Tim Rutten’s appallingly ignorant editorial in today’s LA Times is the reason no one should rely upon a single mainstream source for their information. Rutten’s contention that the 401k plan is a failed experiment that was always intended to diminish workers’ retirements is the kind of sublime fiction that plays best with perpetual victims and incurable romantics.

Let’s debunk some of his fiction with facts:

An evolving workforce

Here’s the problem: In 1978, when Congress amended the Internal Revenue Code to include Section 401(k), it envisioned the provision mainly as a way for workers to supplement their companies’ traditional defined-benefit pension plans and Social Security. (Secondarily, it also was a nifty hideaway where highly paid executives could shelter income from taxes.)

Well, yes and no. In 1978, Congress understood that the personal savings rate was inadequate, that many baby boomers would not have the funds to retire if they relied upon their corporate pensions and Social Security alone, and IRAs were not getting much traction with the middle class and entry level groups.

Anyone who had their hands on Defined Benefit plans back in 1978 knew exactly what the problem was: Benefits were based on a set of assumptions made by actuaries about what the world would look like in 30 or 40 years, they were offset in one form or another by projected Social Security benefits, and were etched in stone. I can remember feeling incredibly foolish about preparing statements for employees trumpeting the $78.00 per month retirement benefit they were entitled to in 20 years.

Traditional pension plans (what I’ll refer to as DB plans for the rest of this post) were based upon the theory that the employer had an duty and obligation to reward long-term employees with a lifetime income when they retired.

But in 1978, the workforce was less stable. The days of going to work for a company and staying until one retired were in the past. Looking back at the difference between my grandmother and my mother’s careers (both for the same company in its various forms – Bell Telephone, Pacific Telephone, Pacific Bell, AT&T), it was clear that there was no longer any expectation on the part of employer or employee of long-term or career-long employment. Job-hopping was expected if anyone actually wanted advancement.

As to Rutten’s assertion that they were also a sweet tax shelter for the highly-paid, I can only say this: They were a sweeter tax shelter for the worker.

The Reagan Years, or the Big Pension Money Grab

Rutten goes on to contend that employers were looking for ways to get out of funding their pension and health plans, and turned to 401k plans as the answer. Again, he misses an entire chapter of Reaganomic revenue neutral pension-killing history in his analysis.

There is a dirty chapter in the history of pensions. When Reagan took office, interest rates were at an all-time high. Rates as high as 21% on short-term certificates of deposit were the norm.

Pension trustees have a duty to invest pension funds as a prudent man familiar with such matters would invest, and you can bet that a prudent man would see an investment in a 21% short-term Certificate of Deposit as a prudent one, particularly when the funds are insured. Right? Investments were made, only sometimes at Savings and Loans rather than banks (remember that the S&Ls were NOT insured..that will play into the scene), and big returns paid on investments.

Actuaries are paid to set assumptions for the long-term. As a consequence, they did not view the high interest rates as reason for an assumptions adjustment, understanding that they were aberrant and would work themselves out in time.

Under Reagan, the IRS was instructed to audit as many pension plans as possible, particularly the plans of small to medium-size employers, and challenge their interest rate assumptions in an effort to disqualify their deductible contribution and pull more revenue into the Treasury.

The audit program was a magnificent failure, but it set the stage for Congress to pass a law legislating a mandate for actuaries to set pension liabilities in lockstep with the movement of interest rates up or down.

In turn, that set the stage for a monumental pension plan meltdown. What happened next set the ball in motion for the rise of 401k plans and the death of the traditional pension.

Congress passed OBRA ‘87, which limited the tax deduction allowed for pension plans to an amount calculated using an inflated interest rate. As a consequence, many plans appeared to be overfunded, which made balance sheets look great, but increased tax obligations for nearly everyone, most particularly small to medium-sized businesses.

