Uncle Sam is turning into Uncle CEO. But will the new corporate suit be a good fit?

By agreeing to bail out insurance giant American International Group Inc. and mortgage lenders Fannie Mae and Freddie Mac, the federal government has put itself in the unprecedented position of running huge private companies. In the case of American International Group, or AIG, the government is now the majority shareholder, acquiring 80% of the company in exchange for lending it as much as $85 billion over two years to keep the business out of bankruptcy as it is dismantled.

But some lawmakers and financial experts wonder whether U.S. officials are up to the task of directing large corporations through such turbulent times. AIG, for instance, has 116,000 employees and does business in about 100 countries. Fannie Mae and Freddie Mac together hold or guarantee $5.4 trillion of mortgages, about half of the nation’s home loans.

“The government does not have a core competency to run an insurance company of the magnitude of an AIG,” said David M. Walker, former head of the Government Accountability Office, the congressional watchdog agency. “It’s clearly not going to be able to effectively manage AIG and do what needs to be done.”

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Decades of saving and hard work as a teacher earned Beverly Welsh what she thought would be a comfortable retirement.

She bought a townhouse in Las Vegas to be near her mother, but the longtime South Pasadena resident continued to spend time in her beloved Southern California. She spoiled her five cats. She took acting classes, landing small parts in a few low-budget films.

Then the bottom fell out of the real estate market and stocks cratered, wiping out a third of her $750,000 net worth over the last two years. Tight on cash, the 76-year-old retiree says she may seek work as a substitute teacher to supplement her dwindling investment income.

“It’s unbelievable how quickly it happened,” Welsh said. “I’m not sleeping well.”

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South Carolina’s jobless rate has hit its highest point in 15 years, forcing the state to write so many unemployment insurance checks that the account is about to go broke.

The state’s unemployment rate spiked to 7.6 percent in August, according to the S.C. Employment Security Commission. Right now, the agency is paying more than $10 million in unemployment insurance benefits every week, about twice as much as in recent years.

The fund has only about $130 million left.

“You do the math,” said Executive Director Ted Halley. “Even if we drop below the 7.6 percent rate, I estimate that it will go broke about the second week in January.”

Money flows into the fund from South Carolina businesses, which pay taxes on the first $7,000 of each employee’s annual salary. Halley said he’s meeting with Gov. Mark Sanford’s office Monday to discuss raising the tax rate.

Read it all from the front page of our local paper yesterday.

An initial confidence that the global crisis would spare France is eroding. A poll taken Wednesday and Thursday of about 1,000 adults and published Friday in Le Figaro found that 80 percent of the French expected “a grave economic crisis” at home. Some 94 percent expected the United States to undergo such a trauma. Sixty-six percent said that Mr. Sarkozy’s government could not protect France from the aftershocks, and only 14 percent that it could.

Eric Le Boucher, an economist and editor, said Thursday that “it’s frustrating for Europeans to think they are paying for the excesses of the American financial system,” according to Jacques Mistral, head of economic studies at the French Institute of International Relations.

Élie Cohen, director of research at the Center for Political Research at the Paris Institute of Political Studies, known as Sciences Po, and a member of the government’s Council of Economic Advisers, was blunter. “There’s certainly an idea that the American financial system has gone crazy,” he said in an interview. “This has dealt a mortal blow to the timid admiration we had of the American system. But not even the most conservative French person is capable of defending it anymore.”

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Is the Catholic Church a beleaguered underdog, fighting for a voice in secular Europe, or a still-mighty power, wielding its influence on European law through friendly center-right governments?

That question, which has been building momentum throughout Pope Benedict XVI’s three-year-old papacy, came mightily to the fore in his recent trip to France.

Yet even as the pope calls for more animated discussion of church and state and more interreligious dialogue, no one, probably not even at the Vatican, expects Europe to become newly devout any time soon. Mass attendance is at record lows, as is the number of priests.

Nor does anyone expect France to overturn its dearly held tenet of “laïcité,” a strict separation of church and state, in spite of the pope’s admonition that secularism leads to nihilism and President Nicolas Sarkozy’s calls for a more “positive laïcité.”

But Benedict’s insistence that religion and politics be “open” to each other ”” coupled with his strong renewal while in Lourdes of the church’s opposition to same-sex couples, communion for the divorced and euthanasia ”” sends a direct message: the church doesn’t want European law to be at odds with church teaching, and he wants Catholics to make some noise about it.

Read it all from yesterday’s New York Times.

“But I am influenced heavily by the impact on relationships-relationship within The Episcopal Church and relationships within the Anglican Communion, if we act now rather than acting AFTER the Pittsburgh Convention has its second reading on the proposed constitutional change. To be sure, there will be a price to be paid whether abandonment is determined now or then-but I think the cost will be considerably higher if we are seen to act precipitously. There is a matter of “good will”, of mercy, as well as justice, which I consider relevant.

