ECONOMY
Bailout Still Falls Short

Yesterday, the Bush administration and congressional leaders "said they had struck an accord," agreeing to spend "up to $700 billion to relieve Wall Street of troubled assets backed by faltering home mortgages." The bailout legislation, titled the Emergency Economic Stabilization Act of 2008, was discussed by both congressional chambers throughout the weekend, and is expected to come to the House floor for a vote today. Senate Majority Leader Harry Reid (D-NV) said that the Senate will vote on the bill by Oct. 1. The final legislation, which President Bush praised as a "very good bill," is necessary to prevent a wider financial meltdown that would cause more job losses. Also, the bill charges the Treasury Department with attempting "to prevent avoidable foreclosures." That said, the legislation still falls short, and does not give adequate coverage to taxpayers and homeowners struggling to stay in their homes.

BETTER THAN THE ALTERNATIVES: New York Times columnist Paul Krugman writes today, "The bailout plan released yesterday is a lot better than the proposal Henry Paulson first put out -- sufficiently so to be worth passing. But it's not what you'd actually call a good plan, and it won't end the crisis." Indeed, the bill does provide some important improvements over prior proposals. Instead of giving $700 billion to the Treasury all at once, the money will be doled out in three installments: an initial $250 billion, another $100 billion "upon a Presidential certification of need," and the final $350 billion if the President submits a written request to Congress, which Congress can deny within 15 days. The bill also establishes a Financial Stability Oversight Board "to review and make recommendations regarding the exercise of authority" and "ensure that the policies implemented by the [Treasury] Secretary protect taxpayers." By contrast, the initial Bush administration proposal included no oversight mechanism. The bill also includes provisions limiting compensation for senior executives, "with especially severe limits on 'golden parachutes' at failing firms." It allows the Treasury to conduct reverse auctions of securities, which means "firms that can afford to will dump their toxic waste at low prices, the way some already have on the private market, and taxpayers may end up making money in the end." The proposal does not include some of the more radical ideas put forward by the Republican Study Committee -- and backed by former Speaker of the House Newt Gingrich -- like removing the capital gains tax, which favors wealthy investors while doing nothing to correct the financial crisis.

PROBLEMS REMAIN: However, the bill does have serious flaws. One facet of the bill by House Minority Leader John Boehner (R-OH) and Rep. Eric Cantor (R-VA) that remains in the final product requires the Treasury "to establish a new federal insurance program, funded by the banks, that would protect firms against loss from troubled assets." As Time reported, the only way for this plan to work is "for every last one of those $6 trillion in mortgage securities to be insured. Otherwise you'd just get the financial institutions with the [worst] loans on their books choosing to participate--which would amount to a giant bailout of the bad guys by taxpayers." Furthermore, the bill gives the chairman of the Securities and Exchange Commission ability to suspend mark-to-market accounting, which could remove market transparency and allow financial institutions to continue "pretending bad assets are good and in the process dra[g] down our economy." Also, the legislation gives the Treasury the ability to buy assets beyond mortgages -- like student loan debt or credit card debt -- which is "a very bad idea," according to Center for American Progress Vice President Ed Paisley. "The current financial crisis did not arise because of souring commercial real estate debt, or credit card debt, or auto loan debt, or student debt. ... That kind of debt has traded in the markets for many years now, and continues to trade today even as the value of these securities falls amid the current economic downturn." The origin of the crisis lies with home mortgages, but the legislation merely says that the Treasury Secretary "must implement a plan to mitigate foreclosures and to encourage servicers of mortgages to modify loans through Hope for Homeowners and other programs." There is no explicit directive to the Treasury to actively restructure mortgages, and it is far from certain that servicers would feel they had the legal authority to make substantive loan modifications under their contracts, even at the Treasury's behest. The Center for American Progress's SAFE loan program would have made the necessary adjustments to tax and accounting regulations to obtain servicer participation. Finally, the bill does not allow bankruptcy judges to restructure troubled mortgages, as Sen. Chris Dodd's (D-CT) would have.

