In line with Connie Manes Normal and Good post, this reassuring OpEd piece (sub) by Casey B. Mulligan, a professor of economics at the University of Chicago, is climbing up the NY Times emailed list:

An Economy You Can Bank On

And if it takes a while for banks and lenders to get up and running again, what’s the big deal? Saving and investment are themselves not essential to the economy in the short term. Businesses could postpone their investments for a few quarters with a fairly small effect on Americans’ living standards. How harmful would it be to wait nine more months for a new car or an addition to your house?

We can largely make up for this delay by extra investment when the banking sector reorganizes itself. Americans waited years during World War II to begin private-sector investment projects (when wartime production displaced private investment), and quickly brought the capital stock (housing and big-ticket consumer items) back to normal levels when the war ended.

So, if you are not employed by the financial industry (94 percent of you are not), don’t worry. The current unemployment rate of 6.1 percent is not alarming, and we should reconsider whether it is worth it to spend $700 billion to bring it down to 5.9 percent.

Should we believe Connie, Lux and Mulligan that everything is really OK?

Maybe to a point, but Mulligan also claims that McCain was correct to say that the fundamentals of the economy are strong. That and his assertion that the government's lowball unemployment rate should be reassuring to us leave me in some doubt as to whether his reassurances include me. After all, a lot of people have been feeling a pinch for years before this financial crisis revealed itself.

As Stocks Plummet Across the Globe, Bush to Host Emergency Finance Meeting at White House

MICHAEL HUDSON: Well, what upsets the Europeans and the foreigners is that the US plan has done nothing at all about the debt crisis itself. It’s bailed out the creditors, but not a penny of the actual debts, the subprime mortgage debts, are addressed. Without any of the media knowing, the Federal Reserve over the last few months has given $850 billion of cash for trash already. This is what the $700 billion discussion in Congress was supposed to be about, but the Fed, without anyone knowing, has already been exchanging these securities. And the securities essentially have been swapped by the US bankers to their pals and not done anything at all to write down the actual subprime debts. There’s a big attempt to blame the victim now. And if you add up all of the subprime bad loans and defaults, that’s altogether $1 trillion. So far, the government has given away $6 trillion already to Wall Street. That’s much more than any of the subprime debt. And the volume of derivative trade has been estimated at $450 trillion, an unbelievable amount. So nobody has any idea about how much money is at stake.

And what really triggered a lot of this was the way in which Lehman went bankrupt. The day—and this has not been discussed either in America, but it’s all over the European press. The day before Lehman went bankrupt, it basically looted all of its foreign offices. For instance, in England, it emptied out the English account of a few billion dollars, leaving the English employees only with the money they—the little cards they had to use in the vending machines. No salaries were paid. The London office was closed down immediately. And the next day, Lehman used the money that it took from London to pay its closest associates to redeem the derivative trades that it had done. So the English bankers came out and said, in England, we have an ethic: it’s lend to the person, not against the asset. And they’ve come to the conclusion that the American bankers—well, we won’t say “crooks,” but let’s say they’re cronies who deal among themselves and are willing to screw the foreigner.

And this has created such a mistrust abroad that Europeans and Asians and OPEC country investors are simply pulling their money out of the US, because they don’t have a clue as to the solvency of the banks. We’re seeing the end result of the Alan Greenspan deregulatory revolution, where he said markets are all self-regulating. Right now, you’re seeing the markets self-regulate themselves. And the result is a wipeout of the American pyramiding.

While Palin puts on "Ayers" about patriotism, her official behavior looks more and more suspect:

DOJ Goes Long for Sarah Palin

The Justice Department seems to be setting one of its amazing new rules. When a Republican political figure is damaged in her expectation of being elected to office, it is telling us, that’s a felony. And why is that the case here? Because the hacker helped establish something important: Sarah Palin has been systematically violating the Open Records Act. As David Corn has noted at Mother Jones, Palin relied heavily on private email accounts for improper purposes. As governor of Alaska, she was obligated to maintain as public records her communications with respect to her discharge of official duties. Palin skirted this obligation by turning to private email accounts for government related dealings. In fact, the hacker in question helped flush out Palin’s violations. The hacker also helped establish a motive for the illegal conduct: Palin regularly involved her husband in official business, and it’s easy to understand why she did not want to leave behind evidence of her husband’s involvement.

