Paulson: Plan won't save all banks

Sanders against Bush bailout plan

Dems on bailout: Include homeowners

Campaign advisers helped create mess

Rep. Pence opposes Treasury plan

GOP warns Dems not to add extras to bailout bill

IT’S THE DERIVATIVES, STUPID!

• McCain Health-Care Article Fuels New Clash Over Economy
• No Longer Ready to Retire
• A Bad Bank Rescue
• Rough Week, But America's Era Goes On

Aftershocks
End of the American Century?
Calling Out the Culprits
We're Not Going to Be Rich?
Candidates, We Can't Afford Tha

1. Maureen Dowd: Aaron Sorkin Conjures a Meeting of Obama and Bartlet
2. Frank Rich: Truthiness Stages a Comeback
3. Nicholas D. Kristof: The Push to ‘Otherize’ Obama
4. Thomas L. Friedman: No Laughing Matter
5. A Disability Epidemic Among a Railroad’s Retirees
6. The College Issue: The Tell-All Campus Tour
7. The College Issue: The Thinker
8. The Wall Street Bailout Plan, Explained
9. Editorial: The Candidates and the Court
10. A Professor and a Banker Bury Old Dogma on Markets

Time Magazine's 10 Most Popular Stories

1. What Happens When We Die?
By M.J. Stephey Dr. Sam Parnia talks to TIME about his three-year study into the science of out-of-body experiences

2. How We Became the United States of France
By Bill Saporito Viewpoint: As Washington rushes to nationalize troubled parts of the economy, the inescapable reality is that we're all French now

3. John McCain and the Lying Game
By Joe Klein Every politician stretches the truth. But McCain is running a uniquely dishonest campaign

4. The Pain in Spain Falls Mainly on McCain
By Lisa Abend Much of the Spanish press has decided that the Republican candidate confused their nation with one of the Latin American states

5. How Financial Madness Overtook Wall Street
By Andy Serwer and Allan Sloan For years the financial markets roared along as if there were nothing to fear. Now it's payback time — and all of us will be feeling the pain

6. Guardian Angels Are Here, Say Most Americans
By David Van Biema In a surprising survey, 55% of Americans say they have been helped by supernatural being

7. Virginia Sounds the Starting Gun for Early Voting
By Amy Sullivan A record number of Americans are expected to pull the lever long before November 4

8. Saudi Billionaire to Wall Street: See You Later
By Bobby Ghosh / Riyadh One of the biggest players in the U.S. stock market won't come to the rescue this time

9. For Obama, Race Remains Elephant in the Room
By Michael Grunwald
While others urge him to attack, the Democratic nominee remains passive. Perhaps because he senses that America still doesn't like it when anger and melanin mix

10. In Yemen, a Massacre of Americans Is Averted
By Scott MacLeod Yemeni officials believe Wednesday's shoot-out thwarted a plan to storm the U.S. embassy in Sana'a

AL RELATIONS
Looking Ahead At The Debate
This Friday's presidential debate will focus on foreign policy. Sen. John McCain (R-AZ) said in 2005 that on "transcendent issues" like the war on terror, he is in "total agreement" with President Bush. McCain's foreign policy ideas bear this out. Like Bush, McCain contends that Iraq is the "central front" in the war on terror, ignoring the fact that there was no al Qaeda in Iraq before there was America Iraq. Invading Iraq has radicalized scores of young Muslims, who have traveled to Iraq and learned terrorist tactics, which they have now begun to bring back to their home countries. In remarks to the Council on Foreign Relations on November 5, 2003, McCain responded to a question about whether the United States would "finish the job" in Afghanistan by saying that "we may muddle through." As a result of the diversion of resources and attention to an unnecessary war in , al Qaeda and the Taliban have regrouped in the Afghanistan-Pakistan border areas and waged an increasingly lethal insurgency. Chairman of the Joint Chiefs of Staff Adm. Michael Mullen recently told the House of Representatives Armed Services Committee, "I'm not convinced we are winning it in Afghanistan…Frankly, we're running out of time." In July, Mullen told reporters, "I don't have troops I can reach for, brigades I can reach to send into Afghanistan, until I have a reduced requirement in Iraq." McCain has consistently opposed drawing down troops from Iraq.

PROMOTING THE SURGE, IGNORING HIS ROLE AS WAR CHEERLEADER: McCain has made his support for the Iraq surge central to his campaign but ignores the fact that the surge has not delivered on its central objective: achieving a sustainable power consolidation among Iraq's different political forces. According to a recent report from the Center for American Progress, "Iraq's Political Transition After the Surge," the surge "has frozen into place the accelerated fragmentation that Iraq underwent in 2006 and 2007 and has created disincentives to bridge central divisions between Iraqi factions." These factions remain at loggerheads over significant issues such as the oil law, constitutional reform, and the status of the city of Kirkuk. McCain has also tried to de-couple his support for the surge from his strident advocacy of the 2003 invasion, insisting that the latter is simply a matter for historians to debate. The fact remains that a surge of 30,000 troops to Iraq would not have been necessary if not for the disastrous decision to invade Iraq in the first place. The Iraq war has resulted in the deaths of over 4,000 American servicemen and women and has left over 30,000 seriously wounded. The war has also resulted in the deaths of an estimated 150,000 Iraqis, with many more wounded and maimed, and over 4 million displaced, both within and outside the country. Economists Joseph Stiglitz of Columbia and Linda Bilmes of Harvard estimated the total cost of the Iraq war to U.S. taxpayers at around $3 trillion. McCain has said that, even knowing that Saddam had no WMD and no connections to al Qaeda, "there's no question" he would still have voted to authorize the war.

A HARDER LINE THAN BUSH: In the few areas where McCain and Bush disagree, McCain proposes an even harder line than Bush, promising to continue policies that the Bush administration has discarded. President Bush now recognizes the necessity of talking with Iran abandon[ing] its longstanding position that it would meet face to face with Iran only after the country suspended its uranium enrichment,” and sending Undersecretary of State William Burns to accompany a European Union delegation during a meeting with Iran's top nuclear official in July. At a recent panel, five former U.S. secretaries of state -- Henry Kissinger, Colin Powell, Madeleine Albright, Warren Christopher, and James Baker -- all agreed that "the next American administration should talk to Iran." Kissinger specifically supported negotiating with Iran "without conditions," which McCain has called naive and irresponsible. McCain also advocates a hard line against North Korea, using language that the Washington Post recognized as "remarkably similar to President Bush's first-term rhetoric." McCain has broken with the Bush administration’s new policy of diplomatic engagement, under which North Korea has provided greater disclosure of its nuclear activities, and destroyed part of its weapons-building reactor. President Bush has recognized as "important first steps toward the goal of a nuclear weapons-free Korean peninsula." McCain's approach would turn back these gains.

A HYSTERIA-BASED FOREIGN POLICY: McCain's hysterical response to the Russia-Georgia conflict is a troubling indication of how he would handle future international crises. McCain immediate reaction was to declare it "the first probably serious crisis internationally since the end of the Cold War," this after having spent months declaring the threat of Islamic radicalism "the transcendent challenge of our time." Even before the Russia-Georgia crisis, McCain had advocated an aggressive posture toward Russia, suggesting that Russia should be thrown out of the G8. Newsweek's Fareed Zakaria called this "the most radical idea put forward by a major candidate for the presidency in 25 years, a policy that would alienate many countries in Europe and Asia who would see it as an attempt by Washington to begin a new cold war. McCain's anti-Russia stance has serious implications for efforts to contain Iran's nuclear ambitions. Many of America's allies, including the Israelis, believe that Russia's cooperation is essential for dealing with the Iranian nuclear program. In a recent interview, McCain also refused to commit to a meeting with Spanish Prime Minister Jose Luis Zapatero, even though Spain is an important NATO ally with more than 700 troops in Afghanistan. After eight years of arrogant unilateralism, McCain proposes a foreign policy approach that would do more to alienate America's allies, and make it more difficult to work together with other countries to address common threats.

