Lloyd Blankfein is the chairman and CEO of Goldman Sachs. In 1869, a German-Jewish immigrant named Marcus Goldman founded the company. Thirteen years later, the little commercial paper dealer celebrated its bar mitzvah by bringing on Goldman’s son-in-law, Samuel Sachs. Thus was born what Rolling Stone recently called, channeling their late-great Hunter S. Thompson, “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

Lloyd Blankfein, who with his wide, pursed lips looks for all the world like a Muppet, recently told the Times of London he and the rest of his colleagues at Goldman Sachs are “doing God’s work.”

This is the point when you picture a Muppet in a suit and tie riding atop a giant vampire squid wrapped around our planet. Perhaps the Muppet would be holding a cross, except he’s Jewish. So there would be a Magen David in his hand. Take a moment. Picture it.

It’s funny, isn’t it? Except it’s not. It’s an anti-Semitic wood cut yanked straight from the worst screeds of Henry Ford’s printing press. Some version of the Protocols of the Elders of Zion probably features an illustration close to, if not identical, to my little depiction. I would be annoyed by this, even repulsed by the very image, if Blankfein and Goldman Sachs didn’t make it so fucking easy.

This is a company that made $3.2 billion. In profit. In three months. This year. This year when unemployment has soared to 10.2 percent and rising. This year when that figure rises to over seventeen percent when you count the people who’ve stopped looking for work or scrape by on part-time gigs because they can’t land a full-time job with benefits. By benefits, I mean health care. I don’t mean the multi-million dollar stock options or bonus payments that line the pockets of Goldman Sachs employees, where the average pay this year is $700,000.

This is a company that quite literally played both sides of the housing bubble, selling off $40 billion in mortgage-backed securities while secretly betting those mortgages would turn out to be worthless. When the bubble popped, the losses Goldman Sachs would’ve taken were already passed down the line. Instead, they made a killing.

I’m using the word ‘killing’ on purpose.

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The NY Jewish Week recently published an article entitled "Resolving the Day School Crisis: It Takes a Mishpocha" that I found to be a bit shortsighted.  In the article, writer Kim Hirsh identifies the central day school crisis as a profound inability to develop self-sustainable financial resource development.  In that regard, she is correct.  Most Jewish day schools "simply lurch from one fiscal crisis to the next" without ever reaping the benefits of teaching so many generations of students about tzedakah (charity).

I think Hirsh's best point is one she skims over: that as the recession hits more and more Jewish families, day schools will be institutions that cater only to the very rich and the few students from lower income brackets that are on scholarship.  The middle class will have no access, especially considering that the middle class is shrinking rapidly anyhow.

I am a product of Jewish day school-I was ‘educated' in lackluster orthodox institutions from kindergarten through high school, and have seen those schools through times of plenty and crisis. Frankly, Hirsh fails to acknowledge that perhaps the day school model is outdated.  If there is not enough funding to support these programs, perhaps the programs themselves need to change. Why continue trying to save troubled institutions, many of which are willing to sacrifice educational quality if it means retaining more students, if they will inevitably meet the same financial challenges in the next fiscal quarter?

I don't foresee the $300 million in endowments that the UJA has proposed materializing out of the ether any time soon, at least not in full.  It would be wrong not to deny Hirsh's assertion that "day school education is essential to ensuring that Judaism survives and thrives in this country."  It is time to stop looking at intensive Jewish education as the magical key to ensuring our children embrace their heritage, and instead focus on empowering them to seek out those ideals on their own.  Give them good educations at secular institutions and they will see clearly the reasons why their parents (and our parents) have thought (in folly) that day schools are the only route through which Jewish adults are shaped and made.

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The excellent E.L. Doctorow novel City of God opens with the book's narrator, the Episcopal Rev. Thomas Pemberton, discovering that his church has been robbed. Among other things, the thieves took some brass candlesticks, a bunch of purple robes, and the church's cross. When a local cop comes over to investigate, he admits he is surprised anybody would rob Protestants. "They'll hit a synagogue for the watchamacallit, the Torah," says the detective. "Because it's handwritten? Not a mass-produced item? It'll bring, a minimum, five K. Whereas the book value for your cross has to be zilch."

Sadly, it's not only a pilfered Torah that will sell for a high amount. Today's New York Post reported that some of the victims of Bernie Madoff's landmark Ponzi scheme have resorted to selling off their Judaica:

Antique auctioneer Jonathan Greenstein told Page Six rare Judaic artifacts that "haven't seen the light of day in generations" are surfacing in light of the desperate times some collectors are facing. Two victims, Rabbi Alexander Schindler and wife Rhea, "lost a substantial sum of money" with Madoff, said Greenstein. They now plan to recoup some cash by putting an ancient Torah crown and a diamond-encrusted Torah pointer from Amsterdam up for auction.

When a rabbi has to sell off his own Jewish artifacts, what we have we come to?

Oh, and just to follow up on that story from City of God:  in case you were wondering what happened, they found the cross after all - on the roof of a synagogue on the Upper West Side.

My university is closing its world-class art museum and selling the collection to meet a budget shortfall.

Brandeis University- a bastion of liberal arts and intellectual inquiry, an institution whose motto is "truth unto its innermost parts"- is selling off its world-class collection of contemporary art, including such luminaries as Roy Lichtenstein, Pablo Picasso, and Dana Schutz.

Alumni feel a tremendous sense of loss and, in some cases, outrage. The Rose, an airy, contemporary-yet-intimate space, has been a special place at Brandeis for over 45 years. Speaking personally, the Rose is where I saw a number of provocative installations and schmoozed at countless events in a relaxed yet sophisticated atmosphere. It's also where I first saw pieces by William Kentridge, who is now one of my favorite artists.

