In every good cowboy movie, there’s the scene where the outnumbered good guys plot their triumphant return to the town to save the denizens from the horrible bad guys. Outnumbered and outgunned, they plan (and often succeed) to stage their return. Take your pick as to which candidate is the good guy and who’s the bad guy, but McCain is currently plotting his return after a month of bad polls that show him with an almost insurmountable hill to climb to even tie Obama in the polls. Tonight, McCain will be planning and hoping to not just draw (or lose) like the last two debates, but to win and win enough to pull his poll numbers up by over 10%. Meanwhile, Obama needs to just tie in order to continue his lead. What will happen? Who will manage? Watch tonight.

10.36: I think McCain did so badly tonight, that he might actually have turned off a lot of voters. Obama’s answer about Joe Biden and Sarah Palin could have been a litter stronger, but all in all, he had facts, history, and statistics readily at his hand. John McCain was crotchety: he kept interrupting Obama, rolled his eyes, and never made eye contact. McCain needed to hit 10 home runs tonight, and he barely got a man on base. Endgame.

10.31: And its over.

10.29: Obama’s turn. Mentions the worst economic crisis since the Great Depression. Great reference to the old parable about an idiot is someone who does the same thing and expects different results: “we can’t keep doing the same failed policies of the past eight years and expect a difference result.” Obama mentions the middle class again for the third time, McCain has not said it once. Obama: “We have to renew our spirit of sacrifice.”

10.28: Is there nothing Freudian about McCain’s inability to say the word “affordable” in his closing statement? McCain’s closing statement is very flat.

10.27: Now it’s time for the final statements. McCain goes first by coin toss.

10.25: McCain just interrupted Obama twice in a row. And Obama got the specifics — again — about something as particular as the school system in Washington, DC.

10.24: McCain: “I’m frankly surprised you did not pay more attention to that issue.” Could be possibly be more condescending? Especially after fumbling over the number of people in the DC school system that are eligible for school vouchers. Oh, and there he goes again with town halls and autism. McCain: “All Americans will open their wallets to do so” — but just as long as its NOT A TAX. 

10.23: Why is McCain blinking so much?

10.21: Great response about No Child Left Behind. And Obama is now finding space to agree with McCain about charter schools. Funny that one of McCain’s big campaign claims is that he is truly bipartisan, but every opportunity he has to address Obama he uses to tear into him, whereas Obama actually tries to find consensus in the issues.

10.20: McCain: People have to have served in the military first before joining Teach for America. Hear that? That’s the sound of no one signing up to teach.

10.19: McCain: “It’s the civil rights issue of the 21st century.” Wow, that’s great, saying that in the face of the first Black candidate for President. Is McCain’s whole answer to a massive problem charter schools? Charter schools are hardly a panacea.

10.17: Obama just linked education to national security. In your face, McCain. Obama says we need both more money and reform in education. More early childhood education. Recruit a new generation of new teachers, especially in math and science. Give them more pay, but in exchange for more accountability. Make college more affordable. Obama: “They’re going to have a mortgage before they ever buy a house” — great line. Parents are going to have to show more responsibility, too. 

10.16: Final question for the evening: the US spends more per capita than any other nation in the world, yet our education system laggs horribly. Why, and what would you do?

10.15: McCain just rolled his eyes at Obama. His body language is pure contempt for Obama. 

10.13: Obama responds beautifully: “there already was a law.” And the Illinois Medical Society voted against it, too. Obama: “This is an issue that divides us. But there surely is some common ground, where both those who believe in choice and those who are opposed abortion should come together and say we should try and provide some appropriate information to our youth. No one is pro-abortion, it is always a tragic situation.”

10.11: McCain claims that Obama voted to without treatment for an infant.

10.09: Obama: “The constitution provides a right to privacy.” It’s very rare to hear politicians actually say this in the open. And Obama is also mentioning equal pay for equal work. Well done, Obama. He also mentions that McCain opposes equal pay protection, and McCain smirked when it was mentioned.

10.08: McCain: “I would consider anyone in their qualifications. I do not believe in someone who has supported Roe v. Wade, that would be a part of those qualifications. But I would not apply any kind of litmus test.” So if you support Roe v. Wade, you don’t understand the constitution and therefore cannot be on the bench. Oppose it, and you DO understand the constitution. But no, there’s no litmus test.

10.07: McCain: There’s no ethical litmus test, but Roe v. Wade was a bad decision? Why is McCain using such obscure moments to prove his point? Does he think this will resonate with Joe The Plumber?

10.06: The US Chamber of Commerce supports Obama’s plan. Obama: “I just want to lower your costs, and that includes you, John.”

10.05: McCain: “Senator Government.” Good slip-up.

10.04: McCain: ”Which may be taxed, which will be taxed.” May, or will, McCain? Oh, and “gold plated Cadillac plans” cover “plastic surgery and transplants,” and that’s terrible. How could insurance cover transplants!

10.03: Joe. Again. “Joe, you’re rich, congratulations!” What is he rambling about?