Y -- BUSH'S LEGACY OF SQUANDERING TAXPAYER MONEY: This weekend, President Bush proposed a massive, $700 billion buyout of troubled financial institutions, in a plan that "would place no restrictions on the administration" and stipulates that actions by the Treasury Secretary "are non-reviewable...and may not be reviewed by any court of law or any administrative agency." The proposal also would grant the Treasury the power to hire outside firms "to help manage its purchases." Given Bush's history of fiscal mismanagement -- particularly when it comes to hiring contractors -- Americans should be skeptical of his new plan. In Iraq, $142 million was wasted on projects that were either terminated or canceled, a "significant" amount of U.S. funds have been funneled to Sunni and Shiite militia groups, $5.1 billion in expenses has been charged without proper documentation, and another $10 billion has been wasted or poorly tracked, to name just a few examples. Bush's response to Hurricane Katrina was equally mismanaged. An estimated $2 billion was spent in fraud and waste, nearly 11 percent of the total spent by FEMA in the first year following the hurricane. In the area of defense spending, the Pentagon reported ssaction.org/e/er.aspx?s=785&lid=9858&elq=1E968446D11D4656A3E97D985738AFED" in 2003. It also paid $1.7 billion in excessive fees to the Interior Department, and another $50 million Air Force contract was awarded in a process "fraught with improper influence, irregular procedures, and glaring conflicts of interest." It's no wonder that Princeton economist Paul Krugman called the Treasury's demand for "dictatorial authority" "an unacceptable proposal."

ENVIRONMENT -- THE WHITE HOUSE PRESSURES THE EPA TO NOT LIMIT PERCHLORATE IN TAP WATER: "Under pressure from the White House and the Pentagon," the Environmental Protection Agency (EPA) "is poised to rule as early as today that it will not set a drinking-water safety standard for perchlorate, a component of rocket fuel that has been linked to thyroid problems in pregnant women, newborns and young children across the nation," the Washington Post reports. A near-final version of the EPA's "preliminary regulatory determination" that the Post obtained "assumes the maximum allowable perchlorate contamination level is 15 times what the EPA had suggested in 2002." The proposal is "the final step in a six-year-old battle between career EPA scientists who advocate regulating the chemical and White House and Pentagon officials who oppose it." Officials in the White House Office of Management and Budget (OMB) "heavily edited" the document by eliminating key passages and asking the EPA to "use a new computer modeling approach to calculate the chemical's risks." In 2004, the EPA's process for scientific risk assessments of chemicals was altered to give OMB oversight of the program, which increased the ability of other departments to interfere in the program secretly. Last spring, the Government Accountability Office reported "that the Pentagon had pressured the EPA for several years not to regulate perchlorate."

GUANTANAMO -- PENTAGON REASSIGNS CONTROVERSIAL GUANTANAMO LEGAL ADVISER AS WAR COURT CZAR: As legal adviser at Guantanamo Bay, Brig. Gen. Thomas Hartmann has been one of the most aggressive advocates for the Bush administration's flawed military commissions. In fact, three separate judges have barred him from acting as an impartial legal adviser at the trial of detainees. Judge Stephen Henley said that Hartmann had "compromised the objectivity necessary to dispassionately and fairly evaluate the evidence and prepare the post-trial evaluation." In the case of Salim Hamdan, a military judge ruled that Hartmann had "exerted improper influence on the case." The Pentagon has now quietly removed Hartmann. But as the Miami Herald notes, instead of being fired, Hartmann has essentially become a "war court czar in charge of logistics." In an interview with the Miami Herald, Hartmann said that in his new job, he would be making sure that war on terror prosecutions move along briskly. "I want those courtrooms to be as filled up as they can possibly be -- six days a week," he said. At a Senate Judiciary Committee hearing in December 2007, Hartmann repeatedly refused to call the hypothetical waterboarding of an American pilot by the Iranian military torture. Shortly thereafter, Lt. Cmdr. Andrew Williams, a JAG officer with the U.S. Naval Reserve, resigned, saying that Hartmann's testimony was the "last straw" and "sold all the soldiers and sailors at risk of capture and subsequent torture down the river."

Having spent 20 years and millions of dollars "loudly and bitterly attacking the liberal leanings of American campuses," conservatives "have failed to make much of a dent in the way undergraduates are educated." In a new strategy, they "are finding like-minded tenured professors and helping them establish academic beachheads for their ideas."

Goldman Sachs and Morgan Stanley "will transform themselves into bank holding companies subject to far greater regulation," the Federal Reserve announced last night. The New York Times describes the change at the last big independent investment banks on Wall Street as "a move that fundamentally reshapes an era of high finance that defined the modern Gilded Age."

In the midst of the current credit crisis, Americans are "cutting back on health care, a sector once thought to be invulnerable to recession." Spending on doctor's appointments and preventive tests is down while "the number of prescriptions filled in the U.S. fell 0.5% in the first quarter and a steeper 1.97% in the second," compared with 2007 -- the first negative quarters in the last decade.

The trial of Sen. Ted Stevens (R-AK) begins today, "marking the first time in more than 27 years that a sitting Senator will face a federal jury." Stevens was "indicted in July for failing to report gifts from an Alaska oil-services company."

"Congressional Democrats began to set their own terms on Sunday for a plan to rescue the nation’s financial institutions, including greater legislative oversight of the Treasury Department, more direct assistance for homeowners and limits on the pay of top executives whose firms seek help."

Three years after the Defense Department set out to increase the number of foreign language specialists within its ranks, little progress has been made. Only "1.2 percent of the military receives a bonus paid to those who can speak languages judged to be of critical importance for the current conflicts in Afghanistan and Iraq, as well as other areas of strategic concern."

And finally: Politics took center stage last night’s Emmy awards ceremony. Co-host Howie Mandel began the night by noting that he didn't have an opening monologue: "We are like on Sarah Palin's bridge to nowhere, that's where we are right now. The government can’t even bail us out of this." Comedian Tommy Smothers, who won an honorary Emmy, dedicated his award to "all people who feel compelled to speak out." Jon Stewart, who won an award for The Daily Show, said, "I really look forward to the next administration whoever it is. I have nothing to follow that up with."

DEAN BAKER
Progressive Conditions for a Bailout tpmcafe.talkingpointsmemo.com — While there is not time to prepare all the details of the financial restructuring that will follow after the bailout, there can be an agreement on the outlines that this restructuring should take. This list of suggestions is presented in that context.

ROBERT REICH
What Wall Street Should Do To Get Its Blank Check tpmcafe.talkingpointsmemo.com — Wall Street's request for a blank check comes at the same time most of the public is worried about their jobs and declining wages, and having enough money to pay for gas and food and health insurance, meet their car payments and mortgage payments, and save for their retirement and childrens' college education. And so the public is asking: Why should Wall Street get bailed out by me when I'm getting screwed? So if you are a member of Congress, you just might be in a position to demand from Wall Street certain conditions in return for the blank check.

ROBERT KUTTNER
Calling Paulson's Bluff huffingtonpost.com — Treasury Secretary Hank Paulson spent the past two weeks playing a game of chicken with firms like Lehman Brothers and A.I.G. Now he is playing even higher-stakes chicken with Congress and the economy. Paulson behaves as if he held all the cards, but in fact the Democrats have a lot of cards, too. The question is whether they have the nerve to challenge major flaws in Paulson's plan as a condition of enacting it.

