Constitutionalism and Democracy -- Here and
Abroad

First, thanks to TPM for hosting this forum on Demagogue. It's an especially rough time for books, especially with the Post's tragic decision recently to close Book World as a stand-alone section. It's especially urgent that we have forums like this where books can be discussed seriously.

Thanks also to my great partners here -- we will all benefit from having the great minds of Lind, Katulis, Kleinfeld, Hurlburt, and Dallek trained on this topic of democracy, constitutionalism, and the future direction of American national security policy.

This book emerged from a longstanding fascination of mine about why democracy can prosper, on the one hand, and disintegrate, on the other. It's therefore a book not only about demagogues -- who can cause democracy to collapse -- but about freedom itself. And this is a particularly American story.

The answer to the threat demagogues -- charismatic and dangerous mass leaders, like Adolf Hitler, Benito Mussolini, Hugo Chavez today, or Moqtada al-Sadr in the early years after our invasion of Iraq -- pose to democracy is constitutionalism: a rich civic culture where citizens take responsibility for democracy's future personally and collectively and militate against authoritarians. America's story is one of the growth of constitutionalism.

In a time when we're searching for the answer of how to promote true democracy after the neocons' failures in Iraq and Afghanistan, I argue in Demagogue that constitutionalism provides a way forward.

I'm currently running for Lieutenant Governor of Virginia, which you can read more about at www.mikesigner.com. I don't want to use this space for campaign speeches. This book was slated for publication well in advance of my decision to enter this campaign. But there have been surprising and exciting connections between the two ventures, and they have shed light on each other in a way I hope will benefit from, and add to, public discussion.

Here at home, to the extent that constitutionalism is one answer to an increasingly polarized, do-nothing political system, I do feel that the "people-powered" politics of Barack Obama means that politics in America needs to be bottom-up, needs to listen to and be driven by ordinary people, and needs to listen rather than just talk. This is especially the case in Virginia -- the home not only of Thomas Jefferson but of James Madison.

And abroad, America needs to take the values we've learned so well at home about the worth and power of constitutionalism -- such as when the American people cut short the very popular FDR's attempt to take over the Supreme Court in the 1930s -- to the world. We need to treat democracy not as some sort of inevitable paradise but rather as a product of people's culture and their day-to-day lives, carefully understood and cultivated.

That's the experience I'm having today on the trail, where hundreds of Virginians are participating, telling me what I should work on, and putting all the candidates through the customary wringer of electoral politics - as they should and as they must. We have a lot to work on in Virginia, especially on fundamental questions of justice and fairness in a state that too often has lingered in the past of "Old Virginny" rather than the New Dominion I think we should be pursuing together.

As I mention in the book, the neocons seemed to imagine that democracy would erupt in Iraq like a democratic version of Plato's Republic. Nothing from our experience in America, where democracy has grown slowly, carefully, and wonderfully, under the care of millions of ordinary Americans committed to maintaining a free republic, would have suggested otherwise.

In the end, I believe we need to look inward before we look outward, and understand that our experience with constitutionalism in America should provide a lamp to light the way forward.

I'd ask the other writers here to begin the fray with a few questions... how does constitutionalism fit into the debate about where we should go in Afghanistan? Am I right in my analysis of how and why the neocons got democracy so wrong in Iraq? Do they agree with my largely optimistic view of constitutionalism in American history? And do they agree that democracy is and should be the point of progressives acting together to bend the arc of history (in Barack Obama's words in Denver, citing Dr. King) upward?

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Healthcare dollars from the Stimulus will start
flowing Wednesday

The President met with the nation's governors this morning for breakfast in the State Dining Room, where the topic of the event was the economic recovery legislation that was signed last week and whose benefits are already flowing.  In the meeting the President announced that Vice President Jow Biden would be overseeing the implementation of the stimulus funds, and he would be working closely with Earl V. Delaney, who is an Inspector General's Inspector General.  (If his name sounds familiar, it is because he is the dogged investigator who uncovered the hookers-and-blow scandal at Interior.)    According to the pool report, Vice President Biden set a personal record when he spoke for less than 20 seconds, simply appealing to the people in the room, "Let's get to work.  Let's make this work."

