Obama’s Progressive Solution.

“Officials said the proposal would seek a broad new role for the Federal Reserve to oversee large companies, including major hedge funds, whose problems could pose risks to the entire financial system.” With the AIG bonuses setting the table, the Obama administration prepares to unveil an overhaul of the nation’s financial regulatory apparatus. “It will propose that many kinds of derivatives and other exotic financial instruments that contributed to the crisis be traded on exchanges or through clearinghouses so they are more transparent and can be more tightly regulated. And to protect consumers, it will call for federal standards for mortgage lenders beyond what the Federal Reserve adopted last year, as well as more aggressive enforcement of the mortgage rules.”

Whatever malarkey you hear from the GOP about “creeping socialism” over the next few weeks, keep in mind that no less a Republican than Teddy Roosevelt deemed this sort of solution — accountability, transparency, tighter oversight of the financial sector by the federal government — the “New Nationalism” a century ago. In this arena, at least so far, President Obama seems to be living up to his Progressive promise.

Update: “‘Our system failed in basic fundamental ways,’ Geithner told the committee. ‘Compensation practices rewarded short-term profits over long-term returns. Pervasive failures in consumer protection left many Americans with obligations they did not understand and could not sustain. The huge apparent returns to financial activity attracted fraud on a dramatic scale..,To address this will require comprehensive reform. Not modest repairs at the margin, but new rules of the game. And the new rules must be simpler and more effectively enforced.‘” Secretary of the Treasury Tim Geithner unveils the new regulatory package. [Highlights.] “He said financial products and institutions should be regulated according to their economic function and the risks they pose, not their legal form. ‘We can’t allow institutions to cherry-pick among competing regulators and shift risk to where it faces the lowest standards and weakest constraints,’ he told the committee.”

Risky Business.

“What’s interesting about the Madoff scandal, in retrospect, is how little interest anyone inside the financial system had in exposing it…OUR financial catastrophe, like Bernard Madoff’s pyramid scheme, required all sorts of important, plugged-in people to sacrifice our collective long-term interests for short-term gain. The pressure to do this in today’s financial markets is immense. Obviously the greater the market pressure to excel in the short term, the greater the need for pressure from outside the market to consider the longer term. But that’s the problem: there is no longer any serious pressure from outside the market.“

In an extended NYT editorial, authors Michael Lewis and David Einhorn survey recent economic developments with an eye to the broader problem: a financial institutional culture that fosters and legitimates idiotic amounts of risk. “The fixable problem isn’t the greed of the few but the misaligned interests of the many…The tyranny of the short term has extended itself with frightening ease into the entities that were meant to, one way or another, discipline Wall Street, and force it to consider its enlightened self-interest.“

Among the culprits in Lewis and Einhorn’s worthwhile dissection: the credit rating agencies. “In pursuit of their own short-term earnings, they did exactly the opposite of what they were meant to do: rather than expose financial risk they systematically disguised it. ” See also: the S.E.C. “Created to protect investors from financial predators, the commission has somehow evolved into a mechanism for protecting financial predators with political clout from investors…And here’s the most incredible thing of all: 18 months into the most spectacular man-made financial calamity in modern experience, nothing has been done to change that, or any of the other bad incentives that led us here in the first place.“

It’s not all doom, gloom, and (highly justified) finger-pointing. In part two of the editorial, Lewis and Einhorn offer some quick fixes to our current institutional myopia that should be relatively simple to put through…in a perfect world. “The funny thing is, there’s nothing all that radical about most of these changes. A disinterested person would probably wonder why many of them had not been made long ago. A committee of people whose financial interests are somehow bound up with Wall Street is a different matter.“

Webb takes on Incarceration Nation.

“I think you can be a law-and-order leader and still understand that the criminal justice system as we understand it today is broken, unfair, locking up the wrong people in many cases and not locking up the right person in many cases.” In an auspicious sign for 2009, Sen. Jim Webb (D-VA) announces he’ll be taking at stab at criminal justice and prison reform in the coming year. “Webb aims much of his criticism at enforcement efforts that he says too often target low-level drug offenders and parole violators, rather than those who perpetrate violence, such as gang members. He also blames policies that strip felons of citizenship rights and can hinder their chances of finding a job after release.“

It sounds like he’s on the right track, and bully to Sen. Webb for even taking this issue — normally not one that brings in the votes — on. (Let’s hope Webb knows his Wire.)

Of course, a lot of headway could be made if we just started taking a saner approach to drugs in this country, i.e. unclogging the justice system of non-violent drug offenders and doing away with mandatory minimums. From there, I hope Sen. Webb sets his sights on the shameful and grotesque private, for-profit prison industry that has sprouted here in America. I for one believe running an unsafe, substandard prison and getting rich by outsourcing your supply of “captive” laborers to corporations that don’t want to pay market wages is much more immoral and criminal behavior than getting high in some fashion and being unlucky (and/or black) enough to get caught. And I don’t think I’m in the minority in this assessment anymore.

We are all “Socialists” now.

