The financial system is better buffered than in 1929, so these collapses don't cascade so thoroughly, but it sure seems like the same thing as then, and as in 1987: debt masquerading as value, by the technique of stacked derivative investments.

When there are no police, there will be robberies. The police are still de facto absent, with SEC relaxing rules such as mark-to-market, and not instituting another rule. They could have re-defined the asset valuation as allowing a year-long average, thus skipping over sudden value loss like now. But they settled for a plea to comply with rules:

"Regulators reminded companies today that in exchange for using more estimates and judgment, the need to disclose their methods to investors is all the more important. SEC officials sent letters reminding businesses of their obligations twice already this year, in March and September, after expressing concern that many financial institutions were using opaque measurements." Please be honest, thanks.

The logical flaw in recent conservative policy is that if lower taxes are better, none are best, ditto regulation. There apparently are, in fact, optimal taxation and regulatory levels, and we are not employing them now, with expected results.

All your suggestions are fine but none of them axctually answer Mian Street's concerns. If the Wall Street banks get $700 billion to help with their bad debts then the rest of us are entitled to help with our debts. It's that simple.

First, suspend mark-to-market.

Then, check to see which banks are insolvent.

I mean Negative Capability, that is when man is capable of being in uncertainties, Mysteries, doubts without any irritable reaching after fact & reason.

Keats! thou shouldst be living at this hour / TPM Cafe hath need of thee.

A bit off topic, but I couldn't leave it alone.

Rescue Plan in Limbo; Credit Crisis Paralyzes Economy

Barbara Pinto, of ABC World News with Charles Gibson, in support of that breathless headline reports that Aquafit Spas had to close one of its three retail locations last week and maybe, another shortly and all because --

Poor Mr. Elmstrom's loan application was turned down by his bank "for the first time in 12 years."

It must be the "credit crisis" which explains the occurrence of this terrible, unjustified and unanticipated state of affairs.

Or could it be that few new houses are being built in Southern California and few homeowners -- who've already bought enough spas to last a lifetime along with granite countertops -- are feeling expansive. No spa business; no loan for Aquafit Spas.

Crisis? For sure but not in the banking sector. The crisis is in the gotta-have-that-spa business.

About those credit default swaps, is it true that anyone could buy a swap on any mortgage-backed security whether or not they actually owned said security? Is it true that AIG was one of the biggest writers of these swaps?

If true, how many separate claims on the same default is AIG liable for? What idiot at AIG thought this was a good business model? Maybe he would be willing to sell every Republican a life insurance policy on John McCain.

URGENT ACTION NEEDED
Sen Maj Leader Harry Reed is planning on bringing back the inadequate give away that was defeated in the house. It’s going to be voted on Wednesday or Thurs. He needs to be told by email, fax, phone that it is not good enough. his contact info is:
528 Hart Senate Office Bldg
Washington, DC 20510
Phone: 202-224-3542
Fax: 202-224-7327
Toll Free for Nevadans:
1-866-SEN-REID (736-7343)

The core concept proposed by Bush is flawed. Call some hearings and ask some economists. Google Sweden 1992 banking crisis. They had good success promptly steering their financial institutions back to safety. Learn the lessons, write it for the Democratic base, and own it. The “compromise” tweeking that was done to the Bush proposal resulted in a toothless and weak 100 page bill that tried to bury and hide its weakness from the voters. Rather than condescendingly claiming that the American people didn’t understand (Cf, McSame of Obama at first debate), or that the leadership didn’t explain it well enough, the reality is that public outrage finally made the Republicans blink, to borrow from Palin. If they vote in favor of bailing out the bad actors, they lose votes from constituents in five weeks at the next election. That is their only moral hazard. The bill that failed would not have prevented one of the 10K daily foreclosures, could have been filibustered until Bush spent all $700B, would only have made some parachutes non-tax-deductible, merely required a report “suggesting” how the taxpayer will be paid back, and allowed the same bunch of lobbyists to set prices for their trash that the taxpayers would pay. As a final insult, instead of providing more confidence through transparency, the failed bill would allow Paulson to suspend the mark-to-market rule, like Enron did. This is intellectual dishonesty that will further erode confidence in our banking system. Do a better job on all these issues and allow bankruptcy judges to implement the rewriting of loans, or face the wrath of the voters. I think many voters would accept a temporary governmental equity position in the banking sector as long as the bad guys aren’t seen as maintaining their ability to subvert the programs and continue to rip off the system. Don’t pull another FISA cave.

"The Fed should suspend for six months the mark to market accounting rule on mortgage securities."

This one gets me every time.

If we all agree that lack of confidence is at the root of the credit crisis, then how would this step - suspension of MTM - help?

Imagine we have a dangerous town, afflicted particularly by gun-crime. The Mayor of said town decrees that in order for people to feel safe again, he will require anyone carrying a fire-arm to conceal it. Problem solved, yeah?

It's not just that the suspension of MTM will achieve pricely nothing in terms of restoring confidence, it is that existing MTM rules are in fact quite good enough to deal with the existing conditions (has everyone forgotten about the famous Tier 1, 2, and 3 buckets into which firms can place their assets?). Mortgage-backed securities are trading so thinly that observable, reliable market data is impossible to come by. So the much maligned marking-to-model process is instead what pretty much every holder of MBS is doing these days. It is a process that is undoubtedly open to abuse, but so far no-one has come up with a better idea for putting a fair value on these presently illiquid assets.

Suspending MTM in this case would be like turning down the thermostat when your house is on fire. Just completely beside the point in terms of dealing with the present problems.

The issue, simply, is not that some banks are insolvent - it is that the whole system is undercapitalized. And even if there is "ample capital" in the world, until it gets invested as share capital in the financial industry, the current crisis will persist. The Paulson plan, for all its problems, is I think pretty clearly aimed at ensuring the recapitalization takes place. Not saying it will achieve this aim, but you can't say the strategy is wholly illogical.

Keats is an intellectual lightweight, a great poet, probably the best of the 18th C. brits, but not the brightest bulb nor the most ideological in the string.

Wordsworth was the political radical, ditto Coleridge.

You ought to get your Romantics straight, Ellen.

And if it's some slice them up stanzas you'd like, rather than some piss a bed keatsian stuff, you'd best look for Byron to rise from the grave.

But Jonathan Taplin is so Romantic*, don't you think?

* Me? I tend to favor the Augustans.