Debate Prep 101-- And Debate Analysis 102

This morning Paul Krugman gave us a peek into a closed session among bailout negotiators in which Paulson agrees with Nancy Pelosi that bad faith by extremist Republicans-- stoked by a self-serving, opportunistic national disease called John McCain-- is what caused the bailout negotiations to break down. The Mike Pence-led extremists, he reminds us, were first and foremost nihilists with what Krugman termed a "complete nonsense proposal"-- "a holiday on capital gains taxes."

How is that possible? Well, if a party runs on economic nonsense for 25 years, eventually many of its foot soldiers will be people who actually believe the nonsense.

...And after the way the Bushies and their allies double-crossed the Democrats again and again in the aftermath of 9/11-- demand national unity, then accuse you of being soft on terrorists anyway-- there’s no way Pelosi and Reed will do the responsible but unpopular thing unless the Republicans agree to share ownership.

So what we now have is non-functional government in the face of a major crisis, because Congress includes a quorum of crazies and nobody trusts the White House an inch.

As a friend said last night, we’ve become a banana republic with nukes.

Not all economists thinks this crisis is as life threatening as the Washington Post's Steven Pearlstein does. We're all angry with Wall Street manipulators-- some of us think they should meet the same fate as the Indian CEO who recently stepped out of line. Some of us can think abstractly enough to take that one step further and be equally angry with the political operators-- from Rahm Emanuel (D-IL- $729,200) and Spencer Bauchus (R-AL- $483,350) to Chris Shays (R-CT- $362,720), John Boehner (R-OH- $357,000) and Eric Cantor (R-VA- $318,650)-- who have enabled these Wall Street crooks and wish them the same fate. Pearlstein, less bloodthirsty than myself, says even if we confiscated all the ill-gotten wealth from all the Wall Street crooks, "it would come to several billions of dollars. That's a rounding error compared with the size of the financial problem we're facing here." That sounds ominous. It's just the beginning.

The financial situation is now downright scary. Don't look at the stock market-- that's not where the problem is. The problem is in the credit markets, which are quickly freezing. I won't bore you with technical indicators like Libor and Treasury swap spreads, but if you talk to people who work these markets every day, as I have, they report that the money markets are in worse shape than they were last August, or even during the currency crises of 1998.

Banks and big corporations and even money-market funds are hoarding cash, refusing to lend it out for a day or a week or a month. Even the best companies are having trouble floating bonds at reasonable rates. And the shadow banking system-- the market in asset-backed securities that ultimately supplies the capital for most home loans, car loans, college loans-- is almost completely shut down.

People are so nervous, and there is so much distrust, that all it would take is one more hit to trigger the modern-day equivalent of a nationwide bank run. Financial institutions would fail, part of your savings would be wiped out, jobs would be lost and a lot of economic activity would grind to a halt. Such a debacle would cost us a lot more than $700 billion.

...[T]his isn't primarily a bailout for Wall Street-- it's an attempt to jump-start certain credit markets that have broken to the point that nobody is buying, driving down prices to the point where they are well below any reasonable estimate of their long-term economic value.

The basic idea is to use special auctions to recreate a market for these securities with many competing sellers and one buyer (the Treasury), so that a credible "market" price can be established. If that price turns out to be below what those securities are now valued at on the banks' balance sheets, then banks will have to take the loss. If the price turns out to be higher, then banks may be able to record gains. The point isn't to bail out institutions that have made bad bets and suffered credit losses, but to provide a buyer of last resort so the market can begin pricing again.

Are there other ways to structure this market rescue? Sure. You could try to deal with the underlying problem by taking additional measures to prevent foreclosures. Or you could create a mechanism for the government to invest fresh capital in troubled banks, in exchange for stock. In fact, both approaches are possible and envisioned under the administration proposal now under discussion. But neither, by itself, is likely to quickly restore confidence in the financial system and relieve the current crisis.

... [I]t is important to give the Treasury secretary and the people he hires a good deal of flexibility in designing and experimenting with the mechanics of this rescue. The reality is that these guys will be operating in uncharted territory, making things up as they go along. That means there are no assurances that any particular approach will work and no assurances that this will be the final solution. It also means that, just as we entrust generals to fight a war, we are going to have to trust the Treasury to find a way out of this crisis.

