Larry Anderson

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

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?

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.

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.

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.

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.

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 (http://www.nationalpriorities.org/costofwarhome))