Report on Bailouts Says Treasury Misled Public

BUSH'S GIFT THAT KEEPS ON GIVING;

Thank You George, and The Support of The Then-Dominant Republican Party

By LOUISE STORY

WASHINGTON — The inspector general who oversees the government’s bailout of the banking system is criticizing the Treasury Department for some misleading public statements last fall and raising the possibility that it had unfairly disbursed money to the biggest banks.

A Treasury official made incorrect statements about the health of the nation’s biggest banks even as the government was doling out billions of dollars in aid, according to a report on the Troubled Asset Relief Program to be released on Monday by the special inspector general, Neil M. Barofksy.

The report also provides new insight into the way the Treasury allocated billions of dollars to nine of Wall Street’s largest players. The report says that Bank of America appeared to qualify for more aid earlier, under the government plan. That assertion adds another element of intrigue to continuing investigations of the bank’s merger with Merrill Lynch and the role that regulators played in the deal, even as Merrill’s condition deteriorated.

The bailout formula called for banks to get an amount equal to as much as 3 percent of their risk-weighted assets, with aid capped at $25 billion for each institution, according to the report. By size, Citigroup, JPMorgan Chase and Bank of America could have qualified for more, and the first two received $25 billion.

But Bank of America was given only $15 billion in October, since Merrill Lynch was earmarked for $10 billion. The two companies agreed to a merger, though their deal had not yet been approved by regulators or shareholders.

Bank of America ultimately received Merrill’s $10 billion in January — as well as $20 billion in additional bailout funds — but if the bank had not been involved in the Merrill deal, it would probably have received $25 billion at the outset, as did Citigroup and JPMorgan.

Another company in the process of a merger was not treated the same. Wells Fargo was acquiring Wachovia, and it received both companies’ money at the start, according to the inspector general.

Mr. Barofsky’s office also says that regulators were wrong to tell the public last year that the earliest bailout recipients were all healthy.

Former Treasury Secretary Henry M. Paulson Jr., for instance, said on Oct. 14 that the banks were “healthy,” and that they accepted the money for “the good of the U.S. economy.” The banks, he said, would be better able to increase their lending to consumers and businesses.

In truth, regulators were concerned about the health of several banks that received that first bailout, the inspector general writes.

The inspector general said government officials need to be more careful when describing their actions and rationale. In a letter included with the report, the Federal Reserve concurred with Mr. Barofsky’s concern about the statements made last year, but the Treasury Department said that any review of announcements last year “must be considered in light of the unprecedented circumstances in which they were made.”

Cramer v. Stewart, in person

Alex Koppleman, Salon.com, March 13, 2009

In the day leading up to Thursday night's face-to-face meeting between feuding cable hosts Jim Cramer and Jon Stewart, both men seemed to be trying to defuse tensions and downplay their very public spat. Stewart even told his audience on Wednesday that the interview, when it happened, was, "by all measure, bound to disappoint anyone that's been following."

He was wrong. What "Daily Show" viewers saw on Thursday night wasn't a boring love-in; it was a smackdown, or perhaps an homage to the human sacrifice scene from "Indiana Jones and the Temple of Doom" -- the one where they rip the victim's heart out and show it to him. At the very least, it was a riveting half-hour, something almost completely unlike anything else ever seen on television.

The clue that the interview wouldn't be rainbows and hugs came early on, when Stewart told his guest, "Look, we're both snake oil salesmen to a certain extent." Cramer, still eager to please, jumped in to say, "I'm not disagreei--" before being cut off by Stewart, who said, "But we do label the show as snake oil here." At this, the CNBC host visibly grimaced.

At points like that during the interview -- and there were many of them -- you almost had to feel sorry for Cramer. It was clear he'd come to the interview prepared to make nice, even desperate to. His voice was plaintive and cracking, his eyes were watery, he seemed willing and eager to agree with any and all of Stewart's criticisms in a futile effort to make the pain stop. Besides, just Wednesday night, the "Daily Show" host had been playing down the feud, and now here he was rolling numerous clips from a 2006 interview that shows Cramer discussing some unsavory practices from his hedge fund days, the kinds of things that could get the Securities and Exchange Commission involved.

