For Whom does the Bailout Bail Out?

Cross posted at Angry Bear

Both the Senate and the House have passed the big $700 billion bailout (actually now larded up to $800+ billion) to save the “financial system” from complete collapse. This is to supplement the various actions taken by the Fed and the SEC to shore up financial institutions, including halting short selling of hundreds of corporations and the creation of an alphabet soup of lending windows to “provide liquidity” to troubled institutions.

Much has been made of the fact that if nothing is done, the markets could come crashing down. Having watched some of the House floor debate this evening in my Berlin apartment thanks to the wonders of live-streaming from C-SPAN via the intertubes, I heard this argument over and over again from many members of the House. The big drop on Monday was cited as an example many times as a sign of impending doom if nothing is done. Of course, all of this is especially ironic given that the markets took a huge nosedive as soon as the House passed the bill.

Anyway, there is no doubt that a 1929-style crash would have an incredible impact upon the economy. But for whom in our society would a market crash have the most direct impact upon?

I found the answer to this question via the Economic Policy Institute in their report titled The State of Working America 2006/2007. They have a table which lists the concentration of stock ownership by income level from the year 2004, which I found particularly interesting. I decided to make a figure that illustrates some of the data from this table:
This shows that the 2.5% of the population that makes more that $250,000 a year own 44% of the shares on Wall St. Another way to look at it is that the 16.1% of the population that makes more than $100,000 per year own 73.2% of all shares. The rest of the 83.9% making less than $100,000 per year only own 26.8% of all the shares. The 57.2% of the population making less than $50, 000 own a paltry 9.2% of all shares.

To reiterate, many in Congress who supported the bailout package admitted that this needed to be passed in order to prevent a crash on Wall St. My guess is that allowing corporations to offload toxic assets onto the backs of taxpayers will certainly ease the strain on those corporations balance sheets. But do keep in mind, going forward, just who among stands to benefit the most in this "transaction".

House Bill Voted Down Open Thread

by Afferent Input

Current iteration of the bailout bill goes down in flames 205-228.

Dow is down over 700 pts. NASDAQ and S&P 500 both down over 8%.

Ugh-lee.

Go Cubs

Mrs. AI has the details.

They'll probably blow it in the end, however. They always do.

Some Thoughts on Bailouts

First, there was the shotgun marriage of Bear Stearns and JPM. Then $85 billion to AIG. Next came the loans to shore up money markets. Finally Friday’s announcement of a special program (most of the important details still unknown) that will cost “hundreds of billions of dollars”.

And of course don’t forget the alphabet soup of special facilities created by the Fed to protect the big money movers.

Bailouts, all. A lot has already been said, of course. But there are two things that I wanted to add to the conversation.

First, folks on the left and the right have referred to the recent onslaught of government bailouts as “socialism”. On the surface, it may seem that way, given that government now “controls” vast swaths of the nation’s financial system. But nothing could be further from the truth.

Let me say it more plainly; this is not socialism. Socialism is a form of government that seeks to equalize the playing field for all, insuring that that the fruits of labor are shared equally (but not fairly, necessarily. That’s one of the major reasons why socialism doesn’t work). Does anyone seriously think that captains of finance have embraced the philosophy of “workers of the world, unite!”? The same guys with multi-million dollar “golden-parachutes”, sometimes taking home more than a billion dollars in a year. The same guys who have embraced shady accounting practices so that they and their companies pay as little in taxes as possible, sometimes percentages of income far less than the average American worker. The same guys who have broken union after union over the decades. We’re supposed to believe that just this week this crew has decided to abandon Friedman and embrace Marx with open arms? Come on…

Let’s look at it another way; does anyone seriously believe that the average American stands to benefit financially from the actions taken this week? That the profits of AIG, or BS, or Fannie and Freddie will be split equally amongst the masses? Of course not. Instead, tax payer money will flow from the Treasury to shore up the accounts of what should be insolvent corporations. Essentially out of your pocket and into the hands of Wall St, only making a quick pit stop in DC. Or worse, putting it on the national credit card by selling even more treasuries. This is not socialism. Instead, this more resembles a different form of societal structure: kleptocracy.

Second, how did we get to the point that simply the failure of one company would mean utter chaos for society at large? This fact alone illustrates very nicley that the financial system ceased to be a free market long before last week. The lifeblood of free markets is competition. Competition gives birth to fair pricing of goods and services as well as efficiency of commerce. If one business fails, another takes its place.

The fact that these corporations were to big to fail means they were too big. Period. If AIG couldn’t hack it, then some other corporation would have stepped up to the plate. That is if the market place was truly free. But clearly it was not. Instead, what existed was at the very least a pseudo-monopoly. Many markets left to themselves will gradually evolve into monopolies, and one of the roles government needs to play is to insure that monopolies don’t get to the point where they distort free markets to the point where they aren’t really free anymore. Obviously government failed to meet that obligation in the financial sector the last few years.

I suppose that’s what happens when the foxes are put in charge of the hen house. Only time will tell if the foxes can keep fooling everyone into believing that there are still some hens left.

Note: It should go without saying that the above is my opinion and my opinion alone. No doubt that many of the other Angry Bears would disagree with at least some parts, if not the whole. But I'll say it anyway.

OTC Derivative Growth Since 1998

CROSS POSTED AT ANGRY BEAR

As the world financial markets head into complete meltdown, it is worth taking a moment to look back to see where all this began. Much of the current crisis stems from the shadow banking system’s dependence upon the explosive growth in derivatives market. These complex financial instruments are meant to monetize risk of default. Futures contracts, options, swaps, and many others allow one party to insure money is exchanged, but the outcome of the contract depend upon many underlying factors that make up the terms of the contract. Though many forms of derivatives are traded in exchanges, many are not necessarily.

Derivatives that not necessarily traded on market floors are known as “over-the-counter” derivatives. They are usually bilateral contracts between investment banks and a customer and can be generated simply over the phone or over the internet. This form of contracting is largely unregulated. The OTC market has been monitored by the Bank for International Settlements since at 1998, and they publish detailed information on various forms of OTC derivatives every six months. The most recent data can be found here.

This market was very big in 1998, but it has exploded since then. I’ve generated a figure of the amounts outstanding of OTC derivatives since 1998 broken down into their various types.


You should note that the Y-axis is in billions of dollars. Yes, billions. That means, as of Dec 2007 (for which BIS has the most recent data), the total OTC derivative market was almost $600 trillion dollars. In 10 years, it has gown 826%.

The growth is even more disturbing if you look at some of the subcategories of OTC derivatives. Below is a figure illustrating the ratio of amount outstanding contracts relative to the amount outstanding in June 1998 for interest rate contracts, commodity contracts, and credit default swaps.


Though commodity contracts still make up only a small proportion of the total OTC contracts outstanding (1.5%), its growth has been astronomical, increasing over 2,000% since June of 1998. Even interest rate contracts, which make up the largest portion (66%) of all OTC derivatives, increased over 900% in 10 years. And most troubling of all is the credit default swap market. These are contracts that are activated in the event of a default.
This market has increased 905% in just three and a half years since BIS starting monitoring this form of derivative. It was a mere $6.4 trillion in Dec 2004; In Dec of 2007 this market ballooned to $57.9 trillion. Just think of the unwinding of credit default swaps that is involved when big investment banks like Lehman Bros. go under.

