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Arianna Huffington, reporting from the Nashville “Tea Party” Convention, noticed a startling element of Sarah Palin’s speech:

Indeed, at times in her speech, Palin sounded like the second coming of Huey Long. “While people on Main Street look for jobs, people on Wall Street — they’re collecting billions and billions in your bailout bonuses,” she said. “And everyday Americans are wondering: Where are the consequences? They helped to get us into this worst economic situation since the Great Depression. Where are the consequences?”

Obama, meanwhile, is Mr. Nuance on the latest set of bonuses paid out to the Masters of The Universe.  From an interview yesterday on Bloomberg.com, via Zack Carter of Alternet:

Q: Let’s talk bonuses for a minute: [Goldman Sachs CEO] Lloyd Blankfein, $9 million; [JP Morgan CEO] Jamie Dimon, $17 million. Now, granted, those were in stock and less than what some had expected. But are those numbers okay?

THE PRESIDENT: Well, look, first of all, I know both those guys. They’re very savvy businessmen. And I, like most of the American people, don’t begrudge people success or wealth. That’s part of the free market system. I do think that the compensation packages that we’ve seen over the last decade at least have not matched up always to performance. I think that shareholders oftentimes have not had any significant say in the pay structures for CEOs.

Now to be fair, there’s more in Obama’s comments about reforms he’d like, etcetera.  (To continue being fair, Obama also makes an inane comparison with million dollar baseball players who don’t make the World Series.)

But of the two, Palin’s statements convey more anger and emotion about the Great Recession, and more directness — however dishonest, however  shortlived — about its origins than Obama’s unspeakably stupid, tone-deaf opener “first of all I know both those guys.” Next he’ll be telling us how deeply he’s looked into their eyes.  But the real problem is claiming they are beneficiaries of a “free” market.  As Paul Krugman points out in his reaction to Obama’s interview (”Clueless”),

“these bank executives are not free agents who are earning big bucks in fair competition; they run companies that are essentially wards of the state. There’s good reason to feel outraged at the growing appearance that we’re running a system of lemon socialism, in which losses are public but gains are private.”

For a variety of reasons, I’ve given up caring why Obama says the things he says or does the things he does.  Maybe he was a community organizer once; he walked away from that a long time ago.  And I was barely interested in whether the Democratic Party still has a pulse a year from now.  It stood for civil rights and prosperity for a growing middle class once — and it didn’t just stand for those things, it enacted them.  Now it’s a wretched, hollow shell of an organization, unable to parlay a majority in the House, a (now vanished) supermajority in the Senate, and an electoral landslide for the White House into the accomplishment of its alleged number one goal: meaningful health care reform.  Ever since the Massachusetts Senate race loss and the health care reform doldrums, I’ve felt like David Mamet’s line: these guys could f**k up a baked potato.

Now someone like Sarah Palin — a far more dangerous, instinctively able, Nixonian politician than she’s given credit for — is bidding to wrest the populist torch away from the none-too-resisting hands of Obama and the Democrats.  And Palin is good enough at what she does to succeed overtly at what Brown did more or less covertly in Massachusetts — assuming the mantle of change, and conveying the hope of momentum for disaffected, fickle, “independent” voters who are rightly bummed and rightly want to throw the bums out.  If she isn’t, others are.  And Obama, the Democrats, and progressives and liberals who tied their hopes to them will have forfeited the very hope and change that seemed to be the wind in Obama’s sails one short year ago.

Andrew Leonard defends Obama’s performance, complaining: “We’ve got a guy in the White House capable of more nuance than anyone in recent memory, and a political culture that can’t deal with any nuance at all.” Look: nuance and a dollar fifty will buy you a cup of coffee. We don’t need nuance.  We need action.  We need jobs, we need homes saved, we need health care that doesn’t threaten us with choosing between ruin and death, and oh, we need to get out of a couple of wars and stop the ice caps from melting. The question is how, at what cost - and whether we can believe the people we hire to do the job.

