Further UPDATEs - September 17, 2008, September 19, 2008.

From:    egale33 at yahoo.com
Subject: McCain Sees the Light:  “Regulate!”
Date: September 17, 2008

As America races towards its first billion-dollar campaign season – enough money to light a city spent essentially on nothing – one might begin to envy the Parliamentary system. In most modern democracies, you don’t vote for the personality, you vote for the party. You’re not fooled by labels or slogans. A party can call itself, “the party of change,” or call itself Tinkerbelle, for all anyone cares. All you have to do is look at the way that party has behaved in the past. If you like what they’ve done, then vote for them. You wouldn’t be fooled by a candidate who suddenly sees the light 50 days before the election. You’re smart. He’s Labour, he’ll vote with his party. He’s Tory, well, likewise.

Duh.

Yes. You look at the candidate’s party, their platform, and vote accordingly. Of course, the last thing you’d ever pay attention to is what someone promises during election season. After all, people say anything to get elected.

John McCain will spend millions of dollars to convince you that he’s not really a Republican. He wants you to believe that although he is in the party that has unfailingly opposed financial deregulation, that he is somehow different. You cannot find one instance of McCain supporting regulation of the finance industry – not a single instance – until, of course, the Day the Dam Broke, September 15. One cannot find a single John McCain advisor who has supported regulation, until today, the day that the failing banks changed our world. You have undoubtedly heard the New John McCain, who, 48 hours ago, suddenly became a big fan of finance market regulation. You’ll not hear anything about his association with Phil Gramm, the architect of unregulated mortgage markets, Phil Gramm, whom McCain said knows more about economics “than anyone.”

It’s too bad we have to submit to 2 years of selling us a president like a brand of shampoo. All we have to do is look at what they’ve done. What have the Republicans done? Have they ever stood up to “the markets” and said, “You’re playing with people’s money, their livelihoods, their retirements.”? When was the last time John McCain stood up to Phil Gramm and his card tricks and said we have to bring some order to these transactions, and they have to be above board? Never. Not once, oh, of course, until September 15th.

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Posted September 16, 2008 On Huffington Press

Bob Franken: The Great Whine.

I agree. We have to be careful not to use words that are so heavy with emotion, that they drag the economy down by their own weight.

So OK: What’s going on right now is not yet a “Depression”. Perhaps, like Phil Gramm, we can call it a “Whine”

Whatever it is, it’s mighty damned sad… dreary. In this case, we can say that each “…day WITH ‘Whine’ is a day without sunshine”. That’s because of all the dark clouds on the horizon.

Obviously, this is no laughing matter.

What is happening right now is a meltdown that is scary, mainly because we have no idea how much worse it’s going to get. It’s also infuriating. For good reason.

There were plenty of warnings. For years, actually for decades, it has been clear that the money system had grown so deregulated it resembled the Wild West. Like any lawless frontier, it attracted and elevated slick, but incompetent hustlers whose only real skill was enriching themselves.

We’ve ended up with a Darwinian “Survival of the “Fittest” system, except in this case the only winners are those UNfit to have so much influence over how we all do survive.

They also recognize how to use their ill-gotten gains to control the lawmakers and opinion makers. As a result no one is willing to impose constraints, no matter how reasonable, or minimal.

Maybe, out of the ashes, we need to construct a saner system. We need to realize that those who benefit from operating our economy must be watched closely.

We no longer can tolerate an ethic that celebrates only profits without any regard for anything else, or anyone else.

We need to declare an end to the Age of Deregulation.

It’s time to create hen house monitors and give them the weapons and the authority to guard the foxes. While we’re at it, time to ignore all the fat cat propagandists who preach free markets as an excuse to keep government out of their business. Obviously what we’re discovering is it’s bad business.

Maybe we need to punish more of those who robbed us. If not prison, at least we could impose a “Whine Fine” against the slicks whose greed is taking us all down.

