Timmy On The Teevee

Dday gives us the rundown on Geithner's appearances today on the Sunday shows.

On both shows, Geithner was asked about the potential flaw in the plan for toxic assets, that the banks simply won't sell at the prices set by private investors, because taking losses would reveal the banks to be insolvent. Geithner didn't have the best answer for this other than to urge the banks to "take risk again." Indeed, there is no mechanism to force the banks to sell.

Once again, the No Right Price Problem says the Geithner Plan can't work on the truly insolvent banks -- there's no right price that meets both the criteria of "high enough so the banks will sell" and "low enough that the buyers will make any money buying", but No Right Price is only part of the real issue:

On some other fronts, however, Geithner displayed a definite concern to reel in the massive financial sector and build a broad-based economy that can better manage systemic risk. Here is an answer from Meet the Press on his regulatory proposals:

SEC'Y GEITHNER: Core thing is to make sure that the institutions at the center of our financial system are subject to much more conservative, much tougher requirements on capital and leverage that are applied more evenly and more effectively, frankly. We need to make sure that hedge funds and derivatives come within a framework of oversight so we protect the system from the risks they may present. And we need to make sure the government has the authority it needs to come in more quickly, to help contain the damage, restructure the system, so we can have a stronger system going forward [...] We need a better model. What we're proposing to do is use a model that exists for small banks that was designed by the Congress in the wake of the S&L crisis, build on that model and give the government a capacity to act more quickly, more effectively to contain the damage at least risk to the taxpayer and the economy as a whole.

Certainly, over-leveraging caused a good deal of this crisis; other countries where the banks are leveraged more conservatively are in better shape. Obviously, the devil is in the details - there are currently no capital requirements for hedge funds in the Geithner proposal, for example, and the real issue is whether the regulation will be strictly enforced. Our experience with bank regulators who are too cozy with the subjects they regulate recently suggest that the real problem is a lack of will.

Regulations will have to be enforced at this point, but you notice Geithner keeps falling back on Congress for not having provided him with the authority needed to deal with the issue. It seems to me that Geithner is passing the buck to Congress, and Congress has no real intention of giving Geithner any more powers.

So yeah, Geithner raised many more questions than answers. He certainly talks the talk, but his actions leave much to be desired so far.

In Which Zandar Answers Your Burning Questions

So, nothing good can really come of our new Pakistan policy, which is basically our old Pakistan policy:

President Obama said Sunday that his administration remains prepared to order strikes against "high-value" targets within Pakistan.

Obama reiterated a previous assertion that the U.S. military would pursue extremists within Pakistan's borders after consulting with the Pakistani government.

The U.S. policy doesn't change American recognition of Pakistan's "sovereign government," Obama said during an appearance on CBS's "Face the Nation." But the United States needs to hold that government "more accountable."

"This is going to be hard," he added. "I'm under no illusions."

Obama said his administration remains determined to weaken or destroy al Qaeda until it no longer presents a threat to the United States.

He added that his administration is prepared to continually adjust its strategy in Pakistan and Afghanistan as necessary.

So the Progressive Realist asks two really good questions:

If we're at war in Pakistan, who authorized it?

and

Is anyone going to call President Barack Obama on this?

To which the answers are "nobody did" and "hell no" respectively. Bottom line is now we're fighting three wars: Iraq, Afghanistan, and now Pakistan to boot.

You know, at least the nice upcoming financial collapse will stop us from sending so much blood and treasure overseas.

Has Cramer Seen The Light?

Well damn. I dunno who kidnapped the old Jim Cramer, but this new guy is actually making a modicum of sense.

Executives padded their paychecks for President George W. Bush’s entire term, Cramer said Friday, but these critics were silent the whole time. Plus, there were tax cuts for the rich, wholesale deregulation, unchecked short selling – how come there were no congressional hearings then?

Well, Congress is the epicenter of this class war now, Cramer said. Just look at that bonus-tax bill. Executives of TARP-participating companies who make more than $250,000 have to pay 90% of their bonuses to the government. Strange, though, that not a hearing took place prior to the financial crisis. There was little regulation during the run-up to the meltdown, and even less enforcement of what rules there were.

Well now. Welcome to the party, Jim. Glad you could finally join those of us who have been asking that question for a very, very long time now.

