Remember that Bush slogan? This was going be the time when people and businesses would be responsible for themselves, without the government clinging like a monkey on their backs. The free market would set things right and, unfettered by bureaucracy and unspoiled by handouts, America would prosper like never before.

Well, it didn’t exactly turn out that way, did it?

I’m not sure how many of you have heard of Danny Schechter, a Nieman Fellow at Harvard, former 20/20 producer and reporter, winner of several Emmys and one of the smartest critics of the American media on the planet. I used to link to him until about 2006, when he fell off my radar screen.

Now he’s back on my radar screen. I just read one of his articles that is so terrifying, I have to conclude Schechter is either clinically insane or a prophet. If you want to google around, you’ll see that he is highly respected and has a rather incredible track record when it comes to dissecting what’s actually going on in the world (as opposed to what we see in the media).

Anyway, all of that was just a way to lead up to to this link. This is about as over the top as one can possibly get – or so it seems. But it would also have been over the top six months ago to even think, let alone to say out loud, that Bear Stearns, Merrill Lynch, Lehman Brothers, AIG and others (many more to come) would crumble one right after the other. Totally over the top.

Schechter says we may be on the verge of a civil war. Normally this type of alarmist talk would make me laugh my head off, but not in a week when I read that the domino effect of the subprime crisis could soon lead to similar meltdowns around the globe.

But back to Schecter’s post. Just a short snip:

Some are saying that because of this dire emergency, the election could be “postponed.” That may be too unlikely and unnecesary, especially if it is fixed or if both candidates sign on to the PLAN, what ever it is. We don’t even know the details yet but both McCain and Obama are aboard as you may have seen on 60 Minutes Sunday night.

This seems to follow the pattern layed out by Naomi Klein–create a shock and disorient the normal processes of government to impose emergency rules by fiat. It is shocking, but few in the media are even presenting the voices of critics who feel this way.

This measure is being sold as a way to help everyday Americans but the first time that members of Congress wanted the bailout to apply to distressed homeowners, Tresasury Secretary Paulson’s predictable response was a big fat NO WAY.

Thanks a lot.

This power grab has a name—“the troubled assets relief program” or TARP. Gretchen Morgenson of the NY Times compares this tarp to others, “the kind of thing they spread over muddy fields so you don’t spoil your Guccis.” This is also a tarp they seem to be pulled over the eyes of the American people and its Congress as the fear weapon is used again as it was after the last 9/11.

He goes on to say an actual armed insurrection in America is not out of the question in the weeks ahead. Yes, I know how nuts that is sounds. But this guy is not a fool and he’s not crazy. Of course, he may be totally wrong (I sure hope so), but he’s got credentials and he’s equal opportunity – he goes after Obama’s campaign manager without mercy. (Scroll down in that post to find the Schechter quote.)

So I am not saying I agree, only that I am listening and wondering, just how serious is the crisis we are in? Are we on the verge of a precipice as steep and equilibrium-eradicating as 911? It doesn’t feel quite that severe, but can anyone read the headlines and say there isn’t a surreal mood settling in around the nation, a state of angst and confusion, as if we were heading into an uncharted and possibly dangerous territory? I can only relate it to 911 because that was perhaps the only time in America, ever, that I had to ask myself, What the fuck is going on? Is this a dream or reality? What is happening to the world? Today, especially after reading Schechter’s piece but even by simply reading the headlines.

And do keep an eye on gold.

If you think so, what would you say about this?

Senator John McCain’s campaign manager was paid more than $30,000 a month for five years as president of an advocacy group set up by the mortgage giants Fannie Mae and Freddie Mac to defend them against stricter regulations, current and former officials say.

