I’ve been real busy at work yet this cartoon with these paragraphs had to go up pronto. However, the end of the essay does not have to be true if we add in a Green Revolution which would wind that wrecking ball down.
From the Financial Times:
The market for ideas – like the market for shares – always overshoots. Ideas become fashionable and get pushed to their logical conclusion and beyond, as their backers succumb to “irrational exuberance”. Then comes the crash.
What we are experiencing now is the bust that has followed the 30-year bull run in conservative ideas that began with the Thatcher-Reagan revolution of 1979-80.
You can get a sense of how quickly the intellectual atmosphere has changed by picking up a copy of Alan Greenspan’s The Age of Turbulence, which was published last year. Mr Greenspan, head of the Federal Reserve from 1987 until 2006, heaped praise on the magic of financial markets and decried the foolishness of those who called for more regulation: “Why do we wish to inhibit the pollinating bees of Wall Street?” he asked rhetorically. Why indeed?
Mr Greenspan was considered such a guru that last year Senator John McCain suggested putting him in charge of a committee on tax reform, adding: “If he’s alive or dead it doesn’t matter. If he’s dead, just prop him up and put some dark glasses on him.” But Mr Greenspan’s reputation is now on the slide and Mr McCain has reinvented himself as a champion of regulation – and is denouncing the “corruption and unbridled greed that has caused a crisis on Wall Street”.
This kind of ideological whiplash is what happens when an intellectual bull market crashes. The current financial crisis can be traced to three of the central ideas of the Reagan-Thatcher era: the promotion of home ownership, financial deregulation and a fervent faith in the market. Each of these ideas did sterling service for 30 years, increasing prosperity and freedom. But pushed too far – and combined – they have created a disaster.
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From the Online NewsHour plus video
McCain-Palin versus Obama-Biden
JIM LEHRER: OK. McCain-Palin versus Obama-Biden, what is this actually going to turn on, right? We don’t know exactly what could happen tomorrow, whatever. But what is the issue between these two tickets right now that you think that could decide it?
MARK SHIELDS: Well, I think the fundamentals of this election, Jim, tilt very heavily against the Republicans. I have never seen a playing field more unfavorable to a party holding the White House, including 1992, with President George Herbert Walker Bush, when Bill Clinton…
JIM LEHRER: You’re talking about the party?
MARK SHIELDS: I’m talking about the — I’m talking about a set of realities that John McCain had to deal with at that convention. He had to try and kind of get a little leg from George Bush, never mentioned his name, said “the president” had done a wonderful job after 9/11.
Bush wasn’t mentioned. Cheney wasn’t mentioned by the nominee of the party.
You know, today we had 84,000 more people unemployed. We had 610,000 people in this country who had a job to go to on January 1 who didn’t have a job to go to on September 1.
All of these are really — make it very difficult, in a time when people are demanding change, want change, John McCain, to me, what Sarah Palin served for him, she became his proxy for change. He didn’t have a program for change. He didn’t have a policy change. She became his proxy for change.
And she is — I mean, she is change. David’s right. It’s a generational change. It’s a stylistic change. And it’s a demographic change. Let’s be very blunt about it, not simply from Alaska, from a different — off the continent, but a gender and all that that represents, and sort of, you know, the Mike Huckabee school of the Republican Party to some degree.
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In the following blockquote are highlights from a New York Times article concerning John McCain.
The principle that the exercise of military power sets the bargaining table for international relations a consistent theme of his career…one of his lifelong convictions was “the imperative that American power never retreat in response to an inferior adversary’s provocation.”
But Mr. McCain also took away from Vietnam a second, restraining lesson: the necessity for broad domestic support for any military action. For years he opposed a string of interventions — in Lebanon, Haiti, Somalia, and, for a time, the Balkans — on the grounds that the public would balk at the loss of life without clear national interests.
In the late 1990s, however, while he was beginning to consider his 2000 presidential race, he started rebalancing his view of the needs to project American strength and to sustain public support…His aides say he later described the American air strikes in Bosnia in 1996 and in Kosovo in 1999 as a parable of political leadership. Mr. McCain, Senator Bob Dole and others had rallied Congressional support for the strikes despite widespread public opposition, then watched approval soar after the intervention helped to bring peace.
