Wednesday, September 24, 2008

Fighting for the Rights of Voters Behind Bars

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By Anthony Papa

A coalition of concerned citizens in Alabama is shaking up the GOP with their goal of registering voters in the most unlikely of places -- state prisons. A voter registration drive led last week by Rev. Kenny Glasgow, began registering prisoners to vote, a right guaranteed under Alabama’s State Constitution, so they could cast absentee ballots.

The drive was originally embraced by Richard Allen, the commissioner of corrections in Alabama, but it was stopped when he received a letter on Thursday from the Alabama Republican Party opposing the drive. Its chairman, Mike Hubbard, told Mr. Allen that the party supports voter registration but not for prisoners, citing a need for safeguards against possible voter fraud.

Rev. Glasgow challenged this statement and said, "Voter registration drives are an essential part of our democracy. This action by the GOP and the Department of Corrections smacks of voter intimidation. Our focus isn’t politics, its restoration. We’re just doing what the Bible says, visiting people in prison and ministering to them. The chairman of the Republican Party and the chairman of the Democratic Party can go into prisons with us and monitor the registration process to make sure it’s nonpartisan, if that’s a concern."

In Alabama, nearly 250,000 people have been stripped of their right to vote due to a felony conviction. But, in a 2006 court ruling which was the result of a lawsuit by Ryan Haygood of the NAACP Legal Defense Fund, a judge found that only those persons convicted of felonies of "moral turpitude" lose their right to vote. The judge found that certain felonies -- such as drug possession -- do not constitute crimes of moral turpitude and, therefore, individuals convicted of those crimes do not lose their voting rights, even during incarceration.

Rev. Glasgow’s organization, Alabama-based The Ordinary People’s Society (TOPS) and their national partner, the Drug Policy Alliance, estimate that more than 50,000 people convicted in Alabama of felonies falling outside the "moral turpitude" definition have been wrongly denied their right to vote, or anyway believe they lost that right due to a felony conviction.

While drug use is proportionally equal across all racial lines, African Americans are incarcerated for drug crimes at much higher rates than whites. Blacks make up only 26 percent of Alabama’s population but are nearly 60 percent of the prison population. And, for every white person in an Alabama jail, there are about four black people.

"We’ve got to start restoring people’s lives by providing treatment, by restoring the right to vote," said Reverend Kenneth Glasgow, TOPS executive director and state coordinator of their New Bottom Line campaign. "When a person gets a felony conviction, they can lose more than their voting rights; they can lose public assistance, public housing and financial aid for school. The drug war has become a war on people and we now spend more on incarceration than on treatment. Why do we spend more on producing criminals than producing citizens? We need a new bottom line."

The right to vote is an important part of the rehabilitation process and should be given to those who have paid their debt to society. An estimated 5.3 million Americans are denied the right to vote because of laws that prohibit voting by people with felony convictions. A few years ago, I was one of those Americans. I was on parole and could not vote after serving 12 years of a 15-to-life sentence for a nonviolent drug crime under New York’s draconian Rockefeller Drug Laws. After my release, I felt the pain of felony disenfranchisement since it seemed I was being further punished for my crime. I was elated when, after waiting for five years, I got off parole and was able to cast my first vote. I felt I was fully welcomed back by society as a citizen.

"Alabama state law makes it clear that people incarcerated for simple drug possession never lose their right to vote, even while incarcerated," said Glasgow. "The GOP and the Alabama Department of Corrections cannot decide on their own which constituencies are going to have access to the vote, and which will be barred from it. We live in a democracy, after all."

Congress Objects to Lack of Help Aimed at Homeowners

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The White House waged a multifront campaign Tuesday to persuade Congress to accept its vast economic bailout plan, though many in Congress, still unhappy with what they were hearing, continued to push for changes that would provide stronger protection for taxpayers and impose tougher terms on financial institutions.

President Bush told world leaders that the United States had taken “bold steps” to deal with the financial crisis, while Vice President Dick Cheney and other top officials went to Capitol Hill to address lawmakers.

Treasury Secretary Henry M. Paulson Jr. and the chairman of the Federal Reserve, Ben S. Bernanke, faced five hours of grilling by skeptical, angry members of the Senate Banking Committee.

But with just six weeks before an election, Congress and the administration were negotiating intensely behind the scenes to resolve major sticking points in the plan, and some of the drama was intended for hometown audiences.

House Republicans seemed the least receptive of all, and by the end of the day, there was no clear road map.

In blunt terms, Mr. Bernanke warned the senators that if they failed to pass the $700 billion plan, they risked causing a recession, increasing joblessness and pushing more homes into foreclosure.

“This will be a major drag on the U.S. economy and greatly impede the ability of the economy to recover,” Mr. Bernanke said.

The lawmakers objected strenuously to the broad authority Mr. Paulson was requesting, the lack of additional steps to help homeowners avoid foreclosure and the absence of any demands for ownership stakes in the banks that would be helped.

Even Richard C. Shelby of Alabama, the senior Republican on the banking committee and one of the most vocal critics of the proposal, said he expected Congress and the White House to eventually reach a deal.

“I think Congress will react positively at the end of the day,” he said. “But in what form, we’re not sure yet.”

House Speaker Nancy Pelosi, the Senate majority leader; Harry Reid of Nevada; and other Democratic leaders met Tuesday afternoon to form a strategy for bringing the bailout legislation to the floors of both chambers later this week.

Mr. Cheney led a delegation from the White House, including the chief of staff, Joshua B. Bolten, and the budget director, Jim Nussle, to meet with House Republicans on Tuesday morning. But the visit did little to quiet a rising chorus of doubts.

“My sense is that the meeting did not abate the growing discontent,” said Representative Mike Pence, Republican of Indiana, who opposes the plan.

Representative John A. Boehner of Ohio, the Republican leader, said that there seemed to be little appetite for the bailout among his conference.

Still, he said that swift action was needed and he remained committed to a deal.

To help win some votes, Mr. Paulson agreed to speak to House Republicans on Wednesday morning, after which he and Mr. Bernanke must give a repeat performance before the House Financial Services Committee, an audience that could prove even more hostile than the Senate banking panel.

On Tuesday, Mr. Paulson rushed from the banking committee hearing to meet with Republicans at their weekly lunch. He faced tough questioning, but many lawmakers emerged from the meeting expressing support.

“We’re anxious to act, and to act quickly, to restore confidence in the markets and in our country,” Senator Mitch McConnell of Kentucky, the Republican leader, said after the meeting.

Democrats, however, grew concerned that a lack of Republican support, particularly in the House, could leave them in an undesired alliance with the Bush administration.

Mr. Reid, at a news conference, said Democrats were waiting for Republicans to signal that they had enough votes to support the bailout. “We have all heard what went on over in the House today,” Mr. Reid said. “It was a scene of disarray. So we need the Republicans to start producing some votes for us.”

Before that happens, however, lawmakers were waiting to see a final version of the plan. Democrats were pushing hardest for provisions that would require the Treasury to obtain warrants that would convert into equity in the companies helped and limits on the salaries of executives whose firms participate in the bailout.

Both presidential candidates, Senator Barack Obama and Senator John McCain, have called for such limits, as has Mr. Shelby, making it more likely that Treasury will have to find some form of compromise on the issue.

“The party is over for this compensation for C.E.O.’s who take golden parachutes as they drive their companies into the ground,” Ms. Pelosi said.

The White House is eager for a deal on the plan, recognizing that markets around the world are fluctuating daily, depending on how investors assess the United States’ response to the crisis.

In his speech to the United Nations, Mr. Bush said, “I can assure you that my administration and our Congress are working together to quickly pass legislation approving this strategy.” He added, “And I’m confident we will act in the urgent time frame required.”

Along with Mr. Cheney and Mr. Bolten, Mr. Bush dispatched Keith B. Hennessey, the director of Mr. Bush’s National Economic Council, to Capitol Hill.

Tony Fratto, Mr. Bush’s deputy press secretary, told reporters that it was imperative that Congress pass a bill this week. Asked what would happen if Congress fails to act this week, he said, “You should think of that as unthinkable.”

Reflecting their frustration, and perhaps the narrowness of their options, the lawmakers peppered Mr. Paulson and Mr. Bernanke with questions ranging from whether the rescue would work to whether it would end up bailing out Wall Street on the backs of taxpayers.

“I get some sense that we’re flying by the seat of our pants,” said Senator Robert Menendez, Democrat of New Jersey. “You want to come in strong and have the cavalry be there, but you’re not quite sure what the cavalry does once it arrives. And that’s part of my concern.”

Senator Charles E. Schumer, Democrat of New York, proposed limiting financing to $150 billion, and budgeting more in three months, after its progress could be assessed.

