Murkowski 'wins.' Bill gets to 'shave.' Apparently.

By Julia Nutter

 - 

Wed Nov 17, 2010 8:02 PM EST

Here's Bill Wolff with a preview of tonight's show:

Visit msnbc.com for breaking news, world news, and news about the economy

By Laura Conaway

 - 

Wed Nov 17, 2010 3:22 PM EST

the end of bill's alaska beard from The Rachel Maddow Show on Vimeo.



Send out for shaving cream -- Bill Wolff's beard is about to be history. NBC says Sen. Lisa Murkowski is the apparent winner in the Alaska Senate race. AP goes a step further:

Sen. Lisa Murkowski has become the first Senate candidate in more than 50 years to win a write-in campaign. Murkowski emerged victorious after a painstaking, two-week count of write-in ballots showed she has overtaken over tea party rival Joe Miller.
Her victory became clear when Alaska election officials confirmed they had only about 700 votes left to count, putting Murkowski in safe territory to win re-election. Murkowski has a lead of about 10,000 votes, a total that includes 8,153 ballots in which Miller observers challenged over things like misspellings, extra words or legibility issues.

Murkowski's on her way to Alaska for what sounds a lot like a victory party and an "exciting announcement." Bill's heading for the barber with a camera trailing him. We'll see.



11/16/2010
Here's Bill Wolff with the rundown of tonight's show:

Visit msnbc.com for breaking news, world news, and news about the economy

11/15/2010
Here's Bill Wolff with a look at tonight's show:

Visit msnbc.com for breaking news, world news, and news about the economy

Green Week: Power in Progress

Visit msnbc.com for breaking news, world news, and news about the economy

Jindal: White House image-focused during oil spill

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Carbon Taxes and the Budget Deficit

— By Kevin Drum

| Wed Nov. 17, 2010 8:39 AM PST

Matt Yglesias wants the liberal community to drop its longtime love affair with a VAT as a way of raising revenue and instead start showing some love for a carbon tax:

I really think the VAT is a decent idea whose time is past and is now obsolete. VAT recommends itself as an economically efficient revenue raiser, with the downside being that it’s regressive. The result is that from a 2010 point of view it’s completely dominated by the idea of a carbon tax. A carbon tax is also an efficient, but regressive, form of consumption tax. But by specifically taxing consumption of carbon dioxide emissions it also manages to contribute to solving a massive ecological problem. The political obstacles to a carbon tax are formidable, but so are the obstacles to a VAT. Under the circumstances it would be tragic for a political coalition to muster the power necessary to implement a hefty regressive consumption tax that isn’t specifically targeted at greenhouse gas pollution.

I agree, and the regressive nature of both kinds of taxes can be minimized with decent implementation choices. There are plenty of plans on the table for doing this.
But I'll add one other thing. A few days ago I wrote a poorly phrased post in which I said that any plan for reducing the budget deficit should also include a plan for reducing the trade deficit. It sounded vaguely as if I was suggesting that reducing the trade deficit would directly affect the budget deficit, but that's not really what I meant. What I meant was that, other things equal, you can only reduce the budget deficit if you also reduce the trade deficit at the same time. One corollary of this is that policies to reduce the budget deficit are more likely to be effective if they work with policies to reduce the trade deficit rather than against them.
A carbon tax is a good example of this. On one level, it raises revenue and helps close the budget deficit. But it also makes energy more expensive and is likely to reduce our imports of oil. Whether it actually does or not depends on a lot of other issues, but at least it pushes in the right direction. You're giving budget deficit reduction a tailwind instead of a headwind.
So: a carbon tax is good for the environment, probably good for the trade deficit, and therefore probably also helpful for reducing the budget deficit. What's not to like?

Tina Fey's Censored Palin Joke (VIDEO)

— By Adam Weinstein

| Tue Nov. 16, 2010 10:26 AM PST

— Screenshot courtesy of PBS

So Tina Fey gets this award Sunday night, the Kennedy Center's Mark Twain Prize for American Humor, which is kind of a big deal. In fact, they wrap an entire PBS Kennedy Center TV special around her, with special guests and happy clapping crowds. And when she gets this award, she gets to talk onstage, as awardees are wont to do. And according to Joe.My.God. and the Washington Post, here's part of what she says:

And, you know, politics aside, the success of Sarah Palin and women like her is good for all women—except, of course, those who will end up, you know, like, paying for their own rape kit 'n' stuff. But for everybody else, it's a win-win. Unless you're a gay woman who wants to marry your partner of 20 years—whatever. But for most women, the success of conservative women is good for all of us. Unless you believe in evolution. You know—actually, I take it back. The whole thing's a disaster.

Except if you were watching the thing on PBS Sunday night, you didn't see or hear any of that. According to the Post's Paul Farhi: "The part about rape kits and evolution was gone, leaving only Fey's more harmonious—and blander—comments about Palin and politics: 'I would be a liar and an idiot if I didn't thank Sarah Palin for helping get me here tonight...'"
For its part, PBS told Farhi the selective editing "was not a political decision...We had zero problems with anything she said":

But with the 90-minute show running about 19 minutes long after the taping Tuesday night, a few things had to give, Kaminsky said. "We took a lot out," he said. "We snipped from everyone."

Uh huh. Anyway, a video of Fey's full acceptance speech is below; skip to about 12:30 for her invective on Alaskan dystopia. Oh, and by the way, also on TV Sunday? The premiere of Sarah Palin's Alaska on TLC, which hooked in 5 million viewers. Apparently she illegally molested a bear with her fishing tackle. But that didn't get edited out.

Watch the full episode. See more Mark Twain Prize.

A Clean-Tech Revolution in Four Easy Steps

The best ways to ease our transition into renewable power.

