Late Show debate highlights

Let this be a lesson to John McCain: never, ever p*ss off David Letterman.

Debate postscript

Something to think about, from Conor Friedsdorf:

I ask the following of everyone who watched tonight's debate--were John McCain assassinated at his inauguration by terrorists, even as two American cities saw buildings partially blown up by truck bombs, and Vladimir Putin used the opportunity to move troops into a former Soviet Republic, would you trust that Governor Palin would have the knowledge, credibility, bearing and calming influence on the country to handle the situation? Or would having her in the Oval Office freak you out in a deep way?

Personally, it would freak me out. What say you?

Sarah Palin, news hawk

Wow. Republican vice-presidential nominee Gov. Sarah Palin of Alaska reads every newspaper and magazine. In her own words, "all of them." Unfortunately, she can't name any of them.

Here's a transcript of the relevant part:

COURIC: And when it comes to establishing your world view, I was curious--what newspapers and magazines did you regularly read before you were tapped for this to stay informed and to understand the world?

PALIN: I've read most of them again with a great appreciation for the press, for the media --

COURIC: But what ones specifically? I'm curious.

PALIN: Um, all of 'em, any of 'em that, um, have been in front of me over all these years.

COURIC: Can you name a few?

PALIN: I have a vast variety of sources…

I don't know whether to laugh or cry. My own reading runs the gamut. I read the Los Angeles Times and the New York Times daily, the Economist weekly, and everything from National Review Online to the Socialist Worker as the mood strikes. Internationally, I view the BBC News website, the Sydney Morning Herald online (occasionally), and anything else that will bring me information. I got in the habit of reading the South China Morning Post in the runup to Britain's handover of Hong Kong to China in 1997, and Google News gives a nice overview of various English-language news sources from around the world. The fact that I appear to be more widely read and better-informed than the GOP nominee for the nation's second highest post quite frankly frightens the hell out of me.

Perhaps the only more frightening thing is that John McCain claims to have turned to her for advice "many times in the past." God help us all.

The best-laid plans

I was working on a post about the imminent passage of the bailout package when the news came that the deal is in serious danger of falling apart. Perhaps unsurprisingly, it is the President's own party that seems to be the one torpedoing the deal, fearing that it is leading to socialism.

I suppose it's only appropriate. After all, the first Great Depression happened under a Republican president, Calvin Coolidge. If the second one happens under Bush, the GOP will be two for two.

Ironically, if the economy does completely collapse, it will probably usher in an era of socialism faster than anything else could. Norman Thomas must be enjoying the show, wherever he is.

Fin de siècle

After several tumultuous days, it is now becoming fairly obvious that Congress will pass some form of bailout packagefor Wall Street, despite widespread public opposition. What this means is that a Republican administration is about to take part in the most dramatic economic intervention in U.S. history, one that flies in the face of traditional conservative economics, and which bears more than a little resemblance to European-style Social Democratic norms.

It also means we are seeing the definitive end of the Reagan era and its policies, which tended to favor free-market forces over government regulation. This is, perhaps, as it should be. Ronald Reagan was first elected in 1980, which was 28 years ago. The policies espoused by President Reagan in 1980 are no more suited to today's conditions than the policies of Dwight D. Eisenhower in 1952 would have been to the conditions of 1980--or the policies of Calvin Coolidge in 1924 would have been to Ike's time.

In short, we have reached the end of an era. The question now is simple: what will the next era look like?

There are no easy answers, particularly six weeks before a presidential election. There are a lot of things that can change between now and Election Day, both in the political world and in the world of Wall Street. To answer the question requires that we first take a look at two lessons that we have learned, somewhat painfully, in the last several days.

The first lesson is that free markets cannot be trusted to regulate themselves, because human nature, and therefore human greed, has not changed. It's like leaving children alone in the house with a box of chocolates on the coffee table, and expecting them to eat their broccoli. Without oversight, you will continue to see bad decisions being made by people who should know better, because they cannot help themselves in the face of so much money (this, by the way, is also an excellent argument for making sure that congressional oversight is built into any bailout plan). Our first task, therefore, is to figure out a way to guard against the greed.

The second lesson is that the government will always step in to prevent disaster, because it is in the public interest to do so, the alternative possibly being Great Depression II. What this means in the short term is that we will bail out the same people who were carrrying money away in buckets when times were good. This will require government money--i.e., our tax dollars--to be spent on companies that pocketed literally billions of dollars. Since the public will be subsidizing the losses, a way should be found for the public to benefit from any profits that may later arise as a result of the bailout, as otherwise we have privatized the profits but socialized the risk.

Bankers of the world, unite!

Today was a tempestuous day on Wall Street, to put it mildly. Public and market reaction to the plan being put forward by the administration was less than unanimously enthusiastic. Perhaps it has something to do with finding this kind of language in it(in all cases, boldface added by me):

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary's authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time.

