Will I vote or not?

I have always voted in the presidential elections, but this is the first year when I have given serious thought to skipping the election. First, I actually do not have strong feelings about either of the candidates. If Hillary was running, that might not be true, but since so many Democrats chose Barack Obama, he is the choice available to me. Second, I live in New York, where Barack Obama is heavily favored, so my vote simply will not affect the outcome of the presidential election no matter who I vote for. Third, I do not feel strongly that any of the issue positions of any of the candidates is so urgenty important as to make a difference to me or the average American. Fourth, I am not terribly impressed by either candidate, so I actually am more inclined to vote "none of the above" or simply to refrain from voting as a protest. Still, I am inclined to vote since it is the responsible thing to do and is marginally better than being a "no show." But, the bottom line is that I do intend to vote and will most likely vote for Barack Obama since he appears to be closest to a centrist (what Hillary would have been and what Bill was.)

That said, I still may not vote because I was going to vote by absentee ballot and requested such a ballot but never received one, and I am not about to stand in line for any extended period of time. My plan is simple, to go to the local polling station around 9:30 a.m. and be prepared to wait no more than two hours in line. If the line is short, great, I will vote. If the line is so long or the processing is so slow that I have not voted after two hours (and I am not close to voting), then I will simply walk away. What matter most is that I will have gone to vote.

Yes, I do intend to vote, but this election is not so urgent for me that I would vote "no matter what."

Other than the top of the ticket, I normally vote the Democratic party line and then vote "No" on any propositions. I am a big fan or representative democracy and oppose these so-called "grassroots" efforts to legislate outside of the legislature.

-- Jack Krupansky

Inappropriate vilification of Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac have been unfairly and inappropriately characterized as being culprits in the mortgage mess, while in fact they have been both heroes and victims and continue to be victimized. All was fine on the housing and mortgage-backed security front up through 2000 or so. Then, as the dot-com bubble burst, Wall Street began casting around for new sources of profit and decided that Fannie Mae and Freddie Mac had a very lucrative business. Back in 2002 and 2003, Wall Street ramped up its own MBS business and simultaneously started raising a big stink about how Fannie and Freddie posed a "systemic risk" to the U.S. financial system and should be "reined in." Wall Street and the Republicans pushed for and did manage to get some legislation passed which put significant limits on the business of Fannie and Freddie. There were also trumped-up "accounting scandals" which were really simply the fact that the nature of their business simply did not fit in well with traditional accounting standards, especially given their mission to promote homeownership and their implicit backing by the U.S. government. Such efforts to shackle Fannie and Freddie were only partially effective, so Fannie and Freddie continued to prosper with the securitization of prime or so-called "conforming" mortgages, which were fairly low risk. Having failed to completely push Fannie and Freddie out of the MBS market, Wall Street focused on non-conforming mortgages, including Alt-A and so-called subprime mortgages, as well as jumbo mortgages that Fannie and Freddie were prohibited against from even considering. Then the housing market boomed in 2003 though 2005, with subprime lending really taking off as Wall Street created a huge demand for higher-yield, higher-fee subprime MBS and variants that somehow magically could be rated AAA and almost as "solid" as U.S. Treasury securities. Fannie and Freddie were not a significant player in that subprime boom. They may have had some relatively minor exposure, but their overwhelming focus remained safe, conforming mortgages.

With the housing boom turning to bust and the husing market entering recession, even Fannie and Freddie were starting to see a higher rate of defaults and foreclosures, but nowhere near the levels seen by the non-prime MBS created by Wall Street. Fannie and Freddie were doing reasonably well up through the Spring of 2008.

Then, the hedge funds and others decided to target Fannie and Freddie and short and talk down their stock and bonds, utilizing all manner of rumors and innuendo. Everybody has always known that the U.S. government was implicitly guaranteeing the debt of Fannie and Freddie, but the rumormongerers on Wall Street persisted in claiming that it was not so.

With rising foreclosures earlier this summer, Fannie and Freddie were believed to need to raise additional capital to maintain the reserves that Wall Street had conned Congress into placing on them back in 2002 and 2003. But, with their stock under intense pressure in July and August, raising capital by selling stock began to look less likely.

Fannie and Freddie probably should have sought a capital infusion ("bailout") from the U.S. government back in July, but the truth is that the Republican administration was all to eager to see Fannie and Freddie go the way of the Dodo bird, and the sooner the better.

Finally, with the rest of the financial system on the verge of implosion, the U.S. Treasury did in fact help out Fannie and Freddie by putting them into a conservatorship.

Now, Fannie and Freddie are completely protected from the shortsellers on Wall Street, although even today there are people who talk as if the debt securities of Fannie and Freddie were not fully backed by the U.S. government when they really are.