Granted, I am sure this was a wrenching decision for the Board of Trustees, and hesitate before condemning it wholesale without the benefit of the school's financial records. The school has lost a reported 25-40% of its endowment, and has seen some of its biggest donors nearly wiped out by Bernard Madoff's Ponzi scheme. I can understand the rationale of preserving the school's core mission and services as an educational institution, rather than a sponsor of visual art.

I still have some fiscal concerns, namely, skepticism over how much money the school expects to make by selling art when we're at the bottom of an already-hollow market. Add to that the long-term damage to the school's reputation, which could depress alumni giving as well as application rate and admission yield, which determine a school's ranking. Yet what concerns me most is the demeaning of art's qualitative value at an institution that claims to operate on Jewish principles.

To clarify, Brandeis is not a Jewish school; it is a sectarian institution supported by Jewish sponsorship. But said sponsorship is not just financial in nature (if at all, given the present circumstances). It is the values  that determine the university's identity, the more humanistic values of Judaism, including social justice, pursuit of knowledge, passionate yet reasoned debate, glorification of the mortal world. These were all present in spades at the Brandeis I knew.

Jews have a long and treasured history as creators and patrons of art. Artists like Marc Chagall, Julian Schnabel, Judy Chicago, and mega-patrons like Ronald Lauder and Eli and Edythe Broad are just a few examples. One of the most protracted and emotional initatives after the Holocaust was the attempt to restore valued works of art stolen by the Nazis to the appropriate Jewish families. In fact, Ron Lauder's Neue Galerie exists for the purpose of displaying these works and celebrating their return to rightful ownership.

So with all due respect to the leadership of my alma mater, I remind you that Jews did not sue the Swiss government for 50 years for repatriation of masterpieces only to now sell Warhols for pennies on the dollar. If we go forward with a fire sale on invaluable works, we will never get back the art itself nor the reputation of the university. A commentator on the Boston Globe, "sam-yanes," said it with brutal concision: "This move cuts the heart out of the respect for the humanities and the arts at the core of Jewish culture. It cuts the heart out of my feeling Jewish."

I don't see any potential for "trickle down effect" in C.C. Sabathia's Contract

Last week my roommate and I finally watched No Country for Old Men. The story revolves around an evil, creepy man pursuing a briefcase containing two million dollars that is found following a drug deal gone wrong by a random passerby. This man is absolutely brutal, shooting anyone who gets in his way with no mercy.

At one point, I asked my roommate, “How much money is in there? Two million?” He nodded. I followed with “Doesn’t A-Rod make that, in, like, one game? It’s pretty sad all these innocent bystanders are losing lives over two million bucks when A-Rod earns about that much per at bat.”

I love baseball. Always have. Always will. But when I heardabout C.C. Sabathia’s $161M contract with the Yankees yesterday, I was finally ready to admit for the first time, that baseball players' salaries are beyond extravagant. They are an insulting slap in the face toward those who are being hit hard by the economy.

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There are two reasons we need to bail out the auto industry.  The first, quite simply, is to buy time. Let's say we agree that the American auto industry is doomed, and that a $25 billion bailout does nothing more than delay the inevitable by three years.  That is a perfect and entirely persuasive argument in favor of a bailout.  Right now, the ripple effects of the loss of a million or two million or three million jobs  (no one is quite sure of the number) would be a nuclear bomb detonated in the middle of a national recovery plan.  It's not just the consequences for unemployment and health care and pension guarantees and consumer credit, it's the complete devastation of the landscape in which the efforts of the new Obama administration will have to take place.  If $25 billion buys us three years for a recovery plan to take effect, that's a bargain.  And there are other reasons to buy time.  It is almost impossible to overstate the short-sightedness and pigheadedness of the management teams at the Big Three automakers.  In the past few years GM executives have repeatedly derided the idea of a business model based on building fuel efficient cars and have pinned much of their hopes on selling luxury vehicles in China.  But there are, finally, signs of improvement, including the development of the Chevy Volt.  And there are a whole series of changes in the terms of employment under UAW contracts that are described below.  But these things will take time to have their positive effects.  

That's the first reason we need a bailout:  it might turn out to be enough to save the industry, and even if it doesn't it buys us desparately needed time.  But there is a second reason for a bailout that has to do with nothing less than the question of the current economic age: was Marx right?

Was Marx right?  The usual answer is "no" with respect to his predictions in the Communist Manifesto. In some ways, to be sure, his arguments seem quite prescient, as in his warnings that capitalism's ever-expanding desire for markets that would lead to the creation of a globalized economy, his predictions that sovereign political systems would come to serve primarily as managing entities for multinational wealth, and his emphasis on the equation of market liberalism with free trade.  On the other hand, the standard wisdom is that he was wrong about the consequences of these developments.  In particular, it simply was not true that industrial capitalism resulted in ever-downward pressure on the living standards of workers, that the cycle of crises of capitalism continued to get worse and worse (after the global depression of the early 1930s), and above all that the middle economic classes disappeared as industrialization and corporate capitalism expanded.  In the U.S. as in all western democracies, some combination of government intervention in the market and/or organization of labor produced counter-pressures that ensured that the immense wealth being created was shared.  As a result, contrary to Marx's prediction of society devolving into two opposing classes, these western nations' economies were marked by the appearance of strong and stable working middle classes, a category Marx did not envision at all.  

