Fold/Spindle/Mutilate 2.1 » Mc Same

Glass-Steagall Resurrected?

admin — Mon, 21 Dec 2009 05:37:22 +0000

Is the Glass-Steagall Act [1], the Depression-era law that blocked commercial banks from participating in riskier investment banking, set for a revival? That’s what a new piece of legislation [2], introduced yesterday by Senators Maria Cantwell (D-Wash.) and John McCain (R-Ariz.), would do, forcing major changes to financial titans like JPMorgan Chase, Citigroup, and Bank of America.

But first, here’s McCain [3] on the new legislation on CNBC:

Reestablishing the firewall between commercial and investment banking poses a dilemma for banks such as JPMorgan Chase, which snapped up Bear Stearns’ trading operations earlier this year, and massive Citigroup, which includes [4] more staid consumer banking branches as well as riskier trading operations. The already controversial, shotgun-wedded [5] Bank of America and Merrill Lynch relationship [6] wouldn’t survive if Glass-Steagall was revived, either. And you can throw Goldman Sachs and Wells Fargo into that mix, too. The McCain-Cantwell legislation would give such institutions a year to break up their different banking arms.

The Depression-era law, you’ll remember, was abolished in 1999 by the Gramm-Leach-Bliley Act, one of the most significant pieces of deregulatory legislation in the past few decades, paving the way for the emergence of financial behemoths like Wells Fargo, JPMorgan Chase, and Citigroup (though Citi received somewhat of an exemption [7] to grow even before 1999). It’s a long shot at this point, but bringing Glass-Steagall back would be a watershed moment for financial regulation and major step toward scaling back the excesses and ridiculous risk-taking of the past decade or so. At the very least it would protect consumers’ savings from use in banks’ riskier operations.

And talk about a role reversal for John McCain! McCain voted for Gramm-Leach-Bliley [8] back in 1999—a vote to tear down a law he now wants to restore. And as David Corn wrote last year [9], one of McCain’s closest economic advisers during part of the presidential campaign was the godfather of deregulation himself, former Sen. Phil “Nation of Whiners” Gramm [10].

Rep. Maurice Hinchey (D-N.Y.) is going to introduce similar legislation in the House, the Wall Street Journal reported [2] Wednesday. Hinchey tried to get his bill into the House’s big financial-reform package earlier this month, but Democratic leadership blocked him.

Since the Senate probably won’t take up financial regulation until early 2010, it’s unclear how soon the McCain-Cantwell legislation will get its day in the sun. It could be tucked into the Senate’s financial regulation plans, or introduced as an amendment later in the sausage-making process. Either way, it’s a promising idea and an encouraging start to the Senate’s financial overhaul.

Source URL: http://motherjones.com/mojo/2009/12/glass-steagall-resurrected

Links:
[1] http://www.investopedia.com/terms/g/glass_steagall_act.asp
[2] http://online.wsj.com/article/SB126098299342794005.html?mod=dist_smartbrief
[3] http://www.cnbc.com/id/15840232?video=1360856358&play=1
[4] http://www.citibank.com/citi/business/
[5] http://www.theatlantic.com/doc/200909/bank-of-america
[6] http://dealbook.blogs.nytimes.com/2009/11/16/congress-digs-deeper-into-bofa-merrill-deal/
[7] http://www.nytimes.com/2009/11/01/business/economy/01citi.html
[8] http://www.marketwatch.com/story/obama-says-mccain-just-doesnt-get-it-but-neither-does-he?pagenumber=2
[9] http://motherjones.com/politics/2008/05/foreclosure-phil

PALIN RESIGNATION ‘DAMAGE CONTROL’ FOR COMING ‘ICEBERG SCANDAL’ … MORE: EMBEZZLEMENT INDICTMENTS COMING?

admin — Sat, 04 Jul 2009 02:29:24 +0000

By Brad Friedman

UPDATED: Alaskan reporter Shannyn Moore offers The BRAD BLOG hints about reasons for Alaska Gov’s resignation

FURTHER UPDATE: Sources say embezzlement scandal, federal indictments may soon break concerning use of Wasilla Sport Complex building materials for Palin’s home…

[See update below for exclusive source details from Alaska...FURTHER UPDATE now added below: AK sources say 'embezzlement' scandal, federal indictments may be in offing. See below...]

Palin resigns. She was to have been in office until 2010. Something else is going on here above and beyond what she’s saying, though I don’t know what yet. Josh Marshall seems to agree, noting in his “first signs of what happened” coverage:

[T]his clearly happened so quickly that Palin hasn’t even had a chance to come up with a coherent cover story for her resignation. … Remember that based on the public record, Palin is a wildly unethical public official, guilty at a minimum of numerous instances of abusing her authority as governor. And a lot of very damaging information has come out about her in the last few days — though mainly embarrassing information about her character rather than new evidence of bad acts. I would not be surprised if this latest round of revelations shook something else loose that we haven’t heard about yet.”

I’d expect another shoe to drop very soon here…Looking into it…More shortly here…

UPDATE: Alaskan Sarah Palin authority (and occasional BRAD BLOG guest blogger) Shannyn Moore, who broke the news at HuffPo today, tells me she believes, with good reason, that there is an “iceberg scandal that’s about to break. She’s doing damage control.”

She says Palin is “resigning as part of damage control” due to a scandal that is “not of a family nature.” …

“The governor would not be able to continue her job when it comes out,” she told me on the phone just now, before adding: “Why would Mark Sanford not resign, but Sarah Palin did? Her family didn’t even know about the resignation until they were standing with her by the lake” when she made her announcement.

Yes. It seems another shoe, apparently a big one, will indeed be dropping, likely within the next week or so. Perhaps earlier now that everyone will be poking around up there.

FURTHER UPDATE: Okay, I’ve now been able to get independent information from multiple sources that all of this precedes what are said to be possible federal indictments against Palin, concerning an embezzlement scandal related to the building of Palin’s house and the Wasilla Sports Complex built during her tenure as Mayor. Both structures, it is said, feature the “same windows, same wood, same products.” Federal investigators have been looking into this for some time, and indictments could be imminent, according to the Alaska sources.

The BRAD BLOG has not been able to receive confirm from any federal sources on this. Our information comes from local Alaskans who follow Palin, and who have been keeping an eye on this for some time, while keeping it quiet at the request of federal investigators.

A bit more now follows the video below…

* * *With all of the above in mind, her rather manic, rather rambling, rather bizarre announcement (as seen below, via RAW STORY, text transcript here), seems to make a bit more sense, I’d say…

* * *LATE UPDATE: It appears that the questions about Palin’s house and the sports complex made their way through the media and blogosphere during the campaign last October. “Glic” over at DailyKos has collected some of the notable coverage from back then, including these details from the Village Voice on 10/8/08…
THE $12.5 MILLION sports complex and hockey rink that is the lasting monument to Palin’s two terms as Wasilla mayor is also a monument to the kind of insider politics that dismays Americans of both parties. Six months before Palin stepped down as mayor in October 2002, the city awarded nearly a half-million-dollar contract to design the biggest project in Wasilla history to Kumin Associates. Blase Burkhart was the Kumin architect on the job-the son of Roy Burkhart, who is frequently described as a “mentor” of Palin and was head of the local Republican Party (his wife, June, who also advised Palin, is the national committeewoman). Asked if the contract was a favor, Roy Burkhart, who contributed to her campaign in the same time frame that his son got the contract, said: “I really don’t know.” Palin then named Blase Burkhart to a seven-member builder-selection committee that picked Howdie Inc., a mostly residential contractor owned at the time by Howard Nugent. Formally awarded the contract a couple of weeks after Palin left office, Nugent has donated $4,000 to Palin campaigns. Two competitors protested the process that led to Nugent’s contract.

…
A list of subcontractors on the job, obtained by the Voice, includes many with Palin ties. One was Spenard Builders Supply, the state’s leading supplier of wood, floor, roof, and other “pre-engineered components.” In addition to being a sponsor of Todd Palin’s snow-machine team that has earned tens of thousands for the Palin family, Spenard hired Sarah Palin to do a statewide television commercial in 2004. When the Palins began building a new family home off Lake Lucille in 2002â€”at the same time that Palin was running for lieutenant governor and in her final months as mayorâ€”Spenard supplied the materials, according to Antoine Bricks, who works in its Wasilla office.
…
Todd Palin told Fox News that he built the two-story, 3,450-square-foot, four-bedroom, four-bath, wood house himself, with the help of contractors he described as “buddies.” As mayor, Sarah Palin blocked an effort to require the filing of building permits in the wide-open city, and there is no public record of who the “buddies” were.

48 Comments on “EXCLUSIVE: PALIN RESIGNATION ‘DAMAGE CONTROL’ FOR COMING ‘ICEBERG SCANDAL’ … MORE: EMBEZZLEMENT INDICTMENTS COMING?”

It Came from Wasilla

admin — Wed, 01 Jul 2009 04:25:15 +0000

The pattern is inescapable: she takes disagreements personally, and swiftly deals vengeance on enemies, real or perceived.

Despite her disastrous performance in the 2008 election, Sarah Palin is still the sexiest brand in Republican politics, with a lucrative book contract for her story. But what Alaska’s charismatic governor wants the public to know about herself doesn’t always jibe with reality. As John McCain’s top campaign officials talk more candidly than ever before about the meltdown of his vice-presidential pick, the author tracks the signs—political and personal—that Palin was big trouble, and checks the forecast for her future.

By Todd S. Purdum

The crowds begin streaming into the Evansville Auditorium and Convention Centre a couple of hours before the arrival of the “special guest speaker” at the Vanderburgh County Right to Life dinner on a soft Indiana spring evening—nearly 2,200 people in the banquet hall, 800 more in an adjacent auditorium watching the proceedings on a live video feed. The menu is thick slices of roast pork and red velvet cake, washed down with pitchers of iced tea, and when Sarah Palin finally enters, escorted by a phalanx of sheriff’s deputies and local police, she is mobbed. The organizers of the dinner, billed as “the largest pro-life banquet in the world,” have courted Palin for weeks with care packages of locally made chocolates, doughnuts, barbecue, and pastries, and she has requited by choosing Evansville, a conservative stronghold in southern Indiana, as the site of her first public speech outside Alaska in 2009. Like Richard M. Nixon, who chose the coalfield town of Hyden, Kentucky, for his first post-resignation public appearance, Palin has come to a place where she is guaranteed a hero’s reception. She is not only a staunch foe of abortion but also the mother of a boy, Trig, who was born with Down syndrome just a few months before John McCain chose Palin as his running mate. The souvenir program for this evening’s dinner is full of displays for local politicians and businesses, attesting to their pro-life bona fides. An ad for Hahn Realty Corporation reads, “If you need commercial real estate, call Joe Kiefer! Joe is pro-life and a proud supporter of the Vanderburgh County Right to Life.”

As Palin makes her way slowly across the crowded ballroom—dressed all in black; no red Naughty Monkey Double Dare pumps tonight—she is stopped every few inches by adoring fans. She passes the press pen, where at least eight television cameras and a passel of reporters and photographers are corralled, and spots a reporter for a local community newspaper getting ready to take a happy snap with his pocket camera. For a split second she stops, pauses, turns her head and shoulders just so, and smiles. She holds the pose until she’s sure the man has his shot and then moves on. A few minutes later, the evening’s nominal keynote speaker, the Republican Party’s national chairman, Michael Steele, who has been reduced to a footnote in the proceedings, introduces the special guest speaker as “the storm that is the honorable governor of the great state of Alaska, Sarah Palin!”

Just where that storm may be heading is one of the most intriguing issues in American politics today. Palin is at once the sexiest and the riskiest brand in the Republican Party. Her appeal to people in the party (and in the country) who share her convictions and resentments is profound. The fascination is viral, and global. Bill McAllister, until recently Palin’s statehouse spokesman, says that he has fielded (and declined) interview requests from France, England, Italy, Switzerland, Israel, Germany, Bulgaria, “and probably other countries I’ve forgotten about.” (Palin, keeping her distance from most domestic media as well, also declined to talk to V.F.). Whatever her political future, the emergence of Sarah Palin raises questions that will not soon go away. What does it say about the nature of modern American politics that a public official who often seems proud of what she does not know is not only accepted but applauded? What does her prominence say about the importance of having (or lacking) a record of achievement in public life? Why did so many skilled veterans of the Republican Party—long regarded as the more adroit team in presidential politics—keep loyally working for her election even after they privately realized she was casual about the truth and totally unfit for the vice-presidency? Perhaps most painful, how could John McCain, one of the cagiest survivors in contemporary politics—with a fine appreciation of life’s injustices and absurdities, a love for the sweep of history, and an overdeveloped sense of his own integrity and honor—ever have picked a person whose utter shortage of qualification for her proposed job all but disqualified him for his?

In the aftermath of the November election, the conventional wisdom among Palin’s supporters in the Republican establishment was that she should go home, keep her head down, show that she could govern effectively, and quietly educate herself about foreign and domestic policy with the help of a cadre of experienced advisers. She has done none of this. Rather, she has pursued an erratic course that, for her, may actually represent the closest thing there is to True North. Her first trip to Washington since the election was to attend the dinner of the Alfalfa Club, an elite group of politicians and businesspeople whose sole function is an annual evening in honor of a plant that would “do anything for a drink.” Some of her handlers first said she had accepted—though she then went on to decline—an invitation to speak at the annual June fund-raiser for the congressional Republicans. She created a political-action committee—Sarahpac—with the help of John Coale, a prominent Democratic trial lawyer. But just months into its existence the pac’s chief fund-raiser, Becki Donatelli, a veteran of Republican campaigns, suddenly quit. One person familiar with the situation told me that Donatelli could not stand dealing with Palin’s political spokeswoman in Alaska, Meghan Stapleton, who has drawn withering fire from Palin friends and critics alike for being an ineffective adviser. Also with Coale’s help, Palin formed the grandiosely named Alaska Fund Trust, to defray a reported half million dollars in legal expenses arising from a slew of formal ethics complaints against her in her home state—prompting yet another formal complaint, that the fund itself constitutes an ethical breach. Onetime supporters have become harsh critics. Walter Hickel, 89, a former two-term governor and interior secretary, and the grand old man of Alaska politics, who was co-chair of Palin’s winning gubernatorial campaign, in 2006, now washes his hands of her. He told me simply, “I don’t give a damn what she does.”

Palin is unlike any other national figure in modern American life—neither Anna Nicole Smith nor Margaret Chase Smith but a phenomenon all her own. The clouds of tabloid conflict and controversy that swirl around her and her extended clan—the surprise pregnancies, the two-bit blood feuds, the tawdry in-laws and common-law kin caught selling drugs or poaching game—give her family a singular status in the rogues’ gallery of political relatives. By comparison, Billy Carter, Donald Nixon, and Roger Clinton seem like avatars of circumspection. Palin’s life has sometimes played out like an unholy amalgam of Desperate Housewives and Northern Exposure.

Another aspect of the Palin phenomenon bears examination, even if the mere act of raising it invites intimations of sexism: she is by far the best-looking woman ever to rise to such heights in national politics, the first indisputably fertile female to dare to dance with the big dogs. This pheromonal reality has been a blessing and a curse. It has captivated people who would never have given someone with Palin’s record a second glance if Palin had looked like Susan Boyle. And it has made others reluctant to give her a second chance because she looks like a beauty queen.

Soon Palin will take a crack at her own story: she has signed a book contract for an undisclosed but presumably substantial sum, and has chosen Lynn Vincent, a senior writer at the Christian-conservative World magazine, as co-author of the memoir, which is to be published next year not only by HarperCollins but also in a special edition by Zondervan, the Bible-publishing house, that may include supplemental material on faith. During the presidential campaign, Palin’s deep ignorance about most aspects of foreign and domestic policy provided her with a powerful political reason not to submit to interviews. The forthcoming book adds a powerful commercial reason.

