Well. McCain does seem to be slipping this week. He's had a number of odd gaffes - "the fundamentals of our economy are sound" is just the start of it. Somehow (ie, raw confusion?) he plans as president to refuse meeting with the Prime Minister of Spain. And he was against government regulation of our financial markets before he was for it. He was against bailing out AIG before he was for it. And this week we hear he's opposed to excessive CEO pay, which he (a) would have no control over as president, and (b) he's long benefited from in the form of campaign contributions. But in an effort to stay consistent on this anti-corporate-fat-cats issue he just discovered Monday afternoon, McCain has banished one of his chief campaign surrogates, former Hewlett-Packard CEO and $42-million-golden-parachute-recipient Carly Fiorina. To be fair, however, he didn't ban Ms. Fiona for being a "corporate fat cat", but rather for sticking her foot in her mouth on MSNBC Tuesday and saying neither Palin nor McCain is competent to perform the kind of bang-up management job she herself did at HP (ie, its stock value halvedduring the time she served there).
[And good riddance. Fiorina was a formidable talking head - she quite beat the crap out of Obama's surrogate Claire McCaskill last Sunday on This Week.]
And so as McCain flounders around looking for a public way to address the financial crisis, Obama is doing a reasonable-to-mediocre job of the same - which in relative terms isn't half bad. In all, he seems to be effecting a very calm, cool reovertaking of McCain from behind this week, as the Palin bubble deflates rather than bursts.
To be sure, Obama isn't delivering the kind of bash-'em-upside-the-head-with-violent-rhetoric sort of thing that would make me personally happy. But then again he would never have gotten where he is in life if he had anything like my personal rhetorical preferences (bombast and semicolons).
The first debate's a week from tomorrow. We'll have learned a lot more about how things are settling in by then.
(#2) If Obama hasn't reassumed the offensive by the end of the week, then I'm about ready to write him off. That is - this thing isn't over, but he's let it slip far too far.
Hillary in 2012, anybody? Yahoo. Maybe she can get us out of the war (by which I mean the one we'll be in with Russia by the end of a McCain term).
And now I offer:
More information on (#1):
So here's a bit of US economic history for you (wheeeee!):
As part of the New Deal in 1938, the Roosevelt Administration created the Federal National Mortgage Administration, or FNMA, or - cute-ized for your delectation - "Fannie Mae". The purpose of the organization was to support and stimulate the secondary mortgage market.
Whazzat?
Well, mortgage-lending is dicey for the lender, and not just because some borrowers will default (though that's part of it). Borrowers like to take out their mortgages over a long period of time (30 years) at a fixed interest rate, whereas interest rates fluctuate in the economy as a whole - meaning that from time to time, a bank will almost certainly find itself collecting less in mortgage payments than it owes out to its depositors in interest.
That won't work. And so the secondary mortgage market was created, in which bundles of mortgages are sold out in little pieces as bonds. It spreads the risk around. More importantly, the cash that banks raise to furnish their mortgages is owed back to the bondholders at a fixed rather than a variable interest rate (because those are the terms of the bonds). Therefore the banks are better assured of a profit, and likelier to lend. Everybody's happy.
Where Fannie Mae comes in is to insure this particular bond market. It guarantees payouts to bondholders in the case of defaulted mortgages, funding itself as it goes by skimming a percentage on all such bonds it's guaranteeing. Later on, Fannie also became involved in the direct purchase of mortgage bonds and of mortgages themselves.
Now in 1968, as the story goes, LBJ was looking for a way to cook the books and make Vietnam appear less expensive than it was. Fannie Mae was under a huge amount of debt which it was using to hold these Mortgage-Backed Securities. Since Fannie's debt was causing the federal balance sheet to look bad at the same time that it (Fannie) was earning damn good money, Johnson decided the clever thing to do was to sell off the organization as a private, shareholder-owned entity: a Government-Sponsored Enterprise which remained backed by a line of federal credit, as well as being exempt from taxation and from SEC oversight (some deal for those shareholders, huh?).
