Guess who recommended Obama to enter Harvard

In a revelation tying Barack Obama even closer to radical community organizing, WND has learned that a renowned disciple of the late socialist agitator Saul "The Red" Alinksy wrote a letter of recommendation for Obama when he applied to Harvard Law School.

Obama approached Northwestern University professor John L. McKnight – a loyal student of Alinsky's radical tactics – to pen the Harvard letter in the late 1980s. McKnight serves on the boards of radically anti-American groups in Chicago, including one accused of thuggery.

Obama in his 2006 memoir alludes to McKnight – whom he describes as an "older man who had been active in the civil rights efforts in Chicago in the sixties" – but stops short of identifying him by name. He referred to him only as "my friend."

But McKnight, who enforced affirmative action for Attorney General Robert Kennedy, was far more than that to young Obama. He helped trained him in the agitation tactics of Alinsky, who wrote the organizing manual, "Rules for Radicals," which he dedicated to mankind's "very first radical, Lucifer."

The Chicago-based Gamaliel Foundation lists McKnight as a board director. From1985 to 1988, Obama worked for a subsidiary of Gamaliel, where he cut his teeth as a community organizer on Chicago's South Side. McKnight and Gamaliel, which was founded on Alinsky's principles, provided training for the budding radical. ....

New Process Eliminates a Fertilizer’s Blast Threat

By MATTHEW L. WALD

Correction Appended

A major chemical company will announce Tuesday that it has found a way to render nitrogen fertilizer useless as an explosive, and improve its value to some crops.

The company, Honeywell, of Morris Township, N.J., has patented a method for combining ammonium nitrate fertilizer with a second type of fertilizer, ammonium sulfate. Ammonium nitrate can be soaked in diesel fuel to produce a powerful bomb and is a favorite of terrorists, but when chemically tied to the ammonium sulfate, its chemical structure is changed so that it is no longer explosive.

Chemists had been looking for ways to render ammonium nitrate nonexplosive since the Alfred P. Murrah Federal Building in Oklahoma City was destroyed by a truck bomb in 1995(correction 1996), killing 168.

In 2006, Canadian authorities arrested 17 people who they said were planning to use such bombs in Ontario.

The Department of Homeland Security has certified the new fertilizer, which Honeywell calls ammonium sulfate nitrate, under a federal program devised to encourage such innovations by offering the manufacturers immunity from liability, according to Honeywell.

The Homeland Security Department has been experimenting with diluting ammonium nitrate with coal dust.

Growmark Inc., a cooperative based in Bloomington, Ill., distributes a fertilizer that blends ammonium nitrate and calcium.

An agriculture expert not affiliated with Honeywell, Jack Rabin, associate director for farm programs at the Rutgers New Jersey Agricultural Experiment Station, said many companies were looking for ways to render ammonium nitrate inert, because the Department of Homeland Security requires that farmers safeguard their stockpiles of the widely used fertilizer and report their inventories to the government.

“We are not going to replace ammonium nitrate fertilizer in the U.S. and around the world,” Mr. Rabin said. “It’s too good, too important and too valuable.”

One problem, Mr. Rabin said, was that if nitrogen is the essential chemical in the fertilizer, then diluting it with other materials raises the number of tons that must be carried to the fields to get the desired amount of nitrogen.

A fertilizer incorporating sulfur, as the Honeywell material does, would be helpful in the western United States, where sulfur is commonly used to lower pH values toward neutral, he said. But, he said, “in much of the world, the soils are too acid already.”

But Mark Murray, director of strategic marketing for Honeywell’s resins and chemical business, said, the market was very broad. “Anywhere where ammonium nitrate is used today, this alternate form could be used effectively,” Mr. Murray said.

Honeywell is already a large producer of ammonium sulfate fertilizer.

The new fertilizer has less sulfur than ammonium sulfate, making it more widely usable, Honeywell said, and includes a mixture of nitrogen that is released promptly and nitrogen that becomes available slowly, making it a superior fertilizer.

This article has been revised to reflect the following correction:

Correction: September 24, 2008
An article on Tuesday about a new compound that eliminates the explosive potential of ammonium nitrate fertilizer misstated, in some editions, the year of the deadly bombing of the federal building in Oklahoma City. It was in 1995, not 1996.

HLF Prosecutor Tells Jury: Think Like a Terrorist Organization

By Steve Emerson

DALLAS – Jurors in the re-trial of the five officials at the Holy Land Foundation for Relief and Development need to "think like a terrorist organization," a federal prosecutor said in opening statements Monday morning.

The foundation and five former officials are accused of illegally routing more than $12 million to Hamas, in violation of U.S. laws prohibiting support for the designated terrorist group. A mistrial was declared last October after jurors in the first trial could not reach unanimous verdicts.

In her opening statement, federal prosecutor Elizabeth Shapiro seemed to apply some lessons from the first trial. Her statement took less than an hour to deliver and appeared to be an attempt to offer a general overview of the case. It's a big case, she said, but it doesn't have to be difficult.

"Money," Shapiro said, "is the lifeblood of terror organizations."

In this case, HLF is accused of funneling its money through a series of charities – or zakat committees – in the West Bank and Gaza. Sending any kind of support to Hamas became illegal in 1995, she said. She correctly anticipated a defense argument – that while the United States government designated Hamas a terrorist entity, the government did nothing about the zakat committees.

That doesn't matter, Shapiro said. The law prohibits giving money to Hamas, even if the stated purpose is charitable. The evidence will show how Hamas works, she said, where money raised by HLF really went, and that the defendants knew where it was going even after Hamas was designated as a terrorist organization.

Shapiro's remarks came after U.S. District Judge Jorge A. Solis swore in the jurors and gave them instructions about the trial. Prosecutors then read the full indictment aloud.

Jurors looked alert and attentive as prosecutors started reading. But by the time they got to Count 32 - a lengthy list of financial transactions - several members of the jury appeared to be restless and fidgety.

Even with the August 29th decision to drop 29 counts each against defendants Mufid Abdulqader and Abdelrahman Odeh, the government's case is expected to take six weeks to present. That includes a mountain of translated telephone call intercepts, faxes and other internal documents along with bank records showing some of the flow of money.

Shapiro urged jurors to take notes during the trial. She summarized some of the evidence they should expect to hear during the next six weeks, including Odeh referring to a suicide bombing as a "beautiful operation," and tapes from a 1993 meeting of Hamas members and supporters in Philadelphia called in the wake of the Oslo Peace Accords. The group gathered to discuss ways to derail the peace effort, which it saw as marginalizing the Islamist Hamas movement and paving the way for a two-state solution between Israel and the Palestinians. Shapiro told jurors to look out for the line "War is deception." (Editor's note: see page 13 of the document)

HLF executive director Shukri Abu Baker made those remarks, the transcript shows. The group was discussing the challenge of opposing the peace talks without being cast as terrorists or terrorist supporters. Joining Baker at the meeting was Nihad Awad and Omar Ahmed. At the time, the pair led the Islamic Association for Palestine, a group which functioned as a propaganda arm for Hamas in the United States. The following year, they founded the Council on American Islamic Relations (CAIR).

