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Cracker Squire

THE MUSINGS OF A TRADITIONAL SOUTHERN DEMOCRAT

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Location: Douglas, Coffee Co., The Other Georgia, United States

Sid in his law office where he sits when meeting with clients. Observant eyes will notice the statuette of one of Sid's favorite Democrats.

Wednesday, December 31, 2008

"Oh what a tangled web we weave, When first we practise to deceive!” -- Madoff Spotlight Turns to Role of Offshore Funds

Scottish author Sir Walter Scott wrote:

"Oh what a tangled web we weave,
When first we practise to deceive!”


From The New York Times:

Federal prosecutors are beginning to consider . . . whether Mr. Madoff and some of his investors used funds based in offshore tax havens to evade American taxes, according to a person briefed on the investigation.

Also under scrutiny is whether certain charities invested with Mr. Madoff had improperly allowed their donors to shift money offshore, and whether foreign banks had withheld American taxes on Madoff accounts, as required by the Internal Revenue Service . . . .

While the inquiries into the role of offshore funds in the scheme are at an early stage, it is hardly surprising that such funds are coming under scrutiny.

Offshore entities played key roles at Bayou Management, a Connecticut hedge fund that collapsed in scandal in 2005, as well as at Enron, which used nearly 900 offshore entities, mostly in the Cayman Islands, to conceal bogus trades and accounting fraud.

Good result; expect more to follow: “We’re pleased with the court’s ruling that these 2 individuals are being lawfully detained as enemy combatants.”

From The New York Times:

A federal judge in Washington ruled Tuesday that the government was properly holding two Guantánamo detainees as enemy combatants, the first clear-cut victories for the Bush administration in what are expected to be more than 200 similar cases.

The ruling by a federal district judge, Richard J. Leon, followed his decision last month in a separate case declaring that five Algerians had been held unlawfully at the detention camp in Guantánamo Bay, Cuba, for nearly seven years and ordering their release.

That case had been the only one to reach a full court hearing after a landmark ruling by the Supreme Court in June that said Guantánamo detainees have a constitutional right to challenge their detention in habeas corpus cases.

The habeas rulings are being watched carefully, in part because decisions approving the holding of Guantánamo detainees could be used by the Obama administration as a legal justification to continue to hold some of them even if the prison in Cuba is closed.

Judge Leon said that the Tunisian, Hisham Sliti, was a Qaeda recruit in Afghanistan who attended a military training camp and had ties to terrorists. He rejected Mr. Sliti’s explanation of the reasons for his travels, saying his “story about traveling to Afghanistan to kick a longstanding drug habit and find a wife is not credible.”

In the case of the Yemeni, Moath Hamza Ahmed al Alwi, Judge Leon said it was unnecessary to rule on a government claim that he had been a bodyguard for Osama bin Laden. He ruled that there was no evidence that Mr. Alwi ever fought American forces, but said his close ties to Taliban and Qaeda forces were sufficient to establish that he was an enemy combatant.

A spokesman for the Justice Department, Dean Boyd, said, “We’re pleased with the court’s ruling that these two individuals are being lawfully detained as enemy combatants.”

Saturday, December 27, 2008

And the first candidate wants to head the GOP, the party that is trying to improve relations with African Americans?

From The Washington Post:

Chip Saltsman, a candidate for chairman of the Republican National Committee, sent committee members this month a holiday music CD that included "Barack the Magic Negro," a parody song first aired in 2007 by talk show host Rush Limbaugh.

Another candidate to lead the GOP, South Carolina party chair Katon Dawson, drew headlines this fall by resigning his membership of 12 years in a whites-only country club, weeks before launching his run for the national job.

The incidents for both men come as Republicans are reeling from losing the presidency and dozens of House and Senate seats, and as many in the party are trying to improve relations with African Americans, who voted in record numbers for Barack Obama and other Democratic candidates last month.

Among the candidates for RNC chairman are two African Americans: Michael Steele, the former lieutenant governor of Maryland; and Ken Blackwell, a former secretary of state in Ohio.
_______________

SUNDAY UPDATE: Today's New York Times has an article about the matter, and notes in part:

“This is so inappropriate that it should disqualify any Republican National Committee candidate who would use it,” Newt Gingrich, a Republican former House speaker, said in an e-mail message. Referring to Mr. Obama, Mr. Gingrich said, “There are no grounds for demeaning him or for using racist descriptions.”

Mexico Halts Meat Imports Over Labeling. Fine Mexico, now as a gov't how about halting illegals crossing the border over something called the law.

From The Wall Street Journal:

Trade tensions between the U.S. and Mexico worsened as Mexico blocked imports of meat from at least 30 U.S. meat processing plants.

The move, which took effect Wednesday, came about a week after the Mexican government filed a complaint at the World Trade Organization about a new U.S. law that requires labeling the origin of fresh beef and pork imported to the U.S.

U.S. trade partners are concerned the country-of-origin labeling policy will encourage American consumers to favor U.S.-raised meat. The law, which was included in the 2008 Farm Bill and took effect Sept. 30, requires supermarkets or other food retailers to label or otherwise display the country of origin for meat, produce and certain kinds of nuts.

Thursday, December 25, 2008

As a triathlete and someone who believes in exercise, you know I love this: As Duties Weigh Obama Down, His Faith in Fitness Only Increases

From The Washington Post:

Being elected president forces a man to take inventory of his life, so Barack Obama has trimmed his schedule to the bare essentials. He's not in the White House yet, but gone are the hours he once spent reading novels, watching television and obsessing over the daily transactions of Chicago's sports teams. He eats out only once every few weeks. He visits friends rarely, if at all.

But one habit endures: Obama has gone to the gym, for about 90 minutes a day, for at least 48 days in a row. He always has treated exercise less as recreation than requirement, but his devotion has intensified during the past few months.

Obama, 47, devotes half of his workout to weight lifting and the other half to a cardiovascular rotation that includes a stationary bicycle, elliptical machine and treadmill.

When Obama visited the White House in November, he toured the gym with President Bush and talked about exercise, said his wife, Michelle. It is one interest the two men share. Bush equipped Air Force One with a stationary bicycle, and he spends weekends biking with friends -- with anyone and everyone, really -- at Camp David. He has often said that exercise has helped him cope with the pressures of the job.

Kennedy endures rough start in bid, including not voting in some past elections. A few misses won't hurt. A lot very well could & should.

Here's to hoping there are not a lot of MIA on election day. I am pulling for her.

From The Washington Post:

Caroline Kennedy, who is seeking appointment to New York's soon-to-be-vacant U.S. Senate seat, is facing sharp criticism from rivals, intense scrutiny from the media and disparagement over everything from refusing to disclose her finances to not voting in some past elections.

In exit interviews, President Bush sounds reflective, even chastened, while Vice President Dick Cheney is defiant

From The New York Times:

President Bush and Vice President Dick Cheney have been unusually talkative in recent weeks, sharing candid thoughts in a string of exit interviews

Mr. Bush defends his decisions as necessary to keep the nation safe, yet sounds reflective, even chastened. He has expressed regrets about not achieving an overhaul of immigration laws and not changing the partisan tone in Washington. And the man who got tangled up in a question about whether he had made any mistakes — he could not come up with one in 2004 — recently told ABC News that he was “unprepared for war,” and that “the biggest regret of all the presidency has to have been the intelligence failure in Iraq.”

Mr. Cheney, by contrast, is unbowed, defiant to the end.

In the first term, Mr. Cheney, backed by his close ally, Donald H. Rumsfeld, who was then the defense secretary, was ascendant, and his views about the aggressive use of executive authority and military might held great sway. But after Mr. Bush fired Mr. Rumsfeld in 2006 — the only presidential decision Mr. Cheney has publicly disagreed with — the vice president took a back seat to Secretary of State Condoleezza Rice, who pushed the president to pursue greater diplomacy with two countries he once called “rogue nations,” Iran and North Korea.

Wednesday, December 24, 2008

Although not a Cox fan, he is right about this: Reaction of Treasury & Fed was change every rule of the marketplace. 'Let's try this. Let's try that.'

From The Washington Post:

Christopher Cox, the embattled chairman of the Securities and Exchange Commission, [says] other federal regulators have responded precipitously to upheaval in the markets.

"What we have done in this current turmoil is stay calm, which has been our greatest contribution -- not being impulsive, not changing the rules willy-nilly, but going through a very professional and orderly process that takes into account unintended consequences and gives ample notice to market participants," Cox said.

Taking a swipe at the shifting response of the Treasury and Fed in addressing the financial crisis, he said: "When these gale-force winds hit our markets, there were panicked cries to change any and every rule of the marketplace: 'Let's try this. Let's try that.' . . . ."

Cox said the biggest mistake of his tenure was agreeing in September to an extraordinary three-week ban on short selling of financial company stocks. But in publicly acknowledging for the first time that this ban was not productive, Cox said he had been under intense pressure from Treasury Secretary Henry M. Paulson Jr. and Fed Chairman Ben S. Bernanke to take this action and did so reluctantly. They "were of the view that if we did not act and act at that instant, these financial institutions could fail as a result and there would be nothing left to save," Cox said.

I love it when things that appear to many not to make any sense in fact makes a lot of sense: Rick Warren to be main speaker at Ebenezer on King Day

From the ajc:

The Rev. Rick Warren will be the featured speaker at the Martin Luther King Jr. Commemorative Service in Atlanta the day before he gives the invocation at President-elect Barack Obama’s inauguration.

Warren said in a press release: “I commend President-elect Obama for his courage to willingly take enormous heat by inviting someone like me, with whom he doesn’t agree on every issue, to offer the invocation at his historic inaugural ceremony.

“Hopefully individuals passionately expressing opinions from the left and the right will recognize that both of us have shown a commitment to model civility in America.”

Tuesday, December 23, 2008

A Gamble for Obama . . . And a Risk for Rick Warren, Too

E.J. Dionne, Jr. writes in The Washington Post:

By inviting Pastor Rick Warren to give the inaugural invocation, President-elect Barack Obama has alienated some of his friends on the left. By accepting, Warren has enraged some of his allies on the right.

