fed refused credit to bankers and forced more and more of them to sell assets in a frantic dash for liquidity. Some 10,000 commercial banks, or 40%, failed between 1929 and 1933 compared to only 20 this time. Many people back then stopped using checks and conducted transactions in cash. The money supply declined by more than a third, creating a major contraction of credit.

The contrast in fiscal policy is equally dramatic. A generation of economists inspired by John Maynard Keynes in the 1930s taught us that the government should not try to run a balanced budget in a crisis of demand, as both Hoover and Roosevelt did. This time the government is running a $500 billion deficit to stimulate demand, and next year it will exceed $1 trillion. Orthodox adherence to the gold standard in the thirties didn't help, compared to a free floating US dollar today that has declined by 16% on a trade weighted basis. Another critical fiscal difference is that the federal government today has more sway. It makes up 21% of GDP compared to just 3% in 1929. On top of this a large component of GDP is devoted to health and education that is substantially decoupled from the problems of the private sector, not to mention that the Social Security program adopted in 1935 today provides unemployment benefits. All these contribute to maintaining the real economy.

Finally, we haven't repeated the great blunder of Hoover's 1930 Smoot-Hawley Tariff Act. It raised duties on some 20,000 foreign goods, causing many other countries to retaliate, reducing world trade by two-thirds. Now growing exports have been a major plus for our economy - something the protectionists in the Democratic Party need to remember.

Since virtually none of the necessary programs to counter the decline were implemented between 1929 and 1933. By the time FDR took over, the economic entrenchment had begun to feed on itself and turned a serious recession into the decade of the Great Depression. The reaction this time was virtually instantaneous.

All to the good, but there's also an "all to the bad" element in our present predicament. Americans are incredibly indebted. Household debt rose from about 50% of a $3 trillion GDP in 1980 to over 100% of a $13 trillion GDP today. The debts of the financial world, which amounted to 21% of GDP in 1980, soared to 120% of GDP by 2007. The financial world's unprecedented accumulation of debt in relation to equity sometimes with over $30 of debt for every $1 of equity means that small variations in their asset values, which once produced profits, have now brought them huge losses.

Much of this debt takes the form of securities and derivatives that remain on their balance sheets. In fact, another systemic risk and one that cannot be measured is based on the opacity and complexity of these exotic securities, mainly credit default swaps and derivatives that remain mainly on unknown financial balance sheets in amounts that exceed $50 trillion. The financial risk and exposure to loss is misunderstood and underestimated even by the credit agencies so the ensuing financial damage could be of a magnitude that could threaten the financial system.

AIG is a classic example of the inability to estimate the exposure. Management first estimated they would need $40 billion to get past their financial crisis; the government increased this to $85 billion; and within thirty days the cost had soared to $121 billion. Lehman is another example. When it went bankrupt, they had to unwind the credit insurance on Lehman, at a cost that has just been revealed to exceed $360 billion, an amount unrecognized by the Treasury when Lehman went under. These kinds of staggering losses could be multiplied many times over by defaults in cascading derivatives.

Then there is the housing bust. The current crisis in housing has an important history. When the Fed tried to respond to the dot.com bust in the year 2000 and 2001, that is when the Internet bubble burst, littering the country with bankruptcies and layoffs -- not to speak of investor losses of more than $1 trillion -- the Fed rapidly increased the money supply to offset these losses and slashed short-term interest rates to 1%, the lowest in 45 years. The result was the greatest housing boom this country had ever encountered. From 2002 to 2006 housing values appreciated at the astonishing rate of 16% per year compared to only 3% for the 55 years between 1945 and the year 2000. We finally came to the point where it was impossible for the typical American family to buy an average priced house using a conventional 30-year mortgage.

The response to this was an explosion of new mortgage products that enticed home buyers into supporting escalating housing prices while reducing their financial requirements. The need for the traditional 20% down payment was eliminated. Then we had interest only loans, low- or no-doc "liar loans," piggyback home-equity loans, as the mortgage and banking industries made it possible for anyone, even without a credit score, to purchase a home. These mortgages were packaged into complex financial products and sold on to other investors, many of whom had no idea what they were buying or the associated risks.