The President also informed the governors that by the time they get home from the current gathering, funds to shore up Medicaid would be waiting for them.  (See your state's benefit here.)  

"This plan will also help ensure that you don't need to make cuts to essential services Americans rely on now more than ever," the President told the Nation's Governors in a meeting at the White House this morning.  "To show you we're serious about putting this recovery plan into action swiftly, I am announcing today that this Wednesday, our administration will begin distributing more than $15 billion in federal assistance under the Recovery Act to help you cover the costs of your Medicaid programs."

"That means that by the time most of you get home; money will be waiting to help 20 million vulnerable Americans in your states keep their health coverage. Children with asthma will be able to breathe easier, seniors won't need to fear losing their doctors, and pregnant women with limited means won't need to worry about the health of their babies."

 
The funds dispersed in the first two quarters of FY 2009 has been set up in dedicated Treasury accounts that the beneficiaries can draw from.  The immediate infusion of healthcare funds will be overseen by the Centers for Medicare and Medicaid Services (CMS), a department within Health and Human Services.    CMS will work with the states to make sure compliance with the requirements are met.  

(The transcript of the comments of both the President and Vice President are below the fold.  Sorry there is no link to the pool report emails.)
REMARKS BY THE PRESIDENT
AND THE VICE PRSIDENT
TO THE NATIONAL GOVERNORS ASSOCIATION

 
State Dining Room
 
10:29 A.M. EST
 
THE PRESIDENT:  Thank you very much.  Everybody, please have a seat.
 
First of all, thanks for not breaking anything last night.  (Laughter.)  Thank you also for waiting until I had left before you started the Conga line.  I don't know whether Rendell was responsible for that -- (laughter) -- but I hear it was quite a spectacle.  Michelle and I just had a wonderful time last night and I hope all of you enjoyed it.  It was a great kick-off of what we hope will be an atmosphere here in the White House that is welcoming and that reminds everybody that this is the people's house.  We are just temporary occupants.  This is a place that belongs to the American people and we want to make sure that everybody understands it's open.
 
Almost three months ago, we came together in Philadelphia to listen to one another, to share ideas, and to try to push some of our ideology rigidity aside to formulate a recovery plan that would bring some relief to your states and to the American people.
 
And I want to thank so many of you who were active throughout this process to get the American Recovery and Reinvestment Act done.  I don't want to single out too many folks, but Governor Rendell, Governor Douglas, worked tirelessly.  We had people like Governor Patrick and Governor Schweitzer, Schwarzenegger, Crist, who were out there consistently promoting the plan.  And as a consequence we got this passed through Congress in record time.
 
Because of what we did together, this plan will save or create at least 3.5 million jobs in every state across the country.  It will keep your police officers on the beat, your firefighters on the job, your teachers in the classroom.  It will provide expanded unemployment insurance and protect health care for your residents who have been laid off.  And beginning April 1st, it will put more money back into the pockets of 95 percent of your working families.
 
So this plan will ensure that you don't need to make cuts to essential services that Americans rely on now more than ever.  And to show you we're serious about putting this recovery plan into action swiftly, I'm announcing today that this Wednesday, our administration will begin distributing more than $15 billion in federal assistance under the Recovery Act to help you cover the costs of your Medicaid programs -- I know something that is going to be of great relief to many of you.
 
That means that by the time most of you get home; money will be waiting to help 20 million vulnerable Americans in your states keep their health care coverage.  (Applause.)  Children with asthma will be able to breathe easier, seniors won't need to fear losing their doctors, and pregnant women with limited means won't have to worry about the health of their babies.  So let me be clear, though:  This is not a blank check.  I know you've heard this repeatedly over the last few days, but I want to reiterate it:  These funds are intended to go directly towards helping struggling Americans keep their health coverage, we want to make sure that's what's happening and we're going to work with you closely to make sure that this money is spent the way it's supposed to.
 
We will get the rest of this plan moving to put Americans to work doing the work America needs done, making an immediate impact while laying the foundation for our lasting growth and prosperity.
 