And then, on the other hand, so much of the beating Stewart delivered felt deserved, especially when, towards the end, he started getting mad.

"I understand you want to make finance entertaining. But it's not a fucking game," he told Cramer. Then, referring to that video, he continued:

And I -- when I watch that, I get, I can't tell you how angry that makes me. Because what it says to me is that you all know. You all know what's going on. You can draw a straight line from those shenanigans to the stuff that was being pulled at Bear and at AIG and all this derivative market stuff that is this weird Wall Street side bet... Listen, you knew what the banks were doing and yet were touting it for months and months. The entire network was. And so now to pretend this was some crazy once-in-a-lifetime tsunami that no one could have seen coming is disingenuous at best and criminal at worst.

Stewart made clear, on more than one occasion, that it was really CNBC and financial journalism he was angry with, not just Cramer, but that the "Mad Money" host had become the symbol for his anger. And he took out after financial journalism generally.

"Look, nobody's asking for them to be a regulatory agency. But can't -- whose side are they on?" Stewart asked Cramer at one point. "It feels like they have to reconcile: Is their audience the Wall Street traders... These guys at these companies were on a Sherman's March through their companies financed by our 401Ks... And they burned the fucking house down with our money and walked away rich as hell and you guys knew that that was going on."

It's hard to knock Stewart for this kind of thing, as he's absolutely right about what financial journalists should have been doing and about their failure to report a realistic picture of the big banks rather than the rosy one painted by their executives. But he did come across a little naïve, especially for someone who works in television. CNBC's audience is absolutely the traders -- they're the lifeblood of the network. Lay people don't watch business news 24 hours a day, but people in the field do, and so CNBC and plenty of other financial journalism is made by them and for them. Doing the kind of hard-hitting reporting Stewart is calling for would screw up the business model.

Still, it's a nice dream to have, and Stewart at least got his opponent to agree to try it his way.

"Maybe we could remove the financial expert and the 'In Cramer We Trust' and start getting back to fundamentals on the reporting as well and I can go back to making fart noises and funny faces," he said at the close of the interview.

"I think we make that deal, right here," Cramer responded, and the two men shook hands.

― Alex Koppelman

President Bush... Vice President Cheney... Open Your Books.. and start again!

Epitaph for the Bush Presidency

"Open your book up to Lesson 60 on page 153."

This is what the teacher of the elementary class said just before George Bush started to read his story, "The Pet Goat", as the planes flew into the Twin Towers and the Pentagon on 9/11.It defines Bush's Presidency.

He hid in reading to school children rather than get up and deal with the greatest crisis in our nation's recent history as events continued to unfold with his head buried in a childrens' story.

He has maintained that head-in-the-sand manner through every other crisis created under his administration as those disasters flew into other national landmarks... Katrina into New Orleans, torture (along with Abu Ghraib) into our armed forces heretofore good reputation, lack of oversight in our financial institutions as they came crashing down, spying on individual citizens not involved in terrorism (with agents laughing at the private conversations). It would be tedious and frightening to continue to list similar situations under his watch.

Yes, this quote sums it up again for another reason. This is where President Bush and Vice President Cheney should start over... in the grade where he was reading "The Pet Goat", rather than dealing with responsibility. They can go back and learn what responsibility and honor mean, starting in second grade.

So please...President Bush... Vice President Cheney..."Open your book up to Lesson 60 on page 153.".... and start again.

The Madoff Economy

By PAUL KRUGMAN

The revelation that Bernard Madoff — brilliant investor (or so almost everyone thought), philanthropist, pillar of the community — was a phony has shocked the world, and understandably so. The scale of his alleged $50 billion Ponzi scheme is hard to comprehend.

Yet surely I’m not the only person to ask the obvious question: How different, really, is Mr. Madoff’s tale from the story of the investment industry as a whole?