But was Marx wrong, or was the creation of a working middle class merely a temporary exception?  It is not news that the American working middle class, especially in the manufacturing sector, has taken a beating over the past two decades, nor that the increase in the gap between rich and poor has been accompanied by a progressive weakening of organized labor.  The Europeans and Asians proved Marx wrong by using political authority to reshape capitalist markets.  In the U.S. we have tried to do the same thing by turning labor into a market participant.  Then we started busting the unions.  Which brings us to current discussions about the auto industry.

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The financial firms were first, now it's the automakers. We hear estimates of anywhere from 1 million to 3 million jobs at stake, and other industries are lined up to make their own claims about their importance to the long-term health of the economy. President-elect Obama has responded forcefully, unveiling a plan to put up to 2.5 million workers on the federal payroll by January of 2011, putting them to work on infrastructure and energy-related projects. These are terrific steps – the appointment of Timothy Weithner as Treasury Secretary is another – but in the course of these discussions it's time we focused on yet a different danger that is involved in this general economic crisis. I am referring to the danger to America's system and tradition of higher education.

Let's start with some background. There are three historical trends that combined to create a situation that on the verge of instability even before the current crisis began. First, the ever-expanding (yet still inadequate) access to higher education; second, an almost 30-year pattern of rising expenses and costs being shifted from public funding to students and their families; and third, a rapidly approaching point at which rising costs outstrip families' ability to pay, threatens the continued viability of the system. At stake is one of the miracles of post-World War II America, the expanding access to higher education for middle and low-income families. Don't worry; the families that could really afford to choose a college based on the quality of the omelet chef in the dorm are not likely to find themselves suddenly resorting to fish sticks. But the truth is that those families are not, ultimately, the ones on whom we should be focusing our attentions.

The historical trend of expanding participation in higher education is longstanding. Consider the following percentages of Americans over the age of 25 who had at least a bachelor's degree in different decades. 1940: 4.6%; 1950: 6.2%; 1960: 7.7%; 1970:10.7%; 1980: 16.2%; 1990: 20.3%; 2000: 24.4%;. In 2007, the number was 27.5% (another 7.4% held associate degrees, and 19.5% more had some college education.) The 27.5% figure breaks down into 28.2% of males and 26.8% of females, as compared with 26.1% of men and 22.9% of women in 2000. The 2000 figure of 24.4% is further broken down by race : among Americans over the age of 25 27.0% of Whites, 14.3% of African-Americans and 10.4% of non-white Hispanics had college degrees.

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The intellectual and political bankruptcy of the Bushadministration just keeps getting worse; for the next two months, that may be the most dangerous bankruptcy crisis of all.

Secretary Paulson announced on Wednesday, November 11th thatthe $700 billion that Congress authorized under the Troubled Asset Reclamation Program for the purchase of asset-based securities will not be used to purchaseany asset-based securities. Instead, the Treasury will continue to pump money into banks.  This follows on the announcement of arenegotiation of the loan to AIG on terms much more favorable to the company -- and much less favorable to the taxpayer -- than had been negotiatedearlier.  That announcement followson the gift of $125 billion to nine large banks and another $125 to publicly traded regional banks.  At this point it seems salient to ask, what the hell is going on? 

The Bush administration is sticking to its story even as thestory itself changes literally by the day.  The TARP program was sold to Congress as an absolute andimmediate necessity to avert total and immediate calamity:  at the meeting of 20 nations to discuss global finance on Saturday President Bush declared that but for hisadministrations "decisive measures" there was a danger of a depression worse than the Great Depression.  Thiswas the hard sell that Paulson brought to Congress.  We had to immediately purchase toxic assets or a Depressionwould ensue, there would be riots in the streets, cephalopods would fall from the sky.  "Really, seriously," said Paulson at the time, "this is absolutely the only thing we can do and there'sno time for discussion."  Now he issaying "actually, we have a better idea."  In response to this urgency, we remember (it was all so long ago) Congress provide $350 billion,with a fast track procedure by which Paulson can ask for $350 billionmore.  Now Paulson has told us thatthe entire plan to buy distressed assets is scrapped. 

Then there's the the AIG loan, a single company bailout that is a third the size of the entire TARP funding to date.  Originally, AIG received an $85 billion 2-year bridge loan, of which $61 billion has been drawn.  The rate on the loan was Libor + 8.5%-- currently around 10.6% -- plus fees. In addition, AIG has drawn approximately $20 billion from a securitieslending facility created by the Fed of New York called the Commercial Paper Funding Facility.  Timothy Geithner, the president and CEO of the New York Federal Reserve, is on Obama's short list for a potential Treasury Secretary (I support him rather than his one-time mentor Lawrence Summers.) The new plan, in addition to a new infusion of $40 billion, involves renegotiating the loan to a 5 year term at lower interest.  Good for AIG, not so good for the taxpayers.

The revised AIG loan also involves creating two new facilities by the New York Fed. One is designed to purchase asset-based securities, using $1 billion supplied by AIG and $22.5 billion supplied by the New York Fed.  With that program in place, as AIG executives put it in a conference call, "AIG's remaining exposure to losses from its U.S. securities lending program will be limited to declines in market value prior to the closing of this entity and our $1 billion of funding."  In other words: no worries, the taxpayers will eat the losses.  The second new facility will provide $30 billion to purchase up to $70 billion in credit default swaps at discounted prices, to accompany $5 billion in subordinated funding to come from AIG.  (I have discussed thebackground issues involved in earlier posts.)  The way these programs are written, they can extend beyond AIG in the future, or at least provide a model.