To sum it up, Congress took the actions of an aggressive and wrong Internal Revenue Service and made laws that pushed pensions from the long-term outlook to the here-and-now for employers, while leaving employees with a theoretical retirement income and nothing real to show for their work.

For the next 20 years, pension legislation became the tax-revenue football, tossed from one side of the field to the next with no long-term idea of what a reasonable outcome should be, and certainly no sense of social responsibility for the worker.

When Rutten makes the claim that there was some conspiracy of opposing ideologies merging to form the 401k’s emergence, he’s got it backwards. The conspiracy of ideology killed traditional pensions, leaving employers with balance sheets that ballooned or shrunk depending on the whims of short term interest rates set by the Fed.

Simplicity and Portability: The New Standards

Here is a simple fact: For traditional pension plans to work, there must be a commitment to a long-term program that remains stable and impervious to the whims of markets and men.

We don’t live in a world or a legislative environment that invites such a commitment. This is the world where the 401k became king.

In Rutten’s world, companies “seized the opportunity to abandon their defined-benefit pension plans”. In actuality, the laws were so complex and the cost to maintain them so prohibitive, with so little return for the investment that employers and employees looked to 401k plans as a middle-of-the-road compromise.

In the eyes of an employee, a traditional pension plan looked like a dinosaur when compared with a 401k plan. The employee controlled the savings rate, the investments, and had access to daily reports if they wanted them.

You’d be surprised how many do want them. Employees are not the idiots Rutten describes here:

Today, more than 60% of all U.S. workers rely on 401(k)s as their primary retirement fund. They’re not eager to “choose” their own retirement program, nor are they enthusiastic “owners” of American business. They’re draftees. Essentially, millions of us have been conscripted into the equities markets, where we have helped fuel stock prices and provided a bonanza for the financial services companies that manage and sell investment funds.

Oh, no. The employees are not the victims, not by a long shot. I should probably remind Rutten that if 401k plans had not risen as they had, those same investment managers and insurance companies would have made just as much, if not more money and had more control of expanded and bloated contributions to traditional pensions if they had continued on through the last 15 years or so. If you think the unemployment numbers are bad now, try doubling them when employers have to balance pension obligations against workforce.

The issue isn’t whether dollars would go into the system; the issue is how and by whom those dollars would be contributed.

IBM tried to mitigate the problem by putting a cash balance approach in place. That approach set a defined benefit for all workers in place and offset the cost of the benefit with the 401k balance. It was an idea ahead of its time, because it allowed for the market variance to increase an employee’s pension while still keeping the baseline guarantee in place.

Ultimately IBM was sued for their attempt to ‘rob employees of their pensions’ and was forced to reinstate their traditional program just long enough to meet their obligations before it was terminated. The 2006 Pension Protection Act resurrected the cash balance plan as a viable way to balance guaranteed benefits against equity growth options, but it may still be an endangered species.

Reality bites. Reality is that pensions in this country are not provided by a few large corporations. Small business fuels a much larger sector of our working population, and small business cannot possibly assume the incredibly complex and often expensive obligations that come with the traditional pension model.

On the employee side, there was a clamor rising. Employees were barred from deductible IRA contributions if they were covered by an employer pension plan, but the benefits they were earning were inadequate to provide a decent retirement, even when combined with Social Security. There was a rising clamor among employees, demanding that they have the right to save for retirement through their employer, that they receive tax-favored treatment for those savings, and because it was “their money”, they wanted control.

Further, they wanted to take it with them to the next employer and the next, rather than risk losing part of their retirement if a former employer went out of business.

Employees weren’t asked because employees were asking. In the 90’s, particularly the mid to late 90’s, the ones asking for the 401k plan were the employees, not the other way around. Most employers were neutral about it, but employees were absolute: They wanted control, they wanted choice, they wanted the opportunity to manage their own retirement plans. To be a competitive employer, a 401k was a must in the benefit package mix.

What happens when all the rules break? Or are broken?

