Why the Wall Street bail out plan is bad-6: The credit ratings agencies scandal

In voting down the bailout proposal 228-205 yesterday, the House of Representatives struck a small blow for democracy. They refused to be steamrolled by Wall Street and its agents in Congress and the administration.

As usual, in the run up to the vote, the administration met in secret with the Congressional leadership, worked out some vague plan, gave the House members just a few hours to see the bill, and then ordered the House members to vote for it or else, saying “Trust us, we know what is best. If you immediately don’t do what we say, the world will come to an end.”
[Read more…]

Why the Wall Street bail out plan is bad-5: Rewarding greed

In this next-to-last post in this series (but probably not on this topic), I want to look at how senior Wall Street executives saw their profession as some sort of game in which the goal was to extract more personal benefit than the next executive, leading to a leap-frogging of various forms of compensation packages that would leave ordinary people gasping.

These executives were taking risks with other people’s money that left many ordinary people ruined while they themselves were benefiting:

The chairman of Lehman Brothers, Richard Fuld, still has his mansion in Greenwich, CT, his oceanfront estate on Jupiter Island in FL, and his Park Avenue co-op in Manhattan.

Many at Lehman blame Fuld for dallying while his investment bank went bust, taking risks with other people’s money while he cleared over $40 million in salary and stock in the last year alone.
. . .
Fuld isn’t the only top executive who remains well-off despite his firm’s collapse. Former Bear Stearns CEO Alan Schwartz collected more than $38 million in salary and bonuses in the last three years for which figures are available.

These people live in a different world from you and me. The report describes the ‘hardships’ being undergone by the Wall Street executives as a result of the current financial situation.

“A lot of those people will have to sell their homes, they’re going to cut back on the private jets and the vacations. They may even have to take their kids out of private school,” said Frank. “It’s a total reworking of their lifestyle.”

He added that it’s going to be no easy task.

“It’s going to be very hard psychologically for these people,” Frank said. “I talked to one guy who had to give up his private jet recently. And he said of all the trials in his life, giving that up was the hardest thing he’s ever done.”

And now we are supposed to bail out such people when their actions have resulted in other people losing their jobs or their only (modest) homes?

Some lawmakers are furious at what they are being asked to approve by the Bush administration, the Federal Reserve, and their own leadership. One anonymous Congressperson sent an email in which, in addition to demanding major reforms in the financial sector in return for the bailout, he/she also wants them to be publicly humiliated for what they have done to the country, and demanding that Congress should not be bought off with some trivial considerations.

I don’t want to trade a $700 billion dollar giveaway to the most unsympathetic human beings on the planet for a few [expletive] bridges. I want reforms of the industry, and I want it to be as punitive as possible.
. . .
I also find myself drawn to provisions that would serve no useful purpose except to insult the industry, like requiring the CEOs, CFOs and the chair of the board of any entity that sells mortgage related securities to the Treasury Department to certify that they have completed an approved course in credit counseling. That is now required of consumers filing bankruptcy to make sure they feel properly humiliated for being head over heels in debt, although most lost control of their finances because of a serious illness in the family. That would just be petty and childish, and completely in character for me.

I think this congressperson is merely channeling the deep reservoir of anger in the general public at what they rightly see as little more than a fraud perpetrated on them.

When poor people get into trouble because they make stupid or greedy decisions, they are lectured to by the rich on the need to be prudent and live within their means and to suffer the consequences of their actions. When the very rich do the same thing, the government rides to their rescue. ‘Throwing money at the problem’ (a favorite phrase used by the rich to denigrate any attempt to fund initiatives that help ordinary people, like education or health care) becomes the desirable mode of action when the recipients are Wall Street or the defense industries.

Meanwhile on the House floor Rep. Marcy Kaptur of Ohio tells it like it is:

As I have said repeatedly, the leadership of both parties are already bought and sold by Wall Street like any of the other commodities they trade in. They are simply looking for a face-saving way to capitulate and give away the store and a grand ‘bipartisan compromise’ is what they seek, so that one party cannot take advantage of public anger by accusing the other of selling out to Wall Street. It is only the ‘minor’ members of Congress who are not beholden to these interests that can stage a revolt.

I think that most people, even if they are not sure exactly what is going on, are suspicious that this is a sweet deal for insiders by insiders. Apparently opposition to the bailout is running at between 10-to-1 to 100-to-1, if measured by the calls and emails received by members of Congress. But just like in the run up to the Iraq war, regular Congresspeople can be frightened into thinking that they will be blamed if they oppose their party leaders and the group of ‘wise experts’ who solemnly tell them that they know what the best of action is.

As former Labor Secretary Robert Reich says:

Put yourself in the shoes of a member of Congress, including our two presidential candidates. The Treasury Secretary and Fed Chair have told you this is necessary to save the economy. If you don’t agree, you risk a meltdown of the entire global financial system. Your own constituents’ savings could go down with it. An election is six weeks away. Besides, in the last two days of trading, since rumors spread that the Treasury and the Fed were planning something of this sort, stock prices revived.

Now – quick — what do you do? You have no choice but to say yes.

But you might also set some conditions on Wall Street.

The public doesn’t like a blank check. They think this whole bailout idea is nuts. They see fat cats on Wall Street who have raked in zillions for years, now extorting in effect $2,000 to $5,000 from every American family to make up for their own nonfeasance, malfeasance, greed, and just plain stupidity.

Reich lists five conditions, the first of which is that “The government (i.e. taxpayers) gets an equity stake in every Wall Street financial company proportional to the amount of bad debt that company shoves onto the public. So when and if Wall Street shares rise, taxpayers are rewarded for accepting so much risk.”

There are alternatives. It has been pointed out that Sweden faced a similar crisis in 1992 but took a very different attitude and solved it with almost no cost to the taxpayers. (Thanks to Norm for the link.)

Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.

That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.

Why should we not get what, say, Warren Buffett or JP Morgan Chase got when they invested in troubled firms like Lehmans or Washington Mutual? Why should the taxpayers not be treated as investors and have the same risk/reward expectations as any other investor? Why should we pay for something for which there is no clearly discernible public good?

It is time for people to get really angry. We should not take the word of sober-voiced people in suits who soothingly tell us that although they were the ones who created this mess and did not even see it coming, we should now unquestioningly trust them to solve the mess by giving them virtually everything they want.