Ironically, the U.S. Treasury has had to do very little to keep Fannie and Freddie running, despite the mortgage-related disasters everywhere else. In fact, Fannie and Freddie are a key component of the U.S. Treasury's plans to bailout the mortgage market. For example, without any additional capital, Fannie and Freddie have been instructed to buy $40 billion in MBS on the open market every month.

Fannie and Freddie are in much better shape than the shortsellers ever claimed.

To be clear, Fannie Mae and Freddie Mac are not currently a systemic risk to the financial system.

In fact, if the hedge funds and shortsellers had not attacked the stock of Fannie and Freddie, they would both be relatively healthy even today with everything else that has happened in this crisis.

The simple fact is that Fannie Mae and Freddie Mac are two of the remaining pillars of our financial system.

If Wall Street and the Republicans had not sought to shackle Fannie Mae and Freddie Mac and if Wall Street had not gone after non-prime mortgages with such wild abandon, the current financial crisis would have been completely avoided.

Fannie Mae and Freddie Mac did nothing to create the current mortgage mess. Wall Street and its Republican apologists are completely and 100% responsible.

The only thing I do not completely understand is why the Democrats stand by idly as Fannie Mae and Freddie Mac are vilified, when they know that Wall Street and the Republicans are completely responsible. My only answer is that the Democrats are collectively simply too clueless due to the complexity of MBS to be able to tell the difference.

-- Jack Krupansky

Will the Powell endorsement enable an Obama landslide?

Although Colin Powell sullied his reputation by aiding and abetting the invasion of Iraq, his overall military and foreign policy record and credentials could be a huge boost for Barack Obama. Alas, we do need to discount the value of the endorsement at least somewhat by the strong possibility that racial pride was either an actual factor or will at least be perceived as a factor, but even that possibility still leaves plenty of residual value to the endorsement. That said, there is the very real possibility that the endorsement could lead to further "defections" from right-leaning centrists and effectively give them permission and say to them that it is okay for center-conservatives to feel at least somewhat comfortable with a Barack Obama administration.

As of right now, RealClearPolitics.com is showing that Obama has gotten a modest bump, from about 4.9% to 5.7% advantage over McCain averaged across various polls.

The real issue is not the endorsement per se, but whether Obama will exploit it and begin to start reaching out to disenchanted centrists (e.g., people who think Powell is a good guy) rather than incessantly preaching to his Progressive choir.

I think Barack could achieve a landslide using the Powell endorsement, but it almost seems as if Barack is indifferent about reaching out to centrists.

Actually, I suspect that Barack is overly-focused on the younger new voters and his massive voter registration drive, for which a Powell endorsement is an irrelevancy. These new voters may in fact give him a dramatic edge. And, in fact, they are probably a much easier sell than hardened centrists.

We will see in the next few days.

For now, it still appears that Barack is poised for a solid win, but not a landslide.

OTOH, the margin between the two candidates in a number of states could turn out to be less than the advantage Barack has with young voters who do not show up in a lot of traditional polls due to their reliance on cell phones rather than traditional "land lines." So, a landslide may in fact already be in the cards. But, Powell is not relevant to this part of the equation.

-- Jack Krupansky

Dubious disclaimers by Colin Powell

Former Secretary of State Colin suddenly popped up in the news again this past weekend. This hero of the Gulf War and quasi-villain of the invasion of Iraq will probably always stick in my mind for his infamous disclaimer used in his justification for the invasion of Iraq: "These are not assertions." From the White House transcript of Powell's presentation to the UN Security Council on February 5, 2003:

My colleagues, every statement I make today is backed up by sources, solid sources. These are not assertions. What we're giving you are facts and conclusions based on solid intelligence. I will cite some examples, and these are from human sources.

I did not see the live presentation on TV, but I did review the transcript and slides shortly after the actual presentation. As soon as I read that seemingly innocent disclaimer, "These are not assertions", it was if Powell had instead jumped up and waved a giant red flag and loudly screamed that everything he is saying should be taken with a huge grain of salt. After all, if the presentation consisted solely of "facts and conclusions based on solid intelligence", why the need for such a prominent and forceful disclaimer? Why not let the facts speak for themselves? I finished reading the transcript and viewing the slides, but I felt that he completely destroyed his own credibility by resorting to such a disclaimer and then proceeding to lay out a crazy-quilt patchwork of "facts and conclusions" that seemed too disjointed and stretched to justify strong conclusions used as the basis for invading Iraq.

As if that disclaimer was not enough, Powell felt the need to re-issue it a second time in his presentation:

Ladies and gentlemen, these are not assertions. These are facts, corroborated by many sources, some of them sources of the intelligence services of other countries.

I am still patiently waiting for Powell to come clean on this whole sordid episode and lay out the full tapestry of logic and illogic and political pressure that lead him down the garden path to such a travesty.