10.01: Obama: “What we haven’t talked about is Senator McCain’s plan.” So, let’s: For about 20 million people, they’ll suddenly find yourself without healthcare. Senator McCain is going to tax people’s healthcare benefits. And the average insurance plan costs $12,000, so if you get a $5000 dollar credit for a plan that costs $12000, that’s a loss.

10.00: John McCain looks terrified. He couldn’t close his mouth for shock. Obama: “Want to know your fine? Zero.”

9.58: McCain’s turn. McCain: “47 million Americans are without healthcare today.” How does he propose to fix this? “We need to put healthcare to build clinics.” Oh, and here comes the $5000 tax cut. And Joe the Plumber is back, again. Will the theme ever die?

9.57: Obama is on about healthcare. He repeats his great line about American citizens being able to get the same healthcare as provided for members of Congress.

9.54: Obama is sounding so much more knowledgeable than McCain. When McCain mentioned Colombia, Obama responded with facts, statistics, and history about the region. When McCain mentioned fuel efficiency, Obama responded with facts, statistics, and history about the North American automotive industry. And McCain’s response to those facts as presented by Obama? McCain attacks Obama about proposing to meet with Hugo Chávez.

9.51: Coastal drilling is such a red herring. Obama keeps looking into the screen, but McCain keeps looking off stage. Obama mentions the parts of McCain’s plans that he likes, and then goes on to attack the parts he doesn’t like. McCain merely attacks Obama, credence or not. McCain: “Maybe he should travel south of the border.” Mind explaining where Sarah Palin has gone?

9.48: Obama answers the question: “10 years,” and follows up with “nothing is more important” than making energy independence a top priority. Tell oil producers than the 68 million acres that they have leased and are not using that they have “to use it or lose it.” Obama: “I believe in free trade. But I also believe that for far too long, certainly during the course of the Bush administration, with the support of Senator McCain, that any trade agreement has been a good agreement.” Obama mentions the new trade agreement with South Korea.

9.47: Funny, McCain is getting all offended for Canada over NAFTA. But Canada hasn’t gotten offended at all. And Alberta (where most of Canada’s oil is located) would rather sell its oil to the US than China, it’s cheaper for them. And McCain is getting angrier.

9.46: While McCain is defending Palin, he attacks Obama again about taxes. Funny, because Obama could clearly respond with Troopergate and the transparency that went on there, like with ignoring subpoenas and all that.

9.45: Obama: ”With a spending freeze, we won’t be able to spend anything more for special needs children.”

9.42: McCain: “She is a reformer. She’s cut the size of government.” That’s pretty easy in tiny Alaska. “Brest of freth air?” Well said, McCain. And now he’s playing the Austim card. Wow, that’s desperate. Every child isn’t Autistic. “Her husband is a pretty tough guy, too?” Because during a huge financial crisis, what I want is a First Dude to help out skinning the moose we’re going to have to eat when the economy grinds to a halt.

9.41: Obama is leading with Biden’s foreign policy. He’s talking about how Biden fights for the “little guy,” maybe not the best answer. How is he better than Palin? You know McCain is going to tear into Biden in just a minute. Answer some of his attacks before he launches them.

9.40: Next question: “Why would the country be better off if your running mate became president rather than his running mate?”

9.39: “Facts are facts.” “That’s not a fact.” Classic.

9.36: “Forty years ago, when I was eight years old, Ayers engaged in despicable acts.” Obama is now mentioning how many Republicans served with Ayers. What a great platform to clear that up. Obama: “Mr Ayers has never been involved in my campaign.” Great come back about ACORN as well. Obama is very concise tonight, he’s getting in and out of topics, as opposed to McCain who has to keep returning to past questions so he can finish his answer.

9.35: Obama just got himself very nicely out of the rally swamp. McCain is clearly on the attack (interrupting, negative characterisations of Obama). Oh, wait, 15th interruption of Obama. And McCain just brings up Ayers. Obama is talking about working together, McCain is talking about “the destruction of the fabric of American democracy” by Obama’s “associates.

9.34: T-shirts are the same as shouting “kill him?” When is the last time the Secret Service investigated a t-shirt?

9.34: “I’m proud of all the people that come to the rallies.” Woah. He is being purposefully obtuse.

9.33: 11th interruption. 12th. 13th.

9.31: Obama went there about what’s been said about Obama at Palin rallies. Obama: “Your running mate didn’t say that’s kind of out of line?” when people at her rallies shouted “kill him” and “terrorist.” Well-played. This is likely the 10th time McCain has interrupted Obama. 

9.30: McCain: “Every other ad was an attack ad on my health care plan.” What Obama campaign ads claim that McCain doesn’t support stem cell research? I am currently in Virginia, where Obama is dumping a fortune on advertising, and have yet to see a single one of these ads McCain mentions.

9.28: Two thirds of Americans think John McCain are running a negative campaign. And John McCain interrupted Obama, again. Obama: “There is nothing wrong with having a vigorous debate,” and just because we’re not doing town halls that this justifies the negative campaigns. John McCain’s campaign said publicly, “if we keep talking about the economy, we lose.” 

