Economy -- Brother, Can You Spare A Billion?

March 18, 2008

by Faiz Shakir, Amanda Terkel, Satyam Khanna, Matt Corley, Ali Frick, and Benjamin Armbruster

ECONOMY

Brother, Can You Spare A Billion?

Bear Stearns chairman James Cayne was known for his love of playing bridge and often criticized for being "out of touch from his embattled Wall Street firm." Caynes, however, now finds himself squeezed out as the federal government made a high-stakes gamble to keep capital markets from collapsing around him. On Sunday, the Federal Reserve decided to "essentially finance the takeover of collapsing investment bank Bear Stearns" by J.P. Morgan. In what is believed to be the "largest Fed advance on record to a single company," the government will provide as much as $30 billion in financing collateralized by Bear Stearns's less-liquid "difficult to value" assets, such as mortgage-backed securities that the firm has been unable to sell. This move by the Bush administration appears to follow a familiar double standard coming from officials who chastise members of Congress trying to help stabilize housing markets about the harm of government intervention. Once again, the rules that bar help to American families don't apply when it comes to Wall Street. The administration may have been right that our economy had too much at stake to let a run on Bear Stearns drag down the whole financial system. But the same contagion theory applies to the housing market, where a downward spiral of home prices is spinning out of control with the potential for even more devastating effects on communities and the economy.

BEAR STEARNS FIRE SALE: In 1996, William Cohen, then a Republican senator from Maine, said, "We have been saying for so long that government is the enemy. Government is the enemy until you need a friend." Indeed, over the weekend, Wall Street -- which has balked at government regulation and paying capital gains taxes -- barely seemed to hesitate before turning to the federal government for help. Concerned about the serious consequences for the rest of the financial system if one of Wall Street's largest companies was lost, the Fed "offered Bear Stearns a financial lifeline but demanded control over the bank's fate in return for keeping it out of bankruptcy." J.P. Morgan was able to buy Bear Stearns for only $2 a share. Unwilling to "take the risk of about $30 billion worth of assets on Bear Stearns's books, in particular bonds linked to troubled mortgages, the Fed agreed to guarantee those securities" for J.P. Morgan. The federal government would receive any profit from the sale of these assets, but taxpayers would also "be on the hook" for any losses. As William W. Beach, a senior fellow of economics at the conservative Heritage Foundation noted, "Last week, the position of the Bush administration was to let markets correct themselves and to allow no bailouts and no subsidies. Somewhere over the last four days, that policy changed. They discovered the rules of the road just didn't apply."

ACCESS TO THE COOKIE JAR: Experts worry that Lehman Brothers, in particular, is also on shaky ground; the firm's shares were down 19 percent after the weekend's news. Europe's largest bank, UBS, "which has recorded huge losses from mortgage investments like those at its U.S. counterparts," also "suffered its sharpest drop in European trading in nearly 10 years." In order to avert a wider financial meltdown, the Fed cut the rate on direct loans to banks and "took the extraordinary measure of allowing securities firms to borrow from the central bank under terms normally reserved for regulated banks." In today's Washington Post, columnist E.J. Dionne wonders whether Wall Street will "feel a bit of gratitude, perhaps by being willing to have the wealthy foot some of the bill or to acknowledge that while its denizens were getting rich, a lot of Americans were losing jobs and health insurance."

NO HELP FOR HOMEOWNERS: In his weekly radio address -- just one day before the government stepped in and bailed out Bear Stearns -- President Bush said, "If we were to pursue some of the sweeping government solutions that we hear about in Washington, we would make a complicated problem even worse -- and end up hurting far more homeowners than we help." In the end, the Bush administration threw out its conservative principles and saved the firm from complete collapse to protect the larger market. As recently as Sunday, Paulson was still insisting that "government intervention" for homeowners would "raise more problems and do more harm than they would do good." Center for American Progress Senior Fellow David M. Abromowitz notes the contradictions in the Bush administration's approach: "Bear Stearns is too important to allow to fail, but millions of homeowners can end up on the street when home prices plummet sharply. The Wall Street holders of overvalued mortgage pools are too important to fail, but homeowners drowning in debt are told to keep paying [no] matter what. Or consider that big oil company tax breaks are too integral to our energy plan, but relief for millions of drivers squeezed by rising gasoline prices would be bad economic policy."

IRAQ -- CHENEY DECLARES IRAQ WAR A 'SUCCESSFUL ENDEAVOR': Yesterday, Vice President Dick Cheney made an unannounced visit to Iraq to meet with U.S and Iraqi leaders and to reaffirm "the unwavering commitment" of the United States in Iraq. Despite the fact that numerous government reports over the last five years have conclusively proved that no relationship between Saddam Hussein and al Qaeda existed before the U.S. led invasion of Iraq in 2003, Cheney said yesterday during a press conference in Iraq that it is "pretty clear that there was" a link. In fact, a Defense Department commissioned study released just this month found "no connection" between Saddam Hussein's and al Qaeda. But Cheney -- who has a solid history of making the false link -- held firm, citing a thoroughly-debunked Weekly Standard article as laying out the best case of an Iraq-al Qaeda connection. Moreover, despite a deadly suicide bombing and other violence that killed and injuring scores of Iraqis yesterday, Cheney said there has been "phenomenal" improvements in security and that the war has been a "successful endeavor."

