McCain Flails, WaMu Fails
John McCain bailed on saving the financial system and within hours, Washington Mutual gave up the ghost.
Washington Mutual, the giant lender that came to symbolize the excesses of the mortgage boom, was seized by federal regulators on Thursday night, in what is by far the largest bank failure in American history.
My guess is the stock market will tank tomorrow morning. The debt market has been in the tank all week, but because the only number the average American looks at is the Dow, they have not a clue what's going on. Paulson is a bond trader. He knows the market is going haywire.
McCain plays politics with the world's confidence in America's ability to get its financial house in order. Their love for the ideal of America is strong, but we are sorely testing the world's patience.
McCain can't chicken out on the debate on Friday. It would be the end of his sorry campaign. But when he shows up, he better know he has to defend his 26 years of deregulation fervor.
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JT, based on the link you provided, you think this Wallstreet Welfare will work out because the liabilities that the government will take on (the mortgages) will pay double digit interest. But this is a ludicrous notion.
The government is the people.
If the government buys people's debt... that debt should be forgiven, not charged usurious interest rates.
The only way a lender can enforce an interest rate is to have the threat of foreclosure.
Is it really proper for the US government to foreclose on a taxpayer over a mortgage debt that it assumed from a likely fraudulent lender in the first place?
September 26, 2008 12:42 AM | Reply | Permalink
The "people's debt"as you call it is NOT everyone's debt(I didn't buy a home), but the government does belong to all citizens. Therefor the people's government should get a return on the people's investment in private assets. Sorry, you are just flat wrong.
September 26, 2008 12:56 AM | Reply | Permalink
The return should come from massive equity positions in the banks, not on foreclosing on our fellow citizens.
September 26, 2008 9:11 AM | Reply | Permalink
. . . the stock market will tank tomorrow morning . . . the only number the average American looks at is the Dow . . . .
It really doesn't matter what the "average American looks at" inasmuch as the "average American" has no effect on the stock market whatsoever.
September 26, 2008 12:45 AM | Reply | Permalink
What about the average retired American, though, Ellen? You know, the ones who have time to read the paper or listen to the news? And the ones who might have a lot of up close and personal interest in safety of savings no matter which financial vehicle those saving might be in? The ones who also happen to be shaping up to being a significant part of the swing vote in this election and who are known to show up at the polls?
September 26, 2008 2:24 AM | Reply | Permalink
Very few "average Americans" own shares in their own names, and the number has been getting smaller and smaller as they've sold their stock and turned to mutual funds for management (and corporation buy-backs have taken stock out of individuals' hands).
On a day-to-day basis it is my understanding that the stock market is moved by institutional investors which would include mutual funds, pension trusts, and to a much greater degree the trading desks of banks and hedge funds, their paralleling computers sniffing out moment-by-moment the freshest news, the most recent sentiment on the blogs, and the arbitrage possibilities between the stock, options, and futures market -- all to have the latest, most up-to-date algorithms place buy and sell orders in microseconds with nary a human involved.
September 26, 2008 2:51 AM | Reply | Permalink
oh, we are talking about different things. I misunderstood your original comment; my bad.
September 26, 2008 3:19 AM | Reply | Permalink
"We're fucking swamped." - reply from a friend who is such a rep, when asked how busy they've been lately.
September 26, 2008 2:13 PM | Reply | Permalink
Yeah, right.
As if all of the other horrendous actions that should have been campaign killing haven't happened already?
I mean, come on. His sham of a campaign (horrible gaffes like mistaken borders and misidentifying enemies) was like a game of Jenga. His pick of Sarah Palin should have been the nail in the coffin of his campaign. But alas, it was just the latest outrage he will get away with.
Who wants to bet that (if McCain doesn't show) no one will hold his feet to the fire? They'll make up some excuse for him.
September 26, 2008 2:06 AM | Reply | Permalink
Let's get real.
news report from 1999:
An agreement between the Clinton administration and congressional Republicans, reached during all-night negotiations which concluded in the early hours of October 22 [1999], sets the stage for passage of the most sweeping banking deregulation bill in American history, lifting virtually all restraints on the operation of the giant monopolies which dominate the financial system.