The prosecutors in this case owe us some explanations. And they should start by disclosing who at the Justice Department concluded that a bigger manhunt should be launched against a University of Tennessee computer hacker out to embarrass a Republican political candidate than the Bush Administration sent out after Osama bin Laden at Tora Bora. At a minimum we’re looking at some seriously twisted priorities.

h/t Daily Dish

Reich is so against reduced spending that he seems to embrace the deficit. If I thought we could count on steady growth after the recession, I would agree with him. Given the realities of energy depletion, I think we have to be very prudent with our capital.

Saved by the Deficit?

By ROBERT B. REICH
Published: October 8, 2008

Here again, there’s marked difference between 1993 and 2009. Then, some of our highways, bridges, levees and transit systems needed repair. Today, they are crumbling. In 1993, some of our children were in classrooms too crowded to learn in, and some districts were shutting preschool and after-school programs. Today, such inadequacies are endemic. In 1993, some 35 million Americans had no health insurance and millions more were barely able to afford it. Today, 50 million are without insurance, and a large swath of the middle class is barely holding on. In 1993, climate change was a problem. Now, it’s an emergency.

Greg Palast on Vote Rigging and Suppression Ahead of the 2008 Election

Greg Palast reports on people whose names have disappeared from the rolls, or are on foreclosure lists. Video and transcript on today's Democracy Now

GREG PALAST: Wait, you’re the elections—you’re the elections supervisor. It didn’t have your name on the voter roll?

“PECOS” PAUL MAEZ: Yeah.

And now, to the critical swing state of Colorado, where SUVs have replaced the buffalos that used to roam the plains. According to this report, Colorado voters are going the way of the buffalo: they’re disappearing. This government report says that nearly one in five voters, 19.4 percent, were taken off the rolls in an unparalleled, massive purge. Democrats accuse Republican Secretary of State Donetta Davidson of orchestrating the purge. But she says local officials have the final say over voter rolls.

GREG PALAST: The officials gave the pueblos ballots without envelopes. Then these same politicians threw out their votes, because they didn’t come in the right envelopes. The Democrats were charged with cheating the pueblos by this man, David Iglesias, a rising Republican star appointed US prosecutor by George Bush. But the Bush administration wanted him to go after individual Democrat voters. Republicans bombarded Iglesias with allegations of fraud by Democrats.

DAVID IGLESIAS: Over 100 complaints we investigated for almost two years. I didn’t find one prosecutable voter fraud case in the entire state of New Mexico.

GREG PALAST: So the Bush administration fired him.

Latin leftists gloating over 'Comrade' Bush's bailout

They don't call him President Bush in Venezuela anymore.

Now he's known as "Comrade."

With the Bush administration's Treasury Department resorting to government bailout after government bailout to keep the U.S. economy afloat, leftist governments and their political allies in Latin America are having a field day, gloating one day and taunting Bush the next for adopting the types of interventionist government policies that he's long condemned.

"We were just talking about that this morning on the floor," said Congressman Edwin Castro, who heads the leftist Sandinista congressional bloc in Nicaragua. "We think the Bush administration should follow the same policies that they and the International Monetary Fund have always told us to follow when we have economic problems — a structural adjustment that requires cutting government spending and reducing the role of government.

"One of our economists was telling us that Bush has just implemented communism for the rich," Castro said.

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All hat, no cattle.

Kinda makes me want to watch Comrade X again, though.

The IMF World Economic Outlook was released today. Econbrowser posted two excerpts from Chapter One:

    The world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s. Against an exceptionally uncertain background, global growth projections for 2009 have been marked down to 3 percent, the slowest pace since 2002, and the outlook is subject to considerable downside risks. The major advanced economies are already in or close to recession, and, although a recovery is projected to take hold progressively in 2009, the pickup is likely to be unusually gradual, held back by continued financial market deleveraging. In this context, elevated rates of headline inflation should recede quickly, provided oil prices stay at or below current levels. The emerging and developing economies are also slowing, in many cases to rates well below trend, although some still face significant inflation pressure even with more stable commodity prices. The immediate policy challenge is to stabilize global financial markets, while nursing economies through a global downturn and keeping inflation under control. Over a longer horizon, policymakers will be looking to rebuild firm underpinnings for financial intermediation and will be considering how to reduce procyclical tendencies in the global economy and strengthen supplydemand responses in commodity markets.

