Showing posts with label US News. Show all posts
Showing posts with label US News. Show all posts

Wednesday, November 19, 2008

Bernanke Says Federal Reserve Won't Reveal Details on Loans

By Steve Matthews and Craig Torres

Nov. 18 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the central bank won't disclose details of the $2 trillion in emergency loans of taxpayer funds because doing so would stigmatize banks needing the money.

``Some have asked us to reveal the names of the banks that are borrowing, how much they are borrowing, what collateral they are posting,'' Bernanke said today to the House Financial Services Committee. ``We think that's counterproductive.''

Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bank rescue plan. Two months later, as the Fed lends far more than that in separate lending programs that don't require lawmakers' approval, Bernanke said too much disclosure would harm the borrowers.

Bloomberg News has requested details of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure.

The Fed made the loans under terms of 11 programs, eight of them created in the past 15 months, in the midst of the biggest financial crisis since the Great Depression.

``First, the success of this depends on banks being willing to come and borrow when they need short-term cash,'' Bernanke said in response to questioning from Representative Spencer Bachus of Alabama, the committee's senior Republican.

``There is a concern that if the name is put in the newspaper that such-and-such bank came to the Fed to borrow overnight for a perfectly good reason, that others might begin to worry is this bank creditworthy and that might create a stigma, a problem, and might cause banks to be unwilling to borrow, and that would be counterproductive.''

`Very Safe' Loans

Bernanke said the central bank would not lose money on its lending, which is backed by assets.

``We take collateral, we haircut it, it is a short-term loan, it is very safe, we have never lost a penny in these various lending programs,'' he said.

Before Sept. 14, the Fed accepted mostly top-rated government and asset-backed securities as collateral. After that date, the central bank widened standards to accept other kinds of securities, some with lower ratings. The Fed collects interest on all its loans.

At a Sept. 23 Senate Banking Committee hearing in Washington, Paulson called for transparency in the purchase of distressed assets.

``We need oversight,'' Paulson told lawmakers. ``We need protection. We need transparency. I want it. We all want it.''

At a joint House-Senate hearing the next day, Bernanke also stressed the importance of openness in the program. ``Transparency is a big issue,'' he said.

The Bloomberg lawsuit argues that the collateral lists ``are central to understanding and assessing the government's response to the most cataclysmic financial crisis in America since the Great Depression.''

Tuesday, November 18, 2008

30 reasons for Great Depression 2 by 2011

New-New Deal, bailouts, trillions in debt, antitax mindset spell disaster

By Paul B. Farrell, MarketWatch
Last update: 7:19 p.m. EST Nov. 17, 2008

ARROYO GRANDE, Calif. (MarketWatch) -- By 2011? No recovery? No new bull? "Hey Paul, why do you keep talking about a bigger crash coming by 2011?" Readers ask that often. So here's a sequel to my predictions of 2000 and 2004, with a look three years ahead:

First. Dot-com crash

We pinpointed the dot-com crash at its peak, in a March 20, 2000 column: "Next crash? Sorry, you won't see it coming." Bulls-eye: The dot-com bubble popped. The economy went into a 30-month recession. The stock market lost $8 trillion. And today, over eight years later, the market is still roughly 40% below its 2000 peak. See previous Paul B. Farrell.

Factor in inflation and the average stock has lost well over 50% of its value. Stocks have proven to be a very big loser, a bad investment for Americans, thanks to Wall Street's selfish greed, plus the complicity and naiveté of politicians, press and public.

Second. Subprime meltdown

We reported on warnings of another crash coming as early as 2004, wrote a sequel, also titled "Next crash? Sorry, you won't see it coming." Yes, we were early, but in good company. We wrote many more warning columns. Few listened.

Subsequent events, notably former Fed Chairman Alan Greenspan's admission of his failures in congressional testimony, prove that if he and other Reaganomic ideologues weren't so myopic and intransigent about proving their free-market deregulation theories, they could have acted earlier and prevented today's colossal mess. Instead, their ideology kept the bubble blowing, delayed the pop, making matters worse.

So once again, as history proves over and over, ideology trumps common sense, reality and the facts. Greed drives ideologues to blow bubbles. They pop. Crashes happen. The public is collateral damage.

Third. Megabubble cycles

We also detailed the broader, accelerating macroeconomic sweep of cycles last summer in columns like "20 reasons new megabubble pops in 2011." We summarized a long list of major warnings from financial periodicals -- Forbes, Fortune, the Wall Street Journal, Economist -- and from the voices of Warren Buffett, Bill Gross, a sitting Fed governor and a former Commerce secretary. Multiple warnings "hiding in plain sight," beginning with a Fed governor warning Greenspan in 2000 about subprime risk.

But the big shocker came from the new Treasury secretary two years before the meltdown: Bloomberg News reports that shortly after leaving Wall Street as Goldman Sachs' CEO, Henry Paulson was at Camp David warning the president and his staff of "over-the-counter derivatives as an example of financial innovation that could, under certain circumstances, blow up in Wall Street's face and affect the whole economy."

Yes, they knew. And still both Paulson, a Wall Street insider, and Greenspan's successor, Ben Bernanke, a Princeton scholar of the Great Depression, stayed trapped in denial and kept happy-talking the public for months after the meltdown began in mid-2007. Get it? While they could have put the brakes on this meltdown years ago, our leaders were prisoners of their distorted, inflexible views of conservative Reaganomics ideology.

As a result, once again the "best and the brightest" failed America and now they and their buddies in Washington and Corporate America are setting up the Crash of 2011.

Now it's time for my 2008 update, a look into the future where things will get far worse during the next presidential term. And given human behavior, especially in the deep recesses of Wall Street's "greed is good" DNA, it seems inevitable that no matter how well-intentioned the new president may be Wall Street and Washington's 41,000 special-interest lobbyists will drive America into the Great Depression 2.

30 'leading edge' indicators of the coming Great Depression 2

Every day there is more breaking news, proof Wall Street's greed is already back to "business as usual" and in denial, grabbing more and more from the new "Bailouts-R-Us" bonanza of free taxpayer cash and credits, like two-year-olds in a toy store at Christmas -- anything to boost earnings, profits and stock prices, and keep those bonuses and salaries flowing, anything to blow a new bubble.

Scan these 30 "leading indicators." Each problem has one or more possible solutions, but lacks unified political support. Time's running out. We're already at the edge. Add up the trillions in debt: Any collective solution will only compound our problems, because the cumulative debt will overwhelm us, make matters worse:
  1. America's credit rating may soon be downgraded below AAA
  2. Fed refusal to disclose $2 trillion loans, now the new "shadow banking system"
  3. Congress has no oversight of $700 billion, and Paulson's Wall Street Trojan Horse
  4. King Henry Paulson flip-flops on plan to buy toxic bank assets, confusing markets
  5. Goldman, Morgan lost tens of billions, but planning over $13 billion in bonuses this year
  6. AIG bails big banks out of $150 billion in credit swaps, protects shareholders before taxpayers
  7. American Express joins Goldman, Morgan as bank holding firms, looking for Fed money
  8. Treasury sneaks corporate tax credits into bailout giveaway, shifts costs to states
  9. State revenues down, taxes and debt up; hiring, spending, borrowing add even more debt
  10. State, municipal, corporate pensions lost hundreds of billions on derivative swaps
  11. Hedge funds: 610 in 1990, almost 10,000 now. Returns down 15%, liquidations up
  12. Consumer debt way up, now at $2.5 trillion; next area for credit meltdowns
  13. Fed also plans to provide billions to $3.6 trillion money-market fund industry
  14. Freddie Mac and Fannie Mae are bleeding cash, want to tap taxpayer dollars
  15. Washington manipulating data: War not $600 billion but estimates actually $3 trillion
  16. Hidden costs of $700 billion bailout are likely $5 trillion; plus $1 trillion Street write-offs
  17. Commodities down, resource exporters and currencies dropping, triggering a global meltdown
  18. Big three automakers near bankruptcy; unions, workers, retirees will suffer
  19. Corporate bond market, both junk and top-rated, slumps more than 25%
  20. Retailers bankrupt: Circuit City, Sharper Image, Mervyns; mall sales in free fall
  21. Unemployment heading toward 8% plus; more 1930's photos of soup lines
  22. Government policy is dictated by 42,000 myopic, highly paid, greedy lobbyists
  23. China's sees GDP growth drop, crates $586 billion stimulus; deflation is now global, hitting even Dubai
  24. Despite global recession, U.S. trade deficit continues, now at $650 billion
  25. The 800-pound gorillas: Social Security, Medicare with $60 trillion in unfunded liabilities
  26. Now 46 million uninsured as medical, drug costs explode
  27. New-New Deal: U.S. planning billions for infrastructure, adding to unsustainable debt
  28. Outgoing leaders handicapping new administration with huge liabilities
  29. The "antitaxes" message is a new bubble, a new version of the American
    dream offering a free lunch, no sacrifices, exposing us to more false promises
Will the next meltdown, the third of the 21st Century, trigger a second Great Depression? Or will the 2007-08 crisis simply morph into a painful extension of today's mess to 2011 and beyond, with no new bull market, no economic recovery as our new president hopes?

