We have just passed the 12 month mark since the credit crisis first took hold in the United States. At every step of the way, professional observers tell us that the markets are bottoming and the housing market/economy is about to turn up. How likely is this?

To answer that question, it helps to turn to real data from the mortgage securities market, because this is where the crisis first erupted and where the major losses are being generated. Standard & Poors ratings agency has just released its semi-annual delinquency results for mortgage securities, and the numbers aren’t just bad getting worse, they are in some cases jaw-droppingly terrible. It is getting difficult to find the right words to describe the mortgage catastrophe in the U.S., but what is happening is well beyond what you would expect if the only problem were that bankers used poor credit judgment when making mortgages.

Five days are left in the Beijing Olympics, or as they are called in the U.S., the Michael Phelps reality show. NBC surprised even itself at the enormous U.S. viewing audience that was generated by Michael Phelps every time he swam, though in China he is not much of a story. There the press talks about China’s record 43 gold medals, twice as many so far as they achieved in the Athens games.

It does look like China’s state-sponsored athletic training program, modeled on the old Soviet and Eastern European medal producing machines, is performing as requested by the Politburo (I didn’t know they still had one of these in China). China is destined to grab the gold medal lead from the United States, proving that collective national spirit ultimately trumps the American individualistic ethic. That may be what it proves, but a lot of questions have come up about how little a role the individual plays in China’s state-organized games.

Alexander Slobodyanik died this week at the young age of 65. He was a fine pianist of the Soviet school – one of those thundering virtuosos that were let loose on Western concert halls from time to time, leaving listeners awestruck. He settled in the U.S. after the fall of communism. The New York Times obituary said he was survived by his wife Laryssa Krupa, and then made this offhand comment “She survives him, along with a son from his previous marriage, Alex Slobodyanik, also a concert pianist.”

What are the odds that a concert pianist would have a son who also becomes a concert pianist? The rarified world of classical pianists contains very few examples of sons or daughters of famous pianists entering into the profession. Claude Frank’s daughter Pamela is a famous concert violinist – close enough in difficulty and accomplishment to a piano career. Dmitri Shostakovich’s son Maxim has made a career as an orchestra conductor, and then there are the 5 Browns, all of whom began studying piano at age 3 and then entered Julliard (you need some real talent to get into Julliard). Now they are in their 20’s and tour as a team performing popular music.

That quadrennial nationalistic orgy known as the Olympics is once again upon us. Exactly what the Olympics are about has always been a touch unclear. This year’s extravaganza – if that is a good enough word for something that costs $17 billion – has the snappy motto “One World One Dream.” Maybe this means something in Chinese. In English it might as easily translate to “One World – One Can Only Dream.”

Of course, the Olympics are supposed to be about amateur athletes competing on the world stage. Ha ha ha. The host country has been snatching promising children away from their parents for at least a decade, locking them up in training facilities where they work out seven days a week, and letting them know that only gold medals are acceptable performance. That well known amateur basketball player Yao Ming will be leading the Chinese team, and the U.S. will again be recruiting their basketball players from the NBA.

We are now knee-deep into the cesspool part of the presidential campaign, the “Defining Moment” where each candidate tries to define what the public thinks about the other candidate. This part of the campaign has always been especially relished by the Republicans, since they invented the fine art of driving up their opponents’ negatives, usually by imputing to the opponent all of the negatives of their own candidate.

Lee Atwater was the grand practitioner of negative campaigning, but his acolyte, Karl Rove, has brought this dark art to a new stygian depth. Rove’s contribution relates to a critical element of his character – his ability to create “realities” that are not at all connected to the world we live in. It was Rove who was the source of that famous quote to Ron Suskind describing how the Bush administration was capable of creating its own realities.

A lone gunman is alleged this morning to have entered a Unitarian Church in Knoxville, Tennessee and shot and wounded seven adults with a shotgun. The attack occurred during a children's performance of "Annie."

What's wrong with these people? Don't they know that the alleged assailant was exercising his newly-established, inalienable, 2nd-amendment-protected constitutional Roberts Rights to own a shotgun? True, the Supreme Court didn't explicitly extend these rights to allow you to shoot down whomever you please with your Constitutionally-protected firearm, but this is just a very minor consideration - not an impediment at all - for the sorts of people who are going to open fire in a church.

It’s only natural that Barack Obama’s speech today in Berlin is being judged in the context of the election campaign. All the television pundits are pondering deeply over whether it was wise for a candidate to give a foreign policy speech to hundreds of thousands of people who don’t vote, whether Obama looked presidential enough, and most importantly – whether this helped him in his battle with John McCain.

