Today's Stories

October 6, 2008

Paul Craig Roberts
A Futile Bailout as Darkness Falls on America

Mike Whitney
Still on the Edge of the Abyss

Tariq Ali
Goodbye to Grosvenor Square

Emily Horowitz
How People Tell Cops They're Guilty Even When They Aren't

Michael Hudson
What Did Jesus Say?
A Christian Perspective on the Paulson Bank Bailout

Ron Jacobs
Winter Soldiers and Washington's Wars

October 3 - 5, 2008

Alexander Cockburn
CounterPunch Diary
Creatures of Capital

Paul Craig Roberts
Why Paulson's Plan is a Fraud

Dave Lindorff
The Rebellion That Failed

Saul Landau
The Chutzpah of Hank Paulson

Jonathan Cook
The Souring of a West Bank Romance: Israel's Army and Settlers Fall Out

Andy Worthington
The Dark Heart of the Guantánamo Trials

Dave Marsh
Bono (Himself) Challenges Me to a Debate

Sasan Fayazmanesh
Using the IAEA to Spy on Iran

John Ross
Massacre in Morelia

Brian Cloughley
The Unacceptable Face of Capitalism

Wajahat Ali
Dueling Partners: an Interview with Tariq Ali on Pakistan

Robert Schwartz
A Serious Blow to the Rights of U.S. Workers: NLRB Limits Political Strikes

Alan Nasser
FDR's Response to the Plot to Overthrow Him: a Paradigm for Today's Democrats?

David Ker Thomson
The Case for Drunk Driving

David Yearsley
The Musical Patriot
Organ Transplants: An Odyssey to Ithaca

Peter Morici
Gone in 30 Days: U.S. Loses 159,000 Jobs in September

William Blum
When is a Holocaust Not a Holocaust?

William S. Lind
War on Two Fronts: Without Railroads

Michael Donnelly
The Ghost of Gen. McClellan

Thom Rutledge
On Presidential "Rule"

Manuel Garcia, Jr.
Science and the 2008 Presidential Elections: a Survey of the Candidates

Dave Lindorff
Calling the Problem Early

Cindy Ellen Hill
Waging a Sustainable Peace?

Paul Krassner
Dying to Get High: the Side Effects of Medical Marijuana

Daniel White
Vietnam's Masterspy

Poets' Basement
Corseri, Absher, Gibbons and Jenkins

Website of the Weekend
How We Lost Glen Canyon: a Legal Chronology

October 2, 2008

Paul Craig Roberts
Can a Bailout Succeed?

Joe Bageant
Speaking in the Tongues of Brokers: the Bailout in Plain English

Ralph Nader
Soulmates in Deregulation

Mike Whitney
Why the Bailout Stinks

Madis Senner
When Push Comes to Pull: How a Foreign Banker Invasion Sent the Markets Reeling

Winslow T. Wheeler
Congress as Usual:the Crisis Will Pass, But This Bunch Will Remain the Same

William Blum
A Boy's Game: the Origins of the Financial Crisis

P. Sainath
Wall Street Transforms Presidential Race

Website of the Day
McCain's Meltdown in Des Moines

October 1 , 2008

Glen Ford
The Last Hold Up

Steven Conn
Trashing Sarah Palin: the Boomerang Effect

Alan Maass / Lee Sustar
Why Not a Bailout for the Rest of Us?

Kenneth Couesbouc
The Blame Game: When Wall Street Pigs Sprout Wings

Stan Goff
How the Republicans Can Win (And Deserve It)

Adolfo Gilly
Racism, Domination and Bolivia

Rannie Amiri
Bombs in the Levant

Ismael Hossein-Zadeh
The Recurring Myth of Peak Oil

Adam W. Parsons
Food and Markets

Dave Lindorff
Bums' Rush to the Bailout: Where are the Hearings?

Douglas Valentine
The Bush Continuity Plan?

Adrien Rain Burke
The Party's Over: an Open Letter to Nancy Pelosi

Website of the Day
Sarah Palin's Beauty Pageant

September 30, 2008

Pam Martens
What Wall Street Hoped to Win

Chris Floyd
The Shadow of the Pitchfork: Elite Panic on Wall Street

Stephen Martin
A Biological Walk Down Wall Street

Deepak Tripathi
A Bitter Harvest in Afghanistan

Mark Engler
Bad Money

Jonathan Cook
The Attack on Zeev Sternhell: Has Israel Become a Breeding Ground for Jewish Settler Terrorism?