Then the housing bubble burst. Housing prices have dropped roughly 20% and the decline is continuing. Plummeting house prices mean more foreclosures, more homes on the glutted marketplace and a further house-price slump. There are 12 million homes today with negative equity where the mortgage exceeds the home's value and it may rise to 15 million over the next few months. As many as half of them have mortgages that now exceed the value of the homes by over 20%. If half these people drop the keys in a box and walk away, the losses will be in the trillions and may well destroy the equity in our banking system. That is why it is critical to find ways to keep foreclosures to a minimum. The entire attempt to re-liquefy the financial system could be undermined by this collapse in housing prices.

These are substantial threats and for all the measures (belatedly taken) distrust remains. American policymakers have seemed to be responding at an ad hoc, unfocused fashion, not fully taking into account the looming insolvency issues and the frightening complexity of the bundles of exotic securities. It is fair to acknowledge that they've been dealing with a crisis on a scale not seen before, and one that unfolded with terrifying speed. But the fact remains that by the time they acted, measures that might have re-stabilized the markets were ineffective. Robert Brusca of FAO Economics, captured it well when he said, "There is sense that if policymakers were surfers, they would have missed every wave."

Lehman's bankruptcy is a case study in government ineptitude. It was the $785 million of losses on Lehman's securities that pushed the value of the assets of a major money market firm below their $1 per share paid value, described as "breaking the buck." This caused $400 billion to be taken out of money market funds in a matter of days, while the rest of the funds were frozen in anticipation of further withdrawals. Banks were relying heavily on these funds for their commercial paper and the result was a spiral of illiquidity. The Lehman decision prompted the following from the French Minister of Finance, "Horrendous!" an assessment echoed by many others.

It remains puzzling that our Treasury officials did not foresee that the Lehman failure would not be just another failure, but a catastrophic failure undermining faith in the system. After Lehman, all remaining trust vanished in the financial world. Money market and interbank lending froze virtually completely. The spread on credit default swaps rose to levels that caused fear and speculation.

This mistake was followed by the Treasury scheme to buy toxic mortgage-backed securities. It was a flawed approach from day one. If the government bought them at a price above market and thus provided a huge bailout of Wall Street, it would have caused a political upheaval for it would have been seen to rescue them from the consequences of their misjudgment and greed. But if the government bought at current market prices financial firms would take enormous write-offs. In turn that would dramatically damage their balance sheets and force them to freeze their lending, the exact opposite of the purpose of this program.

Alas, the necessary defeat in Congress of Bailout Mark 1 was followed by Bailout Mark 2, purchased from politicians at the cost of a wholly unjustified $120 billion in additional pork barrel tax benefits.

The wiser approach, now adopted by the Treasury, but long advocated by economists and privately favored by Fed Chief Bernanke, according to the New York Times, has been for the government to invest in preferred stock in banks. This stock, convertible into common stocks if the companies later do well, is a much better deal for the taxpayer and assigns the sifting of the toxic assets to the system that created them.

What next?

Here are some proposals:

1. We must have a quick and efficient way to sustain more banks with capital injections, not just the major banks, using appropriate information gathered by bank supervisors.

2. We need to expand the definition of banks to extend appropriate regulatory regimes to the shadow banking system.

3. We will have to oblige the newly defined banking system to build up equity capital when their lending is expanding, for financial busts too often follow credit booms.

4. We must establish a standard for risk management and risk assessment covering mortgages, derivatives, debt, and even equity and especially on new financial instruments.

5. The Fed will have to continue to guarantee interbank borrowing by banks eligible for recapitalization to reactivate the interbank lending market and reduce abnormally high rates of interest on loans that float above the LIBOR interbank rate.

