The Stock Market: The Dow Jones industrials fell more than 800 points on Monday, going below 10,000 for the first time in 4 years. "At one point, the broader stock market had fallen about 8%." (NY Times) On Tuesday it dropped 508 points, 5.1%. (NY Times) On Thursday it closed more than 679 points down, dropping below 9,000, about 7.3%, for the first time in 5 years. (Chicago Tribune) The Standard & Poor's 500 stock index was down nearly 7.6% and the Nasdaq composite was down 5.4%. (NY Times) The Wall Street Journal said that the 11th largest plunge in the history of the Dow "put the stock market either in, or nearly in, a crash." USA Today said that Standard & Poor's 500 index "is on track for its worst year since 1931." An economist told the Washington Post: "I've never seen a panic like this." No one knows what to believe, so investors are trying to play it safe." A market strategist told the LA Times: "Right now, you can take economic fundamentals . . . and throw them out the window. This is mass liquidation at the point of a gun." Friday was another wild ride. At one time the Dow was down another 700 points, but it rallied somewhat, finally closing with a loss of only 128. "The Dow fell 18.2% for the week, the worst weekly loss in its 112-year history -- surpassing the 17% loss for the week ended July 22, 1933, in the depths of the Depression. (LA Times) Bail-out really worked, didn't it?
Secular Bear Market: This is what the Wall Street Journal calls the current Wall Street market. It's a prolonged weak period that follows much of the same patterns of the 1970s and 1930s. During those long downturns, the markets would rally sporadically but eventually they lost their gains. Why? Because the higher values were seen as opportunities to sell since no one believed that they'd last.
Insurance Market: Insurance stocks plunged more than 30% this week. Prudential was the big loser with stocks 42% lower than a week ago. "Hartford Financial Services Group raised $2.5 billion by selling shares to Allianz, the German insurer." Looking for some good news? It's MetLife, "the largest American life insurer." They "raised $2 billion in a stock sale on Wednesday. Even though existing shareholders were left with a smaller stake in the company, investors seemed heartened that the company could get funds readily, making it one of the few winners on a day when all 30 stocks in the Dow Jones industrial average fell. MetLife closed at $28 a share, up $1." Douglas Meyer, an insurance analyst, said that insurance companies tend to focus on high-quality investments so they are "relatively sheltered from harm." (NY Times)
World Economy: The Asian and European markets also plunged. By Thursday, Japan's Nikkei was down 24% for the week. (NY Times) And European markets had a rough week too. They fell more than 10% at the opening on Thursday, but bounced back slightly. In trading early Thursday afternoon in London, the FTSE 100 index was down 7% and in Paris, the CAC-40 was down 8.2%. The DAX in Frankfurt was down 8.7%. (NY Times)
European Banks: They may be in worse shape than we are because they're "more dependent on the short-term-lending markets." (Wall Street Journal) When stock markets in emerging economies "took one of their biggest collective tumbles in a decade," it became clear that even countries far from the subprime debacle are vulnerable to the freezing up of the credit markets. (NY Times) And now there's growing fear that all the signs are pointing toward a worldwide economic recession. The Washington Post noted that Robert Zoellick, president of the World Bank, said the global financial system may have reached a "tipping point." Since the inception of the European Union and its adoption of the Euro as its currency, "European leaders have pledged tight coordination of financial policies and promoted new steps toward political integration as well." However, the new crisis has each country saving its own ass, "opting in ugly disarray for self-interested policies to protect their own citizens and banks first." (NY Times) Paul Krugman said: "Europe, lacking a common government, has literally been unable to get its act together; each country has been making up its own policy, with little coordination, and proposals for a unified response have gone nowhere."
Coordinating the Rescue: Finance ministers from the U.S. and 6 other wealthy nations met to discuss how they'd handle the mess they created and ended up vowing to take "all necessary steps" to deal with the financial crisis. (Washington Post) The Brits proposed providing for coordinated guarantees of lending between banks but this was rejected. (NY Times) Paul Krugman described the British plan. He said they'll "provide banks with £50 billion in new capital -- the equivalent, relative to the size of the economy, of a $500 billion program here -- together with extensive guarantees for financial transactions between banks." He added: "The United States and Europe should just say 'Yes, prime minister.' The British plan isn't perfect, but there's widespread agreement among economists that it offers by far the best available template for a broader rescue effort. And the time to act is now. You may think that things can't get any worse -- but they can, and if nothing is done in the next few days, they will."