By Armond Cohen | Wed Nov. 17, 2010 3:00 AM PST

From: Armond Cohen
To: Michael Brune, Steven F. Hayward, Michael Levi, Alexis Madrigal, Ted Nordhaus, David Roberts, and Michael Shellenberger.
Subj: Four principles to spur clean-energy innovation.
A recent National Academy of Sciences report [9] (PDF) notes that CO₂ lasts thousands of years in the atmosphere, so if we really want to limit the damage from climate change, we'll need to drop the world's energy system to near-zero emissions by 2050. Yet the UN's climate chief, Cristina Figueres, recently admitted: "I do not believe we will ever have a final agreement on climate change, certainly not in my lifetime."
Is it time to give up? No, but a better strategy might help.
First, any viable approach to solving the climate crisis is going to require both humility and patience. World energy use—the cause of most CO₂ emissions—is expected to triple in the next 40 years, due to rising population and incomes in Asia. Given this growth rate, as Roger Pielke, Jr. has noted, we'd need to build more than 12,000 nuclear plants just to get our mid-century CO₂ emissions to half of where they were in 1990. (For comparison, just 430 nuclear plants exist today.)
That's not to say substantial change in energy systems would be impossible. In 40 years, the United States managed to scale up two energy technologies not previously in commercial use: the combined cycle gas turbine and nuclear power. Together, those now provide nearly 40 percent of the nation's electricity. China was able to construct a US-sized fleet of coal plants in just the last five years. We can build energy infrastructure quickly when the conditions are right.
But it wouldn't be wise to build 12,000 standard nuclear plants, nor can we get the equivalent energy production by erecting tens of millions of today's wind turbines. (Wind energy output changes from hour to hour, adding substantial costs and technical challenges to the electric grid.) We need much better and cheaper technologies, including, among other things, improved carbon capture and storage, cheap energy storage for wind and solar, and advanced nuclear plant designs that radically reduce waste and the risk of proliferation.
So what's the right strategy to promote the required innovation? Along with colleagues at the Consortium for Science, Policy, and Outcomes, as well as 40 experts from private industry and government, we at the Clean Air Task Force came up with the following principles [10]:
First, we need to learn by doing. While research and development lays the groundwork for future breakthroughs, the immediate construction of projects at commercial scale allows us to develop known technology for use in the next two decades. By building out the latest ideas instead of locking them behind a laboratory door, we discover flaws that can then be addressed. If we set up 30 full-sized facilities for removing carbon emissions from coal and gas plants and injecting them underground, that would move us closer to perfecting this technology than another decade spent doing experiments.
Second, spread the effort around. Many US plans for spurring energy innovation would continue to use the Department of Energy as the main driver. The DoE does some things well but monopoly is rarely a good idea inside or outside of government. During the Cold War effort to develop advanced military systems, the government set up multiple units and agencies to nurture innovation in the private sector. Indeed, one possible source of energy innovation is the Department of Defense, which has a long history of getting big, new technologies out the door. The Pentagon also buys as much electricity as 2.6 million people, and has an annual liquid fuel bill of $10 billion. Let's harness its project-management acumen and vast purchasing power to this peacetime mission.

Third, regulate our way to cleaner energy. Emissions standards related to acid rain and smog spurred substantial innovations in emission controls for power plants and cars, resulting in emissions reductions of 60 to 90 percent within a decade, and at a manageable cost. The same can hold for CO₂ from coal and gas plants (the cause of more than one-third of US emissions), although more time may be needed.

Fourth, the government can literally buy innovation. Federal and state agencies, for example, could contract for electricity from "first of a kind," low-carbon projects. Providers could be made to compete for the lowest prices on these new sources of electricity. Through tax breaks, we already "spend" roughly $6 billion per year to support conventional wind power. An equivalent amount should be spent on innovation by purchasing the output of cutting-edge carbon-capture facilities, modular nuclear reactors, and other new technologies.
Some other things would help, too. Let's reverse our policies supporting first generation biofuels that worsen global warming by displacing forests and grasslands with energy crops. And let's cut methane emissions [11] by putting gas-collection systems on landfills, oil operations and coal mines.
But the main event is energy innovation. Doing it on a large scale is a huge task. But we've done it before. We just need to do it faster and better. Isn't that what America excels at?
This story was produced by Slate [12] for the Climate Desk [13] collaboration.

Time for Climate Hawks to Take to the Hills?

What advocates can learn from the American Revolution.

By David Roberts | Wed Nov. 17, 2010 3:00 AM PST

From: David Roberts
To: Michael Brune, Armond Cohen, Steven F. Hayward, Michael Levi, Alexis Madrigal, Ted Nordhaus and Michael Shellenberger.
Subj: What climate advocates can learn from the American Revolution.
What's the path forward for those who support a robust response to the danger of rising greenhouse emissions? It's always fun to toss ideas around, and I look forward to reading my fellow participants' contributions. To be more than an intellectual exercise, though, policy development must issue from a clear understanding of power dynamics. Climate hawks' fatal weakness has always been their attitude toward power, which has wavered between naiveté, diffidence, and disdain.
Conservatives have successfully demonized cap-and-trade, rendering it politically toxic for at least the next several years. In response, the new vogue in energy circles is to campaign for massive public investment in cleantech R&D. And who could oppose that? It sounds reasonable and bipartisan. Then again, so did cap-and-trade in the 1990s, when centrist environmentalists and Republicans developed it as a market-based alternative to command-and-control regulations. Will public investment meet the same sorry fate?
Technology-firsters are convinced things will go differently for them. But cap-and-trade's defeat owes less to policy—the particular balance of penalties and incentives in the legislation—than to the simple fact that climate hawks lack the social, political, and economic clout wielded by those who benefit from the fossil fuel status quo.
As originally conceived, the climate bill was a wonk's dream, bristling with policies from carbon pricing to technology investments, consumer dividends, renewable power mandates, and efficiency standards. (Look up Rep. Ed Markey's iCap bill [9] some time.) Far from the "little tweak far upstream" Alexis describes in his introductory essay [2], it was intended as a frontal assault on the status quo. But for all the policy grandeur, there was never a realistic strategy to overcome the interests of legislators arrayed against change. By the time the assault reached the castle gates, the bill was mangled beyond recognition. Even its supporters were somewhat relieved to see the bill put out of its misery.
It is now painfully clear that, given the manifold dysfunctions of American politics (filibuster abuse, unrestricted corporate money), the energy status quo is too powerful to take down in direct conflict. It would be a mistake to cluster together under a new banner and provide another fat target. It's time to heed the lesson America's revolutionary militias learned after they took a few drubbings at the hands of the British Redcoats: disperse. Take to the hills. Run and gun.
Michael Shellenberger and Ted Nordhaus have assembled a coalition in support of R&D investment, to their great credit. Yet they claim a peculiar priority for that undertaking. "All questions, political and economic, return to questions of technology," they assure us. If only we could escape the vagaries of culture and politics so easily.
It's true that the world's energy systems are shaped by the relative costs of different technologies. But it's equally true that those costs are shaped by the distribution of economic and political power. Cost is a cultural artifact—the result of a contingent set of economic models, market regulations, political connections, and consumer habits—as much as an objective feature of technology. Dirty-energy incumbents have spent the last century rigging the rules in their favor. Efforts to change costs must attend to sociopolitical and economic reform as well as technological development.
A resilient movement will conduct guerrilla warfare. Diverse groups and coalitions must defend the EPA, develop innovative clean energy financing mechanisms or smarter market rules, go directly after the nation's biggest polluters in boardrooms and courtrooms, work to raise gas taxes or roll back fossil fuel subsidies, defend and expand state climate programs like California's or smart-growth plans like Portland's, start or fund cleantech businesses, and advocate for feed-in tariffs [10], a national smart grid, electric vehicles, and new building efficiency standards.
The effects of a distributed, networked insurgency are impossible to predict and difficult to discern even as they unfold. It's impossible to know in advance where resistance might give way or ground might be gained, so profligacy and opportunism—not parsimony and efficiency—are the watchwords.
There may come a time to muster back together behind a single, dramatic, sweeping plan for change, but not until the coalition has built considerably more bottom-up power. What climate hawks need most now is a nimble, networked pragmatism, focused ruthlessly on wrenching power from the hands of fossil fuel incumbents and deploying it on behalf of a healthier, more democratic energy regime.
This story was produced by Slate [11] for the Climate Desk [12] collaboration.