Of course, all of it is very complicated, because derivatives are essentially a “zero-sum” instrument. They way derivatives are supposed to function is that money is exchanged depending on the outcome. Nothing is lost, at least in an ideal environment; it is only exchanged hands. But what happens when one party of the contract can’t pay?

I think we’re going to see that many times over very soon…

Ugly Ass Costume

WTF is up with this costume?

Don't get me wrong; the kid is cute enough. I just don't what's up with the two headed Curious George. I say again, WTF?

Suckers = us

Atrios says:

Reading through what's been released I still don't really get a sense of the important details. "Who eats how much shit" is the big question and it isn't entirely clear.

As the old saying goes, if you're sitting at a table, and you don't know who gets to eat how much shit, guess who gets to eat the most.

PTCRHMHIOD

Last week John McCain was asked just how many houses he and wife own. This may seem like a simple question to answer. For instance, if someone were to ask me how many houses I own, I would reply very quickly with:

0

McCain, on the other hand, had this to say when asked such a simple question:

"I think — I'll have my staff get to you," McCain told Politico in Las Cruces, N.M. "It's condominiums where — I'll have them get to you."

Is McCain an out-of-touch elitist who is so f-ing rich he doesn't even know how many homes his family owns? This may seem like the case, but only if you are completely ignorant of the demons that haunt McCain day-in and day-out. McCain's campaign was alluding to this affliction when asked to respond to the fact that McCain has no idea how many homes he owns. His campaign spokesman, Brian Rogers, had this to say:

“This is a guy who lived in one house for five and a half years — in prison.”

This may seem like McCain is, yet again, pulling out the ole "Noun, Verb, POW" card to shield himself from any criticism over any subject. But this is simply not the case. Instead, McCain suffers from PTCRHMHIOD, or Post Traumatic Can't Remember How Many Houses I Own Disorder. This horrible condition has forever altered the lives of countless Vietnam Vets, and especially former POWs, after their return to the States. In fact, it is the number one cause of divorce between former POWs and their millionaire liquor-heiress wives.

It is a shame that Democrats, and especially the Obama Campaign, will exploit McCain's ailment just to win an election. Obviously they will trivialize the service of any and all former military men-turned-politicians that use any suffering they endured while serving to deflect criticism of any kind, even it's about how much f-ing money they have.

Dems should be ashamed. Leave this honorable man and his four seven ten twelve houses alone!

House-gate

Or is it Houses-Gate? The question of the day is:

HOW MANY HOUSES DOES JOHN McCAIN OWN?

Honestly, you might think this would be an easy question to answer. At least for regular folks. For instance, I own exactly zero homes. Just like most of the people I know.

I do know one guy who's a lawyer and does very, very well. He also owns some investment properties. If I were to ask him how many homes he owns, this is how the conversation would go:

Me: Hey, how many homes do you own?

Him: 4, my house and three other that I rent.

Me: Cool, thanks.

Him: How many you own?

Me: None. You know that; I make jack shit as a scientist.

Him: oh...

Yet here's what John McCain said when asked the same question:

"I think — I'll have my staff get to you," McCain told Politico in Las Cruces, N.M. "It's condominiums where — I'll have them get to you."

He doesn't even fucking know how many homes he owns? WTF? Is he that f-ing rich? Or is he just senile? How can anyone not know how many homes they own? WHAT. THE. F?

Anyway, the DNC has put together a helpful guide to let McCain know just how many homes he owns:

Must be nice to be so f-ing rich that you don't even know how many homes you own...

Update:

Here's the audio of John "I'll have my staff get back to you on that" McCain

Clipped Quote = Same old regular BS

Jesus Christ, I'm so glad I'm not there to watch this BS on a regular basis...

Wake me when the stoopid season ends...

Ricahrd Cohen is an idiot

Richard "ultra-liberal" Cohen says this:

McCain's true virtue is that he is a lousy politician. He is not a convincing liar, and when he adopts positions that are not his own, they infect him, sapping him of what might be called integrity energy.

I think the best response I've seen for this vapidity is this from the comment section at Yglesias's place from Tim Conner:

You know, to take Richard Cohen seriously, you would have to think he was an honest man.

Like McCain, he is not. You see, to be honest, it's not enought to be uncomfortable with lying. You have to tell the truth when it's inconvenient.

At least, that's what my mom told me when I was little.

How Cohen can look at McCain's flip-floppery and see something honorable completely escapes me. McCain's a douchebag for flushing his integrity down the toilet; Cohen is even for worse respecting it.

Go Obama Go!

We went to the Obama rally last Thursday. I don't have time to give a recap, and it's already old news anyway. But Mrs AI gave a nice recap here, and check out this video a friend took of baby AI getting on gettin' on with a good ol' "Go Obama Go" chant and finishing it off with a classic terrorist fist jab. He's such a cute little terrorist.

I said halb Kilo of Cherries!

I went to the local farmer's stand today to get some produce. It's a little weird here; you don't get to pick your produce. Instead, you stand in line and wait your turn to talk to some guy to let him know what you want. Then he puts your produce in a bag and then you pay.

So I wanted funf Apfel und vier Pfirsiche (five apples and four peaches) and ein halb Kilo Kirschen (half a kilogram of cherries). The guy put my apples and peaches in the basket, and then piled the cherries into a paper bag. He gave me my basket and I walked into the store to pay.

When I got up to the counter, I noticed that I had TWO paper bags of produce in addition to my plastic bags of apples and peaches. Both bags had stickers that said the they had about 1/2 a kilo each. I figured that the guy outside gave me two bags of cherries, or one 1/2 kilo too many. I started to tell the guy, using my 100-word vocabulary of German, that I only wanted 1/2 a kilo of cherries. And he looked at the bags and said "OK, you want half kilo, you have half kilo." I kept pointing to the bags as saying, "No I only want ONE 1/2 kilo", and he kept saying "yeah, you get one half kilo" but kept trying to make me pay for both bags. I finally gave up, figuring these guys were trying to take advantage of the dumb American who can't speak German, sticking him with some extra cherries like some dumb schmuck!

Anyway, I got home and was pretty steamed. I told Mrs AI about what happened, and she was pissed that I paid for both bags. I tried to explain to her that I just gave up and something was being lost in translation. I started to put the produce into the fridge, and lo and behold, the second bag didn't have cherries in it at all. Instead, it was filled with Turkish Apricots that the guy outside accidentally put in my basket! No wonder the guy thought I was such a douche for wanting ONLY half a kilo of cherries! Next time I'll be sure to actually look inside the bags!

Man am I an ass...

Brunch

Holy Fuck. The brunches here are Ah - Mazing! I guess it's a Berlin (German?) tradition to have brunch on Sunday. We had one last week, and one today. These things are all you can eat, and are filled with fine cheeses, meats, various breakfast dishes such as scrambled eggs (but good ones with great spices and cheese and real eggs, not the shitty kind you would get in a crappy American cafeteria that is made from a toxic powder and water. Oh yeah, and they call scrambled eggs "omelets". What's up with that?). Belgian waffles with fresh fruits and jams and syrup and real butter.

The place we went to today was an Italian resturant in Prenzlaurer Berg called Belluro. They had this bowtie pasta cooked to perfection with bits of what I was pretty sure was some kind of crayfish. Not shrimp, for sure, but some kind of crustacean that was similar to crayfish. Tiramisu that was simply heavenly. Pretty damn good pizza. And of course really good coffee.

Anyway, we made our way to Tiergarten this afternoon and checked out the Berlin Siegessäule, or Victory Column. It was kind of late this evening, so things were slow and there weren't too many people (and the weather sort of sucked; grey and had rained earlier). But here are some pics.