6. If there is to be a fiscal stimulus program, it should be primarily in infrastructure and not on tax cuts: these tend to be saved and not spent (and Obama's are more of a new entitlement program to people who don't pay any tax at all)

The danger is that politicians, who have little understanding of the financial world, may draw the wrong conclusions from Wall Street follies and make the wrong decisions, as they try to revive our financial system.

We must get this right. The new administration must draft the best of our national talent into shaping and administering these new policies. Otherwise the recession will not be U-shaped and relatively short. It will be L-shaped and extend for many unnecessary years.

"Bernanke Endorses Obama," WSJ Says

2008-10-22T09:22:05Z

Ben Bernanke apparently wants four more years as Federal Reserve Chairman. At least that's a reasonable conclusion after Mr. Bernanke all but submitted his job application to Barack Obama yesterday by endorsing the Democratic version of fiscal "stimulus."

While the Fed chief said any stimulus should be "well targeted," even a general endorsement amounts to a political green light. Mr. Bernanke certainly knows that Mr. Obama and Democrats on Capitol Hill are talking about some $300 billion in new "stimulus" spending, while President Bush and Republicans are resisting. And by saying any help should "limit longer-term effects" on the federal deficit, he had to know he was reinforcing Democratic opposition to permanent tax cuts.

Mr. Bernanke could have begged off -- and would have been wiser to do so -- given how much the Fed has already made itself a political lightning rod with its many Wall Street interventions. He might also have thought twice about endorsing one party's policy preferences a mere two weeks before Election Day given his obligation to preserve the Fed's independence. We can remember when tougher Fed chairmen used to refrain from adjusting interest rates close to an election for fear of seeming to be political; they would never have dreamed of meddling in campaign tax and spending debates.

Fed announces new plan to help money market funds

2008-10-21T08:00:46Z

WASHINGTON — First, it was the banks. Now the Federal Reserve has come to the aid of money market funds as the government seeks to break the credit logjam that threatens the global economy.

A week after the government announced it would spend $250 billion to buy stakes in U.S. banks, the Fed stepped up Tuesday to help money market funds that have been squeezed by worried investors demanding to cash out their holdings. Meanwhile, the Treasury named two accounting firms to help manage the $700 billion bailout package.

What If The Downturn Is Long And Shallow?

2008-10-20T13:59:47Z

Today is a good day to consider the possibility that the economic downturn will not end up being nearly as deep as feared -- but will end up lasting for a long time.

Ben S. Bernanke, the Federal Reserve chairman, has been up on Capitol Hill this morning, testifying to members of the House and saying that he thinks another round of economic stimulus is a good idea. He was not specific about what sort of stimulus he supported, at least in his initial remarks, but it is likely to involve some combination of tax rebates, extended unemployment benefits, federal aid to local governments and new spending on highways and other infrastructure. You can think of a stimulus package as an insurance policy, meant to minimize the risk of a severe recession that could then become self-perpetuating.

Mr. Bernanke's remarks are a reminder that the federal government has enormous resources at its disposal, and it is now marshaling those resources to help the economy. The Treasury is injecting hundreds of billions of dollars into the banking system. The Fed has cut its benchmark interest rate and also made hundreds of billions of dollars worth of loans. And now Congress seems likely to get working on another stimulus package. These efforts will not necessarily have immediate results. But they will have an effect, and they will serve to soften the current downturn.

Bernanke Hints At Rate Cut

2008-10-20T11:13:34Z

WASHINGTON — Momentum is building for a fresh dose of economic stimulants to boost the country out of the doldrums _ perhaps by putting more money in Americans' pockets. The White House said Monday that President Bush was open to some sort of action after Federal Reserve Chairman Ben Bernanke warned the slump could drag on without the extra bracing tonic.

On Wall Street, stocks bolted higher, with the Dow Jones industrials rising 413 points. There also were some new signs that credit conditions were thawing a bit.

John W. Whitehead: Is it Time for a Rebellion?