Obama and Warren have helped each other in the past, and both know exactly what they're doing.

[One view] on parts of the religious left casts Warren as the evangelical best positioned to lead moderately conservative white Protestants toward a greater engagement with the issues of poverty and social justice, and away from a relentless focus on abortion and gay marriage.

Both Warren and Obama are shrewd leaders who sense where the political winds are blowing.

Warren understands that a new generation of evangelicals has tired of an excessively partisan approach to religion.

After Rome has burned, call the fire department -- FASB Reviews Valuation Method

From The Wall Street Journal:

Accounting watchdogs are fast-tracking an effort to provide a small dose of "mark-to-market" relief for financial firms, as banks and life insurers continue grappling with deteriorating investment holdings.

The Financial Accounting Standards Board last week began steps to loosen a rule regarding when financial firms must book losses on a narrowly defined subset of lower-rated mortgage-backed securities, commercial-backed securities and certain other structured securities.

Late Friday, FASB asked for public comment on the proposal, a sign that it is under serious consideration.

Sunday, December 21, 2008

White House Philosophy Stoked Mortgage Bonfire

From The New York Times:

“We can put light where there’s darkness, and hope where there’s despondency in this country. And part of it is working together as a nation to encourage folks to own their own home.” — President Bush, Oct. 15, 2002

The global financial system was teetering on the edge of collapse when President Bush and his economics team huddled in the Roosevelt Room of the White House for a briefing that, in the words of one participant, “scared the hell out of everybody.”

It was Sept. 18. Lehman Brothers had just gone belly-up, overwhelmed by toxic mortgages. Bank of America had swallowed Merrill Lynch in a hastily arranged sale. Two days earlier, Mr. Bush had agreed to pump $85 billion into the failing insurance giant American International Group.

The president listened as Ben S. Bernanke, chairman of the Federal Reserve, laid out the latest terrifying news: The credit markets, gripped by panic, had frozen overnight, and banks were refusing to lend money.

Then his Treasury secretary, Henry M. Paulson Jr., told him that to stave off disaster, he would have to sign off on the biggest government bailout in history.

Mr. Bush, according to several people in the room, paused for a single, stunned moment to take it all in.

“How,” he wondered aloud, “did we get here?”

Eight years after arriving in Washington vowing to spread the dream of homeownership, Mr. Bush is leaving office, as he himself said recently, “faced with the prospect of a global meltdown” with roots in the housing sector he so ardently championed.

There are plenty of culprits, like lenders who peddled easy credit, consumers who took on mortgages they could not afford and Wall Street chieftains who loaded up on mortgage-backed securities without regard to the risk.

But the story of how we got here is partly one of Mr. Bush’s own making, according to a review of his tenure that included interviews with dozens of current and former administration officials.

From his earliest days in office, Mr. Bush paired his belief that Americans do best when they own their own home with his conviction that markets do best when let alone.

He pushed hard to expand homeownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent — and with the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards.

Mr. Bush did foresee the danger posed by Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants. The president spent years pushing a recalcitrant Congress to toughen regulation of the companies, but was unwilling to compromise when his former Treasury secretary wanted to cut a deal. And the regulator Mr. Bush chose to oversee them — an old prep school buddy — pronounced the companies sound even as they headed toward insolvency.

As early as 2006, top advisers to Mr. Bush dismissed warnings from people inside and outside the White House that housing prices were inflated and that a foreclosure crisis was looming. And when the economy deteriorated, Mr. Bush and his team misdiagnosed the reasons and scope of the downturn; as recently as February, for example, Mr. Bush was still calling it a “rough patch.”

The result was a series of piecemeal policy prescriptions that lagged behind the escalating crisis.

“There is no question we did not recognize the severity of the problems,” said Al Hubbard, Mr. Bush’s former chief economics adviser, who left the White House in December 2007. “Had we, we would have attacked them.”

Looking back, Keith B. Hennessey, Mr. Bush’s current chief economics adviser, says he and his colleagues did the best they could “with the information we had at the time.” But Mr. Hennessey did say he regretted that the administration did not pay more heed to the dangers of easy lending practices. And both Mr. Paulson and his predecessor, John W. Snow, say the housing push went too far.

“The Bush administration took a lot of pride that homeownership had reached historic highs,” Mr. Snow said in an interview. “But what we forgot in the process was that it has to be done in the context of people being able to afford their house. We now realize there was a high cost.”

For much of the Bush presidency, the White House was preoccupied by terrorism and war; on the economic front, its pressing concerns were cutting taxes and privatizing Social Security. The housing market was a bright spot: ever-rising home values kept the economy humming, as owners drew down on their equity to buy consumer goods and pack their children off to college.

Lawrence B. Lindsay, Mr. Bush’s first chief economics adviser, said there was little impetus to raise alarms about the proliferation of easy credit that was helping Mr. Bush meet housing goals.

“No one wanted to stop that bubble,” Mr. Lindsay said. “It would have conflicted with the president’s own policies.”

Today, millions of Americans are facing foreclosure, homeownership rates are virtually no higher than when Mr. Bush took office, Fannie and Freddie are in a government conservatorship, and the bailout cost to taxpayers could run in the trillions.

A Policy Gone Awry

Advocating homeownership is hardly novel; the Clinton administration did it, too. For Mr. Bush, it was part of his vision of an “ownership society,” in which Americans would rely less on the government for health care, retirement and shelter. It was also good politics, a way to court black and Hispanic voters.

But for much of Mr. Bush’s tenure, government statistics show, incomes for most families remained relatively stagnant while housing prices skyrocketed. That put homeownership increasingly out of reach for first-time buyers . . . .

So Mr. Bush had to, in his words, “use the mighty muscle of the federal government” to meet his goal. He proposed affordable housing tax incentives. He insisted that Fannie Mae and Freddie Mac meet ambitious new goals for low-income lending.

Concerned that down payments were a barrier, Mr. Bush persuaded Congress to spend up to $200 million a year to help first-time buyers with down payments and closing costs.

And he pushed to allow first-time buyers to qualify for federally insured mortgages with no money down. Republican Congressional leaders and some housing advocates balked, arguing that homeowners with no stake in their investments would be more prone to walk away . . . . Many economic experts, including some in the White House, now share that view.

The president also leaned on mortgage brokers and lenders to devise their own innovations. “Corporate America,” he said, “has a responsibility to work to make America a compassionate place.”

And corporate America, eyeing a lucrative market, delivered in ways Mr. Bush might not have expected, with a proliferation of too-good-to-be-true teaser rates and interest-only loans that were sold to investors in a loosely regulated environment.

“This administration made decisions that allowed the free market to operate as a barroom brawl instead of a prize fight,” said L. William Seidman, who advised Republican presidents and led the savings and loan bailout in the 1990s. “To make the market work well, you have to have a lot of rules.”

But Mr. Bush populated the financial system’s alphabet soup of oversight agencies with people who, like him, wanted fewer rules, not more.

Like Minds on Laissez-Faire

The president’s first chairman of the Securities and Exchange Commission promised a “kinder, gentler” agency. The second was pushed out amid industry complaints that he was too aggressive. Under its current leader, the agency failed to police the catastrophic decisions that toppled the investment bank Bear Stearns and contributed to the current crisis, according to a recent inspector general’s report.

In the 2004 election cycle, mortgage bankers and brokers poured nearly $847,000 into Mr. Bush’s re-election campaign, more than triple their contributions in 2000, according to the nonpartisan Center for Responsive Politics.

Among the Republican Party’s top 10 donors in 2004 was Roland Arnall. He founded Ameriquest, then the nation’s largest lender in the subprime market, which focuses on less creditworthy borrowers. In July 2005, the company agreed to set aside $325 million to settle allegations in 30 states that it had preyed on borrowers with hidden fees and ballooning payments. It was an early signal that deceptive lending practices, which would later set off a wave of foreclosures, were widespread.

Andrew H. Card Jr., Mr. Bush’s former chief of staff, said White House aides discussed Ameriquest’s troubles, though not what they might portend for the economy. Mr. Bush had just nominated Mr. Arnall as his ambassador to the Netherlands, and the White House was primarily concerned with making sure he would be confirmed.

“Maybe I was asleep at the switch,” Mr. Card said in an interview.

Brian Montgomery, the Federal Housing Administration commissioner, understood the significance. His agency insures home loans, traditionally for the same low-income minority borrowers Mr. Bush wanted to help. When he arrived in June 2005, he was shocked to find those customers had been lured away by the “fool’s gold” of subprime loans. The Ameriquest settlement, he said, reinforced his concern that the industry was exploiting borrowers.

In December 2005, Mr. Montgomery drafted a memo and brought it to the White House. “I don’t think this is what the president had in mind here,” he recalled telling Ryan Streeter, then the president’s chief housing policy analyst.

It was an opportunity to address the risky subprime lending practices head on. But that was never seriously discussed. More senior aides, like Karl Rove, Mr. Bush’s chief political strategist, were wary of overly regulating an industry that, Mr. Rove said in an interview, provided “a valuable service to people who could not otherwise get credit.” While he had some concerns about the industry’s practices, he said, “it did provide an opportunity for people, a lot of whom are still in their houses today.”

Today, administration officials say it is fair to ask whether Mr. Bush’s ownership push backfired. Mr. Paulson said the administration, like others before it, “over-incented housing.”

‘We Told You So’

Armando Falcon Jr. was preparing to take on a couple of giants.

A soft-spoken Texan, Mr. Falcon ran the Office of Federal Housing Enterprise Oversight, a tiny government agency that oversaw Fannie Mae and Freddie Mac, two pillars of the American housing industry. In February 2003, he was finishing a blockbuster report that warned the pillars could crumble.