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UPDATE, 2/12: Full Business Week/Bloomberg interview here, via John Judis of The New Republic, who points out that Obama’s choice of known union-basher and FedEx CEO Fred Smith as a CEO he “admires” is pretty disappointing too. Judis: “Overall, the impression the interview leaves is of a president surprisingly oblivious to the fury that is sweeping the nation. Obama has occasionally attempted to speak to it, or read speeches that address it. But this interview shows that, in the choice between Main Street and Wall Street, his natural inclinations lie more toward one side—and it ain’t Main Street.”
UPDATE, 2/14: In a similar vein: Frank Rich NYTimes op-ed Palin’s Cunning Sleight Of Hand.

I agree with Julian Sanchez about the alleged astroturfing behind the angry town hall crowds:

Manifestly, there are groups like FreedomWorks trying to catalyze or corral opposition to Obama’s policies, but it hardly sounds as though they’re in control—at most, it seems like they’re providing focal points for the kind of genuine, strong sentiment you can’t fake… and that I’d think few political operatives would want to fake.

You can certainly shake your head about Dick Armey, Rupert Murdoch, and Howard Phillips — a report in Alternet by Adele Stan illuminates their roles well.  But I think it’s a false sense of superiority to call the right wing participants in these events “fringe” or “astroturf.” No more so than Obama supporters turning out by the hundreds and more for campaign rallies — called there by e-mail, text message, and spiffy web sites. Sanchez continues:

That said, I think the sharp line between “grassroots” and “astroturf” will probably make less and less sense in the emerging media environment. The Platonic form of a grassroots campaign is, say, a bunch of ordinary parents in Peoria, largely unconnected with and certainly undirected by any larger political entity, banding together to agitate for some change or other. And the Platonic form of astroturf is when Peoria Parents for a Brighter Future turns out to be three bachelors  in a K Street office with some letterhead and a fat check from McDonalds or something. But the lines between local and national politics are much blurrier when all the organizing and reporting are taking place online.

In a comment, he concedes a reader’s point that “the “genuine, strong sentiment ” you [applaud] is authored by deceit,” and so do I — see Re: Fw: SENIOR DEATH WARRANTS below.  But it does no one any good to bemoan that.  Freedomworks et al have been out-organizing Obama’s people, and by a considerable margin. Why is that?  I have a few theories.

First, while it was possibly a justified legislative strategy, Obama’s laissez-faire approach to the Congressional health care debate wasn’t an effective campaign strategy: it made it hard to know what people were supposed to rally around.  Katha Pollitt of The Nation:

Every day I get e-mails from Health Care for America Now, Organizing for America, MoveOn.org and similar groups urging me to write my Congressman, attend a town-hall meeting, host a gathering. But how can I speak knowledgeably about a plan that does not yet exist and in which the parameters keep shifting?

Second, that approach went hand in hand with shying away from moral arguments (e.g., health care is a right, 47 million uninsured Americans is a wrong) and — the flip side of the same coin — obsessively seeking bi-partisan, “post partisan” common ground with Republican leaders.

Third, and with all due respect, there was always more than a bit of a starry-eyed celebrity worship going on with Obama’s “grassroots” - hopeandchange, shepardfaireyposter, obamagirl, all that — and also more than a bit of utopianism about how the Internet would inevitably unleash the better angels of our nature. Given FreeRepublic and Michelle Malkin, I don’t know why anyone ever thought that, but after the town hall ambushes of 2009, maybe we’ll all be disabused of those illusions for good, and high time too.

Now Obama finds himself facing an energized anti health care reform/anti-Obama movement — and like it or not, the thing has the look of a movement — with a moribund “Organizing for America” base of his own.  A New York Times report today (”Health Debate Fails to Ignite Obama’s Grass Roots“) supplies some examples from Iowa; here in Maryland, after the right overran town halls and even conducted one hanging in effigy, I finally got a message from OFA (Organizing for America) on August 19 all but admitting that:
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As the health care “debate” lurches forward under the expert guidance of our Democratic leadership, my thoughts turn unbidden to the past.

How vividly I remember how we were counseled not to upset our sensitive Republican friends with any prospect of impeachment or subpoenas or prosecution, or of anything at all that might hold them or their chieftains even a little bit accountable for anything.