2008-10-17T11:56:17Z

"50 percent NO and 50 percent HELL NO!"--Rep. Jim Moran (D-Va.) on feedback received from his constituents regarding Congress' bailout package

Mere days after President Bush signed into law an $810 billion bailout bill aimed at rescuing the Wall Street financiers, one of the recipients, American International Group Inc., threw a $440,000 bash for its executives at a swanky resort, complete with spa treatments, banquets and golf outings.

At the same time that AIG execs were celebrating lavishly, indirectly at taxpayer expense, nearly 12 million American taxpayers, who owed more on their mortgages than their homes are worth, were in danger of foreclosure.

As if it weren't bad enough that a fiscally irresponsible corporate America is going to be bailed out at taxpayer expense, Congress included more than $100 billion in pork barrel projects in the bill. Nothing short of congressional bribes, these so-called inducements range from an exemption from excise tax for wooden arrows designed for use by children and tax write-offs for motorsports racing track facility owners to tax rebates on rum imported from Puerto Rico and the Virgin Islands, as well as imported wool.

This is not relief, it is economic slavery. It has become increasingly clear that the greatest threat to our freedoms--and our bank accounts--does not lurk outside our borders. Rather, it prowls among us, in the form of a government of wolves that is running wild and riding roughshod over our freedoms.

There was a time when such a blatant disregard for the burden being laid upon the American taxpayer would have elicited howls of outrage, protest marches and perhaps even outright rebellion. Today, however, many Americans understandably feel helpless to do anything about their plight. After all, despite the fact that calls and emails to congressional offices were overwhelmingly against the $810 billion pork-laden bailout, the legislation passed anyway.

Yet consider this: at its core, the quest for the American dream is about gaining sovereignty over one's life and property. Without it, there can be no freedom. While we have become accustomed to equating property with land ownership, the term is much more fundamental and personal. It refers to a kind of sovereignty over one's life and possessions--especially one's money. Questions about who has ultimate control over our money, how much of it can be claimed by government and how it gets spent go to the heart of the battle over property rights.

Governments generate no wealth on their own. Any resources that they have at their disposal have been appropriated from the original producers of that wealth, the citizens. This fundamental truth has largely been forgotten over the years. Yet the government's respect for and treatment of the property of its citizens often reflects its attitude regarding its citizens' rights as a whole. Conversely, a government that doesn't respect the rights of its citizens will have even less regard for their property--be it land, money or personhood.

With the Wall Street bailout, the President and Congress simply disregarded the clear will of the people. And while secret agreements were obviously made and backroom bargains struck, the Constitution and our rights were not even given a second thought.

However, those who wrote the Constitution drafted our founding document with the intention of ensuring that the power of government remained with the people. The Framers wanted citizens to know what the government is doing and how it spends taxpayer funds. And if the elected officials aren't doing their jobs or the people disagreed with their performance, the Framers empowered the people to unseat their representatives. Without these safeguards, there is no representative government.

Since the country's inception, America has been synonymous with the concept that there are certain individual rights and freedoms that no one, not even government agents, can violate. As the Declaration of Independence boldly proclaims: "We hold these truths to be self-evident: that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness."

These were revolutionary ideas in an age of kings and serfdoms, and they served as a springboard for the Constitution and the Bill of Rights. These rights were considered absolute and so precious that no government can violate them. And the early American colonists believed these principles were not only worth fighting for, they were worth dying for.

One of these was the right of the people to change or do away with a government that attempts to undermine their rights. As the Declaration concludes, "whenever any form of Government becomes destructive of these ends, it is the Right of the People to alter or abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness."

Governments are brought into being to protect our rights. When they systematically violate them, the people have a right--nay, a duty--to resist. This was the true spirit of 1776 that moved the American colonists to start a revolution against a government that was violating their rights. This willingness to stand and fight against corrupt government was what it meant to be an American in our nation's early years. And if we truly want to be Americans today, it will mean practicing every form of nonviolent resistance available to us as citizens--including picketing, mass protests, sit-ins, boycotts and so on.