In thie pic on the left you can see the famous Berlin TV tower in the lower right, a major landmark in East Berlin and remnant of the Communist past. An interesting dichotomy.

Research in Bird Brains Uncovers Cure for All Human Suffering

Well, not exactly. But it is an interesting step in understanding the underlying molecular mechanisms that mediate neurodegneration of brain circuits due to the withdrawal of circulating hormones. From the press release:

Neurons in brains of one songbird species equipped with a built-in suicide program that kicks in at the end of the breeding season have been kept alive for seven days in live birds by researchers trying to understand the role that steroid hormones play in the growth and maintenance of the neural song system.

It is the first time scientists have shown that inhibiting an enzyme involved in programmed cell death can protect a brain region in a living animal from neurodegeneration following the withdrawal of steroids.

In addition, the University of Washington research being published in tomorrow's edition of the Journal of Neuroscience reports that the infusion of this enzyme inhibitor into one brain region also kept another connected brain structure from degenerating.

The research has potential to help scientists develop clinical strategies for treating strokes and such human age-related degenerative diseases as Alzheimer's, Parkinson's and dementia, all of which may involve the death of brain cells.

Previous work by the co-authors Christopher Thompson and Eliot Brenowitz showed that neurons in a brain region called the HVC begin regressing within 12 hours after the withdrawal of the steroid hormone testosterone, followed soon thereafter by cell death. The new study indicates that enzymes called caspases, which play a key role in a cell suicide process called apoptosis, are involved in this process of neurodegeneration and that inactivation of caspases protects brain cells for at least a week.

Thompson, who just earned his doctorate in neurobiology and behavior at the UW and is now a postdoctoral researcher at the Freie Univeristät in Berlin, and Brenowitz, a UW professor of psychology and biology, study the brain regions controlling the singing behavior of a white-crowned sparrows.

This work was also featured in "This Week in The Journal" in the Journal of Neuroscience. Yay me again.

100

100 posts. Yay me.

From an email I sent to a friend, which I figured might be funny to others:

This morning, I was doing my hausufgabe on the train (which sort of makes it zeugaufgabe). I had to read two paragraphs, one about Heidi Klum, the other about Arnold Schwarzenegger, and then fill in the blanks of sentences below. For example: "blank" ist eine Model. Really hard stuff.

A girl, who was apparently a student from Humboldt University, sat next to me and worked on some of her homework. Hers was a little more complicated; it looked to be some kind of advanced calculus. The really sad thing was that I think I was having a harder time with my homework than she was with hers. I'm such a loser.

Not Enough Water

Since I arrived in Berlin 1 week ago, I have had nothing but coffee and beer, both of which are delicious beyond belief. I had better coffee at the Deutsche Bank when we were opening up our bank account than any F-ing Starbucks I have ever been too. Ever.

And the beer here is A-M-A-Z-I-N-G!!! They come in 0.5L bottles, about twice a 12oz bottle at home.

Incidentally, the color of my pee has turned from clear, to yellow, to this weird orange-ish brown-ish color. I'm pretty sure I should be drinking more water.

Anyway, enough about my excrement. I've been too busy adjusting to the time change, getting my visa stuff in order, going to language classes, working on papers from my thesis, and fighting a stomach bug to post anything. But if you're interested in following the in-and-outs of how the Afferent Input family is adjusting to life in Germany, I encourage you to check out Mrs. Afferent Input's blog 50% of my DNA. Lot's of funny details, including pics of Dr. AI and baby AI.

More soon later this week.

In Germany

Wow.

What a move. Got here and there are German flags all over the place. Made it home just in time to see the Euro2008 Cup. This morning there are many sad faces walking the streets of Berlin. More on that later.

But not us. We're really excited to be here. We had an amazing breakfast with some of the best coffee I've ever had, went to the grocery store and bought some essentials, and got home to eat tasty cherries (not from WA, though).

Anyway, I'm off to the language institute to prove that I know "kein Deutsch." Then they will put me in a class with kindergartners (I mean the US translation of "kindergarten" here).

half-moved

We've moved our stuff from where we lived the last eight years to my parent's house. Now I have to figure out what of my earthly possessions are most important to me and put them into two suitcases to take to Europe where we will live the next two years.

The thing is, all of it seems kind of like crap. I think I'd prefer to move there with just two changes of clothes and my toothbrush.

Suicide and Economic Downturn

Hat tip to Mish, I was struck by this article he highlighted on the increase in activity at a suicide hotline, and in particular the increase in percentage of those contemplating suicide that claim economic woes as their primary reason:

A local hot line has seen a dramatic spike in suicide calls from people in Palm Beach County who are facing foreclosure and can't pay their bills, according to numbers released today.

Since the start of the year, 256 people in the county told operators at the 211 hot line that they were thinking about suicide. Of those, 44 told operators that their main reason was that they had lost a job, were facing foreclosure, couldn't afford to pay their bills or were homeless.

During the same period in 2007, from Jan. 1 to June 10, the hot line received 137 suicide calls from people in Palm Beach County. Only 15 of those gave economic reasons.

The callers' problems seem markedly different than in the past, said Susan Buza, executive director of 211 Palm Beach/Treasure Coast. Many callers, she said, have tried to find work for months.

Buza said she began adding up the numbers after operators noticed a rise in calls from people who could lose their homes.

"When we started looking at it, we were really shocked," she said.

I'm particularly struck by the consequences of economic situations like the one currently facing the US on society at large. The official statistics are starting to paint a more gloomy picture, but it's interesting to see these things first-hand in action. Some things I've noticed:

• lots more vacant space at local strip / shopping malls
• more homeless in downtown Seattle areas
• lines outside the "cash stores" in the morning before they open
• less traffic congestion - It used to take 45 min for my morning and evening commute of just 15 miles. Now it takes just 20 min.
  
• Fewer people taking care of their yards
• More vacant homes

And this area is supposedly one of the areas better off economically. I'd hate to see what it's like elsewhere.

What are you noticing in your 'hood?

NOTE: I'm moving overseas in about 2 weeks. I'm going to be insanely busy during that time, so posting will continue to be a trickle. I hope to get something up on AB soon (maybe right now if the little one stays asleep for about an hour). I'll be able to get posts up on a more regular schedule once we've moved and settled in.

Doctor

I successfully defended my thesis yesterday. You have to call me Dr. Afferent Input now.

No, I can't write prescriptions.

Yes, I realize that means I'm not a "real" doctor.

Males: An Endangered Species

I don't know anything about Kathleen Parker, the author of Save the Males. But just based the following quote, I don't think I need to know much more than this:

"There are a lot of vaginas out there. And you thought Wahhabism was a problem.”

No, really. She really wrote that. Insane.

First Post

My first Angry Bear post is up. It's about this opinion piece in the Indy Star by a professor at Notre Dame that reads like it was written by the love child of The Petroleum Institute and the Republican National Committee.

Brooks on Neuroscience

Still swamped with stuff. But I happened across this excellent analysis of David Brooks' recent column on Buddhist Neuroscience. I didn't know about Steve Novella's blog before, and when I get a chance I'm going to add it to the blogroll.

I've long expected that neuroscience would soon rise the ire of the religious. In fact, a major tenet of intelligent design creationism relies upon the rejection of a naturalistic, materialistic explanation of the mind. Some day when I have more time I'll pick up on that topic.