Video below:

Dear America:

"Hey Liberals! Yeah I'm talking to YOU, pal! Listen up! Here's the deal! Since you, as a Liberal, don't spend four hours a day every weekday listening to Rush Limbaugh, you cannot judge anything he says! If you do, you're a liar and taking out of context! So listen to Rush's show or you're just as small-minded as you proclaim he is! Try to argue your way out of that! Hah!"

--Andrew Klavan, LA Times

Bonus Verbatim Stupid: "Now let me tell you the real answer: You're a lowdown, yellow-bellied, lily-livered intellectual coward. You're terrified of finding out he makes more sense than you do.

I listen to Limbaugh every chance I get, and I have never heard the man utter a single racist, hateful or stupid word. Do I always agree with him? Of course not. I'm a conservative; I think for myself. But Limbaugh, by turns insightful, satiric, raucously funny and wise, is one of the best voices talking about first principles and policy in the country today."

Remember, this isn't racist, hateful, or stupid at all or anything, so if you overlook the fact it took me all of 15 seconds on Google to completely annihilate Klavan's argument, and you ignore the racist, hateful, and stupid things that Limbaugh says on an almost daily basis, Klavan's 100% right!

To Sarah Palin's Credit...

...she was the last one into the pool on the whole "Let's reject as much of the stimulus DREAD PORKULUS as possible! GOP GOVERNORS GOOOOOOO!" thing.

The bad news for her was that she had the worst excuse of the bunch and now it's coming back to majorly bite her in the ass via the Politico Sunday Hack Job.

A seemingly unending series of public relations gaffes has Sarah Palin loyalists frustrated and worried she is diminishing her stature. And they blame an inner circle they say is composed of not-ready-for-primetime players.

Interviews with Alaska and Washington-based GOP political professionals who are familiar with the Palin operation describe the governor’s team as a gang that couldn’t shoot straight, a staff whose failure to execute basic political maneuvers too often entangles the governor in awkward and embarrassing situations that could have easily been avoided.

The state of confusion is compounded by two separate Palin spheres that don’t communicate with each other, one based in the governor’s office and another based in the D.C.-area, where Palin’s political action committee is located—and the incongruous presence of a high-profile Democratic trial lawyer among her political advisers.

The lawyer, John Coale, is a former supporter of Hillary Clinton’s presidential campaign who became a Palin confidante as his wife, Fox News host Greta Van Susteren, interviewed the former GOP vice presidential nominee and her family numerous times during and after the election.

Their presence around Palin has become Topic A among many of her allies as well as other Republican insiders who are mystified as to why an anti-abortion rights conservative who ran against Washington elites is now turning to a pair of capital insiders for counsel.

Because she really, really, really wants to be President, you twits...and the sooner she gets out of this Alaska dump, the happier she will be. She's hedging her bets on her advisors, folks. I don't blame her, it's not like the ones in 2008 gave her good advice or anything.

Of course, now Alaskans are increasingly pissed at her for rejecting stimulus money and at least she's picking up on that now, which once again seems to put her light years ahead of her fellow GOP governors. Figure that one out.

Know Your Role And Shut Your Mouth

Here's Nia-Malika Henderson over at Politico (natch!) doing a great disservice to both African-Americans and to women by implying very strongly that Michelle Obama is above her station:

Traditional? Hardly. In fact, Obama’s approach so far is decidedly different from the usual model of the modern first lady — pick a platform of two or three issues and stick to it, by and large, for four years.

She’s become the spokeswoman for all sorts of issues and topics — from fitness, parenting, the environment and women’s rights, to redefining images of black women in American culture and promoting self-esteem for young girls.

Yet in the midst of all those themes, it isn’t yet clear whether her self-described core messages — about military families, volunteerism, and helping working women balance work and family life – are truly breaking through. Some wonder if she’s spreading herself too thin to emerge in the public mind as a leading voice on those topics.

Give me an almighty break. If Michelle Obama was nothing more than a feel-good accoutrement on the arm of the President, I swear conservatives would be attacking her for "not doing enough given all the problems facing the average American family these days".