Palin is a cipher by choice. When she chooses to reveal herself, what she reveals is not always the same thing as the truth. Her singular refusal to have in-depth conversations with the national media—even Richard Nixon and Dick Cheney, among the most saturnine political figures in modern American history, each submitted to countless detailed interviews over the years—has compounded the challenge of understanding who she really is. There has been Hollywood talk that Palin could star in a reality-TV show about running Alaska, but nothing has come of it yet. Recently, Palin did star in a week-long seriocomic feud with David Letterman over some of his borderline jokes. Meanwhile, she has begun sharing insights several times a day on Twitter, with chipper reports on her own doings and those of her husband, Todd, and the rest of what she calls the “first family.” “Look forward to today’s staff discussion re: my 3rd justice appt to highest court in 3 yrs. Supreme Court truly effects AK’s future,” reads one. And another: “Picking up my handsome little man to rtrn to Juneau, Trig got 1st haircut so my little hippie baby’s ready for AK sunshine on his shoulders.”

Palin turns her debate with Joe Biden into a winkathon. By J. Scott Applewhite/A.P. Images.

Little Shop of Horrors

The caricature of Sarah Palin that emerged in the presidential campaign, for good and ill, is now ineradicable. The swift journey from her knockout convention speech to Tina Fey’s dead-eyed incarnation of her as Dan Quayle with an updo played out in real time, no less for the bewildered McCain campaign than for the public at large. It is an ironclad axiom of politics that if a campaign looks troubled from the outside the inside reality is far worse, and the McCain-Palin fiasco was no exception. As in any sudden marriage of convenience in which neither partner really knows the other, there were bound to be bumps. Palin had been on the national Republican radar for barely a year, after a cruise ship of conservative columnists, including The Weekly Standard’s William Kristol, had stopped in Juneau in 2007 and had succumbed to her charms when she invited them to the governor’s house for a luncheon of halibut cheeks. McCain had spent only a couple of hours in Palin’s presence before choosing her, and she had pointedly failed to endorse him after he clinched the nomination in March. The difficulties began immediately, with the McCain team’s delivery of the bad news that the pregnancy of Palin’s daughter Bristol, which was already common knowledge in Alaska and had been revealed to the McCain team at the last minute, could not be kept secret until after the Republican convention.

By the time Election Day rolled around, the staff had been serially pummeled by unflattering press reports about the gaps in Palin’s knowledge, her stubborn resistance to direction, and the post-selection spending spree in which she ran up bills of $150,000 on clothes for herself and her family at high-end stores. The top McCain aides who had tried hard to work with Palin—Steve Schmidt, the chief strategist; Nicolle Wallace, the communications ace; and Tucker Eskew, her traveling counselor—were barely on speaking terms with her, and news organizations were reporting that anonymous McCain aides saw Palin as a “diva” and a “whack job.” Many of the details that led to such assessments have remained obscure. But in a recent series of conversations, a range of people from the McCain-Palin campaign, including members of the high command, agreed to elaborate on how a match they thought so right ended up going so wrong.

The consensus is that Palin’s rollout, and even her first television interview, with ABC’s Charles Gibson, conducted after an awkward two-week press blackout to allow for intensive cramming at her home in Wasilla, went more or less fine, though it had its embarrassing moments (“You can’t blink,” Palin said, when Gibson asked if she’d hesitated to accept McCain’s offer) and was much parodied. At least one savvy politician—Barack Obama—believed Palin would never have time to get up to speed. He told his aides that it had taken him four months to learn how to be a national candidate, and added, “I don’t care how talented she is, this is really a leap.” The paramount strategic goal in picking Palin was that the choice of a running mate had to ensure a successful convention and a competitive race right after; in that limited sense, the choice worked. But no serious vetting had been done before the selection (by either the McCain or the Obama team), and there was trouble in nailing down basic facts about Palin’s life. After she was picked, the campaign belatedly sent a dozen lawyers and researchers, led by a veteran Bush aide, Taylor Griffin, to Alaska, in a desperate race against the national reporters descending on the state. At one point, trying out a debating point that she believed showed she could empathize with uninsured Americans, Palin told McCain aides that she and Todd in the early years of their marriage had been unable to afford health insurance of any kind, and had gone without it until he got his union card and went to work for British Petroleum on the North Slope of Alaska. Checking with Todd Palin himself revealed that, no, they had had catastrophic coverage all along. She insisted that catastrophic insurance didn’t really count and need not be revealed. This sort of slipperiness—about both what the truth was and whether the truth even mattered—persisted on questions great and small. By late September, when the time came to coach Palin for her second major interview, this time with Katie Couric, there were severe tensions between Palin and the campaign.

By all accounts, Palin was either unwilling, or simply unable, to prepare. In the run-up to the Couric interview, Palin had become preoccupied with a far more parochial concern: answering a humdrum written questionnaire from her hometown newspaper, the Frontiersman. McCain aides saw it as easy stuff, the usual boilerplate, the work of 20 minutes or so, but Palin worried intently. At the same time, she grew concerned that her approval ratings back home in Alaska were sagging as she embraced the role of McCain’s bad cop. To keep her happy, the chief McCain strategist, Steve Schmidt, agreed to conduct a onetime poll of 300 Alaska voters. It would prove to Palin, Schmidt thought, that everything was all right.

Then came the near-total meltdown of the financial system and McCain’s much-derided decision to briefly “suspend” his campaign. Under the circumstances, and with severely limited resources, Schmidt and the McCain-campaign chairman, Rick Davis, scrapped the Alaska poll and urgently set out to survey voters’ views of the economy (and of McCain’s response to it) in competitive states. Palin was furious. She was convinced that Schmidt had lied to her, a belief she conveyed to anyone who would listen.

The next big milestone for Palin was the debate with Joe Biden, on October 2. An early rehearsal effort in Philadelphia found 20 people sitting in a stifling room with hundreds of sample questions on note cards. Palin just stared down, disengaged, non-participatory. A disaster loomed, so Schmidt made the difficult decision to leave campaign headquarters, in Virginia, and fly to McCain’s vacation retreat in Sedona, Arizona, where it was thought that Palin might be able to relax and recharge, and accept the assistance of a voice coach and a television coach. For three full days—at the height of the campaign—Schmidt dropped virtually all other business to help Palin prepare.

He also enlisted some extra help. By this point, Palin’s relations with Nicolle Wallace—a veteran of the Bush White House and a former CBS News analyst who had tried to help Palin get ready for the Couric interview, and whom Palin blamed for the result—were so strained that campaign aides cast about for someone who could serve as a calming presence: Palin’s horse whisperer. They settled on Mark McKinnon, a smart, funny, soft-spoken former Democrat from Texas. McKinnon had long admired McCain, and had begun the Republican primary season helping him out—though warning that he would never work against Obama in the general election. But now McKinnon, whose role in helping prepare Palin has not been previously reported, and who declined to elaborate on it to V.F., changed his mind and quietly signed on. Mark Salter, McCain’s longtime aide, says that McKinnon was picked because “he’s got a lovely manner You sort of want a guy who’s very easygoing, gives good advice, and doesn’t add to the natural nervousness.”

Palin worked hard, and the results were adequate. Palin’s winking “Can I call you Joe?” performance against Biden was nothing like a disaster. In fact, it seems to have emboldened her enough that the next day she openly voiced disagreement with the McCain team’s decision to pull out of active competition in Michigan. When orders or advice from McCain headquarters began to conflict with her own impulses, aides told me, she simply did what she wanted to do. “The problem was she came down from Alaska with basically Todd as a sort of trusted bellwether adviser,” one McCain friend says. “She was given this staff of 20. It was probably too big a staff. To be real honest with you, I don’t think she could figure out who to trust.” All the while, Palin was coping not only with the crazed life of any national candidate on the road but also with the young children traveling with her. Some top aides worried about her mental state: was it possible that she was experiencing postpartum depression? (Palin’s youngest son was less than six months old.) Palin maintained only the barest level of civil discourse with Tucker Eskew, the veteran G.O.P. operative who had been made her chief minder. A third party had to shuttle between them to convey even the most rudimentary messages. “She started to hedge her bets,” the same McCain friend says. “Frequently, she would be concerned about how something would play in Alaska. What? You’re worried about your backside in Alaska when there are hundreds of millions of dollars being spent?” One longtime McCain friend and frequent companion on the trail was heard to refer to Palin as “Little Shop of Horrors.”

Election Night brought what McCain aides saw as the final indignity. Palin decided she would make her own speech at the ticket’s farewell to the faithful, at the Arizona Biltmore, in Phoenix. When aides went to load McCain’s concession speech into the teleprompter, they found a concession speech for Palin—written by Bush speechwriter Matthew Scully, who had also been the principal drafter of her convention speech—already on the system. Schmidt and Salter told Palin that there was no tradition of Election Night speeches by running mates, and that she wouldn’t be giving one. Palin was insistent. “Are those John’s wishes?” she asked. They were, she was told. But Palin took the issue to McCain himself, raising it on the walk from his suite to the outdoor rally. Again the answer was no.

Polar Disorder

There is virtually nothing about Palin’s performance in the fall campaign that should have come as a surprise to John McCain. Had he really attempted to learn something about her before the fateful day of August 29, 2008, when he announced that she was his choice for running mate, he would easily have discerned all the traits that he belatedly came to know.

The narrative that the McCain campaign employed to explain Palin’s selection and to promote her qualifications—that she was a fresh-faced reformer who had taken on Alaska’s big oil companies and the corrupt Republican establishment, governing with bipartisan support—was never more than superficially true. In dozens of conversations during a recent visit to Alaska, it was easy to learn that there has always been a counter-narrative about Palin, and indeed it has become the dominant one. It is the story of a political novice with an intuitive feel for the temper of her times, a woman who saw her opportunities and coolly seized them. In every job, she surrounded herself with an insular coterie of trusted friends, took disagreements personally, discarded people who were no longer useful, and swiftly dealt vengeance on enemies, real or perceived. “Remember,” says Lyda Green, a former Republican state senator who once represented Palin’s home district, and who over the years went from being a supporter of Palin’s to a bitter foe, “her nickname in high school was ‘Barracuda.’ I was never called Barracuda. Were you? There’s a certain instinct there that you go for the jugular.”

The first thing McCain could have learned about Palin is what it means that she is from Alaska. More than 30 years ago, John McPhee wrote, “Alaska is a foreign country significantly populated with Americans. Its languages extend to English. Its nature is its own. Nothing seems so unexpected as the boxes marked ‘U.S. Mail.’” That description still fits. The state capital, Juneau, is 600 miles from the principal city, Anchorage, and is reachable only by air or sea. Alaskan politicians list the length of their residency in the state (if they were not born there) at the top of their biographies, and are careful to specify whether they like hunting, fishing, or both. There is little sense of government as an enduring institution: when the annual 90-day legislative session is over, the legislators pack up their offices, files, and computers, and take everything home. Alaska’s largest newspaper, the Anchorage Daily News, maintains no full-time bureau in Juneau to cover the statehouse. As in any resource-rich developing country with weak institutions and woeful oversight, corruption and official misconduct go easily unchecked. Scrutiny is not welcome, and Alaskans of every age and station, of every race and political stripe, unself-consciously refer to every other place on earth with a single word: Outside.

So, of all the puzzling things that Sarah Palin told the American public last fall, perhaps the most puzzling was this: “Believe me, Alaska is like a microcosm of America.”

Believe me, it is not.

But Sarah Palin herself is a microcosm of Alaska, or at least of the fastest-growing and politically crucial part of it, which stretches up the broad Matanuska-Susitna Valley, north of Anchorage, where she came of age and cut her political teeth in her now famous hometown, Wasilla. In the same way that Lyndon Johnson could only have come from Texas, or Bill Clinton from Arkansas, Palin and all that she is could only have come from Wasilla. It is a place of breathtaking scenery and virtually no zoning. The view along Wasilla’s main drag is of Chili’s, ihop, Home Depot, Target, and Arby’s, and yet the view from the Palins’ front yard, on Lake Lucille, recalls the Alpine splendor visible from Captain Von Trapp’s terrace in The Sound of Music. It is culturally conservative: the local newspaper recently published an article that asked, “Will the Antichrist be a Homosexual?” It is in this Alaska—where it is possible to be both a conservative Republican and a pothead, or a foursquare Democrat and a gun nut—that Sarah Palin learned everything she knows about politics, and about life. It was in this environment that her ambition first found an outlet in public office, and where she first tasted the 151-proof Everclear that is power.

The second thing McCain could have discovered about Palin is that no political principle or personal relationship is more sacred than her own ambition. To be sure, Palin is “conservative,” whatever that means, but she can be all over the lot in the articulation of her platform. In a June interview with Sean Hannity, she sounded like a New Dealer when she proudly proclaimed that “a share of our oil-resource revenue goes back to the people who own the resources—imagine that.” In the next breath, sounding like a “starve the beast” conservative, she said she hoped the price of oil, the principal variable of state revenue, would not rise too much. “The fewer dollars that the state of Alaska government has, the fewer dollars we spend, and that’s good for our families and the private sector.” Palin has always been a party of one. She gained the mayoralty of Wasilla in 1996 by turning against the incumbent, John Stein, who had been one of her mentors when she was on the city council, and injecting sharply partisan issues such as gun rights and abortion into what had previously been a low-key local contest. She fired the police chief, eased out the museum director and the city planner, and fired and then rehired the librarian (who had opposed book censorship). Palin was entitled to make the dismissals, and she variously justified them on the grounds of budget difficulties or the need for a team that she could be sure would support her efforts. But the Frontiersman accused Palin of confusing her election with a “coronation.”

Even in broad outline the story of how a small-town mayor became the youngest governor in Alaska history seems improbable. There was her long-shot campaign for lieutenant governor, in 2002, in which she came in second against a veteran state senator in a five-way race; her appointment as chair (and ethics supervisor) of the state’s Oil and Gas Conservation Commission, which oversees drilling and production; and her resignation from that post, charging that a fellow commissioner, Randy Ruedrich, the chair of the Alaska Republican Party, was conducting political business on state time. In a climate where the sitting Republican governor, Frank Murkowski, had become the most unpopular figure in the state, and where the F.B.I. was swarming over Alaska, pursuing the corruption probe that later ensnared the state’s senior U.S. senator, Ted Stevens, Palin seemed like a breath of fresh air.

Yet Palin herself cut corners. Ruedrich, Palin’s target on the Conservation Commission, was forced to resign, but in 2006, as Palin was beginning her campaign for governor, a conservative columnist dug up e-mail messages showing that she too had conducted campaign business from her mayoral office. Confronted by the columnist, Palin acknowledged that she had erred. Then she turned around and issued a press release, demanding to know why the columnist was publishing smears.

Palin won the crucial support of Walter Hickel in her campaign for governor in part by supporting one of his longtime hobbyhorses, an “all-Alaska” natural-gas pipeline that would pump gas to the port of Valdez for export worldwide. As the campaign wore on, Palin backed away from that idea. “I helped her out, she got elected,” Hickel says now. “She never called me once in her life after that.”

Palin’s 2006 campaign for governor relied at first almost wholly on a ragtag band of true believers. “She had this little grassroots group that was going around the state on a wing and a prayer, talking up her platitudes,” says John Bitney, an old friend of Palin’s from junior-high band in Wasilla, where he played the trombone and she played the flute. Bitney at the time was a lobbyist and veteran legislative aide in Juneau, and he began passing political intelligence and advice to Palin. When Palin routed Murkowski in the Republican primary, she still had no real professional campaign staff. Bitney signed on, forming a triumvirate with Curtis Smith, a veteran Anchorage media consultant, and Kris Perry, another old friend of Palin’s from Wasilla, who functioned as her personal assistant and also held the title of campaign manager. Palin began preparing for a general-election campaign against Tony Knowles, the former two-term Democratic governor, and Andrew Halcro, a former Republican legislator who was running as an independent.

She apparently didn’t like preparing for debates back then either. “In the campaign for governor, they’re prepping her for debate,” Curtis Smith’s former business partner, Jim Lottsfeldt, told me recently in Anchorage, “and Curtis says, ‘The debate prep’s going horribly. Every time we try to help her with an answer, she just gets mad.’” (Smith himself says, “Unfortunately, I don’t recall having that exact conversation with Mr. Lottsfeldt, nor do I recall my experience, including debate prep, with Governor Palin in the light he portrayed.”) But Palin’s lack of knowledge turned out not to hurt her. Andrew Halcro later remembered that he and Palin once compared notes about their many encounters, and she said, “Andrew, I watch you at these debates with no notes, no papers, and yet when asked questions, you spout off facts, figures, and policies, and I’m amazed. But then I look out into the audience and I ask myself, Does any of this really matter?”

