More on jobs and the SOTU

Reich: The president ignored the elephant in the room

Ezra: Can we win the future if we lose the present?

I sat in on a briefing yesterday where various "senior administration officials" explained the theory behind the State of the Union. When they were asked about shifting their focus to the future when the economy was so bad in the present, they explained that they got pretty much everything they thought they could get -- and, in fact, more than they thought they could get -- in the tax-cut deal, and it was time to let that work. Left unsaid is that they can't get anything more out of a Republican House, and so there's little point in begging.

And now, a shout out from The Hammock of Complacency & Dependency

Paul Ryan's response to the SOTU was a bit disappointing, I have to say. The only republican willing to come up with a Roadmap of specific spending cuts and policy changes was uncharacteristically vague, his words mostly just standard GOP doctrine. (Including swipes at England and Ireland which were just, well, ill-informed and wrong.)

The problem, as always, is that these vague platitudes may sound idyllic to some ears, but only because they are not upfront about cuts and policy changes.

Ryan's language was, most likely, constrained by the party. While I believe he's enthusiastic about his Roadmap, there is little to love in there for economists or the general public. Medicare is basically dismantled, Social Security is privatized (this, from the party that thinks too much regulatory burden has been placed on Wall Street over the last two years), and still the Roadmap wouldn't balance the budget until 2063, and the deficit still wouldn't have been addressed.

But it's really all they have. Rand Paul's proposed legislation will not go anywhere. No one else in the Republican party can name any cuts that impact the deficit in any meaningful way. They have Ryan. But his roadmap won't stand up to scrutiny or politics, and they know it.

So, we are offered pretty platitudes, because accounting doesn't win hearts and minds, in the hope that we'll keep the GOP in the majority, maybe elect a Republican resident in 2012. Keep tax breaks for their friends - and themselves. Let's not forget that congress is overwhelmingly made up of very affluent people.

That's what Ryan gave us. That, and the now-required insult for people like me, people lounging in The Hammock of Complacency and Dependency. I won't argue there's a certain amount of torpor over here, which you could interpret as complacency. But I promise you, this feels nothing like a hammock.

Also too: Joan Walsh. Justin Fox.   Yglesias.

And also likewise, I was going to say something about Bachman, but sometimes, in the face of utter stupidity, words fail. So I'll direct you here, instead.

Epiphany

So perhaps the secret to keeping down the blood pressure is simply this: get all news in written form. News outlets, blogs, doesn't matter. Also NPR, NPR is fine. The only thing that matters is that one avoids, at all costs, television news.

Because as soon as you turn on the cable, you will see and hear the incestuous paid anchors and analysts and assorted denizens of the echo chamber that is "I get paid to talk about this" TV news, and they will always- always- offer some tidbit, some SURPRISING observation, which will drive up the damn blood pressure once again.

So yesterday, after I had blogged about not having the capacity for shock, outrage, or snark these days, I turned on MSNBC for a bit and got to hear Pat Buchanan (and who isn't surprised that he's on TV at all?) say that we are in a "near 1930 situation in the financial sector, and hoping it doesn't spill over to the larger economy".

What fucking planet does he live on? Why is he ever on my teevee?

So that was, perhaps, my first surprise! for the new year. And the accompanying epiphany: If I need something to get angry about (because anger is often a prime inspiration for action), all I need to do is spend a bit of time with cable news.

The bailout, even with strings, is not enough

So they keep telling us that we have to invest in junk debt to the tune of a few hundred billion or maybe a trillion dollars, because the whole financial system is on the verge of collapse. President Bush explained to us yesterday that the infusion of public wealth into private enterprise is necessary to keep lines of credit open for business, otherwise many of them will cease to exist, and for citizens, who otherwise will not be able to get loans for homes, cars, college.

Everyone and their brother has screamed for oversight, and it looks like that will be part of the package (though having the mechanism does not mean oversight will occur- look at Iraq for a sobering example). Equity stake? Maybe, though that's still opposed by the administration. Limits on executive compensation may be the big "win", if anything in this can be properly called a win.