Climate Scientists Strike Back

— Flickr/Roberto Rizzato.

A year after ClimateGate, can a trio of scientists clear the air of global warming misinformation?

— By Kate Sheppard

Wed Nov. 17, 2010 3:00 AM PST

A year ago this week, the already-heated global warming debate exploded into allegations of a massive scientific fraud when a trove of emails between climate scientists was stolen and posted online. Portions of the emails were cherry-picked and taken out of context to create the impression that researchers were engaged in a sinister plot to mislead the public and silence detractors. Dubbed "ClimateGate" by global warming deniers, the ensuing hype succeeded in further clouding the public's understanding of climate science.
Never mind that it was a noncontroversy—that myriad models and reams of data have concluded that the planet is warming due to human activity, or that five separate investigations have confirmed that the ClimateGate scientists did nothing improper. In the combustible world of climate denial, the email release added fuel to the fire, reigniting old attacks on science in the blogosphere and among right-wing members of Congress—including a few who are in line to lead powerful House committees next year.
While the episode inflamed climate skeptics, it also forced some climate scientists to rethink their role in the debate. Many scientists have been wary of being pulled into policy debates and of appearing as advocates rather than dispassionate researchers. Some just assumed that the science spoke for itself. But the email release and the subsequent attacks raised the question of whether they can afford to remain on the sidelines any longer as their work is distorted, largely by people with political agendas.

The confusion sowed about climate science recently inspired a trio of scientists to create a "rapid response" team to dispel misinformation. While organizers say the new project is not direcly tied to the anniversary of the email release, it's clearly the result of a good deal of frustration on the part of scientists about the direction discussion of the subject has gone in the past year. "There's a huge disconnect between what is known in the science community and what is understood in the general public," says John Abraham, a professor of engineering at the University of St. Thomas and one of the leaders of what he and his colleagues are calling the Climate Science Rapid Response Team. "There's a real strong consensus among scientists and a lack of consensus in the general public."
The gulf between scientists and the American public, says Abraham, has "obviously gotten wider over the last couple years." He attributes this to the phony email scandal, as well as "to a concerted effort by a number of organizations who have interests, generally ideological interests, in blocking climate action." Media coverage of the issue has also been lacking, he says, and many scientists have shied away from discussing their work in the press.
Launching later this week, the Climate Science Rapid Response Team has signed up more than 40 scientists to take part in the initiative, and organizers are hoping to grow the total to at least 100. The idea is that the coordinators will serve as matchmakers between scientists and the news media. Reporters can contact the team with specific questions about science or requests for a television and radio appearances by participating researchers. Their focus is on the science—not on wading into policy debates—but their intention is to help the public discourse move beyond the "is-it-happening" question, says Abraham.
It's clear there's a long way to go to improve public understanding of the issue. A poll conducted by the Yale Project on Climate Change Communication showed a significant decline in the belief that the planet is warming due to human activity—from 57 percent in 2008 to 47 percent in early 2010—immediately following the disclosure of the emails. The numbers did bounce back up a bit in polls conducted later in 2010; another Yale study released this fall found that 63 percent of Americans understand that the planet is heating up, and about half of those surveyed recognized that human activity is to blame. Yet a significant majority of the people surveyed had major misconceptions about why the planet's warming, attributing it to, among other things: the space program, toxic waste, the hole in the ozone layer, and volcanoes. The study concluded that if Americans were graded on their understanding of climate science, 52 percent of the population would get an "F." Yale's researchers also found that only 34 percent of the public agreed with the statement, "Most scientists think global warming is happening." The largest percentage—45 percent—thought there was "a lot of disagreement among scientists" on global warming.
"There's always been a level of frustration with the difference between what scientists know and what people think we know," says Scott Mandia, a professor of physical sciences at New York's Suffolk Community College and another leader of the rapid response team. "We have to accept much of the blame. It's not good enough to publish information in journals and expect it get out."
Ray Weymann, a retired astrophysicist who's also part of effort, says he and his colleagues have no interest in being "attack dogs." But, he adds, "I think it's absolutely in order for climate scientists to respond to something that is patently inaccurate."
Wading into the politically charged global warming war has long caused heartburn for many climate scientists. "The truth is, most scientific societies are reluctant to go beyond issuing formal statements about science-related issues, even in the face of withering attacks on the scientific fields they represent," Brenda Ekwurzel, a climate scientist at the Union of Concerned Scientists, pointed out in a recent op-ed. This makes stepped-up efforts to defend the science of global warming all the more important, say the rapid response team's organizers.
"A lot of scientists believe the truth will set us free, but the truth has been locked up in journals, and it's not getting out to the public," says Mandia. Until it does, he says, "An alternate truth is getting out there."

Kate Sheppard covers energy and environmental politics in Mother Jones' Washington bureau. For more of her stories, click here. She Tweets here. Get Kate Sheppard's RSS feed.

Foreclosuregate: The Buck Stops Nowhere

Will Congress force accountability for the rapacious companies who forced Americans out of their homes? Don't count on it.

By Andy Kroll | Wed Nov. 17, 2010 6:45 AM PST

---

For American homeowners, the hearing was an eagerly anticipated showdown between their representatives in Congress and the banks on the other end of the foreclosure notices. For members of the Senate banking committee, it was a mere blip on their radar. On a rain-soaked Tuesday afternoon, the committee—or at least those few members who bothered to show up—questioned six housing experts on "Foreclosuregate," the latest housing industry scandal that's prompted a nationwide probe by 50 state attorneys general [1]. The hearing was billed as a fact-finding mission to "investigate" the "robo signers," [2] fabricated documents, and systemic flaws currently bogging down the country's foreclosure pipeline. Set to face the most scrutiny were mortgage servicers [3], the underregulated middlemen [3] who act as the face of your loan by collecting payments, providing customer service—and foreclosing on you when you fall behind (and sometimes, even when you don't).
What actually transpired was a light questioning that broke little new ground. So few lawmakers attended the hearing that by the end only two senators remained to discuss this controversial issue: outgoing Sen. Chris Dodd (D-Conn.), the committee's chairman, and Sen. Jeff Merkley (D-Ore.), one of the upper chamber's few true consumer advocates. Most startling of all, though, was the nagging feeling of déjà vu that hung over the hearing: that we've been here before, asked the same questions, and heard the same answers from the banks. On everything from servicers' conflicting actions—namely, modifying homeowners' mortgages while foreclosing at the same time—to their assurances that they're not financially incentivized to foreclose (all evidence to the contrary [4]), the arguments trotted out by industry officials sounded painfully familiar.

Take, for instance, this frequent complaint from homeowners navigating the loan modification minefield: While their servicer was arranging a modification to lower their monthly payments, homeowners say, the same company also began foreclosure proceedings. In other words, the left hand doesn't know what the right one is doing. At a banking committee hearing in Philadelphia [5] in April 2008, a local resident, Yajaira Cruz Rivera, recounted this story [6]:

After months of negotiation with my lender [GMAC], ACORN Housing modified my loan, so that I am paying $1,284 a month and that my loan has a true fixed interest rate...My modification officially does not take place until 6 payments at the new rate are made and on top of that GMAC's loss mitigation department forgot to tell their collections department that my loan had been modified and my arrears settled. Just three weeks ago, I received a notice for a May Sheriff Sale on my door.