Palin’s victory that November was one of the flukiest successes in modern American politics. Rebecca Braun, the publisher of the Alaska Budget Report, a respected nonpartisan newsletter, describes the result as something “far beyond anything you could explain in terms of intellect or training.” But Palin had promised three big things, and with the help of Bitney, who became her liaison with the legislature, and Mike Tibbles, her chief of staff, she achieved them. She increased oil taxes; she won the legislative framework for a gas pipeline, though not the one Hickel wanted; and she signed significant ethics reforms. In all three efforts she won strong cooperation from Democrats. “She had an easy go of it,” says Larry Persily, a former editorial-page editor of the Anchorage Daily News, who went to work in Palin’s Washington office but is now a critic of the governor’s. “The Democrats were in love with her. She slew the oil-company Gorgon, and came in on the magic carpet of oil-tax reform and ethics. The Democrats were intoxicated because she wasn’t Frank Murkowski.” Rising oil prices provided an added lift. Palin was able to increase the annual distribution from the state’s Permanent Fund to about $3,000 per resident, almost double the amount received the previous year. She could be a fiscal conservative and a big spender all at the same time.

Palin and Cindy McCain, never soulmates. By Paul J. Richards/Getty Images.

But there were ominous signs—indications of an erratic nature. This is the third thing McCain could have discovered about Palin—a woman, after all, who kept a pregnancy secret for seven months, flew all the way home from Texas to Alaska with a near-full-term baby while leaking amniotic fluid, and then finally drove the 45 minutes from Anchorage to a hospital in Wasilla, all so that the child could be born in the 49th state. Palin was for the infamous Gravina Island “bridge to nowhere” before she was against it, and reversed herself only when such pork-barrel projects prompted a nationwide backlash. As governor, she hired several old high-school, hometown, or political friends with minimal qualifications for important state jobs. One friend, a former mid-level manager for Alaska Airlines, headed the department that reviewed candidates for state boards and commissions; another became director of the state Division of Agriculture, citing a childhood love of cows as one qualification. Palin communicated with legislators and her staff mainly by BlackBerry, sometimes using a personal e-mail account to avoid having to disclose documents under the state public-records laws. (The one time Meg Stapleton, who handles Palin’s personal and political public relations, ever answered multiple e-mails was when I wrote her and Palin’s gubernatorial office at the same time, and she replied: “Thank you for emailing. I will email you separately so as to remove us from the state account.”) Palin’s anti-politician stance had worked so well in her campaign that she carried it over into her dealings with actual politicians in Juneau, who didn’t take kindly to the practice. After one meeting between the governor and legislators in 2007, Lyda Green, then the president of the state senate, returned to her office to catch up on some paperwork. She caught Palin on the news. “And she comes on TV and says, ‘I want to once again confirm that neither I nor my staff ever holds closed-door meetings.’ Well, we had just been in a closed-door meeting for an hour and a half!” Representative Les Gara, an Anchorage Democrat who often worked with Palin, told me that he had at first thought that some of Green’s sharp criticism of Palin amounted to Republican infighting, or maybe just sour grapes that Wasilla had produced a new political figure whose star far outshone Green’s. But he came to realize, he said, that Green had a better handle on Palin than he did. “She didn’t work very hard. You would speak to her on particular issues, and it was like she didn’t know anything about them and she never seemed very engaged.” That said, “if your priorities happened to be her priorities, you could build a coalition.”

On the other hand, if your priorities happened to differ from hers, you could pay a terrible price. Only weeks after Palin praised John Bitney for doing so much to make her first legislative session a success, she summarily fired him—because, he says, he had had the bad luck to fall in love with the wife of one of the Palins’ best friends (a woman he has since married). At the time, Palin’s office cited what it called “personal” reasons for an “amicable” departure. But when The Wall Street Journal called Palin’s office during last fall’s presidential campaign to ask about the case, a spokeswoman for Palin said that Bitney had been “dismissed because of his poor job performance,” and refused to elaborate.

Not quite a year after Bitney’s departure, Mike Tibbles abruptly resigned as chief of staff, for reasons that neither he nor Palin has ever explained. Jim Lottsfeldt, a friend of Tibbles’s, says that the chief of staff was worn down “by the steady drumbeat of her not consulting with him.” She replaced Tibbles with Mike Nizich, a part-time taxidermist, who over 30 years had served seven governors of both parties, most of that time as director of the state Division of Administration—a man who made the trains run on time in the governor’s office but had nothing to do with policy issues. Palin’s effectiveness was never again the same. The brutal reality is that many people who have worked closely with Palin have found themselves disillusioned.

More than once in my travels in Alaska, people brought up, without prompting, the question of Palin’s extravagant self-regard. Several told me, independently of one another, that they had consulted the definition of “narcissistic personality disorder” in the Diagnostic and Statistical Manual of Mental Disorders—“a pervasive pattern of grandiosity (in fantasy or behavior), need for admiration, and lack of empathy”—and thought it fit her perfectly. When Trig was born, Palin wrote an e-mail letter to friends and relatives, describing the belated news of her pregnancy and detailing Trig’s condition; she wrote the e-mail not in her own name but in God’s, and signed it “Trig’s Creator, Your Heavenly Father.”

Perhaps no episode of Palin’s governorship has drawn more attention than the one that came to be known as Troopergate. For more than a year of her tenure as governor, Palin and her husband and aides repeatedly and aggressively complained to Walt Monegan, the former Anchorage police chief whom Palin had named to head the state’s Department of Public Safety, about Mike Wooten, a state trooper who had been involved in a messy divorce from Palin’s sister Molly. Wooten was no angel. Before Palin ever took office, he had been disciplined after drinking beer in his patrol car, Tasering his stepson, illegally shooting a moose, and making threatening remarks about Palin’s father. But Wooten had already been disciplined, and Monegan believed that further action was unjustified if not impossible. The final straw may have been Monegan’s June 30, 2008, e-mail warning to Palin that an unnamed state legislator had complained that she’d been seen driving with her newborn son, and that the infant had not been strapped into an approved car seat. “I have never driven Trig anywhere without a new, approved car seat,” Palin fired back. “I want to know who said otherwise—pls. provide me that info now.” Twelve days later, Nizich fired Monegan on Palin’s orders. Forty-nine days after that, John McCain announced that Palin would join him on the ticket.

Arrows in the Back

In Alaska, there has never been a gubernatorial tradition of pardoning a turkey at Thanksgiving, but Palin decided to stage such a ceremony last November all the same, at the Triple D Farm & Hatchery, outside Wasilla. After granting the lucky bird its reprieve, she stopped to talk to a local television reporter about what she had learned in the campaign just concluded. “I don’t think it’s changed me at all,” she insisted, clutching a cup of coffee as her breath steamed into the frosty air. “You know, it’s pretty brutal, the time consumption there, and the energy that has to be spent in order to get out and about with the message on a national level, a great appreciation for other candidates who have gone through this, but also just a great appreciation for this great country. There are so many good Americans who are just desiring of their government to kind of get out of the way and allow them to grow and progress, and allow our businesses to grow and progress. So, great appreciation for those who share that value.”

As Palin spoke, a grisly scene unfolded behind her. A worker hefted one squirming white turkey after another into a metal funnel, slit its throat, and bled it out in full view of the camera. The clip was replayed tens of thousands of times on YouTube and seemed an all too apt metaphor for how Palin’s political fortunes had changed in the wake of her great national adventure, even if her personality had not. A career that thrived for years on extraordinarily good luck seems to have known nothing but trouble since November 4. In December, Bristol Palin gave birth to Tripp Easton Mitchell Johnston, her son with her boyfriend, Levi Johnston, and for a time there was talk of a wedding. But by early spring the couple had split up, and their families fell to trading charges on talk shows and in the tabloids. After Levi told Tyra Banks that he had often spent the night in the Palin home, in the same room as Bristol, and assumed that the governor knew they were having sex, Palin, through her spokeswoman, released a blistering statement expressing disappointment “that Levi and his family, in a quest for fame, attention, and fortune, are engaging in flat-out lies, gross exaggeration, and even distortion of their relationship.” On the CBS Early Show, days later, Johnston seemed resigned. “They said I didn’t live there. I ‘stayed there,”’ he said. “I was like, O.K., well, whatever you want to call it. I had my stuff there.” Although Bristol initially told Greta Van Susteren that teen abstinence is “not realistic at all,” by springtime she had signed up as an ambassador for the Candie’s Foundation to promote abstinence as the way to avoid teen pregnancy.

Meantime, Levi’s mother, Sherry, agreed to plead guilty to a felony count of possessing OxyContin with intent to sell it, in exchange for the state’s agreement to drop five other drug-related charges against her. Her lawyer has conceded that she will draw an automatic jail sentence, but hopes to minimize the time she spends behind bars, because she suffers from chronic pain. In April, Todd Palin’s half-sister Diana was arrested on charges of twice breaking into a house in Wasilla to steal money from a bedroom cabinet, under circumstances that remain unexplained.

Because Palin had taken particular umbrage in the fall campaign at any effort to criticize her children or invade their privacy, her willingness to mix it up in public with an 18-year-old, who is after all the father of her only grandchild, struck many in Alaska as odd. So did Palin’s suggestion, at a time when declining oil prices have thrown the state budget into the red, that she did not want to accept about a third of the $930 million in federal stimulus money available to Alaska, because it would come with too many big-government strings attached. The move seemed calculated to burnish her national conservative credentials. In the face of bipartisan outcry, Palin’s aides insisted she had never meant to say she wouldn’t take the money, only that she wanted to review the matter carefully. That was news to former aide Larry Persily. After the first meeting on the stimulus money, Persily told me, “Everyone in the room left thinking she’d said no. Then her staff said, ‘She didn’t say no. She just didn’t say yes.”’ Palin wound up taking all but about 3 percent of the $900 million available to Alaska. The consensus even among the Republicans I spoke to was that she rejected the last $28 million—for energy assistance—mostly to save face.

The ever shifting sands of Palin’s sensibility were also on display after former senator Ted Stevens’s conviction on corruption charges was set aside, in April. Palin’s old nemesis, the Alaska Republican Party chair Randy Ruedrich, called on Stevens’s Democratic successor, Mark Begich, who had defeated Stevens just days after the original conviction last fall, to step down and allow a new election. Palin told the Fairbanks Daily News-Miner in an e-mail, “I absolutely agree.” Days later, at a news conference, Palin insisted she had never called on Begich to step down.

Perhaps nothing has caused a bigger stir than Palin’s nomination of Wayne Anthony Ross to be Alaska’s attorney general. Ross is a two-time gubernatorial candidate and a board member of the National Rifle Association. He had sown controversy over the years by referring to gays and lesbians as “degenerates” (he later sought to downplay the remark, saying his aversion to homosexuals was no different from his aversion to lima beans) and for staunchly opposing subsistence-hunting preferences for native Alaskans. A flamboyant divorce lawyer who drives a big red Hummer with the vanity license plate war, Ross is a good old boy of pithy expression and considerable charm. (“In Alaska,” Ross told me, “a liberal is someone who carries a .357 or smaller.”) The final vote against Ross—with the Republican leaders of both chambers joining to defeat him—came just as Palin was speaking in Evansville. It was the first time in Alaska history that a cabinet nominee was rejected. “If I wince a little, it’s from the arrows in my back,” Ross told me a few weeks later. “I think there were a number of people who were trying to show her who the boss was.”

A year ago, 80 percent of Alaskans viewed Palin very favorably or somewhat favorably; by this spring, just 55 percent had a positive opinion. All this has given rise to speculation in Alaska that Palin may not run for re-election next year. She does not have to declare her candidacy until June 2010. Most politicians of both parties in Alaska with whom I spoke assume she could win, though not as persuasively as she did in 2006, which would hardly help her standing in a 2012 presidential campaign. Though Palin’s spokeswoman has said she does not intend to challenge Senator Lisa Murkowski, the former governor’s daughter, who is also up for re-election next year, Palin has changed her mind without warning in the past, and becoming a senator would keep her in the national spotlight. Surveying the landscape of political and policy troubles in Alaska, Gregg Erickson, an independent economic consultant in Juneau, concludes, “Everything she’s doing seems to be saying that there’ll be a problem in the future owing to her inattention, but she won’t be here to deal with it.”

“Just Make It All Go Away”

As Palin has piled misstep on top of misstep, the senior members of McCain’s campaign team have undergone a painful odyssey of their own. In recent rounds of long conversations, most made it clear that they suffer a kind of survivor’s guilt: they can’t quite believe that for two frantic months last fall, caught in a Bermuda Triangle of a campaign, they worked their tails off to try to elect as vice president of the United States someone who, by mid-October, they believed for certain was nowhere near ready for the job, and might never be. They quietly ponder the nightmare they lived through. Do they ever ask, What were we thinking? “Oh, yeah, oh, yeah,” one longtime McCain friend told me with a rueful chuckle. “You nailed it.” Another key McCain aide summed up his attitude this way: “I guess it’s sort of shifted,” he said. “I always wanted to tell myself the best-case story about her.” Even now, he said, “I don’t want to get too negative.” Then he added, “I think, as I’ve evaluated it, I think some of my worst fears … the after-election events have confirmed that her more negative aspects may have been there … ” His voice trailed off. “I saw her as a raw talent. Raw, but a talent. I hoped she could become better.”

None of McCain’s still-loyal soldiers will say negative things about Palin on the record. Even thinking such thoughts privately is painful for them, because there is ultimately no way to read McCain’s selection of Palin as reflecting anything other than an appalling egotism, heedlessness, and lack of judgment in a man whose courage, tenacity, and character they have extravagantly admired—and as reflecting, too, an unsettling willingness on their own part to aid and abet him. They all know that if their candidate—a 72-year-old cancer survivor—had won the presidency, the vice-presidency would be in the hands of a woman who lacked the knowledge, the preparation, the aptitude, and the temperament for the job. To ask why none of them dared to just walk away is to ask why Colin Powell did not resign in protest over the Bush administration’s foreign policy, or why none of Bill Clinton’s disillusioned aides resigned after he lied to them about Monica Lewinsky. The question cannot comprehend the intense bonds that the blood sport of modern politics produces. To leave a campaign—especially a struggling, losing campaign—is akin to desertion in wartime, and even as they began to understand her limitations, plenty of McCain aides still saw Palin as the campaign’s best hope. Some still believe that, simply in terms of the electoral math, she helped at least as much as she hurt, and maybe helped more.

McCain has delivered his own postmortem on Palin with the patented brand of winking-and-nodding ironic detachment that he usually reserves for painful political questions, an approach that simultaneously seeks to confess his sin and presume absolution for it. In November, he told Jay Leno he was proud of Palin and did not blame her for his defeat, but by April, when Leno asked him about who was running the Republican Party, McCain declined to mention Palin: “We have, I’m happy to say, a lot of choices out there: Bobby Jindal, Tim Pawlenty, Huntsman, Romney, Charlie Crist—there’s a lot of governors out there who are young and dynamic.” McCain went on, “There’s a lot of good people out there, and I’ve left out somebody’s name and I’m going to hear about it.” When I ask Mark Salter, McCain’s longtime speechwriter and co-author, about that comment, he says simply, “McCain always talks unscripted,” and adds that he has heard “not one word of regret” about Palin ever pass McCain’s lips. McCain’s daughter Meghan, who has continued the blog she began on the campaign last year, has said that Palin is the one topic on which she will have no public comment.

Palin herself has alternately shied away from the spotlight and injected herself into public debate on questions dear to conservatives, as she did when she issued a statement defending the former Miss California, Carrie Prejean, for opposing gay marriage despite “the liberal onslaught of malicious attacks.” Palin’s speech in Evansville was her first major post-election foray into the national media, and she followed it up in June with a trip to New York State, to commemorate the 50th anniversary of Alaska’s entry into the union, visiting Auburn, the hometown of William H. Seward, who bought the Alaska territory from Russia, and making appearances at events supporting families with autism and developmental disabilities. But the biggest headlines the trip produced were those about Palin’s feud with David Letterman, who joked that Palin had gone to Bloomingdale’s to update her “slutty flight-attendant look” and made a tasteless sexual jibe about one of the Palin daughters. Letterman eventually apologized, though Palin fanned the flames in ways that were not necessarily to her advantage.