Maybe we won’t be so depressed because we’ll have less to whine about. And after that, we can turn to the really big task of setting limits on cliches.

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The following is the original posting from September 15, 2008

Foreclosure Phil.

NEWS: Years before Phil Gramm was a McCain campaign adviser and a lobbyist for a Swiss bank at the center of the housing credit crisis, he pulled a sly maneuver in the Senate that helped create today’s subprime meltdown.

By David Corn, Mother Jones, July/August 2008 Issue.

 http://www.motherjones.com/news/feature/…

Who’s to blame for the biggest financial catastrophe of our time? There are plenty of culprits, but one candidate for lead perp is former Sen. Phil Gramm. Eight years ago, as part of a decades-long anti-regulatory crusade, Gramm pulled a sly legislative maneuver that greased the way to the multibillion-dollar subprime meltdown. Yet has Gramm been banished from the corridors of power? Reviled as the villain who bankrupted Middle America? Hardly. Now a well-paid executive at a Swiss bank, Gramm cochairs Sen. John McCain’s presidential campaign and advises the Republican candidate on economic matters. He’s been mentioned as a possible Treasury secretary should McCain win. That’s right: A guy who helped screw up the global financial system could end up in charge of US economic policy. Talk about a market failure.

Gramm’s long been a handmaiden to Big Finance. In the 1990s, as chairman of the Senate banking committee, he routinely turned down Securities and Exchange Commission chairman Arthur Levitt’s requests for more money to police Wall Street; during this period, the sec’s workload shot up 80 percent, but its staff grew only 20 percent. Gramm also opposed an sec rule that would have prohibited accounting firms from getting too close to the companies they audited—at one point, according to Levitt’s memoir, he warned the sec chairman that if the commission adopted the rule, its funding would be cut. And in 1999, Gramm pushed through a historic banking deregulation bill that decimated Depression-era firewalls between commercial banks, investment banks, insurance companies, and securities firms—setting off a wave of merger mania.

But Gramm’s most cunning coup on behalf of his friends in the financial services industry—friends who gave him millions over his 24-year congressional career—came on December 15, 2000. It was an especially tense time in Washington. Only two days earlier, the Supreme Court had issued its decision on Bush v. Gore. President Bill Clinton and the Republican-controlled Congress were locked in a budget showdown. It was the perfect moment for a wily senator to game the system. As Congress and the White House were hurriedly hammering out a $384-billion omnibus spending bill, Gramm slipped in a 262-page measure called the Commodity Futures Modernization Act. Written with the help of financial industry lobbyists and cosponsored by Senator Richard Lugar (R-Ind.), the chairman of the agriculture committee, the measure had been considered dead—even by Gramm. Few lawmakers had either the opportunity or inclination to read the version of the bill Gramm inserted. “Nobody in either chamber had any knowledge of what was going on or what was in it,” says a congressional aide familiar with the bill’s history.

It’s not exactly like Gramm hid his handiwork—far from it. The balding and bespectacled Texan strode onto the Senate floor to hail the act’s inclusion into the must-pass budget package. But only an expert, or a lobbyist, could have followed what Gramm was saying. The act, he declared, would ensure that neither the sec nor the Commodity Futures Trading Commission (cftc) got into the business of regulating newfangled financial products called swaps—and would thus “protect financial institutions from overregulation” and “position our financial services industries to be world leaders into the new century.”
***

Subprime 1-2-3

Don’t understand credit default swaps? Don’t worry—neither does Congress. Herewith, a step-by-step outline of the subprime risk betting game. —Casey Miner

Subprime borrower: Has a few overdue credit card bills; goes to a storefront lender owned by major bank; takes out a $100,000 home-equity loan at 11 percent interest

Lending bank: Assuming housing prices will only go up, and that investors will want to buy mortgage loan packages, makes as many subprime loans as it can

Investment bank: Packages subprime mortgages into bundles called collateralized debt obligations, or cdos, then sells those cdos to eager investors. Goes to insurer to get protection for those investors, thus passing the default risk to the insurer through a “credit default swap.”