The proposed Financial Services Modernization Act of 1999 would do away with restrictions on the integration of banking, insurance and stock trading imposed by the Glass-Steagall Act of 1933, one of the central pillars of Roosevelt's New Deal. Under the old law, banks, brokerages and insurance companies were effectively barred from entering each others' industries, and investment banking and commercial banking were separated. . .
The banking, insurance and brokerage industry lobbyists have combined their forces over the last five years to mount the best-financed campaign of influence-buying ever seen in Washington. In 1997 and 1998 alone, the three industries spent over $300 million on the effort: $58 million in campaign contributions to Democratic and Republican candidates, $87 million in "soft money" contributions to the Democratic and Republican parties, and $163 million on lobbying of elected officials.
The chairman of the Senate Banking Committee, Texas Republican Phil Gramm, himself collected more than $1.5 million in cash from the three industries during the last five years: $496,610 from the insurance industry, $760,404 from the securities industry and $407,956 from banks.
http://www.wsws.org/articles/1999/nov1999/bank-n01.shtml
September 26, 2008 2:29 AM | Reply | Permalink
Welcome to the United States of Amnesia.
September 26, 2008 6:28 AM | Reply | Permalink
You do recall what Republicans in that era called bi-partisanship?
Date-rape.
Whilst the Whitewater pantysniffing was in full cry, and the Republicans holding a safe majority in both houses of Congress, who do you think was calling the shots?
September 26, 2008 2:16 PM | Reply | Permalink
McCain's "teflon" is wearing thin. Hopefully the electorate will open their eyes soon. Polls indicate racism may determine our next president. Pitiful commentary on the state of our Union.
Don't worry though. Palin and the rest of those morons are praying for us. That should help!?!?!
September 26, 2008 6:29 AM | Reply | Permalink
McCain should literally be run out of Washington on a rail for his sorry role in these shenanigans. He is now almost single-handedly responsible for trashing a bipartisan deal and pitching the markets back into crisis - all for the sake of a half-baked campaign stunt. The additional lost savings, lost assets and lost jobs are now on his head. It makes one want to bring back tarring and feathering.
September 26, 2008 7:35 AM | Reply | Permalink
Re: Ellen's post, I would suggest that the "average American" does impact the market through sales and redemptions of mutual funds which, in turn, cause the fund manager to sell assets to meet those redemptions. This often causes a downward movement in price which reinforces the desire to sell which causes more selling, thus more redemptions. Mutual funds do not act in a vacuum. In bull markets, money inflows of course give fund managers the ammo they need to drive stocks higher.
I believe that we are in a net redemption phase now and for some months to come at a minimum, especially with the defeat of the Paulson plan, should that really take place.
September 26, 2008 7:44 AM | Reply | Permalink
Over the longer term I agree.
But I was responding to Taplin's snide off-the-cuff remark dissing the "average American," and more importantly, I was disputing his bone-headed idea -- which he presumably got from reading his local rag, the Los Angeles Times -- that retail investors effect stock market prices over the short term ("the stock market will tank tomorrow").
On any single day or even week, these huge retail stock mutual funds have adequate cash on hand to meet redemptions; they don't have to sell stocks. The managers may panic but they do so on their own.
September 26, 2008 10:38 AM | Reply | Permalink
Are you sure about that?
I was under the impression that they usually worked off of short-term loans from commercial banks who did the same in the larger market(LIBOR ring any bells?).
It's just that credit that has dried up, precipitating Fed action.
They sure don't have it in T-Bills or FDIC insured accounts.
September 26, 2008 2:23 PM | Reply | Permalink
Are you sure about that?
Yes.
September 26, 2008 2:49 PM | Reply | Permalink
I'm surprised by that. It makes sense, so they don't have to unwind a position. Maybe that's why I'm surprised.
September 26, 2008 3:07 PM | Reply | Permalink
We're talking about retail stock mutual funds which are subject to very strict regulation by the SEC.
As an aside it seems to me I remember seeing that many if not most of these sorts of stock mutual funds are backstopped internally -- that is, the mutual fund family's money market funds are authorized to make short term loans to the stock funds (collateralized by the stock fund's portfolio) if redemptions should ever exceed cash on hand. Others have lines of credit with banks to take care of these circumstances.
I've never heard (doesn't mean it hasn't happened) of a stock fund that ever had to draw on these backups.
