Today's Stories

March 9 , 2009

Pam Martens
Madoff and the Sorkin Affair

March 6-8 , 2009

Alexander Cockburn
Harlots High and Low

Chris Floyd
Tangled Up in Karl

Uri Avnery
Remember Ophira?

Dave Lindorff
Kiss the Banks Goodbye

Mark Weisbrot
The Crisis vs. the Dogma

David Ker Thomson
Against Work

Phil Aliff
Soldier Suicides

Rebekah Ward
Georgia Injustice: Another Young Life Wrecked

Tracey Briggs
How Capitalism Feels in the Head

Dean Baker
Depression Nostalgia?

Daniel P. Wirt, M.D.
Remove the Handle From the Health Insurance Misery and Death Pump

Carl Finamore
The Recovery Plan: Save Us From Those Who Would Save Us

Wajahat Ali
The Pakistani Monster

David Michael Green
Smart is the New Stupid

David Macaray
The Minimum Wage Revisited

Michael Dickinson
On Financial Fools Day

Susie Day
Line in the Sand

Bob Sommer
Echoes of the Townhouse Explosion

Ben Sonnenberg
No Forgiveness for the Bourgeoisie: Buñuel's "The Exterminating Angel"

David Yearsley
Sonic Fakery in "Slumdog" From the Mozart of Chennai

DC Larson
They're Writing Those Depression Songs, Again

Lorenzo Wolff
Live Truth: Music Sans Headphones

Poets' Basement
Dominquez, MacNeil and Buknatski

Website of the Weekend
The Environment & Obama: a Conversation with Jeffrey St. Clair

March 5 , 2009

James G. Abourezk
This Time It's Mrs. Clinton's Turn

Kathleen and Bill Christison
U.S. Military Aid to Israel

Robert Weissman
Wall Street's Best Investment: Paying for Public Policy

Patrick Cockburn
My Day at the Terror "Charity"

William Blum
Being Serious About Torture...Or Not

Robert Fantina
From Iraq to Afghanistan: Augmentation All Over Again

Saul Landau
The Unseen Crisis

Benjamin Dangl
Striking a Blow Against the Beer Cartel: a Grassroots Victory in Utah

Christopher Brauchli
The New Leaders of the GOP

Website of the Day
The Angola 3: 36 Years of Solitude

March 4, 2009

Marjorie Cohn
Blueprints for a Police State

Mike Whitney
Blowing Up the Economy: How Securitization Lit the Fuse

Ron Jacobs
The Banality of Occupation: the Rand Papers

Ashley Smith
War by Another Name

Joanne Mariner
Obama's War on Terror

Dan Bacher
The California Water Wars: Why It's Not a Conflict Between Fish and People

Mark Engler
Will the Winds of Change Reach El Salvador?

Franklin Lamb
"What's Hezbollah Done for Us Lately?"

Cal Winslow
Slugging It Out in California

David Mandelzys
Apartheid Week

Website of the Day
Guantánamo: the Definitive Prisoner List

March 3, 2009

Conn Hallinan
Ethnic Cleansing and Israel

Fawzia Afzal-Khan
The Long, Dark Night of Pakistan

Brian M. Downing
The Changing Game in Afghanistan

Robert Larson
External Damnation: Companies are Designed for Destruction

Daniel P. Wirt, MD
Single-Payer Health Reform

Russell Mokhiber
Burn Your Health Insurance Bill!

William Loren Katz
Obama, One Ape and Two Newspapers

Kathy Sanborn
The Lazy Man's Guide to the Economic Crisis

Pauline Imbach
A New Start for the World Social Forum?

Christopher Ketcham
The Best Journalism You'll Write is Priceless

Website of the Day
The Surveillance Self-Defense Project

March 2, 2009

Andrea Peacock
A Poisoned Town's Shot at Justice

Paul Craig Roberts
Obama's Budget

Peter Lee
Pakistan Lurches Toward the Abyss

John Blair
Locking Down Big Coal

Peter Morici
Treasury's Flawed Plan for Citigroup

Uri Avnery
10 Ways to Kill Fatah

Michael Donnelly
Resistance to the War on the Wild

Fred Gardner
The Judge Who Ruled Marijuana is Medicine

Sonia Nettnin
Middle East Medical Mission Heroes

Andrew Lehman
A New Deal for the Web

Website of the Day
Pentagon Papers II?

Feb. 27 - March 1, 2009

Alexander Cockburn
Is Nancy Pelosi Really Against War Crimes?

