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Archive: POLITICS

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The Cellphone effect

Most people don't realize that many polls only use data from those who use land lines. The chart below hints strongly at the possibility the Obama will win by a wider margin than expected, as such a high percentage of cellphone (as primary phone) users support him. The orange represents those polls which did incorporate mobile phone users.

via Brad DeLong

Cool Indeed

This very clever riff on classic Blue Note jazz albums of the '60's was created by the talented graphic designer Marco Acevedo

The Evidence Mounts

Unsurprisingly, the U.S. mainstream media has thus far ignored this, given how it would upset the pro-Georgian storyline adopted by the Bush administration, McCain, and (I'm sorry to say) Obama.

The BBC has discovered evidence that Georgia may have committed war crimes in its attack on its breakaway region of South Ossetia in August.

Eyewitnesses have described how its tanks fired directly into an apartment block, and how civilians were shot at as they tried to escape the fighting.

Research by the international investigative organisation Human Rights Watch also points to indiscriminate use of force by the Georgian military, and the possible deliberate targeting of civilians.

Indiscriminate use of force is a violation of the Geneva Conventions, and serious violations are considered to be war crimes.

The allegations are now raising concerns among Georgia's supporters in the West.

British Foreign Secretary David Miliband has told the BBC the attack on South Ossetia was "reckless".

more from Mother Jones

Three Cheers for Democracy!

The fact that someone like Governor Sarah Palin, who lacks any national or international experience -- perhaps even basic knowledge -- can be a potential vice president is a sign of American democracy at its worst. In one swift, serendipitous moment, she was transformed from a moose hunter in Alaska to a global mullah hunter in a contest and a world about which she knows zilch -- as she reconfirms every time she opens her mouth.

The fact that respected conservative analysts and commentators have already asked for her to be dropped from the ticket is about as damning a verdict as there can be of her qualifications. This is much more problematic, though, for what it tells us about John McCain, and the entire American political system. Clearly, something is wrong with a system that turns democratic electoral contestation into either a fantastic gambling orgy for impulsive and ambitious elderly men, or an exercise in mass psychotherapy for millions in the electorate who seek solace and emotional recovery by embracing the image of the bouncy cheerleader next door, regardless of what this could mean for the United States and the world.

The open and honest American system once again simultaneously shows us its best and worst. There is historic brilliance in designing a checks-and-balance governance system anchored in the consent of the governed, and open to every man and woman who aspires to public service, regardless of color, religion or gender. Alongside this, however, there is also bombastic buffoonery in the manner in which desperados and simpletons occasionally gravitate to control the system by offering the electorate a hybrid candidacy of cheerleading razzle-dazzle with macho emotionalism.

more from Rami G. Khouri at Agence Press

If Obama's team was smart, they would use this excellent ad design created by Gong Szeto

Beyond the Markets: America's Fall from Power

Our gaze might be on the markets melting down, but the upheaval we are experiencing is more than a financial crisis, however large. Here is a historic geopolitical shift, in which the balance of power in the world is being altered irrevocably. The era of American global leadership, reaching back to the Second World War, is over.

You can see it in the way America's dominion has slipped away in its own backyard, with Venezuelan President Hugo Chávez taunting and ridiculing the superpower with impunity. Yet the setback of America's standing at the global level is even more striking. With the nationalisation of crucial parts of the financial system, the American free-market creed has self-destructed while countries that retained overall control of markets have been vindicated. In a change as far-reaching in its implications as the fall of the Soviet Union, an entire model of government and the economy has collapsed.

Ever since the end of the Cold War, successive American administrations have lectured other countries on the necessity of sound finance. Indonesia, Thailand, Argentina and several African states endured severe cuts in spending and deep recessions as the price of aid from the International Monetary Fund, which enforced the American orthodoxy. China in particular was hectored relentlessly on the weakness of its banking system. But China's success has been based on its consistent contempt for Western advice and it is not Chinese banks that are currently going bust. How symbolic yesterday that Chinese astronauts take a spacewalk while the US Treasury Secretary is on his knees.

Despite incessantly urging other countries to adopt its way of doing business, America has always had one economic policy for itself and another for the rest of the world. Throughout the years in which the US was punishing countries that departed from fiscal prudence, it was borrowing on a colossal scale to finance tax cuts and fund its over-stretched military commitments. Now, with federal finances critically dependent on continuing large inflows of foreign capital, it will be the countries that spurned the American model of capitalism that will shape America's economic future.

the rest of historian John Gray's piece can be read in The Guardian (U.K.)

more of Mr. Fish

A Heartbeat Away?

And good for Cafferty for having some balls.

The Jig is Up

The entire system is deleveraging with the ferocity of a Force-5 gale touching down in the Gulf, and yet, Henry Paulson has decided that the prudent thing to do is build levees around the system with paper dollars. Naturally, many people who understand the power of market-corrections are skeptical. It won't work. Libor is pushing rates upwards — that's the "true" cost of money. The Fed Funds rate (2 per cent) is supported by infusions of paper dollars into the banking system to keep interest rates artificially low. Now the extreme pace of deleveraging has the Fed on the ropes. Trillions of dollars of credit is being sucked into a black hole which is raising the price of money. It's out of Bernanke's control. He needs to step out of the way and let prices fall or the dollar system will vanish in a deflationary vacuum.