No, even though it was our most fundamental birthright to hold our rulers accountable when they break laws and break faith and break oaths, we were looking forward, not looking back.  And that was because we were looking forward to that “progressive place” Pelosi prattled on about once — serious liberal Democrats like Harold Meyerson and Chris Van Hollen and Eric Alterman nodding sagely at her side.  Well, Alterman came later, but I’m being allegorical here.

When we got there, she told us, there’d be a delicious yummy exit from Iraq and then! a delicious yummy climate change bill and then! a delicious yummy health care plan!  It was a wonderful story!  Instead of having to fight mean Mr. Bush and Mr. Cheney, we’d just wait for them to go away and we’d have a much easier time with all their friends.  Why, we might all look back on everything and just laugh at how silly we’d been!

So we gave away our birthright, and now I suspect that instead of getting anything delicious and yummy, we’re going to get the mess of pottage I understand you can expect when you do that.  Although there was nothing in the old story about the Iraq surge and FISA amendment and all the other sh*t sandwiches we got to eat first.  Which just goes to show those old stories never get it exactly right, but they can still get pretty darned close.

If so, I imagine people will be saying, “mmm! pottage!” or “you know, for a mess of pottage, it’s not half bad!” And they’ll say it with uniquely American Homer Simpson voices.  And I’ll be banging the desk with my head.

UPDATE, via Jed Lewison at DailyKos:

There’s obviously a lot else going on, but I’ll post this because it hardly requires further comment.  From Al Kamen’s “In the Loop” column in the Washington Post this morning:

…House Majority Leader Steny H. Hoyer (D-Md.) and Minority Whip Eric Cantor (R-Va.) sent out a “Dear Colleague” e-mail Tuesday asking for signatures “to the attached letter to President Obama regarding the Middle East peace process.”

The letter says the usual stuff, emphasizing that Washington “must be both a trusted mediator and a devoted friend to Israel” and noting: “Israel will be taking the greatest risks in any peace agreement.”

Curiously, when we opened the attachment, we noticed it was named “AIPAC Letter Hoyer Cantor May 2009.pdf.”

Kamen’s title: “Now, that’s lobbying.”

You know, it’d be cheaper if we just set up a web site called, say, itsourcongress.com on an AIPAC server and populated it with 535 little avatars called “HoyerMD5,” “CantorVA7,” and so forth.  There’d be e-mail blasts, a “congressional record” blog, people could vote for their favorite avatar, the works.

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UPDATE, 5/15: Here’s the letter (posted over at itsourcongress.com); here’s what MJ Rosenberg and Yglesias have to say about it. Rosenberg: “not one word in the letter that calls on Israel to do anything, not one word about the settlements, the blockade of Gaza, the checkpoints that make it impossible for Palestinians to travel from one village to the next.”

When I first heard from a co-worker yesterday that Pennsylvania Senator Arlen Specter might be switching to the Democratic Party, I asked, “But should we take him?” Since then, I’ve joked on facebook that “a Specter is haunting the GOP,” but my doubts about this have only deepened.

In his statement Specter explained that it was Pennsylvania Republican opposition to his pro-stimulus vote earlier this year that proved an “irreconcilable difference” with voters from his former party, but added:

My change in party affiliation does not mean that I will be a party-line voter any more for the Democrats that I have been for the Republicans. Unlike Senator Jeffords’ switch which changed party control, I will not be an automatic 60th vote for cloture. For example, my position on Employees Free Choice (Card Check) will not change.

It’s passing strange that The Nation’s Chris Hayes could cite this, and then write (emphasis added):

It’s possible, indeed likely, that this is merely a semantic shift. Specter will retain his own politics, vote the way he was before and have a D in front of his name instead of an R. He’s hoping he’ll have a clear path to re-election as a Democrat in a blue state. But, it’s also hard not to think that Democrats are in a much better position than they were 24 hours ago.

