Reuters on AIG struggle for survival: http://www.reuters.com/articlePrint?articleId=USN1551938520080915

Rnron and the Gramms http://query.nytimes.com/gst/fullpage.html?res=9A01E0D81038F934A25752C0A…

Enron and Phil Gramm from the Washington Monthly—kudos to Diaan T for the research.

This is from aweekley papeer title The Progree Report—it’s quite excellent in its assessments. ECONOMY McCain-onomics Sen. John McCain (R-AZ) has spent much of his general election campaign for president trying to distance himself from President Bush’s failed policies — even though the policies he has outlined and would pursue as president mirror those of the last eight years. McCain’s strategy so far has been to make the public forget he is offering Bush’s policies. During the Republican National Convention earlier this month, McCain and his fellow conservatives seemingly refused to acknowledge that the current administration even exists: Bush’s name was mentioned once while Vice President Dick Cheney’s name was not mentioned at all. Convention speakers also ignored many key issues that face Americans today, such as health care, environment, and the economy. Yet at times, McCain’s surrogates will let the truth slip out. In June, Sen. Lindsey Graham (R-SC) admitted that McCain’s economic policies would “absolutely” be an “enhancement” of Bush’s. He’s right. McCain’s economic policies are rooted in the same supply-side economic theories that give huge tax cuts to the rich and the most profitable corporations, which will ultimately expand the already ballooning federal deficit. Indeed, as New York Times columnist and Princeton University economics professor Paul Krugman noted, McCain’s economic proposals are “Bush made permanent” and “would leave the federal government with far too little revenue to cover its expenses.” THE WEALTHY WILL CASH IN: If elected president, McCain plans to double down on Bush’s corporate and individual tax cuts. His plan calls for reducing the corporate tax rate from 35 percent to 25 percent, a plan that would save corporations $175 billion per year, with $45 billion going to America’s 200 largest companies as identified by Fortune Magazine. The five largest U.S. oil companies would save a grand total of $3.8 billion per year. The wealthiest Americans would also cash in. McCain’s tax plan will increase after-tax income of the richest 3.4 percent by more than twice the average for all households — and offer no benefit to the poorest taxpayers and minimal savings for the middle class. At the same time, McCain has not offered any specifics on how he would pay for these massive cuts. In fact, McCain’s plan would produce the highest federal deficit in 25 years. After inheriting Bush’s $407 billion deficit, yearly deficits under McCain would increase sharply, beginning with at least $505 billion in FY2009. THE FLAWS OF SUPPLY-SIDE ECONOMICS: Like Bush — and President Reagan before him — McCain is fully embracing supply-side economics, lowering tax rates to promote economic activity which, in theory, lead to additional government revenue. But a new report from the Center for American Progress and the Economic Policy Institute has analyzed the two “supply-side eras” in U.S. history — 1981 to 1993 and 2001 to present — and concluded that “the results have been meager.” The report found that after tax increases in 1993, real investment growth was much higher than after the tax cuts of 1981 and 2001 and “economic growth as measured by real U.S. gross domestic product was stronger following the tax increases of 1993 than in the two supply-side eras.” Real median household income “was greatest after the 1993 tax increases, at 2.0 percent annually compared to 1.4 percent after 1981 and 0.3 percent after 2001.” Wages and employment also rose higher after 1993 as compared to the two supply-side eras. And in contrast to record deficits that resulted from the two supply-side eras, between 1993 and 1999, the United States”went from a federal deficit of 3.9 percent of GDP to a surplus of 1.4 percent.” Even Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke have said that tax cuts do not offset revenue losses. GREENSPAN WEIGHS IN: Former Fed Chairman Alan Greenspan said that the current downturn in the economy is “probably a once in a century type of event,” one that is the worst he has seen in his career “by far.” Indeed, just yesterday, Merrill Lynch agreed to sell itself to Bank of America “for roughly $50 billion to avert a deepening financial crisis, while another prominent securities firm, Lehman Brothers, filed for bankruptcy protection and hurtled toward liquidation after it failed to find a buyer.” But Greenspan also addressed McCain’s $3.3 trillion tax cuts, telling Bloomberg news last week that the country cannot afford the cuts “unless we cut spending.” “I’m not in favor of financing tax cuts with borrowed money,” Greenspan said. Perhaps McCain will take Greenspan’s advice. While McCain has acknowledged that “issue of economics is not something I’ve understood as well as I should,” he has also added the caveat: “I’ve got Greenspan’s book.”