Dave Lindorff
The Power of No

Manuel Garcia, Jr.
Time for a General Strike?

Ahmad Faruqui
In Cold Blood: Buried Alive in Pakistan

John Chuckman
Will the Bride Wear White? As Rome Burns, Bristol Palin Prepares to Tie the Knot with Mr. "Sex on Skates"

David Macaray
Blaming the Labor Unions

Fatemeh Keshavarz
What Obama Could Have Said

Website of the Day
538: a Cognitive Map of American Politics

September 29, 2008

Mike Whitney
Black Monday

Jeff Gibbs
"Just Say No!" to Reverse Robin Hood

Paul Craig Roberts
Why America Should Listen to Ahmadinejad

Peter Morici
The Bailout and the Economy

Tim Wise
Racism as Reflex

John Walsh
Sarah Palin is a Rotten Mom

Uri Avnery
Israeli Fascism: Yes, It Can Happen Here

Alan Farago
Hell to Pay: the Financial Collapse and the Housing Market

Andy Worthington
Is Khalid Sheikh Mohammed Running the 9/11 Trials?

David Michael Green
Where's the Repudiation?

Carl Finamore
Capitalism on Steroids; Labor on Tranquilizers

Iris Keltz
Postcards from the DNC

Bill Hatch
Take This Shrimp Slayer!

Website of the Day
Tina Fey as Palin, Round Two

September 27 / 28, 2008

Alexander Cockburn
How McCain Blew It

Linn Washington, Jr.
Alaska's Blacks and Palin: a Strained Relationship

Christopher Ketcham
An Israeli Trojan Horse

Mike Whitney
The People vs. the Banksters

Kevin Alexander Gray Race in the Race: Is Obama Shining Us On?

Anthony DiMaggio
The Unspoken War: Pakistan, the Media and Nuclear Weapons

Mary Lynn Cramer
Their Assets; Our Debts: How Economic Crises Are Overcome

Marc Levy /
Susan Erony
War Jokes Wanted: No Laughing Matter

Stan Cox
Livestock of Mass Destruction: Germ Labs in the Heartland

Saul Landau
Election Drizzle

Ali Khan
Meltdown in American Markets: an Islamic Perspective

David Rosen
The Great Fear: the Sexual Politics of Sarah Palin

Todd Alan Price
Bailing Out the Foes of Public Eduction

Matts Svensson
The Red and White Bird in Gaza

Ron Jacobs
Pakistan Through the Eyes of a Native Son

Robert Fantina
McCain and the Economy

Richard Rhames
Hank-ering for a Bailout

David Krieger
The U.S.-India Nuclear Proliferation Deal

Seth Sandronsky
Rethinking Charter Schools

Charles R. Larson
Dear Mrs. Abacha: a Nigerian Email Romance

Kim Nicolini
Sadism in the Desert

Poets' Basement
La Morticella, Holt, Moser and Buknatski

Website of the Day
The Great Schlep

September 26, 2008

Moshe Adler
Bailing Out Wall Street Won't Save Main Street

Bill Quigley
The U.S. War on Unarmed Working Mothers

Jonathan Cook
When Archaeology Becomes a Curse

Manuel Garcia, Jr.
Visions of Pinpoint Control: the Romance of Laser Weapons

Madis Senner
Why the Bailout will Fail

Brian Cloughley
US Raids in Pakistan: Violations of Sovereignty

Niranjan Ramakrishnan
Oh, Henry!

Joanne Mariner
Passport Fraud and Torture

Dan La Botz
The Financial Crisis: a View from the Left

David Macaray
Ralph's Management Indicted by Federal Grand Jury

Website of the Day
Nader and Obama Girl at the Office

September 25, 2008

Michael Hudson
The Insanity of the $700 Billion Giveaway

Sharon Smith
Democrats and Corporate Bailouts

Ralph Nader
Who Will Show Some Backbone Against the Bailout?

Christopher Ketcham
The Economy of Dead Sperm (or What I Learned From My Race-Car Grandpa Who Had No Bankers)

Eric Toussaint
Is Another Third World Debt Crisis in the Offing?

Robert Weissman
Getting Wall Street Pay Reform Right

David Estabrook
A Better Bailout Plan

Nikolas Kozloff
The Voyage of the SS Peter the Great

Steve Early
The High Price of Purple Dissent

Judith Scherr
Blue Helmets in Haiti

Laray Polk
South Ossetia and Abkhazia: Notes from the Inside

Website of the Day
Letterman Spanks McCain

September 24, 2008

Paul Craig Roberts
The Bitter Fruits of Deregulation

Nikolas Kozloff
Palin at the UN: a Tutorial from Uribe

Robert Weissman
The Financial Crisis: How and Why Congress Should Play for Time

Andy Worthington
The Guantánamo Trials: Govt. Says Six Years Not Long Enough to Prepare Evidence

Steve Conn
Will Nader's Warning be Acknowledged in the Presidential Debates?