With all respect to Hayes — who’s probably more of a righteous lefty on his worst days than I am on my best ones: depending on the issues involved (see above) or the Democrats involved, it’s not that hard at all. From the Washington Post’s report (by Kane, Cilizza, and Murray) — with the dispiriting message to peons like myself that the “President Says He Is Pleased With Move but Does Not Expect Senator to Agree With New Party at All Times”:

A handful of Pennsylvania Democrats had been considering pursuit of the Senate nomination, but potential opposition to Specter began to melt yesterday as the would-be contenders learned that he would have support from Obama and practically every leading Democrat in Washington.

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I received an e-mail from Representative Chris Van Hollen’s office last week on the subject of H.Con.Res. 362, known to its detractors as the “Iran blockade resolution.”  (The e-mail may be read here.)

A disturbing part of that resolution (in my opinion) is:

[Congress] demands that the President initiate an international effort to immediately and dramatically increase the economic, political, and diplomatic pressure on Iran to verifiably suspend its nuclear enrichment activities by, inter alia, prohibiting the export to Iran of all refined petroleum products; imposing stringent inspection requirements on all persons, vehicles, ships, planes, trains, and cargo entering or departing Iran; and prohibiting the international movement of all Iranian officials not involved in negotiating the suspension of Iran’s nuclear program;…

(emphases added) …which — given this administration’s “ready, fire, aim” methods — still seems to me like “waving a red cape in front of a bull in a china shop.” The gist of Van Hollen’s response to my own e-mail expressing opposition to H.Con.362 is this:

Some have interpreted language in the resolution as authorizing a blockade of Iran. The resolution makes no mention of military pressure-much less a blockade. H. Con. Res. 362 calls for the President to seek the international community’s support for an export ban on refined petroleum, not a blockade. Iran does not export refined petroleum products, it imports them. Therefore an export ban on refined petroleum would be enforced by customs inspectors and export administrators on the territories of the exporting countries, not in the Persian Gulf. This method is already in use by the international community, including the United States to enforce the four existing UN Security Council resolutions imposing sanctions on Iran.

Finally, I draw your attention to the final whereas clause of the resolution which states in explicit language, “Whereas nothing in this resolution shall be construed as an authorization of the use of force against Iran.” Since a naval blockade is by definition the use of force, the language of the final whereas clause of this resolution renders the prospect of a naval blockade simply out of the question.

First, it is of no consequence whatsoever that Iran imports refined petroleum products — in fact, preventing imports is the traditional purpose of a blockade.  Second, the resolution itself speaks of “stringent inspection requirements on all persons, vehicles, ships, planes, trains, and cargo entering or departing Iran.”

Now I’m not alone in suspecting that the language of the resolution is a reckless demand for a naval blockade — whatever its sponsors may have intended, the measures envisioned can not be carried out without inspections and, if necessary, interdictions at sea.  From a July 10, 2008 letter by Lawrence Korb, Vice Admiral Jack Shanahan (ret.), and Lt. General Robert Gard, Jr. (ret.) urging Congress to abandon the resolution:

• The language demanding the President initiate an international effort “prohibiting the export to Iran of all refined petroleum products; imposing stringent inspection requirements on all persons, vehicles, ships, planes, trains, and cargo entering or departing Iran,” is of particular concern because despite the protests of its sponsors, we believe that implementation of inspections of this nature could not be accomplished without a blockade or the use of force.

• Immense military resources would be required to implement such inspections of cargo moving through the seas, on the ground and in the air. The international community has shown no willingness to join in such an activity. Without a Security Council Resolution, implementation of these measures could be construed as an act of war.

Read the rest of this entry »

After a partly undeserved win on Monday, the sanity wing of the anti-bailout forces had to absorb a defeat in the Senate this evening, as “TARP 3: This Time with a Cherry On Top” was passed by a 74-25 margin.  Both Maryland senators voted for the bill; “nays” included Russ Feingold, Bernie Sanders, Jon Tester, and Byron Dorgan.

The bill was folded into a mental health bill, explaining the startling name “Paul Wellstone Mental Health and Addiction Equity Act of 2007″; it included mental health spending, but then got down to business on the bailout.  The FDIC increase is something Galbraith recommended a couple of days ago, and seems like a good idea.  But the bill is otherwise the same old pig, just a more expensive one, because it includes tax cuts for the well-off (AMT rollback) rather than a tax increase on the superrich.  Other features not included were a transaction tax to slow the wheels of reckless commerce a bit, or God forbid a “trickle up” bailout to keep people in their homes.