Prosecutors included CAIR as an unindicted co-conspirator in the HLF case, pointing to internal Muslim Brotherhood documents placing CAIR on a "Palestine Committee" created to advance the Hamas agenda in the U.S.

"Remember the words 'war is deception,'" Shapiro said, "and think what would a terrorist organization do to hide?"

In their openings, defense attorneys argued the money was intended to help Palestinians living in dire circumstances. HLF tried to adjust to the new law and comply, they said.

They insist the First Amendment is the framework for this case, that their clients are simply in the charity business, and have no connection to Hamas.

Jurors should look at "intent" while reviewing the evidence, defense attorney Linda Moreno said.

By 3 p.m. the first witness took the stand. Matthew Levitt, a former deputy assistant secretary for intelligence and analysis at the U.S. Department of the Treasury, explained Hamas' evolution in the West Bank and Gaza. Levitt will be back on the stand when testimony resumes Tuesday morning.

Chris Dodd in Action – Too Little, Too Late

Pam Meister

Chris Dodd wants swift action regarding the financial pickle that Wall Street is in after a string of failures of key financial institutions, including the government agencies Fannie Mae and Freddie Mac.

Upon suggesting an alternative to the Bush administration’s proposed $700 billion bailout, Dodd says, “Nothing has been resolved but, overall, I think members believe we need to do something.” He added, “We understand the gravity of the moment. We don’t have a lot of time. We want to act, but we want to act responsibly.”

I’m pleased to know that Dodd, head of the Senate Banking Committee (and my senator as well), is ready to take the lead. But why now, when the horse is already out of the barn? I realize the self-proclaimed “dark horse” candidate in the Democrat primary was busy campaigning for the presidency for a year or so, but he dropped out of the race back in January after a dismal showing in Iowa (despite having moved his family there in an attempt to suck up to Iowans). So he’s had plenty of time to get back in the saddle.

Connecticut’s “other” senator was among the first to begin bashing the Bush administration for its $700 billion bailout proposition. "It would do nothing, in my view, to let a single family save a home. It would do nothing to stop a CEO from dumping billion dollars of toxic assets on the back of American taxpayers," Dodd said.

Forgive me for being just a wee bit cynical. Dodd was the top recipient of campaign donations from Fannie Mae and Freddie Mac over the last ten years – to the tune of nearly $134, 000. Plus, where was he when the Bush administration proposed a new agency to oversee Fannie Mae and Freddie Mac back in 2003? Had it passed,

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

John McCain tried to spearhead reform too, back in 2006. Where was Dodd?

I feel like I’m reading one of those Where’s Waldo? books. Only instead of having to find Waldo in his silly striped hat in fun places like carnivals and circuses, one has to find the silver-maned Dodd in the maze of rats known as Washington D.C.

You’ll remember too, that Dodd was one of Countrywide Mortgage’s special customers who received a sweet deal on his mortgage. Dodd’s reaction when the news broke out? Outrage, of course. “There was no red flag to me that we were getting special treatment,” he huffed. What, the VIP tag didn’t tell him anything? Why didn’t he ask what VIP meant? Sure, it’s possible he really didn’t know. But this is the guy we’re supposed to trust in the Senate when it comes to financial matters. I find it a little disturbing that he didn’t ask this important question about his own finances, considering his high-ranking position in the Senate and a need to avoid any appearance of conflict of interest in his personal business dealings.

Certainly, Dodd is not alone in his culpability in this failure of oversight. There’s plenty of blame to go around. But considering his stature as a senior senator and the head of the Senate Banking Committee, he certainly is at the forefront of the problem, along with his House counterpart Barney Frank – who is busy blaming the private sector for the mess: “The private sector got us into this mess; the government has to get us out of it. We do want to do it carefully.”

Another interesting point, this from Cliff Kincaid:

Dean Baker of the Center for Economic and Policy Research says that “The government should impose a modest financial transactions tax, comparable to the one in the United Kingdom. This can both restrain excessive trading and raise more than $100 billion a year in revenue.”

One cannot exclude the possibility of such a proposal being slipped into the final legislation. It is being reported that Senator Christopher Dodd, Democratic chairman of the Banking Committee, has been circulating a 44-page version of the bill. But Dodd’s Banking Committee website only has a three-page summary. What is in the rest of the proposal?

Kincaid also wonders why the bailout is being described as such:

The American people have a right to know that President Bush and Congress are officially creating a socialist America.

As Rush Limbaugh pointed out on his show yesterday, Chris Dodd should beanswering questions about this debacle, not asking them.

I’ll let noted economist Thomas Sowell have the last word:

Why…is there such a mess in the financial markets? Much of that mess is due to the very people we are now turning to for solutions – members of Congress.

Socialism Is Coming to America

The American people have a right to know that President Bush and Congress are officially creating a socialist America. Can it be stopped? ....

It would be an exaggeration to say that we are getting close to anything resembling the Soviet system. But it is also a big mistake to call this a “bailout.” It is socialism. Why are so many in the media afraid of using this term?

Over at Political Affairs Magazine, a publication of the Communist Party USA, writer John Case is gloating. His article about the crisis is headlined, “A Dose of Socialism to Forestall Disaster.” He thinks that Paulson and Federal Reserve Board chairman Ben Bernanke have been reading the works of closet Marxists.

But none of this is secret. At a time when many pieces of legislation before Congress take up thousands of pages and do their best to hide pork barrel spending, Paulson’s three-page plan for Wall Street socialism is straightforward and simple. If passed by Congress, Paulson would assume the dictatorial power and authority to designate financial institutions “as financial agents of the Government” and order them to perform “all such reasonable duties related to this Act as financial agents of the Government as may be required of them…”

Judge Orders Honorable Discharge for Soldier Claiming Anti-War Religious Awakening in Iraq

U.S. Must Give ACLU Detainee Abuse Photos, Despite Claim It Could Incite Enemies

New York (AP) - The United States cannot conceal pictures of abusive treatment of detainees by its soldiers in Iraq and Afghanistan by saying their release might cause enemies to hurt someone, a federal appeals court said Monday in ordering the release of 21 photographs.

The 2nd U.S. Circuit Court of Appeals agreed with a 2006 ruling by Judge Alvin K. Hellerstein ordering the release of the pictures to the American Civil Liberties Union. Hellerstein had ordered identifying facial features be removed from the pictures.