The problems cannot be resolved by shifting the debts of the banks onto the taxpayer. That's an illusion. By adding another $1 or $2 trillion dollars to the National Debt, Paulson is just ensuring that interest rates will go up, real estate will crash, unemployment will soar, and foreign central banks will abandon the dollar. In truth, there is no fix for a deleveraging market anymore than there is a fix for gravity. The belief that massive debts and insolvency can be erased by increasing liquidity just shows a fundamental misunderstanding of economics. That's why Henry Paulson is the worst possible person to be orchestrating the so called rescue project. Paulson comes from a business culture which rewards deception, personal acquisitiveness, and extreme risk-taking. Paulson is to finance capitalism what Rumsfeld is to military strategy. His leadership, and the congress' pathetic abdication of responsibility, assures disaster. Besides, why should the taxpayers be happy that the stocks of Morgan Stanley, Washington Mutual and Goldman Sachs surged on the news that there would be a government bailout yesterday? These banks are essentially bankrupt and their business models are broken. Keeping insolvent banks on life support is not a rescue plan; it's insanity.

No one has any idea of the magnitude of the deleveraging ahead or the size of the debts that will have to be written down. That's because 30 years of deregulation has allowed a parallel financial system to arise in which over $500 trillion dollars in derivatives are traded without any government supervision or accounting. These counterparty transactions are interwoven throughout the entire "regulated" system in a way that poses a clear and present danger to the broader economy. It's a mess. For example, there are an estimated $62 trillion of Credit Default Swaps (CDS) alone, which are basically insurance policies for defaulting bonds. AIG was as heavily involved in CDS as they were in regulated insurance products. So why would AIG sell CDS rather than conventional insurance?

Because, just like the banks, AIG could maximize its profits by minimizing its capital cushion. In other words, it didn't really have the capital to pay off claims when its CDS contracts began to blow up. If it had been properly regulated, then government regulators would have made sure that it was sufficiently capitalized with adequate reserves to pay off claims in a down-market. Now taxpayers will pay for the lawless system which men like "industry rep" Henry Paulson put in place. That's deregulation in a nutshell; a system that allows Wall Street banksters to create credit out of thin air and then run weeping to Congress when their swindles backfire.

Inflating the currency, printing more money, and increasing the deficits won't help. The bad debts have to be accounted for and liquidated. The Paulson strategy is to create another ocean of red ink while refusing to face the underlying problem head-on. This just further exacerbates the consumer-led recession which economists know is already setting in everywhere across the country. Demand is down and consumer spending is off due to falling home equity, job losses, and tighter lending standards at the banks. The broader economy does not need the added downward pressure from higher taxes, bigger deficits, or inflation. Paulson's plan is a band-aid approach to a sucking chest wound. The debts are enormous and the pain will be substantial, but the problem cannot be resolved by crushing the middle class or destroying the currency.

more from Mike Whitney in the Atlantic Free Press

Roughly speaking, I think it's accurate to say that a corporate elite of managers and owners governs the economy and the political system as well, at least in very large measure. The people, so-called, do exercise an occasional choice among those who Marx once called "the rival factions and adventurers of the ruling class".

– Noam Chomsky

Michael Hudson Weighs In

Nobody expected industrial capitalism to end up like this. Nobody even saw it evolving in this direction. I’m afraid this failing is not unusual among futurists: The natural tendency is to think about how economies can best grow and evolve, not how it can be untracked. But an unforeseen road always seems to appear, and there goes society goes off on a tangent.

What a two weeks! On Sunday, September 7, the Treasury took on the $5.3 trillion mortgage exposure of Fannie Mae and Freddie Mac, whose heads already had been removed for accounting fraud. On Monday, September 15, Lehman Brothers went bankrupt, when prospective Wall Street buyers couldn’t gain any sense of reality from its financial books. On Wednesday the Federal Reserve agreed to make good for at least $85 billion in the just-pretend “insured” winnings owed to financial gamblers who bet on computer-driven trades in junk mortgages and bought counter-party coverage from the A.I.G. (the American International Group, whose head Maurice Greenberg already had been removed a few years back for accounting fraud). But it is Friday, September 19, that will go down as a turning point in American history. The White House committed at least half a trillion dollars more to re-inflate real estate prices in an attempt to support the market value junk mortgages – mortgages issued far beyond the ability of debtors to pay and far above the going market price of the collateral being pledged.

These billions of dollars were devoted to keeping a dream alive – the accounting fictions written down by companies that had entered an unreal world based on false accounting that nearly everyone in the financial sector knew to be fake. But they played along with buying and selling packaged mortgage junk because that was where the money was. Even after markets collapse, fund managers who steered clear were blamed for not playing the game while it was going. I have friends on Wall Street who were fired for not matching the returns that their compatriots were making. And the biggest returns were to be made in trading in the economy’s largest financial asset – mortgage debt. The mortgages packaged, owned or guaranteed by Fannie and Freddie alone exceeded the entire U.S. national debt – the cumulative deficits run up by the American Government since the nation won the Revolutionary War!