We are being told that it is imperative that we ‘calm the markets’, as if the trillion-dollar financial sector is a colicky baby in a restaurant. We are being told that we must restore ‘confidence in the markets’ as if the market is a shy teenager about to go on a first date. Why should we care about confidence? And whose confidence are we talking about?

They are taking us for suckers and we will have only ourselves to blame if we allow them to do so. We, the people, technically own the government but it has been co-opted by the financiers. It is time to take it back from these usurpers.

POST SCRIPT: Imminent threat, anyone?

Jon Stewart reminds how Bush is using the same scare tactics to push the $700 billion giveaway plan that he used to push the Iraq war.

Why the Wall Street bail out plan is bad-4

A large number of economists were quick to express their dislike of the Paulson plan and have been vociferous in urging Congress to not be stampeded by the administration but to use this opportunity to put back into place some of the regulations that were dismantled over the last three decades.

Meanwhile on NPR this morning, Allan Meltzer, a former Fed economist and a professor at Carnegie Mellon University says that he does not see that this ‘crisis’ hurts anyone other than a few major players on Wall Street and that all the scaremongering about a global financial catastrophe if nothing is done are nor warranted.

Meanwhile a group of 150 economists have also weighed in, saying that there is no need for this mad rush and we should think things through carefully before committing ourselves to the Paulson plan or some minor variation of it.

As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:
1) Its fairness. . . .
2) Its ambiguity. . . .

3) Its long-term effects. . . .
For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come.

I am not optimistic that these cautions will be heeded. The administration and Congressional leadership is deep in the pockets of Wall Street and will find some face-saving way to give them everything they want.

Alexander Cockburn walks us through some of the highlights of the bipartisan deregulation that resulted in Wall Street firms playing fast and loose with other people’s money for their own benefit. One key person who appears repeatedly in this sordid story is Phil Gramm, the former Senator from Texas who is now economics advisor to John McCain and reportedly his preferred choice to be Treasury Secretary. As US senator from Texas, he pushed through some of the key legislation that resulted in this mess.

In 1999 John McCain’s friend and now his closest economic counselor, then a senator from Texas, was the prime Republican force pushing through the Gramm-Leach-Bliley Act. It repealed the old Glass-Steagall Act, passed in the Great Depression, which prohibited a commercial bank from being in the investment and insurance business. President Bill Clinton cheerfully signed it into law.

A year later Gramm, chairman of the Senate Banking Committee, attached a 262-page amendment to an omnibus appropriations bill, voted on by Congress right before a recess. The amendment received no scrutiny and duly became the Commodity Futures Modernization Act which okayed deregulation of investment banks, exempting most over the counter derivatives, credit derivatives, credit defaults, and swaps from regulatory scrutiny. Thus were born the scams that produced the debacle of Enron, a company on whose board sat Gramm’s wife Wendy. She had served on the Commodity Futures Trading Commission from 1983 to 1993 and devised many of the rules coded into law by her husband in 2000.

Somewhat stained by the Enron debacle Gramm quit the senate in 2002 and began to enjoy the fruits of his own deregulatory efforts. He became a vice chairman of the giant Swiss bank UBS’ new investment arm in the US, lobbying Congress, the Federal Reserve and the Treasury Department about banking and mortgage issues in 2005 and 2006, urging Congress to roll back strong state rules trying to crimp the predatory tactics of the subprime mortgage industry.

Cockburn points out that the enabling of Wall Street shenanigans has always been a bipartisan affair.

But is [Gramm} Exhibit A? No. That honor should surely go to Robert Rubin and to the economic course he set for his boss, the eagerly complicit Bill Clinton. Gramm has been the hireling of the banking industry. Rubin is at the beating heart of Wall Street finance, and he and Lawrence Summers at Clinton’s Treasury, were the guiding forces for financial deregulation.

Obviously the Republicans hoped that the roof wouldn’t fall in on their watch, and the crisis could be deferred to 2008 and then blamed on the Democrats. But their insurance policy was that if the roof did cave, as it has now, the rescue policy would be identical in both cases. That’s why Obama has collected more money than McCain from the big Wall Street houses.

The gang that successfully got out of Dodge in time was the Clinton-Rubin-Summers gang, just before the last bubble -–the stock market bubble — burst in March of 2001. They knew what was coming.

Rubin is one of Obama’s advisors, Gramm is McCain’s so whoever becomes president, as usual Wall Street has its friends in high places. They make money from public investments when the going is good and make money directly from the taxpayers when the going is bad. The only way their hands can be taken out of the till is if the public angrily tell their representatives that there should be no bailout until massive reforms and regulations are put into place so that people’s money is safeguarded from these rapacious predators.

This episode illustrates better than any civics class exactly who runs the country and for whose benefit.

POST SCRIPT: Jon Stewart on the Paulson plan

Why the Wall Street bail out plan is bad-3: More doubts

I have described before how the subprime mortgage debacle lies at the root of this mess. But how did it come about that mortgage lending, once the most conservative and transparent and regulated of banking practices, became the basis of a massive shadow economy in which trillions of dollars flowed around, free from any oversight? And what is the government bailout meant to do?

The foundations of the mess lies with the neoliberal deregulation policies that began under the Carter administration and was enthusiastically followed by every subsequent administration of both parties. The driving idea behind all this loosening was that the banking and investment sector was being shackled by too many regulations and too much oversight. The protective firewalls that had been put up between banks and investment houses following the excesses that led to the Great Depression were targeted. It was argued that if the banks were freed from these onerous restrictions, capitalism would bloom.

Since Wall Street executives have always formed the core advisory group around any government (and currently are deeply enmeshed in the Obama and McCain campaigns) and also have strong ties with the congressional leadership of both parties, it was not hard to persuade the government to loosen the restrictions that had been put into place following the last debacle of the financial sector during the Great Depression of 1929.

The same Wall Street types who put into place the conditions that caused the current mess are now the ones who claim they are the ones who can solve it. They are trying to panic everyone into accepting a plan that will rescue themselves from their own actions by passing the cost on to us.

Since the main problem now is that all these banks and investment firms are being dragged down by having on their books all these mortgage-based securitized investments whose value is doubtful (to the extent that they can even figure out its value), what the rescue plan seeks to do is to use taxpayer money to buy these possibly worthless investments at values far more than they are worth, essentially taking these liabilities off the hands of the banks and putting them in the hands of taxpayers. It is like going to a garage sale and paying original list price for the junk that is being sold.