These are the steps we're taking to help you turn this crisis into opportunity and pave the way for future prosperity.  But I know that many of you, rather than wait for Washington, have already made your states.  You are innovators and much of the work that you've done has already made a lasting impact and change in people's lives.  Instead of debating the existence of climate change, governors like the seven of you of you working together in the western climate initiative, and the 10 of you who are working together on the regional greenhouse gas initiative are leading the way in environmental and energy policy.  Instead of waiting around for the jobs of the future, governors like Governor Gregoire and Governor Granholm have sparked the creation of cutting-edge companies and tens of thousands of new green jobs.  And instead of passing the buck on accountability and efficiency, governors like Martin O'Malley and Governor Kaine, have revolutionized performance management systems, showing the American people precisely how their governments are working for them.
 
The point that I made yesterday, or last night, is something that I want to reiterate, though.  You shouldn't be succeeding despite Washington; you should be succeeding with a hand from Washington, and that's what we intend to give you in this administration.  In return, we'll expect a lot from you as the hard work of making the recovery plan's promise a reality begins.
 
And that's why I'm announcing today that I'm asking my Vice President, Joe Biden, to oversee our administration's implementation efforts.  Beginning this week, Joe will meet regularly with key members of my Cabinet to make sure our efforts are not just swift, but also efficient and effective.  Joe is also going to work closely with you, our nation's governors, as well as our mayors and everyone else involved in this effort, to keep things on track.  And the fact that I'm asking my Vice President to personally lead this effort shows how important it is for our country and our future to get this right, and I thank him for his willingness to take on this critical task.  (Applause.)
 
In the coming weeks, we're also going to appoint some of the nation's best managers and public officials to work with the Vice President on this effort.  And I'm pleased to make the first of those announcements today with the appointment of Earl Devaney as the chair of the Recovery Act Transparency and Accountability Board.  Where did Earl go?  There he is.  Stand up, Earl, so everybody can see you.  (Applause.)
 
For nearly a decade as Inspector General at the Interior Department, Earl has doggedly pursued waste, fraud and mismanagement.  He has the reputation of being one of the best IGs that we have in this town.  And Joe and I can't think of a more tenacious and efficient guardian of the hard-earned tax dollars the American people have entrusted us to wisely invest.  I pointed out just when I saw him -- he looks like an inspector there -- (laughter) -- he's tough, you know, he barely cracks a smile.  Earl is here with us today.  I thank him for his willingness to take on this difficult new assignment.
 
And I expect each of you to approach implementation of this recovery plan with the same seriousness of purpose and the same sense of accountability -- because the American people are watching.  They need this plan to work.  And they expect to see their money spent in its intended purpose.
 
And that's why we've created recovery.gov -- a web site so that every American can go online to see how their money is spent, and hold their federal, state, and local officials to the high standards that they expect.  And I want to applaud Governors Kaine, Patrick, and Strickland for already having created their own recovery implementation web sites to allow for the monitoring and accountability at the local level.  I encourage every one of you to follow suit.
 
Let me be clear:  We cannot tolerate business as usual -- not in Washington, but also not in our state capitals.  With Mr. Devaney's leadership, we will use the new tools that the recovery act gives us to watch the taxpayers' money with more rigor and transparency than ever.
 
If a federal agency proposes a project that will waste that money, I will put a stop to it.  But I want everybody here to be on notice that if a state government does the same, then I will call them out on it, and use the full power of my office and our administration to stop it.
 
We are addressing the greatest economic crisis we have seen in decades by investing unprecedented amounts of the American people's hard-earned money.  And with that comes an unprecedented obligation to do so wisely, free from politics and personal agendas.  And on this I will not compromise or tolerate shortcuts.  The American people are looking to us for leadership, and it falls on us now to reward their faith and build a better future for our country.  And I have every confidence that we can all do this.
 
Let me make one last point and then I'm going to bring Joe up.  There has been some healthy debate over the last few weeks, last few days, about this stimulus package, even among the governors.  And I think that's a healthy debate.  And that keeps me on my toes.  It keeps our administration on our toes.  But I just want us to not lose perspective of the fact that most of the things that have been the topic of argument over the last several days amount to a fraction of the overall stimulus package.  This sometimes gets lost in the cable chatter.
 
For example, I think there are some very legitimate concerns on the part of some about the sustainability of expanding unemployment insurance.  What hasn't been noted is, is that that is $7 billion of a $787 billion program.  And it's not even the majority of the expansion of unemployment insurance.  So it is possible for those who are concerned about sustaining a change that increases eligibility for part-time workers to still see the benefit of $30 billion-plus that is going even if you don't make the change.
 