The financial services industry has claimed an ever-growing share of the nation’s income over the past generation, making the people who run the industry incredibly rich. Yet, at this point, it looks as if much of the industry has been destroying value, not creating it. And it’s not just a matter of money: the vast riches achieved by those who managed other people’s money have had a corrupting effect on our society as a whole.

Let’s start with those paychecks. Last year, the average salary of employees in “securities, commodity contracts, and investments” was more than four times the average salary in the rest of the economy. Earning a million dollars was nothing special, and even incomes of $20 million or more were fairly common. The incomes of the richest Americans have exploded over the past generation, even as wages of ordinary workers have stagnated; high pay on Wall Street was a major cause of that divergence.

But surely those financial superstars must have been earning their millions, right? No, not necessarily. The pay system on Wall Street lavishly rewards the appearance of profit, even if that appearance later turns out to have been an illusion.

Consider the hypothetical example of a money manager who leverages up his clients’ money with lots of debt, then invests the bulked-up total in high-yielding but risky assets, such as dubious mortgage-backed securities. For a while — say, as long as a housing bubble continues to inflate — he (it’s almost always a he) will make big profits and receive big bonuses. Then, when the bubble bursts and his investments turn into toxic waste, his investors will lose big — but he’ll keep those bonuses.

O.K., maybe my example wasn’t hypothetical after all.

So, how different is what Wall Street in general did from the Madoff affair? Well, Mr. Madoff allegedly skipped a few steps, simply stealing his clients’ money rather than collecting big fees while exposing investors to risks they didn’t understand. And while Mr. Madoff was apparently a self-conscious fraud, many people on Wall Street believed their own hype. Still, the end result was the same (except for the house arrest): the money managers got rich; the investors saw their money disappear.

We’re talking about a lot of money here. In recent years the finance sector accounted for 8 percent of America’s G.D.P., up from less than 5 percent a generation earlier. If that extra 3 percent was money for nothing — and it probably was — we’re talking about $400 billion a year in waste, fraud and abuse.

But the costs of America’s Ponzi era surely went beyond the direct waste of dollars and cents.

At the crudest level, Wall Street’s ill-gotten gains corrupted and continue to corrupt politics, in a nicely bipartisan way. From Bush administration officials like Christopher Cox, chairman of the Securities and Exchange Commission, who looked the other way as evidence of financial fraud mounted, to Democrats who still haven’t closed the outrageous tax loophole that benefits executives at hedge funds and private equity firms (hello, Senator Schumer), politicians have walked when money talked.

Meanwhile, how much has our nation’s future been damaged by the magnetic pull of quick personal wealth, which for years has drawn many of our best and brightest young people into investment banking, at the expense of science, public service and just about everything else?

Most of all, the vast riches being earned — or maybe that should be “earned” — in our bloated financial industry undermined our sense of reality and degraded our judgment.

Think of the way almost everyone important missed the warning signs of an impending crisis. How was that possible? How, for example, could Alan Greenspan have declared, just a few years ago, that “the financial system as a whole has become more resilient” — thanks to derivatives, no less? The answer, I believe, is that there’s an innate tendency on the part of even the elite to idolize men who are making a lot of money, and assume that they know what they’re doing.

After all, that’s why so many people trusted Mr. Madoff.

Now, as we survey the wreckage and try to understand how things can have gone so wrong, so fast, the answer is actually quite simple: What we’re looking at now are the consequences of a world gone Madoff.

Beyond Election Day

By BOB HERBERT

Conservative commentators had a lot of fun mocking Barack Obama’s use of the phrase, “the fierce urgency of now.”

Noting that it had originated with the Rev. Dr. Martin Luther King Jr., Senator Obama made it a cornerstone of his early campaign speeches.

Conservatives kicked the phrase around like a soccer ball. “The fierce urgency of now,” they would say, giggling. What does it mean?

Well, if your house is on fire and your family is still inside, that’s an example of the fierce urgency of now.

Something like that is the case in the United States right now as Americans go to the polls in what is probably the most important presidential election since World War II. A mind-boggling series of crises is threatening not just the short-term future but the very viability of the nation.