Sec. 8. Review.

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.

(New York Times)

Then there's the specter of Wall Street fat cats profiting off the bailout…or trying to:

Even as policy makers worked on details of a $700 billion bailout of the financial industry, Wall Street began looking for ways to profit from it.

Financial firms were lobbying to have all manner of troubled investments covered, not just those related to mortgages.

At the same time, investment firms were jockeying to oversee all the assets that Treasury plans to take off the books of financial institutions, a role that could earn them hundreds of millions of dollars a year in fees.

(New York Times)

With attitudes like that, it's no wonder that John McCain's suggestionresonates:

"We can't have taxpayers footing the bill for bloated golden parachutes like we see in the Lehman Brothers" bankruptcy filing, Sen. McCain said at a town-hall meeting to applause. "My friends, the top executives are asking for $2.5 billion in bonuses after they ran the company into the ground."

Sen. McCain called for the pay of senior executives who would benefit from the bailout to be limited to that of the highest-paid government official.

(Wall Street Journal)

In other words, the chairman of Morgan Stanley couldn't make any more than the President of the United States. Since we're bailing his sorry butt out, it sounds fair to me. Unfortunately, our future Wirtschaftsfuehrer doesn't agree:

Mr. Paulson has argued that pay limits shouldn't be part of this plan because they could discourage firms from participating. Treasury is also arguing that it isn't feasible to expect thousands of companies to change their executive compensation structurejust to participate in the program…

Oh, the poor finance companies. It just wouldn't be fair. Hey, if they'd rather go under due to bad debt than reduce their executive compensation packages, fine.

…and says such a move would discourage small banks and credit unions from participating.

(Wall Street Journal)

Hmmm. It couldn't possibly be because his last job was as Chairman and CEO of Goldman Sachs, one of the firms expected to benefit most, could it? Nah…

Looking at it in retrospect, the following passage, written at the beginning of the year, seems prophetic:

The massive build-up of toxic debt is threatening the functioning of the international financial system. The banks have been forced in the last two months to write down $80 billion of bad mortgage debt. Conservative estimates are that they will have to take losses of $300-400 billion in the next year-if the economy doesn't go into recession.

You'll never believe where that passage comes from. When these folks start sounding sensible, it really is time to worry.

A billion here, a billion there...

So, according to the New York Times, the federal government could spend $1 trillion dollars to clean up the Wall Street mess. That's trillion. With a T.

For comparison, here's what the entire Iraq War has cost as of this writing:


Courtesy of the National Priorities Project (

That's $555 billion, a bit more than half of what the bailout will cost. Or, if you prefer, the bailout will cost a little less than twice what five years of war has cost us.

And it will be paid by you and me, and our children, and our children's children, and our children's children's children.

Get the picture?

And all because of greed…the greed of speculators, the greed of Wall Street executives who took out millions in stock options and bonuses while their firms went into the red, and the greed of ordinary men and women who bought into the fantasy that you could afford an $800,000 house on an income of $50,000 a year and almost no money down.

And let us not forget that we're bailing out the same industry that has been nickel-and-diming us to death with late fees, overdraft charges, and transfer fees, all while paying us half a percent on our savings accounts.

I don't know about you, but I'm ready to grab a pitchfork.

The virtue of smallness

In my wildest dreams, I could never have imagined that one day I would wake up to find myself an owner of the world's largest insurance company. Yet, today I and 300 million of my fellow citizens awoke to exactly that, since the U.S. Government has seen fit to take over American International Group in a bailout. Rod Dreher had this to say:

If we live in a world in which the collapse of a single firm-- not even a bank or a manufacturer, but an insurer -- could push the US economy (and no doubt the global economy) into a full-blown depression, are we not all living on the skin of a bubble?

Let that sink in for a minute.

OK. That made me think: what if the very bigness of modern corporations carries within itself the seeds of disaster? Stay with me here, and see if this doesn't ring some bells…

We have been told, and have largely accepted, that we live in a global economy. In this global economy, companies must have vast resources in order to effectively compete. Company A, which does not have the wherewithal to compete on a global scale, must inevitably be swallowed up by Corporation B, which can either leave them as an autonomous division or merge them into the company and incorporate their products/services into their own product line. Increased resources give them the ability to expand, therefore making possible an increased revenue stream. This provides value to the shareholders and makes it possible to acquire Company C.

So far, so good. But what happens when the new ABC Conglomerate makes a few poor decisions? What happens when it controls so much of its market that its failure becomes a problem for the global economy? Previously, if Company A had gone under, Corporation B and Company C would have taken up the slack. But now there is one company where before there were three, and if it falls, it falls hard.

In a way, we're talking about the dinosaur problem. The dinosaurs were at one time the kings of the earth. But they were large, and unwieldy, and unable to adapt to changing conditions. Eventually, a few small, furry mammals proved more adaptable, and ended up basically ruling the planet.