“Yes, Duncan intends to abandon within the meaning of the canon-no doubt in my mind whatsoever. But I think the finding of abandonment will be viewed as less unacceptable, less unfavorably, if the diocesan convention has acted the necessary two times, rather than just one. I also believe that we should put the ball back in Duncan’s court-let the decision be his, not ours.

“I also consider it important that we attempt as much as possible to separate what we think and feel about Bob Duncan (and others considering similar moves) from the greater good of Christ’s mission and Church-that is, separate personalities from what, by God’s grace, we can do to promote more effectively both the mission AND the unity of the Church.

“I am anxious to hear the thoughts and opinions of others, but this is where I am at the moment. I am not compelled, or even impelled-but I am inclined to vote no on a finding of abandonment now, and to vote yes on any effort to suspend action until after the Pittsburgh convention acts.

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Under the revised canons, inhibition occurs as soon as the Title IV [disciplinary] Review Committee certifies sufficient grounds to proceed with a hearing. Retired bishops, who by and large have not attended meetings of the House of Bishops in recent years, will lose their status as voting members of the House.

During a press conference sponsored by the American Anglican Council (AAC) shortly after the deposition vote on Sept. 18, the Rev. Philip Ashey, president of the AAC, observed that it was now easier to depose a bishop for abandonment than it is for a bishop to resign or for the House to approve a 10-minute recess during debate. The loosening of procedural safeguards for the accused greatly expands the Presiding Bishop’s curial powers over the church. From its inception right up through its recent submissions to the Covenant Design Group, a curial style of polity is something that most Episcopalians have strongly resisted.

The deposition of Bishop Duncan prior to his actually leaving The Episcopal Church may further future litigation interests against the current diocesan leadership in Pittsburgh, but is likely to “tear the fabric” of the Anglican Communion further. The ham-handed manner in which this deposition was advanced also may diminish the number of conservative delegates to the annual meeting in Pittsburgh who will vote to remain with The Episcopal Church on Oct. 4.

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The Bush administration asked Congress on Saturday for the power to buy $700 billion in toxic assets clogging the financial system and threatening the economy as negotiations began on the largest bailout since the Great Depression.

The rescue plan would give Washington broad authority to purchase bad mortgage-related assets from U.S. financial institutions for the next two years. It does not specify which institutions qualify or what, if anything, the government would get in return for the unprecedented infusion.

Democrats are pressing to require that the plan help more strapped borrowers stay in their homes and to condition the bailout on new limits on executive compensation.

Congressional aides and administration officials are working through the weekend to fill in the details of the proposal. The White House hoped for a deal with Congress by the time markets opened Monday; top lawmakers say they would push to enact the plan as early as the coming week.

“We’re going to work with Congress to get a bill done quickly,” President Bush said at the White House. Without discussing specifics, he said, “This is a big package because it was a big problem.”

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They beat the Cardinals 5-4. I kid you not, I turned on the game and it was 5-0 and about a minute later it was 5-4. I was sweating….

(I am quoting above from the print edition which arrived for us today in the U.S. mail. The subtitle is: They had a party. Now you’re going to pay.)

If you’re having a little trouble coping with what seems to be the complete unraveling of the world’s financial system, you needn’t feel bad about yourself. It’s horribly confusing, not to say terrifying; even people like us, with a combined 65 years of writing about business, have never seen anything like what’s going on. Some of the smartest, savviest people we know ”” like the folks running the U.S. Treasury and the Federal Reserve Board ”” find themselves reacting to problems rather than getting ahead of them. It’s terra incognita, a place no one expected to visit.

Every day brings another financial horror show, as if Stephen King were channeling Alan Greenspan to produce scary stories full of negative numbers. One weekend, the Federal Government swallows two gigantic mortgage companies and dumps more than $5 trillion ”” yes, with a t ”” of the firms’ debt onto taxpayers, nearly doubling the amount Uncle Sam owes to his lenders. While we’re trying to get our heads around what amounts to the biggest debt transfer since money was created, Lehman Brothers goes broke, and Merrill Lynch feels compelled to shack up with Bank of America to avoid a similar fate. Then, having sworn off bailouts by letting Lehman fail and wiping out its shareholders, the Treasury and the Fed reverse course for an $85 billion rescue of creditors and policyholders of American International Group (AIG), a $1 trillion insurance company. Other once impregnable institutions may disappear or be gobbled up.

The scariest thing to average folk: one of the nation’s biggest money-market mutual funds, the Reserve Primary, announced that it’s going to give investors less than 100 cent on each dollar invested because it got stuck with Lehman securities it now considers worthless. If you can’t trust your money fund, what can you trust? To use a technical term to describe this turmoil: yechhh!