“Americans elect their leaders to make these kinds of judgments,” Mr. McCain said in the e-mail message.
It was during the Balkan wars that Mr. McCain and his advisers read a 1997 article on the Wall Street Journal editorial page by William Kristol and David Brooks of The Weekly Standard — both now Op-Ed page columnists at The New York Times — promoting the idea of “national greatness” conservatism, defined by a more activist agenda at home and a more muscular role in the world.
Soon Mr. McCain and his aides were consulting regularly with the circle of hawkish foreign policy thinkers sometimes referred to as neoconservatives — including Mr. Kristol, Robert Kagan and Randy Scheunemann, a former aide to Mr. Dole who became a McCain campaign adviser — to develop the senator’s foreign policy ideas and instincts into the broad themes of a presidential campaign. (In his e-mail message, Mr. McCain noted that he had also consulted with friends like Henry A. Kissinger, known for a narrower view of American interests.)
One result was a series of speeches in which Mr. McCain called for “rogue state rollback.” He argued that disparate regional troublemakers, including Iraq, North Korea and Serbia, bore a common stamp: they were all autocracies. And as such, he contended, they were more likely to export terrorism, spread dangerous weapons, or start ethnic conflicts. In an early outline of what would become his initial response to the Sept. 11 attacks, Mr. McCain argued that “swift and sure” retribution against any one of the rogue states was an essential deterrent to any of the others. But Mr. McCain’s advisers and aides say his “rogue state” speeches stopped short of the most sweeping international agenda put forth by Mr. Kristol, Mr. Kagan and their allies. Mr. McCain explicitly disavowed direct military action merely to advance American values, foreswearing any “global crusade” of interventions in favor of relying on covert and financial support for internal opposition groups.
As an example, he could point to his 1998 sponsorship of the Iraqi Liberation Act, which sought to direct nearly $100 million to Iraqis who hoped to overthrow Saddam Hussein. The bill, signed by President Bill Clinton, also endorsed the ouster of Mr. Hussein.
Mr. McCain said then that he doubted the United States could muster the political will to use ground troops to remove the Iraqi dictator any time soon. “It was much easier when Saddam Hussein was occupying Kuwait and threatening Saudi Arabia,” the senator told Fox News in November 1998. “We’d have to convince the American people that it’s worth again the sacrifice of American lives, because that would also be part of the price.”
In the spotlight, he pushed rogue state rollback one step further, arguing that the United States should go on the offensive as a warning to any other country that might condone such an attack. “These networks are well-embedded in some of these countries,” Mr. McCain said on Sept. 12 2001, listing Iraq, Iran and Syria as potential targets of United States pressure. “We’re going to have to prove to them that we are very serious, and the price that they will pay will not only be for punishment but also deterrence.”
But after Mr. Bush declared he would hold responsible any country condoning terrorism, Mr. McCain called his leadership “magnificent” and his national security team the strongest “that has ever been assembled.” A few weeks later, Larry King of CNN asked whether he would have named Mr. Rumsfeld and Colin L. Powell to a McCain cabinet. “Oh, yes, and Cheney,” Mr. McCain answered, saying he, too, would have offered Mr. Cheney the vice presidency.
Even during the heat of the war in Afghanistan, Mr. McCain kept an eye on Iraq. To Jay Leno in mid-September, Mr. McCain said he believed “some other countries” had assisted Osama bin Laden, going on to suggest Iraq, Syria and Iran as potential suspects. In October 2001, when an Op-Ed page column in The New York Times speculated that Iraq, Russia or some other country might bear responsibility for that month’s anthrax mailings, Mr. McCain interrupted a question about Afghanistan from David Letterman on that night’s “Late Show.” “The second phase is Iraq,” Mr. McCain said, adding, “Some of this anthrax may — and I emphasize may — have come from Iraq.” (The Federal Bureau of Investigation says it came from a federal government laboratory in Maryland.) By October, United States and foreign intelligence agencies had said publicly that they doubted any cooperation between Mr. Hussein and Al Qaeda, noting Al Qaeda’s opposition to such secular nationalists. American intelligence officials soon declared that Mr. Hussein had not supported international terrorism for nearly a decade.
