Here are the 12 DEREGULATORY STEPS TO FINANCIAL MELTDOWN:
http://www.commondreams.org/view/2009/03/07-3
Wall Street’s Best Investment – Part II

by Robert Weissman

http://www.commondreams.org/view/2009/03/07-3

Fighting the Financial Crisis, One Challenge at a Time
By HENRY M. PAULSON Jr., NYT, November 17, 2008
http://www.nytimes.com/2008/11/18/opinion/18paulson.html?th&emc=th

“More access to lower-cost mortgage lending is the No. 1 thing we can do to slow the decline in the housing market and reduce the number of foreclosures. Together with our bank capital program, the moves we have made to stabilize and strengthen Fannie Mae and Freddie Mac, and through them to increase the flow of mortgage credit, will promote mortgage lending. We are also working with the Department of Housing and Urban Development, the F.D.I.C. and others to reduce preventable foreclosures.”

Project Vote smart has this information on Senator Don Benton

Abortion
2008 Has received no points for issues on Abortion and has no history with any points He also received no points in previous years.

Labor
2008 Based on a point system, with points assigned for actions in support of or in opposition to Washington State Labor Council, AFL-CIO’s position, Senator Benton received a rating of 40.

Agriculture
2008 Based on a point system, with points assigned for actions in support of or in opposition to Washington Farm Bureau’s position, Senator Benton received a rating of 100.

Business
2008 Based on a point system, with points assigned for actions in support of or in opposition to Association of Washington Business’s position, Senator Benton received a rating of 91.

2008 Based on a point system, with points assigned for actions in support of or in opposition to Washington National Federation of Independent Business’s position, Senator Benton received a rating of 85.

2007 Based on a point system, with points assigned for actions in support of or in opposition to JobMakers’s position, Senator Benton received a rating of 45.

Civil Liberties and Civil Rights
2001-2002 Senator Benton supported the interests of the First American Education Project 65 percent in 2001-2002.
No record since 2002?

Conservative
2007 Based on a point system, with points assigned for actions in support of or in opposition to Washington Conservative Union’s position, Senator Benton received a rating of 73.

Education
2005 Senator Benton supported the interests of the Washington Education Association 55 percent in 2005.

Environmental Issues
2007-2008 Based on a point system, with points assigned for actions in support of or in opposition to Washington Conservation Voters’s position, Senator Benton received a rating of 46.

Family and Children Issues
2008 Based on a point system, with points assigned for actions in support of or in opposition to Washington Children’s Alliance’s position, Senator Benton received a rating of 67.

Government Reform
He has no score posted for 2006, 2007 or 2008.

Gun Issues
He has no score posted for 8 years

Women’s Issues
He has no score posted since 1998 (scored 33)

TOTAL = 534 OUT OF 1200= 44%
That is an “F” on any report card

I agree with most of the observations. This financial crisis has been brewing for a while. As early as 2006, there were people sounding the alarm that home prices were rising way out of proportion with the rise in family incomes. And speculators were buying homes just so that they could flip them. Sounded like the alarm that Greenspan sounded in his “irrational exuberance” speech, years before the Dot Com bust in 2000. But no one did anything to tighten credit at that time, when it could have been much cheaper, just as no one did anything to curb day trading and option trading in the late 1990s. Increase in products like derivatives (a very appropriate term borrowed from Calculus, which can very easily model the departure from the norm, and predict violent swings in prices) is a symptom of increase in speculation. When speculation rules price action, the normal market forces of supply and demand for ACTUAL GOODS AND SERVICES take a back seat. If I were to call the shots, any government economist who did not take action two years ago should be fired. I see the role of the government as the guardian of free market forces, which we preach all over the world. But we fail to practice it at home. Instead, we have crony capitalism, where the government looks the other way when the big donors repackage debt into complicated financial instruments and resell them for profit.