Critics of the revised AIG plan were outraged, and with good reason.  But what we learned fromWednesday's announcements was that the renegotiation of AIG's loan was part of a larger reconsideration of economic strategery. Paulson said that the administration will not, after all, use any of the $700 billion that was provided under the TARP program to purchase asset-based securities:  instead, the Treasury will continue to use $250 billion of the program to purchase stock in banks and is looking tomake $50 billion of the TARP funds to help lenders who issue credit cards,student loans and car loans. Paulson said that the consumer credit market urgently needs support.  "This market, which is vital for lending and growth, has for all practical purposesground to a halt." Of the $2.6 trillion in consumer credit outstanding in September, finance companies were the third largest holders with $600 billionafter banks ($845bn) and ABS ($678b). Paulson explained that the administration has decided that using billions of dollars to buy troubled assets is not, after all, "not the most effective way" to use the $700 billion bailout package.

The manner in which this extraordinary announcement was made was striking.  I have to assume that members of Congress are going to be absolutely enraged when they come back for their lame duck session.  Andthe bait-and-switch aspects of the deal are not restricted to the original hardsell.  Among the objections to the TARP plan from the outset was the argument that it was funneling money to thevery entities that had created the problems.  That objection is only made stronger by the declaration that buying assets is not, after all, as important as funneling money to banks.  In the face of a certain political firestorm, did Paulson first present this to congressional leaders and secure their support, or attempt to secure support from the incoming Obama team?  Don't be ridiculous.  No more than he was initially willing to identify the nine banks receiving $125 billion in public money, and no morethan Neel Kashkari - the "bailout czar" and yet another Goldman, Sachs alumnus- was willing to entertain questions after a speech on Monday.  The absolute arrogance of the Bush Executive has not diminished a whit, nor has its fondness for secrecy nor itscomplete contempt for Congress.

Wait, there's more of the more of the same:  the Bush administration is vying to go beyond the "worst administration in history" to become "the worst administration of which the human imagination can conceive.."  Paulson also praised a new set of guidelines issued Wednesday by the Federal Reserve and other bank regulators.  These guidelines "urgeinstitutions to continue lending to credit worthy borrowers and to work with mortgage borrowers to avoid defaults," and "encourage the banks to set dividend payments for shareholders and compensation for executives with the current crisis in mind.  The Fed, FDIC, and Office of Thrift Supervision all announced that all financial institutions are expected to follow the new guidelines, even those not receiving federal assistance.  Note the verbs here.  "Urge," "encourage,""expected"; it's the same old completely discredited game of voluntary compliance.  We are still not learning from the British example that the way to get banks to lend money is to provide them with funds on the condition that they lend them.  We -- our President and his administration -- are still parroting the tired old "magic of the markets" line even after Alan Greenspan's mea culpa (he was shocked, shocked, to learn that people will not voluntarily forego profit in order to preserve the integrity of the system.)

Keep in mind that the TARP program is not by any means the only game in town.  All told, the government has allocated more than $2 trillion so far, including more than $1.4 trillion in loans to banks in the form of purchases of collateral, most of itsubsequent to September 14th rules changes that lowered collateral requirements for lending; the monthly limit on these loans was increased to $300 billion in October.  $29 billion went into aspecial lending facility to save Bear Stearns so that JP Morgan could take themover.  $11.4 billion has been drawndown so far from the FDIC's deposit insurance fund after 19 bank failures in 2008.  $3.9 billion went to states and municipalities in assistance to buy up and rehabilitate foreclosed properties, and there have already been $9 billion so far in government purchases of student loans from private lenders. A whole series of programs directed at money market funds, more than $1.1 trillion just since September14th when the rules governing collateral for such loans were relaxed. These loans have been made under 11 different programs, 8 of which have been createdin the past 15 months. 

In other words, it is rapidly becoming an alphabet soupout there, an environment that invites entrepreneurial lobbying and gaming the system. Some of the particular programs are almost laughable.  Consider the $300 billion thatwas allocated in July for the Federal Housing Finance Agency, which is authorized to buy back and renegotiate an estimated 400,000 mortgages.  That program started October 1st; unfortunately, lenders are not interested because they are required to absorb losses up front and participation in the program -- you guessed it -- is entirely voluntary; effectively, it's up to the homeowner to persuade her lender to participate.   In the first two weeks of its operation the Hope for Homeowners program got a total of 42 applications. 

There are some hopeful counterexamples.  This past week the FDIC -- in apparent defiance of the administration -- has announced a plan to set aside $24 billion to help 1.5 million households avoid foreclosure, and a number of major lenders are engaged in renegotiating large numbers of mortgages on their own initiatives.  Then there is the Commercial Paper Funding Facility that was mentioned earlier in connection with AIG.  Under that program, which went into operation at the end of October, the Federal Reserve Bank of New York agree to buy outstanding unsecured and asset-backed 3-month loans.  The model involves government seed money used to attract private investment in bonds.  The proceeds go to a newly created purchasing entity, which will hold the commercial paper until maturity and will use the proceeds from maturing commercial paper and other assets to repay its loan from the New York Fed.  What is extraordinary about the CPFF is that it actually seems to make sense.

The effects of all this for the credit markets have thus far been modest.  At the meeting with foreign leaders on November 15th Bush declared that there were signs of progress,that credit is no longer "frozen" and that it will take time to get money to the banks, which in the administration's view is the really important thing.  Has credit become more liquid?  The Libor/Treasury spread, which was up to 480 in October, is now "down" to a little over 200; prior to Sept. the all-time record was 250 and the 10-year average was 22.  The total amount of "Asset Backed Credit Products"  - i.e. total pool of all credit for car loans, student loans, floorplan loans, fleet loans, mortgages- is down 51% ($748b) since June 2007. An awful lot of banks that have received money are just sitting on it,or using it to pursue mergers and acquisitions; at the end of the day one ofthe consequences of Paulson's plan may simply be that the biggest banks get even bigger and small ones disappear. So much for small business.