Perhaps some of the first 29 problems may be solved separately, but collectively, after building on a failed ideology, they spell disaster. So listen closely to "leading indicator" No. 30:

At a recent Reuters Global Finance Summit former Goldman Sachs chairman John Whitehead was interviewed. He was also Ronald Reagan's Deputy Secretary of State and a former chairman of the N.Y. Fed. He says America's problems will take years and will burn trillions.

He sees "nothing but large increases in the deficit ... I think it would be worse than the depression. ... Before I go to sleep at night, I wonder if tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds." It'll get worse because "the public is not prepared to increase taxes. Both parties were for reducing taxes, reducing income to government, and both parties favored a number of new programs, all very costly and all done by the government."

Reuters concludes: "Whitehead said he is speaking out on this topic because he is concerned no lawmakers are against these new spending programs and none will stand up and call for higher taxes. 'I just want to get people thinking about this, and to realize this is a road to disaster,' said Whitehead. 'I've always been a positive person and optimistic, but I don't see a solution here.'"

We see the Great Depression 2. Why? Wall Street's self-interested greed. They are their own worst enemy ... and America's too. End of Story

Wednesday, November 05, 2008

Russia welcomes Barack Obama with deployment of nuclear-capable missiles

The Kremlin gave Barack Obama a glacial welcome to the world stage when Dmitry Medvedev, the Russian president, ordered the deployment of nuclear-capable missiles on Nato's borders for the first time since the Cold War.

Russian president Dimitry Medvedev - Russia welcomes Barack Obama with deployment of nuclear-capable missiles
Mr Medvedev said he was ordering the deployment in retaliation to a missile defence shield that the United States wants to build in central Europe Photo: AP

In what appeared to be a deliberate attempt to rattle the president-elect, Mr Medvedev said that short-range Iskander surface-to-surface missiles would be stationed in Russia's baltic exclave of Kaliningrad, which borders EU states Poland and Lithuania.

Delivering his most aggressively anti-American speech yet, Mr Medvedev said he was ordering the deployment in retaliation to a missile defence shield that the United States wants to build in central Europe by 2011.

In comments likely to unnerve the Obama camp, the Russian leader even hinted that he was prepared to use the missiles to destroy the shield, which is to be erected in Poland and the Czech Republic.

"I have approved a new configuration for the military forces of our country," Mr Medvedev said in his first ever annual address to the two houses of the Russian parliament. "To neutralise – if necessary – the anti-missile system, an Iskander missile system will be deployed in the Kaliningrad region."

Although the Iskander is normally equipped with conventional warheads, it can be modified to carry a nuclear payload.

Russia has been threatening to move Iskander missiles to Kalinigrad since April last year, but until now no specific order had been given.

Mr Medvedev's speech had been postponed twice and commentators in Moscow say it is no accident that the Kremlin decided it should be delivered on the day the United States presidential election results were announced.

They suggested that Russia was deliberately attempting to test Mr Obama's mettle. Some analysts say that Kremlin hardliners are worried that the Democrat could seek to restore the notion of the United States as a "soft power" prepared to seek international consensus in its foreign policy.

For Kremlin hawks, such a policy could undermine their attempts to project the US as a threat to Russian sovereignty, thus undermining the justification for the authoritarian policies of Vladimir Putin, the country's powerful prime minister.

For much of his speech, President Medvedev, who was shoehorned into office by Mr Putin, sounded as abrasive as his predecessor at his most vituperative.

Seeking to cast Washington as the architect of the global financial crisis, he lashed out at the "erroneous, egotistical and sometimes even dangerous decisions of some members of the global community" – the traditional euphemism for the United States.

He also blamed the United States for August's war in the Caucasus, which saw Russia invade Georgia and destroy much of its infrastructure after the escalation of a conflict in a Moscow-backed breakaway region of the country.

The US, Mr Medvedev said, pursued a foreign policy that was "selfish, cannot stand criticism and prefers unilateral decisions." "The conflict in the Caucasus was used as a pretext for sending Nato warships to the Black Sea and then for foisting America's anti-missile systems on Europe," he told legislators.

The US sent naval vessels to the Black Sea after the August conflict ended to deliver humanitarian aid to Georgia. The ships have since left the area.

Breaking with tradition, Mr Medvedev failed to congratulate senator Obama on his victory. But he did urge the president-elect to take steps to improve US-Russia relations, which he said were badly damaged.

Ordinary Russians were sneering about the entire election, which was characterized in the frequently chauvinistic popular media as a contest between a senile grandfather and a black man of dubious credentials and intellect. American voters were portrayed as "popcorn and hamburger eating idiots" by one newspaper.

Several tabloids incorrectly reported that the main message of Mr Obama's final campaign speech was a call on young African Americans not to let their underpants show above the waistline of the jeans.

Many also questioned the US belief in democracy, claiming that it had plunged the world into turmoil.

"Russia does not need this Western operetta show," the Tvoi Dyen tabloid wrote. "We realised back in 1612, there is so much more important than difference of opinion."

Great expectations: Barack Obama and the world

Last Updated: Wednesday, November 5, 2008 | 12:32 AM ET

Barack Obama in Germany in July 2008: 'The walls must come down'Barack Obama in Germany in July 2008: 'The walls must come down' (Markus Schreiber/Associated Press)

Americans selected Barack Obama as their new president because 85 per cent of them told pollsters they didn't like the direction the country was heading. His first and vast challenge will be to try to change that direction.

Obama was also the world's choice by a wide margin. But my swing through several European capitals this autumn told me that, deep down, non-Americans didn't really believe he would in the end be America's choice.

The fact that he was — that America did, in the quiet of the polling booth, decisively select the candidate of colour — has offered the U.S. that rare second chance to redefine itself to the world.

It has been said that there are only two global superpowers today: the U.S. and world opinion. In the immediate aftermath of 9/11, the two became largely aligned in empathy until George W. Bush squandered that asset.

Today, they are aligned again, this time in admiration.

Many Europeans I spoke with didn't believe Obama would be elected because "it couldn't happen here," in the UK or France or Spain, they said. The Chinese public were said to be both fascinated and envious of his campaign, Geoff York reported in the Globe and Mail.

Well, today's election is going to give a huge adrenaline shot to repressed democrats and human rights defenders the world over in ways that the Bush "freedom agenda" couldn't, simply because of the force of the Obama example.

The new president inherits daunting domestic and foreign challenges but also an enormous fund of good will on almost every continent. For the short term, anyway, he is going to seem like the "world's president."

What is likely to change?

Obviously, the first to go will be George W. Bush and almost everything he stands for. Was this decent man as bad a president as people think? His Texan style didn't travel well, but the record? Darn near as bad.

I blame Vice-President Dick Cheney for much of this: the stealth and manipulation, the adversarial fixation on strengthening executive prerogative and stifling Congress as well as the laws of the land; the obsession to get Saddam Hussein and the blithe disregard of facts. But all that is past history now.

Turning the page, consider as gone the belief that military force alone can produce pleasing political outcomes. Or that U.S.-style unilateralism is a winning option.