The solution to this problem would seem straightforward: Internally, servicers should block all foreclosure proceedings while a homeowner is in the modification process. Yet more than two years later, the "dual track" problem, as it's called, is still prevelant. Iowa attorney general Tom Miller said in his prepared testimony [7] on Tuesday that the servicing industry's "biggest problem" remains the disconnect between modifications and foreclosures, one that causes homeowners to think they're getting help when they're really getting the boot.
Worse yet, the answers offered by two of the housing industry's representatives at Tuesday's hearing—Barbara Desoer, president of Bank of America Home Loans, and Chase Home Lending CEO David Lowman—offered little assurance that the dual track problem was being fixed. Lowman mentioned that federal guidelines for the Home Affordable Modification Program [8], the Treasury's flagship relief effort, say homeowners shouldn't be foreclosed on while they're under consideration, but even that continues to happen. And if HAMP did work as intended, only one in six home loans are eligible for the program.
Most telling was Merkley's direct questioning of the two industry executives on their own internal efforts to fix the dual track issue:

MERKLEY: Have you changed your practices to suspend the foreclosure proceedings, not the final step but the whole stream of events?
LOWMAN: We have not.
MERKLEY: Ms. Desoer, how about with Bank of America? Would that be possible to set aside the foreclosure operation while you're in the modification process?
DESOER: That is what we're proposing to consider, but we can't do it independently except on our own portfolio of loans, and that's why we're working with the state attorneys general on the suggestion to do that.

Likewise, it was déjà vu all over again when the senators discussed servicers' financial interests, and how those interests run counter to those of homeowners. Diane Thompson, an attorney with the National Consumer Law Center, testified [9] that "the foreclosure process itself generates significant income for servicers" and that "servicers have seen their profitability per loan rise in the last year as losses to investors from foreclosures have skyrocketed." An expert on mortgage servicing, Thompson suggested lawmakers use more mandates and fewer incentives via Treasury's HAMP program to make servicers offer and follow through on more government modifications. (HAMP's miserable success rate [10] so far is proof positive how resistant servicers are to modifying loans.)
Thompson's testimony should sound familiar to some members of the banking committee. In a July 2009 hearing on Capitol Hill, as foreclosures continued to mount, she offered the same grim assessment [11] to lawmakers. "Until servicers face large and significant costs for failing to make loan modifications, until servicers are actually at risk of losing money if they fail to make modifications, no incentive to make modifications will work," she said in her prepared remarks last year. "What is lacking in the system is not a carrot; what is lacking is a stick." Yet nearly every industry official who's appeared before Congress has assured worried lawmakers that no such financial incentive problem exists. Tuesday was no different. "It is in all of our best interests" to modify a loan, said Bank of America's Desoer.
In other words, we've heard all this before. The odds that this hearing, or upcoming ones like it, will bring about changes in how mortgage servicers do business are slim to none. After all, dozens of congressional hearings in recent years have failed to get servicers to change their ways, and to help more homeowners. In his testimony, Miller, the Iowa AG, admitted as much: "We believe that there have been many missed opportunities over the past few years, and are deeply disappointed that our many previous attempts at working with the servicers have not been as successful as we had hoped." He added, "Foreclosures at the scale we are currently experiencing, and unfortunately will continue to experience for some time, are a public policy issue. It is well past time to once and for all tackle the issue of foreclosures and loan modifications with the resources and urgency it deserves."
As it turned out, on the same day as the Senate hearing, one of the few watchdogs urgently tackling the foreclosure crisis, the Congressional Oversight Panel, released a far more probing report [12] on the ramifications of Foreclosuregate. As the five-member panel points out, the unscrupulous foreclosure practices of mortgage companies could imperil HAMP by calling into the question the validity of the entire program—whether servicers had the legal right to modify or foreclose, whether the crucial Net Present Value test [13] that determines if someone gets a modification was unfairly skewed, and more. The COP also digs deep into Foreclosuregate's doomsday scenario: if banks are forced to repurchase loans because they relied on bogus paperwork and lied about the quality of the loans. In a worst-case scenario, the Panel estimates that Bank of America, for instance, could suffer $43 billion in losses; with that in mind, the panel advises Treasury to conduct new stress tests on banks to study their ability to absorb new loan-related losses.
Despite claims that the financial system is on the mend, the COP's ultimate conclusion is ominous. "The housing market and the broader economy remain troubled and thus vulnerable to future shocks," the panel writes. "In short, even as the government‟s response to the financial crisis is drawing to a close, severe threats remain that have the potential to damage financial stability."

Sen. Merkley talks about the bureaucratic mess families are faced with when trying to keep their homes:

SenatorJeffMerkley | November 17, 2010 | 

During a Senate Banking Committee hearing on the major problems in the national mortgage servicing industry, Senator Merkley called on the banks to suspend foreclosure proceedings while homeowners are working to get a mortgage modification.

Senator Brown speaks about Food Safety

SherrodBrownOhio | November 17, 2010 | 

Sen. Brown on the Senate Floor November 17, 2010

Video: Squashing the GOP health care hypocrisy

Visit msnbc.com for breaking news, world news, and news about the economy

Senator: Can’t Fox and MSNBC Just Go Away?

November 17, 2010, 5:24 pm

By BRIAN STELTER

There’s a part of Senator Jay Rockefeller, Democrat of West Virginia, that would like to see Fox News Channel and MSNBC vanish.
At a Senate committee hearing about television retransmission consent on Wednesday, Mr. Rockefeller spoke broadly about the ways he believes television is ailing, and in doing so he singled out the “endless barking” of cable news.
He said: “There’s a little bug inside of me which wants to get the F.C.C. to say to Fox and to MSNBC, ‘Out. Off. End. Goodbye.’ It would be a big favor to political discourse; to our ability to do our work here in Congress; and to the American people, to be able to talk with each other and have some faith in their government and, more importantly, in their future.”
There is little the Federal Communications Commission can say about Fox News or MSNBC since the channels are on cable, not delivered over the broadcast airwaves.
The comments about Fox News and MSNBC were not in Mr. Rockefeller’s prepared remarks. In those remarks, he also said:

When it comes to developing content, our entertainment machine is too often in a race to the bottom. Even worse, our news media has all but surrendered to the forces of entertainment. Instead of a watchdog that is a check on the excesses of government and business, we have the endless barking of a 24-hour news cycle. We have journalism that is always ravenous for the next rumor, but insufficiently hungry for the facts that can nourish our democracy. As citizens, we are paying a price.

Beyond the news media, Mr. Rockefeller also questioned why consumers have to buy bundles of channels, rather than ordering the channels they want and nothing else.
“The old adage of ‘500 channels and nothing on’ has never been so true as it is today,” he said.