Several senators said they thought the best way to protect taxpayers was by requiring the Treasury Department to take warrants, which are instruments that are convertible into shares, as it did in its rescue of Fannie Mae, Freddie Mac and the American International Group. But Mr. Paulson said that could limit participation in the program, especially if companies decided to hold onto their troubled assets rather than cede some control to the Treasury Department. If that happened, Mr. Paulson said, the program would not do enough to get the market moving again.

But he and Mr. Bernanke did not do much to clear up confusion about how the bailout plan would work in practice. Mr. Bernanke, an economist, gave a tutorial on valuation of assets, distinguishing between those sold at fire-sale prices — what a portfolio would sell for if the cash were needed immediately — and those at hold-to-maturity prices, or what the same portfolio would fetch on the assumption that the underlying debt would be repaid.

To unclog the market, he said, the government would have to determine the hold-to-maturity price for assets with no other buyers. “Just as you sell a painting at Sotheby’s, until you sell it, nobody knows what it is worth,” Mr. Bernanke said.

He described a system of reverse auctions, in which the Treasury would name a price it was willing to pay, and the banks would decide whether to sell. Mr. Paulson said the government would also use other methods, depending on the assets involved, and was open to experimentation. Both officials pleaded with Congress not to tie the government’s hands by writing any particular sales method into the bailout legislation.

House Democrats were also reviving a push to grant bankruptcy judges the authority to modify the terms of mortgages on primary residences to lower payments for strapped borrowers.

Christopher Cox, the chairman of the Securities and Exchange Commission, also testified and said there were two major holes in the current rules: oversight of investment banks and of the market for credit default swaps, which, he noted had doubled in size since 2006, to $58 trillion.

None of the senators who listened to Mr. Paulson and Mr. Bernanke disputed the grim possibilities if Congress should do nothing, but it was clear they were hearing from angry constituents.

Senator Jim Bunning, a Kentucky Republican who is also one of the plan’s fiercest critics, said it would do nothing to stem the slide in housing prices or help people pay their mortgages. He said it was using taxpayer dollars to “prop up and clean up the balance sheets of Wall Street.”

McCain Aide’s Firm Was Paid by Freddie Mac

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One of the giant mortgage companies at the heart of the credit crisis paid $15,000 a month from the end of 2005 through last month to a firm owned by Senator John McCain’s campaign manager, according to two people with direct knowledge of the arrangement.

The disclosure undercuts a statement by Mr. McCain on Sunday night that the campaign manager, Rick Davis, had had no involvement with the company for the last several years.

Mr. Davis’s firm received the payments from the company, Freddie Mac, until it was taken over by the government this month along with Fannie Mae, the other big mortgage lender whose deteriorating finances helped precipitate the cascading problems on Wall Street, the people said.

They said they did not recall Mr. Davis’s doing much substantive work for the company in return for the money, other than speak to a political action committee of high-ranking employees in October 2006 on the approaching midterm Congressional elections. They said Mr. Davis’s firm, Davis & Manafort, had been kept on the payroll because of Mr. Davis’s close ties to Mr. McCain, the Republican presidential nominee, who by 2006 was widely expected to run again for the White House.

Mr. Davis took a leave from Davis & Manafortfor the presidential campaign, but as a partner and equity-holder continues to benefit from its income. No one at Davis & Manafort other than Mr. Davis was involved in efforts on Freddie Mac’s behalf, the people familiar with the arrangement said.

A Freddie Mac spokeswoman said the company would not comment.

Jill Hazelbaker, a spokeswoman for the McCain campaign, did not dispute the payments to Mr. Davis’s firm. But she said that Mr. Davis had stopped taking a salary from his firm by the end of 2006 and that his work did not affect Mr. McCain.

“Senator McCain’s positions on policy matters are based upon what he believes to be in the public interest,” Ms. Hazelbaker said in a written statement.

The revelations come at a time when Mr. McCain and Mr. Obama are sparring over ties to lobbyists and special interests and seeking political advantage in a campaign being reshaped by the financial crisis and the plan to bail out investment firms.

Mr. McCain’s campaign has been attacking Senator Barack Obama, his Democratic rival, for ties to former officials of the mortgage lenders, both of which have long histories of cultivating allies in the two parties to fend off efforts to restrict their activities. Mr. McCain has been running a television commercial suggesting that Mr. Obama takes advice on housing issues from Franklin D. Raines, former chief executive of Fannie Mae, a contention flatly denied by Mr. Raines and the Obama campaign.

Freddie Mac’s roughly $500,000 in payments to Davis & Manafort began immediately after Freddie Mac and Fannie Mae in late 2005 disbanded an advocacy coalition that they had set up and hired Mr. Davis to run, the people familiar with the arrangement said.

From 2000 to the end of 2005, Mr. Davis had received nearly $2 million as president of the coalition, the Homeownership Alliance, which the companies created to help them oppose new regulations and protect their status as federally chartered companies with implicit government backing. That status let them borrow cheaply, helping to fuel rapid growth but also their increased purchases of the risky mortgage securities that were their downfall.

On Sunday, in an interview with CNBC and The New York Times, Mr. McCain responded to a question about Mr. Davis’s role in the advocacy group through 2005 by saying that his campaign manager “has had nothing to do with it since, and I’ll be glad to have his record examined by anybody who wants to look at it.”

Such assertions, along with McCain campaign television ads tying Mr. Obama to former Fannie Mae chiefs, have riled current and former officials of the two companies and provoked them to volunteer rebuttals. The two officials with direct knowledge of Freddie Mac’s post-2005 contract with Mr. Davis spoke on condition of anonymity. Four other outside consultants, three Democrats and a Republican also speaking on condition of anonymity, said the arrangement was widely known among people involved in Freddie Mac’s lobbying efforts.

As president of the Homeownership Alliance, Mr. Davis got $30,000 to $35,000 a month. Mr. Davis, along with Fannie Mae and Freddie Mac, have characterized the alliance as a coalition of many housing industry and consumer groups to promote homeownership, but numerous current and former officials at both companies say the two mortgage companies created and bankrolled the operation to combat efforts by competitors to rein in their business. They dissolved the group at the end of 2005 as part of cost-cutting in the wake of accounting scandals and, at Freddie Mac, a lobbying scandal that forced out its former top Republican lobbyist.

On Monday, the McCain campaign accused The New York Times of bias for reporting the payments to Mr. Davis for the alliance work from the mortgage giants. Mr. Davis said that he had worked not for the two companies but for the advocacy group, which included other nonprofit organization as well, and was focused only on promoting homeownership.

After the Homeownership Alliance was dissolved, Mr. Davis asked to stay on a retainer, the people familiar with the deal said. Hollis McLoughlin, who was chief of staff to Richard F. Syron, Freddie Mac’s chief executive, arranged for a new contract with Davis & Manafort, at the reduced rate of $15,000 a month, they said. Mr. Syron lost his job in the government takeover this month. Mr. McLoughlin, who through a spokeswoman declined to comment, was a former chief of staff to Treasury Secretary Nicholas Brady in the first President Bush’s administration, and has longstanding Republican ties.

Mr. Davis was hired as a consultant, not a lobbyist, the officials said. Davis & Manafort in recent years has filed federal lobbying reports for a number of companies but not Freddie Mac or Fannie Mae.

Later in 2006, Mr. Davis was working on Mr. McCain’s emerging presidential campaign, as chief financial officer. The only thing that Freddie Mac officials could recall Mr. Davis doing for the company was the October 2006 pre-election forum with mid-level and senior executives who contribute to Freddie PAC, the company’s political action committee.

An electronic invitation to the employees, read by an official to the New York Times, said “Please join us for political food for thought” with Paul Begala, a longtime Democratic consultant, “and Rick Davis, former 2000 presidential campaign manager and current advisor to Senator John McCain.” Mr. Begala, who also was a paid consultant to Freddie Mac until this month, confirmed that the event took place.

At least two other people associated with Mr. McCain have ties to either Freddie Mac. The lobbying firm of the Republican that Mr. McCain has enlisted to plan his transition to the White House should he be elected, William Timmons Sr., earned nearly $3 million from Freddie Mac between 2000 and its seizure, federal lobbying records show. Mr. Timmons is founder of Timmons & Co., one of Washington’s best-known lobbying shops. The payments were first reported by Bloomberg News.

Mark Buse, Mr. McCain’s chief of staff for his Senate office, also is a Freddie Mac alumnus. He and his former lobbying employer, ML Strategies, registered to lobby for the company in July 2003, and received $460,000 before the association ended after 2004.

Mr. McCain and his advisers have argued that whatever connections Mr. Davis and other McCain campaign officials have had to the mortgage giants, Mr. McCain in the Senate has been an advocate for reforming them. And they have suggested that Mr. Obama is linked to the companies through donations from their employees ties to former officials there, including James Johnson, another former chief executive of Fannie Mae who was the head of Mr. Obama’s vice presidential search team until stepping aside after coming under criticism for getting a mortgage on favorable terms.