The color photographs were taken by servicemembers in Iraq and Afghanistan. The government has opposed the release of pictures of abuse, saying they would incite violence against U.S. troops in Iraq and provoke terrorists. ....

Taxpayers have to shoulder trillion-dollar deficit

By Alan Beattie in Washington bailout

On top of a string of unprecedented events stemming from the credit crunch, the US Treasury's $700bn rescue plan for distressed mortgage assets seems likely to give us another: the first trillion-dollar deficit in history.

The long-term cost, or even profit, of the operations being launched in Washington depends on a number of known unknowns and, possibly, some unknown unknowns. But whatever the final cost to US taxpayers, they are directly or indirectly providing a backstop for assets totalling a great deal more than the federal government's $5,400bn (£2,950bn, €3,750bn) in debt.

The US was expected to run a federal deficit of $438bn, or 3 per cent of gross domestic product, next year, the Congressional Budget Office said. The $700bn mortgage securities rescue fund is authorised for two years, but even if not all is spent in the first year, the federal deficit could easily top $1,000bn next year, economists say.

Ken Rogoff, a Harvard academic and former chief economist at the International Monetary Fund, says: "I can't imagine this crisis is going to end up costing the government less than six to seven per cent of GDP." In practice, it could cost more. Democrats in Congress have talked about providing direct help to homeowners in addition to the asset-purchasing plan - a move likely to come next year rather than as part of this emergency package.

The costs are uncertain because the performance of the economy over the next year or two is likely to determine not just whether that deficit swells further - tax revenues fall during economic downturns - but whether taxpayers will be asked for fresh support. George Magnus, senior economic adviser to UBS, says: "Much depends on what happens with house prices and further deleveraging." If the vicious circle of falling asset prices, reduced debt and asset sales continues, he says, more government action will be needed. "Paulson is talking as though this is just a mortgage problem, whereas it goes beyond that," he says. "The financial sector needs recapitalising and I think the state will have to do it."

As well as the upfront cost, the US government is also implicitly underwriting a vast amount more risk. In assuming responsibility for Fannie Mae and Freddie Mac, the troubled mortgage institutions, it has taken on their gross liabilities of some $5,400bn, equivalent to the current federal debt.

If it is going to stand behind the money market mutual funds industry, as suggested by its extension of federal insurance to the institutions at the end of last week, that means back-stopping a further $3,400bn worth of assets. In addition, through its various operations including the rescues for AIG and Bear Stearns and emergency direct lending to banks, half of the the Fed's assets are now riskier instruments rather than safer US Treasuries.

Of course, it is almost inconceivable that anything near these risks would crystallise into actual losses. But it adds to the uncertainties of the final costs to taxpayers. "The government is now putting its arms around enormous chunks of the US financial sector," Mr Magnus says.

Whether the taxpayer ends up making a profit or loss from all these operations is the great unknown, since it is impossible to know the true value of the assets it will be acquiring.

But there is no doubt that being an American taxpayer just got a lot more expensive in the short term and a lot riskier further down the line.

Additional reporting by Krishna Guha

Rep. Tancredo Demands Safeguards in any Economic Bailout

Rep. Tom Tancredo (R-Co.)has demanded that any bailout of the finance industry should include safeguards that prevent the bank or lender from recouping funds spawning from their own fraudulent or dishonest activities.

Tancredo also wants to ensure that taxpayers do not provide assistance to illegal aliens who have lost their homes and do not absorb any bad debts owed to financial institutions. He maintains that these protections are a "must" for any bailout package.

Rep. Tancredo also wants legislation passed that would require banks to verify the legality of potential home buyers to ensure that illegal aliens do not benefit from federally backed home loans.

Click here to read Rep. Tancredo's entire press release and click here to read a column by Michelle Malkin on the subject.

Senators Express Reservations on Bailout, Despite Pleas for Swift Passage

WASHINGTON — Leading senators of both parties are expressing strong reservations about the administration's financial bailout plan despite pleas from the treasury secretary and Federal Reserve chairman for quick passage.

Sen. Chris Dodd, a Connecticut Democrat, said on Tuesday, "What they have sent us is not acceptable."

Sen. Richard Shelby, an Alabama Republican, said, "We have got to look at some alternatives."

But congressional leaders and aides are still predicting passage, only with significant changes, after Federal Reserve Chairman Ben Bernanke bluntly warned reluctant lawmakers they risk a recession with higher unemployment and increased home foreclosures if they fail to approve the Bush administration's $700 billion plan to bail out the financial industry.

"This will pass. No question," a senior aide to Senate GOP Leader Mitch McConnell told FOX News, predicting the stand-off would draw to a close by the end of the weekend.

Bernanke sketched a scenario in which neither businesses nor consumers could borrow money as President Bush and top lawmakers leaders in both parties voiced hope for agreement within days on a plan to ease the crisis.

"Nobody is happy" about the bailout request, said House Majority Leader Steny Hoyer, D-Md., although he too spoke of possible passage of legislation by the weekend.

"Nobody wants to have to do this," agreed Rep. John Boehner of Ohio, the Republican leader. He said he was hopeful of a quick agreement, despite withering criticism from conservative GOP lawmakers, some of whom likened the plan to socialism.

With the Dow Jones industrials sinking 161 points after initially surging on the bailout announcements last week, the stakes were unmistakable. Treasury Secretary Henry Paulson said Congress must pass the legislation this week. He later met with House GOP leaders Tuesday evening.

"I understand speed is important, but I'm far more interested in whether or not we get this right," said Dodd, D-Conn., presiding over a a hearing by the Senate Banking Committee banking panel where Bernanke joined Paulson in appealing for quick legislation.

"There is no second act to this. There is no alternative idea out there with resources available if this does not work," he added.

Bernanke's remarks about the risk of recession came in response to a question from Dodd, who seemed eager to hear a strong rationale for lawmakers to act swiftly on the administration's unprecedented request.

"The financial markets are in quite fragile condition and I think absent a plan they will get worse," Bernanke said.

Ominously, he added, "I believe if the credit markets are not functioning, that jobs will be lost, that our credit rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover in a normal, healthy way."

GDP is a measure of growth, and a decline correlates with a recession.

Separately, law enforcement officials said the FBI had begun investigating four institutions whose collapse helped trigger the financial crisis.

The FBI is looking at potential fraud by mortgage giants Fannie Mae and Freddie Mac, Lehman Brothers Holdings Inc. and insurer American International Group Inc., said two officials, speaking on condition of anonymity because of the sensitivity of the investigations. The inquiries, still in preliminary stages, will focus on the financial institutions and the people who ran them, one senior law enforcement official said.

Across the Capitol complex, Vice President Dick Cheney and Jim Nussle, the administration's budget director, met privately with restive House Republicans, some of whom emerged from the session unpersuaded.