Possibly the most revealing aspect of the whole thing was when Senator Bernie Sanders’s inconvenient proposal to tax the superrich was squelched by the simple method of declaring it a voice vote — i.e., we’ll never know who voted against it.  Harry Reid and Mitch McConnell must have shared a hearty bipartisan laugh over that one.

This time, the “no blank check, no bailout” phone calls may have been matched by the “do something! do anything!” ones.  A certain eye-rolling derision about yahoos who dared question whether we must indeed do this particular plan crept into commentary by mainstream journalists like Steve Pearlstein and bloggers like Kevin “I swear I’m going to scream” Drum.*  More to the point, a Dow Jones plunge — plus breathless descriptions of it as the “biggest one day point drop ever” — no doubt spooked a lot of people.  So FUD — fear, uncertainty, and doubt — took over, and FUD won.

Now there’s no doubt there really is a credit crunch that is hurting businesses.  But there’s reason to think the “rescue” plan is actually causing the crunch.  Harvard’s Elizabeth Warren, writing at TPM Cafe:

At a Harvard panel discussion yesterday, economics professor Ken Rogoff made an interesting point: The liquidity crisis isn’t real. Or, to restate it: Any liquidity crisis is caused by the promise of a government bailout. Ken said that his many friends in investment banking said that there is plenty of money to invest in financial services, but right now it is “sitting on the sidelines.” Why? Because the financial services industry does not want to pay the terms demanded. As he put it, why do business with Warren Buffett who will negotiate a tough deal, if you believe that the government will ride in soon with cheaper cash?

As Glenn Greenwald points out, you don’t have to look to angry bloggers or tweedy economics professors for skepticism — former Bush Treasury Secretary Paul O’Neill and BB&T bank CEO John Allison share it, too.  Allison said the Treasury Department is

“totally dominated by Wall Street investment bankers,” and “cannot be relied on to objectively assess all the implications of government policy on all financial intermediaries.”

There’s some hope on the House side, where Pete DeFazio, Donna Edwards, Elijah Cummings and others have introduced a “No BAILOUTS Act” counterproposal.  Like the Senate bill, it includes an increase in FDIC deposit insurance, but parts ways after that, proposing a temporary end to the accounting “mark to market” rule (requiring banks to list defaulting mortgages as having zero value), restriction on short selling, and a “net worth certificate” program run by the FDIC which would provide cash to struggling banks in return for “promissory notes to repay the FDIC, counting the amount “borrowed” as capital on their balance sheets. This exchange provides short term capital, with [no] cash outlay.”The scheme was used successfully during the savings and loan crisis in the 1980s. I’m not sure that relaxing accounting standards is as much on point — but if it might save us all $700 billion I admit I’m interested.

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* Mother Jones must be spinning in her grave. Drum has been writing stuff that would embarrass Sarah Palin (at least, once you deprogrammed and educated her.)  E.g., “Paulson now works for the United States Treasury, but his instincts are the same as always: even if for no other reason than to boost his own ego, he’s going to want to drive the hardest bargains possible — and the weaker the opponent, the harder he’ll push.” Sure — right up to where the other guy says “so… where are you heading in 3 months, Hank?” Or: “So sure: we should all hope that after the election we can pass legislation that attacks the roots of the financial crisis. This includes financial market regulatory reforms, macroeconomic stimulus, and broad relief measures. Maybe it even includes a better bailout program if this one isn’t enough. But right now, we have what we have, and complaining about it is like refusing to turn a fire hose on a burning building because you’re afraid the water is flouridated. It’s time to pass the bill.” I thought Drum was supposed to be one of the smart ones. He can hope all he wants — now is the time to force reforms, not later when the crisis has (supposedly) been averted.  That’s when those hard bargaining types Drum goes on about will typically say “scr*w you, buddy.”
UPDATE, 10/2: Gordon Clark: Van Hollen Ignores Constituents, Votes for Failed Wall Street Bailout

Good for them — some of them, anyway.