While this is clearly a good deal for the banks and Wall Street, rescuing them from the consequences of their bad decisions by letting them unload their bad debts and giving them a huge infusion of cash, what is in it for the taxpayer? As far as I can see, very little. We greatly increase the national debt and the interest on that debt (which will eventually have to be paid in the form of higher taxes) while getting ownership of assets whose value is unknown. The only possible bright spot is that these doubtful assets may, over time, rise in value. But that is a big gamble, and I would not be surprised if there are also conditions in the agreement that will take such profits (if they ever materialize) and give it back to the banks. After all, what these people seek is to entirely privatize all profits while having the taxpayers pay for all losses.

Economist Paul Krugman, comparing this plan with the savings and loan bailout of the 1980s, explains clearly why he thinks this is a bad plan and should be rejected. (Incidentally, John McCain was implicated in that earlier influence-peddling scandal, as one of the infamous ‘Keating Five’.)

The Treasury plan, by contrast, looks like an attempt to restore confidence in the financial system — that is, convince creditors of troubled institutions that everything’s OK — simply by buying assets off these institutions. This will only work if the prices Treasury pays are much higher than current market prices; that, in turn, can only be true either if this is mainly a liquidity problem — which seems doubtful — or if Treasury is going to be paying a huge premium, in effect throwing taxpayers’ money at the financial world.

And there’s no quid pro quo here — nothing that gives taxpayers a stake in the upside, nothing that ensures that the money is used to stabilize the system rather than reward the undeserving.
. . .
Treasury needs to explain why this is supposed to work — not try to panic Congress into giving it a blank check. Otherwise, no deal.

In fact, as Atrios points out, the plan seeks to give the Treasury extraordinary freedom from any oversight. They have added wording that says: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”

In other words, Paulson is telling Congress to just give him the money to do what he wants. The Treasury Secretary, like many of his predecessors, is from Wall Street (he spent three decades at Goldman Sachs) and thus is sympathetic to the plight of this particular group. They are his base.

William Greider, in a must-read article, writes that we are currently witnessing an attempt to pull off one of the biggest swindles of modern times:

It would relieve the major banks and investment firms of their mountainous rotten assets and make the public swallow their losses–many hundreds of billions, maybe much more. What’s not to like if you are a financial titan threatened with extinction?

If Wall Street gets away with this, it will represent an historic swindle of the American public–all sugar for the villains, lasting pain and damage for the victims. My advice to Washington politicians: Stop, take a deep breath and examine what you are being told to do by so-called “responsible opinion.” If this deal succeeds, I predict it will become a transforming event in American politics–exposing the deep deformities in our democracy and launching a tidal wave of righteous anger and popular rebellion.

He quotes others in support of his thesis that what is being proposed is an insider deal:

Christopher Whalen of Institutional Risk Analytics, a brave conservative critic, put it plainly: “The joyous reception from Congressional Democrats to Paulson’s latest massive bailout proposal smells an awful lot like yet another corporatist lovefest between Washington’s one-party government and the Sell Side investment banks.”

A kindred critic, Josh Rosner of Graham Fisher in New York, defined the sponsors of this stampede to action: “Let us be clear, it is not citizen groups, private investors, equity investors or institutional investors broadly who are calling for this government purchase fund. It is almost exclusively being lobbied for by precisely those institutions that believed they were ‘smarter than the rest of us,’ institutions who need to get those assets off their balance sheet at an inflated value lest they be at risk of large losses or worse.”

Greider points out that the government, if it were truly acting in the interests of the people, has a lot of power to use the crisis to reform the system:

A serious intervention in which Washington takes charge would, first, require a new central authority to supervise the financial institutions and compel them to support the government’s actions to stabilize the system. Government can apply killer leverage to the financial players: accept our objectives and follow our instructions or you are left on your own–cut off from government lending spigots and ineligible for any direct assistance. If they decline to cooperate, the money guys are stuck with their own mess. If they resist the government’s orders to keep lending to the real economy of producers and consumers, banks and brokers will be effectively isolated, therefore doomed.

Only with these conditions, and some others, should the federal government be willing to take ownership–temporarily–of the rotten financial assets that are dragging down funds, banks and brokerages.

Right now it looks like the Congress is getting ready to cave in to this deal in exchange for only some purely symbolic concessions like limits on executive compensation. The fix seems to be in. Only strong public opposition will prevent this giveaway of public funds to the very people who caused this crisis.

POST SCRIPT: Intelligent Design trial talk

Judge John E. Jones, who presided over the Dover intelligent design trial in 2005, will speak today from 5:00-6:00 pm in Strosacker Auditorium, followed by half and hour for questions.

Why the Wall Street bail out plan is bad-2: Manufactured crisis?

I have been getting increasingly suspicious that this so-called financial crisis may be a bogus one to enrich this administration’s base of Wall Street cronies before Bush leaves office. While I am not an economist and do not have the inside knowledge that Henry Paulson (Treasury Secretary) and Ben Bernanke (head of the Federal Reserve) have, there is something about this mad rush to pass major legislation that strikes me as very suspicious. It reminds me too much of the way the administration flat-out lied about the danger that Iraq posed in order to get Congressional authorization for the invasion.

People like Paulson and Bernanke lied when they said they had the situation under control earlier when they bailed out Bear Stearns, Fannie Mae, Freddie Mac, and AIG. How do we know that they are not lying again now in order to push a covert agenda? While I accept that the financial sector is in trouble, what I want to know is what evidence has been produced that we need to act immediately. The stock market might go down if no immediate action is taken but that is not sufficient reason because they are betting on a bailout and their potential disappointment is not a reason for throwing more money into their trough.

When one of the senators at yesterday’s hearings asked Paulson why he needed $700 billion all at once and why he could not initially accept a ‘smaller’ amount like $150 billion now and the rest staggered over time, he replied that the markets needed the larger amount to show ‘confidence’. What kind of answer is that? Why should we care if the market has ‘confidence’? What he really means is that he wants stock prices to go up by giving away taxpayer money. We need to go back to basics where stock prices reflect the real value of companies.

How do we know there is really a crisis except for the fact that we are being told so repeatedly in screaming headlines? What evidence do we have that the credit markets are really freezing up? Are industries not functioning because they can’t get credit? Are ordinary people not being able to buy a car because they cannot get a car loan? Paulson and Bernanke keep saying that if they don’t get all the money right now, this minute with absolutely no conditions, there will be a financial Armageddon and ordinary people will suffer. But the evidence produced so far is that only some banks and Wall Street financial firms will suffer.

