In that Newsweekpiece (noted below), which details Rick Davis's continuing financial ties to mega-lobby firm Davis Manafort, Mike Isikoff reveals that in addition to paying Davis's salary directly to Davis Manafort, the McCain campaign has paid almost a million dollars to 3eDC, a web development company, part owned by Davis.
That's a decent chunk of change for web development. So TPM Reader UB looked up 3eDC's website. And as you can see, for a firm in the business of billing $1 million for high-end design work, their own website appears to be one of those off-the-rack professional firm template sites you can by for $19.99.
I'm not saying it's Jukt Micronics exactly. But 3eDC's existence as an actual company seems rather thin.
Now, digging around a little, I notice that 3eDC is pretty closely tied to Davis Manafort. Not only, as Newsweek notes, does the company share an address with Davis Manafort. Last year, US News got Davis to admit that the company has two owners -- Rick Davis and Paul Manafort.
And there's a bit more. According to a July 2007 article in the Wall Street Journal, 3eDC was a "start-up ... with one customer -- the [McCain] campaign." The Journal further reported that within the campaign it was understood that 3eDC was essentially a pass-through, that it had a series of other 'partner firms' that did the actual work.
Perhaps not surprisingly, in June, the Post's Matthew Mosk reported that shortly after McCain took over the Republican National Committee in his role as de facto nominee, 3eDC resurfaced with its second client to date -- the Republican National Committee -- with a contract potentially worth as much as $3 million.
So to cycle back, how we got into all this was trying to figure out whether Rick Davis had really cut his ties with Davis Manafort. The question most people have been asking is whether Davis was still drawing a salary. What it seems like now, however, is that Davis has born poring tons of McCain campaign money back into Davis Manafort -- either by having his campaign salary paid to the firm or by having huge consulting accounts set up for paper companies owned by Davis and Manafort. In either case, the question seems no longer to be whether Davis still draws a salary from Davis Manafort but whether McCain-Palin 2008 and Davis Manafort are even distinct organizations.
Brad DeLong says it's a better option than the Paulson model bailout. (And it did seem to work out pretty well for the Swedes when they got into a somewhat similar situation.)
I'm curious what Krugman thinks.
Late Update: This Krugman post from this morning suggests to me that he may think something like the Swedish model makes more sense but that the politics won't work and that given the severity of the crisis the not-as-terrible Dodd-Frank proposal is likely the way to go.
Jonathan Weisman has a fascinating, even riveting narrative of what went down in Washington on Thursday as John McCain made his play to commandeer the high-level negotiations over the bailout bill. And TPM Reader TW called my attention to a passage that may help to explain the smoldering hostility that made it impossible for McCain even to make eye contact with Barack Obama during last night's debate.
We pick up Weisman in that big meeting at the White House ...
Pelosi said Obama would speak for the Democrats. Though later he would pepper Paulson with questions, according to a Republican in the room, his initial point was brief: "We've got to get something done."
Bush turned to McCain, who joked, "The longer I am around here, the more I respect seniority." McCain then turned to Boehner and Senate Minority Leader Mitch McConnell (R-Ky.) to speak first.
Boehner was blunt. The plan Paulson laid out would not win the support of the vast majority of House Republicans. It had been improved on the edges, with an oversight board and caps on the compensation of participating executives. But it had to be changed at the core. He did not mention the insurance alternative, but Democrats did. Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, pressed Boehner hard, asking him if he really intended to scrap the deal and start again.
No, Boehner replied, he just wanted his members to have a voice. Obama then jumped in to turn the question on his rival: "What do you think of the [insurance] plan, John?" he asked repeatedly. McCain did not answer.
One Republican in the room said it was clear that the Democrats came into the meeting with a "game plan" aimed at forcing McCain to choose between the administration and House Republicans. "They had taken McCain's request for a meeting and trumped it," said this source.
Congressional aides from both parties were standing in the lobby of the West Wing, unaware of the discord inside the Cabinet room, when McCain emerged alone, shook the hands of the Marines at the door and left. The aides were baffled. The plan had been for a bipartisan appearance before the media, featuring McCain, Obama and at least a firm statement in favor of intervention. Now, one of the leading men was gone.
Assuming this is an accurate portrayal of events, it may help explain some of what happened last night.
Last week, TPM and other news outlets were looking into whether McCain campaign manager Rick Davis had really cut his ties to the mega-lobby shop, Davis Manafort -- of which he is a part owner. Even though Davis insisted he was no longer drawing any salary from the firm, what David Kurtz and I were wondering was whether Davis had somehow redirected his salary to some other entity from which he could later profit from it or draw it back. Well, it seems Newsweek has finally caught up with Davis's flimflam ...
The McCain campaign told reporters the fees were irrelevant because Davis "separated from his consulting firm ... in 2006," according to the campaign's Web site, and he stopped drawing a salary from it. In fact, however, when Davis joined the campaign in January 2007, he asked that his $20,000-a-month salary be paid directly to Davis Manafort, two sources who asked not to be identified discussing internal campaign business told NEWSWEEK. Federal campaign records show the McCain campaign paid Davis Manafort $90,000 through July 2007, when a cash crunch prompted Davis and other top campaign officials to forgo their salaries and work as volunteers. Separately, another entity created and partly owned by Davis--an Internet firm called 3eDC, whose address was the same office building as Davis Manafort's--received payments from the McCain campaign for Web services, collecting $971,860 through March 2008.
In an e-mail to NEWSWEEK, a senior McCain official said that when the campaign began last year, it signed a contract with Davis Manafort "in which we purchased all of [Davis's] time, and he agreed not to work for any other clients."
Frankly, it's even more convoluted than I'd imagined. But the McCain campaign's claim that anything done by Davis Manafort is irrelevant to the campaign since no one at the campaign has any tie to the firm now seems pretty ridiculous.
