(I agree, although I think a lot of the larger, worst players looking at collapse should be absorbed wholesale and broken into constituent parts in the process… – promoted by odum)

As you all know, I have been supportive of a bailout that tried to move the bad mortgage paper out of the system.  I thought it made sense to have the govt buy this for nickels on the dollar and simply purge the system.  If priced right, the lenders will be punished, but can issue new stock and move on. Bank  Shareholders will pay the price for the stupidity of mortgage lending, but will not be totally wiped out.   More importantly, if priced right the ultimate tab to the taxpayer will be minimized as the government can re-sell the paper after it has cleaned it up.

Details are sketchy, but it looks like this bailout may offer to pay book value for these bad loans.  That is absurd. Here is a very good analysis of why:

http://calculatedrisk.blogspot…

As currently proposed, I am opposed to this bailout because it gives the Bush administration WAY too much latitude and does nothing to prevent bade behavior.

Any bailout needs to include a fair price to the taxpayer provision so that the treasury doesn’t simply buy up crap at premium prices.  It also needs to include warrants that will allow the debt to convert to shares to allow the taxpayer to be compensated for any paper that tanks.  

It is an absolute must that any bailout also include re-regulation of Wall Street, so that financial instruments are transparent with harsh criminal penalties.  I want any i-banker to think long and hard about a possible federal prison sentence if s/he knowingly issues bum securities.

I also think there should be a provision to pay for the costs of this bail out through a supplemental professional tax of i-bankers of  their gross income (regardless of the source) for the next 20 years.  

Lastly, there should be simplified provisions for judges to reset mortgage values to get people into homes they can actually afford.

( – promoted by odum)

We are about to get a test case in what happens when a big financial firm with lots of cross-holdings is allowed to fail. This morning, Lehman Brothers will file for bankruptcy. Krugman describes the decision to allow the 150 year old firm to fail as Russian Roulette:

 Krugmn's description is apt in more ways than one.  My guess is that Paulson and Bernanke are getting worried that they don't have too many bullets left and they are saving their ammo for a really big one.

Of course, all of this begs the question of the moral hazard that the Fed created when it bailed out Bear Stearns.  In doing so, it may have lulled investors into a false sense of confidence that the tax payer would bail them out if things got really bad.  I guess this morning, they've come to realize that the taxpayer is going to be selective in its bailouts.   

For Vermonters, there are repercussions.  Trying to get a loan for a car or a house will be a lot more difficult unless you have perfect credit.  If you have a 401k or a pension program, you may take a hit (Lehman works mostly with institutional investors) from Lehman's collapse.  It will also put upward pressure on oil prices as investors flee the dollar to oil and gold to ride out the storm (not too mention the price pressure caused by Ike).  

Scary stuff. 

I had heard a lot about Cindy McCain’s difficulties with prescription drugs, but never realized that she was the subject of an investigation that looks like it was squashed by John McCain:

http://openleft.com/showDiary….

Addiction is a horrible thing and I never held it against Cindy that she has struggled with it.  However, the allegations of a cover up here are pretty serious, potentially  criminal.  

Evidently, at least three earmarks for that vast metropolis of Wasila were on John McCain's pork lists: http://www.latimes.com/news/nationworld/nation/la-na-earmarks3-2008sep03,0,6851593.story

 I suppose this will be considered a smear as well…

This isn't getting much coverage at the moment, but a simmering conflict between Russia and the Republic of Georgia has just erupted into a shooting war:

http://news.yahoo.com/s/ap/20080808/ap_on_re_eu/georgia_south_ossetia

 The reason this conflict is of importance is that there are many, on both sides of the aisle, that would like to see Georgia in NATO.  Thus, under article V rules we could become embroiled (or at least obligated to become embroiled) in a territorial conflict in which the US has no strategic or moral interests.

The Georgians certainly have some ground for grievance.  South Ossetia was grabbed by the Russians when Georgia itself nearly collapsed in the early 90s under Gamsakhurdia.  Conversely, South Ossetia was given to Georgia by Stalin precisely because he knew it would foment this type of conflict.  To make a long story short, for a variety of historical and cultural reasons the Ossetians tend feel closer to Russia than Georgia.  Thus, it is unclear whether the Ossetians living in South Ossetia want to be part of Georgia.