But when the Czech government said that before the attacks, one of the 9/11 hijackers had met in Prague with an Iraqi intelligence official, Mr. McCain seized the report as something close to a smoking gun. “The evidence is very clear,” he said three days later, in an Oct. 29 television interview. (Intelligence agencies quickly cast doubt on the meeting.)
Frustrated by the dearth of American intelligence about Iraq, Mr. McCain’s aides say, he had long sought to learn as much as he could from Iraqi opposition figures in exile, including Mr. Chalabi of the Iraqi National Congress. Over the years, Mr. McCain often urged support for the group, saying it had “significant support, in my view, inside Iraq.
At a European security conference in February 2002, when the Bush administration still publicly maintained that it had made no decision about moving against Iraq, Mr. McCain described an invasion as all but certain. “A terrorist resides in Baghdad,” he said, adding, “A day of reckoning is approaching.”
Regime change in Iraq in addition to Afghanistan, he argued, would compel other sponsors of terrorism to mend their ways, “accomplishing by example what we would otherwise have to pursue through force of arms.”
Finally, as American troops massed in the Persian Gulf in early 2003, Mr. McCain grew impatient, his aides say, concerned that the White House was failing to act as the hot desert summer neared. Waiting, he warned in a speech in Washington, risked squandering the public and international support aroused by Sept. 11. “Does anyone really believe that the world’s will to contain Saddam won’t eventually collapse as utterly as it did in the 1990s?” Mr. McCain asked.
Response to 9/11 Offers Outline of McCain Doctrine
The New York Times–THE LONG RUN
August 17, 2008
By DAVID D. KIRKPATRICK
WASHINGTON — Senator John McCain arrived late at his Senate office on the morning of Sept. 11, 2001, just after the first plane hit the World Trade Center. “This is war,” he murmured to his aides. The sound of scrambling fighter planes rattled the windows, sending a tremor of panic through the room.
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resources are limited and it’s not possible to do everything
July 21, 2008
OP-ED CONTRIBUTOR to the New York Times
By STEPHEN R. HEIFETZ
Washington
IN a city known for paralyzing bureaucratic turf fights, one of the most debilitating and potentially disastrous has received scant attention: it’s the Congressional mess that produces tangled homeland security laws. This tangle obstructs our ability to prioritize risks at the Department of Homeland Security, where I work alongside more than 200,000 colleagues, almost all of us civil servants (not political appointees) who will remain in place after the election.
Congressional committees can help expose and remedy bureaucratic paralysis and partisan biases, but in this case these committees are the source of the problem, with both political parties contributing equally to the mess. Regardless of which party wins in November, the homeland security turf fight has to be brought under control so that the department can more effectively confront security risks.
Congress created the Department of Homeland Security in 2002, bringing together more than 20 separate agencies. This consolidation, however, was not matched by a parallel consolidation of the Congressional committees that authorize department programs. Roughly 80 committees and subcommittees oversee the Department of Homeland Security and its subcomponents. By way of comparison, the Department of Defense works primarily with four committees.
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What I like most about this post comes at the end of the conversation. After being optimistic about the Financial System a year from now, Richard Bove states: “ut if you were to say, in this panic do I want to take a large amount of my money and bet it against bank stocks? Very risky thing to do.”
Nightly Business Report
Monday, July 14, 2008
PAUL KANGAS: Joining us now to talk more about Freddie and Fannie and reaction to the federal takeover of IndyMac Bancorp is Richard Bove, banking analyst at Ladenburg Thalmann. And welcome back to NBR, Dick. Good to see you.
RICHARD BOVE, BANKING ANALYST, LADENBURG THALMANN: Thank you, Paul.
KANGAS: First, Fannie and Freddie, what did you make of the moves by the Treasury, last resort?
BOVE: I think so, I think that if there was any other sources of capital to save these companies, the federal government would not have had to move in. I think the fact that the federal government has moved in, however, does tell you that these companies will not fail. The bigger question, though, is, do we really need these two companies? And I think that a year from now, you will see that there will be legislation that will probably break them up and make them into much smaller entities.