Now that notion-- "trust us," coming from the least trustworthy admin- istration in the entire history of the United States, really is as scary as anything else. And, like I said earlier, there are other economists who paint a less dire picture. In fact, "many of the nation's brightest economic minds are warning that the Wall Street bailout's a dangerous rush job" and that the end of the world is not nigh. "It's more hype than real risk," said James K. Galbraith, a University of Texas economist and son of the late economic historian John Kenneth Galbraith. "A nasty recession is possible, but the bailout will not cure that. So it's mainly relevant to the financial industry."

Ian Welsh over at FDL takes a hard line against the Greed and Selfishness Republican ideology that caused the problem and urges responsible leadership not to look for compromise with these antisocial misfits but to get going with the task of repairing what their shameless greed and corruption has broken.

The Republicans have offered two solutions-- the Paulson plan, which was a complete power and money grab, and now the House Republican plan which is that the solution is to do more of what caused the problem-- deregulate Wall Street and hey, presto, deregulation will fix what's wrong!

So, is the correct solution to compromise the Frank or Dodd bills with more deregulation and more power and money for Paulson and Bush to use however they see fit with no real oversight?

But wait, you say. The Dodd bill and the Frank bill are pretty sucky themselves. That's true, still both are better than Paulson's plan or the absurd House plan of "deregulation will fix the problems caused by deregulation!"

And why are they sucky? Because they started with the Paulson bill and because Frank and Dodd compromised with Paulson all through negotiations.

When put that way it's, I hope, self evident, that the more partisan the solution-- the more things like bankruptcy protection and help for people to keep their houses, and serious taking pieces of companies which are helped out-- all things not in the original Paulson plan and as far as I can tell not in the House Republican plan, are better.

They are partisan ideas. They are democratic ideas. They are in fact progressive ideas.

They are not bipartisan ideas. Republicans don't want people to get bankruptcy protection. They don't want judges to be able to let them keep their houses. They don't want the government to get 10% preferred shares like Buffett got when he bailed out Goldman, whenever the government bails out a company.

Bipartisanship means compromise and compromise with the Republicans on this means a lousy bill. In fact, starting with the Paulson bill is what made the Frank bill so awful, and the Dodd bill is better than the Frank bill because it departs further from Paulson. But because it's still based on Paulson, it still isn't actually a good bill, just a better bill than Frank's or Paulson's.

Newt Gingrich also has partisan ideas-- all proven losers-- and he's inspired some of the weakest minds in Congress, the Michele Bachmanns, Eric Cantors (living proof that not all Jews are financial whizzes) and the Paul Ryans, all crazed ideologues with predictable approaches celebrating... Greed and Selfishness, what else?

Gingrich brings a clarity of mind and simplicity of action that is a tonic to a Republican Party that seems uncertain of its core principles and ambivalent about its presidential standard bearer. Even before John McCain announced he was suspending his campaign and riding to the rescue in Washington to find a bipartisan solution to the financial crisis, Gingrich saw the impasse on Capitol Hill as an opportunity to recast the Republican Party on the side of Main Street. "It's very clear that their bias is entirely in favor of the big banks and Wall Street," he says of the Bush administration's $700 billion bailout plan presented by Treasury Secretary Henry Paulson. "This is the decisive moment of defining McCain. If he comes out on the side of the taxpayer, then there will be a McCain wing of the Republican Party that will be dramatically different than the Bush wing."

Gingrich's not-so-subtle message: Bush is irrelevant. It's in McCain's hands as the leader of his party to drastically reconfigure the Paulson bailout or he will suffer the same ignominious political fate as George H.W. Bush. Gingrich put out a statement hailing McCain's eleventh-hour intervention. "This is the greatest single act of responsibility ever taken by a presidential candidate and rivals President Eisenhower saying, 'I will go to Korea'." Eisenhower's pledge was enough to reassure voters that if elected he would find a way to resolve the Korean conflict. McCain's high-octane involvement in the bailout is meant to convey the same sense of stature and leadership, and to provide cover to reluctant Republicans to support a deal that runs counter to everything they thought they stood for.