Republican John McCain retained an "almost religious belief" in American exceptionalism and the merits of using military force to protect U.S. interests and values, Nicholas Lemann wrote in the New Yorker.

Obama won't have to declaim that America is exceptional. His very election shows that it is.

But gone will be the "with us or against us" bombast of the past so many years. Obama is more than a unifier. He is a cross-cultural figure.

Cultural anthropologists, whose stock is rising as U.S. agencies and military realize they don't really understand other peoples very well, should be thrilled.

An includer

Gone, too, should be that instinctive, pre-judging hostility to other countries such as Iran.

Obama's administration will undoubtedly support a community of democracies and of democrats but is unlikely to see these grouping as a made-in-America venture, one more coalition to line up against a growing list of adversaries, as McCain had seemed wont to do.

On the diplomatic circuit, every indication is that Obama is not a "great-power relationship" sort of leader either.

He is, by most accounts, a consensus seeker and while he will likely reach out to individual partners on a one-on-one, confidence-sharing basis, his preferred arenas will be multilateral — and large.

Forget about the G8. The preferred forums are likely to be the G15 or even the G20 because he is a big tent kind of guy.

Keeping a big stick

Economic recovery will be an uphill climb but with a more deeply Democratic Congress, an Obama administration can likely produce a quick stimulation package that, coupled this time with a sense of a fresh start, may have some real impact on a fretful American psychology.

Should that happen, it would only underpin Obama's leadership clout in the world.

But don't expect a president Obama to lighten up much on homeland security, or at least not until Americans tell him the cost of doing cross-border business is too high. (So, Canadians, grow up and renew your passports early. Service has improved at least.)

Also unlikely to change will be the core U.S. military budget, though some expensive programs like the provocative anti-missile defence system may get the chop.

As a liberal, Obama can't risk reducing U.S. military power or being seen to let America's guard down. Indeed, he has demonstrated a willingness to use force if necessary to go after the sanctuaries of really bad guys with or without local permission.

Would he have authorized last week's raid on a Syrian arms export depot? Probably. But he might actually have tried talking first to Syrian President Bashar al-Assad.

The golden rule

North Korea won't change its spots overnight, nor will Iran knuckle under on the nuclear file. Nor will Iraq's Sunnis and Shias learn to love each other, or Israelis and Palestinians settle their scores, or the Taliban decide to celebrate Karzai-style democracy just because of Barack Obama.

So U.S. forces will likely be staying for a while in Iraq, though increasingly in the background.

In fact, there may well be spoiler-type pushback from upstaged brittle leaders like Russia's Vladimir Putin — unless Obama finds a way to get to them first, which he very well might.

Everybody who knows him passes the same message: that he reaches out to consult before he moves and follows the golden rule. He listens to and tries to understand others, which is why he is likely to drop the childish and dangerous practice of not talking with adversaries.

If one of Putin's main grievances is that Russia isn't taken seriously anymore by the U.S., then Obama ought to show that is not the case. Political leaders are human and attention counts.

That goes double for domestic politicians. I expect to see a return to the sort of attention former presidents like Lyndon Johnson, Ronald Reagan and Bill Clinton lavished on members of Congress.

I expect to see the U.S. recommit to the goal of effective multilateralism in world affairs, where the rule is diplomacy first and military action only as a very last resort.

I expect to see the United Nations regain its rightful place in U.S. esteem. Obama has been explicit about the need to build an international consensus on the big challenges that individual governments cannot handle on their own, including counterterrorism, nuclear proliferation, and climate change and oil dependence.

I anticipate he will resubmit to Congress for ratification such multilateral initiatives as joining the International Criminal Court and the Comprehensive Test Ban Treaty, despised by neo-conservative unilateralists. Indeed, I expect a major emphasis on negotiated nuclear disarmament, including that of America itself.

And Canada?

If you go to the Obama website and his campaign speeches, you won't find much about Canada — indeed, you won't find anything.

That may hurt those Canadians with the narrow soul of a deputy minister, but it's good news. We are not a U.S. problem!

But is Obama a problem for Canada? Wasn't he said to want to renegotiate NAFTA, the free trade agreement, to, implicitly, get a better deal for American workers?

That was probably campaign cover because some rust-belt Americans don't think NAFTA works for their country. But the recent global downturn turns the heat up on that file.

If there are issues to renegotiate, then let's be adults and think big about sharing a continent, and get down to it. That is the best way to get on the U.S. agenda.

With Obama in the White House, Stephen Harper's Conservative government may feel challenged by having, in Washington, a non-divisive social reformer and listener (hear that, 24 Sussex?) who believes in multilateralism, a once Canadian trait that we may have to relearn.

Will Obama press Canada to keep combat forces in Afghanistan past 2011? His first calls to add brigades there will likely be to others. Later, he'll listen to why we finally want to stand down and should probably respect the disproportionate contribution Canadians have made.

There will, however, be a problem on climate change, especially if there is no real effort to mitigate the environmental impact of developing the oilsands or to develop technologies that are not part of the carbon problem.

There may well be some sourpuss Canadian pundits who will disparage Obama's victory and put him down as a lightweight liberal floating on an ephemeral sea of rhetoric. Pay them no mind.

The rest of us should just celebrate the fact that our neighbour and closest friend has chosen the kind of leader that Canadians can instantly recognize because he operates in what used to be a very Canadian way of seeing and dealing with the world.

Monday, November 03, 2008

Lies and Audiotape: Morgan Chase Exec Brags Bailout Is for Takeovers, Restructuring, Not Lending

Executive Intelligence Review

Oct. 26, 2008 (EIRNS)—In an internal bank conference call last week, a JP Morgan Chase executive, unaware that his conversation would be heard and published by a reporter, confirmed exactly what Lyndon LaRouche has said about the Hank Paulson bail-out: It has nothing remotely to do with extending lending to the U.S. economy, but is concerned with the Mussolini-like corporatist restructuring of the U.S. banking system, turning over the "smaller banks" to the totally bankrupt big banks, so that they can digest the smaller banks' assets, and survive perhaps a few more weeks.

New York Times reporter Joe Nocera obtained the call-in phone number on which the Oct. 17 Morgan Chase conference call took place, only 4 days after JP Morgan CEO Jamie Dimon had agreed to take $25 billion in a U.S. government capital injection. In an article in the Oct. 25 Times, entitled "So When Will Banks Give Loans?" Nocera quoted the unnamed JP Morgan Chase executive who gave the conference call, as follows:

"Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase," he began. "What we do think it will help us do, is perhaps be a little bit more active on the acquisition side, or opportunistic side, for some banks who are still struggling. And I would not assume that we are done on the acquisition side, just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way. And obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop." [emphasis added]

Later during the call, the executive showed what a fig-leaf is Paulson's claim that the capital injection part of the bail-out plan would start up lending to the economy. The executive explained "loan dollars are down significantly." He added, "We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side."

Thursday, October 30, 2008

Uses for $700 billion bailout money ever shifting

JOHN DUNBAR
Associated Press

October 29, 2008

First, the $700 billion rescue for the economy was about buying devalued mortgage-backed securities from tottering banks to unclog frozen credit markets.

Then it was about using $250 billion of it to buy stakes in banks. The idea was that banks would use the money to start making loans again.

But reports surfaced that bankers might instead use the money to buy other banks, pay dividends, give employees a raise and executives a bonus, or just sit on it. Insurance companies now want a piece; maybe automakers, too, even though Congress has approved $25 billion in low-interest loans for them.

Three weeks after becoming law, and with the first dollar of the $700 billion yet to go out, officials are just beginning to talk about helping a few strapped homeowners keep the foreclosure wolf from the door.

As the crisis worsens, the government’s reaction keeps changing. Lawmakers in both parties are starting to gripe that the bailout is turning out to be far different from what the Bush administration sold to Congress.

In buying equity stakes in banks, the Treasury has “deviated significantly from its original course,” says Alabama Sen. Richard Shelby, the top Republican on the Senate Banking, Housing and Urban Affairs Committee. “We need to examine closely the reason for this change,” said Shelby, who opposed the bailout.