The economy is sinking into quicksand. The financial sector, guardian of the nation’s wealth, is leaning on the crutch of a trillion-dollar taxpayer bailout. The giant auto companies — for decades the high-powered, gas-guzzling, exhaust-spewing pride of American industry — are on life support.

As the holiday shopping season approaches, the nation is hemorrhaging jobs, the value of the family home has plunged, retirement plans are shrinking like ice cubes on a hot stove and economists are telling us the recession has only just begun.

It’s in that atmosphere that voters today will be choosing between the crisis-management skills of Senator Obama, who has enlisted Joe Biden as aide-de-camp, and those of Senator John McCain, who is riding to the rescue with Sarah Palin and Joe the Plumber in tow.

As important as this choice has become, the election is just a small first step. What Americans really have to decide is what kind of country they want.

Right now the United States is a country in which wealth is funneled, absurdly, from the bottom to the top. The richest 1 percent of Americans now holds close to 40 percent of all the wealth in the nation and maintains an iron grip on the levers of government power.

This is not only unfair, but self-defeating. The U.S. cannot thrive with its fabulous wealth concentrated at the top and the middle class on its knees. (No one even bothers to talk about the poor anymore.) How to correct this imbalance is one of the biggest questions facing the country.

The U.S. is also a country in which blissful ignorance is celebrated, and intellectual excellence (the key to 21st century advancement) is not just given short shrift, but is ridiculed. Paris Hilton and Britney Spears are cultural icons. The average American watches television a mind-numbing 4 1/2 hours a day.

At the same time, our public school system is plagued with some of the highest dropout rates in the industrialized world. Math and science? Forget about it. Too tough for these TV watchers, or too boring, or whatever.

“When I compare our high schools with what I see when I’m traveling abroad,” said Bill Gates, “I am terrified for our work force of tomorrow.”

The point here is that as we approach the end of the first decade of the 21st century, the United States is in deep, deep trouble. Yet instead of looking for creative, 21st-century solutions to these enormous problems, too many of our so-called leaders are behaving like clowns, or worse — spouting garbage in the public sphere that hearkens back to the 1940s and ’50s.

Thoughtful, well-educated men and women are denounced as elites, and thus the enemies of ordinary Americans. Attempts to restore a semblance of fiscal sanity to a government that has been looted with an efficiency that would have been envied by the mob, are derided as subversive — the work of socialists, Marxists, Communists.

In 2008!

In North Carolina, Senator Elizabeth Dole, a conservative Republican, is in a tough fight for re-election against a Democratic state senator, Kay Hagan. So Ms. Dole ran a television ad that showed a close-up of Ms. Hagan’s face while the voice of a different woman asserts, “There is no God!”

Americans have to decide if they want a country that tolerates this kind of debased, backward behavior. Or if they want a country that aspires to true greatness — a country that stands for more than the mere rhetoric of equality, freedom, opportunity and justice.

That decision will require more than casting a vote in one presidential election. It will require a great deal of reflective thought and hard work by a committed citizenry. The great promise of America hinges on a government that works, openly and honestly, for the broad interests of the American people, as opposed to the narrow benefit of the favored, wealthy few.

By all means, vote today. But that is just the first step toward meaningful change.

Wassup???? Change

Palin's Alternate Universe

Sarah Palin is the perfect exclamation point to the Bush years.

Bob Herbert , NY Times, Oct. 4

We’ve lived through nearly two terms of an administration that believed it could create its own reality:
“Deficits don’t matter.” “Brownie, you’re doing a heckuva job.” “Those weapons of mass destruction must be somewhere.”

Now comes Ms. Palin, a smiling, bubbly vice-presidential candidate who travels in an alternate language universe. For Ms. Palin, such things as context, syntax and the proximity of answers to questions have no meaning.

In her closing remarks at the vice-presidential debate Thursday night, Ms. Palin referred earnestly, if loosely, to a quote from Ronald Reagan. He had warned that if Americans weren’t vigilant in protecting their freedom, they would find themselves spending their “sunset years telling our children and our children’s children what it was like in America when men were free.”