The Fed: It's considering buying large amounts of unsecured short-term debt, commercial paper. It hopes that this will help credit start flowing again but it would increase the risk that taxpayer dollars would be lost. The NY Times calls this a "radical new plan" and the Washington Post said this would make the Fed "a major funder of a wide range of U.S. businesses facing imminent cash shortages." There's mounting pressure for the government to do something and the LA Times said that investors are increasingly concerned "that government intervention won't be enough to stave off a potentially severe global recession." Can we really afford to do any more intervention? And remember a couple of weeks ago The Fed said it was going to make $150 billion available for banks to borrow? Well, they're considering expanding that to $900 billion. (Wall Street Journal) On Tuesday they lowered the federal funds interest rate by .5%, to 1.5%. (AFP)
Treasury Take-Over: The $700 billion bail-out hasn't loosened up the credit markets as everyone hoped. Treasury Secretary Henry Paulson came out of the meeting with other countries (above) saying the U.S. government would buy non-voting stakes in financial institutions, in effect "nationalizing" the banks, as part of the $700 billion bail-out. (LA Times) If you remember, on September 23rd he said, "Putting capital in institutions is about failure." So now he wants to inject cash into banks, which shows you how bad the crisis really is. (NY Times) He claims the bail-out bill gives him the authority to do that. An infusion of cash directly into banks would "quickly strengthen banks' balance sheets and, officials hope, persuade them to resume lending. In return, the law gives the Treasury the right to take ownership positions in banks, including healthy ones." (NY Times)
Retirement Security: The Congressional Budget Office (CBO) reported that the prolonged downturn in the stock market "has wiped out about $2 trillion in Americans’ retirement savings in the past 15 months, a blow that could force workers to stay on the job longer than planned, rein in spending and possibly further stall an economy reliant on consumer dollars." And this was written a couple of weeks ago. Things are getting worse on a daily basis.
Treasury Outsourcing: The ink isn't yet dry on the bail-out legislation, but the Treasury Department is moving quickly to "start outsourcing the management of up to $700 billion in troubled securities, using special contracting authorities that enable it to retain private portfolio managers, custodians and other financial services consultants without following standard acquisition procedures." [Emphasis added.] (Washington Post) And so the distribution of wealth, from hard-working taxpayers, current and future, to the wealthiest Wall Streeters, begins.
Countrywide: The gigantic home loan lender has settled the suit against it for predatory lending. "It has agreed to what is probably the largest settlement of such type in history. They will provide as much as "$8.7 billion in relief to 400,000 borrowers, most of whom might see reductions in their interest rates and principal." (LA Times)
Lehman Brothers: Richard Fuld, the CEO of Lehman Brothers, was called to testify before a House oversight committee. They wanted to know how he justified making more than $500 million dollars since 2000 and how he justified seeking huge bonuses for other top executives even at the time it was failing. (AFP) He didn't have an answer.
AIG: Right after we bailed them out to the tune of $85 billion (TWW, AIG, 9/20/08), the executives took off for a week-long retreat at St. Regis Resort in Monarch Beach, California, a luxury resort and spa, spending $440,000 -- nearly $200,000 for rooms (rooms are over $1,000 a night), $150,000 for meals, and $23,000 in spa charges, which included manicures and pedicures. While they're getting their fingers and toes taken care of, we're gotten another body part taken care of. (ABC News) And this gets worse. The Fed announced it's going to give them another $37.8 billion. (NY Times)
The Golden Parachute: Remember all the talk about limiting huge good-bye bonuses to failed CEOs? Well, it survived. While the $700 billion bail-out supposedly limits the pay packages at firms that "participate" in the program (read: get bailed out), it does "little to cap executive pay or rein in the enormous retirement packages -- the golden parachutes -- that have come to symbolize corporate excess." Say, what? Weren't we promised this? According to the Washington Independent: "Not only is the compensation provision vague, it is punched full of loopholes and leaves many issues of executive pay for the White House to decide later. Legal and political experts say the bill will do almost nothing to limit CEO compensation -- even for companies that benefit handsomely from the taxpayers' generosity." [Emphasis added.]