9.27: You didn’t repudiate those remarks? What about “kill him?” “Terrorist?” “I want to tell you, we will run a truthful campaign,” how does that relate to calling your opponent a terrorist and related to Bill Ayers? So John McCain’s answer to the question is yes! Yes! He will call Obama a liar to his face.

9.26: Oh, McCain is back on town hall meetings. How is that a response to that question? McCain failed the one town hall he got, why would he want more? This is McCain saying “if you don’t play by my rules, you’re a nasty man.” 

9.25: “Are each of you willing to sit at this tale and say to each other’s face what your ads have been saying?” That’s a good question.

9.22: Great comeback: “Even Fox News disputes it.” And to respond to McCain’s snarky comment: “If I’ve occasionally mistaken your polcies for Bush’s policies, it’s because at the core, you have been a vigorous supporter of President Bush. Now you’ve shown commendable independence on issues like torture, and I give you enormous credit for that. But when it comes to economic policies is eight more years of the same thing. And I think the American people understand it hasn’t worked.”

9.20: McCain just got nasty: “I’m not Bush, if you wanted to run against Bush, you should have run against Bush four years ago.” He just stumbled badly and couldn’t find his words. And he’s looking angry again. Obama is grinning.

9.20: Obama: “McCain voted for four out of five Bush budgets.”

9.19: Obama responds: “Earmarks make up one half of one percent of the budget,” and that’s not going to solve the problem. He’s now linking McCain to Bush’s fiscal policy. Well done! 

9.16: Answer the question, McCain. What would you cut? Not increasing home values. Ah, there’s the moderator asking him to actually answer the question, which McCain did not like at all. His face went rigid for a moment. He keeps saying “OK?” and getting angrier and angrier. And by “we have presided,” shouldn’t be say his party has and a Republican president? And there’s the moderator again. Does McCain really not care about Nebraska, Iowa, Minnesota, and Wisconsin? That ethanol comment was very poor, and McCain gets increasingly angry. And where did that one billion dollar pork barrel comment come from?

9.14: Strange question, a very similar one was asked in the second debate. “There is no doubt that we’ve been living beyond our means,” isn’t that stating the obvious? I like his answer about pay as you go, it’s a very easy concept for people watching to follow along with. You spend a dollar, you cut a dollar. As Obama is writing, you can see McCain’s hand flying. He’s taking copious, copious notes.

9.13: The US does NOT have the second highest corporate tax rate in the world, and there are so many loopholes, very few large companies pay any taxes at all.

9.12: McCain fails to mention that his tax plan will increase taxes on the middle class. Hmm. Oh, McCain just interrupted. Not cool, McCain. And can we PLEASE stop talking about Joe the Plumber?

9.11: We’ve been talking about Joe the Plumber for six minutes now. And “class warfare?” Is he trying to covertly label Obama a socialist with that kind of language?

9.10: Obama should use this opportunity to explain some specifics about his plan, but he’s going back to “Joe the Plumber.”

9.09: That was a poor tactic for McCain, he gives an easy pot shot for Obama about his tax plan and gets to tie in Ohio at the same time. Bad opening move, McCain.

9.07: McCain is talking about a guy in Ohio. Let’s see where this goes. Oh, of course, Obama will cause more taxes. Now, if Joe-in-Ohio’s company is turning over $250,000 a year, he hardly qualifies as middle class. Quote so far: “Joe the Plumber.” 

9.06: Obama Middle Class Counter: 2. Lots of proposals here, maybe too technocratic an answer? But he’s connecting here.

9.05: Obama’s turn. Leads with “we’re experiencing the worst financial crisis since the Great Depression.” Mentions CEOs not “enriching themselves,” and that there’s “no rescue plan for the MIddle Glass. Obama Middle Class Counter: 1. 

9.04: McCain is talking about Fannie and Freddie, but there was a big New York Times article today that shows that Fannie and Freddie’s loans were miniscule in comparison with the private sector.

9.02: And they’re on the stage. First question about the economy. McCain is taking notes, but Obama looks very serious. He’s barely blinking. Question, why is your economic plan better than the other one’s? McCain launches off with “Americans are hurting and they’re angry,” due to the “greed and excess in Wall Street.” Repeating a campaign theme of McCain’s: anger.

9.01: It’s a bit of a late start, but both of them will be seated at a table. They’re very close. This could be both good and bad for McCain: he won’t teeter around the stage like the last debate, but Obama could make him snarl and get very angry by being in his face.

8.59: And we’re off!

8.58: Some of the commentary on MSNBC is claiming that “Obama has to talk to the white man,” but hasn’t he already? The latest polls show him now tying in West Virginia — probably the most white man state in the country. In fact, Obama seems to have picked up almost all of Hillary Clinton’s voters in states to the extent that I am looking forward to seeing some new polling in Arkansas.

8.56: As Keith Olbermann says, what does an “I’ll kick your ‘you-know-what’” look like for McCain? I think he’s already launched so many (failed) attacks on Obama, that there’s very little that could stick.

