Saturday, September 27, 2008

Rep. Barney Frank predicts bailout deal by Sunday

The Bush administration and Congress anxiously revived negotiations Friday on a $700 billion financial bailout, one day after the largest bank collapse in U.S. history provided a brutal reminder of the risks of failure.

"I'm convinced that by Sunday we will have an agreement that people can understand on this bill," predicted Massachusetts Rep. Barney Frank, a key Democrat in eight days of up-and-down talks designed to stave off an economic crisis.

House Speaker Nancy Pelosi added that "progress is being made," although neither she nor Frank divulged details at a late-afternoon news conference in the Capitol. Talks continued into the evening.

Frank and Pelosi spoke a few hours after President Bush prodded lawmakers to "rise to the occasion" — and quickly.

In one small sign of progress, House Republicans dispatched their second-ranking leader, Rep. Roy Blunt of Missouri, to join the talks after their objections to an emerging compromise had brought negotiations to a standstill the day before. They also demanded "serious consideration" for a plan of their own, involving less government intrusion and lower cost to the taxpayers than the $700 billion that Treasury Secretary Henry Paulson has been seeking.

The legislation the administration is promoting would allow the government to buy bad mortgages and other sour assets held by investors, most of them financial companies. That should make those companies more inclined to lend and lift a major weight off the national economy that is already sputtering. But a significant number of lawmakers, including many House conservatives, say they're against such heavy federal intervention.

Under their plan, the government would insure the distressed securities rather than buy them. Tax breaks would provide additional incentives to invest.

Democrats and Bush officials said the insurance proposal was acceptable as an option but not as a replacement for the administration's more sweeping approach.

The crisis was hardly limited to the U.S.

Bush held a lengthy Oval Office meeting with British Prime Minister Gordon Brown that was focused on how the problems were spreading, then said, "I told him the plan is big enough to make a difference, and I believe it will be passed."

Presidential politics weighed heavily and unpredictably on the election-season effort to stave off a full-blown economic crisis.

After announcing earlier in the week he would suspend his campaign and return to the capital until there was an agreement, Republican John McCain abruptly reversed course and departed for Friday night's debate with Democratic rival Barack Obama.

"Now that Sen. McCain is safely in Mississippi we can get back to serious work," sniped Frank, who had challenged the Republican presidential candidate in a White House meeting on Thursday to describe his own solution to the crisis.

There were fresh signs of urgency at both the White House and the Capitol, one day after the unusually tempestuous White House session and the collapse of Washington Mutual, the largest failure in U.S. banking history. The Seattle-based institution had invested heavily in the now-moribund mortgage market.

Still, the Dow Jones industrials rose 121 points for the day as investors anticipated a weekend agreement.

In days of negotiations, the administration has accepted demands from lawmakers to give Congress considerable authority to oversee the bailout. Additionally, Paulson relented to requests to limit the severance packages that corporate executives can receive from firms benefiting from the government bailout.

Also, rather than provide $700 billion upfront, as Paulson initially requested, Congress would approve the funds in stages. Under one approach, $250 billion would be made available at once, with the president able to certify the need for an additional $100 billion on his own authority. The final $350 billion would become available with a second presidential certification, although this time Congress would have authority to block it.

Any compromise is also expected to require the government to obtain partial ownership of any company it invests in.

Democrats, too, signaled they were considering jettisoning some of their own priorities.

Frank indicated they might ultimately drop a requirement that a portion of any profits from the rescue be funneled to a fund to build housing for low-income people. That mandate, deeply unpopular with Republicans, "is not an essential," Frank said.

Additionally, Obama said earlier in the week he hoped Democrats would not press a proposal giving bankruptcy judges the power to ease mortgage terms for homeowners.

Beyond the specifics of any legislation lie political calculations in the shadow of hard-fought presidential and congressional campaigns.

While Democrats control a majority of both the House and Senate, their leaders have made it clear they will not force their rank-and-file to vote without Republican support on a bailout advanced by an unpopular president on an unwilling public.

In an Associated Press-Knowledge Networks poll, only 30 percent of those surveyed expressed support for Bush's package. An additional 45 percent were opposed, with 25 percent undecided. The survey was conducted Sept. 25 and had a margin of error or 3.8 percent. It was conducted over the Internet by Knowledge Networks, which initially contacted people using traditional telephone polling methods and followed with online interviews.

Aides to lawmakers in both parties say telephone calls from constituents are running heavily against the bailout — in some cases nearly 100-1 against, making the vote a potentially tricky one for a candidate in a competitive race.

Ironically, though, many House conservatives who are most opposed to the measure are in safe seats, thus free to resist the daily calls for action — and the warnings from Bush and Federal Reserve Chairman Ben Bernanke that a recession looms without a bailout.

"Our goal here in attempting to come to an agreement is to do our best to protect American taxpayers," said Republican leader John Boehner of Ohio, after a closed-door meeting other GOP lawmakers.