    ...A worrying aspect of this latest bout of turbulence is that there are now increasing signs that market strains are starting to fall more heavily on the nonfinancial corporate sector and on emerging markets. If sustained, such strains could well foreshadow a more severe macroeconomic impact of the financial crisis than previously anticipated.

    The nonfinancial sector in advanced economies is now more broadly affected than during the earlier stages of the crisis. Spreads on highgrade nonfinancial corporate bonds, which have risen gradually since the beginning of the crisis, rose further during the latest round of turbulence (first figure). They now stand at almost double the 2002 peaks and indicate a default risk comparable to that of emerging market sovereign debt. Low-grade corporate spreads also surged, but they remain below the historical highs of 2002. Access to short-term financing has tightened and equity prices have declined (upper panel of second figure), although equity prices still remain above previous troughs.

    The recent surge in borrowing costs for nonfinancial firms has taken place against the backdrop of a gradual worsening of their risk profiles over the course of the financial crisis. The market-based measures of default risk and leverage ratios have risen across the credit spectrum in both the United States and Europe -- not only for low-grade bonds, as would be expected during a slowdown, but for high-grade bonds too (middle panel of second figure). For high-grade corporate bonds in the United States, for example, the probability of default has doubled since June 2007, although it remains below the levels experienced in 2004, in part owing to strong corporate balance sheets, particularly, ample internal funds.

    Why are high-grade nonfinancial firms being affected more severely during the current crisis than during the previous major decline in financial markets in 2000-02, following the collapse of the dot-com bubble? A possible general explanation relates to differences between the shocks that triggered the respective downturns. The current downturn has its roots in the financial sector, where the originate-to-distribute model largely ceased to function. The financial shock is being transmitted to the nonfinancial sector via tighter financing conditions and, more recently, a drying up of market liquidity. The ubiquity of these channels leaves little room for differentiation across the credit spectrum. In contrast, the dot-com bubble originated in the nonfinancial sector, notably high-yield corporate credit, and was transmitted mainly through the solvency channel, affecting low-grade nonfinancial corporate bonds to an appreciably larger extent than high-grade ones. A more specific reason for increased pressures on high-grade nonfinancial firms relates to a growing concern about their rollover risk during the current crisis, because refinancing plans have led to a bunching of maturing bond obligations over the coming years, while bank financing has tightened. Moreover, declines in equity prices have increased the cost of raising capital. ...

Chapter PDFs

Plucky community group alerted sheriff to evictions

Chalk up a win for the little guys in the mortgage foreclosure crisis.

A small victory perhaps, maybe a temporary one.

But all in all, a step in the right direction Wednesday by Cook County Sheriff Tom Dart, due in large part to the aggressive advocacy of a plucky community organization.

It was the Albany Park Community Council and the neighbors it represents who brought to Dart's attention the insane way banks were being allowed to evict innocent tenants whose landlords had lost their properties through mortgage foreclosure proceedings -- even when the tenants had paid their rent and knew nothing of the problems.

Dart announced his office will quit carrying out evictions stemming from mortgage foreclosures until lenders start providing proof they have taken the necessary steps to identify who is living at an address and that those facing eviction have received proper legal notice.

Typical of the mindless lending practices that got the nation into this financial mess in the first place, lenders have been trying to conduct evictions without actually figuring out who lives at the property. That should come as no surprise, I suppose, since it's now apparent they often never even bothered to find out to whom they were lending.

The real heroes here, though, were Diane Limas and Emily Burns from the Albany Park group and the residents of a tidy brick building at 4914-4916 N. Spaulding, in particular Esteban and Maria Cruz, Pedro Ramirez and Alma Aquino.

They were savvy and gutsy enough to stand firm earlier this summer when a real estate agent working for one lender started using illegal bullying tactics to scare off the tenants, putting fliers in their mailboxes that said they had a week to move.

The community group investigated and found that an amazing scam had taken place.

As I first reported to you in June, Romanian businessman Mihail Stancu bought the building, filed paperwork as if he was converting it to condominiums, then took out loans on each unit without actually making any improvements to them. In the process, he cleared more than $1 million before fleeing the country. The tenants knew nothing.

RTE (Ireland):

There have been riots on the streets of Hong Kong following heavy losses at the city's Hang Seng index. The Hang Seng closed over 8% lower with losses in banks, communications companies and exploration companies. Customers are trying to get their money out of bank branches and many are protesting about losses related to the collapse of Lehman Brothers.