Today Show Dynamite HQ (absolutely a must see video)

WATCH: Mitch McConnell on Top Shill [Cartoon]

This week the GOP leader is cooking up a special recipe to protect and extend tax cuts for the rich.

— By Zina Saunders

Mon Nov. 15, 2010 2:15 PM PST

Mother Jones illustrator Zina Saunders creates editorial animations riffing on the political news and current events of the week. In this week's animation, Mitch McConnell stars on Top Shill—see his recipe to protect and extend tax cuts for the rich. And since you ask: Yes, Saunders does all her own awesome songs and cartoon voiceovers.—The Editors

David Cay Johnston on Radio Free Dylan

posted by: Dylan Ratigan on November 17, 2010 in Featured, Podcast, Radio Free Dylan

Episode #9 – David Cay Johnston. Author of Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense and Stick You With the Bill, Pulitzer prize winning reporter with The New York Times and blogger on tax policy at Tax.com.

AN INTERVIEW WITH DAVID CAY JOHNSTON
Think of it as the cheaters ball.  It’s the American tax code.  If you have the right amount of money and the right number to dial, it’s the best way to get rich.
It’s a fact — special interests utilize the tax code in America as one of the primary favor-trading venues for extracting wealth from the average taxpayer.  Why is this?  Why is the code structured in a way that it discourages investment, and encourages reckless speculation?
If you think the tax code is a mess, so does David Cay Johnston.  Johnston was a Pulizer-prize winning investigative reporter with The New York Times, and is the author of the bestseller Free Lunch: How The Wealthiest Americans Enrich Themselves at Government Expense and Stick You With the Bill.
So, what kind of effect is the backwards tax structure having on our economy?  ”It’s absolutely terrible… we are spending a trillion dollars a year just with the federal government subsidizing businesses and wealthy individuals.  And you know how much money the income tax brings in?  A trillion dollars a year,” says David.

Dylan points out that it is “absurd” for the deficit commission to talk about cutting expenditures without looking first at the extraction that’s happening through the American tax code, and David agrees. “It’s completely upside down.  And the people who are on the deficit commission are part of what I call the ‘political donor class,’ or it’s beneficiaries.  These are people who live in Washington who spend most of their time hearing wealthy people and the lobbyists representing them saying, ‘you know, Senator, we’ve discovered this little problem in the law, and if we could just have fairness. And fairness for those guys turns out to be a lot of money in their pocket that came out of yours,” says David.
“What we’ve developed is a socialist redistribution scheme up.  It isn’t trickle down economics, a phrase that was designed by opponents of Mr. Reagan to denigrate him.  It’s Niagara up,” David points out.
David also discussed an interesting fact.  ”From 1980 to 2007, the average income of the bottom 90% of Americans was unchanged when you adjust for inflation.  However, at the very top, the top 1/100%  — and that’s a small group of people, 30,000 people… that small group of people back then was getting one penny out of every dollar of income in the country.   They’re now getting 5 cents, almost 6 cents out of every dollar,” he says.
But won’t lower tax rates for the top tier of taxpayers stimulate the economy and encourage spending, as many in Washington have argued for?  David says that’s not the case. “In fact, and I know this is counterintuitive, higher tax rates encourage economic growth and jobs.  And the reason — imagine if you own a business,  and I own part of a business, by the way, with 25 workers.  If we take money out of our business, we’re essentially destroying future jobs, because there’s less capital in the business.  So, if the cost of withdrawing money is a 70% tax rate — that’s what we had when Ronald Reagan came into office — you say, ‘wait a minute.  If I take a million dollars out, I’m going to give the government $700,000.  I think I’ll leave it in the business and keep growing my business.  But if the tax cost is what it is today — 15%,” you’re more likely to take money out in an unproductive way that doesn’t grow business or create jobs.”
David points out that “that the purpose of this country is not to create billionaires,” and points out how our country started, and how far we’ve departed from its original intentions.  ”The preamble to our constitution sets forth six noble reasons to create this country.  Justice, peace, common defense and general welfare, and liberty most of all.  And we need to recognize that’s the purpose here.  It is not to subsidize those people who are driven to make a lot of money.  Now, there’s nothing wrong with making a lot of money.  But make it in the market!  Don’t make it through these subtle backdoor deals.”

Video: Ron Paul: Fed should stay out of jobs

Visit msnbc.com for breaking news, world news, and news about the economy

Dear Uncle Sucker

 by Barry Ritholtz

posted by: Dylan Ratigan on November 17, 2010 in Business, Featured

By Barry Ritholtz – November 17th, 2010
For many years, I’ve been a fan of Warren Buffett’s long term approach to value investing. Understanding the value of a company, regardless of its momentary stock price, is a great long term investing strategy.
But it pains me whenever I read commentary from Buffett that glosses over reality or is somehow self-serving. His OpEd in the NYT today – Pretty Good for Government Work – paints an artificially rosy picture of the Bailout, ignores the negatives, and omits his own financial interest in government actions.
What might he have written if Sir Warren was dosed with some sodium pentothal before he sat down to pen that “Thank you” letter? It might have gone something like this:
>
DEAR Uncle Sam Sucker,
I was about to send you a thank you note for bailing out the economy . . . but then some nice men dressed in Ninja outfits came in and shot me full of truth serum. That led me to make one more set of edits to my letter thanking you for saving the economy.
It also helped me recall some things I seemed to have forgotten in my other public pronunciations about the bailouts.
I suddenly recalled who it was who allowed the banks to run wild in the first place: You. Your behavior before, during and after the crisis was the epitome of a corrupt and irresponsible government. You rewarded incompetency, created moral hazard, punished the prudent, and engaged in the single biggest transfer of wealth from the citizenry of the United States to the Wall Street insiders who created the mess in the first place.
Kudos.
Before I get to the bailouts, I have to remind you that in:

• 1999, you passed the Financial Services Modernization Act. This repealed Glass-Steagall, the law that had successfully kept main street banking safely separated from Wall Street for seven decades. Even the 1987 market crash had no impact on Main Street credit availability, thanks to Glass-Steagall.
• 1997-2010, you allowed the Credit Rating Agencies to change their business model, from Investor pays to Underwriter pays — a business structure known as Payola. This change effectively allowed banks to purchase their AAA ratings, and was ignored by the SEC and other regulators.
• 2000, you passed the Commodities Futures Modernization Act. It allowed the shadow banking industry to develop without any oversight by the Commodity Futures Trading Commission, the SEC, or the state insurance regulators. This led to rampant credit-default swaps, CDOs, and other financial weapons of mass destruction.
• 2001-04, the Fed, under Alan Greenspan, irresponsibly dropped fund rates to 1%. This set off an inflationary spiral in housing, commodities, and inflation.
• 1999-07, the Federal Reserve failed to use its supervisory and regulatory authority over banks, mortgage underwriters and other lenders, who abandoned such standards as employment history, income, down payments, credit rating, assets, property loan-to-value ratio and debt-servicing ability.
• 2004, the SEC waived its leverage rules, allowing the 5 biggest Wall Street firms to go from 12 to 1 to 20, 30 and even 40 to 1. Ironically, this rule was called the Bear Stearns exemption.