Created by Congress, Fannie and Freddie — called G.S.E.’s, for government-sponsored entities — bought trillions of dollars’ worth of mortgages to hold or sell to investors as guaranteed securities. The companies were also Washington powerhouses, stuffing lawmakers’ campaign coffers and hiring bare-knuckled lobbyists.

Mr. Falcon’s report outlined a worst-case situation in which Fannie and Freddie could default on debt, setting off “contagious illiquidity in the market” — in other words, a financial meltdown. He also raised red flags about the companies’ soaring use of derivatives, the complex financial instruments that economic experts now blame for spreading the housing collapse.

Today, the White House cites that report — and its subsequent effort to better regulate Fannie and Freddie — as evidence that it foresaw the crisis and tried to avert it. Bush officials recently wrote up a talking points memo headlined “G.S.E.’s — We Told You So.”

But the back story is more complicated. To begin with, on the day Mr. Falcon issued his report, the White House tried to fire him.

At the time, Fannie and Freddie were allies in the president’s quest to drive up homeownership rates; Franklin D. Raines, then Fannie’s chief executive, has fond memories of visiting Mr. Bush in the Oval Office and flying aboard Air Force One to a housing event. “They loved us,” he said.

So when Mr. Falcon refused to deep-six his report, Mr. Raines took his complaints to top Treasury officials and the White House. “I’m going to do what I need to do to defend my company and my position,” Mr. Raines told Mr. Falcon.

Days later, as Mr. Falcon was in New York preparing to deliver a speech about his findings, his cellphone rang. It was the White House personnel office, he said, telling him he was about to be unemployed.

His warnings were buried in the next day’s news coverage, trumped by the White House announcement that Mr. Bush would replace Mr. Falcon, a Democrat appointed by Bill Clinton, with Mark C. Brickell, a leader in the derivatives industry that Mr. Falcon’s report had flagged.

It was not until 2003, when Freddie became embroiled in an accounting scandal, that the White House took on the companies in earnest. Mr. Bush decided to quit the long-standing practice of rewarding supporters with high-paying appointments to the companies’ boards — “political plums,” in Mr. Rove’s words. He also withdrew Mr. Brickell’s nomination and threw his support behind Mr. Falcon, beginning an intense effort to give his little regulatory agency more power.

Mr. Falcon lacked explicit authority to limit the size of the companies’ mammoth investment portfolios, or tell them how much capital they needed to guard against losses. White House officials wanted that to change. They also wanted the power to put the companies into receivership, hoping that would end what Mr. Card, the former chief of staff, called “the myth of government backing,” which gave the companies a competitive edge because investors assumed the government would not let them fail.

By the spring of 2005 a deal with Congress seemed within reach, Mr. Snow, the former Treasury secretary, said in an interview.

Michael G. Oxley, an Ohio Republican and then-chairman of the House Financial Services Committee, had produced what Mr. Snow viewed as “a pretty darned good bill,” a watered-down version of what the president sought. But at the urging of Mr. Card and the White House economics team, the president decided to hold out for a tougher bill in the Senate.

Mr. Card said he feared that Mr. Snow was “more interested in the deal than the result.” When the bill passed the House, the president issued a statement opposing it, effectively killing any chance of compromise. Mr. Oxley was furious.

“The problem with those guys at the White House, they had all the answers and they didn’t think they had to listen to anyone, including the Treasury secretary,” Mr. Oxley said in a recent interview. “They were driving the ideological train. He was in the caboose, and they were in the engine room.”

[S]ome former White House and Treasury officials continue to debate whether Mr. Bush’s all-or-nothing approach scuttled a measure that, while imperfect, might have given an aggressive regulator enough power to keep the companies from failing.

Mr. Snow, for one, calls Mr. Oxley “a hero,” adding, “He saw the need to move. It didn’t get done. And it’s too bad, because I think if it had, I think we could well have avoided a big contributor to the current crisis.”

Unheeded Warnings

The New Century Financial Corporation, a huge subprime lender whose mortgages were bundled into securities sold around the world, was headed for bankruptcy in March 2007. Mr. Thomas, an economic analyst for President Bush, was responsible for determining whether it was a hint of things to come.

As Mr. Thomas began digging into New Century’s failure that spring, he became fixated on a particular statistic, the rent-to-own ratio.

Typically, as home prices increase, rental costs rise proportionally. But Mr. Thomas sent charts to top White House and Treasury officials showing that the monthly cost of owning far outpaced the cost to rent. To Mr. Thomas, it was a sign that housing prices were wildly inflated and bound to plunge, a condition that could set off a foreclosure crisis as conventional and subprime borrowers with little equity found they owed more than their houses were worth.

It was not the Bush team’s first warning. The previous year, Mr. Lindsay, the former chief economics adviser, returned to the White House to tell his old colleagues that housing prices were headed for a crash. But housing values are hard to evaluate, and Mr. Lindsay had a reputation as a market pessimist, said Mr. Hubbard, adding, “I thought, ‘He’s always a bear.’ ”

In retrospect, Mr. Hubbard said, Mr. Lindsay was “absolutely right,” and Mr. Thomas’s charts “should have been a signal.”

Instead, the prevailing view at the White House was that the problems in the housing market were limited to subprime borrowers unable to make their payments as their adjustable mortgages reset to higher rates. That belief was shared by Mr. Bush’s new Treasury secretary, Mr. Paulson.

Mr. Paulson, a former chairman of the Wall Street firm Goldman Sachs, had been given unusual power; he had accepted the job only after the president guaranteed him that Treasury, not the White House, would have the dominant role in shaping economic policy. That shift merely continued an imbalance of power that stifled robust policy debate, several former Bush aides say.

Throughout the spring of 2007, Mr. Paulson declared that “the housing market is at or near the bottom,” with the problem “largely contained.” That position underscored nearly every action the Bush administration took in the ensuing months as it offered one limited response after another.

By that August, the problems had spread beyond New Century. Credit was tightening, amid questions about how heavily banks were invested in securities linked to mortgages. Still, Mr. Bush predicted that the turmoil would resolve itself with a “soft landing.”

The plan Mr. Bush announced on Aug. 31 reflected that belief. Called “F.H.A. Secure,” it aimed to help about 80,000 homeowners refinance their loans. Mr. Montgomery, the housing commissioner, said that he knew the modest program was not enough — the White House later expanded the agency’s rescue role — and that he would be “flying the plane and fixing it at the same time.”

That fall, Representative Rahm Emanuel, a leading Democrat, former investment banker and now the incoming chief of staff to President-elect Barack Obama, warned the White House it was not doing enough. He said he told Joshua B. Bolten, Mr. Bush’s chief of staff, and Mr. Paulson in a series of phone calls that the credit crisis would get “deep and serious” and that the only answer was big, internationally coordinated government intervention.

“You got to strangle this thing and suffocate it,” he recalled saying.

Instead, Mr. Bush developed Hope Now, a voluntary public-private partnership to help struggling homeowners refinance loans. And he worked with Congress to pass a stimulus package that sent taxpayers $150 billion in tax rebates.

In a speech to the Economic Club of New York in March 2008, he cautioned against Washington’s temptation “to say that anything short of a massive government intervention in the housing market amounts to inaction,” adding that government action could make it harder for the markets to recover.

Dominoes Start to Fall

Within days, Bear Sterns collapsed, prompting the Federal Reserve to engineer a hasty sale. Some economic experts, including Timothy F. Geithner, the president of the New York Federal Reserve Bank (and Mr. Obama’s choice for Treasury secretary) feared that Fannie Mae and Freddie Mac could be the next to fall.

Mr. Bush was still leaning on Congress to revamp the tiny agency that oversaw the two companies, and had acceded to Mr. Paulson’s request for the negotiating room that he had denied Mr. Snow. Still, there was no deal.

Over the previous two years, the White House had effectively set the agency adrift. Mr. Falcon left in 2005 and was replaced by a temporary director, who was in turn replaced by James B. Lockhart, a friend of Mr. Bush from their days at Andover, and a former deputy commissioner of the Social Security Administration who had once run a software company.

On Mr. Lockhart’s watch, both Freddie and Fannie had plunged into the riskiest part of the market, gobbling up more than $400 billion in subprime and other alternative mortgages. With the companies on precarious footing, Mr. Geithner had been advocating that the administration seize them or take other steps to reassure the market that the government would back their debt, according to two people with direct knowledge of his views.

In an Oval Office meeting on March 17, however, Mr. Paulson barely mentioned the idea, according to several people present. He wanted to use the troubled companies to unlock the frozen credit market by allowing Fannie and Freddie to buy more mortgage-backed securities from overburdened banks. To that end, Mr. Lockhart’s office planned to lift restraints on the companies’ huge portfolios — a decision derided by former White House and Treasury officials who had worked so hard to limit them.

But Mr. Paulson told Mr. Bush the companies would shore themselves up later by raising more capital.

“Can they?” Mr. Bush asked.

“We’re hoping so,” the Treasury secretary replied.

That turned out to be incorrect, and did not surprise Mr. Thomas, the Bush economic adviser. Throughout that spring and summer, he warned the White House and Treasury that, in the stark words of one e-mail message, “Freddie Mac is in trouble.” And Mr. Lockhart, he charged, was allowing the company to cover up its insolvency with dubious accounting maneuvers.

But Mr. Lockhart continued to offer reassurances. In a July appearance on CNBC, he declared that the companies were well managed and “worsts were not coming to worst.” An infuriated Mr. Thomas sent a fresh round of e-mail messages accusing Mr. Lockhart of “pimping for the stock prices of the undercapitalized firms he regulates.”

Mr. Lockhart defended himself, insisting in an interview that he was aware of the companies’ vulnerabilities, but did not want to rattle markets.

“A regulator,” he said, “does not air dirty laundry in public.”

Soon afterward, the companies’ stocks lost half their value in a single day, prompting Congress to quickly give Mr. Paulson the power to spend $200 billion to prop them up and to finally pass Mr. Bush’s long-sought reform bill, but it was too late. In September, the government seized control of Freddie Mac and Fannie Mae.

