I try to be optimistic -- especially this time of year when the days are short and cold, when almost everybody things everyone else is having a better time than they are, and now that we're in the worst economic downturn in almost anyone's memory. Yet I also try to be realistic about the effects of this Mini-Depression. At least three distinct groups are especially vulnerable, each quite differently:

1. The poor and near poor, with family incomes typically under $20,000 a year. Their connections to the labor force are tenuous at best, often involving part-time and temporary jobs. They're also the first to be let go during downturns. Not surprising, this recession is taking a toll, and about to take a larger one. Few in this group qualify for unemployment insurance, and an increasing number have exhausted the five-year maximum for temporary welfare assistance. To the extent they're getting by, they're moving in with relatives. The media have missed this story almost entirely.

2. Middle and lower-middle class households whose breadwinners are within five years of being eligible for Social Security. Many are in danger of losing jobs and a large number are already working fewer hours. They're cutting back on all discretionary purchases. But their biggest problem is that both their savings and the value of their homes have shrunk dramatically, and probably won't bounce back before they planned to retire. Social Security will cover about 40 percent of their pre-retirement earnings. So many are now planning to work well beyond age 65. This will be a particular challenge for blue-collar workers whose earnings have depended largely on physical labor. Their bodies may not last.

3. Middle and lower-middle class retirees. Most are dependent on income from savings, which has declined sharply. They're cutting expenses where they can, but they're running out of resources. To the extent they can turn to their children for help, they are doing so. That means a large and growing cohort of middle-income people between the ages of 35 and 65 have begun subsidizing their parents, even though they and their immediate families are under financial stress. Here's another untold story.

Other Americans are in distress but these three groups are particularly worrisome, and in the years ahead it seems likely they'll be in worse shape than they are today. If this is to be avoided, these three groups will need distinct public policies crafted to their particular needs. More on this to come.

In the meantime, happy holidays.

Tough assignment. My first draft was a blank screen. But in a sick, twisted way, there are some things I will miss about George W. Bush.

1) The word "nucular": Can't beat a guy with his finger on the nuclear button who can't pronounce the word "nuclear."

2) Donald Rumsfeld: Was he a jerk? Yes. Was he a genius at asking and answering his own questions? Sure. Was this habit occasionally amusing? Almost. Am I glad he's gone? You betcha.

3) Dick Cheney?

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The Bernie Madoff swindle teaches many lessons, most of which do not bear mentioning in this post which is devoted to United States dealings with the Middle East.

But one lesson does apply. Viewing the world through an ethnic lens produces serious visual distortions. It appears that many, if not most, of Madoff's investors trusted him because he was one of their community. He could be believed. He was one of them.

Madoff, understanding the power of the ethnic tie, used it to steal his kinsmen's money. Few non-Jews were caught in his web.

The lesson is simple. Don't invest ethnically. The religious or ethnic affiliation of your broker is about as relevant as that of your mechanic or obstetrician.

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I hate to play scrooge on Christmas, but $160k for part-time work seems a bit steep. The WAPO reported this would be the pay for Fannie Mae's new 10-person board of directors today.

The remarkable part of this story is that the Washington Post did not cite anyone in this piece who raised a question about the compensation levels for the board. Keep in mind that this is a newspaper that is absolutely apoplectic over autoworkers getting $27 an hour. If we assume that the board members on average will devote 500 hours a year to their duties, this puts their pay rate at $320 an hour.

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Over 8o Qassam missiles landed in areas bordering Gaza over the past 24 hours. Nobody should doubt how insufferable this is. But what should Israel do? Every child knows that you are attacked because the other person doesn't realize you can hit back, that your hurt can become his hurt. Reasonable people want action.

"We have no father, we have no mother," a resident of Shderot screamed at a radio journalist this past week, understandably in despair about his government's inability to protect him from explosions; in despair also, no doubt, about his children's growing realization that he cannot protect them. "Our response will be substantial and painful to Hamas," an Israeli government official said this morning.

Then again, children don't know everything.

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First prediction for 2009: A widening gap between the public's view of the bailouts of Wall Street and Detroit, and the views of the direct beneficiaries. The public believes the bailouts will permanently change these industries, but industry insiders don't really want to change.