In Evansville, though, Palin concentrated on the task at hand: an emphatic defense of the anti-abortion cause. But in doing so she made a startling confession about what she thought when she learned she was pregnant at 43 with her youngest child, Trig, who arrived in April 2008, as the world now knows, with Down syndrome. “I had found out that I was pregnant while out of state first,” Palin told the crowd. “While out of state, there just for a fleeting moment, I thought, Nobody knows me here. Nobody would ever know. I thought, Wow, it is easy to think maybe of trying to change the circumstances and no one would know—no one would ever know. Then when my amniocentesis results came back, showing what they called abnormalities—oh, dear God—I knew, I had instantly an understanding, for that fleeting moment, why someone would believe it could seem possible to change those circumstances, just make it all go away, get some normalcy back in life.” It is almost impossible not to be touched by the rawness of her confession, even if it is precisely this choice that Palin believes no other woman should ever have, not even in the case of rape or incest.

Sarah Palin is a star in Evansville and all the many Evansvilles of America, but there is a big part of the Republican Party—the Wall Street wing, the national-security wing—in which she cuts no ice. At the 2009 Conservative Political Action Conference, Palin essentially came in tied for second with Governor Bobby Jindal, of Louisiana, and Representative Ron Paul, of Texas, with 13 percent support in a straw poll of potential 2012 presidential candidates; former governor Mitt Romney, of Massachusetts, got 20 percent. A more recent survey has Palin in a three-way tie with Romney and former Arkansas governor Mike Huckabee. She could do well in the Iowa caucuses or South Carolina primary, but it is much harder to imagine her making headway in New Hampshire, where independent voters were turned off by her last fall. It is also difficult to see just how she would expand her appeal beyond the base that already loves her.

In Alaska, almost everyone I met wondered who was advising her in Washington—and in Washington, everyone wonders the same thing. There are one or two clues. On the eve of the Alfalfa dinner, in January, Palin was a guest in the home of Fred Malek, a veteran Republican fund-raiser and government official dating back to the days of the Nixon administration. Malek raised money for McCain’s campaign last year, and also agreed to play host to a fund-raising dinner for Republican governors in early May. (Palin was to have been an honored guest, but canceled owing to spring flooding in Alaska.) As noted, Palin has established a political-action committee with the legal advice of John Coale, who met Palin when his wife, Greta Van Susteren, the Fox News host, went to interview her during the campaign. Coale, a former Hillary Clinton supporter, told me he felt Palin had gotten a bum rap from liberals and conservatives alike, and he advised her that a pac was a logical and legal way to pay for out-of-state political travel. “We raised a good bit of money without even asking,” Coale says. “Just set up a Web site and, I think in the first month, $400,000 came in.” Coale says he still exchanges e-mails with Palin from time to time, but doesn’t consider himself a political adviser; he also says that Van Susteren has “put up a Chinese wall about all of this,” and has obtained her interviews with the Palins independently. Since the campaign ended, Van Susteren has interviewed Palin twice more, but she says she has never had a conversation with Palin off-camera, except for when Palin called to rescind her acceptance of Van Susteren’s invitation to the White House Correspondents’ Dinner in May, because of the Alaska flooding. Todd Palin came solo as Van Susteren’s guest, and when a reporter for Politico sought to interview him at a pre-dinner brunch attended by hundreds of journalists, Van Susteren interposed herself, as in the manner of a staffer, to say it was a social event. Van Susteren told me she was just trying to exercise good manners.

Palin’s closest adviser remains her husband—the “first gentleman” or “first dude,” as she calls him. Testimony in the Troopergate investigation suggested that Todd was physically in the governor’s office for about 50 percent of the time, often sitting in on meetings or phone calls in which he had no obvious official function. By the end of last fall’s campaign, McCain’s friends had picked up word that Todd was calling around to Republicans in South Carolina, urging them to keep his wife in mind for 2012—the implication being that the Palins believed McCain was about to lose. This spring, he stood in for Palin at an event in Manhattan—at Alaska House in SoHo, the cultural antipode of Wasilla—promoting the Alaska commercial-fishing industry’s contributions to world food aid. In a brief prepared speech, he extolled Alaska salmon as “some of the world’s healthiest protein, rich in vitamins and minerals, and a source of omega-3 fats.”

“She doesn’t at all have anyone who’s willing to give it to her straight,” one person who occasionally advises Palin told me. Todd may be the one exception. “I saw nobody else like that, nobody who would sit her down and say, ‘Hey, wait a minute.’” He added, of the poor communications operation run by Stapleton, “I don’t know what part Sarah Palin plays in the lack of communications, but I don’t think she’s aware of how big a problem it is.”

And her national ambitions? “What it looks like to me she’s trying to do is try the same formula that got her the governorship,” John Bitney says. “You sort of start off with a conservative base. The right-wing base is obviously out on the far end of the spectrum, but it’s a very motivated base. They show up, they’re committed. It gets you that political beachhead. She did not get started with the blessing of the Republican Party. She started with a dedicated corps of sort of right-wing true believers who killed themselves for her, and got her going. And then she began to build on that, and after she crossed the primary hurdle, she moderated her message on some points.”

When I ask Bitney what he makes of the whole Palin phenomenon, he sighs. “What do I take away from this?” he asks. “Oh, I don’t know. I don’t know. It’s just a lot of emotions and stuff. I find it’s frustrating dealing with Sarah, because it seems we’re always dealing with emotional crap and we never seem to be able to focus on the business at hand that needs to be done. I don’t know whether to blame her or pity her for all this emotional upheaval that we’re always going through with her. Now we all get to listen to Levi and Bristol. Check my feet for horseshoes if I have to sit there and listen to another talk show. I got involved in helping her become governor because we needed to change some policy directions. Teen abstinence is not why I waved signs for her.”

Palin herself often sounds tired and resentful these days, as if wondering whether she should have blinked and just said no to John McCain. In a rambling, 17-minute speech introducing Michael Reagan, the former president’s son and a conservative radio host at an event in Alaska in June—a speech that borrowed heavily, without clear attribution, from a four-year-old article by Newt Gingrich and the Republican strategist Craig Shirley—Palin seemed resigned to the fact that her reputation would never again be as fresh and glowing as it once was. She complained about “national figures and some in the press who, who want to put not just me, but anybody who dares speak up, it seems nowadays, right back down in their place.” She bemoaned her changing fortunes in Alaska. “I think things here that have so drastically changed these past months … Some want to forbid others from speaking up, and it’s been through lawsuits, been ethics-violation charges, media distortions And those are the folks who want to tell me, they want to tell you to sit down and shut up. We will not do so. I just can’t because I love my state, I love my country, and I need you, we need Michael Reagan to keep on fighting for our freedoms, for our country, and what we’re being fed today, it seems, is a steady diet of selected misrepresented news So I join you in speaking up and asking the questions and taking action, and here at home in my beloved Alaska, I just say, politically speaking, if I die, I die.”

Poll: Who is the most powerful woman in the G.O.P.?

Palin has disappointed many of those who once had the highest hopes for her. She has stumbled over innumerable details. But as she said to Andrew Halcro years ago, “Does any of this really matter?” Palin has shown herself to have remarkable gut instincts about raw politics, and she has seen openings where others did not. And she has the good fortune to have traction within a political party that is bereft of strong leadership, and whose rank and file often demands qualities other than knowledge, experience, and an understanding that facts are, as John Adams said, stubborn things. It is, at the moment, a party in which the loudest and most singular voices, not burdened by responsibility, wield disproportionate power. She may decide that she does not need office in order to have great influence—any more than Rush Limbaugh does.

On a rare fine day in Juneau, not long ago, Palin was seen sitting in the sunshine in the broad plaza near the state capitol, alone with her thoughts and some reading material for more than an hour and a half. Down the hillside below her, the big cruise liners that ply Alaska’s Inside Passage in the summer months were beginning to call in the port. Only two years have elapsed since William Kristol and his colleagues disembarked from one of them and hearkened to her siren call. Sarah Palin might well have been wondering whether her own ship is going out, or just coming in.

Todd S. Purdum is Vanity Fair’s national editor.

Watch Out for Stimulus Profiteers

admin — Mon, 02 Mar 2009 04:57:53 +0000

By Anthony Shorris

As we rebuild America’s aging infrastructure, let’s make sure taxpayer money goes to those who need it and doesn’t line the pockets of those who knew how to play the game.

Spending as much as the additional $150 billion for infrastructure that is included in the new legislation (still well below what is needed for the nation’s aging systems and less than what many economists had hoped for) would still mean a substantial increase in total annual US investment, potentially as much as a one-third hike in activity over the next year. The Congressional Budget Office reports total infrastructure spending as around $400 billion annually.

The bill requires that half the transportation projects be underway within a few months, so any sudden surge in demand for building of that size is going to run up against some serious limitations in the supply of construction services, at least over the short run. While commercial office building and home construction has certainly virtually collapsed, different kinds of builders handle these kinds of projects. When rising demand meets limited supply, the result can be higher prices, higher profits and potentially the very same kind of speculative bubble that served us so poorly in the high-tech and real estate sectors.

We’ve seen it before. In the New York region, a public and private sector construction boom in the years just before the crash drove building prices up by as much as 50 percent over three years. The same phenomenon was seen in markets as far away as Malaysia and China, and as close to home as Atlanta and Seattle before the global economy went into a nosedive.

The potential impact of a demand-driven surge gets pretty big pretty quickly. Unless we think hard about this, the sudden increase in demand for building will almost certainly begin to raise prices in the particular sectors involved with these kinds of projects. After all, there is no reason to believe there is enough idle capacity lying around to raise US infrastructure spending by one-third within a year. Total US unemployment is still under 8 percent–a figure likely underestimated through the exclusion of many who have given up even looking or who are under-employed. Not many of those out of a job are skilled construction trades people who work on projects like these. Even if this increase in demand were to drive up prices by just 10 percent–and we have experienced spurts in construction demand doing much more than that–as much as $15 billion could be at stake, an amount that used to pass for a big number.

Publicly funded infrastructure projects are executed by private contractors; the larger the project, the more often they are run by large corporations, not all of them even based in the United States. Like other firms, these public works enterprises use the proceeds from the sale of their services to governments to pay their own workers, buy their materials and create profits for their owners and investors. When there is a surge in demand, these firms will certainly be able to raise their prices. The question is, where does the money go?

If higher construction prices go to pay construction workers, that’s generally a good thing–after all, the point of the stimulus is to inject money into our economy so more people can have jobs that pay better. The problem on the labor side is simply a shortage of skilled workers. The US Labor Department should engage the major construction unions and public universities across the country right now in expedited programs to train current low-skilled workers to move into higher-skilled jobs, to quickly hire and train new workers where needed, and to retrain workers from other, related fields to be ready to handle big machinery of construction. Auto workers might be a good place to start. Former Labor Secretary Robert Reich has called for projects using stimulus dollars to be required to dedicate 20 percent of the jobs to long-term unemployed workers or those with incomes below 200 percent of the poverty level, and for states to use 2 percent of the money they receive to support training to help women, minorities and others often excluded from the construction workforce to benefit from the publicly funded boom.

But the higher prices charged by contractors could go elsewhere. If bids for construction work start coming in higher because prices for commodities like oil, cement or steel are rising, then the government must act; otherwise all we will be doing is transferring taxpayer dollars into the pockets of those who speculate in extractive industries through their investing in companies that sell raw materials. There are limited supplies of these materials, of course, and some increase in pricing appropriately reflects the cost of finding the additional raw materials we’ll need, but there is risk here of real price-gouging. Even though price controls are generally an ineffective tool, during this stimulus effort the federal government should explore setting temporary caps on the prices of key raw materials or, at a minimum, creating a monitoring mechanism. The United States has tried such emergency interventions for gas prices or during wartimes, and if they are very brief and well-administered, they may be effective against profiteering.

This piece of the puzzle is not entirely a domestic matter, either. Other nations are also considering stimulus packages along these lines–and we know that several EU and East Asian nations are doing just that–then the international market for raw materials will be dramatically affected. The US Trade Representative and the Commerce Department should be engaged with their counterparts overseas to make sure large portions of the entire global stimulus effort do not end up lining the pockets of those who own or speculate on raw material prices.

Finally, higher prices for construction could simply represent increased profits for the builders of these kinds of projects. Here again, the signs are already beginning to appear: market analysts are already advising “buys” on construction-related stocks. Government has already interceded in the operations of major segments of the US economy as part of this emergency. In this case, monitoring to protect against profiteering is in order (or we could just let the taxpayer share in the upside they have helped create–the government could require that construction companies profiting from federal stimulus dollars offer shares to the public sector).

These are not easy steps to take, but unless we act now, just as the stimulus begins, we risk re-learning the hard lessons of the first Wall Street bailout, when taxpayer dollars went into the pockets of those who knew how to play the game rather than into the paychecks and mortgages of their victims. We need to act quickly, boldly, and, just this once, wisely.

About Anthony Shorris

Anthony Shorris is a fellow at The Century Foundation. He has served as executive director of the Port Authority of New York & New Jersey and as New York City’s finance commissioner. more…

Capitalist Fools

admin — Sat, 13 Dec 2008 09:19:44 +0000

by Joseph E. Stiglitz

Treasury Secretary Henry Paulson and former Federal Reserve Board chairman Alan Greenspan bookend two decades of economic missteps. Photo illustration by Darrow.

Behind the debate over remaking US financial policy will be a debate over who’s to blame. It’s crucial to get the history right, writes a Nobel-laureate economist, identifying five key mistakes – under Reagan, Clinton and Bush II – and one national delusion.

There will come a moment when the most urgent threats posed by the credit crisis have eased and the larger task before us will be to chart a direction for the economic steps ahead. This will be a dangerous moment. Behind the debates over future policy is a debate over history – a debate over the causes of our current situation. The battle for the past will determine the battle for the present. So it’s crucial to get the history straight.

What were the critical decisions that led to the crisis? Mistakes were made at every fork in the road – we had what engineers call a “system failure,” when not a single decision but a cascade of decisions produce a tragic result. Let’s look at five key moments.

No. 1: Firing the Chairman

In 1987 the Reagan administration decided to remove Paul Volcker as chairman of the Federal Reserve Board and appoint Alan Greenspan in his place. Volcker had done what central bankers are supposed to do. On his watch, inflation had been brought down from more than 11 percent to under 4 percent. In the world of central banking, that should have earned him a grade of A+++ and assured his re-appointment. But Volcker also understood that financial markets need to be regulated. Reagan wanted someone who did not believe any such thing, and he found him in a devotee of the objectivist philosopher and free-market zealot Ayn Rand.

Greenspan played a double role. The Fed controls the money spigot, and in the early years of this decade, he turned it on full force. But the Fed is also a regulator. If you appoint an anti-regulator as your enforcer, you know what kind of enforcement you’ll get. A flood of liquidity combined with the failed levees of regulation proved disastrous.

Greenspan presided over not one but two financial bubbles. After the high-tech bubble popped, in 2000-2001, he helped inflate the housing bubble. The first responsibility of a central bank should be to maintain the stability of the financial system. If banks lend on the basis of artificially high asset prices, the result can be a meltdown – as we are seeing now, and as Greenspan should have known. He had many of the tools he needed to cope with the situation. To deal with the high-tech bubble, he could have increased margin requirements (the amount of cash people need to put down to buy stock). To deflate the housing bubble, he could have curbed predatory lending to low-income households and prohibited other insidious practices (the no-documentation – or “liar” – loans, the interest-only loans, and so on). This would have gone a long way toward protecting us. If he didn’t have the tools, he could have gone to Congress and asked for them.

Of course, the current problems with our financial system are not solely the result of bad lending. The banks have made mega-bets with one another through complicated instruments such as derivatives, credit-default swaps, and so forth. With these, one party pays another if certain events happen – for instance, if Bear Stearns goes bankrupt, or if the dollar soars. These instruments were originally created to help manage risk – but they can also be used to gamble. Thus, if you felt confident that the dollar was going to fall, you could make a big bet accordingly, and if the dollar indeed fell, your profits would soar. The problem is that, with this complicated intertwining of bets of great magnitude, no one could be sure of the financial position of anyone else – or even of one’s own position. Not surprisingly, the credit markets froze.