There are two ways to look at this. There’s Wall Street’s way, which features theories and numbers and equations and gobbledygook and, ultimately, rationalization (as in, “How were we supposed to know that people who lied about their income and assets would walk away from mortgages on houses in which they had no equity? That wasn’t in our computer model. It’s not our fault”). Then there’s the right way, which involves asking the questions that really matter: How did we get here? How do we get out of it? And what does all this mean for the average joe? So take a deep breath and bear with us as we try to explain how financial madness overtook not only Wall Street but also Main Street. And why, in the end, almost all of us, collectively, are going to pay for the consequences.

Read it all. If you want to know what I meant in my comment below about monocausal explanations, the Time Magazine print cover is exhibit A–KSH.

[BOB] ABERNETHY: And that’s what happened in these cases. People were, traders were encouraged to take big risks and not pay attention to all the costs that there would be for people down the line if those risks didn’t pay off.

Dr. [REBECCA] BLANK: That’s certainly true in part, but I will also say that there was also a culture where what those traders were doing was what everyone in all the cubicles next to them were doing. And, you know, there’s always the question of to what extent is that an excuse — and a justifiable excuse? There were also a lot of people at the very beginning of this, the whole sub-prime crisis that started this off, who saw themselves as providing more funds for low-income families. They were doing a good thing. So motives here are very mixed. I think it’s hard to say this is all about greed.

ABERNETHY: What about justice? Was there injustice involved?

Dr. BLANK: So, you know, we love a world in which the people in the white hats get rewarded, and the people in the black hats pay the price, and that I have to say doesn’t happen very often, particularly in a very complex economy. We’re in a time of panic right now where people have lost trust in what the banks are doing, what the investment firms are doing — lost trust beyond a level of reasonableness, to be honest, and it’s got to be stopped.

Read it all.

The lack of debt relief to the distressed households is the reason why this financial crisis is becoming more severe and the economic recession – with a sharp fall now in real consumption spending – now worsening. The fiscal actions taken so far (income relief to households via tax rebates) and bailouts of distressed financial institutions (Bear Stearns creditors’ bailout, Fannie and Freddie and AIG) do not resolve the fundamental debt problem for two reasons. First, you cannot grow yourself out of a debt problem: when debt to disposable income is too high increasing the denominator with tax rebates is ineffective and only temporary; i.e. you need to reduce the nominator (the debt). Second, rescuing distressed institutions without reducing the debt problem of the borrowers does not resolve the fundamental insolvency of the debtor that limits its ability to consume and spend and thus drags the economy into a more severe economic contraction.

So of the five possible uses of fiscal policy – income relief to households (the 2008 tax rebate), rescue/bailout of financial institutions (Bears Stearns, Fannie and Freddie, AIG), purchase of assets of failed institutions (an RTC-like institution), recapitalization of undercapitalized financial institutions (an RFC-like institution), government purchase of distressed mortgages to provide debt relief to households (an HOLC-like institution) – the last option is the most important and effective to resolve this severe financial and economic crisis. During the Great Depression the Home Owners’ Loan Corporation was create[d] to buy mortgages from bank at a discount price, reduce further the face value of such mortgages and refinance distressed homeowners into new mortgages with lower face value and lower fixed rate mortgage rates. This massive program allowed millions of households to avoid losing their homes and ending up in foreclosure. The HOLC bought mortgages for two year and managed such assets for 18 year at a relatively low fiscal cost (as the assets were bought at a discount and reducing the face value of the mortgages allowed home owners to avoid defaulting on the refinanced mortgages). A new HOLC will be the macro equivalent of creating a large “bad bank” where the bad assets of financial institutions are taken off their balance sheets and restructured/reduced; thus it will be the macro equivalent of the “bad bank” that Lehman tried to create for its bad assets.

—Nouriel Roubini

The numbers really start to get interesting, however, when one looks at the geographical spread of the data, and considers the level of each diocese’s 2007 contribution to the TEC budget. Here is where the data starts to be telling: it shows that Bishop Duncan was deposed by a combination of the dioceses that are the biggest contributors overall to TEC, as well as by those that are in what has been called, in the political arena, the “blue-county corridors.” (Click here for an animated map of how these areas have changed in the presidential elections from 1960 to 2004. Are we surprised?)

Total contributions to TEC by “Yes” dioceses: $20,593,549 (72%)

Total contributions to TEC by “No” dioceses: $ 6,237,162 (22%)

Total contributions by unrepresented dioceses: $ 1,621,881 (6%)

Do you begin to see how TEC is run by the wealthiest players? Only fifty-four percent of the dioceses voted to depose Bishop Duncan, but they contribute 72% of the funds coming to TEC from all the dioceses.

Read it carefully and read it all.