Insurer: Thinking that default risk is low, agrees to cover more money than it can pay out, in exchange for a premium

Rating agency: On basis of original quality of loans and insurance policy they are “wrapped” in, issues a rating signaling certain slices of the cdo are low risk (aaa), medium risk (bbb), or high risk (ccc)

Investor: Borrows more money from investment bank to load up on cdo slices; makes money from interest payments made to the “pool” of loans. No one loses—as long as no one tries to cash in on the insurance.

It didn’t quite work out that way. For starters, the legislation contained a provision—lobbied for by Enron, a generous contributor to Gramm—that exempted energy trading from regulatory oversight, allowing Enron to run rampant, wreck the California electricity market, and cost consumers billions before it collapsed. (For Gramm, Enron was a family affair. Eight years earlier, his wife, Wendy Gramm, as cftc chairwoman, had pushed through a rule excluding Enron’s energy futures contracts from government oversight. Wendy later joined the Houston-based company’s board, and in the following years her Enron salary and stock income brought between $915,000 and $1.8 million into the Gramm household.)

But the Enron loophole was small potatoes compared to the devastation that unregulated swaps would unleash. Credit default swaps are essentially insurance policies covering the losses on securities in the event of a default. Financial institutions buy them to protect themselves if an investment they hold goes south. It’s like bookies trading bets, with banks and hedge funds gambling on whether an investment (say, a pile of subprime mortgages bundled into a security) will succeed or fail. Because of the swap-related provisions of Gramm’s bill—which were supported by Fed chairman Alan Greenspan and Treasury secretary Larry Summers—a $62 trillion market (nearly four times the size of the entire US stock market) remained utterly unregulated, meaning no one made sure the banks and hedge funds had the assets to cover the losses they guaranteed.

In essence, Wall Street’s biggest players (which, thanks to Gramm’s earlier banking deregulation efforts, now incorporated everything from your checking account to your pension fund) ran a secret casino. “Tens of trillions of dollars of transactions were done in the dark,” says University of San Diego law professor Frank Partnoy, an expert on financial markets and derivatives. “No one had a picture of where the risks were flowing.” Betting on the risk of any given transaction became more important—and more lucrative—than the transactions themselves, Partnoy notes: “So there was more betting on the riskiest subprime mortgages than there were actual mortgages.” Banks and hedge funds, notes Michael Greenberger, who directed the cftc’s division of trading and markets in the late 1990s, “were betting the subprimes would pay off and they would not need the capital to support their bets.”

These unregulated swaps have been at “the heart of the subprime meltdown,” says Greenberger. “I happen to think Gramm did not know what he was doing. I don’t think a member in Congress had read the 262-page bill or had thought of the cataclysm it would cause.” In 1998, Greenberger’s division at the cftc proposed applying regulations to the burgeoning derivatives market. But, he says, “all hell broke loose. The lobbyists for major commercial banks and investment banks and hedge funds went wild. They all wanted to be trading without the government looking over their shoulder.”

Now, belatedly, the feds are swooping in—but not to regulate the industry, only to bail it out, as they did in engineering the March takeover of investment banking giant Bear Stearns by JPMorgan Chase, fearing the firm’s collapse could trigger a dominoes-like crash of the entire credit derivatives market.

No one in Washington apologizes for anything, so it’s no surprise that Gramm has failed to issue any mea culpa. Post-Enron, says Greenberger, the senator even called him to say, “You’re going around saying this was my fault—and it’s not my fault. I didn’t intend this.”