Fast forward to the present, Powell makes the following claim that race apparently had no role in his decision to endorse Barack Obama for president, as shown in the transcript of his interview on Meet the Press on October 19, 2008:

MR. BROKAW: And you are fully aware that there will be some--how many, no one can say for sure--but there will be some who will say this is an African-American, distinguished American, supporting another African-American because of race.

GEN. POWELL: If I had only had that in mind, I could have done this six, eight, 10 months ago. I really have been going back and forth between somebody I have the highest respect and regard for, John McCain, and somebody I was getting to know, Barack Obama. And it was only in the last couple of months that I settled on this. And I can't deny that it will be a historic event for an African-American to become president. And should that happen, all Americans should be proud--not just African-Americans, but all Americans--that we have reached this point in our national history where such a thing could happen. It will also not only electrify our country, I think it'll electrify the world.

Once again, he raises a disclaimer in a way that undermines himself, much as his infamous Iraq WMD "assertion" disclaimer did over five years ago.

Actually, if you parse his disclaimer, he does not actually deny that race had a role, as he prefaces his reply with "If I had only had that in mind", leaving it unsettled whether or not he had race in mind as a significant factor as well as the other factors.

In fact, he then goes beyond the question that was asked and talks about how it will be "a historic event for an African-American to become president" and that it will "electrify our country." This is hardly the kind of language one would expect if the interviewee was truly neutral on the issue of race in his choice.

Personally, I found that Powell's disclaimer had an air of deception to it, starting out with such conditional language such as "If" and "could", when a simple "No" would do.

Why did he feel the need to dance around the issue in such an evasive manner? Maybe for the same reasons that even today as he endorses Mr. "Let's leave Iraq in 16 months" while at the same time refusing to admit that the invasion was a really bad idea. Part of it is probably ego. Part of it is probably pride. And part of it is probably simply the mind-set that he developed over the decades that worked for him in his climb through the ranks. We may never know what its really was, or maybe Powell will eventually have an epiphany and tell all.

Ultimately, I believe that racial pride was a significant factor in Powell's decision to choose to endorse Barack Obama, but by no means the only or necessarily the primary reason. I do in fact believe that Powell is absolutely sincere about generation change and Obama being a transformational leader and the need for significant changes in U.S. policies. Racial pride may or may not have been a trump card, but it sure looks as if it helped to seal the deal.

Finally, I strongly suspect that Powell is very deeply embarrassed about how his own poor judgment allowed himself to be suckered in by the storytelling of the Neoconservatives and the rest of the so-called Pro-Israel lobby into misguidedly justifying the invasion of Iraq.

Put simply, Powell's endorsement of Obama is in some part his own special way of saying "I am sorry" to the American people.

Powell might indeed have endorsed whichever Democratic candidate was nominated, but the racial pride factor made it a very easy slam-dunk decision.

The last thing I want to say about Powell is that since he is now retired from all of it and apparently has no political ambitions, I really do wish he would cease and desist with disclaimers and assertions and all manner of indirect speaking and simply talk straight to the American people. He has earned that right, so he should feel free to exercise that right and even consider it a responsibility and even an obligation after the whole Iraq fiasco.

-- Jack Krupansky

Electoral college poll remains solidly in favor of Obama, 364 to 174

As most of us know, the popular vote does not determine who becomes president and the overall national polls map to the popular vote, not to electoral college votes. But RealCearPolitics does have a map of the comparable electoral college vote based on the state-by-state polls. Currently, the map shows Obama with 249 solid electoral college votes and McCain with 140. Obama has 37 leaning votes to McCain's 18 leaners. The remaining 94 electoral votes are toss-ups, including Florida. Excluding tossups, Obama has 286 electoral votes, McCain 158. Including toss-ups, Obama has 364 and McCain 174. Only 270 electoral college votes are needed to win. The bottom line is that Obama has a significant lead in the total electoral college vote tally, but all leaning and toss-ups are subject to change on short notice..

Some people say that Ohio represents the entire country. The map still shows Ohio as a toss-up, but now with Obama modestly ahead by 3.2%.

As far as momentum, both camps are basically stalled at their current levels. The bad news for Obama is that he is no longer accelerating to a landslide and McCain is no longer hemoraging. The bad news for McCain is that he is not changing minds at a rapid pace and Obama is now able to sit back and coast.

The big wildcard is the fate of the economy and financial system. Obama wins if they continue to stagnate, but McCain has a shot to recover if "Hank and Ben" pull a rabbit out of their hat and kick-start the economy and banking system over the next two weeks. Maybe a trillion dollars can shift the dynamics of a presidential election. Maybe not.

The real clear bottom line is that although this election is not a slam-dunk for either candidate, Obama is now quite clearly in the lead. But, it is too early to claim a win based on toss-ups and leaners.

At this stage, I would say that the election is Obama's to lose. All he really has to do is stay relatively positive and look and act "presidential" and avoid making any wild claims or promises that might lead voters to conclude that he is a space cadet. Recently McCain has effectively been asleep at the wheel, but he is now making noises suggesting that he has awakened from his slumber.