Here too Greenspan played a role. When I was chairman of the Council of Economic Advisers, during the Clinton administration, I served on a committee of all the major federal financial regulators, a group that included Greenspan and Treasury Secretary Robert Rubin. Even then, it was clear that derivatives posed a danger. We didn’t put it as memorably as Warren Buffett – who saw derivatives as “financial weapons of mass destruction” – but we took his point. And yet, for all the risk, the deregulators in charge of the financial system – at the Fed, at the Securities and Exchange Commission, and elsewhere – decided to do nothing, worried that any action might interfere with “innovation” in the financial system. But innovation, like “change,” has no inherent value. It can be bad (the “liar” loans are a good example) as well as good.

No. 2: Tearing Down the Walls

The deregulation philosophy would pay unwelcome dividends for years to come. In November 1999, Congress repealed the Glass-Steagall Act – the culmination of a $300 million lobbying effort by the banking and financial-services industries, and spearheaded in Congress by Senator Phil Gramm. Glass-Steagall had long separated commercial banks (which lend money) and investment banks (which organize the sale of bonds and equities); it had been enacted in the aftermath of the Great Depression and was meant to curb the excesses of that era, including grave conflicts of interest. For instance, without separation, if a company whose shares had been issued by an investment bank, with its strong endorsement, got into trouble, wouldn’t its commercial arm, if it had one, feel pressure to lend it money, perhaps unwisely? An ensuing spiral of bad judgment is not hard to foresee. I had opposed repeal of Glass-Steagall. The proponents said, in effect, Trust us: we will create Chinese walls to make sure that the problems of the past do not recur. As an economist, I certainly possessed a healthy degree of trust, trust in the power of economic incentives to bend human behavior toward self-interest – toward short-term self-interest, at any rate, rather than Tocqueville’s “self interest rightly understood.”

The most important consequence of the repeal of Glass-Steagall was indirect – it lay in the way repeal changed an entire culture. Commercial banks are not supposed to be high-risk ventures; they are supposed to manage other people’s money very conservatively. It is with this understanding that the government agrees to pick up the tab should they fail. Investment banks, on the other hand, have traditionally managed rich people’s money – people who can take bigger risks in order to get bigger returns. When repeal of Glass-Steagall brought investment and commercial banks together, the investment-bank culture came out on top. There was a demand for the kind of high returns that could be obtained only through high leverage and big risktaking.

There were other important steps down the deregulatory path. One was the decision in April 2004 by the Securities and Exchange Commission, at a meeting attended by virtually no one and largely overlooked at the time, to allow big investment banks to increase their debt-to-capital ratio (from 12:1 to 30:1, or higher) so that they could buy more mortgage-backed securities, inflating the housing bubble in the process. In agreeing to this measure, the S.E.C. argued for the virtues of self-regulation: the peculiar notion that banks can effectively police themselves. Self-regulation is preposterous, as even Alan Greenspan now concedes, and as a practical matter it can’t, in any case, identify systemic risks – the kinds of risks that arise when, for instance, the models used by each of the banks to manage their portfolios tell all the banks to sell some security all at once.

As we stripped back the old regulations, we did nothing to address the new challenges posed by 21st-century markets. The most important challenge was that posed by derivatives. In 1998 the head of the Commodity Futures Trading Commission, Brooksley Born, had called for such regulation – a concern that took on urgency after the Fed, in that same year, engineered the bailout of Long-Term Capital Management, a hedge fund whose trillion-dollar-plus failure threatened global financial markets. But Secretary of the Treasury Robert Rubin, his deputy, Larry Summers, and Greenspan were adamant – and successful – in their opposition. Nothing was done.

No. 3: Applying the Leeches

Then along came the Bush tax cuts, enacted first on June 7, 2001, with a follow-on installment two years later. The president and his advisers seemed to believe that tax cuts, especially for upper-income Americans and corporations, were a cure-all for any economic disease – the modern-day equivalent of leeches. The tax cuts played a pivotal role in shaping the background conditions of the current crisis. Because they did very little to stimulate the economy, real stimulation was left to the Fed, which took up the task with unprecedented low-interest rates and liquidity. The war in Iraq made matters worse, because it led to soaring oil prices. With America so dependent on oil imports, we had to spend several hundred billion more to purchase oil – money that otherwise would have been spent on American goods. Normally this would have led to an economic slowdown, as it had in the 1970s. But the Fed met the challenge in the most myopic way imaginable. The flood of liquidity made money readily available in mortgage markets, even to those who would normally not be able to borrow. And, yes, this succeeded in forestalling an economic downturn; America’s household saving rate plummeted to zero. But it should have been clear that we were living on borrowed money and borrowed time.

The cut in the tax rate on capital gains contributed to the crisis in another way. It was a decision that turned on values: those who speculated (read: gambled) and won were taxed more lightly than wage earners who simply worked hard. But more than that, the decision encouraged leveraging, because interest was tax-deductible. If, for instance, you borrowed a million to buy a home or took a $100,000 home-equity loan to buy stock, the interest would be fully deductible every year. Any capital gains you made were taxed lightly – and at some possibly remote day in the future. The Bush administration was providing an open invitation to excessive borrowing and lending – not that American consumers needed any more encouragement.

No. 4: Faking the Numbers

Meanwhile, on July 30, 2002, in the wake of a series of major scandals – notably the collapse of WorldCom and Enron – Congress passed the Sarbanes-Oxley Act. The scandals had involved every major American accounting firm, most of our banks, and some of our premier companies, and made it clear that we had serious problems with our accounting system. Accounting is a sleep-inducing topic for most people, but if you can’t have faith in a company’s numbers, then you can’t have faith in anything about a company at all. Unfortunately, in the negotiations over what became Sarbanes-Oxley a decision was made not to deal with what many, including the respected former head of the S.E.C. Arthur Levitt, believed to be a fundamental underlying problem: stock options. Stock options have been defended as providing healthy incentives toward good management, but in fact they are “incentive pay” in name only. If a company does well, the C.E.O. gets great rewards in the form of stock options; if a company does poorly, the compensation is almost as substantial but is bestowed in other ways. This is bad enough. But a collateral problem with stock options is that they provide incentives for bad accounting: top management has every incentive to provide distorted information in order to pump up share prices.

The incentive structure of the rating agencies also proved perverse. Agencies such as Moody’s and Standard & Poor’s are paid by the very people they are supposed to grade. As a result, they’ve had every reason to give companies high ratings, in a financial version of what college professors know as grade inflation. The rating agencies, like the investment banks that were paying them, believed in financial alchemy – that F-rated toxic mortgages could be converted into products that were safe enough to be held by commercial banks and pension funds. We had seen this same failure of the rating agencies during the East Asia crisis of the 1990s: high ratings facilitated a rush of money into the region, and then a sudden reversal in the ratings brought devastation. But the financial overseers paid no attention.

No. 5: Letting It Bleed

The final turning point came with the passage of a bailout package on October 3, 2008 – that is, with the administration’s response to the crisis itself. We will be feeling the consequences for years to come. Both the administration and the Fed had long been driven by wishful thinking, hoping that the bad news was just a blip, and that a return to growth was just around the corner. As America’s banks faced collapse, the administration veered from one course of action to another. Some institutions (Bear Stearns, A.I.G., Fannie Mae, Freddie Mac) were bailed out. Lehman Brothers was not. Some shareholders got something back. Others did not.

The original proposal by Treasury Secretary Henry Paulson, a three-page document that would have provided $700 billion for the secretary to spend at his sole discretion, without oversight or judicial review, was an act of extraordinary arrogance. He sold the program as necessary to restore confidence. But it didn’t address the underlying reasons for the loss of confidence. The banks had made too many bad loans. There were big holes in their balance sheets. No one knew what was truth and what was fiction. The bailout package was like a massive transfusion to a patient suffering from internal bleeding – and nothing was being done about the source of the problem, namely all those foreclosures. Valuable time was wasted as Paulson pushed his own plan, “cash for trash,” buying up the bad assets and putting the risk onto American taxpayers. When he finally abandoned it, providing banks with money they needed, he did it in a way that not only cheated America’s taxpayers but failed to ensure that the banks would use the money to restart lending. He even allowed the banks to pour out money to their shareholders as taxpayers were pouring money into the banks.

The other problem not addressed involved the looming weaknesses in the economy. The economy had been sustained by excessive borrowing. That game was up. As consumption contracted, exports kept the economy going, but with the dollar strengthening and Europe and the rest of the world declining, it was hard to see how that could continue. Meanwhile, states faced massive drop-offs in revenues – they would have to cut back on expenditures. Without quick action by government, the economy faced a downturn. And even if banks had lent wisely – which they hadn’t – the downturn was sure to mean an increase in bad debts, further weakening the struggling financial sector.

The administration talked about confidence building, but what it delivered was actually a confidence trick. If the administration had really wanted to restore confidence in the financial system, it would have begun by addressing the underlying problems – the flawed incentive structures and the inadequate regulatory system.

Was there any single decision which, had it been reversed, would have changed the course of history? Every decision – including decisions not to do something, as many of our bad economic decisions have been – is a consequence of prior decisions, an interlinked web stretching from the distant past into the future. You’ll hear some on the right point to certain actions by the government itself – such as the Community Reinvestment Act, which requires banks to make mortgage money available in low-income neighborhoods. (Defaults on C.R.A. lending were actually much lower than on other lending.) There has been much finger-pointing at Fannie Mae and Freddie Mac, the two huge mortgage lenders, which were originally government-owned. But in fact they came late to the subprime game, and their problem was similar to that of the private sector: their C.E.O.’s had the same perverse incentive to indulge in gambling.

The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal. Looking back at that belief during hearings this fall on Capitol Hill, Alan Greenspan said out loud, “I have found a flaw.” Congressman Henry Waxman pushed him, responding, “In other words, you found that your view of the world, your ideology, was not right; it was not working.” “Absolutely, precisely,” Greenspan said. The embrace by America – and much of the rest of the world – of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today.

——–

Joseph E. Stiglitz, a Nobel Prize winning economist, is a professor at Columbia University.

Block the Vote

admin — Mon, 20 Oct 2008 06:12:57 +0000

Will the GOP’s campaign to deter new voters and discard Democratic ballots determine the next president?

ROBERT F. KENNEDY JR. & GREG PALAST

• Video: Behind the Story With Kennedy Jr. and Palast

These days, the old west rail hub of Las Vegas, New Mexico, is little more than a dusty economic dead zone amid a boneyard of bare mesas. In national elections, the town overwhelmingly votes Democratic: More than 80 percent of all residents are Hispanic, and one in four lives below the poverty line. On February 5th, the day of the Super Tuesday caucus, a school-bus driver named Paul Maez arrived at his local polling station to cast his ballot. To his surprise, Maez found that his name had vanished from the list of registered voters, thanks to a statewide effort to deter fraudulent voting. For Maez, the shock was especially acute: He is the supervisor of elections in Las Vegas.

Maez was not alone in being denied his right to vote. On Super Tuesday, one in nine Democrats who tried to cast ballots in New Mexico found their names missing from the registration lists. The numbers were even higher in precincts like Las Vegas, where nearly 20 percent of the county’s voters were absent from the rolls. With their status in limbo, the voters were forced to cast “provisional” ballots, which can be reviewed and discarded by election officials without explanation. On Super Tuesday, more than half of all provisional ballots cast were thrown out statewide.

This November, what happened to Maez will happen to hundreds of thousands of voters across the country. In state after state, Republican operatives — the party’s elite commandos of bare-knuckle politics — are wielding new federal legislation to systematically disenfranchise Democrats. If this year’s race is as close as the past two elections, the GOP’s nationwide campaign could be large enough to determine the presidency in November. “I don’t think the Democrats get it,” says John Boyd, a voting-rights attorney in Albuquerque who has taken on the Republican Party for impeding access to the ballot. “All these new rules and games are turning voting into an obstacle course that could flip the vote to the GOP in half a dozen states.”

Suppressing the vote has long been a cornerstone of the GOP’s electoral strategy. Shortly before the election of Ronald Reagan in 1980, Paul Weyrich — a principal architect of today’s Republican Party — scolded evangelicals who believed in democracy. “Many of our Christians have what I call the ‘goo goo’ syndrome — good government,” said Weyrich, who co-founded Moral Majority with Jerry Falwell. “They want everybody to vote. I don’t want everybody to vote. . . . As a matter of fact, our leverage in the elections quite candidly goes up as the voting populace goes down.”

Today, Weyrich’s vision has become a national reality. Since 2003, according to the U.S. Election Assistance Commission, at least 2.7 million new voters have had their applications to register rejected. In addition, at least 1.6 million votes were never counted in the 2004 election — and the commission’s own data suggests that the real number could be twice as high. To purge registration rolls and discard ballots, partisan election officials used a wide range of pretexts, from “unreadability” to changes in a voter’s signature. And this year, thanks to new provisions of the Help America Vote Act, the number of discounted votes could surge even higher.

Passed in 2002, HAVA was hailed by leaders in both parties as a reform designed to avoid a repeat of the 2000 debacle in Florida that threw the presidential election to the U.S. Supreme Court. The measure set standards for voting systems, created an independent commission to oversee elections, and ordered states to provide provisional ballots to voters whose eligibility is challenged at the polls.

But from the start, HAVA was corrupted by the involvement of Republican superlobbyist Jack Abramoff, who worked to cram the bill with favors for his clients. (Both Abramoff and a primary author of HAVA, former Rep. Bob Ney, were imprisoned for their role in the conspiracy.) In practice, many of the “reforms” created by HAVA have actually made it harder for citizens to cast a ballot and have their vote counted. In case after case, Republican election officials at the local and state level have used the rules to give GOP candidates an edge on Election Day by creating new barriers to registration, purging legitimate names from voter rolls, challenging voters at the polls and discarding valid ballots.

To justify this battery of new voting impediments, Republicans cite an alleged upsurge in voting fraud. Indeed, the U.S.-attorney scandal that resulted in the resignation of Attorney General Alberto Gonzales began when the White House fired federal prosecutors who resisted political pressure to drum up nonexistent cases of voting fraud against Democrats. “They wanted some splashy pre-election indictments that would scare these alleged hordes of illegal voters away,” says David Iglesias, a U.S. attorney for New Mexico who was fired in December 2006. “We took over 100 complaints and investigated for almost two years — but I didn’t find one prosecutable case of voter fraud in the entire state of New Mexico.”

There’s a reason Iglesias couldn’t find any evidence of fraud: Individual voters almost never try to cast illegal ballots. The Bush administration’s main point person on “ballot protection” has been Hans von Spakovsky, a former Justice Department attorney who has advised states on how to use HAVA to erect more barriers to voting. Appointed to the Federal Election Commission by Bush, von Spakovsky has suggested that voter rolls may be stuffed with 5 million illegal aliens. In fact, studies have repeatedly shown that voter fraud is extremely rare. According to a recent analysis by Lorraine Minnite, an expert on voting crime at Barnard College, federal courts found only 24 voters guilty of fraud from 2002 to 2005, out of hundreds of millions of votes cast. “The claim of widespread voter fraud,” Minnite says, “is itself a fraud.”

Allegations of voter fraud are only the latest rationale the GOP has used to disenfranchise voters — especially blacks, Hispanics and others who traditionally support Democrats. “The Republicans have a long history of erecting barriers to discourage Americans from voting,” says Donna Brazile, chair of the Voting Rights Institute for the Democratic National Committee. “Now they’re trying to spook Americans with the ghost of voter fraud. It’s very effective — but it’s ironic that the only way they maintain power is by using fear to deprive Americans of their constitutional right to vote.” The recently enacted barriers thrown up to deter voters include:
1. Obstructing Voter-Registration Drives

Since 2004, the Bush administration and more than a dozen states have taken steps to impede voter registration. Among the worst offenders is Florida, where the Republican-dominated legislature created hefty fines — up to $5,000 per violation — for groups that fail to meet deadlines for turning in voter-application forms. Facing potentially huge penalties for trivial administrative errors, the League of Women Voters abandoned its voter-registration drives in Florida. A court order eventually forced the legislature to reduce the maximum penalty to $1,000. But even so, said former League president Dianne Wheatley-Giliotti, the reduced fines “create an unfair tax on democracy.” The state has also failed to uphold a federal law requiring that low-income voters be offered an opportunity to register when they apply for food stamps or other public assistance. As a result, the annual number of such registrations has plummeted from more than 120,000 in the Clinton years to barely 10,000 today.
2. Demanding “Perfect Matches”

Under the Help America Vote Act, some states now reject first-time registrants whose data does not correspond to information in other government databases. Spurred by HAVA, almost every state must now attempt to make some kind of match — and four states, including the swing states of Iowa and Florida, require what is known as a “perfect match.” Under this rigid framework, new registrants can lose the right to vote if the information on their voter-registration forms — Social Security number, street address and precisely spelled name, right down to a hyphen — fails to exactly match data listed in other government records.