"Just because God created the world in seven days doesn't mean we have to pass this bill in seven days," said Rep. Joe Barton, R-Texas.

Added Rep. Darrell Issa, R-Calif., "I am emphatically against it."

Dodd and other key Democrats have been in private negotiations with the administration since the weekend on legislation designed to allow the government to buy bad debts held by banks and other financial institutions.

Despite expressions of unhappiness in both parties, the prospects for legislation seemed strong, with lawmakers eager to adjourn this week or next for the elections. The legislation that the administration is promoting would allow the government to buy bad mortgages and other troubled assets held by endangered banks and financial institutions. Getting those debts off their books should bolster their balance sheets, making them more inclined to lend and easing one of the biggest choke points in the credit crisis. If the plan works, it should help lift a major weight off the sputtering economy.

Differences remained, though, including a demand from many Democrats and some Republicans to strip executives at failing financial firms of lucrative "golden parachutes" on their way out the door.

The administration balked at another key Democratic demand: allowing judges to rewrite bankrupt homeowners' mortgages so they could avoid foreclosure.

Paulson, seated next to Bernanke at the committee hearing, objected strongly when Sen. Chuck Schumer, D-N.Y., asked if $150 billion might be enough to get the program started, with a promise of more to come.

Paulson said that would be a "grave mistake," and would fail to give the markets the confidence they needed to rebound.

Paulson repeatedly fielded questions from committee members asking why taxpayers should accept the burdens of a bailout.

"You worry about taxpayers being on the hook?" he replied at one point. "Guess what — they're already on the hook." Paulson suggested that the fallout from the credit crisis was so dire it would hit people in their pocketbooks unless forceful action were taken. Moreover, the flawed and outdated regulatory system, which didn't catch abuses, needs to be overhauled, he said.

Despite the unresolved issues, President Bush predicted the Democratic-controlled Congress would soon pass a "a robust plan to deal with serious problems." He was speaking to the United Nations General assembly.

Stocks held steady in pre-noon trading on Wall Street as Paulson told senators that quick passage of the administration's plan is "the single most effective thing we can do to help homeowners, the American people and stimulate our economy."

But even before Paulson could speak, lawmakers expressed unhappiness, criticism of the plan and — in the case of some conservative Republicans — outright opposition.

Sen. Richard C. Shelby of Alabama, the panel's senior Republican, was even more blunt. "I have long opposed government bailouts for individuals and corporate America alike," he said. Seated a few feet away from Paulson and Bernanke, he added, "We have been given no credible assurances that this plan will work. We could very well spend $700 billion, or a trillion, and not resolve the crisis."

Sen. Jim Bunning, R-Ky., added, "This massive bailout is not a solution. It is financial socialism and it's un-American."

But Bernanke said action by lawmakers "is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy."

A third witness, Securities and Exchange Commission Chairman Christopher Cox, urged Congress to regulate a type of corporate debt insurance that figured prominently in the country's financial crisis.

"I urge you to provide in statute the authority to regulate these products to enhance investor protection and ensure the operation of fair and orderly markets," he said. The debt insurance is known as credit default swaps.

So far this year, a dozen federally insured banks and thrifts have failed, compared with three last year. The country's largest thrift, Washington Mutual Inc., is faltering.

The U.S. has taken extraordinary measures in recent weeks to prevent a financial calamity, which would have devastating implications for the broader economy. It has, among other things, taken control of mortgage giants Fannie Mae and Freddie Mac, provided an $85 billion emergency loan to insurance colossus American International Group Inc. and temporarily banned short selling of hundreds of financial stocks.

FOX News' Trish Turner and The Associated Press contributed to this report.

Dirty Secret Of The Bailout: Thirty-Two Words That None Dare Utter

(Compiler's note: A "must read" item)

From the Huffington Post

A critical - and radical - component of the bailout package proposed by the Bush administration has thus far failed to garner the serious attention of anyone in the press. Section 8 (which ironically reminds one of the popular name of the portion of the 1937 Housing Act that paved the way for subsidized affordable housing ) of this legislation is just a single sentence of thirty-two words, but it represents a significant consolidation of power and an abdication of oversight authority that's so flat-out astounding that it ought to set one's hair on fire. It reads, in its entirety:

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

In short, the so-called "mother of all bailouts," which will transfer $700 billion taxpayer dollars to purchase the distressed assets of several failed financial institutions, will be conducted in a manner unchallengeable by courts and ungovernable by the People's duly sworn representatives. All decision-making power will be consolidated into the Executive Branch - who, we remind you, will have the incentive to act upon this privilege as quickly as possible, before they leave office. The measure will run up the budget deficit by a significant amount, with no guarantee of recouping the outlay, and no fundamental means of holding those who fail to do so accountable.

Is this starting to sound familiar? Robert Kuttner cuts through much of the gloss in an article in today's American Prospect:

The deal proposed by Paulson is nothing short of outrageous. It includes no oversight of his own closed-door operations. It merely gives congressional blessing and funding to what he has already been doing, ad hoc. He plans to retain Wall Street firms as advisors to decide just how to cut deals to value and mop up Wall Street's dubious paper. There are to be no limits on executive compensation for the firms that get relief, and no equity share for the government in exchange for this massive infusion of capital. Both Obama and McCain have opposed the provision denying any judicial review of decisions made by Paulson -- a provision that evokes the Bush administration's suspension of normal constitutional safeguards in its conduct of foreign policy and national security. [...]

The differences between this proposed bailout and the three closest historical equivalents are immense. When the Reconstruction Finance Corporation of the 1930s pumped a total of $35 billion into U.S. corporations and financial institutions, there was close government supervision and quid pro quos at every step of the way. Much of the time, the RFC became a preferred shareholder, and often appointed board members. The Home Owners Loan Corporation, which eventually refinanced one in five mortgage loans, did not operate to bail out banks but to save homeowners. And the Resolution Trust Corporation of the 1980s, created to mop up the damage of the first speculative mortgage meltdown, the S&L collapse, did not pump in money to rescue bad investments; it sorted out good assets from bad after the fact, and made sure to purge bad executives as well as bad loans. And all three of these historic cases of public recapitalization were done without suspending judicial review.

Kuttner's opposition here is perhaps the strongest language I've seen used, pushing back on this piece of legislation, in any publication of repute, and even here, Section 8 is not cited by name or by content. McClatchy Newspapers also alludes to Section 8 with concern, citing the "unfettered authority" that Paulson would be granted, and noting that the "law also would preclude court review of steps Paulson might take, something Joshua Rosner, managing director of economic researcher Graham Fisher & Co. in New York, said could be used to mask previous illegal activity." Jack Balkin also gives the matter the sort of attention it deserves on his blog, Balkinization.