Since his first campaign for the Senate in 2004, Senator Obama has received about $126,000 in contributions from employees of Fannie Mae and Freddie Mac, while Senator McCain, over the last decade, has received about $22,000, according to the Center for Responsive Politics.

FBI Investigates Four Firms at Heart of the Mess

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Probe Seeks to Learn if Fraud Played Role in Some of the Woes

Federal investigators have opened preliminary probes into the financial troubles of four high-profile companies that are at the center of the current financial turmoil that the Bush administration says requires an unprecedented proposed taxpayer-funded bailout to clean up.

The Federal Bureau of Investigation's preliminary inquiries are focusing on whether fraud helped cause some of the troubles at Fannie Mae, Freddie Mac, Lehman Brothers Holdings Inc. and American International Group Inc., according to senior law-enforcement officials.

Lehman and AIG declined to comment. A spokeswoman for the Federal Housing Finance Agency, which regulates Fannie and Freddie and has both companies in conservatorship, also declined to comment.

The probes come as the huge potential tab for taxpayers in the crisis raises the stakes for the Justice Department. The FBI says it now has 26 companies under investigation, in addition to pursuing more than 1,400 mortgage-fraud cases nationwide.

Pressure is building for the FBI and regulators to hold top executives accountable for the crisis that has crippled the nation's finance sector. In meetings on Capitol Hill, some lawmakers raised concerns with Treasury Secretary Henry Paulson that by taking large stakes in some financial firms, the government may be limiting its ability to exact penalties for wrongdoing, according to people familiar with the matter.

The FBI says that the corporate probes are part of an effort to pursue allegations of higher-level fraud more sweeping than the retail-level infractions that have been at the center of most cases brought so far.

The U.S. Attorney in Brooklyn has brought charges against brokers who allegedly tricked some institutional investors into buying risky auction-rate securities.

During the Savings and Loan bailout 20 years ago, federal prosecutors brought more than 600 cases against 1,000 defendants. But the complicated securities at the heart of today's crisis make comparable prosecutions more difficult, investigators say.

Brian Roehrkasse, Justice Department spokesman, defended the way the department has responded to the crisis: "The FBI continues to investigate a number of companies for subprime-lending practices, but the department brings criminal prosecutions based solely on the facts and the law. Where we find evidence of criminal wrongdoing, we will prosecute."

Investigators say that despite calls from some quarters to prosecute wealthy bankers who helped fuel the mortgage bubble, it is unclear what crimes they will find at the root of the exotic financial vehicles that have sickened banks around the world. A more likely outcome of the probes will be hundreds more retail-level fraud cases of the type already being brought against brokers, real-estate agents, and buyers related to falsified mortgage applications.

There is yet to emerge a figure such as banker Charles Keating, who served four years in prison for fraud related to the collapse of American Continental Corp. and whose name became synonymous with the S&L crisis. But already there is widespread anger that mortgage securities deals enriched many on Wall Street at the expense of millions of home buyers and taxpayers nationwide who will end up paying the costs.

Democratic Sen. Patrick Leahy of Vermont, chairman of the Senate Judiciary Committee, told FBI Director Robert Mueller at a hearing last week, "The U.S. government is on the hook [for] anywhere from $800 billion to $1 trillion. And if people were cooking the books, manipulating, doing things they were not supposed to do, then I want people held responsible."

Some in Congress have gone further, accusing the FBI of warning of the impending mortgage-fraud epidemic but not doing enough to stop it. FBI officials say their focus on mortgage fraud has produced 3,500 cases and more than 700 convictions since 2005, but that the collapse of the housing market was rooted more in risky business practices than in fraud.

Comparisons with the S&L crisis are a mismatch for several reasons, prosecutors say. In the case of the S&L bailout, the institutions were federally regulated, which made it easier for prosecutors to pursue charges based on improper disclosures. And when the government's Resolution Trust Corporation took over a thrift, regulators put in place a system to turn over information that could assist investigators looking for criminal wrongdoing.

Investigators and lawyers say today's crisis differs in that, at the height of the mortgage-fueled boom, more than 50% of subprime mortgages originated with private mortgage providers that had no federal supervision. That means investigators trying to prove investors were misled have to dig deeper into how lenders were doing business. Thrifts were regulated institutions, and many of the criminal cases brought focused on failure to file required documentation.

The $700 Billion Bailout Plan's Fine Print

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By Nomi Prins

A reformed Wall Streeter sifts through the details of the Troubled Asset Relief Program.

Treasury Sec. Hank Paulson's $700 billion bailout plan now has a name: the Troubled Asset Relief Program, or TARP. But even as Capitol Hill debates TARP, few seem to have noticed the proposal item that puts taxpayers on the hook for future bailouts. It's in Section 6, and the key phrase is this: "The Secretary's authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time."

What does "at any one time" actually mean to economists? It means that if everything we American taxpayers buy re-evaluates down to zero, we get to buy more. That's hardly taxpayer "protection." With several hundred billion dollars of write-downs already announced this year by the part of the industry compelled to post their losses, it's a safe bet that $700 billion worth of the junkiest assets in existence will be heading to zero the second they are purchased.

But that's not all the bad news. With Sunday's announcement that Goldman Sachs and Morgan Stanley have decided to become bank holding companies, the last pretense of respect for the Glass-Steagall was dropped.

The Bank Holding Company Act of 1956 prevented bank holding companies from engaging in non-consumer oriented banking activities, like investment banking. It also prohibited such entities headquartered in one state from acquiring banks in another state. The interstate restrictions were gutted in 1994, and the 1999 Gramm-Leach-Bliley Act took care of the rest.

At first this meant that commercial banks could buy investment banks and insurance companies, hence Citigroup (which is a combination of Citibank, Travelers Insurance and Salomon Brothers investment bank), and the latest incarnation waiting to post lots of losses, Bank of America-Merrill Lynch. But even with a new name, Goldman Sachs is still an investment bank, in the same way that a horse by another color is still a horse. Changing its status to bank holding company will mean access to the bailout fund, and give it the ability to buy any commercial bank out there. Which it likely will.

Nonetheless, that looming problem wasn't addressed by Congress Tuesday. Instead, Sen. Chuck Schumer (D-NY) responded to TARP with THOR (Taxpayer Protection, Housing, Oversight and Regulation) and warned, "the financial system is clogged, and if we don't react the patient will suffer a heart attack. So we must act and must act soon…"

Somewhere, Former Treasury Secretary Carter Glass, the co-author of the Glass-Steagall Act of 1933 that separated speculative investment banks from consumer-oriented commercial ones, is turning in his grave.

As much press as the TARP vs. THOR discussion is getting, one voice of reason deserves more attention: Sen. Byron Dorgan's. As he has said, "this proposal looks to me like a stampede in the wrong direction…to reward the very people on Wall Street who created this mess, and who pocketed more than $100 billion over the last several years making it."

In 1999, Dorgan had the foresight to vote against the Gramm-Leach-Bliley Act that repealed the financial protections put in place following the Great Depression. He warned then that a 'financial swamp' would result from "the casino-like prospect of merging banking with the speculative activity of real estate and securities, and that the bill will raise the likelihood of future massive taxpayer bailouts."

Dorgan was spot on. Not only are we trapped in the complex deregulated financial system that resulted, but the bailouts are just beginning.

In advocating new protections similar to the Glass-Steagall Act and the need to address this crisis not just quickly, but correctly, he's likely spot on again. If only the rest of Congress felt the same way.

Where Have All the Protests Gone?

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By David Segal

The stock market has gone nuts, and the federal government is treating Wall Street with experimental cures that will cost nearly $1 trillion. An unpopular foreign war, now in its sixth year, has resulted in more than 4,100 American deaths. For the first time in history, the presidential campaign includes an African American candidate for president and a Republican female candidate for vice president.

Taken together, these data points give this moment in American history a once-in-a-great-while feel of Something Large. But if this is truly a pivot in time, its most peculiar feature may be how un-peculiar it feels. For all the social and political upheaval, for all the 60-point headlines and for all the bipartisan calls for change, there is plenty of unease -- but a very notable lack of unrest.

It's as though the gods of turmoil threw a party and nobody came. When was the last time you saw a street protest? Or a burning effigy? Or a teach-in? Or a boycott? It's kind of odd: We have the sense that this is an emergency, but open the window and give a listen. There aren't any sirens.

How come?

Washington Square Park, near Greenwich Village, seemed like a good place to pose that question. Forty years ago, this was one of the city's counterculture epicenters, a frequent site of protests and rallies and as close to an open-air drug market as one could find downtown. If you had been near the south entrance at 8:30 p.m. on Dec. 4, 1968, you would have witnessed a spectacle: New York University students shouting obscenities at Ambassador Nguyen Huu Chi, South Vietnam's permanent observer to the United Nations, who had come to lecture at the nearby Loeb Center. A Nazi flag was tossed around his neck, and then someone poured a pitcher of water over his head.