And now it's the automakers' turn.  Democrats in Congress are talking about making an additional $25 billion available to the Big Three on top of  $25 billion the auto industry hasalready received this year to help speed the development of fuel-efficien tvehicles.  At the moment the plan seems to lack the necessary votes, but some version is likely to be forthcoming.  (All of this, incidentally, follows an earlier discussion of using government money to fund a GM-Chrysler merger that was said to be essential to GM's survival but has since been called off.  They changed their minds, too.)  

But even that may not be enough.  GM announced last week that it will "approach the minimum amount necessary to operate its business" by the endof this year, and are asking for $50 billion from Congress GM says they need $25 billion to pay for retirements, and an additional $25 billion to pursuefuel efficiency.  Readers may be forgiven for lacking faith in GM's commitment to this laudable goal, particularly if they happened to catch the following exchange in a recent Frontline episode entitled "Heat." The interviewee was Beth Lowery, General Motors' vice president for environment, energy and safety policy, was particularly interesting.  In response to the question "Why did Toyota beat you to the Prius?" here was Lowery's answer: 

"Actually, Toyota and General Motorsworked together on a number of technologies over time. Toyota looked at the hybrids and the Prius from an overall standpoint, knew there would be the lossof money for some time on the cost of that, but looked at it from an overall marketing and image standpoint, and General Motors really looked at it from abusiness [perspective]: Can this vehicle make money?" 

Lowery goes on to extol GM's success in -- I am not making this up -- selling a million vehicles in China; the best-selling line is Buick.  She also explains that CAFÉ standards are not effective mechanisms for reducing dependency on oil imports.  The executives of the American auto manufacturer have doubled down on trucks and SUVs over and overagain, effectively ceding the market in well-made, efficient passenger cars to Asian and European manufacturers. Ford's new models are said to be a vast improvement, but at this point American companies have spent 20 years building a reputation for shoddy workmanship, poor design, and terrible service; it will take a long time before American consumers will trust them. GM's response?  Build cars for the Chinese.  To really add insult to injury, just this weak GM's board issued a statement that it has no reason to lack confidence in the company's management team.

In other words, any bailout of the auto industry looks like a temporary measure to delay the inevitable consequences of mind boggling stupidity, greed, crony capitalism, and willful ignorance on the part of American auto executives. In fact, it is difficult to think of any group less deserving of huge transfers of public money, or less likely to use that money in the ways that will do the most good for the public weal . . . except for the financial industry.

I described the Bush administration as exhibiting intellectual and political bankruptcy. After banktruptcy, in the best case scenario, comes reorganization.  That would be the Obama administration.  So we are allwaiting for this long national descent into policy nightmare to be over.  But by the time Obama takes office, the Bush administration will have transferred a staggering amount of money, measured in trillions of dollars, to private banks.  That money will no longer be available for the kind of employment-based stimulus package that we desperately need, nor for targeted and potential more effective mechanisms to increase liquidity in the credit markets such as an expanded version of the CPFF, nor to secure access to education.  And still, after all this time, the Bush administration is seeking to jam this enormous program down the throats of Congress and the American people without consultation ,oversight, or transparency.  Will Congress just stand there and watch this happen?  Again?

This was supposed to be just a discussion of the financial crisis – the second part of a two-part post – but the day after the election there are a couple of things that need to be observed. First, it was not a realigning, overwhelming Democratic victory. Gains in the House and Senate were considerably smaller than expected –17 and 5 seats respectively, as of this writing (with a couple yet to be determined). Second, if Obama’s election was a victory against racism, the election did not herald a similar turn against homophobia: California, Arizona,and Florida all passed referendum measures banning same-sex marriage, and Arkansas passed a measure prohibiting same-sex couples from adopting children (apparently the children are better off being left in foster care, another brutal example of a willingness to make children suffer in order to avoid the danger of actually expressing approval of a same-sex couple’s household.) Coleman holds a narrow lead in Minnesota and – almost incredibly – it appears that Stevens was re-elected in Alaska. In other words, while the election may have been a repudiation of the laissez-faire, free market, trickle-down element of conservatism, it said nothing of the kind about other in the American Right (interestingly, though, two proposed abortion bans were defeated).

But the election of Obama did give him a clear mandate to use the powers of the Executive as well as his leadership in Congress to intervene in the economy. So here are the four things the Obama administration needs to focus on right away.

First, the bailout program has to be adjusted to make it address the actual problem, which is the absence of short-term credit caused by the decline in inter-bank lending and the unavailability of commercial paper. The easiest way to do this is to follow the British lead: supply money to banks only for the purpose of lending. Any program that simply puts money into banks coffers is at best indirectly related to theproblem at hand; it’s that same market mentality that says that if you tweak the incentives or the psychological conditions, “the market” will solve problems as if by magic. In this case, the claim is that if you give banks enough money they will stop feeling insecure and resume lending. The problem, of course, is that banks are not governed by feelings, they are governed by calculations of interest (that's a pun, get it?), and as long as it appears to be more profitable to simply sit on the money until some point in the future, that’s what will happento it.