8.51: Tonight’s debate will also be the most watched of the trio, coming as it does only 20 days before the election. So any slip up or great comeback will have the most impact, especially because there’re a lot fewer news cycles for any mistake to fade from memory.

8.48: Have you ever noticed how when Obama is near McCain, he tries to raise his arms as much as possible Since McCain can’t?

8.39: Keith Olberman just mentioned that McCain needs to get a 10 run grand slam to win tonight. An apt metaphor.

Sarah Palin got a very big, bruising, purple slap on the wrist yesterday when 12 members of the Alaska Legislative Council voted unanimously to release the “Troopergate” report to the public. The report, which had been prepared for the past several months by Special Investigator Branchflower. The report is almost 300 pages long, but there are four basic findings:

1. “For the reasons explained in section IV of this report, I [Special Investigator Branchflower] find that Governor Sarah Palin abused her power by violating Alaska Statue 39.59.110(a) of the Alaska Executive Branch Ethics Act. Alaska Statue 39.52.110(a) provides:

“The legislature reaffirms that each public officer holds office as a public trust, and any effort to benefit a personal or financial interest through official action is a violation of that trust.”

2. I find that, although Walt Mongegan’s refusal to fire Trooper Michael Wooten was not the sole reason he was fired by Governor Sarah Palin, it was likely a contributing factor to his termination as Commissioner of Public Safety. In spite of that, Governor Palin’s firing of Commissioner Monegan was a proper and lawful exercise of her constitutional and statutory authority to hire and fire executive branch department heads.

3. Harbor Adjustment Service of Anchorage, and its owner Ms. Murleen Willkes, handled Trooper Michael Wooten’s workers’ compensation claim properly and in the normal course of business like any other claim processed by Harbor Adjustment Service and Ms. Willkes. Further, Trooper Wooten received all the workers’ compensation benefits to which he was entitled.

4. The Attorney General’s office has failed to substantially comply with my August 6, 2008 written request to Governor Sarah Palin for information about the case in the form of emails.

So for those of you who have been waiting with baited breath (like me), there it is. Sarah Palin did very, very bad, and behaved unethically, but not illegally.

 Iceland went bankrupt today. The small island nation in the North Atlantic was best known for the singer Björk, glaciers, and waterfalls suddenly found itself bankrupt when its three largest banks collapsed today.

The three banks, Glitnir Bank, Landsbanki, and Kaupthing, were heavily involved in overseas lending. They had more money lent out on their books than the entire GDP of Iceland. In other words, the $61 billion the banks had given out more money than everything produced, sold, or made in Iceland for the year was worth. By a factor of 12, which means that the banks had loans out which came to total more than 12 times the size of Iceland’s GDP.

When the loans went bad, so did the banks. And they lost more money than 10 years worth of Iceland’s economic production. No-one seems to know why Iceland’s financial regulators allowed the financial system to leverage itself so deeply. In the words of one bank executive I spoke with, “I don’t run Iceland, and I don’t know what they were smoking.” But to fix the situation, Iceland will need a capital infusion from either the EU, the US, or the IMF to get going again.

Now what does it mean when a country goes bankrupt? How does the country itself go bankrupt if its banks go under? Suppose the GDP of Iceland is $50 billion USD a year, and the banks lost $100 billion. Where will the extra $50 billion come from to cover their losses? It will usually have to come from the financial regulatory authority, but if those losses are greater than its budget, the country goes bankrupt.

The idea of a bankrupt country is kind of weird, but countries do go bankrupt from time-to-time by default on their debt. Recall when Argentina went through something similar a few years ago: the Argentine government forced people who were holding dollars in Argentine banks to “loan” the money to the bank in exchange for Argentine dollars at $1 USD for ¢40 Argentine cents, which meant bond holders lost 60% of their money immediately. Argentina was a mess for two to three years after they went into default.

That is an extreme case. When a country goes bankrupt, not much happens inside the country. But externally, other countries stop lending to it, and its trading partners stop selling to it.  The US, for example, issues bonds to fund projects and such. The US issues bills (less than one year), notes (from one to 10 years) and bonds (30 years). Other governments buy these from the US with their excess dollars.

In Iceland, they might have to “borrow” to fund, say, a new hospital, or new roads, or a fish processing plant, etc. And they would issue bonds to the international market place to do so. Usually, they carry a very low rate of interests, because the investment is very safe. After all, when was the last time a European country defaulted on its debt? Not since the 1930’s. But now, the entire resources of the Icelandic economy will be required to salvage those banks.

For the moment, all trading in Iceland’s equity markets has been suspended until 13 October 2008. Things are about to get very, very ugly for Iceland according to Lars Christensen, chef analyst at Danske Bank in Copenhagen:

“The economy may well contract more than 10 percent between now and the end of the crisis,” he said. “Inflation will jump to at least 50 percent to 75 percent in the coming months.”

In response to my previous post about the bailout, I received a ton of e-mails and comments with questions and clarifications about the bailout. Unfortunately, I am not a financial expert. But now I am offering you the chance to e-mail me your question, and I will pose it to one of the VPs of Citigroup.