But elsewhere, the conversation is muted. The debate over whether Congress is going to pass the Paulson bailout package, or pass the Paulson bailout package really hard seems to have boiled down to a discussion of time and concessions. The White House has made it clear that they want this package passed yesterday. Congressional Democrats seem to be of different minds on the matter, with some pushing back hard, and others content to demand a small dollop of turd polish to make the package seem more aesthetically pleasing, at which point, they'll likely roll over and pass the bill. Neither candidate, John McCain or Barack Obama, seem all that amenable toward the bailout, but neither have either demonstrated that they are willing to risk their candidacies to do much more than exploit the issue for electoral purposes.

Sunday morning came and went, with Paulson traipsing dutifully from studio to studio, facing nary a question on Section 8. Front page articles in the New York Times, Washington Post, and the Wall Street Journal detail the wranglings, but make no mention of this section of the legislation. On TV, cable news networks are stuck in the fog of the ongoing presidential campaign.

Throughout the coverage, one catches a whiff of what seems like substantive pushback on this power grab, but it largely amounts to a facsimile of journalistic diligence. Most note, in general terms, that the bailout represents a set of "broad powers" that will be granted to the Department of the Treasury. Yet the coverage offsets these concerns through the constant hyping of the White House's overall message of "urgency."

But one cannot overstate this: Section 8 is a singularly transformative sentence of economic policy. It transfers a significant amount of power to the Executive Branch, while walling off any avenue for oversight, and offering no guarantees in return. And if the Democrats end up content with winning a few slight concessions, they risk not putting a stop-payment on the real "blank check" - the one in which they allow the erosion of their own powers.

Over in the Senate, Christopher Dodd has proposed a bailout legislation of his own, which critically calls for "an oversight board that not only includes the chairman of the Federal Reserve and the SEC, but congressionally appointed, non-governmental officials" and would require the President to appoint an "independent inspector general to investigate the Treasury asset program." In Dodd's legislation, Section 8 is effectively stripped from the bill.

Nevertheless, the fact that Section 8 of the Paulson plan seems to strike few as a de facto dealbreaker can and should astound. The failure of Congress to hold the line on this point would be truly embarrassing. But if we make it through this week with nobody in the press specifically informing the public about the implications of this single sentence - in the middle of a complicated bill, in the middle of a complicated time - then right there, you have the single largest media failure of this year.

Newt Gingrich: Kill the Paulson Plan. Hard.

September 23, 2008 01:56 PM ET | James Pethokoukis | Permanent Link

I just got back from a Newt Gingrich press conference where I had a nice back-and-forth dialogue with the former Speaker of the House about the Paulson Plan, which he totally hates. A few quotes and Gingrichian observations:

1) He called it a "stupid plan" that looks like it had been designed by autocrat Vladimir Putin. He also said it will be a "nightmare" to implement and full of corruption.

2) He said the Paulson Plan would be a "dead loser" on Election Day that will "break against anyone who votes for it." It will hurt even worse with the 2010 election once Americans see what a drag it is on the economy when implemented.

3) He recently chatted with economic historian Alan Meltzer who advocated doing nothing rather than implanting the Paulson Plan. Meltzer apparently joked to Gingrich that this was about the third time he had seen Wall Street scream "the apocalypse was nigh" only to have the economy keep right on chugging along.

4) Gingrich thinks that if the Paulson Plan isn't passed by this weekend, it is dead and the White House better have a Plan B, economic-growth package ready. Right now, he still thinks it has an 80 percent chance of passage, partly because of Paulson's apocalyptic tone that if a bill isn't passed, "the whole world will end on Tuesday."

5) He advises McCain to play the maverick and come out against the Paulson Plan. Then it will be the Obama-Bush plan.

Buffett's Berkshire betting $5 billion on Goldman

OMAHA, Neb. (AP) - Warren Buffett, one of the world's best known and wealthiest investors, is betting $5 billion that the U.S. financial system is not about to collapse.

Buffett's Berkshire Hathaway Inc. (BRKA) said Tuesday it will invest at least $5 billion in Goldman Sachs Group Inc. (GS), a huge vote of confidence for one of the survivors of the credit crisis that felled two of its investment banking peers.

It may be just the shot in the arm that shares needed. Wall Street appeared headed for a higher opening Wednesday, though credit markets remained uncertain about the government's $700 billion bailout plan for banks.

In addition to buying $5 billion in preferred stock, Berkshire also got warrants to buy another $5 billion in Goldman's common stock. Goldman also said late Tuesday it would raise another $2.5 billion in its own public stock offering. ....

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Immigration Plan Worth Candidates' Attention

by Dallas Morning News

It's clear from the presidential candidates' tactical evasion that neither plans to give illegal immigration the priority attention it deserves early in the next administration. Whatever other pressing issues are vying for the candidates' time, there's no excuse for their neglect of comprehensive immigration reform.

We're encouraged by the efforts of a bipartisan task force in Washington, organized by the Migration Policy Institute, to keep immigration reform high on the nation's political agenda – whether the candidates like it or not.

Doris Meissner, the task force's director and former head of the Immigration and Naturalization Service under President Bill Clinton, told us last week that the current trend toward tougher workplace enforcement and tighter border security is causing America's business community to appreciate the urgency of comprehensive reform.

Businesses of all kinds and sizes get pinched when their source of cheap labor dries up. It is clear that America's population is aging while its need for blue-collar labor is growing beyond the means of our population to fill the gap. Ms. Meissner's group presents a viable plan to address that need through the tightly regulated, legal flow of immigrant labor. ....

Hundreds of thousands may stay without water for a while

By BRADLEY OLSON

A quarter of a million people in the Houston region were without running water Tuesday, according to the Texas Commission on Environmental Quality, which regulates more than 2,500 public water systems in the 10-county region hammered by Hurricane Ike.

Commission officials did not know about another 600,000 people because they have been unable to communicate with those utilities in the wake of the storm.

The result is hundreds of thousands of people who cannot bathe, use the bathroom, or even cook nearly two weeks after they lost access to running water.

Restoring it may prove complicated. The problem has myriad causes, including power outages and severe infrastructure damage in coastal areas. Some public water systems, which Texas regulators require to continue pumping in spite of power outages, have failed to do so, according to residents they serve and state officials.

"I can do without the lights or the air conditioning, but I can't do without water," said Rose Melchor, 69, who lives near Hobby Airport.

Melchor filled bathtubs and old kitty litter containers with water before the storm but ran out in two days. She has depended on neighbors for water needs, and her relatives have had to bathe and cook with bottled water. They only pour water into the toilet to flush it after using the restroom several times, she said.

"We expect this kind of thing for a couple days, but not this long," she said.

Melchor lacks water because trees uprooted by the storm damaged city water lines. A spokesman said the city is working on the problem, which is affecting several dozen people.