In an interview, Mr. Paulson said the administration had no justification to take over the companies any sooner. But Mr. Falcon disagreed: “They absolutely could have if they had thought there was a real danger.”

By Sept. 18, when Mr. Bush and his team had their fateful meeting in the Roosevelt Room after the failure of Lehman Brothers and the emergency rescue of A.I.G., Mr. Paulson was warning of an economic calamity greater than the Great Depression. Suddenly, historic government intervention seemed the only option. When Mr. Paulson spelled out what would become a $700 billion plan to rescue the nation’s banking system, the president did not hesitate.

“Is that enough?” Mr. Bush asked.

“It’s a lot,” the Treasury secretary recalled replying. “It will make a difference.” And in any event, he told Mr. Bush, “I don’t think we can get more.”

As the meeting wrapped up, a handful of aides retreated to the White House Situation Room to call Vice President Dick Cheney in Florida, where he was attending a fund-raiser. Mr. Cheney had long played a leading role in economic policy, though housing was not a primary interest, and like Mr. Bush he had a deep aversion to government intervention in the market. Nonetheless, he backed the bailout, convinced that too many Americans would suffer if Washington did nothing.

Mr. Bush typically darts out of such meetings quickly. But this time, he lingered, patting people on the back and trying to soothe his downcast staff. “During times of adversity, he bucks everybody up,” Mr. Paulson said.

It was not the end of the failures or government interventions; the administration has since stepped in to rescue Citigroup and, just last week, the Detroit automakers. With 31 days left in office, Mr. Bush says he will leave it to historians to analyze “what went right and what went wrong,” as he put it in a speech last week to the American Enterprise Institute.

Mr. Bush said he was too focused on the present to do much looking back.

“It turns out,” he said, “this isn’t one of the presidencies where you ride off into the sunset, you know, kind of waving goodbye.”

(1) Where is Colin Powell when we need him? I still hope Obama consults with him. & (2) God Bless America!

Peggy Noonan writes in The Wall Street Journal:

An old friend in a position of some authority in Washington told me the other day, from out of nowhere, that a hard part of his job is that there's no one to talk to. I didn't understand at first. He's surrounded by people, his whole life is one long interaction. He explained that he doesn't have really thoughtful people to talk to in government, wise men, people taking the long view and going forth each day with a sense of deep time, and a sense of responsibility for the future. There's no one to go to for advice.

He senses the absence too.

It's a void that's governing us.

And this as much as anything has contributed to the sense you pick up that people feel all trends lead downward from here, that the great days of America Rising are over, that the best is not yet to come but has already been. It is so non-American, so unlike us, to think this, and yet one picks it up everywhere, between the lines and in asides. The other night a man told me of his four children, and I congratulated him on bringing up so many. From nowhere he said, "I worry about their future." At another time he would have said, "Billy wants to be a doctor."

People are angry but don't have a plan, and they'll give the incoming president unprecedented latitude and sympathy, cheering him on. I told a friend it feels like a necessary patriotic act to be supportive of him, and she said, "Oh hell, it's a necessary selfish act—I want him to do well so I survive. We all do!"

This is a good time to remember who we are, or rather just a few small facts of who we are. We are the largest and most technologically powerful economy in the world, the leading industrial power of the world, and the wealthiest nation in the world. "There's a lot of ruin in a nation," said Adam Smith. There's a lot of ruin in a great economy, too. We are the oldest continuing democracy in the world, operating, since March 4, 1789, under a vibrant and enduring constitution that was formed by geniuses and is revered, still, coast to coast. We don't make refugees, we admit them. When the rich of the world get sick, they come here to be treated, and when their children come of age, they send them here to our universities. We have a supple political system open to reform, and a wildly diverse culture that has moments of stress but plenty of give.

The point is not to say rah-rah, paint our faces blue and bray "We're No. 1." The point is that while terrible challenges face us—improving a sick public education system, ending the easy-money culture, rebuilding the economy—we are building from an extraordinary, brilliant and enduring base.

What a task President-elect Obama has ahead. He ran on a theme of change we can believe in, but already that seems old. Only six weeks after his election he faces a need more consequential and immediate. In January, in his inaugural, he may find himself addressing something bigger, and that is: Belief we can believe in. The return of confidence. The end of absence. The return of the suit inhabited by a person. The return of the person who will take responsibility, and lead.

Auto Rescue May Be a Bridge to Nowhere

From The Wall Street Journal:

Sometimes, hard choices have to be forced. That is a beauty of bankruptcy court, where a judge can require investors, creditors, employees and management to reach difficult compromises.

The U.S. government has chosen a different route for General Motors and Chrysler, extending $17.4 billion in temporary assistance, or bridge loans. Washington hopes to coax agreements needed to restructure the companies.

While the aim of buffering the U.S. economy from auto-maker bankruptcies may be laudable, it could prove tough to achieve.

One potential stumbling block: getting bondholders to convert two-thirds of their debt to new equity, as called for under the aid plan. Such concessions are standard in bankruptcy, but outside court they can't be unilaterally imposed.

So some bondholders may hold out for better terms. Others might refuse altogether because they feel bankruptcy is inevitable, meaning any new stock will prove worthless. United Auto Workers protests of concessions being asked of them may only underscore to bondholders that they too should balk.

A GM spokeswoman said the company recognizes that bondholder concerns will be an issue. But since "the goal is for a stronger, more viable company," many bondholders are likely to agree, she added.

Holdouts may be subordinated by new bonds issued under a debt-for-equity swap. Yet some could decide this isn't such a risk, since their claims will remain whole and the company may be on a sounder footing.

There is an added wrinkle. A clause in indentures to some GM bonds mandates that, under certain conditions, liens on domestic manufacturing assets given as part of new debt issues require that existing bondholders receive similar security. This could potentially turn unsecured bondholders into secured lenders, giving them less incentive to take a haircut. How that will play out is unknown.

What is clear is that the loans are no guarantee these companies will survive. The assistance may end up being a bridge to nowhere.

Saturday, December 20, 2008

The Cracker Squire in 2004: "The pendulum is always swinging." -- Did it ever swing in U.S. in 2008, & swing could continue in Ga. in 2010 w/ Barnes.

In a 11-11-04 post I wrote:

The [following] report is from the Friday edition of Coffee County News; the weekend edition of The Douglas Enterprise ran the same article.

Local attorney Sid Cottingham was elected to serve a four year term as Coffee County’s member of the state committee of the Democratic Party of Georgia. This native Coffee Countian will bring a wealth of knowledge and political savvy to the state committee.

Cottingham stated: “Everyone on this local committee recognizes that the Democratic Party in Georgia lost some of its luster and former glory as a result of the November elections in 2002 and 2004. But we also know that the pendulum is always swinging. And with the kind of enthusiasm that has surfaced both locally and on a statewide basis since November 2 of this year, it is apparent to me that the job has begun in earnest to right the Democratic Party’s ship in this great state. Sure we’ve got our work cut out for us, but with the interest shown locally over the past month in meeting our challenges, I feel confident that we are up to the task. I appreciate this group’s confidence in me, and they know and the public knows that my door is always open for any concerns and suggestions.”

Previous periods of low oil prices in the 1980s & 1990s contributed to the downfall of two Kremlin administrations -- those of Gorbachev & Yeltsin.

From The Wall Street Journal:

Russia's oil-fired economic miracle is unraveling as industry shrinks and job losses mount. Now the first stirrings of social unrest have the Kremlin groping for a response.

The drop in oil prices is eroding the Kremlin's ability to replenish its gold and foreign-currency reserves just when it needs them most. Although the country's reserves are the world's third-largest behind China and Japan, it has been spending tens of billions of dollars in an attempt to prop up its falling ruble and stave off public panic.

Previous periods of low oil prices in the 1980s and 1990s contributed to the downfall of two Kremlin administrations -- those of Mikhail Gorbachev and Boris Yeltsin. Often, social discontent has begun in Russia's far-flung regions, where Kremlin control is comparatively tenuous.

In all likelihood, Mr. Madoff was not running a pure Ponzi scheme, but had real assets. But later had to double down.

An opinion from Wednesday's edition of The Wall Street Journal:

Where was the SEC? Such is the plaint lofted in the wake of the Bernie Madoff scandal.

Huh?

When has the Securities and Exchange Commission ever found a fraud except by reading about it in the newspapers? Anyway, who said the agency was supposed to prevent investors from losing money or relieve them of having to perform due diligence?

Mr. Madoff's many honorable and accomplished clients chose to deal with their man outside the institutional checks that come from, say, a heavily regulated bank or a highly transparent mutual fund, perhaps one whose parent is also publicly traded and doubly subject to the checks of a watchful stock market. That was their choice.

It is common to wax nostalgic for a time when a man's word was his bond, business was done on a handshake, etc. This is poppycock. It has always been a client's job to sort out the dealer who could be trusted from the one who couldn't. Personal connections may give comfort, but are no substitute for true institutional checks or true experience of a man's character, which many of Mr. Madoff's clients seemed not to have.

Instead, they went on "reputation," which is to say they acquired their faith in Mr. Madoff more or less the way people acquire their faith in global warming and many other things, from people equally as ignorant as they.

What makes the Madoff story interesting, though not evidence of systematic failure of the regulatory or legal system, is that Mr. Madoff and some of his clients had dealt on a basis of trust for more than a generation. True Ponzi schemes, in which early investors are paid a "return" out of funds deposited by later investors, tend to falter at the first market downturn. Waning investor enthusiasm dries up new funds required to pay off earlier investors. The scheme collapses.

In all likelihood, Mr. Madoff was not running a pure Ponzi scheme, but had real assets. He was operating a blind pool, in which investors had no real idea what they owned or how it was performing, relying on Mr. Madoff who reported metronomic returns, brooked no nosiness into his methods, and seemed always willing to pay off investors who wanted to withdraw their money.