Some folks like hilzoy at “Obsidian Wings” point out how little most of us know about derivatives, macroeconomics, and high finance, and suggest we should probably be circumspect about demanding any particular outcome to the situation:

It’s a judgment call, and one that requires a fair amount of sophisticated knowledge. I am of course trying to understand it as best I can. But I am not under the illusion that I could arrive at a view I feel real confidence in on my own.

But we citizens aren’t called on to craft the perfect financial solution to the difficulties many large lending institutions find themselves in.  Our task is simpler: to decide whether the proposed solution is fair enough — both overall, and of course to us.  As I replied in comments:

That’s all true, and I’m torn between acknowledging my lack of expertise and my gut sense that I’m being taken for a ride on this.

One rule of thumb I can apply, though, is that when there’s a major, major deal like this happening, I ought to hear screams of pain from both sides of the question. So far, I’m only hearing them from the “Main Street” side. That makes me lean to wanting to extract more from the lowlifes who created and enabled the untransparent mess we’re in — e.g., nationalization, voting shares in bailed out companies, tax surcharges on the very wealthy, etc.

(See also Nell’s comments throughout the thread, esp. here, here, and here.)  If Wall Street really was over a barrel, then the deal voted down on Monday too plainly favored them — and if they weren’t, we didn’t need to be discussing this scale of intervention at all. The other thing that even the most economically illiterate among us could see was that the negotiations were all done behind closed doors, denying most people their usual method of how to judge the outcome: news reports on committee hearings.

Thus, even though I’m not very knowledgeable at all about financial news, I still feel confident that the bailout defeat was richly deserved — and that it was a rebuke not just to the White House, but to the Democratic leadership that helped try to set off a legislative stampede.

Now that Bush and Boehner are plainly incapable of delivering Republican votes for a bill largely of their own design, it just may occur to Democratic leadership that it’s time to go to with a bill that’s attractive to Democrats.  The beauty part?  If the crisis is really as grave as President Bush himself said it was on nationwide primetime TV last week, then he simply won’t be permitted to veto any bailout bill that gets to his desk, no matter how unpalatable the fine print is — Wall Street will need the money that bad.  A better bill could include increased protections for homeowners, real, voting equity in bailed out companies or outright nationalization, a “Millionaire Tax” on the super rich to pay for a good deal of the mess, and an independent new agency instead of the Bush Treasury Department running the financial cleanup process.

Of course, with this Democratic leadership I suspect all of the above is like the old joke “if we had ham, we could have ham and eggs, if we had eggs.”  That is, to imagine a deal like the one above, you have to imagine people in a position to make that deal and willing to fight for it.  No one would be more pleasantly surprised than me if Pelosi, Hoyer, Van Hollen et al turn out to be those people.

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EDIT, 9/30: “–both overall, and” added.
UPDATE, 9/30: Kevin Drum scolds, Glenn Greenwald celebrates, and Matthew Yglesias further develops one of my points with a question: Where’s corporate America? Also, here is the roll call (ignore the description, the bailout bill was substituted in for H.R.3997, the one scheduled at the time) and a New York Times graphic sorting the no votes six ways from Christmas.
FURTHER UPDATE, 9/30: For selected articles I’ve bookmarked on all this using delicious.com, click bailout or mortgagecrisis.

Paulson power grab: Sec. 8. Review (35 comments);

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Dodd proposal: Sec. 8. Limits on review (7 comments)

a. IN GENERAL. Any determination of the Secretary with regard to any particular troubled asset pursuant to this Act shall be final, and shall not be set aside unless such determination is found to be arbitrary, capricious, an abuse of discretion, or not in accordance with the law.

b. EXCEPTION. Notwithstanding subsection (a), the terms of a residential mortgage loan that is part of any purchase by the Secretary under this Act shall remain subject to all claims and defenses that would otherwise apply notwithstanding the exercise of authority by the Secretary or the Corporation under this Act.