The centerpiece of the Emergency Economic Stabilization Act is the “troubled asset relief program,” or TARP for short. Critics note that tarps are used to cover things up. The money was to be devoted to buying “toxic” mortgage-backed securities whose value has fallen in lockstep with home prices.

Read article

Wednesday, October 22, 2008

Treasury Blacks Out Key Parts of Private Bailout Contracts

Remember how Treasury Secretary Henry Paulson promised full transparency in spending the $700 billion bailout money? And remember how bailout opponents predicted that the failure to mandate such transparency would allow all sorts of Halliburton-style shenanigans? From the looks of the first private contracts issued by the Treasury Department, it looks like the bailout opponents were correct.

As flagged by BailoutSleuth.com, Paulson is blacking out the sections of government contracts that spell out how much private firms will be paid for their services in administering taxpayer money. Here's a page from the compensation part of a contract with Bank of New York, which has been hired to do some of the bookkeeping (because, of course, the Bush administration is happy to privatize that function):

And here's a page from the compensation part of a Treasury contract with law firm Simpson Thatcher Bartlett - a firm being hired to provide "legal advice" to the government:

Think these are doctored images? Check them out yourself on Treasury's website - the first contract is here (blacked out section on page 25 of the PDF) and the second contract is here (blacked out section on page 5 of the PDF).

So, just to review - within just a few weeks of the bailout passing, our government is blacking out the parts of public contracts that explain how much taxpayer cash private contractors are going to be paid. Perhaps this is what Paulson meant when he promised transparency - by posting these blacked out contracts on the Treasury website, the government is being transparent about exactly where it is being secretive. But I don't think that definition of transparency really flies, do you?

Of course, I wish I was surprised about this - but one of the major reasons I was opposed to this bailout from the beginning was because (as I and others repeatedly wrote) there is no real transparency at all. Now we know what "no transparency at all" really means.

Tuesday, October 21, 2008

Joe Biden: Promises / Guarantees "International crisis, a generated crisis"

http://blogs.suntimes.com/sweet/2008/10/joe_biden_seattle_fund_raiser.html Chicago Suntimes

By
Lynn Sweet on October 21, 2008 2:59 PM Comments (0)

WASHINGTON--John McCain is going after Joe Biden on Tuesday for remarks Biden made Sunday at a Seattle fund-raiser about how Barack Obama, 47, will be tested by "the world" to see if he is tough enough. This off message message from Biden came during a long discussion about Obama. Click for the pool report with the entire transcript.

Lynn: here's that pool report -- notice that this comment is setting up his description of why Obama is the guy to deal with tough times:

Subject: Biden Seattle fundraiser pool report (#2 of 2) Pool report Seattle, WA fundraiser (#2 of 2) Sunday, October 19, 2008


For his second Seattle fundraiser of the evening, Sen. Joe Biden, D-Del., spoke in a smaller ballroom at the downtown Sheraton Hotel, following the introduction of Sen. Maria Cantwell, D-Wash..

The estimated total haul for Biden's fundraisers in the Emerald City this evening: a cool million bucks.

"I'm losing my voice, which would make everybody in the Senate very happy," said Biden at the outset of money-pitch part deux.

But despite his cold, the senator pressed on, speaking for about 15 minutes.
"You should have told me about your prowess," he told the Obama supporters about their fundraising skills.

"I just wasted a whole year hanging out waiting for something to happen," he joked about his own failed presidential bid.

Biden then implored the audience of organizers to help re-elect Gov. Chris Gregoire.
"It is almost as important that you re-elect the governor as it is that you elect the next president," he said.

But back to the Obama/Biden campaign...

"One of the things we're trying to do in this race is not just change the agenda, but we're trying to change the chessboard here. We're trying to change the way politicians have played, the divisive politics."

"Clinton was such an incredibly talented, incredibly talented president and politician, he was able to run upstream," Biden noted. "The truth of the matter was that if you noticed, even in those days, it was not a direct confrontation of the agenda. What we had to do was a little jujitsu."
"That was what drove the Republicans crazy - he took their playbook and he turned it on them."
As he has in the past, Biden described how the nation is at "an inflection point", one of "maybe five times in American history since the founding".

"The next four years are going to determine what it looks like 25 years from now because we either get this right internationally or we're in trouble," he said, citing the Korean peninsula and Pakistan as potential hot-spots.

He then talked about the Afghanistan-Pakistan border.

"It's where al Qaeda lives. It's there. It's real. We focus so much on the bad policy on Iraq, we sometimes seem to think that somehow there isn't a real problem. Our CIA has pointed out that bin Laden is alive and well, Iraq, excuse me, in the mountains between Pakistan and Afghanistan. He's getting (inaudible) and support from those tribal areas. You have, folks, the Taliban is coming back. We're on the verge of finding ourselves in a position to see the regression occurring in Pakistan.

Biden emphasized the importance of injecting economic assistance to build hospitals, roads, and schools.

The chairman of the Senate Foreign Relations committee warned that unless people there have "a reason to look to Islamabad instead of looking to the tribally-controlled areas, then in fact we got no hope, folks."

"Bin Laden is alive and well," he cautioned. "Our own agencies have pointed out that we have created more terrorists than we have dissuaded and destroyed as a consequence of shredding the constitution, keeping Guantanamo open."

"We talk about Iran getting a nuclear weapon and threatening Israel and us. Let me tell ya something, Pakistan already is bristling with nuclear weapons, all of which can hit Israel right now, all of which can strike the Mediterranean and well into the Indian Ocean."

Biden recalled when his helicopter came down in a snowstorm at 10,500 feet in the middle of the mountains along the Afghanistan-Pakistan border.

"You literally can see what these kids are up against, our kids in that region. The place is crawling with al Qaeda. And it's real."

"My generic point is you can't win it militarily," he said. "You gotta go beyond that."
He showered praise on Cantwell for her work in foreign affairs before referencing an article by the "most enlightened conservative columnist in America", David Brooks.

"David Brooks wrote a piece basically endorsing Barack Obama last week in the New York Times. You should get it. And I think it best summarizes why Barack is the right guy at the right moment for this job, that he understands, like Maria does, he looks at this from a very different perspective. This is the 21st century. We do not have the military capacity, nor have we ever, quite frankly, in the last 20 years, to dictate outcomes. It's so much more important than that. It's so much more complicated than that. And Barack gets it."

So why was Biden saying this to the crowd of supporters? He'll tell ya why...

"We're gonna find ourselves in real trouble when we get elected. This is gonna be really hard. This is gonna be really, really, really hard. We're gonna have the largest systemic deficit in modern - not modern - in the history of the world. Literally. Literally. We're gonna find ourselves inheriting a debt, yearly debt this year, that may approach three-quarters of a trillion dollars. You hear me? We left this guy with a $232 billion surplus. At a minimum when we take office - God willing - we're gonna have a $450 billion deficit. And the way the economy is tanking the way it is now it may be as high as $750 billion."

"28 states are in serious trouble and they're about to contribute to the economic downward spiral because what are they doing? Cutting services, laying people off as they lose their tax base. So there are going to be a lot of tough decisions Barack's gonna have to make, a lot of tough decisions, including on foreign policy."

"And here's the point I want to make. Mark my words. Mark my words. It will not be six months before the world tests Barack Obama like they did John Kennedy. The world is looking. We're about to elect a brilliant 47-year old senator president of the United States of America.
Remember I said it standing here if you don't remember anything else I said. Watch, we're gonna have an international crisis, a generated crisis, to test the mettle of this guy. And he's gonna have to make some really tough - I don't know what the decision's gonna be, but I promise you it will occur. As a student of history and having served with seven presidents, I guarantee you it's gonna happen. I can give you at least four or five scenarios from where it might originate. And he's gonna need help. And the kind of help he's gonna need is, he's gonna need you, not financially to help him, we're gonna need you to use your influence, your influence within the community, to stand with him. Because it's not gonna be apparent initially, it's not gonna be apparent that we're right. Because all these decisions, all these decisions, once they're made if they work, then they weren't viewed as a crisis. If they don't work, it's viewed as you didn't make the right decision, a little bit like how we hesitated so long dealing with Bosnia and dealing with Kosovo, and consequently 200,000 people lost their lives that maybe didn't have to lose lives. It's how we made a mistake in Iraq. We made a mistake in Somalia. So there's gonna be some tough decisions. They may emanate from the Middle East. They may emanate from the sub-continent. They may emanate from Russia's newly-emboldened position because they're floating in a sea of oil."