I am not the only one who is deeply skeptical. Pulitzer Prize winning reporter on tax policy David Cay Johnson (author of the book Perfectly Legal that described how tax policies have been systematically used to siphon money away from the poor and middle class to the rich) sounds similar cautions about being pressured by a phony crisis:

In covering the proposed $700 billion bailout of Wall Street don’t repeat the failed lapdog practices that so damaged our reputations in the rush to war in Iraq and the adoption of the Patriot Act. Don’t assume that Congress must act instantly, as so many news stories state as if it was an immutable fact. Don’t assume there is a case just because officials say there is.

The coverage of the Paulson plan focuses on the edges, on the details. The focus should be on the premise. And be skeptical of what gullible Congressional leaders, most of them up before the voters in a few weeks, say after being given a closed-door meeting on supposed horrors.

The Administration has scared the markets and some key legislative leaders, but it has not laid out a coherent, specific and compelling need for this enormous proposal, which is the equivalent of a one-time 55 percent income tax surcharge. (Instead the money will be borrowed, so ask from whom and how this much can be raised so quickly if the credit markets are nearly seized up with fear.)

Ask this question — are the credit markets really about to seize up?

If they are then lots of business owners should be eager to tell how their bank is calling their 90-day revolving loans, rejecting new loans and demanding more cash on deposit. I called businessmen I know yesterday and not one of them reported such problems. Indeed, Citibank offered yesterday to lend me tens of thousands of dollars on my signature at 2.99 percent, well below the nearly 5 percent inflation rate. That offer came after I said no last week to a 4.99 percent loan.

If the problem is toxic mortgages then how come they are still being offered all over the Internet? On the main page AOL generates for me there is an ad for a 1.9% loan (which means you pay that interest rate and the rest of the interest is added to your balance due.) Why oh why or why would taxpayers be bailing out banks that are continuing to sell these toxic loans?

Financial reporter and New York Times columnist Gretchen Morgenson in an interview on Fresh Air tells host Terry Gross that she too does not trust these people to tell the truth now given that they have lied to us before. In a column, she argues that the fix is in to benefit Wall Street, because we, the people, have no lobbyists working on our behalf. In theory our congresspeople should be our lobbyists but given the corrupt, money-driven political system we have, even the suggestion that Congress will look out for us is laughable.

Morgenson provided some information that was new to me. She said that AIG had written $441 billion in credit insurance on mortgage-related securities that had gone sour, three –quarters of it to European banks. Furthermore, the total value of the credit default swap market (the quasi-insurance that propped up the value of the subprime mortgages) is $62 trillion. And all this was unregulated. And now we are supposed to trust Paulson, Benanke, Robert Rubin and all the other people in suits who created this unregulated monster to take us out of this mess.

When reporters for mainstream media like Morgenson say flat out that they suspect the government is lying to the people in order to reward the financial giants and their lobbyists who pour vast amounts of money into the system, it indicates that a sea change is occurring.

Chris Bowers manages to flesh out my vague fears into some very pertinent and concrete questions.

The more I think about this deal, the more it starts to look like a fraud on the American taxpayer. It is time to put the brakes on the Paulson-Bernanke-Bush juggernaut and start looking very, very carefully at how to take the gamblers out of the financial markets.

What we should watch out for is when Paulson and Bernanke meet with congressional leaders in a secret session and then they all come out and say that due to facts they cannot reveal to us, they have to do what Paulson wants (with some window dressing added) to avoid a terrible outcome. That is exactly what happened with the Iraq war and is a sure sign that the fix is in and that the reasons for taking the action will not stand scrutiny.

We should not accept this under any circumstances and should demand total transparency. This whole mess was caused by opaque trillion dollar financial transactions hidden from the world. It is not going to be solved by more secrecy.

POST SCRIPT: Silver lining?

The only silver lining to be found in this mess is that it may make it less likely that Bush will launch an attack on Iran before he leaves office. I had been fearful that the neoconservative cabal that have such influence over the Bush-Cheney regime might persuade them that carrying out such an insane plan was a good idea. Given the preoccupation with the financial crisis and its cost, such an action now seems unlikely.

Meanwhile, you can listen to (and read the transcript of) the interview NPR had with Iranian President Ahmadinejad. He repeatedly challenged the bland assumption that the US spoke for the entire world, that the things that bothered the US also bothered the world. His questioning of the assumptions so rattled the interviewer (US journalists rarely examine the assumptions of the government-corporate elite in the US that frames the discussions) that the latter started an idiotic line of questioning as to whether the Iranian leader watched western TV and whether he listened to the Beatles and Led Zeppelin.

The interviewer seemed to assume that Ahmedinejad is some kind of ignorant isolationist. The fact that he is a university academic who is well aware of what is going on in the world and capable of matching wits with western journalists seemed to have taken the interviewer by surprise.

Why the Wall Street bail out plan is bad-1

I wrote last Friday of the reasons behind the current financial mess. Over the weekend, as everyone is aware by now, the US government issued a plan to put up a huge amount of money (initially about $700 billion but likely to grow to well over a trillion) to bail Wall Street out of the financial difficulties caused by its own greed and recklessness.

The public and the Congress are being stampeded with ‘the sky is falling’ rhetoric into giving the Treasury Secretary Henry Paulson a blank check, with no oversight and almost no reforms, to dole out money to his cronies in the financial sector so that they can continue the reckless practices that have led to the present situation. We should not forget that Paulson spent almost his entire career (over three decades) at Goldman Sachs, one of the investment banks at the center of the current mess.

Paulson says he wants a ‘quick and clean’ plan approved by the Congress. To translate, ‘quick’ means he wants Congress to approve the plan immediately without looking too closely at it, and ‘clean’ means he does not want them to demand accountability and reforms in return for shelling out taxpayer money to the very firms and executives who caused this crisis.

The bankers themselves want taxpayer money with no restrictions at all and even want to prevent the courts from having any jurisdiction in the matter, which strikes me as an open invitation to swindle.

Paulson, Ben Bernanke (head of the Federal Reserve Board), and George W. Bush are acting as if there are only two alternatives: giving Paulson this blank check or a collapse of the global financial markets. This is false. Even within this short time, economists have been able to come up with possible alternatives, as has senator Christopher Dodd. I am not endorsing these alternative proposals by any means. I don’t think they go far enough in providing regulatory oversight. But the point is that alternatives exist, more proposals can be created, and all should be discussed when such a large amount of money is involved.