Exhibit one is Goldman Sach's CEO Lloyd Blankfein, who says the firm's business strategy doesn't need to change.

What? Goldman got $10 billion of taxpayer money precisely because it and other big banks were so over-leveraged they threatened the whole financial system. I can understand why Blankfein doesn’t want to change. He took home $54 million last year. (He has foregone a bonus this year and is taking home a piddling $600,000.) But the public expects real reform for its $10 billion at Goldman and tens of billions more in other major banks.

Blankfein isn't alone. I've heard the same thing from CEOs and directors all over the Street. They see the problem as cyclical, not structural. "The economy stinks," they tell me, "but it'll turn around in 18 months, and then we're back to the same business."

Or take the Big Three. They've agreed to become far more fuel efficient, as a condition for their bailout. But they promised this before -- during the oil crisis of the 1970s, when Congress threatened higher fuel-economy standards. But after the crisis passed, they never delivered. Why? Because their biggest profits were in gas guzzlers that consumers wanted to buy as soon as the first oil crisis was over.

Will history repeat itself? Now that gas prices are half what they were six months ago, consumers who can afford it are suddenly less interested in fuel efficiency. They're buying fewer hybrids and showing renewed interest in SUVs. So why should we think Detroit will revolutionize itself?

I'm not so cynical as to accuse anyone of bad faith. It's just that both Wall Street and Detroit earned big bucks from their old strategies, before the bottom fell out of the economy. So it’s natural they’d view the bailouts as ways to hold on until the economy rebounds. And it's clear they see their problem as cyclical, not structural.

Right now, Wall Street and Detroit are willing to say whatever they need to say to keep the taxpayer money coming. But when the economy begins turning up, my betting is that their Washington lobbyists will push back hard against any major restructurings the government wants to impose on them. New regulations of Wall Street will be watered down and circumvented; new requirements on the Big Three for green technologies will be resisted.

Yet the bailouts have been sold to the public as means toward fundamental change in finance and autos. If the bailouts are to do what they're supposed to – stop Wall Street from wild risk-taking with piles of borrowed money, and push the auto industry into making fundamentally new products that conserve energy -- Washington will not only have to set strict standards now and in the months ahead when the bailout money flows, but also hang tough when the economy begins to revive.

The emerging debate over Wall Street's and the Big Three's ongoing obligations to reform themselves is but one part of a much larger national debate we'll be entering upon in 2009 and beyond -- whether the economic crisis we're experiencing is basically cyclical (in which case, nothing really needs to change over the long term, after the economy gets back on track) or structural (in which case, many aspects of our economy and society will needs to change permanently).

The moaning continues.

Caroline Kennedy is only running on her name. We'd never know who she was if she wasn't JFK's daughter. She doesn't have her talking points memorized yet. She's never been to Poughkeepsie. And, horror of horrors, she will go to the Senate by appointment -- not (initially) after being elected.

What garbage. First of all, the law holds that a vacant Senate seat be filled by appointment. In 1968, when her uncle Bobby was assassinated, Governor Nelson Rockefeller, a Republican, appointed a fellow Republican to the seat. No one complained because that was the law even though New Yorkers had elected a Democrat to the seat four years earlier.

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In yesterday's thread, there was some good discussion on corporate accountability, but I want to more explicitly emphasize that not only are alternatives to traditional private shareholder ownership possible, but that they regularly are used in our economy and in other countries' economies -- and that solving many of the current problems of corporate accountability could be solved by extending them. They range from direct government ownership to variants on government equity stakes to creation of non-profit governance structures to employee ownership.

Let's start with the varieties of government ownership:

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The National Association of Realtors said today that home prices have now dropped to the point where they've wiped out all the gains in housing prices since 2004. 2004, not incidentally, was when interest rates last hit bottom, and the Feds looked the other way while mortgage bankers began shoving money out the door to anyone who could stand up straight and many who could not. In other words, 2004 marked the start of the housing bubble.

Should we take comfort from this? A bit, except for the fact that housing still has a way to fall because boomers will be cashing in their homes over the next few years -- buying smaller condos or, if necessary, rentals, for their retirement years. (Even though fewer and fewer boomers will be able to retire, they'll need all the cash they can get). That means still more homes on the market, including all those bigger ones that were built when the boomers were having families. And more homes on the market means still lower prices.