September 26, 2008 4:16 PM | Reply | Permalink
The government DOES belong to the people. But the Weasles have taken over Toad Hall, so to speak--and the people were naive enough to get bamboozled by the Weasles in the first place. They thought they'd like to have a beer with the Weasles. Then they signed over the deed to Toad Hall.
The people have delegated all of THEIR responsibility to a League of Professional Politicians who are owned by a Plutocracy of Financiers. Big Mistake.
If the people would TAKE THE RESPONSIBILITY OF INFORMING THEMSELVES--maybe it would not be so easy to bamboozle them--maybe they would not have to fork over their sheckels with their callused, grimy hands every time the Plutocracy/Kleptocracy hiccoughs.
THE PEOPLE ARE REPONSIBLE FOR THIS MESS.
They voted these weasles into power. Look at those bastards up on capital hill--every one of them is there because THE PEOPLE put them there.
THE PEOPLE MUST SUFFER THE CONSEQUENCES.
You cannot keep sitting on the roof of your house all your life holding up a sign that says "HELP ME". Sometimes you just gotta take take of yourself.
September 26, 2008 8:36 AM | Reply | Permalink
I do agree with the sentiments of your post c4...we do have an American plutocracy in place. And in theory we do own it. But in reality we have abandoned it. I doubt we'll ever want to put in the effort to make it work again...collectively we can't be, as our friends this Brits say, 'arsed' to do all that work. Besides American Idol is coming on at 8:00...that is waaaaaaaay more important.
In the words of the late, and immortal, Frank Zappa from his song "The Meek Shall Inherit Nothing"...
September 26, 2008 1:33 PM | Reply | Permalink
Agreed. It is truly problematic. Cause democracy always becomes plutocracy, when the rank and file can't be bothered to do their homework about various policy situations, volunteer to work for the parties, volunteer to work on the local election commission. This is work--but it is also an opportunity to meet like minded people and make new friends. If we had REAL leadership we would be creating MORE grass roots organizations-coffe klatches and such, to help sustain the organizing effort.
My wife is a HS teacher and is the sponsor of the HS Young Democrats club--they are SO enthusiastic and SO much want to DO something. How long before that enthusiasm gets eclipsed by American Idol? The Plutocracy does not want you to get involved. The Plutocracy offers you American Idol in exchange for your civic commitment to a participatory democracy.
September 26, 2008 2:04 PM | Reply | Permalink
McCain is holding our financial stability hostage. House Republicans have been asked to stage a fake revolt. After 8 long years of slavish obedience that is absurd - now they will revolt just long enough for John
McCain to have a pretence of being active in Washington - and skip his debate, and put Palin's denoument permanently on hold. Meanwhile the largest bank failure ever occurred last night.
The next step in this melodrama can occur anytime after this evening- with the adoring eyes of Fox News on him, McCain will stand up and whip the nasty Republicans into line - and they will roll over like trained poodles.
If you buy into this political theater, please do us all the favor of not voting on November fourth - go to the movies instead.
September 26, 2008 9:10 AM | Reply | Permalink
c4logic,
I think you're on to something that doesn't come up much in regard to this economic crisis: the role of the "average american" in all of this.
As deregulation unfolded and the flood of chimeric financial instruments descended upon our working and middle classes, no one was manning the pumps.
There is a parallel to NAFTA. I remember when that got passed, Clinton made dreamy promises about education and retraining for laid-off workers. Never much happened. Globalization has been a bust for a lot of people because it didn't.
With financial deregulation, the results were, of course, revolutionary changes in the way American citizens are lent money. Suddenly any sucker off the street was being issued plastic, any family could leverage itself til the cows came home and no banker would raise an eyebrow.
But how many people, do you think, actually knew our banking system was radically altered and stacked against them to a degree unheard of in our lifetimes. How much financial education was available to consumers to ease us all into this brave new world of collaterized debt obligations and all the rest?
When my partner and I were shopping for a house in '01, we went through a string of shady realtors and brokers before stumbling upon a local housing activist group who offered $2500 downpayment assistance in the form of a grant to be paid back when we sold our house. All we had to do was take a buyer education class.
I admit, I was in it for the money, but the class was great. It clued us in to schemes and lousy mortgage products, gave us names of banks to avoid, steered us away from mortgage brokers and taught us to whip our realtor like a rented mule.