Bush Legacy

Kinda sums it up. In pictures! Yay!

Angry Bear

The gang at Angry Bear has invited me to post there on a semi-regular basis. Given that I'm swamped with stuff right now, most of the blogging I'll be doing over the next two months will be over there. When every I get an AB post up I'll put up a link here, too, so that my three regular readers will know to check it out there.

The economic stuff will end up at AB, and most of the political and snarky stuff will end up here. So there will be reasons to keep checking Afferent Input. I know you don't want to miss out on AI-certified snark. It'll put hair on your chest. Good stuff.

Stein Says Science Kills

Ben Stein, one-note supporting actor, former game show host, and wanna-be economist, plays a leading roll in the new creationist propaganda film Expelled. The movie is filled with misinformation, much of it cataloged at the website ExpelledExposed.com. But Stein has been making the round with the most sundry elements of the far religious right in recent weeks and made some especially pernicious comments about science.

A few weeks ago, the producers of Expelled provided a private showing for Answer in Genesis, a young earth creationist think tank specializing in indoctrinating youth into believing that the Universe is only 6,000 years old and that Noah took all the animals, including dinosaurs, on the Ark during a worldwide flood only 4,000 years ago. Here's a picture of Stein meeting with Ken Ham, creationist kook that heads up AiG:

Ham had a glowing review of Expelled and had exuberant praise for Stein. Ham said Stein was a "a 21st-century Einsteinian figure" and went on to say:

Ken pledged AiG’s strong promotional support to Mr. Stein, indicating that AiG will use its multiple outlets to spread the word about his excellent film. After previewing the documentary last month, Ken declared that the film was “riveting, eye-opening, even astonishing. Ben does a masterful job of exposing the ruthlessness of evolutionists who will go after anyone who challenges or merely questions Darwinian orthodoxy. I was on the edge of my seat—entertained yet instructed.”

Stein was recently on the Trinity Broadcasting Network, the cable televangelist station dedicated to separating people from their money. Stein had a conversation with Paul Crouch Jr, heir to the TBN empire. Here's the transcript excerpt of the interview :

Stein: When we just saw that man, I think it was Mr. Myers [i.e. biologist P.Z. Myers], talking about how great scientists were, I was thinking to myself the last time any of my relatives saw scientists telling them what to do they were telling them to go to the showers to get gassed  that was horrifying beyond words, and thats where science - in my opinion, this is just an opinion - thats where science leads you.

Crouch: Thats right.

Stein: Love of God and compassion and empathy leads you to a very glorious place, and science leads you to killing people.

Crouch: Good word, good word.

[emphasis added]

Einsteinian indeed. If there was any doubt the intelligent design creationism is not a revolution within science but an effort to destroy science, it should be explicitly clear where Stein and his ilk stand. They claim science leads one to kill people.

The man's a crank, molded from some caricature of a Dark Ages bishop hellbent on burning heretic scientists at the stake.

Third rail

I'm swamped. I'm trying to finish my thesis in a timely manner, and make preparations to move overseas two weeks after my defense. No time for blogging. It'll be that way for a while; 2 months or so.

But I still find minutes here and there to read, and I thought this post One Drop was right on (via kos):

Don't let all of the blathering about which candidates are "elitist" or "out of touch" distract you from the real significance of "Bittergate." The issue isn't really that Obama talked about people who "cling" to guns or religion. The issue is that he got too close to the real Third Rail of politics

Social Security is not the Third Rail, no matter what the media tells you. No, the Third Rail is economic class. Try talking about income disparity in America, what do you get? "You're engaging in class warfare!" The same cries of protest are sounded whenever one suggests that the Bush tax cuts were mostly aimed at the wealthy, or that doing away with the estate tax was only beneficial to something like the top 1% of Americans. No, we musn't talk about the working class or the middle class getting a raw deal economically. In other words, we musn't criticize the real elites in this country, namely the wealthy and the politically connected.

There is a powder-keg of class angst in America. Obama had it exactly right, people are bitter, they are frustrated, they are skeptical of more slogans, more promises. That anger is real. It is legitimate. And it is incredibly dangerous to the existing power structures in this country.

The ruling class has spent the last several decades perfecting the art of distraction and misdirection. Take the anger that people feel, and convince them that what they're really upset about, what they really want to fight, is something other than the ruling class itself...

Good stuff. Read the whole thing.

Bitter?

You bet I'm fucking bitter, given the last seven years.

you?

On Central Banks

I came across something interesting earlier this week. Steve Waldman at Interfluidity had some very interesting thoughts about central banks, those pseudo-public entities who are supposed to insure the financial systems run efficiently but instead tend to manipulate market to benefit the super-wealthy. Anyway, here are some excerpts:

For now, central banks are all we have to prevent a catastrophic unwinding of our unstable financial system. But they had everything to do with getting us here. It's not just the Fed, with its famous "serial bubble-blowing", its cheering on of any novelty as beneficial innovation, its absolute refusal to peer into the magical sausage factory that Wall Street had become. The problem with central banks is much bigger than that...

In the USA, Japan, China, Europe, central banks have indeed been "active practitioners of the art of stabilizing macro confidence". For most of those years, it seemed like they were succeeding. They were never succeeding. Call it what you want, call it "Bretton Woods II", call it "financial imbalance" or a "global savings glut" or "exorbitant privilege". Each central bank, while trying to stabilize its own bit of the world, found itself with little choice but to support and expand unsustainable financial flows on a scale so massive they have reshaped the composition of every major economy on the planet...

[W]hat the US economy produces is no longer well matched to what Americans consume, and we are structurally unprepared to generate tradables, goods or services, in quantity adequate to cover the difference. The Fed's magic wand will be of no use if manufacturers in Asia and oil producers in the Gulf stop giving us stuff for free, using central-bank financial alchemy to hide their generosity.

Things may turn out okay. We've already begun to "adjust", and knock on wood, we'll manage a worldwide reequilibriation before things get too ugly. But it'll be a close call. That financial alchemy by central banks is the ultimate source of skyrocketing inflation in China and the Gulf states, and an ominous sign that Stein's Law is beginning to bite. We may yet escape, but we have been drawn very close to something very dangerous, to a genuine crisis of scarcity in the United States and a catastrophic failure of Say's Law in China, to mass unemployment, social instability, and fingers and missiles pointed in both directions across the Pacific. This is serious stuff. And central banks are largely to blame.

He suggests that if markets had been allowed to correct in response to the imbalances when they were created, then problems would not have grown to be as large as they have. I think they is something to this, for sure. It only because central banks have facilitated these imbalances because it benefited the super-wealthy. Off-shoring manufacturing to 3rd world countries is the prime example of that.

I'd like to think that the edifice is falling and this will create an opportunity to design the economy so that it benefits ingenuity and is fair to all actors. But I realize that's naive. This shot will never change...

Home Builder Bailout

The US senate passed a bill today that would give special tax rebates to distressed home builders. Via Calculated Risk is this Reuters report:

At a cost of $15 billion over 10 years, the Senate bill would give a $6 billion tax break to home builders by temporarily extending a rule that lets businesses count current losses against taxes from prior profitable years.

Home builders such as Pulte Homes and KB Home would benefit from this proposed two-year extension of the net operating loss carry-back rule, according to analysts.

The US is supposedly a capitalist society. But it hard to see how that could be if taxpayers are expected to shoulder the burden of the mistakes of corporations like these idiotic home builders. "Privatize the profits and socialize the losses" is not capitalism.