There is still a chance that Obama could lose a fair chunk of his "leaning" votes due to "The Bradley Effect" (people reluctant to admit to pollsters that they are racially biased), but that is too difficult to evaluate at this time. Personally, I think the effect is overrated, but it has never been tested before at the national level.

Obama has a potential advantage in that his team is really good at registering new voters and reaching out to young voters, many of whom do not have traditional phones so they would not show up in traditional polling. He may in fact currently have a 2% to 5% advantage that the polls cannot see. Obama also has the advantage of opposing the war in Iraq (and planning to get out ASAP) and a crummy economy and poor financial regulatory oversight. McCain's primary advantage is simply that most sane people do not trust non-centrist Democrats with either defense or the economy. Obama may have plans, but they do not have credibility with many people.

-- Jack Krupansky

Will Obama accelerate to a landslide victory or has he peaked?

To govern effectively and foster the kinds of "change" that he has talked about, Barack Obama really does need a landslide victory to secure a true "mandate", and recently it has started to look as if support is accelerating in that direction and some of his supporters have hinted about the possibility of a landslide, but most recently it looks as if his advance in the polls has been starting to lose a little steam and level off.

Much of his recent gains may simply have been due to a rush of concerns about the economy and negative attacks by the McCain campaign, but all of that is now yesterday's news.

For Barack to widen his lead the economy would have to worsen a lot, the bailout would have to fail or at least peter out, and McCain would have to go even more negative and look even less appealing. The economy is certainly mushy, but I am not so sure that the data will get a lot worse in the next three weeks. The bailout is actually starting to gain traction and may in fact start to show fairly stunning results in the week before the election. McCain will probably continue with negative attacks, but probably somewhat less harsh since he has succeeded in planting the seeds of doubt and now stands to gain more by going at least a little positive. McCain had a fairly decent showing in the final debate and Barack seemed a bit on the defensive. The polls over the next week will tell all.

As things stand now, Barack is still likely to win with a modest margin, but he is not likely to get the kind of landslide that would let him push through a fully Progressive agenda starting on day one.

In essence, he will have four years to earn his spurs, and maybe then in four years he may have a shot at the kind of landslide that can really open the gates to change. For example, we will have four years of tinkering with health care reform and then finally people will realize that a national mandate for universal health care coupled with a public and private partnership for implementing that mandate funded via a payroll health-care tax at zero out-of-pocket cost to consumers really is the way to go and makes sense on all fronts for all parties.

-- Jack Krupansky

Yes, we are in a recession

I will go along with the assessment of Janet Yellen, President of the Federal Reserve Bank of San Francisco, that the U.S. economy "appears to be in a recession." A Reuters article by Braden Reddall entitled "Fed's Yellen says U.S. appears to be in recession" also quotes her as saying:

"The outlook for the U.S. economy has weakened noticeably, and inflationary pressures have substantially abated," Yellen said in a speech to the Financial Executives International's Silicon Valley chapter in Palo Alto, California.

"Virtually every major sector of the economy has been hit by the financial shock."

Yellen, who is not a voting member of the interest-rate setting Federal Open Market Committee this year, said the just-ended third quarter probably showed "essentially no growth at all" in the U.S. economy, and that worse lies ahead.

"Growth in the fourth quarter appears to be weaker yet, with an outright contraction quite likely," she added.

There are technical issues with the technical definition of recession, but there is more than enough weakness on enough fronts, including employment, industrial production, and retail sales, that waiting for a clear signal on the GDP and real income fronts is rather moot, especially since the turmoil in the banking and credit sector is virtually assured to cause a major dip in most sectors of the economy for much of this month and possibly well into November depending on the pace of deployment of stimulus into the banking system.

For now, it is abundantly clear that the U.S. economy is currently in a recession, although I suspect that the worst will be behind us by the end of the year, if not sooner. There is simply too much stimulus in the pipeline.

-- Jack Krupansky

Another reason I cannot support Obama: cracking down on excessive CEO pay

It is still very likely that I will vote for Barack Obama next month, but it is more because I see him as slightly closer to center and the lesser of two evils rather than because I find him truly compelling. Yet another example of why I cannot wholeheartedly support him was a New York Times blog post by Jeff Zeleny entitled "Obama: Banking Plan Must Rein in Executive Pay" which quoted Barack as saying "I am concerned that the way that they structure this new mechanism that we are cracking down on excessive CEO pay -- that I think should be part of the deal." I personally want to see executive pay brought more in line with economic fundamentals, but I do not see executive compensation as a business parameter that the government should have any right to control.

By all means, a President Obama should feel free to invite the CEOs of America's top 100 businesses to Washington and invite them to offer proposals for how to introduce a more sincere degree of equity and balance into executive compensation, on a voluntary basis, but that is about as far as the government should go. I see "cracking down on excessive CEO pay" as simple election-year pandering and pseudo-populism.