It struck me that all the talk about Obama-McCain and the racehorse judgments being offered about both of them completely missed the mark. If this speech was a contrast between two politicians, it was not between Obama and John McCain, it was between Obama and George W. Bush.

( Related thread: The dark side of the reaction on Obamamania ~ Editors )

I’ve come to know several children with autism, and I’ve watched their parents struggle with this almost impossible condition that requires constant adult supervision merely to allow the child to function in some way within the family, much less in society. The last thing any thinking, caring, responsible parent would do to an autistic child is knock them up on the side of the head and tell them to shape up and stop pretending to be ill.

But that is the advice radio shock jock Michael Savage has given these parents, since he believes 99% of autistic children are misdiagnosed and faking it. They are “brats” that need to be disciplined, not coddled. They and their parents are victims of a medical fraternity that has invented an epidemic of autism in this country in order to extract dollars from insurance companies, and Savage believes it is time to discipline these kids the way his own father disciplined him – if he didn’t behave properly he got a swift kick in the pants.

Are we all to blame for this financial crisis?

That’s the current thinking coming out of Washington and being taken as accepted wisdom among economists and newspaper columnists. Consumers were greedy and didn’t read the mortgage documents they were signing. Banks were careless in their pursuit of profits and let credit standards lapse. Regulators sat by and did nothing while a housing boom and debt explosion raged for nearly a decade.

This doctrine of shared culpability, however, is starting to fray, as people are asking deeper questions about how so much debt could be piled on to so little equity. More interestingly, some columnists are beginning to wonder whether the banking system weighed the scales much more heavily against the consumer than anyone realized.

Markets will open tomorrow with news that the federal government has effectively taken over both Fannie Mae and Freddie Mac, and extended a lifeline as well to the Federal Home Loan Banks.

The U.S. Treasury Department, through its secretary Henry Paulson, describes its rescue plan as “not a nationalization”, but let’s not be fooled here. The federal government is substantially widening its line of credit to both Fannie Mae and Freddie Mac, it is injecting $15 billion of new equity into the companies, and the Federal Reserve has opened the discount window to both agencies so that they can borrow at the 2.5% overnight rate.

Anytime the federal government buys shares in a company, even if it is a special type of new share created for this purpose, that company has been nationalized. The board of directors and management of the company have lost control, and in this case the Federal Reserve has been given new powers of oversight over the agencies, in yet another expansion of Fed regulatory control.

There are two really devastating events, outside of another foolhardy war, that could push the U.S. economy into a depression. The first is a dramatic increase in defaults on consumer credit card, auto, and home equity loans from prime customers, and the second is a collapse of the government sponsored enterprises that support the housing market. This week the first suggestions have begun to appear in the market that both Fannie Mae and Freddie Mac are insolvent.

Since at least 2005 a number of commentators here at the Agonist have been mentioning this possibility as an important step in the collapse of the economy as the debt bubble is deflated. Back then, very few economic observers were willing to suggest such a thing, but one of them was Fed Governor William Poole. He laid out the egregious decline in credit standards that was feeding the housing bubble, and he laid blame in part on Fannie Mae and Freddie Mac. This week he stated the obvious: from an accounting standpoint, Freddie Mac is now insolvent, and Fannie Mae will be so by the end of next quarter. This means if you put a price on all their assets, there is not enough cash left over after liquidation to pay off all their liabilities. These are no longer going concerns.

Turn your weaknesses into an asset. This has always been one of Karl Rove’s top campaign strategies, and now that so many of Rove’s workers from the Bush White House are joining the McCain staff, you can see the result. John McCain is loudly portraying his early support of the Surge as one of the main reasons people should vote for him. He reminds us that he was right all along, since everyone knows that the Surge has been a success. He represents the steadfast march towards Victory in Iraq, while Obama, with his strategy to begin withdrawing our troops the minute he becomes president, represents defeat and appeasement of the terrorists. McCain is even repeating his line about being in Iraq for 100 years – with the qualifier that all the killing and injuries will be over much sooner than that.

“ I don't think riding in a fighter plane and getting shot down is a qualification to be president.”

So said former Gen. Wesley Clark this weekend about John McCain’s military service, immediately generating one of those “controversies” that constitute the only thing apparently worth discussing in modern political campaigns in America. The network pundits picked up on the inappropriate and impolitic aspects of Clark’s comments, ignoring of course whether they were true or not. The Republicans kept the fires stoked by expressing all manner of outrage and shock.

How could anyone – anyone, wondered the Republicans – possibly question the intrepidity, suffering, and devotion to country displayed by John McCain in Vietnam? This man is a genuine, grade A, American war hero. How low will Democrats stoop to denigrate a war hero?