Karyn Strickler
The $700,000,000,000 Power Punch

Diane Farsetta
Stealth Marketers Gone Wild

Dennis Loo
Poisoned Legacy

John Halle
Wealth Tax Now!

Khalil Nakhleh
Palestinians Under the Occupation

Website of the Day
Nader: Debate Crasher

September 23, 2008

Rev. Jesse Jackson, Sr.
Bail Out on This Bailout

Michael Hudson
Henry Paulson and the New Yazoo Land Scandal

Tariq Ali
Why was the Marriott Targeted?

Patrick Dyer
A Death Row Visit with Troy A. Davis

Franklin Lamb
Hezbollah and the Palestinians

Joshua Frank
Oppose Barack Obama? How Dare Thee!

Alan Farago
Pushing the Referees: How the Financial Crisis Occurred

Dave Lindorff
The Bailout Will Kill the Dollar

Tanya M. Kerssen /
Roger Burbach
Bolivia's Popular Upheaval

Harvey Wasserman
Nuclear Power Liabilities Dwarf Bush's Wall Street Bailout

Website of the Day
Hammered by the Irish: the Video

September 22, 2008

Michael Hudson
The Paulson-Bernanke Bank Bailout Plan: Will the Cure be Worse Than the Crisis?

Mike Whitney
Mushroom Clouds Over Wall Street

Christopher Ketcham
Let It Collapse!

Ron Jacobs
The Predators' Bailout

Anne-Marie McManus
Lost in the Rhetoric of Crisis

Robert Weitzel
The Twin Terrors of the Holy Land: a Sexy Fundamentalist and a White-Haired Zionist

Wajahat Ali
An Interview with Howard Dean

John Ross
A New Cold War Comes to Latin America

Steve Breyman
Does the U.S. Really Need Cluster Bombs?

Patrick Bond
On the Bellies of the Filth

Uri Avnery
Fly, Tzipora, Fly

Carl J. Mayer
An Open Letter to Michael Moore (AKA God's Pen Pal): Whatever Happened to Voting Your Conscience?

Website of the Day
Stop the Execution of Troy Anthony Davis

September 20 / 21, 2008

Alexander Cockburn
Is This the Stake Through Neoliberalism's Heart?

Michael Hudson
America's Own Kleptocracy

Pam Martens
The Wall Street Model: Unintelligent Design

Lila Rajiva
Putting Lipstick on an AIG

Mike Whitney
Full-Spectrum Breakdown

Richard Rhames
A Bailout to Nowhere

Bill Moyers /
Michael Winship
The NY Yankees and the U.S. Economy

Bill and Kathleen Christison
The Making of Recent U.S. Middle East Policies: a New Study of Neocon Influence

Susan Block
Palin as Venus in Furs: the Dominatrix Politics of Drilling and Killing

Robert Fantina
Republicans and Subpoenas: Never the Twain Shall Meet

Heidi Walters
Hung Up on Route 36: an 18-Wheeler and a Nuclear Cask

David Yearsley
Germany's Lost Organs: When Bigger Was Better

Raymond J. Lawrence
The Politics of Tribulation: Sarah Palin and the Rapture

David Rosen
One Billion Pills Later: Viagra at 10

David Michael Green
Living in Sarah Palin's America

Anthony Papa
Imprisoned Voters and the Elections

Niranjan Ramakrishnan
Freddie, Fannie, Daddy, Nanny

Howard Lisnoff
When We Notice the Homeless

John Goekler
Leaving Every Child Behind

Missy Beattie
Impalement

Dave Zirin
Leave Josh Howard Alone

Charles R. Larson
Holden Caulfield, Rest in Peace

Tim Matson
Too Big for His Birches: Woodlot Economics

Susie Day
Attack of the Angry Fetus

Poets' Basement
Corseri, Gibbons, Jenkins and Ford

Website of the Weekend
Dylan & Baez: Deportees

September 19, 2008

Steven T. Banko
McCain's Passion Play

Mike Whitney
The Point of No Return

Michael Hudson
The Dow Jones' Wonderfully Cheesy Addition

William Kaufman
Shattering the Glass-Steagall Act: the Bi-Partisan Origins of the Financial Crisis

Brenda Norrell
The Fall of Lehman Bros.: Blowback for Black Mesa?