WILLIAM GREIDER
Paulson Bailout Plan a Historic Swindle thenation.com — Financial-market wise guys, who had been seized with fear, are suddenly drunk with hope. They are rallying explosively because they think they have successfully stampeded Washington into accepting the Wall Street Journal solution to the crisis: dump it all on the taxpayers. If Wall Street gets away with this, it will represent an historic swindle of the American public — all sugar for the villains, lasting pain and damage for the victims. CHRIS HEDGES
Fleecing What's Left of the Treasury truthdig.com — The federal government, reeling backward from the meltdown of financial markets, is now considering taking responsibility for the bad assets of numerous financial companies. But if that intervention does not include robust new mechanisms of regulation, accountability and control we will see nothing more than a massive taxpayer-funded bailout of stockholders and the financial industry.

PAUL KRUGMAN
Crisis Endgame nytimes.com — The unthinkable — a government buyout of much of the private sector's bad debt — has become the inevitable. The big buyout is coming; the only question is whether it will be done right.

REP. BERNIE SANDERS
Rescue Wall Street -- and the Rest of Us thenation.com — Let us be clear. If the economy is on the edge of collapse we need to act. But rescuing the economy does not mean we have to just give away $700 billion of taxpayer money to the banks. Any proposal must protect middle income and working families from bearing the burden of this bailout.

MATTHEW ROTHSCHILD
Where's the Relief for those Facing Foreclosure? progressive.org — With the feds prepared to throw a trillion dollars of our hard-earned money to prop up Wall Street and the investor class, is it too much to ask them to do something for the people who are the real victims of this mess?

CENK UYGUR
This Federal Bailout Proposal is a Disaster huffingtonpost.com — Do you understand what they're going to do? They are about to steal ONE TRILLION dollars from us and just hand it over to the guys on Wall Street who screwed everything up. They are going to take all of their bad loans and dump it on us. We're going to have pay for their mistakes! But they already made the money. They keep the profits and we keep the debts.

ROBERT BOROSAGE
Behind The Financial Debacle: Conservative Misrule How did it come to this? The banksters issue a threat: Hand over $700 billion in taxpayers' money — on top of the $600 billion already forked over — or we'll take down the global economy. There will be a lot of obfuscation — fingers pointing every which way — but the story is very clear. DAVID SIROTA
The $700 Billion Questions Using the shock doctrine, Wall Street and Washington's wrecking crew aim to get the most expensive free lunch in American history.

BILL MOYERS
Moguls Steal Home While Companies Strike Out From our offices in Manhattan, we look out on the tall, gleaming skyscrapers that are cathedrals of wealth and power — the Olympus ruled by the gods of finance, the temples of the mighty, the holy of holies, whose priests guard the sacred texts of salvation — the ones containing the secrets of subprime lending and derivatives as mysterious and elusive as the Grail itself. BILL SCHER
Conservatives Derail Energy Compromise In Senate; Drilling Ban Expires in 8 Days Last week, the House passed a compromise bill with more coastal drilling and more clean energy without the support of conservatives. The Senate had been expected to follow suit — since it was the "Gang of 10" group of Senators who had the original idea of such a compromise, and the Gang had expanded to 20. RICK PERLSTEIN
Sadly, No! The Community Reinvestment Act Had Nothing To Do with this Crisis As these mirthful bloggers observe, we'll be hearing very soon from every conservative opinion outlet on the planet that the present financial meltdown is the fault of the 1977 Community Reinvestment Act, which demands banks lend throughout the communities they serve. DAVID SIROTA
The Picture of Obama's "Minimalism" You want to understand what Barack Obama's "minimalism" on economic issues really looks like? TERRANCE HEATH
Weekend Watchdog Wrapup What a weekend it was for the watchdog, and the rest of the country, as we literally watched history unfold. So much history, that it made it kind of hard to keep score, but we're going to call it 2-for-3 for the watchdog this weekend. An Economy That Works
There is growing frustration with the right-wing policies that provide welfare to the rich and reward corporations while cutting programs that average families depend on. Americans distinguish between corporate success and corporate greed. They believe it is time that government sided with working and middle-class Americans. The progressive alternative rebuilds America's economy for everyone.

• Put people first. We're all in this together. Trickle down tax cuts don't work. We need to invest in areas vital to our future — education, infrastructure, 21st century communications and alternative energy.

• Empower workers and make work pay. Globalization and the non-enforcement of labor laws have tilted the balance in the workplace so that employees no longer get a fair share of the profits they help generate. Productivity goes up but wages are stagnant. We need to abide by our labor laws, raise the minimum wage and run a full-employment economy.

• End the abuse and hold CEOs accountable. Crack down on stock option plans that give corporate leaders an incentive to cook the books. End sweetheart deals that protect executive pensions but leave workers with empty promises. The government needs to do its job and shareholders need tools to hold business accountable to investors.

• Create a national strategy for jobs and growth. We're shipping good jobs abroad and losing our technological, innovative, and economic edge. We can't keep borrowing from foreign countries to buy the goods they produce. We need a new strategy that moves us to energy independence, invests in science and technology, helps seed new industries here in the United States and tackles the unsustainable imbalances with countries like China.

• Give working families a break. American families are struggling to make ends meet. Health and education costs are exploding, and people are working longer hours just to keep their heads above water. Americans are spending more than they save. It's time to put the government on the side of the common good, not the special interests — and make sure that Americans have access to affordable health care, quality education and a safe, clean environment.

Diana Aviv Has Some 'Splaining to Do
September 22, 2008
Why would someone involved in keeping nonprofits ethical give the appearance of being involved in political partisanship? More

Another Dem talking point proven false
September 22, 2008
The Democrats want you to believe that the Iraq War turned the world -- especially the Muslim world -- against us because we toppled an evil killer of Muslims. More

McCain hits Obama's Chicago Ties in new ad
September 22, 2008
"Not ready to lead" More

Jon Stewart is a foreign policy dunce
September 22, 2008
Maybe those kids who get most of their news from Stewart's show should try the Cartoon Network. More

Banned words to describe Obama, Part II
September 22, 2008
I bet you didn't know that calling a candidate "inexperienced" makes you a racist. More

Disinviting Palin 'cowardly and shameful'
September 22, 2008
The organized Jewish community attempts suicide. More

Do you believe the WaPo or your lying eyes?
September 22, 2008
Anne E. Kornblut and Juliet Eilperin of the Washington Post examine the number of ex-Bush people in the McCain camp, and conclude: "No parallel exists on the Democratic side...." More

Former Clinton Staffers Jump to McCain Camp
September 22, 2008
MSNBC reports on the former Hillary staffers now supporting McCain and making strong arguments against The One. More

Palin 'Gets it' on Iran (Updated)
September 22, 2008
Palin shows she understands the Iranian threat better than most Democrats. More

Jawa Report Charges Obama With Astroturfing
September 22, 2008
The Jawa Report observes -- in a lengthy, well-documented article -- that at least one of the viral videos carrying a proven false rumor about Palin (that she belonged to an Alaskan separatist movement) was professionally prepared by a p.r. firm linked to the Obama campaign More

The Washington Post's double standard on religious cartoons
September 22, 2008
Yesterday the Washington Post ran an Oliphant cartoon, insulting to Pentecostals (and Palin). Some time ago the paper refused to print the Mohammed cartoons and offered an interesting standard. More

The Party of Wall Street and Big Mouths
September 22, 2008
Democrats get a lot of money from an industry I plan to start calling "Big Mouth": lawyers, actors, entertainers, advertisers, consultants, etc.. More

Congressional Shell Games
Richard A. Viguerie and Mark Fitzgibbons
If, like many Americans, you are fed up with "fat cats" using political contributions to buy influence with members of Congress, here's something you should know: Many of those fat cats are the members of Congress themselves. More

Big Labor's Billion Dollar Bet on Obama
Mallory Factor
The dirty little secret of Big Labor's massive support for the Obama campaign is the anticipated end to state right-to-work-laws and secret ballots in unionization campaigns. More

Fact-checking Obama's Conference Call to 900 Rabbis
Ed Lasky
Barack Obama held a conference call this week with more than 900 rabbis. Here is a quick fact-check after his latest expression of support for Israel. More

Will the Cure be Worse Than the Crisis?