So the reason I make that point is, I just want to make sure that we're having an honest debate and presenting to the American people a fulsome accounting of what is going on in this program.  You know, when I hear people say, well, there's a lot of waste in this program -- well, from my perspective at least, keeping teachers in the classroom is not wasteful.  From my perspective, tax cuts to 95 percent of working families is not wasteful.  From my perspective, providing all of you additional resources to rebuild roads and bridges and levees and dams that will enhance the quality of life of your state but also make it more economically competitive, that's not wasteful.
 
And so if we agree on 90 percent of the stuff, and we're spending all our time on television arguing about 1, 2, 3 percent of the spending in this thing and somehow it's being characterized in broad brush as wasteful spending, that starts sounding more like politics -- and that's what right now we don't have time to do.
 
So I will always be open to honest disagreements, and I think there are some legitimate concerns that can be raised on a whole host of these issues.  And you're responsible at the state level, and if the federal government gives you something now, and then two years later it's gone, and people are looking to you and starting to blame you, I don't want to put you in that position.  And so you need to think about how this money is going to be spent wisely.
 
What I don't want us to do, though, is to just get caught up in the same old stuff that inhibits us from acting effectively and in concert.  There's going to be ample time for campaigns down the road.  Right now we've got to make sure that we're standing up for the American people and putting them back to work.  All right. (Applause.)
 
Joe.
 
THE VICE PRESIDENT:  Thank you, Mr. President.  Thanks for this assignment.  I look forward to working with all of you.  Earl Devaney is probably the best-known Inspector General we have in the whole operation.  And I think you'll find him very helpful.  And the Cabinet is ready to go to work.  We're ready to work with all of you.  And so, I have a simple message:  Let's get to work, let's make this work.  (Applause.)
 
END

10:44 A.M. EST

THE WHITE HOUSE, February 23, 2009. 

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Losing Your Money is Scary

TPM Reader AC reacts to 'Scary Nationalization' ...Rick's conclusion that "nationalization" would remove shareholders' chance of recovering their losses misses two important points. First, the only reason that the 90% to 95% losses that many have taken[...]

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Social Security: White House Triangulates
Against Pete Peterson

Rob Kuttner writes in the Washington Post this morning that billionaire Social Security slasher Pete Peterson was originally scheduled to be a keynote speaker at today's fiscal responsibility summit (as reported here last Wednesday), but anonymous[...]

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The Threats To Democracy

Hugo Chavez, Moqtada Al-Sadr, Sen. Joe McCarthy, George W. Bush: charismatic mass leaders, and democracy's most dangerous enemies? This week at Cafe, we have a Book Club discussion on Michael Signer's Demagogue: The Fight to Save Democracy from Its Worst Enemies. In it, he explores the history of the rise of popular leaders and the threats they pose to the democracies that produce them.

Signer was Foreign Policy Advisor on Sen. John Edwards presidential campaign and he is Senior Policy Advisor at the Center for American Progress and Senior National Security Policy Fellow at Third Way.

Joining him are Rachel Kleinfeld, co-founder and Executive Director of the Truman National Security Project; Heather Hurlburt, speechwriter and policy advisor in the Clinton Administration; Michael Lind, Whitehead Senior Fellow at the New America Foundation; Brian Katulis, Senior Fellow at the Center for American Progress; and Matt Dallek, [visiting assistant] professor at the University of California Washington Programme. See you there!

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Scarborough, Buchanan mislead on Obama's tax
plan

During the February 23 edition of MSNBC's Morning Joe, political analyst Pat Buchanan stated that under President Obama's plan, "we're looking at permanent tax increases. The taxes are going to go up to 40 percent personal rate; capital gains are going up to 20 percent." During the same segment, co-host Joe Scarborough said that the White House suggested it will propose "an increase of taxes. Of course, they're increasing taxes at the same time the economy is collapsing." But neither[...]

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Yglesias talks about the future of newspapers on
WNYC’s On the Media.