My other thought is that I sincerely suspect that Barack is absolutely lying and has no intention of lifting even one finger to seriously attempt to "rein in executive pay" once he takes office.

Ultimately, that is why I am likely to vote for him, the simple fact that many of his positions and postures and pronouncements that I find offensive or unhelpful are in fact simply old-fashioned election-year pandering and classic "campaign promises" that will fade away as soon as the polls close on election day.

-- Jack Krupansky

Electoral college poll solidifies solidly in favor of Obama, 364 to 174

As most of us know, the popular vote does not determine who becomes president and the overall national polls map to the popular vote, not to electoral college votes. But RealCearPolitics does have a map of the comparable electoral college vote based on the state-by-state polls. Currently, the map shows Obama with 238 solid electoral college votes and McCain with 140. Obama has 75 leaning votes to McCain's 18 leaners. The remaining 67 electoral votes are toss-ups. The toss-ups have been steadily shifting to leaning to Obama. Excluding tossups, Obama has 313 electoral votes, McCain 158. Including toss-ups, Obama has 364 and McCain 174. Only 270 electoral college votes are needed to win. The bottom line is that Obama has a significant lead in the total electoral college vote tally, but all leaning and toss-ups are subject to change on short notice..

Some people say that Ohio represents the entire country. The map still shows Ohio as a toss-up, but now with Obama modestly ahead by 3.4%.

McCain is quite clearly losing momentum while Barack is quite clearly gaining momentum.

The big wildcard is the fate of the economy and financial system. Obama wins if they continue to stagnate, but McCain has a shot to recover if "Hank and Ben" pull a rabbit out of their hat and kick-start the economy and banking system over the next couple of weeks. Maybe a trillion dollars can shift the dynamics of a presidential election. Maybe not.

The real clear bottom line is that although this election is not a slam-dunk for either candidate, Obama is now quite clearly in the lead. But, it is too early to claim a win based on toss-ups and leaners.

At this stage, I would say that the election is Obama's to lose. All he really has to do is stay relatively positive and look and act "presidential" and avoid making any wild claims or promises that might lead voters to conclude that he is a space cadet. Recently McCain has effectively been asleep at the wheel, but he is now making noises suggesting that he has awakened from his slumber.

There is still a chance that Obama could lose a fair chunk of his "leaning" votes due to "The Bradley Effect" (people reluctant to admit to pollsters that they are racially biased), but that is too difficult to evaluate at this time. Personally, I think the effect is overrated, but it has never been tested before at the national level.

Obama has a potential advantage in that his team is really good at registering new voters and reaching out to young voters, many of whom do not have traditional phones so they would not show up in traditional polling. He may in fact currently have a 2% to 5% advantage that the polls cannot see. Obama also has the advantage of opposing the war in Iraq (and planning to get out ASAP) and a crummy economy and poor financial regulatory oversight. McCain's primary advantage is simply that most sane people do not trust non-centrist Democrats with either defense or the economy. Obama may have plans, but they do not have credibility with many people.

-- Jack Krupansky

Moment of truth for McCain

With Obama having a clear lead with barely three weeks until the election, this is a moment of truth for the McCain campaign. The Obama lead is not insurmountable, but McCain needs some real "juice" to surge ahead for the finish line. The real question is whether Obama has been accelerating based on his own strength or whether he has merely "borrowed" from McCain's missteps as well as the financial crisis of the past month. I would suggest that the jury is out on that question, but will be weighing in over the next three weeks. If the global bailout plan does kick in and gain traction and "save" the economy and McCain plays up his positives, he could really reclaim a lot of lost ground.

The arrogant Democrats need to be careful not to start chattering about how they will be disassembling Washington in ways that could very well frighten centrist and moderates and independents. A lot of Obama's current support from independents and the disenchanted comes from his promise for something new, and not simply a return to "old" liberal and non-centrist progressive "ideals" that never really worked that well when they were tried in the past.

In short, the election is still Barack's and the Democrats' to lose, but hubris and arrogance are not clearly being held in check and the potential for a McCain "surge" based on "back to basics" is a very real danger to Obama. As the McCain campaign points out, the Democrats are already starting to "measure the drapes", which is a potentially dangerous sign of complacency that voters frequently find distateful. After all, the voters (most of them) have not yet voted.