In my initial reaction last night, I wrote that while I thought the debate was basically a draw, that amounted to a narrow win for Obama since foreign policy is supposed to be John McCain's forte. Now, after half a day, with more time to think about it and the benefit of seeing initial polling data and surveying other people's reactions, I'm only confirmed in that view.
In fact, I think it was a much bigger win for Obama than I was ready to figure last night. And that's for two basic reasons.
First, the pattern in the 2000 and 2004 presidential debates was essentially this: the Democrat generally won each debate on points and even in the snap polls of undecided voters. But there was usually some remark or bit of affect that -- ludicrous or not -- right-wing commentators and yakkers fixed in on and were able to parlay into the dominating conversation of the next few days. In this way, strong debate performances turned into weak debate performances.
I'm not seeing anything like that this time. Mainly that's because Obama just didn't make any mistakes. But I suspect it's also because there's now more meta-media parity between right and left.
Second was McCain's attitude. Whether it was contempt or condescension or some sort of fear or inability to -- in the most literal sense -- face Obama, it made McCain look small and angry. I apologize that I can't link to them because I don't remember who wrote it. But as someone wrote after the debate, for that kind of attitude to have 'worked' for McCain, Obama needed to come off as completely ignorant and unprepared. And I don't think even his harshest critics believe that is what happened. Roll it all together and Obama just seemed like a bigger person than McCain. And in a race in which the issue agenda and party identification already work strongly in Obama's favor, that's an advantage that is very hard for McCain to give up.
I know that many Obama supporters are disappointed that he passed on various opportunities to deliver a smackdown that McCain couldn't recover from. But having watched the guy for 18 months now, for better and worse, that's not who he is. What he did do though is stand on the stage with McCain for 90 minutes on what's supposed to be McCain's terrain. He had an easy command of the issues. And he didn't get rattled by any of McCain's attacks. For all those reasons, I think he had a much better night than McCain.
McCain's unwillingness to make eye contact with Obama through the debate seems to be getting picked up by a lot of observers. Here's an interesting exchange on the subject between Chris Matthews and the Post's Eugene Robinson ...
Here's one comment we got from TPM Reader EO ...
As a psychotherapist and someone who treats people with anger management problems, we typically try to educate people that anger is often an emotion that masks other emotions. I think it's significant that McCain didn't make much, if any, eye contact because it suggests one of two things to me; he doesn't want to make eye contact because he is prone to losing control of his emotions if he deals directly with the other person, or, his anger masks fear and the eye contact may increase or substantiate the fear.
I noticed him doing the same thing in the Republican primary debates. The perception observers are likely to have is that he is unwilling to acknowledge the opponent's legitimacy and/or is contemptuous of the opponent.
And here's another note from TPM Reader TB. I guess I'm really not sure quite how to characterize it ...
I think people really are missing the point about McCain's failure to look at Obama. McCain was afraid of Obama. It was really clear--look at how much McCain blinked in the first half hour. I study monkey behavior--low ranking monkeys don't look at high ranking monkeys. In a physical, instinctive sense, Obama owned McCain tonight and I think the instant polling reflects that.
So McCain may have given away his status as a low-ranking monkey. I'd never even considered monkey rank.
Late Monkey Science Update: In case anyone's wondering, I looked up TPM Reader TB's page at the University he teaches at. And no doubt about it, he appears to be a genuine monkey scientist, or to be more specific a researcher on social cognition and behavior in primates. I'd link to his page. But readers remain anonymous, save for their initials, until they tell us otherwise.
One of the more interesting factual face-offs was this question about who said what about meeting enemies without preconditions and just what Henry Kissinger said on the topic. My own sense was that McCain got caught out and then tried to change what they were talking about. But it was sort of complicated since both were weaving in different issues over an extended passage of the debate. We compressed down the key exchanges on that issue -- the key five minutes from the roughly eight and a half minutes they discussed it ...
It's interesting to consider that once the election has ended and the excitement dies down, the most important result of this debate could turn out to be McCain's reviving the verb 'festoon' for a new generation of Americans.
There've been a few snap polls now. And they each seem to show that the respondents -- mainly independents -- thought Obama did better, in some cases by substantial margins. But I'd caution that these snap polls are often at variance with how people think each candidate did one or two days out. So while they're encouraging for Obama supporters, I'd say take them with a grain of salt.
My own sense remains that this was basically a tie between these two candidates, with both bringing their A game. But since this was the foreign policy debate, the topic on McCain has staked his campaign, I think the advantage is to Obama. Not on points, but on the net effect.
I keep coming back to McCain's comment that Pakistan was a "failed state" when Musharraf hatched his coup d'etat. It's a vague term. But I don't think that adds up. It's always been the key fear that Pakistan, with its nuclear weapons, could become a failed state. It's got lots of the ingredients. But I don't think that adds up.
My take on this debate was that both candidates made their basic arguments clearly. They stuck to the points they're making on the campaign trail. Neither of these guys are powerful debaters but both held up well. I didn't see many real gaffes or mistakes.
I said before the debate started that we should expect some outside the box, over the top antics from McCain. But that didn't really turn out to be true.
Through most of the debate -- as I was live-blogging -- I was thinking, Hmm, this is pretty much a draw, about what you'd expect with one person arguing McCain's agenda and another arguing Obama's. In that sense, I thought it was largely a tie. But McCain's whole campaign is based on his supposed superior knowledge and judgment on foreign policy. So I think that's a problem for McCain.
A few key points to consider that may pick up steam over the next hours and days.
McCain repeated what everyone agrees is a lie in claiming that Barack Obama has voted to increase taxes on people making as little as $42,000. Flat out lie.
He repeated his line about the wasteful earmark studying Bear DNA when it's now been revealed that his vice presidential running mate did the exact same thing -- only about seal DNA.
I said above that McCain didn't have any freak-out moments. But he did have that sneer and there did seem to be this thing where he was so contemptuous and angry at Obama that he couldn't get himself to make eye contact. I think we'll hear more about that.