These actions and rule changes were requested by the banking industry. Rather than behave as adult supervision, you indulged the reckless kiddies, looking the other way as they acted out. You were the grand enabler of the finance sector’s misbehavior. Hence, you helped create the mess by allowing the banking sector to run roughshod over decades of successful constraints. (Kudos again on that).
There were voices warning about the upcoming crisis, but you managed to turn a deaf ear to them: Warnings about subprime lending, problems with securitization, against the false claim that residential real estate never went down in value, or that the models forecasting VAR were wildly understating risk. An economy driven by growth dependent upon credit fueled consumption was unsustainable, and yet you encouraged that reckless credit consumption. The compensation schemes for Wall Street were hilariously short term (ignored by you); the crony capitalism of Boards of Directors that undercut market discipline was similarly ignored. You encouraged the hollowing out of the US economy, allowing it to become increasingly “Financialized” at the expense of industry and manufacturing. What was once a small but important part of the economy became dominant, yet unproductive, with your blessing.
Bottom line: You were at a loss for understanding the many factors that led to the crisis in the first place.
When the crisis struck, you did not seem to understand the role you should play. Instead of stepping up to halt the financialization, to unwind it, you gave away the shop. You failed to extract concessions from firms on the verge of bankruptcy. Your negotiating skills were embarrassing. In the face of meltdown, you panicked.
You could have undone the decades of radical deregulation at that moment. You could have fired the incompetent management, wiped out the shareholders who invested in insolvent companies, gave the creditors and bond holders a major haircut for their foolish lending. Instead, you rewarded them for their gross incompetence.
The solutions you ran with were ad hoc, poorly thought out, improvised. You crossed legal boundaries, putting the Fed in the position of vio0lating its charter and exceeding its mandates. You created a Moral Hazard, the impact of which may not be felt until decades in the future.
Very few of your senior elected and appointed officials understood what was going on.
Rather than offer an intelligent response to the crisis, you delivered brute force: Trillions of dollars were thrown at the problem, papering over its symptoms but not its underlying causes.
Well, Uncle Sam, you delivered a motherload of cash. Considering the dollar sums involved, your actions were remarkably ineffective. What was left over afterwards was a wildly over-leveraged consumer whose credit limits had been reached; State and municipal budgets were heavily dependent upon that excess consumer spending, creating huge budget holes because of it. Net net: The resultant economy was in the worst recession since the Great Depression.
As a student of the Great Depression, Ben Bernanke should have had the best grasp – but his bailout of Bear Stearns revealed him to be just another banker, intent on saving the banks – banking system be damned. To give you a clue of exactly how lost Hank Paulson was, he spent his time praying, and creating documents that exempt himself personally for liability. He’s from Goldman, so we know that “team first” ain’t exactly his style. Tim Geithner, who did such a stupendous job overseeing the banks in the first place, was n way over his head. And while I never voted for George W. Bush, I give him great credit for hiding under the bed and pretty much staying out of everyone else’s way. I would call him clueless, but that wouldn’t be fair to the legions of clueless around the world.
Sheila Bair grasped the gravity of the situation earliest, and put numerous failed banks through the insolvency process. If we were smart, we would have allowed her to work her way through the entire finance sector, effecting a GM-like prepackaged bankruptcy for Citigroup, Bank of America, Merrill Lynch, Morgan Stanley, AIG, etc. It would have been painful as hell, but we would be much better off had we allowed her to tear the band aid off quickly. Instead, we are suffering through a death of a 1000 cuts, Japanese style.
I would be remiss if I failed to mention my personal positions in this: I made a killing in Goldman Sachs and GE. My investments in Wells Fargo would have been a disaster if not for you. Don’t even get me started with me being the largest shareholder in Moody’s – that was some clusterf#@k. And considering all of the counter-parties that Berkshire Hathaway has, we risked being just another insolvent investment firm along with everyone else had nothing been done.
So I must say thanks to you, Uncle Sam, and your aides. In this extraordinary emergency, you came through for me — and my world looks far different than if you had not.
Your grateful but wide-eyed nephew,
Warren

NACA’s Bruce Marks Goes Postal At JPM Crony

posted by: Dylan Ratigan on November 17, 2010 in Business

NACA’s Bruce Marks Goes Postal At JPM Crony During Yesterday’s Fraudclosure Hearing via @ZeroHedge

“Possibly the most incendiary moment of yesterday’s fraudclosure hearing in which Bank of America and JP Morgan representatives saw no evil and heard no evil, even as Chris Dodd wanted it over so he can buy no evil with the years of accumulated lobby booty from said banks after his long overdue reign of corruption finally ends, was when the CEO of the Neighborhood Assistance Corporation of America, Bruce Marks, realized he has had enough of the endless lies and goes postal at the appropriately named JPM henchman David Lowman, CEO of Chase Home Lending. After Lowman says that “Chase strongly prefers to work with borrowers to reach a solution that lets them keep their homes” Lowman flips out. Watch the hilarious results here. This video is merely a harbinger of what happens when pent up anger at banker lies overflows. Luckily, this time everything ended peacefully, and to the banks’ credit, the voice was promptly silenced. Next time, it won’t be so easy…”

Joseph Stiglitz Interview Transcript, Oct. 20, 2010

By SAM GUSTIN Posted 6:29 AM 10/22/10

Interview Transcript: Joseph Stiglitz, Oct. 20, 2010

By Sam Gustin and Michael Rainey

Prof. Joseph Stiglitz is University Professor at Columbia University and Chair, Columbia University Committee on Global Thought. He teaches classes at the Columbia Business School, the Graduate School of Arts and Sciences (Department of Economics) and the School of International and Public Affairs. Stiglitz was awarded the 2001 Nobel Prize in Economics and served as Chief Economist of the World Bank from 1997-2000. (Main article here.)

DailyFinance: Over the last three years, the U.S. economy has experienced the worst crisis in decades. Is the worst over?
Joseph Stiglitz: No. You might say the worst if you thought of the worst as the immediate weeks following the collapse of Lehman Brothers where we didn't know where the bottom would be; we've pulled back from the brink. But in terms of most Americans, the question is, are they likely to be able to get a job? One of six Americans who would like a full-time job right now cannot get one. Are things going to be better than that in the next year or two? The answer is probably not. It might get a little better, but there's also a substantial risk that it could get worse.

Do you anticipate a "double dip" recession, where the economy returns to two consecutive quarters of negative growth?
I think there's a possibility, but in some ways that's not the key issue. The key issues for most Americans are two-fold right now. One is, is it likely that the economy will be growing fast enough to create enough jobs for the new entrants to the labor force so that the jobs deficit gets reduced? The answer is almost no one sees growth in 2010, 2011 and even into 2012 at that rate. So we are going to maintain this gap of 15 million unemployed, 26 million Americans who would like a full-time job that can't get one. That situation is likely to be maintained. And it is possible that it might get a little worse; it might get a little better.