A little later on, in 1970, Freddie Mac was created (that is, the Federal Home Loan Mortgage Corporation, or FHLMC... which really doesn't suggest "Freddie Mac" to my ear, but there you go) to at least give Fannie some competition in a market it essentially monopolized.
Okay: so that's what those two ridiculously-named organizations are all about, since nobody seems to have a clue (I didn't myself until I looked it all up this morning).
Fast-forward to the recent past. Fannie and Freddie are huge, with combined assets bigger than any US bank, and obligations totaling about half the amount of the national debt (owed to whom? Why, China, of course). Fannie and Freddie aren't subject to the kind of public reporting other publicly-traded companies are, and we (the public) are theoretically on the line to back them with hundreds of billions of dollars in bailout cash should something go wrong.
What could go wrong?
Well, in 2003 the SEC and Justice Department uncovered an accounting scandal at Freddie Mac involving $4.7 billion of discrepancies; three of its top executives were fired. But that was small potatoes.
Enter the subprime mortgage crisis. It began after deregulation (read: "Republicans" *) allowed complex and unregulated new investment instruments to appear on the market which hid the riskiness of the mortgages that backed them. This is referred to as "financial innovation".
And it jump-started a vicious circle. "Subprime" mortgages - made out at high or variable rates to underqualified borrowers - began appearing more attractive to banks who were now better able to pass on the risk to the secondary mortgage market. Which brought more and more risky borrowers into the primary market. Which drove up the price of real estate. Which made folks think risky mortgages were even safer to issue, since real estate values kept on increasing, yielding plenty of new capital to back the loans. Which meant even riskier loans got issued. Etc.
And on and on it worked - until it didn't. An at-first moderate drop in home prices caused a wave of foreclosures, dumping houses back onto the market and further reducing real estate values. Suddenly all kinds of people were left with mortgages worth much more than their homes. And as lenders became gun-shy, the ensuing credit crunch drove up interest rates, including on the Adjustable Rate Mortgages with which many of these homes had been financed. That is - the mortgages keep getting more expensive as the houses become worth less and less. It's still happening as we speak.
Large investment banks like Bear Stearns and other institutions like AIG, found themselves holding onto all sorts of bad mortgage money squirreled away in these very innovative new investment instruments. And, therefore, many of these institutions are now tanking. The federal government is left puzzling their way through a bailout of Fannie Mae and Freddie Mac, while this morning Lehman Brothers went under, and Merrill Lynch has sold itself off to Bank of America for $50 billion ($10 billion less than the debt it holds).
Bear Stearns, Lehman Brothers, and Merrill Lynch are three of the "big five" independent American investment banks: for the moment, only Goldman Sachs and Morgan Stanley remain. In the world of commercial banks, Washington Mutual appears poised to go under (this article gives some interesting background on the now-vanished legal distinction between investment and commercial banks - a distinction also created to help get us out of the Great Depression). How many of these companies are going to die in the next several months? Who knows?
And how much are we going to have to pay to save Fannie Mae and Freddie Mac? Unclear, but whatever it costs, we'll have to fork it out. Not only because these institutions are "too big to fail", and would send world-depression-sized shockwaves through the global economy - but also because Fannie and Freddie are sitting on a mountain of borrowed cash from China. If we (America) don't service that debt and service it with a smile, then we're going to have trouble continuing to borrow all the money from China which we are currently using to pay for our gasoline, consumer electronics, lead-painted toys, poisoned toothpaste and dog food, and hundred-year occupation of Iraq.
The hell if I know where the whole thing leads from here, although the word "recession" is rather hard to keep out of any possible description of it. But I hope we can take away the lesson from this story that this is what happens when you deregulate markets. Just in case anybody didn't already get that message from the Enron thing a few years ago.
Which, apparently, many didn't.
Capitalism - like, for instance, fire - is a wonderful thing. But it's got to be managed.
* Particularly former Texas Senator, erstwhile McCain campaign adviser, current financial-industry lobbyist, and noted bastard Phil Gramm.
More information on (#2):
Will this help?
Who knows? A bit, I guess. All I know is that there needs to be a lot more where it came from.