Naomi Wolf on Alternet:

Background: the First Brigade of the Third Infantry Division, three to four thousand soldiers, has been deployed in the United States as of October 1. Their stated mission is the form of crowd control they practiced in Iraq, subduing "unruly individuals," and the management of a national emergency. I am in Seattle and heard from the brother of one of the soldiers that they are engaged in exercises now. Amy Goodman reported that an Army spokesperson confirmed that they will have access to lethal and non lethal crowd control technologies and tanks.

George Bush struck down Posse Comitatus, thus making it legal for military to patrol the U.S. He has also legally established that in the "War on Terror," the U.S. is at war around the globe and thus the whole world is a battlefield. Thus the U.S. is also a battlefield.

He also led change to the 1807 Insurrection Act to give him far broader powers in the event of a loosely defined "insurrection" or many other "conditions" he has the power to identify. The Constitution allows the suspension of habeas corpus -- habeas corpus prevents us from being seized by the state and held without trial -- in the event of an "insurrection." With his own army force now, his power to call a group of protesters or angry voters "insurgents" staging an "insurrection" is strengthened.

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Wiki: Posse Comitatus

HR5122 also known as the John Warner Defense Authorization Act was signed by the president on Oct 17, 2006 John Warner National Defense Authorization Act for Fiscal Year 2007. Section 1076 Text of Hr5122 is titled "Use of the Armed Forces in major public emergencies". Removing the legalese from the text, and combining multiple sentences, it provides that: The President may employ the armed forces to restore public order in any state of the United States the president determines hinders the execution of laws or deprives people of a right, privilege, immunity, or protection named in the Constitution and secured by law or opposes or obstructs the execution of the laws of the United States or impedes the course of justice under those laws. The actual text is on page 322-323 of the legislation. As of 2008, these changes were repealed, changing the text of the law back to the original 1878 wording, under Public Law 110-181 (H.R. 4986, Section 1068,) however in signing H.R. 4986 into law President Bush attached a signing statement which indicated that the Executive Branch did not feel bound by the changes enacted by the repeal.

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Homeland Security: The Myth of Posse Comitatus

Back in the 70s, the oft-maligned 55 mph speed limit was the government's response to the fuel crisis. Last night the topic of reinstituting 'Drive 55' arose during some debate chat. I puzzled JaneEyrez by asserting that 45 mph was when air resistance becomes the major factor in fuel efficiency, but this Answers.com article claims an even lower speed.

The power to overcome air resistance increases roughly with the cube of the speed. Thus, above about 30 mph (48 km/h), wind resistance becomes a dominant limiting factor. By driving at 45 rather than 65 mph (72 rather than 105 km/h), the power to overcome wind resistance is about one-third, and much greater fuel economy can be achieved. Increasing speed to 90 mph (145 km/h) increases the power requirement by 2.6 times, and drastically decreases fuel economy. In practice, rather than doubling or halving the fuel economy, the difference is actually closer to 40-50%, since rolling resistance, which is broadly proportional to speed, is also a factor.

Autoblog, however, notes that wind resistance varies quite a bit with different vehicles, so an Insight or Prius would be more efficient at overcoming air resistance than a Suburban or Eighteen wheeler truck at the same speeds. (Of course, a train or bike would be even more efficient, but that's another discussion.)

Wind resistance ... is usually expressed as a number called the "drag coefficient" (Cd). While having a low drag coefficient is important, the size of the vehicle (expressed as "frontal area") is also important. In general, as drag coefficient and frontal areas decrease, a vehicle becomes easier to push through the wind. Automakers are well aware of this, so they go to great lengths to ensure a low Cd on vehicles designed for high efficiency. Some approximate Cd values for well-known vehicles.

      .25 Honda Insight
      .26 Toyota Prius
      .27 Nissan GT-R
      .34 GMC Acadia
      .36 Bugatti Veyron (spoiler retracted)
      .36 Chevrolet Suburban
      .48 Classic VW Beetle
      .65 Tractor Trailer (with fairings)
      .75 Formula 1 Car (downforce = high drag)

So in my opinion, 55 becomes a rather arbitrary number particularly given the changes in vehicle design and efficiency since since the 1970s. Instead of clumsy attempts to legislate a speed limit, I'd recommend that accurate fuel use gauges be installed in cars. If people can see just how fast they're draining their fuel tanks at 75 vs 55, the smart ones will be likely to temper their speed to save money.

