((response to a links way back))
About the Moyers interview of Black.
Black mentions as an aside that the Obama Admin. is ignoring or violating the Prompt Corrective Action Act. us code 12
As indeed they are.
Bush, in the interests of US hegemony, freedom of action, managed to gut international law, such as it was, e.g. invasion of Iraq. The Bush admin., internally, pretended to stay within the confines of legal or habitual procedures. They changed laws, codes, definitions, and manufactured many additions: patriot act, more powers to the Prez, new bankruptcy act, re-definition of torture, enemy combatant status, etc.
They played loose and fast with much yet did try to keep texts in line -often post hoc-, suborned the ‘legal’ branch, etc. Therefore their doings spawned discussion, opposition, outcry, legal quarrels, etc. In this respect, the Bush US vaguely resembled the Nazis, often used example… (i remember billmon making this comparison several times), if in a very different way, form.
What they did on the quiet was de-regulate, remove or render inefficient oversight and regulatory bodies, in many areas – legal drugs, health, pollution, food/agri, energy, Gvmt. statistics, finance…
Obama -on the hot spot- either blithely or commanded goes forward, simply ignores what is on the books and proceeds in any direction, with specious arguments about necessity, ethical probity, common sense, expert opinion, so called public pressure, temporary measures, etc. Bush’s ‘de-regulation’, and Clinton’s before him (see Reagan, Thatcher) was explicit, public, for those who cared to keep track. (I’m leaving ‘secret’ programs out..)
Sadly this is common on the softie-leftie end of the political spectrum in situations that are unstable or corrupt. The ‘false’ left, by draping itself in moral righteousness and throwing a few bones to the ‘people’ manages to accomplish what the right or center-right only sets out to do forcibly, with the Power of the ‘State’ behind it, jackboots, decrees, crack-downs… Paleo-conservatives / some rightists are very attached to authoritarian and (semi) proper legal frames. In that sense, they are community-minded. The left counts on popular support, cheers from the rabble – for a series of blank cheques. (See the history of fascism and some revolutions..)
Obama’s primary task is not to shine and undo the Bush years, with new discourse, symbolic gestures, and flirt with Sark the First, or whatever.
What he promised between the lines was to get a better deal for ordinary Americans. And this, my friends, is exactly what he will not accomplish.
What he is organizing, or letting go forward, concerning the financial melt-down is probably worse than what Bush would have done, although that sounds very mean, as Bush was a puppet as well and would have buckled.
The world of finance (Goldman Sachs..) appears to have a bigger grip on Obi-man. For Bush, it was Corporations, and small Gvmt. in the shape of less rules (not less employees), and oil -energy generally-, all the way. Fuel the machine…
Obama is in a position where there is much he cannot undo, but the rule of law and popular sentiment, his stellar position, would have permitted him -maybe but if not what then?- to nationalize, unwind, and prosecute ‘the finance industry’, temporary pain for some (!) but some readjustment to rule of law…not a systemic change obviously..a move forward that would have been saluted by all and adopted internationally.
From the outside, it is hard to judge.
Obama once pronounced the phrase The American ppl need the placebo of hope (from memory, and in the context of a discussion about drugs, as Senator) but a quick goog doesn’t turn it up.

Posted by: Tangerine | Apr 7 2009 16:57 utc | 3

I’m waiting for Obama to come forward again to blast the econ-blogs for not only giving lousy advise on how to fix the banking mess, but for also being overly critical of his econ-team.
http://www.businessinsider.com/obama-says-economics-blogs-arent-reliable-2009-3

Posted by: Cynthia | Apr 7 2009 17:01 utc | 5

@ #6- boy, would I like to be pissed off and argue with you. But you know what? Can’t argue. When I read this blog and other econ blogs, I can totally get it, and I want to tell everyone. But my grasp of economics is pretty tenuous, so unless b starts providing Cliffs Notes, I’m screwed when it comes to explaining it to someone else.
A cultural thing where I grew up was that you either liked math & science, or you were normal. Is it like that in the other parts of the world represented here?