Enter 2008, the year that everything everyone knew to be true was proven false. In investment policy land, there are a few basic rules. We all know them. If stocks drop, bonds are the fail-safe to hold steady. If interest rates rise, invest in mortgages for the return. If all else fails, keep your money in cash investments where you won’t make much but you won’t lose much either.

Every one of those rules broke in 2008. Every investment manager I know, including the one I live with, was left on a floor trying to sweep up the shards and put them back together in some sort of meaningful order. Bernard Madoff’s enormous scam aside, all of us have to accept that the collapse of the markets last year broke every single rule taken as gospel by the majority of those who manage investments, analyze markets, understand how investing and capital markets work.

You will hear theories for years and years. I believe we will eventually discover a deep well of greed and avarice on a global and mind-bending scale at the genesis of this crisis.

What you will not hear: the 401k experiment fueled the crisis or bankrupted our populace. It simply isn’t true. It’s Rutten being hysterical about his own losses, but the fact is that 401k plans remain viable, and are one of our best pathways out of the mess going forward (provided employees ignore hysterics like Rutten and think logically).

My 401k has lost about $10,000 since last year. That’s a significant hit for me, but it’s all on paper. I have continued to contribute and actually increased my savings rate right now, keeping my focus on the long-term and my retirement years 20 years down the road. I didn’t liquidate anything nor do I plan to. Not only that, but when I find another job, I can take my 401k balance with me.

So I haven’t lost a darn thing. Not one penny.

On the other hand, if Rutten had his way, we’d all liquidate and make those losses real in the name of a ‘failed experiment’. It’s laughable to hear him quote Robyn Credico’s sudden epiphany on the failure of 401k plans, given her recommendation just over a year ago that employees be allowed to invest 401k funds in annuities at a time where the insurance industry teetered on the brink of being the loss leaders of our modern time.

401k plans may be the way back. At the bottom of this crisis is a crisis of confidence. We have the choice to pick up our toys and go hide in a cave, or to boldly use the combined leverage of our 401k investments to fund a future where we can retire comfortably. It’s risky, but 401k participants have been taking the risk for the past 25 years or so, every time they allow part of their paycheck to be invested.

Before writing 401k plans off as a failed experiment, I’d suggest that Tim Rutten get in touch with his facts and the reality of our times. There will be no return to the days where benevolent employers gave us our gold watch and lifetime pension. On the other hand, we now have the clout and the ability to shape what our future will be. We are not at the mercy of financiers; we ARE the financiers. We need confidence and integrity returned to our regulatory system to complete the picture.

Change is coming.

The short answer is NO. But if you follow news about 401k plans, you might find some pretty scary headlines like this one or this one, where the writers contend that the Democrats want to take away the tax incentive out of 401k plans and force a mandatory pension savings of 5% on employees.

Let’s put this in perspective. Testimony was given to the House Education and Labor Committee by Professor Teresa Ghilarducci. And it was dramatic testimony, no doubt. She proposed to eliminate all tax incentives for 401k plans and shift to a universal government-sponsored program with mandatory minimum savings rates per worker of 5% with a government-subsidized match of $600/year for lower-income workers. (As an aside, this time of year is generally when House Committees hear testimony on pension and tax reform, so it’s not unusual to have such testimony given).

Drastic. And it will not happen in this way, in this form. I cannot stress this strongly enough. This is certainly one proposal presented in testimony, and I suspect it got the press play because it is also the most drastic testimony I have heard about. However, others have testified, proposing milder and far more necessary reforms.

401k plans are flawed. They have been flawed from the beginning, and some changes have reduced the flaws while other have highlighted them. The biggest fallacy of the 401k is the idea that it should be the single vehicle to fund our retirement. If you haven’t figured out why by now, here’s an example:

Jenny Worker enrolls in her company 401k Plan and socks away 3,000 per year. Her company contributes a $750 matching contribution. Jenny starts her 401k contributions at age 25 and has them invested in a moderate portfolio mix of stocks, bonds and cash. Her average rate of return over the past ten years has been 8%. On 12/31/2007 Jenny is now 35 and her 401K balance is $54,325.

