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The government's rescue of Fannie Mae and Freddie Mac has so far cost $145.9 billon. According to the Congressional Budget Office its eventual cost could reach $389 billion. The federal government has put the companies on conservatorship and has a 79.9% stake in the companies. The federal governmet also provides a guarantee that investors will be repaid. By buying loans from banks and other companies that originate loans, Fannie and Freddie were ostensibly in the business of promoting home ownership. The implicit governmet guarantee of Fannie and Freddie's activities in the housing market had the potential to create a huge government liability if the activities are not run well, and this is exactly what happened. By pushing hard for increasing home ownership to unsustainable levels - setting a target in 2001 of creating six million homeowners by 2014 for instance way beyond what was sustainable for the finances of prospective homeowners- it only fueled speculation, easy money and a bubble in housing in the U.S. As investors get paid with the government guarantee, it is Fannie and Freddie that is ending up with ownership of foreclosed homes- one every 90 seconds in the the first quarter of 2010, according to an estimate. The two companies owned 168,000 homes in March 2010....

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Transcripts released for the U.S. Federal Reserve's Federal Open Market Committee (FOMC) 2006 meetings show Fed chairman Bernanke and then New York Fed president Geithner ignored the risks of a hard landing from the mortgage and housing bubble. Geithner even went so far as to say about retiring chairman Greenspan, who also ignored the risks from the bubble and set the tone during his long period as chairman at the Fed: "I'd like the record to show that I think you're pretty terrific, too...And thinking about the probabilities, I think the risk that we decide in the future that you're even better than we think is higher than the alternative." In evaluating the risks facing the U.S. economy in December 2006, at the height of the bubble, Geithner stated: "The current weakness in the economy still seems principally to stem from the direct effects of the slowdown in housing on construction activity... The softer than expected recent numbers don't argue in our view, for a substantial reassessment of the risks in the outlook." The Fed chairman, Ben Bernanke, said at the first meeting in March 2006: " Strong fundamentals support a relatively soft landing in housing... I think we are unlikely to see growth being derailed by the housing market." When a Fed economist gave a presentation in March 2006 on the risks in Iceland, Bernanke said- "We'd like a full report on the Icelandic," at which point the rest of the group erupted with laughter. Iceland defaulted on its debts in 2008. Warnings about housing by Fed Governor Susan Bies were ignored by Bernanke and Geithner. Two highly leveraged Wall Street investment banks collapsed in 2008- Bear Stearns in March and Lehman in September- from the impact of the bursting of the bubble in housing and mortgages. When they collapsed these banks were leveraged at about 30 to 1, as most of the warning signs had been ignored by regulators including the Federal Reserve....

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Feldstein, adviser to the Romney campaign, refutes the assertion based on computer models that the Romney Tax Plan of a 20% across the board cut in taxes cannot be paid for by limiting the deductions of high income tax earners. His own analysis based on IRS data, shows taxpayers with adjusted gross incomes of over $100,000 made itemized deductions of $636 billion in 2009. By taxing these deductions at a 30% marginal rate, additional revenue of $191 billion can be raised to pay for the Romney Tax Plan's static revenue loss of $181 billion. A smaller revenue loss of $148 billion is predicted based on increased incomes and taxes from the behavioural effects of lower taxes on earners. He says this was the thinking behind the Reagan tax cuts of 1986 and the Simpson-Bowles commission plan that would generate economic growth by reforming the tax system's distortions.

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In private conversations, Paul Volcker has advised administration officials, that in implementing the Volcker Rule, regulators should follow the practice in money laundering laws. There the government bans a certain behaviour, and then the burden is on the banks to screen for red flags and to ensure compliance. His advice is to ban banks from trading with their own funds if they benefit from any kind of government guarantee. Banks would be required to police their own actions, and the Fed examiners ensuring they are in compliance. The recently passed regulatory reform bill left a lot to the regulators, who have to fill in the blanks. Volcker's concern is that narrow rules would invite gamesmanship from the banks to evade the intent of the law. At one Congressional hearing Volcker suggested a Potter Stewart type of approach- Stewart as Supreme Court Justice said about pornography: "I know it when I see it." For Volcker bankers know what proprietary trading is and is not, and he does not want to let bankers tell anybody anything different. Thw new Financial oversight Stability Council is charged with the task of coming up with a course of action by January 2011, and then writing the rules by October 2011. The fear among a group of 18 senators is that bankers will weaken the Volcker rule protections. A letter pointing this out was sent by the group to the Oversight Council last week....