The second thing that is weighing down on most Americans is the threat of losing their home. The fact is that one out of four Americans with a mortgage are now underwater. They owe more money on their home [than the value of their home]. The bubble in the housing market crashed in 2007, and we're beyond three years now since that happened and there is no recovery in sight. The housing market might get a little better. There's a greater likelihood it will get a little bit worse. But going back to where they can say their home is their reserve for retirement or paying for college education? The likelihood of that happening is just very low.

What should be done about all of these people whose mortgages are underwater? Should there be a suspension of foreclosures?
Stopping the foreclosures is a palliative. It's a temporary measure. We have to understand that the problems have been festering for years, not just the last three years. In the years prior to the breaking of the bubble, the financial industry was engaged in predatory lending practices, deceptive practices. They were optimizing not on producing mortgages that were good for the American families but in maximizing fees and exploiting and predatory lending. Going and targeting the least educated, the Americans that were most easy to prey on.

We've had this well documented. And there was the tip of the iceberg that even in those years the FBI was identifying fraud. When they see fraud, it's really fraud. But beneath that surface, there were practices that really should have been outlawed if they weren't illegal.

So now, we have the legacy of that, plus all kinds of practices that are designed to get people out of their homes, to take advantage. It's not just the things that have been exposed, the robo-signers and that kind of thing. There are temporary judges hired in to process millions and millions of Americans losing their homes. The system was not designed for dealing with a failure of this magnitude.

Are we talking about widespread illegality or simply exploitative, but technically legal, practices? Where do you draw the line between outright criminality and mere exploitation?
It's very hard to draw the line, and that's almost a lawyer's issue rather than an economist's, but I think what we can say is there was a considerable amount of what was done should have been illegal if it wasn't.

This is a really important point to understand from the point of view of our society. The legal system is supposed to be the codification of our norms and beliefs, things that we need to make our system work. If the legal system is seen as exploitative, then confidence in our whole system starts eroding. And that's really the problem that's going on.

Because people are being told, "Well, you signed this." Well, if you have a legal system that encourages, allows, that kind of predatory behavior, something is wrong. And we know that something is wrong. Because the banks used their political power to make sure they could get away with this. There were a lot of people pointing out the predatory behavior. There were some initiatives to try to restrain the banks from doing it. And they used all their political muscle to ensure that they could continue engaging in these kinds of predatory behaviors.

Is this an argument for trying to restrain the influence of major banks and corporations on our political system?
Oh, very clearly. Look at the regulatory reform that got passed. It was an intense battle. And you had on one side a few banks. And on the other side you had 300 million people, American people. And it was really right in balance. Five or six banks equal to 300 million people. And in the end we got what you might call an unsatisfactory compromise. We moved a little bit in the right direction. For instance there was an agency set up to try to protect consumers.

But they made huge exemptions and exceptions so that, for instance, a lot of the predatory practices in automobile loans are going to be able to be continued. Why is it OK to engage in bad lending in automobiles and not in the mortgage market? Is there any principle? We all know the answer to that. No, there's no principle. It's money. It's campaign contributions, lobbying, revolving door, all of those kinds of things.

How do you respond to the argument that trying to restrict corporate political donations is somehow infringing on the free speech of corporations?
Corporations are a legal entity. We create them. And when we create them, we create all kinds of rules. They can go bankrupt. And that means they owe more money and they get away scot-free. They can create an environmental disaster, and then go bankrupt and again go away scot-free. So, as legal entities we have the right to make the rules that govern them. As individuals we have certain basic rights. We aren't created by the law. We exist by nature. But corporations are man-made. They are supposed to serve our interest, our society's interests. And we are creating them with powers that are not serving our society's interests.

Let me give you an example of something I think we ought to do, part of the way we have to deal with the consequences. Corporations are supposed to be owned by the shareholders. If you hired somebody to go do some work for you and you gave them some money, you would say that you have the right to make sure that they spend the money you gave them the way you tell them to. You should have the right to look at their books.

Right now, the shareholders, who are supposed to be the owners, have no say in pay. They have no say in the decision about how much their CEOs get paid. In some countries there is a sense of corporate responsibility. There's a sense that the shareholders own it, and the owners should have the right to vote, at least in an advisory sense.

If you're going to rob your shareholders, shouldn't they have the right to say I don't like this? And yet in America, the corporations have been resisting this. I think it's the same thing in the area of advertising and campaign contributions. As a shareholder, I should have the right to make sure the corporation that works for me, that I own, doesn't go against my interest. For instance, as a shareholder in BP -- I'm not, but if I were -- I want them to have safety, I don't want them to pollute the country. And I'm going to say they should act in a socially responsible manner and a responsible way. Shouldn't we have that right?

What do you think it is about the U.S. that makes it so hard to achieve corporate responsibility?
I think it's basically a vicious cycle in which we've gotten ourselves, because the corporate executives control the corporations. The corporations have the right to give campaign contributions. So basically we have a system in which the corporate executives, the CEOs, are trying to make sure the legal system works not for the companies, not for the shareholders, not for the bondholders – but for themselves.

So it's like theft, if you want to think about it that way. These corporations are basically now working now for the CEOs and the executives and not for any of the other stakeholders in the corporation, let alone for our broader society.

You look at who won with the excessive risk-taking and shortsighted behavior of the banks. It wasn't the shareholder or the bondholders. It certainly wasn't American taxpayers. It wasn't American workers. It wasn't American homeowners. It was the CEOs, the executives. And they use all kinds of language that quite honestly is deceptive. So they talk about incentive pay. We all believe in incentives as economists, it's the one thing we talk about. And who could object to incentivizing people to work harder? Sounds good. But if you look at the details of the incentive pay, it was incentives to act not in the interest of the shareholders and bondholders, but in the interest of the CEOs and the executives.

Explain how those incentives around compensation were motivating executives to act in a way that was contrary to their shareholders' interests.
Let me give you two examples. They got more pay when they got stock options. When the value of the stock goes up, they get the upside. But when it goes down, they don't have to share the losses. When you have a system like, you have an incentive to gamble because you get the upside, but somebody else bears the losses. So that's an example of incomplete sharing inducing excessive [risk-taking].

But it's even worse than that, because if your pay is related to the stock market performance, then you have an incentive to try to deceive the stock market. In the long run, information may get out, but you have a short term, and so if you can deceive them for a few years, get your stock options, sell out before the news strikes, then you walk off with a lot of money. And that's what they've done.

So you ask the question, why did they move so much of the risky activity off balance sheet? Now, partly it was to deceive the regulators, let's be fair. Partly some of this was to deceive the tax collector. But a major part was to deceive the shareholders, so it looked like they were doing much better than they were. Share prices go up, their bonuses go up. Some time down the line, the truth will come out. But by then, they've cashed in.

A good example of that might be [former Countrywide CEO] Angelo Mozillo, who recently paid tens of millions of dollars in fines, a small fraction of what he actually earned, because he earned hundreds of millions.
The system is designed to actually encourage that kind of thing, even with the fines.