After again touting Cantwell's judgment, Biden told the crowd to "gird your loins."

"Only thing I'm asking you is, you know, gird your loins. We're gonna win with your help, God willing, we're gonna win, but this is not gonna be an easy ride. This president, the next president, is gonna be left with the most significant task. It's like cleaning the Aegean stables, man. This is more than just, this is more than - think about it, literally, think about it - this is more than just a capital crisis, this is more than just markets, this is a systemic problem we have with this economy."

As he did last week in Missouri, Biden then touted Obama's team of economic advisers.
"I have great respect and have had great respect for a long time for Barack Obama, but I've never, I never thought that I'd have the kind of respect I have after watching him assemble probably the finest economic team that's been put together in the history of this country, Democrats and Republicans. You should see him orchestrate these meetings we have with 18 of the best minds in the world, from both parties. There's no doubt about who's charge, Gov. There's no doubt. There's no doubt about how incisive his questions are. What he asks of this group is stunning in terms of there responses. They kind of go, 'whoa, whoa!' This guy has an ability to move to the quick of things like anybody I've ever served with, at least this up close. So I think we're gonna put our hands, take this ship (inaudible) in the right hands. I think we got this ticket right. I think we got it in the right balance here."

After a round of applause, Biden continued.

"I've forgotten more about foreign policy than most of my colleagues know, so I'm not being falsely humble with you. I think I can be value added, but this guy has it. This guy has it. But he's gonna need your help. Because I promise you, you all are gonna be sitting here a year from now going 'oh my God, why are they there in the polls, why is the polling so down, why is this thing so tough? We're gonna have to make some incredibly tough decisions in the first two years. So I'm asking you now, I'm asking you now, be prepared to stick with us. Remember the faith you had at this point because you're going to have to reinforce us."

Noting that he's a practicing Irish-Catholic, the Delaware lawmaker said, "Let's not be, for those of a different faith remember St. Peter denied Christ thrice, you know? We don't need anybody denying us, this is gonna be tough. There are gonna be a lot of you who want to go 'whoa, wait a minute, yo, whoa, whoa, I don't know about that decision.' Because if you think the decision is sound when they're made, which I believe you will when they're made, they're not likely to be as popular as they are sound. Because if they're popular, they're probably not sound."

While the crowd laughed, Biden noticed your pooler in the back of the room pounding away at his keyboard.

"I probably shouldn't have said all this because it dawned on me that the press is here," the senator said.

"All kidding aside, these guys have left us in a God-awful place. We have the ability to straighten it out. It's gonna take a little bit of time, so I ask you to stay with us. Stay with us."
And with that, he handed the mic back to Cantwell.

Matthew Jaffe
ABC News
Washington, DC

U.S. suicide rate is up

It's climbed steadily since 1999. The most alarming increase is among middle-age adults: nearly 16%.
October 21, 2008
LA Times


After falling for more than a decade, the U.S. suicide rate has climbed steadily since 1999, driven by an alarming increase among middle-age adults, researchers said Monday.

A new six-year analysis in the American Journal of Preventive Medicine found that the U.S. suicide rate rose to 11 per 100,000 people in 2005, from 10.5 per 100,000 in 1999, an increase of just under 5%.

The report found that virtually all of the increase was attributable to a nearly 16% jump in suicides among people ages 40 to 64, a group not commonly seen as high-risk. The rate for that age group rose to 15.6 per 100,000 in 2005, from 13.5 per 100,000 in 1999.

Susan P. Baker, an epidemiologist at Johns Hopkins University Bloomberg School of Public Health and an author of the study, said she was baffled by the findings. Sociological studies have found that middle age is generally a time of relative security and emotional well-being, she said.

"We really don't know what is causing this," said Dr. Paula Clayton, research director of the American Foundation for Suicide Prevention, who was not involved in the study. "All we have is speculation."

One possibility, she said, is that the increase in suicides might be tied to a concurrent increase in abuse of prescription pain pills, such as OxyContin. Studies have shown that people who abuse drugs are at greater risk for suicide, she noted.

Another possible explanation, she said, was the drop in hormone replacement therapy after it was linked to health risks in 2002. Women who gave up the drugs or decided not to take them might have been more susceptible to depression and potentially suicide, she said.

Dr. Ian Cook, an associate professor of psychiatry and biobehavioral sciences at UCLA's David Geffen School of Medicine, who was not involved in the study, said stresses of modern life, particularly worries in the aftermath of the terrorist attacks of Sept. 11, 2001, might have a role.

Untreated depression is the leading cause of suicide, he said.

"The bottom line is while we can't infer a lot of things about what is causing the trend, I think it cries out for better depression screening and treatment," he said.

Suicide rates declined 18% from 1986 to 1999, helped in part by a focus on prevention among teenagers and the elderly.

In the current study, researchers found little or no change in the suicide rates for three other age groups: 10 to 19, 20 to 29, and over 65.

Suicides for whites ages 40 to 64 rose 17% from 1999 to 2005, researchers said. For middle-age white men, the rate rose 16% to 26.9 per 100,000 in 2005, from 23.1 per 100,000 in 1999. For white women in that age group, the rate rose 19% to 8.2 per 100,000 from 6.9 per 100,000.

The suicide rate among middle-age African Americans rose 7% from 1999 to 2005, but it was not enough to drive up the overall suicide rate among blacks.

For black men ages 40 to 64, the rate rose 5% to 10.4 per 100,000 from 9.9 per 100,000, and for black women in that age group, the rate rose 14% to 2.5 per 100,000 from 2.2 per 100,000.

Baker said she had no idea why the increases among whites were higher.

Gellene is a Times staff writer.

denise.gellene@latimes.com

Suicide Predominant in White, Middle-Aged Americans

By Anna Boyd
15:36, October 21st 2008 eFluxMedia

While anti-suicide campaigns have focused on teens and young adults because they are thought to be at high risk, a study in the online edition of the American Journal of Preventive Medicine concludes that middle-aged white men and women register the highest rate of suicide in the United States. Whites age 40 to 64 have “recently emerged as a new high-risk group for suicide,” the study says.

The study by Susan Baker, MPH, of the Johns Hopkins Bloomberg School of Public Health in Baltimore, and her colleagues, was based on data from 1999 to 2005. Suicide claimed 32,637 lives in 2005, a rate of 11 per 100,000 people. Overall, the suicide rate increased by 0.7 percent per year during that period, but it rose 2.7 percent annually among middle-aged white men and 3.9 percent among middle-aged white women.

"The results underscore a change in the epidemiology of suicide, with middle-aged whites emerging as a new high-risk group. Historically, suicide-prevention programs have focused on groups considered to be at highest risk -- teens and young adults of both genders as well as elderly white men. This research tells us we need to refocus our resources to develop prevention programs for men and women in their middle years,” Baker said in a statement.

On the other hand, suicide in blacks decreased significantly and remained stable among Asian and Native Americans.

The study also shows that rates of suicide by hanging or suffocation increased by 6.3 percent among men and 2.3 percent among women. Overall, the study found that hanging/suffocation accounted for 22 percent of all suicides by 2005, surpassing poisoning at 18 percent. Previous studies have showed that guns were the most common method of suicide. Other methods included prescription drugs, poisons, and firearms.

The researchers could not find a specific reason behind this increase in suicidal rates. Dr. Paula Clayton, research director of the American Foundation for Suicide Prevention said it might be associated with an increase in abuse of prescription pain pills, known to cause depression and expose people to suicidal thoughts. Another possible explanation was the drop in hormone replacement therapy after it was linked to health risks in 2002. Women who interrupted the drugs were more susceptible to depression and potentially suicide. However more study needs to be done in order to fully understand reasons behind this situation, Dr. Clayton, who was not involved in the study, said.