An intelligence forecast being prepared for the next president on future global risks envisions a steady decline in U.S. dominance in the coming decades, as the world is reshaped by globalization, battered by climate change, and destabilized by regional upheavals over shortages of food, water and energy.
On the bright side, I have to say I'm glad we have somebody in our government somewhere who is assessing our near-term challenges in a clear-eyed way, reasonably free from the Mickey-Mouse fantasies of American exceptionalism, American inerrancy, and American hegemony which have become the rhetorical obligation of every politician in the nation - though of course wielded with especial gusto and proto-fascistic furor by our Republican friends.
(By the way, did you see those guys chanting USA! USA! USA! at their convention the other week? Downright frightening.)
--Or, now that I think of it, maybe that isn't on the bright side at all. That is, to think I now so implicitly expect our leaders to live in a fantasyland wherein America is always and in everything #1 - or I at least expect them to have to pretend whenever they open their mouths in public that they live in such a fantasyland - that I can be impressed to learn somebody among our 1.8 million nonpostal federal employees is noddingly acquainted with reality? Yich.
That, indeed, is a lot of how we came to be so screwed in the first place.
P.S. Kevin Phillips explains some of the problem quite well.
I was going to break radio silence tonight (my last post was mid-August) with a short reflection on the candidate acceptance speeches we've seen in the last week. I was out of town for most of the Democratic convention (but bless the good ol' boys at Burning Man Information Radio, who saw fit to broadcast Obama's speech last Thursday live). So I wanted to focus on McCain's and Palin's* speeches of these two evenings past.
For instance: I was going to say Palin's* speech last night was very effective. Barren, strikingly, of policy ideas, but effective. You hardly noticed she had nothing substantive to say - she spoke engagingly and gave Obama a number of gleefully meanspirited wallops. Wahoo! And as of this morning, all that stuff about her trying to fire the cop who'd divorced her sister, her support of Alaskan pork-barrel federal cash infusions and of disgraced Senator Ted Stevens' lobbying firm, her Alaskan separatism (???) - as well as the more tabloid stuff about her daughter's statutorily-raped-and-proud-of-it pregnancy: these things, post-speech, seem largely off the table. Until or unless, that is, the National Enquirer produces solid proof of Palin's* extra-marital affair with her husband's business partner. Or maybe until this report comes out.
I'd also meant to talk about McCain's speech tonight. An intriguing speech: intriguingly-enough filled with self-contradiction and logical loop-de-whorls to have come from a wayward Lewis Carroll book. He spends a third of his 49 minutes talking about the godawful mess this country is in - another third of it talking about how the fix for that mess is the precise boilerplate Republican philosophy and policies that led us there - then divides his remaining third into listing the countries he'd like to start new wars with (Iran, Russia), telling us how he hates war, and reiterating for us the little-known fact that he was at one time a POW himself. Then we get a weird closer about how we should fight for America by being active in our communities - weird coming the day after "community organizing" was repeatedly trashed for the sole reason that it was an early-career entry on Obama's resume.
But thank goodness I don't feel the need anymore to go on and on about that junk. Because these things now seem more important to me:
McCain's due a bounce from his convention, but Obama's national lead is currently measured at 5-points plus on average, and I believe he'll retain a statistically significant edge going into next week. More importantly, when you look at the state-by-state map, the distribution of these votes is critcially leaning in Barack's favor (260 electoral votes banked vs. McCain's 179 - with 99 more electoral votes in a very close toss-up - on a threshold of 270 needed to win).
And, last but far from least, this makes me happy.
Now, there's perhaps plenty of room for change in the polling figures... but increasingly less-plenty. We have 60 days till the election, and at least in the past few voting cycles there's been very little change in the numbers after post-convention bounces settle in. Presidential debates notwithstanding.
There's no doubt this election is going to be close, at least in terms of the national popular vote. Much closer than it has any right to be, of course, given how the Republicans have governed. Still, I remain tentatively optimistic... but it's going to be very interesting to watch the next batch of polls roll in after this weekend.
*Did she have to besmirch the name of a Python? For Christ's sake.