The next phase of the financial and economic crisis is creeping up on us. You can see the signs in the U.S. stock market, where all the major indexes have reversed a three month rally and are now declining back to their March lows. This decline is led by the Dow and is in fact accelerating, taking with it last month’s cheerful prognostications that the U.S. not only has escaped a recession, but is bouncing back into full growth mode for the second half of this year.

The economic data do not confirm this picture at all. The employment situation continues to worsen, industrial production and factory utilization are lodged firmly in recessionary territory, and the only retail stores showing any sign of life are the deep discounters like Wal-Mart, benefiting temporarily from the tax rebates. Wall Street executives are telling us that the credit crisis is halfway over, but their behavior suggests otherwise. Lehman Brothers, for example, assured us last week that it was well-capitalized and fully in control of its future, but a few days later it announced a $2.8 billion loss and was forced to turn to the stock market and private investors to raise $6 billion more in capital. Where have we heard this story before?

Why would anyone volunteer to be slimed by the White House attack machine? A number of former officials as well as whistleblowers from the Bush administration have written tell-all books, and every one of them has been denigrated as traitors and delusional misfits who kept their poisonous opinions about George W. Bush secret even as they worked for him. Richard A. Clarke, a counter-terrorism expert in the Bush administration, wrote Against All Enemies when he left the White House – a damning indictment of Bush’s failure to take terrorism seriously before 9/11. Clarke says that the trashing he received from the administration has left “tire tracks” on his back to this day.

But that’s nothing compared to what former White House press secretary Scott McClellan is now receiving for his newly published memoir, What Happened: Inside the Bush White House and Washington’s Culture of Deception. The current press secretary, Dana Perino, describes McClellan as a “disgruntled” former employee, rather like a homicidal postal employee off his medicines. Karl Rove doesn’t remember McClellan ever expressing such reservations, and thinks his book is about as prejudiced and untrustworthy as a leftist blog. Others have called him “self-serving”, “disingenuous” and “unprofessional”. All his former friends complain they feel betrayed and misled.

The uproar over President Bush’s appeasement comments in last week’s speech to the Knesset is a very one-sided affair. All the protests are coming from the Democrats, while the new leader of the Republican Party, John McCain, has sided with Bush and gone a step further, identifying Barack Obama as an appeaser. Obama is willing to talk to Iran or Syria or North Korea. He is naïve. He is weak. He cannot be counted on to defend America.

As usual in these spats, Democrats are fighting with logic, while Republicans are fighting with emotion. Democrats cited how illogical it is for Bush to accuse anyone of appeasement when he is right now engaged in bilateral negotiations with North Korea. This past week both his Secretary of Defense and Secretary of State claimed it was important to talk to Iran and to Hamas and others who are considered “enemies” of the United States. Sen. Joe Biden has somewhat amusingly called for Bush to fire both Sec. Gates and Sec. Rice in an effort to rid his administration of appeasers (reverse shades of Joe McCarthy!). Will anyone care about this illogicality and the hypocrisy of the Bush administration, since we’ve seen it operate this way for eight years?

As we commemorate the passing of five years since George Bush’s infamous “Mission Accomplished” stunt on the U.S.S Abraham Lincoln, new information has come to light that shows just how convinced the administration was at that time that the war in Iraq was over. Originally, the Pentagon had prepared a post-combat Phase IV plan for the occupation and rebuilding of Iraq. Somewhere along the way this plan was shelved, and all the generals and military staff in Iraq assigned to its implementation were called back home. It was clearly understood among the commanders in the field that this decision to ignore Phase IV came with Secretary of Defense Donald Rumsfeld’s approval, and therefore with the full knowledge of the National Security Council, Vice President, and President.

Could this be one of those moments when the middle class and poor people in this country awaken to the reality of their economic distress? It will be if people really listen to what Barack Obama had to say on this subject rather than digest only the snippets of quotes that the opposition are ranting about.

From Hillary Clinton to John McCain to a variety of newscasters and pundits, the attack on Obama has focused on his elitism and lack of sympathy for the average American. The focus is entirely on these two sentences Obama said during a fund-raiser in San Francisco:

You go into some of these small towns in Pennsylvania, and like a lot of small towns in the Midwest, the jobs have been gone now for 25 years and nothing's replaced them. And it's not surprising then they get bitter, they cling to guns or religion or antipathy to people who aren't like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations.

Is there anything the Republican Party loathes more than FDR and the New Deal? How many times have people like Newt Gingrich and Grover Norquist vowed to dismantle the regulations, entitlement programs, and safety nets created by the New Deal? Time and again we’ve seen assaults on all aspects of FDR’s legacy, including a Social Security “reform” effort in 2005 that might have succeeded if George Bush hadn’t been hobbled by the Iraq War.