The story isn’t that McCain has a campaign manager who was dedicated to deregulating one of the lynchpins in this crisis. The story is McCain’s sanctimonious and unbelievably hypocritical finger-pointing at Obama for his ties to Fannie Mae, the “tie” being that the leader of Obama’s VP search was head of the quasi-governmental organization. If that’s reason to link Obama to the Fannie Mae disaster, which was years in the making, then what does today’s revelation do to McCain? McCain chose to play guilt by association, and based on his own rules he’s looking very guilty.

Just one more example of McCain’s descent from being (or appearing to be) the tell-it-like-it-is “maverick” to a nasty, hypocritical, quick-to-smear liar. He’s my senator; I’m ashamed of him. You should be, too.

MoDo has written a splendid column. As it starts, you groan because she seems to be using her usual cheeky tricks. And then it picks up speed and gravitas. I know, Maureen set the bar kind of low, but this is her magnum opus. First time in years I’ve read one her columns and ended up angry – and not at her.

Have to add the money quote – a long one.

OBAMA: What would you do?

BARTLET: GET ANGRIER! Call them liars, because that’s what they are. Sarah Palin didn’t say “thanks but no thanks” to the Bridge to Nowhere. She just said “Thanks.” You were raised by a single mother on food stamps — where does a guy with eight houses who was legacied into Annapolis get off calling you an elitist? And by the way, if you do nothing else, take that word back. Elite is a good word, it means well above average. I’d ask them what their problem is with excellence. While you’re at it, I want the word “patriot” back. McCain can say that the transcendent issue of our time is the spread of Islamic fanaticism or he can choose a running mate who doesn’t know the Bush doctrine from the Monroe Doctrine, but he can’t do both at the same time and call it patriotic. They have to lie — the truth isn’t their friend right now. Get angry. Mock them mercilessly; they’ve earned it. McCain decried agents of intolerance, then chose a running mate who had to ask if she was allowed to ban books from a public library. It’s not bad enough she thinks the planet Earth was created in six days 6,000 years ago complete with a man, a woman and a talking snake, she wants schools to teach the rest of our kids to deny geology, anthropology, archaeology and common sense too? It’s not bad enough she’s forcing her own daughter into a loveless marriage to a teenage hood, she wants the rest of us to guide our daughters in that direction too? It’s not enough that a woman shouldn’t have the right to choose, it should be the law of the land that she has to carry and deliver her rapist’s baby too? I don’t know whether or not Governor Palin has the tenacity of a pit bull, but I know for sure she’s got the qualifications of one. And you’re worried about seeming angry? You could eat their lunch, make them cry and tell their mamas about it and God himself would call it restrained. There are times when you are simply required to be impolite. There are times when condescension is called for!

“Heh. Read the whole thing.”

By now we all know about the bailout of the robber barons who brought death into this world and all our woe. They and the government – which are looking more and more like a single entity – are being rewarded beyond any of their wildest dreams for their staggering failure and incompetence while we are being asked to pay. I really don’t think the ramifications are clear to most people: we are giving the Treasury Department free reign to do anything it likes with as much money as they want, with no oversight or accountability.

You’ll find in the bailout plan this hair-raising gem:

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

You have to read that a few times. This verges on the totalitarian. There will be a semi-annual review by a congressional committee with no power of enforcement, and that’s it. We are giving the Treasury Department everything, on faith, despite the economic maelstrom they themselves helped to create. It is wholly unprecedented and looks like it will go into effect with little or no debate, in the Patriot Act tradition. Krugman asks some simple questions: Does the public have no say in this matter? Are we not owed an explanation about how this will work? No answers yet.

Meanwhile, what about the rest of the nation’s needs? How do we fight a two-front war and provide services as usual and hand the thieves a trillion dollars or more? What about the effect of increasing the national debt and flooding the system with dollars? No one seems to be going there, at least not in the US media. Remember what happened in Germany in the 1920s?

From one of my favorite commentators:

Today’s reported potential infinite bailout of all and any portends, if adopted, is the largest increase in dollars outstanding since the Jurassic Age. It closely models actions undertaken regarding the production of currency liquidity seen in the Weimar Republic….