Otherwise, Houston officials said, the city and the 400,000 customers it serves are back online, although some apartment high-rises are unable to pump water above the fourth floor because of a lack of power.

'This event was huge'

Many served by public utility systems and private water companies in Houston and Harris County, however, remain without running water. The same is true in many of the communities battered by Ike — including in Fort Bend, Chambers, Brazoria and Liberty counties — where, with a few exceptions, water and sewer delivery managed by major municipalities is working. Elected officials there have used generators, while some of the minor water systems in those areas have been unable to do the same.

In the event of a power outage, private utilities are required to keep water flowing through the use of generators or by having enough elevated storage so that gravity will move it into homes. But many have been unable to do so, state officials said.

"This event was huge, and in this kind of situation, it takes time," said Elston Johnson, manager of the TCEQ's public drinking water section. ....

Texans Seek Aid in Congress as Ike Cost Estimates Soar

By STEWART M. POWELL and BENNETT ROTH

Texas suffered damage from Hurricane Ike estimated by government officials and private insurers on Tuesday to range from $27 billion to $52 billion.

The estimate combines the value of losses expected to be submitted to the federal government or to private property insurance companies.

Mayor Bill White of Houston described the potential range of costs to both the federal government and insurance companies in an interview with the Houston Chronicle. He then joined Galveston Mayor Lyda Ann Thomas and Texas Lt. Gov. David Dewhurst on Capitol Hill to testify before a Senate Homeland Security subcommittee on disaster recovery.

FEMA — the Federal Emergency Management Agency — has not completed damage estimates that would be submitted to the federal government. "But," White said, "I would not be surprised if the total figures (for the federal government) weren't in the $20 billion to $40 billion range. We're going to be enormous."

Latest insurance industry estimates compiled by the Insurance Information Institute of New York foresee privately insured losses ranging from $7 billion to $12 billion. The tally of private insurance losses, coupled with White's, provides the range of all losses of $27 billion to $52 billion. ....

Fencing Projects Inch Forward

CBP cleared minor hurdles this week

Congress has reprogrammed hundreds of millions of dollars for US Customs and Border Protection (CBP) to move forward on building physical fencing along the US southern border Monday while the US Fish and Wildlife Service has granted the agency a few of the permits for building the virtual fence under the Secure Border Initiative-Network (SBInet).

CBP received notice that $400 million would become available for the fencing projects, which had stalled because the agency ran out of money to build them. Congress transferred the funds from the virtual fencing project, which is on hold until 2009, at the agency's request, CBP spokesperson Angela de Rocha told HSToday.us. ....

Post-terror illness often just in mind

by UNITED PRESS INTERNATIONAL

Symptoms can add to panic

The number of people who only think they have symptoms from a chemical, biological or nuclear incident could far exceed the number of actual victims, according to a confidential briefing document prepared by the Department of Homeland Security.

"Mass psychogenic illness [can] spread rapidly throughout a population," the briefing document states, citing incidents in California in 2003 and Chechnya in 2005.

The document defines mass psychogenic illness as a "phenomenon in which social trauma or anxiety combines with a suspicious event to produce psychosomatic symptoms, such as nausea, difficulty breathing and paralysis."

The classified document, prepared in 2006, was leaked and posted last week on the Wikileaks Web site.

The Department of Homeland Security declined to comment on the leak and the content of the document.

The briefing document notes that statements made by public officials during a catastrophic event can make matters worse and their ability to improve the situation depends heavily on the public's perception of their credibility, which some fear is eroding.

George Foresman, who had served as Homeland Security's undersecretary for preparedness until last year, questions whether the average person would "trust what the government tells them about the likelihood that they've been exposed or not been exposed to a certain pathogen or a chemical."

"The trust between the American people and those who are in positions of authority and responsibility is not as strong as it needs to be," Mr. Foresman told United Press International.

Public fear is likely to be greatest in the event of "something where you cannot see easily whether you've been affected or not," such as the release of a biological agent, he said. "The antidote to that fear is guidance and information."

"Government [communication] has got to be direct, it's got to be quick and it's got to be exact," said Mr. Foresman, who is a disaster planning and response consultant. "The officials need to be credible."

He said this kind of crisis communication requires "in-depth discussions with the local and national media about what you know and - to be honest - what you don't know."

Jim Harper, director of information policy studies for the libertarian Cato Institute, said the U.S. government has failed to do necessary strategic thinking about reassuring people in the event of an incident.

Psychosomatic effects aside, disaster-planning experts say that other effects of panic during a chemical or biological attack - the impact on transportation systems and the nation's economy, for example - could far outweigh the direct effects on the victims and their communities.

There is "a lack of truly strategic planning," Mr. Harper said. "What kind of communications will reassure people that their society is not under threat [of destruction]?"

"It's got to be more than just 'run for the hills,' even if you're saying, 'These are the specific hills you should run for,'" he said.

Bush: World must stand united against terrorism

UNITED NATIONS (AP) — President Bush said Tuesday that multinational organizations are now "needed more urgently than ever" to combat terrorists and extremists who are threatening world order. ....

Feds Give Customs Agents Free Hand to Seize Travelers’ Documents

by San Francisco Chronicle

The Bush administration has overturned a 22-year-old policy and now allows customs agents to seize, read and copy documents from travelers at airports and borders without suspicion of wrongdoing, civil rights lawyers in San Francisco said Tuesday in releasing records obtained in a lawsuit. The records also indicate that the government gives customs agents unlimited authority to question travelers about their religious beliefs and political opinions, said lawyers from the Asian Law Caucus and the Electronic Frontier Foundation. They said they had asked the Department of Homeland Security for details of any policy that would guide or limit such questioning and received no reply. "We're concerned that people of South Asian or Muslim-looking background are being targeted inappropriately" for questioning and searches, said Asian Law Caucus attorney Shirin Sinnar. Amy Kudwa, spokeswoman for the Department of Homeland Security, said the new policies reflect "the realities of the post-9/11 environment." Kudwa noted that courts have allowed federal agents more leeway in searches at borders and airports than elsewhere. She also said customs agents are entitled to ask questions that "may be relevant to admissibility determinations that relate to an alien's purpose for entering the United States" under certain types of visas. ....