 If you think the Balkans in the 90s was a tangled mess of borders, ethnic hatreds and economic plundering, you ain't seen nothing like the Caucasus. 

If the conflict widens, look for it to feature in McCain's rhetoric.  McCain is an advocate for getting Georgia into NATO (along with Ukraine).  

To my mind, this conflict makes it clear that there is absolutely no way Georgia should be allowed in til it settles its borders (there is another break away region called Abkhazia that is even more problematic).  That may not be fair to the Georgians, but I don't think the US has anything to gain in going to war with Russia over Ossetia.  To paraphrase Bismarck: the whole of the Caucasus is not worth the bones of one American soldier.

Anyway, back to the coverage of the Olympics, Symington's tax returns, etc… 

I have a My Turn Piece in the Freeps today:

http://www.burlingtonfreepress…

I wrote the article because relatively few Vermonters realize the outsize role our state plays in foreign assistance.  Not only are there all the organizations mentioned in the article, but Senator Leahy plays a very significant role in the Senate.  Thus, it is one of the few areas of foreign policy where Vermonters can exert real influence, both at the policy and implementation levels.  

(Although Vermont doesn’t have the resources to compete with $150 million incentive packages, there’s an important conversation here – and it leads into a debate about what makes a “good” incentive package for businesses. Is it as simple and gimmicky as tax breaks or the circ highway, or do we need to be thinking more broadly and sustainably..? – promoted by odum)

Today, IBM announced a $1.5 billion dollar investment in NY state for a nano-tech plant.  The new plant will create roughly 1,000 really good jobs.  The state government kicked in $150 million in incentives to make the deal come together.  1,000 jobs will bring a lot of income tax and revenue into the state coffers.  My guess is the state government will recover that $150 million in less than 4 years.  Those 1,000 jobs will help keep RPI and other top grads in upstate NY.

In Vermont the most exciting thing our leaders can come up with is a VermontCard, credit card.  Just what Vermont needs to build its economy – a credit card!   Only this time instead of earning FF miles, you can put money towards ag projects.  

What I find astounding is that these people expect us (the voters) to take them seriously.    

If Pollina (or any other candidate) wants to be taken seriously, I think they need to do more than come up with gimmicks.  They need to show they’ve got some clue how to encourage investment (either local or out of state) and private sector jobs.  Right now, we’ve got Do-Less running around doing nothing, we’ve got Symington talking the same vague language that served Scudder Parker so well in ’06 and we’ve got Pollina who seems to think he can revive the state through a Mastercard bonus plan or something…  

We need to do better than this. We need leaders capable of something more than empty rhetoric or goof-ball gimmicks.  We need leaders who understand that to pay for social services you need good-paying private sector jobs to provide the tax revenue.  We need leaders who understand that, like it or not, Vermont must compete globally for investment and for the best people.  

( – promoted by odum)

The LA Times has an overview of how the rest of the world is reacting to Obama’s victory:

http://www.latimes.com/news/na…

It is hard to overstate how intrigued the rest of the world is with Obama’s rise.  It simply doesn’t fit the narrative that has been formed of America over the last decade.  America isn’t just about entrenched elites and political dynasties.  

I was in Qatar last week on an overnight stay on my way back from Sri Lanka.  At passport control instead of asking me about the purpose of my visit, the official asked “McCain or Obama?”  When I replied Obama, he smiled, stamped my passport and gave me the thumb’s up.

It is nice that the rest of the world is seeing the America we see.

You have to hand it to Michael Chertoff.  He knows how to keep our country safe.  DHS has Nelson Mandela – I kid you not – on a terrorist watch list:

http://www.usatoday.com/news/w…

Sure, Mandela may be the world’s greatest living statesmen, winner of the Nobel Prize and leader of the peaceful end of apartheid (not to mention 80+ years old), but he is a serious threat to the national security of this country…

Oh, well and I was looking forward  to months of Obama-defending posts.  Now, at least I know my last gasp of idealism will be crushed by the military-industrial complex…

http://www.theonion.com/conten…