The Paulson plan is a bad plan and should be opposed. Paulson, Bernanke, and Bush are saying that the necessary reforms and oversight can be added later after the crisis has passed, but only a sucker would accept that deal. Once the administration and the Wall Street firms get their hands on the money, you can be sure that they will fight any reforms tooth and nail. It is only now, when they are over a barrel and desperately seeking relief, that Congress has any leverage at all to get the needed reforms enacted.

We need to be wary of false compromises. After all, the leadership of both parties and the Bush administration are almost all bought and sold by Wall Street interests and they have every intention of capitulating to the demands of those interests. They will look for a way to do so while seeming to represent the interests of ordinary people. So we will hear loud grandstanding talk of needing to cap executive salaries (which those executives can easily circumvent) and some crumbs thrown to those whose homes have been foreclosed, while ignoring the fact that the real need is re-regulation of the financial markets, to put back in place those features that prevent executives at these banks and other financial institutions from acting like high rolling gamblers using other people’s money. All this talk of a possible financial apocalypse is meant to steamroll those few people who oppose what is likely to be a blatant rip-off of taxpayers.

Major legislation that is rushed under panic conditions (whether real or simulated) almost always leads to bad results because the authors of the legislation use the rush to stealthily advance their covert agendas. For an example, we need go no further than the abominable USA PATRIOT Act that was rushed through in the wake of the events of September 11, 2001 under conditions of fake panic and which has resulted in the massive violations of citizen rights and protections that were once taken for granted. Or the Iraq war authorization act that was stampeded through Congress because of fake panic created that Iraq was building a nuclear bomb. We know how well those turned out. The plan for the federal bailout of Wall Street has all the signs of being a repetition of those two events.

To get a scale of the amounts currently involved, see this exchange between the hosts of the PRI program Marketplace. The ‘credit default swap’ market referred to is a rough measure of the amount of money that was swirling around in the subprime mortgage dealings.

BOB MOON: OK, I’m about to unload some numbers on you here, so I’ll speak slowly so you can follow this.

The value of the entire U.S. Treasuries market: $4.5 trillion.

The value of the entire mortgage market: $7 trillion.

The size of the U.S. stock market: $22 trillion.

OK, you ready?

The size of the credit default swap market last year: $45 trillion.

KAI RYSSDAL: That’s a lot of money, Bob.

Yes, sirree, Bob, that is a lot of money. And all of it in a shadow economy, without any supervision by the government.

If there was any doubt as to who runs the country and for whose benefit, this episode should remove them, because both the Democratic and Republican parties colluded to create the conditions which gave rise to the current crisis and now both are colluding to save their rich supporters from the consequences of their actions.

What we clearly have now is government of the rich, by the rich, and for the rich.

POST SCRIPT: Religious nuts

Recently John McCain and Barack Obama were interviewed separately by Rick Warren, pastor of the Saddleback evangelical megachurch. Jackie Broyles and Dunlap from Red State Update engaged outside the forum with protestors from the Westboro Baptist Church, a group that is so viciously and irrationally antigay that I sometimes wonder if they are actually a bunch of performance artists, cleverly playing a prank on all of us.

I have written before that humor and ridicule is the best way to deal with such people, and Jackie and Dunlap seem to share that view.

Unbalanced coverage-1

I follow news on two levels. The first level is trying to get actual information about what happened. The second meta-level is observing how events are covered and what and whose agenda is being served by the news media.

I cannot remember when I first started following the news in this dualistic way but I do know that by 1989 I had already fallen into this habit. Two things happened simultaneously in December of that year that drove home to me forcefully the need to do this.

With the disintegration of the Soviet Union, there was a revolt in Romania against its despotic leader Nikolai Ceausescu that began around December 17, 1989 that resulted in the government firing on demonstrators. This increased the protests and eventually led to the overthrow of the government and the later execution of Ceausescu.

Meanwhile on December 20, the US invaded Panama to overthrow its leader Manuel Noriega, massively bombing whole areas of the capital city, in the process destroying the densely populated El Chorrillo neighborhood in downtown Panama, which contained mostly poor people.

In those pre-internet days I had no recourse other than US TV to keep up with breaking news and I recall watching the news coverage as it switched back and forth between events in these two countries.

When it came to Romania, the US TV news reporters expressed deep skepticism about the Romanian government’s official claims about everything being fine and actually went to investigate the reported killings of civilians by the forces loyal to Ceausescu. They relayed stories of the dead and displaced that contradicted the official accounts. They acted as journalists should, being skeptical of official claims and seeking independent verification of the facts by going to the scene of the events and talking with eyewitnesses.

When the news switched to coverage of the events in Panama, however, it was quite different. The US reporters exhibited a remarkable lack of curiosity about civilian casualties caused by the US bombing and showed a cheerful willingness to accept at face value the official US government and military version of events. Once in a while the network news anchor would ask the reporter if he had heard of any civilian casualties as a result of the US invasion and the answer was always the same, that the US government and the military had ‘no information’ about the number of civilian dead. That was it. There was no attempt at all to independently find out the truth as they had done in Romania, although they had far more reporters on the ground in Panama. The news media acted as pure propaganda agents, passing on the US government and military story.

Those who think the media are better now are deceiving themselves. This kind of unbalanced reporting is still alive and well in the way that the media covers civilian casualties in the current conflicts around the world. How it is reported depends on whether the civilians are killed by ‘us’ and ‘our’ friends or by ‘them’, where the categories of ‘us’ and ‘them’ are defined by the US government.

Consider the conflict currently going on in Afghanistan.

On August 26, 2008 the BBC reported deaths by US bombing of about 90 people, 60 of them children, in the village of Azizabad in Afghanistan. But in the US such reports are treated as merely rumors not worth sending a reporter to, unless confirmed by the US military. And in order to prevent US reporters going there, the US authority has a standard procedure it follows whenever such a tragedy happens: first deny that any civilians died at all and assert that all the people killed were the enemy (which on its face is highly unlikely in any guerilla war), then when the prima facie case becomes too strong (as in this case when even UN observers confirm the deaths) say that they will themselves investigate, and ask the reporters to hold off on any judgment until the investigation is completed at some indefinite date.