My laundry list of adds includes things that will, apparently, not gain ground: The ability of bankruptcy judges to reset loan terms, moratorium on Wall Street lobbying, these things will be tossed. Most importantly, I am not hearing anything about investment in the much mourned Main Street.

I think it's important to remember something about the Great Depression: in addition to a needed regulatory regime and insurance structures, the Depression was addressed with substantial investment in the country's Main Street. Infrastructure projects and even humanities projects put people to work, creating wealth at the bottom, which in turn created the need and means for businesses to grow.

The idea that Main Street will recover this time with simply the ability to take on more debt is, I think, deplorable.

Another thing: while the New Deal helped stop the bleeding and enabled the slow healing of wounds, the wealth of the country really only picked up after we entered WWII and commenced massive war spending.

This time around, I think we'd all like to avoid a world war, so we should probably figure out what our government's investing priorities should be outside of the Pentagon and Wall Street.

Economists For Obama

I keep forgetting how much I love Economists For Obama.

You wanna know who either candidate's economic advisors are? Check here. You wanna know how their numbers really play out? Check here. You wanna know what your taxes would look like under Obama's plan?

Check Here.

Good signs- but don't let up yet

Looks as if Paulson's ready to play, and the Democrats are pushing. Via Calculated Risk, WSJ is reporting that the administration will accept executive compensation limits, and Bloomberg says they're ready to ok an equity stake.

The New Market emerging- guest post

I'll be back to posting just as soon as I can get my outrage formed into coherent sentences and without a Sweeney Todd reference. Until then, I give you the very reasonable Mack.

The largest financial bailout in United States history, which some traders are starting to call the ‘Securitized Housing Investment Trust’ (hint: think acronym), is causing an existential crisis amongst those who hold to purest free market ideology. Senator Jim Bunning, Republican of Kentucky, echoed this sentiment when he said, “The free market for all intents and purposes is dead in America.” These ideologues doth protest too much, methinks.

Since the 1929 crash, the last time the nation faced an economic train-wreck of this magnitude, the U.S. Government has effectively been in the insurance business and it has generally served us well. The vast majority of laws and regulations are designed to mitigate risk. Drunk driving laws minimize the number of car wrecks, and the short-tick rule (until recently eliminated) prevented unfettered short-selling from forcing solvent companies into insolvency.

Government institutions enforce these policies. What is the purpose of the military but an insurance policy against attack from other nations? What is the key purpose of a central bank other than insurance against a run on banks?

In fact, the present-day capital market system, which has been responsible for raising living standards to the highest in world history, relies upon laws and regulations: the Securities Act of 1933, the Securities Exchange Act of 1934, the Commodity Exchange Act of 1936, and the Investment Advisers Act of 1940. Although not perfect (and definitely requiring an overhaul), these laws have served Wall Street and LaSalle Street very well over time.

The problem with fundamentalist free market ideology is that it is only theoretical, and ultimately not pragmatic. Truth is, without government establishing the premise of private property enforced through law and justice, contract markets would soon devolve and be quickly replaced by gangster capitalism akin to Putin’s Russia. There is a term for the unfettered combination of concentrated power, ideological adherence and capitalistic greed, it is called “fascism.”

There is another term “beta,” which defines the systematic return/risk of assets. This concept is related to Modern Portfolio Theory and underlies the oft-stated investment strategy of buy-and-hold. What is not well-understood, even by many sophisticated investors, is that this theory is flawed. The issue is portfolio construction. Accordingly, the definition of “true beta” or “true market portfolio” must be extended to encompass other economic factors.

What academics came to recognize was that approximately one-third of non-governmental tangible assets in the U.S. are owned by the corporate sector, and only one-third of these corporate assets are financed by equity. As a result, Jagannathan and Wang concluded that assumptions underlying the concept of beta must be altered in order to resolve anomalies in the model. In other words, “true beta” or the “true market portfolio” must include the “aggregate wealth portfolio of all agents in the economy.” This is a revolutionary view with both political and economic ramifications.

Business balance sheets do not in practice reflect public infrastructure assets which businesses are dependent on. For example, a trucking company’s greatest asset is not its fleet of trucks, but the U.S. Highway system. Likewise, public liabilities such as the cost of pollution are also not reflected on balance sheets. This is beginning to change with the idea of integrating regulations into “cap-and-trade” contract markets involving emission allowances.