Let's count the bailouts so far:

1. $30,000,000,000 to JP Morgan's acquisition of Bear Stearns
2. $200,000,000,000 or so from TAF to take worthless paper off the hands of banks
3. $15,000,000,000 to "distressed" home builders in the form of a tax break

Let me know if I've forgotten any in comments.

UPDATE:
I thought of one more bailout; the $165,000,000,000 fiscal "stimulus" package being sent out to US Taxpayers. Not exactly targeted per se, but it's hard to argue it's not a type of bailout.

HotPads.com

I found this via the Big Picture. I don't know anything about what behind hotpads.com or how long they've been around. But let me just say that I'm impressed.
I was playing around with their foreclosure tool. They have an interactive map in which you can look at specific foreclosures (or homes for sale, or homes for rent). But they have a really cool feature that appeals to the uber-geek in me. They have a heat map which will tell you how many foreclosures there are per capita.

I was looking at Seattle and the surrounding area. Let's just say things are interesting. Here's a map for King Co that I stole from hotpads.com:

Click on image for larger version

Red is bad, lots of foreclosures per capita. Green is average. And blue is good, fewer foreclosures per capita.

You can see lots of red in KingCo. Not surprisingly, the most distressed areas are in South King Co. And the it looks like the areas in Seattle north of Eliot Bay and in north Seattle are holding up better than areas in south Seattle. This isn't too surprising, given the high density of pink ponies in Ballard and surrounding areas.

I'm especially surprised that foreclosures are relatively high in eastern King Co. I didn't think those areas were particularly distressed. The other surprising thing is the highest rates of foreclosure are in the industrial district. I think this is probably explained by the relatively low population density and high business foreclosure rate.

Here's Pierce Co:
Even more red than King Co. This is to be expected given the high rates of shady lending in this area the last few years. I'm surprised the areas around Ft Lewis are holding up, though.

Here's Snohomish Co:
Not as much red as Pierce Co, but plenty of orange. Areas near Everett not holding up very well.

So how do these images compare to other cities? I decided to look at nearby Portland, which from what I understand has been seeing significant housing price depreciation lately. I figured that I would be pretty similar to Seattle. Boy was I in for a surprise:

Blue, blue blue all around. I thought Seattle was special? Could it be that Portland is even more special-er?

Anyway, hotpads.com is my new goto site for housing info. It's amazing.

Absence and Housing Update

Sorry for the hiatus. I'm trying to finish my PhD, and it looks like it's going to happen in about two months. So I'm busy, really busy. I just had a paper accepted at a major publication last week, and I'm writing up another one at exactly the same time. And I'm writing my thesis. And I'm still doing some lab work. And I'm editing the proof for an invited review I co-wrote with a colleague.

And I've been dealing with some major health issues with my mother. I don't have the time to go into detail here. But it's bad. I'll probably update with a post sometime later this week.

Anyway, the latest stats from NWMLS are out. Housing is basically the same as last month: down YOY by a little bit, down by more than a little bit if you look from the peak.

Seattle Bubble has the detailed round up. But I thought I'd post some of the data I've been collecting.

The local media has a tendency to focus on YOY changes when it comes to home prices. But I've argued several times that this isn't necessarily justified. This month isn't any different. The Tim gives a reporting roundup at his place that illustrates this obsession with YOY.

You can understand why. The numbers don't look too bad when you look YOY. But when you look from the peak, which was mostly last summer and early fall, things don't look as peachy:
Note that I had to change the axis from last month to -18% because of the continued decline in Pierce CO condos.

SFHs across all counties didn't change month from last month. Condos improved in King and Sno Co. And as I mention, they got worse in Pierce Co, with median price dropping -2.75% in one month to $193,475, which is way down from $231,750 set in Feb 07.

Stop the Mortgage Bailout!!!

Came across this via Angry Bear. I agree, whole heartedly. Especially with this:

A bailout is morally irresponsible because it encourages irresponsible and irrational behavior. Here is a short list of the many "moral hazards" that a bailout enables:

A bailout sends the a wrong message about personal responsibility. It tells Americans in no uncertain terms that their financial decision have no consequences; the government will pick up the tab.


A bailout tells responsible Americans that they are suckers. If responsible American had been smart, they would have overextended themselves, purchased homes they could not afford, and taken out home equity loans based on the paper value of their property. Then, when the bill came due, they could pass it to the government like the irresponsible want to do.


A bailout allows banks, mortgage brokers, speculators, and refinancers to benefit from their abuse of the system. By doing so, it encourages these people to act irresponsibly in the future.


A bailout will force Americans who acted responsibly to pay for those who did not. The average American -- who saved and scrimped for years to buy a house but could not because speculators and over-extenders boosted home prices beyond affordability -- will now be forced to pay for the homes of those who were less scrupulous.

Take the time to click through on the link. This is a huge issue and will have an enormous effect on YOU and generations to come. We can't allow politicians to bailout greedy bankers with taxpayer money. Act today!

Income Disparity - Then and Now

I've written several posts on income disparity using data provided by the CBO. In short, the US is a society of the haves and have-nots, and the haves have accumulated more and more of the income for themselves over the years.

I've heard it mentioned several times before that income disparity was especially bad right before the Great depression. Unfortunately the CBO data only goes back to 1979, and thus all of the analysis I've done on the CBO data is quite limited in scope.

Anyway, I happened upon a post the other day at Jesse's Café Américain on the Minsky moment. The post itself is definitely worth reading, since we may be living through a Minsky moment as I write this. At the bottom of the post, though, was a figure breaking down income by quintile in some of the years prior to the Great Depression. It's not year by year, but it will do:
I decided to reorganize the data so that it matched the format in which I've presented the CBO data before. Here it is:

Unfortunately, there are only three years, but you can see that there is a general trend that income distributed to the highest quintile has steadily increased at the expense of the bottom 80% of the population. This is strikingly similar to what has happened since 1979.

This is pretax income, which what was used in the figure for the preGreat Depression data. As you can see, it's the same trend leading up to the Great Depression: an increase in share of income for the top 20% and a decrease for everyone else.

What's especially striking is when you break down the top 20% into various categories: Top 1%, Top 5%-1%, Top 10%-5%, and Top 20%-10%.

The amazing thing is that the share of income has only increased for the wealthiest of the wealthy. In fact, the Top 1%, representing only 1% of the population, was earning less than 10% of total income in 1979. In 2005, the Top 1% was earning more than 18%.

It's clear that we live in a society made up of the ultra-wealthy and everyone else, and that the ultra-wealthy has only become even wealthier in recent years. It particularly interesting that incomes during the period of time leading up to the Great Depression reflected a similar pattern of income. I'm not suggesting that the current credit crunch will lead to a Second Great Depression. But I hope that one of the results of the current crisis is realignment of this disparity so that the wealth of the nation benefits the commonwealth and not just the moneyed few.

I'd love to find a full data set that includes income broken down by quintile that goes back all the way before the great depression. If anyone knows where to find these data, please let me know in comments.

Newport Beach Bubble

A woman living in Newport Beach, CA got her $168,000 HELOC from Citibank shrunk down to a paltry $10,000. She feels like she's been robbed; after all, it's her money!:

“Remember that credit is money.” – Benjamin Franklin

I’ve always considered my primary residence to be one of my most solid investments. So it came as a surprise yesterday when we got the letter from Citibank about our $168,000 line of credit:

We have determined that home values in your area, including your home value, have significantly declined. As a result of this decline, your home’s value no longer supports the current credit limit for your home equity line of credit. Therefore, we are reducing the credit limit for your home equity line of credit, effective March 18, 2008, to $10,000. Our reduction of your credit limit is authorized by your line of credit agreement, federal law and regulatory guidelines.

