Halfway home

We've gotten thru the fourth wave of the financial crisis, but most of the recession is still in front of us, as well as at least half of the losses, which must be realized on mortgages.

Bloomberg.com: Worldwide: "Roubini said total credit losses resulting from the meltdown of the subprime mortgage market will be ``closer to $3 trillion,'' up from his previous estimate of $1 trillion to $2 trillion. The International Monetary Fund estimated $1.4 trillion on Oct. 7. Financial firms have so far reported $637 billion in losses, according to data compiled by Bloomberg."

''The stock market is going to stop rallying soon enough when they see the economy is really tanking,'' Roubini added.

Bloomberg.com: Worldwide

Fannie and Freddie become TARP

Rats . . . Ship . . . Sinking

As McCain Goes Negative, a GOP Senator Makes a Positive Turn | The Trail | washingtonpost.com#more#more#more: "[Minnesota Senate candidate]Coleman told reporters that he would not be appearing at a planned rally with McCain this afternoon."

A bit of horserace commentary — Crooked Timber:

"I hear (via a prominent member of the sane Republican faction) that the word on the right side of the street is that the Republican National Committee is about to pull the plug on its joint ads with the McCain campaign, and devote its resources instead to trying to save a couple of the senators who are at serious risk of losing their seats. Now this is gossip, albeit of the high class variety; take it with the requisite pinch of salt. But it points to some real vulnerabilities in the McCain campaign’s finances. McCain’s decision to opt for public funding has meant that he’s had enormous difficulty competing with the Obama money raising machine. He’s been able to partly compensate by co-financing ads with the RNC (this skirts the limits of the legislation that he himself co-wrote but is just about legal). This has kept him competitive in TV advertising, albeit still significantly outgunned. But if the Republicans are as worried as they should be about the impending elections, there will be a lot of calls on that money, and the RNC is going to have to make some tough choices.
Should it keep spending money on the presidential campaign in the hope that McCain will win despite the polls, or should it instead try to minimize the damage of a McCain defeat by doing its best to stop the Democrats from making big gains in the Senate? Decisions, decisions …"

FiveThirtyEight.com: Electoral Projections Done Right: Does McCain Have Cooties?: "There are at least three groups of Republicans that might have an interest in distancing themselves from John McCain. Firstly, purple-state moderates like Coleman and Gordon Smith who don't like the campaign's tone. Secondly, the anti-bailout economic populists in the House who might be looking ahead to 2010 and 2012. And thirdly, true conservatives who never trusted McCain that much to begin with.

Far more so than Obama, McCain is dependent on the goodwill of fellow Republicans. With McCain having opted for public financing, RNC funds are an important part of his advertising budget. Because he's way behind Obama on McCain-branded field offices and ground operatives, he is depending on assistance from state and local party organizations. Republican enthusiasm lags behind that of Democrats, and so volunteer resources are scarcer; conservative activists will need to decide if they're going to make phone calls to support McCain or to help save their local Republican Congressman"

It's Over

David Brooks: [Sarah Palin] "represents a fatal cancer to the Republican party"

David Brooks is a reliable Republican mouthpiece. Last week, he was spinning the V-P debate in Palin's favor. This week, evidently, he has other marching orders.

GOP Strategists Whisper Fears

GOP Strategists Whisper Fears - washingtonpost.com

Republican strategists fear that an outpouring of public anger generated by Congress's struggle to pass a rescue package for the financial industry may contribute to a disaster at the polls for the GOP in November.

"The crisis has affected the entire ticket," said Jan van Lohuizen, a Republican consultant who handled the polling for President Bush's reelection campaign. "The worse the state's economy, the greater the impact."

Republicans are trying to defend at least 18 House seats in Michigan, Ohio, Pennsylvania and Florida, economic trouble spots that double as election battlegrounds. Rising unemployment, the meltdown in the housing market, and a credit crunch besieging consumers and manufacturers alike were factors in Sen. John McCain's decision Thursday to pull campaign resources out of Michigan. The McCain campaign's exit from the state leaves a pair of vulnerable Republicans, Reps. Tim Walberg and Joe Knollenberg, with a weakened party infrastructure heading into Nov. 4. . . .

In the Senate, . . . , Republican incumbents are suddenly teetering in North Carolina, Kentucky and Georgia because of the economic crisis, . . . .

The pessimism in the GOP ranks reflects a striking shift in momentum in the four weeks since the Republican National Convention, . . .

"If you turn the clock back two or two and half weeks, you could make a plausible argument that if a couple of things go our way we will lose three to four Senate races," said one Republican strategist. "Now we will lose six to eight." Polling in most Senate races over the past 14 days has shown a five-point decline for the Republican candidate, the strategist said.

The picture in the House is similar. The generic ballot test -- a traditional measure of broad voter attitudes -- has also moved decisively in Democrats' direction in recent days. The latest NBC-Wall Street Journal and Associated Press polls showed voters favoring a generic Democratic candidate for Congress over a generic Republican by 13 points, while a recent Time magazine poll gave Democrats a 46 percent to 36 percent edge. . . .