Yet here we have an accomplished, intelligent African-American woman in her own right as First Lady and the charges leveled against her are "she's trying to do too much." That smacks of the code word "uppity", a double foul against a black woman, charges being tossed at her by another black woman, as it somehow makes it all okay.

It does not. Only at the end of the article does Nia-Malika Henderson grudgingly admit that the First Lady's approval ratings are in the mid-60's and that she's "connecting" with Americans.

Those Obamas. Trying to do too much in an age where Presidents and their spouses are apparently supposed to do nothing but demogogue and snatch at low hanging fruit.

New long overdue tags: Michelle Obama and Gender Stupidity.

It's Always The Quiet Ones

Another must read article on the financial industry, this time from Atlantic's Simon Johnson: "The Quiet Coup".(emphasis mine)

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.

But these various policies—lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits—such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside.

And that's really the heart and soul of the problem and why I'm so frustrated that Geithner, Bernanke, and Obama continue to fail to see it for what it is: The financial industry created this collapse, and yet we continue to reward the people who created the collapse with leadership roles in solving the crisis.

Obama is now going out of his way to assure the banksters that the government and the American people aren't going to be picking on them anymore. Geithner and Bernanke continue to run almost the exact same Paulson/Greenspan playbook. The GOP continues to say that over-regulation caused the problem in the first place. Everything our government is doing seems to be first making sure the financial medevac helicopter teams are attending the banksters and seeing they aren't injured by the crash while the American economy lies bleeding from the carotid on the pavement.

The call for regulatory power is almost an afterthought...and I'd bet large amounts of money that like the AIG bonus tax, Congress will wait until the Village is looking the other way and then kill the legislation. As I said on Tuesday, "The banksters know they're still holding all the cards: if they don't want to lend, the economy crumbles." Despite Obama laying down the law on the banksters on Friday, they now know they can operate with virtual impunity.

Honestly, what's Obama going to actually do that won't run into the Sensible Centrist Senate buzzsaw? The Senate's bought and paid for by the banks and has been for almost 30 years now.

Throughout the crisis, the government has taken extreme care not to upset the interests of the financial institutions, or to question the basic outlines of the system that got us here. In September 2008, Henry Paulson asked Congress for $700 billion to buy toxic assets from banks, with no strings attached and no judicial review of his purchase decisions. Many observers suspected that the purpose was to overpay for those assets and thereby take the problem off the banks’ hands—indeed, that is the only way that buying toxic assets would have helped anything. Perhaps because there was no way to make such a blatant subsidy politically acceptable, that plan was shelved.

Instead, the money was used to recapitalize banks, buying shares in them on terms that were grossly favorable to the banks themselves. As the crisis has deepened and financial institutions have needed more help, the government has gotten more and more creative in figuring out ways to provide banks with subsidies that are too complex for the general public to understand. The first AIG bailout, which was on relatively good terms for the taxpayer, was supplemented by three further bailouts whose terms were more AIG-friendly. The second Citigroup bailout and the Bank of America bailout included complex asset guarantees that provided the banks with insurance at below-market rates. The third Citigroup bailout, in late February, converted government-owned preferred stock to common stock at a price significantly higher than the market price—a subsidy that probably even most Wall Street Journal readers would miss on first reading. And the convertible preferred shares that the Treasury will buy under the new Financial Stability Plan give the conversion option (and thus the upside) to the banks, not the government.

And this will continue until we insist that it changes. It's clear at this point until the system explodes completely and Obama has no other choice, that the same financial industry will be preying on us until we have nothing left.

The way out? Plan N.

To break this cycle, the government must force the banks to acknowledge the scale of their problems. As the IMF understands (and as the U.S. government itself has insisted to multiple emerging-market countries in the past), the most direct way to do this is nationalization. Instead, Treasury is trying to negotiate bailouts bank by bank, and behaving as if the banks hold all the cards—contorting the terms of each deal to minimize government ownership while forswearing government influence over bank strategy or operations. Under these conditions, cleaning up bank balance sheets is impossible.

Nationalization would not imply permanent state ownership. The IMF’s advice would be, essentially: scale up the standard Federal Deposit Insurance Corporation process. An FDIC “intervention” is basically a government-managed bankruptcy procedure for banks. It would allow the government to wipe out bank shareholders, replace failed management, clean up the balance sheets, and then sell the banks back to the private sector. The main advantage is immediate recognition of the problem so that it can be solved before it grows worse.