On Saturday, TP’s Matt Yglesias went on WNYC’s On the Media to discuss whether or not philanthropies should consider supporting the declining newspaper industry. Yglesias suggested that the “logic” of the traditional newspaper model is “not a logic that really makes sense in the present world” and that philanthropists should “find ways to fund new kinds of institutions”:

A newspaper is something much more than a just a venue for producing hard news stories. It’s a physical bundle of paper that bundles together stories of all different kinds: weather reports, sports coverage, arts, book reviews movie reviews. And there’s a particular logic to assembling that kind of bundle, but its an economic logic that has to do with the economics of printing and distributing pieces of paper and its not a logic that really makes sense in the present world. […]

The question is do you want to channel [philanthropic funding] into this dying model that isn’t really working anymore or is it more important to fund news kinds of institutions? And, in particular, to identify exactly what it is that needs funding?

Listen here:

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George Bush needs to be mindful of his words.

From Fox News:In one of his first outings in Dallas since leaving the White House, former President Bush made a surprise appearance at a hardware store Saturday and joked, “I’m looking for a job.”Really? Well, so is half the country, fuckhead - thanks to you. This smug, arrogant little man apparently has no perspective of [...]

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Roubini: Nationalize Insolvent Banks

Nationalize Insolvent Banks
by Nouriel Roubini

A year ago I predicted that losses by U.S. financial institutions would be at least $1 trillion and possibly as high as $2 trillion. At that time, the consensus was that such estimates were gross exaggerations--the naïve optimists had in mind about $200 billion of expected subprime mortgage losses. But, as I pointed out, losses would rapidly mount well beyond subprime mortgages as the U.S. and global economy spun into a severe financial crisis and ugly recession.
I argued that we would see rising losses on subprime, near-prime and prime mortgages; commercial real estate; credit cards, auto loans and student loans; industrial and commercial loans; corporate bonds, sovereign bonds and state and local government bonds; and massive losses on all of the assets--collateralized debt obligations (CDOs), collateralized loan obligations, asset-backed securities and the entire alphabet of credit derivatives--that had securitized such loans.

By now, write-downs by U.S. banks have already passed the $1 trillion mark (my floor estimate of losses), and institutions such as the International Monetary Fund and Goldman Sachs predict losses over $2 trillion (close to my original expected ceiling for such losses).

But if you think $2 trillion is already huge, our latest estimates at RGE Monitor suggest that total losses on loans made by U.S. financial firms and the fall in the market value of the assets they are holding will be, at their peak, about $3.6 trillion. The U.S. banks and broker-dealers are exposed to half of this much, or $1.8 trillion; the rest is borne by other financial institutions in the U.S. and abroad.

The capital backing the banks' assets was just $1.4 trillion (last fall), leaving the U.S. banking system some $400 billion in the hole, or close to zero even after the government and private-sector recapitalization of such banks. Thus, another $1.4 trillion will be needed to bring back the capital of banks to the level it had before the crisis, and such massive additional recapitalization is needed to resolve the credit crunch and restore lending to the private sector.

These figures suggests the U.S. banking system is effectively insolvent in the aggregate; most of the U.K. banking system looks insolvent, too, and many other banks in continental Europe are also insolvent.

There are four basic approaches to a clean-up of a banking system that is facing a systemic crisis:

No. 1: Recapitalization together with the purchase by a government "bad bank" of the toxic assets;

No. 2: Recapitalization together with government guarantees--after a first loss by the banks--of the toxic assets;

No. 3: Private purchase of toxic assets with a government guarantee and/or--semi-equivalently (a provision of public capital to set up a public-private bad bank where private investors participate in the purchase of such assets--something similar to the U.S. government plan presented by Treasury Secretary Timothy Geithner for a public-private investment fund);

No. 4: Outright government takeover (call it nationalization--or ?receivership? if you don't like the N-word) of insolvent banks, to be cleaned after takeover and then resold to the private sector.

Of the four options, the first three have serious flaws. In the bad-bank model (the first, above) the government may overpay for the bad assets, at a high cost for the taxpayer, as their true value is uncertain; if it does not overpay for the assets, many banks are bust, as the mark-to-market haircut they need to recognize is too large for them to bear.

Even in the guarantee-after-first-loss model (No. 2 above), there are massive valuation problems, and there can be very expensive risk for the taxpayer, as the true value of the assets is as uncertain (as in the purchase of bad assets model).