What Ms. Palin didn’t say was that the menace to freedom that Reagan was talking about was Medicare. As the historian Robert Dallek has pointed out, Reagan “saw Medicare as the advance wave of socialism, which would ‘invade every area of freedom in this country.’ ”

Does Ms. Palin agree with that Looney Tunes notion? Or was this just another case of the aw-shucks, darn-right, I’m-just-a-hockey-mom governor of Alaska mouthing something completely devoid of meaning?

Here’s Ms. Palin during the debate: “Say it ain’t so, Joe! There you go pointing backwards again ... Now, doggone it, let’s look ahead and tell Americans what we have to plan to do for them in the future. You mentioned education, and I’m glad you did. I know education you are passionate about with your wife being a teacher for 30 years, and God bless her. Her reward is in heaven, right?”

If Governor Palin didn’t like a question, or didn’t know the answer, she responded as though some other question had been asked. She made no bones about this, saying early in the debate: “I may not answer the questions the way that either the moderator or you want to hear.”

The problem with Ms. Palin’s candidacy is that John McCain might actually win this election, and then if something terrible happened, the country could be left with little more than an exclamation point as president.

After Ms. Palin had woven one of her particularly impenetrable linguistic webs, Joe Biden turned to the debate’s moderator, Gwen Ifill, and said: “Gwen, I don’t know where to start.”

Of course he didn’t know where to start because Ms. Palin’s words don’t mean anything. She’s all punctuation.

This is such a serious moment in American history that it’s hard to believe that someone with Ms. Palin’s limited skills could possibly be playing a leadership role. On the day before the debate, the commander of NATO forces in Afghanistan, Gen. David McKiernan, made an urgent appeal for more troops, saying the additional “boots on the ground,” as well as more helicopters and other vital equipment, were “needed as quickly as possible.”

The morning after the debate, the Labor Department announced that the employment situation in the U.S. had deteriorated even more than experts had expected. The nation lost nearly 160,000 jobs in September, more than double the monthly losses in July and August.

Conditions are probably worse than even those numbers indicate because the government’s statistics do not yet reflect the response of employers to the credit crisis that has taken such a hold in the last few weeks.

Where is the evidence that Governor Palin even understands these complex and enormously challenging problems? During the debate she twice referred to General McKiernan as “McClellan.” Neither Ms. Ifill nor Senator Biden corrected her.

But after Senator Biden suggested that John McCain’s answer to the nation’s energy problems was to “drill, drill, drill,” Ms. Palin promptly pointed out, as if scoring a point, that “the chant is ‘Drill, baby, drill!’ ”

How’s that for perspective? The credit markets are frozen. Our top general in Afghanistan is dialing 911. Americans are losing jobs by the scores of thousands. And Sarah Palin is making sure we know that the chant is “drill, baby, drill!” not “drill, drill, drill.”

John McCain has spent most of his adult life speaking of his love for his country. Maybe he sees something in Sarah Palin that most Americans do not. Maybe he is aware of qualities that lead him to believe she’d be as steady as Franklin Roosevelt in guiding the U.S. through a prolonged economic downturn. Maybe she’d be as wise and prudent in a national emergency as John Kennedy was during the Cuban missile crisis.

Maybe Senator McCain has reason to believe that it would not be the most colossal of errors to put Ms. Palin a heartbeat away from the presidency.

He’s got just four weeks to share that insight with the rest of us.

Where Are the Grown-Ups?

By PAUL KRUGMAN
Many people on both the right and the left are outraged at the idea of using taxpayer money to bail out America’s financial system. They’re right to be outraged, but doing nothing isn’t a serious option. Right now, players throughout the system are refusing to lend and hoarding cash — and this collapse of credit reminds many economists of the run on the banks that brought on the Great Depression.

It’s true that we don’t know for sure that the parallel is a fair one. Maybe we can let Wall Street implode and Main Street would escape largely unscathed. But that’s not a chance we want to take.

So the grown-up thing is to do something to rescue the financial system. The big question is, are there any grown-ups around — and will they be able to take charge?