Just e-mail me at southtotheleft “at” gmail “dot” com and I’ll do my best to get your bailout-related question answered by one of the world’s leading financial experts. Cut through the political talking head stuff, and go right to an expert.

I had the chance to sit down with one of the former VPs of Citigroup last night and talk about the bail-out. I must admit that I had almost no opinion on the bailout before our conversation, because there was far too much information floating around to form a cogent opinion. Now after my conversation, I understand the role of banks in society much better, and consequently why the bailout — at least in some form — must happen.

In our society, we ask banks to take a special role in our economy. They provide capital (money) for a wide variety of projects, such as granting business and farm loans, giving mortgages, and helping companies manage their payroll. They get paid for these activities in two ways: direct fees, such as the $35 fee they charge if you bounce a check; and interest. The amount of interest they charge depends upon the riskiness of the project. For low-risk projects, such as helping GE with short-term borrowing, they will charge a low rate of interest. For riskier projects, such as helping a “Amalgamated Widgets” build up its business, they will charge a correspondingly higher rate of interest. The interest is supposed to compensate for the risk.

Banks are therefore always taking on risk. We ask them to do this, and usually they are very good at assessing the risks of any individual project. When they are right, the banks make a good living, indeed, an excellent one. But, it is risky. And what’s worse, all the banks tend to have similar risks. So, if one of them is in trouble, it is likely that many of them are in similar straights.

Furthermore, banks are also very highly regulated. They must be, because if one fails the consequences can be profound. Business will find they cannot borrow money; depositors cannot get their money back, and so on. Our economy relies on the ability of the regulators and the banks themselves to monitor their risks and avoid the possibilities of a catastrophe.

As an aside, banks are highly profitable because they loan out more money than they actually have on hand. For example, a bank with $1 billion in deposits might have loans of as much as $12 billion outstanding. In good times, when most borrowers are repaying their loans, the bank makes 12 times as much money as you might naïvely have estimated. Of course, banks know that some borrowers will not repay the money they’ve borrowed, but usually that is a small fraction of the total number of borrowers. And anyway, the bank charges a higher interest rate for a riskier borrower, so they almost come out do fine.

In the past 14 to 18 months, the banks have entered a time of profound distress. The root cause is the collapse of the housing bubble in the US. And here’s where things get tricky.

• All the banks have similar risks, namely, they were all betting at least in part that housing prices would continue to rise, or maybe not fall too much. The banks assumed home owners wouldn’t default on their mortgages, or at most only a few would do so. Unfortunately, housing prices are down more than 15% from the peak and even more in Miami, Las Vegas, and LA. Several million homes are in default, and perhaps as many as 25% of all homes are “underwater,” meaning the value of their home is less than the amount of the mortgage.
• When a mortgage goes into default, the bank holding the mortgage takes the loss. Now, banks have tried to reduce their risk by packaging up huge batches of mortgages and selling off pieces of them to investors all throughout the world. The investors buy these securites because they offer a reasonable rate of interest and appear to be low risk. In retrospect, they aren’t low risk and the interest rates were far too low.
• As this wave of foreclosures hits, the banks (and other investors) have to reduce the value of these complicated securities.
• Unlike many other investors, banks are required to keep a certain amount of capital in reserve to offset losses and fund their business. The huge losses on the foreclosed mortgages wiped out this reserve at many banks, including Citigroup and UBS. A bank with insufficient capital MUST raise more immediately or close up shop. You might recall that earlier this year almost every bank raised capital by selling a piece of itself.
• But, these complex securities remain on their books. And continue to drop in value. And no one knows how many other non-performing loans the banks have tucked away on their balance sheet. Suddenly, no one wants to believe the values that banks give to these securities. When that happens, BOOM! Bear Stearns and Lehman Brothers go away. Again, that is because no one believes they have sufficient capital to continue in business, and that the as yet unrecognized losses will wipe them out.

So, now let’s look at the bailout itself. And to quote:

Key question to ask: SHOULD WE RESCUE THE BANKS?
Key answer: ABSO-FUCKING-LUTELY!!!!!!!!!!!!!

Reason: See above. We need the banks. It is a societal problem when banks go under. The banks are bigger than any one of us, indeed, than all of us. They are a crucial element of our economic structure, in someways, the key underpinning. Without them, all commerce stops.

So, let’s deal with this head on. The banks act as intermediaries between two sides of a deal, they move money (capital) around the world, and they are paid to manage risk. They allow other parts of the world to function by lessening our overall risks and smoothing the wheels of commerce. They are not like, say, Enron or WorldCom. If you go bankrupt, that is a personal tragedy. We should help you get back on your feet, and that is something people in other societies do. (We are much more cut-throat). But if a bank goes under, it is a social tragedy that affects every corner of the society. That is why we have FDIC insurance on your accounts, so that you are protected up to at least $100 thousand.