It is time for a new economic ideology to take hold which adheres to a progressive view. Government and free enterprise are actually joint partners in promoting economic growth and well-being. Certainly, political will effects a constant tug-of-war between interests, but this is not unlike the struggle between a sales-trading desk which drive revenues for an investment bank, and internal compliance managers who ensure balance between risk and reward.

The problem with the prevalent populist stream of conversation regarding free markets versus socialism is that such dialogue is anachronistic. Rather, the conversation needs to shift to good versus bad governance, and public policy which enhances the value of the aggregate wealth portfolio of all agents in the economy.

Mack Frankfurter

Mack and I have done a lot of arguing about the state of the capitalist system. His "new beta" gives me faith, because it comes not from a liberal suburbanite like me, nor a liberal economist. It comes from a guy who loves capitalism, loves the markets, and makes his living there.

Thanks, Mack.

This week, by the numbers

John McCain George W Bush's White House released a helpful Fact Sheet:

While these numbers are disappointing, what is most important is the overall direction the economy is headed. Last week, the economy posted a strong gain of 3.3 percent at an annual rate in the second quarter, led by growth in consumer spending, exports, and a well-timed and appropriately sized stimulus package. This level of growth demonstrates the resilience of the economy in the face of high energy prices, a weak housing market, and difficulties in the financial markets.

US unemployment rate now over 6%, worse than anticipated. 84,000 US jobs shed last month, 84,000 more men and women collecting unemployment.

Fannie Mae & Freddie Mac are about to be taken over by the Fed.

Under a conservatorship, the common and preferred shares of Fannie and Freddie would be reduced to little or nothing, and any losses on mortgages they own or guarantee could be paid by taxpayers. Shareholders have already lost billions of dollars as the stocks have plunged more than 80 percent this year.

FDIC just took over Silver State Bank- incidentally, until July Senator McCain's son, Andy was a director there. (h/t Atrios). This the 11th bank failure this year, if you're keeping track.

Foreclosures are at a 30 year high, and home loans 1 or more payments behind are at over 6% (though there are estimates as high as 9% ).

But the important thing to remember is that our economy is resilient!

The problem with John McCain the White House's analysis is, as always, that the Republican focus on "growth" ignores entirely that the growth has not translated to economic security or opportunity for American taxpayers.

That, my friends, is the straight talk.

Sarah!

The writers devised some good, witty lines, and Palin, for her part, delivered them well. Much of the red-meat portion was lies and misrepresentations, of course, but it's a political speech, made at a rather desperate time.

The thing that nearly drove me over the edge was the cheering and screaming over her standard issue economic lines. Dems will tax you, Dems will make you lose your jobs, Dems will spend all kinds of crazy money.... and people eat that shit up.

I realize we are looking at THE Base here, the 27-30% of Americans who still think Bush is a GREAT president.

But my God, it is so obviously demonstrably patently WRONG to suggest that this country's economy is in better hands under Republicans.

Pop quiz: which two modern presidents have busted the biggest budgets and left office with the biggest deficits?

GWB and RONALD REAGAN

And under whose administrations does the middle class stand a chance at growth, while income inequality shrinks?

DEMOCRATIC ADMINISTRATIONS.

I mean jesus, you fools: it's numbers. Why are they so hard to understand?

Update: It is true that when I graded her delivery, I didn't consider presidential points. I do think that anyone who came away thinking she sounded in the least bit Presidential really needs to examine some deeply personal issues.

Brokaw is, mercifully, reminding us that Republicans have held the power of the government for the past 8 years, with Dems holding a meager obstruction advantage for the past 2, so it's a bit cheeky for McCain and Co to run on any kind of reform agenda.

And I can't resist this, from the site of the Great Orange Satan:

It is the economy; now let's ditch the stupid

I had a very interesting task assigned me a couple of months ago, by our friend Mack. He was preparing a paper for a Senate hearing on the futures trading market and whether speculation was driving up prices. He asked me to read the paper and make sure it was in English, essentially. That a reasonably smart person uninvolved with the markets could actually read the thing.