The bad news is that the suicidal rate could increase even more given the current economic situation in the US, the researchers warned.



© 2007 - 2008 - eFluxMedia

Friday, October 17, 2008

Banks Admit Bailout Won't Work


Posted Oct 17, 2008 09:48am EDT by Henry Blodget in Investing, Recession, Banking

Banks borrow record $437.5 billion per day from Fed

Reuters
Friday, Oct 17, 2008

Financial institutions ran to their lender of last resort for record amounts of cash in the latest week, under extreme pressure from the worst global financial crisis in a generation, Federal Reserve data showed on Thursday.

Banks and dealers’ overall direct borrowings from the Fed averaged a record $437.53 billion per day in the week ended October 15, topping the previous week’s $420.16 billion per day.

Some analysts are concerned that banks’ dependence on Fed lending might become long term and difficult to change.

“The banking system is going to become addicted to this very cheap money. Unwinding it will be very difficult,” said Howard Simons, strategist with Bianco Research in Chicago.

“We have effectively allowed the central banks to disintermediate the banking system. Why would I want to borrow from you if I could do it with the central bank, because they can always print it up and say ‘here’…and they are in the business now of making sure I stay in business,” Simons said.

Primary credit discount window borrowings averaged a record $99.66 billion per day in the latest week, up from $75.0 billion per day the previous week.

Primary dealer and other broker dealer borrowings were $133.87 billion as of October 15, versus $122.94 billion on October 8.

“Other credit extensions”, mostly reflecting loans to insurer AIG, were $82.86 billion as of October 15, versus $70.30 billion as of October 8.

The Fed’s lending to banks to enable them to purchase asset-backed commercial paper from money market mutual funds was $122.76 billion as of October 15, versus $139.48 billion on October 8.

Full article here

Tuesday, October 07, 2008

G-7 unsuited to global crisis - World Bank

http://cnnmoney.mobi/money/business/economy/detail/97289
October 06 2008: 02:43 PM EDT

The Group of Seven industrialized countries is outmoded and should be replaced with a new entity that would include growing economies in Asia and Latin America, World Bank President Robert Zoellick said Monday.

He said the financial crises roiling markets in the United States and Europe are an alarm for the world and demonstrate the need for a broader-based system to handle them.

"The G-7 is not working," he said. "We need a better group for a different time. For financial and economic cooperation, we should consider a new steering group including Brazil, China, India, Mexico, Russia, Saudi Arabia and South Africa and the current G-7."

Russia set to join

The G-7 brings together the United States, Canada, Britain, France, Germany, Italy and Japan. When Russia joins the group for political discussions, it becomes the G-8.

Speaking before weekend meetings of the bank and its sister institution, the International Monetary Fund, Zoellick said the new group would not be a G-14.

"We will not create a new world simply by remaking the old," he said. "It should be numberless, flexible, and over time, it could evolve" to fit changing circumstances, including new emerging powers, while serving as a network for frequent interaction.

"We need a Facebook for multilateral economic diplomacy," Zoellick said in a speech to the Peterson Institute for International Economics in Washington, referring to the social networking site.

"These rising powers need to be heard," he said. "They want to know what their role will be in making the new rules for the global economy. Having demonstrated their competitive success, these rising powers are suspicious that the more established stakeholders will hold them back, whether through old rules of trade and finance or new rules for climate change and the environment."

Economics on global agenda

The G-7 was formed in 1976 to bring together finance ministers from member countries who meet several times a year to discuss economic matters. Besides Zoellick, other officials in developed and developing countries have called for the G-7 to become more representative of the global economy.

Zoellick said the IMF, the World Bank and perhaps the World Trade Organization could help support the new group by identifying emerging problems, supplying analyses, suggesting solutions and drawing on "our own broader membership to propose coalitions to address issues."

The World Bank and the IMF were established in the World War II's last days to stabilize the international economy. They now have 185 member nations.

Zoellick, a former U.S. diplomat, trade negotiator and business executive, said economic multilateralism needs to be redefined beyond its traditional focus on trade and finance. He said energy, climate change and stabilizing fragile and post-conflict states are economic issues and not just part of the global dialogue on security and development.

Developing countries

Turning to developing countries, Zoellick warned that the financial crisis could be a tipping point for many of them.

"Deceleration of growth and deteriorating financing conditions will trigger business failures and possibly banking emergencies," he said. "As is always the case, the most poor are the most defenseless."

Monday, September 29, 2008

House to Wall Street: Drop dead

Commentary: Uneasy Republicans couldn't stomach massive bailout

marketwatch.com

WASHINGTON (MarketWatch) - With a firm rejection of Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke, the House Republicans have told the financial markets that they'll have to solve their problems on their own, without $700 billion of taxpayer money.

In a stunning vote on Monday, the House rejected the financial rescue package on a vote of 205 to 228. Republicans voted against the bill by a two-to-one ratio, and in the process rejected their own leadership, who had worked for nearly a week to craft a bill that could gain a majority. Nearly 100 Democrats also voted against the bill, spurning their leadership.

Many Republicans in the House were never persuaded that the credit crunch in the financial system is an impending disaster deserving of taxpayer aid. Politicians who had cut their teeth on free-market principles couldn't accept the idea that the federal government should back up the banks who had foolishly bet everything on the housing bubble.

Or they didn't want to face the voters in six weeks and explain why a Republican would vote for the biggest government bailout ever.

Now we shall see if Paulson and Bernanke were right when they said the credit crisis could worsen and inflict dire consequences on the global economy. Or perhaps the plan's many critics were right in saying that credit markets and home prices can adjust on their own, once the promise of free money is withdrawn.

The leaders in Congress and in the administration will undoubtedly try again, hoping to write a compromise bill that can attract a majority. But that won't be easy, because the Paulson plan had significant opposition from backbenchers on both the Republican right and the Democratic left.
Rejection of the plan means there's no political solution to this financial crisis on the horizon. As it now stands, the markets are on their own.

The next six weeks will tell whether the coup d'etat in the House on Monday has created a political crisis to match the financial one.

Tuesday, September 23, 2008

Dirty Secret Of The Bailout: Thirty-Two Words That None Dare Utter

September 22, 2008 02:06 PM Huffington Post

Read More: Bailout, Financial Crisis, Henry Paulson Wall Street, Paulson Bailout Package, Section 8, Politics News

A critical - and radical - component of the bailout package proposed by the Bush administration has thus far failed to garner the serious attention of anyone in the press. Section 8 (which ironically reminds one of the popular name of the portion of the 1937 Housing Act that paved the way for subsidized affordable housing ) of this legislation is just a single sentence of thirty-two words, but it represents a significant consolidation of power and an abdication of oversight authority that's so flat-out astounding that it ought to set one's hair on fire. It reads, in its entirety:

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

In short, the so-called "mother of all bailouts," which will transfer $700 billion taxpayer dollars to purchase the distressed assets of several failed financial institutions, will be conducted in a manner unchallengeable by courts and ungovernable by the People's duly sworn representatives. All decision-making power will be consolidated into the Executive Branch - who, we remind you, will have the incentive to act upon this privilege as quickly as possible, before they leave office. The measure will run up the budget deficit by a significant amount, with no guarantee of recouping the outlay, and no fundamental means of holding those who fail to do so accountable.

Is this starting to sound familiar? Robert Kuttner cuts through much of the gloss in an article in today's American Prospect:

The deal proposed by Paulson is nothing short of outrageous. It includes no oversight of his own closed-door operations. It merely gives congressional blessing and funding to what he has already been doing, ad hoc. He plans to retain Wall Street firms as advisors to decide just how to cut deals to value and mop up Wall Street's dubious paper. There are to be no limits on executive compensation for the firms that get relief, and no equity share for the government in exchange for this massive infusion of capital. Both Obama and McCain have opposed the provision denying any judicial review of decisions made by Paulson -- a provision that evokes the Bush administration's suspension of normal constitutional safeguards in its conduct of foreign policy and national security. [...]