By the way, the same can be said about the other side of the equation. If capital is being squeezed by the debt crisis, which Democrats are quick to blame on crony capitalists, most of them Republicans, the supply of quality labor is being pinched by the pubic education system. Yes, the same system that supports democratic candidates for the most part. Trade unions belonging to teachers and other employees are quick to take the role of the victim when they see excesses on Wall Street. But I think this is just another smoke screen to hide the job it has not been doing for the last 40 years. I have not seen any politician who has ventured to turn this rock to see which worms crawl out – the rock is too big, the worms too many. My take on this is that they are afraid of losing the endorsement of large voting blocks the unions control. Since you claim to not take any help from big donors, I feel you are in a unique situation to make an impact here. The K-12 public education is at the bottom of the industrial world today, and soon it will be at the bottom of fast developing countries – in the bottom 25th percentile of the world population. Why do I say this? Because no matter what the state and national leaders have done, they have not been able to break the monopoly of the unions. Without free market forces in action in education, I don’t think you will see any tangible improvement. You are an economist, so I am sure you understand what happens when a monopoly takes hold of a system. I assert that no leading economy can afford to continue leading, with a system that is worse than what we used to call the 3rd world, just 10 years ago. States like Texas, Massachusetts, California, Arizona, have all woken up and started taking decisive action. The states of Oregon and Washington have not. And we are paying the price, with one of the highest unemployment rates, highest college remediation rates, and lowest college graduation rates in the nation. I don’t know about you, but I think this cannot continue if we were to do what is right for the local economy. Shortage of capital AND quality labor are about to create the perfect economic storm. Hold on for a very rough ride during the next few years.

On a bright spring afternoon, the five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks. They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.

The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary. After 55 minutes of discussion, which can now be heard on the Web sites of the agency and The Times, the chairman, William H. Donaldson, a veteran Wall Street executive, called for a vote. It was unanimous. The decision, changing what was known as the net capital rule, was completed and published in The Federal Register a few months later.

With that, the five big independent investment firms were unleashed. In loosening the capital rules, which are supposed to provide a buffer in turbulent times, the agency also decided to rely on the firms’ own computer models for determining the riskiness of investments, essentially outsourcing the job of monitoring risk to the banks themselves. Over the following months and years, each of the firms would take advantage of the looser rules. At Bear Stearns, the leverage ratio — a measurement of how much the firm was borrowing compared to its total assets — rose sharply, to 33 to 1. In other words, for every dollar in equity, it had $33 of debt…

To be frank, the administration has a credibility and trust gap as big as that of Wall Street. If the crisis was as severe as they claim, why didn’t they propose a more credible plan? With lack of oversight and transparency the cause of the current problem, how could they make a proposal so short in both? If a quick consensus is required, why not include provisions to stop the source of bleeding, to aid the millions of Americans that are losing their homes? Why not spend as much on them as on Wall Street?

Do they still believe in trickle-down economics, when for the past eight years money has been trickling up to the wizards of Wall Street? Why not enact bankruptcy reform, to help Americans write down the value of the mortgage on their overvalued home? No one benefits from these costly foreclosures.

The administration is once again holding a gun at our head, saying, “My way or the highway.” We have been bamboozled before by this tactic. We should not let it happen to us again. There are alternatives. Warren Buffet showed the way, in providing equity to Goldman Sachs. The Scandinavian countries showed the way, almost two decades ago. By issuing preferred shares with warrants (options), one reduces the public’s downside risk and insures that they participate in some of the upside potential.

This approach is not only proven, it provides both incentives and wherewithal to resume lending. It furthermore avoids the hopeless task of trying to value millions of complex mortgages and even more complex products in which they are embedded, and it deals with the “lemons” problem – the government getting stuck with the worst or most overpriced assets.

Finally, we need to impose a special financial sector tax to pay for the bailouts conducted so far. We also need to create a reserve fund so that poor taxpayers won’t have to be called upon again to finance Wall Street’s foolishness.

For 140 years, the Federal Office of the Comptroller of the Currency (OCC) examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.

In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government’s actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.

But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.

Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.

When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.

If Warren Buffett is willing to dump 5 billion into Goldman Sachs for some preferred stock, it is very hard to understand why “we the people” have to fork over money to them with nothing but probably worthless paper received in return.

Or maybe that is why Buffett is buying because he knows a sucker deal when he sees one and wants in on the windfall being contemplated for the banks?