(I should disclaim before I go further that the analysis below is from my brain, not Mack's. He may or may not agree with what I have taken from this experience.)

I think the single most surprising part of this exercise for me was learning how much of the market is unregulated- the parts of the market that have brought the most staggering returns for a few people at the tops of their pyramids. The few people whom Alan Greenspan lauded for the "creative" products they packaged and sold, the very products which now are the most threatening to the stability of our economy. As explained on today's NYT opinion page:

Today, regulatory authority is divided among the Federal Reserve, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the Office of Federal Housing Enterprise Oversight, the Securities and Exchange Commission, the Commodity Futures Trading Commission, state banking regulators and state insurance regulators. That’s too many players.
What’s more, this balkanized system supervises only half of the relevant financial universe. It neglects investment banks, hedge funds and institutions like mortgage companies that issue asset-backed securities. The assets of these unregulated entities total about $10 trillion — which is the same amount we see on the regulated side.
The unregulated institutions pose particular risks because they are highly leveraged and financed primarily through short-term money markets rather than customer deposits. And unlike big banks, many of them do not disclose their finances to the public.

This is something I didn't understand until I delved into Mack's paper, and I'll wager that most Americans don't, either.
The second most impressive thing that I took from reading this paper was not a surprise, but an illumination. The markets don't hold my interest the way, say, politics does, so I hadn't ever thought about it, but securities markets and commodities markets do not operate on the same principles.

Duh, says you. Well, sure. But the reason I hadn't thought much about it is that I'm not a commodities investor. My family is the typical passive investor model: 401ks that are diversified according to our choices, and if we buy anything else it's with a sort of Motley Fool philosophy: the market always, eventually goes up, so buy what you know and don't be afraid to hold, etc.
What I failed to realize is that the market doesn't just mean traditional securities anymore, it also includes securitized risks and futures, packaged and moved over from the commodities market.
And make no mistake: the passive investor doesn't belong in commodities. The futures market is not a hold and wait game, it is not a place for long term investment. It is not a place for Motley Fool readers. Mack likens it to a Nascar track, and the new investors (large funds that end up in, say, my 401k) are like little Ford Focuses with untrained drivers, jumping into the race without regard for the danger they're causing.

Many pundits have noted that in this election season the GOP is, in effect, asking Americans to just give their failed policies another chance. Forget accountability, they mean well, and if you can just ignore the past few years and our current realities and remember that they're the party of pragmatic no-waste government and personal responsibility, you'll see the very need to continue down their broken and debris-strewn path. Nowhere do they make this case louder than on the broad and complex topic of the economy.

They continue to broadcast that rewarding entrepreneurship (and what is Andrew Mozillo, if not an entrepreneur of the highest order) and trusting the "free" market will mean that we all can get rich- just watch the money flow and the trades grow. They toss around the threat of socialism. What they want you to fear is a country where government takes care of, and controls, the decisions of every citizen- which isn't socialism, they're actually invoking communism, but whatever.

What they want you to forget is that in this country, right now, industry's major losses are socialized for the greater good, and almost no responsibility assigned to the major players whose wealth is almost unimaginable to most of us, and whose decisions lead directly to the loss and collapse you and I pay for.

And they fail to point out that almost none of us know the rules of the game, and that once our playing dollars are gone to the guys who invented the rules and benefit most from them, we will also have to bail out their failures. In this game of Monopoly, our losing turns replenish the bank, which buys up the properties that the winners ditch after they take the Free Parking money. If we pass Go again, we try to buy up the bank's properties again. But the Free Parking guys always return, buy us out according to rules we still don't understand, and erect a bunch of hotels.

Again: many eminently more qualified than me have explained this very clearly, over and over again. It's time for all of us to start talking about the costs to the country and society, and to what sensible reform might look like. Which is why this NYT editorial today caught my eye.