[b]The Paulson-Bernanke Bank Bailout Plan [/b]
By MICHAEL HUDSON

Saturday’s $700 billion junk mortgage bailout is the largest and worst giveaway since a corrupt Congress gave land grants to the railroad barons a century and a half ago. If it goes through, it will shape the coming century by giving finance unprecedented power over debtors – homebuyers, industry, state and local government, and the federal government as well.

But what threatens to be even worse is the government’s move to let the financial sector make even higher, unprecedented gains by working its way out of negative equity to “make taxpayers whole” by repaying the government’s bailout by bleeding the economy at large. nticipating congressional capitulation in this license to engage in predatory credit, the latest Sunday evening surprise is that Treasury Secretary Henry Paulson’s own firm, Goldman Sachs, is to become bank holding company picking up the financial wreckage now that the government is covering the bad loans and investment gambles Wall Street has made.

What Mr. Paulson did not say in his weekend TV interviews, organized as what he hoped would be a series of victory laps. Neither he nor Fed Chairman Ben Bernanke nor any other Wall Street spokesman has acknowledged that the government has helped promote today’s $46 trillion debt bomb. This enormous overhead consists of the product that banks are selling – interest-bearing debt that is being added to real estate, corporate industry and personal income to price the U.S. economy out of world markets.

We have heard nothing about how Wall Street lobbyists have succeeded in killing the financial cops on Wall Street – and done the same with the consumer cops on Main Street. There is no public recognition of the fact that more money in tax cuts went to the top 1% than the bottom 80% combined.

So how much credence should we give the newest proposals for the United States to commit economic suicide by turning over the powers of government in effect to Wall Street? When they talk about “making taxpayers whole,” what really is their game?

At first glance it may sound appealing to taxpayers for banks to be told to use their future earnings to pay back the $700 billion dollars in junk mortgages, bad hedge-fund bets and other gambles that the Treasury promised on September 20 to pick up at face value, no loss incurred. To provide a sense of proportion, this money could have funded the next forty or fifty years of Social Security. It could have funded health care for all Americans. It could have made a big step toward rebuilding the nation’s crumbling infrastructure. But that is another story. For now the major question is just how the banks, insurance companies and financial conglomerates are to raise the money to pay off this bailout.

The last time the government let banks earn their way out of negative equity was in 1980. Interest rates to bank customers topped 20 percent, driving down prices for real estate, stocks and bonds so low that the leading U.S. banks saw their net worth wiped out. Their debts to depositors and bondholders exceeded the collateral they held in their reserves to back these deposit obligations. But as soon as Ronald Reagan led the Republicans back into office, the Federal Reserve began to flood the economy with free credit, driving down the interest rates that banks had to pay. They were allowed to act as a monopoly and keep credit-card interest rates high, at 20 percent, and above 30 percent with penalties, thanks to the fact that America’s high post-Vietnam interest rates led state after state to repeal anti-usury laws to keep credit flowing.

So the banks did “earn their way out of debt.” But if you were a taxpayer who needed to use a credit card, you paid through the nose. The banks earned their way out of debt at your expense. And by the way, if you really did pay an income tax, you probably did not own commercial real estate or significant financial assets. The Internal Revenue Service made commercial real estate and a large swath of finance (at least for the wealthiest investors) income-tax free by generating tax credits that could be applied against income across the board. The capital-gains tax was lowered to a fraction of the income tax, leading investors to pay out whatever income their investments generated as interest on loans to buy property they expected to sell at a markup. And with Alan Greenspan appointed the head the Federal Reserve Board in 1987, the age of asset-price inflation had arrived.

Cities and states vied with each other to slash property taxes, replacing them with income and sales taxes that fall mainly on labor and consumers. The upshot is that wealth has polarized to an unprecedented degree. According to statistics collected by the Congressional Budget Office, the wealthiest 1% now own 57% of the nation’s returns to wealth (interest, dividends and capital gains) and the richest 10% own no less than 77%.

With this background in mind, it looks like the Paulson-Bernanke plan for the Wall Street investment banks and other predatory lenders – and insurers such as A.I.G. – to “earn their way out of debt” will be at the economy’s expense. The bailout is to be achieved by letting Wall Street’s post-Glass-Steagall financial conglomerates charge their customers exorbitant financial charges. As Britain’s Conservative Party leader Margaret Thatcher put it in her favorite phrase, TINA: There is no alternative. And as Lady Macbeth said, if the deed is to be done, let it be done fast. After all, it is a once-in-a-lifetime chance for every financial institution in America to cash out with a fortune!

For Mr. Paulson this means not giving Congress a chance to represent the public interest in designing the terms of this giant bailout. Sec. 8 of the Treasury plan bans any Congressional review, giving him unprecedented power by: “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.” Under cover of emergency force majeur conditions, the plan is to take the money and run, preferably without permitting any Congressional debate.

It is bad enough for the government to buy $700 billion of bad bank investments at prices that no private-sector investor has been willing to approach. This itself is an undeserved giveaway to the financial institutions that caused the problem by living recklessly in the short run. But making them – and indeed, helping them – pay back this gift with the aid of favorable tax and deregulatory policies will simply shift the cost off their shoulders onto those of bank depositors, credit-card users, mortgage borrowers and hapless pension-fund contributors to the money managers who have taken most of the current income in the form of commissions, salaries and bonuses to themselves. This will sharply add to the price of doing business in the United States, and specifically to the economy’s debt overhead by the banks making even more predatory loans.

It gets worse. In order for the existing junk mortgages to be “made good,” real estate prices must be raised further above the ability to pay for this year’s five million homeowners in arrears and facing default. Is this a good thing? Is it good to raise access prices for housing even more, forcing new homebuyers to go further into debt than ever before to gain access to housing? Mr. Paulson has directed the Federal Reserve, Fannie Mae, Freddie Mac and the FHA (Federal Housing Authority) to re-inflate the real estate market. They are to pump nearly a trillion dollars into the mortgage market.

Fiscal policy is also to be brought to bear to turn the real estate market around by pressuring cities and states to “help homeowners pay their mortgage debts” by cutting property taxes. The idea is to leave more revenue available for property owners to pay mortgage bankers. Unfortunately, this will oblige cities to make up these cuts by taxing labor and sales, running deeper into debt than they already are, or cutting back their spending on basic infrastructure, education and public services and continue shortchanging their pension funds. This is the price to be exacted to “protect the taxpayer’s interest” by bailing out irresponsible banks. The solution is to let them make even more money by acting in a yet more predatory way.

This is not industrial capitalism; it is asset stripping. The closest analogy I can think of would be to give the Mafia free reign to start a new crime wave “in the taxpayers’ interest” so as to raise enough money to pay its fines to the Justice Department. Imagine how our world would look like if the economy had been turned over to Al Capone as head political capo and to Mafia financial manager Meyer Lansky as Treasury Secretary in the 1930s, with the pyramid schemer Carlo Ponzi heading the Federal Reserve and bank robber Willie Sutton as Attorney General.

The last thing the economy needs is a new real estate bubble. To prevent it, local property taxes need to be raised, not lowered. But this is not the Treasury’s plan. Instead of representing the national interest, it is representing the banking sector whose profits come from making more and bigger loans. This is just the opposite from what a well-run economy needs to recover its growth and competitive power. It needs debt write-downs to what homeowners can pay.