What is happening now is that because banks can no longer properly assess the risks of doing business with each other, so they’ve stopped lending. When that happens, everyone gets hit. And hit hard. Small business owners cant’ get money to run their business. And they need cash because they get paid on one time cycle, but have to pay bills on another one. They need cash from the bank to tide them over. The cash crunch is worst for fastgrowing firms because they have to buy lots of goods now and only get paid later. So, if they can’t get capital, they stop growing or go under. Jobs disappear, and it is the small, most productive firms which get hit first.

And to quote further:

We also know the consequences of letting the banks fail. We tried that experiment in 1929-31. How do you think it worked? Unless and until we find a replacement for banks, we need them to keep the world’s economy going. I might add that in more than 2,000 years of history, we have never found an adequate replacement for banks.

The key idea of the bailout to take the garbage off the banks’ balance sheets, give them money, and restart the game. No-one argues about the necessity for each step, the devil is in the details. The banks desperately need more capital and they need to staunch the bleeding. Buying the garbage off their balance sheet is a reasonable idea. The Treasury would absorb any further bleeding, the banks would have “clean” balance sheets and lots of newly minted dollar bills to lend. But how can we buy it? If we buy it at the price the banks have it marked on their balance sheet, then we are almost certainly overpaying. That’s because the banks are very reluctant to price this garbage at its true value.

An example: a fictitious Bank of the Banana Republic (BBR) originally paid $100 for some Assorted Stinky Garbage (ASG) bonds. These bonds have lost value, but since they aren’t actively traded, the bank assigns them a value of $80, which is $20 less than they paid for them. No-one believes that figure, it is an accounting fiction created by wonks in the finance department. Suppose the “true” value is $25, meaning the bank has really lost $75 on its ASG bonds, but only recognized $20 of that. If the Treasury buys the bonds at $25, then BBR will have to recognize another $55 of loss ($75-$20) and wipe out even more capital! But if the Treasury buys the bonds at $80, we are vastly overpaying, and there is no way we will ever get back any more than a small fraction of that number.

The proposed solution is to buy the bonds at $25 and give BBR another $55 of cash. In exchange, they give the Treasury a piece of their company equal to $55, i.e., we pay a fair price, they get their money, and the Treasury owns a chunk of them. If the ASG bonds go up in value, the Treasury will keep the profit. And if BBR stock goes up in value, the Treasury can cash out and take their profit, too.

Sounds simple, but is enormously complicated to run. And the Treasury will be left with somewhere between $400 billion and $1.5 trillion of stinky garbage they have to manage.

All the rest — limits on compensation, etc, is window dressing for the underlying problem.
That’s the short term fix. Longer term, we will almost certainly have to force banks to manage their risks more carefully. Risk managers will be assigned from the Treasury, and all new “deals” will probably have to be vetted by an independent team of risk managers.

Oh, and — there were supposed to be independent risk managers, namely the rating agencies such as Moody’s, S&P, and Fitch. They are allowed to see inside information on all the securities they rate. They use that information to assign “risk” ratings to bonds, like AAA, AA+, etc. AAA is the highest and means the bond has a less than 1% chance of defaulting in the next 10 years. But, the rating agencies weren’t truly independent, as they earned fees from the banks for providing the ratings. If the bank wanted a particular rating, and the rating agencies wouldn’t provide it, then the banks wouldn’t pay the fee. That is a bad business model and they should all go bust. They are a disgrace!

But, there is a wrinkle in all this bank stuff, and it has to do with the banks and the rating agencies. Banks have to set aside “capital” to cover the risk on a security. The riskier the security, the more money they have to set aside. The banks set aside money to guard against losses on securities they hold. The rating agencies determine the “riskiness” of any particular security. Very low risk securities need about 10% of the value set aside. Very risky securities need up to 100% of the value set aside. But, starting in October and November 2007, the rating agencies started to downgrade many securities from AAA (very low risk) to BBB (very high risk). Banks were forced to set aside tons of extra money as the securities got downgraded (rerated to a higher risk category). These moves have contributed to the massive losses.

After Sarah Palin’s disastrous interview with Katic Couric, her inability to campaign independently of John McCain (she only made her first independent campaign stop in Carson City, Nevada on 14 September, 16 days after she was nominated), and McCain having to backtrack for her over her statements about Pakistan, there have been increasing calls for Sarah Palin to step down. Some in the McCain camp have even begun to question her ability to serve as the Vice President and the damage she has done to the campaign.

I tend to agree, she certainly has done damage. While talking to people in a senior citizens’ centre in Castle Rock, Colorado, which is the heart of Republican-stronghold Douglas County, the almost universal sentiment was expressed best by Estelle, 82, who said “I was going to vote for McCain until he put her on the ticket. What does he think, we’re stupid?”

I think the choice of Palin as VP won McCain the battle, but not the war. To prove this, let’s look at some recent polling. After the nomination, McCain got an immediate boost in states that polling had McCain with a less than 10% lead, but never had any polling that showed Obama ahead. For example, prior to the nomination of Palin, the last poll in Motana showed the race at a tie or with McCain ahead by 2%. The next poll showed McCain ahead by 13%.  The same effect happened in North Dakota and South Dakota, two states that were also wavering for Obama.