The only conclusion is that when the smoke clears and the advertised actions have been adopted, nothing more dollar negative than this has ever occurred due to the potential expansion of T bills and therefore dollar supply explosion.

The Times of London raised the question but no one seems to be particularly worried about it. Perhaps we should be.

THE US Treasury’s $700 billion (£380 billion) plan to bail out the banks could undermine the dollar, economists warn. The plan, details of which were unveiled yesterday, will seek congressional approval to raise the total amount the US government can borrow from $10.6 trillion to $11.3 trillion.

It also gives Hank Paulson, the US Treasury secretary, immunity from legal challenge under the plan. The US Treasury will buy mortgage-related securities “from any financial institution having its headquarters in the United States”, draft legislation said. Securities issued before September 17 will be eligible for inclusion.

Word of the proposals created a mood of euphoria in financial markets on Friday. But analysts warned of the risks.

Tim Bond of Barclays Capital, while conceding that the rescue was necessary to avoid the risk of depression, said: “The volume of fresh government borrowing and the fast expansion of the Fed’s balance sheet are both negatives for the dollar, carrying a potential risk of increased inflation.”

Other economists also think that the dollar could be undermined. Kenneth Rogoff, former chief economist at the International Monetary Fund and now a professor at Harvard, said: “It is hard to believe that the dollar will continue to stand its ground as the crisis continues to deepen.”

At this point, would McCain or Obama or Palin or Clinton make a difference? Hard to say. If it were up to me, Obama wouldn’t be my first choice. His ties to Wall Street may be as worrisome as McCain’s ties to the deregulation architects. However, the very distinct possibility of a Palin presidency tips the scales in Obama’s favor. Drastically. Maybe on election day it will all boil down to the lesser of two evils (which most elections usually are anyway). And I think it’s pretty easy to determine which is the greater and which is the lesser.

It takes a great writer to enrage you and make you laugh out loud at the same time.

People should stop picking on vice-presidential nominee Sarah Palin because she hired a high school classmate to oversee the state agriculture division, a woman who said she was qualified for the job because she liked cows when she was a kid. And they should lay off the governor for choosing another childhood friend to oversee a failing state-run dairy, allowing the Soviet-style business to ding taxpayers for $800,000 in additional losses.

What these critics don’t understand is that crony capitalism is how things are done in Alaska. They reward failure in the Last Frontier state. In that sense, it’s not unlike like Wall Street’s treatment of C.E.O.’s who run companies into the ground.

Look at Carly Fiorina, John McCain’s top economic surrogate — if you can find her this week, after the news and her narrative fused in a negative way. Dismissed as head of Hewlett-Packard after the company’s stock plunged and nearly 20,000 workers were let go, she was rewarded with $44 million in compensation. Sweet!

Thank God McCain wants to appoint a commission to study the practice that enriched his chief economic adviser. On the campaign trail this week, McCain and Palin pledged to “stop multimillion dollar payouts to C.E.O.’s” of failed companies. Good. Go talk to Fiorina at your next strategy session.

Much more, and it gets funnier. Comments are worth a read, too.

Will try to get back to China blogging soon. The US needs me more at the moment, I’m afraid.

An amazing post by the great David Wolf. I have nothing to add, but want to make sure no one misses it. A textbook example of the ethical landmines scattered across China’s business landscape. (Via Danwei.)

To my shock, I was able to access this site, the first time I’ve gotten onto a typepad site here in years.

In fact, we’re deeper in the woods than ever. All the elements are in place for a continuation of the unthinkable becoming thinkable. For the past 18 months or so I’ve said we would have a sharp downturn highlighted by a battered dollar and inflation and malaise. I was careful to say I did not expect a full-scale meltdown. Now I am a lot less sanguine. I think this excellent article captures the heart of the question that’s baffling most Americans: “How do the failures of these financial institutions affect me? Why should I worry?”