Keeanga-Yamatta Taylor
The New Rhetoric of Racism: Why Won't Obama Call It Out?

Clifton Ross
Bolivia: Cleaning Up the Bull Ring

Dave Lindorff
Hang On to Your Wallets: the Government's About to Rescue Us!

Cynthia McKinney
Seize the Time!

Susan Hurlich
Storm Survivors: a Dispatch from Cuba

Michael Donnelly
Let's Hand It All Over to the Democrats (They Helped Create This Mess)

Website of the Day
The Crisis Explained

September 18, 2008

Benjamin Dangl
The Machine Gun and the Meeting Table

Harvey Wasserman
The Senate's Drill, Drill, Drill Scam

Susan Abulhawa
The Lobby Has Spoken: Biden and Israel

Robert Weissman
After the Fall: the Financial Re-Regulatory Agenda

Anne-Marie McManus
McCain's Cinderella: the Fetishization of Sarah Palin

Corey D. B. Walker
The Poverty of 21st Century Progressivism

William S. Lind
Senator O'Bush: Why Obama is Wrong on Iran and Afghanistan

Ron Jacobs
Washington's False Logic of Torture

Dave Lindorff
American and China: Joined at the Hip

Binoy Kampmark
How Damien Hirst Got Away With It

Website of the Day
An Invisible Army

September 17, 2008

Stephen Conn
Palin and the Politics of Big Oil

Forrest Hylton
Reactionary Rampage in Bolivia

Patrick Cockburn
Petraeus Leaves Iraq

Gregory Elich
Inside North Korea

Ralph Nader
How the U.S. Auto Industry Wrecked Itself

Franklin Lamb
The Palestinians of Shabra-Shatila

Pam Martens
The Gang's All Here: Bush, McCain and the Old Iran/Contra Team

Dave Lindorff
The End of the Blue Chip Economy

Peter Morici
The Damage Deepens

Stanley Heller
The Killing of Count Folke Bernadotte

Douglas Valentine
Rambling David Foster Wallace

Website of the Day
Free Cindy McCain!

September 16, 2008

Paul Craig Roberts
US Economy: Rudderless and Reeling from Direct Hits

Tiphaine Dickson
Citizen Palin: Why Sarah Palin Quoted Westbrook Pegler

Stan Goff
America is Now Rome: an Open Letter to Christian Troops in Iraq and Afghanistan

Uri Avnery
Tzipi's Choice

Michael Winship
Lipstick on Polar Bears

Jeff Halper
Warehousing Palestinians

Patrick Irelan
Bolivia Versus the Empire

Oscar Gonzalez
Who's Dumber? Ike's Refugees or Wall Street's?

Binoy Kampmark
Cheney and His Records

Fatemeh Keshavarz
Muslims are at Peace with You

Sen. Russ Feingold
Restoring the Rule of Law

Website of the Day
The Next Great Rock Band?

September 15, 2008

Mike Whitney
The Tumbrils Roll at Dawn

Peter Morici
Toxic Lehman

Patrick Cockburn
Take Another Look at the Surge

Charles R. Larson
The Maverick Has No Clothes

Jonathan Cook
The Expulsion of Palestinians from Jaffa

Nikolas Kozloff
Racist Rhetoric in Bolivia

Roger Burbach
Morales Confronts the Insurrection: Bolivia and the Echoes of Allende

Helen Redmond
Where's the Health Care Bailout?

David Michael Green
The Democrats Do Poland

David Macaray
The Boeing Strike

Ralph Nader
Remembering Peter Camejo

Website of the Day
The Ballad of Sarah Palin

October 6, 2008

A Futile Bailout as Darkness Falls on America

By PAUL CRAIG ROBERTS

America has become a pretty discouraging place.  Americans, for the most part, will never know what happened to them, because they no longer have a free and responsible press.  They have Big Brother’s press.  For example, on September 28, 2008, a New York Times editorial blamed the current financial crisis on “antiregulation disciples of the Reagan Revolution.”  

What utter nonsense.  Every example of deregulation that the New York Times editorial provides is located in the Clinton Administration and the George W. Bush administration.  I was a member of the Reagan administration.  We most certainly did not deregulate the financial system.

The repeal of the Glass-Steagall Act, which separated commercial from investment banking, was the achievement of the Democratic Clinton Administration. It happened in 1999, over a decade after Reagan left office.