Whether or not Gramm had bothered to ponder the potential downsides of his commodities legislation, having helped set off an industry free-for-all, he reaped the rewards. In 2003, he left the Senate to take a highly lucrative job at ubs, Switzerland’s largest bank, which had been able to acquire investment house PaineWebber due to his banking deregulation bill. He would soon be lobbying Congress, the Fed, and the Treasury Department for ubs on banking and mortgage matters. There was a moment of poetic justice when ubs became one of the subprime crisis’ top losers, writing down $37 billion as of this spring—an amount equal to its previous four years of profits combined. In a report explaining how it had managed to mess up so grandly, ubs noted that two-thirds of its losses were the fault of collateralized debt obligations—securities backed largely by subprime instruments—and that credit default swaps had been “key to the growth” of its out-of-control cdo business. (Gramm declined to comment for this article.)

Gramm’s record as a reckless deregulator has not affected his rating as a Republican economic expert. Sen. John McCain has relied on him for policy advice, especially, according to the campaign, on housing matters. The two have been buddies ever since they served together in the House in the 1980s; in 1996, McCain chaired Gramm’s flop of a presidential campaign. (Gramm spent $21 million and earned only 10 delegates during the gop primaries.) In 2005, McCain told a Wall Street Journal columnist that Gramm was his economic guru. Two years later, Gramm wrote a piece for the Journal extolling McCain as a modern-day Abraham Lincoln, and he’s hailed McCain’s love of tax cuts and free trade. Media accounts have identified Gramm as a contender for the top slot at the Treasury Department if McCain reaches the White House. “If McCain gets in,” frets Lynn Turner, a former chief sec accountant, “we’ll have more of the same deregulatory mess. I like John McCain, but given what I know about Phil Gramm, I wouldn’t vote for McCain.”

As a thriving bank exec and presidential adviser, Gramm has defied a prime economic principle: Bad products are driven out of the market. In John McCain, he has gained an important customer, so his stock has gone up in value. And there’s no telling when the Gramm bubble will burst.

David Corn is Mother Jones’ Washington, D.C. bureau chief.

————–

Matthew Lee, without mentioning Senator Gramm, makes it clear how old laws are being disregarded in order to hide the effects of changes in the law that were introduced by Senator Gramm. Read the following because it is to this point. You will find there also foresight to future forced bailouts that you will not read about in the conventional press.

Also, remember that AIG is actually the largest US insurance company, and the subprime lending part was just an unfortunate side-line that came about when people like Senator Gramm did by dismantling the firewalls from the post-depression of the 1930s had established. They were saying that less regulation makes for better economy and now we realized that it made for collapse. Now, what with the claims from Gustav and Ike destined to come in within 2-3 weeks? Can AIG remain standing or it will be flattened out? What then? Who will buy an insurance company with zillions in claims against them? The US government? Will Gramm give a damn then?

If you want to understand where McCain wants to take the country, read then the Gibson interview parts we bring in the excerpt, after the Bank of America - Merrill Lynch article, and think what all of this means with a National election in 7 weeks. Will Karl Rove pyrotechnics come to save the GOP day? It seems that talk on lipstick, pit-bulls and pigs will be part of this.

Bank of America - Merrill Would Violate 10% Deposit Cap, Laws Snubbed by Subprime

Byline: Matthew R. Lee of Inner City Press: News Analysis

NEW YORK, September 12 — Amid some gushing about Bank of America stepping in to scoop up subprime-damaged Merrill Lynch for $50 billion, an issue that has scarcely been raised is the law. In 1994 Congress said that no one bank should control over 10% of insured deposits in the United States. Bank of America has been at and over that deposit cap for years now. Merrill Lynch Bank USA, based in Utah, has $57 billion in deposits.  But in the subprime meltdown Bank of America’s regulators, most prominently the Federal Reserve Board, allow it to skirt the law, by defining all of the deposits it buys as, well, non-deposits.

   When B of A bought the discredited subprime mortgage lender Countrywide Home Loans, the Fed decided that since Countrywide’s deposits were technically in a savings bank rather than a commercial bank –  a distinction without a difference anymore, given that savings banks are now allowed to make small business loans as well — it could approve the merger. Click here for coverage from Inner City Press.