Pentagon officials say they are concerned about the conflicting reports and are continuing their own investigation. Spokesman Bryan Whitman said he did not know when the investigation would end and its results released.

All this is stalling for time, with the military either staying silent and hoping people will forget the incident or conceding at a much later time that a very small number of civilians were killed in the midst of a large number of enemy, thus becoming ‘collateral damage’ and thus supposedly excusable.

The US media is happy to play along in this game. The blog left I on the news describes the reporting by the New York Times of this particular incident, and follows up with a description of the classic non-denial denial by a US government spokesperson when the evidence gets too strong.

It now turns out that there is credible evidence that the original report of large numbers of civilian deaths (including the huge number of children) is correct. But this report in a major US newspaper came on September 7, about two weeks later, and is still being denied and stonewalled by the US military, who still claim that they were responding to Taliban attacks. Meanwhile, to pacify the furious Afghan people, the Defense Secretary Robert Gates offered a vague and general apology for any civilian casualties, without acknowledging specific culpability in this case, and promised to take more care in the future.

This pattern is then repeated the next time civilians are killed. The US military has still not acknowledged civilian deaths.

Glenn Greenwald follows up the story, providing more details of the original incident as well as the attempted cover-up.

Next: Other examples of unbalanced coverage

POST SCRIPT: The elitists

An odd feature of this campaign is the attempt by the McCain campaign to try and paint Obama as an ‘elitist’. But Newsweek ran a story that looked into how many cars each candidate owns. The scorecard? The McCains: 13, the Obamas: 1, and that too a modest Ford Escape Hybrid.

The current financial mess

In a past series of posts, I looked at the financial crisis created by the collapse of the subprime housing crisis.

In the wake this week of the massive federal bailouts of Fannie Mae and Freddie Mac and AIG (American International Group), the collapse of the venerable Lehman Brothers investment bank, and the sale of another giant Merrill Lynch to Bank of America that staved off its own bankruptcy, it may be good to see how all these are linked.

This crisis is the inevitable result that follows ‘bubble’ economics’, the runaway (and unrealistic) growth in the price of a commodity due to the belief of investors that the price of that commodity will either always increase or that they can sell out before it drops. In this case, the commodity is real estate. At every stage of the process, the firm belief that the value of homes would increase, coupled with little or no oversight to ensure that minimum caution was exercised in lending money, resulted in this runaway train that is now crashing and causing massive damage.

The foundations of this bubble lies with the providing of mortgages to large numbers of people who simply could not afford the homes they sought to buy. How was this done? One culprit was the creation of mortgages that had very low introductory rates that enabled people to pay the mortgage premiums, at least initially. Of course, such an artificially low rate could not be sustained so the premiums would suddenly rise after a few years, to a level the buyer could not afford. This seems like an unbelievably stupid plan for both the home buyer and the people providing the mortgage. And it is, unless you believe that the price of the home would increase in value, because then the homebuyer could sell the home before the mortgage went up, repay the money to the mortgage lender, and still make a profit. Everyone wins. There seemed to be a free lunch, just for the taking.

As a result, all kinds of shady practices arose. Mortgage brokers working on commission actively sought out even ineligible buyers for properties, inflated their income to meet the minimal requirements for eligibility, and sold them properties. The banks providing the money did not bother to really check on the credit worthiness of the buyers because they immediately sold off most of their mortgages to investment banks. These investment banks then ‘securitized’ their collections of mortgages, bundling them into huge packages of thousands of mortgages, then dividing them up into smaller pieces, and selling the pieces like other securities such as bonds.

Since investors believed that home prices would always go up, there seemed to be little or no risk. But as a result of this bundling and slicing and dicing and no strict accounting or transparency requirements, no one knows exactly which mortgage is in which bundle, even now. But who cares? The idea was that by this bundling, even if a mortgage here or there went into default, it would be a small part of the whole package, hardly noticeable. Wholesale defaults would not happen since home prices always go up, don’t they?

The investment banks then bought and sold these securities, their huge commissions adding to the price. They were aided in this by the credit ratings agencies (like Moody’s) that gave these securities the highest ratings of AAA, which made them seem to be very safe investments. Why would the credit rating agencies give high ratings to securities whose origins were so murky and about which they seemed to know so little? Because it is a little known fact that these rating agencies are paid by the very companies they rate and so have a vested interest in pleasing their clients. Of course, they also felt there was little risk in giving these high ratings because, as we all know, home prices always go up, don’t they?

What about those cautious investors who were still a little nervous about buying these securities despite their high ratings? No problem. Along comes AIG, a huge insurance conglomerate. They created a new division that sold things called Credit Default Swaps (CDS). These things act like insurance in that they guarantee to reimburse the investor if their securities should lose value, thus reassuring them that these mortgage-based securitized investments were a safe bet. Although the CDS were sold like insurance, they are not actually called insurance because insurance is a regulated industry monitored by the states and as soon as something is called insurance it comes under that regulatory umbrella. But no one really paid much attention to such petty details since home prices are sure to go up, aren’t they? Thus no one was likely to lose money. So AIG was raking in huge amounts as ‘insurance’ premiums, while feeling it ran little or no risk of having to pay out any money.

And as long as home prices went up, they were all making money and no one was paying close attention, except for a few worrywarts who didn’t like to see trillions of dollars moving around in an unregulated and opaque manner. And for awhile home prices did go up, as was inevitable as more and more people were being encouraged and enabled to buy homes they really could not afford on the expectation that prices would go up yet higher. Thus were created the classic bubble conditions.

But all bubbles are inherently unstable and eventually collapse. And when it does, who gets hurt the most depends on who ends up holding the worthless investments. In this case, it is the US taxpayer.

Home prices started to drop. As homebuyers realized they could not pay the suddenly increased mortgage payments and could not sell the houses for a price that covered the amount they owed, they defaulted. As those defaults spread rapidly and became well known, investors started getting nervous about the value of the mortgage-based securities they were holding and started to sell them, rapidly lowering their value. This meant that banks and other investment houses that had these things as assets suddenly found their value drop precipitously and had to announce huge write-offs. Furthermore, those companies could no longer use those worthless securities as collateral to raise money and thus could not pay their own debts, making them risks for default and bankruptcy. This decreased investor confidence in those institutions and their share prices dropped dramatically.