Inside the meeting, Boehner received a standing ovation from fellow Republicans, some of whom expressed anger that Bush and his administration had effectively shut them out of negotiations and tried to force them to support an unpopular bill.

"He got a standing ovation because he stood up to the president and Paulson," said Rep. Ray LaHood, R-Ill. "Now we're a part of the game."

Said Boehner, speaking of the White House meeting: "If they thought they were rolling me, they were kidding themselves."

Economic conservatives may be horrified at the thought of a trillion-dollar bailout of Wall Street, but the GOPers on Wall Street seem horrified that they are being left to wither on the vine by Washington. Take a look at this email I just got last night from a money manager:

I am a lifelong ( 51 years old) "rock-ribbed" conservative.... What an eye opener this week has been! I now realize what a blowhard Newt truly is by advocating the GOP bail on the Paulson Plan. As a professional money manager I can tell you I am shocked, dismayed and depressed that the Speaker would excoriate the GOP to abandon this plan which is URGENT and necessary to avoid a financial catastrophe that once commenced may be irreversible. The level of ignorance of financial and economic reality displayed by the Speaker , Rep. Boehner, Sen. Shelby , et al, has been frightening and sad. I thought the GOP had a better grasp of such matters than the Dems. Apparently not. And if this has been pure election gamesmanship as I suspect? The willingness to play politics with the U.S. financial markets is appalling and disgusting.

I am a huge Reagan fan and admirer.I have voted GOP every election since 1976. Until now. Today. September 25, 2008. As soon as I finish this email I am going to try and get my $1000 McCain/Palin credit card donation back as I will not be voting GOP this year after watching this circus and the theatres passing as leadership displayed by the GOP. I am embarrassed to have been an erstwhile supporter of this gaggle of self-serving jerks. I hope the GOP lose their asses come November. They shall deserve it.

5 Reasons This Depression Really Is Going To Be Fun!

We're not even officially in a recession, and already the culture czars over at New York have dubbed the economic crisis precipitated by our financial system's collapse The Greatest Depression! Such hyperbole, I know! So what makes the tag feel so goddamn right? Other than the fact that I think it is really great I don't have to write about subprime celebrities anymore? I found five things that are basically all the same thing and formed a little listicle!

1. Because money is overrated!
We know this. We know it so well. And just to prove it we pay billions of dollars to science to prove it to us, year after year after year. And yet. As a society we totally live and die (no not really, we just act like we live and die!) by the tiny nuances of the trajectory of the aggregate of all the flows of all that money, as if it Really Totally Matters. We do this, obviously, because we're obsessed with making comparisons — am I at least doing as well as last year? Am I really smarter than his last girlfriend? Shouldn't I buy a house now that all my friends are doing it? — because it is just so much easier than the Is This Bringing Me Joy question that seems so totally sappy and sentimental we find it to be a hilarious joke when some little Third World country like Bhutan pragmatically invents a Gross National Happiness Index because no one actually thought of that first. But as the Times reminds us today:

Research has shown a significant level of depression, for example, among lottery winners. Other research has shown that above a household income of $50,000, there is little or no correlation between income and happiness.

2. Because It is already making New York more fun funner!
Nick wanted me to point out that the Great Depression was good or some industries — electrical engineering, film — that are maybe more worthwhile and exciting than the freaking stock market, but that brings me to a larger point. On Saturday I got this email from a friend who is a specialist on the New York Stock Exchange:

Last week was one of the most exciting weeks of my life. I think traders who had previously taken psychedelics had an unfair advantage.

Which kind of neatly underscores an important truth of this city: we are here for the "action." We are not here for the riches or because Guiliani made it so tidy and safe and Singaporean like our relatives always annoyingly assume when we so graciously leave it to endure family gatherings. I mean, if our relatives ever visited us they would know that New York is still fundamentally gross, and THAT'S SORT OF WHY WE'RE HERE. It is fucked up, but we chose to live among the tenements and the rats and all that once-proud peeling buckling infrastructure and all those whiffs of strangers' body odor because something about it makes us feel alive, even as the constant unquenchable thirst for that feeling also exposes the parts of our insides that we're slowly choking to death. But look! The New York Observer reports people are actually talking to strangers on the subway again. It's a paradox, and creative destruction, and possibly sector rotation — so the action leaves the Street for a little while, it will return in some gross new neighborhood the haters will instantly hate just as much. In the meantime, it's like that time all the power went out! Everyone loved that, remember? Oh and remember the subway strike? People loved that too. Shit, they probably secretly loved the cholera epidemic. Moral of story: we love that the economy is as fucked-up as we are. Like, there is a reason they call it "depression" duh!