In the most recent Washington Post-ABC News national poll, more than half of all voters said they were "very concerned" that the failure of the first bailout vote would cause a "severe economic decline." By a ratio of 2 to 1, they blamed the legislations' defeat on Republicans.

Neil Newhouse, a partner in the Republican polling firm Public Opinion Strategies, echoed van Lohuizen's sentiment. "The bailout crisis has had a corrosive effect on the national political environment, and that impacts not just John McCain, but GOP candidates up and down the ticket," he said.

The proximity to the election added to the chaos on Capitol Hill this week as lawmakers sought to pass a $700 billion package to stabilize banks and financial markets. In the House, most vulnerable Republicans opposed the version that failed on Monday, as well as the revamped legislation that passed easily yesterday. But in the Senate, which voted Wednesday, just two vulnerable Republicans, Sens. Elizabeth Dole (N.C.) and Roger Wicker (Miss.), opposed the bill (along with the only Democrat who is seen as endangered, Louisiana Sen. Mary Landrieu).

Seven Republicans who are being targeted for defeat by Democrats backed the plan: Senate Minority Leader Mitch McConnell (Ky.), and Sens. Saxby Chambliss (Ga.), Ted Stevens (Alaska); Norm Coleman (Minn.); Gordon Smith (Ore.), Susan Collins (Maine) and John E. Sununu (N.H.). . . .

. . . the current financial crisis provided a new opportunity to remind voters that President Bush remains the leader of the Republican Party. "The 'GOP candidate equals George Bush' argument was growing stale in the absence of any fresh proof points," said Singer, [a campaign adviser to several Democrats]. . . .

Compounding Republican problems is a continued fundraising deficit that has left the party largely powerless to defend its congressional candidates against a televised Democratic onslaught. At the start of September -- the last time financial figures were available -- the Democratic Congressional Campaign Committee held a $40 million cash-on-hand edge over its GOP counterpart and was advertising in 41 House districts, compared with just two districts in which the National Republican Campaign Committee was on the air.

The gap was less daunting on the Senate side, where the Democratic Senatorial Campaign Committee held a $7 million cash edge over the National Republican Senatorial Committee at the start of September. However, the DSCC spent $13.6 million in August -- largely on television ads -- while the NRSC dropped just $3.6 million.

That spending deficit and the economic reverberations are being felt most strongly in North Carolina, where Hagan appears to have moved into a lead over Dole. The DSCC has spent more than $3.5 million on ads painting Dole as out of touch with average North Carolina voters, and even Republicans acknowledge that the attacks have taken their toll. Independent polling puts Hagan's lead at three to eight points.

In Oregon, state House Speaker Jeff Merkley (D) has taken to the television airwaves to attack Sen. Gordon Smith (R) for his vote in favor of the rescue plan. "In this economy, who is really on your side?" asks the narrator in Merkley's ad, saying that Smith supported a "trillion-dollar blank check for Wall Street." Polling in that race shows a virtual dead heat.

This is a classic political storm, which has been long postponed by the fecklessness the Media, but, which, with the full accumulation of failure, goes from strength to strength.

They don't want what you want

The Perfect Storm has come at last, which makes the rationale for this blog somewhat tenuous.

But, even as we confront the bad consequences of bad policy, it is interesting to see revealed the preferences and prejudices of the Right.

The Problem Is Still Falling House Prices - Martin Feldstein thinks peonage will help: "The federal government would offer any homeowner with a mortgage an opportunity to replace 20% of the mortgage with a low-interest loan from the government, subject to a maximum of $80,000. This would be available to new buyers as well as those with mortgages. The interest on that loan would reflect the government's cost of funds and could be as low as 2%. The loan would not be secured by the house but would be a loan with full recourse, allowing the government to take other property or income in the unlikely event that the individual does not pay. It would by law be senior to other unsecured debt and not eligible for relief in bankruptcy."

The problem, to Feldstein, is not the ill-gotten gains of the banks and rich folks, or the oppression of the merely middle-class. The problem is that the middle class are feckless. You cannot build a reliable financial pyramid scheme on the foundation of people, who might walk away from a bad investment. The people at the bottom have to be made to pay. No bankruptcy for them.

Stiglitz: Bailout Blues - The Bruce Blog - San Francisco Bay Guardian

Stiglitz: Bailout Blues: "There is a growing consensus among economists that any bailout based on Paulson’s plan won’t work. If so, the huge increase in the national debt and the realization that even $700 billion is not enough to rescue the US economy will erode confidence further and aggravate its weakness.
But it is impossible for politicians to do nothing in such a crisis. So we may have to pray that an agreement crafted with the toxic mix of special interests, misguided economics, and right-wing ideologies that produced the crisis can somehow produce a rescue plan that works – or whose failure doesn’t do too much damage."