Reduced to $10,000!? Hello!? Please don’t f-ck with my house in Newport Beach…

Of course, I’m calling them today to dispute it. Why? Because unlike the Phoenix property, I believe I can prove our home has retained its value and hasn’t declined. We have a Newport Beach address but live in what I’d describe as the low rent district of the city. It’s on the cusp of Eastside Costa Mesa and I believe the lender is using comps from Costa Mesa for comparison.

One reason why we bought in Newport is because we believed that property values would retain their value over time. After all, how many of you have heard of Costa Mesa? But most people have heard of Newport Beach. It’s considered desirable. People want the Newport Beach address. As real estate declines, it will decline more quickly in Costa Mesa. And it is.

But Newport hasn’t declined with any significance and if we compare current comps in our zip code, we can prove to the lender that our home has retained its value. Or so that’s my plan. I’m going to fight this one and I’ll write a follow up post about my success or failure with regards to the dispute.

This is my response:

First of all, despite what Benjamin Franklin has to say, credit is NOT money! Money is money! Credit can be converted to money, but it's not money until it is converted.

Second, we are in the middle of a credit crisis. There was an enormous, world-wide credit bubble. The bubble has burst. This means that credit will dry up and includes precious, unused HELOCs.

Third, the credit bubble led to inflated prices. This was especially true in real estate. I don't know enough about Newport Beach, but after looking some listings on Redfin, I found a couple that are selling for LESS than they were purchased just a few years ago:

311 32nd ST
Newport Beach, CA 92663
Last Sale: $1,270,000 (06/23/2005)
Asking Price: $879,000

209 38th
Newport Beach, CA 92663
Last Sale: $999,000 (11/03/2006)
Asking Price: $959,000

2227 Cliff DR
Newport Beach, CA 92663
Last Sale: $4,996,000 (11/30/2007)
Asking Price: $4,695,000

Many others are asking for basically the same price they were purchased for just a few years ago. That equals basically 0% appreciation.

According to Yahoo foreclosures, there are 113 listings for Newport Beach. More evidence of a housing bubble gone bad.

It's insane to suggest Newport Beach is immune from the housing bubble. Citbank probably did the right thing by shrinking your HELOC. Your house is no doubt worth less than it was.

Sorry to burst your bubble, so to speak...

Found this via Mish

Sleep-Deprived

recounts

Existing Home Sales BS

Inspired by two posts at The Big Picture, I decided to look a little more closely at the BS being flung around yesterday regarding the release of existing home sales data for Feb 2008. It was disgusting, to say the least. All the major media outlets were pushing hard on the fact that the seasonally adjusted annual rate (SAAR) was up a whopping 3% from January.

Now, there is some confusion about this increase. It's true that existing home sales increase every single February when compared to the month before. That's because fewer people buy homes in the dead of winter. Most people are up in arms because it sounds like the media is spinning that an increase in home sales occurs every year, and that this increase isn't any different from any other year. What people are missing, though, is that this an increase in the annual rate of sales. Basically, if sales stay at this pace, then 3% more homes will be sold this year than if home sales stayed at the rate at which they were selling in Jan 08. Here is a figure that illustrates the MOM changes in SAAR for existing home sales since Feb 2007:
You can see that, except for Feb 07, MOM change in existing home sales was basically very negative the whole year. This is because SAAR is essentially an estimate of how many homes will sell in a given year, and that estimate had to be downwardly revised as the market tanked. In addition, looking at MOM change in SAAR is essentially one way of assessing the instantaneous rate of change (if you consider a month to be instantaneous) of the estimate of how many homes will be sold in a year. Last year, the existing home market steadily declined. Thus, the MOM in SAAR was negative for basically the whole year. The fact that it's positive right now means that downward trend in the market has taken a breather. For now. You can see that here:

That little uptick is why the media was sooooooo excited yesterday. The market still sucks, and the SAAR is off -24% from where it was last year. But it sucks just a little less than it did yesterday. whoo F-ing hoo.

Barry asks about how they accounted for the leap year:

February 2009 was a leap year -- the month had an extra day, and without that I sincerely doubt we would have seen any gain (I wonder how they adjusted for that).

Me too. I'm going to look into it. Maybe they made a "mistake". One day of extra selling doesn't sound like a big deal, but one day is about 3% of a month. It would be some crazy shit if the whole media frenzy yesterday was all because there was one more day in Feb 2008 than Feb 2007.

Why the FDIC is hiring

About a month ago, it was widely reported in the media that the FDIC was going on a hiring spree. WSJ explains why:

Regulators are bracing for well over 100 bank failures in the next 12 to 24 months, with concentrations in Rust Belt states like Michigan and Ohio, and the states that are suffering severe housing-market problems like California, Florida, and Georgia

I was skimming through the FDIC website and came across some humbling figures. No wonder the FDIC is worried.

And the number of problem institutions is increasing:
Fasten your seatbelts people; 2008 is going to be an interesting year...

PZ Meyers Expelled from Expelled

HO-LEE CRAP! This one of the funniest things I have read in a long time. PZ Meyers, professor at the University of Minnesota, has one of the most read science blogs on the intertubes, Pharyngula. Meyers has a particular penchant for ridiculing creationism in all its forms, especially Intelligent Design. He has a very sharp tongue, which makes him such a pleasure to read.

Anyway, there is a new documentary coming out next month called Expelled. It's about how intelligent design has gotten a "bum rap" and evil secular humanists have unfairly forced it from public schools. And it stars Ben Stein. Yes, that Ben Stein.

PZ Meyers got duped into being "interviewed" for the movie under false pretenses. Earlier this evening, he went attend a screening of Expelled. While standing in line, well, I'll let him explain:

I was standing in line, hadn't even gotten to the point where I had to sign in and show ID, and a policeman pulled me out of line and told me I could not go in. I asked why, of course, and he said that a producer of the film had specifically instructed him that I was not to be allowed to attend. The officer also told me that if I tried to go in, I would be arrested. I assured him that I wasn't going to cause any trouble.

I went back to my family and talked with them for a while, and then the officer came back with a theater manager, and I was told that not only wasn't I allowed in, but I had to leave the premises immediately. Like right that instant.

I complied.

I'm still laughing though. You don't know how hilarious this is. Not only is it the extreme hypocrisy of being expelled from their Expelled movie, but there's another layer of amusement. Deep, belly laugh funny. Yeah, I'd be rolling around on the floor right now, if I weren't so dang dignified...

They singled me out and evicted me, but they didn't notice my guest. They let him go in escorted by my wife and daughter. I guess they didn't recognize him. My guest was …

Richard Dawkins.

He's in the theater right now, watching their movie.

Tell me, are you laughing as hard as I am?

Yeah, I'm laughing my ass off! Too F-ing funny!

How Wall St lost its Marbles

I've had a hard time trying to describe the current credit crisis to friends and family. They sense my panic, but they just don't get. Heck, I don't get it half the time!

But Steve Waldman at Interfluidity has written a primer for kindergarteners. Here's how it starts:

Alice, Bob, and Sue have ten marbles between them. Whenever one kid wants another kid to take over a chore, she promises a marble in exchange. Alice doesn't like setting the table, so she promises Bob a marble if he will do it for her. Bob hates mowing the lawn, but Sue will do it for a marble. Sue doesn't like broccoli, but if she says pretty please and promises a marble, Bob will eat it off her plate when Mom isn't looking.