McCain alone can bring along enough Republicans to make a deal stick. "The Democrats are not going to go out on a limb for an unpopular position and give Bush money five weeks before an election unless Republicans deliver the votes," says Gingrich. "And the Republicans I believe cannot deliver the votes. So they'd better be designing Plan Two because I think Plan One is dead."

Never one to hold back, Gingrich unleashed his views about the original bailout plan in a torrent of words, calling the authority Paulson wants over the financial industry "a bureaucratic dictatorship" that is "outside the law" and will lead to a "20-year bureaucracy of corruption and cronyism." He's sounding the cry of what he calls the Reagan-Thatcher wing of the party, newly energized by a familiar fight against the corporate country-club wing he says is "boxed in by a Goldman Sachs chief of staff and a Goldman Sachs Treasury Secretary," so they're not receptive to alternatives (Paulson and top White House aide Josh Bolton are alumni of the investment house). "If they don't have any better ideas, they should resign, and the president should get a new team."

OK, all that said, what should we be looking out for tonight? What greasy oily notions have Phil Gramm and the rest of the lobbyists drummed into poor old McCain's cob-webbed brain? McCain, who has rubber stamped every single deregulation since he got into Congress after World War I or II, will claim he warned about a brewing financial crisis. His continued support for freewheeling creditors-- who continued giving him freewheeling campaign "contributions" in return for that support-- belies his bogus claims that his misapprehensions about Freddie Mac and Fannie Mae were significant in any way.

Now that economic catastrophe is making populism popular. McCain is trying to jump on the bandwagon, a bandwagon he has spent a couple dozen years in Washington sabotaging. Suddenly he's all about controls on Executive Pay and opposing golden parachutes. He's just spent an entire career on the other side of the barricades. When Obama sponsored a "say-on-pay" bill that would have required public companies to hold a nonbinding shareholders vote on CEO pay early in 2007 McCain opposed it-- loudly. He's always been for the bosses. He's always been against regular working families; always.

Along the same lines, expect him to claim he's been a "leader" on the housing crisis. Unless he explains that he's been part of the crew that has led us into the housing crisis, he'll be doing what has become the hallmark of his campaign: lying... and parroting much of what Obama says.

And then there'll be the lies we hear every day on Fox: he's never taken any earmarks (false); he has a "perfect"-- or even halfway good-- record on veterans issues (even more false); he has an energy plan that will create jobs through energy independence (yes, it sounds like what Obama and Democrats are offering but McCain's version is a total sham, which goes a long way towards explaining why he's been given more money by Big Oil than anyone else running for any office anywhere in America); he'll balance the budget in 4 years (even the Fox propagandists can barely keep a straight face when they repeat this bullshit). Oh, and there are 100 other lies in his bag... so enjoy the debate and see how many you can catch.


UPDATE: McCAIN CAN'T STOP LYING

He just repeated a debunked Republican talking point that Obama has "the most liberal voting record is the Senate." In reality, Obama's voting record is the 46th most liberal. McCain is the 20th most reactionary. Where's McCain's flag pin? Does he hate America? That tie seems to say he hates the world. Is he bitter about having lost a Miss Congeniality contest?

Anyway, Miss Congeniality bristled and got his bloomers all tied in knots when Obama mentioned that Henry Kissinger has said repeatedly that he favors negotiating with Iran without preconditions. I thought Miss Congeniality would explode; maybe if he sees this video he will. Fingers crossed!

Marc Ambinder at The Atlantic has the stats on a CBS/Knowledge Network poll of undecided voters:

40% of uncommitted voters who watched the debate tonight thought Barack Obama was the winner. 22% thought John McCain won. 38% saw it as a draw.

68% of these voters think Obama would make the right decision
about the economy. 41% think McCain would.

49% of these voters think Obama would make the right decisions about Iraq. 55% think McCain would.

In fact, all the instapolls and focus groups seem to be giving the win to Obama. I thought he was pretty weak so it must have been because McCain came off so nasty, grumpy, condescending, muddled, and... potty-mouthed-- and so defensive of the status quo which he still doesn't realize people hate and identify with his decades of crappy voting and catering to special interests. Final verdict: Obama kicked McCain's saggy, mean, old white ass