CIVIL LIBERTIES -- MOST AMERICAN BELIEVE GOVERNMENT IS TOO SECRETIVE: This week is Sunshine Week, an annual initiative to "open a dialogue about the importance of open government and freedom of information," led by the American Society of Newspaper Editors and a coalition of civic groups, libraries, non-profits, and other public interest organizations. In a survey conducted for Sunshine Week, Scripps Howard News Service and Ohio University found "a significant increase over the past three years in the percentage of Americans who believe the federal government is very or somewhat secretive, from 62 percent of those surveyed in 2006 to 74 percent in 2008." An audit by the National Security Archive released yesterday shows that "President Bush has barely made a dent in the huge backlog of unanswered requests under the Freedom of Information Act." Additionally, a report this weekend by Tuscaloosa News found the use by federal departments of "at least 140 provisions scattered throughout federal law" to deny access to government information has "more than doubled between 1999 and 2006."

IRAQ -- FIVE YEARS LATER, IRAQIS FLEE THEIR COUNTRY: The U.N. High Commission for Refugees reported today that "Iraqis are still fleeing their country five years after the US-led invasion and top the list of asylum seekers in the industrialized wold." There were 338,000 Iraqi refugees seeking asylum in 2007, a 10 percent rise from the previous year. The report emphasized, however, that asylum seekers "represent only one percent of the estimated 4.5 million Iraqis uprooted by the conflict." Last year the United States admitted only 1,608 Iraqi refugees, well below its goal of 7,000 and only 202 more than in 2006. Last week, in a hearing by a House panel on the issue, Rep. Dana Rohrabacher (R-CA) resisted calls for the United States to allow more Iraqis in. "They're wonderful people who'd like to live here, especially the ones who have helped us, but the last thing we want to do is to have people who are friendly to democracy...moving here in large numbers at a time when they're needed to build a new, thriving Iraq," Rohrabacher said.

"My life has been flushed down the drain," said one Bear Stearns employee. Bear Stearns had always encouraged its 14,000 employees, "from secretaries to top executives, to be long-term holders in the company's stock, and the employees own over 30 percent of the company."

A New York Times editorial warns that "if the United States government doesn't stabilize the markets, foreign governments increasingly will, in exchange for an ever larger stake in the American financial system." The Fed's unprecedented loans to banks "cannot save defaulting homeowners, transform bad mortgage loans into good ones, or do the same for hundreds of billions of dollars of securities tied to those loans."

Rep. David Dreier (R-CA) "failed to disclose tens of thousands of dollars in profits he made on stock sales on his annual financial disclosure forms for the past several years." Last Thursday, after inquiries by Roll Call, Dreier filed an amendment to "his 2004, 2005 and 2006 disclosure forms" listing previously undisclosed stock sales "totaling between $85,000 and $263,000 in income."

Director of National Intelligence Mike McConnell recently delivered a speech that contained a story about an historical radio conversation at sea. "This is true. It's an actual recording," McConnell said. In fact, McConnell's story was "untrue. False. Urban naval legend. Never happened."

"A conference to reconcile Iraq's warring political groups began to unravel even before it got under way on Tuesday, with the main Sunni Muslim Arab bloc pulling out and protesting it had not been properly invited."

Newsweek's Fareed Zakaria writes that the United States is "stuck in the Iraq loop." "We are told that the surge has worked brilliantly and violence is way down. And yet the plan to reduce troop levels -- which was at the heart of the original surge strategy -- must be postponed or all hell will once again break loose."

British Prime Minister Gordon Brown has confirmed that his government will "at some point" hold an inquiry into the lessons to be learned from the invasion of Iraq and its aftermath. But, he said that time is not is "not now."

A U.N.-supported report released yesterday conducted by the World Glacier Monitoring Service at the University of Zurich has found that "most of the world's mountain glaciers, many of which feed major rivers and water supplies, are shrinking at an accelerating pace as the climate warms."

Mirroring the results of a new CNN poll, a recent USA Today/Gallup poll has found that 76 percent of Americans think the U.S. economy is in recession. "Not since September 1992, two months before President George H.W. Bush lost re-election, have so many said the economy was in such bad shape."

And finally: Echoing his infamous declaration in 2005 that former FEMA chief Michael "Brownie" Brown was "doing a heckuva job" responding to Hurricane Katrina, President Bush thanked Treasury Secretary Henry M. Paulson yesterday "for working over the weekend" in response to the long-brewing economic crisis.

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Harvard Law School is offering to "waive tuition for third-year students who pledge to spend five years working either for nonprofit organizations or the government."

CALIFORNIA: More than 9 million voters turned out in February's presidential primary.

VIRGINIA: Critics charge Veterans Affairs facilities are blocking efforts to register U.S. soldiers to vote.

HEALTH CARE: States "struggling to keep just their current health programs afloat."

DISTRICT OF COLUMBIA: The Supreme Court hears arguments today on DC's gun ban.

THINK PROGRESS: White House Press Secretary Dana Perino defends the administration's intervention for Wall Street instead of Main Street.

WONK ROOM: Income disparity and wealth consolidation show eerie resemblances to 1928.

MN PUBLIUS: Rep. Michelle Bachmann (R-MN) says global warming is "all voodoo, nonsense, hokum, a hoax."

OLIVER WILLIS: The Washington Post's Howard Kurtz continues his long tradition of writing glowing profiles of conservative media figures.

"There have been some phenomenal changes...with respect to political developments here in Iraq."
-- Vice President Dick Cheney, 3/17/08

VERSUS

"A conference to reconcile Iraq's warring political groups began to unravel even before it got under way on Tuesday, with the main Sunni Muslim Arab bloc pulling out and protesting it had not been properly invited."
-- Reuters, 3/18/08

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Brother, Can You Spare A Billion?

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