Against her better judgment, Jenny checks her 401k statement on October 15, 2008 and discovers that her balance is now $35,200 based on a 35% or so loss on her investments. Jenny’s retirement fund, adjusted for inflation and future rates of return, will not meet her targets for retirement income or security, even if the markets recover most of their values over the next ten years.

This is the danger that everyone who works with 401K plans warns against. But even those of us who are professionals never, ever expected or anticipated a simultaneous crash of the bond AND stock markets at the same time, where money market funds even found themselves at risk. Certainly if we had plotted models based upon this kind of contingency when markets were moving at a growth rate of 10% or so per year, we would have been viewed as nutcases without legs to stand on.

And yet, here we are. The primary flaw in the 401k model is that it is clearly subject to the whims of the market, and there are never ANY guarantees in the markets, no matter how stable they may appear. Add employees’ lack of education about investing or the markets, and it paints a stunning picture where the one with everything to lose is the employee, while the employer bears no burden or obligation for those employees’ retirement security.

What reforms make sense?

1. Keep the tax incentives, but require some sort of minimum investment in Treasury Bonds with a guaranteed rate of return of 3%. Sell it as patriotic, even — a way to pull our country out of the crisis and debt to foreign countries. I’d rather have the US owe ME than have China own the US. To those of you who cringe at anything earning 3%, I challenge you to look at your 401K portfolio rate of return today if 25% of it were invested in guaranteed treasury bonds. Somehow that 3% looks a whole lot better than a 35% loss.
2. Require fee transparency and simplicity. It’s true. There are many hidden fees in 401k investments right now that eat into that rate of return. Those fees may be acceptable, but you as the participant should have the absolute right to know what they represent and who receives them.
3. Give incentives for entry-level employees to save One of the biggest issues Congress has with 401k plans is that it benefits mid-level and highly-paid employees quite well, while leaving the entry-level employees in the cold. Barack Obama’s plan has a tax incentive for any worker who saves through a 401k plan to encourage them to save from the beginning.

There is another factor that I haven’t addressed here, and that is the “guaranteed pension” that used to be the mainstay of every employee’s retirement. I am not addressing it here because I’m not sure how, in our current economy, that burden can be placed upon corporations with any expectation for economic growth. However, I do think that a blended approach, where participants in 401k plans are guaranteed a minimum retirement benefit by the employer which is funded by 401k and employer contributions, would be a good approach to the problem.

Don’t be fooled by the hysterical GOP headlines. It’s a play for votes, no more, no less. At the same time, I’d encourage everyone to stay engaged and aware of the proposals swirling around 401k plans and make sure any action Congress takes next year is responsible and actually benefits YOU.

Update: Actual summary of the hearing

Please watch this. Please pay close attention to the point, which is that the mistakes John McCain made in the Keating Five scandal are the very same mistakes he’s making today. Forget about the mudslinging he’s doing, forget about the nastiness, forget even about Sarah Palin for a minute. Watch this video and listen carefully to this: John McCain exercised poor judgment when he chose to override regulators in favor of Keating (and cost the taxpayers 3.4 billion dollars), and he’s doing it again now.

This is not mud. It’s truth. If John McCain still thinks deregulating markets is the answer, then he really is without a clue. And if he is finally coming around to the idea of regulatory restraints on the markets (which I doubt), it’s highly doubtful that he would support those restraints fully, given his aversion to deregulation and associations with anti-regulation cronies.

Remember this, when you hear the claim that McCain and Palin are straight-talking: Fraud is the creation of trust, and then its betrayal.

Bonus: 30 Lies McCain has told about Obama, debunked.