Harry Browne
Where the Cheats Have No Shame

Anthony DiMaggio
From Bush to Obama: Seven Years of Wartime Propaganda

Sasan Fayazmanesh
Dennis Ross and Iran: the Fox and the Chicken Coop

Mischa Gaus
The Banks' War on Workers

Felice Pace
The Economy and the Big Picture

Mike Whitney
Is Free Market Capitalism Possible Without Accountability?

Lee Sustar
Blaming the Autoworkers

Peter Lee
The Other Side of the Coin in Afghanistan

Nicole Colson
Ruining Young Lives for Profit

Roger Burbach
Et Tu, Daniel? The Betrayal of the Sandinista Revolution

Rannie Amiri
King Abdullah Has No Robes

Missy Beattie
Owning Disaster

Dave Lindorff
America's Stupid Health Care Debate

Robert David Steele Vivas
Intelligence for the President--and Everyone Else

John Ross
Teotihuacan Gets Mickey-Moused

Ralph Nader
Civic Heroism Awards

Yves Engler
Haiti's Harsh Realities

Alan Farago
The Story of Leonard Abess, Banker

Zulfikar Majid
Understanding Kashmir

David Yearsley
Don't Stay Up Too Late, Johan!

Charles R. Larson
Sleeping with Dogs

Kim Nicolini
Spitting at Dark Times: Mike Leigh's "Happy-Go-Lucky"

Lorenzo Wolff
So You Wanna Be a Garage Rock Star

Poets' Basement
Puthoff, Payne, Gaffney and Gray

Website of the Weekend
Sleep Now in the Fire

February 26, 2009

Dave Lindorff
Obama's Address to Congress

Jonathan Cook
Israel's Military Mephistopheles

Patrick Cockburn
Did the US Learn Anything in Iraq?

Mike Whitney
The Geithner Put

Eamonn McCann
"Make Bono Pay Tax"

Tim Wise
Eric Holder and the Whitewashing of Racism

Tom Barry
Napolitano's Hard Line

Harvey Wasserman
Obama's Excellent Atomic Omission

Adam Turl
The Enemies of Unions and the Lies They Tell

David Macaray
When People are Fired Illegally

James McEnteer
Rush to the Rescue: Limbaugh's Secret Plan to Save the Economy

Website of the Day
The Carbon Casino

February 25, 2009

Chris Sands
Afghanistan: Chaos Central

M. Shahid Alam
Israel in 1948: Poised for Expansion

Chris Floyd
Obama's Non-Withdrawal Withdrawal Plan

Dave Lindorff
Wall Street and Bernanke: the Blind Leading the Blind

Norman Solomon
The Slow Pullout Method

Rachel Godfrey Wood
Neoliberals Do The Amazon

Niranjan Ramakrishnan
Teacher and Student: the New Class Struggle

Ron Jacobs
It Ain't Over Till It's Over

Nadia Hijab
The First Waltz

Dennis Loo
The Water Line

Website of the Day
Hitchens Gets Stomped by Syrian Nerd

February 24, 2009

Paul Craig Roberts
How the Economy was Lost

Uri Avnery
Coalition Theory

Peter Morici
Is Nationalization Inevitable?

Jonathan Cook
Arab Parties Face Most Hostile Knesset in History

Paul Fitzgerald /
Elizabeth Gould
The Man Who Shouldn't be King (of Afghanistan)

Andy Worthington
Who is Binyam Mohamed?

Brian Horejsi
Crisis Creates Hope for Reality

Julia Stein
I was a Writer for the Government

Norm Kent
How Judges Disgrace the Bench

Rachel Smolker /
Brian Tokar
Biofuels, Promise or Threat?

Dennis Loo
The Water Line: Doing What Must be Done

James McEnteer
The Oscar for Denial

Website of the Day
How to Destroy a Fox News Anchor

February 23, 2009

Michael Hudson
The Language of Looting

Mike Roselle
On Cherry Pond: Going Up Against Big Coal in W. Virginia

Patrick Cockburn
The New War in Iraq

Franklin Spinney
Obama Steps on the Pentagon Escalator

Einar Már Guðmundsson
A War Cry From the North

Ralph Nader
How Credit Unions Survived the Crash

Jordan Flaherty
A New Orleans Intifada?