But Mr. Paulson has made it clear that aid for homeowners is not part of the Treasury’s plan. On Sunday, September 21, he resisted suggestions that his program be amended to include further relief for homeowners facing mortgage foreclosures. Because financial markets remain under severe stress, he claimed, there is an urgent need for Congress to act quickly without adding other measures that could slow down passage. “We need this to be clean and to be quick,” he said in an interview on ABC’s “This Week.” He expressed concern that debate over adding all of those proposals would slow the economy down, delaying the rescue effort that is so urgently needed to get financial markets moving again. "The biggest help we can give the American people right now is to stabilize the financial system," Mr. Paulson said.

If you doubt that this is the government’s ideal plan, just look at what it is rejecting. You hear no talk from Mr. Paulson or Mr. Bernanke about bailing out homeowners by writing down their debts to match their ability to pay. This is what economies have done from time immemorial. Instead, the Republicans – along with their allied Wall Street Democrats – have chosen to bail out investors in junk mortgages presently far exceeding the debtor’s ability to pay, and far in excess of the current (or reasonable) market price. The Treasury and Fed have opted to keep fictitious capital claims alive, forgetting the living debtors saddled with exploding adjustable-rate mortgages (ARMs) and toxic “negative amortization” mortgages that keep adding on the interest (and penalties) to the existing above-market balance.

The question to be asked is just how much will the economy’s debt overhead grow, and what will it cost debtors (a.k.a. “taxpayers”)? And how will the economy look when the dust settles?

Economically the act gives a new meaning to the classical concept of circular flow. The traditional textbook meaning has referred to the circulation between producers and consumers, from wage payments by industrial companies to their employees, who use their wages to buy what they produce. This is why Henry Ford famously paid his workers the then-towering $5 a day. This was Say’s law: Income paid for production is finds its counterpart in consumption to maintain equilibrium in a way that enables the economy to keep on growing. The new circular flow runs from the Fed and Treasury to Wall Street in the form of bailouts, and then back to Republicans in Washington in the form of campaign contributions. The money circulates without having to go through the “real” economy of production and consumption at all.

The Treasury Department issued a fact sheet on the proposal on Saturday evening: “Removing troubled assets will begin to restore the strength of our financial system so it can again finance economic growth.” In everyday language the euphemism “removing troubled assets” means buying junk mortgages at way above current market price, as if the banks didn’t know all along that they were junk but hoped to pawn them off on their clients. The problem is that the banks have not been financing growth in the form of tangible capital investment, but have found their quickest profits to lie in a combination of asset stripping and asset-price inflation.

On Sunday a BBC World Service reporter asked me to list three things that the financial sector would like to see. Taking the open-ended question on the highest philosophical plane, I said, first of all, the banks would love to free themselves of all deposit liabilities – simply to keep the money for themselves. That is their objective when they see a client, after all: How much of the client’s earnings and money can they shift into their own pockets. Second, they would like to see politicians elected directly by the amount of money they could raise, thereby doing away with the actual problem of elections. If politics is going to be privatized, this is the way to do it. Rome’s voting system was organized along these lines. Third, the financial sector prefers not to have to report any data at all or pay any taxes. It has lobbied Congress to block collection of statistics, on the premise that what is not seen will not be taxed. And at present, banks and brokerage houses are still screaming to repeal Sarbanes-Oxley bill calling for full and honest accounting. For financial ideologues this is an equivalent watershed dragon to Rowe vs. Wade, now that they have repealed the Glass-Steagall Act that had separated banks from casinos.

Somewhat taken aback by the rawness of these principles, the reporter asked what outcome was most likely. If Congress does what it is supposed to do, there should be quite a showdown. But how unlikely to be achieved is the above scenario? A few hours earlier on Sunday my friend Eric Janszen of itulip.com sent me a note he had received from a fund manager attesting to the lack of care for clients of financial institutions, giving a flavor of the predatory spirit guiding the bailout’s planners and its beneficiaries:

RAIDS OF INDIVIDUAL ACCOUNTS

This is so important a topic, that it deserves top billing!!! Hidden inside the AIG bailout funding package, surely hastily cobbled together, but carefully enough to include a totally corrupt clause, was a handy dandy clause that permits raids. The conglomerate financial firms are permitted at this point to use private individual brokerage account funds to relieve their own liquidity pressures. This represents unauthorized loans of your stock account assets. So next, if the conglomerate fails, your stock account is part of the bankruptcy process. ...

The actual evidence for legalized stock account raids by the financial firms can be found in recent articles in Financial Times and Wall Street Journal. So this is not a wild claim. The September 14th article on the Wall Street Journal entitled "Wall Street Crisis Hits Stocks" was the first exposure.

The runs on US banks are in progress. See Washington Mutual, where private email messages have been shared by WaMu bank officers. WaMu alone could deplete the entire Federal Deposit Insurance Corp fund for bank deposit coverage. Eventually the FDIC will compete for USGovt federal money for bailouts and nationalizations, which would be funded by the US Govt because they will not let FDIC run dry.

My Kucinich-campaign colleague David Kelley and I agree on how Wall Street’s action plan ideally would work. The Republicans will take the $800 billion of U.S. Treasury securities presently earmarked for the Social Security Administration accounts, and achieve the privatization that Pres. Bush and his backers have been pressing for so hard for the past eight years. Under emergency conditions – today’s 9/21 as the modern analogue to 9/11 just seven years ago (the well-known natural lifespan of locusts) – will swap these Treasury bonds for junk mortgages, at face value of course. Then, a few months from now (after the new president takes office in February, or perhaps a few days before to achieve the usual political clean slate) the government will tell prospective retirees and workers who have been suffering FICA withholding all these years, “Oops, the government has just lost all your money. Well, that just shows how government planning is the road to serfdom. Next time save yourself by handling your own accounts – or at least choosing whether to consign your forced retirement savings to Lehman Brothers, Bear Stearns or kindred predatory money managers. If only we could have done this a few months ago, there would have been no meltdown and Wall Street would have been doing just fine.”

If you are going to take such a step, you of course say you are doing it to “save” the economy. You even proclaim yourself to be a hero. This is how the nation’s newspaper and TV media responded after news of the bailout of AIG and, more to the point, the Wall Street gamblers and derivatives traders whose gains and losses – that is, the ability of trillions of dollars worth of computer-driven trading gambles – to collect their winnings and avoid losses.

Today’s financial markets are well personified in the classic Hollywood westerns. They typically are about towns taken over and run by a banker (“Wall Street” in miniature), for whom a retinue of outlaws and their gangs work (the boys in the back room). The banker runs the town, usually doing business from its biggest building, the local saloon or casino where most of the action occurs. It has a brothel upstairs (the usual Hollywood simile for Congress). The good-hearted prostitute (sometimes the madam) with a heart of gold usually is the movie’s only honest secondary character (a stand-in for one of the bleeding-heart Congressmen on the finance or mortgage-credit committees lisping well-scripted lines promising that all new legislation will benefit homeowners, not predatory mortgage lenders).

There also is a good-hearted investigative newspaper publisher-journalist. He almost always gets killed and his printing press destroyed. (Today his paper is simply bought out by a conglomerate and merged into the pro-Wall Street mass media.) The banker’s gang appoints the sheriff (on today’s larger scale, the Federal Reserve and Justice Department), and also the mayor (who rarely is seen except to sign papers). The sheriff’s job is the same as in today’s world: to evict debtors from homes and properties on which the land-greedy banker is foreclosing. This is the common theme of westerns, after all: They are all about the great American land grab – situated out West so as to protect the identities of the guilty here in the East on Wall Street.

Attentive readers will notice that I have left out of this script the hero. His role is to fight the banker/land grabber and the gang he has brought into town. Wearing a white hat, he rides into town to clean it up, and in the final showdown shoots the head gunslinger (or perhaps the banker himself, who is done for in any event). This is the position that Mr. Paulson portrays himself. But what the audience doesn’t see (at first) is that the bullets he is shooting are merely blanks. It is in fact only a movie after all! The showdown is staged! He works for the banker himself! Goldman Sachs turns itself into a big-fish bank and gobbles up all the little fish in a great financial squeeze.