Angry, angry, angry. Part of the key here is that McCain is clearly miffed that he even has to debate or run against Obama. He thinks it's an insult.
10:07 PM ... China cleaned up its act before Nixon's overtures to China? No Cultural Revolution?
10:10 PM ... Good response from Obama on the topic of diplomacy and meetings with enemies. Most of what we've heard from maybe a half hour has been basically a draw, at least in debating terms. But this is strong.
10:12 PM ... Spain!!!
10:13 PM ... I'm not sure most people will know what the hell McCain means by "the Dear Leader".
10:21 PM ... I'm not sure it will resonate with people -- but let me just stipulate that McCain is completely nuts on Ukraine and all the former Soviet Republics on Russia's borders. Okay, I've said it.
10:26 PM ... I haven't focused on this myself. But a number of readers are writing in to say that McCain has not looked at or made eye contact with Sen. Obama once this evening. Have you seen that?
9:06 PM ... Wait, didn't McCain just say that he got the House Republicans to take part in the negotiations when he seemed to lead them out of the negotiations?
9:11 PM ... Interesting the degree to which, so far, neither Obama or McCain want to engage each other.
9:12 PM ... I guess Lehrer noticed the same thing.
9:13 PM ... Friend points out, Obama has flag pin; McCain has none.
9:21 PM ... So far I think this is basically a draw, a lot of jousting, not a lot of hits. But Obama seems to have come into the debate with a much clearer strategy.
Looking forward to what we can expect from tonight's debate, the most telling points are situation and character. The polls for the moment look good for Barack Obama. And what he needs to prove in the context of the entire campaign is that he has the stature and heft to be President of the United States. That and Obama's character both suggest that he'll try to put in a solid, reassuring performance rather than aiming for a knock-out punch or some game-changing moment.
Meanwhile, everything about John McCain's character and the situation he finds himself in suggests he'll do precisely the opposite.
Whether we call it John McCain's freak-outta-palooza or just some freewheeling maverickism, everything John McCain has done over recent months and especially and with a new intensity over the last week has been geared to upsetting the applecart and creating some event which trips up Obama and shifts the trajectory of the campaign. Some of us may see it in a negative light or a positive light, but descriptively, I don't think many people on either side of the political aisle would disagree with that analysis.
Add to that the issue of character. A high stakes campaign brings out the essence of an individual. And campaigns, in almost every case, are defined by the candidate. With these rapid-fire rash and erratic actions, I think we're seeing the real John McCain. It may be filtered through and packaged by Steve Schmidt or Salter or Davis. But fundamentally I believe this all stems from John McCain.
(To add to the miss, note this pool report filed as McCain headed for the plane to Mississippi tonight with Rudy Giuliani in tow -- the "general atmosphere is utter confusion." Not conducive to going into a high stakes debate. But very much in line with McCain's recent affect and behavior.)
Put those two factors together -- recent behavior/strategy and fundamental character -- and I think you have to expect a John McCain who is unpredictable, possibly uncontrollable and looking for any moment to launch a dramatic ambush or confrontation that will amount to his ultimate roll of the dice.
A growing number of Republicans are expressing concern about Sarah Palin's uneven -- and sometimes downright awkward -- performances in her limited media appearances.
Conservative columnists Kathleen Parker, a former Palin supporter, says the vice presidential nominee should step aside. Kathryn Jean Lopez, writing on the conservative National Review, says "that's not a crazy suggestion" and that "something's gotta change."
Tony Fabrizio, a GOP strategist, says Palin's recent CBS appearance isn't disqualifying but is certainly alarming. "You can't continue to have interviews like that and not take on water."
Regulars must already know. But as usual we'll be bringing you live debate coverage this evening right here at TPM -- pre-debate reporting, live blogging of the debate and video clips of the key moments as they pop.
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John McCain is saying that now that he's gotten the bailout negotiations back on track he can resume his campaign and show up tonight at the debate. But every news report I'm seeing says they were moving along smoothly until John McCain showed up and they fell apart.
I know we're focusing on the collapse of our financial system. But the live fire fights we're getting into with the Pakistani military would seem to throw our alliance with them into some question, no?
As we've been reporting, John McCain's attack ads have remained up on the air across the country as late as this evening. And now it turns out that his campaign has instructed TV stations around the country to start airing them again starting on Saturday. In other words, McCain's ads may actually disappear from the air for a few hours on Friday.
At this point it looks like the only thing that got cancelled is McCain's much ballyhooed suspension of his campaign was the appearance on David Letterman.
As we've mentioned a few times recently, we're in the process of a three-step site upgrade which should fix all the site problems people have been suffering with for these many months and then also dramatically upgrade the site's features -- including a new and improved blogging/editing interface and improved ability to follow your conversations and your favorite bloggers.
It's in three stages -- 1) we're moving to a new and much more robust server set-up, 2) we're upgrading the software platform and then 3) we're going to roll out the new features.
Last night, we completed step one. We moved over to our new servers. The new server set up won't resolve the log in and forced log out problems. That's where the software upgrade comes in. But the new and faster servers should knock down the posting delays and double posting problems in addition to just making the whole site much, much faster.
But only you can really tell us how it's working on your end. So please let us know what you're seeing. Are the delays diminished? No more double posting problems? Let us know and that will help us moving forward.
Next day update: some folks were reporting HTTP 500 errors. We believe we've fixed that problem, are folks still seeing it? - ag
According to this report, Obama advisor Robert Gibbs says he believes that John McCain will show up for the debate tomorrow night in Mississippi. But drawing on my own experience, I think that the encouragement and support of people close to McCain could be critical in giving him the kind of safe emotional space that would make it possible for him to come.
Those of you who've read the site for a long time probably remember that I long struggled with a crippling fear of air travel, one which I've now largely, but by no means entirely, overcome. And I know for me, when facing that kind of fear, it really helped having people close to me giving me the strength to overcome my fears.
And I think it can be the same thing with McCain.