He may have been casual from the start about what money he used to pay withdrawals. It is almost inconceivable, though, that he could have built a true Ponzi scheme to a height of $50 billion, in which there were never any real assets, just his superhuman 40-year juggling act to ensure new investors were recruited as needed to provide funds to meet withdrawal requests from earlier investors.

If so, he is a genius who should immediately be put in charge of the Social Security and Medicare trust funds.

It was Mr. Madoff himself who apparently applied the word "Ponzi" to his crime, in his distraught confession to his sons. His "$50 billion" in reputed losses also appear to be little more than hearsay, his own tremulous characterization of the long-running disaster he'd wrought.

More likely, his firm devolved into a Ponzi scheme only when serious losses hit and he decided not to level with investors but to gamble on a resurrection. The hoped-for rebound, as they frequently do, failed to materialize. His losses grew. Then came a flood of redemption requests amid the current credit crisis. Mr. Madoff's jig was up.

His decision-making at this crossroads probably wasn't helped by the fact that, in the early 2000s, just as the long bull run was ending, the press began asking questions about the improbable consistency of his reported returns -- making it an awkward moment to stop reporting consistent returns.

Conscious of his standing in the community and seeing jail beckoning, all he could think to do was double down.

There are costs and benefits to everything, including the cumbersome apparatus of firms that subject themselves to intrusive monitoring and conform to standards of transparency. Mr. Madoff's clients chose to avoid those costs. For that matter, they chose to forgo lower but safer returns, as many rich people do, by entrusting their fortunes to T-bills.

The herding automatons of the media can never encounter lawbreaking in the financial markets without concluding that it demonstrates the necessity of more laws against lawbreaking. Congress, now in the process of convincing itself it should run the auto industry, no doubt will see in Mr. Madoff proof that Congress is needed to manage rich people's money and ordinary people's too. Then we'll all be in the same position as Mr. Madoff's clients.

U.S. Workers Crowding Out Immigrant Laborers

From The Wall Street Journal:

A year ago, a day-laborer center adjacent to a Home Depot here [in Los Angeles] teemed with Latin American immigrants who showed up and found a sure day's work painting, gardening or hauling.

These days, more than immigrants are packing the Hollywood Community Job Center: Unemployed Americans are joining them. There's little work for anybody.

"Everybody is coming to look for work," says Rene Jemio, outreach coordinator for the hiring hall. "It's not just your average immigrant anymore; it's African-Americans and whites, too."

For the first time in a decade, unskilled immigrants are competing with Americans for work. And evidence is emerging that tens of thousands of Hispanic immigrants are withdrawing from the labor market as U.S. workers crowd them out of potential jobs. At least some of the foreigners are returning home.

He is changing his mind yet again! Just as he did on use of funds, he keeps changing on 2nd half. -- Paulson Wants Rest of TARP Funds From Congress


From The Wall Street Journal:

The U.S. government's rescue of the auto industry drained what remained in the first half of Treasury's $700 billion bailout fund, prompting Treasury Secretary Henry Paulson to call on Congress to release the rest of the money.

On Friday, Mr. Paulson said lawmakers should release the second $350 billion "to support financial market stability."

Democratic lawmakers are angry the Bush administration resisted calls to embark on a large-scale program to prevent foreclosures, and that government-backed banks aren't lending more. Republicans, meanwhile, are upset about the shifting focus of TARP, a program they finally supported after a protracted fight that rocked financial markets. While Mr. Paulson initially planned to use the TARP to buy bad loans and other distressed assets, he changed gears to instead buy stakes in banks. Republicans blame the Bush administration's missteps for losing party seats in November.

Friday, December 19, 2008

Auto Rescue Won't Jump Start Sales -- OK, we recognize this; but how is this situation any different from that faced by most other businesses in U.S.

From The Wall Street Journal:

The Bush administration's $17.4 billion rescue package delivered some holiday cheer for Detroit, but car dealers said it's only the first step to resuscitating vehicle sales that have slumped in the face of tight credit and sinking consumer confidence.

In order to get car sales moving at a better rate -- a key factor in making General Motors Corp. and Chrysler LLC financially viable -- consumers need easier access to auto loans and more confidence the economy will improve.

Auto sales have fallen to their slowest pace sine 1982, falling 37% in November from a year ago, according to Autodata Corp. Both foreign and domestic automakers have had to cut production in order to adjust for collapsing demand in the U.S. market. Honda Motor Co. this week slashed its profit outlook and Chrysler LLC idled all of its North American factories for four weeks starting today.

Tuesday, December 16, 2008

Some Democratic leaders in Congress consider the whole idea of immigration reform to be radioactive.

From The Wall Street Journal:

One of the big bonuses Democrats enjoyed this year was a surge of support among Hispanic voters, a surge larger than the party would have dared to dream of just a couple of years ago.

Now, one of the biggest questions Democrats face is whether hardening attitudes toward immigration, aggravated by hard economic times and rising unemployment, will push the party down paths that could undercut that Hispanic support, much as hardening rhetoric undermined Hispanic support for Republicans in the past two years.

The larger Democratic majority's real test with Hispanics, in other words, is at the beginning rather than at the end.

For those who have forgotten recent history, just four short years ago President George W. Bush seemed to be making big inroads among Hispanic voters for the Republican Party. The share of Hispanics pulling the Republican lever for president rose between 2000 and 2004 to the point where winning a majority of Hispanic voters seemed possible. Mr. Bush and his political seer, Karl Rove, saw rising Hispanic backing as a cornerstone of an enduring Republican majority.

Then came the immigration debate of the past two years, when Mr. Bush pushed an immigration-reform plan that included a path toward citizenship for illegal immigrants already working in this country. His own party in Congress -- along with some Democrats, to be sure -- rose up to kill that kind of reform, in favor of doing more to secure borders and expel illegal immigrants from the workplace.

That approach surely was in keeping with the popular mood. But the immigrant-unfriendly rhetoric surrounding it dealt a blow to Republicans' hope of making further inroads with Hispanics.

Then came this year's voting. The surge in Hispanic support for Barack Obama was one of the most striking results of the 2008 election -- and one with big potential long-term implications. Two-thirds of Hispanics voted Democratic in the presidential election, up from 53% in 2004, exit polling indicates, while the Republican share fell to 32% from 44%.

Do the math, and that translates to a swing of almost three million votes for Democrats this year. More important, the surge helped Mr. Obama turn the key states of Colorado, New Mexico, Nevada and Florida.

Republican nominee John McCain lamented over that very turn of events this weekend. In an appearance on ABC's "This Week With George Stephanopoulos," he told his own party: "Very frankly, one of the issues that we're going to address very seriously is Hispanic participation in the Republican Party....We Republicans are going to have to recruit and elect Hispanic candidates to offices, and do a lot of other things, because that's a growing part of our population."

Which brings us to today. Now the burden of handling the immigration-reform question falls on Democrats rather than Republicans. In calmer times, the party could be expected to push precisely the kind of immigration reform that Mr. Bush tried to get through Congress early this year -- a reform that would include a larger legal immigrant work force and a path toward citizenship for some illegal immigrants.

But that was before the economy went into the tank and unemployment started rising. Pushing any kind of immigration reform, particularly one that includes a path toward legalization, is a lot harder in an environment in which Americans are losing jobs.

That mood was captured late last week by Republican Rep. Steve King of Iowa, who wrote a column in the Des Moines Register pushing a bill he has written to bolster the Internal Revenue Service's ability to ferret out illegal immigrants in the workplace.

"The economic crisis has placed too many families in peril," Rep. King wrote. "According to the U.S. Department of Labor, 9.5 million Americans are out of work and looking for jobs. It's a staggering figure, and is particularly infuriating when you consider that the Pew Hispanic Center estimates 7 million jobs in this country are held by illegal immigrants."

Expect to hear more of that kind of rhetoric if the idea of immigration reform reappears on the political horizon. For that reason, some Democratic leaders in Congress consider the whole idea of immigration reform to be radioactive. Privately, they say they simply want to stay away from it.

Yet those who push immigration reform still expect action. Mr. Obama "himself promised he was going to push on immigration reform in the first year," says Frank Sharry, executive director of America's Voice, a nonpartisan advocacy group backing immigration reform.

Mr. Sharry says he is encouraged by Mr. Obama's decision to appoint New Mexico Gov. Bill Richardson and Arizona Gov. Janet Napolitano to key cabinet posts; both, he says, are "border-state governors with a strong history of support for immigration reform." Failure to act quickly, he argues, could suppress the Hispanic vote for Democrats in the crucial 2010 congressional elections.

Immigration reform is hardly the only issue of importance to Hispanic voters, of course, but it surely is near the top of the list. Right now, Mr. Obama is riding a huge high with Hispanics. In a Wall Street Journal/NBC News poll last week, he got a positive rating from 82% of the Hispanics surveyed.

The trick will be keeping that sentiment intact in an environment in which bad economics could translate into anti-immigrant sentiment within his own party.

Monday, December 15, 2008

I can't grasp how he did it. - Firms managing money on Bernie Madoff’s scale would typically have hundreds of people involved in administrative tasks.

From The New York Times:

[T]he 17th floor was Bernie Madoff’s sanctum, occupied by fewer than two dozen staff members and rarely visited by other employees.

And the 17th floor is now an occupied zone, as investigators and forensic auditors try to piece together what Mr. Madoff did with the billions entrusted to him by individuals, banks and hedge funds around the world.

[A] question still dominates the investigation: how one person could have pulled off such a far-reaching, long-running fraud, carrying out all the simple practical chores the scheme required, like producing monthly statements, annual tax statements, trade confirmations and bank transfers.

Firms managing money on Mr. Madoff’s scale would typically have hundreds of people involved in these administrative tasks.

Saturday, December 13, 2008

I hated it so much when now Sen. Corker barely beat my man Rep. Harold Ford. But now this guy is impressing me big-time. Keep up the good work Sen.!


From The New York Times:

For more than 70 years, the United Automobile Workers union has known who its adversaries were: company executives, foreign automakers and right-to-work advocates who fought its organizing drives.