An alien class of financial mock-heroic poseurs has taken over – land grabbers and banksters of various stripes. Almost unnoticed, an invasion of government snatchers, bank snatchers, money snatchers pretending to be Main Street, pretending to be “the economy” and now claiming to need to be rescued – at the cost of saying goodbye to public finance as we have known it, goodbye to Social Security, to peoples’ hope for upward economic mobility.

It looks like Wall Street will receive government support at Main Street’s expense. This is hardly surprising when you look at who the major campaign contributors are – to both parties. Understandably, Mr. Paulson and Mr. Bernanke are trying to muddy the issue for their financial constituency. Hedge fund traders and kindred banksters have metamorphosized into “the financial system to be saved” and hence “the economy” itself. As if it is necessary to save peoples’ savings deposits and bank accounts by rescuing the casino companies with which the banks have merged – the predatory mortgage brokers, the insurance companies with their fraudulent accounting, the crooked asset-management firms, all of which have merged into conglomerates “too large to fail.” If they are too large, simply un-merge them. Restore Glass-Steagall, which worked for 65 years to prevent this kind of problem from erupting.

The most egregious pretense is that the problem is only temporary, not structural. We are merely “freeing up” the market for new loans. This is precisely the opposite of what the classical economists meant by “free markets.” What America has is a bad debt problem, not a “liquidity” problem. There is no “illiquidity” when people refuse to buy a junk mortgage on a property worth only a fraction of the mortgage’s face value. Many of these bad mortgage loans are fraudulent. The Treasury bailout seeks to make $700 billion of fictitious financial claims “real” – that is, way overvalued as compared to their actual worth(lessness).

What is reducing real estate and corporate stocks and bonds to junk is the exponential growth in the economy’s debt overhead. Debts that cannot be paid have little market value at any price. The nation must make a choice: If the government bails out the large financial institutions for having made bad loans – or to be more precise, for not being able to pawn off these bad loans on foreigners or other financial prey in a timely fashion – then the only way in which the government (or other new creditors) can be paid back is by not forgiving the debts owed by strapped homeowners. This would tighten the debt terms on debtors at the bottom of the food chain – those against whom the bank-sponsored new bankruptcy has been aimed. This is why I deplore the government bailout of Fannie Mae and Freddie Mac for the junk mortgages it has been packaging from predatory lenders such as Countrywide Financial, Washington Mutual and other deceptive lenders. The wrong parties have been gifted.

I should add that the solution does not lie simply in creating a new regulatory system, much less a single regulatory agency. After all, it was at Wall Street’s command that the Bush Administration installed deregulators in all the key regulatory positions. This meant that regulations didn’t matter at the Environmental Protection Agency (EPA), at the Fed under Alan Greenspan, at the Securities and Exchange Commission (SEC) under Mr. Cox (after William H. Donaldson resigned when the White House would not let him regulate as much as he thought necessary) or at the Department of Justice under Bush yes-men such as Alberto Gonzales. Politics and people have turned out to be more important than the law. We have seen the Supreme Court scrap the Constitution in the 2000 election – with acquiescence from the Democrats, starting with Mr. Gore’s refusal to contest Florida.

To appoint a single regulator would prevent all other regulators – and law enforcement officers, attorneys general, the SEC and so forth – from enforcing honest financial policies in the event that an incoming president should appoint another Greenspan, Gonzales or other ideological extremist averse to the idea of applying existing regulations and honest laws. Under these conditions “consolidated regulation” would mean a free ride for crooks much like J. Edgar Hoover gave the Mafia under his tenure.

My alternative solutions are as simple as Mr. Paulson’s, but of course are quite different. The public interest does indeed call for maintaining the economy’s basic credit, money-transfer, credit card and depository checking and savings functions. But not under the current venal and predatory management practices. It is this management that has lobbied so hard for deregulation, and whose industry representatives have insisted so strongly to place extremist ideological deregulators into the economy’s major positions. Therefore, the Treasury only should buy junk mortgages at current market price. The losses should be taken in order to re-even out the wealth pyramid that has become so much steeper under the Greenspan-Bernanke ploys. The banks knew full well that these mortgages lacked underlying value. The price of making use of this borrowing facility is to forfeit all equity stock to the government. The Treasury should prohibit any financial institution that sells or swaps securities to the Fed from paying any dividends to shareholders or stock options and bonuses to managers. It also should give the government priority over other creditors. Otherwise, firms that have negative equity will benefit purely at public expense, using the money to pay dividends, bonuses and exorbitant salaries.

Second, we need to restore the Glass-Steagall separation of commercial banks from risk-taking investment banks, mortgage brokers and other financial-sector flotsam and jetsam. Break up the mergers between banks and casino sell-side financial and real estate institutions. Just the opposite is occurring: On Monday, Sept. 22, the financial universe was transformed by the announcement that Mr. Paulson’s Wall Street firm, Goldman Sachs, was transforming itself into a bank holding company. The casinos are to take over the banking system as big fish eat little fish in the present financial emergency. It looks like new giants are emerging, already larger than the government in terms of the magnitude of the debts they have run up – and certainly in their earning power. Indeed, who is to say that extracting interest from the U.S. economy will not emerge as the new form of taxation?

Third, re-write the bankruptcy laws to favor debtors once again, not creditors. This means reversing the current bankruptcy code sponsored by lobbies from the credit-card companies. The interests of the five million mortgage debtors faced with foreclosure and expropriation this year should rightly be placed above the interest (literally) of predatory creditors.

Fourth, sharply increase property taxes, shifting them back off labor and sales. We need to return to the classical idea of taxing unearned and unproductive income instead of adding to the price of labor and industry. What has been freed from the tax collector by the shift of taxes off property has not lowered the cost of housing and other real estate, or corporate costs of doing business. The income “freed” has ended up being paid to the banks as interest. The government still has had to raise money – but in the form of taxes that fall on labor’s wages and industry’s profits. So labor and industry now pay twice for what they formerly paid only once. They still pay the same overall amount of taxes, but also pay an equivalent amount of interest. The financial system is crowding out the government.

In the fifth place, we need to start discussing whether we really need a banking system that behaves in the way the present one does. In recent decades banks have made loans mainly to inflate asset prices by loading real estate and industry with interest-bearing debt. What if all banks were to be organized along the lines of savings banks, with 100% reserves. This is the Chicago Plan from the 1930s (currently revived by the American Monetary Institute, which holds its annual meeting this week in Chicago, by the way). This at least would go back to basics to provide a foundation from which to re-begin to discuss just what kind of credit the economy needs and what would be the best terms on which to structure financial markets.

Any solution does indeed need to be radical. But it can be much less radical than Mr. Paulson’s power grab for his Morgan Stanley firm and the rest of Wall Street in the closing days of the Bush administration just before the Republicans look like losing power. The indicated solution is to reverse predatory finance, not bail it out at permanent taxpayer expense. Government funds are not unlimited. Is it worth wiping out hopes for Social Security and public health care, for renewed national infrastructure spending and industrial restructuring in order to bail out a banking and financial system that has not contributed to economic growth but has weighed it down with reckless debt regardless of the economy’s ability to pay?

Is it right to blame the five million homeowners now in arrears and facing foreclosure, but rewarding the irresponsible bankers and outright fraudulent institutions who have used Enron accounting to make a once-in-a-lifetime rip-off? That is what Mr. Paulson would do in insisting that Congress pass his legislation without taking time to discuss the issue and above all without “assigning blame.” But without such assignation, how do we know where to go from the current mess caused by financial deregulation, repeal of Glass-Steagall, the financial system’s Enron-style accounting and predatory mortgage lending?