The shady guarantee deals recently done with Citigroup and Bank of America were even less transparent than an outright government purchase of bad assets, as the bad-asset-purchase model at least has the advantage of transparency of the price paid for toxic assets.

In the bad-bank model, the government has the additional problem of having to manage all the bad assets it purchased, something that it does not have much expertise in. At least in the guarantee model, the assets stay with the banks. The banks know better how to manage--and also have a greater incentive than the government to eventually work out such bad assets.

The very cumbersome U.S. Treasury proposal to dispose of toxic assets, presented by Geithner, taking the toxic asset off the banks' balance sheets as well as providing government guarantees to the private investors that will purchase them (and/or public capital provision to fund a public-private bad bank that would purchase such assets). But this plan is so non-transparent and complicated it got a thumbs-down from the markets as soon as it was announced. All major U.S. equity indexes dropped sharply.

The main problem with the Treasury plan--that in some ways may resemble the deal between Merrill Lynch and Lone Star--is the following: Merrill sold its CDOs to Lone Star for 22 cents on the dollar. Even in that case, Merrill remained on the hook in case the value of the assets were to fall below 22 cents, as Lone Star paid initially only 11 cents (i.e., Merrill guaranteed the Lone Star downside risk). But today, a bank like Citi has similar CDOs that, until recently, were still sitting on its books at a deluded value of 60 cents.

Since the government knows no one in the private sector would buy those most toxic assets at 60 cents, it may have to make a guarantee (formally or informally) to limit the downside risk to private investors from purchasing such assets. But that guarantee would be hugely expensive if you needed to convince private folks to buy at 60 cents assets that are worth only 20--or even 11--cents.

So the new Treasury plan would end up being again a royal rip-off of the taxpayer if the guarantee is excessive in relation to the true value of the underlying assets. And if, instead, the guarantee is not excessive, the banks need to sell the toxic assets at their true underlying value, implying that the emperor has no clothes [i.e. ? large bank failures].

A true valuation of the bad assets--without a huge taxpayer bailout of the shareholders and unsecured creditors of banks--implies that banks are bankrupt and should be taken over by the government.

Thus, all the schemes that have so far been proposed to deal with the toxic assets of the banks may be a big fudge--one that either does not work or works only if the government bails out shareholders and unsecured creditors of the banks.

So, paradoxically, nationalization may be a more market-friendly solution to a banking crisis. It creates the biggest hit for common and preferred shareholders of clearly insolvent institutions and, most certainly, even the unsecured creditors, in case the bank insolvency hole is too large; it also provides a fair upside to the taxpayer.

Nationalization can also resolve the problem of the government managing the bad assets: If you're selling back all the banks' assets and deposits to new private shareholders after a clean-up, together with a partial government guarantee of the bad assets (as was done in the resolution of the Indy Mac bank failure), you avoid having the government manage the bad assets.

Alternatively, if the bad assets are kept by the government after a takeover of the banks and only the good ones are sold back, through a reprivatization scheme, the government could outsource the job of managing these assets to private asset managers. In this way, the government can avoid creating its own Resolution Trust Corp. bank to work out such bad assets.
Nationalization also resolves the too-big-to-fail problem of banks that are systemically important, and that thus need to be rescued by the government at a high cost to the taxpayer. This too-big-to-fail problem has now become an even-bigger-than-too-big-to-fail problem, as the current approach has led weak banks to take over even weaker banks.

Merging two zombie banks is like having two drunks trying to help each other stand up. The JPMorgan Chase takeover of insolvent Bear Stearns and WaMu; the Bank of America takeover of insolvent Countrywide and Merrill Lynch; and the Wells Fargo takeover of insolvent Wachovia, all show that the too-big-to-fail monster has become even bigger.

In the Wachovia case, you had two wounded institutions (Citi and Wells Fargo) bidding for a zombie, insolvent one. Why? They both knew that becoming even bigger than too big to fail was the right strategy to extract an even greater bailout from the government. Instead, with the nationalization approach, the government can break up these financial supermarket monstrosities into smaller pieces to be sold to private investors as smaller (better) banks.

This "nationalization" approach was successfully undertaken by Sweden, while the current U.S. and U.K. approach may end up looking like the zombie banks of Japan that were never properly restructured and ended up perpetuating the credit crunch and credit freeze.