Last month the Republicans had a great victory in their effort to undo the New Deal, by eliminating completely any distinction between commercial banks and investment banks, while at the same time giving investment banks unfettered access to the public treasury with none of the responsibilities or burdens placed on commercial banks. All of this was accomplished in the same way as 9/11 allowed the administration to claim unheralded executive powers – by using an “emergency” to justify a power grab perpetrated with no reference to you the taxpayer, or your representatives in Congress.

O Hillary! Bold Hillary! Your courage so inspiring!
On Tuzla’s deathly airport field you braved those snipers firing.
The bullets sprayed about your feet, yet you went on undaunted;
While all around you ran in fear, your fearlessness you flaunted!

(Except there were no snipers there, no bullets to evade;
An eight year old had welcomed you with flowers she displayed.
This wasn’t quite the threat you claim, no reason for distress.
The only thing you had to dodge were questions from the press.)

That armored plane that flew you in with death-defying action -
It cork-screwed into Tuzla field, creating a distraction!

In the list of problems central bankers worry about, the very worst is a systemic crisis. Systemic risk occurs when the failure of one financial institution brings about the failure of another, and it arises from the complex network of bank-to-bank trades that exist in a variety of products. Most central bankers go through their careers without even witnessing a systemic crisis; Ben Bernanke has just started his career right in the middle of one.

Make no mistake: this Bear Stearns failure is the very definition of a systemic crisis. Bear Stearns is a major financier for hedge funds; it runs one of Wall Street’s largest back offices for processing trades; it has transactions on its books with everybody big in the derivatives business. If Bear Stearns collapses, there isn’t a bank in the world that won’t be counting their losses.

I have several friends and family who support Hillary Clinton for president, and since I support Obama, conversations have been getting a bit testy lately. Still, I’ve managed to glean some insight into their thinking and the emotions they’ve invested in this nomination race. You can learn a lot as well from reading blogs and comments from Hillary fans, though unfortunately these discussions on both sides have increasingly degenerated into vituperative.

There are three important claims being made by Hillary supporters: she is better able to stand up to Republican attacks, it is time for a woman to ascend to the Oval Office, and the Clinton approach to running the party has been successful and should be maintained. How do these arguments stand up to the challenge from Barack Obama?

Carlyle Capital Corp. failed to meet four margin calls yesterday for $37 million, and has received notice of default from its lenders. The fund is the publicly traded arm of the Carlyle Group, the Washington D.C. equity and leveraged buyout firm that lies at the nexus of corporate and governmental power in the U.S. The Carlyle Group is the modern day source of enormous wealth for the Bush family. George H.W. Bush is a shareholder and former board member, as are key members of his administration such as Frank Carlucci, former head of the CIA, and James A. Baker, former Secretary of State. Carlucci ran the Carlyle Group for many years and Baker served as legal counsel. The Carlyle Group is noted for its substantial contacts with governments around the world, especially in the military and intelligence areas. Former president Ferdinand Ramos of The Philippines, as well as John Major, former U.K. Prime Minister, have served on the board of directors.

The financial losses that are being announced almost daily are starting to blur. What sense should we make of the $11.1 billion write-down that AIG, the giant insurance company, took on its investment portfolio? Is this stupefyingly large, or just very large? A lot of the loss related to subprime mortgage securities and credit default swaps, and AIG said more losses are to be expected this year. Will these be much bigger? Since AIG isn’t saying, we have to guess.

Which means we have to pay attention to the estimates of losses for the financial industry as a whole that are starting to be published. This past week the Swiss bank UBS said it estimated that total global financial industry losses from the credit crisis will be around $600 billion. That sounds gargantuan, but who is included in the definition of the global financial industry, and how much of total industry capital is at stake? It is time, therefore, to put these losses into context and see if the financial industry is being hurt, crippled, or mortally wounded by these losses.

When Stephen Kazmierczak stepped from behind the curtain on the stage of Cole Hall at Northern Illinois University, he was wearing all black clothes and a black ski mask to hide his face. Now what was the ski mask for? Surely not to hide his identity, since he must have known that within 24 hours of his death that afternoon, hundreds of millions of people around the world would be familiar with his name and his face.

Probably he was trying to present to his victims an image of terror or evil, much like we’ve all seen in the movies or television shows that depict the bad guys when they go about shooting people down indiscriminately. Whatever his reasons, the masked Stephen Kazmierczak had one thing in common with the rest of us as we ponder over these massacres- we all wear a mask as well in refusing to look at these episodes for what they truly reveal.