The big unanswerable question, though, is what happens next. Hurricanes start out as a heavy breeze, and then get worse—and the preconditions for a financial hurricane are very much in place. If a real hurricane needs high ocean surface temperatures and warm humid air, a financial hurricane needs generalized nervousness and a general lack of liquidity. Once those are in place, a few failed trades are all that is necessary to precipitate a very nasty chain reaction.

…Lehman Brothers has more than $600 billion in assets that will need to be liquidated as part of its bankruptcy. That’s an order of magnitude greater than any bankruptcy the world has ever seen: No one has a clue how to even get started on something so huge, let alone what the repercussions will be. Is there $600 billion in cash sitting on the sidelines of the global financial markets just waiting for an opportunity to snap up assets on the cheap? No. So as Lehman’s assets get liquidated, asset prices in general, and bond prices in particular, are likely to be under a great deal of pressure

In turn, that’s going to hurt other players in the global financial system, from hedge funds and sovereign wealth funds to small- and medium-sized regional banks. Anybody who’s leveraged and who marks their assets to market is at risk of margin calls and possible bankruptcy themselves, depending on the volatility and risk profile of those assets.

The upshot is a state of radical uncertainty…There is a very, very long list of things that could go horribly wrong from here on out. The liquidation of Lehman is one; the possible collapse of American International Group is another. Beyond that are countless hedge funds and other financial institutions which, collectively, present significant systemic risk.

But the biggest and most obvious risk of all is the one associated with Lehman’s own debt, which is now trading at less than 35 cents on the dollar. That’s a big loss for the institutions holding it—but it also means an unknowably huge loss for anybody who wrote credit protection on Lehman Brothers at any point over the past five years. Those sellers of credit protection are staring down the barrel of billions of dollars in claims, and they’re going to have to raise that money quick by selling anything they can get their hands on—and that might well include stocks.

So you think that we’ve dodged a bullet with the Dow still above 11,000? Just wait. This thing ain’t over yet. In fact, it’s barely begun.

As imbeciles argue about lipstick and flag lapel pins and the latest silly gaffe of the day, many of us are at risk that we do not comprehend and that we think the government can hold at bay. They can’t. It’s too big. Maybe they can contain it until after the election, but I’m skeptical. The worst is not over (as everyone was saying after the Feds seized Fannie/Freddie). We may see some bargain hunting in the weeks ahead that makes it all seem fine, but that will be a mirage. We saw what happened with the dot-com disaster: stock prices kept going lower and lower, and those who jumped in thinking they were getting great bargains got flayed alive. Especially if they did so on margin. Anyone who trades on margin at this time, even for buying gold, is setting themselves up for ruin.

The very idea of electing to the presidency a dedicated anti-regulation, economics-averse war-mongering liar is insane. Insane.

Speaking of imbeciles, I found this quite amusing.

Update: A friend of mine who lives off of gold trading just wrote me the following:

I took a $150k hit in the PM slide but am quickly recovering as I have been purchasing more shares around the $750 level.

Gold/Silver have entered the Wave 3 up move which will be violent in its swings — both up and down.

As JS recommends: sell 1/3 on the very sharp, short up moves — and buy back shares on very sharp, short down moves.

I sell long term shares for tax preference capital gains and add new shares on sharp breaks.

The next several years are going to be the most amazing times of our lives with few social institutions surviving as we have known them.

To this I say: “Bring it on!”

A bicycle is a good thing to own in the emerging America ….

Yes, alarmist, extreme, hysterical. But is it really? if someone had looked you in the eye last year and said that within a few short days we would watch the demise of Fannie/Freddie, Merrill Lynch, AIG, Lehman and, a few months earlier, Bear Stearn, and that many more pillars of American finance were at critical risk as well, you’d have thought it was impossible, extreme, hysterical, totally unthinkable. Welcome to the unthinkable. We’re there.