My question is, who does McCain need with him today to give him the courage to head down South and debate Obama? Any thoughts? Who can be McCain's support team?
So let's see. In the interests of saving the country, John McCain has to cancel the debate. But he's got time to do prime time interviews on each of the three broadcast networks tonight.
There're freakouts and there are freakouts. And yesterday's Manic Act Out moments from John McCain were in a class by themselves. First there he tried to cancel Friday night's debate and then he tried to beg off David Letterman's show by making up a story about having to hop on a plane to rush back to Washington. We wrap it all up for you today's episode of TPMtv ...
As Letterman said, "It really is starting to smell now."
The current stunt is certainly at the top of the list, but I think there is another aspect of his rash decision to suspend the Republican National Convention that has not been commented on enough. It wasn't just that he truncated the convention. It was that his campaign leaked that he might give his acceptance speech by live feed from the disaster zone. As if he, John S. McCain III, somehow had to be there......doing what? Commandeering FEMA? This idea that McCain had to be there in the disaster zone instead of addressing his party in St. Paul is in some ways even more ridiculous than the notion that only he could save the Wall Street bailout and that the only way to do that is to "suspend" his campaign. (Although as you and John Aravosis point out, he has a funny way of suspending his campaign given that he's doing everything he was planning on doing anyway, except debating Obama.)
Lemme see, two of McCain's press spokespeople on TV attacking Obama; McCain attack ads up on TV across the country. This is the suspension? What did I miss?
The guy is literally out of control. At what point do his friends need to start discussing an intervention?
Readers have been sending in reports all morning that John McCain's attack ads are still up in swing states around the country, notwithstanding McCain's puffed-up and vainglorious claims to have suspended his campaign to go to Washington and destroy the giant meteor hurtling toward earth save the economy. We are, as I write this, working the phones to confirm just what's up. In McCain's possible defense it can take a while to get ads down off the air. But we'll be getting to the bottom of it shortly.
If you see McCain's ads up, definitely let us know.
Perhaps this will shine an unflattering light on my psyche. But, like many of you, I have a busy schedule, with lots of work obligations and meetings. I also end up doing a decent number of panel discussions and speeches, though I try hard to keep those to a minimum. And like everyone, sometimes I get tired or overwhelmed and I wish I could get out of this or that responsibility.
Occasionally in these moments, in a perverse kind of private entertainment, I've found myself imagining what would happen if I pawned off on someone just the ballsiest, most inane excuse for flaking on some commitment. And not something that people might buy -- nothing entertaining about that -- but just something completely off the wall and nonsensical. What would people's reaction be? Speechless, laughter, tearing me limb from limb? Would they ever speak to me again?
So, let's see, I can't moderate the panel because I've been called to Washington to give a special briefing on guerilla tactics to be used against the Taliban?
Or maybe, I want to be at the meeting, but as weird as this sounds, all the bridges and tunnels out of Manhattan have been shut for the day. Some counter-terrorism thing probably. I tried renting a helicopter but they're all booked by people at the UN.
Isn't this pretty much what John McCain tried to pull today? But actually really did it? And on a national stage? He wants to cancel the debate? And maybe also Palin's debate. Are you kidding? Why not cancel the election too? And because he has to go back to DC to solve the financial crisis? Really? The topic he knows nothing about and after he's shown up less in the senate in the last two years than anyone but Tim Johnson, the guy who had the stroke? Which of my employees is going to call from home tomorrow and say they can't come to work because of the financial crisis?
One of the advantages of running a presidential campaign is that roughly half the country is deeply committed to believing or at least saying that virtually anything you do or say makes sense. And so it is here. But, look, if you were living in the real world, if you were some hotshot young executive at a Fortune 500 company trying to rise in the ranks, and you pulled some whacked crap like this, it would probably get you blackballed permanently. People would think you were either deeply unreliable or maybe just had a screw loose. And yet here he is -- is he kidding? He can't debate Barack Obama because he's got to go to Washington and save the economy? It's like the biggest 'dog ate my homework' in history.
Seems like only yesterday the McCain was explaining to us, no, lecturing us on how Rick Davis has completely severed his ties from his lobbying firm that was taking $15,000 a month from Freddie Mac until August.
"A few moments ago, President Bush called Senator Obama and asked him to attend a meeting in Washington tomorrow, which he agreed to do. Senator Obama has been working all week with leaders in Congress, Secretary Paulsen, and Chairman Bernanke to improve this proposal, and he has said that he will continue to work in a bipartisan spirit and do whatever is necessary to come up with a final solution. He strongly believes the debate should go forward on Friday so that the American people can hear from their next President about how he will lead America forward at this defining moment for our country," said Obama-Biden spokesman Bill Burton.
These guys are just digging into such depths of nonsense and desperation that pretty soon they're going to pop out in China, which will be helpful since they can ask the Chinese for the trillion dollars it'll take to bail out McCain's pals on Wall Street for the mess his economics advisor Phil Gramm made possible. Here's the latest attempt to exploit the financial market crisis for political ends (from CNN)...
McCain supporter Sen. Lindsey Graham tells CNN the McCain campaign is proposing to the Presidential Debate Commission and the Obama camp that if there's no bailout deal by Friday, the first presidential debate should take the place of the VP debate, currently scheduled for next Thursday, October 2 in St. Louis.
So we need to put the country first and cancel the vice presidential debate.
It seems that today during the time Barack Obama was waiting to hear back from Sen. McCain about their planned joint statement -- and while McCain says he was meeting with key advisors and becoming increasingly concerned about the financial crisis facing the country -- he was actually holding a special meeting with Lady Lynn Forester de Rothschild, the expat international financier who once supported Hillary Clinton but now is supporting McCain because she thinks Obama is "elitist".
I'm very curious to see the big-media pundit reaction to McCain's debate cancellation stunt. When you see, can you let me know? Folks on the cable nets. Prestige pundits with their own blogs like Klein et al. Lemme know and we'll round them up.