Interesting history of the pressures and difficulties of being Fannie Mae from the New York Times.

Shortly after he became chief executive, Mr. Mudd traveled to the California offices of Angelo R. Mozilo, the head of Countrywide Financial, then the nation’s largest mortgage lender. Fannie had a longstanding and lucrative relationship with Countrywide, which sold more loans to Fannie than anyone else.

But at that meeting, Mr. Mozilo, a butcher’s son who had almost single-handedly built Countrywide into a financial powerhouse, threatened to upend their partnership unless Fannie started buying Countrywide’s riskier loans.

Mr. Mozilo, who did not return telephone calls seeking comment, told Mr. Mudd that Countrywide had other options. For example, Wall Street had recently jumped into the market for risky mortgages. Firms like Bear Stearns, Lehman Brothers and Goldman Sachs had started bundling home loans and selling them to investors — bypassing Fannie and dealing with Countrywide directly.

“You’re becoming irrelevant,” Mr. Mozilo told Mr. Mudd, according to two people with knowledge of the meeting who requested anonymity because the talks were confidential. In the previous year, Fannie had already lost 56 percent of its loan-reselling business to Wall Street and other competitors.

“You need us more than we need you,” Mr. Mozilo said, “and if you don’t take these loans, you’ll find you can lose much more.”

Then Mr. Mozilo offered everyone a breath mint.

Read the whole thing, and then see whether you think it was Fannie Mae or the greedy managers of Wall Street who drove Fannie into the mud.

You defeated the compromise.

Now fix it. Come up with a solution to this problem other than watching most of us in the middle class lose everything we’ve worked for.

Go ahead, I’m waiting.

You have 72 hours, starting now.

Senator Dodd has done a pretty good job of fixing what was wrong with Paulson’s proposal. Here’s the PDF summary, and here’s the PDF text.

High points:

Transparency:

1. Establishment of an oversight board
2. Required transparency – specifically, that the program’s details be laid out with policies and procedures
3. Improved Reporting – Monthly reporting, and detailed financial statements describing specific transactions
4. GAO Audit
5. Warrants in exchange for companies selling bad assets
6. Requirements for rules surrounding potential conflicts of interest (by fund managers involved such as PIMCO)
7. Establishes parity between banks and money markets for FDIC insured deposits
8. Requires standards limiting executive compensation for bailed out companies

Homeowner Assistance

1. Court-Supervised Loan Modifications
2. FDIC Management of Mortgage Assets
3. Affordable Housing Funds
4. Expansion of HOPE to allow more people to qualify

This is definitely more encouraging. I haven’t read the actual text, though, so can’t say whether the key issue of no accountability, etc has been addressed.

After reading Francine Hardaway, Dave Winer and Steve Gillmor today, it occurs to me that we are not under any obligation to accept the Bush Administration’s claim that their way is the only way out, or hand off incredible power to the Secretary of the Treasury with absolutely no understanding of how that power is to be used or how it will cure the problem.

Further, many have pointed out that the proposed bailout plan does not put a cure on the underlying disease that brought us to this place — out of control credit and lending practices locked inside an invisible, or shadow, banking system. As many other smarter people than I have pointed out, there is no instant cure for our financial market mess; there are too many players, too many vines branching out, and too many unknowns. But let’s start with mortgages as a place to dig our feet in.

The mortgages that are rocking the financial industry are still secured by real estate. The homes are, for the most part, still worth something, and when the market rebounds (which it will, just like it has many times in the past), they will regain their value. At the moment, many of these foreclosed homes (and office buildings, and parking lots and whatever else…) are vacant and waiting for someone to buy them. So we have a bunch of unoccupied homes that are bank-owned and worth less than what was loaned by the bank to purchase them.