Last Sunday, by contrast, the park looked serene. A jazz band played, a street juggler performed, and the only sign of politics was the "Bakin' for Barack" sale in the northeast corner. "Make a donation, take a treat," read the sign next to the slices of banana bread and chocolate chip cookies.

"My sense is that nobody feels they can make a difference in the same way that students did in 1968," said Sachin Makani, 29, a graduate student in neuroscience and one of a handful of people collecting money here. "A lot of us don't see the point in rallying in the streets."

As a historical reference point, 1968 is useful not just because it was an election year that unfolded in the midst of a grim and protracted foreign war. It was also the high-water mark for exactly the kind of radical activism that seems largely absent today, apart from the occasional horde that shows up whenever the World Bank and International Monetary Fund meet.

The differences go well beyond the occasional attack on visiting dignitaries. The culture back then was suffused in the atmospherics of insurrection. There were celebrity radicals, such as Abbie Hoffman and Timothy Leary. The Beatles, who only a few years earlier wanted to hold your hand, were singing "Revolution." There was a lot of talk about "the system" and how to avoid it, destroy it or drop out of it.

That's gone now.

"I've been to meetings for political clubs and they never seem to have any momentum," said Robert Hoyer, an NYU junior who was standing outside the library, wearing a pair of headphones. "I know people who really care about what's happening in the world and are trying to get something off the ground, but it's hard for me -- and a lot of students -- to see a way of making a contribution that means anything."

What happen to the street-fighting man? The answer has to start with the draft, or the lack of it.

Because it was personal and nearly unavoidable, the draft lent the same urgency to activism then as hunger and homelessness did during the Great Depression, when unemployed workers marched on the Ford Motor Co. and thousands of World War I vets camped in Washington demanding bonus pay. The draft felt as immediate and potentially deadly as racial discrimination did to those who suffered it and took to the streets to fight it. It was the thing that drove masses of angry kids to Chicago, where they made a shambles of the Democratic National Convention in 1968 -- a far cry from the relative handfuls of Iraq war protesters who were kept on the periphery of the GOP convention in St. Paul, Minn., this summer.

But the draft didn't just terrify and galvanize students. It forced them to be curious about the world and serious in a way that isn't required today.

"Our friends were getting killed in Vietnam, and any day you could get a letter from the government saying 'Time to go,' " said author and anthropologist David Givens, who teaches at Gonzaga University. "So for survival, we read and we talked. And the people who got up to speak at demonstrations, they were highly literate, they were great orators, they were writers. They had to be articulate. Everyone did."

That's missing today, Givens said. "It's not that kids are stupider. They're just not as interested in the world. They don't read as widely. They don't have to. You'd be amazed at how many college students on their MySpace page say that X-Men comics are their favorite books."

Some students sound every bit as underwhelmed by the level of intellectual curiosity on campus. Rachael McMillan, a senior at Columbia University, worked for two years with the Columbia College Democrats and found the experience pretty unsatisfying. But at least she tried.

"Most college students just don't feel like they have a vested interest in what is happening today," she said. "I hate to say it, but a lot of my peers calculate the opportunity cost of coordinating with others -- or planning a sit-in or a walkout or just some protest -- against the urge to write a paper, get an A and go to Harvard Law School."

McMillan isn't exempting herself from this charge. She quit the CCD last year after spending five hours squabbling with the Socialist Club about what to put in a news release. It all seemed tragically disorganized to her. But she knows what's happening in the world beyond Columbia, which is more than she can say for a lot of her classmates.

"No one was really curious about Iran until the president of the country came to speak at our campus," she said. "Then it was like, 'Oh, yeah. Iran.' A lot of my friends get all their political news from 'The Daily Show,' or from Perez Hilton, who does more political commentary than you'd think. We spend more time padding our résumés than trying to stay informed."

The draft, McMillan believes, would transform Columbia. But to explain the relative calm of college life today by focusing solely on the draft would be a mistake. It runs deeper than that, said Todd Gitlin, a Columbia professor of journalism.

"There was a culture of confrontation back then," he said. "You were either on the side of the authorities -- not just the president, but the police and the suits -- or you were an outlaw. You took psychedelic drugs and you protested and you drew a line between yourself and the prevailing culture."

That line is getting harder to draw, Gitlin said, in part because the counterculture has been mainstreamed. Rebellion is no longer a clarion call; it's a marketing pitch.

"Where is the Frank Sinatra of today? Where is the Tony Bennett? Who represents easy-listening normality? Popular culture is now a rebel industry. There is no inside to it. It's all outside now."

Look at rap. Gangsta rappers such as Jay-Z and Rick Ross are self-professed outlaws all right, but they don't want to opt out. They want to buy in. Their aspirations are hard to distinguish from those of a hedge-fund cowboy -- luxury cars, Cristal, yachts. They are unabashed fans of success just as it is defined by the latest crop of MBAs.

"430 Lex with the convertible top," Big Tymers rap on "Still Fly," a song that also name-checks Mercedes-Benz, BMW, Prada and Gucci.

Luxury product placement in a song from the mid- or late '60s? No way. Music was ominous (Dylan's "All Along the Watchtower"), sometimes sardonic (Creedence Clearwater's "Fortunate Son") and occasionally satiric (the Beatles' "Piggies"). It reflected the gravity of the times or it looked forward to a utopian future that seemed distant but possible. There wasn't a lot of rhapsodizing about money.

If anything, the almighty dollar was scorned. So was Wall Street, at a time when it was rolling along without incident. Abbie Hoffman and 20 friends visited the New York Stock Exchange in August 1967 and gleefully tossed dollar bills from the gallery above the traders. The group was quickly tossed out of the building, but photos of the episode firmed Hoffman's reputation as the nation's greatest yippie prankster.

And now, after a $700 billion bailout? No street theater, no demonstrations. Wall Street has been bloodied and embarrassed, but on-site, public displays of rejection have yet to materialize.

"It might happen," said Steven Fraser, author of "Every Man a Speculator," a history of Wall Street's place in American culture, "because what we've seen is so bad and so serious, and its ramifications are so scary." But, he said, we're a long way from the kind of anti-Wall Street rhetoric that was particularly common after the Depression.

"It's partly a function of Americans becoming familiar with the market," Fraser said. "Half of all American families are, at least in a passive way, invested in the market. We've become accustomed to looking toward it to finance homes, vacations, college, whatever."

That wasn't true in 1968. But back then, long before the age of the mutual fund, life on the margins was surprisingly affordable. If you decided to move to a hippie hothouse such as Haight-Ashbury in San Francisco, you could live decently on $100 a month. Today, without a law degree or an MBA, you can't afford the rent. And the whole firebrand lifestyle is tricky when you live in the suburbs with your mom and dad, as a record number of college graduates now do.

But what if we're just looking for dissent in the wrong places? What if there's just as much rage against the machine as ever, but it's vented in ways and in places that aren't as loud and unmissable as a street march. Web sites, for instance.

"I think the Internet has become a channel for all kinds of countercultural expression, including discontent and critique," said Miles Orvell, a professor of American studies at Temple University. "But it might have this paradoxical effect. It enlarges the conversation, but it can also produce a kind of passivity. It's like, 'I've said it and that's all I need to do.' A lot of young people seem to use the Internet as a surrogate community, and to that extent, it might diminish participation in the visible sphere."

But there are those who say that most political agitation today isn't on the Web or on campuses. The action now, according to Daniel May, who once worked for the Service Employees International Union, is all door to door. They're raising money, they're getting out the vote.

"The organizers of my generation were shaped by 1968," said May, who is working toward a master's degree from Harvard. "But one lesson is that 1968 marked the first year of 40 years of conservative rule. Why would we want to replicate that? There's a real limit to protest politics. It's politics as catharsis and that eventually leads to cynicism."

It would be a mistake, in May's estimation, to confuse the lack of effigies with a lack of passion. The kids who once marched are now trying a different approach, he said, using techniques that were dismissed by their parents as too establishment. May's mother, Elaine Tyler May, a historian at the University of Minnesota, says she used to think that the youth of today just couldn't be bothered. But she has changed her mind.

"My son tells me it's politics that's more interested in power than in protest, and on a good day, that's how I see it," she said. "I still have this impulse to go yelling in the street, but what I see my kids doing is far more effective. I think we're just old and we don't realize -- there's a groundswell of political engagement that we just don't see."

North Korea bars international inspectors from nuclear facility

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By Elaine Sciolino

North Korea has barred international inspectors from a nuclear reprocessing plant that produces weapons-grade plutonium and intends to restart activity there in a week, the International Atomic Energy Agency said Wednesday.

The decision by the North is a serious setback both for the Bush administration and an international agreement aimed at dismantling North Korea's nuclear weapons program. It seemed to be a provocative signal to the United States and the other governments involved in the diplomacy that the North would no longer honor a hard-won agreement to dismantle the site in exchange for diplomatic incentives and aid.