WHAT NEEDS TO BE DONE: For the bailout to be successful, it needs to be coupled with further support for taxpayers. First, a second stimulus package must be passed, to give help to those squeezed by the current crisis. Next, a serious investment must be made in infrastructure. An analysis by the Center for American Progress shows that a $100 billion investment over two years in a Green Recovery program will jumpstart the economy and create 2 million new jobs. Finally, something still needs to be done to help keep taxpayers in their homes. Without provisions "expressly aimed at helping these borrowers restructure their mortgages...this grand plan to buy 'toxic' assets from the financial institutions that engineered this market meltdown will not help the U.S. housing market recover." While the bill does say that the Treasury Secretary Paulson "shall implement a plan that seeks to maximize assistance for homeowners," there is still not a proper mechanism in place to prevent foreclosures actively. Also, if Paulson uses the bailout money to purchase mortgage securities, instead of mortgages, he'll be unable to affect restructuring without first gaining ownership of most of the securities from a single investment trust. So while the tools to protect homeowners do exist in the bill, progressives will have to hold Paulson's feet to the fire to ensure that these tools are used.

Under the Radar

CIVIL RIGHTS -- CBC CRITICIZES BACHMANN FOR ASSERTING 'MINORITIES' CAUSED FINANCIAL CRISIS: During a hearing last week on the financial crisis, Rep. Michele Bachmann (R-MN) read an article from a right-wing publication pinning the blame for the housing crisis on President Clinton's attempts to push "homeownership as a way to open the door for blacks and other minorities to enter the middle class." In pointing the finger at minorities and the Community Reinvestment Act (CRA), Bachmann was echoing a popular right-wing myth, recently peddled by Charles Krauthammer, Fox News, the Wall Street Journal, the Washington Times, and the National Review. In response, 31 members of the Congressional Black Caucus wrote a letter to Minority Leader John Boehner (R-OH), calling Bachmann's claims "ridiculous" and asking Boehner whether he agrees with them. "Shifting the blame for the current economic crisis to laws that allow equal access and opportunities to communities of color is ridiculous," they wrote. They concluded by asking "if Rep. Bachmann's position" that lending to minorities is to blame for the financial crisis "represent[s] the position of Republican Caucus?" The Center for American Progress's Robert Gordon explains that lenders made bad loans not in an effort to comply with the CRA but simply "to make money." "Most important," he adds, "the lenders subject to CRA have engaged in less, not more, of the most dangerous lending."

ADMINISTRATION -- REPORT: BUSH 'PERSONALLY DIRECTED' GONZALES TO STRONG-ARM ASHCROFT AT HIS BEDSIDE: In his May 2007 testimony, former Deputy Attorney General James Comey described the infamous strong-arming of then-hospitalized attorney general John Ashcroft conducted by then-White House chief of staff Andy Card and then-White House counsel Alberto Gonzales to reauthorize Bush's surveillance program in 2004. Comey said he believed President Bush made a call to Ashcroft's wife. Comey explained, "Mrs. Ashcroft reported that a call had come through, and that as a result of that call Mr. Card and Mr. Gonzales were on their way to the hospital to see Mr. Ashcroft." "I have some recollection that the call was from the president himself," he said further. Days after Comey's testimony, President Bush dodged the question about his involvement in the matter, stating, "There's a lot of speculation about what happened and what didn't happen. I'm not going to talk about it." Last week, however, Murray Waas wrote in the Atlantic that Gonzales is now telling investigators that Bush was directly involved. The revelation comes after Gonzales refused to tell the Senate in 2007 who sent him to the bedside of Ashcroft, repeatedly asserting, "We were there on behalf of the president of the United States." But now -- by implicating Bush directly -- "Gonzales and his legal team are apparently attempting to lessen [Gonzales's] own legal jeopardy."