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The United States is a place dominated by business people who, through democratic institutions and a public process, privatized profits yet nationalised the losses of Fannie Mae and Freddie Mac. This was not the plan, yet this is the real consequences. The author below who writes ‘Goodbye Capitalism’ talks about ‘Morals’ and ‘Faith’ in relation to ‘our great system’ which is obvious language to describe his economic religious beliefs. The author fails to acknowledge the great need for someone to reassure the markets by 6:00 pm est. Sunday, July 13th, before Asian markets opened, that American home mortgage market was going to remain liquid and the assets were going to find a tradable value. Too much of global wealth depends on being able to put a value on the paper that they purchased from Fannie and Freddie. The plan that the US Treasury and the Fed put together met the immediate need of creating stability and confidence in the US home mortgage markets. Job done. Adhering to the strict scriptures of the conservative was not going to meet the demands that reality had created.
I discussed the immediate danger that the markets faced on Sunday while the key players discussed real and daunting risks that faced global markets if a secure plan was not in place to stabilize credit markets. As much as conservatives relentlessly blast government, conservatives are apart of the government decision making process and government is a key component of the economy–government prints and manages the money supply for crying out loud. This whole credit crisis screams that it is also necessary for the government to regulate markets.
Conservatives are already distancing themselves from reality once again as they retreat into their religious language of free markets. Joshua Rosner, the author below is participating in a session of Monday morning quarterback in telling us how the government should have handled the situation. One significant item that this religious zealot has omitted is that the Government has been a large component of the economy booming over the past couple of decades. The US government was the provider of the long enduring liquidity for the US housing market which boomed and at the same time was under regulated by a laissez faire executive in the Bush administration for the last seven years. Government is a significant component of Capitalism’s recent boom, er, Socialism’s recent boom, er that’s not right either–how about a ‘Confederacy of Dunces’. The US government gets their fair share of the blame for this crisis, however this does not give the conservatives a ‘get out of jail free’ card. The irrational market participants deserve their fair share of scrutiny too.
The US government is the only institution that can backstop such a large market and the culture of the United States has demanded and expects that the economic system insure the success of the US housing mortgage market. Perhaps the answer to this crisis is in shifting this expectation of never ending material growth in the form of American style housing. Perhaps the systemic problem is found in the rigging of the marketplace to promote heavy consumption.
My perspective is that US housing mortgage market over this last episode has shown how this kind of growth is unsustainable. The problem we are facing in the long term is not going to be solved by freeing financial institutions to create credit on their own terms. Predatory credit card lending is an area of finance that obviously needs stricter regulation along with the mortgage industry. The government must set limits because the greed of the market place knows no bounds–it only knows how to cool when the market place is plunged into crisis.
The key here, which the conservatives are simply missing as they recoil from the obvious socialism at play in the US marketplace, is that the Fed’s main focus as of right now is keeping credit available to the market. The traditional Fed role of encouraging growth and containing inflation risks has taken a back seat because the ability for an individual or business in the American economy to obtain credit is at risk of freezing.
***
Goodbye capitalism
Financial Times
By Joshua Rosner
Published: July 15 2008 13:31 | Last updated: July 15 2008 13:31
In a capitalist economy, losers are expected to take losses and winners to gain. Private enterprise is best able to allocate capital efficiently and, where it fails to do so, markets make adjustments and capital is reallocated to efficient users. This basic tenet supports good and productive assets moving from the hands of weak players to stronger. Where this is not possible, the US system gives the government a hand in fostering that move through an efficient process called bankruptcy or reorganisation. This rule of markets and of law has always been the basis of our national supremacy in innovation and the reason ours was the world’s clear choice of a reserve currency. That was the world we lived in previously.
Our elected officials have repeatedly demonstrated that even equity holders, who are supposed to have the most subordinated claims on assets, cannot be allowed to take losses and instead believe we should all communally share in losses that result from poor allocation and risk management decisions. We have nationalised the losses from Bear Stearns through a transfer of risk on to the federal government’s balance sheet and have now nationalised the losses generated by Fannie’s and Freddie’s poor management and functionally taken $5,000bn in obligations on to the government’s balance sheet. This has been done even though every equity or debt offering of Fannie and Freddie explicitly states that these “are not guaranteed by the US and do not constitute an obligation of the US or any agency or instrumentality thereof other than” of Fannie or Freddie.