This gives an idea of just how large the bailout has been – and where the government’s (or at least the Republicans’) priorities lie! Instead of waking up the economy to reality, the government has thrown all its resources to promote the unreal dream that debts can be paid – if not by the debtors themselves, then by the government – “taxpayers,” as the euphemism goes.

Overnight, the U.S. Treasury and Federal Reserve have radically changed the character of American capitalism. It is nothing less than a coup d’êtat for the class that FDR called “banksters.” What has happened in the past two weeks threatens to change the coming century – irreversibly, if they can get away with it. This is the largest and most inequitable transfer of wealth since the land giveaways to the railroad barons during the Civil War era.

more at Counterpunch

Unacceptable

I've now had a chance to read the Bush administration's proposed legislation, and I don't like it one bit. It's simple as can be. Basically Congress would be giving the Treasury Secretary the unfettered, unreviewable authority to spend $700 billion in taxpayer money as he sees fit. There's not even an attempt to grapple with the most important element of the bailout, i.e., how the price of these assets would be determined. The price makes all the difference in the world. If the government pays more than these assets are worth, then all we're doing here is transferring wealth from taxpayers to investors who made bad decisions.

And it's going to be awfully tempting for the Bush administration to pay much more for these assets than they are actually worth. After all, it'll likely be years before we really know how much of a bill the taxpayers are stuck with. The assets are illiquid now, so the government will presumably hold on to them until the housing market rebounds and they can be sold. At that point they'll be sold for either a profit or a loss (the latter being much more likely). So here's the reality. No one will know if the Bush administration has paid too much for these assets until years from now. But the more the administration pays for these assets now, the better the overall state of the economy will appear to be in the near term. There will be less bankruptcies, less bank failures, and the entities currently holding these assets will have better balance sheets to report. Meanwhile, the administration will still be able to claim that it drove a hard bargain and that the taxpayers stand to reap a profit when the assets are eventually sold. And no one will be able to disprove those rosy assessments until the moment of truth comes several years down the road.

To put it another way, this legislation allows the Bush administration to transfer lots of money to Wall Street (and thereby artificially inflate the economy) while hiding the true cost of that transfer for years (and even pretending that there won't be any cost).

I'm not going to pretend I have all the answers to this mess, but if the government is going to be doling out this much money directly to Wall Street, the price that we're paying needs to be determined on some basis other than the whim of Hank Paulson. That's not an acceptable way for this process to work.

Anonymous Liberal

John McCain's Man

In April of this year, Terry Gross of NPR interviewed Prof. Michael Greenberger, who directed the Division of Trading and Markets from 1997-99.

Michael Greenberger: ...since the late 1980’s a much more powerful system has developed and that’s often referred to as “complex derivatives.” The banking community developed these products starting in the mid-80’s and it’s just developed a head of steam since that time. At this point, worldwide, there is more money invested in derivative products that there are in socks and bonds – which usually comes as a great surprise to many people. These derivative products, when boiled down to their fundamentals, are essentially bets on the direction that certain event will take. The most common, for example, is betting on the direction of interest rates, whether US interests rates or worldwide interest rates. It’s a private contract. One side enters into a bet that the interest rates will go up. The counter party – the other side – bets that they will go down. Those are private transactions. They’re not easily made public. You can’t open the newspaper and see what’s happening. When you enter into a bet, if you want to get, the counter party who takes the opposite end charges you a fee for having that bet. It’s a very profitable piece of business for banks and hedge funds to do. That’s why this is called a “shadow system.” We don’t see it in our day-to-day lives and it goes on in what people refer to as “dark markets.”

TG: And there’s no regulation.

MG: There is no regulation. In fact, when I was in the government, we argued very strenuously that these kinds of hidden bets could be very disruptive to the financial system and they played as important a role as securities and bonds did – which are regulated. We wanted them to be regulated. That was a battle that we lost out on. In December, 2000, on the floor of the Senate, Phil Gramm, chairman of the Senate Finance Committee, introduced a piece of legislation that completely deregulated these markets not only at the federal level but, for the most part, at the state level. So they are completely outside the law, so to speak.

TG: What was this legislation?

MG: It was called the “Commodity Futures Modernization Act.” It was a 262-page bill added as a rider to an 11,000-page omnibus appropriations bill as Congress was recessing for Christmas in 2000. I would say there was no one except the drafters of the bill who understood what it did. I can assure you that the drafters of the bill were not members of Congress! They were the lawyers for the investment bankers on Wall Street. They convinced Senator Gramm to introduce this. They freed the system from any regulation. And we’ve been embarking on financial fiascos ever since.

TG: I should mention that Phil Gramm is now the chief economic adviser to John McCain in McCain’s presidential campaign!

MG: He is the chief economic adviser to John McCain. John McCain famously said quite recently he doesn’t really know as much as he should about economics, but he’s reading Alan Greenspan’s biography! Phil Gramm is at his side. Phil Gramm is also an officer of UBS, the Swiss bank, that just – within these last few days – reported losses in the neighborhood of $12 billion because of these bets.