Sen. Schumer on McCain stunt: "Just weird..."
Late Update: Joe Klein sees it for what it is -- a desperate gimmick. Doesn't like Obama's joint statement idea either.
Let's state outright a few obvious points. Bringing the presidential candidates and their press entourages back to Capitol Hill won't speed or improve the process of coming up with a good bailout deal. It will politicize it. That's so transparently obvious that it barely requires stating. And of course that is the point.
By going public with his 'suspension' announcement as a breaking news statement McCain intended to make any agreement between the candidate impossible. Contrast that with Obama's campaign, which apparently tried to get both campaigns to agree on a common set of principles privately before going public. There's no logical reason there can't be a presidential debate while a bailout plan is being negotiated.
Finally, does anyone think that McCain would have come up with this gambit if his polls were where they were two weeks ago instead of where they are today? Of course, not. This isn't a reaction to the national financial crisis but to the McCain polling crisis.
The McCain supporters who are cheering this aren't doing so because they think it's the right thing to do but because they hope it's ingenious politics.
If anyone can think of any reason why these points are not incontestably accurate, I would be obliged if you could let me know.
He's desperate and reckless. This is what it appears to be: political stunt dressed up as vainglorious self-sacrifice. In other words, typical John McCain.
What's changed today in the financial crisis other than John McCain's poll numbers tanking? Isn't this the campaign equivalent of faking an injury when you're down late in the 4th quarter? Note too that McCain was in the midst of debate prep when he made this decision.
Look at what appears to have happened. Obama reached out to McCain privately to agree to a shared set of bailout principles. McCain went off the handle again and tried to use the crisis as a way to call off the debates.
Late Update: One longtime reader says it's worse than that:
Obama reached out privately, because once this discussion went public it was bound to be politicized. Instead of taking his call and hearing what he had to say, McCain spent the next six hours huddling with his aides, searching for a way of turning the situation to his political advantage. His response - a unilateral, public call for cooperation - was designed to retake the initiative and steal Obama's thunder. But it also ends any hope of actual cooperation.
Obama reached out, hoping that McCain would see something more important at stake than his own personal ambition. Alas, it would appear that there is nothing more important to McCain.
At 8:30 this morning, Senator Obama called Senator McCain to ask him if he would join in issuing a joint statement outlining their shared principles and conditions for the Treasury proposal and urging Congress and the White House to act in a bipartisan manner to pass such a proposal. At 2:30 this afternoon, Senator McCain returned Senator Obama's call and agreed to join him in issuing such a statement. The two campaigns are currently working together on the details.
McCain asks Barack to call off presidential debate.
(Desperate and Reckless: Ramp up Georgia crisis for votes; call off half the GOP convention; pick a demonstrably unqualified freshman governor to salvage his campaign; call for firing head of the SEC; now ask to have presidential debates delayed or canceled so he can politicize the bailout debate ... )
John McCain's strategy at the moment appears to be to vote against any federal financial market bailout plan -- whether it's a good one or bad one -- because it will give him an issue to pivot against both Obama, the Democratic Congress and Bush. But Sarah Palin appears now to have all but committed her running mate to support of whatever Congress passes. According to the AP, "Republican vice presidential nominee Sarah Palin says the United States could be headed for another Great Depression if Congress doesn't act on the financial crisis." The context and quote aren't clear. So we'll have to see precisely what she said. But this would appear to box McCain in a bit -- or force a retraction from Palin.
John McCain campaign manager Rick Davis--under the spotlight because of his work for mortgage giants Fannie Mae and Freddie Mac--is skipping a Wednesday lunch with reporters sponsored by the Christian Science Monitor.
On Tuesday, word came that McCain political director Mike DuHaime will substitute for Davis because he is "heading out on the trail" today.
Davis is the subject of stories in the New York Times and Newsweek about his work for the failed mortgage market makers. At issue right now: did Davis contradict McCain's statement that he has not been involved with Fannie and Freddie for some time.
So the latest is that we find that McCain campaign manager Rick Davis's firm was on the Freddie Mac payroll until last month when the government took over Freddie and forced it to stop paying money to lobbyists and insiders like Rick Davis. Now, Davis is part owner of Davis Manafort, the firm in question. But the McCain campaign is insisting that Davis hasn't drawn any compensation from the firm since 2006. So, the question is, is that true?
McCain campaign house blogger Michael Goldfarb says this is demonstrably false. And it may well be false. But the only evidence seems to be Davis's and the campaign's claims. I suspect that what they're saying may be true. But at this point with Davis and the campaign caught in so many different lies, do they really have any credibility to make such claims absent actual evidence? I mean, just yesterday Davis was saying he hadn't had any contact with the mortgage giants since the front group he ran for them shut down in 2005. And now we learn that the following year he asked them to keep sending more checks, apparently in return for no services rendered -- a point, you should note, that Goldfarb appears unable to deny.
Second, if I'm an owner of a company, I don't have to draw compensation today to reap benefits from the company's current success and profits.
The best statement I've read so far on this tangled web is just out from Public Action Campaign Fund ...
"John McCain's campaign manager and Freddie Mac essentially had what amounts to a secret half a million dollar lay-a-way plan. For almost three years and as late as last month, Freddie Mac made secret, monthly payments of $15,000 to Rick Davis's firm, apparently in exchange for providing special access to a future McCain White House. If McCain knew about this, his presidential campaign should be in serious trouble. If he didn't know about it, he ought to fire Rick Davis immediately," said David Donnelly, Director of Campaign Money Watch.
Seems that at least some Alaska Republicans may be moving into open revolt against the McCain campaign's obstruction of the Trooper-gate investigation.
As we've been noting, a lot about the Paulson/Bush bailout plan only makes sense if you assume the US Government is going to be paying premium prices for worthless or near worthless securities. And Here Fed Chief Bernanke seems to be saying precisely that.