The North's latest move comes amid reports that its leader, Kim Jong Il, may be seriously ill, raising concern that hard-liners within the leadership, perhaps the military, may be more directly involved in decision-making.

The North, which tested a nuclear device in 2006 and is believed to have enough plutonium for 6 to 10 bombs, asked the nuclear agency on Monday to remove all seals and surveillance cameras from the reprocessing plant at its Yongbyon nuclear complex. The agency said it finished that process on Wednesday. The North's request had been expected, coming after a dispute with the United States over what North Korea called a delay in removing it from the American list of state sponsors of terrorism.

But the IAEA, as well as the United States and the four other governments involved in delicate diplomacy with North Korea, had hoped that the country would not restart operations at the plant, the most sensitive part of the Yongbyon complex, and that agency inspectors would still have access to it.

Arms control experts say that if the plant is in good repair, it takes minimal time to start the plutonium-making process, and that producing plutonium from spent fuel rods once the process starts could take as little as a few weeks. It would take two to three years, by contrast, for North Korea to produce extractable new plutonium if it decided to restart its nuclear reactor, which is also at the Yongbyon complex.

"There are no more seals and surveillance equipment in place at the reprocessing facility," an IAEA spokeswoman, Melissa Fleming, told reporters at the agency's headquarters in Vienna.

She added that the North Koreans "also informed IAEA inspectors that they plan to introduce nuclear material to the reprocessing plant in one week's time."

"They further stated that from here on, IAEA inspectors will have no further access to the reprocessing plant," she said.

The announcement comes at a time when the Bush administration, in its final months of office, is distracted by the financial crisis, wars in Afghanistan and Iraq, unrest in Pakistan and tension with Russia over Georgia.

The administration immediately warned North Korea not to reactivate the plant. "We believe that for the North Koreans to do so, it would only deepen its isolation," Secretary of State Condoleezza Rice told reporters in New York.

She added: "Everyone knows what the path ahead is. The path ahead is for there to be agreement on verification protocol so that we can continue along the path of denuclearization of the Korean peninsula. The North Koreans know that, and so we'll continue working with our partners on what steps we might need to take."

Activity at the plant is expected to begin at any time. Before spent fuel rods are put into the reprocessing system, the equipment will have to be tested with non-radioactive liquids to make sure the system is working properly.

As of August, North Korea had about 5,000 spent nuclear fuel rods that could be reprocessed at the plant and another 3,000 still in the nuclear reactor. The plutonium extracted from the rods can be blended with uranium for use in a nuclear reactor or used by itself as an ideal fuel for nuclear weapons.

Although there is no certainty, the IAEA estimates that processing all of them could yield six to eight kilograms of plutonium - more than enough for a bomb.

Arms experts believe North Korea already has a store of more than 30 kilograms of separated plutonium.

The announcement of the North Korean decision was first made by Olli Heinonen, the IAEA's deputy director general and head of the department of safeguards, to a closed-door meeting of the agency's 35-country board of governors, which is meeting in Vienna this week.

North Korea has not told the nuclear agency whether its three permanent inspectors will be allowed to remain at the vast Yongbyon complex or whether they will continue to have access to other buildings there, a European official linked to the agency said.

The inspectors have worked there, living in guest quarters on the site, since July 2007.

Seals and surveillance cameras are still in place at other parts of the Yongbyon site, which include the nuclear reactor, an experimental nuclear power plant and a nuclear fuel fabrication plant.

The United States, Russia, Japan, China and South Korea have been engaged with North Korea in tortured six-country negotiations, which produced an agreement in February 2007 for North Korea to abandon its nuclear activities in exchange for aid and diplomatic incentives.

In July 2007, North Korea told the United States that it had shut down its nuclear reactor at the Yongbyon facility and readmitted an international inspection team. The move completed the first step toward reversing a long confrontation with the United States during which North Korea had made fuel for a small but potent arsenal of nuclear weapons.

The shutdown of the reactor and the return of the inspectors allowed the Bush administration to claim that its strategy of rejecting the North's calls for bilateral talks and insisting on negotiations that included North Korea's neighbors was finally working.

Last November, North Korea began dismantling its nuclear reactor and other plants at the massive complex under the disarmament-for-aid agreement. In June, it blew up the cooling tower of the nuclear reactor on the complex in a dramatic display of how it was committed to the agreement.

The following month, the Bush administration demanded an intrusive verification of the dismantling process before it would grant North Korea one of the concessions under the agreement: removal of North Korea from the list of state sponsors of terrorism.

That stalled the process, and last month North Korea announced that it had stopped dismantling its facilities to protest the failure of the United States to fulfill a promise to remove it from its list of state sponsors of terrorism. By that time, North Korea had unloaded about 4,700 spent rods from the Yongbyon reactor and were keeping them in a cooling pond.

The decision to halt disabling the complex came on Aug. 14, around the time Kim was said to have suffered a stroke. It remains a mystery whether Kim made that decision, or any of the ensuing moves.

North Korea seemed to harden its position last Friday, saying that it no longer wanted to be removed from the terrorism list. "We can go our own way," a Foreign Ministry official was quoted as saying.

But Rice told reporters Wednesday that the six-country talks were not dead.

"By no means," she said. "We've been through ups and downs in this process before. I think the important thing is that this is a six-party process and that means there other states that are carrying the same message to North Korea about their obligations."

Has Deregulation Sired Fascism?

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By Paul Craig Roberts

Remember the good old days when the economic threat was mere recession? The Federal Reserve would encourage the economy with low interest rates until the economy overheated. Prices would rise, and unions would strike for higher benefits. Then the Fed would put on the brakes by raising interest rates. Money supply growth would fall. Inventories would grow, and layoffs would result. When the economy cooled down, the cycle would start over.

The nice thing about 20th century recessions was that the jobs returned when the Federal Reserve lowered interest rates and consumer demand increased. In the 21st century, the jobs that have been moved offshore do not come back. More than three million U.S. manufacturing jobs have been lost while Bush was in the White House. Those jobs represent consumer income and career opportunities that America will never see again.

In the 21st century the US economy has produced net new jobs only in low paid domestic services, such as waitresses, bartenders, hospital orderlies, and retail clerks. The kind of jobs that provided ladders of upward mobility into the middle class are being exported abroad or filled by foreigners brought in on work visas. Today when you purchase an American name brand, you are supporting economic growth and consumer incomes in China and Indonesia, not in Detroit and Cincinnati.

In the 20th century, economic growth resulted from improved technologies, new investment, and increases in labor productivity, which raised consumers’ incomes and purchasing power. In contrast, in the 21st century, economic growth has resulted from debt expansion.

Most Americans have experienced little, if any, income growth in the 21st century. Instead, consumers have kept the economy going by maxing out their credit cards and refinancing their mortgages in order to consume the equity in their homes.

The income gains of the 21st century have gone to corporate chief executives, shareholders of offshoring corporations, and financial corporations.

By replacing $20 an hour U.S. labor with $1 an hour Chinese labor, the profits of U.S. offshoring corporations have boomed, thus driving up share prices and “performance” bonuses for corporate CEOs. With Bush/Cheney, the Republicans have resurrected their policy of favoring the rich over the poor. John McCain captured today’s high income class with his quip that you are middle class if you have an annual income less than $5 million.

Financial companies have made enormous profits by securitizing income flows from unknown risks and selling asset backed securities to pension funds and investors at home and abroad.

Today recession is only a small part of the threat that we face. Financial deregulation, Alan Greenspan’s low interest rates, and the belief that the market was the best regulator of risks, have created a highly leveraged pyramid of risk without adequate capital or collateral to back the risk. Consequently, a wide variety of financial institutions are threatened with insolvency, threatening a collapse comparable to the bank failures that shrank the supply of money and credit and produced the Great Depression.

Washington has been slow to recognize the current problem. A millstone around the neck of every financial institution is the mark-to-market rule, an ill-advised “reform” from a previous crisis that was blamed on fraudulent accounting that over-valued assets on the books. As a result, today institutions have to value their assets at current market value.

In the current crisis the rule has turned out to be a curse. Asset backed securities, such as collateralized mortgage obligations, faced their first market pricing in panicked circumstances. The owner of a bond backed by 1,000 mortgages doesn’t know how many of the mortgages are good and how many are bad. The uncertainty erodes the value of the bond.

If significant amounts of such untested securities are on the balance sheet, insolvency rears its ugly head. The bonds get dumped in order to realize some part of their value. Merrill Lynch sold its asset backed securities for twenty cents on the dollar, although it is
unlikely that 80 percent of the instruments were worthless.

The mark to market rule, together with the suspect values of the asset backed securities and collateral debt obligations and swaps, allowed short sellers to make fortunes by driving down the share prices of the investment banks, thus worsening the crisis. With their capitalization shrinking, the investment banks could no longer borrow. The authorities took their time in halting short-selling, and short-selling is set to resume on October 3 or thereabout.

