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Why did mortgage securities and bank stocks fall so much more sharply in the last few weeks? The market was expecting that Hank Paulson would act in a manner consistent with Congressional intent when it passed the bailout. As time passed, anxiety about treasury's inaction increased. Then on November 12, Paulson announced that he would do nothing soon to provide foreclosure relief to homeowners.

As we've seen above, stabilizing home prices is key to stabilizing the broader economy. And the key to stabilizing home prices is to limit the spate of foreclosures that would flood the market. If homeowners are able to remain in their homes and make partial payments on their mortgages, lenders may attain a better recovery than from a series of fire sale liquidations.

The problem is concentrated among private-label securitizations. Though they represent only 20 percent of all mortgages, they represent 60 percent of all defaults, according to The Financial Times. Unlike most mortgage securities that follow the standardized underwriting guidelines of Fannie Mae and Freddie Mac, private-label securities make it almost impossible for the lender to negotiate modifications with the homeowner. Congress passed the bailout package on the condition that a large chunk of the $700 billion to assume control of these assets so that the government could renegotiate terms with distressed homeowners.

Paulson ignored Congressional intent, and went off into an entirely different direction, allocating funds to bolster securitization of credit card receivables. Barney Frank, with great specificity, called him on his bad faith bait-and-switch tactics. But that exchange didn't get nearly as much coverage amid Paulson's platitudinous soundbites and talk about bailing out GM.

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economy Paulson bailout mortgage cycle FannieMae FreddieMac BarneyFrank misuse

Bush understands what happened in 1993 when his father left an almost-finished North American Free Trade Agreement in the lap of President Bill Clinton's incoming administration. He knows that business interests subsequently pressured Clinton into joining with Republicans to pass the pact over his own party's opposition. His Rove-trained mind gets what the Nation's John Nichols reported: that the payout came with a 1994 election whose NAFTA taint delivered "a dramatic drop in turnout among members of union households," decreased "Democratic support in traditional areas of strength" - and thus birthed the Republican Congress.

Bush wants to replicate this Three Card Monte - and the Colombia trade pact is his ace in the hole.

The deal would reward a right-wing Colombian regime under investigation for links to paramilitary gangs, drug cartels and anti-union brutality. Like NAFTA, it includes few labor protections, meaning it will enrich Bush's corporate donors by forcing Americans into a wage-cutting competition with low-paid foreign workers. And, most important to Bush's legacy, the pact could bust Democrats before they ever have a chance to unify.

NAFTA proved that trade is the most divisive issue inside the Democratic Party. On one side is the party's Wall Street wing that supports free trade. On the other side is its progressive wing that wants our trade policies reformed. Lately, the latter has increased its clout. As globalization became a major campaign theme in the last two elections, the watchdog group Public Citizen reports that free trade critics replaced free trade proponents in 69 House and Senate races. These new populists, along with Democrats' more senior progressive incumbents, comprise a powerful new voting bloc promising to reject deals like the Colombia agreement and protect labor and human rights.

Therefore, if Bush successfully uses the economic emergency to hustle a faction of Wall Street Democrats into supporting the deal, he will have potentially engineered a 1994 redux: Democratic infigh

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politics Bush Obama NAFTA Columbia trade deal bailout

McCain’s Suspension Bridge to Nowhere

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By FRANK RICH
Published: September 27, 2008

WHAT we learned last week is that the man who always puts his “country first” will take the country down with him if that’s what it takes to get to the White House.

For all the focus on Friday night’s deadlocked debate, it still can’t obscure what preceded it: When John McCain gratuitously parachuted into Washington on Thursday, he didn’t care if his grandstanding might precipitate an even deeper economic collapse. All he cared about was whether he might save his campaign. George Bush put more deliberation into invading Iraq than McCain did into his own reckless invasion of the delicate Congressional negotiations on the bailout plan.

By the time he arrived, there already was a bipartisan agreement in principle. It collapsed hours later at the meeting convened by the president in the Cabinet Room. Rather than help try to resuscitate Wall Street’s bloodied bulls, McCain was determined to be the bull in Washington’s legislative china shop, running around town and playing both sides of his divided party against Congress’s middle. Once others eventually forged a path out of the wreckage, he’d inflate, if not outright fictionalize, his own role in cleaning up the mess his mischief helped make. Or so he hoped, until his ignominious retreat.

The question is why would a man who forever advertises his own honor toy so selfishly with our national interest at a time of crisis.

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politics McCain financial crisis bailout suspend campaign Congress Rich NYT

A critical - and radical - component of the bailout package proposed by the Bush administration has thus far failed to garner the serious attention of anyone in the press. Section 8 (which ironically reminds one of the popular name of the portion of the 1937 Housing Act that paved the way for subsidized affordable housing ) of this legislation is just a single sentence of thirty-two words, but it represents a significant consolidation of power and an abdication of oversight authority that's so flat-out astounding that it ought to set one's hair on fire. It reads, in its entirety:

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

In short, the so-called "mother of all bailouts," which will transfer $700 billion taxpayer dollars to purchase the distressed assets of several failed financial institutions, will be conducted in a manner unchallengeable by courts and ungovernable by the People's duly sworn representatives. All decision-making power will be consolidated into the Executive Branch - who, we remind you, will have the incentive to act upon this privilege as quickly as possible, before they leave office. The measure will run up the budget deficit by a significant amount, with no guarantee of recouping the outlay, and no fundamental means of holding those who fail to do so accountable.

Is this starting to sound familiar? Robert Kuttner cuts through much of the gloss in an article in today's American Prospect:

The deal proposed by Paulson is nothing short of outrageous. It includes no oversight of his own closed-door operations. It merely gives congressional blessing and funding to what he has already been doing, ad hoc. He plans to retain Wall Street firms as advisors to decide just how to cut deals to value and mop up Wall Street's dubious paper. There are to be no limits on executive compensation for the firms that get relief, and no equity share for the

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politics economics Paulson bailout WallStreet oversight non-reviewable