Earlier this week, Henry Paulson, the Treasury secretary, tried to convince Congress that he was the grown-up in the room, come to protect us from danger. And he demanded total authority over the rescue: $700 billion to be used at his discretion, with immunity for future review.

Congress balked. No government official should be entrusted with that kind of monarchical privilege, least of all an official belonging to the administration that misled America into war. Furthermore, Mr. Paulson’s track record is anything but reassuring: he was way behind the curve in appreciating the depth of the nation’s financial woes, and it’s partly his fault that we’ve reached the current moment of meltdown.

Besides, Mr. Paulson never offered a convincing explanation of how his plan was supposed to work — and the judgment of many economists was, in fact, that it wouldn’t work unless it amounted to a huge welfare program for the financial industry.

But if Mr. Paulson isn’t the grown-up we need, are Congressional leaders ready and able to fill the role?

Well, the bipartisan “agreement on principles” released on Thursday looks a lot better than the original Paulson plan. In fact, it puts Mr. Paulson himself under much-needed adult supervision, calling for an oversight board “with cease and desist authority.” It also limits Mr. Paulson’s allowance: he only (only!) gets to use $250 billion right away.

Meanwhile, the agreement calls for limits on executive pay at firms that get federal money. Most important, it “requires that any transaction include equity sharing.”

Why is that so important? The fundamental problem with our financial system is that the fallout from the housing bust has left financial institutions with too little capital. When he finally deigned to offer an explanation of his plan, Mr. Paulson argued that he could solve this problem through “price discovery” — that once taxpayer funds had created a market for mortgage-related toxic waste, everyone would realize that the toxic waste is actually worth much more than it currently sells for, solving the capital problem. Never say never, I guess — but you don’t want to bet $700 billion on wishful thinking.

The odds are, instead, that the U.S. government will end up having to do what governments always do in financial crises: use taxpayers’ money to pump capital into the financial system. Under the original Paulson plan, the Treasury would probably have done this by buying toxic waste for much more than it was worth — and gotten nothing in return. What taxpayers should get is what people who provide capital are entitled to: a share in ownership. And that’s what the equity sharing is about.

The Congressional plan, then, looks a lot better — a lot more adult — than the Paulson plan did. That said, it’s very short on detail, and the details are crucial. What prices will taxpayers pay to take over some of that toxic waste? How much equity will they get in return? Those numbers will make all the difference.

And in any case, it seems that we don’t have a deal.

This has to be a bipartisan plan, and not just at the leadership level. Democrats won’t pass the plan without votes from rank-and-file Republicans — and as of Thursday night, those rank-and-file Republicans were balking.

Furthermore, one non-rank-and-file Republican, Senator John McCain, is apparently playing spoiler. Earlier this week, while refusing to say whether he supported the Paulson plan, he claimed not to have had a chance to read it; the plan is all of three pages long. Then he inserted himself into the delicate negotiations over the Congressional plan, insisting on a White House meeting at which he reportedly said little — but during which consensus collapsed.

The bottom line, then, is that there do seem to be some adults in Congress, ready to do something to help us get through this crisis. But the adults are not yet in charge.

I Come to You, Cashmere Hat in Hand . . .

By Dana MilbankWednesday, September 24, 2008; A03

"I don't like to be in this position, asking for things and, you know, answering to the American taxpayer," Treasury Secretary Hank Paulson informed the Senate banking committee yesterday.

His discomfiture was easily understood.

He left Goldman Sachs two years ago with hundreds of millions in his pocket and an invitation from President Bush to take over the U.S. Treasury. Now, after assuring lawmakers for the past two years that the markets would take care of themselves, he was asking Congress for perhaps $1 trillion in borrowed taxpayer money to bail out his former peers and colleagues on Wall Street. He wanted the money so desperately -- "quickly and cleanly . . . avoid slowing it down . . . immediate implementation . . . urgency . . . immediate need" -- that, if he had any hair, he probably would have set it on fire right there in the Dirksen Senate Office Building.