It will certainly take more than voting for or against a particular politician. Thomas Jefferson was right: "What country can preserve its liberties, if its rulers are not warned from time to time, that this people preserve the spirit of resistance?"

Bernanke: Quick Rebound Not In Cards

2008-10-15T14:04:02Z

WASHINGTON — The country's economic health won't snap back quickly even if badly needed confidence in the U.S. financial system returns and roiled markets finally calm, Federal Reserve Chairman Ben Bernanke cautioned Wednesday.

"Stabilization of the financial markets is a critical first step, but even if they stabilize as we hope they will, broader economic recovery will not happen right away," Bernanke said in a speech to the Economic Club of New York.

Inside The Meeting That Led To Partial Nationalization Of America's Largest Banks

2008-10-14T19:50:42Z

The Wall Street Journal has a fascinating look inside the meeting, between Treasury Secretary Paulson, Fed Chief Bernanke, and the heads of America's major banks, which led to the partial nationalization of the nine largest US banks:

The participants, among the nation's best deal makers, were in a peculiar position. They weren't allowed to negotiate. Mr. Paulson requested that each of them sign. It was for their own good and the good of the country, he said, according to a person in the room.

During the discussion, the most animated response came from Wells Fargo Chairman Richard Kovacevich, say people present. Why was this necessary, he asked. Why did the government need to buy stakes in these banks?

Morgan Stanley Chief Executive John Mack, whose company was among the most vulnerable in the group to the swirling financial crisis, quickly signed.

Toward the end of the meeting, Bank of America's Kenneth Lewis said the debate had lasted long enough, and everyone needed to sign...

...U.S. officials argued the plan represented a good deal for the banks: The government would be buying preferred shares, and thus wouldn't dilute their common shareholders. And the banks would pay a relatively modest 5% in annual dividend payments.

The meeting ended at about 4 p.m. By 6:30 p.m., all of the sheets had been turned in and signed by the CEOs. No second meeting was held.

Read the full story here. (Subscription required)

-OR-

Read more at HuffPost's Financial Crisis BigNews Page.

NY Times: Bank Investment Is Good, But US Shouldn't Be Passive Investor

2008-10-14T08:50:59Z

By taking an equity stake, taxpayers could have a better chance of seeing an eventual return on their investment. If the banks do turn around, then the government, as a shareholder, reaps the benefits.

But we are disturbed that Mr. Paulson wants the government to be a passive investor with little say on how these banks are run, despite the billions of dollars at risk.

That means the banks' current boards and current management -- the same people who got the country into this mess -- will still be making all of the decisions.

Read the full story here

-OR-

Read about President Bush, Secretary Paulson and Chairman Bernanke explaining the moves to the public today

Bernanke Wall Street Journal Op-Ed: Laying Groundwork For Recovery

2008-10-14T08:41:23Z

History teaches us that government engagement in times of severe financial crisis often arrives very late, usually at a point at which most financial institutions are insolvent or nearly so. In these conditions, the consequences and costs of inertia and inaction can be staggering. Fortunately, that is not the situation we face today.

The Congress and the administration acted at a time when the great majority of financial institutions, though stressed by highly volatile and difficult market conditions, remain capable of fulfilling their critical function of providing new credit for our economy. Their prompt passage of the financial rescue legislation made possible the critical measures that will be announced this morning. These steps will allow us to restore more normal market functioning, and encourage private capital to further support the reinvigoration of financial markets.

I also find it heartening that we are seeing not just a national response but a global response to the crisis, commensurate with its global nature. Indeed, this weekend, the finance ministers and central bankers of the G-7 industrialized countries announced a comprehensive plan to unfreeze credit and money markets, increase capital in banks and other financial intermediaries, and protect deposits. Each of these governments is now moving quickly to put their own specific measures in place. The announcements we are making today are consistent with the G-7's statement of principles.