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How Martin Feldstein weighs the risks of inflation and of moral hazards in helping those who fueled the subprime crisis with their mistakes with the risks of a sharp downturn, and what thoughts he has on the issue of lowering rates just as the Bernbanke Fed prepares for its policy meeting September 18, 2007. He looks for a cut starting from the current 5.25% to 4.25% or even less depending on the situation as it evolves. Feldstein gives a measure for household wealth that will be lost and what will be lost in consumer spending as a result. His measure is for a 20% cumulative fall in house prices that would reduce household wealth by $4 trillion which would impact consumer spending by about $200 billion, thats about 5% consumers would spend more if they had that $4 trillion. This works out to about 1.5% of GDP which he suggests would tip the US economy into a recession. This is not counting the loss of access to spendable cash that the consumer has used for the last decade in terms of mortgage equity withdrawals which totaled $9 trillion this last decade and financed a lot of the sustained consumer spending, these mortgage equity withdrawals to finance spending would decline significantly in the new conditions. In addition with more defaults and falling prices in a vicious circle the process could accelerate quickly, further impairing the portfolios of banks and financial institutions causing some to collapse. ...

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Feldstein points out that other recent recessions were of short duration because the the Fed tightenend monetary policy to get back to price stability so that the Fed had some control over duration. This time the six years of steady house price increases has created a bubble which is the cause of this recession, and to make things worse it has affected the creditworthiness of institutions, as a cloud hangs over the assets carried by financial institutions because complex securities were created with risky mortgages and dispersed throughout assets of these financial institutions. So there is only so much the Fed can do. Feldstein is pessimistic about how long this recession could last. Feldstein faults the poor supervision and bank examinations of the Fed over banks and institutions they lend to such as nonbank financial institutions.

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Mitt Romney's position on the auto industry bailout was spelled out in an article in the New York Times in 2008 titled "Let Detroit Go Bankrupt." Romney opposed government loans to the auto industry. Because of the unusual factors that faced the auto industry such as the subprime mortgage driven financial credit crisis, financial market volatility and GM and Chrysler being shut out of credit markets, the need to maintain buyer confidence during bankruptcy, the planned bankruptcy with government loans was seen as the way to rescue a crucial part of the U.S. manufacturing industry by other business executives such as Jack Welch of GE, and by many adviors to the government from the private sector.

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The Economist quotes experts saying that drug innovations would not be affected by price controls on drugs. Pricing reforms can accomplish the reverse, spur innovation by doing as Britain and Germany are doing- pioneering comparitive reviews of drugs effectiveness and cost-benefit analyses aimed at reimbursing firms for new drugs based on their performance. Sanford Bernstein, a financial advisory firm, says in its study that a 20% reduction in what Medicare pays for drugs would not kill off innovation, it would reduce earnings per share of big pharma firms by 3-8%. As drug research is now done in many countries, and its a globalized industry, innovation is not likely to be automatically affected by price reductions in one country like the USA, according to Alna Garber of Stanford University and Patricia Danzon of Wharton Business School.

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Russia's decision to make Crimea an autonomous region inside Russia. This follows a referendum in which Crimeans voted to join Russia. Russian president Putin says Russia has no further interest in the rest of Ukraine.

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Lt. Gen John Kelly loses his son Robert in Afghanistan and talks about the immense burdens facing military families. Robert is out on patrol duty in a mine filled area of Afghanistan's Sangin district. Only 1% of the population serves in the military. And Kelly says his is only one of 5500 American families that have lost a child in this war. There is a sense among military families that the war and these military families have been forgotten. One Marine Corps general wrote to Kelly that service to and sacrifice for the country has become a legacy affair for a small number of military families. Before the midterm Congressional elections only 2% of the people rated Afghanistan as a top issue and hardly any candidates mentioned this issue. Tom Brokaw, a well known anchor of NBC News, wrote in a major daily that the war and the sacrifices have been forgotten in the election and hardly discussed. Adm. Mike Mullen went so far as to say that he worries that we could wake up one day and that the American people will no longer know us and we won't know them....

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The majority report of the Financial Crisis Inquiry Commisssion says Alan Greenspan and Ben Bernanke, regulators, and several financial institutions were responsible for what was an "avoidable disaster." The report criticizes Mr Greenspan for advocating deregulation and considers the failure to stem the flow of toxic mortgages under his leadership at the central bank as a "prime example" of negligence. The report also says that the New York Fed under Timothy Geithner, now Treasury Secretary, also missed signs of trouble at Citigroup and Lehman. There are 6 Democrats and 4 Republicans on the Commission. The fourth Republican has his dissent, calling policies to promote home ownership, the role of Fannie Mae and Freddie Mac a major cause. The panel was hobbled by internal divisions and staff turnover, which have made what should have been a report of major significance into one marred by partisan differences. The majority report itself was heavily shaped by Phil Angelides, the committee's chairman, and it has many literary phrases. Overleveraging was a critical factor in the crisis. For every $40 in assets, the US's 5 largest investment banks had only $1 in capital to cover losses. The banks hid their leveraging with derivatives, off-balance sheet entities and other devices. The banks relied heavily on short-term debt which worsened the crisis. The report also said the Clinton adminstration's decision to exempt over-the counter derivatives from regulation- made in the last year of Clinton's term- also helped set up the ground for later events leading to the crisis....