There are many legitimate reasons, of course, why a voter’s information might vary. Indeed, a recent study by the Brennan Center for Justice found that as many as 20 percent of discrepancies between voter records and driver’s licenses in New York City are simply typing mistakes made by government clerks when they transcribe data. But under the new rules, those mistakes are costing citizens the right to vote. In California, a Republican secretary of state blocked 43 percent of all new voters in Los Angeles from registering in early 2006 — many because of the state’s failure to produce a tight match. In Florida, GOP officials created “match” rules that rejected more than 15,000 new registrants in 2006 and 2007 — nearly three-fourths of them Hispanic and black voters. Given the big registration drives this year, the number could be five times higher by November.
3. Purging Legitimate Voters From the Rolls

The Help America Vote Act doesn’t just disenfranchise new registrants; it also targets veteran voters. In the past, bipartisan county election boards maintained voter records. But HAVA requires that records be centralized, computerized and maintained by secretaries of state — partisan officials — who are empowered to purge the rolls of any voter they deem ineligible. Ironically, the new rules imitate the centralized system in Florida — the same corrupt operation that inspired passage of HAVA in the first place. Prior to the 2000 election, Florida Secretary of State Katherine Harris and her predecessor, both Republicans, tried to purge 57,000 voters, most of them African-Americans, because their names resembled those of persons convicted of a crime. The state eventually acknowledged that the purges were improper — two years after the election.

Rather than end Florida-style purges, however, HAVA has nationalized them. Maez, the elections supervisor in New Mexico, says he was the victim of faulty list management by a private contractor hired by the state. Hector Balderas, the state auditor, was also purged from the voter list. The nation’s youngest elected Hispanic official, Balderas hails from Mora County, one of the poorest in the state, which had the highest rate of voters forced to cast provisional ballots. “As a strategic consideration,” he notes, “there are those that benefit from chaos” at the ballot box.

All told, states reported scrubbing at least 10 million voters from their rolls on questionable grounds between 2004 and 2006. Colorado holds the record: Donetta Davidson, the Republican secretary of state, and her GOP successor oversaw the elimination of nearly one of every six of their state’s voters. Bush has since appointed Davidson to the Election Assistance Commission, the federal agency created by HAVA, which provides guidance to the states on “list maintenance” methods.
4. Requiring Unnecessary Voter ID’s

Even if voters run the gauntlet of the new registration laws, they can still be blocked at the polling station. In an incident last May, an election official in Indiana denied ballots to 10 nuns seeking to vote in the Democratic primary because their driver’s licenses or passports had expired. Even though Indiana has never recorded a single case of voter-ID fraud, it is one of two dozen states that have enacted stringent new voter-ID statutes.

On its face, the requirement to show a government-issued ID doesn’t seem unreasonable. “I want to cash a check to pay for my groceries, I’ve got to show a little bit of ID,” Karl Rove told the Republican National Lawyers Association in 2006. But many Americans lack easy access to official identification. According to a recent study for the Election Law Journal, young people, senior citizens and minorities — groups that traditionally vote Democratic — often have no driver’s licenses or state ID cards. According to the study, one in 10 likely white voters do not possess the necessary identification. For African-Americans, the number lacking such ID is twice as high.
5. Rejecting “Spoiled” Ballots

Even intrepid voters who manage to cast a ballot may still find their vote discounted. In 2004, election officials discarded at least 1 million votes nationwide after classifying them as “spoiled” because blank spaces, stray marks or tears made them indecipherable to voting machines. The losses hit hardest among minorities in low-income precincts, who are often forced to vote on antiquated machines. The U.S. Commission on Civil Rights, in its investigation of the 2000 returns from Florida, found that African-Americans were nearly 10 times more likely than whites to have their ballots rejected, a ratio that holds nationwide.

Proponents of HAVA claimed the law would correct the spoilage problem by promoting computerized balloting. Yet touch-screen systems have proved highly unreliable — especially in minority and low-income precincts. A statistical analysis of New Mexico ballots by a voting-rights group called VotersUnite found that Hispanics who voted by computer in 2004 were nearly five times more likely to have their votes unrecorded than those who used paper ballots. In a close election, such small discrepancies can make a big difference: In 2004, the number of spoiled ballots in New Mexico — 19,000 — was three times George Bush’s margin of victory.
6. Challenging “Provisional” Ballots

In 2004, an estimated 3 million voters who showed up at the polls were refused regular ballots because their registration was challenged on a technicality. Instead, these voters were handed “provisional” ballots, a fail-safe measure mandated by HAVA to enable officials to review disputed votes. But for many officials, resolving disputes means tossing ballots in the trash. In 2004, a third of all provisional ballots — as many as 1 million votes — were simply thrown away at the discretion of election officials.

Many voters are given provisional ballots under an insidious tactic known as “vote caging,” which uses targeted mailings to disenfranchise black voters whose addresses have changed. In 2004, despite a federal consent order forbidding Republicans from engaging in the practice, the GOP sent out tens of thousands of letters to “confirm” the addresses of voters in minority precincts. If a letter was returned for any reason — because the voter was away at school or serving in the military — the GOP challenged the voter for giving a false address. One caging operation was exposed when an RNC official mistakenly sent the list to a parody site called GeorgeWBush.org — instead of to the official campaign site GeorgeWBush.com.

In the century following the Civil War, millions of black Americans in the Deep South lost their constitutional right to vote, thanks to literacy tests, poll taxes and other Jim Crow restrictions imposed by white officials. Add up all the modern-day barriers to voting erected since the 2004 election — the new registrations thrown out, the existing registrations scrubbed, the spoiled ballots, the provisional ballots that were never counted — and what you have is millions of voters, more than enough to swing the presidential election, quietly being detached from the electorate by subterfuge.

“Jim Crow was laid to rest, but his cousins were not,” says Donna Brazile. “We got rid of poll taxes and literacy tests but now have a second generation of schemes to deny our citizens their franchise.” Come November, the most crucial demographic may prove to be Americans who have been denied the right to vote. If Democrats are to win the 2008 election, they must not simply beat John McCain at the polls — they must beat him by a margin that exceeds the level of GOP vote tampering.

Contributing editor Robert F. Kennedy Jr. is one of the nation’s leading voting-rights advocates. His article “Was the 2004 Election Stolen?” [RS 1002] sparked widespread scrutiny of vote tampering. Greg Palast, who broke the story on Florida’s illegal voter purges in the 2000 election, is the author of “The Best Democracy Money Can Buy.” For more information, visit No Voter Left Behind and Steal Back Your Vote.

Related Stories:

URL: http://www.rollingstone.com/politics/story/23638322/block_the_vote

Rollingstone.com

admin — Mon, 20 Oct 2008 05:38:55 +0000

The Insiders

admin — Mon, 20 Oct 2008 04:00:37 +0000

How John McCain came to pick Sarah Palin.

by Jane Mayer

In 2007, Palin entertained top conservative pundits at the governor’s mansion.

“Here’s a little news flash,” Sarah Palin, the governor of Alaska and the Republican candidate for Vice-President, announced in September, during her début at the Party’s Convention, in St. Paul. “I’m not a member of the permanent political establishment. And I’ve learned quickly these past few days that if you’re not a member in good standing of the Washington élite then some in the media consider a candidate unqualified for that reason alone.” But, she added, “I’m not going to Washington to seek their good opinion.”

In subsequent speeches, Palin has cast herself as an antidote to the élitist culture inside the Beltway. “I’m certainly a Washington outsider, and I’m proud of that, because I think that that is what we need,” she recently told Fox News. During her first interview as John McCain’s running mate, with ABC’s Charlie Gibson, Palin was asked about her lack of experience in foreign policy. She replied, “We’ve got to remember what the desire is in this nation at this time. It is for no more politics as usual, and somebody’s big fat résumé, maybe, that shows decades and decades in the Washington establishment . . . Americans are getting sick and tired of that self-dealing, and kind of that closed-door, good-ol’-boy network that has been the Washington élite.”

Palin’s sudden rise to prominence, however, owes more to members of the Washington élite than her rhetoric has suggested. Paulette Simpson, the head of the Alaska Federation of Republican Women, who has known Palin since 2002, said, “From the beginning, she’s been underestimated. She’s very smart. She’s ambitious.” John Bitney, a top policy adviser on Palin’s 2006 gubernatorial campaign, said, “Sarah’s very conscientious about crafting the story of Sarah. She’s all about the hockey mom and Mrs. Palin Goes to Washington—the anti-politician politician.” Bitney is from Wasilla, Palin’s home town, and has known her since junior high school, where they both played in the band. He considers Palin a friend, even though after becoming governor, in December, 2006, she dismissed him. He is now the chief of staff to the speaker of the Alaska House.

Upon being elected governor, Palin began developing relationships with Washington insiders, who later championed the idea of putting her on the 2008 ticket. “There’s some political opportunism on her part,” Bitney said. For years, “she’s had D.C. in mind.” He added, “She’s not interested in being on the junior-varsity team.”

During her gubernatorial campaign, Bitney said, he began predicting to Palin that she would make the short list of Republican Vice-Presidential prospects. “She had the biography, I told her, to be a contender,” he recalled. At first, Palin only laughed. But within a few months of being sworn in she and others in her circle noticed that a blogger named Adam Brickley had started a movement to draft her as Vice-President. Palin also learned that a number of prominent conservative pundits would soon be passing through Juneau, on cruises sponsored by right-leaning political magazines. She invited these insiders to the governor’s mansion, and even led some of them on a helicopter tour.

Throughout the campaign, Palin has mocked what she calls “the mainstream media.” Yet her administration made a concerted effort to attract the attention of East Coast publications. In late 2007, the state hired a public-relations firm with strong East Coast connections, which began promoting Palin and a natural-gas pipeline that she was backing in Alaska. The contract was for thirty-seven thousand dollars. The publicist on the project, Marcia Brier, the head of MCB Communications, in Needham, Massachusetts, was asked to approach media outlets in Washington and New York, according to the Washington Post. “I believe Alaska has a very small press organization,” Brier told me. “They hired an outside consultant in order to get that East Coast press.” Brier crafted a campaign depicting Palin as bravely taking on powerful oil interests by choosing a Canadian firm, TransCanada, rather than an American conglomerate such as ExxonMobil, to build the pipeline. (“Big Oil Under Siege” was the title of a typical press release.) Brier pitched Palin to publications such as the Times, the Washington Post, and Fortune.

From the start of her political career, Palin has positioned herself as an insurgent intent on dislodging entrenched interests. In 1996, a campaign pamphlet for her first mayoral run—recently obtained by The New Republic—strikes the same note of populist resentment that Palin did at the Convention: “I’m tired of ‘business as usual’ in this town, and of the ‘Good Ol’ Boys’ network that runs the show here.” Yet Palin has routinely turned to members of Washington’s Old Guard for help. After she became the mayor of Wasilla, Palin oversaw the hiring of a law firm to represent the town’s interests in Washington, D.C. The Wasilla account was handled by Steven Silver, a Washington-area lobbyist who had been the chief of staff to Alaska’s long-serving Republican senator Ted Stevens, who was indicted in July on charges of accepting illegal gifts and is now standing trial. (Silver declined to discuss his ties to Palin.) As the Washington Post reported, Silver’s efforts in the capital helped Wasilla, a town of sixty-seven hundred residents, secure twenty-seven million dollars in federal earmarks. During this election season, however, Palin has presented herself as more abstemious, saying, “I’ve championed reform to end the abuses of earmark spending by Congress.”

In February, 2007, Adam Brickley gave himself a mission: he began searching for a running mate for McCain who could halt the momentum of the Democrats. Brickley, a self-described “obsessive” political junkie who recently graduated from the University of Colorado at Colorado Springs, told me that he began by “randomly searching Wikipedia and election sites for Republican women.” Though he generally opposes affirmative action, gender drove his choice. “People were talking about Hillary at the time,” he recalled. Brickley said that he “puzzled over every Republican female politician I knew.” Senator Kay Bailey Hutchison, of Texas, “waffled on social issues”; Senator Olympia Snowe, of Maine, was too moderate. He was running out of options, he recalled, when he said to himself, “What about that lady who just got elected in Alaska?” Online research revealed that she had a strong grassroots following; as Brickley put it, “I hate to use the words ‘cult of personality,’ but she reminded me of Obama.”

Brickley registered a Web site—palinforvp.blogspot.com—which began getting attention in the conservative blogosphere. In the month before Palin was picked by McCain, Brickley said, his Web site was receiving about three thousand hits a day. Support for Palin had spread from one right-of-center Internet site to the next. First, the popular conservative blogger InstaPundit mentioned Brickley’s campaign. Then a site called the American Scene said that Palin was “very appealing”; another, Stop the A.C.L.U., described her as “a great choice.” The traditional conservative media soon got in on the act: The American Spectator embraced Palin, and Rush Limbaugh, the radio host, praised her as “a babe.”

Brickley’s family, once evangelical Christians, now practice what he calls “Messianic Judaism.” They believe that Jesus is the Messiah, but they also observe the Jewish holidays and attend synagogue; as Brickley puts it, “Jesus was Jewish, so to be like Him you need to be Jewish, too.” Brickley said that “the hand of God” played a role in choosing Palin: “The longer I worked on it the less I felt I was driving it. Something else was at work.”

Brickley is an authentic heartland voice, but he is also the product of an effort by wealthy conservative organizations in Washington to train activists. He has attended several workshops sponsored by the Leadership Institute, a group based in the Washington area and founded in 1979 by the Christian conservative activist Morton Blackwell. “I’m building a movement,” Blackwell told me. Brickley also participated in a leadership summit held by Young America’s Foundation (motto: “The Conservative Movement Starts Here”) and was an intern at the Heritage Foundation. He currently lives in a dormitory, on Capitol Hill, run by the Heritage Foundation, and is an intern with townhall.com, a top conservative Web site.

While Brickley and others were spreading the word about Palin on the Internet, Palin was wooing a number of well-connected Washington conservative thinkers. In a stroke of luck, Palin did not have to go to the capital to meet these members of “the permanent political establishment”; they came to Alaska. Shortly after taking office, Palin received two memos from Paulette Simpson, the Alaska Federation of Republican Women leader, noting that two prominent conservative magazines—The Weekly Standard, owned by Rupert Murdoch’s News Corporation, and National Review, founded by William F. Buckley, Jr.—were planning luxury cruises to Alaska in the summer of 2007, which would make stops in Juneau. Writers and editors from these publications had been enlisted to deliver lectures to politically minded vacationers. “The Governor was more than happy to meet these guys,” Joe Balash, a special staff assistant to Palin, recalled.

On June 18, 2007, the first group disembarked in Juneau from the Holland America Line’s M.S. Oosterdam, and went to the governor’s mansion, a white wooden Colonial house with six two-story columns, for lunch. The contingent featured three of The Weekly Standard ’s top writers: William Kristol, the magazine’s Washington-based editor, who is also an Op-Ed columnist for the Times and a regular commentator on “Fox News Sunday”; Fred Barnes, the magazine’s executive editor and the co-host of “The Beltway Boys,” a political talk show on Fox News; and Michael Gerson, the former chief speechwriter for President Bush and a Washington Post columnist.

By all accounts, the luncheon was a high-spirited, informal occasion. Kristol brought his wife and daughter; Gerson brought his wife and two children. Barnes, who brought his sister and his wife, sat on one side of Governor Palin, who presided at the head of the long table in the mansion’s formal dining room; the Kristols sat on the other. Gerson was at the opposite end, as was Palin’s chief of staff at the time, Mike Tibbles, who is now working for Senator Stevens’s reëlection campaign. The menu featured halibut cheeks—the choicest part of the fish. Before the meal, Palin delivered a lengthy grace. Simpson, who was at the luncheon, said, “I told a girlfriend afterwards, ‘That was some grace!’ It really set the tone.” Joe Balash, Palin’s assistant, who was also present, said, “There are not many politicians who will say grace with the conviction of faith she has. It’s a daily part of her life.”