Fed Chief: We're Laying Groundwork For Recovery

2008-10-13T23:22:26Z

As Americans well know, the challenges we now face in the financial markets and in the economy are both extraordinarily complex and historic in scope. I firmly believe, however, that with the actions policy makers are announcing today, we will be able to meet those challenges.

Our strategy will continue to evolve and be refined, and we will adapt to new developments and the inevitable setbacks. But we will not stand down until we have achieved our goals of repairing and reforming our financial system, and thereby restoring prosperity to our economy.

David Kotok: Throwing in the Towel

2008-10-10T13:03:33Z

Actions speak louder than words.

Yesterday I sat at the Washington luncheon speech of Ben Bernanke. We watched the stock market meltdown start about three quarters of the way through his speech. The rest of yesterday you know. Last night, the meltdown continued worldwide.

This morning we saw coordinated central bank actions aimed at massive stimulus in order to encourage growth and abate the credit crunch. The tools being applied in the monetary realm are enormous and without precedent. These tools will succeed. They are now global and will address the freeze that has infected global financial integration.

We will update our now famous chart late Thursday afternoon. On Friday morning see www.cumber.com for the graphic depiction of the Fed's new balance sheet. We are updating it as fast as we can.

Bernanke broadcast his intentions with words. He used academic language. He wore his Princeton Professor's hat. I sat there and understood his words and nuances. I also realized that those who are not skilled in the language of monetary economics would have difficulty comprehending his meaning.

My colleagues and I who were sitting at the table discussed the Fed's mechanics and how the interest rate "corridor" Bernanke described is now established. We talked about the lower bound that Bernanke mentioned and how the upper bound would be established. We speculated about how much time it would take to narrow the LIBOR-OIS spread. We talked about how the change in interest payments on bank reserves would allow the Fed to dramatically expand its balance sheet. We delved into how monetary policy can blunt a shrinking credit multiplier.

The problem for the financial markets is that Bernanke didn't say it in plain English. He used classic academic Fed speak.

In the last two weeks I have personally had conversations with numerous officials at central banks. Many of those were with officials in the Federal Reserve or the European Central Bank. Believe me; they "get it."

The communication problem is that they have difficulty expressing "it" in plain language. Yes, Virginia, there is a communication problem. We have been writing about that for several years.

But a communication problem is not a policy problem. When it comes to policy, the central banks are acting. We see it today with coordinated rate cuts. We saw it with Fed's new commercial paper facility. We saw it with doubling of the TAF auction. Think about it: the TAF expansion and the commercial paper facility are likely to be five times the initial $250 billion in Paulson's TARP. And they will be immediate. We also saw this policy coming from the technical jargon used in foreign central bankers' speeches. We saw it in the rate cuts broadcast from Hong Kong and Australia as those central banks cut rates by surprising amounts. They were the early forerunners of today's announcements.

All of this is very positive for economies and for markets.

It means maximum monetary effort will be applied to (1) mitigate the damage from the global housing and commercial real estate crises and the deepening recession and (2) abort the credit spread contagion. We believe that credit spreads are now at their widest and that the unsustainable levels are about to start a process of reversal.

Cumberland has been and continues to be a buyer of high-grade tax-free municipal bonds. Yesterday, a bond issued by the government of the state of Ohio traded below a 5.5% yield. That is a 5.5% interest rate after federal taxes and after state taxes by Ohio. At the same time the short-term Treasury bill yielded near zero.

What does this mean? It means panicked investors were forcing the liquidation of their mutual funds and fleeing into zero-interest government securities. All asset classes were being sold. The indiscriminate and emotional selling was overpowering all rational, analytical thinking. It is also the mark of a selling climax and a bottoming process.

A bottoming process is not a single point bottom. All global markets do not bottom simultaneously. All indexes do not make their lows concurrently. But they do bottom in a correlated fashion. The reason is that they were abandoned in a correlated fashion as investors decided to sell everything and run into cash.