Ike, Gustav Hearing Highlights FEMA Improvements

by Chris Bedford

Agency praised for better responsiveness, but bureaucratic red tape still a problem. The federal government’s response to the devastation wrought by Hurricanes Ike and Gustav shows a dramatic improvement over its handling of Hurricanes Katrina and Rita, but there is still much room for improvement, according to officials and representatives from all levels of the government, who attended Tuesday’s hearing by the Senate Homeland Security and Governmental Affairs Subcommittee on Disaster Recovery. Media coverage of the hurricanes did not last after they failed to cause the massive death toll that Katrina and Rita had in 2005, and so their effects on the states of Texas and Louisiana, according to senators representing both states, have gone largely unnoticed in the rest of the country. “It seems as though the second these storms did not result in catastrophic death tolls, although hundreds of people lost their lives,” subcommittee chair Sen. Mary Landrieu (D-La.) said in her opening statement, “the national cameras went off and there is a sense outside the Gulf Coast and particularly here in Washington that things went pretty well.” Hurricane Ike, said Lt. Gov. David Dewhurst (R) of Texas, “was one of the worst natural disasters in Texas history,” with 22,000 square miles of land affected. In Louisiana, where repairs from Katrina and Rita were not nearly completed, 1.9 million people fled as part of the largest evacuation in state history and in some areas storm surges even surpassed the records of 2005. “I want my colleagues in Washington to know, and people listening to this hearing, that we did not dodge a bullet,” said Sen. Landrieu. “The bullet hit the Gulf Coast. It hit Texas, it hit south Louisiana… We all learned in the aftermath of Katrina and Rita,” Landrieu added, “but we all know … that all things did not go well.” Praise for FEMA’s handling of the crisis, however, was voiced by all. “In a homeland security emergency, you have three major areas that you have to pay attention to,” said Louisiana Lt. Gov. Mitch Landrieu (D). “One of them is clear command and control, one of them is coordination and one of them is communication. And I have to say,” he concluded,” that in all levels of government, across the levels themselves and between and amongst others, all of them did a much better job this time responding to the immediate crisis.” On FEMA’s major accomplishments, Landrieu elaborated: “One of them was developing the emergency plans over the past three years, the second was the support for the emergency transportation and the third was onside assistance.” “It is a very dramatic change from several years ago, having to deal with FEMA now almost continuously on various issues,” said Mayor Bill White of Houston. “Secretary Chertoff, Director Paulison, the president, Adm. Johnson- they’ve been very accessible and you don’t need to repeat things.” Louisiana state senator Reggie Dupre Jr. (D) agreed. “The actual response, pre-Gustav and through it, from FEMA and those federal agencies was very, very good,” he said, adding, “We’ve learned a lot from Katrina.” While encouraged by the showing of support for FEMA’s progress, Sen. Landrieu was cautious, fearing “that we have a long way to go in recovery efforts.” And FEMA did not escape without criticism. “The flow of the commodities, and getting food to the ground was difficult,” Dewhurst said. “And the pre-landfall declaration took longer than it should have, and of course the delay of our 100 percent cost-share request is making it very difficult for communities to stand themselves back up.” FEMA’s willingness to pay for cleanup and reconstruction in every county has been tempered by a fear of fraud and by the devastated communities hampered ability to submit evaluations of the damage, legally entangling the federal government in administrative red tape. “The law, as it is written, does not do a very good job in situations like this because it says you have to have everything quantified and evaluated and praised,” Sen. Pete Domenici (R-NM) told the witnesses, “and you can’t even get out to see the damage yet.” Calling the law “flawed,” Domenici promised to move to free up the money for the states and parishes. “The key here is that FEMA and the state work together while we [the senate] are doing out part in getting the funding,” agreed Sen. Kay Bailey Hutchinson (R-Texas). “It’s not just that we’ve got the money here in Washington, it is that they're able to get it on the ground where they need it.” A different, but still major, issue of concern for the witnesses were failures on the part of the Army Corps of Engineers who, according to angry testimony by Sen. David Vitter (R-La.), sat on $3.024 billion that he had procured for the construction of non-federal levees in 2006. If the Corps hadn’t wasted time on studies the senator deemed useless and had constructed the levees, and if repairs, replacements and new defensive construction in Louisiana and Texas in general had moved along faster, much of the disaster could have been averted. “I think there is a serious open debate about whether or not the preparation was adequate enough,” said Lt. Gov. Landrieu. “And we’ll find out on the rebuild side.” Government bureaucracy is a major problem cited by many of the witnesses. “I think that the FEMA director and administration should be given as much discretion to come up with innovative plans and programs that are tailored to the particular disaster,” said Mayor White. “As a business man I’ll tell you that there are too many standard operating procedures and not enough judgments that are tailored to the disaster.” “We have made significant progress,” said Sen. Landrieu, “but I will stake my reputation on the fact that before this final story is told there will be chapter after chapter after chapter of bankruptcies, of people losing their houses, of cities struggling to recover. So I would just caution everybody,” she concluded, “before we start padding each other on the back over what a great job we’ve done, let’s work harder to get… a housing plan and a community redevelopment plan and expedite the protection the people on the Gulf Coast most certainly deserve.”

London Muslims Commemorate 9/11

Video .. click on the title to start the stream.

The Jihad Prevention Act

By Kathy Shaidle

International reaction was almost uniformly negative last week when news broke that Britain had officially granted Muslim Sharia courts permission to rule on everything from divorce to domestic violence. After all, in its strictest form, Sharia law requires the stoning of women accused of adultery, and the execution of converts from Islam, among other draconian punishments for offences that aren’t even considered crimes in the West. In the U.K. and abroad, pundits and politicians denounced Britain’s capitulation, but only one elected official responded with a daring proposal aimed at preventing Sharia law from gaining such a foothold in America.

That that politician was Rep. Tom Tancredo won’t surprise observers of American politics. The Colorado congressman has long been an outspoken critic of the unofficial “open-borders” policy that encourages millions of undocumented immigrants – including would-be terrorists – to enter the U.S. each year. During his short-lived presidential campaign in 2007, Tancredo repeatedly raised the immigration issue during televised debates. He also aired a provocative television ad in which he promised to “stop all visas to nations that sponsor terrorism and [to] arrest and deport any alien who preaches violence and hatred.”

The ad earned Tancredo scorn on the Left and also on some parts of the Right. Undaunted, he has now proposed a “Jihad Prevention Act” that “would bar the entry of foreign nationals who advocate Sharia law [and] make the advocacy of Sharia law by radical Muslims already in the United States a deportable offense.” In his official announcement on September 18, Tancredo observed: “This is a case where truth is truly stranger than fiction. Today the British people are learning a hard lesson about the consequences of massive, unrestricted immigration.”

“When you have an immigration policy that allows for the importation of millions of radical Muslims,” he explained, “you are also importing their radical ideology – an ideology that is fundamentally hostile to the foundations of western democracy – such as gender equality, pluralism, and individual liberty. The best way to safeguard America against the importation of the destructive effects of this poisonous ideology is to prevent its purveyors from coming here in the first place.”

Tancredo hopes his bill will spur public debate, and “send a clear message that the only law we recognize here in America is the U.S. Constitution and the laws passed by our democratically elected representatives…If you aren’t comfortable with that concept, you aren’t welcome in the United States.”