Posted by: VA Dirt Guy | Apr 7 2009 22:37 utc | 7

b, you’re positing the worst case scenario. That fails Occam’s Razor. The WCS for Kennedy’s Cuba Bluff was Khrushchev saying ‘We don’t know who launched the missile’. Kennedy’s Space Race, the first Gemini would blow up on the launch pad and kill everyone. Reagan’s Star Wars, the SBL would ignite the atmosphere and start a thermonuclear exchange. That tokomak or whatever collider was supposed to create a black hole that would swallow the earth, the paranoia and WCS was so intense, people committed suicide worrying about nano black holes!
(Although I read a debriefing that one of those nano black holes might have been what damaged the cooling system and shut the collider down, but don’t panic, dude!)
If you experience a power brown out, you increase power and shed load. You don’t throw your hands up in the air and scream the power grid is coming to an end. The bank-brokers done US good. They stranded credit in the reservoir for ten years. Things will get very lean. That doesn’t mean you sell your house for $1 and move back to the wilderness. It’s not like there haven’t been really bad busts before.
Absent them rounding up Glass-Steagall and all the cons and crooks who raped and pillaged under that deregulation (which makes the Swat girl’s flogging an oddity) and then hanging them from an old oak tree, which really and truly is what should happen, hang the m’fookers high, absent that, the go-forward is to stabilize the reactor as best you can, and hope it doesn’t go critical before you push all the graphite rods back in and clean up the contamination and cap the hole with concrete.
The US economic system just had it’s own Chernobyl, that’s all.
b’s alternate of declaring all assets null and void in a Colossal Jubilee is both unrealistic in theory, and unrealistic in practice. That’s like saying, oh well, let the reactor blow and we’ll clean up the mess afterwards, as long as it doesn’t cost any of my taxes, because either alternative will consume all of your taxes.
It’s over, it happened, your money is worthless or gone or both.
We should be far more worried about socializing and militarizing legislation before we end up like Iraq, with democracy a charade, and assassination squads homing in on your ISP or your cell, like they’ll start to do in UK as of today, and corporate America controlling every aspect of what you can and can’t do, like HR 875.
Anonymize everything…

Posted by: Shawn Tuleeza | Apr 8 2009 0:01 utc | 9

I agree that the economic ship has to be righted, but part of that is punishing fraud at all levels as a disincentive against similar behavior in the future. Otherwise the parasites will jump back on the host as soon as it can get to its feet.
If b really wishes to tear up CDS contracts, the recent Chris Whalen article on AIG and “side letters” suggests that a thorough investigation might allow the authorities to do exactly that within the existing legal framework. Quite a number of people had done the math* and came up with fraud prior to the article’s publication.
*Here is what Karl Denninger had to say about it:

Simply put Mr. President there is absolutely no defense of any sort for the “CDS” and “securitization” marketplace as it developed.
Let’s go back and do the basic math again.
Let us presume the “risk free” (Treasury) rate for money at 30 years is 6%. That is, you can loan your money to the US Treasury by buying a 30 year bond, and that bond has a 6% coupon.
It should be clear that nobody in their right mind will loan money to anyone for less than 6% for 30 years in this environment, because they can get a risk-free return of that amount over that duration.
Now I have two batches of mortgages. One is a bunch of very high income, very low debt people. They buy homes, put down 20% of the purchase price, have a history of income going back a decade, take a 30 year fixed mortgage and that mortgage is only 20% of their pretax monthly income.
These mortgages are extremely safe.
The price to the home buyer is 7% – about 100 basis points over Treasuries of comparable duration. Why? Because the loan is nearly as safe as a Treasury – it is very unlikely that the lender will lose anything, even if the borrower loses his or her income. The 20% down payment is a fairly good cushion against that, even in a situation where home prices are declining or flat.
Now let’s take a second set of assumptions – a group of mortgages made to people with no verification of income or assets and no down payment requirement.
These mortgages are fairly risky. The rate to the borrower might be 9%, or 300 basis points over Treasuries, because if there is a loss of income or the borrower simply lied, there will probably be a considerable loss that accrues to the lender. There’s no cushion against a flat or declining market and worse, we have no evidence of capacity to pay.
We will further “norm” this to the 30 year Treasury rate by eliminating the ability to prepay (in the real world there is prepayment risk in mortgages as people move or refinance, but that complicates the analysis, so we’ll keep it simple for the purpose of illustrating the point.)
So we go make a bunch of both of these loans and have two pools of mortgages, one of each group, with 1,000 loans in each. We roll them up and create two bond issues, taking 50 basis points for our trouble as the “securitizer”, and peddle them to buyers such as pension funds, sovereign wealth funds and individual investors.
We now have two bonds, one that pays a 6.5% coupon, and one that pays an 8.5% coupon.
This is as it should be – the securitizer must be paid, remember, and the risk of default is higher in the second group, therefore, it should carry a higher coupon.
Now let’s assume I want to “reach for yield” and thus I want to buy the second bond issue, yielding 8.5%, but I’m unhappy with the possible risk of not being getting paid.
Is it possible for me to hedge that risk and still wind up better than if I had bought the less-risky bond, without someone, somewhere either (1) being criminally stupid or (2) committing fraud?
NO.
Here’s why.
The actual risk spread between these two issues is 200 basis points.
If you come to me as an insurer and ask me to write you a CDS against that more risky bond defaulting, I must charge you more than 200 basis points because I have to make a profit and pay my staff!
But if you buy a CDS that costs 250 basis points, that is, the risk of default plus the CDS writer’s operating expense and a profit you would be a total idiot to buy the second mortgage pool in the first place, because you could buy the first one at a higher total return – by 50 basis points! Therefore you have no reason whatsoever to buy a CDS against such an instrument because you would be better off buying the lower-yielding but safer bond instead if you are uncomfortable with the default risk.
This is the basics of the math behind this entire mess and why those who claim that this is all some sort of “accident” are LYING!
I have been screaming about this for nearly two years, since I first discovered what was going on. It is simply impossible for these “default policies” to be written at the actual risk of default and yet for the underlying security + the CDS to yield more than the risk-free return rate; ergo, either (1) someone isn’t going to be able to pay because they are/were stupid or (2) someone isn’t going to be able to pay because they never intended to pay in the first place.