The senators were none too pleased to receive this panhandler. Though they've collectively accepted more than $33 million from Wall Street and related industries in this election cycle alone, the committee members took turns channeling their inner Huey Longs.

"This massive bailout is not a solution -- it is financial socialism, and it's un-American," fumed Jim Bunning (R-Ky.).

"It does not make any sense; it will reward the banks first, who got us in the financial mess," protested Mike Enzi (R-Wyo.).

The fury of Bob Menendez (D-N.J.) caused his metaphors to collide ("I am not going to be stampeded into rubber-stamping this proposal"), and even the demure Elizabeth Dole (R-N.C.) found the whole thing "infuriating."

Much of this was posturing, of course. Lawmakers, afraid of being blamed for the next Great Depression, have little choice but to give Paulson much of what he wants. But after the Bush administration railroaded them on other emergency measures that later turned out to be problematic -- the Iraq war, the Department of Homeland Security and the USA Patriot Act -- the bipartisan outrage suggests that, this time, Congress will make the administration squirm a bit.

Paulson, a college football star before his ascent on Wall Street, was unaccustomed to squirming, but he did his best. "I share your frustrations; I feel those frustrations," he told the senators. "Again, I'm frustrated the taxpayer is on the hook," he added moments later. He went on to remind them that "some of the frustrations here I share, you know," that "I did not want to find myself in the position of being here asking for these authorities," and that, truth be told, "I hate to be on this side of the table, because this is not something that I ever wanted to ask for." Indeed, said the author of the greatest market intervention in nearly a century, "I've never been a proponent of intervention."

But Paulson's conversion was okay, because the committee members were undertaking their own conversion, to Main Street populism.

"This legislation must be passed to help Main Street, not because the federal government is being held hostage by Wall Street," Enzi posited.

"We've tried to avoid propping up failed businesses on Main Street; we should not prop up failure, malfeasance and avarice on Wall Street," submitted Wayne Allard (R-Colo.).

"The bottom line to me is: How do we make sure that the connection between Main Street and Wall Street is understood?" said Mike Crapo (R-Idaho).

Answered Chuck Schumer (D-N.Y.): "While Wall Street caused the problems we face, unfortunately, if we do nothing, Main Street will also pay a severe price."

"I hope we can give Main Street a good bit more help and attention than we have to date," contributed Sherrod Brown (D-Ohio).

Paulson tried his hand at the Main Street game. "Even some Main Street non-financial institutions -- or, excuse me, some non-financial companies -- have trouble financing their normal business operations," he argued.

But mostly, the secretary stuck to his main point: that if Congress doesn't give him what he wants, and soon, the year will quickly become 1932. "There is a bipartisan consensus for an urgent legislative solution," he coaxed. "We need to build upon this spirit and enact this bill -- enact this bill quickly and cleanly and avoid slowing it down."

This was quite a turnabout for Paulson, who earlier this year had promised that "the markets are going to work." Despite what he modestly termed a "housing correction," he assured lawmakers: "I have confidence in our markets."

Given that track record, lawmakers weren't inclined to be bullied by Paulson's demands for haste. "Speed is important, but I'm far more interested in whether or not we get this right," said Chairman Chris Dodd (D-Conn.).

"I'm very concerned that the express need to pass something now may prevent us from devising a plan that would actually work," agreed Richard Shelby (Ala.), the committee's top Republican.

And Schumer was moved to invoke Greek mythology, using the imagery of sea monsters to analyze the situation. "As we look forward in the week ahead, we face both a Scylla and a Charybdis, dangers on both sides," the oracle of New York said. In Schumer's telling, the Scylla monster represented the danger of not acting. "But there is also the Charybdis, the other danger of acting so quickly that we choose a bad solution," he said.

The noted classicist had planned to ask a follow-up question later, but an appearance on CNBC kept him from returning to the hearing room in time.

"We really do have to go," Paulson advised the committee.