Federal Reserve Board chairman Ben Bernanke said that criticism of the $700 billion plan proposed by Treasury Secretary Henry Paulson overlooked a key ingredient: it is designed to avoid forcing banks to sell or value their mortgage assets at a "fire-sale" price. In a harsher tone than he has ever used in testimony, Bernanke spelled out the benefits that would accrue when the government can buy these mortgage assets at close to "hold to maturity" prices instead of the fire-sale price. Banks would have a basis for valuing the assets and won't have to use fire-sale prices and their capital won't be unreasonably marked down, he said. Liquidity should begin to come back to the markets and uncertainty should dissipate. Credit markets should start to unfreeze, he said. If the assets are purchased near the true hold to maturity prices, taxpayer losses should be minimal, he said.
As I read this, what we're doing is taking a trillion taxpayer dollars to recapitalize these companies. The upside is that taxpayers break even if ... and this seems like a pretty crazy if ... these really are good investments rather than worthless paper. And the only issue is getting past this period of panic till they stabilize to the prices the taxpayers bought them for.
What am I missing?
Late Update: TPM Reader JR sends in this explanation ...
Bernanke's point is that for accounting purposes, banks are forced to write down their assets to market price. That causes a cycle of de-leveraging, in which banks try to increase their capital base by cashing in other assets, which makes their partner banks illiquid, in a cycle.
Bernanke is arguing that the government needs to make the market price equal the inherent value. Then, banks will be able to stop the damaging process of de-leveraging.
A well-designed auction can indeed estimate the inherent value.
But you're right at the end - there's very little upside for the taxpayer. Bernanke is suggesting that a well designed auction should minimize downside risk.
I think I'm saying the same thing as you, but I really think that you're being too liberal in your description of these assets as worthless.
And TPM Reader EP adds this ...
I saw your piece on Bernanke's testimony regarding the mortgage bailout. The problem with fire-sale prices is that not enough liquidity will be freed up. A long term hold strategy works better and will probably help buffer against a radical downturn in the near future. However, I don't agree with paying "hold to maturity" premiums for these assets across the board. Some of the real estate securing these loans are never going to come back, and I don't think a 20-30 year strategy is in the best interests of this country right now.
The final number is somewhere in the middle between say, 25 cents on the dollar, and $1.50 on the dollar. Doing a loan-by-loan analysis to see where each loan balance falls in relation to an approximate value would take too long. Better to agree on a number - say 50 cents or 60 cents - that gives added liquidity, unloads the bad loans that are sucking up capital in analysis and collection costs, and lets banks lend more money.
I was at [major national bank] last year, and this year moved to [major national bank]. As a salesman I can say it has been extremely difficult to qualify borrowers for loans. Rates have not been very high, but downpayment, liquidity, and credit restrictions, plus the elimination of many of the awful loan programs (like stated income), have succeeded in weeding out bad borrowers. The good borrowers are waiting on the sidelines to see how much lower prices will go before committing to a loan. We are also requesting a lot more documentation from borrowers to prove what they say in the loan application. Appraisers are isolated from the sales process. These are all good things, even if they are a little bit of an over-reaction.
I think the bailout plan, modified with Dodd's suggestions, will work, so long as oversight is ongoing, and bank management is given enough incentive financially to keep up the recovery process. Penalizing bank management is counter-productive. A punishment will just send many otherwise intelligent people to move on, leaving the mess with less-qualified people to manage.
I don't normally like printing so many emails stacked on top of each other. But I'm finding a lot of these very clarifying. So I'll add TPM Reader JL's note too ...
I just saw your post "More on the tell ...". Let me try to explain Bernanke's thinking. I'm a little puzzled by the exact language the Marketwatch article attributed to the Fed chief, but I'm pretty sure I understand his logic. (FYI, I spent over a decade with a company that services the securitization industry, so I have some background here.)
The bulk of the assets that the Treasury would buy under the Paulson plan are the highest rated "tranches" of subprime bonds issued between 2005 and 2007. These bonds sit above other, lower rated bonds in the capital structure of the relevant securities. To simplify, you might have a pool of $100 million worth of subprime mortgages used to issue $70m in AAA bonds and $25m in let's say BBB bonds. The remaining $5m is "overcollateralization." As mortgages default, the overcollateralization begins to disappear. Once that's gone, the BBB bonds get hit. Meantime, principal being repaid by the borrowers who aren't defaulting is used to pay back the AAA bondholders. The math gets really complicated, but suffice it to say that the $30m in cushion provided to the AAA bondholders allows them to withstand very high default rates. The typical 2006 AAA subprime bond was able to withstand a cumulative default rate of 50% or so with recoveries of around 50%. Cumulative default rate just means what percentage of borrowers from the original pool end up not paying. Recoveries means what percentage of the loan is recovered on foreclosure. At this point, it looks like cumulative default rates may be somewhat higher than 50% and recoveries may be somewhat lower than 50%. So, the AAA bondholders are probably going to suffer some principal losses. The question is how much. (By contrast, a lot of the lower rated tranches are certain to be wiped out ... but the Treasury won't be buying these.)
Right now, these formerly AAA bonds have a market price of around 50 cents on the dollar. To justify that price, you'd have to have going forward cumulative default rates of something like 80% to 90% with recoveries of around 30%. The math is complicated, but I believe that's what it works out to. That is a really, really extreme scenario and probably entails very dramatic additional declines in housing prices (say 30% down from here).
I think Bernanke and Paulson's logic is that they can go in and buy these bonds at, say 60 cents on the dollar. The sellers would not have to take any further writedowns. And, the Treasury by holding the bonds to maturity would most likely collect more than 60 cents on the dollar based on some number of mortgagees continuing to make payments (believe it or not, most of them still are) and the proceeds from foreclosures.