So far, reaction to the “Jihad Prevention Act” has been muted on both sides, possibly because the media is providing wall-to-wall election coverage. Nonetheless, some prominent supporters have emerged. Having advocated similar measures in the past, the group Muslims Against Sharia praised Tancredo’s initiative. So did scholar Andrew Bostom, author of The Legacy of Jihad. Bostom hailed Tancredo’s “sane approach,” adding, “Thank goodness for Congressman Tancredo’s courage and clarity on this pressing matter!”

Tancredo also has an ally in columnist and author Diane West. In books like The Death of the Grown Up and in her syndicated columns, West has chronicled what she considers the decline of Western civilization, brought on by everything from a perpetually adolescent popular culture to radical Islam. “What I like about this proposed legislation,” West said in an email interview, “is its clear, direct focus on Islamic law (Sharia).” Focusing on Sharia, West believes, is the “only way to grapple successfully with the repressive overlay of Islam on a society--understanding it as a function of law, and not religion.” She points out that Tancredo’s “bill allows us to see clearly through to the heart of the matter: the danger that unchecked Islamic immigration will bring about a constituency for Islamic law, leading to disastrous changes to our legal system.”

To be sure, West does have some reservations about the bill. “I'm not sure how he proposes to determine which Muslim immigrants advocate Islamic law and which do not,” she said. “I would prefer to see a general restriction on Islamic immigration to prevent the build-up of a demographic that wills Sharia. Moreover, West notes that this session of Congress is nearly over. Even if Tancredo’s bill were “brought to a vote this week, I sadly doubt it will be passed.” Still another problem is that there is scant enthusiasm in Congress for passing such a bill. With the notable exception of Rep. Sue Myrick, a Republican from North Carolina, the political class has failed even to address the conflicts between Islamic law and Western values – let alone to draft legislation to thwart the spread of Sharia in the U.S.

Europe may soon prove a model in this regard – the unhappy case of Britain notwithstanding. This December, Israel’s Dr. Arieh Eldad, a former member of the Israeli Knesset, will host the Facing Jihad Summit in Jerusalem. The summit seeks to bring together “European lawmakers who are united in their shared belief that Islam today poses a serious threat to Western civilization.” The idea is to create an alliance of politicians who can workshop legislation to prevent creeping Islamization, which they can then bring back to their home countries and create a voting block in the EU parliament. The attending parliamentarians will be joined by experts on radical Islam such as Daniel Pipes and Bat Ye’or, but bigotry will not be tolerated: Eldad emphasizes that the summit will bar “neo-Nazis and racist parties” like the British National Party. “Seven countries will be represented so far,” Eldad told FrontPage.

And what of America? Eldad thought it likely that at least a few Capitol Hill politicians would attend the jihad summit. If so, Tom Tancredo might be an ideal delegate.

Lawmakers want limits on exec pay, oversight

(Compiler's note: Developing ....)

WASHINGTON — From the start of Tuesday's hearing on Capitol Hill, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke's urgent call for an unprecedented federal bailout of the U.S. financial system was met by skepticism, criticism and even anger among senators in both parties.

Before long, it was clear that the sweeping proposal introduced late last week by Paulson, Bernanke and Securities and Exchange Commission Chairman Christopher Cox to try to ward off a devastating credit crunch will have to be altered — perhaps significantly — to win Congress' approval. ....

How the Democrats Created the Financial Crisis: Kevin Hassett

Sept. 22 (Bloomberg) -- The financial crisis of the past year has provided a number of surprising twists and turns, and from Bear Stearns Cos. to American International Group Inc., ambiguity has been a big part of the story.

Why did Bear Stearns fail, and how does that relate to AIG? It all seems so complex.

But really, it isn't. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally.

Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. They fueled Wall Street's efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools. In addition, they held an enormous portfolio of mortgages themselves.

In the times that Fannie and Freddie couldn't make the market, they became the market. Over the years, it added up to an enormous obligation. As of last June, Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments. Their large presence created an environment within which even mortgage-backed securities assembled by others could find a ready home.

The problem was that the trillions of dollars in play were only low-risk investments if real estate prices continued to rise. Once they began to fall, the entire house of cards came down with them.

Turning Point

Take away Fannie and Freddie, or regulate them more wisely, and it's hard to imagine how these highly liquid markets would ever have emerged. This whole mess would never have happened.

It is easy to identify the historical turning point that marked the beginning of the end.

Back in 2005, Fannie and Freddie were, after years of dominating Washington, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by my American Enterprise Institute colleague Peter Wallison, the Securities and Exchange Comiission's chief accountant told disgraced Fannie Mae chief Franklin Raines that Fannie's position on the relevant accounting issue was not even ``on the page'' of allowable interpretations.

Then legislative momentum emerged for an attempt to create a ``world-class regulator'' that would oversee the pair more like banks, imposing strict requirements on their ability to take excessive risks. Politicians who previously had associated themselves proudly with the two accounting miscreants were less eager to be associated with them. The time was ripe.

Greenspan's Warning

The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn't be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie ``continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,'' he said. ``We are placing the total financial system of the future at a substantial risk.''

What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

Different World

If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.

That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: ``It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.''

Mounds of Materials

Now that the collapse has occurred, the roadblock built by Senate Democrats in 2005 is unforgivable. Many who opposed the bill doubtlessly did so for honorable reasons. Fannie and Freddie provided mounds of materials defending their practices. Perhaps some found their propaganda convincing.

But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.

Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.

Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.

There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.

Oh, and there is one little footnote to the story that's worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess.

(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He is an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election. The opinions expressed are his own.)

Congress still protecting you – from lightbulbs!

By Chelsea Schilling

An act sponsored by 25 representatives asking the government to reconsider its ban on incandescent light bulbs has been stalled in committee – and the leading sponsor is faulting Democratic leadership.

The Light Bulb Freedom of Choice Act highlights growing concerns over the safety and environmental impact of compact fluorescent bulbs, or CFLs. Before the sale of incandescent bulbs is banned, the representatives are asking the comptroller general to prove replacement with CFLs will be cost-effective, reduce overall carbon dioxide emissions by 20 percent in the United States by 2025 and that the bulbs will not pose a health risk to the general public.

However, the act has been delayed in the Subcommittee on Energy and Air Quality since March 14 – more than six months. U.S. Rep. Michele Bachmann, R-Minn., leading sponsor of the legislation, told WND Democrats are not concerned about pushing the act through.

"The Light Bulb Freedom of Choice Act, H.R. 5616, is currently collecting dust in the House Committee on Energy and Commerce, held up by Democrat leadership that refuses to make this legislation a priority," Bachmann said. "The Democrat leadership fills the congressional schedule with naming post offices and ends the work week early rather than do the people's business."

She continued, "They don't want to take up the real issues that make a difference in people's lives because those issues require them to make tough choices." ....