The government needs to inspect the balance sheets and identify the banks that cannot survive a severe recession. These banks should face a choice: write down your assets to their true value and raise private capital within 30 days, or be taken over by the government. The government would write down the toxic assets of banks taken into receivership—recognizing reality—and transfer those assets to a separate government entity, which would attempt to salvage whatever value is possible for the taxpayer (as the Resolution Trust Corporation did after the savings-and-loan debacle of the 1980s). The rump banks—cleansed and able to lend safely, and hence trusted again by other lenders and investors—could then be sold off.

Cleaning up the megabanks will be complex. And it will be expensive for the taxpayer; according to the latest IMF numbers, the cleanup of the banking system would probably cost close to $1.5trillion (or 10percent of our GDP) in the long term. But only decisive government action—exposing the full extent of the financial rot and restoring some set of banks to publicly verifiable health—can cure the financial sector as a whole.

This may seem like strong medicine. But in fact, while necessary, it is insufficient. The second problem the U.S. faces—the power of the oligarchy—is just as important as the immediate crisis of lending. And the advice from the IMF on this front would again be simple: break the oligarchy.

That's change I can believe in. Until we get it, we're just a violently armed third world banana republic with an unstable currency. Plan N is needed not only to solve the financial issues, but to bust the trusts.

It's us or the oligarchy, Mr. President. Choose one.

What Digby Said

Yep.

I used to think the political media was as bad as it gets, with their high school kewl kid mentality and their boundless lack of self-awareness. The financial media make them look like sober, mature professionals by comparison.

I mean honestly, in what other field can your widely disseminated advice be wrong to the tune of losing billions of dollars and yet you're still considered an expert about it on the teevee?

Our Lady Of Guada-Loopy

Now, I come from a pretty long line of New York state Irish Catholic Dems, myself. I'm nowhere near as spiritual as my parents are, but I respect them for it. The point is however, if you're the Secretary of State for the US, the country's top diplomat, you're in heavily, heavily Catholic Mexico, you are visiting the Basilica of Our Lady of Guadalupe, one of the more famous Catholic shrines in North America, you should probably read up on it first.

This saves you from asking embarrassing questions like "Who painted it?"

The image of Our Lady of Guadalupe was miraculously imprinted by Mary on the tilma, or cloak, of St. Juan Diego in 1531. The image has numerous unexplainable phenomena, such as the appearance on Mary’s eyes of those present in the room when the tilma was opened and the image’s lack of decay.

Mrs. Clinton was received on Thursday at 8:15 a.m. by the rector of the Basilica, Msgr. Diego Monroy.

Msgr. Monroy took Mrs. Clinton to the famous image of Our Lady of Guadalupe, which had been previously lowered from its usual altar for the occasion.

After observing it for a while, Mrs. Clinton asked “who painted it?” to which Msgr. Monroy responded “God!”

Obama has enough of a problem with Catholics these days anyway, Madam Secretary. And you're not helping him. Whether or not you personally believe in the Miracle of Our Lady of Guadalupe, Clinton as a diplomat shouldn't have asked that and implied a question in their beliefs right in front of a whole hell of a lot of people who obviously do believe.

On the other hand, the Pope has enough of a problem with science too. Which one's more embarrassing?

An Evolving Position

A follow-up on Monday's post on the Texas Board of Education voting on removing evolution from the state's science textbooks. The good news, evolution stays. The bad news, science textbooks in Texas have regressed about 150 years to where evolution is just another competing theory with intelligent design.

The new standards remove current requirements that students be taught the "strengths and weaknesses" of scientific theories. Instead, teachers will be required to have students scrutinize "all sides" of the theories.

The new standards will determine what will be included in science textbooks in Texas. Because of its size, Texas could influence what publishers print in books used in other states. Friday's adoption comes after many months of debate over drafts for the standards, which were last revised in 1998.

On the one hand, the standards encourage questions about certain evolutionary concepts, satisfying those who are critical of the theory. But those supportive of evolution were partly mollified because calls to teach "insufficiencies" or "weaknesses" of the theory were rejected.