Helen Redmond
Ted's Table: Kennedy and the Corporate Lobbyists Craft a Health Plan

Dennis Loo
The Water Line

Harvey Wasserman
Jet Crashes and Nuclear Reactors: Feds Ignore a Serious Risk

Terry Lodge
The Intelligence is Wrong

Website of the Day
BadCreditReport.Com

February 20 / 22, 2009

Alexander Cockburn
The Lawyer's Tale

Michael Neumann /
Osha Neumann
Remove Our Grandmother's Name from the Wall at Yad Vashem

Ismael Hossein-zadeh
Herbert Hoover Copycats

Paul Craig Roberts
Bill of Rights Under Fire

Linn Washington Jr.
The NY Post's Chimpanzee Cartoon

Saul Landau
On the Road Again

Marjorie Cohn
War Criminals Must be Prosecuted (And Their Lawyers Too)

Binoy Kampmark
Cricket and Cartels: the Fall of Sir Allen Stanford

Dave Lindorff
Using the Recession to Hammer Workers

David Yearsley
Edward Said's Greatest Musical Writings

David Macaray
A Closer Look at the Employee Free Choice Act

James McEnteer
Last Mambo in Minnehaha

Rick Salutin
A Canadian Looks at Obama

Wayne Clark
South Carolina Nears the Abyss

Richard Rhames
Got Farms?

Stephen Martin
Silver Mist Descending

Mitu Sengupta
Slumdog Millionaire's Dehumanizing View of India's Poor

Charles R. Larson
Slumdog Reality?

Richard Morse
Carnival Ramble in Haiti

Lorenzo Wolff
Desperation in an Unavoidable Groove

Poets' Basement
Three Poems of Tu Fu (Trans. K. Rexroth)

Website of the Weekend
Ron Paul: What If the People Wake Up?

February 19, 2009

Norman Finkelstein
The Cleanser: Lobbyists Whistle Up Cordesman to "Prove" Israel Waged a Clean War in Gaza

Harry Browne
How Ireland Went Bust

Robert Bryce
Why the Promise of Biofuels is a Lie

Brian M. Downing
The Winding Road: From Western Europe to Kyrgyzstan

Fred Gardner
The DEA Chief's $123,000 Flight

Andy Worthington
Obama's Uighur Problem

Wajahat Ali
Aftermath of a Beheading

Laura Carlsen
A New Attitude at the White House Toward Bolivia and Venezuela?

Deb Reich
Gaza: Choose Life!

Christopher Ketcham
Crisis? What Crisis?

Website of the Day
Taking Back NYU

February 18, 2009

Paul Craig Roberts
President of Special Interests

Mike Whitney
Trouble at Treasury

M. Shahid Alam
Afghan Pitfalls

Patrick Cockburn
A Real Surge at Last

Conn Hallinan
Death's Laboratory

Dave Lindorff
Whatever Happened to Antitrust?

Rannie Amiri
The Perils of Blogging in Egypt

Gareth Porter
Pushing Back Against Petraeus on Pullout Risks

Eric Hobsbawm
Remembering V. G. Kiernan

Christopher Brauchli
The Pope's Predicament

Martha Rosenberg
It's the Cymbalta Stupid

Website of the Day
Red Gold

February 17, 2009

Michael Hudson
The Oligarchs' Escape Plan

Mike Whitney
The Global Ditch

Ralph Nader
The One-Dimensional Congress

Joanne Mariner
Benchmarking Obama: How to Evaluate the New Administration's Counter-Terrorism Policies

John Ross
Commodifying the Revolution: Zapatista Villages Become Hot
Tourist Destinations

Belén Fernández
The Venezuelan Referendum From the Back of a Pickup Truck

Mats Svensson
Who is a Terrorist?

David Macaray
Why America Needs Labor Unions

Gregory Vickrey
$400 in Change

M. Junaid Levesque-Alam
Another Hamastan?

Michael Dickinson
Unrest in Istanbul

Website of the Day
Take a Stand for Open Access

February 16, 2009

Patrick Cockburn
Iraq Reconstruction: the Greatest Fraud in US History?

Oscar Guardiola-Rivera
The Truth About Colombia's New Emperor

Paul Craig Roberts
Who Remembers Guns and Butter?

Uri Avnery
Livni's Bitter Options

P. Sainath
The Meltdown: Whose Crisis Is It?

Dedrick Muhammad / Michael Brown
White Recession, Black Depression

Carla Blank
A New New Deal for the Arts

Patrick Irelan
Venezuela Ends Term Limits

Dan Bacher
Is Delta Pumping Driving Salmon and Orca Decline?