I know Americans for the most part don't enjoy wonkiness. I know that sloganeering is employed throughout campaigns because it largely works. But the fact is, we are going to have to ignore the slogans of both parties and understand what a pickle we've found ourselves in, and demand some real reform in the regulation of the markets. Again, from the Times:

The next president must first create a single framework for the major financial borrowers, administered by the Federal Reserve alone. This wider regulatory umbrella should be more conservative. In particular, the minimum levels of capital and liquidity that financial institutions are required to maintain should be higher than they have been in recent years. And the institutions should put in place better and more detailed systems for reporting — internally as well as to regulators and the public — on all the risks they are taking.
These steps, as they make institutions more stable, will also reduce their financial leverage and thus their ability to generate earnings. Their managements won’t like it, but the institutions — and, indeed, the entire financial system and the Fed itself — will be less exposed when severe turbulence hits the financial markets again.
For its part, the S.E.C. should require that publicly owned financial institutions provide more data in their quarterly reports. Any risks that the institutions retain, whether on or off their balance sheets, should be disclosed. And they should better explain the methods they use to determine the values of their own assets.
To fulfill its wider supervisory role, the Fed should also be given the authority to collect data from firms that are not publicly owned, including hedge funds and commodities trading firms.
Finally, much stronger restrictions should be imposed on the kinds of predatory mortgage-lending practices that preceded this crisis. The Fed recently proposed new rules for banks that would, for example, require better verification of borrowers’ income and reduce onerous prepayment penalties. These rules should be applied to all mortgage lenders. For those institutions not managed by the Fed, the rules should be enforced by other federal agencies or state banking regulators.

A key political factor is in the 2nd paragraph above. Tightening up regulation will mean that management at the top of these institutions will have a tougher time generating earnings. They will fight hard, should any reform package be placed on the table. We will be told that the proposed regulation "inhibits entrepreneurship" and is therefore Anti-American.

But we're going to need to ask ourselves, when we talk about entrepreneurship and the American Dream, are we talking about imagination and creativity and earned rewards, or carpet bagging?

It seems to me that any system that enriches the very, very few and then corrects their failures with public money is an example of the latter. And I hope this country is grown-up enough to ditch the slogans and face that.

End note: Mack was, ultimately, depressed by the results of the Senate hearing. The results, he said, were just shallow talking points and didn't address complex market realities at all. So if the hearing was any indication of our readiness to ditch the fluff and pursue reform, it didn't bode well.

Unsurprisingly, the hearing was chaired by neo-Republican hero, Joe Lieberman.

Different universe

Via TPM, via Politico:

The McCains increased their budget for household employees from $184,000 in 2006 to $273,000 in 2007, according to John McCain's tax returns.

My domestic "staff" is paid approximately 1 big bag of Iams per month.



Krugman fleshes out the differences.

Racing to the bottom....

This just pisses me off:

Accounting Plan Would Allow Use of Foreign Rules
WASHINGTON — Federal officials say they are preparing to propose a series of regulatory changes to enhance American competitiveness overseas, attract foreign investment and give American investors a broader selection of foreign stocks.

But critics say the changes appear to be a last-ditch push by appointees of President Bush to dilute securities rules passed after the collapse of Enron and other large companies — measures that were meant to forestall accounting gimmicks and corrupt practices that led to those corporate failures.

Legal experts, some regulators and Democratic lawmakers are concerned that the changes would put American investors at the mercy of overseas regulators who enforce weaker rules and may treat investment losses as a low priority.

When all else fails, deregulate? Because over the last 30 years, that has worked so bloody fucking well for us?

I am so very, very tired of the idea that we need to lower our standards on every fucking issue in order to be "competitive" in the "global economy".

We need to set our standards to be more in line with countries that have appalling human rights standards, no environmental standards, and, apparently, skewed and dishonest accounting standards.

Say that once, without a trace of dismay in your voice, if you can. And then tell me how that equates to American Leadership.

Bush and the GOP do not want this country to lead. They want this country to be a playground bully with wealthy parents.

Bonus reason to work to keep McCain out of the White House: Phil Gramm would most certainly set economic policy under a McCain presidency.

The birthrate thing

Very interesting article in todays NY Times Magazine on declining birthrates in Europe, which, as you've undoubtably heard, mean that selfish, secular, childless women are opening the gates for the fertile muslim hordes to enter and destroy western civilization.