  As an investment bank, Merrill Lynch had been unable to own a “regular” bank. So it collected $57 billion in deposits through a so-called Industrial Loan Company in Utah. These are deposits insured by the FDIC; they should count toward any common sense reading of the 10% deposit cap.

  But the issues has barely been mentioned.  If the past is any guide, the Fed has probably already given wink and nod approval to Bank of America. While the Fed has some powers to override laws it if declares an emergency, it has not made any such declaration in this case. It’s just engaging in more and more routine law-bending.

Merrill Lynch: the rain has only begun to fall

  Merrill Lynch itself got directly involved in subprime, buying First Franklin from National City and holding subprime mortgage backed securities through Merrill Lynch Bank USA and yet another bank, Merrill Lynch Bank & Trust. Expect an argument to emerge that the deposits in both entities should be counted toward the 10% deposit cap, and that Merrill’s as well as Bank of America’s roles in the subprime meltdown should be considered and acted on.

In other financial meltdown news Lehman Brothers, owner of such subprime rogues as Aurora and Delaware Savings Bank, is declaring bankruptcy; AIG, which bought American General and its subprime business, is asking the Federal Reserve for $40 billion in loans. For year, Fair Finance Watch raised to AIG’s regulator, the Office of Thrift Supervision, issues concerning AIG’s subprime lending. But AIG pushed through, hiring ex-regulators as its lawyers to argue that various laws didn’t apply to it. Now the OTS’ largest institution, Washington Mutual, is said to be teetering. The chickens are coming home to roost, but will either the executives or the regulators be held accountable?————-

McCain-Palin Economic Platform: Bush Policy Extended, With Lipstick.
September 14th, 2008 . by economistmom

 http://economistmom.com/2008/09/mccain-p…
Here’s the part of Palin’s interview with Charlie Gibson where she explains(?) the McCain-Palin economic platform…  If you’re able to understand her explanation, let me know where you see the “change” from Bush economic policy –other than the lipstick, I mean…

***

Sarah Palin on Economic Policy:

GIBSON: Governor, John McCain and you are now talking about the GOP as a party of change. We’ve got a very sick economy. Tell me the three principal things you would do to change the Bush economic policies.

PALIN: And you’re right, our economy is weak right now and we’ve got to strengthen it, and government can play an appropriate role in helping to strengthen the economy.

***

PALIN: Our 6.1 percent unemployment rate is unacceptable, also, across our nation. We need to put government back on the side of the people and make sure that it is not government solely looked at for all the solutions, for one.

Government has got to get out of the way, in some respects, of the private sector, being able to create the jobs that we need, jobs that are going to allow for the families to be able to afford health care, to be able to afford their mortgages, to be able to afford college tuition for their kids. That’s got to be the principal here, reform government, recognize that it’s not government to be looked at to solve all the problems.

Taxes, of course, I think is one of the most important things that government can obviously control and to help with this issue.

GIBSON: What you said to me at the beginning I don’t think anybody in the Bush administration would disagree with. What do you change in the Bush economic plans?

PALIN: We have got to make sure that we reform the oversight, also, of the agencies, including the quasi-government agencies, like Freddie and Fannie, those things that have created an atmosphere here in America where people are fearful of losing their homes.

People are looking at job loss. People are looking at unaffordable health care for their families. We have got to reform the oversight of these agencies that have such control over Americans’ pocketbooks.

GIBSON: So let me summarize the three things that you’d change in the Bush economic plans. One, two, three.

PALIN: Reduce taxes, control spending, reform the oversight and the overseeing agencies and committees to make sure that America’s dollars and investments are protected.

GIBSON: So let me break some of those down. You talk about spending. How much smaller would a McCain budget be? Where would you cut?

PALIN: We’re going to find efficiencies in every department. We have got to. There are some things that I think should be off the table. Veterans’ programs, off the table. You know, we owe it to our veterans and that’s the greatest manifestation that we can show in terms of support for our military, those who are in public service fighting for America. …It’s to make sure that our veterans are taken care of and the promises that we’ve made to them are fulfilled.