Chrysler & GM: They're talking about a "merger" but it looks more like a takeover to me. Chrysler is owned by Cerberus Capital Management, a private equity firm. GM's stock is down to $5 a share, from $43 earlier in the year, and it has been burning through its cash reserves at the rate of about $1 billion a month. They have to do something. (NY Times)
Jobs: Bush's Press Secretary Dana Perino confirmed that Bush won't extend jobless benefits. He thinks people should just find a job. "[W]e want people to be able to return to the workplace as soon as possible" and concluded that "the best way to help" the economy and unemployed people is for the unemployed to start "getting back to work." (White House) I guess no one told her that there aren't any jobs. (TWW, The Economy, 9/27/08) The Washington Post reported that "unemployment claims are at a 7-year high, and factory orders are sharply down." And while the federal government is refusing to extend benefits, state unemployment funds are drying up, with "such funds in at least 10 states facing insolvency in 2009."
Shopping: We're doing a whole let less of it. Does this surprise anyone? The NY Times said this will guarantee "that the economic situation will get worse before it gets better."
And now, on to Other News
Data Mining: The data mining programs implemented by the Department of Homeland Security (DHS) (see Domestic Surveillance and TWW, Data Mining, 9/8/07) have been found to be imperfect -- at best. A commission created by the National Research Council in 2005 and funded by DHS "found that the technology would not work and the inevitable mistakes would be un-American." It also "expressed doubts about the effectiveness of technology designed to decide from afar whether a person had terrorist intents, saying false positives could quickly lead to privacy invasions." It also addressed the Total Information Awareness (TIA) project, "which wanted to search every possible database -- from credit card records to veterinary records -- to spot terrorists before they acted." Congress shut down the program in 2003 (TWW, Spying on Americans, 2/25/06) but a portion of it has been continued by Bush "inside the government's anti-terrorism agencies." The report stated: "Automated identification of terrorists through data mining (or any other known methodology) is neither feasible as an objective nor desirable as a goal of technology development efforts. Even in well-managed programs, such tools are likely to return significant rates of false positives, especially if the tools are highly automated." (Wired) How much money have we spent on this stuff?
Listening In: Remember when Bush promised that they would never listen in on conversations of Americans who happen to be overseas? The law says they are allowed to monitor phone calls between the U.S. and overseas without a court order "as long as one party to the call is a terror suspect." But, according to 2 former intercept operators, they listened in on phone calls of U.S. military officers, journalists, and aid workers overseas who were talking about "personal, private things with Americans who are not in any way, shape or form associated with anything to do with terrorism." They said they'd listen in on "conversations of military officers in Iraq who were talking with their spouses or girlfriends" in the U.S. One of the operators said they "would often share the contents of some of the more salacious calls stored on their computers, listening to what he called 'phone sex' and 'pillow talk.'" When they complained to supervisors that they were eavesdropping on personal conversations, they were ordered to continue transcribing the calls. The NSA's Inspector General "has investigated some of the allegations and found them 'unsubstantiated.'" (CNN)
Nixon's Back: If you remember COINTELPRO (see The Police State and The Secret Histories) and all the spying that Nixon did on ordinary citizens exercising their constitutional right to free assembly, then this will send chills up your spine. "The Maryland State Police classified 53 nonviolent activists as terrorists and entered their names and personal information into state and federal databases that track terrorism suspects." This surveillance operation targeted opponents of the death penalty and the Iraq war. "The surveillance took place over 14 months in 2005 and 2006, under the administration of former governor Robert L. Ehrlich Jr. (R). The former state police superintendent who authorized the operation, Thomas E. Hutchins, defended the program saying it was a bulwark against potential violence and called the activists 'fringe people.'" They also entered protest groups as terrorist organizations in the databases. (Washington Post) You wanna bet Maryland isn't the only state or city doing this? The University of Texas had a policy forbidding political signs on doors and windows of dorm rooms. Students refused to take them down. (Burnt Orange Anger) It worked. UT's president suspended the policy. (Burnt Orange Anger)