By the time we are finished with this tragic period in US economic history, the government is likely to have to choose whether to do the same for at least one more large bank, investment bank, bond insurer, mortgage insurer, multiple large regional bank, airline or car manufacturer. Given the choices we have seen from officials, who obviously have little faith in the ability of capital markets or our system of law, we will see the continued nationalisation of bad assets, placing the burden on the shoulders of the already overburdened American taxpayer.
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Customers lined up outside a branch of IndyMac Bank in Pasadena, Calif., on Monday.
New York Times
July 15, 2008
By LOUISE STORY and ERIC DASH
Even as the Bush administration moved to rescue the nation’s largest two mortgage companies, confidence in the banking sector spiraled downward Monday.
In the Los Angeles area, lines snaked around IndyMac Bancorp branches for blocks, as customers made withdrawals from the bank, which failed last week. In Cleveland, National City Corporation denied a rumor that its customers were also demanding their money.
In Washington, federal regulators tried to broadcast the message that plummeting stock prices should not cause consumers to panic about the safety of their savings. And on Wall Street, analysts began circulating lists of regional and local banks that might be next to fall.
Investors continued to beat down bank stocks, fearing that the government’s resolve to help Fannie Mae and Freddie Mac, the giant companies at the center of the nation’s mortgage market, would not hold back the rising tide of bad loans unleashed by the weakening housing market and faltering economy. Financial stocks, a Merrill Lynch analyst wrote bluntly, are “value traps.”
Stocks on Standard & Poor’s 500 Bank Index fell nearly 10 percent, and regional banks were particularly hard hit, declining nearly 11 percent. Several regional banks lost nearly a third of their value, as investors bet that these smaller banks might be the ones the government would let fail.
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InBev succeeds in its $52 billion bid for Anheuser-Busch
Jul 14th 2008
From Economist.com
AS IN an old-fashioned Western bar brawl, Anheuser-Busch tried to hit InBev with anything that came to hand. The American brewer was attempting to rebuff an assault by its Belgian-Brazilian rival, which had offered $46 billion in an unsolicited bid on June 11th. Anheuser-Busch tried to use the business equivalent of a bar stool over the head—a lawsuit claiming that InBev had misled investors. The American firm even dealt the low blow of citing InBev’s Cuban businesses as a reason to reject the bid.
These tactics came to nothing, however, after InBev opened its wallet and upped the offer to $52 billion, which Anheuser-Busch gratefully accepted on Sunday July 13th. In fact InBev had been prepared to fight sneaky too. In an effort to outflank the founding Busch family (which owns only 4% of the company’s shares) it used family disagreement. The bidders proposed a new board of directors that would include Adolphus Busch, the uncle of August Busch, the existing chief executive of the American firm who was dead against the merger. Adolphus promptly urged Anheuser-Busch to accept InBev’s offer.
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Screen Grabs, Pull Quotes and Links
Bush quashes Fannie and Freddie bailout talk
The Bush administration on Friday attempted to quash suggestions that the US government might have to nationalise Freddie Macand Fannie Mae, the giant mortgage companies that have unsettled the financial markets, as their shares plummeted to their lowest levels in nineteen years.
Hank Paulson, US treasury secretary, said: “Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission,” signalling that the Bush administration was not contemplating a rescue takeover of the two groups and wanted public shareholders to continue owning them.
Describing Freddie Mac and Fannie Mae as “very important institutions”, President George W. Bush said that Secretary Paulson and Ben Bernanke, head of the Federal Reserve, would be “working this issue very hard”.
Fears that Fannie Mae and Freddie Mac could become the latest victims of the credit crisis have gripped investors this week. The two institutions are pillars of the US financial system, between them holding or guaranteeing nearly half of the $12,000bn in outstanding US mortgages and accounting for nearly three-quarters of new mortgages.
Oil fired up for an assault on $150 level
By Chris Flood
Published: July 11 2008 19:44 | Last updated: July 11 2008 19:44
Oil prices roared to a fresh record above $147 a barrel on Friday. But as momentous as the fact that the price is now threatening to reach the $150 landmark has been the extraordinary volatility in prices.