GIBSON: So you’d take military off the table, the veterans’ benefits. That’s 20 percent of the budget. & Do you talk about entitlement reform? Is there money you can save in Social Security, Medicare and Medicaid?

PALIN: I am sure that there are efficiencies that are going to be found in all of these agencies. I’m confident in that.

GIBSON: The agencies are not involved in entitlements. Basically, discretionary spending is 18 percent of the budget.

PALIN: We have certainly seen excess in agencies, though, and in — when bureaucrats, when bureaucracy just gets kind of comfortable, going with the status-quo and not being challenged to find efficiencies and spend other people’s money wisely … then that’s where we get into the situation that we are into today, and that is a tremendous growth of government, a huge debt, trillions of dollars of debt that we’re passing on to my kids and your kids and your grandkids … It’s unacceptable.

I hear Doug Holtz-Eakin has been tasked with (demoted to?) “tutoring” Palin on economic policy these days.  Poor Doug…guess he’s got his work cut out for him.

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From:    beanra at msn.com
Subject: 100 Year Crash: McCain advisor spurred $62 trillion derivatives market that will swamp global markets
Date: September 19, 2008

100 Year Crash: McCain advisor spurred $62 trillion derivatives market that will swamp global markets.

Lurking in the background of this weekend’s collapse of two of Wall Street’s biggest names, is a $62 trillion segment of the $450 trillion market for derivatives that grew huge thanks to John McCain’s chief economic advisor, Phil “Americans are Whiners” Gramm. That’s because in December 2000, Gramm, while a U.S. Senator, snuck in a 262-page amendment to a government re-authorization bill that created what is now the $62 trillion market for credit default swaps (CDSs).

I realize it is painful to read about yet another Wall Street acronym, but this is important because it will help you understand why the global financial markets are collapsing. And it will give you information to consider when you vote in November. CDSs are like insurance policies for bondholders. In exchange for a premium, the bondholders get insurance in case the bondholder can’t pay. As I posted, in the case of the $1.4 trillion worth of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) bonds, the government’s nationalization last Sunday triggered the CDSs on those bonds. The people who received the CDS premiums are now obligated to deliver those bonds to the ones who paid the premiums.

***
Gramm’s 262-page amendment, dubbed “The Commodity Futures Modernization Act,” according to Texas Observer, freed financial institutions from oversight of their CDS transactions. =”Prior to its passage, they say, banks underwrote mortgages and were responsible for the risks involved. Now, through the use of [CDSs]-which in theory insure the banks against bad debts-those risks are passed along to insurance companies and other investors,” wrote Texas Observer.

How does this relate to Lehman’s bankruptcy? “[CDSs] were a key factor in encouraging lenders to feel they could make loans without knowing the risks or whether the loan would be paid back. The Commodity Futures Modernization Act freed them of federal oversight,” according to Texas Monthly. And it was due to these CDSs that Wall Street held an emergency session yesterday to try to minimize the damage of Lehman’s CDSs and other derivatives. Unfortunately, this session did not produce much thanks to the built-in lack of knowledge of the risks in these transactions that Gramm’s legislation ensured.

You are going to be reading more and more about CDSs over the months ahead — it will become as familiar as the phrase subprime mortgage was in 2007. Unfortunately, there were “only” $1.3 trillion worth of subprime mortgages and the CDS market is 48 times bigger than that — and more than four times bigger than U.S. GDP. And since nobody has ever had to deal with this volume of CDS unwindings, it is impossible to calculate how much they will cost.

One thing is clear. If you think America is a nation of whiners and this is a mental recession, I strongly urge you to vote for McCain. But if you take a look at how much you are paying at the gas pump, how much of your retirement will be wiped out in the months ahead, and how you will pay all those bills as the unemployment rate climbs higher, it might be worth considering whether you can afford to elect a man who relies on Phil Gramm for economic advice.