-- Jack Krupansky

Deja vu: Treasury investment in major banks

It was interesting to read last night and this morning that the U.S. Treasury is very seriously considering direct investment in banks. I read about it in an article in The New York Times by Edmund Andrews and Mark Landler entitled "U.S. May Take Ownership Stake in Banks" and on Bloomberg by Robert Schmidt and Rebecca Christie entitled "U.S. Treasury May Buy Stakes in Banks Within Weeks." It is a great idea, but it is not a new idea either. In fact, I even recommended it back on Saturday in a post entitled "Treasury investment in major banks." My recommendation:

Although The Big Bailout will definitely be a boost for the big banks, it by itself will not raise substantial amounts of capital for the big banks since the values of the "toxic" assets have declined so steeply from their face value. What I think is also needed is for the U.S. Treasury to make direct investments in a number of major banks, preferably in return for an equity stake that could be sold for a profit some number of years down the road. The amount of investment should be in the $1 billion to $20 billion range depending on the size and importance of the bank. Maybe the total amount would be on the order of $100 billion for the top 20 banks in the U.S. Private equity would probably be willing to invest in the next tier of regional banks if the rules for investment are relaxed sufficiently. This is in addition to Treasury recapitalizing Fannie Mae and Freddie Mac on the order of another $100 billion. At that point, the U.S. banking system should be back on its feet, with credit flowing relatively freely, albeit not at the torrid pace we saw during the housing boom.

Separately, the "credit" arms of the car companies and GE need to be divested and regenerated into a form that the banks are willing to take on, even if some Treasury subsidy is necessary. I believe that having industrial corporations compete with banks for loans was one of the seeds that lead to banks to reach too far beyond their core business model to compensate for a lack of decent returns on traditional lines of business. The day of the 0% car loan definitely should be numbered.

The actual details of the Treasury plan are unknown and remain to be worked out, but the main point is simply to provide big piles of cash to banks so that they actually have capital to freely lend ASAP. Buying up their "toxic" assets is the most important aspect of "turning the page" on the banking crisis, but that may take longer than expected and hoped, so a prompt, direct infusion of cash is a good adjunct for the bailout.

According to the Bloomberg article:

The government is planning to buy stakes in a wide range of banks within weeks as the credit freeze increasingly threatens to tip the U.S. economy into a deep recession.

Treasury Secretary Henry Paulson and top aides are still considering options on how the purchases would work, including having the government acquire preferred stock, two officials informed of the matter said.

The move would be a shift in emphasis in Paulson's original intention for the $700 billion bailout package passed by Congress last week. While the Treasury still aims to buy troubled mortgage-backed securities from financial institutions, a direct capital injection would offer more immediate relief.

I still think a joint public/private approach would be best, with Treasury going after the biggest and most worrisome banks and private equity investing in the rest. My understanding is that there are already private equity firms that have raised piles of cash expressly for the purpose of investing in regional banks.

I also think it makes sense to encourage banks to pay a special premium on money market accounts so that even us folks on Main Street can supply capital to help out and actually know where our money is going and that we will be getting a decent return for our assistance. A number of banks are quietly already starting to offer decent rates, but what is needed is a more widespread effort and a government-encouraged publicity campaign to call attention to it.

-- Jack Krupansky

NBER: Still not ready to call the recession

Robert Hall, the head of the NBER Business Cycle Dating Committee, the quasi-official arbiter of calling the beginning and ending dates of recessions, said today that it is still not clear that a recession has begun. His comments were reported in a Bloomberg article by Steve Matthews and Thomas R. Keene entitled "NBER's Hall Says Recession Call Tough Amid 'Perplexing' Data" and a Reuters article by Emily Kaiser entitled "Panel not likely to call a recession soon." Some of his comments:

• not ready to declare that one has begun
• probably won't decide until well after the November presidential election
• "We have been subjected to political pressure, which I'm not going to talk about... This has been an issue but we've stood tall on that."
• the committee had "not entered the territory of even tentatively considering" pinpointing the end of the economic expansion
• industrial production was less important now than it was in the 1970s or 1980s, when the U.S. economy was far more reliant on manufacturing. Now, the committee focuses primarily on monthly GDP and employment, and those are giving conflicting signals, much like they did in 2001.
• Hall said he personally thought the U.S. economy was probably in a recession, but quickly added: "That's not official. I'm saying it very quietly."
• "We've had this perplexing period of rising output and declining employment" since the end of last year
• "We're struggling with some interesting questions about the difference between the indicators... We see output or real GDP growing at the same time that employment has been declining and we're trying to make sense out of that."

So, there you have it, straight from the horse's mouth... the U.S. economy is probably in a recession, but relative strength in GDP means it is still too early to call it.

-- Jack Krupansky

Did anybody win the second presidential debate?

I watched the second presidential debate online and it seemed to simply continue the status quo of the campaign, with neither guy "closing the deal" but with Barack Obama marginally ahead based mostly on "freshness." I personally do not think that Barack has any truly great plans, but since McCain doesn't either, trying something "new" wins, barely. Still, I did think that McCain put on a credible show and it is still a little baffling that Barack is unable to make even better progress than he has. I think one of Barack's problems is that he is still largely preaching to the Progressive wing of the Democratic party. That does helps to solidify his base and inspire them to get up and volunteer for his all-important get-out-the-vote campaign, but does little to appeal to near-right of center moderates.