If the mark to market rule had been suspended and short-selling prohibited, the crisis would have been mitigated. Instead, the crisis intensified, provoking the US Treasury to propose to take responsibility for $700 billion more in troubled financial instruments in addition to the Fannie Mae, Freddie Mac, and AIG bailouts. Treasury guarantees are also apparently being extended to money market funds.

All of this makes sense at a certain level. But what if the $700 billion doesn’t stem the tide and another $700 billion is needed? At what point does the Treasury’s assumption of liabilities erode its own credit standing?

This crisis comes at the worst possible time. Gratuitous wars and military spending in pursuit of US world hegemony have inflated the federal budget deficit, which recession is further enlarging. Massive trade deficits, magnified by the offshoring of goods and services, cannot be eliminated by US export capability.

These large deficits are financed by foreigners, and foreign unease has resulted in a decline in the US dollar’s value compared to other tradable currencies, precious metals, and oil.

The US Treasury does not have $700 billion on hand with which to buy the troubled assets from the troubled institutions. The Treasury will have to borrow the $700 billion from abroad.

The dependency of Treasury Secretary Paulson’s bailout scheme on foreign willingness to absorb more Treasury paper in order that the Treasury has the money to bail out the troubled institutions is heavy proof that the US is in a financially dependent position that is inconsistent with that of America’s “superpower” status.

The US is not a superpower. The US is a financially dependent country that foreign lenders can close down at will.

Washington still hasn’t learned this. American hubris can lead the administration and Congress into a bailout solution that the rest of the world, which has to finance it, might not accept.

Currently, the fight between the administration and Congress over the bailout is whether the bailout will include the Democrats’ poor constituencies as well as the Republicans’ rich ones. The Republicans, for the most part, and their media shills are doing their best to exclude the ordinary American from the rescue plan.

A less appreciated feature of Paulson’s bailout plan is his demand for freedom from accountability. Congress balked at Paulson’s demand that the executive branch’s conduct of the bailout be non-reviewable by Congress or the courts: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion.” However, Congress substituted for its own authority a “board” that possibly will consist of the bailed out parties, by which I mean Republican and Democratic constituencies. The control over the financial system that the bailout would give to the executive branch would mean, in effect, state capitalism or fascism.

If we add state capitalism to the Bush administration’s success in eroding both the US Constitution and the power of Congress, we may be witnessing the final death of accountable constitutional government.

The US might also be on the verge of a decision by foreign lenders to cease financing a country that claims to be a hegemonic power with the right and the virtue to impose its will on the rest of the world. The US is able to be at war in Iraq and Afghanistan and is able to pick fights with Iran, Pakistan and Russia, because the Chinese, the Japanese and the sovereign wealth funds of the oil kingdoms finance America’s wars and military budgets. Aside from nuclear weapons, which are also in the hands of other countries, the US has no assets of its own with which to pursue its control over the world.

The US cannot be a hegemonic power without foreign financing. All indications are that the rest of the world is tiring of US arrogance.

If the US Treasury’s assumption of bailout responsibilities becomes excessive, the US dollar will lose its reserve currency role. The minute that occurs, foreign financing of America’s twin deficits will cease, as will the bailout. The US government would have to turn to the printing of paper money as did Weimar Germany.

For now this pending problem is hidden from view, because in times of panic, the tradition is to flee into “safety,” that is, into US Treasury debt obligations. The safety of Treasuries will be revealed by the extent of the bailout.

“Mortgage Fraud”: The Paulson Bail-Out Plan

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By Richard C. Cook

The $750 billion banking system bailout proposed by Secretary of the Treasury Henry M. Paulson met with a cool reception on Capitol Hill this morning at a hearing of the Senate Banking Committee. Nevertheless, a bill is likely to pass both houses of Congress within the next couple of weeks. As Senator Tim Johnson (D-SD) said, it’s “a necessary evil.” But is it also an example of “mortgage fraud” on a historic scale?

The proposal would involve purchase by the federal government of “toxic assets” held by thousands of financial institutions. A bill will pass, because, as Senator Bob Bennett (R-UT) said, “the economy runs on credit.”

In fact the credit system has started to shut down in the largest financial crisis since the Great Depression. Committee chairman Chris Dodd (D-CT) and Democratic member Chuck Schumer (D-NY) made reference to the private briefing of congressional leaders last Thursday night by Paulson and Federal Reserve Chairman Ben Bernanke, when they told lawmakers the “arteries of the financial system were clogged and that a heart attack was imminent.”

The financial system indeed lies in ruins. In the last year, Wall Street has shed 200,000 jobs. The bailout comes on the heels of the failure of the nation’s investment banks, including Bear Stearns (purchased by J.P. Morgan Chase), Lehman Brothers (bankruptcy), Merrill Lynch (purchased by Bank of America), Morgan Stanley, and Goldman Sachs (both converted to bank holding companies).

Over the past two weeks, the federal government also placed Fannie Mae and Freddie Mac into conservatorship and took over insurance giant AIG. Total federal liabilities from actions taken so far could exceed $1.1 trillion. Already the Bush administration wants to raise the debt ceiling to $11.3 trillion, and the projected fiscal year 2009 federal deficit is starting to look closer to $1 trillion than the current estimate by the Congressional Budget Office of $438 billion.

But not too long ago, officials of the Bush administration, along with Republican presidential candidate John McCain, were telling everyone that economic fundamentals are sound, and that while there has been a downturn, there is not even a recession. One of the architects of financial deregulation, former Senator Phil Gramm, a sometime McCain advisor, chastised the public for being a “nation of whiners.”

Now, suddenly we are facing a catastrophe. As Senator Jon Tester (D-MT) asked Paulson, “Why do we have only one week to allocate $750 billion?” There was no answer.

In their opening statements, all the senators who were present, including ranking Republican member Richard Shelby (R-AL) and Elizabeth Dole (R-NC), complained to Paulson, Bernanke, and Securities and Exchange Commission Chris Cox about lax regulation.

Senator Dodd said that to issue Paulson a blank check “would put the Constitution at risk.” Most of the senators agreed they would not allow Wall Street gamblers a free lunch at public expense without oversight provisions and assurance that CEOs would not be paid enormous bonuses or receive golden parachutes. Though it was unlikely to happen, others said taxpayers should gain from corporate benefits that resulted from the bailout or should even become passive shareholders of institutions that received money.

But would the bailout really fix the system? Obviously, for it to do so, it would have to address and correct the cause.

So what is the cause? According to Paulson, the cause is “defaults on mortgages.” Senator Schumer agreed that ,“It’s been mortgages that have brought the financial system to its knees.”

Senator Bennett said, “the housing bubble has burst,” with others pointing out that for many homeowners the value of their homes now was much less than when they bought them.

Paulson agreed that “housing values have been falling,” but he did not elaborate on why millions of Americans could no longer pay their mortgages. Cox blamed it on a “failure of lending standards” and said that the SEC had a number of ongoing investigations of fraud in the mortgage application process. Nevertheless, Paulson made it clear that his proposal was not to help distressed homeowners, saying “every homeowner won’t save their home.”

And that is the crux of the problem, which explains why Paulson’s proposal may keep the financial system alive but won’t help anyone who was hurt by the housing bubble in the first place. Senator Dodd agreed with Paulson that, “the proposal will not help a single family save their home.” And even though he said the plan should “put an end to foreclosures and defaults,” it won’t.

In fact, according to a September 22, 2008, article by Elizabeth Williamson in the Wall Street Journal entitled, “Banks Rush to Shape Rescue Plan”:

“Lobbyists and financial-services executives are working deep connections within the administration to ensure as many institutions as possible benefit from a $700 billion federal mechanism to buy distressed assets, then sell them off in better times. In a particularly controversial move, they also oppose proposals by Democrats in Congress to provide mortgage reductions for homeowners facing bankruptcy. Bankers say such a move would raise rates for mortgage seekers, as banks factor in the possibility that a loan would be restructured in court.”

The article quoted a bank industry lobbyist: “How you publicly oppose loan modifications and bankruptcy law while at the same time advocating a huge taxpayer bailout is beyond me. Pigs get fat and hogs get slaughtered.”

The committee never addressed the issue of why the bankers would oppose homeowner relief. Could it be that they actually favor foreclosures? Could it be that a situation where millions of foreclosed homes across America can be bought today for dimes on the dollar is somehow to their advantage? Or to the advantage of other investors who are now working the U.S. foreclosure markets, such as foreign sovereign equity funds? These questions did not come up at the Banking Committee’s hearing, though they should have.