Palin was joined by her lieutenant governor and by Alaska’s attorney general. Also present was a local woman involved in upholding the Juneau school system’s right to suspend a student who had displayed a satirical banner—“Bong Hits 4 Jesus”—across the street from his school. The student had sued the school district, on First Amendment grounds, and, at the time of the lunch, the case was before the Supreme Court. (The school district won.)

During the lunch, everyone was charmed when the Governor’s small daughter Piper popped in to inquire about dessert. Fred Barnes recalled being “struck by how smart Palin was, and how unusually confident. Maybe because she had been a beauty queen, and a star athlete, and succeeded at almost everything she had done.” It didn’t escape his notice, too, that she was “exceptionally pretty.”

According to a former Alaska official who attended the lunch, the visitors wanted to do something “touristy,” so a “flight-seeing” trip was arranged. Their destination was a gold mine in Berners Bay, some forty-five miles north of Juneau. For Palin and several staff members, the state leased two helicopters from a private company, Coastal, for two and a half hours, at a cost of four thousand dollars. (The pundits paid for their own aircraft.) Palin explained that environmentalists had invoked the Clean Water Act to oppose a plan by a mining company, Coeur Alaska, to dump waste from the extraction of gold into a pristine lake in the Tongass National Forest. Palin rejected the environmentalists’ claims. (The Ninth Circuit Court of Appeals ruled against Coeur Alaska, and the dispute is now before the Supreme Court.) Barnes was dazzled by Palin’s handling of the hundred or so mineworkers who gathered to meet the group. “She clearly was not intimidated by crowds—or men!” he said. “She’s got real star quality.”

By the time the Weekly Standard pundits returned to the cruise ship, Paulette Simpson said, “they were very enamored of her.” In July, 2007, Barnes wrote the first major national article spotlighting Palin, titled “The Most Popular Governor,” for The Weekly Standard. Simpson said, “That first article was the result of having lunch.” Bitney agreed: “I don’t think she realized the significance until after it was all over. It got the ball rolling.”

The other journalists who met Palin offered similarly effusive praise: Michael Gerson called her “a mix between Annie Oakley and Joan of Arc.” The most ardent promoter, however, was Kristol, and his enthusiasm became the talk of Alaska’s political circles. According to Simpson, Senator Stevens told her that “Kristol was really pushing Palin” in Washington before McCain picked her. Indeed, as early as June 29th, two months before McCain chose her, Kristol predicted on “Fox News Sunday” that “McCain’s going to put Sarah Palin, the governor of Alaska, on the ticket.” He described her as “fantastic,” saying that she could go one-on-one against Obama in basketball, and possibly siphon off Hillary Clinton’s supporters. He pointed out that she was a “mother of five” and a reformer. “Go for the gold here with Sarah Palin,” he said. The moderator, Chris Wallace, finally had to ask Kristol, “Can we please get off Sarah Palin?”

The next day, however, Kristol was still talking about Palin on Fox. “She could be both an effective Vice-Presidential candidate and an effective President,” he said. “She’s young, energetic.” On a subsequent “Fox News Sunday,” Kristol again pushed Palin when asked whom McCain should pick: “Sarah Palin, whom I’ve only met once but I was awfully impressed by—a genuine reformer, defeated the establishment up there. It would be pretty wild to pick a young female Alaska governor, and I think, you know, McCain might as well go for it.” On July 22nd, again on Fox, Kristol referred to Palin as “my heartthrob.” He declared, “I don’t know if I can make it through the next three months without her on the ticket.” Reached last week, Kristol pointed out that just before McCain picked Palin he had ratcheted back his campaign a little; though he continued to tout her, he also wrote a Times column promoting Senator Joe Lieberman, of Connecticut.

On October 6th, in another Times column, Kristol cryptically acknowledged having been entertained by the Governor. He mentioned meeting Palin “in far more relaxed circumstances, in Alaska over a year ago.” The column featured one of the few interviews that Palin has granted to the national media since becoming McCain’s running mate. Kristol quoted Palin saying that the debate had been a “liberating” experience, then wrote, “Shouldn’t the public get the benefit of another Biden-Palin debate, or even two? If there’s difficulty finding a moderator, I’ll be glad to volunteer.”

On August 1, 2007, a few weeks after the Weekly Standard cruise departed from Juneau, Palin hosted a second boatload of pundits, this time from a cruise featuring associates of National Review. Her guests, arriving on the M.S. Noordam, included Rich Lowry, the magazine’s editor and a syndicated columnist; Robert Bork, the conservative legal scholar and former federal judge; John Bolton, who served as the Bush Administration’s Ambassador to the United Nations from 2004 to 2006; Victor Davis Hanson, a conservative historian who is reportedly a favorite of Vice-President Dick Cheney; and Dick Morris, the ideologically ambidextrous political consultant, who writes a column for The Hill and appears regularly on Fox News.

As Jack Fowler, National Review’s publisher, recalled it, when the guest speakers were invited to come to a special reception at the governor’s mansion, “We said, ‘Sure!’ There’s only so much you can do in Juneau.” The mansion itself, he said, was modest—“not exactly Newport.” But the food was great, and included an impressive spread of salmon. Palin, who circulated nimbly through the room, and spoke admiringly of National Review, made a good impression. Fowler said, “This lady is something special. She connects. She’s genuine. She doesn’t look like what you’d expect. My thought was, Too bad she’s way up there in Alaska, because she has potential, but to make things happen you have to know people.”

Hanson, the historian, recalled Palin in high heels, “walking around this big Victorian house with rough Alaska floors, saying, ‘Hi, I’m Sarah.’ ” She was “striking,” he said. “She has that aura that Clinton, Reagan, and Jack Kennedy had—magnetism that comes through much more strongly when you’re in the same room.” He was delighted that Palin described herself as a fan of history, and as a reader of National Review’s Web site, for which he writes regularly. She spoke about the need to drill for oil in Alaska’s protected wilderness areas, arguing that her husband had worked in nearby oil fields and knew firsthand that it wasn’t environmentally hazardous. Hanson, a farm owner, found it appealing that she was married to an oil worker, rather than to an executive. Bolton, for his part, was pleased that Palin, a hunting enthusiast, was familiar with his efforts to stave off international controls on the global flow of small weapons. She spoke knowledgeably about missile defense, too, he said, and discussed his role, in 2001, in guiding the Bush Administration’s withdrawal from the Anti-Ballistic Missile Treaty. Jay Nordlinger, a senior editor at National Review, had a more elemental response. In an online column, he described Palin as “a former beauty-pageant contestant, and a real honey, too. Am I allowed to say that? Probably not, but too bad.”

According to several accounts, however, no connection made that day was more meaningful than the one struck between Palin and Dick Morris. “He had this very long conversation with her,” Fowler recalled. Lowry laughed in remembering it: “The joke going around was that he was going to take credit for making her.” (Nordlinger’s column went on to say, “Her political career will probably take her beyond Alaska. Dick Morris is only one who thinks so.”)

In fact, in an admiring column published in the Washington Post two days after Palin was chosen, Morris wrote, “I will always remember taking her aside and telling her that she might one day be tapped to be Vice-President, given her record and the shortage of female political talent in the Republican Party. She will make one hell of a candidate, and hats off to McCain for picking her.”

Morris offered Palin some advice during their encounter in Juneau, several of those present recollected, which he shared with the rest of the gathering in a short speech. As Lowry recalled it, Morris had warned her that a reformer, in order to be successful, needed to maintain her “outsider cred.” In a similar vein, Simpson recalled that Morris “gave a little speech” in which he warned that “what happens to most people is that they campaign as outsiders, but when they get into power they turn into insiders. If you want to be successful, you have to stay an outsider.”

Clearly, Palin has taken this advice to heart. Still, when the moment came for Morris and other guests to depart, Palin was sad to see the Washington insiders go. Hanson recalled, “She said, ‘Hey—does anyone want to stay for dinner? We’re going to eat right now.’ She also invited everyone to come back the next day. ‘If any of you are in the area, all you have to do is knock. Yell upstairs, I’ll be right down.’ ”

By the end of February, 2008, the chorus of conservative pundits for Palin was loud enough for the mainstream media to take note. Chris Cillizza, reporting for the Web site of the Washington Post, interviewed Palin and asked her if she’d accept an offer to be McCain’s running mate. Though she dismissed the notion as a virtual “impossibility this go-round,” Palin, who had been in office for only fourteen months, said, “Is it generally something that I would want to consider? Yes.”

By the spring, the McCain campaign had reportedly sent scouts to Alaska to start vetting Palin as a possible running mate. A week or so before McCain named her, however, sources close to the campaign say, McCain was intent on naming his fellow-senator Joe Lieberman, an independent, who left the Democratic Party in 2006. David Keene, the chairman of the American Conservative Union, who is close to a number of McCain’s top aides, told me that “McCain and Lindsey Graham”—the South Carolina senator, who has been McCain’s closest campaign companion—“really wanted Joe.” But Keene believed that “McCain was scared off” in the final days, after warnings from his advisers that choosing Lieberman would ignite a contentious floor fight at the Convention, as social conservatives revolted against Lieberman for being, among other things, pro-choice.

“They took it away from him,” a longtime friend of McCain—who asked not to be identified, since the campaign has declined to discuss its selection process—said of the advisers. “He was furious. He was pissed. It wasn’t what he wanted.” Another friend disputed this, characterizing McCain’s mood as one of “understanding resignation.”

With just days to go before the Convention, the choices were slim. Karl Rove favored McCain’s former rival Mitt Romney, but enough animus lingered from the primaries that McCain rejected the pairing. “I told Romney not to wait by the phone, because ‘he doesn’t like you,’ ” Keene, who favored the choice, said. “With John McCain, all politics is personal.” Other possible choices—such as former Representative Rob Portman, of Ohio, or Governor Tim Pawlenty, of Minnesota—seemed too conventional. They did not transmit McCain’s core message that he was a “maverick.” Finally, McCain’s top aides, including Steve Schmidt and Rick Davis, converged on Palin. Ed Rogers, the chairman of B.G.R., a well-connected, largely Republican lobbying firm, said, “Her criteria kept popping out. She was a governor—that’s good. The shorter the Washington résumé the better. A female is better still. And then there was her story.” He admitted, “There was concern that she was a novice.” In addition to Schmidt and Davis, Charles R. Black, Jr., the lobbyist and political operative who is McCain’s chief campaign adviser, reportedly favored Palin. Keene said, “I’m told that Charlie Black told McCain, ‘If you pick anyone else, you’re going to lose. But if you pick Palin you may win.’ ” (Black did not return calls for comment.) Meanwhile, McCain’s longtime friend said, “Kristol was out there shaking the pom-poms.”

McCain had met Palin once, but their conversation—at a reception during a meeting of the National Governors Association, six months earlier—had lasted only fifteen minutes. “It wasn’t a real conversation,” said the longtime friend, who called the choice of Palin “the fucking most ridiculous thing I’ve ever heard.” Aides arranged a phone call between McCain and Palin, and scrutinized her answers to some seventy items on a questionnaire that she had filled out. But McCain didn’t talk with Palin in person again until the morning of Thursday, August 28th. Palin was flown down to his retreat in Sedona, Arizona, and they spoke for an hour or two. By the time he announced her as his choice, the next day, he had spent less than three hours in her company.

“It certainly was a risk—a risk a lot of people wouldn’t take,” Dan Coats, a former Indiana senator and now a volunteer with the McCain campaign, said. “But that’s what I like about John. There’s a boldness there.”

The thoroughness of the campaign’s vetting process, overseen by the Washington lawyer and former White House counsel Arthur B. Culvahouse, Jr., remains in dispute. The campaign insists that Palin’s record and personal history were carefully examined. (Culvahouse declined to comment for this story.) The Los Angeles Times, however, reported that the campaign never contacted several obvious sources of information on Palin, including Lyda Green—a Republican state senator in Alaska, and a former ally turned opponent. Also in dispute is whether Palin disclosed to the campaign, as she and officials have said, that her unwed teen-age daughter was pregnant. “I am a hundred per cent sure they didn’t know,” McCain’s longtime friend said. Another campaign source, however, insisted that McCain’s team knew about the pregnancy.

The selection of Palin thrilled the Republican base, and the pundits who met with her in Juneau have remained unflagging in their support. But a surprising number of conservative thinkers have declared her unfit for the Vice-Presidency. Peggy Noonan, the Wall Street Journal columnist, recently wrote, “The Palin candidacy is a symptom and expression of a new vulgarization in American politics. It’s no good, not for conservatism and not for the country. And yes, it is a mark against John McCain.” David Brooks, the Times columnist, has called Palin “a fatal cancer to the Republican Party.” Christopher Buckley, the son of National Review’s late founder, defected to the Obama camp two weeks ago, in part because of his dismay over Palin. Matthew Dowd, the former Bush campaign strategist turned critic of the President, said recently that McCain “knows in his gut” that Palin isn’t qualified for the job, “and when this race is over, that is something he will have to live with. . . . He put the country at risk.”

Palin initially provided the McCain campaign with a boost, but polls now suggest that she has become a liability. A top Republican close to the campaign said that McCain’s aides have largely kept faith with Palin. They have been impressed by her work ethic, and by what a quick study she is. According to the Republican close to the campaign, she has sometimes discomfited advisers by travelling with a big family entourage. “It kind of changes the dynamic of a meeting to have them all in the room,” he told me. John McCain’s comfort level with Palin is harder to gauge. In the view of the longtime McCain friend, “John’s personal comfort level is low with everyone right now. He’s angry. But it was his choice.” ♦

ILLUSTRATION: Richard Thompson

Related Links: Submit a question for Jane Mayer about Sarah Palin.

Finding a Way Out After the Bailout

admin — Mon, 20 Oct 2008 02:36:54 +0000

The Dow Jones news ticker is reflected on a window at NASDAQ, in New York’s Times Square, just before the closing bell on Monday, Oct

By Titus Levi

The argument over the health of financial markets has careened across the economic tarmac like a car driven by a drunk. The shouting and wailing reached a fever pitch after two of the five big investment houses—Lehman Brothers and Merrill Lynch—collapsed in a span of only two days, and before anyone could catch his breath, insurance giant AIG had to be bailed out by the Federal Reserve. Something had to be done, and quickly.

Secretary of the Treasury Henry Paulson and his advisers crafted a $700-billion bailout plan by the end of the week, and on Monday, Sept. 29, the U.S. House of Representatives told them to get stuffed. In response, the stock market abruptly tanked, falling by 778 points. Then, the House leadership promptly changed direction again by playing Monty Hall and hammering out a bailout deal, spiced with $150 billion in pork, that passed on the following Friday. Everyone breathed a big sigh of relief and thought that all was well in Mudville.

Not so.

Wall Street swerved wildly once again on Monday, Oct. 6, shedding about 800 points at one point, before rebounding to close at 9,962.03, or down 3.5 percent for the day. The rest of the week followed the same pattern: up, down, up, down … but mostly down. By the end of the week, the Dow Jones Industrial Average had settled in at 8451.19.

Clearly, traders have yet to feel confident. Why? Two problems. One we already know: The “plan,” even with revisions, is deeply flawed. The second problem has not been mentioned all that much because it’s pretty scary: Put simply, we have no idea what we’re doing.

We don’t know what we’re doing for two reasons. First, this crisis is unprecedented in its scale, scope and type. It’s not a 1929 collapse, it’s not a 1987-type slide and it’s not the S&L scandal of the 1980s. Elements of each can be found in the current turmoil, but this brew has new ingredients; because it grew out of thousands of shaky loans, which then were bundled into tradable securities, and then sold hither and yon, its roots are far more extensive than anything we’ve seen before. Moreover, it’s larger than either of the 1980s economic stumbles. So far it’s evolving more slowly than the 1929 Crash. And now, to make matters worse, foreign markets have caught the contagion. In this case, misery would have been far happier without company.

The second reason relates to the first. The bad loans at the base of the matter have not really been accounted for; that is, we don’t know how many there are, how bad they are, how much we might be able to recover from them, how extensively they have insinuated themselves into the financial sector. Unless and until we figure all this out, we’re flying blind. We’re guessing. So whatever you hear from Hank Paulson, his new lieutenant in charge of crisis management, Neel Kashkari , anyone in Congress, or any other commentator for that matter (even me), be sure to take it with a grain of salt. Maybe a fistful.