It was in 2000 that derivatives and credit default swaps were excluded from regulation.

The greatest mistake was made in 2004, the year that Reagan died. That year the current Secretary of the Treasury, Henry M. Paulson Jr, was  head of the investment bank Goldman Sachs.  In the spring of 2004, the investment banks, led by Paulson, met with the Securities and Exchange Commission.  At this meeting with the New Deal regulatory agency tasked with regulating the US financial system, Paulson convinced the SEC Commissioners to exempt the investment banks from maintaining reserves to cover losses on investments. The exemption granted by the SEC allowed the investment banks to leverage financial instruments beyond any bounds of prudence. 

In place of time-proven standards of prudence, computer models engineered by hot shots determined acceptable risk.  As one result Bear Stearns, for example, pushed its leverage ratio to 33 to 1.  For every one dollar in equity, the investment bank had $33 of debt!  

It was computer models that led to the failure of Long-Term Capital Management in 1998, the first systemic threat to the financial system.  Why the SEC went along with Paulson and set aside capital requirements after the scare of Long-Term Capital Management is inexplicable.  

The blame is headed toward SEC chairman Christopher Cox.  This is more of Big Brother’s disinformation.  Cox, like so many others, was a victim of a free market ideology, itself a reaction to over-regulation, that was boosted by academic economic opinion, rewarded with Nobel prizes, that the market “always knows best.”

The 20th century proves that the market is likely to know better than a central planning bureau.  It was Soviet Communism that collapsed, not American capitalism.  However, the market has to be protected from greed.  It was greed, not the market, that was unleashed by deregulation during  the Clinton and George W. Bush regimes.  

I remember when the deregulation of the financial sector began.  One of the first inroads was the legislation, written by bankers, to permit national branch banking. George Champion, former chairman of Chase Manhattan Bank, testified against it. In columns I argued that national branch banking would focus banks away from local business needs.

The deregulation of the financial sector was achieved by the Democratic Clinton Administration and by the current Secretary of the Treasury, Henry Paulson, with the acquiescence of the Securities and Exchange Commission.  

The Paulson bailout saves his firm, Goldman Sachs.  The Paulson bailout transfers the troubled financial instruments that the financial sector created from the books of the financial sector to the books of the taxpayers at the US Treasury. 

This is all the bailout does.  It rescues the guilty.

The Paulson bailout does not address the problem, which is the defaulting home mortgages.  

The defaults will continue, because the economy is sinking into recession.  Homeowners are losing their jobs, and homeowners are being hit with rising mortgage payments resulting from adjustable rate mortgages and escalator interest rate clauses in their mortgages that make homeowners unable to service their debt.  

Shifting the troubled assets from the financial sectors’ books to the taxpayers’ books absolves the people who caused the problem from responsibility.  As the economy declines and mortgage default rates rise, the US Treasury and the American taxpayers  could end up with a $700 billion loss. 

Initially, the House, but not the Senate, resisted the bailout of the financial institutions,whose executives had received millions of dollars in bonuses for wrecking the US financial system.  However, the people’s representatives could not withstand the specter of martial law and Great Depression with which Paulson and the Bush administration threatened them.  The people’s representatives succumbed as they did during the New Deal.

The impotence of Congress traces to the Great Depression.  As Theodore Lowi in his classic book, The End of Liberalism, makes clear, the New Deal stripped Congress of its law-making power and gave it to the executive agencies.  Prior to the New Deal, Congress wrote the laws.  After the New Deal a bill is merely an authorization for executive agencies to create the law through regulations.  The Paulson bailout has further diminished the legislative branch’s power.  

Since Paulson’s bailout of his firm and his financial friends does nothing to lessen the default rate on mortgages, how will the bailout play out?  

If the $700 billion bailout is based on an estimate of the current amount of bad mortgages, as the recession deepens and Americans lose their jobs, the default rate will  rise.  The $700 billion might not suffice.  The Treasury will have to go hat in hand to its foreign creditors for more loans.

As the US Treasury has not got $7, much less $700 billion, it must borrow the bailout money from foreign creditors, already overloaded with US paper.  At what point do America’s foreign bankers decide that the additions to US debt exceed what can be repaid?  

This question was ignored by the bailout.  There were no hearings.  No one consulted China,  America’s principal banker, or the Japanese, or the OPEC sovereign wealth funds, or Europe.  

Does the world have a blank check for America’s mistakes?  