Nor did anyone talk about why the housing bubble arose in the first place, though the fact is that the Bush administration and Federal Reserve combined to generate it to get the nation out of the 2000-2001 recession. At the time, Bush needed money and could not afford the continued decline of federal tax revenues. He needed the money to pay for his tax cuts for the rich enacted in March 2001 and for his wars in the Middle East, which started with the invasion of Afghanistan immediately after the 9/11 attacks.

Nor did the committee address the fact that fixing the failed economic system will not repair an economy where consumer purchasing power has been devastated over the last generation by continued export of the nation’s manufacturing job base to other countries. The one senator who even touched on this point was Tim Johnson, who said “We need sustainable economic growth.”

But no one asked how this was possible with a recession on its way. Indeed, the “R” word was never mentioned, though Bernanke said several times that the Paulson plan would help as “the economy recovers.”

Obviously a real solution would involve not only homeowner relief and taxpayer guarantees for a controlled bailout, but also rebuilding the U.S. economy. But no one wanted to talk about that today. Maybe it’s because this latest piece of “mortgage fraud” is designed mainly to keep the economy afloat until the presidential election, because a collapse would drag down John McCain and the Republicans with it. And heaven forbid that anything should ever be proposed that would threaten the stranglehold the banking industry has over every man, woman, and child in America .

The Great Switch: Banks Rob People

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By Jim Crotty

The US government is on the verge of making an unprecedented financial commitment, likely to cost $700 billion, to buy the bad securities held by large US and foreign financial institutions. Having driven our economy to the edge of financial destruction, the Lords of Finance now want the public to put up the money needed to save them and their firms from collapse. Maybe men don't bite dogs, but banks do rob people.

In response to the collapse of unregulated financial markets in the early 1930s, the American people decided to tightly regulate the financial system so that it could never again threaten the US economy. The Depression-era regulations worked effectively until the late 1970s, helping to create the best economic performance in US history. When our financial system was buffeted by high inflation in the late 1970s, it became necessary to reform the regulatory process so it would be effective in the new economic era. But instead of reform, the rise to power of anti-government, right wing forces - reflected in the election of President Reagan in 1980s - led to a radical deregulation process. By the end of the Clinton presidency, radical deregulation was completed.

Deregulation - in concert with rapid financial innovation that made complex financial products such as derivatives and mortgage-backed securities possible - created a volatile pattern of financial booms and crises. Each crash led to bailouts by affected governments, which only increased incentives to financial firms to expand further and take greater risks, since there were massive profits to be made in the upturn while the public paid to limit their losses in the downturn. The new era thus saw an explosion in the size and profits of financial firms. Financial assets were less than five times the size of the US gross domestic product (GDP) in 1980, but over ten times as large in 2007. In the US, the share of total corporate profits generated in the financial sector grew from 10 percent in the early 1980s to 40 percent in 2006. As financial markets grew larger and thus more dangerous, the pressure on governments to bail them out increased proportionately.

The recent boom was driven by the rapid rise in home prices in the decade ending in 2006. The fact that home buyers and mortgage lenders assumed housing prices would never decline sustained the boom, and the fact that banks and mortgage brokers were paid large fees to originate mortgages and large fees to service them generated momentum. Since most of these mortgages were not held by their originators, but rather sold to others, it made sense for banks and brokers to maximize the flow of mortgages, even if that meant selling mortgages that were likely to default if home prices stopped rising or interest rates rose substantially. Investment banks received similar fees to package the mortgages into mortgage-backed securities that were then sold to banks, hedge funds, pension funds and insurance companies around the world. These securities were essentially highly leveraged risky bets that housing prices would keep rising. They were so complicated that no one knew what their price should be. Thus, they could only be sold because credit ratings agencies such as Fitch and Moody's gave them AAA ratings. The agencies provided overly optimistic ratings only because they were paid by investment banks to do so.

Why did so many large financial institutions borrow so much money to invest in such risky securities? The answer lies in the way their top people are paid. Financial firm "rainmakers" get most of their compensation in the form of bonuses tied to the profits of their enterprise. When markets are booming, profits and bonuses are maximized by borrowing lots of money - investment banks borrowed $32 for every $33 of assets they owned in 2007 - and taking high risks with it. For example, in 2006, Goldman Sachs had a banner profit year and the average bonus for its 25,000 employees was $650,000. But most of this money was paid to those at the top, with key traders taking home $50 million. Everyone knew that such risk-taking would eventually lead to disaster when markets turned down, but they would not have to give back the big bonuses from the boom.

When housing prices began to fall in 2006, the game was up, though it took another year before the crisis broke out. Once it did, the gravitational pull of reverse leverage accelerated the downfall. Firms that borrowed heavily to buy assets used the value of the assets as collateral for their loans. When asset prices started to fall, so did their collateral value. Their creditors demanded that they put up additional cash, which forced them to sell assets. Of course, this made asset prices fall faster. Soon, financial firms across the globe found the value of their assets and the value of their capital plunging along with the price of their stock. As usual, they rushed to government regulators to save them.

In the US, the Fed responded to the crisis by extending massive loans to commercial banks, and, for the first time since the Great Depression, to investment banks as well. The Fed exchanged US Treasuries for shaky mortgage-related securities in such large quantities that the proportion of its $800 billion in assets invested in government bonds fell from 91 percent in August 2007 to 52 percent one year later. It later offered to lend money in exchange for any security, even corporate stocks. In addition, the Federal Home Loan Bank increased its loans to banks by almost $300 billion between June 2007 and June 2008, a rise of 43 percent.

In the Bear Stearns rescue, the Fed in effect bought $29 billion worth of devalued securities from the failing investment bank. The collapse of Fannie May and Freddie Mac, two firms that own or insure almost $5 trillion in mortgages (and made their top executives fabulously rich by investing in shaky mortgage-backed securities in the boom) led to their nationalization; the taxpayer is now liable for their losses, which could hit $100 billion. The US government, which the Lords of Finance told us should stay out of financial markets, now owns the largest financial companies in the world.

The Fed then effectively nationalized AIG, one of the largest insurance companies and biggest financial speculators in the world, at a cost of $85 billion, even it does not regulate and has no responsibility for, insurance companies. The rout was on.

Finally, in mid September, when even these unprecedented interventions proved unable to calm financial markets, Fed Chair Ben Bernanke and Secretary of the Treasury Henry Paulson, former CEO of the top investment bank Goldman Sachs, proposed that the government put up an additional $700 billion of taxpayer money to buy most of the bad assets held by financial corporations. This would be the largest bailout in history. At the same time, the government announced a blanket guarantee of the $3.5 trillion money market mutual fund industry.

By this time, Paulson (or Goldman?) seemed to be in control of the bailout process. His initial proposal stated that all decision-making power over the dispersal of this enormous amount of money was to be in his own hands. Neither the courts nor other government bodies would be able to exercise oversight of Paulson's handling of the money. Since the proposal said nothing about which securities would be purchased, or what firms would receive payouts, or how the prices of securities would be valued, Paulson (or Goldman?) was actually proposing that the president and Congress simply give him up to $700 billion to distribute to his cronies as he saw fit. As economist and New York Times columnist Paul Krugman put it: "Mr. Paulson is demanding dictatorial authority, plus immunity from review 'by any court of law or any administrative agency.'"

Adding insult to injury, Paulson planned to privatize the bailout process. Wall Street firms hired by Paulson would decide how much to value the bad securities the public had to buy from ... Wall Street firms. These firms would, of course, be paid lots of public money to provide this service. Moreover, Paulson and Bernanke tried to panic the Congress into accepting their Trojan Horse by arguing that if Paulson's proposal was not accepted without revision within a few days, global financial markets would collapse. Congress was to be stampeded by fear into rubber-stamping legislation that would complete the process of a virtual government takeover of a huge share of the country's financial system by one man. This was reminiscent of President Bush's successful effort to get Congress to quickly authorize his war in Iraq. There were no penalties for financial firms or their rainmakers in the proposal, and no new regulation to prevent this fiasco from recurring a few years down the road.

This is, literally, unbelievable. As recently as spring 2007, Paulson argued that excessive regulation was crippling American finance in its battle for global financial supremacy: the government should stay out of financial markets. And Goldman Sachs, along with other large investment banks, played a key role in packaging and selling the mortgage-backed securities that led to the crisis - the same securities they now want to pawn off on the taxpayer. Paulson is a representative and charter member of the Lords of Finance who foisted this corrupt and absurd system of deregulated financial markets on the American public - a system that created financial instability and rising inequality, pressured the public time and again for money to clean up the messes they made, and used their ill-gotten money and power to corrupt the political process. Having done this, the Lords of Finance now want total control of $700 billion in public money to allocate to themselves.

New York Times liberal columnist Bob Herbert put it nicely. "Does anyone think it's just a little weird to be stampeded into a $700 billion solution by the very same people who brought us the worst financial crisis since the Great Depression?" The American people should revolt against business as usual and rule by the Lords of Finance by inundating Congress with the demand to stop the insanity now.