In short, the debate merely reflected the current state of the polls, but did not offer anything strikingly new.

-- Jack Krupansky

Electoral college poll shifts even more solidly towards Obama, 364 to 174

As most of us know, the popular vote does not determine who becomes president and the overall national polls map to the popular vote, not the electoral college votes. But RealCearPolitics does have a map of the comparable electoral college vote based on the state-by-state polls. Currently, the map shows Obama with 196 solid electoral college votes and McCain with 143. Obama has 68 leaning votes to McCain's 20 leaners. The remaining 111 electoral votes are toss-ups. The toss-ups have been steadily shifting to leaning to Obama. Excluding tossups, Obama has 264 electoral votes, McCain 163. Including toss-ups, Obama has 364 and McCain 174. That is the bottom line, Obama has a significant lead in the total electoral college vote tally, but all leaning and toss-ups are subject to change on short notice..

Some people say that Ohio represents the entire country. The map still shows Ohio as a toss-up, but now with Obama slightly ahead by 3.4%.

McCain is quite clearly losing momentum while Barack is quite clearly gaining momentum.

The real clear bottom line is that although this election is not a slam-dunk for either candidate, Obama is now quite clearly in the lead. But, it is too early to claim a win based on toss-ups and leaners.

At this stage, I would say that the election is Obama's to lose. All he really has to do is stay relatively positive and look and act "presidential" and avoid making any wild claims or promises that might lead voters to conclude that he is a space cadet. McCain is effectively asleep at the wheel.

There is still a chance that Obama could lose a fair chunk of his "leaning" votes due to "The Bradley Effect" (people reluctant to admit to pollsters that they are racially biased), but that is too difficult to evaluate at this time. Personally, I think the effect is overrated, but it has never been tested before at the national level.

Obama has a potential advantage in that his team is really good at registering new voters and reaching out to young voters, many of whom do not have traditional phones so they would not show up in traditional polling. He may in fact currently have a 2% to 5% advantage that the polls cannot see. Obama also has the advantage of opposing the war in Iraq (and planning to get out ASAP) and a crummy economy and poor financial regulatory oversight. McCain's primary advantage is simply that most sane people do not trust non-centrist Democrats with either defense or the economy. Obama may have plans, but they do not have credibility with many people.

-- Jack Krupansky

Does McCain have any chance of bouncing back?

As of right now, McCain seems intent on digging his own grave for this election. Palin is "doing her darnedest" to keep his dead horse propped up, but with so much focus on the economy and how poorly the Republicans have managed it, the election is clearly now Barack Obama's to lose. Sure, it is close and the dynamics can change on a moment's notice, but McCain simply seems to be sputtering as Obama begins to gain traction.

There are two big wildcard factors to consider:

1. Obama's superior ability at registering new, especially young and energetic, voters. There are simply a lot of votes out there for Obama that are not yet even on the map. And a lot of young people use cell phones rather than "land lines", so they are not reachable by the traditional pollsters.
2. Reluctance of poll respondents to be candid about race and voting the opposite of what they said to the pollsters. This is the so-called "Bradley Effect."

It is unknown how big these two factors will be.

A third factor is the path of the economy and the current financial crisis. The so-called "recession" is still quite mild in historic terms while the banking "credit crunch" crisis may be on the cusp of resolution. A lot will happen over the next month and either the economy does spiral down into a true and deeply-felt recession or maybe the bailout will ease the credit crunch enough that there is enough of a sigh of relief that swing voters will be less likely to vote against a Republican.

A fouth factor is Amercian people having time to get used to Barack Obama as a newcomer. They have had lots of questions and with the passage of time those questions incrementally become answered. Whether enough of their uncertainty will have been erased by election day remains to be seen.

A fifth factor is that Barack Obama is running as a non-centrist Democrat and the American people have not tended to believe that non-centrist Democrats can really be trusted with boosting the economy and national security. They trusted Jimmy Carter once and it took 12 years before they were willing try a Democrat again.

A sixth factor is the public attitude towards tax cuts. The Republicans are more likely to follow through on cutting taxes, but it also looks as if the Democrats will have even stronger control of Congress after this election. Obama does have some credible tax cut plans for "The Middle Class", but the problem is that the Democrats have had zero credibility when it comes to cutting taxes.

A seventh factor is that it appears that the situation in Iraq has been improving, so the big Progressive push to get out of Iraq ASAP is not as urgently compelling as it was a year ago. If voters believe that the surge worked, they are more likely to think that McCain will be able to handle Afghanistan while Barack is a question mark despite his tough talk.

In short, McCain does have some chance to bounce back, but his star certainly does seem to be dimming by the day. He really need to see the credit crisis evaporate by election day.