In truth, home prices first began to rise more rapidly than rental prices in the 1980s, when boomers hit the housing market big time. So, demographically speaking, there may be even a longer way to go before the housing market hits bottom.

Meanwhile, younger people who might otherwise consider buying a home are waiting on the sidelines. Either they can't get a mortgage loan (the banks continue to hoard) or they assume housing prices will continue to fall and are prepared to wait.

All this raises questions about how long and how much the federal government can mitigate the mortgage crisis. Obviously, it can do much more than it's doing now -- which is remarkably little, given the $350 billion that Hank Paulson has already burned through. But as housing prices continue to deteriorate, the number of home owners who are under water -- owing more on their homes than their homes are worth -- continues to rise. A portion of them will walk away from those homes, dragging down home prices around them.

It's another mess Bush is leaving at Obama's front door.

During the auto bailout thread, JohnW1141 made the point that my discussion was focusing on "Wall Street" and "corporations" instead of the executives.  As he argues, "Wall Street, Corporations, Banks, etc. are abstract words that I think most of the public rarely connects to the people that run these entities. AIG didn't rip the public off, the executives at AIG did."

I think this is actually wrong and reduces the problem just to "bad apples."  Greedy executives do what greedy executives are structurally allowed to do and in fact are rewarded for doing.  Almost all of what those who perpetuated the financial meltdown did was completely legal so to argue that it's the fault of those being paid to do their jobs, rather than the system that enabled them seems to miss the point.

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First time tragedy, second time farce, fifth (sixth, etc.,) time, repetition compulsion. This morning on the radio, Israel's wake-up: Benny Begin, the son of Menachem, now high on the Likud list, is warning about Olmert's negotiations with Syria:

"There must be [I am remembering this without notes] no preconditions for talks," he said; the Syrians must understand that if "they change their behavior," we will be prepared to negotiate; but they cannot expect us to negotiate with them and, in effect, agree in advance to show what our final position will be. But would Begin--the interviewer, Yaacov Achimeir, asked--be open to the evacuation of Israeli settlements from the Golan? Stupid question. How could Israel consider "descending from the Golan"?, he answered. How could we agree to such things, and certainly not as a condition for face-to-face talks? "No, our government will insist on talks with no preconditions."

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In this moment of jubilation for Democrats and progressives--even Indiana and North Carolina have gone blue--one open wound remains: the voters of New York City, who, for nearly sixteen consecutive years, have ceded Gracie Mansion to deeply anti-progressive men. As Michael Bloomberg's bid for a third term proceeds virtually unimpeded, that winning streak seems set to expand to twenty. New York City, wild child of American metropolises, bastion of political liberalism? Well, deep in its heart, maybe. But not among its leadership, not in a long time.

Bloomberg would have it that he is a center-left technocrat, a liberal even, from the uppermost upper crust. It's part of the mythology that made him victorious in 2001. He had abandoned the city's cannibalistic Democratic Party not because he left the left, but because he wanted to win. During his first campaign, Bloomberg proclaimed himself to be a "professional manager, not a professional politician"--soothing words for a city still climbing out of 9/11's wreckage.

But, as is often the case with opportunistic politicians, Bloomberg's rhetoric bears little relationship to his record. Beyond the confines of his tireless propaganda machine, there is one salient fact: the Bloomberg Administration cannot point to one major success and credibly claim it as its own. The technocracy he promised has, in practice, more closely resembled autocracy. The center that he claims to occupy has often given way to the right.

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There's a bit of discussion now on if the whole financial bailout "worked." For all the progressive polarization around whether the bill should have been passed in its original form, the division between those in favor (say myself or Kevin Drum) or those opposed, like Dean Baker or my colleague David Sirota, were often more tactical than ideological, meaning some folks thought it was the best deal to be gotten right then and others thinking defeat would lead to a better deal.

But here's the thing-- given the craziness of challenges coming, a general blank check for the executive branch was probably the best course. The rightwing filibustering of the auto bailout is a good example of the problem. In the best of times, the filibuster is an anti-democratic monstrosity that retards progressive change. In times of economic crisis, it is literally a tool for rightwing minorities to use blackmail to assert corporate demands as the price for avoiding chaos and destruction.