The Discovery Institute, which encourages teaching that the universe is the product of an intelligent designer, called the vote "a huge victory for those who favor teaching the scientific evidence for and against evolution."

So starting in 2011, Texas teachers must now openly question evolution's worth, viability, and accuracy and give equal time to the "scientific" evidence that God just made the planet 10,000 years ago and put fossils there to test us. You stay classy, Lone Brain Cell State!

I can't be too hard on Texas however. Northern Kentucky has the Creation Museum, and it's about 25 minutes from my friggin' apartment.

[UPDATE]Christopher Hitchens in Newsweek:

The Texas anti-Darwin stalwarts also might want to beware of what they wish for. The last times that evangelical Protestantism won cultural/ political victories—by banning the sale of alcohol, prohibiting the teaching of evolution and restricting immigration from Catholic countries—the triumphs all turned out to be Pyrrhic. There are some successes that are simply not survivable. If by any combination of luck and coincidence any religious coalition ever did succeed in criminalizing abortion, say, or mandating school prayer, it would swiftly become the victim of a backlash that would make it rue the day. This will apply with redoubled force to any initiative that asks the United States to trade its hard-won scientific preeminence against its private and unofficial pieties. This country is so constituted that no one group, and certainly no one confessional group, is able to dictate its own standards to the others. There are days when I almost wish the fundamentalists could get their own way, just so that they would find out what would happen to them.

I can sort of see that (see Jeff Amestoy's California's Prop 8 argument) but it seems altogether weird to me.

Still, having to codify this stuff into law means the laws can then be challenged.

How To Spot Bad Policy

Over at Political Animal, Publius gives us an easy, easy way to spot bad Obama policy.

Count me among the skeptical of Obama's new Afghanistan strategy. What really worries me is what I'll call the "reverse canary" problem. Simply put, the wrong people are too happy.

You're all familiar with the phrase "canary in the coal mine." The idea was that miners would bring canaries down into the mines as warning signals. When the air became toxic, the canaries would be affected first -- thus warning the miners of imminent danger.

With respect to the Afghanistan policy, the problem isn't that the "signaling" canaries are dropping dead. The problem is that they're too happy -- they're chirping with excessive mirth. Specifically, when Max Boot, Robert Kagan, Bill Kristol, and the Post editorial board are all excited about the policy.... well, it might be time to get out of the mine.

And that's the major, major problem with Obama's "We will defeat Al-Qaeda " policy in Afghanistan: it can't work. It weds us to another four, if not eight years in Afghanistan with precisely zero progress to show for it. The same idiotic "benchmarks" are in play, the same "surge" strategy is underway now, and the simple fact of the matter is Obama is running the Bush playbook in Kabul.

The difference now is we have a huge financial crisis on our hands, and there's simply no reason for us to be wasting time, money, and blood in Afghanistan anymore. The real problem is Pakistan, and will continue to be Pakistan, no matter what we do in Afghanistan.

Eventually somebody's going to come up with the observation that we're spending money rebuilding Afghanistan that we should be spending rebuilding America.

And So It Begins

Spain does what Obama so far has refused to do: it has opened a criminal probe into Bush-era torture policy targeting John Yoo, Doug Feith, Gonzo, and others.

The case was opened in the Spanish national security court, the Audencia Nacional. In July 2006, the Spanish Supreme Court overturned the conviction of a former Spanish citizen who had been held in Guantánamo, labeling the regime established in Guantánamo a “legal black hole.” The court forbade Spanish cooperation with U.S. authorities in connection with the Guantánamo facility. The current criminal case evolved out of an investigation into allegations, sustained by Spain’s Supreme Court, that the Spanish citizen had been tortured in Guantánamo.

The Spanish criminal court now may seek the arrest of any of the targets if they travel to Spain or any of the 24 nations that participate in the European extraditions convention (it would have to follow a more formal extradition process in other countries beyond the 24). The Bush lawyers will therefore run a serious risk of being apprehended if they travel outside of the United States.

Would that it only included Dick Cheney and George W. Bush. The same judge that brought Pinochet to justice is the same one presiding over this case. It will not be thrown aside. Spain is deadly serious about this, and it will not be the first country to want to lock up these war criminals...for that is what John Yoo and his ilk are: war criminals.