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Manuel Barroso, president of the European Commission, tells Italian newspaper La Repubblica on September 1, 2014, that Russian president Putin made some abnormal remarks in a phone conversation. Responding to Barroso's question about whether Russian troops had crossed into eastern Ukraine, Putin is reported to say: "That is not the question... But if I wanted to, I could take Kiev in two weeks." The WSJ editorial on September 3 referred to an earlier editorial on "Putin Bonaparte," giving some idea of how such comments by Putin are seen in the media, and how Putin's actions in Ukraine are creating new tensions with the NATO alliance and the U.S.

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The fears within Mexico's auto industry that the TPP will allow imports of cheap Chinese auto parts hurting its auto industry, and reversing years of gains made under NAFTA. Canada also has fears about the TPP for its auto industry. Japan uses China and Thailand as part of its supply chain. China is not part of the TPP. Add to this the UAW and Detroit's suspicion of TPP concessions to Japan. This has stalled U.S. negotiations with Japan on the TPP trade agreement in 2015.

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The wounds left behind in S. Korea from the 1997 Asian financial crisis when the IMF imposed conditions for $21 billion in loans as part of a $60 billion loan package to prevent a sovereign debt default. The conditionality imposed for loans led to layoffs and economic hardship for the working class. S. Koreans remember the crisis as the "IMF crisis." It also has a particular stigma in S. Korea which the IMF is now trying hard to erase. One laid off employee from an automobile plant describes the period as a hard hitting IMF typhoon. So struck are S. Koreans with the term that it has become synonymous with financial hardship. In the 12 years since the crisis the IMF itself has changed. It is now trying to provide help to countries on better terms and is conscious of the problems of austerity policies. During the 2008 financial crisis Seoul stayed away from the IMF. Seoul is host to the G-20 in 2010 and now has a participatory role in international meetings. The IMF has created a emergency loan facility that could be useful for Asian countries and wants to change the perception of the IMF in Asia....

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Pearlstein argues that the US and the Obama administration achieved most of its goals, even though the Europeans took the credit. On regulatory reform, Geithner's regulatory reform proposal he says, could well have been written at the French Finance Ministry, as at the US Treasury. And it gives Obama ammunition to prepare, as private equity, hedge funds, and banks try to water down his proposals for regulatory reform. By having member countries commit to adding $850 billion to the resources at the IMF, and regional development banks to provide help to countries in serious difficulties- and giving instructions that the money can be used not only for debt rollover, bank recapitalization and balance of payments support, but also for stimulus spending, infrastructure investment, trade finance and social support- the Obama adminstration has accomplished a great deal. It has succeeded in putting in place the necessary financial resources to support not only the financial systems of countries in Eastern Europe, Asia and Latin America that need help, but put emphasis on the need for resources to go for helping reduce job losses, create jobs, and provide some forms of income or support to people in these countries. This is a major step as it means the countries of Eastern Europe and other developing countries can deal with their crises in confidence. Mexico is taking loans from the IMF. Dominique Strauss Kahn had begun the policy of shifting IMF's focus to these social goals as significant parts of the recovery process in countries, but he faced the old mindset among the IMF staff, as when its reported staff wanted to increase interest rates in Pakistan by 10% instead of the 3% that was finally agreed to. That would have caused serious difficulty to the people of Pakistan, created chaotic situation and disturbed the social fabric of that country. See the link to this for S. Korea and for Pakistan. And as Gordon Brown put it the old conditionality that lay behind the IMF loans, is phased out. This makes it the new policy at the IMF backed by the G20 mandate. The Washington consensus which prescribed open borders, floating exchange rates and fiscal prudence is now ended. And to support this change the developing countries will have a bigger say in IMF policy and decisions. ...

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Jenna Wortham asks the question do tech companies have undue influence in Washington especially when they are pursuing their own ecosystem expansion, citing an example from Facebook app Free Basics. There is another question that comes with the election campaigns of Sanders, Trump and Clinton, and issues of upward mobility. With this issue raised also by Janet Yellen of the U.S. Federal Reserve of the loss of intergenerational mobility in the U.S. at a conference in Oct. 2014. This question is whether the tech world in California can be sensitive to the problems of cities depending on manufacturing in the midwest and the eastern U.S. that are recovering from deep recession, because the environments are so different. Working in the tech world in California is so different from the rest of the country, almost a different way of life. It also has deep political implications, because the priorities are different. Sometimes as with the TPP trade agreement they may conflict- this includes an industry such as the auto industry that also is incorporating technology at an accelerating pace and which has employed many times more people than does the tech industry in California, and in many states. This leads to president Obama's support for the TPP trade agreement, an agreement which analysis by some experts shows is more beneficial to the tech industry in California than to the auto industry in the midwestern states. The NYT's Krugman says overall for the U.S. it is marginally helpful as most of the gains in free trade are already behind us. See Lyrarc using search terms-Trans Pacific Trade Agreement, Trans Pacific Partnership. Yet it remains a mystery why president Obama has made it a part of his legacy, when Hillary Clinton realizing the issues in this election has clearly stated she will not support it. It has other implications as well, as it has given rise to demagogic rhetoric in this election, where other issues far more significant such as the condition of western democracy are at stake. ...