In the wake of the full-on takeovers of Freddie Mac, Fannie Mae, IndyMac and AIG, the situation may begin to change. We now have access to records and data at the granular level needed to assess what happened and, as important, where we really stand now. Having this information under public control, where it can be shared and circulated, increases its value by getting it into as many of the right hands as possible. This aspect of the Freddie and Fannie takeovers has yet to be reported on in any meaningful way in the financial or mainstream press.

Keep in mind that other takeovers—Bank of America’s buyout of Countrywide and Merrill Lynch, Wells Fargo’s just-approved buyout of Wachovia, and JP Morgan’s purchase of Bear Stearns and WaMu—do not yield a body of data that will be shared. It’s all proprietary. Whatever we learn about how bad things are in these cases will come indirectly through business maneuvers, or through legal means, as with the agreement that B of A brokered with 11 states, including California, Illinois and Florida, in a settlement over deceptive mortgage practices at Countrywide, which B of A bought in June.

Even though the feds have access to good information now, it doesn’t mean that the way out of this mess will emerge straightaway. This is a gigantic amount of information to parse, and making sense of it will be hard. Moreover, the government currently lacks the capacity to assimilate this much information and to figure out what to do with it. However, Washington must somehow develop the capacity to dig through the information, organize it coherently, begin to develop sound, useful analyses based on what is uncovered, and then use these analyses to craft policies that bring relief to those in distress. Failure to do so will mean that we will continue to fly in a fog, seizing on ideas and “solutions” willy-nilly without a comprehensive view of the problem at hand and how to address it. This kind of cavalier approach to policy-making landed us in hot water in the first place. It cannot help to extract us.

Let’s Get Fiscal

admin — Mon, 20 Oct 2008 02:34:26 +0000

By PAUL KRUGMAN

The Dow is surging! No, it’s plunging! No, it’s surging! No, it’s …

Nevermind. While the manic-depressive stock market is dominating the headlines, the more important story is the grim news coming in about the real economy. It’s now clear that rescuing the banks is just the beginning: the nonfinancial economy is also in desperate need of help.

And to provide that help, we’re going to have to put some prejudices aside. It’s politically fashionable to rant against government spending and demand fiscal responsibility. But right now, increased government spending is just what the doctor ordered, and concerns about the budget deficit should be put on hold.

Before I get there, let’s talk about the economic situation.

Just this week, we learned that retail sales have fallen off a cliff, and so has industrial production. Unemployment claims are at steep-recession levels, and the Philadelphia Fed’s manufacturing index is falling at the fastest pace in almost 20 years. All signs point to an economic slump that will be nasty, brutish — and long.

How nasty? The unemployment rate is already above 6 percent (and broader measures of underemployment are in double digits). It’s now virtually certain that the unemployment rate will go above 7 percent, and quite possibly above 8 percent, making this the worst recession in a quarter-century.

And how long? It could be very long indeed.

Think about what happened in the last recession, which followed the bursting of the late-1990s technology bubble. On the surface, the policy response to that recession looks like a success story. Although there were widespread fears that the United States would experience a Japanese-style “lost decade,” that didn’t happen: the Federal Reserve was able to engineer a recovery from that recession by cutting interest rates.

But the truth is that we were looking Japanese for quite a while: the Fed had a hard time getting traction. Despite repeated interest rate cuts, which eventually brought the federal funds rate down to just 1 percent, the unemployment rate just kept on rising; it was more than two years before the job picture started to improve. And when a convincing recovery finally did come, it was only because Alan Greenspan had managed to replace the technology bubble with a housing bubble.

Now the housing bubble has burst in turn, leaving the financial landscape strewn with wreckage. Even if the ongoing efforts to rescue the banking system and unfreeze the credit markets work — and while it’s early days yet, the initial results have been disappointing — it’s hard to see housing making a comeback any time soon. And if there’s another bubble waiting to happen, it’s not obvious. So the Fed will find it even harder to get traction this time.

In other words, there’s not much Ben Bernanke can do for the economy. He can and should cut interest rates even more — but nobody expects this to do more than provide a slight economic boost.

On the other hand, there’s a lot the federal government can do for the economy. It can provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it. It can provide emergency aid to state and local governments, so that they aren’t forced into steep spending cuts that both degrade public services and destroy jobs. It can buy up mortgages (but not at face value, as John McCain has proposed) and restructure the terms to help families stay in their homes.

And this is also a good time to engage in some serious infrastructure spending, which the country badly needs in any case. The usual argument against public works as economic stimulus is that they take too long: by the time you get around to repairing that bridge and upgrading that rail line, the slump is over and the stimulus isn’t needed. Well, that argument has no force now, since the chances that this slump will be over anytime soon are virtually nil. So let’s get those projects rolling.

Will the next administration do what’s needed to deal with the economic slump? Not if Mr. McCain pulls off an upset. What we need right now is more government spending — but when Mr. McCain was asked in one of the debates how he would deal with the economic crisis, he answered: “Well, the first thing we have to do is get spending under control.”

If Barack Obama becomes president, he won’t have the same knee-jerk opposition to spending. But he will face a chorus of inside-the-Beltway types telling him that he has to be responsible, that the big deficits the government will run next year if it does the right thing are unacceptable.

He should ignore that chorus. The responsible thing, right now, is to give the economy the help it needs. Now is not the time to worry about the deficit.

Author Naomi Klein Discusses Bailout, Economy at Stanford

admin — Mon, 20 Oct 2008 02:32:39 +0000

By Tim Simmers

As public anxiety about the teetering economy deepens, author Naomi Klein is gaining listeners with her pronouncements on the failings of American-style capitalism.

“We’ve been living in a fairy tale” that deregulation and privatization serve the common good, the author of “The Shock Doctrine: The Rise of Disaster Capitalism” said Thursday.

Naomi Klein in this undated file photo. Speaking at Stanford University’s Kresge Auditorium on Thursday evening as part of the Aurora Forum, Klein minced no words. She insists that deregulating the financial system has created bubbles and busts, and she called the current $700 billion bailout, or rescue plan, a “stickup.”

Klein’s book paints a dark, troubling picture of a form of capitalism that lets people in power cash in on chaos, catastrophes, wars and financial crises and snatch up lucrative contracts.

Speaking at Stanford University’s Kresge Auditorium on Thursday evening as part of the Aurora Forum, Klein minced no words. She insists that deregulating the financial system has created bubbles and busts, and she called the current $700 billion bailout, or rescue plan, a “stickup.”

This financial crisis and the Iraq war are examples of how economic shocks and global disasters are used to boost the profits of the elite, she said.

“The president goes on TV and dangles a plan to Congress, saying if we don’t get it we’re going down, and banks are going to close in your neighborhood,” she said. “That’s deeply crazy if you look at it. Especially about a plan that almost all economists said couldn’t fix the problem.”

Klein said the Bush administration’s plan was reckless. She bristled at the “comfort level” Treasury Secretary Henry Paulson and President Bush have exhibited with the crisis.

“It’s like they’re saying, ‘Hey, stuff happens,’”‰” she said. “And then a week later the whole idea of buying toxic debt they were pushing died.”

Klein’s ideas have been criticized by some as extreme and leftist, but her challenges to the myth of the unfettered marketplace are resonating with a growing number of people.

Klein, a former fellow at the London School of Economics, believes the policies of the last few decades have allowed a shadow banking system to flourish. It was a “disaster waiting to happen,” she said.

She puts the blame on both parties, though she clearly believes the Bush administration has done more to close the curtains, allowing for deep corruption.

“There was no morality,” she said. “It was all based on the get it while you can concept.”

Now Klein suggests that Paulson, Bush and Congress are using the bailout to push through radical policies that favor the corporate elite.

“It’s a cesspool of conflicts of interest, the people pulling together this plan,” she said.

“Where are we now?” asked Terry Karl, a Stanford political science professor who was part of the conversation with Klein onstage. “Are we doomed?”

Klein said she thinks the country is at a crossroads and that this is a “moment of possibilities” that could reverse entrenched corruption. But she fears more of the same policies as the financial crisis deepens.

She believes the financial crisis will be used by Republicans against Democratic Sen. Barack Obama if he is elected president. “No, we can’t” may become the new refrain, she said, from social programs that help the disadvantaged to the pursuit of alternative energy and investment in technology to combat climate change.

“Business will be in a slump, and there will be calls for tax breaks and deregulation,” she said. “It’s going to be a hard fight.”

She also expects more attacks on civil rights and undocumented workers, as well as another attempt to privatize Social Security.

“I call for the nationalization of ExxonMobil,” she said jokingly, to roaring applause. “They made $40 billion in profits from us.”

Karl Marx and the world financial crisis

admin — Mon, 20 Oct 2008 02:22:59 +0000

Capitalism as we used to know it is on its deathbed. And those who predicted that the old brand, the unfettered, American-promoted system, was a danger to the world, are being vindicated. They include Karl Marx, whose thinking on banks seems oddly contemporary these days.

By Bernd Debusmann

WASHINGTON (Reuters) – Capitalism as we used to know it is on its deathbed. And those who predicted that the old brand, the unfettered, American-promoted system, was a danger to the world, are being vindicated. They include Karl Marx, whose thinking on banks seems oddly contemporary these days.

The credit crisis that began in August last year and turned into near-catastrophe this month is not over, despite the hundreds of billions of dollars that governments are spending to save banks in the United States and Europe from collapse and thereby prevent a global depression. But there is an emerging consensus that capitalism needs a 21st century overhaul, not just emergency rescues, to save it from itself.

When that will happen is not clear. “What we are seeing right now looks like a very slow train wreck,” says James Boughton, the historian of the International Monetary Fund, or IMF.

British Prime Minister Gordon Brown has suggested an international meeting on the pattern of the 1944 Bretton Woods conference that resulted in the post-World War II financial order and created the IMF and the World Bank. That system was dominated by Washington.

The United States, from where the credit crisis spread like a virulent epidemic, is not likely to play as large a role in whatever new “financial architecture” world leaders construct. As Peer Steinbrueck, the German finance minister, put it: “One thing seems probable … The U.S. will lose its status as the superpower of the global financial system.”

“The world is at risk of losing its anchor … the United States,” U.S. financial strategist David Smick writes in his just-published book on financial globalization, The World is Curved: Hidden Dangers to the World Economy.

The opening chapter is darkly entitled The End of the World. Smick said in an interview he thought a global depression was still possible despite the steps taken by the United States and Europe to restore confidence.

Those measures included buying stakes in major banks – in effect partial nationalization – and would make Marx smile if he could rise from his grave. In the Communist Manifesto he and his collaborator Friedrich Engels published in 1848, Marx listed government control of capital as one of the ten essential steps on the road to communism. Step five: “Centralization of credit in the hands of the state …”

There are not many Marxists left in the industrialized world and not even the most fervent expect the revival of an ideology that failed so dismally in the Soviet Union.

MOMENTOUS BREAK

But as far as the United States is concerned, the events of the past few weeks represent a momentous break with decades of a free market philosophy that abhorred government intervention in (and regulation of) financial markets.

“There is little question that making the government a major investor in American banks raises thorny questions … about the role of the public sector in private markets,” Sen. Charles Schumer, a member of the Senate finance and banking committees, wrote in the Wall Street Journal the day the government announced it was planning to take equity stakes worth up to $250 billion in American banks.

It will take time for questions about the public sector in private markets to be answered. But it looks likely that some things will never be quite the same, no matter who wins the presidential election on November 4. For one, the control center of the financial market has already begun shifting from New York to Washington.

The “big government” that free marketeers identified as something evil is almost certain to make a comeback, although spending on America’s crumbling infrastructure, its inefficient health care system, and environmental programs will be limited by the Everest-sized public debt. The U.S. national debt has increased by an average of $3.34 billion a day over the past year and now stands at more than $10 trillion.

Both in the United States and in Europe, officials have stressed that government intervention in the banks will be temporary but whether they will be able to stuff that genie back into the bottle remains to be seen. And “temporary” has not been defined.

“We will not stand down until we have achieved our goal of repairing and reforming our financial system and thereby restoring prosperity to our economy,” said Ben Bernanke, the chairman of the Federal Reserve.

Amid the gloom and anxiety of the worst financial crisis since the Great Depression, which started in the United States in 1929 and then spread to the rest of the world, there are hopes that Capitalism 2.0 (if it ever comes about) will result in a more equal society. “There is a tremendous opportunity now to narrow the income gap,” says Sam Pizzigati of the Institute for Policy Studies, a Washington think tank.

That gap resembles the top-to-bottom income distribution just before the Great Depression, according to the Washington Center on Budget and Policy Priorities. Then as now, the top 1 percent of households accounted for around one fifth of the national income. In 1980, their share was 8 percent.

History shows that deep financial crises have helped spur public policy reforms and those pending include legislation that would make it easier for American workers to join labor unions. At present, 7.5 percent of private sector workers are union members, the lowest percentage in the industrialized world.

U.S. unions say they are close to reaching a goal of collecting, by election day, one million signatures supporting the legislation. If passed, it would be part of what some have already started calling the new world financial order.

(You can contact the author at Debusmann@Reuters.com)

(Editing by Kieran Murray)

Credit squeeze explained

admin — Mon, 20 Oct 2008 02:20:10 +0000

How did the actions of subprime mortgage borrowers in the US affect global financial markets and lead to the ongoing liquidity crisis – and will the resulting fallout hurt the wider economy? Gillian Tett, capital markets editor, narrates FT.com’s interactive feature explaining the credit squeeze.

Credit squeeze explained: Launch interactive graphic

A PIK of the ABCDS of arcane credit derivative terminology

By Stacy-Marie Ishmael

Subprime or subprime mortgages. These are residential mortgages issued to high-risk borrowers, such as those with a history of late payments or bankruptcy. A rash of defaults in the sector has shaken credit markets in recent weeks.

ABS or asset-backed security. A financial security which uses any asset, including loans, leases, credit card debt, company receivables or royalties, as collateral.

MBS or mortgage-backed security. This is a type of asset-backed security that uses a single mortgage, or a pool of them, as collateral. Investors receive payments derived from the interest and principal of the underlying mortgages.

CMBS or commercial mortgage backed securities. These are securities backed by mortgages on commercial properties, such as hotels or real estate.

RMBS or residential mortgage backed securities. These securities are backed by mortgages on residential properties. RMBS represent by far the largest section of the European asset-backed market.

CDS or credit default swaps. These offer protection against the non-payment of unsecured corporate or sovereign debt. A typical CDS contract featuresone counterparty agreeingto “sell” protection to another. The “protected” party pays a fee each yearin exchange for a guarantee that if a bond goesinto default, the seller ofprotection will provide compensation.

ABCDSs. This lengthy acronym represents credit default swaps based on asset-backed securities. They are a type of insurance against default on the underlying security.

CASH CDO or collateral debt obligation. These are vehicles that invest in leveraged loans and high-yield bonds and asset-backed securities. These pools of assets are sliced up into parts or tranches that carry different risks and then sold onto investors.

Synthetic CDOs. These are pools of debt instruments which include credit derivative swaps as well as cash bonds. These instruments are used in a variety of trading strategies to hedge risk and to give investors exposure to the credit markets without having to buy the underlying assets.

CLO or collateralised loan obligation. These are complex financial instruments which repackage portfolios of loans and can offer investors better returns for a given credit rating than traditional fixed-income assets.

CPDO or constant proportion debt obligation. A seriously complex financial instrument, invented last year by ABN Amro, the Dutch bank, and designed to pay the same high interest rate as a risky junk bond while offering the highest possible credit rating. CPDOs use mathematical strategy to make a highly leveraged bet on the creditworthiness of companies.

Equity bridge or bridge equity. This is short-term financing to allow private equity firms or other buyers of corporate assets to complete deals before longer-term financing is secured.

Cov-lite or covenant-lite loans. These are loan agreements which lack, or possess fewer, financial covenants, or stipulations which protect lenders. Cov-lite agreements also allow borrowers to incur additional indebtedness as financial performance improves.

PIK, or payment-in-kind toggle. A clause in a syndicated loan agreement that allows a borrower to elect for interest to be capitalised. In lieu of payment in cash, this means the interest will in effect be paid for by incurring additional debt, often at a higher rate of interest.

Sources: Allen & Overy, Blenheim Advisors, FT Reporters