Sen. Obama is saying his spending programs may have to be delayed in light of the massive bailout bill. A few questions though, What about McCain's high income tax cuts that would go to the CEOs who created the mess? Any word on that? Still full speed ahead on that? Second, as we've discussed, if the Treasury bought these junk securities at real market rates and then held them until the market stabilized they could likely make money for the taxpayer. But that's the key, if they pay fair market rates very little money would go to the banks who are looking for their bailout and free ride back on to the gravy train. So that's an unresolved question. And remember, if Obama wins, his Treasury Dept. would be administering a lot of this. So are they planning to pay premium prices for the worthless or near worthless paper the banks are trying to dump on the public (in order to recapitalize the banks at public expense)?
I notice that the McCain campaign has now explicitly named Max Boot as a key advisor and campaign surrogate. So I'd be interested in seeing a list of all the completely insane things Max has said and written over the last decade. My favorite is when he told me -- circa 2002 -- that the US should seize and confiscate the Saudi oil fields and run them as a protectorate.
There are plenty of examples. And they're a good way to illustrate the nuthouse a McCain foreign policy would be. Please take a look and see what you can find and then send in the best stuff with citations.
CNN punk'd on Palin probe? Check out this piece on her decision to cooperate with the investigation (i.e., the sham one she set up after McCain helped her shut down the real one.)
The guy John McCain has chosen to manage his presidential transition was lobbying for Freddie Mac until this month.
And from McCain ...
McCain has labeled Freddie Mac and Fannie Mae as prime culprits in creating the financial storm that has roiled Wall Street and Washington.
``At the center of the problem were the lobbyists, politicians, and bureaucrats who succeeded in persuading Congress and the administration to ignore the festering problems at Fannie Mae and Freddie Mac,'' he said last week in Green Bay, Wisconsin.
Honestly, I expect a lot of hypocrisy of all politicians, of both parties. But John McCain is really in a class of his own.
[Y]ou remember the Keating Five scandal that he was a part of, which, by the way, it's crazy but there's been very little about it in the press in the last few weeks. And McCain thinks he's getting a hard time, he's really getting a free ride on the fact that he was in the middle of the last great financial scandal in our country. But his reaction to that, you would have thought, would have been more regulation of the financial services industry. Instead he moved forward on campaign finance reform after being caught in that scandal, but did nothing - nothing - to try to prevent another savings and loan crisis from happening down the road. He was missing in action when it came to even learning the basic lessons of a scandal that he said taught him all kinds of things that he would never forget.
Let's face it. On major economy-imperiling financial scandals brought about by lax regulation and help from lobbyist-encrusted politicians, McCain really is the candidate of experience.
I think Kos, Digby and Kilgore have this about right. The Republican/McCain plan is to get the Democrats to bail out the GOP's Wall Street friends and then run against them for doing it.
Democrats are pushing for oversight and some protection for taxpayers in the bailout bill. You know about that. But now the banks are saying they need more too? Can beggars be choosers? From CNN ...
At the same time, financial institutions are weighing in with what they want in the bill. On Sunday, the Financial Services Roundtable - a lobbying group representing the nation's banks - called on Congress to make the plan "broad enough to include different types of assets."
The Treasury has amended its original request to give it authority to buy up not just troubled mortgage assets, but troubled assets period.
This comes after the push to bail out foreign banks and bank lobbyists calling regulatory fixes a "deal breaker."
This is from the McCain conference call this morning. And following Davis, here's McCain enforcer Steve Schmidt. He realizes Davis's answer is laughable. So he doesn't even try to defend Davis and launches off on the Times (note: audio has had spittle removed for your protection)...
Getting pegged as liars makes Schmidt and Davis really, really mad.
Late Update: For more on why Davis and Schmidt are upset, note the quote from the former Fannie Mae spokesman who notes that Davis "didn't really do anything" for the money. "The value that he brought to the relationship was the closeness to Senator McCain and the possibility that Senator McCain was going to run for president again."
Republicans have decided that their argument on the credit crisis will be to argue that Democrats created the crisis by forcing banks to give too many loans to black people and other minorities.
And here's a similar argument written by Kevin Hassett for Bloomberg. In case you don't remember, he's the genius who wrote Dow 36,000 just before the tech bubble burst.
McCain camp quite touchy about being pegged as liars. Very upset at the NYT for revealing that Rick Davis got $2 million from Fannie and Freddie to help them fight off tighter regulation.
According to McCain enforcer Steve Schmidt, reporting on Davis' Fannie/Freddie connection means the Times "is not today by any standard a journalistic organization."
I guess Schmidt is pining for those 2002-2003 lickspittle days.
Last week I got a mountain of emails asking me to call the McCain campaign out for 'lying' about former Fannie Mae CEO Franklin Raines' relationship with the Obama campaign. It was pretty clear, as Karen Tumulty noted in Time, that the McCain camp was happy to play up Raines' race. And all the McCain camp could find to justify calling Raines an Obama 'advisor' was a stray reference in an article in the Washington Post which reported that Raines had taken a couple phone calls with people tied to the Obama campaign.
Still, in the rough world of politics, this amounted to basically a lie and not the usual McCain standard of 100% lie. But now we learn from the NY Times that McCain's campaign manager and right hand man Rick Davis bagged more than $2 million running a front group set up by Fannie Mae and Freddie Mac to defend them against stepped up federal regulation.
Is Ruth Marcus really so desperate to 'even the scales' that she's claiming that the phrase "privatizing Social Security" is "incendiary" language that amounts to deception? Is she so ignorant of this debate that she doesn't know that it was the preferred language of the advocates of privatization for more than two decades until they found out it wasn't polling well enough during the first two years of the Bush administration?
And it's apparently a big lie to say that Florida retirees would be in a big jam right now if John McCain had had his way right now and privatized Social Security because under McCain's and Bush's plan current retirees and those a few years from retirement wouldn't be affected. So in other words, from when McCain instituted the plan five years ago it wouldn't have affected those now drawing benefits or just entering the system. Or wait, McCain's not even president yet, right? So, true, presumably it wouldn't apply right now in 2008 to anyone in advance of McCain's even being in office and putting through his plan.