Then, thanks to the repeal of Glass-Steagall and subsequent removal of the firewall between investment companies and banks, we have these mortgages bundled into funds by the banks’ subsidiary broker-dealer (wholly owned by the bank holding company, of course), and sold to individual investors as “prudent investments”, intended to spread the risk among many. In theory, it’s great, because evidently no one foresaw the entire industry turning belly up at once and leave those investors holding the bag. As Morgan Stanley and Goldman Sachs become full-fledged bank holding companies tomorrow by decree of the Federal Reserve, the Glass-Steagall firewal evaporates forever.

What we have isn’t a meltdown of the traditional banking system. It’s a meltdown of the shadow banking system, the behind the mask, unnamed industry that relies on short-term credit to reap big profits which are plowed back into investments in commercial paper.

In 2007, the founder and CIO of PIMCO wrote the following:

Financial institutions fell for the ruse, and now we all suffer the consequences. Defaults are rising, the dollar’s sinking, and — good Lord! — even Google’s (Charts, Fortune 500) stock price is going down. Something must really be wrong.

It is. What we are witnessing is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August.

My Pimco colleague Paul McCulley has labeled it the “shadow banking system” because it has lain hidden for years, untouched by regulation, yet free to magically and mystically create and then package subprime loans into a host of three-letter conduits that only Wall Street wizards could explain.

And in March, there was this excellent description of the shadow banking system:

On Wall Street, of course, what you do not see can hurt you. In the past decade, there has been an explosion in complex derivative instruments, like collateralized debt obligations and credit default swaps, that were intended primarily to transfer risk.

These products are virtually hidden from investors, analysts and regulators, even though they have emerged as being among Wall Street’s most outsized profit engines. They do not trade openly on public exchanges, and financial services firms disclose few details about them.

Used judiciously, derivatives can limit the damage from financial miscues and uncertainty, greasing the wheels of commerce. Used unwisely – when greed and the urge to gamble with borrowed money overtake sensible risk-taking – derivatives can become Wall Street’s version of nitroglycerin.

Bear Stearns’s vast portfolio of these instruments was among the main reasons for the bank’s collapse, but derivatives are buried in the accounts of just about every Wall Street company, as well as those of major commercial banks like Citigroup and JPMorgan Chase. What is more, these exotic investments have been exported all over the globe, causing losses in places as distant from Wall Street as a small Norwegian town north of the Arctic Circle.

For years, this has been the shell game fueling Wall Street while ordinary folks just try to get through the day and pay their bills. Credit has been the currency driving the markets, and as it proved lucrative for US investors, so too did it prove lucrative for foreign investors. As I understand it, 41% of US Treasury bonds are owned by foreign investors. Call me naive, but it seems to me that the addiction to credit isn’t just on Wall Street, it’s in Washington, too.

As I wrote last Sunday, our war in Iraq is being fueled by issuance and purchase of US Bonds. Only US citizens aren’t the only ones buying them. As more debt is piled on more debt, we run the serious risk of having our margins called by the likes of China, Saudi Arabia, and others. In the meantime, the UK markets grow shakier by the minute, and we are all placed at risk of losing what little savings we’ve managed to accumulate, while Lehman executives share 2.5 billion in bonuses, courtesy of Barclays Bank, who skimmed the cream off the soured milk that was a respected investment bank.

Glenn Greenwald echoes my own thoughts on this:

What is more intrinsically corrupt than allowing people to engage in high-reward/no-risk capitalism — where they reap tens of millions of dollars and more every year while their reckless gambles are paying off only to then have the Government shift their losses to the citizenry at large once their schemes collapse? We’ve retroactively created a win-only system where the wealthiest corporations and their shareholders are free to gamble for as long as they win and then force others who have no upside to pay for their losses. Watching Wall St. erupt with an orgy of celebration on Friday after it became clear the Government (i.e., you) would pay for their disaster was literally nauseating, as the very people who wreaked this havoc are now being rewarded.