Now it has another: Senator Robert Phillips Corker Jr.

Senator Corker first raised his profile in the Congressional hearings last week, with his relentless questioning of Chrysler’s chief executive, Robert L. Nardelli, suggesting that Chrysler wanted federal aid only so it could find a merger partner.

“There is not a human being alive in the automobile world who thinks that Chrysler is doing anything other than hanging around long enough until it finds somebody to marry,” he said.

He continued with the metaphor, making for one of the more colorful exchanges during four days of hearings in recent weeks on the bailout. “While this is happening you’re going to be going to spas and getting facials and trying to get someone to marry you,” Senator Corker said.

With his sharp and colorful criticism, Senator Corker became a face of the opposition to the bailout effort along with another senator, Richard C. Shelby, Republican of Alabama, who garnered more attention early on in the debate by describing Detroit’s Big Three as “dinosaurs.” Mr. Shelby has many plants operated by foreign automakers in his state, such as Toyota, Honda, Mercedes-Benz and Hyundai.

Now, after negotiating on behalf of Senate Republicans, it is Senator Corker who is being invited to appear on Sunday morning talk shows.

On Friday, Senator Corker took pains to dispel notions that the outcome was the result of sharp split between his party and organized labor, or that it was engineered by lawmakers from states that are home to foreign auto manufacturers.

“I was a member of a union as a young man, a card-carrying union member,” Senator Corker, who was a construction worker, said at a news conference. “My company that I started when I was 25 employed large numbers of union workers — carpenters, laborers and others.”

And Mr. Gettelfinger acknowledged during his own press conference that he had been willing to reach an agreement with Senator Corker on the concept of lowering U.A.W. members’ wages and benefits to the levels paid at plants run by Toyota, Honda, B.M.W. and Nissan.

The two sides wound up apart only by the date when concessions might take effect — 2009, as the senator wanted, or 2011, as Mr. Gettelfinger proposed, when the next union contract takes effect. But Mr. Gettelfinger refused to yield completely to Congress; yielding would allow lawmakers to tell U.A.W. members what they could earn or what the terms of their contract would be.

[But the landscrape has changed Mr. Gettelfinger, and now one must ask whose money is going to fund these salaries and benefits. We are now beyond what G.M. is willing to give in to; we are talking about taxpayers' money. The rules of the game have changed indeed, at least if you want the money.]


Senator Corker has shown he can play with Democrats, too. A former mayor of Chattanooga and a developer and builder, he was the only new Republican elected to the Senate in 2006, defeating former Representative Harold E. Ford Jr. to take the seat vacated by Bill Frist.

Despite the collapse of the talks, Senator Harry M. Reid of Nevada, the majority leader, gave Mr. Corker credit for his efforts in 2007 backing higher fuel economy standards. “I have been extremely impressed,” said Mr. Reid, saying Mr. Corker’s work laid the basis for the next round of auto legislation when the 111th Congress convenes next month.

The more things change, the more they stay the same: If something sounds too good to be true, then it's not. -- A reminder courtesy of Bernie Madoff.


(See an article in The Wall Street Journal.)

This is big, so big, and I hate it for all who will lose millions. As we now have learned, the guru ran a giant Ponzi scheme, a type of fraud in which earlier investors are paid off with money raised from later victims -- until no money can be raised and the scheme collapses.
_______________

A late story appears in The New York Times, that notes the following:

The Securities and Exchange Commission, which investigated Mr. Madoff in 1992 but cleared him of wrongdoing, appears to have been completely surprised by the charges of fraud.

Investors may have been duped because Mr. Madoff sent detailed brokerage statements to investors whose money he managed, sometimes reporting hundreds of individual stock trades per month. Investors who asked for their money back could have it returned within days. And while typical Ponzi schemes promise very high returns, Mr. Madoff’s promised returns were relatively realistic — about 10 percent a year — though they were unrealistically steady.

[T]he S.E.C. had already investigated Mr. Madoff and two accountants who raised money for him in 1992, believing they might have found a Ponzi scheme. “We went into this thing just thinking it might be a huge catastrophe,” an S.E.C. official told The Wall Street Journal in December 1992.

Instead, Mr. Madoff turned out to have delivered the returns that the investment advisers had promised their clients. It is not clear whether the results of the 1992 inquiry discouraged the S.E.C. from examining Mr. Madoff again, even when new red flags surfaced.

According to an S.E.C. statement released on Friday night, the agency looked at Mr. Madoff’s operations twice in recent years — in 2005 and 2007. The 2005 review found only three technical violations of trading rules. The 2007 inquiry found nothing that prompted the regional enforcement staff to take further action by referring the matter to Washington, the statement said.

Just as was the case with the financial bailout -- TARP -- concern about the stock market led the White House to act with respect to GM and Chrysler.

I am an active investor in the stock market, and still say without qualification that concern about the stock market should not drive national economic policy. History will give this administration an F for its performance during these tough economic times.

From The New York Times:

Shortly before the American markets opened on Friday morning, White House and Treasury Department officials, concerned that steep declines in overseas stock markets could provoke a new round of market panic in the United States, said the administration would consider providing temporary relief.

Sit down before reading: U.S. to spend, invest or loan as much as $10 trillion to backstop or bailout banks, money-market funds & depositors.

From The Wall Street Journal:

Another day, another bailout.

Keeping score on government bailouts has become a nettlesome task. Using the most expansive counting possible, the U.S. has pledged to spend, invest or loan as much as $10 trillion to backstop or bailout banks, money-market funds, depositors and many others. Yet the final tab is likely to be much, much smaller.

Consider the Federal Reserve's pledge to backstop a $1.3 trillion piece of the commercial-paper market by buying this short-term corporate debt itself. So far it has invested $312 billion in the program; Fed officials expect to get all that back with interest. It is only taking the paper of high-rated companies and has different forms of security.

Do you count the $1.3 trillion market it has pledged to backstop, the $312 billion it has thus far invested, or nothing at all because it expects to get its money back? Defining the parameters of a count is also tricky. Do you count the $168 billion fiscal stimulus package that had come and gone before the September blowup in financial markets?

Here's a quick guide to some very big numbers behind the bailouts:

FEDERAL RESERVE: Since early August 2007, the Fed's balance sheet has grown from $851 billion to $2.245 trillion as it has created rescue programs such as the commercial-paper facility. In addition, it has drawn down its stockpile of safe Treasury securities from $791 billion to $476 billion to finance programs and lent out $185 billion of Treasury securities to Wall Street firms in exchange for riskier securities.

In all, the central bank has already committed about $1.9 trillion to support financial markets through programs including commercial-paper lending, rescues of Bear Stearns and American International Group Inc., lending to banks, as well as other steps. The number could grow as programs are implemented in the weeks ahead.

Though the Fed has written down $2 billion on loans to Bear Stearns, Fed officials consider its programs to be well-secured. It is also earning interest and fees.

Since the collapse of Lehman Brothers, the Fed has turned over $6.6 billion in earnings to the Treasury, according to estimates by Louis Crandall, an economist with Wrightson ICAP LLC, a bond-market research firm. That's down a bit from $7.8 billion during the same stretch last year.

In short, the Fed is potentially sitting on more risk and earning what look like modest returns to go with it.

TREASURY: The Treasury has so far committed $335 billion of its Troubled Asset Relief Program for a variety of efforts -- pumping capital into banks, bailing out AIG and Citigroup Inc. and developing a program with the Fed to support consumer lending. Separately, it has invested $14 billion in Freddie Mac, the mortgage-finance firm that was effectively nationalized by the government in September, and purchased $49 billion in mortgage-backed securities to support Freddie and Fannie Mae, the other mortgage firm under government stewardship.

All together, that's $398 billion invested by the Treasury so far. The Treasury is also sure to tap another $350 billion available to the TARP through funds approved by Congress in October. It expects to get it all back with interest. But that is no sure thing.

HUD: The Department of Housing and Urban Development has pledged to commit $300 billion to help homeowners avoid foreclosure. The program, called Hope for Homeowners, allows banks to move borrowers into government-insured loans if lenders agree to write down a portion of the principal. The program has gone through revisions since it was launched in October and so far it has used very little of the money.

BROADER PLEDGES: Adding together rescue money already explicitly committed by the Treasury and Fed brings the dollars spent, loaned or invested to date to $2.3 trillion, a number that is sure to grow and doesn't count fiscal stimulus.

The numbers get much larger when one considers the size of some markets the government has pledged to support. The Treasury has a program to backstop $3 trillion worth of money-market mutual funds. (It hasn't had to tap any funds so far to honor that commitment and has reaped about $800 million in fees on it.)

The Federal Deposit Insurance Corp. is in line to guarantee as much as $700 billion worth of bank debt, according to FDIC estimates. It has also substantially expanded bank-deposit insurance. The Fed is standing behind $1.3 trillion in commercial paper. Various agencies are helping Citigroup to backstop $306 billion in investments.

It's anybody's guess what will ultimately be gained or lost. If the economy stabilizes, it could be a big money winner for taxpayers. If the recession deepens and the markets don't heal, the losses one day could get very large.

Friday, December 12, 2008

The White House's intervention showed how heavily the question of the president's legacy is weighing over his last few weeks in office.

From The Wall Street Journal:

The White House's intervention showed how heavily the question of the president's legacy is weighing over his last few weeks in office.

As early as Wednesday, during a private meeting with senators, Vice President Dick Cheney told lawmakers the Republicans didn't want to be remembered as the party of Herbert Hoover for allowing a company such as GM to collapse, according to people familiar with the matter.

The administration said that in the wake of the legislation's collapse, it would consider "other options" for helping Detroit, including use of the Troubled Asset Relief Program as well as other unspecified possibilities. The White House decision reverses Treasury Secretary Henry Paulson's longstanding position that the funds be used to help only financial institutions. Treasury officials -- and others in the administration -- worry about opening TARP to an array of other non-financial companies seeking cash. The line of industries seeking federal funds is growing as state governments, transit agencies, insurers and others clamor for a piece of the pie.