This is the same world that is faced with American demands that countries support with money and lives America’s quest for world hegemony.  Europeans are dying in Afghanistan for American hegemony.  Do Europeans want their banks, which hold US dollars as their reserves, to fail so that Paulson can bail out his company and his friends?

The US dollar is the world’s reserve currency.  It comprises the reserves of foreign central banks.  Bush’s wars and economic policies are destroying the basis of the US dollar as reserve currency. The day the dollar loses its reserve currency role, the US government cannot pay its bills in its own currency.  The result will be a dramatic reduction in US living standards.  

Currently Treasuries are boosted by the habitual “flight to quality,” but as Treasury debt deepens, will investors still see quality?  At what point do America’s foreign creditors cease to lend?  That is the point at which American power ends. It might be close at hand. 

The Paulson bailout is predicated on cleaning up financial institutions’ balance sheets and restoring the flow of credit.  The assumption is that once lending resumes, the economy will pick up. 

This assumption is problematic.  The expansion of consumer debt, which kept the economy going in the 21st century, has reached its limit.  There are no more credit cards to max out, and no more home equity to refinance and spend.  The Paulson bailout might restore trust among financial institutions and enable them to lend to one another, but it doesn’t provide a jolt to consumer demand.

Moreover, there may be more shoes to drop.  Credit card debt could be the next to threaten balance sheets of financial institutions.  Apparently, credit card debt has been securitized and sold as well, and not all of the debt is good.  In addition, the leasing programs of the car manufacturers have turned sour.  As a result of high gasoline prices and absence of growth in take-home pay, the residual values of big trucks and SUVs are less than the leasing programs estimated them to be, thus creating more financial problems.  Car manufacturers are canceling their leasing programs, and this will further cut into sales.

According to statistician John Williams [ http://www.shadowstats.com/section/commentaries ] who measures inflation, unemployment, and GDP according to the methodology used prior to the Clinton regime’s corruption of these measures, the US unemployment rate is currently at 14.7 per cent and the inflation rate is 13.2 per cent.  Consequently, real US GDP growth in the 21st century has been negative. 

This is not a picture of an economy that a bailout of financial institution balance sheets will revive.  As the Paulson bailout does not address the mortgage problem per se, defaults and foreclosures are likely to rise, thus undermining the Treasury’s estimate that 90 per cent of the mortgages backing the troubled instruments are good.  

Moreover, one consequence of the ongoing financial crisis is financial concentration.  It is not inconceivable that the US will end up with four giant banks: J.P. Morgan Chase, Citicorp, Bank of America, and Wachovia Wells Fargo. If defaulting credit card debt then assaults these banks’ balance sheets, who is there to take them over?  Would the Treasury be able to borrow the money for another Paulson bailout?

During the Great Depression of the 1930s, the Home Owners’ Loan Corporation refinanced one million home mortgages in order to prevent foreclosures.  The refinancing apparently succeeded, and HOLC returned a profit. The problem then, as now, was not “deadbeats” who wouldn’t pay their mortgages, and the HOLC refinancing did not discourage others from paying their mortgages. Market purists who claim the only solution is for housing prices to fall to prior levels overlook that rising inventories can push prices below prior levels, thus causing more distress.  They also overlook the role of interest rates.  If a worsening credit crisis dries up mortgage lending and pushes mortgage interest rates higher, the rise in interest rates could offset the fall in home prices, and mortgages would remain unaffordable even in a falling housing market.  

Some commentators are blaming the current mortgage problem on the pressure that the US government put on banks to lend to unqualified borrowers.  However, whatever  breaches of prudence there may have been only affected the earnings of individual institutions.  They did not threaten the financial system.  The current crisis required more than bad loans.  It required securitization and its leverage. It required Fed chairman Alan Greenspan’s inappropriate low interest rates, which created a real estate boom.  Rapidly rising real estate prices quickly created home equity to justify 100 percent mortgages.  Wall Street analysts pushed financial companies to improve their bottom lines, which they did by extreme leveraging. 

An alternative to refinancing troubled mortgages would be to attempt to separate the bad mortgages from the good ones and revalue the mortgage-backed securities accordingly.  If there are no further defaults, this approach would not require massive write-offs that threaten the solvency of financial institutions.  However, if defaults continue, write-downs would be an ongoing enterprise.

Clearly, all Secretary Paulson thought about was getting troubled assets off the books of financial institutions.  

The same reckless leadership that gave us expensive wars based on false premises has now concocted an expensive bailout that does not address the problem, which will fester and become worse.

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions.He can be reached at: PaulCraigRoberts@yahoo.com

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