Fidel Castro
Chavez's Clarion Call

Harvey Wasserman
Hail to the Spleef: Did George Washington Smoke Pot?

Website of the Day
Mining Black Mesa

February 13 - 15, 2009

Alexander Cockburn
On the Rocks

Joshua Frank
The Myth of Clean Coal

Mike Whitney
Geithner's Coming Out Party

George Ciccariello-Maher
Venezuela's Term Limits: More Hypocrisy From the NYT

Nikolas Kozloff
Venezuela Beyond the Referendum

Brian M. Downing
Pakistan on the Brink

Paul Craig Roberts
Deficit Nonchalance

Christopher Ketcham
Israel's Ball Boys

Ron Jacobs
At a Campus Sit-In Against Israeli Occupation

Dave Lindorff
Why Can Judd Gregg See What Obama Can't?

Alan Maass
Lincoln at 200

Chuck Spinney
Grassley Sounds Off on Obama's Man at the Pentagon

Phil Gasper
Mr. Darwin's Reluctant Revolution

Stephen Lendman
A Short History of Business Handouts

Charles Thomson
Tate Cruises: Caveat Emptor on the High Seas

Kathy Sanborn
The Suicide Rush

Saul Landau
Bowled Over

Len Wengraf
The Nightmare in Somalia

Harvey Wasserman
Striking a Blow Against Nuclear Power

David Macaray
An Easy Call for Obama on Joining a Union

Tom Stephens
Four Freedoms, Four Changes

Seth Sandronsky
Lincoln and the Collective Mind

David Yearsley
On the Road Again

Lorenzo Wolff
Freaking Out With Danny Barnes

Kim Nicolini
The Body of the Worker: What "The Wrestler" Says About the State of America

Poets' Basement
Anderson, Buknatski and French

Website of the Weekend
The Iranian Revoution and the US Dual Containment Policy: a Presentation

March 9 , 2009

Geithner's Charade

Dithering on the Edge of the Abyss

By MIKE WHITNEY

The good news is that Obama's economics team understands the fundamental problem with the banks and knows what needs to be done to fix it. The bad news is that Bernanke, Summers and Geithner all have close ties to the big banks and refuse to do what's necessary. Instead, they keep propping up failing institutions with capital injections while concocting elaborate strategies for purchasing the banks’ bad assets through backdoor transactions. It's all very opaque, despite the cheery public relations monikers they slap on their various "rescue" plans. This charade has gone on for more than a month while unemployment has continued to soar,  the stock market has continued to plunge, and the country has slipped deeper into economic quicksand.

Paul Krugman summed up the administration's response in Friday's column, "The Big Dither":

“There’s a growing sense of frustration, even panic, over Mr. Obama’s failure to match his words with deeds. The reality is that when it comes to dealing with the banks, the Obama administration is dithering. Policy is stuck in a holding pattern....
 
Why do officials keep offering plans that nobody else finds credible? Because somehow, top officials in the Obama administration and at the Federal Reserve have convinced themselves that troubled assets ... are really worth much more than anyone is actually willing to pay for them — and that if these assets were properly priced, all our troubles would go away. ...

What’s more, officials seem to believe that getting toxic waste properly priced would cure the ills of all our major financial institutions.”

Krugman is right about the "dithering" but wrong about the toxic waste. Geithner and Bernanke know exactly what these assets are worth -- pennies on the dollar. That's why Geithner has avoided taking $5 or $10 billion of these mortgage-backed securities (MBS) and putting them up for public auction. That would be the reasonable thing to do and it would remove any doubt about their true value. But the Treasury Secretary won't do that because it would just draw attention to the fact that the banking system is insolvent; the vaults are full of nothing but garbage loans that are defaulting at a record pace.  Instead, Geithner has cooked up a plan for a "public-private partnership" which will provide up to $1 trillion in funding for private equity and hedge funds to purchase toxic assets from the banks. The Treasury will offer low interest "non recourse" loans (with explicit government guarantees against any potential loss) to qualified investors. If the hedge funds or private equity firms don't turn a profit in three years, they simply return the assets to the Treasury and get their money back. In essence, Geithner's plan provides a lavish subsidy to private industry on an totally risk free investment. It's a sweetheart deal.