I'm an educated small businessperson, but like many people I needed some good advice from a saavy third party. I got it, but most didn't. As time went on and the market heated up, funding for that and other programs dried up. In it's heyday I can't imagine the class, held in our neighborhood center, could have been reaching more than 10% of eligible homebuyers in our city.
It should have been reaching all of them.
September 26, 2008 10:14 AM | Reply | Permalink
I hear what you are saying. A lot of people need leadership--especially when they have never been down the river before. They don't know where to turn. They have been conditioned to trust 'people who claim authority'--they think they will get leadership here. Sometimes they do. But they do not take responsibility to evaluate every guidance that is given to them. They are conditioned to follow, to obey. This sets up a terrible situation where they are easily preyed on by anyone masquerading as an authority--from teachers to bankers to politicians.
Down through history--there have been two types of GREAT MINDS--those who attempt to control the common people using fear and the tools of authoritarianism--mythification, mystification, reification--and those who attempt to liberate the common people with simple truths that give them the pragmatic knowledge to lift themselves up and determine their own destiny.
But you are free to liberate yourself at any moment. All you have to do is begin asking questions--and not trusting the answers you get until to verify, validate, and test, test, test.
You start out in life trusting everyone who is bigger than you-- if you are lucky you will learn quickly that not all of them have your best interests in mind--(some of them want to use you, some of them want to abuse you)it ain't easy to go through life challenging everyone who claims authority--but it is the only way to avoid being stuck on your roof, surrounded by water, holding up a 'Help Me' sign. You better learn how to learn, and you better learn how to fend for yourself. Quite waiting for the messiah to show up. BECOME the messiah.
September 26, 2008 10:42 AM | Reply | Permalink
I am far from expert in this area, but over the last century there have been 3 (am I missing one?) major financial failures, the Depression in '29, the Savings and Loan scandal in the '80s, and now this. I am not sure of the causes, but the striking thing about all of them is that Republicans were in office each time. Only Ike's 8 years seem to be free from this type of collapse (perhaps because of residual effects from the war? or just a very big economy in relations to the rest of the world? I don't know).
What I do know is while Democrats are hardly blameless in these events, they do seem to aim to correct them in ways -- good and bad -- that rebuild the American economy. And whenever Republicans find they have enough administrative time in office to mess with financial structures/protections, they manage in one way or the other to grab/swindle/steal/loot/fleece -- pick your verb -- the system. It is never the same method, but the taxpayer winds up propping up the system to keep everyone, including, alas, the culprits themselves, afloat.
How do we avoid this? How do we protect the homeowner who bought into the system? We bought houses in 80, 86 and 2004. The first two required 20% down and would only go 2 and 1/2 times our income, the last we could have gone with less down and much more than 2 and 1/2 times. We stuck with the old model because we didn't like anything higher, but other homeowners, new to the system maybe or happy with their new higher house price bracket, obviously bought in. Are they really the ones to blame? How do you protect them from a flawed model for determining their loan size?
Anybody got an answer? Anybody else believe it?
September 26, 2008 10:59 AM | Reply | Permalink
You need to know your rights, and you need to know your limits.
If you don't know your rights, you can't stand up for them. And if you don't know your own limits, you can go too far.
Either way--some predator is going to peg you as a sucker--and you're going to end up as a victim.
People have tried to organize and educate the masses since the dawn of the Industrial revolution--but when you've got all the money you can hire the best lawyers, public relations people, newspapers, set up machinery in city hall, and rig the whole process. No matter how much the people try to organize--they have always found a way to break it up. They leverage your zenophobia--they leverage your homophobia--they make you quiver and quake and long for security--and they they promise to deliver it--if you will become their willing thrall.
My favorite book is The Penultimate Truth, by Phillip K Dick. All of the masses live and work in underground factories, because of a radioactive WWIII--all their information comes through on the TV. In one of these underground tanks--there is an emergency so serious that the workers send a guy up a ventilation shaft for help. He is terrified, but when he gets to the surface he finds a beautiful sunlit park--not a plain ravaged by nuclear war--and a refined Leisure Class living in abject luxury. Many of these genteel Rulers spend a little time every day ginning up fearful little fictions that they broadcast to the workers living down below, in the underground factories. The fictions come from the mouth of an Automaton nailed to the chair behind the great desk in the Oval Office.
Will the workers ever awake to the true reality? And if they do, what then?
September 26, 2008 11:24 AM | Reply | Permalink