Japan wound up with a decade-long near-depression because of its failure to clean up the banks and the bad debts. The U.S., U.K. and other economies risk a similar near-depression and stag-deflation (multi-year recession and price deflation) if they fail to appropriately tackle this most severe banking crisis.

So why is the U.S. government temporizing and avoiding doing the right thing, i.e., taking over the insolvent banks? There are two reasons.

First, there is still some small hope (and a small probability) that the economy will recover sooner than expected, that expected credit losses will be smaller than expected, and that the current approach of recapping [recapitalizing] the banks and somehow working out the bad assets will work in due time.

Second, taking over the banks--whether you call it nationalization or, in a more politically correct way, "receivership"--is a radical action that requires most banks be clearly beyond the pale.

Today, Citi and Bank of America look blatantly near-insolvent and ready to be taken over, but JPMorgan and Wells Fargo as yet do not.

But with the sharp rise in delinquencies and charge-off rates that we are experiencing now on mortgages, commercial real estate and consumer credit, even JPMorgan and Wells will likely look near-insolvent in six to 12 months (as suggested by Chris Whalen, one of the leading independent analysts of the banking system).

Thus, if the government were to take over only Citi and Bank of America today, wiping out common and preferred shareholders and forcing unsecured creditors to take a haircut, a panic may ensue for other banks, and the Lehman fallout that resulted from having unsecured creditors taking losses on their bonds will be repeated.

On the other hand, if, as is likely, the current "fudging" strategy does not work, and most banks--the major four and a good number of the remaining regional banks--all look clearly insolvent in six to 12 months, you can then take them all over, wipe out common and preferred shareholders and even force unsecured creditors to accept losses.

So, the current strategy--Plan A-- may not work, and Plan B (or better, "Plan N," for nationalization) may end up the way to go later this year. Wasting another six to 12 months may risk turning a U-shaped recession into an L-shaped near-depression.

The political constraints the new administration faces--and the remaining small probability that the current strategy may, by some miracle or luck, work--suggest Plan A should be first exhausted before there is a move to Plan N.

But with the government forcing Citi to shed some of its units and assets, and starting stress tests to figure out which institutions are so massively undercapitalized that they need to be taken over by the Federal Deposit Insurance Corp., the administration is laying the groundwork for the eventual, necessary takeover of the insolvent banks. So while Plan A is now underway, the very negative market response to this Treasury plan suggests it will not fly. Markets were expecting a more clear plan, but also one that would bail out shareholders and creditors of insolvent banks. Unfortunately, that is politically and fiscally unfeasible. It is time to start to think and plan ahead for Plan N.?

Read The Full Article:
http://malcontends.blogspot.com/2009/02/roubini-nationalize-insolvent-banks.html

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Clinton Should Stop Saying "You Know" in her
Speeches

America acknowledges that one of the strong advantages that presidential candidate Senator Barack Obama had over Senator Clinton is that Obama is a far superior orator than Clinton. However, some of the mistakes that Clinton made in her speeches, and continues to make, are actually easily identified and corrected.

I heard a Clinton speech in Asia today in which she said "you know" fully four times in thirty-second video clip. This is an easily corrected mistake that one one with so much education and speech-making experience should ever make. Saying, "you know" constantly distracts from the message, drags out the communication, and can even lead listeners to believe that the speaker is not telling the truth.

The "Complete Idiot's Guide to Self-Defense" says,

Besides cursing, the Slang-Ganger's speech is constantly peppered with "like", "im", "ya know" . . .

Senator Clinton would do well for herself and for her role in the Obama Administration if she made a steadfast effort to stop saying "You know" all the time. There are other fillers which are not so annoying and eye-raising, that can be used to give the speaker a moment to gather her thoughts, such as saying, "essentially", consider for a moment," "consider the following"; it's essential to acknowledge/be aware that", and so on and so forth . . .

There are many alternatives to saying "you know" and Hillary Clinton should adopt half a dozen of these as an alternative to saying "you know" so frequently. If she starts now, she might have it down by 2016.


Read The Full Article:
http://francislholland.blogspot.com/2009/02/clinton-should-stop-saying-you-know-i
n.html

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