During the S&L crisis, people actually went to jail. Do you think there's any chance that's going to happen with the mortgage crisis.
I know so many people who say it's an outrage that we had more accountability in the '80's with the S&L crisis than we are having today. Yeah, we fine them, and what is the big lesson? Behave badly, and the government might take 5% or 10% of what you got in your ill-gotten gains, but you're still sitting home pretty with your several hundred million dollars that you have left over after paying fines that look very large by ordinary standards but look small compared to the amount that you've been able to cash in.

So the system is set so that even if you're caught, the penalty is just a small number relative to what you walk home with.
The fine is just a cost of doing business. It's like a parking fine. Sometimes you make a decision to park knowing that you might get a fine because going around the corner to the parking lot takes you too much time.

Are there any steps regulators can now take to make the penalties more painful?
I think we ought to go do what we did in the S&L [crisis] and actually put many of these guys in prison. Absolutely. These are not just white-collar crimes or little accidents. There were victims. That's the point. There were victims all over the world. What worries me is that the Dodd-Frank bill, the regulatory bill that we passed a few months ago, gives responsibility to a set of regulatory bodies – the bill itself has all kinds of holes and exceptions – but the regulatory agencies, in many cases, are the same people that were in charge as we pushed to the brink.

So do we have any confidence that these guys who got us into the mess have really changed their minds? Actually we have pretty [good] confidence that they have not. I've seen some speeches where they said, "Nothing was really wrong. We didn't get things quite right. But our understanding of the issues is pretty sound." If they think that, then we really are in a sorry mess.

What happens when fines and other penalties lose their deterrent value in preventing or deterring people from committing crime?
There are many aspects of this. Economists focus on the whole notion of incentives. People have an incentive sometimes to behave badly, because they can make more money if they can cheat. If our economic system is going to work then we have to make sure that what they gain when they cheat is offset by a system of penalties.

And that's why, for instance, in our antitrust law, we often don't catch people when they behave badly, but when we do we say there are treble damages. You pay three times the amount of the damage that you do. That's a strong deterrent. Unfortunately, what we've been doing now, and more recently in these financial crimes, is settling for fractions – fractions! – of the direct damage, and even a smaller fraction of the total societal damage. That is to say, the financial sector really brought down the global economy and if you include all of that collateral damage, it's really already in the trillions of dollars.

But there's a broader sense of collateral damage that I think that has not really been taken on board. And that is confidence in our legal system, in our rule of law, in our system of justice. When you say the Pledge of Allegiance you say, with "justice for all." People aren't sure that we have justice for all. Somebody is caught for a minor drug offense, they are sent to prison for a very long time. And yet, these so-called white-collar crimes, which are not victimless, almost none of these guys, almost none of them, go to prison.

Can we draw a direct line from the outsize influence of the executives and the bankers -- because these skewed incentives and penalties out of whack didn't just arise out of a vacuum. How did we get to where we are?
It's clearly the influence of campaign contributions and lobbyists. Let me give you another example of where the legal system has gotten very much out of whack, and which contributed to the financial crisis.

In 2005, we passed a bankruptcy reform. It was a reform pushed by the banks. It was designed to allow them to make bad loans to people to who didn't understand what was going on, and then basically choke them. Squeeze them dry. And we should have called it, "the new indentured servitude law." Because that's what it did.

Let me just tell you how bad it is. I don't think Americans understand how bad it is. It becomes really very difficult for individuals to discharge their debt. The basic principle in the past in America was people should have the right for a fresh start. People make mistakes. Especially when they're preyed upon. And so you should be able to start afresh again. Get a clean slate. Pay what you can and start again. Now if you do it over and over again that's a different thing. But at least when there are these lenders preying on you should be able to get a fresh start.

But they [the banks] said, "No, no, you can't discharge your debt," or you can't discharge it very easily. They have a right, now, to take 25% of your before-tax income. Now imagine what that means. Let's assume that you wound up, as it's not that hard to do, with a debt equal to 100% of your income. You're making $40,000, and your debt is $40,000. You have to turn over to the credit card company, to the bank, $10,000 of your before-tax income every year. But, the banks can now charge you 30% interest.

So what does that mean? At the end of the year, you've paid the bank $10,000, a quarter of your income. But what you owe the bank has gone from $40,000 to an even larger number because they're charging you 30%. So you're debt is larger. So the next year you have to give a quarter of your income again to the bank. And the year after. Until you die.

This is indentured servitude. And we criticize other countries for having indentured servitude of this kind, bonded labor. But in America we instituted this in 2005 with almost no discussion of the consequences. But what it did was encourage the banks to engage in even worse lending practices.

We've made it so difficult for individuals to discharge their debt and have this fresh start, and yet it is just taken for granted that a corporation or a company can blow up and then they can file for bankruptcy and then they can start over.
We give rights to corporations that we don't give to ordinary Americans. One of my proposals in my book Freefall -- one of the ways to deal with this foreclosure problem, the fact that one out of four Americans who have a mortgage are underwater: They owe more money on their home than the value of their home. Their home used to be what they used as the reserve for paying their kids college education, for their retirement. Now it's a liability, not an asset.

So what I've argued is, we have these laws called Chapter 11 to give a fresh start to corporations. We say it's very important to be able to do this quickly, we want to keep jobs, we want to keep the corporation going as an ongoing enterprise.

Families are as important as corporations. Keeping kids in school, not forcing them out of their home, keeping the community together, is certainly as important as keeping a corporation alive. So what I've called for is a homeowner's Chapter 11. So what you do is you write down the mortgage, what they owe, to the value of the house. And you convert the debt into, make [the bank], in a sense, the new equity owner. And when they, sometime in the future, sell the home, if there is a capital gain they share that with the bank. That's the way the bank is protected. Nobody would do this just to escape; there is accountability here. But it gives homeowners a fresh start and it would deal with a significant part of our foreclosure problem.

It sounds like that would be a reasonable and actually quite popular plan. Do you think there's any chance that would be enacted?
Not as long as our banks have the kind of political influence they have today. There were some people in Congress that were pushing for a variant of this idea, and the banks came down really, really hard, for an obvious reason. The banks want to pretend that they did not make bad loans. They don't want to come into reality. The fact that they were very instrumental in changing the accounting standards, so that loans that are impaired where people are not paying back what they owe, are treated as if they are just as good as a well-performing mortgage.

So the whole strategy of the banks has been to hide the losses, muddle through and get the government to keep interest rates really low. So the Fed lends to the banks at zero interest rate, or almost zero interest rate. We wish we could borrow at that [rate] – if we could borrow at that [rate] we would also solve the foreclosure problem. So the government is basically giving money to the banks at very low interest rates, and then they're lending it on at much higher interest rates, and that's recapitalizing the banks. Money [is also] being paid out in bonuses -- not all of it is going to recapitalization, some of it goes into the pockets of the bankers.

The result of this is, as long as we keep up this strategy, it's going to be a long time before the economy recovers, because that huge spread between what they can get money from the government and what they can lend is dampening the economy.