But with all electoral math in the United States, it doesn’t matter if McCain wins Montana by 3% or by 15%: he still gets the same number of electoral votes. So it does nothing for McCain’s overall electoral college votes to win small states by a higher percentage. Instead, though, what Palin seems to have done is push many outer suburban voters further to Obama: prior to Palin’s nomination, McCain had about a 2% lead in the polls in Virginia, and now Obama has roughly a 3.9% lead. In fact, in no large swing state has McCain re-taken the upper hand over Obama post-Palin’s selection, while Obama has moved in on McCain in Florida, Virginia, North Carolina, Ohio, Indiana, Colorado, and Nevada.

But mathematics and polling aside, Palin has done wonders for McCain’s ground game. FiveThirtyEight.com quotes a woman in the Colorado Springs, Colorado office McCain office — which is the heart of the most Republican county in Colorado — as saying “you could hear a pin drop” in the office in the days before the Palin pick, but that the first morning after her nomination, there was a line at the door before the office opened. With no volunteers, it is pretty hard to bring out the vote, and McCain prior to Palin was prevented from opening offices in many states because there would be no-one to work in them. For example, Colorado has 33 Obama offices, which are easily locatable on his website (it only takes three clicks to get to the list of state offices). McCain only has eight, a fact that is buried in his website (it took me eight clicks on my first visit to his site).

Also, because she cannot campaign on her own, the McCain camp has fewer surrogates and therefore can cover less ground in one day. For example, on 18 September, both McCain and Palin were at a Rally in Blaine, MN and Media, PA whereas on the same day, Obama was at two events in Coral Gables, FL and Joe Biden was in Ohio and New Hampshire: four events in three states, versus two in two.

So the Palin pick is a double-edged sword: she has drawn in a lot of voters who would have likely voted for McCain anyway and increased his ground-game staff to the point where he now has functioning offices in some states. But she has pushed key voters in swing states that might potentially have voted for McCain without her.

Were she to resign, however, it would be an end-game for McCain. Not only would all of his volunteers disappear, but the headlines would be horrible. McCain is having a hard enough time as it is rolling out a relatively unknown candidate so close to the election, imagine if he had to do it again. And finally, this election is shaping up to one where it’s Obama v. Nobama, not Obama v. McCain. I think a lot of people who have been driven to the McCain camp by Palin would wind up not voting at all.

It all comes down to what is more important: small states and ground game, or big states and suburban voters?

In this election, more African-Americans will be voting than ever before, and a good percentage of them for Obama (Michael The Black Man be damned). But an interesting question is whether or not this massive turnout will hurt gay rights in California. While it may seem strange to link voter turn out in the black community to gay rights in most cases, it doesn’t in the upcoming election in California. This is because blacks are overwhelmingly against the recognition of gay marriage, and may help tip the balance in Proposition 8’s favour.

Proposition 8 will define the battle for gay marriage in California this year. Earlier in the year, the California Supreme Court ruled that gay couples had the right to marry, and gay couples have been getting married in California for several months, notably Ellen DeGeneres and Portia de Rossi and Star Trek’s George Takei and Brad Altman. If passed, Prop 8, as it’s called, would overturn that decision by adding an amendment to the California Constitution that reads:

Amends the California Constitution to provide that only marriage between a man and a woman is valid or recognized in California. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local government: The measure would have no fiscal effect on state or local governments. This is because there would be no change to the manner in which marriages are currently recognized by the state.

This has left the Obama campaign in a Catch-22. Some of the campaign’s most vocal supporters are the black and latino communities, who will likely turn up in record setting numbers on November 4th to elect Barack Obama. The fear, however, is that after voting for Obama, they will then vote with their more conservative view points and help pass Proposition 8. Obama has come out against Proposition 8 in a letter address to the gay Democratic Club of San Francisco, when he wrote that the measure would be “divisive and discriminatory.”

In order to bring that message home, the Obama campaign and several gay-rights organisations such as And Marriage For All and Equality California have begun organising large grassroots events to help gay black people talk to the black community. Prominent black gay people have been encouraged to host dinner parties, speak to black ministers, and talk to people within the community to help blunt its support for Prop 8.

According to the New York Times, both sides are expected to spend over $20 million in the fight for or against Prop 8. One such ad currently running shows a heterosexual bride having to battle a series of obstacles with the tag line “what if you couldn’t marry the person you loved?”

That is a very good question, and one I would like to be seen put to the black community. It was not too long ago that miscegenation was a crime in several states. I hope the collective memory over that injustice extends to cover the current injustices that exist for gay couples.

Earlier today, during a speech in Coral Gables, Florida, Obama was interrupted by a group of black people carrying signs denouncing him as a supporter of gay marriage, abortion, and the KKK. At first, Obama supported their right to be there and carry their signs, if they would just let him continue his speech. After interrupting him several more times, the group were escorted out of the building. Who were these protestors, and what were they after?