You haven't heard that? Well you clearly don't read the right books.

Data indicates, according to the article, that the decline in birthrate is higher in societies that have not really embraced modern family paradigms. Meaning, the need for women to work butting up against a society that expects them to stay home with the kids.

In Scandanavia, the welfare state helps families make ends meet, supports life/work balance with paid leave, and offers child care and education for the very young. And Scandanavian birth rates are substantially higher than in Southern Italy, where economic realities mean that young people live at home longer, and when they venture into marriage there is no social or economic "safety net" if they decide to procreate.

In the US, the welfare safety net may not be generous, but the society at least accepts changing gender roles, and there are resources for families to get started. And women will not be cast forever out of the work force if they stay home for a few years, the risk of temporarily giving up their jobs or careers is not nearly as great as in more traditionalist cultures. Hence, the birthrate here is substantially higher than in southern Europe, Japan, etc.

But also fascniating is this question: on a planet that is increasingly taxed by overpopulation, can't the declining birth rate be viewed as a net positive?

In one German region (Germany has perhaps the lowest birthrate in Europe), local officials and the BauHaus Institute are busily reimagining villages that have shrunk by 25% or more. And their visions are inspiring. They see not economic and social collapse, but renewal and long-term vitality.

Anyway, good read, much food for thought.

But then, I'm a feminist with 1 kid and no plans for more, so maybe you should go to mass rather than listening to me.

Deja vu

via Atrios:

Late payments and defaults in every other major category of consumer debt also rose in the first quarter, the American Bankers Association reported. Auto loans issued through car dealers have a delinquency rate of 3.13 percent, the highest since at least 1990, according the ABA.

"The rise in consumer credit delinquencies is consistent with a rapidly slowing economy," said James Chessen, the ABA's chief economist. "Stress in the housing market still dominates the story, but it's a broader tale of an overall weak economy."

Emphasis mine. Original here.

Hm. 1990. What was happening then?

Oh, yeah. We'd recently completed 8 years of spending a bunch of money the government didn't have, because the Reaganites sincerly believed that money would appear out of thin air if we just lowered taxes on the wealthy, deregulated everything, busted unions, and prayed.

For Jess: a note on peak and Hillary

Hillary's comments this week on "Elite Opinion" disgusted me because they smacked of anti-intellectualism and pro-truthiness. Andrew Leonard disected the remarks in depth, though, and says,

"The question is: Who is doing the manipulation? What the man from Exxon-Mobil was likely referring to is the impact of speculation by hedge funds and other institutional traders upon the price of oil. No one knows how much of the current price is due to traders' bidding up the price -- estimates ranges from 20 percent all the way up to 60 percent. We don't know because a huge percentage of energy trading is done on unregulated electronic exchanges that don't have to report big market moves to the government -- because of a law, signed by Hillary Clinton's husband, that exempted those exchanges from close government scrutiny. If Clinton really wants to start cracking down on oil market manipulation, the first place to start is in regulating energy futures trading to the point that the government actually knows what's going on. In the long run, that would be far more meaningful than a gas tax holiday or even a windfall profits tax.
Which is not to say a windfall profits tax is necessarily a bad idea: The oil companies are obviously benefiting phenomenally from current high prices; why shouldn't they share some of the pain everybody else is going through? But in normal circumstances, when the price of oil rises, the likes of Exxon and Chevron and BP do their best to boost production. But the most telling aspect of the current oil market is that they have been unable to do so. As David Strahan, author of "The Last Oil Shock," wrote in an Op-Ed piece in the Telegraph, the "righteous indignation over the level of profits reported by Shell and BP ... entirely misses the point. These issues are trifling compared to global oil depletion."
[...]
The most charitable way to interpret Hillary Clinton's position is that she wants to provide Americans with some short-term help while engaging in a long-term plan to address the challenges of "foreign oil dependence." But the problem with that defense is that any serious long-term plan to address the two great challenges of the 21st century -- climate change and the energy crisis -- will require that the price Americans pay for energy goes up. There will be pain. The sooner we start biting the bullet the better. "

The SEC

OpEd in today's NY Times:

Each of us led the S.E.C. during challenging times — the stock market crash of 1987, the price-fixing scandal at Nasdaq in the 1990s, and the accounting and governance failures and mutual fund scandals of this decade. We are in agreement with Secretary Paulson that the world of finance is changing rapidly, having eclipsed in many areas the regulatory structure put in place, piece by piece, over the past century. Yet we fear that the current conversation about the future of the S.E.C. is getting ahead of itself. Secretary Paulson’s proposals to change the structure and function of the S.E.C., if adopted, risk inflicting serious damage to investors and our capital markets.