One day, the kids get together to brag about all the marbles they soon will have. It turns out that, between them, they are promised 40 marbles! Now that is pretty exciting. They've each promised to give away some marbles too, but they don't think about that, they can keep their promises later, after they've had time to play with what's coming. For now, each is eager to hold all the marbles they've been promised in their own hands, and to show off their collections to friends.

But then Alice, who is smart and foolish all at the same time, points out a curious fact. There are only 10 marbles! Sue says, "That cannot be. I have earned 20 marbles, and I have only promised to give away three! There must be 17 just for me."

But there are still only 10 marbles...

This is where it gets interesting. As they say, read the whole thing.

Needless to say, writers as creative as Waldman are few and far between. I'll be checking Interfluidity daily from here on out.

S&P 500 and T-Bills

There's a lot of talk about crazy low interest rates on short-term T-bills. In fact, the 13 week T-bill hit a 50 year low. Basically what this means is that people have no confidence that they will make any return by parking their money anywhere except Federally-backed notes. Thus the low, low rates.

Interest Rate Roundup compares recent 13-week interest rates to the S&P 500. He says it seems like a leading indicator. Sort of seems true, especially if you look at the fact that the 13-weeked topped before the S&P 500 recently.

Does this mean the S&P 500 has farther to go? I have no doubt. How much farther, though, is anyone's guess. It sure looks like it could be a lot, though....

UPDATE: See Mish for more. He's had a lot of good things to say on this issue for the past few days...

Perlstein and the Bush Legacy

Polls show George W Bush has had dismal approval ratings for years and years. A lot of this has to do with Iraq, a war of choice started on false pretenses. But with the economy going south, no amount of good news they can rake from the sands of Iraq can save the Bush presidency.

So what will conservatives do to save their movement? After all, conservatism can never fail; it can only be failed. Will they rescue Bush's reputation? Or will they throw him under the bus to save conservatism? Amputate the limb to save the body, so to speak.

Rick Perlstein looks a Reagan's legacy. At one point, he was on the ropes, during Iran-Contra. but he finished his tenure at 63% approval, solidifying his position as the saint of the modern conservative movement.

What will they do about Bush. Perstein speculates:

What if... there had been no Reagan Rebound? What if progressives had thought ahead and launched a concerted campaign to keep Reagan's negatives down, where they deserved to be, of course, in the first place?

No President George H.W. Bush, certainly.

But even better. No headlines, in 1994, like "Reagan Name a Great Tool for Election"—and no chance of Newt Gingrich drafting off the public's vague perception that being called a "Reaganite" was a desirable thing, all the way to the conservative takeover of Congress. No headlines, like the ones in 2000, reading, "Bush: I'm Ronald Reagan's Heir."

Because the pathetic fumes of vestigial Reagan worship are the only card they truly have to play. We cannot give them the opportunity to play that card with Bush. We also can't let them get away with claiming Bush was somehow a betrayer of conservatism. If they do, conservatism can live to fight another day. "Don't like Bush? Doesn't matter. He wasn't a conservative. Conservatism is still the greatest thing since oven-fresh baguettes. We got rid of Bush, so now we can move on to a true conservative."

I have a problem with one of the premises in this post, though. Lemme explain.

Not that conservatives haven't mastered the art of cognitive dissonance, I have a hard time believing that the GOP will simultaneously try to rescue the legacy of George W Bush and throw him under the bus in order to save conservativism. Here's how I see it playing out.

We all know that the GOP is a coalition but one that is exceptionally hierarchical. They have an amazing capacity to maintain a unified message. My guess is that they will, initially, try to burnish the Bush legacy. But they probably will, and probably have already decided that it's futile save Bush. His reputation is already too far down the toilet, and it's only going to get worse as the economy slips further into recession, especially as job losses increase, as foreclosures skyrocket, as home prices crash, as gas prices soar, as the dollar weakens, etc, etc. He's toast, and they know it.

I think they've already started to cut him loose from the conservative movement. They know the tides are running against the GOP this year, and that McCain will probably lose by a lot. If McCain goes down in flames, expect them to hitch Bush to him as an anchor. "They" will have betrayed conservatism, and that's why "they" lost.

I'm going to keep my eyes peeled for examples of the GOP playing the "Bush betrayed us" card. My guess is that it's their only hope. There's no way Bush is going to end up with approval ratings higher that 50%, and I'd be shocked if they end up anywhere close to 40%. There's just no way they're turning the economy around in time, and that is the one issue that truly affects everybody. Look for updates on my blog.

Still, any effort to hitch Bush to the conservative movement is absolutely worthwhile. He's their albatross, and they will do their best to hide him from the public. It's our job to make sure the facts of the last eight years aren't erased from the national record. And the fact is that Bush is perfect exemplar of modern American conservatism.

Mideast and the Dollar

A great post from last week from Interest Rate Roundup on the dollar's recent woes and the reaction by Mideats financial institutions:

a key source of weakness appears to be rumblings in the Middle East about dollar pegs. Many regional currencies, including the UAE dirham and the Qatari riyal, are pegged to the U.S. dollar at fixed exchange rates. The problem is, having a dollar peg in your country essentially links your monetary policy to the U.S.'s monetary policy. If the U.S. Fed cuts rates to stimulate the U.S. economy, your economy will be stimulated as well -- even if the LAST thing you need is an extra boost. And believe me, most economies in the Middle East don't need it -- after all, they're raking in billions and billions of dollars from oil sales.

The result of the Fed-provided stimulation ... on top of strong regional economic growth ... is a gigantic inflation problem in many Gulf countries. UAE inflation surged to a record high 9.8% last year, according to estimates, up from 9.3% a year earlier. The government is planning to cap certain food prices and considering building up a "strategic food reserve" in response. In Qatar, inflation is exploding higher at a 13.7% rate, prompting countermeasures such as rent caps.

Two days ago, Bloomberg did a story that UAE was keeping its dollar peg, but it came with considerable pressure. From the article:

U.S. Embassy officials last week told central bank Governor Sultan Bin Nasser al-Suwaidi of their concern about reports that the sheikhdom may drop the peg, the official said yesterday, speaking on condition of anonymity. Political leaders have stopped the bank from developing any plans to move toward another currency regime, the official said. U.S. Embassy spokesman Atalah Hoshan in Abu Dhabi wasn't immediately available for comment.

Abandoning the link would risk further weakening the dollar as the U.S. economy falters and the Federal Reserve battles a crisis of confidence in financial markets. The oil-rich Gulf states, including Saudi Arabia and the U.A.E., depend on the U.S. for political and military backing and are unlikely to abandon their closest ally at a time of financial turmoil, said Anoushka Marashlian, senior Middle East analyst at Global Insight in London.

``The U.S. has always been the guarantor of U.A.E. military security,'' Marashlian said. ``The U.A.E. wouldn't do anything to compromise that relationship.''

If a few more banks go under, things could change quickly. Stay tuned...

Bank Run Metaphor

Paul Krugman put together a great post explaining what happens during a bank run. He describes it as what's happens when someone yells "Fire!" in a crowded theater:

Bank runs come in two kinds.