Calling themselves “Blacks Against Obama,” they alleged that Obama has been endorsed by the KKK, and that “Jessie Jackson Hates Obama.” Their home-made signs had the words “Michael Warns” on the bottom, which links to the website www.michaelwarns.com.

The site is almost entirely devoid of content, except for listing an address somewhere in Miami and a link to the site, www.michaeldefeatssatan.com. The second link is a lot more fruitful in terms of content, despite sharing the similarly unfinished qualities of the first site. Almost all of the links are dead, and the content forms are still left from the template the site was designed on: “Page Title Here” and “A quote or missions statement about the firm here” litter the site.

Website design aside, It seems that Michael — or Michael The Black Man as he prefers to be called — is a charismatic preacher who leads a cult-like church that preaches to black men against the evils of women. The e-mail address listed to contact Michael is bigboss1043@yahoo.com, and Michael seems to run a daily video sermon programme where he sings and talks about the ways to redeem “BLACK MEN,” [sic] which mostly seems to be by avoiding any contact of feelings for women. In fact, the ailing of black men in the United States is placed entirely upon the shoulders of black women, child support, and the Democratic Party:

HER NAME IS JEZEBEL, 1/3 OF THE  BLACK WOMEN OF AMERICA. This book is written to primarily show the BLACK MAN and the WORLD the true source of their problem…33% of the Black Women of America (BABYLON). GOD is angry with worshipping this WOMAN LILITH the devil.

Michael’s latest sermon begins with: “If you are an Obama supporter, you’re going to be crushed. Because you think that nigger is the shepherd, but the Lord said he will smite the shepherd. So I’ve got to smite him.” As he speaks, a crowd located off camera calls out “yes, sir!” to every comment. He then goes on to call Whoopi Goldberg, Oprah, and other black women whores. For additional flavour, he goes on to comment that “white men are not the devil, they’re too stupid to be the devil.” “Childsupport is hell. Childsupport equals you are a non-entity.”

The site also has an image of Obama with red devils horns painted on top, listing the “reasons not to vote for Obama:”

1. Make child support Federal

2. Believes in abortions

3. Believes in gay marriages

Oprah gets a similar treatment on the site, where she is called the Devil, but little clarification or justification is given, other than that she likely supports woman’s rights. 

Frankly, this is nothing but good news for Obama. Why? One of the catchiest group names was just taken up by crazy people. Think about it: John Kerry was nailed by the Swift Boat Veterans For Truth. What could be better for McCain than Blacks Against Obama? If they were 50% less crazy, I’d be willing to bet their group leader would have been booked on Fox News tomorrow. A book would be hurried to press.

But no-one is going to put Michael The Black Man on TV. Obama wins.

I have been in Douglas County for three days. And I am ready to report that I am very concerned about the accuracy of polling data in this election. And this is a very good thing for Obama.

Why am I concerned? One of the amazingly successful things Obama has managed is pulling in Republican voters in the West. There are almost no counties quite as red as Douglas County, which includes the southern suburbs of Denver like Highlands Ranch, Castle Rock, and Parker. It has grown exponentially in the past eight years: the population is up by 49,98% since the 2000 census from 175,000 to 263,000. And Republican candidates cannot win state-wide elections in Colorado without a serious win in Douglas County.

Case in point: in the 2006 gubernatorial election, Bill Ritter (D) went up against Bob Beauprez (R). Overall, Ritter won Colorado by 57%, but here in Douglas, there were some serious issues with the voting which kept people waiting in line to vote up until 2 am. But when early results came in from Douglas that showed Beauprez only winning by 54% compared to Ritter’s 46%. Beauprez conceded almost immediately afterwards: Republicans have to really win Douglas to win Colorado. Not a single precinct out of 125 went for Kerry in 2004, and only six went for the Democratic candidate, Ken Salazar, for Senate in 2006.

And I am not sure that McCain will win Douglas. Every person I have spoken to has said that they are either a Republican/have always voted Republican and are going to vote for Obama. Just today, one of the apartment managers in one of the units I hit with a voter registration drive today told me while he was photocopying hundreds of my voter registration papers for me that he had never voted Democratic before, but he will be voting for Obama. Another man voted for Bush (both times) but is now voting for Obama. I have yet to hear anyone say “I voted for Gore and Kerry, but now I’m voting for McCain.”

Further, the choice of Sarah Palin has alienated most of the people out here. Speaking with several seniors today, each and every one indicated that they had seriously considered voting for McCain before Palin. See, Douglas County isn’t terribly socially conservative. But it is very pro-business. And I think a lot of people saw right through her appeal on social issues and focused on her lack of experience in business affairs. 

All of this is very good news for Obama.

So I won’t say it now, except to say dreams really can come true. Or, at the very least, editors of small suburban Vancouver newspapers will publish my letters to the editor reminding American citizens in BC to get registered to vote.

Today was my first day in Colorado. Far, far too much has happened and I am too tired to write extensively. But this is a beautiful state, and it is turning the proverbial blue. I just need to help the strategy and make sure that this does indeed happen.