At Cumberland, we believe the time to be opportunistic is when emotional sellers are offering bargain goods at prices which bear no reference to their underlying value. Ohio State General Obligation tax-free municipal bonds are one example. There are many others in the bond and stock markets and in the global asset classes.

It is time to scale towards a fully invested position. This morning the US stock market was down over 350 Dow points when measured by the futures market. That pricing marked a 5000-point decline in one year if we measure from the market top in October 2007.

The time to be a seller was last year. We raised some cash. In retrospect, it was not enough although we were criticized at the time for being too cautious.

Now is not the time to throw caution to the winds. But it is time to focus on the bottoming process with an eye toward buying. The perfect time to be a buyer is when the last fighter "throws the towel in the ring." You then have to be standing there to catch it. At Cumberland, we are standing in the ring and catching these sweaty, stinking towels. They are being thrown to us by sleepless and terrified investors who are running to place 100% of their money in zero-interest-rate cash.

We expect that many global markets will be higher than present levels by the end of this year. Credit spreads will be narrower. That is how it looks to us.

David R. Kotok, Chairman and Chief Investment Officer, email: david.kotok@cumber.com

Erica Jong: Popular Delusions and the Madness of Crowds

2008-10-10T11:20:37Z

October is the cruelest month -- at least for the Dow--only 30 stocks but more influential than than the price of tulips in 17h century Holland.

Stocks that were cheap last summer are so cheap now that it astounds me no one is buying. Mass hysteria has set in. The species that gave us Tulip mania and the South Sea Bubble is at it again. It's time to buy since all the pishers are selling. Time to buy since Jim Cramer -- that 21st century Barnum -- says, "sell!"

What is value? It used to be gold and silver. What is it now? Goldman Sachs? Lehman Bros, hah, J.P. Morgan? Morgan Stanley? What's in a name? A rose by any other name would smell as Paulson, Corzine or Bernanke.

Bernanke is a scholar of The Great Depression. So nu?

My best friend's father made his Fortune at Lehman Bros. when people shook hands and meant it. Then they started selling derivatives of derivatives, swaps of swaps -- and the Bush administration cheered.

Every time Bush and Bernanke speak the market tanks. Where is the ghost of FDR? Laughing. "I was called a traitor to my class" he says, giggling.

Nobody -- not even the seller -- knows what derivatives are worth. Or even what they are. Guys tried to explain 'em me and they couldn't even 'splain 'em to themselves!

Everyone wanted the commission -- even if the stuff was treif. Self-delusion is human nature.

My father and my father-in-law believed in government bonds. But what if the government is lying? And what if China is selling poisoned yuans? I watch South Park and I'm afraid of the Chinese too.

Is a currency worth anything if no one wants it? We used to buy shoes in Italy. Remember?

These are the questions of Oct 2008. I belong to a family of bears. And bulls. Some say the Dow will dip below 5000. Some say stocks are undervalued and that the sellers will be left out in the cold.

I will consult the Oracle of Delphi. She burbles that "fools sell and fools buy." She says our parents were right: the Great Depression will come again. She says: "buy low, sell high." She says: "never put own money in show business."

But even the Oracle cannot time the market.

"Your grandfather should have held US Steel in1930," she says.

Who knows?

All my forebears worked for a living. My grandfather painted portraits. My mother too. My aunt painted seascapes. My father played the drums, wrote songs, and then made his fortune in tchatchkes, made in Japan, then Taiwan, then China. My husband bills his time by the hour. The bucks sound big but there are only 24 hours in a day. I write slowly by hand. Publishing is effectively bankrupt for you unless you are Danielle Steele. It takes a year to write book and advances are going down or disappearing. I never wrote for money, but I can't swap poems for my iPhone.

I thought to spend my declining years writing poetry and teaching -- but that won't pay the Bergdorf's bill.

I think I'll move to somewhere life is cheaper. Papua New Guinea? With the ghost of Margaret Mead?

But what about my adorable grandchildren who live in New York City?

I'd really miss them in Madagascar.