From the beginning, the auto rescue was weighed down by the $700 billion fund that might now save it. Winning additional funds for Detroit was never going to be easy, said Sen. John Thune (R., S.D.), because many lawmakers felt they "got hammered pretty hard" over the $700 billion fund, by constituents who viewed it as a giveaway to the banking industry.

Bryan Nichols. Damn. What does it take? Life without parole in such cases should be declared unconstitutional or otherwise illegal.

What a huge disappointment. It may be time to review the sentencing law in Georgia in light of this result.

See article in AJC entitled "Brian Nichols avoids death penalty -- On Saturday, judge will impose life sentence on courthouse killer."

You can only cry "Wolf, Wolf" a certain number of times. -- Rescue Bid for Detroit Collapses in Senate


My 9-24-08 post entitled “It’s financial socialism, and it’s un-American” expressed the feelings of many and set the stage for what happened in the U.S. Senate on Thursday. That post provided:

[An] expression of disgust came from Senator Jim Bunning, Republican of Kentucky, who said the plan would “take Wall Street’s pain and spread it to the taxpayers.”

“It’s financial socialism, and it’s un-American,” Mr. Bunning said.


Although I had many posts on the subject, one of my favorites was done on 9-27-08 and was entitled "The bailout bill probably will be passed Sunday or Monday. Here is someone Omaba should consider to be his Secretary of the Treasury."

It featured the above photo of Sen. Shelby, and provided:

Sen. Richard Shelby (R., Ala.) is the highest-ranking Republican member of the Senate Banking Committee, and the initial, one of the few, and clearly the most outspoken voices of dissent in the U.S. Senate on the bailout legislation.

This sentiment is part of what is behind Thursday's action in Washington. As reported in The Wall Street Journal:

A frantic, last-ditch attempt to forge a relief package for the auto industry collapsed in the U.S. Senate, dealing a giant blow to the immediate hopes of the Big Three.

General Motors Corp. and Chrysler LLC . . . both hope the White House will now relent and allow the Treasury to provide emergency loans from the $700 billion Wall Street fund . . . .

[GM in a statement said] that it will "assess all of our options to continue our restructuring and to obtain the means to weather the current economic crisis."

GM has already hired some of the U.S.'s biggest names in restructuring to consider whether to file for bankruptcy protection . . . .

Only a handful of Republicans in the Senate had been willing to support the rescue package. Some raised concerns about government intervention in the marketplace.

Congress also remains bitter over the handling of the $700 billion financial rescue, which lawmakers on both sides feel they were pushed into approving and are displeased with the results.

"We simply cannot ask the American taxpayer to subsidize failure," said Sen. McConnell, suggesting the Big Three would have to find a way to survive without congressional help.


Congress -- at least the Senate -- listened to the taxpayers on this vote. Congress was pushed into approving the $700 billion bailout plan, and you can only cry "Wolf, Wolf" a certain number of times.

Wednesday, December 10, 2008

Heck with the taxpayers. Go with whatever the lobbyists want on bailout bill.

From The Wall Street Journal:

Intense lobbying by banks and bankruptcy experts softened a key provision in the auto-bailout bill that would require government loans be repaid ahead of banks and other lenders. But the current language leaves unclear just who would collect first in the event of a bankruptcy filing -- taxpayers or existing creditors.

The banks' prime concern centered around a plan to make the U.S. government's $14 billion in rescue loans senior to other loans. They argued that this clause violated the Fifth Amendment of the U.S. Constitution, which prohibits the taking of private property without "just compensation." [I think this is unquestionably correct.]

Controversy erupted after a draft bill Monday stated plainly that the government loans would be "senior and prior to all obligations, liabilities, and debts of any such holding company or company that controls a majority stake in the eligible automobile manufacturer."

Historically, the only way a secured lender can be forced to take a backseat to another lender is in bankruptcy court, where a judge hears from the secured lenders and determines if those creditors are protected with additional collateral or other measures.

"Oh what a tangled web we weave, When first we practise to deceive!”


Hoping it is not true, but if it is, as Scottish author Sir Walter Scott wrote:

"Oh what a tangled web we weave,
When first we practise to deceive!”

The news tonight noted that the FBI moved in because the appointment to replace Obama was imminent.

From The Wall Street Journal:

The scandal surrounding Illinois Gov. Rod Blagojevich's alleged attempt to sell a U.S. Senate seat widened on Wednesday, threatening to taint rising Democratic star Jesse Jackson Jr. and pull in one of the nation's biggest labor unions.

In a case unveiled Tuesday, U.S. Attorney Patrick Fitzgerald alleged that Gov. Blagojevich had attempted to extract payment or a high-paying position in exchange for naming a replacement for the seat vacated by President-elect Barack Obama. Federal investigators claimed in Tuesday's affidavit that a person referred to as "Senate Candidate No. 5" was willing to pay Gov. Blagojevich a fee on the magnitude of $500,000 or $1 million in exchange for the seat.

On Wednesday, an attorney for Rep. Jackson Jr. -- the son of longtime civil-rights figure and Chicago politician Jesse Jackson -- said the congressman is likely to be "Senate Candidate No. 5." The attorney, James Montgomery Sr., denied that Rep Jackson Jr. or his representatives sought a deal in exchange for the seat.

Separately, the federal investigations cast a shadow over the Service Employee International Union, a quickly growing alliance of more than two million workers.
_______________

While hoping it is not true, if it is, to paraphrase the foulmouthed governor without the use of the f word, screw 'em.

Senator Wide Stance loses another round

From The Washington Post:

A Minnesota appeals court yesterday rejected Sen. Larry E. Craig's latest effort to withdraw his guilty plea, 18 months after the Idaho Republican was arrested in a Minneapolis airport bathroom during an undercover sex sting.

Since pleading guilty in August 2007 to disorderly-conduct charges after allegedly trying to solicit sex from an undercover police officer in June of that year, Craig has tried to pull back that plea, arguing that his behavior was not illegal and that the police pressured him into the plea. The Hennepin County District Court denied Craig's petition in October 2007, and the Minnesota Court of Appeals affirmed that decision yesterday.

In his appeal, Craig argued that the district court fundamentally erred in its decision, that the state's disorderly-conduct statute was unconstitutionally broad and that his behavior in the airport bathroom stall should be considered legally protected speech. The court rejected those arguments.

The American Civil Liberties Union had filed a brief in support of Craig's appeal. [Geez . . . Spare us please.]

A Fighter Jet’s Fate Poses a Quandary for Obama

From The New York Times:

Two of President-elect Barack Obama’s stated goals — cutting wasteful spending and saving or creating millions of jobs — are on a collision course in a looming decision over whether to keep building the F-22 fighter jet.

Air Force officials have told Congress that they are hoping to win a $9 billion commitment to produce at least 60 F-22s over a three-year period, which would expand the fleet to 243.

But the F-22, a stealthy, supersonic fighter that was designed during the cold war and has never been used in combat, has many critics, and they include Robert M. Gates, who will remain Defense secretary in the Obama administration. Mr. Gates has questioned the relevancy of the F-22, and said the military should focus its resources more on fighting insurgencies like those in Iraq and Afghanistan.

Meanwhile, supporters of the F-22 program — which has cost more than $65 billion so far — argue that Mr. Obama should extend its production, at least temporarily, to preserve thousands of jobs related to building the jets, which cost $143 million each.

Tuesday, December 09, 2008

But if the defenders of the program are gone, there still are some in positions of power who aren't so sure that ending it is the right thing to do.

Dick Pettys writes in InsiderAdvantage Georgia:

Time was when Georgia lawmakers fought and clawed to fund what eventually became known as the Governor’s Road Improvement Program and then fought and clawed some more to get specific projects onto the list.

But with rural Democrats out of power for some years now and with political clout continuing to shift away from the farmbelt, we got a clear demonstration Tuesday of just how much times have changed.

DOT Commissioner Gena Evans, during a lengthy and wide-ranging presentation at the biennial legislative institute, said there is no evidence now that the GRIP program - at one time the Holy Grail of budget talks - is beneficial.

The program was being thrown together piece-meal by legislators until then-Gov. Joe Frank Harris in the 1980s formalized it as GRIP. The concept was to provide a series of four-lane highways across the state to communities that had been bypassed by the interstate system.

Evans said completion costs of the program now are estimated at $15.6 billion. “To be clear about it, we don’t have clear benefits for what that investment would really turn as far as economic benefits in the longterm,” she said.

About 90 percent of Georgia now is within a 20-mile radius of a four-lane highway, she said. The question that now must be decided is whether that $15 billion investment is worth it if it only improves access by 3 percent.

“That’s something we would like to discuss,” she said.

But if the biggest defenders of the program are gone, there still are some in positions of power who aren't so sure that ending the program is the right step.

Monday, December 08, 2008

Yes! -- New Ridership Record Shows U.S. Still Lured to Mass Transit

From The Washington Post:

Americans rode subways, buses and commuter railroads in record numbers in the third quarter of this year, even as gas prices dropped and unemployment rose. The 6.5 percent jump in transit ridership over the same period last year marks the largest quarterly increase in public transportation ridership in 25 years, according to a survey to be released today by the American Public Transportation Association.

Americans rode subways, buses and commuter railroads in record numbers in the third quarter of this year, even as gas prices dropped and unemployment rose. The 6.5 percent jump in transit ridership over the same period last year marks the largest quarterly increase in public transportation ridership in 25 years, according to a survey to be released today by the American Public Transportation Association.

Instead, ridership has gone up across the board nationwide.

The Times They Are a-Changin', but head of Merrill Lynch wants to live in the past - Thain Spars With Board Over $10 Million Bonus at Merrill

From The Wall Street Journal:

Merrill Lynch & Co. chief John Thain has suggested to directors that he get a 2008 bonus of as much as $10 million, but the battered securities firm's compensation committee is resisting his request, according to people familiar with the situation.