Second, with respect to mortgages we have to keep people in their houses. To do that we have to have ways to renegotiate their mortgages. During the campaign, Obama proposed using federal powers to clamp down on fraudulent lending practices (including the creation of a federal crime of mortgage fraud), establishing a “Credit Card Bill of Rights” to help prevent people from being driven into bankruptcy in the first place, and reform of the bankruptcy system to allow judges or estate trustees to renegotiate mortgages and the creation of an exemption for bankruptcies caused by medical expenses. Those are all good ideas, but there has to be a program to renegotiate predatory mortgages before bankruptcy occurs. The problem is to makesure that such a program is only used in appropriate cases of need to keep people in their houses, not gamed to increase the value of investment properties. Conversely, there is a problem of fairness if people who entered into mortgages they can not pay –whether through stupidity (defined here as “listening to Alan Greenspan”) or as a result of predatory lending – are rescued on terms more favorable than those available to the people who acted prudently and carefully in the first place.

The fairness problem is political, not economic. Historically, the way to get a large-scale social welfare benefit of this kind through is to make it extend to everyone: think Social Security or Medicare. It may be that as a combination of politics and economics the only alternative is to give every mortgage holder a one-time shot at a 30-year fixed rate set at a reasonable but not unduly favorable interest rate: say 7.5 or 8.0%. Such a rate is high enough that banks that were careful lenders are not being punished for the misdeeds of others. It is also high enough that people whose mortgages are already below that rate – the people who got good mortgages from prudent lenders – will have no incentive to take advantage of the program. True, some people in the middle who arenot truly in need will benefit, and some people will be unable to make the payments even on those terms and have to face foreclosure. But it is very difficult to conceive of another solution that does not end up rewarding the people who caused theproblems in the first place while punishing people who “played by the rules.”

The third thing is jobs. This one is a no-brainer. The economy has already hundreds of thousands of jobs, and it’s not over yet. Now, we are not going to let those folks who have lost their jobs go hungry. So we have a choice. We can give them public housing, and food stamps, and Medicaid, or we can give them real, meaningful work. The obvious answer: make the government the employer of last resort, and put people to work making infrastructure repairs. We desperately need a national program of public works projects to fix, clean up, and maintain our public facilities and spaces, roads and bridges, the electricity grid, and a wide range of other publicly owned facilities. Combine it with training programs, including adult education programs: put some of our unemployed workers to teach others. This is a long-term investment in human capital as well as infrastructure.

Fourth is education. We have already seen that along withcar dealerships, among the first casualties of the credit squeeze are student loans. Lenders are cutting back or canceling those programs. Senator McCain proposed an across the board spending freeze; the effects of that would have been catastrophic for higher education in this country. I actually thought this was the single most reckless and destructive position in McCain’s campaign, and the best reason to vote for Obama.

The State of California has announced a $7 billion shortfall, the State of Wisconsin is short $3 billion, and that pattern is being repeated across the country. A number of states have already started cutting back on public expenditures, and the system of public higher education is right in the cross-hairs. Without help from the federal government, that is going to mean more cutbacks in student loans, higher tuition at public colleges, fewer scholarships. And that’s not all. Pretty soon colleges – small private colleges and public colleges, community colleges and technical training institutes – are going to start to fail, because those schools depend on the ability of their students to get student loans and scholarships. Secondary and primary schools will alsobe starved for funds as districts’ ability to get bond issues underwritten is weakened just at the time that property tax revenues are in a sharp decline.

The consequences of the contraction in our educationalsystem could be terrible. Making post-secondary education available to more young Americans has been one of the signature achievements of the post-World War II era, and it was accomplished with public investment in the G.I. Bill, the expansion of the public college system, and student loans. If it is sensible to use government resources to keep people in their homes, it is just as sensible – and in the long run, just as important – to keep young adults in their schools and their schools open for business.

There are an awful lot of other things I would like to see the new administration undertake, but these four responses to the crisis that has spread out from the financial sector will do for a start.

The financial crisis, in six easy pieces:

1. Good Intentions.

During the second Clinton term there was considerable political pressure to loosen the spigot of home lending, driven in part by a series of Justice Department investigations that revealed widespread racial bias and “redlining” in the existing system. Part of that pressure resulted in relaxations of lending and guarantee guidelines for Fannie Mae and Freddie Mac. When the Bush administration took office, the pressure continued. The Clintonies had pushed home ownership as a measure of equality; the Bushies pushed the same goal as part of their ideal of an“ownership society,” based on the (correct) sociological observation that people who feel an ownership stake in a neighborhood make better local citizens and that ownership leads to empowerment. The result was that during the Bush administration whenever critics complained about a long-term trend of stagnating wages for the middle and working classes, Bush could respond by pointing to the highest levels of home ownership in our history. The downside, of course, was that some of those loans were “sub-prime”; approximately $1.7 trillion out of a total $40 trillion in outstanding mortgages. And some of that lending was predatory, producing mortgages with impossible terms. This was around the time Alan Greenspan famously declared "fixed-rate mortgages are a sucker's bet." Mr. Greenspan will spend time in Hell for that statement.

2. Investments Safe as Houses.

It didn’t take long for investment banks to get into the picture. They started creating bundles of mortgages and then selling shares in those bundles. So you would put 5,000 mortgages together and then sell shares in the resulting “trust.” The shares you sold were called “asset backed securities.” Now, technically SEC regulations enacted in 2003-2004 (called “A” and “B” – seriously) required full disclosure of the underlying valuation data for each mortgage contained in the trust, and that data had to be available to purchasers, sellers and ratings agencies evaluating the ABS’s. But! It takes a really, really long time to go through 5,000 or 10,000 or a million mortgage valuation files, and moving slowly means that competitors got there first. So everyone involved relied on historical trends to project failure rates and went merrily on their way. The problem, of course, was that historical trends are meaningless in an historically unprecedented situation. That’s pretty much what we mean by “historically unprecedented.”