More amazingly, they’re free to walk away without having to disgorge their gains; at worst, they’re just “forced” to walk away without any further stake in the gamble. How can these bailouts not at least be categorically conditioned on the disgorgement of ill-gotten gains from those who are responsible? The mere fact that shareholders might lose their stake going forward doesn’t resolve that concern; why should those who so fantastically profited from these schemes they couldn’t support walk away with their gains? This is “redistribution of wealth” and “government takeover of industry” on the grandest scale imaginable — the buzzphrases that have been thrown around for decades to represent all that is evil and bad in the world. That’s all this is; it’s not an “investment” by the Government in any real sense but just a magical transfer of losses away from those who are responsible for these losses to those who aren’t.

Which brings me to my point, such as it is. If a bailout of Wall Street is inevitable for our own protection, I want it on my terms. If I have to finance it, I want to do it in a way that’s going to benefit ME, the taxpayer. I want a return on my investment, not more taxes to service the debt owed to China.

Let’s start by making a citizen’s margin call. We actually do have clout, because it’s our 401(k) and pension money fueling the new investments that keep the pyramid on track as we move forward. Let’s tell the government we will make our investments in US bonds which may only be owned by US citizens, earmarked only for the purpose of retiring debt to foreign investors.

Let’s also insist that we don’t act with haste on any bailout of Wall Street. Any emergency measures taken at this time should be just that — emergency measures, for a very short period of time (3-6 months, maximum), while a longer-term plan which includes full disclosure, appropriate sanctions, and full recovery efforts of whatever assets and profits are left to recover.

Finally, there can be no — I repeat, NO — blank check granted for this bailout. No power without oversight, no action without proper accountability and recourse. None. Because it’s worth remembering this important fact, again courtesy of Glenn Greenwald:

What’s most vital to underscore is that the beneficiaries of this week’s extraordinary Government schemes aren’t just the coincidental recipients of largesse due to some random stroke of good luck. The people on whose behalf these schemes are being implemented — the true beneficiaries — are the very same people who have been running and owning our Government — both parties — for decades, which is why they have been able to do what they’ve been doing without interference. They were able to gamble without limit because they control the Government, and now they’re having others bear the brunt of their collapse for the same reason — because the Government is largely run for their benefit.

Lest you doubt, let me remind you that Jeb Bush served as a financial consultant to Lehman from 2007 on. Here’s an added bonus:

Sitting behind McCain was former Gov. Jeb Bush, who was hired a year ago by Lehman Brothers as a financial consultant. As governor, Bush served on the three-member State Board of Administration that agreed to let the state’s retirement fund buy a series of mortgage-backed securities from Lehman Brothers that turned out to be troubled. The subsequent steep drop in value prompted a $9 billion run on the fund last December by local governments who had invested their money in the SBA managed fund. Lehman also manages two funds for the SBA, which is also heavily invested in some Lehman securities.

All I can say to that is that the good people of Florida should really think hard before electing someone Jeb and George endorse, if they hope to keep what little retirement savings they have left.

When I wrote about the bailout bill this morning two things happened. First, I was focused on the staggering, mind-numbing numbers. And second, even though intuition told me there would be something about this plan as insidious as the Patriot Act, I didn’t imagine it to be quite as bold and brazen as it was.

Fortunately, others did. It’s stunning in its audacity and simplicity.

In essence, the bailout as proposed represents the largest transfer of Congressional power to the executive branch in United States History, as well as the shift of public funds into corporate hands. Worse yet, there’s this:

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Read that a couple of times. Let it sink in. The Treasury Secretary has been elevated above the rule of law. In essence, we are being asked to fork up 700 billion dollars to give to the Treasury Secretary with no accountability and no recourse. Imagine that. Then go read all of Larisa Alexandrovna’s article on Huffington Post.