At the same time, the plan achieves Geithner's two main objectives; it gives the banks the chance to scrub their balance sheets of junk mortgages and it also allows them to keep the present management-structure in place. The $1 trillion taxpayer giveaway to the hedge funds is just another treat tossed to Geithner's real constituents-- Wall Street speculators.

Unfortunately, markets don't like uncertainty, which is why Geithner's circuitous plan has put traders in a frenzy. Wall Street has gone from scratching its head in bewilderment, to a stampede for the exits. In the last month alone, the stock market has plummeted 18 per cent, indicating ebbing confidence in the political leadership.  Geithner is now seen as another glorified bank lobbyist like his predecessor, Paulson, who is in way over his head. His lack of clarity has only added to the widespread sense of malaise. Markets require transparency and details, not obfuscation, gibberish and Fed-speak. Geithner is putting the interests of the banks before those of the country.  The "public private partnership" is just a convoluted way of avoiding the heavy-lifting of rolling up the banks, wiping out shareholders, separating the bad assets, and replacing management.  The same is true of Bernanke's Term Asset-Backed Securities Loan Facility (TALF) which is another futile attempt to restart Wall Street's failed credit-generating mechanism, securitization.

It was securitization (which is the conversion of pools of mortgages into securities) which got us into this mess to begin with. It doesn't do any good to restore an inherently crisis-prone system that only works properly when the market is going up. There are more efficient ways to recapitalize the banks than the PPP, just as there are better ways to promote consumer spending than the TALF. Treasury should be looking into debt relief, jobs programs and higher wages. There are solutions that do not involve artificially low interest rates, government subsidies for toxic waste or lavish handouts to hedge funds. They simply require a commitment to rebuild the economy on sound principles of hard work, productivity and fair distribution of the the profits.

Even industry cheerleaders, like the Wall Street Journal, are skeptical of Bernanke's TALF and have denounced it as just another boondoggle.

There is another part of Geithner's plan that is even more troubling. After the banks sell their dodgy assets to the hedge funds, what will they do with the money? Consumers are retrenching, so the pool of creditworthy customers will remain small. And businesses are trying to work off existing inventory, so they won't be borrowing to increase investment or retool anytime soon. If the opportunities for lending dry up, the banks will be forced to seek unconventional means for generating profits. My guess is the banks will put a large portion of their money into hedge funds for commodities speculation, which will push the price of oil, natural gas and other raw materials into the stratosphere just like they did last year when oil shot up to $147 bbl. The banks really have no choice; 65 percent of their business was securitized investments. That door has been slammed shut for good. 

“Too Big to Fail”?

The Financial Times economics editor Martin Wolf warned in Friday's column of the dangers of our present course. He said:

"If large institutions are too big and interconnected to fail... then talk of maintaining them as “commercial” operations... is a sick joke. Such banks are not commercial operations; they are expensive wards of the state and must be treated as such.

The UK government has to make a decision. If it believes that costly bail-out must be piled upon ever more costly bail-out, then the banking system can never be treated as a commercial activity again: it is a regulated utility – end of story. If the government does want it to be a commercial activity, then defaults are necessary, as some now argue. Take your pick. But do not believe you can have both.”

Citigroup is now officially a "ward of the state" although CEO Pandit and his band of pirates are still allowed to collect their paychecks and hang out by the water cooler. Citi's survival depends on the reluctant generosity of the US taxpayer who is now its biggest shareholder. The mega-bank has slumped from $58 per share to $1 per share in less than 2 years. It's now more expensive to buy a grande latte at Starbucks than it is to buy three shares of Citi...and, at least with the Starbucks, the buyer gets a buzz on. There's no upside to the Citi deal. It's a dead loss.

Wolf is correct to draw attention to the myth of "too big to fail". In fact, the Kansas Federal Reserve President, Thomas Hoenig made the same point in a PDF released this week:

"We have been slow to face up to the fundamental problems in our financial system and reluctant to take decisive action with respect to failing institutions. ... We have been quick to provide liquidity and public capital, but we have not defined a consistent plan and not addressed the basic shortcomings and, in some cases, the insolvent position of these institutions.

We understandably would prefer not to "nationalize" these businesses, but in reacting as we are, we nevertheless are drifting into a situation where institutions are being nationalized piecemeal with no resolution of the crisis."