Chinese Prisoners: Remember the Chinese prisoners, the Uighurs, at Gitmo? (TWW, Challenging Detention, 6/28/08) U.S. District Judge Ricardo Urbina, "in a rebuke to the Bush administration," ordered them released. "The judge said there was no evidence the detainees, who have been held at Guantanamo for nearly 7 years, were 'enemy combatants' or a security risk, and that the U.S. Constitution prohibits indefinite detention without cause." (Reuters) [Emphasis added.] They won't be released soon. The Justice Department has appealed the decision and a federal appeals court panel issued a temporary stay of the judge's order. (NY Times)
How to Pass a Bad Bill: Lots of people have been speculating about how Bush got Congress to pass the bail-out bill when everyone in the country was against it. Rep. Brad Sherman (D, CA) may have the answer. He made a floor speech and said, "The only way they can pass this bill is by creating and sustaining a panic atmosphere. That atmosphere is not justified. Many of us were told in private conversations that if we voted against this bill on Monday that the sky would fall, the market would drop 2 or 3,000 points the first day and another couple thousand the second day. And a few members were even told that there would be martial law in America if we voted 'no.' That's what I call fear-mongering. Unjustified. Proven wrong. We've got a week; we've got 2 weeks to write a good bill. The only way to write, to pass, a bad bill is to keep the panic pressure on." Alex Jones of The Alex Jones Show, confirmed this, saying that other congressional members had confirmed that they had been threatened with martial law and that many were afraid to come on his show and talk about it. (See TWW, U.S. Military Patrolling U.S., 9/27/08)
Poland: They're pulling their 900 troops out of Iraq by the end of the month. "Polish Prime Minister Donald Tusk, who came to power in October 2007, pledged a quick withdrawal from Iraq during his election campaign. The mandate of the 900 troops in the deployment was, however, subsequently extended to the end of October 2008." (AFP)
Victory in Iraq: A new National Intelligence Estimate (NIE) is "nearly complete" and it warns that "unresolved ethnic and sectarian tensions in Iraq could unleash a new wave of violence, potentially reversing the major security and political gains achieved over the last year." "More than a half-dozen officials spoke to McClatchy on condition of anonymity" and said, "The findings seem to cast doubts on McCain's frequent assertions that the United States is 'on a path to victory' in Iraq by underscoring the deep uncertainties of the situation despite the 30,000-strong U.S. troop surge for which he was the leading congressional advocate." Nobody's sure if this will be released before the election. I'm betting it won't.
Afghan NIE: A new NIE on Afghanistan says that it is "in a 'downward spiral' and casts serious doubt on the ability of the Afghan government to stem the rise in the Taliban's influence there." (NY Times) I don't know what happened to Bush's idea of never talking to enemies. Defense Secretary Robert Gates said he's "prepared to reconcile with the Taliban if the Afghan government pursued talks to end the 7-year conflict." (CNN)
Iran: Once considered a "done deal," the Democrats in the House have failed to pass House Concurrent Resolution 362, the Iran Resolution, that would have "opened the door for a naval blockade on Iran." (Truthout) (See Iran's Nuclear Program)
AFRICOM: The new African Command (AFRICOM) regional headquarters were opened in Stuttgart, Germany. (See The Military in Africa and TWW, AFRICOM, 7/26/08) The commander, Gen. William E. Ward, said the U.S. "has no designs on creating vast, permanent concentrations of forces on the continent." He said it's not about bases and garrisons; that we are "trying to prevent conflict." But we already know that militarization of Africa has already begun. (NY Times)
New Military Doctrine: The Army announced a new "unprecedented doctrine" declaring that they will be involved in more nation-building missions than conventional warfare, operating "in lawless areas to safeguard populations and rebuild countries." They also re-defined "fragile states" as those that "breed crime, terrorism and religious and ethnic strife as the greatest threat to U.S. national security." The new doctrine "aims to orchestrate and plan for a range of military tasks to stabilize ungoverned nations: protecting the people; aiding reconstruction; providing aid and public services; building institutions and security forces; and, in severe cases, forming transitional U.S. military-led governments." (Washington Post) [Emphasis added.] Ya think maybe this is what they have in mind for Africa?