On Wall Street, the stock market resumed its plunge

Dear Iraqi Friends (Thonas Friedman on "the bailout")

By THOMAS L. FRIEDMAN

From: President George W. Bush

To: President Jalal Talabani of Iraq, Prime Minister Nuri Kamal al-Maliki, Speaker Mahmoud al-Mashadani

Dear Sirs, I am writing you on a matter of grave importance. It’s hard for me to express to you how deep the economic crisis in America is today. We are discussing a $1 trillion bailout for our troubled banking system. This is a financial 9/11. As Americans lose their homes and sink into debt, they no longer understand why we are spending $1 billion a day to make Iraqis feel more secure in their homes.

For the past two years, there has been a debate in this country over whether to set a deadline for a U.S. withdrawal from Iraq. It seemed as if the resolution of that debate depended on who won the coming election. That is no longer the case. A deadline is coming. American taxpayers who would not let their money be used to subsidize their own companies — Lehman Brothers, Bear Stearns and Merrill Lynch — will not have their tax dollars used to subsidize your endless dithering over which Iraqi community dominates Kirkuk.

Don’t misunderstand me. Many Americans and me are relieved by the way you, the Iraqi people and Army have pulled back from your own brink of self-destruction. I originally launched this war in pursuit of weapons of mass destruction. I was wrong. But it quickly became apparent that Al Qaeda and its allies in Iraq were determined to make America fail in any attempt to build a decent Iraq and tilt the Middle East toward a more democratic track, no matter how many Iraqis had to be killed in the process. This was not the war we came for, but it was the one we found.

Al Qaeda understood that if it could defeat America in the heart of the Arab-Muslim world, that it would resonate throughout the region and put Al Qaeda and its allies in the ascendant. Conversely, we understood that if we could defeat Al Qaeda in Iraq, in collaboration with other Arabs and Muslims, that it would resonate throughout the region and pay dividends. Something very big was at stake here. We have gone a long way toward winning that war.

At the same time, I also came to realize that in helping Iraqis organize elections, we were facilitating the first ever attempt by the people of a modern Arab state to write their own social contract — rather than have one imposed on them by kings, dictators or colonial powers. If Iraqi Shiites, Sunnis and Kurds can forge your own social contract, then some form of a consensual government is possible in the Arab world. If you can’t, it is kings and dictators forever — with all the pathologies that come with that. Something very big is at stake there, too.

It’s not the stakes that have changed. It is the fact that you are now going to have to step up and finish this job.

You have presumed an endless American safety net to permit you to endlessly bargain and dicker over who gets what. I’ve been way, way too patient with you. That is over. We bought you time with the surge to reach a formal political settlement and you better use it fast, because it is a rapidly diminishing asset.

You Shiites have got to bring the Sunni tribes and Awakening groups, who fought the war against Al Qaeda of Iraq, into the government and Army. You Kurds have got to find a solution for Kirkuk and accept greater integration into the Iraqi state system, while maintaining your autonomy. You Sunnis in government have got to agree to elections so the newly emergent Sunni tribal and Awakening groups are able to run for office and become “institutionalized” into the Iraqi system.

So pass your election and oil laws, spend some of your oil profits to get Iraqi refugees resettled and institutionalize the recent security gains while you still have a substantial U.S. presence. Read my lips: It will not be there indefinitely — even if McCain wins.

Our ambassador, Ryan Crocker, has told me your problem: Iraqi Shiites are still afraid of the past, Iraqi Sunnis are still afraid of the future and Iraqi Kurds are still afraid of both.

Well, you want to see fear. Look in the eyes of Americans who are seeing their savings wiped out, their companies disappear, their homes foreclosed. We are a different country today. After a decade of the world being afraid of too much American power, it is now going to be treated to a world of too little American power, as we turn inward to get our house back in order.

I still believe a decent outcome in Iraq, if you achieve it, will have long-lasting, positive implications for you and the entire Arab world, although the price has been way too high. I will wait for history for my redemption, but the American people will not. They want nation-building in America now. They will not walk away from Iraq overnight, but they will not stay there in numbers over time. I repeat: Do not misread this moment. God be with you.

George W. Bush.

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