Hoenig and Wolf are smart enough to know that the problem is not as simple as it sounds. They know that the largest financial institutions are lashed together in a net of complex counterparty contracts--mainly credit default swaps (CDS) -- which run into tens of trillions of dollars, and, that if one player is allowed to default, it could pull all of the others down the elevator shaft along with it. The problem could be resolved with proper regulation which would force all CDS onto a regulated exchange so that government watchdogs could make sure that they are sufficiently capitalized to pay off whatever claims are levied against them. But, so far, no one in Congress has taken the initiative to propose the necessary regulation. Thus, the taxpayer continues to pay off hundreds of billions of dollars of insurance claims against AIG, which was so grossly under-capitalized, it couldn't meet its own obligations. The AIG fiasco provides a window into the real motivation behind financial engineering and the alphabet-soup of complex debt-instruments. Wall Street knew that the fastest way to fatten the bottom line was to circumvent minimum capital requirements and expand leverage to unsustainable levels. In other words, a system of debt-fueled capitalism with only specks of capital. It worked beautifully, until it didn't.

Nobel prize-winning economist, Myron Scholes, who helped invent a model for pricing options, added his voice to the growing chorus of angry reformers who think the CDS market should be scrapped altogether. According to Bloomberg News: Scholes said "regulators need to ‘blow up or burn’ over-the-counter derivative trading markets to help solve the financial crisis.  The markets have stopped functioning and are failing to provide pricing signals... The “solution is really to blow up or burn the OTC market, the CDSs and swaps and structured products, and let us start over.” (Bloomberg)

Treasury and the Fed have taken the position that they will not fix the system until they are forced at gunpoint. This is a prescription for disaster, not just because of growing public frustration or the free-falling stock markets, but because the banks are just the tip of the iceberg. The other non bank financial institutions are brimming with mortgage-backed sludge that will require emergency treatment, too.  MarketWatch gives us a glimpse of the magnitude of the problem in last week's article "Banks fall out of bed, Citi shares under a buck":

"Market strategist Ed Yardeni's latest research shows that.....80.6%, or $7.4 trillion, of the assets held by the S&P financials companies were Level 2," he said in a research report. Level 2 assets are so-called mark-to-model, which are carried at a value based on assumptions, not true market prices."

What does "Level 2 assets" mean? It means that the financial giants are short on liquid assets--like cash or US Treasuries -- and loaded with sketchy mortgage-backed paper to which they have arbitrarily assigned a value that no one in their right mind would ever pay. The entire US financial system, including the pension funds and insurance companies, is one debt-bloated time bomb that is set to blow at any minute.

Surprisingly, Bernanke thinks he can simply wave his wand and restart the moribund credit markets. That's what the TALF is all about. The problem is that even if the Fed buys all of the AAA securities held by the respective financial institutions, (most of them are non banks) that's still only accounts for 20 per cent of the bad paper on the books. Here's what Tyler Durden said on Zero Hedge web site:

"Unfortunately for Geithner, who apparently did not read too deeply into the data, the bulk of the $1 trillion decline in securitizations came from home equity lending and non agency RMBS (Residential Mortgage Backed Securities), which reflect the "non-conforming" mortgage market, i.e. the subprime, alt-A and jumbo origination, loans which are the cause for the credit crisis, and which are rated far below the relevant AAA level. The truly unmet market, which the Treasury is addressing is at best 20% of the revised total amount."

That leaves Geithner and Bernanke with few good choices. Either they expand TALF to include crappy AA (and lower) graded securities--putting the taxpayer at even greater risk--or they devise some totally new lending facility that will bypass the financial institutions altogether and issue credit directly to consumers and small businesses. There is no third option.

The problem with the TALF is that it ignores the new economic reality, that consumer demand has collapsed from the massive losses in home equity and retirement accounts. When credit markets froze last year, housing values dropped sharply raising havoc with household balance sheets and forcing a radical change in spending habits. That cutback in spending created a negative feedback loop to the financial sector which made it impossible to re-inflate the credit bubble. The ultimate size of the financial system will be determined, to a large extent, by the capacity of people to borrow again, which depends on many factors including job security, savings, and optimism about the future. Needless to say, the growing worry over a 1930s-type Depression will not help to lift spirits or improve the chances for a speedy recovery. That said, there are positive steps the administration can take now to restore confidence in the markets. These measures fall under three main headings; debt reduction (forgiveness), regulation and accountability. Confidence is not built on inspiring oratory or personal charisma, but concrete actions to reestablish a rules-based system that penalizes crooks and fraudsters. Recovery isn't possible without a strong commitment to these basic changes.

Mike Whitney lives in Washington state. He can be reached at fergiewhitney@msn.com

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