If ever the words “fierce urgency of now” had any meaning, they must have meaning here. They must. Alexandrovna is absolutely right when she calls for us all to stand against this in unison, regardless of party:

You are no longer Republicans, Democrats, or any shade of voter. You do not live in a swing state or a solid colored state. You are simply this: an American. That is the only side that matters. So call your members of Congress and demand, no, declare that unless they do their duty to the Constitution and to us, we will move to the streets – not because we want to, but because our founding fathers demanded this duty of each and every citizen in the face of such a domestic enemy. Demand – as is your right – that this bill be voted against and demand – as is your right – that the people plotting this treachery be held to account. We are either a nation of laws or we are no longer a democracy. Pick a side, because there won’t be another time, another moment, another chance to be a patriot.

She’s right. There is no crisis more urgent, more in need of our attention, than this. Because if we, the people, do not stop this end run around the rule of law and balance of powers, we will live in the dictatorship we deserve.

This is the bookend to the Patriot Act, make no mistake. It’s time to say no.

(Bonus Link)

I wrote these yesterday for someone who was about to have a conversation with the #dontgo folks. Seems like they belong here, with the photos of untainted oceans too.

1. The entire #dontgo movement is nothing more than political grandstanding, given that the absence of action (see this post for more details) unblocks offshore leases.
2. There is no obligation on the part of the oil companies who hold drilling rights on these leases to: a) drill at all; and b) keep the oil drilled inside domestic markets. In fact, with a commodity such as oil, it’s far more likely that the oil would be sold on the open market.
3. Even if the oil companies drill offshore and bring more oil out of the ground, it will have no impact on the prices at the pump, nor is there any guarantee of any impact for a minimum of five to ten years.
4. Refinery output is the bottleneck. We are not able to process what we can drill at this time, and there are no plans on the table to build more refineries.
5. Oil companies own patents to some of the best alternative fuel options, but are not doing anything with them. If they opt to drill offshore and exercise those grants, they should be forced to put the patents in the public domain.
6. If they were truly committed to lower gas prices at the pump, there would be unanimous consent to close the Enron loophole which allows for unbridled price inflation because of unchecked speculation.

Feel free to add to the list in the comments.

This will bring my series of images protesting offshore drilling back to even — one for each day this month.

So that we’re clear here, the entire offshore drilling debate including the smoky #dontgo and #drillheredrillnow initiative is all about heat with very little light.

All of the smoke blown by the Republicans is simply the business of politics. It’s always about taking known advantages and making sure they cast the opponent in the worst light. This is no different.

We all know President Bush lifted the executive order on offshore drilling. What I didn’t know until today was that even if he hadn’t, the bans have to be renewed each year before they expire on September 30th. Traditionally, they’re renewed as a rider to the appropriations bill.

What Bush signalled with the lifting of the bans is that non-renewal would pass through his hands with a nod and a smile. The Democrats don’t have a strong enough majority in the House or the Senate to force attachment of a rider, nor a veto-proof majority when Bush vetoes it.

In other words, releasing those leases was a done deal with no further action from Congress on September 30th.

Do they REALLY wonder why they have such a low approval rating there on Capitol Hill? This should give you a clue. The Republicans are all out there shouting about how Democrats won’t allow a vote, yada yada.

The truth is, no vote is necessary. No action necessary at all. Score one for the bad guys.

Still, for the rest of this month I’ll offer you visual reasons to at least morally, if not politically, oppose offshore drilling.

And I will do everything I can to knock my own Representative, Elton Gallegly, out of office for this and many other ineffective, greedy actions.

Update: GOP spinner ericjodom agrees with my analysis while lifting a quote from this post and altering it to appear as though I’m applauding by moving the quote and changing the word “bad” to “good”, as though that somehow justifies things. As I said in response to him, how utterly Rovian.

Just remember when you hear the new spin that Pelosi and the Democrats are ‘caving in’, that what is really going on is an effort to make something out of a Bush-GOP created situation which has absolutely no bearing on our gas prices or the current oil prices. Exxon John will benefit from the spin, unless educated readers choose to speak out and stop him.