I'm not sure what the answer is. I'm a historian by training, not an economist, and I'm still groping my way through the dark. But to the extent that government economic policy for the last thirty years has encouraged the growth of large multinational conglomerates, it seems to have been unwise. Globalization is problematic, particularly in an era of $100-per-barrel crude oil that is largely controlled by people who don't like us very much. After all, you have to move stuff across the globe somehow --and there is still the issue of dependence on foreign nations for much of what we need. Everyone agrees that dependence on foreign oil is bad, but we haven't yet come to that conclusion about foreign shoes, or auto parts, or anything else.

If we're going to live in a capitalist economy--and for the first time in my life, I'm beginning to see that as a mixed blessing--we should encourage more competition by making it difficult for companies to grow so large that they can take the rest of the economy down with them should they collapse (this would also obviate the necessity for the taxpayers to bail them out). We have antitrust legislation--let's use it. Instead of a few huge national banks, let's have many regional institutions with roots in the communities they serve. And let's temper the greed with some good old-fashioned government regulation in the public interest, so we can begin to reduce the gap between executive compensation and the wages of the average worker. We've let things get a bit too unbalanced. It's time to re-balance them.

And here's some food for thought, courtesy of Los Angeles Times columnist David Lazarus:

Once the Merrill buyout is complete, BofA will rank as the country's largest retail bank, the largest credit card issuer, the largest mortgage provider and the largest retail brokerage. The bank has about 59 million consumer and small-business accounts, roughly $163 billion in credit card loans and more than 6,000 branches.

…Since 2004, BofA has purchased FleetBoston Financial Corp. for $47 billion, credit card issuer MBNA Corp. for $35 billion, Chicago's LaSalle Bank for $21 billion and mortgage lender Countrywide Financial Corp. for $4 billion. And now Merrill Lynch for a cool $44 billion (or maybe a bit less, depending on BofA's stock).

That list, by the way, doesn't include the fact that BofA itself is the result of a merger between NationsBank and the original Bank of America. By my count, that makes seven formerly independent major financial institutions now under one roof, with overwhelming dominance in four separate areas of the financial world. Why are we letting this happen?

Again from David Lazarus' column:

"It can be very convenient having so much under one roof," said Jennifer Ellison, a principal at investment firm Bingham, Osborn & Scarborough in San Francisco, which was BofA's home until the bank and its name were taken over by NationsBank Corp. of North Carolina in 1998. "But if that roof ever collapses, where does that leave you?"


Notes on 9/11, postscript

Following up on the comment I quoted in the previous post, I had the questionable joy of flying cross-country about a month ago. I found myself giving the following advice to my wife as we prepared to go through airport security:

"Have your stuff ready. Don't make waves. Don't complain about anything. Give them your ID, and cooperate with anything they tell you to do."

Then it hit me--I'd been given virtually identical advice twenty-seven years ago with respect to the East German Grenztruppen as I prepared to cross the Iron Curtain for the first time. But that isn't what scares me.

What scares me is that I have a nine-year-old nephew who has never known anything different, and who will grow up thinking that this is normal. That, more than anything, testifies to the country that we lost.

I am not so naive to think that this is the first time our country has abandoned its ideals in the name of self-defense and security. President Lincoln suspended habeas corpus during the Civil War, and in World War II President Roosevelt imprisoned American citizens simply because they were of Japanese ancestry. We righted those wrongs and got back on course, and someday the current mistakes will be corrected.

I just wish I were confident that it would happen in my lifetime. Right now, I'm not feeling so sure about that.

Notes on 9/11

Some miscellaneous thoughts and ruminations:

  1. Anyone else find the timing of Sarah Palin's first network interview interesting, and her canned responses depressing? It's the seventh anniversary of the 9/11 attacks, and the GOP has nominated a candidate for Vice-President of the United States who doesn't know what the Bush Doctrine is. She's had the benefit of preparation by the Republican Party's groomers and experts, and she still looked like a moose caught in the headlights of an approaching Peterbilt. Be afraid. Be very afraid.

  2. Over at Rod Dreher's blog, he posted an article called "9/11 And The Country We Lost." He spoke mainly of the spirit of community that was evident in the days immediately following the attacks. One of the commenters, David J. White, posted this in response:

When I saw the headline of your post, "9/11 and the country we lost," my initial expectation of what I was about to read was completely different from what you actually posted. I expected you to write about the country we lost because of 9/11: the country where we didn't have to take off our shoes at the airport, where we could take a drink onto an airplane without causing an incident, where I could fly with just a carry-on bag because no one had a hissy fit if I happened to have disposable razor in it, where we didn't have to worry about being banned from flying just because we might have a name similiar to a suspected terrorist. A country had a proud tradition of, for the most part, not torturing prisoners and not invading countries that hadn't done anything to us. That is the country I miss.