IRAQ -- MALIKI SAYS HE'S WILLING TO COMPROMISE ON IMMUNITY IN ORDER TO REACH U.S-IRAQ SECURITY DEAL: In August, the United States and Iraq reached a tentative agreement on a draft  security accord governing American forces, which would have removed U.S. "combat troops from Iraqi cities by next June and from the rest of the country by the end of 2011 if conditions in Iraq remain relatively stable." But that agreement, which is needed to extend the U.S. mandate in Iraq beyond this year, stalled earlier this month because of "objections by Iraqi leaders" over whether American soldiers would have immunity from Iraqi courts. In an interview today with the Associated Press, Iraqi Prime Minister Nouri al-Maliki said "that he is willing to compromise on the thorny issue of legal jurisdiction over U.S. troops in the country, but warned that Iraq's parliament will not accept any pact that falls short of the country's national interests." During the interview, "al-Maliki signaled that he is now willing to accept immunity for U.S. forces when they are pursuing their official duties, and would only demand Iraqi legal jurisdiction over them when not." It is unclear whether this will be enough to settle the issue, as "Washington wants to protect its soldiers from being tried in Iraqi courts, terms it also requires in many other countries where it has bases."

Think Fast

"Former attorney general Alberto R. Gonzales will not be referred to a federal grand jury for his role in the 2006 firings of nine U.S. attorneys," but a new report released today by the Office of Professional Responsibility and the Justice Department Inspector General does recommend that "a prosecutor continue to probe the involvement of lawmakers and White House officials in the episode."

33 percent: Number of Americans who believe the economy is already in a depression. Just 12 percent said that 10 months ago.

Five bomb attacks stuck Baghdad yesterday, killing at least 27 people and wounding 84. "The bombings reinforced fears among a growing number of residents that the security situation in Baghdad was deteriorating, even though over all it remained at the most stable level since the American-led invasion in 2003."

59 percent: People who believe that the Bush administration's "war on terror" has either made al Qaeda stronger or had no effect, according to a new BBC poll of 23 nations. Forty-nine percent of those polled said neither side is winning "the conflict between al-Qaeda and the US."

On Saturday, the Senate voted to give $25 billion in loan guarantees to the auto industry in Detroit, the largest federal aid package ever offered to the industry. The money "amounts to a subsidy for such products as hybrid vehicles and plug-in electric cars."

Lawmakers are seeking to "penalize excessive executive pay at many companies seeking aid from the federal government's $700 billion bank-rescue plan." But the penalties are likely to be ineffective, as they rely the loophole-ridden tax code. Dean Baker, co-director for the Center on Economic and Policy Research, commented, "Any executive who can't figure out a way around these restrictions should be fired."

And finally: On Sunday, Rainn Wilson of "The Office" spoke at George Washington University, joking that he was there because "Steve Carrell was unavailable this weekend." Wilson was actually there to benefit the Tahirih Justice Center. When asked whom his character, Dwight Schrutte, would pick in the upcoming election, Wilson replied, "Early on in the campaign, John McCain picked Dwight Schrutte as his running mate. He didn't actually follow through." "Dwight for V.P." t-shirts were still up for grabs at a silent auction over the weekend.

Good News

A new organization -- the World Institute for Nuclear Security -- is being unveiled today in Vienna that "seeks to bolster security at thousands of nuclear sites around the world in an effort to block atomic theft and terrorism."

State Watch

MISSOURI: Amendment to state constitution "would establish English as the language of all 'official proceedings.'"

FLORIDA: Controversial "no-match" law will force 3,200 voters to cast provisional ballots if they are unable to confirm their identity "at least 24 hours before Election Day."

COLORADO: Amendment to state constitution on November ballot would prohibit union dues from being "automatically deducted from state paychecks."

Blog Watch

THINK PROGRESS: Google comes out against California's Proposition 8.

WONK ROOM: Former Vice President Al Gore: "Clean coal's like healthy cigarettes."

YGLESIAS: People are skeptical of the bailout plan for more reasons than just populist anger.

HARPER'S: Alex Gibney's "Taxi to the Darkside" premiers tonight on HBO.

Daily Grill

"John didn't phone this one in. ... You can't phone something like this in. Thank God John came back."
-- Sen. Lindsey Graham, 9/28/08, on Sen. John McCain's (R-AZ) return to Washington for bailout negotiations

VERSUS

"By mid-afternoon [on Saturday], Mr. McCain's closest adviser, Mark Salter, told reporters that Mr. McCain would not go to Capitol Hill on Saturday but would make phone calls to try to push the deal along."
-- New York Times, 9/27/08