Link to original.

Posted by: jeff65 | Apr 8 2009 1:55 utc | 11

Has anyone considered who it is we’re bailing out? Who are the beneficiary holders of the instruments in question? (Forget about bad bankers as individuals; they got enough of their money out years ago to have a very comfy future.)
There is toxic waste in public and private pension funds, individual 401K accounts and insurance company portfolios either through the toxic assets themselves or indirectly through bank / insurance co / financial co shares and bonds. It’s unfortunate that there are some perpetrators holding those same instruments. This is why it is vitally important to look high and low for fraud. It is the only way to deter future fraudsters without a huge amount of collateral damage.

Posted by: jeff65 | Apr 8 2009 5:58 utc | 13

If the financials had remained a mere handmaiden to the non-financials, as they did prior to the Reagan years, Geithner and friends would have designed a plan where federal funds were able to freely flow from the financials to the non-financials, enabling growth to spread throughout the economy. But because the financials have grown to the point of squashing and smothering the non-financials, the Geithner plan is designed to further fatten up the financials, leaving the non-financials to fend for themselves
just a thought…

Posted by: Cynthia | Apr 8 2009 18:46 utc | 15

From an article by Doug Page @ Dissident Voice: is Obama more dangerous than Bush?

WHAT COULD OBAMA DO THAT WOULD WORK?
Although his window of opportunity is very short, if Obama changed course promptly before he has put us many trillions further in debt, there are sound, historically tested things he could do. They are bold. They involve a profound change in his analysis of our problem. He could:
* Cause our government to be the sole creator of our money supply, our silver coins, our dollar bills, and our “check book” money. Lincoln did this in 1860 to finance the Civil War. The state of Pennsylvania did this successfully for 50 years prior to 1789.
* Instead of borrowing from private banks and other governments, our government could create and issue money to meet government, business and individual needs, including rebuilding our infrastructure, education through college, and universal health coverage, and to pay our government’s obligations on existing bonds as they fell due.
* Prohibit “fractionalized reserve banking,” the practice of private bankers lending from 10 to 90 times the asset-reserves they hold. Allow banks only to loan on a 1 to 1 basis, from the dollars they have on deposit.
* Impose a top limit on interest that could be charged say 8%.
* Allow the Wall Street banks to go into bankruptcy, but retain enough of the needed staff employees to implement the new way of supplying money where needed.
* Repeal the Federal Reserve Act and install the needed functions of the Fed as a division of the Treasury Department.
* Enable local banks and businesses to continue to function as they now do.

Posted by: Lizard | Apr 8 2009 20:55 utc | 17

probably highest on Obama’s priorities, is he would like to sustain/retain the USA’s standing as the dominant (or at least a very highly respected) financial/capitalist hub on the planet. Likewise the dollar. Of course with critical regulations & discipline to keep things tight going forward.
its been a very beneficial vantage over the last 60 years for the USA and if he can do it, well he’s a hero.
and its probably do-able assuming the rest of the globe cooperates.The fact is that the USA has much less control over the global economy today.
its also a lower-risk option compared to other aggressive approaches available. But to a large extent it amounts to kicking a can down the road, perhaps just because you can. Another part is it buys time to absorb & review the ongoing correction & to retool the economy.

Posted by: jony_b_cool | Apr 9 2009 10:12 utc | 19