The committee and full board are scheduled to meet Monday to hear Mr. Thain's formal bonus recommendations for himself and other senior executives of the New York company. No decision has been reached, and it isn't known what Mr. Thain will recommend, but the compensation committee is leaning toward denying the executives bonuses for this year, these people said.

The difference of opinion between Mr. Thain and directors who hired him just a year ago is part of the bigger debate about compensation practices at Wall Street firms. Many blame Wall Street for fueling the credit crisis that dragged the U.S. economy into recession, and the giant paychecks that are routine at many Wall Street firms have received deepening criticism as the government extends aid to banks and securities firms.

Merrill has suffered net losses of $11.67 billion this year and is about to complete its acquisition by Bank of America Corp. later this month.

Sunday, December 07, 2008

SEC Signals Mark-to-Market Likely to Remain -- Why change now? The damage was done as of Sept. 15 & the market & credit meltdown that followed.

From The Wall Street Journal:

Federal securities regulators won't suspend the mark-to-market accounting rule that banking lobbyists and some conservative Republican lawmakers blame for exacerbating the credit crunch, according to a person familiar with the matter.

Banking lobbyists have been hoping that the SEC would give them greater flexibility in applying the rule since they blame it for the woes at the nation's largest financial institutions.

Mark-to-market accounting requires companies to value financial assets at their fair value -- the price they can fetch in the market. That has led companies to take big write-downs on thinly traded securities, even if the underlying assets aren't severely troubled. The write-downs have put pressure on prices of financial firms' stocks and forced many of them to sell assets or raise money to stay well above the capital requirements that have been set by regulators.

One more election, one less crook, even though 47% vote that hey, since he's black and one of us, it'll be all right.

From The Wall Street Journal:

In the 2nd Congressional District [in Louisiana], which includes most of New Orleans, Republican attorney Anh "Joseph" Cao won 50% of the vote to Rep. Jefferson's 47% and will become the first Vietnamese-American in Congress. His only previous political experience was an unsuccessful 2007 bid for a seat in the state legislature.

In a speech that was gracious but stopped short of concession, Mr. Jefferson blamed low voter turnout for his showing and said supporters may have thought he was a shoo-in after he won a Nov. 4 primary in the predominantly black and heavily Democratic district.

New Orleans voters had long been loyal to Mr. Jefferson, re-electing him in 2006 even after news of the bribery scandal broke. Late-night TV comics made him the butt of jokes after federal agents said they found $90,000 in alleged bribe money hidden in his freezer.

Outside pressure grows for GM to oust Wagoner, but please, please don't jump out of the frying pan into the fire by appointing Nissan CEO Carlos Ghosn

From The Wall Street Journal:

General Motors Corp. Chairman and Chief Executive Rick Wagoner is coming under increasing pressure from outside the company to resign as part of any broad bailout of the auto maker by the federal government.

On Sunday, Sen. Christopher Dodd (D., Conn.), a supporter of emergency loans for Detroit, suggested Mr. Wagoner should go if the government follows through and provides billions of dollars to help the auto giant restructure and return to profitability.

"I think you've got to consider new leadership," the senator said on the CBS talk show "Face The Nation."

"If you're going to restructure, you've got to bring in a new team to do this," he said. "I think [Mr. Wagoner] has to move on."

"If this management team that's currently in place doesn't understand the urgency of the situation and is not willing to make the tough choices and adapt to these new circumstances, then they should go," [President-elect Obama] said.

"What I think we have to put an end to is the head-in-the-sand approach to the auto industry that has been prevalent for decades now," Mr. Obama said on NBC's "Meet the Press."

On Sunday, Jerome B. York, an adviser to billionaire investor Kirk Kerkorian who served as a GM director in 2006 when Mr. Kerkorian owned a stake in the company, called out publicly for sweeping change at GM.

"Aside from a failure of leadership at the most senior executive management level, GM has five long-serving directors who have been on the board 10 years or more," Mr. York said in a telephone interview. "They have approved of and overseen many of the moves that have contributed to the company's troubles. They should also resign." [Amen on that Brother.]

Possible successors for Mr. Wagoner could include GM President Frederick "Fritz" Henderson, who took over responsibility for GM's auto operations from Mr. Wagoner earlier this year. Outside replacements could include Nissan Chief Executive Carlos Ghosn. [No, please, please no.]

Other names that have surfaced are former General Electric Co. CEO Jack Welch [he would work] and Austin Ligon, who retired early in June 2006 as head of CarMax Inc.

Critics of Mr. Wagoner will get a fresh set of ammunition on Monday when GM runs a full-page advertisement in an automotive trade publication spelling out its need for a bailout and disclosing a candid list of mistakes it has made in the past that has helped lead the auto maker to the edge of collapse.

"While we're still the U.S. sales leader, we acknowledge we have disappointed you," the ad says. "At times we violated your trust by letting our quality fall below industry standards and our designs become lackluster. We have proliferated our brands and dealer network to the point where we lost adequate focus on our core U.S. market."

(1) No Democrat wins a statewide race in Georgia by lashing himself to the national party; & (2) Forgetting what brung you to the dance.

A week before the runoff Bill Shipp wrote:

I have just wagered $50 on Chambliss to win the Dec. 2 runoff election.

I emailed my friend:

If you lose your $50 wager, I am good for half of it, and winnings need not be shared. I would not bet my wife, kids and grandkids on the outcome, but I would bet my own life. Good column.

Bill Shipp's weekend column has my identical thoughts about the ads that were run by and for Martin following the rather close general election:

A look back at the four-week runoff campaign shows that it mattered less what Chambliss did than what Martin did to himself. Leading up to Nov. 4, Martin ran an effective advertising campaign that repeatedly reminded Georgians of the troubles brought on by what he called "Saxby Economics," and also reminded them that he opposed the $700 billion Bush administration bailout of Wall Street, which Chambliss supported.

Strangely, once the runoff started, Martin seemed to forget everything that got him there. Instead of sticking with his effective economic message and contrasting his opposition to the bailout with Chambliss' support, he and the Washington crew who took over his campaign decided that tying Martin closely to President-elect Barack Obama was the way to go.

While they seemed to argue that Martin would help Obama on economic matters and Chambliss would obstruct him, all that voters figured out was that Martin was touting his desire to be a rubber stamp for Obama (who, by the way, lost Georgia this year, a fact the Martin operation ignored).

While it is understandable that national operatives who made a drive-through runoff appearance in the Peach State would fail to understand the campaign's circumstance, Martin has been in Georgia politics long enough to know that since Lyndon Johnson signed the 1964 Civil Rights Act, no Democrat has won a statewide race by lashing himself to his national party. Georgia is changing, and likely now moving in the Democrats' direction, but it still is a conservative place that has shown no interest in electing U.S. senators who promise to do national Democrats' bidding.

It was clear from the two candidates' competing ads that one of the campaigns had made a serious strategic error. On television you would see an ad from Chambliss or any of a number of conservative groups saying Martin would go to Washington to be a rubber stamp for Obama and Democratic congressional leaders. In the next commercial break, there would be Martin, using his own money to run an ad saying he was going to go to Washington to be a rubber stamp for Obama and Democratic congressional leaders.

Even a rudimentary knowledge of Georgia's political history made it obvious which side was miscalculating, and the results of the runoff voting confirm it.

It was obvious as soon as the statistics from early voting were available that Martin's strategy of announcing to the world his loyalty to the new president was not only failing to generate elevated turnout by Democrats, but was in fact spurring angry and frightened Republicans to vote in their last chance to "stop Obama." Martin kept right on going, however, and even appeared at the Capitol on runoff eve with three controversial Atlanta rappers (one of whom currently is serving a sentence on federal weapons charges) to drive home his point.

Gen. Jim Jones will operate as a facilitator as national security adviser

David Ignatius writes in The Washington Post:

For a preview of how Gen. Jim Jones will operate as national security adviser in the incoming Obama administration, it's useful to look at his performance as special envoy on Middle East security for the outgoing Bush administration. His effort there has helped yield one of the few recent success stories in the grinding Israeli-Palestinian stalemate.

Jones took the post in November 2007, just after the Annapolis peace conference, at the request of Secretary of State Condoleezza Rice.

Former Harvard President Lightning Rod Larry Summers Seeks Renewal as Obama Adviser

From The New York Times:

[Lawrence H. Summers, a former Treasury secretary,] will have a job as the top White House economic adviser to Barack Obama. American economic policy will be spearheaded in what many call the worst environment since the Great Depression in part by a man whose last full-time role ended in forced resignation.

“Barack thinks with his mind open,” said Charles Ogletree, a law professor at Harvard. “Larry thinks with his mouth open.”

Aides to President-elect Obama say a top administration role for Mr. Summers once would have seemed to be a remote possibility because of his controversial tenure at Harvard, during which he angered women [because of a 2005 talk in which he wondered out loud about a relative lack of women in top academic science and engineering posts, resulting in his being accused of thinking poorly of their scientific abilities] and members of the faculty.

As the head of the National Economic Council, he will play two roles: counseling the president and nurturing the proposals of others. Few doubt that Mr. Summers will excel in the first; Democrats and Republicans call him one of the top economic minds in the country, with a résumé that may make him overqualified for the job.

Even Mr. Summers’s allies, though, acknowledge worries about the second part of his role. Mr. Summers, in an interview, said a crucial part of the job was exposing the president “to all possible views, developed as strongly and rigorously as they can be.”

But at Harvard, numerous faculty members and administrators say, Mr. Summers’s downfall resulted chiefly from his tendency to impose rather than persuade, to appear to have little regard for the views of others.

For someone said to be poor at reading others, Mr. Summers has often displayed keen political instincts; after the Sept. 11, 2001, attacks, he had urged Harvard students to support the government and spoke out in support of its embattled R.O.T.C. chapter.

The term of Ben S. Bernanke, chairman of the Federal Reserve, expires in January 2010, and some members of the Obama team predict that if Mr. Summers performs well, the job could be his.