Defense Budget: In the fiscal year that just ended on September 30th (FFY 2008), we spent $694.2 billion on the defense budget, up 52% from 2000 (in current dollars) and the most we've spent since WWII. It looks like it's going to have to be scaled back. With all the expenses, the lower revenues, and the $700+ billion we're spending to bail-out the fat cats, we just can't afford it anymore. (McClatchy) But that doesn't stop the Pentagon. They're asking for an additional $450 billion over the next 5 years. This is more "than previously announced figures." (CQ)
The Federal Budget: The CBO is estimating that the deficit for FFY 2008 will be $438 billion, higher than the last projection of $407 billion and 3.1% of the GDP. (TWW, Budget Deficit, 9/13/08) If you remember, the rule of thumb is that the deficit should not be more than 3% of the GDP. (See The Budget Deficit) In FY 2007 the deficit was $163 billion, 1.2% of the GDP. They blame it primarily on lower-than-projected revenues and higher-than-expected spending for defense and deposit insurance. And if you think that's bad, David Greenlaw, Morgan Stanley’s chief economist, believes the FFY 2009 deficit could be close to $2 trillion. That's the deficit; not the total debt. (Bloomberg)
Velvet Revolution: A group called Velvet Revolution, a non-profit organization, has offered a $100,000 reward to anyone who can supply information tying Karl Rove and computer expert Michael Connell to illegally manipulated elections. They cite the testimony of technology expert Stephen Spoonamore (See Voting in 2008 Election and TWW, Stealing Votes, 7/19/08 & Stealing the Election, 10/4/08) to accuse the Republican Party of rigging elections for years by using Connell to exploit electronic voting systems. (Market Watch)
Florida Voting: Palm Beach County is still re-counting its primary election ballots in a close judicial race. The high-speed optical-scan tabulation machines, made by Sequoia Voting Systems, flunked reliability tests. They produced "different results for the same batch of ballots," twice flipping the winner and "revealed grave problems in the county's election infrastructure, including thousands of misplaced ballots and vote tabulation machines that are literally unable to produce the same results twice." [Emphasis added.] In addition, more than 3,400 ballots mysteriously disappeared after being counted on election day and, while they were eventually found, they also found an additional 200 or so ballots "that officials never knew were missing and that were never counted in the original tabulation." (Wired)
Ohio Voting: Greene County (OH) Sheriff Gene Fischer (R) has requested that county election officials give him the voter registration cards and address change forms for the 302 people who took advantage of this week's "window" to register and vote on the same day. This is the voting program that Republicans had challenged in the courts and lost. (TWW, Voting in Ohio, 10/4/08) He said he "had been flooded with telephone calls from people concerned about possible fraud." He's being backed up by Greene County Prosecutor Stephen Haller, a former law partner of Senator Mike DeWine (R, OH) and chair of John McCain's presidential campaign. He said the records request was not politically motivated. Greene County elections director, Lyn McCoy, said that the records request was being processed and that "names, telephone numbers and Social Security numbers will be blackened out before the documents are released." Greene County has 5 colleges and universities: Wright State, Central State, Wilberforce, and Cedarville Universities and Antioch College. (NY Times)
Gay Marriage: The Connecticut Supreme Court issued a 4-3 decision "in favor of 8 gay couples who were the plaintiffs in Kerrigan and Mock v. the Connecticut Department of Public Health, effectively legalizing same-sex marriage in the state." (The Advocate) The majority opinion said that attempts to create a separate class of union for gay citizens were akin to laws that "relegated blacks to separate but supposedly equal public facilities." The ruling will take effect October 28th and the state's governor has said the state will not contest it any further.
Dolphins & Whales: Remember that a judge limited the use of sonar off the California coast because of the danger to marine mammals? And remember that Bush ordered the Navy to ignore the judge's order? And remember that it was appealed? (TWW, Save the Dolphins, 1/5/08, 1/19/08, 2/9/08, 3/8/08, & Supremes on Executive Power, 6/28/08) Well, the Supreme Court had oral arguments on it and, guess what. It looks like they're gonna rule in favor of the Navy and against the critters. Chief Justice John Roberts said there is "the potential that a North Korean diesel electric submarine will get within range of Pearl Harbor undetected" if Navy personnel are not properly trained in the use of sonar. "Now, I think that’s a pretty clear balance." Justice Stephen Breyer said he was inclined to believe a sworn statement of an admiral "saying the restrictions would harm military preparedness." But Richard B. Kendall, the lawyer for the Natural Resources Defense Council who sued the Navy, "insisted that courts have an important role to play in protecting whales and dolphins even when the executive branch asserts a national security interest. 'The Navy cannot be judge of its own cause.'" (NY Times)