The differences between this proposed bailout and the three closest historical equivalents are immense. When the Reconstruction Finance Corporation of the 1930s pumped a total of $35 billion into U.S. corporations and financial institutions, there was close government supervision and quid pro quos at every step of the way. Much of the time, the RFC became a preferred shareholder, and often appointed board members. The Home Owners Loan Corporation, which eventually refinanced one in five mortgage loans, did not operate to bail out banks but to save homeowners. And the Resolution Trust Corporation of the 1980s, created to mop up the damage of the first speculative mortgage meltdown, the S&L collapse, did not pump in money to rescue bad investments; it sorted out good assets from bad after the fact, and made sure to purge bad executives as well as bad loans. And all three of these historic cases of public recapitalization were done without suspending judicial review.

Kuttner's opposition here is perhaps the strongest language I've seen used, pushing back on this piece of legislation, in any publication of repute, and even here, Section 8 is not cited by name or by content. McClatchy Newspapers also alludes to Section 8 with concern, citing the "unfettered authority" that Paulson would be granted, and noting that the "law also would preclude court review of steps Paulson might take, something Joshua Rosner, managing director of economic researcher Graham Fisher & Co. in New York, said could be used to mask previous illegal activity." Jack Balkin also gives the matter the sort of attention it deserves on his blog, Balkinization.

But elsewhere, the conversation is muted. The debate over whether Congress is going to pass the Paulson bailout package, or pass the Paulson bailout package really hard seems to have boiled down to a discussion of time and concessions. The White House has made it clear that they want this package passed yesterday. Congressional Democrats seem to be of different minds on the matter, with some pushing back hard, and others content to demand a small dollop of turd polish to make the package seem more aesthetically pleasing, at which point, they'll likely roll over and pass the bill. Neither candidate, John McCain or Barack Obama, seem all that amenable toward the bailout, but neither have either demonstrated that they are willing to risk their candidacies to do much more than exploit the issue for electoral purposes.

Sunday morning came and went, with Paulson traipsing dutifully from studio to studio, facing nary a question on Section 8. Front page articles in the New York Times, Washington Post, and the Wall Street Journal detail the wranglings, but make no mention of this section of the legislation. On TV, cable news networks are stuck in the fog of the ongoing presidential campaign.

Throughout the coverage, one catches a whiff of what seems like substantive pushback on this power grab, but it largely amounts to a facsimile of journalistic diligence. Most note, in general terms, that the bailout represents a set of "broad powers" that will be granted to the Department of the Treasury. Yet the coverage offsets these concerns through the constant hyping of the White House's overall message of "urgency."

But one cannot overstate this: Section 8 is a singularly transformative sentence of economic policy. It transfers a significant amount of power to the Executive Branch, while walling off any avenue for oversight, and offering no guarantees in return. And if the Democrats end up content with winning a few slight concessions, they risk not putting a stop-payment on the real "blank check" - the one in which they allow the erosion of their own powers.

Over in the Senate, Christopher Dodd has proposed a bailout legislation of his own, which critically calls for "an oversight board that not only includes the chairman of the Federal Reserve and the SEC, but congressionally appointed, non-governmental officials" and would require the President to appoint an "independent inspector general to investigate the Treasury asset program." In Dodd's legislation, Section 8 is effectively stripped from the bill.

Nevertheless, the fact that Section 8 of the Paulson plan seems to strike few as a de facto dealbreaker can and should astound. The failure of Congress to hold the line on this point would be truly embarrassing. But if we make it through this week with nobody in the press specifically informing the public about the implications of this single sentence - in the middle of a complicated bill, in the middle of a complicated time - then right there, you have the single largest media failure of this year.

Friday, September 05, 2008

Fed's Fisher says not certain inflation will ease

By Alister Bull

HOUSTON (Reuters) - U.S. economic growth is softening amid still fragile financial markets but it is not clear that this will curb inflation as hoped, a top Federal Reserve official said on Thursday.

"While it seems pretty clear that economic momentum is slowing, the jury is out on whether lesser momentum will be sufficient to translate into relief on the price front over the intermediate to longer term," Dallas Federal Reserve Bank President Richard Fisher told a business luncheon.

"It is pretty clear that trend consumer price inflation has accelerated over the past few months," said Fisher, who has voted against interest rate cuts or in favor of monetary policy tightening at every Fed rate-setting meeting this year.

A stronger dollar and lower oil prices would appear to be taking some of the pressure off of import and energy costs, but Fisher said that it was too early to tell if this would help to bring down inflation.

"First of all, you don't know how long it will last," he told reporters after the speech.

"I do think it is 50/50 odds that the kind of pressures that we saw coming on the price front from these high commodity prices ... might well pass through the economy and not leave the stain of intermediate and long-term inflation. On the other hand, it might," Fisher said.

Despite Fisher's concern over inflation, the U.S. central bank is expected to hold benchmark overnight rates steady at 2 percent at its next policy meeting on Sept. 16.

The Fed halted an aggressive rate-cutting campaign this year after slashing borrowing costs by 3.25 percentage points to shield the economy from a collapsing housing market.

It has signaled it will be patient despite high inflation in waiting for growth to rebuild, based on an assessment that the weakened economy will cap price pressures.

Fisher made plain this outcome, or a less favorable situation where higher prices get embedded into expectations for inflation in the future, were far from certain.

"The jury is still very much out as to which scenario will obtain. The most recent inflation reports are not particularly encouraging," he said.

On the other hand, he was pretty downbeat on the economic outlook in his speech.

"Consumption expenditures, real capital expenditures and construction show the third quarter off to a weak start, although yesterday's manufacturing numbers were a nice surprise on the upside," he said. July factory orders rose a stronger than expected 1.3 percent, data released on Wednesday showed.

"I think it is very likely we will suffer anemic growth for the current and perhaps the next couple of quarters," he said.

He also said credit markets still had not recovered from their shock over massive subprime mortgage losses.

"I think substantial progress is being made. Without getting into specifics, I think still more has to be made, but we're in the process of healing. It is just, I think, going to take some time," he told reporters.

At the outset of his remarks, Fisher warned the audience that he would not comment on the presidential election. But he did have a warning for both Democratic hopeful Sen. Barack Obama and his Republican rival Sen. John McCain.

"If we want to keep growing the United States' share of the global market for services, we must resist the siren call of protectionism ... I hope both presidential candidates and both political parties will bear this in mind," he said.

Friday, August 29, 2008

Putin Suggests U.S. Provocation in Georgia Clash

Published: August 28, 2008

MOSCOW — As Russia struggled to rally international support for its military action in Georgia, Vladimir V. Putin, the country’s paramount leader, lashed out at the United States on Thursday, contending that the White House may have orchestrated the conflict to benefit one of the candidates in the American presidential election.

Mr. Putin’s comments in a television interview, his most extensive to date on Russia’s decision to send troops into Georgia earlier this month, sought to present the military operation as a response to brazen, cold war-style provocations by the United States. In tones that seemed alternately angry and mischievous, he suggested that the Bush administration may have tried to create a crisis that would influence American voters in the choice of a successor to President Bush.

“The suspicion would arise that someone in the United States created this conflict on purpose to stir up the situation and to create an advantage for one of the candidates in the competitive race for the presidency in the United States,” Mr. Putin said in an interview with CNN.

He added, “They needed a small victorious war.”

Mr. Putin did not specify which candidate he had in mind, but there was no doubt that he was referring to Senator John McCain, the Republican. Mr. McCain is loathed in the Kremlin because he has a close relationship with Georgia’s president, Mikheil Saakashvili, and has called for imposing stiff penalties on Russia, including throwing it out of the Group of 8 industrialized nations.

Mr. Putin offered scant evidence to support his assertion, and the White House called his comments absurd. But they underscored the depth of the rift between Moscow and Washington over the Georgia crisis, which flared three weeks ago when the Georgian military tried to reclaim a breakaway enclave allied with Russia. They also suggested that the Russian leader was deeply concerned about the possibility that Mr. McCain, widely viewed here as having a strong bias against Russia, could become president.

Only last spring, Mr. Putin, the president at the time, held a summit meeting with Mr. Bush in which the two expressed personal affection for each other and sought to smooth over tensions in the bilateral relationship.