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Classic investment theory says that investors should pay a premium for safety and command extra compensation for taking risk. But the above chart of the last eight years shows that we have been living in a financial version of Bizarro World where up is down and smart is stupid. Long term Treasuries (ostensibly the safest investment) have generated by far the best returns, while NASDAQ stocks (the riskiest) have paid out the worst returns.

So much for all the Brave Risk Taker rhetoric of the neo-Hooverites. It's time to rethink American Capitalism.

It has been common for educated Israelis to think, and Israeli diplomats and American Jewish leaders to present, the settler community of Hebron as a kind of radical nuisance. Presumably, the settlers are a side-show of a defensive strategic policy, a touch of hubris gone wrong, a little understandible selfishness after centuries of self-effacement--anyway, a line that can be moved when the time is right, certainly not a country within a country that has grown, SimCity-like, into something the size of the Jewish colony in Palestine in 1946.

In this view--not entirely wrong--the settlers were post-1967 Israelis only more so: people who took classical Zionist ideas about settling the Land of Israel a little too seriously, or took the Jews' election a little too literally, or accepted cheap mortgages from the Jewish Agency a little too opportunistically; people who have randomly scattered themselves in the occupied territory in a now obviously failed effort to annex the holy land, or just to show that Jews can live everywhere in it.

The settlers, presumably, have settled under the nose of a forbearing, once vaguely sympathetic Israeli government, otherwise preoccupied by encirclement and terror. But they are people whom the Israeli government--if it ever had a real peace partner in the Palestinians, and not jihadist terrorists firing missiles, or sending in suicide bombers--would clear out in a great show of sovereign will. The recent clearing of the "House of Contention" by the Israeli Army is proof, so the argument goes, of the Israeli army's residual power. The more recent breakdown of the cease fire with Hamas is proof of how Israel faces an existential threat, and dares not be distracted by the settlers.

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The article is from wacko WorldNetDaily, but it's making the rounds of rightwing sites, so assume your average Fox News reader will soon take it as gospel.

And hey-- what was one of the top proofs cited of her connections to the ongoing Communist conspiracy:

Greg Sargent, a writer for the radical left-leaning Talking Points Memo blog quoted Andy Stern, president of the Service Employees International Union, stating the person who best knows Solis is Vice Chair of the DSA Harold Meyerson.

So all you radical left-leaning readers of TPM are just links in the chain to Soviet America. It's only going to get worse, unfortunately, as the paranoia and militia-language on the right wing sites is starting to acellerate.

The Conference of Presidents of Major Jewish Organizations is one of the most reactionary power centers in the American Jewish community. Nominally representative of all American Jews, it has been run for decades by its executive director Malcolm Hoenlein, a rightwing activist --Llikud and Republican -- full-throated backer of the occupation, and particularly of the settlers. He did everything he could to tip the Jewish community to McCain.

But he failed. Obama received 78% of the Jewish vote and suddenly Malcolm's position is rather shaky. Who does he represent? A percentage of the 22% who voted for McCain -- and not a large percentage either. Most of the 22% voted for McCain because they are Republicans not because they believed the lies circulated by Hoenlein's friends about Obama being "bad fo the Jews."

For Malcom, push had to come to shove. And now it has. A close Obama friend from Chicago, Alan Solow, is taking over the Presidents Conference. Hoenlein now works for a guy whose loyalty is to Barack Obama. In fact, that is why Solow is being elected.

What happens to Hoenlein now? Who knows? But the recent address he gave to the people of Iran indicates that he could have a future urging the Muslim masses to rise up and support Greater Israel. Check it out, its delightful.

Imagine a major national newspaper that never saw an $8 trillion dollar housing bubble. Suppose its most often cited expert on the housing market was the chief economist of the National Association of Realtors, who also authored the 2006 bestseller : Why the Housing Boom Will Not Bust and How You Can Profit From It.

Yes, I'm talking about the Washington Post, which had the gall today to run a column by Jim Hoagland complaining about how "we" are passing on a bad world to our children. The "we" in the column is meant to refer to the generations currently in their 40s, 50s, and 60s, who he claims are leaving huge problems to our children.

He's right about the problems, but he's wrong about the "we."

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