Via the very interesting PublicMarkup.org project of the Sunlight Foundation. As the headings indicate, the proposed legislation is broken up into sections and opened up to comment by participants. While the heat-to-light ratio is high, there is some good discussion amid the invective — and the sheer amount of invective is yet another clue, if any further ones were needed, that this has touched a nerve.  (In that regard, the facebook page “No Blank Check for Wall Street” is growing steadily, and an allied WetPaint Wiki site is underway as well.)

Among the potentially useful comments at PublicMarkup.Org about Dodd’s counterproposal:

c. RETROACTIVE IMMUNITY Nothing in this act may be construed as providing retro-active immunity for illegal acts by financial institutions whose assets were purchased under Title I, Clause 2, or their subsidiaries, or their employees, contractors, board members, and other associated parties.
posted by lambert strether (Corrente) at September 22, 2008 [...]

I IMPLORE Senator Dodd to look into HOLC, the New Deal approach to an equivalent problem, which left people in their homes, cleaned up the bank’s balance sheets, and made the government a profit by the time it closed down.
posted by lambert strether (Corrente) at September 22, 2008 [...]

The thing which is missing for me is review of the mortgages that are failing for fraudulent origination or just plain excessively permissive underwriting. It seems to me that there should be different treatment for mortgagees and mortgage originators where the mortgage was fraudulent. The act should specify three tiers: fraudulent, excessively permissive, other bad loans. The inspector general should be able to review the loans and make the determinations, and the IRS should help by providing tax return information for the year of mortgage origination.
posted by Frank J at September 23, 2008

I’m no lawyer, and assume “arbitrary” or “capricious” are terms of legal art that are well defined. That said, Dodd’s Section 8a doesn’t seem like very much of a constraint to me.  While other parts of Dodd’s bill require disclosures to Congress, they don’t seem to provide for Congressional co-direction or other provisions for independence from or checks on the executive branch.   I think it’s going to be General Petraeus all over again if Paulson or his successor is questioned on any particular decision.

In general — though I hasten to add I’ve only skimmed it — the Dodd proposal doesn’t seem to provide equity stakes in companies receiving this kind of bailout, and it doesn’t seem to address the key “too big to fail” question that Senator Sanders raises.

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UPDATE, 9/25: Lawmakers: Wall Street rescue accord reached
NOT SO FAST, 9/25: White House Meeting Fails to Yield Bailout Deal

As the $700,000,000,000 — or is it a trillion? — “look Ma, no strings” bailout proposal wends its way through debate in Congress, I can’t help remembering a mirror-image legislative fiasco of three years ago. From Elizabeth Warren’s summary of the Bankruptcy Bill of 2005:

Despite the very public bankruptcies of Enron, Worldcom, Adelphia, Polaroid, United Airlines, US Airways and TWA, there are no new provisions to rein in corporations that are paying millions to insiders while they cancel employee health benefits and wipe out retirement plans. Instead, this bill focuses on families, clamping down on people who have been driven to bankruptcy by job losses, by medical problems and by family break ups.

Why?

Because those are the people who owe credit card bills, and the credit card companies are the driving force behind this legislation. Some in the Senate recognize this.

The bill is more than 500 pages long, all in highly technical language. But the overall thrust is pretty clear:

• Make debtors pay more to creditors, both in bankruptcy and after bankruptcy, so that a bankruptcy filing will leave a family with more credit card debt, higher car loans, more owed to their banks and to payday lenders.
• Make it more expensive to file for bankruptcy by driving up lawyers’ fees with new paperwork, new affidavits, and new liability for lawyers, so that the people in the most trouble can’t afford to file.
• Make more hurdles and traps, with deadlines that a judge cannot waive even if someone has a heart attack or an ex-husband who won’t give up a copy of the tax returns, so that more people will get pushed out of bankruptcy with no discharge.
• Make it harder to repay debts in Chapter 13 by increasing the payments necessary to confirm in a repayment plan, so that more people will be pushed out of bankruptcy without ever getting a discharge of debt.

The Bankruptcy Bill of 2005 was among the developments leading Warren Buffett and Paul Krugman to describe the direction of the U.S. economy as one towards a “sharecropper society” or “debt peonage”, respectively.