Before leaving from his post as Federal Reserve Chairman, Alan Greenspan’s speeches sounded like “Apres moi, le deluge.” We are living in a world whose economic and political pressures are much like those in the interregnum between Louis XIV and the French Revolution. Where are the revolutionists today?

Michael Hudson is a former Wall Street economist specializing in the balance of payments and real estate at the Chase Manhattan Bank (now JPMorgan Chase & Co.), Arthur Anderson, and later at the Hudson Institute (no relation). In 1990 he helped established the world’s first sovereign debt fund for Scudder Stevens & Clark. Dr. Hudson was Dennis Kucinich’s Chief Economic Advisor in the recent Democratic primary presidential campaign, and has advised the U.S., Canadian, Mexican and Latvian governments, as well as the United Nations Institute for Training and Research (UNITAR). A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) He can be reached via his website, mh@michael-hudson.com

http://www.counterpunch.org/

On the Social Benefits of Creative Destruction

[b]Let It Collapse! [/b]
By CHRISTOPHER KETCHAM

So the tax-payer hand-out will “save” Wall Street from its own predations. Any reasonable man, of course, would wish the pig-"expletive deleted"ers to fry in their own feces. Let the free market carry out their corpses to the gutter. And mine too, perhaps, for as a magazine writer I depend on the thoughtlessness and blind-mole cupidity of credit-card consumerism – the credit system now imploding – to feed the ad-market that feeds the magazines that pay my bills. Without dumb blondes buying Manohlo Blahniks and metrosexuals fawning over prawns in overpriced restaurants, my paycheck turns to dust.

But the fact is that our economic system is a lunatic and suicidal system, and it deserves to go down. Why lunatic and suicidal? It is predicated on the delusion, accepted on every level in every modern society, that unlimited Mahnolo Blahniks are possible on a planet of limited resources. Growth without horizon is simply not possible, but the delusion remains in force, a mass glue-huff and consensus trance hallucination. Endless growth on planet earth is by definition entropic; it implies its own end. Its pursuit is therefore suicidal.

What might replace the current insane system I couldn’t venture to say. Certainly, a lot of people will be hurt if we go down the rat-hole that appears our proper and fitting end. If events trend badly enough, a period of contraction, unemployment, economic depression, homelessness, tent cities, rising crime, boarded up storefronts, abandoned homes will be upon us faster than imaginable – the last five developments are already in our midst in the post-subprime wastelands of suburbia. Perhaps the crisis will bring about the devolution of the American living standard to something like sustainability. Perhaps it will only bring out a lot of pissed-off middle-classers who refuse to accept that the American way of life is sick and crazy and has no future. That kind of infantile resentment historically either leads to reform or fascism.

Gerald Celente, a self-described “trends forecaster” who last year predicted the “Economic 9/11” that hit this week, dropped me an e-mail the other day: “THE PANIC IS ON,” he wrote. “Depression to follow…” Celente, who has famously tended to be right, augurs that the big Wall Street failures will extend far beyond the financial sector. “In the coming weeks, months and years,” writes Celente, “we'll see a steady stream of banks, giant retailers, consumer product companies, manufacturers, leveraged buyout firms and home builders going under. The next economic shoe to drop,” he avers, “will be in the commercial real estate sector.”

Bring it on. I envision a trickle-down benefit here in Brooklyn, which when I was growing up in the 1980s served fine as a natal ground defined by burglaries, homelessness, murder, empty streets, and the pervasive sense that bad things could happen at any time, which tends to raise consciousness to a fever range, the kind of sharp-sword animal consciousness where the coyote and the rat operate. Empty streets, spartan and lean and dark – that’s what I most remember about old Brooklyn. The place had the feeling of desert. It was replete with open spaces. The “maggot called man,” in Nietzche’s memorable phrase, was not swarming in the foreground.

There was very little that was considered upscale – meaning you could afford the restaurants and bars, what few there were, without making $100,000 a year in the salary prisons of corporate Manhattan. When I was 19, in 1992, I rented an apartment in a neighborhood of old brownstones then known as Park Slope – hallucinating realtors in the New York land rush of the last 20 years have since divided the streets into a Babel of sub-markets. I paid $400 a month for two rooms and a bathroom that leaked "expletive deleted"-water and a fridge that shut off periodically to fill with cockroaches (they ate ham while I slept!). My girlfriend at the time, Carole-Anne, with whom I’d later have a daughter, had just gotten off a plane from Paris. One day I came home to find her crying. “A man – no head! La tete, la tete,” she said. She was hysterical. A man had been shotgunned around the corner and Carole-Anne had walked onto the crime scene minutes after the shoot-out, before the cops could sanitize. That was Brooklyn. And it was okay – well, not okay, but it was part of the facts of life in a city that warded off those who weren’t trained in that high keening consciousness to accept it. One night we borrowed my father’s Honda and took a midnight drive into a cliffy forested park at the northern tip of Manhattan, and a car came up behind us in the lightless road and tried to cut us off. A car-jacking. The men in the car screaming out the window, waving guns. Carole-Anne hysterical (poor girl, from the suburbs of Paris!). High-speed chase along the winding roads. The cars screeching. We escaped down a wrong-way road at 70 miles an hour – god save us we didn’t smash into someone coming the other way – and when we were home in Brooklyn, we were alive. Alive and overjoyed and it was a beautiful moment. That was New York.

This is all romanticized drivel, of course, and to be car-jacked or see a man shotgunned is not to be interpreted as normal or fun or desirable. But at least it was affordable. You didn’t have to work 60 hours a week to watch the cockroaches eat your dinner inside the fridge. You worked enough to pay the rent, and no more (I was a bike messenger, she worked as a secretary at a real estate office that I’m convinced was also trafficking narcotics). I think of the accounts I’ve read of primitive societies, in the sea-girt islands, say, of Micronesia, where perhaps three or four hours a day are lost to the work required for daily survival. The balance of waking is dedicated to nothing at all that could be construed as productive, which means it was for playing with the kids, it was for sex, for sleep, for lazing and going back to sleep. A little work, mostly play makes Jack a happy boy.

Today the same "expletive deleted"-house Carole-Anne and I lived in costs $1900 a month, and it probably still has a cockroach problem, but this is considered “character,” and the main avenues all around are swallowed in the caterwauling of commerce by which the newly-ripped-off resident is bombarded with the temptations of more junk than is affordable or desirable. Whereas on 5th Avenue in Park Slope in 1992 I used to be able to find a hooker and cocaine and run away from a fist-fight and learn Puerto Rican Spanish doing it, whereas I used to be able to find nothing at all on the street, no people, no rushing, nothing to buy or sell, just about every storefront today is taken over by the glad-handing smiley-face of the idiot consumer economy gone to its nth-degree madness. There is growth on all sides, it saturates, it feels like hysteria, and like hysteria it will end in collapse. There are too many amenities, there is too much foolery and surfeit disguised as worthiness and bottom-line necessity. The restaurants where crappy food, the same crappy food you might have gotten for a twentieth of the price ten years ago, is proferred as if it’s Jesus’ bread broken in your mouth – as with religious ritual, the profligate consumption bar/restaurant scene is as ritualized and hyperbolic as a funeral. Money is the password to all social relations. Bubble-economics on all sides: How many of the new jobs offered to the newly-rich in Brooklyn are based on anything more than the usual hallucinated sectors of finance, banking, media, fashion? Fashion, that New York engine of silliness, has for its purpose the slathering of rich people in expensive uselessness made by slave-wagers overseas – it is the industry of children playing at dress up. Once upon a time New Yorkers made their own clothing – right there in Manhattan, in the garment districts, where the art galleries of Soho now peddle emptiness on canvas. But emptiness is today our butter: entertainment, the “news cycle,” the so-called “arts,” the ever-increasing pestilence of a media that informs not at all. Are there any jobs in New York City that actually produce something other than a fart in the wind on a website or in the windows of mannequins at Saks Fifth Avenue or in the ledgers of bankers and brokers, the parasitic middlemen?