This is what happened to Bear Stearns, Lehman Brothers, and Merrill Lynch. But they are just the most highly visible institutions. Huge numbers of banks are owners of similar mortgage-based assets and are nervously trying to figure out how much (or little) they are worth and what impact the revelations of their true value will do to their viability to survive. Eyes are now looking nervously at other banks like Washington Mutual and Wachovia and the two remaining large investment banks Goldman Sachs and Morgan Stanley.

British comedians John Bird and John Fortune back in August 2007 explained how subprime mortgage crisis came about. I have shown this before but it remains one of the clearest explanations.

Fannie Mae and Freddie Mac got hammered because they were the ultimate purchaser, the backstop if you will, of these mortgage-based securities. By buying them from the investment banks, they pumped money back into the mortgage system, enabling further cycles of dubious homes sales. As a result, these two giants ended up holding trillions of dollars of such worthless assets. They were able to buy these securities because they were easily able to borrow money since, although they were private companies, their incorporation charter gave them a quasi-government status, encouraging investors (especially foreign governments like China and oil-rich states with a lot of money to invest) to loan them money, since it was widely believed that the US government would not let these two institutions collapse. This is what the government did last weekend, essentially nationalizing those companies.

The US government desperately needs these foreign governments to invest in the US because that is the chief way they finance the deficits caused by the tax cuts for the rich and the two wars that are currently being fought. So essentially the US cannot do anything that will discourage future investments by these foreign governments. By taking over Fannie Mae and Freddie Mac, the US government is reassuring the foreign governments that they will get their money back since now the US government is directly responsible for paying back the money.

Meanwhile AIG, which had been eager to ‘insure’ these securities because of their safety (since home prices always go up, don’t they?) had to pay out huge amounts of money when the value of the securities collapsed and was on the verge of financial collapse itself. Although their regular insurance business was sound, the action of its little known CDS division was threatening to bring down the entire company. Since many other large institutions (mutual funds, pensions funds etc.) had large investments in AIG, the collapse of AIG was believed to be potentially disastrous over the entire financial sector. So on Wednesday the government essentially nationalized that too.

But as a result, the taxpayers are now suddenly the owners of these three shaky companies with all their dubious assets. Furthermore, the trillions of dollars in debt owned by these companies now become part of the national debt, effectively doubling it. So while these companies made a lot of money for their executives and investors while the going was good, the taxpayers are now stuck with the bill for their recklessness. This is what capitalism has become, privatizing profits while socializing losses. Capitalism in the US has become socialism for the rich.

John Bird and John Fortune discuss how the belief in markets always going up usually end up as government bailouts.

How will the US government (i.e., us) pay back all the money it now suddenly owes as a result of the unregulated greed that ran rampant over the last decade and that enriched a few at the expense of the many? How much bad debt still lurks in the financial sector and how many firms are still hiding the true extent of their liabilities?

I would hope that all those people who were gung-ho for privatizing social security, like George Bush and John McCain, would now realize what a bad idea that is.

The next president is going to have a lot to deal with.

POST SCRIPT: Explaining the current crisis

On April 3, 2008, Michael Greenberger, in an interview with Terry Gross on Fresh Air provided a very lucid explanation of what was roiling the financial markets.

He paid a return visit two days ago (September 17, 2008) to explain what was behind the most recent developments.

Both interviews are well worth listening to.

The Palin choice-12: The strange appeal of Sarah Palin

(For previous posts in this series, see here.)

I want to end this longer-than-anticipated series of posts by returning to the original question of “Why?” but shifting it from why was she chosen to why so many people are enamored of her, given her obvious shortcomings.

There is no question that the selection of Sarah Palin has given a big boost to the McCain campaign. It has definitely enthused the party faithful. Whether this lasts and translates into changing actual voter preferences among the so-called independent or ‘swing’ voters is something that has to be awaited. There are already signs that her star is beginning to fade.

Conservative (and former Republican) John Cole explains his concern with what the Palin choice says about the direction in which the Republican Party is heading.

The depressing thing is that this has been the GOP platform for years now. Expertise is overrated. Gut instincts, being “tough,” and being “decisive,” and not “blinking” are all far more important than actually knowing things.
. . .
Look at the thorough disdain for science the GOP has displayed for the past few years. Amorphous morals trump reason and science, and then those morals are conveniently discarded or altered when it becomes inconvenient for the GOP (see: family values, David Vitter).

The funny thing about all this is that the new savior of the GOP, Sarah Palin, is the one who is finally waking everyone up to what the Republican party really is all about. They are not serious about foreign policy . . . They are not serious (or honest) about scientific policy. They are not serious about economic policy (other than cutting taxes). They are not serious about an energy policy (just drill, baby, drill).

They just are not serious about, well, anything.

And Sarah Palin is the distilled essence of wingnut. She has it all. She is dishonest. She is a religious nut. She is incurious. She is anti-science. She is inexperienced. She abuses her authority. She hides behind executive privilege. She is a big spender. She works from the gut and places a greater value on instinct than knowledge.

This disdain for knowledge and expertise is a troubling phenomenon. While the leaders of the country need not be scholars or policy wonks or experts in economic or military matters, that is a far cry from the absurd notion that common sense and gut instincts are sufficient for making major decisions. As another conservative Dan Drezner says: “Question to other GOP policy wonks: is it possible to support a candidate that campaigns on the notion that expertise is simply irrelevant?”

Even David Brooks, a reliable purveyor of conservative conventional wisdom, is having qualms about this tendency to view knowledge and expertise as somehow suspect and to praise ignorance as being a sign of being a ‘real’ person. .

This argument also is over what qualities the country needs in a leader and what are the ultimate sources of wisdom.

There was a time when conservatives did not argue about this. Conservatism was once a frankly elitist movement. Conservatives stood against radical egalitarianism and the destruction of rigorous standards. They stood up for classical education, hard-earned knowledge, experience and prudence. Wisdom was acquired through immersion in the best that has been thought and said.

People who call themselves conservatives in America have long ago abandoned those standards. So what exactly is Palin’s appeal to the present-day conservative faithful? It cannot be merely her views on the hot-button culture war issues. While she can glibly recite the standard right wing talking points on taxes and abortion and guns, so could any of the other people who competed against McCain in the primaries or whose names were floated as vice presidential possibilities. Clearly it is something about her as a person that seems to excite the imagination of the party faithful.

Cole points out a telling portion of her interview with Charles Gibson that I too found troubling, when he questioned her about the moment when she was asked to be the vice presidential nomineee.