As I said recently, maybe it would be best for McCain to win. He and Palin deserve this shitstorm more than Obama. Of course, I do want Obama to win because we can’t turn this around under the McCain platform of yet more tax cuts for the super-rich and more wars. Obama can’t turn it around, either, but he can, god willing, help take us in a new and better direction.

I’ll believe it when I see it but it is certainly about time. Source article here; the article they got it from, in Chinese, is here.

This is one of those super-sensitive topics in Taiwan, and whenever I asked my friends over there if they wanted Taiwan to standardize using dalu pinyin they nearly shouted at me, “No!” Thus one shop window is selling xiabu xiabu, another shabu shabu, another syabu syabu, etc., all on the same road.

If it’s true, it could be an important turning point as Taiwan faces reality and returns to the motherland.

Update: Just to be safe, knowing how hysterical some readers get: that last line is semi-tongue-in-cheek. Semi. I do think Taiwan has already faced the reality that it is tied to China in many ways, and that most of its people favor some form of reconciliation, if only to help shore up their woeful economy. Being something of a pragmatist, I would have to say that a joining of the two is a matter of when and not if, even if such a joining is not justified by history (and what a bitter debate that topic can ignite).

English description of the new legislation, from a message board and unverified at the moment:

Hanyu Pinyin will be adopted as the main transliteration in Taiwan, instead of the Tongyong Pinyin, which had been used island-wide for the last six years. The Cabinet approved a proposal by the Ministry of Education (MOE) Tuesday. Hanyu Pinyin is to help Taiwan’s internationalization and international competitiveness, said the MOE.

Now, onto simplifying the characters….

It’s all right here, and it’s short and strong. The way the two men approach problems is literally day and night. The blogger, remember, is with Pajamas Media and was a strong Bush supporter.

While you are there, scroll down and read some of the posts. Professor Cole has a keen eye for political BS.

[This is the second or third TPD post with that title – any excuse to use that great picture. This time it is especially apropos.]

I’m convinced that most Americans simply don’t realize just how severe our financial crisis is. Some, like our own sagely president, won’t even acknowledge we’re in a recession, let alone a crisis. But when we look at the events of recent days with stone-cold eyes, there is no way – unless you are wearing lead-lined blinders – we cannot conclude we are in serious trouble. The kind of trouble that could actually lead to a collapse of our banking system.

Impossible, bogus, alarmist nonsense! I can hear the catcalls from the peanut gallery already. But let’s simply look at the facts. Bear Stearns collapsed six months ago. Last week it was Fannie and Freddie’s turn. Yesterday, Merrill Lynch got sold to Bank of America at a bargain-basement price. Today. Lehman Brothers announced it’s going under as well.

A crisis of confidence in financial markets on Wall Street culminated in a weekend of brinksmanship and failed appeals that caused the demise of some of the nation’s most storied financial institutions.

It began on Tuesday, just two days after the Bush administration took control of Fannie Mae and Freddie Mac, the mortgage finance giants. Fears began to mount in earnest on Wall Street that Lehman might founder — and that the government might not ride to the rescue this time. As stock markets around the world tumbled, Lehman’s shares were hit by waves of selling that wiped out nearly half its value.

Please read that article – it’s a real page-turner, like a whodunit. We are witnessing a melodrama, almost like a horror movie. Make no mistake, this is an historical moment. We have seen nothing like it in our lifetimes.

Reflecting on the collapse of one of our most esteemed financial institutions, a widely respected financial analyst put it bluntly:

“This is an extremely, and I stress extremely, rare event. It also speaks to the more general notion that, in today’s highly disrupted financial markets, the unthinkable is thinkable,” said Mohamed El-Erian, the chief executive of Pimco, the world’s biggest bond fund, based in Newport Beach, California.