US crude on Tuesday recorded its largest one-day dollar decline – $5.33 a barrel – since the start of the first Gulf war in January 1991. Thursday saw the second largest one-day dollar gain – $5.60 – since crude futures started trading in the 1980s, forcing any bears who were rash enough to bet on a deeper correction to close out their short positions.
Wall St down as Fannie and Freddie sell off
By Jeremy Lemer in New York
Published: July 11 2008 13:52 | Last updated: July 11 2008 21:41
US stocks slumped as investors rushed to sell Fannie Mae and Freddie Mac on speculation that a government bail-out could wipe out shareholders while oil prices spiked above $147, pummelling consumer-facing stocks.
Marc Pado, chief market strategist at Cantor Fitzgerald, said: “The mood is pretty close to panic and unfortunately with good reason?.?.?.?There is a great deal of uncertainty with regard to the financial system and the market hates uncertainty, so were are getting a very reasonable reaction.”
Hank Paulson, US Treasury secretary, said the government would support the two mortgage giants in their “current form” which helped stabilise the government-sponsored entities’ share prices somewhat but the comments accelerated losses on the broader market.
Fannie and Freddie have come under massive selling pressure this week on fears that they are not adequately capitalised to meet the demands of the current housing crisis. Analysts said falling share prices and widening credit spreads meant that raising the necessary funds would be extremely difficult.
Freddie and Fannie shares plummeted as much as 50 per cent before recovering to $7.75 and $10.25, respectively, down 3.1 per cent and 22.4 per cent. JPMorgan slid 3.9 per cent to $33.16 and Bank of America fell 3.1 per cent to $21.67.
Companies with exposure to the mortgage market were particularly hard hit. Bill Stone, chief investment strategist at PNC Financial Services Group, said: “People were counting on Freddie and Fannie to step in and bail out the housing market. If their funding costs go higher that is not a good thing.”
Overview: Equities gripped by bear market
By Dave Shellock in London, Michael Mackenzie and Nicole Bullock in New York
Published: July 11 2008 18:45 | Last updated: July 11 2008 21:17
Global equity markets made a decisive move into bear territory this week amid intensifying concerns about the health of the US financial system and a fresh surge in oil prices.
The MSCI world equity index, the S&P 500 and the FTSE 100 all recorded a drop of 20 per cent from recent highs – joining most of the world’s other main indices in bear markets – as financial stocks came under sustained pressure. At the centre of the storm were mortgage agencies Fannie Mae and Freddie Mac, which between them own or guarantee about half the $12,000bn of outstanding US home loans.
Fears that the two government-sponsored enterprises (GSEs) might need to be bailed out by the government overshadowed news that the Federal Reserve was considering extending an emergency lending facility to Wall Street banks.
The concerns about Freddie and Fannie were sparked by speculation that they might need to raise further capital – which they would be likely to find extremely difficult, analysts said.
“Given that the GSEs have been dumped with so much of the fall-out from the bursting of the credit bubble, it is no surprise that their capital base has been so severely damaged,” said Marc Ostwald, strategist at Monument Securities.
“Nevertheless it is, in effect, a further signal that the process of post-bubble ‘capital destruction’ appears to be accelerating.”
US officials including Ben Bernanke, the chairman of the Federal Reserve, and Treasury secretary Hank Paulson, sought to calm market fears about the agencies, but had only limited success.
John Kemp, an analyst at Sempra Metals in London, said: “The mounting tensions surrounding Fannie and Freddie touch every aspect of the financial markets – pushing long yields back down from recent highs, keeping the Fed on the sidelines despite the renewed rise in inflation, widening credit spreads, and making it hard for the central bank to even contemplate an end to the cheap money policy which continues to push up commodity prices worldwide.”
Indeed, oil prices rallied strongly at the end of the week to hit fresh record highs as supply concerns returned to the fore and geopolitical tensions were ratcheted up by Iran’s missile tests.
August West Texas Intermediate, the US crude benchmark, climbed above $147 a barrel on Friday, after suffering its biggest two-day fall since mid-March on Monday and Tuesday. Oil workers in Brazil threatened to strike next week while militants in Nigeria, the world’s eighth-largest exporter, abandoned a ceasefire.
Oil’s volatility contributed to an extremely choppy week for equity markets.
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