Charles Gibson, the interviewer, asked her if she didn’t hesitate and question whether she was experienced enough.

“I didn’t hesitate, no,” she said.

He asked if that didn’t that take some hubris.

“I answered him yes,” Ms. Palin said, “because I have the confidence in that readiness and knowing that you can’t blink, you have to be wired in a way of being so committed to the mission, the mission that we’re on, reform of this country and victory in the war, you can’t blink. So I didn’t blink then even when asked to run as his running mate.”

This is, of course, absolute drivel. Surely any reasonable person would want to think it over before taking on such a major responsibility as the vice presidency, especially since there is no indication that she was required to make an immediate decision. At the very least her responsibility to the people who elected her governor should have given her pause. Why is she spouting nonsense about ‘not blinking’ and being ‘committed to the mission’ when the question posed to her did not require either of those things?

Like Cole, I was disturbed by this pride in the lack of thoughtful decision-making in a situation that did not require urgency. Palin takes pride in making instantaneous decisions, without weighing the pros and cons. It seems like steely-eyed, clenched-jaw determination and an unquestioning and overweening confidence in the rightness of ones instincts are what passes for leadership these days. She is proud of being ‘wired’ in this way so she never has to ‘blink’ when faced with a decision because her gut tells her exactly what to do. She presumably reacts the same way when asked whether she wants tea or coffee.

Cole then put his finger on the reason that Palin appeals to the faithful: “She is supremely self-confident to the point of not recognizing how ill-equipped she is to lead the country . . . [She is] George Bush in a dress.” (my italics)

Cole remains cynical about the ability of his fellow conservatives to see through the phoniness. He thinks that they have been cheerleaders for George Bush for so long that they are unable to break from the addiction.

The Palin interview should be a gut-check for Republicans and conservatives who think the last eight years has been a perversion of conservative principles. I am betting most of them will not even put down their pom-poms, though.


Bil Maher is back with his New Rules where he comments on some of the issues raised in this series of posts.

The Palin choice-11: McCain and Obama on taxes

(For previous posts in this series, see here.)

I have looked previously at where Sarah Palin stands on the issues. In this post I will examine McCain’s positions. This is not easy to do since McCain has shown himself remarkably willing to change positions for the sake of expediency. Yesterday’s Post Script of the Daily Show bio of McCain shows this.

McCain keeps saying that he is a ‘maverick’ but what that seems to mean to him is that he takes policy positions that serve the purpose of polishing his own image. If that requires him to criticize his own party when his own needs demand it, he does not hesitate to do so, but he rarely follows that up with any actions that actually goes against his party. Steve Benen has been keeping a running list of McCain’s flip-flops. It is getting pretty long.

It is important to emphasize that changing one’s position on an issue is not by itself bad. If the facts or circumstances change or one is presented with compelling new arguments or evidence, then one should review and revise one’s stand. It is the reasons for the change that are important. With McCain, he often does not even bother to give any reason.

Although the campaign has become, as usual, focused on trivialities (lipsticks, pigs, and fish) and culture wars, the really important issues are those of war and peace and the distribution of income, wealth, and services in the country. The one-party/two-factions system that exists in the US requires both candidates to serve the interests of Wall Street and the wealthy. Both Obama and McCain have obliged. It is only at the margins that they differ.

Candidates who strongly favor the very rich (like McCain) prefer to talk in terms of ‘averages’ (in income or tax cuts), because that can mask huge differences between groups. You can give huge tax cuts to a few rich people and very small cuts to a large number of poor people and still claim that people are receiving a good ‘average’ tax cut. But what needs to be examined is how it breaks down in narrow income slices.

The Washington Post recently had the kind of political analysis that is worth reading. It analyzed how Obama’s and McCain’s tax plans would affect people in specific income groups. Such detailed breakdowns are far more useful than broad generalizations.

tax comparisons.jpeg

We see that McCain’s policies are heavily skewed to benefit the very wealthy. McCain emphasizes how his policies would give everyone a tax cut and the average benefits would be larger than Obama’s plan. That is true, but the graphic clearly shows that lower income groups get tiny tax cuts while the very rich get enormous benefits. Obama gives bigger tax cuts to the lower income groups (those earning below about $100,000), smaller tax cuts to those earning between $100,000 and $250,000, while the very rich have to pay more taxes.

BusinessWeek says:

The [Tax Policy Center] took a look at the various tax proposals put forth by the two candidates and estimated that Obama’s plan would lead to a boost in aftertax income for all but the highest earners, while taking a smaller bite out of government tax revenues than would McCain’s plans.
. . .
Under McCain’s proposals, by contrast—including an extension of the Bush tax cuts for all taxpayers, a corporate tax cut, and a larger reduction in estate taxes than Obama would support—far more of the benefits would go to the top. If his plans went into effect in 2009, married couples in the bottom fifth of the population would see aftertax income go up just 0.2%, while those in the next quintile would see a 0.7% hike. But those in the top quintile would see a bump up in aftertax income of 2.7%.

There is no question that the Bush administration has favored fiscal and monetary policies that have favored the already well-to-do, while gutting the protections that poorer people depend upon. The Wall Street Journal points out that among wage earners, only professionals like doctors and lawyers made more in 2007 than in 2000. McCain’s tax policies will enable the very rich to keep even more of their income, accelerating the inequalities that has been going on for some time.

Although Obama’s tax plans are a less generous to the very wealthy than McCain’s, for me, the biggest factor in favor of Obama is that he is unlikely to recklessly start another war or create international tensions, while McCain is, if possible, even more reckless than Bush.

POST SCRIPT: US-Pakistan clashes?

Lost in the coverage about the presidential campaign and the chaos in the financial markets has been this troubling story about tension between US and Pakistani forces on the border between Afghanistan and Pakistan following an incursion into Pakistan by US forces on September 3 that led to the deaths of some villagers.

The BBC reports that a second attempted incursion was stopped because of Pakistan paramilitary troops firing on US forces:

Pakistan’s army spokesman has made clear that its forces have been ordered to open fire if US troops launch another raid across the Afghan border.
. . .
Locals said seven US helicopter gunships and two troop-carrying Chinook helicopters landed in the Afghan province of Paktika near the Zohba mountain range.

US troops from the Chinooks then tried to cross the border. As they did so, Pakistani paramilitary soldiers at a checkpoint opened fire into the air and the US troops decided not to continue forward, local Pakistani officials say.