At what point do we call it a meltdown? Is that too unthinkable to stomach? People breathed a sigh of relief at the government’s seizure of Fannie and Freddie because it seemed to bring an untenable disaster under control. But was rejoicing really in order? Maybe it was just the proverbial finger in the dyke. The structural flaws may be simply too deep. We’ll be watching as Wall Street struggles to remedy the latest catastrophe, but I believe the dominoes have just started falling.

One of my favorite investment sites sounds worried, almost as if they’re trying to convince themselves that Wall Street simply has to implement a safety net to contain the Lehmann collapse. But there’s another possibility – a meltdown. The uthinkable really might be becoming thinkable.

That said, a meltdown would benefit no one, and Wall Street has every incentive to avoid it — as we’re seeing in the shotgun marriage of Merrill and BofA. If people can keep their heads through the end of the week, this could turn out to be Wall Street’s finest hour since John Pierpont Morgan used his own money to save the day during the panic of 1907.

It’s a fluid situation, of course, as all the news stories are at pains to point out. But right now it looks like the best-case scenario is that Lehman goes bankrupt, with the rest of Wall Street playing a generally supportive role. And the worst-case scenario? You don’t want to go there.

“If people can keep their heads…” That’s a very big if, and I am not sure it’s possible – not if the house of cards keeps coming down at once. And that’s what we seem to be seeing (Fannie, Freddie, Merrill Lynch, Lehman Bros. all within a few days of each other).

Finally, Paul Krugman gives a clear-headed assessment of the disaster, and touches on what no one seems to want to admit: this never needed to happen. That bullshit of the “ownership society” made this all possible, the mentality that the government needs to step out of the way and let businesses run roughshod over the people with zero regulation – this mentality opened the floodgates for the sub-prime calamity; this cowboy attitude that businesses should be free to do whatever they want without oversight brought us here. Read the Krugman op-ed, and memorize its closing grafs.

The real answer to the current problem would, of course, have been to take preventive action before we reached this point. Even leaving aside the obvious need to regulate the shadow banking system — if institutions need to be rescued like banks, they should be regulated like banks — why were we so unprepared for this latest shock? When Bear went under, many people talked about the need for a mechanism for “orderly liquidation” of failing investment banks. Well, that was six months ago. Where’s the mechanism?

And so here we are, with Mr. Paulson apparently feeling that playing Russian roulette with the U.S. financial system was his best option. Yikes.

It may not be a pretty day on Wall Street today, though I suspect the full gravity of the mess won’t have sunk in. I almost wish McCain would win, because no one should be made to suffer what Bush hath wrought when it comes to an economy that eight short years ago was literally the marvel of the world. Fasten your seatbelts; the roller coster ride has just started, even though there’s no track up ahead around the bend. (And I’m ready for the chorus how of I hate America and we’re doing jim-dandy and we should give the GOP yet another eight years. Right. Sarah Palin will make it all well again.)

Update: Next on the chopping block, AIG? Yes, we’re doing just fine. These are America’s greatest, more venerable institutions.

Also, a Business Week article steals my headline, and raises yet more reasons why there is trouble ahead:

Until now, preferred stock has been a prime tool for daring investors to inject new capital into a company needing rehabilitation. The Fannie and Freddie deals indicated that preferred investors could lose big, along with common stock investors, in distressed takeovers. Both Merrill and AIG raised new capital early this year by issuing securities similar to preferred. Lehman also raised money from preferred investors, who are now likely to be wiped out in a bankruptcy. So now big issues of preferred securities may not be available to fill holes in balance sheets from new losses.

After a bad week, a working weekend, and a manic Monday, Wall Street can only hope the credit storm is at its worst.

In other words, nowhere to run, nowhere to hide. The big institutions brought this on themselves, but also on each of us, as we’ll be footing much of the bill, not to mention seeing the value of our homes decrease and living in recession/stagflation for years to come. What could we expect from the party whose slogans are “Drill baby, drill!” and “Borrow, baby, borrow!”?