How will Obama respond to a NATO ally's extradition demands? Hopefully by having Eric Holder open his own criminal probe. Dday and Andrew Sullivan have more, and Double G has more on Britain's torture case against the CIA.

[UPDATE] Sunday's WaPo front-pager reveals that the torture regime failed miserably and completely at getting any useful intelligence.

In the end, though, not a single significant plot was foiled as a result of Abu Zubaida's tortured confessions, according to former senior government officials who closely followed the interrogations. Nearly all of the leads attained through the harsh measures quickly evaporated, while most of the useful information from Abu Zubaida -- chiefly names of al-Qaeda members and associates -- was obtained before waterboarding was introduced, they said.

Torture failed. The people who did it will be punished sooner or later. Obama should rid himself of the John Yoo playbook now before he ends up sharing the author's eventual fate.

Why Kroog Attacking Obama From The Left Is Important

Doug from Balloon Juice nails it:

What’s most important about Krugman right now isn’t whether he’s right or wrong but that he’s starting to get traction attacking Obama from the left. Obama’s stimulus package was, in my view, not as large as it should have been in large part because the debate was all about whether or not it was too big. The Geithner bank plan is drawing little scrutiny from the cable chatterers because Wall Street seems to like it and the Republicans are yet to produce their own alternative 19 page flow chart on the subject. In effect, for now, the economic debate in the mainstream media ranges from Geithner-Summers banksterism to Bachmann-Santelli-Shelby currency craziness/tax holiday idiocy/”let them fail” know nothingism. That is not a healthy situation.

I would go even further, right now the public discourse is limited to a Hobson's choice between Geithner's woefully incomplete bad bailout plan and fever-bright GOP insanity on the intellectual level of "glossolalia as financial policy". Needless to say, we need a third f'ckin choice, and that's where the Kroog comes in.

Is Krugman right? Is the Obama administration too beholden to Wall Street and to the status quo, trying to save a system that is beyond salvation? Does Obama have—despite the brayings of the right—too much faith in the markets at a time when prudence suggests that they cannot rescue themselves? We do not know yet, and will not for a while to come. But as Evan—hardly a rabble-rousing lefty—writes, a lot of people have a ‘creeping feeling’ that the Cassandra from Princeton may just be right. After all, the original Cassandra was.”

If Krugman's ideas start getting play, not only can the case be made for Plan N more succinctly, but as a useful comparison it only emphasizes how utterly useless (if not borderline absurdist) the Republican party really is right now. The ideas that Obama should be drawing from are coming from guys like Krugman on the Left, not the gaping maw of failure that is the Right in 2009.

Krugman gives the Left the credit and heft it has so sorely needed at a time when serious ideas are badly required, and serves to further expose the barking lunacy of the intellectually bankrupt Right.

[UPDATE] Dday is right on the money: "Krugman is fulfilling that role, opening what many have called the Overton window, moving the conversation away from the failed conservative ideas of the past."

[UPDATE 2] Oliver Willis adds:

It’s also worth noting what it takes for an outspoken liberal to get on the cover of a newsweekly. You have to be on a different side of an issue than a Democratic president.

So say we all.

Global No Confidence Vote: The Next Wave

The Dow has come roaring back 20% in the last three weeks and economic data on home sales, durable goods, consumer spending and retail sales have gotten better rather than worse. More than a few prognosticators believe March 2009 now represents the bottom of this recession, and that from here on out it's slow recovery...but recovery nonetheless.

Most analysts now agree, however, that there are some encouraging shafts of light after months of pitch-black news.

"The best news now is that despite the worst . . . daily litany of horrible news, the strongest renewed bank fears, despite all of that, we've got stocks today essentially where they were in October," said James Paulsen, chief investment strategist for Wells Capital Management, owned by the giant bank Wells Fargo.

In October, all three asset classes — stocks, bonds and commodities such as oil and farm products — were in freefall. Today, stocks are up roughly 20 percent in the past two weeks, the biggest such short-term rally since 1938.

"Despite some of the worst news, stocks have stopped deteriorating and have put in what I think is a relatively strong bottom," Paulsen said.

He's not alone in spying a glimmer of hope.