The point is that there's no end of special pleading and candidate hand-holding when the topic is the privatization of Social Security. And even the prestige columnists appear completely innocent of the details of how the proposed changes would work.
The New York Timesreports this evening that "foreign banks, which were initially excluded from the [Wall Street bailout] plan, lobbied successfully over the weekend to be able to sell the toxic American mortgage debt owned by their American units to the Treasury, getting the same treatment as United States banks."
The Times further reports that two of the biggest foreign banks in need of such relief are Barclays and UBS. In fact, my understanding is that UBS is more on the line here than any other foreign bank.
Let's add this up.
John McCain's top economics advisor, who is widely believed to be his choice for Treasury Secretary, should he win in November, is former Sen. Phil Gramm. (Indeed, just last night his spokesman refused to say Gramm wouldn't be McCain's choice for Treasury Secretary.)
President Bush, through Secretary Paulson, have asked for a massive bailout package with minimal oversight and no protection for taxpayers. Sen. Obama has now come back with a response that while imperfect and insufficient, makes clear that any plan must include independent accountability and oversight, some ability for taxpayers to recoup their investment, and more. Speaker Pelosi is making similar sounds, while congressional Republicans are asking for a 'clean' bill without oversight or taxpayer protection provisions.
Has John McCain done or said anything so far beside ask for advice from former Sen. Phil Gramm, the guy more singly responsible for creating the mess than anyone else? Which side is he on?
As a Wall Street guy I am sort of glad that this bailout is being organized. However, what seems unfair to me is that there are absolutely no provisions for homeowners. Moreover, this morning on Stephanopulous I saw Hank Paulson talking about homeowners taking out mortgages that were higher than they could afford and about them needing to live up to their obligations.
I find it incredible that he would use language like that while asking taxpayers to send a trillion dollars to Wall Street because investment banks made irresponsible investments and aren't able to live up to their obligations.
In any loan transaction there are at least two parties. If I give my unemployed and uneducated brother-in-law a half a million dollar loan wouldn't I be just as irresponsible giving it as he is taking it? Moreover, a large majority of borrowers did not have financial training to be able to understand complex mortgage terms and risks of the underlying investments. Investment banks have armies of Ph Ds working for them that helps them analyze market risks and credit exposure. They got it wrong too! It strikes me as strange that unsophisticated borrowers are being held to much higher standard than ultra-sophisticated bankers.
The financial crisis that began in the United States spread to many corners of the globe. Now, the American bailout looks as if it is going global, too, a move that could raise its cost and intensify scrutiny by Congress and critics.
Foreign banks, which were initially excluded from the plan, lobbied successfully over the weekend to be able to sell the toxic American mortgage debt owned by their American units to the Treasury, getting the same treatment as United States banks.
Considering as how the proposed Wall Street bailout will be one of the most intensely lobbied efforts in American history, will there be anyone left to manage John McCain's campaign?
TPM Reader JS makes another ...
You would never know it from watching the news, but one of the candidates in this race happens to have been previously implicated in a national scandal involving pressuring regulators to back off of a bank making risky moves with its assets, leading to disaster for investors and an expensive government bailout.
Is there a good reason why no one is mentioning John McCain's Keating Five membership in any of these arguments over who is on the side of regulating risky private banking practices? I know that McCain sort of asked for our forgiveness or something at some point during his "maverick period" around 2000-2003, but since he wants to engage in a debate about who is on the side of government regulation of risky banking practices, I think maybe we're allowed to call him out on this issue. Does anyone believe that if Barack Obama were one of the Keating Five that the Republicans would for some reason hold back from mentioning that fact?
There appears to be pretty widespread agreement that some major rescue plan is in order. But I'm having a hard time finding economists or others with related expertise -- either on the right or left -- who don't believe two things: a) that this plan gives way, way too much discretionary power to the Treasury Department with little requirement even to make reports to Congres and b) as Paul Krugman puts it, "there's no quid pro quo here -- nothing that gives taxpayers a stake in the upside, nothing that ensures that the money is used to stabilize the system rather than reward the undeserving." Whether that means equity stakes for taxpayers or simply some assurance that the USG won't be paying premium prices for worthless crap, that key component just doesn't seem to be anywhere in the proposal.
And unless I'm not being clear, this request isn't simply for effect. This is not a rhetorical question. I'm really looking for examples. I can see lots of politicians saying we need to do something now or we'll all die and lining up to vote for whatever Paulson says. But I'm curious how many economists there are (or people with relevant professional expertise) who don't agree that these two shortcomings must be rectified.
I'll leave to others whom I respect to craft out just what sort of plan is likely to be successful in stabilizing the financial markets and equitable to taxpayers. But any sort of narrow focus on executive compensation strikes me as a load of crap. Yes, they are too high. And yes, I believe they are part of the problem. But I don't think I need to know too much about economics to know that they are not a significant structural problem in what led to this mess. And the dollars in questions are chump change compared to the bill the big investment houses are now pawning off on the American people.
The key components in exchange for the money have to be some sort of equity in the companies being rescued (I'll leave it to the experts to figure out the mechanics -- which I grant is likely a highly complex matter) and structural reforms that create oversight, accountability and transparency to ensure nothing like this happens again.
And in case it isn't obvious, those begging as they cling by their fingertips on the precipice are not in a position to be making any demands or calling any proposals "deal killer."
Late Update: My instincts tell me that the effort to pretty this up by adding a 'stimulus package' is equally bogus. That's not to say it's not important in itself. But if we blow 700 million or a trillion dollars cleaning up Wall Street's mess, having also budgeted 25 or 50 billion on helping ordinary people won't make that trillion dollars any less blown. The focus here needs to be on making sure this bailout makes sense, isn't going to be farmed out to Neil Bush and provides something for taxpayers in return. Let's keep the focus on that.
upset at the NYT for revealing that Rick Davis got $2 million from Fannie and Freddie to help them fight off tighter regulation. 