Skeptical eyebrow raised. Mack was talking recently about changing the basis for SEC enforcement, wonder what he could tell us about this OpEd?

The current housing and credit troubles do not present a sufficient basis for reforming the entire financial regulatory system. Instead of moving hastily, policymakers need to examine what went wrong, why it went wrong and what the best approaches are for re-establishing the unequaled reputation and performance of the American capital markets.

There is precedent for such an exercise. In 1987, a presidential task force was established to investigate the Black Monday crash. Today, we need a similar exhaustive, bipartisan and impartial examination to explore a series of possible business and regulatory failures.

One thing I'm fairly sure of, and that is that the 1987 presidential task force probably gave us data that we could use today. Like, for instance, the testimony I quoted below.

Ok, two things I'm fairly certain about:

The problem with the S.E.C. today is that it lacks the money, manpower and tools it needs to do its job. The commission’s 2009 enforcement budget does not keep pace with inflation, although it does provide significant increases in the risk-assessment function.

When even Ben Stein is arguing for regulation and enforcement, you know it's gotten pretty bad.

Economy- macro

Mack has been busy, busy, busy, writing papers and giving talks and fleshing out his analysis of the problems in our speculative economy.

I love to talk with Mack about these things, because while he goes off into concepts and jargon that I am completely unfamiliar with and cannot directly address (securities, commodities, these are his things), we eventually come to places where I feel solid footing, and we tend to agree on end points.

Anyway: we've been talking a lot about structural problems, and I want to get into them in more depth here, but I have to read and think first. My essential position is what I've written about before: betting the proverbial farm on deregulation and rampant speculation, and this is deeply flawed, and we keep acting suprised every time our bets are called and the bank can't pay.

As we autopsied dead savings and loans, we were absolutely amazed by the number of ways thrift rogues were able to circumvent, neuter, and defeat firewalls designed to safeguard the system against self-dealing and abuse. One of the favorite methods was to link up like-minded thrifts in the daisy chains through which they could circulate inflated assets and hide their rotten loans to each other and to each other's customers from regulators.

Banks that need to get money to a troubled securities affiliate will do exactly the same thing. By linking up three or more banks, each with its own securities subsidiary, a daisy chain will facilitate a round robin of reciprocal loans in times of need. Then, the next time we have a Black Monday on Wall Street, this daisy chain will swing into action as a handful of mega-banks try to prop one another's securities subsidiaries and their customers as the market plummets.

In such a scenario, billions of federally insured dollars will disappear in the twinkle of a few program trades.

That will happen, not might happen but will happen, and when it does these too-big-to-fail banks will have to be propped up with Federal money. In the smoking aftermath, Congress can stand around and wring its hands and give speeches about how awful it is that these bankers violated the spirit of the law, but once again, the money will be gone, the bill will have come due, and taxpayers will again be required to cough it up.

That was testimony given before congress in 1991 by Stephen Pizzo, and recounted recently by Andrew Leonard on his (very excellent) blog, How the World Works.

If you're looking for some homework and you want to stretch your brain, try some commodities reading. Here's Mack.

Retail

Yes, of course, the current financial state of us mall-shoppers and the credit crunch affect the chains,

The surging cost of necessities has led to a national belt-tightening among consumers. Figures released on Monday showed that spending on food and gasoline is crowding out other purchases, leaving people with less to spend on furniture, clothing and electronics. Consequently, chains specializing in those goods are proving vulnerable.