3. The Smartest Guys in the Room.

Selling ABS’s was only the beginning. The real fun began when the hedge funds moved in and started buying and selling derivatives. “Derivatives” is a word that makes eyes glaze over, but in this case the particular form of investment we care about is simple. Investment banks started selling insurance policies that said to banks and holders of ABS’s “pay us a monthly fee, and if your investment tanks we’ll cover your losses.” These insurance policies are called “Credit Default Swaps.” Here’s where the deregulation comes in. A law passed in December 2000, sponsored and energetically promoted by Phil Gramm (R-Tex, McCain’s senior economic advisor up until the late summer) specifically exempted CDS’s from SEC regulation. And a brisk market developed in buying and selling CDS’s, and in what might be called “reinsurance” – the issuer of a CDS to cover someone’s losses would get a CDS of their own to cover their losses in case they had to pay out. And in this market there was absolutely no information at all as to the underlying value of the papers being traded.

Now, $1.7 trillion in questionable mortgages was a lot . . . but the market in related derivates came to close to $70 trilion, of which $40 trillion comprised CDS’s alone. But no reason to worry! With all this risk-spreading there was no way to fail; everyone had everyone else covered. (What could possibly go wrong?)

4. The Wheels Fall Off.

When unprecedented numbers of mortgages started to go bad, issuers of CDS's started having to pay out unsustainable amounts on those policies. At which point everyone, all over the world, suddenly realized that the risk-proof system of everyone insuring everyone else’s investments was also a risk magnifying device; when large numbers of mortgages failed they produced ripple effects as the values of the paper being held by everyone along the chain fell all at once. The bad mortgages were the rocks in the pond; the ripples flowed out through the derivatives markets. And once those failures started happening, the value of all the other ABS’s and CDS’s fell just because people suddenly realized that their actual values were impossible to determine and were therefore no longer willing to buy them.

All of that would have been a sad story, but no one would have shed a lot of tears about losses to hedge funds and investment houses. Except that when everyone suddenly decided that $70 trillion of assets had no determinable value, something else happened: banks stopped being willing to lend each other money. The measure of banks’ willingness to lend one another money is the spread between the interest rates they charge one another and what they could get by parking their money in a Treasury bond. To personalize, again: if I have money, I can park it risk free in a T-bill. If you want me to take the risk of lending it to you, you have to pay me interest to justify the risk. The less I trust you to be able to pay me back, the greater will be the spread between that interest rate and what I could get risk free.

The rate banks charge each other is called the London Interbank Operating Rate (“Libor”). Historically, the highest Libor-Treasury spread ever recorded was around 250 points, or 2.5%. At the height of the crisis, the week before last, that number had gone into the 400s. Even more ominous, the amount of interest banks were willing to take in order to buy T-bills fell lower and lower . . . until for one brief moment banks were buying 3-month T-bills that paid negative interest rates; they were willing to lose money in order to be assured they would not lose all of it. Today the Libor-Treasure spread is still above 300 and the interest rate on T-bills is still way under 1%. Banks, in other words, remain scared. Which matters because of something called “commercial paper.”

5. The Big Freeze

“Commercial paper” refers to short-borrowing. This is the form of credit that American businesses rely on. It goes like this: at the end of a business day, my car dealership may not have taken in as much money as I expected. It’s not a big deal – we may make more than expected next week – but I have to pay for new inventory, rent, salaries, etc. right now. So I call up an investment bank – call it “Lehman Brothers”– that specializes in short-term lending, and I say “send me $1 million, and I’ll pay you $1 million plus $1,000 tomorrow.” The interest rate isn’t really interest so much as what gamblers call viggorish, paying the house a taste for the use of their cash to cover a debt.

When banks stopped lending each other money, that short-term credit for businesses dried up. Which was bad. Banks that has issued a lot of those short-term loans couldn’t borrow money to cover their own margin calls and costs at the same time that the flow of money coming in stopped because the loans going out stopped. Which was a problem, since these banks had laid off a lot of debt – just like reinsurance description of the CDS market. In other words, Lehman Brothers borrowed from other banks to get the money to loan to businesses. One day those banks said “we are not going to lend you any more, and pay us back everything outstanding.” And Lehman Brothers collapsed. Suddenly no one was writing commercial paper – issuing short term loans to businesses – and credit-intensive businesses have begun to shut down. More than 700 car dealerships have closed in the U.S. already. Meanwhile, potential consequences of a credit freeze are so catastrophic as to be almost unimaginable. This was the point at which Paulson came to Congress and people started talking about depressions.

6. Global Meltdown, Forced Selling, and the Long Cold Winter of 2008-2009

There is still more to the story. Around the world, banks and investment houses holding derivatives saw those holdings abruptly lose value. Which was bad, but was made even worse by the fact that these banks and firms were holding unprecedently high amounts of debt relative to their assets. Which had seemed fine as long as they could keep creating more profit by passing derivatives back and forth, but was suddenly a huge problem. Credit flows froze up all over the world, and banks and investmentfirms began to “deleverage” – get rid of their debts by paying them off. Deleverageing requires selling assets, starting with stocks. As financial institutions sell assets, the prices of those assets are pushed down, requiring further sales of assets and making everyone’s balance sheet look worse . . .which requires more selling. That “forced selling” is responsible for the fact that stock markets all over the world have crashed in the past week. Recent bounces back upward (as buyers seek bargains) suggest that the process may be reaching its end, but don't count on it.