From the Washington Post: Kenneth Rogoff is prof of Econ at Harvard No More Creampuffs The Government Is Willing to Let Wall Street Firms Fail. That’s Good. By Kenneth Rogoff Tuesday, September 16, 2008; A21 This past weekend, the U.S. Treasury and the Federal Reserve finally made it abundantly clear that they won’t bail out every significant financial firm in America. Certainly this came as a rude shock to many financiers. In allowing the nation’s fourth-largest investment bank, Lehman Brothers, to file for bankruptcy, and by forcefully indicating that they are prepared to see even more bankruptcies, our financial regulators showed Wall Street that they are not such creampuffs after all. The question now: What’s next? Assuming the financial sector continues to melt down over the next couple of months, at what point, if any, should the government get back into the game? It would be a mistake to do so before a great deal more consolidation takes place. During the epic boom of the past 20 years, the financial services sector became badly bloated. At its peak, it accounted for over one-third of corporate profits in the United States, not to mention the staggering billions of dollars in bonuses that Goldman Sachs ($12.1 billion in 2007) and others paid their employees. Now, in the wake of the subprime mortgage debacle, investment banks are seeing some of their most profitable lines of business evaporate. Profits from complex mortgage products are not coming back anytime soon; nor are profits in many other areas that rely on huge borrowing. Instead, “deleveraging” is the buzzword throughout the financial system, as firms prune their borrowing and their positions. As profits come down to more earthly levels, the U.S. financial system is going to shrink. In all likelihood, at least 15 percent of financial employees — including at the high end — are going to lose their jobs. In principle, this shrinkage could take place through all firms and banks trimming their operations proportionately. But that is not how a capitalist economy operates. Whether it is the auto, airline or tech industries, the strong devour the weak. That is why it was inevitable that some banks would either fail or submit to distress mergers, including even some of the largest. That is why it has been quite clear for some months that the trauma to the U.S. financial system was not over. Letting a big investment bank go, as the Fed and Treasury did this weekend, was a calculated risk in a difficult situation. And the risks are very real. With the immense interconnectivity of the financial system, there really is no telling where the unprecedented failure of a big investment bank might lead. On the other hand, ponying up tens of billions in tax money, as the Federal Reserve did in March when another investment bank, Bear Stearns, collapsed, is no answer, either. With the housing market still weakening, with U.S. exports likely to suffer as the global economy falters and with unemployment rising, it is clear that simply bailing out Lehman Brothers would not stop the rot in the financial system. In March, the Federal Reserve took on $29 billion in risky Bear Stearns assets. Bailing out Lehman probably would have involved at least as large a commitment. If such a maneuver could have put an end to the crisis, it might have been justified, but that is hardly the case with many other giants teetering. This is not to mention the trillions of dollars in liabilities the Treasury took on 10 days ago in bailing out the mortgage giants Fannie Mae and Freddie Mac. These alone will probably end up costing taxpayers $100 billion to $200 billion, assuming inflation-adjusted housing prices fall another 10 to 12 percent. Will taxpayers now escape without further damage? Probably not. More likely, the stress will continue for some time, radiating out into corporate debt, hitting big automakers, many debt-strapped cities and others. At some point, the federal government will blink again, and taxpayers will probably end up paying at least another couple hundred billion dollars before this extraordinary mess ends. But by placing some of the burden on the shareholders and bondholders of the big financial institutions, financial regulators have at least forced some discipline onto the system, making bankers and investors think twice before they once again head off to the races. By allowing firms that took excessive risks to fail, regulators also reduce the political pressure to overregulate the system in the aftermath of the crisis. Let’s hope they hang tough for at least a little while longer. The writer is a professor of economics at Harvard University.

Sorry for the delay - I’ve been very busy today gathering my millions from the various banking establishments. It’s taken me all day to get it stuffed into the mattresses in my 10 thousand bedroom house….at least I think that’s what republicans do (wink). To keep it simple I’ll try to address all of your responses as a reply to this post and again on the last page. Dear DeBúrca obj on 09/15/2008 9:14 am - Um, I didn’t suggest that. Kitty on 09/15/2008 11:46 am - I think the Republican label was meant for me, but I’ll let you have the “Comment Nazi”. BTW, you are well versed in the field of finance. Oh how I long for the day-trader frenzy days…….ah, that’s were I made my millions and officially traded up (joke). Props to you in explaining that the sky is not falling and the pros/cons of privatizing Social Security option. If you have time, will you explain the backlash, if any, regarding AIG. And, I don’t think Rush liked being on time out. Marjorie on 09/15/2008 11:41 am - You are very supportive of the voices of reason…..thanks for watching my six. DT on 09/15/2008 12:06 pm - if that article was meant for me I did read it and it sounds like a good description of consumerism and companies running off with the profits rather than reinvesting into a stable commodity which also is also job producing. That would be an interesting cycle; create, earn, buy, and distribute. - GREED it’s an ugly thing. And to James on 09/15/2008 12:57 pm - What can I say but the spell checker failed me, I’d fire him but he has kids and can use the insurance. Not so sure about the remainder of your post, but I will do a little more research. Thanks for the info. JJ GB on 09/15/2008 1:18 pm - dude, you could have added “spell checker failure” as an option. Sheryl S 09/15/2008 9:55 am - you are my hero - it is all about the greed. By Frannie Em on 09/15/2008 10:41 pm - NICE FIND! An the truth shall set you free - it’s everyone and not just one. And, regarding my original post, it did come to pass. Senator Obama did take the bait, and it is disappointing. I think he is better than that. Insert shameless plug - I watched the Columbia University interviews. Senator McCain confirmed that he does believe in party cooperation. It was disappointing to hear Senator Obama’s response regarding cooperation with Senator McCain. - OMG, I’m sounding like a Republican!

OK The word on Wall street right now is the Goldman- Sachs could go next and possible Morgan Stanley—straight from Economist on Charlie Rose tonight.