-- Jack Krupansky

Electoral college poll shifts even further towards Obama, 353 to 185

As most of us know, the popular vote does not determine who becomes president and the overall national polls map to the popular vote, not the electoral college votes. But RealCearPolitics does have a map of the comparable electoral college vote based on the state-by-state polls. Currently, the map shows Obama with 171 solid electoral college votes and McCain with 158. Obama has 88 leaning votes to McCain's 5 leaners. The remaining 116 electoral votes are toss-ups. The toss-ups have been steadily shifting to leaning to Obama. Excluding tossups, Obama has 259, McCain 163. Including toss-ups, Obama has 353 and McCain 185. That is the bottom line, Obama has a significant lead in the total electoral college vote tally, but all leaning and toss-ups are subject to change on short notice..

Some people say that Ohio represents the entire country. The map still shows Ohio as a toss-up, but now with Obama slightly ahead by 2.0%.

McCain is quite clearly losing momentum while Barack is quite clearly gaining momentum.

The real clear bottom line is that although this election is not a slam-dunk for either candidate, Obama is now quite clearly in the lead. But, it is too early to claim a win based on toss-ups and leaners.

Obama has a potential advantage in that his team is really good at registering new voters and reaching out to young voters, many of whom do not have traditional phones so they would not show up in traditional polling. He may in fact currently have a 2% to 5% advantage that the polls cannot see. Obama also has the advantage of opposing the war in Iraq (and planning to get out ASAP) and a crummy economy and poor financial regulatory oversight. McCain's primary advantage is simply that most sane people do not trust non-centrist Democrats with either defense or the economy. Obama may have plans, but they do not have credibility with many people.

-- Jack Krupansky

Ho hum, the U.S. Senate passes The Big Bailout Bill

Ho hum, as was commonly predicted, the U.S. Senate voted to pass the Emergency Economic Stabilization Act of 2008, and by a much wider margin (74 to 25, or almost 3 to 1) than I expected. Supposedly the House will vote (again) on Friday, but I did see one account suggesting that a vote may occur on Thursday. Basically, the vote will occur as soon as the vote counters figure they have enough dependable voting commitments to assure a comfortable margin. The other open question is whether additional changes will be needed to sway more Republicans to accept the bill.

Just to be clear, I do support the bill and supported the original bill and the version the house voted on.

My one big concern is that Treasury buy up mortgage assets at a steep-enough discount to be able to offer homeowners a big enough break on their principal so that their mortgage payments will be low enough to help them avoid foreclosure. Alas, the specific details for buying mortgages are not in the bill. The bill just says that Treasury agrees to come up with a plan within 45 days of passage or within 2 days of actually buying assets. People have discussed the use of reverse auctions and that is mentioned in the bill as a possible option, but that is not dictated by the bill. The bill says that "the Secretary shall pursue additional measures to ensure that prices paid for assets are reasonable and reflect the underlying value of the asset." I have no idea what "prices paid for assets are reasonable and reflect the underlying value" really means, both in terms of "reflect" and "underlying value." But, I would venture to read that as implying that the "underlying" value of a mortgage would be roughly the current market value of the property that the mortgage covers.

-- Jack Krupansky

The U.S. Senate version of The Big Bailout Bill

The U.S. Senate is expected to vote on their revision of The Big Bailout Bill, otherwise known as the Emergency Economic Stabilization Act of 2008. It is written in the form of an amendment to some other legislation. I do not know if that is a current version or not since everything is in a state of flux down there in "The District." The Senate will supposedly vote at 7:30 p.m. tonight and then the House will vote on Friday.

In theory, there are not a lot of differences from the original House version besides the raising of FDIC limits and some tax relief, but somehow the Senate managed to expand 110 pages to 451 pages. Some of that is simply the page layout -- presumably since Senators tend to be older and their eyesight weaker.

Here is the main part of the FDIC change, in classic congressional-speak:

SEC. 136. TEMPORARY INCREASE IN DEPOSIT AND SHARE INSURANCE COVERAGE.

(a) FEDERAL DEPOSIT INSURANCE ACT; TEMPORARY INCREASE IN DEPOSIT INSURANCE.--

(1) INCREASED AMOUNT.—Effective only during the period beginning on the date of enactment of this Act and ending on December 31, 2009, section 11(a)(1)(E) of the Federal Deposit Insurance Act (12 U.S.C. 1821(a)(1)(E)) shall apply with "$250,000" substituted for "$100,000".

A lot of people are making a big deal about the public debt ceiling being raised to over $11 trillion ($11,315,000,000,000), but I would note that it is less than one year of GDP which is over $14 trillion. Average citizens routinely take on mortgages way above their annual income, so there is not even anything superficially outrageous about the level of public debt. Everything is relative.

Here is a link to an unofficial copy of the bill.

Here is a link to another unofficial copy of the bill.

This is the official draft from the Senate Banking Committee Web site.

Here is the official one-page summary.

Here is the official section-by-section analysis.

-- Jack Krupansky