Retailing is a business with big ups and downs during the year, and retailers rely heavily on borrowed money to finance their purchases of merchandise and even to meet payrolls during slow periods. Yet the nation’s banks, struggling with the growing mortgage crisis, have started to balk at extending new loans, effectively cutting up the retail industry’s collective credit cards

But isn't it also true that the growth in dollars from year to year has been, in many cases, due to the opening of new stores? In the post 1990 retail world, promotion and increased square footage has driven quarterly growth, rather than smart buying, great staffing, and practical operations budgets. At some point, this is unsustainable.

It's the failure of republican economic theory, stupid

With bond insurers bailing, and implosions at the major ivestment firms (now aren't you glad you didn't let Merril Lynch take over your Social Security funds?), US companies begging for cash from foreign governments, international markets plunging on every word from Wall Street or our illustrious Decider-Man, with all of this, can we finally admit that Republicans don't know or don't really care how to properly manage an economy?

Here's the deal, kids: since the 1980s we've been betting the farm- literally- that investment is the answer. We've tried over and over again to create a bullet-proof US econmon using three tools: optimism (or magical thinking, have it your way), debt, and speculation.

Optimism fuels the speculation: the dream that we can all get rich together when we throw money at the right things, and the government will reward us by lowering taxes on the returns. The '80s were the decade of Wall Street schemes and junk bonds and deregulation. Debt soared, publicly and personally, and enough people made impressive enough sums that it looked like maybe it was working if you didn't look too closely.

We defunded infrastructure and poor people. We watched homelessness become a fact of life. We lived through the collapse of Savings and Loans- which we're still paying for. Eventually, we had to take a tax incerase, and then a recession hit us. Economists say that it wasn't a serious recession, but I remember it, and it was very hard on a lot of middle class people.

The '90s gave us free trade agreements and the dot com boom. Free trade which failed to hold manufacturers outside of the US to any standards in human rights, safety, or environmental responsibility meant that jobs began to migrate. And not just menial jobs. We all know educated specialists who had to train their overseas replacements.

The saving grace of the '90s boom was, of course, that we also had instituted some responsible fiscal policy in the federal government. We had balanced budgets and reasonable taxation and in the end, a good sized surplus. This meant that government actually had some cash to respond when the dot coms burst and the economy took a short dip. And the fact that much of the rampant speculation was targeted at dot coms specifically meant that the bust directly affected a relatively small set of people. While I did see a friend lose a very lucrative job and change careers, my household wasn't really affected. A couple of friends anxiously sweated the NASDAQ, but my job not only stayed secure, my income continued to rise.

Tis term has brought more debt that we could have imagined, zero responsible thinking in government, and a return to the fantasy of instant riches for all. Unfortunately, the specualtion was based mostly in the houseing sector, which affects a much broader section of the population than Sillicon Valley ever did. From the first time home buyer- now deeply in debt from the purchase of an over-valued home, to everyone in the mortgage industry, home insurers, the trades in the field, the suppliers, the purchasing people and all of the office staff- hundreds of thousands of people are watching their ncomes either steeply decline, or disappear completely.

And this time, the government has no money.

Bush and the congress appear to be working out an agreement, but I fear it will be a stupid, expensive one. Tax rabtes? Big deal. I'll probably pay off some debt. More corporate tax breaks- for "investment"? Who cares? At my company, we won't be putting anything into "investment" until we can start operating in the black again, and that's going to depend on a whole lot of middle class people with a lot more than $800 to live on.

Extending unemployment is a good idea, but there'smuch more that needs to be done. I don't think anything will change until next year, with a Democrat in the White House. And then, that Democrat will need to make structural changes that the Republicans will go crazy about.

But it's time. And can we all be honest about that?

All you need to know...

...about the media and their contributions to political discourse.
David "Stretch" Gregory, just now on Olbermann:

...and George W. Bush, as he becomes less relevant, still has a role to play in terms of helping the Republicans [win the election in an economic slump].

This, in the midst of a discussion about the Michigan kitchen table economy, and how the price of milk really matters when your job goes away, regardless of what Wall Street does.

"A role to play". Not a role in, you know, running the country to the benefit of the people, but in helping his party win an election in a year when they have no moral right to.