"I think the worst is behind us," said James Dunigan, the managing director of investment for PNC Wealth Management in Pittsburgh.

Dunigan points to recent better-than-expected data on retail sales, which bumped up in January and held in February, as well as an unexpected February increase in sales of existing homes. New data this week showed a 3.4 percent February increase in orders of durable goods — big-ticket expenditures — which added a dose of feel-good.

"You are starting to get some whiffs of that in some of the indicators that are starting to come out. . . . All of the news isn't as consistently bad as we saw," Dunigan said. "I don't think we need to get a lot of good news. We need to get some consistently less-bad news."

If you're willing to go with that theory, then good luck to you. All this month represents is a pause before the next phase of the storm: commercial real estate.

With loan defaults rising, analysts say the struggling commercial real estate industry is poised to fall into the worst crisis since the last great property bust of the early 1990s.

Delinquency rates on loans for hotels, offices, retail and industrial buildings have risen sharply in recent months and are likely to soar through the end of 2010 as companies lay off workers, downsize or shut their doors.

This is the true heart of the problem. The residential real estate crash has triggered massive unemployment and a commercial real estate crash, giving us another roller coaster to ride downwards over the next two years. Banks and retailers damaged by the current economy most likely will not survive this second phase, especially since the residential market has another 15-20% drop in prices to go. The commercial real estate crash will only be the second tidal wave to hit America just as we've struggled to the surface for oxygen.

Deutsche Bank's Richard Parkus projects delinquency rates will keep soaring to more than 3.5 percent by year-end and as high as 6 percent by late 2010. He says the industry's woes will be "at least of a similar magnitude as those that the commercial real estate faced in the early 1990s."

Drops in property values of 45 percent from a peak in late 2007 are possible, Parkus said, exceeding those of the early 1990s, as demand for office, retail and other commercial space plummets amid a worsening economy.

Adding credence to those gloomy predictions, the government said Thursday that the U.S. economy shrank at a 6.3 percent annual pace at the end of 2008, the worst showing in a quarter-century.

Funding for commercial loans virtually shut down last year as the financial system unraveled.

There was $12.2 billion in commercial mortgage debt issued last year, the lowest figure since 1991 and down 95 percent from 2007, according to a report by Reis.

Making matters worse, about $216 billion in loans are coming due through 2012.

When the companies can't make those payments anymore, they'll get foreclosed on too, driving values down for the rest of the country's offices, factories, hotels and strip malls. More and more companies will go under. This second crash will finish off a great many businesses already on the edge...and truly put us into a depressionary scenario. Seven states are now facing double-digit unemployment, and U-6 "real" unemployment estimates ranging from 18-21%. A great many local and state economies are already so weakened by the current situation that another wave will absolutely capsize them. The banks will take another mortal blow as they lose billions on commercial real estate, throttling any nascent recovery for the financial sector in its crib. That means more bailouts, more spending, more legislation, more pain.

And the real problem is that the local banks that have kept their noses clean on subprimes are the ones that will be rocked the hardest by the global commercial real estate collapse. They're the ones that invested in the strip malls and hotels and business parks because at the time they were safe bets. Now, they'll be cutting back on loans and dealing with foreclosures just like the big boys just when the country needs those loans the most to restart the economy. The disease will be spreading. The results will be devastating. Solid banks now will become weakened. Weakened banks now will become insolvent. Insolvent zombie banks now will become more multi-billion dollar albatrosses around our necks.

The bottom? We're going to wish that March 2009 was the bottom here very, very shortly. Alas, nothing could be further from the truth. Any chance we had at recovery is about to get hit by a tsunami of commercial real estate foreclosures, skyrocketing unemployment, and a long-term depression.

Buckle in kids. As bad as it's been, it will absolutely get worse from here.

Be prepared.

StupidiNews, Weekend Edition

• Obama's comments about not legalizing pot has generated quite a bit of fundraising for the opposite position.
• The President's plan for restructuring the automakers is expected to be revealed Monday.
• Kentucky's Democratic Governor endorses Republican Senator Jim Bunning's rival for 2010.
• Disney is quietly cutting hundreds of jobs at its Florida and California theme parks.
• With 99% of Freshman having their own computer, U of Va. is doing away with the campus computer lab.