Russia has been struggling to persuade the outside world to back its action in Georgia. On Thursday, China and four other countries meeting with Russia for the annual summit meeting of the Shanghai Cooperation Organization, a security alliance, declined to back Russia’s military action in a joint communiqué.

Mr. Putin’s interview came after his protégé, President Dmitri A. Medvedev, spoke to several foreign news outlets this week as part of a concerted move by the Kremlin to counter Georgia’s public relations offensive in the international media. Mr. Medvedev’s tone was less harsh, though he also criticized the West.

On Thursday, Mr. Putin, now prime minister, also said Russian defense officials believed that United States citizens were in the conflict area supporting the Georgian military when it attacked the separatist region of South Ossetia.

“Even during the cold war, during the time of tough confrontation between the Soviet Union and the United States, we have always avoided direct clashes between our civilians, let alone our servicemen,” Mr. Putin said. “We have serious reasons to believe that directly, in the combat zone, citizens of the United States were present.”

“If the facts are confirmed,” he added, “that United States citizens were present in the combat zone, that means only one thing — that they could be there only on the direct instruction of their leadership. And if this is so, then it means that American citizens are in the combat zone, performing their duties, and they can only do that following a direct order from their leader, and not on their own initiative.”

In Washington, the White House spokeswoman, Dana M. Perino, dismissed Mr. Putin’s remarks. “To suggest that the United States orchestrated this on behalf of a political candidate just sounds not rational,” she said.

She added, “It also sounds like his defense officials who said they believe this to be true are giving him really bad advice.”

A senior Russian defense official, Col. Gen. Anatoly Nogovitsyn, said at a news conference in Moscow on Thursday that Russian forces had found a United States passport in a ruined building near Tskhinvali, the capital of South Ossetia. The position, he said, had been occupied by Georgian Interior Ministry forces.

“What was the gentleman’s purpose of being among the special forces and what he is doing today, I so far cannot answer,” General Nogovitsyn said, holding up what he said was a color copy of the passport. He said members of the Georgian unit had been killed, and the building destroyed.

When the war broke out, the United States had about 130 military trainers in Georgia preparing Georgian troops for service in Iraq. The American Embassy in Tbilisi said these trainers were not involved in the fighting; about 100 remain and are assisting with the delivery of aid to Georgia that is arriving on military planes and ships.

General Nogovitsyn said the passport was in the name of Michael Lee White of Texas, but gave no information on whether Russians believed that he was a member of the United States military. The United States Embassy in Georgia told The Associated Press that it had no information on the matter.

Mr. Putin said in the CNN interview that Russia had thought that the United States would prevent Georgia from attacking South Ossetia, but suggested that he now believed that the Bush administration encouraged Mr. Saakashvili to send in his military.

“The American side in fact armed and trained the Georgian Army,” Mr. Putin said. “Why hold years of difficult talks and seek complex compromise solutions in interethnic conflicts? It’s easier to arm one of the sides and push it into the murder of the other side, and it’s over. It seemed like an easy solution. The thing is, it turns out that it’s not always so.”

The Georgia conflict has become a flash point in the United States presidential campaign, with Senator McCain assailing what he refers to as “revanchist Russia” and asserting that he is far more qualified to handle such a crisis than the Democratic candidate, Senator Barack Obama.

Mr. McCain has long been friendly with Mr. Saakashvili, who has said he talks to Mr. McCain regularly. Mr. McCain’s top foreign policy adviser, Randy Scheunemann, has worked as a lobbyist on behalf of the Georgian government, and Mr. McCain’s wife, Cindy, traveled to the Georgian capital, Tbilisi, this week on a humanitarian aid mission.

All these ties, combined with Mr. McCain’s criticism of Russia, have earned him a kind of notoriety in Moscow. When Parliament passed a resolution this week urging that Russia recognize the independence of the two breakaway enclaves, some lawmakers not only praised the courage of the South Ossetians, but also threw a few barbs at Mr. McCain.

U.S. Economy: Consumer Spending Slows, Inflation Accelerates

By Shobhana Chandra

Aug. 29 (Bloomberg) -- Spending by U.S. consumers slowed in July as the impact of the tax rebates faded and a pickup in inflation eroded Americans' buying power.

Purchases rose 0.2 percent, one-third the pace in June, the Commerce Department said today in Washington, while prices surged the most in 17 years. The Reuters/University of Michigan final index of consumer sentiment was at 63 this month, from 61.2 in July.

The figures on spending, which accounts for more than two- thirds of the economy, underscore projections for growth to slow from the 3.3 percent pace last quarter that the government reported yesterday. With unemployment rising and home values dropping, Americans are cutting back on big-ticket items like automobiles and furniture, today's report showed. Stocks fell.

``We are looking for a clear slowdown in the economy,'' said Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts, who accurately forecast the gain in spending. ``Inflation has been eating into spending power.''

The Standard & Poor's 500 Stock Index dropped 1 percent to 1,287.57 at 11:00 a.m. in New York. Treasuries also slipped, with yields on benchmark 10-year notes at 3.80 percent, compared with yesterday's close of 3.78 percent.

A separate private report indicated business activity advanced in August as commodity prices retreated from record levels. The National Association of Purchasing Management-Chicago said its business index increased to 57.9 from 50.8. Fifty is the dividing line between expansion and contraction.

Economists' Forecasts

The increase in spending matched the median forecast of 75 economists in a Bloomberg News survey.

Incomes dropped 0.7 percent, the first decrease since August 2005, reflecting the end of the rebates, after a 0.1 percent gain the prior month. The median projection was a decline of 0.2 percent.

As domestic demand wanes, the U.S. may also be hit by a slowdown in economies abroad that would erode export gains. Europeans' confidence fell more than forecast this month as the economy teetered on the brink of a recession, a report showed today. The European Commission's index of executive and consumer sentiment dropped to 88.8 from 89.5 in July.

The Commerce Department report's price gauge tied to spending patterns jumped 4.5 percent from July 2007, the biggest 12-month gain since 1991.

Fed Forecast

The Federal Reserve's preferred gauge of prices, which excludes food and fuel, climbed 0.3 percent for a second month. The so-called core price measure was up 2.4 percent from a year before, the most since February 2007. That compares with the 1.8 percent to 2 percent median forecast of Fed officials for 2010, which is an indication of their target for the measure.

Adjusted for inflation, spending plunged 0.4 percent, the biggest drop in four years. Price-adjusted purchases of durable goods, such as autos, furniture, and other long-lasting items, dropped 1.6 percent. Spending on non-durable goods decreased 0.9 percent, and services, which account for almost 60 percent of all outlays, were unchanged.

Concern over both slower growth and rising prices led Fed policy makers to hold the benchmark interest rate at 2 percent this month.

Rising unemployment, falling stock and house prices and stricter lending rules ``were viewed as pointing towards weak growth in personal consumption expenditures during the second half of 2008,'' minutes of the Fed's Aug. 5 meeting released this week showed.

Savings Rate

The drop in incomes pushed the savings rate down to 1.2 percent from 2.5 percent the prior month.

Disposable income, or the money left over after taxes, decreased 1.1 percent. Adjusted for inflation, it fell 1.7 percent after declining 2.6 percent in June.

Other reports indicate purchases of big-ticket items are weakening. Sales of autos and light trucks plunged in July to a 12.5 million annual pace, the lowest since 1993, according to Bloomberg calculations based on industry data.

The real-estate slump in also hurting purchases of household goods. Williams-Sonoma Inc., the biggest U.S. gourmet-cookware chain, said yesterday that second-quarter earnings dropped 29 percent and reduced its annual sales forecast.

Weakening trends continued through August and are worst in cities most affected by the housing slump, Chief Executive Officer Howard Lester said on a conference call. At Pottery Barn and West Elm, for example, purchases have suffered in Southern California, Nevada and south Florida, he said.

``It is extremely difficult to know how the consumer will respond in the back half of the year,'' Lester said in a statement. ``We are also looking forward to 2009 with a very cautious outlook.''

The longest expansion in consumer spending on record will probably end this year, according to economists surveyed by Bloomberg earlier this month. Retail sales fell in July for the first time in five months, led by a slump in auto purchases, according to Commerce data.