“Let’s be clear about why we’re facing a crisis that could pull down the global financial system. The irresponsibility of individuals who bought houses they couldn’t quite afford pales in comparison with the irresponsibility of the financial wizards who built on those shaky mortgages a towering edifice of irrational faith. Someone in the government should have looked at all those trillions of dollars’ worth of mortgage-backed securities and collateralized debt obligations and credit default swaps and demanded that Wall Street prove that all, or even most, of this purported money was real. But we’re in the eighth year of the Bush administration; adult supervision left the building long ago.” — Eugene Robinson.

Boy, nothing like panic and near-catastrophe in the banking and financial sectors to turn all the stark raving free-market fundies redder than Eugene Debs on May Day, eh? In any event, once again we’re on the verge of learning the hard way that Wall Street does a really lousy job of regulating itself, and that, when push comes to shove, it’s the “don’t-tread-on-me” entrepreneurial capitalists among us who are the first to beg for Big Guvmint to come in and bail them out — at above-market prices. “The only emergency is on Wall Street, and that is entirely of Wall Street’s making. It was the banks that made the loans, the banks that bought the paper, the banks that dumbly believed the models that said that housing prices wouldn’t collapse…How touching to see executives from the likes of Lehman Brothers, not normally an institution associated with widows and orphans, squawk about cutthroat tactics.” And I don’t seem to remember the economic Big Boys, or their mostly-GOP minions in Congress, show such concern about the vagaries of risk when the plight of ordinary folks was being discussed, vis a vis the egregious bankruptcy bill of 2005.

Of course, we can’t just let many of our major financial institutions implode without consequence, and — even though delegating the Dubya administration any more “emergency powers” at this point seems like a colossally bad idea — it seems a given that something will have to be done to sort out all this out, and it will no doubt end up costing taxpayers and aggrieved homeowners a bundle. I just hope, when the dust settles, we remember this time how this all came about, and not just let the idiotic free-market fundies blather on about tax-and-spend liberals killing the entrepreneurial spirit every time some sort of regulatory apparatus is discussed in Washington. We know how that movie ends.

Straw Man Economics.

“So you’ve managed to create AAA and BBB securities out of a pile of stinky, risky mortgage loans. Boss, you are a genius.” By way of Web Goddess, the Subprime mortgage fiasco, explained with profane stick figures.

Busted Rivets…

“‘The board was in crisis mode,’ one of the authors, Jennifer Hooper McCarty, who studied the archives, said in an interview. ‘It was constant stress. Every meeting it was, “There’s problems with the rivets and we need to hire more people.”‘‘ Sorry, Jack and Rose (and, of course, the 1517 real casualties): It seems the Titanic may well have foundered due to corporate cut-corners, namely substandard riveting. “Adding to the problem, in buying iron for the Titanic’s rivets, the company ordered No. 3 bar, known as ‘best’ — not No. 4, known as ‘best-best,’ the scientists found. Shipbuilders of the day typically used No. 4 iron for anchors, chains and rivets…The scientists argue that better rivets would have probably kept the Titanic afloat long enough for rescuers to arrive before the icy plunge, saving hundreds of lives.“

Well, they do know lots of words for snow.

“Given the State Department’s $32 billion budget, an additional $1 million for food hardly ranks as a major scandal. But this tangled tale of how an Alaskan tribal company ended up in a South American tropical forest sheds an illuminating spotlight on the often-secretive world of federal contracting, an area of government rife with abuse and poor oversight.” Our government in action: Salon‘s Michael Scherer explains how Alaskan Eskimos won a no-bid contract to feed cocaine-fighting Bolivians, with the help of Senator “Bridge to Nowhere,” Ted Stevens. Here’s a hint: Halliburton is involved.

Lay to Rest.

In a surprising coda to the Enron trial, company founder, presidential confidant, and recently convicted felon Ken Lay died this morning of a heart attack. His dubious legacy: “Enron’s bankruptcy filing cost thousands of workers their jobs, spooked investors into doubting the integrity of the stock market and spurred lawmakers to enact the most significant changes to corporate practices in more than 70 years.“

Lay Down / The Skilling Moon.

“‘Enron is one of the great frauds in American business history,’ said James Post, a professor of management at Boston University. ‘But it is also a symbol of a particular era of management practice.’” In a strange confluence of ill omens for the current administration, a jury finds finds Enron heads Ken Lay and Jeff Skilling guilty on multiple counts of conspiracy, wire fraud, and securities fraud, with sentencing set for 9/11. For their part, Lay and Skilling immediately began talking appeal, but perhaps that’ll be unnecessary. After all, surely “Kenny-Boy” can wrangle a pardon from his boy Dubya, particularly after he spent all that time crafting Dubya’s energy policy.

The KBR Relocation Authority.

I’m a bit late on this one: In an ugly confluence of several of this administration’s shady dealings, CheneyCo.’s KBR/Halliburton — its attempts at continued war profiteering faltering — recently won a $385 million contract to build immigrant detention centers for the Dept. of Homeland Security. “The contract, which is effective immediately, provides for establishing temporary detention and processing capabilities to augment existing ICE Detention and Removal Operations (DRO) Program facilities in the event of an emergency influx of immigrants into the U.S., or to support the rapid development of new programs.” Um, new programs? (By way of Supercres.)