Arnold Kling of Econlog offers a very clearly written explanation of our mortgage problems:

Forty years ago, depository institutions handled mortgage credit risk very differently than they do today. Back then, the depository institution, which was typically a savings and loan association, held mortgages that were underwritten by its own employees, given to borrowers and backed by homes in its own community. These were almost always 30-year, fixed-rate loans, with borrowers having made a significant down payment, often 20 percent of the price of the home. Call this approach to mortgage lending "Method A."

Today, mortgage loans held by depository institutions are often in the form of securities. These securities are backed by loans originated in distant communities by unknown borrowers, underwritten by mortgage brokers or other personnel not employed by the depository institution. The loans are often not 30-year fixed-rate loans, and the borrowers have typically made down payments of 5 percent or less, including loans with no down payment at all. Call this approach to mortgage lending "Method B."

If you compare the two methods using common sense, then Method B does not pass a simple sanity check. In fact, the current financial crisis consists of banks that are up to their necks in Method B.

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Three articles from the UK Telegraph

Germany takes hot seat as Europe falls into the abyss

During the past week, we have tipped over the edge, into the middle of the abyss. Systemic collapse is in full train. The Netherlands has just rushed through a second, more sweeping nationalisation of Fortis. Ireland and Greece have had to rescue all their banks. Iceland is facing an Argentine denouement.

Who would you punch?

CNBC's Vicki Ward stood up the rumours of the attack...

 "... from two very senior sources - one incredibly senior source - that he (Dick Fuld) went to the gym after ... Lehman was announced as going under. He was on a treadmill with a heart monitor on. Someone was in the corner, pumping iron and he walked over and he knocked him out cold."

Ward claims that Fuld's shamelessly self-exonerating testimony to the House Oversight Committee yesterday (see video above) alone warranted the punch.

Financial crisis: Iceland PM warns it's 'every country for itself'

Icelandic people will see a drop in their standard of living and the country will return to its traditional strengths in fishing rather than financial services, he added.

Iceland's near financial meltdown has been seen as the biggest yet faced by any country over its financial sovereignty in the 14-month-old credit crisis.

FiveThirtyEight wrote:

On the whole, the massive voter registration drive and the routinely packed field offices lead us to believe Obama has a strong chance to pull an upset here in the Hoosier State. A war with David Letterman is not going over well in this state, as McCain's internal Indiana pollsters would be forced to confess. We'll be back in the state for Obama's visit to Indianapolis after a brief drop down to Belmont University for tomorrow night's debate.

Next to ignoring the middle class during the debate, the dumbest stroke of McCain's campaign has certainly been blowing off David Letterman. Not only did Letterman show his entire audience that the campaign suspension was a sham, he has repeated the same material night after night, for about two weeks, wringing every last vestige of humor out of it. No late night viewer will miss Letterman skewering McCain for using the economic crisis as a lame excuse to cop a better gig.

On Econbrowser, James Hamilton reports that he and other UCSD faculty held a roundtable discussion on the financial crisis. If you have realplayer, there is a rm file of the entire discussion here, and FWIW, Hamilton has posted his ppt slides.

Another site offers some brief notes on the discussion.

Harry Markowitz, a Nobel Laureate and distinguished professor of finance at the Rady School (was in attendance). He is an expert on financial markets and investment theory.

Markowitz started by making the point that liquidity is not the problem. “Ignorance is the problem.“

He noted the lessons from the Japanese economic fiasco. If something is structurally wrong it needs to be corrected. In our economy the problem is that we don’t know the value of mortgage securities.

He suggests that efforts should be made to regularly estimate the value of financial instruments like those that are now causing Wall Street grief.

On the Bailout
All the panelists were asked if they would have voted for the bailout bill. Four said they would have and Harry Markowitz said he would have voted against it. He said he would have voted for a bailout plan, “just not that rescue plan.”

About three months after his TV special encouraging Nascar types to support America by investing in the stock market, and days after apologizing for his lousy investment advice, cable TV's professional investment screamer, Jim Cramer, "went on the Today show this morning to virtually beg Americans to pull all the money they might need in the next five years out of the stock market, no matter what the cost."