The Democratic Party will tell you it’s clear who was to blame:

2005: McCain Voted Against Exempting Medical Debt from Bankruptcy Means Test And Against Protecting Debtors’ Homes From Being Seized As A Result Of Medical Debt. During the debate on the 2005 bankruptcy reform bill, McCain opposed a number of amendments to protect individuals forced into debt because of high medical expenses. McCain voted against an amendment that would exempt debtors from the means test if their financial troubles were caused by medical expenses, and he opposed another amendment that would have exempted from the means test individuals who have incurred substantial medical debt on behalf of dependent or non-dependent family members, such as a parent or grandparent, or who have experienced a reduction in employment status while caring for such a family member. In addition, he voted against an amendment to provide a homestead exemption of at least $150,000 of the equity in the property the debtor uses as a primary residence if the bankruptcy stems from medical expenses. [S 256, Vote 16, 3/02/05, Failed 39-58: R 0-54 D 38-4 I 1-0; S 256, Vote 18, 3/02/05, Failed 37-60: R 0-54 D 37-5 I 0-1; S 256, Vote 17, 3/02/05, Failed 39-58: R 0-54 D 38-4 I 1-0]

Links added –revealing a heaping side helping of chutzpah, because one Senator Joseph Biden voted the same way on the medical expenses exemption amendment (vote 16), and abstained on the other two. While he wasn’t an official co-sponsor of the 109th Congress’s S. 256 bill, Biden explained in a letter to the editor of the L.A. Times that the bill was one big wonderful package –“Is this bill perfect? No. But over several congresses it has earned the kind of bipartisan consensus only balanced legislation can achieve” – and had to be passed as such.

Bearing this out, Senator Cornyn (R-TX) actually withdrew an amendment limiting corporate judge-shopping, “out of respect to the managers of this bill who say that amendments to this bill would endanger its ultimate passage,” an uncharacteristically indignant David Broder reported.  Broder continued,”A Cornyn spokesman told me the bill sponsors said his amendment would cost them the support of the two Democratic senators from Delaware.” They wanted, you might say, a “clean bill.”

So what?  Old news.

Maybe so.  But paraphrasing John Cole’s warning here, Chris Dodd, one of the flavors of the week in fighting back against the “Troubled Asset Relief Program,” might be to the financial meltdown what Joe Biden was to the “Fugitive Debtor Act of 2005.” That is, not necessarily the guy with the connections you’d want in a situation like this.  As a ranking member of the Senate Finance Committee, one might fairly ask how this snuck up on him, too.

I’ll stipulate Dodd and Biden are often very good guys — on FISA, on torture, on executive power — who generally have the national interest at heart.  But on issues like these they may conflate that interest with those of their big contributors and their state’s major businesses, going too far one time, not far enough the next.  For my part, I still favor Senator Bernie Sanders’s checklist for dealing with this bailout power grab:

a) Impose a five-year, 10 percent surtax on income over $1 million a year for couples and over $500,000 for single taxpayers. That would raise more than $300 billion in revenue;

b) Ensure that assets purchased from banks are realistically discounted so companies are not rewarded for their risky behavior and taxpayers can recover the amount they paid for them; and

c) Require that taxpayers receive equity stakes in the bailed-out companies so that the assumption of risk is rewarded when companies’ stock goes up.

2) There must be a major economic recovery package which puts Americans to work at decent wages. [...]

3) Legislation must be passed which undoes the damage caused by excessive deregulation. That means reinstalling the regulatory firewalls that were ripped down in 1999. [...]

4) … If a company is too big to fail, it is too big to exist. We need to determine which companies fall in this category and then break them up.

That may still be too radical for, say, the new facebook group “No Blank Checks for Wall Street“, but (a) it sounds just about exactly right to me, and (b) join up, speak up, and wait a couple of days — it may sound about right to a lot more people by then.

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NOTES: several links via old “slacktivist,” “Pacific Views” and newsrack (”In peonage to Nosferatu“) posts.  Also, by way of having it handy from now on, here’s a helpful graphic comparing government bailouts since 1970.  Those really big circles at the right?  That’s us right now.