Which brings me back to the collapsing markets, the product of fart-in-the-wind economics. I can foresee on 5th Avenue in Park Slope a beautiful resurgence of shuttered shops, rotted storefronts, the end of money’s welcome in its hypocrite hug, the end of surfeit, a return to normalcy. No more strawberries in January at the store on the corner – the strawberries were never meant to be eaten in winter anyway. Perhaps we might even see a return to the city of people who manufacture something other than air. I will be driven out first – because this screed is all air! So be it!

Christopher Ketcham writes for Vanity Fair, GQ, Harper’s, and many other magazines. You can contact him at cketcham99@mindspring.com

http://www.counterpunch.org/ketcham09222008.html

CounterPunch Diary

[b]Is This the Stake Through Neoliberalism's Heart? It Should Be, But ... [/b]
By ALEXANDER COCKBURN

Hope walks arm in arm with fear, and so naturally enough Candidate Barack Obama is now reminding us, a la Roosevelt, that we have nothing to fear but fear itself and we must all pull together in a spirit of bipartisanship. Wrong. We have many identifiable things to be frightened of, starting with a bailout program designed to bail out the thieves running our financial system, and stick middle America with the pricetag – heftier than you can imagine. Why pull together with the licensed thug who just stole your money with the pledge that he would be doing it again to your kids?

For the practicalities and implications of the thievery on Wall Street I highly recommend the pieces on our site this weekend by Michael Hudson, Pam Martens and our other writers. I also press upon our readers the reminder, which CounterPunchers surely don’t need, that when it comes to fingering the perpetrators this crisis is indeed truly bipartisan. What exploded last week was an economic credo that has been rolling along since the early 1970s: neoliberalism.

By all rights, this last crisis has brought us to the crossroads where neoliberalism should be buried with a stake through its heart.
We’ve had thirty years worth of deregulation – the loosening of government supervision. This has been the neoliberal mantra preached by both major parties, the whole of the establishment press and almost every university economics department in the country. It is central to the current disasters. And if you want to identify symbolic figures in the legislated career of deregulation, there are no more resplendent culprits than the man at McCain’s elbow, Phil Gramm, and the man standing at Obama’s elbow at his press conference, Robert Rubin.

Take Gramm first.

In 1999 John McCain’s friend and now his closest economic counselor, then a senator from Texas, was the prime Republican force pushing through the Gramm-Leach-Bliley Act. It repealed the old Glass-Steagall Act, passed in the Great Depression, which prohibited a commercial bank from being in the investment and insurance business. President Bill Clinton cheerfully signed it into law.

A year later Gramm, chairman of the Senate Banking Committee, attached a 262-page amendment to an omnibus appropriations bill, voted on by Congress right before a recess. The amendment received no scrutiny and duly became the Commodity Futures Modernization Act which okayed deregulation of investment banks, exempting most over the counter derivatives, credit derivatives, credit defaults, and swaps from regulatory scrutiny. Thus were born the scams that produced the debacle of Enron, a company on whose board sat Gramm’s wife Wendy. She had served on the Commodity Futures Trading Commission from 1983 to 1993 and devised many of the rules coded into law by her husband in 2000.

Somewhat stained by the Enron debacle Gramm quit the senate in 2002 and began to enjoy the fruits of his own deregulatory efforts. He became a vice chairman of the giant Swiss bank UBS’ new investment arm in the US, lobbying Congress, the Federal Reserve and the Treasury Department about banking and mortgage issues in 2005 and 2006, urging Congress to roll back strong state rules trying to crimp the predatory tactics of the subprime mortgage industry. UBS took a bath of about $20 billion in write offs from bad real estate loans this year.

Long acknowledged as one of the most mean-spirited men ever to reach Congress, utterly charmless, (he managed to win only eight delegates in a hugely expensive bid for the Republican nomination in 1996) Gramm kept close contacts with the man dubbed McNasty when he was at the Naval College in Annapolis. Aside from their affinities in viciousness of character Gramm had access to big campaign funders in Texas, necessary from McCain’s 2008 bid. He became McCain’s campaign chairman and chief economic advisor.

Gramm is a prime exhibit in any list of the architects of the current economic mess. At the behest of the banking industry he wrote the laws that enabled the huge balloons of funny money debt that exploded this year. The deregulatory statutes bearing his name prompted Wall Street’s looting orgy in the subprime thievery.

But is he Exhibit A? No. That honor should surely go to Robert Rubin and to the economic course he set for his boss, the eagerly complicit Bill Clinton. Gramm has been the hireling of the banking industry. Rubin is at the beating heart of Wall Street finance, and he and Lawrence Summers at Clinton’s Treasury, were the guiding forces for financial deregulation.

Obviously the Republicans hoped that the roof wouldn’t fall in on their watch, and the crisis could be deferred to 2008 and then blamed on the Democrats. But their insurance policy was that if the roof did cave, as it has now, the rescue policy would be identical in both cases. That’s why Obama has collected more money than McCain from the big Wall Street houses.

The gang that successfully got out of Dodge in time was the Clinton-Rubin-Summers gang, just before the last bubble -–the stock market bubble -- burst in March of 2001. They knew what was coming.

I urge CounterPunchers to pull off the shelf Robert Pollin’s invaluable economic history of the Clinton years, Contours of Descent.

"The second major component of Clinton administration policy in this area was supporting the successful repeal of the Depression-era Glass-Steagall framework of financial regulation through the 1999 Financial Services Modernization Act, otherwise known as Gramm-Leach-Bliley Dismantlement of Glass-Steagall, de facto and de jure, had been long in the making. Innovative financial market players were easily circumventing this old regulatory apparatus, with its focus on creating firewalls between segments of the financial services industry, and preventing commercial banks from operating in more than one state. But the point is that an alternative to both Glass-Steagall and complete deregulation could have been devised, through some combination of policies such as taxing speculative financial transactions and establishing lower reserve requirements for loans that finance productive, as against speculative, investments. But the Clinton administration never considered such an approach. Quite the contrary. The 2001 Economic Report of the President, the last one written under Clinton, was unequivocal in dismissing Glass-Steagall and touting the virtues of financial deregulation:

“‘Given the massive financial instability of the 1930s, narrowing the range of banks' activities was arguably important for that day and age. But those rules are not needed today, and the easing of interstate banking rules, along with the passage of the Financial Services Modernization Act of 1999 have removed them, while maintaining appropriate safeguards. These steps allow consolidation in the financial sector that will result in efficiency gains and provide new services for consumers.’

“Moreover, Robert Rubin, a major Clinton administration force behind Glass-Steagall repeal, was also among the first to benefit personally from it, in moving from his Treasury position to co-direct the newly merged investment/commercial banking conglomerate Citigroup. Under any reasonable interpretation of Glass-Steagall, the former commercial bank Citicorp and the former investment banking firm Travelers would not have been permitted to merge."

Amid the embers of last weekend’s meltdown on Wall Street -- one of the most devastating in the nation’s history as Lehman went broke, Merrill Lynch was swallowed up by Bank of America and AIG tottered to the Fed, begging bowl in hand -- John McCain insisted that "the fundamentals of our economy are strong."

This was eerily reminiscent of the House of Morgan’s Thomas Lamont and his famous understatement to journalists including my father, standing on Wall Street on Black Thursday, October 24, 1929. As my father describes it in his memoirs:

It was like the manner of the man who comes on the stage of a burning theater and urges everyone to keep perfectly cool, stating there is no cause for alarm. Lamont made soft, soothing gesticulations with his pince-nez as softly, gently, almost stammeringly, he deprecated anything in the nature of sensationalism. His first sentence has been aptly described as one of the most remarkable understatements of all time.

‘There has been a lit