Various governments have stepped in to attempt various fixes. In the U.S., we have thus far focused on giving money to banks, having authorized $850 billion (of which $150 billion was pork spending needed to secure passage of the bill) for the purpose. The U.S. government has also started intervening in mortgages directly. Basically, our hope has been that banks will feel less insecure, and resume lending to one another. Unfortunately, so far the banks have primarily been simply stashing the money and sitting on it. (This is what can happen when you rely on indirect market-based incentives.) In fact, throughout the system, one of the remarkable things is that at the same time that credit is unavailable, banks and businesses are sitting on absolutely enormous pools of cash. They just don't see that this is the time to lend or invest that money. The British government, by contrast, is providing money to banks but only to be used for extending credit. Some countries are guaranteeing interbank loans, others are guaranteeing all bank deposits, and so on.

Regardless,the massive losses of value from the falling stock markets, the slowdown of credit, and the huge contraction of the financial sector point to somethingthat looks a whole lot like a global recession. It’s going to be a long, cold winter.

Between the Jewish establishment's imposition of silence and the loosely coupled throng of Jew-hater's who zealously proclaim conspiracy, the discourse over Jews and money is pure zealotry on either side.  The result is a vacuum of alternative perspectives and the absence of any shred of an enlightened public discussion, which only provides fertile soil for a perpetual harvest of rhetorical hate.

That's why Jewcy feels it's critical to highlight voices like Brackman and Jaffe, as we are doing all week, and it's also  why we're very happy that Time magazine just published an article highlighting two Jewish scholars that are publicly filling the vacuum by putting forth an alternative discourse -- one that cites Jewish law as a basis for criticizing the behavior that led to the current financial crisis. The scholars are Yeshiva University economics professor Aaron Levine and Rabbi Eliezer Diamond, a professor of Talmud and Rabbinics at New York's Jewish Theological Seminary. 

The article draws on Jewish scripture (the Torah, the Talmud, and the Mishna) as well as various rabbinical opinions to extrapolate ancient principles relevant to our current economic times:

•Bamboozling the "Blind"
Much Jewish ethical thought flows out of Leviticus 19:14, which reads "Thou shalt not curse the deaf, nor put a stumbling-block before the blind." From an early date, rabbis expanded this into a general prohibition on bad advice. In time, it became part of the language specifically regarding loans, mostly regarding the need for witnesses. But Diamond says it now applies to the whole loan debacle and "any expert who tells someone who probably shouldn't take out a mortgage 'you'll be able to do it, no problem.'" There are a lot of financially "blind" people out there, and a lot of people mis-advised them.

•Hidden Flaws and the "Reasonable Man"
Medieval jurists like Maimonides identified a more specific kind of bad advice. They tackled the idea of the "hidden flaw," which, Levine points out, leads directly to a demand for fiscal disclosure. "If you sell an animal, you had to disclose to the buyer what the hidden flaw is," he explains. Not only that: "the disclosure has to be made so that a 'reasonable,' or average man can decide" whether to buy. Once again, almost the entire chain of transactors in the mortgage crisis is guilty: predatory brokers for not alerting working-class borrowers to the fine print; middle-men selling mortgage debt to investment banks sliced and diced into "tranches" that obscure their riskiness; bankers who used hard-to-fathom financial instruments that leave ultimate responsibility for a loan a mystery even to experts. Like many observers, Levine is particularly exercized about credit default swaps, a largely unregulated field since 2000.) And anyone who willfully ignored the fact that real estate prices must eventually come down.

•The Bath House Rule
An extension of the disclosure concern, Diamond reports, was explored by Jews through the unexpected vehicle of marriage law. The tractate Ketubot in the Mishna dictates that a betrothal is valid only if the bride-to-be has no hidden blemishes that would have disqualified the match, had they been public. However, there is a heavy responsibility on the groom: if he has relatives who could have observed the disfigurement by checking out his fiance in the womens' bath but neglected to do have them do so, he can't complain. This suggests (feminist complaints notwithstanding) that culpability in sub-prime crisis does not lie solely on the mortgage broker who glided over the fact that payments ballooned in the third year; but also on the buyer who happily neglected to read the fine print: : "Ignorance of the facts is no defense," Diamond says.

•Morals of the Mark-Up
Leviticus 25 of the Bible explains that you cannot charge the same price for land that is about to become useless (in this case, by reverting to its original tribal ownership) as for a parcel that still has decades of use left. Rabbinic tradition, says Diamond, interpreted that as a check on price-gouging and ruled that nobody should charge more than one-sixth above market value for anything.

[Time Magazine]

You need this book: or you might come down with something...Brian Frazer has used his week of Jewcy blogging to expel some common and very current political frustration.  He began with a peek at his book, telling an introspective yet entertaining tale about his brother's wedding.  Then he turned to politics, putting wrinkles on the faces of Biden's botox obsessors, reacted to the second presidential debate, begged the forgiveness of those he has insulted, and devised a painfully amusing plan for preventing another economic meltdown.  Want more of Frazer's frenzy?  Buy his book!

Does your blood pressure surge if the car in front of you turns without signaling? Do your neck veins pulsate when a cashier takes too long to ring you up? Does relaxing seem like it'll have to wait until you're dead? Then your name could very well be Brian Frazer.  On paper, Frazer is the world's healthiest guy. He eats right, exercises regularly, gets plenty of sleep, has never smoked and has missed only one day of flossing in the last five years. But inside he's a swirling vortex of angst, capable of contracting a new malady every month. Once Frazer realized that all his ills were tied to stress, he went on a quixotic quest for calm, venturing into everything from Tai Chi, serotonin blockers and Kabbalah to an unfortunate incident involving pineapple-chicken curry at a Craniosacral therapy session. Never has the road to wellville taken so many unforeseen turns.  Achingly funny, uncomfortably true and always entertaining, Hyperchondriac is just the medicine for anyone who wants to take it down a notch.
A- Entertainment Weekly