In some cases, the bank run is a pure self-fulfilling prophecy: the bank is “fundamentally sound,” but a panic by depositors forces a too-hasty liquidation of its assets, and it goes bust. It’s as if someone calls “fire!” in a crowded theater, provoking a stampede that kills many people, even though there wasn’t actually a fire.

In other cases, the bank is fundamentally unsound — but the bank run magnifies its losses. It’s as if someone calls “Fire!” in a crowded theater, and there really is a fire — but the stampede kills people who would have survived an orderly evacuation.

We’re in the second case. The Fed has spent the last 7 months trying to assure people that there isn’t any fire. But there is.

Worse yet, thanks to decades of deregulation, the theater doesn’t have a sprinkler system - and the town the theater is in doesn’t have a fire department.

And now we have to put together an emergency response.

OK, so I thought of a third scenario. What if there really is a fire, but that manager of the theater (Bernanke, Paulson, et al.) convinces basically everyone that there is no fire. How many people die in that scenario? Better to die fighting like hell to get out of the theater than sit compliantly while the flames lick around your ankles...

McCain Campaign Tries to Clean Up Mess

McCain's campaign has released a statement trying to spin hard out McCain's insane claim that Iran is supporting Al Qaeda militants in Iraq. Think Progress has an excerpt:

In a press conference today, John McCain misspoke and immediately corrected himself by stating that Iran is in fact supporting radical Islamic extremists in Iraq, not Al Qaeda — as the transcript shows. Democrats have launched political attacks today because they know the American people have deep concerns about their candidates’ judgment and readiness to lead as commander in chief.

The problem is that McCain did not just misspeak. He repeated this claim TWICE in the same press conference. And then he said the same crazy thing on Hugh Hewitt's show (you can listen to it here).

This is no slip up. McCain really believed that Iran has been assisting Al Qaeda. What would make him claim something so obviously insane multiple times? How could we possibly trust McCain with CIC powers over the largest military in the history of mankind when he doesn't even know the basic details of our adversaries in the Mideast?

McCain: Not Just a Slip-up

So it looks like McCain didn't just misspeak. He apparently has said the Shia Iran is training Al Qaeda extremists, Sunni radicals who hate Shia Islam, multiple times. This wasn't just the wires getting temporarily crossed in his 71 year-old mind. One might forgive the ramblings of a confused, old man, though it's hard to imagine giving a confused, old man absolute power of the greatest military on Earth.

No, McCain instead seems to have repeated this nonsense multiple times. MSNBC notes:

Mr. McCain said several times in his visit to Jordan — in a news conference and in a radio interview — that he was concerned that Iran was training Al Qaeda in Iraq...

Mr. McCain said at a news conference in Amman that he continued to be concerned about Iranians “taking Al Qaeda into Iran, training them and sending them back.” Asked about that statement, Mr. McCain said: “Well, it’s common knowledge and has been reported in the media that Al Qaeda is going back into Iran and receiving training and are coming back into Iraq from Iran. That’s well known. And it’s unfortunate.”

It was not until he got a quiet word of correction in his ear from Senator Joseph I. Lieberman of Connecticut, who was traveling with Mr. McCain as part of a Congressional delegation on a nearly weeklong trip, that Mr. McCain corrected himself.

“I’m sorry,” Mr. McCain said, “the Iranians are training extremists, not Al Qaeda.”

and

The Democrats noted that Mr. McCain, Republican of Arizona, had made similar comments about Iran training Al Qaeda in an interview with “The Hugh Hewitt Show,” a radio program he called from Amman. “As you know, there are Al Qaeda operatives that are taken back into Iran, given training as leaders, and they’re moving back into Iraq,” Mr. McCain said, according to a transcript posted on the show’s Web site.

You can listen to McCain on Hewitt's show here, and watch a clip of McCain saying Iran is assisting Al Qaeda here.

So what's McCain's deal here? We know he's wrong on this, and he quickly flip-flopped after Lieberman corrected him. So I think that means that we can rule out that he was deliberately lying. But he repeated it multiple times, so it obviously wasn't just some slip of the tongue. So what's going on here? Speculate in comments.

McCain: USSR not in Poland

Ford's loss to Carter in 1976 was largely thought to be based on one major gaffe in debate #2. He claimed that the USSR did not dominate Eastern Europe. Reality said other wise. This from CNN's website:

Ford also made what most observers considered to be an important blunder. In response to a question asked by Max Frankel of the New York Times concerning the Soviet influence in Eastern Europe, Ford said, "There is no Soviet domination of Eastern Europe, and there never will be under a Ford administration." Frankel responded, "I'm sorry ... did I understand you to say, sir, that the Soviets are not using Eastern Europe as their own sphere of influence in occupying most of the countries there?" Ford responded, "I don't believe ... that the Yugoslavians consider themselves dominated by the Soviet Union. I don't believe that the Romanians consider themselves dominated by the Soviet Union. I don't believe that the Poles consider themselves dominated by the Soviet Union. Each of these countries is independent, autonomous, it has its own territorial integrity, and the United States does not concede that those countries are under the domination of the Soviet Union."

In response Carter said he'd like to see Ford "convince the Polish-Americans and the Czech-Americans and the Hungarian-Americans in this country that those countries don't live under the domination and supervision of the Soviet Union behind the Iron Curtain."

News reports about the debate were dominated by Ford's statement and its potential effect on the race. Most observers felt the debate proved to be a turning point and the key to Carter's narrow electoral victory.

Fast-forward to today. McCain is touring the Mideast, bucking up his foreign policy cred. But in a press conference yesterday, McCain made a HUGE gaffe:

Sen. John McCain, traveling in the Middle East to promote his foreign policy expertise, misidentified in remarks Tuesday which broad category of Iraqi extremists are allegedly receiving support from Iran.

He said several times that Iran, a predominately Shiite country, was supplying the mostly Sunni militant group, al-Qaeda. In fact, officials have said they believe Iran is helping Shiite extremists in Iraq.

Speaking to reporters in Amman, the Jordanian capital, McCain said he and two Senate colleagues traveling with him continue to be concerned about Iranian operatives "taking al-Qaeda into Iran, training them and sending them back."

Pressed to elaborate, McCain said it was "common knowledge and has been reported in the media that al-Qaeda is going back into Iran and receiving training and are coming back into Iraq from Iran, that's well known. And it's unfortunate." A few moments later, Sen. Joseph Lieberman, standing just behind McCain, stepped forward and whispered in the presidential candidate's ear. McCain then said: "I'm sorry, the Iranians are training extremists, not al-Qaeda."

The mistake threatened to undermine McCain's argument that his decades of foreign policy experience make him the natural choice to lead a country at war with terrorists. In recent days, McCain has repeatedly said his intimate knowledge of foreign policy make him the best equipped to answer a phone ringing in the White House late at night.

This is a blunder of huge proportions. How could we possibly trust McCain with CIC powers if he doesn't even know the basic details about our adversaries in the MidEast? How could we possibly let a man this clueless into a tour of the White house, let alone run the place? He doesn't even have the faintest idea of what he's talking about!

To be perfectly honest, I'm shocked. I know McCain is pretty clueless about most things, and really only cares about two things: 1) superficial politics related to his own stature and 2) War. I would expect him to say stupid stuff about all sorts of things, like the economy for instance. But he should get this war stuff down, right? To suggest Iran is training Al Qaeda is insane, to say the least.

Expect the media to take a pass on this, of course. They love McCain; they're his base. Just think if Obama or Clinton had said something like this. The media would be calling for them to quit the campaign immediately.