If Congress Agrees to This Rip-off Bailout, We'll Be Handing the Money to the People Who Got Us in This Mess

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By Phil Mattera

The Bush administration is infamous for handing over its responsibilities to the private sector -- often with disastrous results -- so it is no surprise that Treasury Secretary Henry Paulson wants to outsource the implementation of the Big Bailout he is now trying to ram through Congress.

Paulson has indicated he wants to hire private asset managers to carry out the purchase of some $700 billion in "troubled" securities. (That’s after the federal government had already sunk a total of $900 billion into the housing and credit mess this year.) No restrictions are being placed, so far, on who these money mangers would be. This leaves open the possibility that some of the same firms that are being bailed out could be hired to oversee their own rescue. Institutions benefiting from a monumental giveaway of taxpayer money could turn around and earn yet more by acting as the government’s brokers. Aside from the unseemliness of this double-dipping arrangement, there would be egregious conflicts of interest.

Paulson’s original legislative proposal was oblivious to this danger. Senate Banking Committee Chairman Christopher Dodd put forth a competing plan that went along with the idea of contracting out the asset management, though he had the decency to include a provision on conflict of interest. Yet rather than stating what the ethical rules should be, Dodd’s draft would leave it up to the Treasury secretary to decide.

Paulson’s approach to the bailout, particularly the insistence that there be no punitive measures for banks, shows he is not the right party to oversee the ethical issues. Paulson apparently can’t help himself. He still has the mindset of a man who spent more than 30 years working on Wall Street, at Goldman Sachs. He is a living example of the perils of the reverse revolving door: the appointment of a private-sector figure to a key policy-making position overseeing his or her former industry.

Paulson also has personal conflicts of interest. Although he sold his Goldman stock after taking office, that $600 million personal fortune was presumably transferred to other investments that the current bailout plan would help protect. Paulson’s wealth came from lavish executive compensation linked to his decision to shift the firm into more dangerous forms of investing. A 2006 article in Business Week about "Wall Street’s culture of risk" read, "Goldman Sachs’ CEO Henry M. Paulson Jr. has led the charge." Goldman managed to avoid the worst excesses that brought down the likes of Bear Stearns and Lehman Brothers, but under Paulson it was betting in the same general casino.

Given his background, Paulson is not likely to impose very onerous conditions on the money managers he hires. Even if Treasury has the good sense not to choose firms that are getting bailed out, there remain serious pitfalls in having for-profit money managers handling the process. For example, there will be enormous temptations for those managers to use their inside knowledge to benefit their nongovernmental clients (and themselves) or collude with buyers to the detriment of the public.

There have been reports that a leading contender for a federal money management role is Laurence Fink and his firm BlackRock, which was involved in managing the portfolio of Bear Stearns when that firm was sold to JPMorgan Chase as part of an earlier bailout. In March, BlackRock -- which is 49 percent owned by Merrill Lynch (now part of Bank of America) -- announced it was forming a venture to "acquire and restructure distressed residential mortgage loans." Will Paulson see that as a conflict of interest -- or more likely as a credential?

Letting financial firms that have profited from the mortgage crisis manage the bailout puts the country even more tightly in the grip of Big Money. To Paulson’s way of thinking, that’s not a problem, but it could turn a bad plan into a total disaster.

Five Dangerous, Disastrous Things About the Proposed Bailout and What You Can Do to Help Stop It

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The Bush era has been a period of one outrage following the next, but the administration’s bailout of Wall Street’s wheeler-dealers is the most outrageous yet!

Bush’s parting gift to the fat cats who twice filled his campaign coffers to the brim -- when they weren’t busy playing fast-and-loose with the American economy -- is a huge pile of tax dollars that will get them out of the problems their recklessness created, while leaving Main Street high and dry and at risk of foreclosure.

Here are five things about the crisis -- and the Bush-Paulson Plan -- that we just can’t believe our officials would even have the nerve to contemplate, as well as something you can do to help stop them …

1. They’re Making Long-time Wall Street Honcho Henry Paulson Into an Emperor!

We just can’t get over this little tiny section in the Bush-Paulson plan. Just 32 words long, it says that the whole thing is up to Paulson’s "discretion," and "may not be reviewed by any court of law or any administrative agency." That’s like burning the Constitution! What happened to the separation of powers -- to checks and balances?

2. They Want the Fox to Guard the Henhouse: Wall Street Brokers Will Decide which Wall Street Brokers Get a Piece of the Pie!

Believe it or not, Henry Paulson, who was a key player in creating this mess in the first place as the CEO of brokerage giant Goldman Sachs, wants to "outsource" the buying and selling of all these junk securities to Wall Street money managers. Remember, there are no restrictions on what they can do -- their actions can’t even be reviewed by the courts!

3. They Want to Establish American Socialism for the Richest, and Dog-Eat-Dog for the Rest of Us!

Another thing that’s sticking in our craw is that this outrage is being pushed by the very same politicians who passed the horrible bankruptcy "reform" bill in 2005. That law actually made the mortgage situation worse, because it kept ordinary people from getting out from under a pile of consumer debt, and many more ended up losing their homes as a result.

When Bush signed the law, he said, "America is a nation of personal responsibility where people are expected to meet their obligations," but that only goes for the Little Guy -- the Big Boys get to make a mess and take no responsibility for it at all!

4. Nobody Knows How Much They’ll Really End up Pilfering from the Treasury?

The headlines all say that it’s a $700 billion bailout. But the plan that Bush put together only says that Secretary Paulson can hold onto $700 billion in bad securities at one time! He can buy some, sell ’em at fire-sale prices and then buy some more. Even worse, nobody knows what the final bill will be, because nobody knows what all those bad mortgages are worth.

5. They Want to Borrow All This Cash to Give to Wall Street, and Foreign Banks Too!

And, remember, the government doesn’t have that kind of money lying around -- it’ll all be borrowed cash, sending the deficit through the roof.

When Bush came into office, he had a budget surplus. Then he got us into a trillion-dollar war in Iraq and at the same time gave all these huge tax cuts to the same people who are most responsible for this mortgage mess. He was set to pass a half-trillion-dollar deficit to the next president -- now, it’ll be even higher! If the bailout passes, our children will still be paying for it for decades to come.

And Paulson says he even wants to let foreign banks get their snouts into the trough as well. It’s crazy!

This is certainly the greatest outrage yet, and we’ve got to stop it.

The following appeal from the Campaign for America’s Future is a great way to add your say to the snowballing resistance to this attempt to steal hundreds of billions from the public purse.

Within the next 24 hours, we expect Congress will make an historic choice to address America’s financial crisis: Cut the Bush administration a $700 billion blank check for Wall Street OR demand sensible public checks and balances in the $700 billion bailout. Write an emergency letter to Congress now, and tell them: No $700 Billion blank check to the Bush administration for Wall Street.

In the next 24 hours, Congress could shape America’s financial well-being for decades. Exploiting the financial crisis, the Bush administration is strong-arming Congress to give Wall Street $700,000,000,000 more of our taxpayer dollars -- with no strings attached and no say from us.

Write an emergency letter to Congress now, and tell them: No $700 Billion blank check to the Bush administration for Wall Street!

Legislation could be on the floor of Congress within 24 hours. With the Bush administration stoking panic and pressuring Congress, citizens must speak up now to push back and demand common sense.

We need to fix this financial crisis, but giving $700 billion to Bush’s Treasury Secretary to spend as he wishes is over the top. The Bush administration is basically holding a gun to Congress’ head saying, "Give us the money immediately or the banks will blow up the world economy."

If steps must be taken to keep the economy from failing, common sense must not be thrown out the window. Write Congress now and demand 3 basic principles to protect the public:

1.No Taxation Without Representation. If our tax dollars are going to buy bad assets from irresponsible bankers, the American people must get something for it. Equity in bailed out firms. Strong regulation so this doesn’t happen again. Stern public oversight. And, no golden parachutes for CEOs with our money.

2.No Help for Wall Street Without Help for Main Street. To truly get our economy back on track, we must aid the victims, not just the predators. Freeze foreclosures. Renegotiate bad mortgages. Create jobs generating clean energy and modernizing infrastructure. Prevent cuts in local police, health, road and school budgets. Extend unemployment insurance and food stamps.

3.No Insider Dealing. Wall Street can no longer be allowed to write their own laws. Legislators should refuse campaign money from Wall Street PACs or executives. We need a "time out" on contact between paid Wall Street lobbyists and elected officials while the crisis is addressed. Any congressional meetings with Wall Street officials must be immediately posted on a single website for complete transparency.

The next 24 hours will likely determine whether these common sense solutions prevail, or whether the Bush administration gets $700 billion more of our money to do with as it pleases.

Write now and demand that Congress ensure sensible checks and balances when dealing with hundreds of billions of our taxpayer dollars. Write now and tell Congress: No $700 Billion blank check to the Bush Administration for Wall Street!