3. Because Haters are tired of Hating!
I am not such a hater that I did not find it touching how right after 9/11 the Two Americas united to declare War On Haters. Petey Pablo penned that patriotic remix of his "North Carolina" song and Ja Rule and Kid Rock hung out together at some military base, etc. etc. Fast forward seven years, and the New York Times brings us the amusing news that Sarah Palin actually refers to her critics as "haters." This nonsense rapper concept reached all the way out to Alaska! Can we kill it now? It turns out yes! Because the very next week, following comparisons of the professional stock market haters known as shorts to terrorists and homicide bombers, the SEC actually outlawed short-selling! It outlawed hate. You would think this action would have gotten more hate from the shorts, but I have a theory: Haters really like nothing more that to be put out of their Hating-Ass Misery, at least for a few weeks. (Remember 9/11?) And this way they got to be proven right in the process, which is really all they care about. In any case, the Depression will sort of force Hateration Nation to acknowledge the symbiotic nature of its relationship with the Plutocrats, Jocks, Preachers, Republicans, Bloviating Public Intellectuals, Venture Capitalists and Self-Help Gurus that Make This Country "Great" and vice versa. Fittingly, this grudging detente was prophesied by the rapper Maino in the remix to his song Hi Hater.

4. Because everyone feels a lot better about capitalism now that Warren Buffet is the guy who will be making another few billion dollars profiting off its near-collapse!
If you are a capitalist, Warren Buffet was your hero when you were, like, eight. By the time you started your first private equity internship or whatever you were more like "Ah, Buffet, sentimental old sucker, making his money the hard way like that." Why? Because Warren Buffet made $62 billion over a six decade career investing in real companies over the Very Long Term, and that is just so unnecessary when you can make like at least a billion dollars in like a year just by taking a 20% fee on some money you got from rich folks plus a whole lot more money you got to borrow from banks at superlow rates, and throwing all that into some algorithm whereby the money makes a gazillion trades a day on some supercomplex financial instruments made up by bankers who got bored of collecting fees splitting up and re-packaging the weary pieces of the American economy and in any case, now you somehow make a half penny on the dollar every time some ratio goes below pi and none of it requires any entanglements with companies that actually produce stuff at all (thank god because that would be awkward.) Well, putting all that money through all that pointless action was not for Warren Buffet. Not because he worries about detachment from labor or any of that Marxist crap, but because it actually did just seem so pointless. (Buffet once said of gold: "It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.") Anyhow, so all this madness goes on for a few decades, generates a little "liquidity crisis" and suddenly Goldman Sachs has to become a real bank, which basically means the Smartest Richest Most Elite Motherfuckers on Wall Street are forced to sit acknowledge the existence of the Actual Economy. Put a wonkier way: Exchange Value, Meet Use Value! And Buffet sees that investors are worried about this, but he knows it's a good plan for the Long Term everyone laughed at him for caring about, so he plows $5 billion into it at supergood terms and suddenly everyone's like, "Damn, that Buffet, he really is pretty smart." And smart turns out not to be incompatible with good!

5. Because there is a reason they call it the "Dismal" Science!
At some point the economists of America got sick of no one listening to their earnest well-intentioned prescriptions for making globalization not so shitty, so they launched a hostile takeover of psychology and wrote ninety different books full of highly detailed "analyses" of why people do the things they do. The message of these books was generally: "Hey, Starbucks Is Smart And Other Crazy Ideas!" These books became bestsellers because in times like these there is a huge market for books that state true facts without being totally depressing or resorting to "self-help," which is to say they basically amounted to self-help, which is to say they kind of dumbed down the profession. Well, here is a true fact: last week chief Freakonomist Steve Levitt made the following admission on his own damn Freakonomics blog:

As an economist, I am supposed to have something intelligent to say about the current financial crisis. To be honest, however, I haven’t got the foggiest idea what this all means.

Anyway, the point is, the fiftieth anniversary of The Affluent Society came and went and no economist managed to write a more relevant book about the economy. Although The Affluent Society author John Kenneth Gabraith's son James is apparently trying to do that now!

Reid: McCain "only hurt the process"

Negotiations on a massive Wall Street bailout are about to start up again tonight. John McCain won't be there, but as far as top Democrats are concerned, he wasn't helping, anyway.

Senate Majority Leader Harry Reid and Sen. Chris Dodd, who chairs the Senate Banking Committee, essentially accused McCain of having torpedoed the agreement in principle that Dodd and others had announced earlier in the day. They also said he'd shown no interest in participating in further talks, which are scheduled to begin around 8 p.m. EDT Thursday. Treasury Secretary Henry Paulson, Federal Reserve chairman Ben Bernanke and Senate Republicans will join House and Senate Democrats in the meeting. It wasn't clear whether House Republicans (who appear to have concocted their own plan) would attend; Reid said he asked Paulson to invite them.

Referring to a meeting President Bush held at the White House with McCain, Barack Obama and congressional leaders on Thursday afternoon, Reid said, "I would suggest that anyone in that meeting that tried to understand what John McCain said in the meeting, couldn't ... John McCain did nothing to help. He only hurt the process."